Chief Financial Officer at HP
Thank you and good afternoon, everyone. It's great to connect with all of you again. I want to start where Enrique left off in terms of our performance in the quarter. It was a very strong start to the year. Demand for our technology, favorable trends such as hybrid and powerful innovation across our portfolio, a driving long-term value creation. And you see this reflected in our Q1 results as we delivered across all of our key financial metrics, including growing revenue, operating profit, and EPS.
Let me give you a closer look at the details. Net revenue was $17 billion in the quarter, up 9% nominally and 8% in constant currencies. Regionally, in constant currency Americas declined 1%, EMEA increased 8%, and APJ increased 28%. Demand remained strong creating sustained tailwinds across our businesses. But as Enrique mentioned supply chain constraints remain a top-line headwind for both Personal Systems and Print revenue. These dynamics were particularly impactful to our Print hardware results, which I will talk about in a moment.
Gross margin was 19.9% in the quarter, down 1.3 points year-on-year. The decrease was primarily driven by increased Personal Systems mix and higher cost, including commodities and logistics, partially offset by pricing including currency. Non-GAAP operating expenses were $1.9 billion or 11.1% of revenues. The increase in operating expenses was primarily driven by increased investments in go-to-market, partially offset by lower Personal Systems R&D due to partner funding.
Non-GAAP operating profit was $1.5 billion, up 1.5% and non-GAAP net OI&E expense was $66 million for the quarter. Non-GAAP diluted net earnings per share increased $0.18 or 20% to $1.10 with a diluted share count of approximately 1.1 billion shares. Non-GAAP diluted net earnings per share excludes a net expense totaling $117 million, primarily related to restructuring and other charges, amortization of intangibles, acquisition-related charges, and other tax adjustments, partially offset by non-operating retirement-related credits. As a result, Q1 GAAP diluted net earnings per share was $0.99.
Now let's turn to segment performance. In Q1, Personal Systems revenue was $12.2 billion, up 15% year-on-year. Total units were down 6%, given the expected supply chain challenges, logistics delays, and lower current mix. Despite this, we still grew revenue double-digits, reflecting the strength of Windows demand, favorable pricing, and our mix shift towards higher-value categories like mainstream and premium commercial. As an example, commercial PC Windows units were up over 20% year-on-year.
Drilling into the details, consumer revenue was down 1% and commercial was up 26%. By product category, revenue was up 14% for notebooks, 17% for desktops and 40% for workstations. We also continue to drive double-digit growth across peripherals, gaming and device as a service, each of which are part of what Enrique shared as our focus on creating a more growth-oriented portfolio. Personal Systems delivered almost $1 billion of operating profit, with operating margins of 7.8%. Our margin improved 0.7 points, primarily due to favorable pricing, including currency, product mix, operating expense mix, and partner R&D funding, partially offset by higher commodity costs.
In Print our results reflected our focus on execution and the strength of our portfolio as we navigate the supply chain environment. In Q1 total print revenue was $4.8 billion, down 4% driven by lower Print hardware units and lower supplies revenue. This was partially offset by favorable pricing in hardware and growth in industrial graphics and services. Total hardware units declined 28%, largely due to continued component and logistics constraints, which we now expect to extend into the second half of 2022.
By customer segment, consumer revenue was down 23%, with units down 31%. Commercial revenue grew 9%, with units down 3%, consumer print demand remain solid. However, revenue across both home and office was a gain constrained by the current supply chain and logistics environment. The commercial recovery showed further progress with hardware revenue growth and double-digit increases in both the industrial graphics and large format. We expect to see a gradual and uneven recovery in commercial extending through 2022. Supplies revenue was $3.1 billion, declining 2% year-on-year consistent with our outlook that we provided at our Analyst Day. The decline was driven primarily by further normalization in home printing as expected, partially offset by the gradual recovery in commercial.
We saw momentum in our contractual business with instant ink, once again, delivering double-digit increases in both cumulative subscriber growth in revenues. We also drove managed Print services revenue and total contract value with renewals, TCV up double-digit. Print operating profit was $879 million, declining $119 million and operating margin was 18.2%. Operating margin decreased 1.6 points driven primarily by a tough prior year compare and higher costs, including commodity and logistics costs. This was partially offset by pricing, including currency and improved performance in industrial graphics and 3D.
Now let me turn to our transformation efforts. As we move into the third year of our cost savings program, we remain steadfast in our focus on delivering on our $1.2 billion gross run rate structural cost reduction plan. Our transformation continues to create new capabilities and long-term value creation. In Print, for example, we are modernizing our digital ecosystem by consolidating our software and service [Phonetic] platforms. Our new architecture provides a digital ecosystem, allowing us to develop modern capabilities and services offerings to drive differentiated customer experiences via HP Smart App.
In addition, we are leveraging these digital ecosystem enhancements to streamline and scale our big data platform capabilities, allowing us to gain valuable real-time insights about our customers and business operations. The structural cost savings from our transformation efforts are enabling these types of strategic growth drivers, and we see many more opportunities to drive business enablement through additional software, services, and solutions offerings.
Now let me move to cash flow and capital allocation. Q1 cash flow from operations and free cash flow was strong at $1.7 billion at $1.4 billion, respectively. The cash conversion cycle was minus 33 days in the quarter. This improved eight days sequentially as higher days payable outstanding and lower days sales outstanding was only partially offset by the increase in days of inventory. Significant capital return remains a key part of our capital allocation strategy. In Q1 we returned approximately $1.8 billion to shareholders, which represented 127% of free cash flow. This included $1.5 billion and share repurchases and $271 million in cash dividends. We expect to aggressively buyback shares of at least $4 billion in FY '22 and we remain on track to exceed our $16 billion return of capital target.
Looking forward to Q2 and the rest of FY '22. We continue to model multiple scenarios related to supply availability, logistics constraints, pricing dynamics, and the overall macro environment. In particular, keep the following in mind related to our Q2 and overall financial outlook. We are raising our full-year outlook FY '22 to reflect the strength of our Q1 results and expected strength of our Q2 performance. We expect currency to be about 1% year-over-year headwind for FY '22.
With regard to the financial impact of the unfolding situation in Ukraine, including the current sanctions on Russia, we are factoring in our best assumptions at this time. Recognizing that the situation remains fluid and highly uncertain. In Q2, we expect a negative impact to our topline and bottom line as a result of the sanctions that have been imposed. In total, net of mitigations we have factored in a $0.02 to $0.03 EPS headwind to our Q2 guidance. For the second half of '22 the broad ramifications of the situation in Europe and beyond are uncertain and we are monitoring this closely.
For Personal Systems, we continue to see strong demand for our PCs, particularly in commercial as well as favorable pricing. We expect solid PS revenue growth to continue through fiscal '22 with a further shift towards higher-value categories including commercial, premium, and peripherals. Specifically for Q2, we expect our top-line results to be incrementally constrained by volatile supply chain and logistics environment and also the dynamic macro environment, including the Russia situation all negatively impacting our top-line. In total, we expect a high single-digit decline quarter-on-quarter to Personal Systems revenue. We expect PS margins at the high end of our 5% to 7% long-term range, particularly in Q2.
In Print, we expect solid demand in consumer, favorable pricing, disciplined cost management, and further normalization and mix as commercial gradually improves through 2022. With regard to Print supply chain, we expect similar to what we saw in Q1, component shortages and logistics delays to constrain revenue. We expect the supply chain constraints to continue into the second half of 2022. We now expect Print margins to be at the high end of our 16% to 18% range for FY '22. For Q2, specifically, given the continued hardware constraints we are anticipating, we expect Print margin to be above our 16% to 18% range.
Taking these considerations into account we are providing the following outlook. We expect second-quarter non-GAAP diluted net earnings per share to be in the range of $1.02 to $1.08 and second-quarter GAAP diluted net earnings per share to be in the range of $0.95 to $1.01. We expect FY '22 non-GAAP diluted net earnings per share to be in the range of $4.18 to $4.38 and FY '22 GAAP diluted net earnings per share to be in the range of $3.87 to $4.07. For FY '22, we expect our free cash flow to be at least $4.5 billion. We are making excellent progress against our priorities and I'm confident in our ability to deliver consistent long-term sustainable growth.
I'll stop here. So we can take your questions.