Frank Pelzer
Executive Vice President and Chief Financial Officer at F5
Thank you, Francois, and good afternoon, everyone. I will review our Q3 results before discussing our Q4 outlook. We delivered third quarter revenue of $674 million, reflecting a 4% growth year-over-year with 5% product growth. Product revenue represented 48% of total revenue in the quarter, and software represented 55% of product revenue. This is the second quarter in a row where the majority of our product revenue has come from software.
Q3 software revenue grew 38% to $179 million. Systems revenue of $148 million declined 18% year-over-year due to ongoing supply chain challenges and resulting shipment delays. Similar to Q2, we added systems backlog of tens of millions of dollars in Q3. Rounding out our revenue picture, global services delivered $348 million in Q3 revenue, up 2% from the prior year.
Taking a closer look at our software revenue, subscription-based revenue contributed 82% of total software revenue in the quarter, a new high. Term-based subscriptions continue to represent over half of our subscription revenue with smaller but growing contributions from Software-as-a-Service and utility consumption models. Revenue from recurring sources, which includes term subscriptions, Software-as-a-Service and utility-based revenue as well as the maintenance portion of our services revenue totaled 72% of revenue in the quarter. This is another milestone for us and is up from 66% in the year ago period.
On a regional basis, Americas delivered 5% revenue growth year-over-year, representing 57% of total revenue. EMEA declined 7%, representing 23% of revenue, and APAC grew 15%, representing 19% of revenue. I'll remind you that given current supply chain constraints, our geographic revenue distribution in a quarter is not fully indicative of demand for each given region. Enterprise customers represented 70% of product bookings in the quarter. Service providers represented 18% and government customers represented 12%, including 3% from U.S. Federal.
I will now share our Q3 operating results. GAAP gross margin was 80.6%. Non-GAAP gross margin was above our guide at 83.2%. While we continue to experience increased component prices, expedite fees and other sourcing-related costs, our Q3 gross margin reflects some improvement in average selling price on systems in the quarter. We are not ready to say it's a trend, but we are encouraged about the overall direction.
GAAP operating expenses were $436 million. Non-GAAP operating expenses were $367 million. This is lower than our guided range as a result of some investments we delayed in anticipation of potential macro headwinds that did not materialize in the quarter and lower international expenses related to the strengthening dollar.
Our GAAP operating margin was 15.9%. Our non-GAAP operating margin was 28.8%. Our GAAP effective tax rate for the quarter was 18%. Our non-GAAP effective tax rate was 17.4%, largely driven by a nonrecurring benefit associated with the filing of our federal income tax return during the quarter. GAAP net income for the quarter was $83 million or $1.37 per share. Our better-than-guided gross and operating margin performance and lower tax rate contributed to non-GAAP net income of $155 million or $2.57 per share.
I will now turn to cash flow and the balance sheet. We generated $71 million in cash flow from operations in Q3. This is net of more than $30 million of payments to partners related to securing component inventory to support future hardware builds and component expedite fees. Capital expenditures for the quarter were $9 million. DSO for the quarter was 61 days. Similar to last quarter, this is up from historical levels due to back-ended shipping linearity in the quarter resulting from ongoing supply chain challenges.
Cash and investments totaled approximately $757 million at quarter end. During the quarter, we repurchased approximately $250 million worth of F5 shares or approximately 1.5 million shares at an average price of $171 per share. Deferred revenue increased 14% year-over-year to $1.64 billion, up from $1.60 billion in Q2, largely driven by subscriptions and SaaS bookings growth and, to a lesser extent, deferred service maintenance. Finally, we ended the quarter with approximately 6,900 employees.
I will now share our outlook for the fourth quarter. Unless otherwise stated, please note that my guidance comments reference non-GAAP metrics. We expect Q4 revenue in the range of $680 million to $700 million. Our pipeline indicates Q4 demand that would put our software revenue growth towards the high end of our 35% to 40% target for the year. As Francois discussed, however, we are very cognizant of the broader, more cautious environment. And as a result, we see more risk at the top end of our software growth range than there was a quarter ago.
Given the Q3 strength in global services, we now expect global services revenue to grow approximately 1.5% to 2% for the year. We expect Q4 gross margins in a range of 82% to 83%. We are seeing component costs continue to rise and expect that they will be higher still next year. As a result, we implemented an approximately 15% price increase in systems effective July 1.
Given our backlog, we expect it will take some quarters for the price increase to manifest into sustainable gross margin improvements. We estimate Q4 operating expenses of $374 million to $386 million, which would put our FY '22 operating margin at approximately 29%, an improvement of 100 to 200 basis points from our prior outlook. Factoring in the tax rate benefit from Q3, we now expect FY '22 effective tax rate will be approximately 19%. Our Q4 earnings target is $2.45 to $2.57 per share. We expect Q4 share-based compensation $61 million to $63 million.
Finally, as we announced in the earnings press release, our Board authorized an additional $1 billion for our share repurchase program. This new authorization is incremental to the $272 million remaining in the existing program. As we have over the last two years, we expect to continue to balance share repurchases with other strategic uses of cash. This concludes our prepared remarks today.
Operator, would you please open the call to Q&A?