Thank you, Satya, and good afternoon, everyone. This quarter, revenue was $62 billion, up 18% and 16% in constant currency. When adjusted for the prior year's Q2 charge, operating income increased 25% and 23% in constant currency, and earnings per share was $2.93, which increased 26% and 23% in constant currency. Results exceeded expectations and we delivered another quarter of double-digit top and bottom-line growth.
Strong execution by our sales teams and partners drove share gains again this quarter across many of our businesses, as Satya referenced. In our commercial business, strong demand for our Microsoft cloud offerings, including AI services drove better-than-expected growth and large long-term Azure contracts. Microsoft 365 suite strength contributed to ARPU expansion for our office commercial business, while new business growth continued to be moderated for standalone products sold outside the Microsoft 365 suite. Commercial bookings were ahead of expectations and increased 17% and 9% in constant currency on a low expiry base. The strength in long-term Azure contracts mentioned earlier, along with strong execution across our core annuity sales motions, including healthy renewals drove our results.
Commercial remaining performance obligation increased 17% and 16% in constant currency to $222 billion, roughly 45% will be recognized in revenue in the next 12 months, up 15% year-over-year. The remaining portion recognized beyond the next 12 months increased 19%. And this quarter, our annuity mix was 96%. In our consumer business, the PC and advertising markets were generally in line with our expectations. PC market volumes continued to stabilize at pre-pandemic levels [Technical Difficulty] Gaming console market was a bit smaller. As a reminder, my Q2 commentary includes the net impact of Activision from the date of acquisition, inclusive of purchase accounting, integration, and transaction-related expenses. The net impact includes adjusting for the movement of Activision content from our prior relationship as a third-party partner to first-party. At a company level, Activision contributed approximately 4 points to revenue growth, was a 2 point drag on adjusted operating income growth, and a negative $0.5 impact to earnings per share. This impact includes $1.1 billion from purchase accounting adjustments, integration and transaction-related costs, such as severance-related charges related to last week's announcement. FX was roughly in line with our expectations on total company revenue, segment-level revenue, COGS, and operating expense growth. Microsoft Cloud revenue was $33.7 billion, ahead of expectations, and grew 24% and 22% in constant currency. Microsoft Cloud gross margin percentage was 72%, relatively unchanged year-over-year.
Excluding the impact of the change in accounting estimate for useful lives, gross margin percentage increased roughly 1 point, driven by improvement in Azure and Office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand. Company gross margin dollars increased 20% and 18% in constant-currency and gross margin percentage increased year-over-year to 68%. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly 2 points, even with the impact of $581 million from purchase accounting adjustments, integration, and transaction-related costs from the Activision acquisition. Growth was driven by improvement in devices, as well as the improvement in Azure and Office 365 as just mentioned. Operating expenses increased 3% with 11 points from the Activision acquisition, partially offset by 7 points of favorable impact from the prior year Q2 charge. The Activision impact includes $550 million from purchase accounting adjustments, integration, and transaction-related cost. At a company level, headcount at the end of December was 2% lower than a year ago. Operating margins increased roughly 5 points year-over-year to 44%. Excluding the impact of the change in accounting estimate, operating margins increased roughly 6 points driven by the higher gross margin noted earlier, the favorable impact from the prior year Q2 charge, and improved operating leverage through disciplined cost control. Now, to our segment results.
Revenue from Productivity and Business Processes was $19.2 billion and grew 13% and 12% in constant currency, ahead of expectations, primarily driven by better-than-expected results in LinkedIn. Office commercial revenue grew 15% and 13% in constant currency. Office 365 commercial revenue increased 17% and 16% in constant currency, in line with expectations, driven by healthy renewal execution and ARPU growth from continued E5 momentum. Paid Office 365 commercial seats grew 9% year-over-year to over $400 million with installed base expansion across all customer segments. Seat growth was again driven by our small and medium business and frontline worker offerings, offset by the continued growth trends in new standalone business noted earlier. Office commercial licensing declined 17% and 18% in constant currency with continued customer shift to cloud offerings.
Office Consumer revenue increased 5% and 4% in constant currency with continued momentum in Microsoft 355 subscriptions, which grew 16% to 78.4 million. LinkedIn revenue increased 9% and 8% in constant currency, ahead of expectations, driven by slightly better-than-expected performance across all businesses.
In our Talent Solutions business bookings growth was again impacted by weaker hiring environment in key verticals. Dynamics revenue grew 21% and 19% in constant currency, driven by Dynamics 365, which grew 27% and 24% in constant currency with continued growth across all workloads. Bookings growth was impacted by weaker new business, primarily in Dynamics 365 ERP and CRM workloads.
Segment gross margin dollars increased 14% and 12% in constant currency and gross margin percentage increased slightly year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly 1 point, primarily driven by improvement in Office 365.
Operating expenses decreased 5% and 6% in constant currency, with 5 points of favorable impact from the prior-year Q2 charge. Operating income increased 26% and 24% in constant currency. Next, the Intelligent Cloud segment, revenue was $25.9 billion, increasing 20% and 19% in constant currency, ahead of expectations, with better-than-expected results across all businesses. Overall server products and cloud services revenue grew 22% and 20% in constant currency. Azure and other cloud services revenue grew 30% and 28% in constant-currency, including 6 points of growth from AI services. Both AI and non-AI Azure services drove our outperformance. In our per-user business, the Enterprise Mobility and Security installed base grew 11% to over 268 million seats with continued impact from the growth trends in new standalone business noted earlier.
In our on-premises server business, revenue increased 3% and 2% in constant currency, ahead of expectations, driven primarily by the better-than-expected demand related to Windows Server 2012 end of support. Enterprise and partner services revenue increased 1% and was relatively unchanged in constant currency with better-than-expected performance across enterprise support services and industry solutions. Segment gross margin dollars increased 20% and 18% in constant currency and gross margin percentage was relatively unchanged. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly 1 point, driven by the improvement in Azure noted earlier, partially offset by the impact of scaling our AI infrastructure to meet growing demand. Operating expenses decreased 8% and 9% in constant currency, with 9 points of favorable impact from the prior year Q2 charge, operating income grew 40% and 37% in constant currency. Now, to more Personal Computing. Revenue was $16.9 billion, increasing 19% and 18% in constant currency, in line with expectations overall.
Growth includes 15 points of net impact from the Activision acquisition. Windows OEM revenue increased 11% year-over-year, ahead of expectations, driven by slightly better performance and higher monetizing consumer markets. Windows Commercial products and cloud services revenue increased 9% and 7% in constant-currency, below expectations primarily [Technical Difficulty] period revenue recognition from the mix of contracts. Annuity billings growth remains healthy. Devices revenue decreased 9% and 10% in constant currency, ahead of expectations due to stronger execution in the commercial segment.
Search and news advertising revenue ex-TAC increased 8% and 7% in constant currency, relatively in line with expectations, driven by higher search volume, offset by negative impact from a third-party partnership. And in gaming, revenue increased 49% and 48% in constant currency, with 44 points of net impact from the Activision acquisition. Total gaming revenue was in line with expectations of stronger-than-expected performance from Activision was offset by the weaker-than-expected console market noted earlier. Xbox content and services revenue increased 61% and 60% in constant currency, driven by 55 points of net impact from the Activision acquisition. Xbox hardware revenue grew 3% and 1% in constant currency.
Segment gross margin dollars increased 34% and 32% in constant currency with 17 points of net impact from the Activision acquisition. Gross margin percentage increased roughly 6 points year-over-year, driven by higher devices gross margin and sales mix shift to higher-margin businesses. Operating expenses increased 38% with 48 points of impact from the Activision acquisition, partially offset by 6 points of favorable impact from the prior year Q2 charge. Operating income increased 29% and 26% in constant currency.
Now back to total company results. Capital expenditures, including finance leases were $11.5 billion, lower-than-expected due to delivery for a third-party capacity contract shifting from Q2 to Q3. Cash paid-for PP&E was $9.7 billion. These data center investments support our cloud demand, inclusive of needs to scale our AI infrastructure. Cash flow from operations was $18.9 billion, up 69% driven by strong cloud billings and collections on a prior year comparable that was impacted by lower operating income. Free cash flow was $9.1 billion, up 86% year-over-year, reflecting the timing of cash paid-for property and equipment. This quarter, other income and expense was in line with expectations, negative $506 million, driven by interest expense and net losses on investments, partially offset by interest income. Our effective tax rate was approximately 18%. And finally, we returned $8.4 billion to shareholders through dividends and share repurchases.
Now moving to our Q3 outlook, which unless specifically noted otherwise is on a US dollar basis. First FX, based on current rates, we expect FX to increase total revenue and segment-level revenue growth by less than 1 point. And we expect no impact to COGS and operating expense growth. In commercial bookings, strong execution across our core annuity sales motions, including healthy renewals along with long-term Azure commitments should drive healthy growth on a growing expiry base. Microsoft Cloud gross margin percentage should decrease roughly 1 point year-over-year, excluding the impact from the accounting estimate change, Q3 cloud gross margin percentage will be relatively flat as improvement in Office 365 and Azure will be offset by sales mix shift to Azure, as well as the impact of scaling our AI infrastructure to meet growing demand. We expect capital expenditures to increase materially on a sequential basis, driven by investments in our cloud and AI infrastructure and the flip of a delivery date from Q2 to Q3 from a third-party provider noted earlier. As a reminder, there can be normal quarterly spend variability in the timing of our cloud infrastructure build-out. Next to segment guidance. In Productivity and Business Processes, we expect revenue of $19.3 billion to $19.6 billion or growth between 10% and 12%.
In Office Commercial revenue growth will again be driven by Office 365 with seat growth across customer segments and ARPU growth through E5. We expect Office 365 revenue growth to be approximately 15% in constant currency. While it's early days for Microsoft 365 Copilot, we're excited by the adoption we've seen to date and continue to expect revenue to grow over time. In our on-premise business, we expect revenue to decline in the low 20s. In Office Consumer, we expect revenue growth in the mid-to-high single-digits, driven by Microsoft's 365 subscriptions. For LinkedIn, we expect revenue growth in the mid-to-high single digits, driven by continued growth across all businesses. And in Dynamics, we expect revenue growth in the mid-teens, driven by Dynamics 365. For Intelligent Cloud, we expect revenue of $26 billion to $26.3 billion or growth between 18% and 19%. Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability, primarily from our per-user business and from in-period revenue recognition, depending on the mix of contracts. In Azure, we expect Q3 revenue growth in constant currency to remain stable to our stronger-than-expected Q2 results. Growth will be driven by our Azure consumption business with continued strong contribution from AI. Our per-user business should see benefit from Microsoft 365 Suite momentum though we expect continued moderation in seat growth rates given the size of the installed base. In our on-premises server business, we expect revenue growth in the low-to-mid single-digits with continued hybrid demand, including licenses running in multi-cloud environments.
And in the enterprise and partner services revenue should decline approximately 10% on a high prior year comparable for enterprise support services and more Personal Computing, we expect revenue of $14.7 billion, $15.1 billion or growth between 11% and 14%. Windows OEM revenue growth should be relatively flat as PC market unit volumes continue at pre-pandemic levels. In Windows Commercial products and cloud services, customer demand for Microsoft 365 and our Advanced Security Solutions should drive revenue growth in the mid-teens. As a reminder, our quarterly revenue growth can have variability, primarily from in-period revenue recognition, depending on the mix of contracts. In Devices, revenue should decline in the low-double-digits as we continue to focus on our higher-margin premium products. Search and news advertising ex-TAC revenue growth should be in the mid-to-high single-digits, about 8 points higher than overall search and news advertising revenue, driven by continued volume strength. And in gaming, we expect revenue growth in the low 40s, including approximately 45 points of net impact from the Activision acquisition. We expect Xbox content and services revenue growth in the low-to-mid 50s, driven by approximately 50 points of net impact from the Activision acquisition. Hardware revenue will decline year-over-year. Now back to company guidance. We expect COGS between $18.6 billion to $18.8 billion, including approximately $700 million of amortization of acquired intangible assets from the Activision acquisition. We expect operating expenses of $15.8 billion to $15.9 billion, including approximately $300 million from purchase accounting, integration, and transaction-related costs from the Activision acquisition. Other income and expenses should be roughly negative $600 million as interest income will be more than offset by interest expense and other losses. As a reminder, we are required to recognize gains or losses on our equity investments, which can increase quarterly volatility.
We expect our Q3 effective tax rate to be in line with our full-year rate, which we now expect to be approximately 18%. Now, some additional thoughts on the full-fiscal year. First FX, assuming current rates remain stable, we now expect FX to increase Q4 and full-year revenue growth by less than 1 point. We continue to expect no meaningful impact to full-year COGS or operating expense growth. Second Activision. For the full-year FY 2024, we expect Activision to be accretive to operating income, when excluding purchase accounting, integration and transaction-related cost. At a total company level, we delivered strong results in H1 and demand for our Microsoft Cloud continues to drive the growth in our outlook for H2. Our commitment to scaling our cloud and AI investment is guided by customer demand and a substantial market opportunity. As we scale these investments, we remain focused on driving efficiencies across every layer of our tech stack and disciplined cost management across every team. Therefore, we expect full-year operating margins to be up 1 to 2 points year-over-year, even as AI capital investments drive COGS growth. This operating margin expansion excludes the impact from the Activision acquisition and the headwind from the change in useful lives last year.
In closing, we are focused on execution. So our customers can realize the benefits of AI productivity gains as we invest to lead this AI platform wave. With that, let's go to Q&A, Brett.