Palo Alto Networks Inc (NYSE: PANW) Q2 2021 earnings name dated Feb. 22, 2021.
Presentation:
Karen Fung — Senior Director, Investor Relations
Good afternoon and thanks for becoming a member of us on at this time’s convention name to debate Palo Alto Networks’ Fiscal Second Quarter 2021 Monetary Outcomes. I’m Karen Fung, Senior Director of Investor Relations. This name is being broadcast reside over the net and could be accessed on the Buyers part of our web site at traders.paloaltonetworks.com.
With me on at this time’s name are Nikesh Arora, our Chairman and Chief Govt Officer; Luis Visoso, our Chief Monetary Officer; and Lee Klarich our Chief Product Officer.
This afternoon we issued a press launch saying our outcomes for the fiscal second quarter ended January 31, 2021. If you want a replica of the discharge, you may entry it on-line on our web site.
We want to remind you that throughout the course of this convention name, administration will probably be making forward-looking statements, together with statements concerning the affect of COVID-19 and the SolarStorm on our enterprise, our clients, the enterprise in cyber safety {industry} and world financial situation, our expectations associated to monetary steering, working metrics and modeling factors for the fiscal third quarter fiscal 12 months 2021 and 2022, our intent to accumulate Bridgecrew, our intend to be carbon-neutral by 2030, our expectations concerning our enterprise methods each in fairness construction for the ClaiSec enterprise and the car for workers to spend money on such fairness, our aggressive place and the demand and market alternative for our merchandise and subscriptions, advantages and timing of recent merchandise, options and subscription choices in addition to different monetary and working developments. These monetary wanting — these forward-looking statements contain a lot of dangers and uncertainties, a few of that are past our management, which might trigger precise outcomes to vary materially from these anticipated by these statements. These forward-looking statements apply as of at this time. You shouldn’t depend on them as representing our views sooner or later and we undertake no obligation to replace these statements after this name. For extra detailed description of things that would trigger precise outcomes to vary, please confer with our quarterly report on Type 10-Q filed with the SEC on November 19, 2020 and our earnings launch posted a couple of minutes in the past on our web site and filed with the SEC on Type 8-Okay.
Additionally please observe that sure monetary measures we use on this name are expressed on a non-GAAP foundation and have been adjusted to exclude sure prices. For historic durations, we have now supplied reconciliations of those non-GAAP monetary measures to GAAP monetary measures within the supplemental monetary data that may be discovered within the Buyers part of our web site positioned at traders.paloaltonetworks.com.
And at last, as soon as we have now accomplished our formal remarks, we will probably be posting them to our Investor Relations web site beneath the Quarterly Outcomes part. We’d additionally like to tell you that we’ll be nearly taking part within the Morgan Stanley 2021 TMT Convention on March 2. Please additionally see the Buyers part of our web site for extra data of our conferences we could also be taking part in.
And with that I’ll flip the decision over to Nikesh.
Nikesh Arora — Chief Govt Officer and Chairman
Thanks, Karen. Good day, everybody. I do know Walter Pritchard you’re listening in. Get pleasure from your final earnings name from the opposite facet. Subsequent quarter, Walter will be a part of us at this finish as our new Senior Vice President of Investor Relations and M&A Finance.
Shifting onto the quarter. Let me begin with SolarStorm which a lot of you’re describing as one of the vital severe and complex cyber assaults in historical past. The SolarStorm attacked highlighted that enterprises want a complete upto date map of their full IT infrastructure setting, together with understanding their very own networks in addition to exterior assault providers and provide chains. To ensure that safety groups to have an edge over the adversaries, they should embrace subsequent technology applied sciences that leverage AI, machine studying and automation. To assist our clients, we set fast response program and after I say fast it was fast.
Our acquisitions of Expanse and Crypsis virtually fell exact. The staff swung into motion. We up to date XDR for all the brand new menace vectors. We provided free assessments from our Crypsis staff. We additionally evaluated the assault surfaces from the skin and for Expanse and found that there have been dozens of effected clients together with main authorities companies and enormous firms. A lot of which we’re actively speaking with SolarStorm malware command and management infrastructure. To date we’ve obtained over 1,000 evaluation requests and have accomplished over 500. We consider that the SolarStorm attacked raises the mid and long-term criticality of the cyber safety {industry} as an entire. This resulted extra consciousness and focus of cyber safety which an in all candor is the necessity of the hour, given the whole reliance of know-how in these occasions. We count on that this assault will probably be a get up name to all enterprises to modernize cyber safety and can function a web incremental tailwind not only for us but in addition for the {industry}.
Earlier than I flip to our fiscal Q2 2021 outcomes, I’ve an admission to make. Maybe I used to be too cautious on the outset of the pandemic. The present sustained efficiency, resilience of our groups and execution has been turning extra optimistic. We had an excellent second quarter, the sturdy enterprise momentum because the group executed throughout all platforms and techniques. Consequently we beat Q2 steering and consensus. Listed below are some highlights. We delivered billings of $1.2 billion, up 22% year-over-year, a robust progress throughout the board. Let me offer you some extra context. On account of COVID, we have now supplied the billing plans to a choose variety of impacted clients. When adjusting for these billing plans, our billings momentum would have been a number of share factors stronger in Q2 than the reported 22% year-over-year progress. This development has been in place and has been going over the previous few quarters.
Consequently, our income progress is increased than billings progress and accelerated to 25%, reaching $1 billion for the primary time ever. Sure, our first $1 billion income quarter with accelerating income progress. The energy has been throughout the board. And as we proceed down the trail of increasingly more of a subscription-based mannequin, the income predictability will proceed to rise.
Non-GAAP EPS was $1.55, up $0.36 from final 12 months. EPS enlargement was pushed by income progress and working expense leverage. Whereas there continues to be helpful impacts to the decrease journey on account of COVID, we do proceed to rent assets to help our product enlargement which we count on to proceed. Free money circulation margin for the quarter was 32.7%. Within the first half of fiscal 12 months 2021, we generated $838 million in free money at a margin of 42.7%. We nonetheless count on free money circulation to normalize for the 12 months round our full 12 months steering on account of some seasonality we see within the second half.
Final quarter we began the dialog round community safety and cloud and AI, and shared the P&L for each companies. We obtained nice suggestions on the extra transparency and we need to proceed to drive extra transparency to unlock shareholder worth. Let’s first take a deep dive into the Community Safety enterprise, which we’re calling NetSec. Our NetSec enterprise is present process a metamorphosis in direction of software program and SaaS, making it extra predictable and sustainable. Beginning with our {hardware} firewall enterprise and related providers, slightly than constructing options solely as {hardware}, we’ve chosen to supply safety providers as a software program subscription.
During the last two years we have now doubled our safety subscriptions help [Phonetic] with the introduction of DNS, SDRAM, IoT and DLP. We’re seeing nice progress with DNS which has acquired practically 5,000 clients since launch. The brand new subscriptions, together with the introduction of upper tier help, Platinum help has allowed us to extend our next-generation firewall help and safety subscription income as a share of next-generation firewall {hardware} income during the last 12 months. As you may see we sustained 15% CAGR in {hardware}, subs and help. And our {hardware} contribution has gone from 39% to 29% in that point. To proceed to drive software program progress, we have now made these subscriptions obtainable throughout all type elements. Firewall Flex and Prisma Entry 2.0. We only recently accomplished the method of constructing it obtainable on our product Prisma Entry 2.0 which is our firewall within the cloud.
Turning to our software program firewall. We proceed to see a metamorphosis software program type elements. With the introduction of superior options cloud native integrations and the event {industry}’s first containerized next-generation firewall, we proceed to see product market match. Consequently VM and CN collection grew over 60% within the first half of FY ’21. We just lately launched Firewall Flex, one other {industry} first, distinctive strategy in how we provide digital firewalls in CM collection to extend buyer flexibility and allow a consumption mannequin to drive extra progress. This new versatile consumption fashions options credit score primarily based licensing, that permit’s you eat VM and CN collection firewalls, select a lot of CPUs wanted and add all or any of our eight safety subscriptions simply beforehand by no means recognized [Phonetic]. We consider that by offering better flexibility to our clients, we’ll proceed to drive progress and obtain better subscription connect charges.
To spotlight how our software program firewalls are reworking, our clients strategy safety, we shut the cope with a number one telecommunications firm to safe their 5G community. The transition to 5G is driving a lot of essential architectural modifications together with a extremely distributor design, include as the inspiration and safety for enterprise clients as a essential enterprise driver. We’re first to ship enterprise and repair supplier to class 5G and include our safety. In doing so, we empower our clients to supply a safe 5G service to their clients and supply managed safety choices to their enterprise and clients.
Now let’s discuss Prisma Entry. When COVID dramatically modified how work will get accomplished, the businesses throughout industries all over the world, the wants for securing a distant workforce have additionally modified. Now not is it enough to have partial entry to purposes or what was typically referred to as adequate safety. In a single day, connectivity to each utility was wanted, safety grew to become enterprise essential and person expertise decided the distinction between sustaining productiveness or falling behind. Even earlier than COVID accelerated this variation, we have been already engaged on turning Prisma Entry into an industry-leading resolution for enabling a secured distant workforce. What initially began as the worldwide product cloud service began to remodel in 2019 with the launch of Prisma Entry. Within the final 12 months and a half, we’ve constructed out industry-leading capabilities in that timeframe, Prisma Entry has gone from lower than 150 clients now practically 1,000 clients and 30% of the Fortune 100.
Final week we introduced Prisma Entry 2.0. The most important updates is introducing this service. Prisma Entry is the total safety platform within the cloud. The machine studying primarily based safety stopping alone threats in line at line pace. A full firewall delivered as a service and contains options like Zero Belief Community Entry, Safe Internet Gateway, CASB, DLP and IoT safety. Prisma Entry secures each internet and non-web apps. For example, typical internet safety approached to cloud ship safety, misses 53% of all distant workforce threats that satisfaction over non-Internet apps. These threats can’t be ignored and in contrast to alternate resolution available in the market, we stop them with Prisma Entry. We’ve fully re-imagined the way in which clients handle Prisma Entry with a wholly new cloud-based UI, that delivers higher safety outcomes for construct and safety evaluation. The brand new digital expertise administration add on supplies native end-to-end visibility and perception to SASE and the flexibility to self heal when digital experiences issues happen.
Prisma Entry is constructed on a low latency and extremely scalable infrastructure as Google Clouds backlog. Lastly Prisma Entry together with the Prisma SD-WAN, our re-branded product from CloudGenix delivers a whole SASE providing. The current addition of CloudBlades, we now have a SASE platform, which permits for an API platform for seamless third celebration service integration. Prisma Entry securely allows entry to all purposes and generally known as best-in-class safety to satisfy enterprise safety wants with out compromise and allows person expertise that maintains and even enhance employee productiveness. In Q2 we closed an eight determine cope with a number one know-how firm with over 100,000 workers with companies over 100 nations. as a part of the digital transformation, the corporate was launching new distant work initiative. As a way to understand a imaginative and prescient, they wanted a safe and optimize community that can help a versatile distant work setting. Palo Alto Networks was in the end chosen forward of a number of of our safety friends as a buyer supply as the one vendor that was providing, a real SASE resolution. Finally Prisma Entry was the important thing product, given the purpose [Phonetic] to quickly allow distant work, however the buyer additionally bought next-generation firewalls, VM collection firewalls enhanced their sole capabilities by way of Cortex XDR and XSOAR. This was undoubtedly throughout platform deal to be happy with and we sit up for an excellent partnership with the client going ahead.
Lastly a number of of you’ve gotten requested up to now a few software program transition with the related economics. Whereas the primary part of VM and Prisma Entry purchases have principally been incremental use instances. We put collectively just a few key examples on what we see available in the market when a buyer does select to switch the hardware-based safety resolution with software program or SaaS. The use instances are VMs changed {hardware} firewalls like this instance of an area retail retailer working software program firewalls of third-party {hardware} together with different software program purposes. We estimate that the five-year income of the VM collection deal is roughly equal with that of deal that deploy a separate bodily measured [Phonetic] firewall. To be used instances the place Prisma Entry changed {hardware} firewalls, we took a typical department workplace use case and estimated five-year income for the Prisma Entry deal is 2 occasions bigger than our next-generation firewall did. From a buyer perspective, we estimate the client’s complete value of possession is usually decreased as we transfer to digital and cloud ship type elements. As you already know Prisma Entry is simply a 12 months previous. So our gross margins aren’t as favorable as {hardware}, however we count on them to enhance over time.
Now transferring over wanting and taking a look at our Cloud and AI enterprise. We began this name by discussing SolarStorm, however I didn’t discuss our personal expertise with an tried SolarStorm assault. Again in December we shared with the broader safety group that Cortex XDR immediately blocked a SolarStorm try on Palo Alto Networks. Because of the behavioral menace safety functionality. We proceed to be bullish on the fast tempo of innovation that’s going into our Cortex XDR product. In truth Cortex XDR was just lately acknowledged by AV-Comparatives as a strategic chief within the newest Endpoint Prevention in Response Analysis. Whereas nonetheless delivering decrease complete value of possession, than a number of Endpoint Safety friends. Importantly final month Cortex XDR and Knowledge Lake achieved FedRAMP average authorization which ought to make it a key piece of know-how within the federal area. As additional validation of our imaginative and prescient, we see increasingly more gamers within the endpoint safety area dashing to leap on the XDR that we have now established two years in the past.
General we proceed to see the Cortex portfolio creating because the {industry}’s first observe safety platform and we see penetration into the most important firms proceed to develop. 35% of World 2000, 66% of the Fortune 100 on our Cortex clients, indicating that automation superior menace safety are high of thoughts for these clients. In Q2, we closed the cope with a retailer. The corporate selected Cortex XDR to extend visibility management and safety of the endpoints by adopting a extra full resolution with XDR, slightly than utilizing EDR. The Cortex XDR help for cellular, the purchasers are additionally in a position to simply lengthen Cortex XDR to extra units leveraged on facet of their shops to unify the endpoint safety coverage throughout the whole enterprise.
We then expanded the dialog with [Indecipherable] operational challenges by demonstrating how Cortex XSOAR’s out of the field pre-processing guidelines and alert de-duping might scale back server [Phonetic] volumes dramatically. With the mix of enhanced visibility, safety and management for the whole endpoint of state coupled with automating and orchestrating alert quantity, the Cortex platform could have a restricted affect on this new buyer.
Switching to Prisma Cloud. Prisma Cloud is constructing probably the most complete and better of breed cloud native safety platform. And we proceed to see sturdy buyer curiosity. Prisma Cloud has now acquired over 2,000 clients with 74% of the Fortune 100 and secures 2.5 billion cloud workloads. We additionally proceed to see a rise in Prisma Cloud clients who’re utilizing each cloud safety posture administration and cloud workload safety for containers and repair like purposes now at 50%. Moreover, final month Prisma Cloud additionally achieved FedRAMP modernization together with Cortex XDR and Knowledge Lake as we stated. This enables US authorities clients to leverage our visibility compliance and governance capabilities for securing multi cloud and GovCloud deployment.
The final right here, I want to spotlight is the most important Prisma Cloud deal that we’ve ever closed. An eight determine cope with the main SaaS firm. Like many within the {industry}, they’re transferring from a non-public cloud setting to the general public cloud. As a part of this shift and transferring to a containerized utility structure, the client had distinctive scalability, availability and vulnerability necessities for securing the containers throughout AWS, GCP and Azure Cloud. The maturity, the superior vulnerability detection of the container safety capabilities and the scalability of runtime safety of Prisma Cloud helped persuade the client to decide on Prisma Cloud as their container safety platform of alternative.
Final week we introduced our intent to accumulate Bridgecrew. An early pioneer of safety for the developer group. The following massive problem we’re taking over in cloud safety is what’s knwon as shift left safety. Builders are taking part in an more and more necessary function in cloud safety, each when it comes to what merchandise are used and the way they’re operationalized. As we speak a single error in improvement could be replicated tons of of occasions over leading to 1000’s safety [Indecipherable] defects. This drives down productiveness and improve the probability of safety points in manufacturing utility. Shift left integrates safety into the DevOps course of to catch these points upfront the place they’re straightforward and fast to repair. It’s a win for builders within the infra safety, which to acknowledge the necessity for shift left safety and pioneering strategy, the infrastructure is code designed for builders. To have interaction the developer group they launched an open supply product or take a look at that was downloaded over 1 million occasions final 12 months. And a paid for product gaining early traction. After we deliver community safety and Cloud ARR collectively, we see large synergies, energy the platform with Palo Alto Networks. our World 2000 clients we see that these clients are more and more adopting Strata, Prisma and Cortex. 68% of our World 2000 clients have bought multiple platform, up from 62% a 12 months in the past and 56% two years in the past.
Given the momentum that we’re seeing, we’re elevating steering for the total fiscal 12 months. For fiscal 2021 and on the midpoint of information, we count on complete income progress of twenty-two%, up 200 foundation factors from our prior information. Whole billings was a 20%, up 100 foundation factors from our prior steering, barely decrease than our income is because of the affect of billings plans as we mentioned earlier. We proceed to count on subsequent technology safety ARR at $1.15 billion, up 77% year-over-year. Product income is flat year-over-year, unchanged from our prior steering. Lastly non-GAAP working margin of fifty foundation factors and adjusted free — of adjusted free money circulation of 25% unchanged from our prior steering as we proceed to take a position to seize the chance available in the market.
Now let’s assessment our fiscal 12 months projections for NetSec & ClaiSec. General, we’re confirming our ClaiSec projections whereas elevating NetSec billings by 100 foundation factors and income by 200 foundation factors given the sturdy efficiency of SASE and VM collection. Shifting on to adjusted free money flows. We count on community safety will ship free money circulation margin of 41% FY ’21, up from 38% in FY ’20. We count on Cloud and AI free money circulation margin of unfavourable 43% in FY ’21 and improved from unfavourable — enchancment from unfavourable 59% at ’20. As talked about final quarter, for the following few years, we count on Cloud and AI to attain gross working and free money circulation margins in step with {industry} benchmarks as we will scale and our buyer base matures and grow to be extra environment friendly.
As you may see, we have now been in a position to dig deeper and align our assets additional with our enterprise areas of ClaiSec and NetSec. And as I famous earlier, there are large synergies within the energy of the platform at Palo Alto Networks. On the identical time we’ve additionally been rising our give attention to our software program transformation with {hardware} firewalls whereas constructing new Cloud and AI enterprise. To proceed this transformation and strengthen our monetary profile, we really feel that we will create extra focus by aligning the groups in our NetSec and ClaiSec. So we’re formally going from three speedboats of aligning our efforts on these two enterprise areas with six centered efforts as speedboats in our subsequent fiscal 12 months. NetSec, we’re centered on driving this transformation from {hardware} to software program and delivering a best-of-breed {hardware} decision as acquired. As you noticed this transformation is definitely financially impartial to web optimistic for us and all the time helpful to our clients. The speedboats right here will probably be firewalls together with digital firewalls, SASE and our rising safety subscriptions.
ClaiSec, the enterprise space we drive cloud safety and our Cortex efforts have confirmed that with focus and an opportunistic natural and inorganic technique, we will create an industry-leading set of options for cloud safety and options like XSOAR and XDR pushed by AI and MO [Phonetic]. Right here we want continued funding for us to drive buyer scale and for us to proceed to spend money on each continued product improvement and buyer adoption. We’ll accomplish that by persevering with our give attention to Cortex, Prisma Cloud and Palo Alto Networks incident response providers, the newly shaped staff combining Crypsis Unit [Phonetic] 42 which Wendy Whitmore has joined to assist lead. We’re additionally excited to announce that with the Board’s consent, we’re finalizing the submitting wanted for an fairness construction for the ClaiSec enterprise. Our purpose is to ensure that the worth of the ClaiSec enterprise is extra clear. As well as the Board accepted the event of a car for workers to traders like ClaiSec fairness strengthening the alignment to shareholders and the curiosity of workers concerning the success of our ClaiSec enterprise.
Lastly I’m additionally proud to say that Palo Alto Networks just lately made a dedication to deal with local weather change which Luis will go over in additional element round how we will probably be carbon-neutral by 2030.
With that permit me flip the decision over to Luis.
Luis Visoso — Chief Monetary Officer
Thanks Nikesh. Local weather change is an existential menace and at Palo Alto Networks, we’re all in to do our half to deal with this disaster. We’ve accomplished some necessary work up thus far, together with letter [Phonetic] dedications, recycling and group involvement. We plan to step up our efforts and contribute much more. I’m happy with our dedication to be Carbon-Impartial by 2030. We’ve already activated renewable power and top quality carbon offset methods. We’ll be lowering our emissions aligned to science-based targets and we’ll work throughout our price chain to have lasting affect and [Indecipherable]. Enterprise [Phonetic] settlement brought on on all of us to restrict world warming under two levels celsius by 2050. We plan to achieve our commitments by 2030. We’ll maintain you knowledgeable of progress alongside the way in which. We’ll proceed to take part within the Carbon Disclosure Mission and begin sharing plans and progress — and progress utilizing protocol set by the duty pressure on climate-related monetary disclosures. Throughout the World Financial discussion board Davos Agenda final month, we dedicated to extend transparency by reporting on the worldwide enterprise councils, stakeholders capitalism metrics over time. It should take creativity, collaboration and visionary pondering to guard our planet and we’re up from the problem. We name on others to hitch us, take into account aligning to the enterprise settlement and make your dedication to do your half.
Now, turning on — turning to our financials. As Nikesh indicated, we had an excellent second quarter and we proceed to ship profitable innovation and including new clients at a quick tempo. This energy offers us confidence to lift our steering for the 12 months. I want to begin with our efficiency in Firewall as a Platform or FwaaP which had an excellent quarter as we proceed to develop quicker than the market. FwaaP billings grew 21% in Q2 as we proceed to transition from {hardware} to software program and SaaS type elements. As you may see FwaaP billings declined 3% in Q2 ’20 and during the last 4 quarters, we’ve been in a position to drive sustained execution and progress on this space to 21% in Q2 ’21.
Subsequent-generation safety or NGS continues to increase and now represents 1 / 4 of our complete billings at $309 million, rising 59% year-over-year. In Q2, we added over $120 million in new NGS ARR reaching $840 million. Let me remind you, at our Analyst — our final Analyst Day in September of 2019, NGS was a [Indecipherable] and we name for $1.75 billion in billings by 2022. We’re on observe to beat these numbers.
In Q2, complete income grew 25% to $1.0 billion. progress by geography, the Americas grew 27%, EMEA grew 24% and APAC grew 14%. Q2 product income of $255 million elevated 3% in comparison with the prior 12 months. Q2 subscription income of $462 million elevated 35%. Assist [Phonetic] income of $300 million elevated 32%. In complete, subscription and help income of $762 million elevated 34% and accounted for 75% of complete income. Excluding income from Crypsis and Expanse, subscription and help income elevated 31%.
Turning to billings. Q2 complete billings of $1.2 billion web of acquired deferred income elevated 22%. Energy was broad primarily based as we proceed to see sturdy execution throughout the corporate. In greenback weighted contract length for brand new subscriptions and help billings within the quarter have been barely down year-over-year, however remained at roughly three years. For the primary half of fiscal ’21 billings of $2.3 billion elevated 21% year-over-year. Product billings have been $495 million, up 3% and accounted for 22% of complete billings. Subscription billings have been $1.2 billion, up 23%. Assist billings have been $733 million, up 34%. Whole deferred income on the finish of Q2 was $4.2 billion, a rise of 30% year-over-year. Remaining efficiency obligation or RPO was $4.6 billion, a rise of 41% year-over-year. Along with including roughly 2,400 new clients within the quarter, we proceed to extend our pockets share of present clients. Our high 25 clients, all of whom made a purchase order this quarter, spend a minimal of $59 million in lifetime worth by way of the top of fiscal Q2 ’21, a 27% improve over the $46 million within the comparable prior-year interval.
Q2 gross margin was 75.3%, which was down 110 foundation factors in comparison with final 12 months, primarily pushed by the next mixture of our NGS merchandise that are much less mature. Q2 working margin was 19.8%, a rise of 190 foundation factors year-over-year. The working margin enlargement is pushed by working expense leverage, behind operational efficiencies, decrease journey and occasion bills on account of COVID which greater than offset the incremental funding in headcounts. We ended the second quarter with 9,038 workers together with a 176 from Expanse on the shut of the acquisition.
On a GAAP foundation for the second quarter web loss elevated to $142 million or $1.48 per diluted — per primary and diluted share. Non-GAAP web earnings for the second quarter elevated 28% to $154 million or $1.55 per diluted share. Our non-GAAP efficient tax charge for Q2 was 22%.
Turning to money circulation and stability sheet gadgets. We completed January with money, money equivalents and investments of $4 billion. On December 4, 2020, our Board of Administrators licensed a rise to our share repurchase program and prolonged the expiration date to December 31, 2021. As of January 31, 2021, $1 billion remained obtainable for repurchases. Q2 money circulation from operations of $365 million elevated by 19% year-over-year. Free money circulation was $332 million, up 29% at a margin of 32.7%. DSO was 60 days. a rise of three days from prior-year interval.
Turning now to steering and modeling factors. For the third quarter of 2021, we count on billings to be within the vary of $1.22 billion to $1.24 billion, a rise of 20% to 22% year-over-year. We count on income to be within the vary of $1.05 billion to $1.06 billion, a rise of 21% to 22% year-over-year. We count on non-GAAP EPS to be within the vary of $1.27 to $1.29, which contains web bills associated to the proposed acquisition of Bridgecrew, utilizing a 100 million to 102 million shares. Moreover, I’d like to supply some modeling factors. We count on our Q3 non-GAAP efficient tax charge to stay at 22%. Capex in Q3 will probably be roughly $30 million to $35 million.
As Nikesh reviewed earlier, for the total fiscal 12 months, we’re once more elevating our steering throughout most metrics. We count on billings to be within the vary of 5.13 billion to $5.18 billion, a rise of 19% to twenty% year-over-year. We count on next-generation safety ARR to be roughly $1.15 billion, a rise of 77% year-over-year. We count on income to be within the vary of $4.15 billion to $4.20 billion, a rise of twenty-two% to 23% year-over-year. We count on product income to be flat year-over-year. We count on working margins to enhance by 50 foundation factors year-over-year. We count on non-GAAP EPS to be within the vary of $5.80 to $5.90 which contains web bills associated to the proposed acquisition of Bridgecrew utilizing 99 to 101 million shares. Concerning free money circulation for the total 12 months, we count on an adjusted free money circulation margin of roughly 29%.
With that I’d prefer to open the decision for questions.
We’re nonetheless processing the Q&A portion of the convention name. We will probably be updating it as quickly as we analyze and course of the con name. Keep tuned right here for extra updates.
