Scott Herren
Executive Vice President & Chief Financial Officer at Cisco Systems
Thanks, Chuck. We delivered solid results in Q1, driven by the prior strategic actions we took to mitigate the supply chain constraints. For the quarter, we reported strong revenue growth and a record non-GAAP operating margin.
Total revenue was $14.7 billion, up 8% year-over-year, at the high end of our guidance range. Non-GAAP net income was $4.5 billion, up 28%. Non-GAAP EPS was $1.11, up 29%, exceeding the high end of our guidance range.
Looking at our Q1 revenue in more detail, total product revenue was $11.1 billion, up 9%; and service revenue was $3.5 billion, up 4%. Networking, our largest product category, drove the increase with 10% growth. Within Networking, the growth was driven by switching, where campus and datacenter were both up double digits on the strength of our Catalyst 9000 and Nexus 9000 offerings. This was partially offset by a decline in wireless.
Security was up 4%, driven by our Zero Trust and threat intelligence, detection and response offerings. Collaboration was up 3% driven by growth in Calling and Contact Center, partially offset by a decline in Meetings. Observability was up 21%, driven by growth across the portfolio, including double-digit growth in ThousandEyes and AppDynamics.
We continue to make progress in our transformation to more recurring revenue based offerings. We saw solid performance in our ARR of $24.5 billion, which increased 5% with product ARR growth of 10%. Total software revenue was $4.4 billion, a 13% increase with software subscription revenue also up 13%. 85% of our software revenue was subscription-based.
Total subscription revenue increased 10% to $6.5 billion, which represents 44% of Cisco's total revenue, an increase of 1 percentage point over last year. RPO was $34.8 billion, up 12% year-over-year. Product RPO increased 14% and service RPO increased 11%. In total, short-term RPO was up 8% to $17.6 billion.
Looking at our product orders by geographic segment, year-over-year, overall product orders declined 20% with the Americas down 19%, EMEA down 13% and APJC down 38%. In our customer markets, Service Provider & Cloud was down 38%, Enterprise was down 26%, and Public Sector was up slightly at 2%.
Total non-GAAP gross margin came in at 67.1%, up 410 basis points year-over-year and 110 basis points above the high end of our guidance range. Product gross margin was 66.5%, up 550 basis points. The increase was driven primarily by productivity improvements, with lower freight, logistics, and component costs. Favorable mix and positive pricing also contributed to the year-over-year improvement. Services non-GAAP gross margin was 69%, up slightly.
Non-GAAP operating margin came in at 36.6%, up 480 basis points and exceeding the high end of our guidance range. This improved leverage was driven by both our strong non-GAAP gross margin and ongoing disciplined cost management.
Shifting to the balance sheet, we ended Q1 with total cash, cash equivalents, and investments of $23.5 billion. We had operating cash flow for the quarter of $2.4 billion, down 40% primarily due to the $2.8 billion tax payment related to prior quarters, which was associated with the IRS tax relief due to the California floods. This quarter we returned $2.8 billion to shareholders, comprised of $1.6 billion for our quarterly cash dividend and $1.3 billion of share repurchases. Consistent with our capital allocation strategy, we are committed to increasing shareholder returns through greater operating leverage, maintaining a higher level of annual share repurchases, and growing our dividend.
We continue to invest organically and inorganically in our innovation pipeline. During Q1, we announced our intent to acquire Splunk, which we expect to close by the end of the third quarter of calendar year 2024, subject to regulatory approvals and customary closing conditions, including approval by Splunk shareholders. In Q1, we also closed several acquisitions, all of which are highly complementary to our internal R&D in line with our strategy to strengthen our position in cloud, security, observability and AI with targeted strategic M&A.
To summarize, we delivered a solid quarter highlighted by topline growth and increased operating leverage that resulted in stronger than anticipated earnings per share. We continue to make progress in our business model shift to more recurring revenue. We remain focused on disciplined expense management without losing sight of the strategic investments necessary to innovate and capitalize on growth opportunities.
Turning to our financial guidance, as Chuck outlined, the bottleneck that we previously saw in the supply chain has now shifted downstream to implementation by our customers and partners. Most of the supply chain constraints are now behind us and both shipment lead times and backlog have largely returned to normal levels.
Q1 product orders declined 20% as our largest customers are implementing elevated levels of product shipments from prior quarters as we delivered orders from our historically high backlog levels. As Chuck mentioned, we believe there are one quarter to two quarters worth of shipped orders awaiting implementation by our customers.
Our revenue guidance assumes, one quarter to two quarters of lower revenue and then a return to more typical sequential growth rates. Consequently, for Q2, we expect revenue to be in the range of $12.6 billion to $12.8 billion. We anticipate the non-GAAP gross margin to be in the range of 65% to 66%. Non-GAAP operating margin is expected to be in the range of 31.5% to 32.5%. And non-GAAP earnings per share is expected to range from $0.82 to $0.84.
For fiscal year 2024, our guidance is updated as follows. We expect revenue to be in the range of $53.8 billion to $55 billion. Non-GAAP earnings per share is expected to be in the range of $3.87 to $3.93. In both our Q2 and full year guidance, we are assuming a non-GAAP effective tax rate of 19%.
I'd like to thank our teams for their focus and execution this quarter. We remain confident in the strength of the business and our ability to capitalize on the key growth opportunities ahead.
I'll now turn it back to Sami, so we can move into the Q&A.
