Ita Brennan
Chief Financial Officer at Arista Networks
Thanks, Jayshree and good afternoon.
The analysis of our Q1 results and our guidance for Q2 '23 is based on non-GAAP excludes all noncash, stock-based compensation impacts, certain acquisition related charges and other nonrecurring items. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release. Total revenue in Q1 $1.351 billion, up 54% year-over-year and well above the upper end of our guidance $1.275 billion to $1.325 billion. We continue to experience improvements in component supply in the quarter, supporting our consistent levels of manufacturing output and some improvement in lead time.
Services and subscription software contributed approximately 13.5% of revenues in the first quarter, down from 15.8% in Q4. This largely reflects an accelerated growth in product revenues while services and software, continue to grow on a more consistent basis. International revenues for the quarter came in at $236 million or 17.5% of total revenue down from 23.5% last quarter. This quarter-over-quarter reduction largely reflected an unusually high contribution from our EMEA and region customers in the fourth quarter. Overall, we continue to see outsized growth in the US, largely due to ongoing domestic strength from our cloud titan customers.
Overall gross margin in Q1 was 60.3%, in line with our guidance of approximately 60%. We continue to recognize incremental supply chain costs in the period, combined with a healthy cloud mix. Operating expenses for the quarter were $257.5 million or 19.1% of revenue, up from last quarter at $235.3 million.
R&D spending came in at $164.8 million or 12.2% of revenue, up from a $153.2 million last quarter. This primarily reflects increased headcount and new product introduction costs in the period. Sales and marketing expense was $75.9 million or 5.6% of revenue compared to $67.4 million last quarter with increased headcount costs and higher variable compensation expenses. Our G&A costs came in at $16.8 million or 1.2% of revenue consistent with last quarter.
Our operating income for the quarter was $556.8 million or 41.2% of revenue. Other income and expense in the quarter was a favorable $17.7 million and our effective tax rate was 21.2%. This resulted in net income for the quarter of $452.5 million or 33.5% of revenue. Our diluted share number was 315.6 million shares resulting in a diluted earnings per share number for the quarter of $1.43, up 70% from the prior year.
Now turning to the balance sheet, cash, cash equivalents and investments ended the quarter at approximately $3.33 billion. In the quarter, we repurchased $82.3 million of our common stock at an average price of $111.9 per share. We have now repurchased $825.5 million or 7.8 million shares at an average price of $106 per share under our current billion dollar Board authorization. This leaves a $174.5 million available to repurchase in future quarters. The actual timing and amount of future repurchases will be dependent on market and business condition, stock price, and other factors.
Now turning to operating cash flow in the first quarter, which generated approximately $275 million of cash from operations in the period reflecting strong earnings performance partially offset by ongoing investments in working capital. DSOs came in at 57 days, down from 67 days in Q4, reflecting a strong collections quarter with good linearity of billings. Inventory turns were 1.3 times, down from 1.6 times last quarter. Inventory increased to 1.7 billion in the quarter, up from 1.3 billion in the prior period, reflecting the receipt of components from our purchase commitment and a slight increase in Switch related finished goods.
Our purchase commitments at the end of the quarter were $2.9 billion, down from $3.7 billion at the end of Q4. We expect this number to continue to decline in future quarters as component lead times improve and we work to optimize our supply position. Our total deferred revenue balance was $1.092 billion up from $1.04 billion in Q4. The majority of the deferred revenue balance is services related and directly linked to the timing and term of service contracts, which can vary on a quarter-by-quarter basis. Our product deferred revenue balance was flat to last quarter. Accounts payable days is 55 days, up from 43 days in Q4, reflecting the timing of inventory receipts and payments.
Capital expenditures in the quarter were $5.6 million. Now turning to our outlook for the second quarter and beyond. As we move through 2023, we expect to resolve the final kinks in the supply chain, allowing for more consistent manufacturing output and improving lead times to our customers. We do however expect this reduced lead times to also result in reduced visibility, customers no longer needing to make purchase decisions so far are in advance of deployment. In addition, we expect some moderation in customer spending, especially with our cloud titan customers following a year of accelerated demand in 2022. All that being said, we believe customer engagement and current deployments across the business, support the current consensus revenue growth rate in 2023 of approximately 26%.
In terms of quarterly trends, you should expect moderating year-over-year growth as the year progresses with more difficult prior year comps. On the gross margin front, beginning in Q2, we expect to see some steady improvement as we consume fewer broker parts and have the opportunity to optimize manufacturing output, while maintaining a healthy contribution from our cloud customers. Now turning to spending and investing. We continue to monitor the overall macro environment carefully while prioritize our investments as we move through the year. This would include a focus on targeted hires in R&D and go to market as the team sees the opportunity to acquire talents.
On the cash front, while we will continue to focus on supply chain and working capital optimization, you should expect some continued growth in inventory on a quarter-by-quarter basis as we receive components from our purchase commitment. With all of this in the backdrop, our guidance for the second quarter based on non-GAAP results and excludes any noncash stock-based compensation impact and other nonrecurring items is as follows. Revenues of approximately $1.35 billion to $1.4 billion, gross margin of approximately 61%, operating margin at approximately 40%. Our effective tax rate is expected to be approximately 21.5%, with diluted shares of approximately 317 million shares.
I will now turn the call back to Liz. Liz?
