Thank you, Satya, and good afternoon, everyone. This quarter, revenue was $51.9 billion, up 12% and 16% in constant currency. Earnings per share was $2.23 and increased 3% and 8% in constant currency. I'd like to start by discussing the impact of the macroeconomic environment on our results this quarter. First, FX. The U.S. dollar strengthened throughout the quarter, creating an additional headwind beyond what we shared mid-quarter. As a result, for the full quarter, revenue and EPS were negatively impacted by $595 million and $0.04 per share, beyond our expectations shared in April. Next, extended production setdowns in China that continued through May and a deteriorating PC market in June contributed to a negative Windows OEM revenue impact of more than $300 million. And finally, reductions in advertising spend impacted LinkedIn Marketing Solutions and search and news advertising revenue by more than $100 million. In our consumer business, despite those macro challenges, we drove another quarter of share gains for Windows in the PC market and for Edge in browsers. In our commercial business, Q4 was the largest quarter ever for long-term commitments to our platform. And as you heard from Satya, we saw share gains in areas such as data and AI, Dynamics, Teams and security. Against a strong prior year comparable, commercial bookings increased 25% and 35% in constant currency, significantly ahead of expectations. Our record commitment quarter was driven by increases in the number of $100 million-plus Azure and $10 million-plus Microsoft 365 contracts as well as consistent strong execution across our core annuity sales motions.
Commercial remaining performance obligation increased 34% and 37% in constant currency to $189 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 28% year-over-year. The remaining portion which will be recognized beyond the next 12 months, increased 39% year-over-year, and our acuity mix increased 1 point year-over-year to 96%. Microsoft Cloud revenue was $25 billion and grew 28% and 33% in constant currency. Microsoft Cloud gross margin percentage decreased slightly year-over-year to 69%. Excluding the impact from the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage increased roughly 1 point, driven by improvement across our cloud services, partially offset by sales mix shift to Azure.
Now back to total company level. As noted earlier, FX decreased total company revenue by 4 points, 2 points unfavorable to expectations. Additionally, FX decreased COGS and operating expense growth by 2 points, 1 point favorable to expectations.
Gross margin dollars increased 10% and 15% in constant currency, and gross margin percentage decreased year-over-year to 68%. Excluding the impact of the change in accounting estimate and FX, gross margin percentage increased slightly as the improvement in cloud services noted earlier was partially offset by sales mix shift to cloud.
Operating expense increased 14% and 16% in constant currency, driven by increased investments in cloud engineering, LinkedIn and Nuance. OpEx growth included roughly 2 points from the decision to scale down operations in Russia, employee severance and the impact from the Xandr acquisition, which closed in June. At a total company level, headcount grew 22% year-over-year as we continued to invest in key areas such as cloud engineering, LinkedIn, sales and customer deployment, and included roughly 6 points of growth from the Nuance and Xandr acquisitions. Operating income increased 8% and 14% in constant currency, and operating margins decreased year-over-year to 40%. Excluding the impact of the change in accounting estimate and FX, operating margins were relatively unchanged as the improvement in cloud services noted earlier and sales mix shift to higher-margin businesses were offset by the impact of the Nuance acquisition.
Now to our segment results. Revenue from Productivity and Business Processes was $16.6 billion and grew 13% and 17% in constant currency. FX decreased segment revenue $159 million more than expected. When adjusting for the additional FX headwind, overall segment results were in line with expectations. Office commercial revenue grew 9% and 13% in constant currency.
Office 365 commercial revenue increased 15% and 19% in constant currency, in line with expectations, driven by installed base expansion across all workloads and customer segments as well as higher ARPU from continued momentum in E5. Paid Office 365 commercial seats grew 14% year-over-year, driven by our small and medium business and frontline worker offerings, although growth was impacted by some moderation in new deal volume outside of E5, particularly in the small and medium business customer segment. Demand for security, compliance and voice value in Microsoft 365 drove strong E5 momentum again this quarter. E5 now accounts for 12% of our Office 365 commercial installed base.
Office commercial licensing was down 32% and 28% in constant currency, lower than expected, driven primarily by a lower mix of contracts with higher in-period revenue recognition. Office consumer revenue grew 9% and 12% in constant currency, in line with expectations, driven by continued momentum in Microsoft 365 subscriptions, which grew 15% to 59.7 million. Dynamics revenue grew 19% and 24% in constant currency, driven by Dynamics 365, which grew 31% and 36% in constant currency, slightly below expectations due to lower-than-expected growth in new business even as our cloud growth continues to outpace the market. LinkedIn revenue increased 26% to 29% in constant currency, lower than expected as Marketing Solutions was impacted by the slowdown of advertising spend noted earlier.
And Talent Solutions was impacted by weaker online job posts late in the quarter. Segment gross margin dollars increased 12% and 17% in constant currency, and gross margin percentage decreased slightly year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly 1 point, driven by improvement across all cloud services. Operating expense increased 12% and 14% in constant currency, and operating income increased 12% and 19% in constant currency. Next, the Intelligent Cloud segment.
Revenue was $20.9 billion, increasing 20% and 25% in constant currency. FX decreased segment revenue $309 million, more than expected. Excluding the additional FX headwind, segment results were in line with expectations.
Overall, Server products and cloud services revenue increased 22% and 26% in constant currency. Azure and other cloud services revenue grew 40% and 46% in constant currency, about 1 point lower than expected, driven by a slight moderation in Azure consumption growth across customer segments. In our per user business, the Enterprise Mobility and Security installed base grew 21% to over 230 million seats, with some impact from the small and medium business deal moderation noted earlier. In our on-premises server business, revenue decreased 2% and increased 1% in constant currency, ahead of expectations, driven by a greater-than-expected number of contracts with higher in-period revenue recognition. Enterprise Services revenue grew 5% and 8% in constant currency, lower than expected, driven by declines in Microsoft Consulting Services.
Segment gross margin dollars increased 15% and 19% in constant currency, and gross margin percentage decreased roughly 3 points year-over-year. Excluding the impact of the change in accounting estimate, gross margin percentage declined roughly 2 points, driven by sales mix shift to Azure, partially offset by improvements in Azure margins. Operating expenses increased 20% and 22% in constant currency, including roughly 7 points of impact from Nuance. And operating income grew 11% and 18% in constant currency. Now to More Personal Computing. Revenue was $14.4 billion, increasing 2% and 5% in constant currency. FX decreased segment revenue $127 million more than expected. Excluding the additional FX headwind, segment results were below our guidance range, driven by the PC and ad trends mentioned earlier. Windows OEM revenue decreased 2% year-over-year. Despite the deteriorating PC market, we saw share gains again this quarter and volumes remained above pre-pandemic levels.
Windows commercial products and cloud services revenue grew 6% and 12% in constant currency, lower than expected due to some impact from the small and medium business deal moderation noted earlier. Surface revenue grew 10% and 15% in constant currency, driven by commercial sales. Search and news advertising revenue ex TAC increased 18% and 21% in constant currency, lower than expected, driven by the slowdown in advertising spend noted earlier, partially offset by the inclusion of 3 weeks of results from Xandr. And in gaming, revenue declined 7% and 5% in constant currency, in line with expectations. Xbox hardware revenue declined 11% and 8% in constant currency. Xbox content and services revenue declined 6% and 4% in constant currency, driven by lower engagement hours and monetization in third-party and first-party content, partially offset by growth in Xbox Game Pass subscriptions. Segment gross margin dollars were relatively unchanged and increased 4% in constant currency, and gross margin percentage decreased roughly 1 point year-over-year, driven by increased usage of Windows Commercial Cloud services. Operating expenses increased 8% and 10% in constant currency, and operating income decreased 5% and was relatively unchanged in constant currency.
Now back to total company results. Capital expenditures, including finance leases, were $8.7 billion, in line with expectations. Cash paid for PP&E was $6.9 billion. Our data center investments continue to be based on significant customer demand and usage signals. Cash flow from operations was $24.6 billion, increasing 8%, driven by strong cloud billings and collections. Free cash flow was $17.8 billion, up 9% year-over-year.
This quarter, other income and expense was negative $47 million, primarily driven by net losses on investments, including mark-to-market losses on our equity portfolio. Equity market declines drove net investment losses this quarter compared to net investment gains last year, resulting in a negative 3-point impact on EPS growth. Our effective tax rate was approximately 18%. And finally, we returned $12.4 billion to shareholders, up 19% year-over-year through share repurchases and dividends, bringing our total cash returned to shareholders to over $46 billion for the full fiscal year.
Now moving to our outlook. My commentary for both the full year and next quarter does not include any impact from Activision, which we still expect to close by the end of the fiscal year. Let me start with some full year commentary for FY '23.
First, effective at the start of FY '23, we are extending the depreciable useful life for server and network equipment assets in our cloud infrastructure from 4 to 6 years, which will apply to the asset balances on our balance sheet as of June 30, 2022, as well as future asset purchases. Investments in our software that increased efficiencies in how we operate our server and network equipment as well as advances in technology have resulted in lives extending beyond historical accounting useful lives. This change only impacts the timing of depreciation expense in the future for these assets. As a result, based on the outstanding balances as of June 30, we expect fiscal year '23 operating income to be favorably impacted by approximately $3.7 billion for the full fiscal year and approximately $1.1 billion in the first quarter.
This has been included in the guidance we will provide on today's call. Additional details on the mechanics of the change are in our earnings materials. Second, on FX.
Assuming current rates remain stable, we expect a roughly 4-point impact to full year revenue growth with headwinds in H1 greater than in H2. FX should also decrease COGS and operating expense growth by 2 points. Now to our full year business outlook based on the current macro environment. At every level of the company, we manage performance on a constant currency basis, as we have for many years. Therefore, with the FX volatility we have seen, I will comment on full year in constant currency and in U.S. dollars. We continue to expect double-digit revenue and operating income growth in both constant currency and U.S. dollars. Revenue growth will be driven by continued momentum in our commercial business and a focus on share gains across our portfolio. Operating expense growth will be significant early in FY '23 and will moderate materially over the course of the year as we slow the rate of hiring to focus on key growth areas, increase the productivity of prior year headcount investments and anniversary the Nuance and Xandr acquisitions. And even with this significant level of investment in our future, we expect operating margins based on constant currency to be approximately flat year-over-year in FY '23, excluding the benefit from the latest change in useful life. And in U.S. dollars, we expect FY '23 full year margins to be roughly flat as the useful life benefit is mostly offset by the FX headwind mentioned earlier. And finally, we expect our FY '23 effective tax rate to be roughly 19%. Now to the outlook for the first quarter, which unless specifically noted otherwise, is on a U.S. dollar basis. First, FX. With the stronger U.S. dollar and based on current rates, we expect FX to decrease total revenue growth by approximately 5 points and to decrease total COGS and operating expense growth by approximately 3 points. Within the segments, we anticipate roughly 6 points of negative FX impact on revenue growth in Productivity and Business Processes and Intelligent Cloud and 3 points in More Personal Computing. Overall, our outlook has the trends we saw in June continue through Q1. Continued weakness in the PC market demand and advertising spend will impact Windows OEM, Surface, LinkedIn and search and news advertising revenue. Our differentiated market position, customer demand across our solution portfolio and consistent execution across the Microsoft Cloud should drive another strong quarter of revenue and share growth, although we expect to continue to see growth moderation in our small- and medium-sized business segment. In commercial bookings, strong execution across our core annuity sales motions and increased commitment to our platform should drive healthy growth on a flat expiry base. As a reminder, the growing mix of larger long-term measure contracts, which are more unpredictable in their timing, always drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be up roughly 2 points year-over-year, driven by the latest accounting estimate change noted earlier. Excluding the impact of the change in accounting estimate, Q1 gross margin percentage will decrease roughly 1 point, driven by revenue mix shift to Azure and the impact from the Nuance acquisition, partially offset by continued margin improvement in Azure. In capital expenditures, we expect a sequential decrease on a dollar basis, with normal quarterly spend variability and the timing of our cloud infrastructure build-out. Next is segment guidance.
In Productivity and Business Processes, we expect revenue to grow between 12% and 14% in constant currency or US$15.95 billion to US$16.25 billion. 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 sequentially lower by roughly 2 points on a constant currency basis with a bit more FX impact on U.S. dollar growth than at the segment level. In our on-premises business, on a prior year comparable, which benefited from contracts with higher in-period revenue recognition, we expect revenue to decline in the mid- to high 30s. In Office consumer, we expect revenue to grow in the low to mid-single digits, driven by Microsoft 365 subscriptions. For LinkedIn, we expect continued strong engagement on the platform, although results will be impacted by the slowdown in advertising spend and hiring, resulting in low to mid-teens rev growth. And in Dynamics, we expect revenue growth in the mid- to high teens, driven by share growth in Dynamics 365.
For Intelligent Cloud, we expect revenue to grow between 25% and 27% in constant currency or US$20.3 billion to US$20.6 billion. 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. We expect Azure revenue growth to be sequentially lower by roughly 3 points on a constant currency basis. Azure revenue will continue to be driven by strong growth in consumption, and our per-user business should continue to benefit from Microsoft 365 suite momentum, although we expect moderation in growth rates, given the size of the installed base. In our on-premises server business, we expect revenue to decline low single digits, driven by strong demand for our hybrid offerings offset by the prior year comparable, which included benefit from contracts with higher in-period revenue recognition. At Enterprise Services, we expect revenue growth to be in the low single digits, driven by enterprise support, partially offset by declines in Microsoft Consulting Services. In More Personal Computing, we expect revenue to grow between 1% and 4% in constant currency or US$13 billion to US$13.4 billion. In Windows OEM, we expect revenue to decline in the high single digits. Excluding the impact from the Windows 11 revenue deferral last year, revenue would decline mid-teens, reflecting continued weakness in the PC market. In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive growth in the high single digits. In Surface, revenue should decline in the low single digits. Search and news advertising ex TAC should grow in the mid- to high teens, roughly 10 points faster than the overall search and news advertising revenue, driven by growing first-party revenue and the inclusion of Xandr. And in gaming, we expect revenue to decline in the low to mid-single digits, driven by declines in first-party content, partially offset by growth in Game Pass subscribers and consoles. We expect Xbox content and services revenue to decline in the low to mid-single digits.
Now back to company guidance. We expect COGS to grow between 12% and 14% in constant currency or to be between US$14.9 billion and US$15.1 billion and operating expense to grow between 19% and 20% in constant currency or to be between US$13.3 billion and US$13.4 billion. Total company headcount is expected to continue to grow, with 11,000 hires expected to start in Q1, primarily in cloud engineering, LinkedIn, customer deployment and commercial sales. In other income and expense, interest income and expense should offset each other. As a reminder, we are required to recognize mark-to-market gains or losses on our equity portfolio, which can increase quarterly volatility. And we expect our Q1 effective tax rate to be approximately 19%. Finally, as a reminder on Q1 cash flow, we will be making $3.2 billion of tax payments related to the TCJA transition tax and the transfer of intangible property completed in Q1 of FY '22.
In closing, we continue to see strong demand for our products and services and increased commitment to our platform as we remain focused on delivering compelling customer value in this dynamic environment, resulting in continued share gains. As we manage through this period, we will continue to invest in future growth while maintaining intense focus on operational excellence and execution discipline. With that, let's go to Q&A, Brett.