Executive Vice President and Chief Financial Officer at NetApp
Thank you, George. Good afternoon, everyone, and thank you for joining us.
Before we go through the financial details, I think it would be valuable to walk you through the key themes for today's discussion: Number one, as George highlighted, we had an outstanding Q1 in a dynamic environment, with all-time Q1 company highs for billings, revenue, gross profit dollars, operating income and EPS, despite an uncertain macro and unprecedented FX headwinds.
Number two, our Public Cloud business had an outstanding quarter with excellent performance by our Cloud Volumes Service offerings from AWS, Azure and Google Cloud, which collectively grew ARR over 100% year-over-year. We also saw improved execution in our Cloud Ops portfolio. Number three, as George mentioned, we continue to see healthy customer engagement and demand trends. Like everyone on this call, we are mindful of the complexity in both the macro backdrop and supply chain. We will remain extremely disciplined in running our business, while continuing to invest in our key strategic initiatives.
And number four, we are reaffirming our full year guidance for revenue, margins, EPS, free cash flow and Public Cloud ARR, even when factoring in a 3 to 4-point revenue headwind from FX, versus the 2-point FX headwind contemplated in our guide provided last quarter.
Now to the details. As a reminder, I'll be referring to non-GAAP numbers unless otherwise noted. In Q1, despite elevated freight and logistical expense, significant component cost premiums and unprecedented FX headwinds, we delivered solid revenue, with both operating margin and EPS coming in above the high-end of guidance. Strong execution yielded Q1 billings of $1.56 billion, up 13% year-over-year.
Revenue came in at $1.59 billion, up 9% year-over-year. Adjusting for the 4-point headwind from FX, billings and revenue would have been up 18% and 13% year-over-year respectively. Our solid Q1 results were driven by broad-based demand across our portfolio and geographies. Our Cloud portfolio continues to positively impact the overall growth profile of NetApp, delivering 3.5 of the 9 points in revenue growth.
Hybrid Cloud segment revenue of $1.46 billion was up 6% year-over-year. Within Hybrid Cloud, we delivered product revenue growth for the sixth consecutive quarter and expect this momentum to continue as we go through fiscal '23. Product revenue of $786 million increased 8% year-over-year. Consistent with growth in Fiscal '22, software product revenue of $476 million increased 15% year- over-year, driven by the value of our ONTAP software and data services. Total Q1 recurring support revenue of $598 million increased 3% year-over-year, highlighting the health of our installed base.
Public Cloud ARR exited Q1 at $584 million, up 73% year-over-year, driven by strength in Cloud Storage services, led by Azure NetApp Files, AWS FSx for ONTAP and Google CVS. Public Cloud revenue recognized in the quarter was $132 million, up 67% year-over-year and 10% sequentially. Recurring support and Public Cloud revenue of $730 million was up 11% year-over-year, constituting 46% of total revenue, a new record for NetApp.
We ended Q1 with $4.2 billion in deferred revenue, an increase of 7% year-over-year. Q1 marks the 18th consecutive quarter of year-over-year deferred revenue growth, which is the best leading indicator for recurring revenue growth. Total gross margin was 67%, in line with our guidance. Total Hybrid Cloud gross margin was 66% in Q1. Within our Hybrid Cloud segment, product gross margin was 50%, including a 2-point year-over-year headwind from FX. Our growing recurring support business continues to be very profitable with gross margin of 93%.
Public Cloud gross margin of 70% was again accretive to the corporate average. The sequential increase in Public Cloud gross margin was driven by improving software mix within our Public Cloud business. We remain confident in our long-term Public Cloud gross margin goal of 75% to 80%, as we continue to scale the business and an increasing percentage of our Public Cloud revenue is driven by cloud and software solutions.
Q1 highlighted the strong leverage in our operating model, with operating margin of 23%, despite the ongoing supply chain and currency headwinds. EPS of $1.20 came in nicely ahead of guidance.
Cash flow from operations was $281 million and free cash flow was $216 million. During Q1, we had strong cash collections while we continued to invest in inventory that included paying substantial premiums for constrained trailing-edge analog parts. This purchasing strategy allowed us to meet as much customer demand as possible but was clearly a headwind to cash flow and gross margins. We are seeing early signs of relief in supply availability. The timing of a full supply recovery remains uncertain, however, as our inventory levels start to normalize, it will be a tailwind to free cash flow as we go through fiscal '23. During Q1, we repurchased $350 million in stock and paid out $110 million in cash dividends. In total we returned $460 million to shareholders, representing 213% of free cash flow. We closed Q1 with $3.4 billion in cash and short-term investments.
Now to guidance. We are reaffirming our fiscal '23 guidance. Our revenue guide of 6% to 8% growth year-over-year now includes 3 to 4 points of FX headwind versus the 2-point headwind assumed in our original guidance provided last quarter. We will continue to grow and invest in our Public Cloud business and expect to exit Fiscal '23 with Public Cloud ARR of $780 million to $820 million. At the ARR mid-point, we expect our Public Cloud segment to drive 4 points of total company revenue growth.
In fiscal '23, we expect gross margin to range between 66% and 67%, as elevated component costs and logistical expenses from supply constraints continue to weigh on product margins. Adding to these product cost overhangs is an additional 1-point from incremental FX headwinds. As you know, the vast majority of our bill of materials is procured in US dollars.
We are cautiously optimistic that supply constraints will ease further in the second half of our fiscal year, reducing our dependence on procuring parts at significant premiums. We should also start to see a benefit from declining prices for our hardware components. While the timing is uncertain, we remain confident that our structural product margins will normalize back to the mid-50s in the fullness of time.
Despite the incremental currency headwinds, we remain committed to driving operating margin of 23% to 24% and EPS of $5.40 to $5.60 for the full year. Like all of you, we are closely monitoring the demand signals and broader macro trends. As George noted, customer engagement and demand remain healthy. However, given the fluidity of the environment, we will continue to be appropriately measured in our outlook and extremely disciplined with our spending envelope. We continue to expect to generate greater than $1.4 billion in operating cash flow and $1.1 billion in free cash flow for the full year.
Now to Q2 guidance. We expect Q2 net revenues to range between $1.595 billion and $1.745 billion, which, at the midpoint, implies a 7% increase year-over-year, including 4-points of currency headwinds. We expect consolidated gross margin to range between 66% and 67% and operating margin to be approximately 23%. We anticipate our tax rate to be between 21% to 22%. And we expect earnings per share for Q2 to range between $1.28 and $1.38 per share. Assumed in our Q2 guidance is net interest expense of $5 million and a share count of approximately 223 million.
In closing, I want to thank the entire NetApp team for the outstanding execution in Q1. As a result, the year is off to a strong start.
I'll now hand it back to Kris to open the call for Q&A. Kris?