Pure Storage, Inc. (PSTG) Q3 2018 Earnings Conference Call Transcript

Markets Motley Fool

Pure Storage, Inc. (NYSE: PSTG)
Q3 2018 Earnings Conference Call
November 28, 2017, 5:00 p.m. ET

Continue Reading Below

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Pure Storage Q3 Fiscal 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. I will now turn the call over to Matt Danziger, VP of Investor Relations. You may begin your conference.

Continue Reading Below

Matt Danziger -- Vice President of Investor Relations

Thank you and good afternoon. Welcome to the Pure Storage Q3 Fiscal 2018 Earnings Conference Call. Joining me today are our CEO, Charlie Giancarlo; our CFO, Tim Riitters; our President, David Hatfield; and our VP of Products, Matt Kixmoeller.

Before we begin, I would like to remind you that during this call, management will make forward-looking statements which are subject to various risks and uncertainties. These include statements regarding competitive industry and technology trends; our strategy, positioning, and opportunity; our current and future products; business and operations, including our operating model; growth prospects, revenue, and margin guidance for future periods.

Any forward-looking statements that we make are based on assumptions as of today and we undertake no obligation to update them. Our actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties relating to our business is contained in our filings with the SEC and we refer you to these public filings.

Also, during this call, we will discuss non-GAAP measures in talking about the Company's performance. Reconciliations to the most directly comparable GAAP measures are provided in our earnings press release and slides.

This call is being broadcast live on Pure Storage's Investor Relations website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website for approximately 45 days and is the property of Pure Storage.

With that, I'll turn the call over to our CEO, Charlie Giancarlo.

Charles Giancarlo -- Chief Executive Officer

Thank you, Matt. Good afternoon, everyone, and thanks for joining today's earnings call. We'll begin with a summary of our operating results and my observations after my first full quarter at Pure. I will then turn the call over to Hat, for some customer highlights, and finish with Tim, who will provide a detailed review of our financials.

Q3 was a strong quarter for Pure. Revenue was a record $278 million, up 41% from a year ago, beating the high end of our guidance. Non-GAAP gross margin was 66%, while Non-GAAP operating margin was a negative 0.07%, also above the high end of our guidance. We finished the quarter with a positive free cash flow and grew our cash balance by $28 million. As we look ahead, we remain on-track to deliver our first billion dollars in annual revenue and our first profitable quarter.

It has been three months since I joined Pure and, as you would expect, I've spent a lot of time diving into the business, meeting with customers and partners in addition to spending time with the Pure team discussing our company and our strategic imperatives. These discussions reaffirmed my belief that tomorrow's world will be driven by information, big data workloads, data analytics, machine learning, and AI. Information has become the strategic business imperative that requires fast, simple, scalable solutions. Aging architectures of legacy vendors are struggling to meet the needs of next-generation, data-rich environments.

Even in today's world of traditional applications, data storage is costly and complex. Storage designed by legacy vendors can't shed decades of needless complexity and still require the need to migrate data with every new generation of equipment. Pure's Evergreen storage model eclipses the competition in speed, simplicity, and cost, bridging the transition from today's environment to the next generation. Quite simply, customers with traditional workloads that have migrated to Pure have said to me repeatedly that Pure is the best product that they have ever purchased. They are asking for us to provide them more. They view Pure as one of their most strategic vendors and want to see us replace more of their existing infrastructure with our technology.

In the spirit of doing more with more customers, we will focus on three growth areas: 1.), growing our roster of cloud customers, 2.), cementing our lead as the core data infrastructure for next-generation applications like artificial intelligence, machine learning, and analytics, and 3.), expanding our footprint in the world's largest enterprises and government organizations. Each of these growth areas is a large opportunity on its own and, together, they represent a huge market opportunity for Pure.

Our product portfolio is strong. FlashArray has had a great quarter and continues to deliver record results, in part due to the introduction of FlashArray//X and the new features we announced at our last user conference. FlashBlade, launched earlier this year, continues to grow faster than FlashArray did in its first full year and, while it is now somewhere off its early 2X pace, it remains on a very strong growth trajectory. We are excited about the customer momentum for FlashBlade, which Hat will talk about later.

We have a business that is delivering greater value to customers, that is investing in the future, and that is positioned for growth at-scale. As we look to the future, we have set three operating priorities.

First, customer focus. It's our North Star. Every group at Pure, each decision, and every action we take will focus on customers first. We will continue to focus on driving industry-leading customer satisfaction at every stage of engagement. And, by customer, we mean both current and future customers.

Second, operational excellence. To compete at the highest levels, we will strive to deliver against the best possible benchmarks and results in every part of our company. The best teams always strive to do better.

Third, innovation everywhere. We will not only innovate with our technology portfolio, but also in every part our business model. Every organization in Pure is enthusiastic about driving new innovations and how they perform their work to deliver better overall value to all of our stakeholders. By focusing on innovation and customer delight, we empower our customers to turn data into intelligence and advantage.

Pure has exceeded my initial expectations and I could not be more excited and thrilled about all the opportunity in front of us. I have been with companies that have experienced growth at-scale and, in Pure, I see the same critical elements for continued growth.

And, with that, I'd like to hand it over to Hat to highlight some customer successes over the last quarter.

David Hatfield -- President

Thanks, Charlie. It's great to have you here. The excitement across our customers, partners, prospects, and sales teams is incredibly strong that we continue to deliver our unique data platform built for the cloud era.

The combination of our differentiated technology, superior customer experience, and Evergreen business model are winning in a competitive landscape where the legacy companies' historical approach is being challenged at every level.

This quarter, we added over 300 new customers, bringing our total to more than 4,000, up 54% from the same time last year. And contributions from cloud customers continue to represent more than 25% of our business. Our repurchase rates are holding nicely with over 70% of our business coming from our existing customers and our profoundly better support experience continues at-scale.

In addition to happy customers, we've seen validation through our audited net-promoter score of 83.7, which places us in the top 1% of enterprise technology and 2 to 3X higher than our competitors. Our partner ecosystem continues to build momentum. The contributions from leading national partners continues to be a focus and key investments with global systems integrators has resulted in a notable, multi-million dollar win with a large financial services institution in the quarter.

We're confident that our strategy and focus on being the preferred solution for our partners is right and it will continue to be an interval driver of our go-to-market velocity. Our sales teams' morale is high and our most recent new-hires, which represent our largest cohort classes, continue to produce the highest initial productivity on-record. Internationally, we were very pleased with our momentum across all three theaters, which contributed 31% of revenue this quarter, up from 26% last quarter.

As Charlie mentioned, we continue to be hyper focused on the three growth markets: cloud, next-generation workloads, and the largest enterprises as they cloud-ify their on-premise IT. I want to dive down into one of these areas each quarter -- this quarter, focusing on our progress in driving the adoption of next-generation data, AI, and analytics.

While still in the early days, we are seeing key design wins and adoption across industries. With analysts forecasting a 78% five-year compound annual growth rate for storage in AI, along with our differentiated capabilities, we are confident we are positioned perfectly to take advantage of this trend.

We continue to see great progress with our partner, Nvidia. This relationship started through our customers and joint sales teams and, in Q3, extended to global co-sponsored events worldwide. We also entered into a formal agreement with PNY Technologies, the European distributor of Nvidia Enterprise products. As the essential instrument for AI research, the Nvidia DGX1 is at the heart of many of the world's most demanding, deep-learning, and analytics environments.

FlashBlade is uniquely suited for organizations investing in these emerging workloads, ultimately, shortening the time to innovation and enabling faster time to development. Net-Net, Pure is the storage what Nvidia is to compute for AI. Additionally, FlashBlade won the "Best Innovation in Artificial Intelligence" award at a recent AI summit conference.

As I mentioned, the traction is strong across multiple industries, most notably, financial services, healthcare, service provider, automotive, and cloud-native businesses. Customers include four of the top autonomous driving companies and, in Q3, we've added a number of new SAAS accounts within the area of revenue management, web analytics, and hospitality distribution.

This is an incredibly exciting time at Pure. We're on the eve of delivering our first billion in annual revenue and the data platform strategy is working. We are enjoying fantastic customer and partner momentum and we have the combination of both Charlie and Dietz. We truly are only just getting started with the right technology, business model, and customer experience at the right time to help transform organizations globally.

With that, I will turn to Tim to provide details on the quarter. Tim?

Tim Riitters -- Chief Financial Officer

Thanks, Hat. Q3 was another strong quarter of execution for Pure, as we continued to deliver strong revenue growth and achieved positive free cash flow. Before I dive into the specifics, I'll make my usual note that the gross margin, operating margin, OpEx, and free cash flow numbers I will use are non-GAAP unless otherwise noted. Reconciliations of these non-GAAP metrics to their GAAP comparables, as well as our full Q3 results and presentation, are available on our website at investor.purestorage.com.

Total revenue grew 41% year-on-year to $277.7 million, more than 2 points above the mid-point of our guidance. Product revenue grew 39% year-on-year to $223.2 million. Repeat purchases and solid new customer base growth helped drive our product revenue in the quarter. Total customers reached more than 4,000, up more than 50% from the same period a year ago.

Momentum in FlashArray was particularly strong and we continue to gain traction with FlashBlade. Support revenue in Q3 grew 50% year-on-year to $54.5 million, driven by continued revenue recognition of ongoing support contracts.

Looking at Q3 from a geographic perspective, 69% of our revenue came from the U.S. and 31% from international, an all-time high for the company. We are very pleased with the performance of all of our regions in this quarter. Q3 total gross margins were 66.4%, compared to 67.1% in Q2. We continue to drive industry-leading gross margins and have been operating in our long-term target range of between 63% and 68% for the last eight quarters.

Product gross margins, up 66.3%, decreased 1.2 points quarter-on-quarter as expected. As a reminder, last quarter, we outlined a handful of one-time benefits that positively impacted product gross margins, including lower cost components for pre-purchased inventory and one-time logistics benefits. Q3 results are more in line with our historic norms and well within our long-term operating range. Support gross margins of 67% improved quarter-on-quarter by 1.1 points, reflecting our expanding customer base and our continued efforts in driving operational efficiencies.

Turning to operating margin, we continue to make excellent progress in our march to profitability in achieving a long-term operating margin target of between 15 and 20%. Our operating loss in Q3 was negative $2.1 million or negative 0.07% of revenue, compared to negative $19.4 million or negative 9.8% of revenue in the year ago quarter. This represents a 9-point year-on-year improvement and more than a 2-point outperformance from the mid-point of our Q3 guidance.

Our net loss for the quarter was negative $1.9 million or negative $0.01 per share. This compares to the year ago period net loss of $20 million or negative $0.10 per share. The weighted average shares used for the per-share calculations were $213.3 million and $195.8 million, respectively.

Total headcount at the end of Q3 was up over 2,000, up from over $1,900 at the end of Q2 and up from over $1,650 a year prior, largely reflecting ongoing hiring in both our sales and R&D organizations.

Moving on to the balance sheet and cash flow, we finished the October quarter with cash in investments of $550 million, which is a $28 million addition to our overall cash position from previous quarter and represents the first Q3 of positive cash flow generation in the company's history. We look forward to another quarter of free cash flow generation in Q4. Our free cash flow was positive $14 million or 5% of revenue, compared to negative $35.8 million or negative 18% of revenue in the year ago quarter.

This includes $2.5 million of impact related to our employee stock purchase plan. Excluding this amount, free cash flow would have been positive $16.5 million or 6% of revenue, compared to negative $30.4 million or negative 15% of revenue in the year ago quarter.

Now we'll turn to our guidance. For the fourth quarter, we expect revenues of between $327 and $335 million. This represents 45% year-on-year revenue growth at the midpoint and is based on momentum in the overall business combined with our seasonally strongest quarter of the year.

We expect Q4 non-GAAP gross margins in the range of between 63.5% and 66.5%. We continue to focus on operating within the sweet spot of our long-term model of between 63% and 68%. We expect Q4 non-GAAP operating margins of between positive 3% and positive 7%, which represents our first profitable quarter as a public company, another significant milestone in Pure's journey.

As we mentioned last quarter, as we drive to profitability, I want to remind you that our weighted average shares used for EPS will increase once we become profitable as we move to a fully diluted calculation. Please refer to our earnings presentation for further details on our fully diluted share count.

For the full year, we expect revenues of between $1.012 and $1.020 billion, a midpoint of $1.016 billion dollars. Non-GAAP gross margins of between 65.6% and 66.6% and non-GAAP operating margins of between negative 4.9% and negative 3.9%.

In summary, Q3 was another strong quarter for Pure with strong revenue growth and positive free cash generation. We are well-positioned to finish the full year with revenues of greater than $1 billion and deliver Pure's first quarter of operating profits in the upcoming Q4.

With that, we will now open the call for questions. Operator?

Questions and Answers:

Operator

At this time, I'd like to remind everyone, in order to ask a question, press *1 on your telephone keypad. We will pause for a moment to compile a Q&A roster.

Your first question is from Aaron Rakers from Wells Fargo.

Aaron Rakers -- Wells Fargo -- Managing Director, Technology Analyst

Yeah, thanks for taking the question and congratulations on the quarter. Actually, I have two quick questions if I can. So, first of all, I'd like to understand a little bit better the FlashBlade commentary. You talked about trending a little bit below the 2X the FlashArray ramp -- just help us understand where you stand relative to that $80 million revenue expectation for the full year? And then, also, Charles, I'm interested, as you look forward and you get your arms around the portfolio that's continued to expand, I'm interested in your thoughts around investing in terms of sales capacity, coverage, and distribution relative to continually driving operating margin leverage to the model as we start to look into the next fiscal year?

Charles Giancarlo -- Chief Executive Officer

You bet. Thanks very much for the question. We are very pleased, still, with the FlashBlade growth and it continues to be much faster than FlashArray in its first full year. Relative to the $80 million, this'll probably be the last time I talk about that -- we're in the ballpark. So, I just want to make clear that, in terms of my style, I prefer not to break out individual products on a quarterly basis, so we're going to push that aside from now on. The reason, having been in a multi-product company, you know that from quarter to quarter, we optimize on the total topline, not on individual products per quarter and you see things go up and down or grow faster or slower than others. But I will say that we are, if anything, even more optimistic and more pleased with FlashBlade than when we first introduced it. We continue to see new opportunities for it, we're getting great feedback from customers, and we couldn't be more optimistic about the product.

Oh, I'm sorry, then on the model leverage... The way we think about this -- and we've talked about this from time to time and Tim outlined in our meeting last year, our user's conference, what our long-term model is -- we see that we're going to continue to invest in sales and marketing but, at our current level, that's going to come down on a percentage of overall revenue. Now, to the extent that we grow faster, it'll obviously be a bit higher. To the extent we grow slower, we'll take that down.

So, long-term, you're going to see an overall reduction in sales and marketing, you're going to see an increase in the bottom line, but that'll be moderated somewhat by how fast we're able to grow the company overall.

Aaron Rakers -- Wells Fargo -- Managing Director, Technology Analyst

Fair enough. Thank you.

Operator

Your next question is from Wamsi Mohan from Bank of America Merrill Lynch.

Wamsi Mohan -- Bank of America Merrill Lynch -- Equity Research Analyst

Yes, thank you. If we step back and look at the pace of growth in all Flash revenues across the lenders, just handouts or you guys, Pure and then NetApp, can you address why you think NetApp is growing so much faster on a larger revenue base? Is it just the footprint and then selling it install-base or has it got something to do with pricing? Would love to get some thoughts around that and I will follow up.

Charles Giancarlo -- Chief Executive Officer

Look, I think that NetApp obviously had a great quarter and my hat's off to George and the entire team over there, but I'll remind you that, on an overall basis -- on a total company basis -- we're growing much, much faster. And, if you have a large install-base as they do, simply replacing your existing environment with Flash is going to produce Flash revenues that look much greater but, on an overall growth basis, we're much higher and I expect that to continue. And I think it's a single storage market at this point in time and I think you should be looking at companies from a total revenue perspective.

Wamsi Mohan -- Bank of America Merrill Lynch -- Equity Research Analyst

Are you seeing anything from a pricing dynamic that surprised you in the market in this past quarter?

Charles Giancarlo -- Chief Executive Officer

No, I would say that we've not seen any significant changes in overall pricing. The market, of course, every single deal is tough from a competition standpoint, but no significant movement in pricing this quarter.

Wamsi Mohan -- Bank of America Merrill Lynch -- Equity Research Analyst

If I could just ask one last one, you mentioned that sales and R&D hires have been quite significant through the course of this past year. Can you just give us some sense of where, specifically, your sales hires are being focused to either in where-to-go markets or whichever way you'd like to, perhaps, characterize that regionally?

David Hatfield -- President

Hey, Wamsi, this is Hat. Thanks for the question. We're evenly distributing them across the globe. We were thrilled with our performance in international -- all three theaters produced nicely and we see the productivity and capacity coming along very nicely there. And we're also continuing to see that our latest cohorts and classes are producing the highest productivity levels on record and so, as long as we continue to see those kinds of forward-looking metrics, we're going to continue to invest in sales and marketing.

Wamsi Mohan -- Bank of America Merrill Lynch -- Equity Research Analyst

Great. Thanks a lot.

Operator

The next question is from Katy Huberty with Morgan Stanley.

Katy Huberty -- Morgan Stanley -- Managing Director, Research

Thank you. Good afternoon. Charlie, first question for you: when you think about the three growth factors that you laid out, do those require you to expand the product portfolio in the future, perhaps, even to adjacent markets to storage, or does the current product portfolio allow you to go and achieve all those goals? And maybe answer in the context of R&D growth that's materially lower in the just-reported quarter versus where you were growing at that line a year ago?

Charles Giancarlo -- Chief Executive Officer

Oh, Katy, thank you very much for the question. You know, I think the answer's really both, Katy. First of all, the existing product line that we have allows us to continue to expand in those markets, but the technology advances constantly and so, the more that... we have a lot to do in each of the product lines that will allow us to expand even faster in those markets. We do believe that our differentiated business model is characterized by a higher rate of R&D spend than many of our competitors in this market and it's all focused on the future.

And I'll let Tim answer the question on the R&D spend because, on a long-term basis, we really see that as something that we're going to continue to invest in and this is just an anomaly in the quarter.

Tim Riitters -- Chief Financial Officer

Yeah, quarter-on-quarter, Katy, on the R&D basis, obviously, the leverage, the quarter-on-quarter revenue's growing at 25% -- you're going to just get natural leverage. And we have some programs over the summer that tend to spike the R&D number a little bit there, as well, so we're going to continue to invest in the ad line. I wouldn't read anything into the decal Q-on-Q.

Katy Huberty -- Morgan Stanley -- Managing Director, Research

Okay, thanks. And then, Tim, just a follow-up for you, how would you characterize the availability and pricing of SSDs in the quarter and what's your outlook in January? And then, to the extent that pricing starts to come down over the next year, how much do you think that helps your gross margin?

Tim Riitters -- Chief Financial Officer

Yeah. So, Katy, on the first part of your question, we continue to be very comfortable about our supply for the rest of the year and out into next year, as well. As you know, we've been watching this dynamic for quite some time and have managed very, very well through it and continue to expect to do so going into Calendar 2018. In terms of cost dynamics, what I would say is, rather than think about what that means to gross margin, we always talk about this mid-to-high 60's sweet spot that we like to play in -- we've been doing it now for eight quarters -- and that's the way I look at it. So, we may pass some of that onto customers to go capture more markets and we may put some of it in our own pocket, as well, but as long as we stay within that range, that's what's important to us from a management principal perspective.

Katy Huberty -- Morgan Stanley -- Managing Director, Research

Good. And, if I may just one quick more. Tim, if you think about normal seasonality in April, that could bring your April quarter revenue down below what you just reported. Do you think you could remain profitable in that scenario of normal seasonality or how should we think about the sustainability of profitability after the January quarter?

Tim Riitters -- Chief Financial Officer

Yeah, Katy, we're not naturally guiding for the next year, but I would take a look at the year that we're just in. Obviously, Q1's going to be the lowest from a profitability perspective and Q4 is going to be the highest from a profitability perspective. So, as you're thinking about modeling, that's the way I would look at it.

The other thing, you ask about seasonality -- we think about seasonality both in the bottom line and the top line. And I know this was a topic last year, as well, but, as we start stabilizing our overall growth rates -- we talked on the analyst day about having 30% CAGRs -- what you really want to take a look at is our full-year revenue growth rate, approximating a lot of the quarters, as well, right, because now that you're getting to a stabilization, you really shouldn't see big differences between the individual quarters and the full-year, if that makes sense.

Katy Huberty -- Morgan Stanley -- Managing Director, Research

Thank you.

Operator

The next question is from Mark Mosk with Barclays.

Mark Moskovitch -- Barclays -- Equity Analyst

Yes, thank you. Good afternoon. I apologize if this question was already asked -- I dropped off for a second -- but did you guys talk about how we should think about the profitability cadence on a full-year basis, thinking about Calendar '18? You obviously are exhibiting some really good news here in terms of leverage now, but can you be profitable for a full year Calendar '18? I guess that question's more for Tim. And then my other question is for Charlie: clearly, the enthusiasm is very palpable here on the call today across the E Suite here -- I just want to get a sense of the cloud. You've signaled previously AWS and Asher Integration opportunities are there -- we didn't hear too much about that today. Can you give us a little more in terms of when investors could see some of that enthusiasm actually be monetized over the next 12 to 18 months in the cloud? Thank you.

Tim Riitters -- Chief Financial Officer

So, Mark, I'll take the first question on profitability and then turn it over to Charlie on the second question. On profitability, we naturally aren't going to guide for the full year next year, but we do see seasonality in the profit number -- you see that throughout this year, you've seen that throughout years past -- so I would think about it very much the same way as we get into next year. And our march is to profitability so we're, right now, what, for the full-year, negative low single digits so you can infer from that that we're moving in the right direction.

David Hatfield -- President

Mark, and this is Hat. I'll take the winning in the cloud. I think the key statement here is that the explosive growth data, our fundamental premise is they're going to operate in a multi-cloud world with sensors, and AI, and machine learning, and all the data that's created by machines forecasted to be 40, 50 zeta-bytes in the future and total internet storage capacity over the next few years to be a fraction of that -- called 2.5 or 3 zeta-bytes -- customers are going to need to operate on the edge, they're going to need to operate on-prem, and they're going to need to operate in the public cloud and their partners.

And so, we built our platform to enable the cloud so SAAS, together with IAS, and PAAS, and native-cloud businesses continue to contribute 25%. We have some of the largest cloud scale environments as customers. They're big companies, they have a lot of different use cases, and you'll see us continue to work with them on integrating and building go-to-market motion in the future. There's a really great series of conversations going on and we're optimistic for integrating with them in the future.

Mark Moskovitch -- Barclays -- Equity Analyst

Thank you.

Operator

The next question is from Steve Milunovitch with UBS.

Steven Milunovich -- UBS -- Managing Director

Thank you. Charlie, as you've been able to dig into the company a bit more, where do you see room for improvements and things that you've learned at large companies that you can bring to Pure to help it scale?

Charles Giancarlo -- Chief Executive Officer

Yeah, thanks for the question. We mentioned some of them in the call, right, which is a movement upmarket. I think part of that is not me, per se, but simply the natural progression of the company as it grows more and more larger customers and larger parts of their environment. And that just requires some modification of the selling motion, distribution motion, marketing motion, and so, forth so that's part of it. I think, given that we're now a multi-product company, and the way you manage in a multi-product company changes to some extent.

And then, simply, just the fact that we're now over 2,000 people, the way that one needs to communicate and coordinate throughout the company -- those are things that we're making some modification to. But none of these things are either rocket science or newly coined. These are things that every company that goes through this level of scale goes through so I see it as something that's very straight-forward and the team was hungry for it and jumped right on it.

Steven Milunovich -- UBS -- Managing Director

Thanks. Then I wanted to ask you, you have a familiarity with Arista and there seem to be some similarities between Pure and Arista, but I'm sure there's also some important differences. Maybe you could talk about your observations of the two companies?

Charles Giancarlo -- Chief Executive Officer

Absolutely. The similarity is that both companies are created with deep technologists at its core that really understand the technology, really understand the markets, and are really, if you will, fighting for the advancement of computing and performance of technology. I would say, in terms of the differences, that Pure is a much more of an enterprise-oriented company at the moment, whereas Arista is more cloud-oriented, with each one of us trying to build up more momentum in the other's segment so we're maybe starting at opposite points on the compass, but headed toward the center.

Steven Milunovich -- UBS -- Managing Director

Thank you.

Operator

The next question is from Jason Ader with William Blair.

Jason Ader -- William Blair and Company -- Analyst

Yes, thank you. I had a question, first, for Hat on the federal vertical. Is that an area that you guys are investing in and do you feel like you can be a winner there? And then, for Charlie, what's happening with your win rates against DELI and CM? I see the Asher business doing very well and some of our checks seem to suggest that you're seeing more displacements of big EMC accounts? Can you comment on that?

David Hatfield -- President

Hey, Jason, it's Hat. Thanks for the question. Yeah, we are investing in public sector, overall. The key market that Charlie mentioned that we are hyper focused on are cloud businesses, next-generation use cases, and the large enterprise and, within the large enterprise, it includes federal agencies as well as large state and local organizations and healthcare. So, you'll see us talk more about those wins in the future.

Charles Giancarlo -- Chief Executive Officer

Right. And, in terms of our win rates, I'd say that our win rates are stable, but we are just competing for more deals.

Jason Ader -- William Blair and Company -- Analyst

Okay. Thanks very much.

Operator

The next question is from Alex Kurtz with KeyBanc Capital Markets.

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Hey guys, this is Steve Enders on for Alex. Thanks for taking my question. I was wondering if you could talk about trends you're seeing in account rep yields in 3Q and heading into 4Q? And I know you guys aren't speaking to Fiscal '19 yet, but are there any new class of hires that we can expect that may affect yields beginning of next year?

David Hatfield -- President

Hey, Steve, this is Hat. I'll hit the first part and maybe Tim will jump on afterwards. We're seeing great productivity, continued motion from a sales capacity perspective. The latest cohort classes that we've brought in continue to be outperforming our most productive cohorts so we see great sales capacity there. I think the key contributor there, from my point of view, is the data platform strategy is working and our channel ecosystem is contributing nicely. So, I think those two motions -- that portfolio-selling motion, together with our continued focus on the channel -- is driving and creating higher sales yields and I think that will continue in the future.

Tim Riitters -- Chief Financial Officer

Yeah, Steve, and on an investment philosophy perspective, into next year -- obviously, not guiding -- but, historically, the first half of the year has been when we've invested most notably in the sales and marketing organizations, the best time to get the quality sales people that we're looking for and get them trained for the seasonally stronger second half. We've been doing that now for three or four years and I don't anticipate any changes in term of how we go to market next year.

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Okay. And I just want to ask, you guys highlighted your analyst day, $2 billion revenue goal in 2021 and I was wondering if anything has changed that would affect that outlook?

Tim Riitters -- Chief Financial Officer

Not at all. It continues to absolutely be the longer-term target after we pass through this billion-dollar number.

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Great. Thanks, guys.

Operator

Next question is from Eric Martinuzzi with Lake Street.

Eric Martinuzzi -- Lake Street -- Equity Research Analyst, Technology

Yeah, your international growth was really standout. I'm wondering if that has more to do with just growing off a smaller base, or is there a difference in the competitive landscape in international?

Charles Giancarlo -- Chief Executive Officer

Yeah. No, Eric, I think what we're seeing is just the capacity coming online -- making investments in international takes time -- so I think it's a combination of brand awareness, sales capacity online and the channel maturing. We see continued execution across all of our theaters and so, we see nice growth in Americas, as well. So, I think, on an overall contribution basis, we anticipate that we're going to continue to see a larger and larger contribution from our non-North America markets.

Eric Martinuzzi -- Lake Street -- Equity Research Analyst, Technology

Okay. And just for a housekeeping item for Tim, if you made it crystal clear on the press release, I missed it, but the diluted weighted average share account, I think the last time you talked about it was around $237 million in shares, but we've seen a pretty substantial increase in the stock price so I was wondering is there a better number for that as we cross into adjusted EPS profits?

Tim Riitters -- Chief Financial Officer

Yeah. So, Eric, what I'd say is that, this last quarter, had we been profitable, we would have had a $243 million share count for purposes of EPS purposes. That will creep up a little bit as we brand more options and awards. There's a table in the DAC that shows across various stock prices what that adjustment would be so I think, if you're in that $240 to $250 range, you're probably safe in terms of how you think about it from a modeling perspective.

Eric Martinuzzi -- Lake Street -- Equity Research Analyst, Technology

Got you. Thank you.

Operator

The next question is from Jason Nolan with Barrett.

Jason Nolan -- Barrett Asset Management

Okay, so thank you. A follow-up on international: were there any big deals worth calling out or did GDPR play a role there in that strength?

Charles Giancarlo -- Chief Executive Officer

Yeah, we did have a significant win in the large global financial services organization that I referenced in our prepared remarks, but nothing that was material that would really swing it. We see nice penetration in the enterprise, great in the public sector and our continued cloud efforts have been paying off in all of those markets so I think, more of the same, we believe it's sustainable.

Jason Nolan -- Barrett Asset Management

Okay. And then a follow-up, software only -- and I don't know if this would apply -- but is it possible in the future to see Pure IP on a white box or in the cloud, or is that not really something that would make sense?

Charles Giancarlo -- Chief Executive Officer

I'm going to hand that over to Kix.

Matt Kixmoeller -- Vice President of Products

Look, anything's possible. Obviously, our solutions are powered by software and software is a key part of the value-add. Today, we focused on deep integration between the software and the hardware for both ease of use and overall simplicity and, also, the best performance but, as we continue to look at delivery modals, we'll keep everything on the table to consider over time.

Jason Nolan -- Barrett Asset Management

Super. Thanks, guys.

Operator

The next question is from Simon Leopold with Raymond James.

Simon Leopold -- Raymond James Financial, Inc -- Managing Director

Great. Thanks for taking my question. I wanted to see if we could take a little bit of a look into Fiscal '19, Calendar 2018 in terms of a couple aspects. First of all, just want to see if you could review your thoughts on seasonality, given that your April quarter usually has a pretty pronounced sequential decline -- just want to make sure we're all on the same page in terms of how to think about seasonality? And then, in terms of the full year, I just want to see if you could revisit the commentary you gave us -- a nice grid perspective of FlashBlade and all Flash growth leading to somewhere in the 30% range growth -- I just want to see if we can revisit how you're thinking about the growth outlook for the full year?

Tim Riitters -- Chief Financial Officer

Yeah, Simon, I'll take your full-year question first and then we'll get into the seasonality within the quarters. On the full-year, you articulated, if you think back to our analyst day, we talked about a variety of different scenarios that get us above that 30% CAGR over the course of the next handful of years and I think that nothing's changed in terms of how we think about the business and the targets that we're executing on. So, I think you're thinking about that just like we are here at the company.

As it relates to the quarters, I made a remark earlier in this Q&A is that, now that we're in that stable growth phase of the company, really looking at each quarter on a year-on-year basis and compare it to the full-year numbers, those growth rates should, all else being equal, really be very similar. Right? You shouldn't see big deltas between a Q1 growth rate and a Q3 growth rate or a Q1 growth rate and a full-year growth rate. It should really be stable.

Simon Leopold -- Raymond James Financial, Inc -- Managing Director

And, when we think about that, should we be looking at the January quarter that you've guided to, which is mid-point around 45% year-over-year growth rate -- that's well above 30? I assume you're not suggesting we should think about 45% as the new normal?

Tim Riitters -- Chief Financial Officer

Yeah. No, naturally, Simon, we're lapping another year, we're going to post a billion dollars and, every time you lap a year, those comps obviously get tougher so I think you're thinking about it right.

Simon Leopold -- Raymond James Financial, Inc -- Managing Director

Great. And then just one last big picture, if you could help us understand how to think about the addressed market? When you think about machine learning, artificial intelligence, what's opening up -- we're struggling to try to think about a TAM expectation. And I know it's still early, but any metrics you could help us frame this? Thank you.

Matt Kixmoeller -- Vice President of Products

This is Kix -- I'll take that one. So, I think the first thing I'd say is that we believe a big chunk of that market is all net new so I think everyone, like yourselves, is struggling to understand how big it can be. The thing that I think we've been excited about over the last few quarters is to see it grow from a few very focused industries like self-driving cars and things of that nature, to really seeing ourselves starting to have AI conversations in almost every industry.

We highlighted the manned HL example on this call because we thought it was a great breakthrough of these types of technologies in the more classic financials and we're having these conversations across a wide range of industries. We think this is something that most CIOs will look at as something to put some of their innovation dollars toward and it's going to be a huge growth driver. And so, there's been a few studies out -- the number we highlighted on the call was 78% CAGR -- but I think we're also hoping to see more of the analyst community jump in and size the opportunity.

Simon Leopold -- Raymond James Financial, Inc -- Managing Director

Great. Thank you.

Operator

The next question is from Tim Long with BMO Capital Markets.

Tim Long -- BMO Capital Markets -- Managing Director

Thank you. Yeah, two quick ones, if I could. First, could you talk a little bit about deal sizes? Are they growing? It sounds like the win rate is similar with a little bit more activity of biz that you're in, but can you talk about the deal sizes that you're seeing? And then, secondly, just talk a little bit about, as the revenues may shift around between the verticals -- particularly, if you get more into that cloud customer base -- how should we think about gross and operating margins or profitability potential for some of those different verticals?

David Hatfield -- President

Hey, Tim, this is Hat. So, no material difference, really, on the average deal sizes. We're competing for more at-bats and our win rates are holding or improving against every competitor that we have out there so it's more about getting additional at-bats but we will anticipate seeing larger opportunities inside of FlashBlade over time, but, as that becomes more of an equal contributor, that could influence things. But, right now, we're seeing great stability in the win rates and the deal sizes and seeing more at-bats and those are the things that we're focused on.

Charles Giancarlo -- Chief Executive Officer

Yeah, and I'll talk a little bit about this -- I'll talk about the margin question relative to cloud. I think the way to think about it, first of all, we have a mix of cloud customers today. Right? And you have our financials today so you see, already, what a blend of this looks like. However, I think, if and as cloud gets larger, one might see... we would expect stable operating margins, not to affect the operating margin line. Obviously, the amount of expense or the amount of cost on COGS versus the amount spent on SG&A will be different, but I would expect it not to affect operating margin.

Tim Long -- BMO Capital Markets -- Managing Director

Thank you.

Operator

Your next question is from Erik Suppiger with JMP.

Erik Suppiger -- JMP Securities -- Senior Research Analyst

Yeah, thanks for taking the question. First off, Charlie, you said that you're very pleased with FlashBlade in spite of some slowing in that growth rate. What is it that gives you the confidence that the FlashBlade is not going to slow further? And, secondly, you had talked about ability to leverage your sales and marketing better going forward. Where you see ability to really drive some operating leverage on the sales and marketing front?

Charles Giancarlo -- Chief Executive Officer

Right. Yeah, thank you for the question. I have been through a significant number of new product introductions in the past and this one is as fast as any that I've ever seen. And, as we continue to identify it's faster than FlashArray in its first year, and that was a very fast-growing product. So, in any one quarter, you're going to see variation of new product, especially in a field environment that sells multiple products, so it doesn't concern me at all. What I do hear is from customers, the customers that love this product -- and now there are quite a substantial number of them -- are very pleased with it, plan on buying more, are looking to see what new opportunities they can bring it into inside their own environment and we're getting better at spotting the best and, if you will, the most efficient areas in which to sell the product. So, there's just a lot of good reasons to be optimistic about the product.

Erik Suppiger -- JMP Securities -- Senior Research Analyst

And, on the sales and marketing front?

Charles Giancarlo -- Chief Executive Officer

Right. Sorry about that. I can only remember one question at a time, apparently. No, on sales and marketing front, it's really scale economics, A.), B.) is moving into larger accounts, and C.) is a more efficient channel environment that becomes more independent in selling into the mid-market. Also, I'll say that brand recognition is improving, as well, and that makes it somewhat easier to not only penetrate new accounts but, frankly, to expand inside of existing environments. So, I think all those things are quite natural in a growing company like ours to help us to really improve overall efficiency on the sales and marketing alignment.

Erik Suppiger -- JMP Securities -- Senior Research Analyst

Very good. Thank you.

Operator

Your next question is from Nehal Chokshi with Maxim Group.

Nehal Chokshi -- Maxim Group -- Enterprise and Consumer Technology Senior Analyst

Thanks, and very good quarter, especially when you take into account that DSOs declined ten days here over a year and it looks like five days below typical levels so I think that does imply a much more linear selling quarter. So, my question is, presuming all those things are true, is it fair to say that, had the linearity been like prior years, revenue bookings would have been correspondingly higher?

Tim Riitters -- Chief Financial Officer

Nehal, this is Tim. We haven't historically offered any commentary on inter-quarter linearity in the calls. I would just refer back to the fact that we reaccelerated growth here and, again, 41% growing at-scale and on our way to a billion dollars. Those are the measures we talk about publicly and, obviously, put in a really good quarter.

Nehal Chokshi -- Maxim Group -- Enterprise and Consumer Technology Senior Analyst

Okay. Thank you.

Operator

The next question is from Edward Parker with BTIG.

Edward Parker -- BTIG -- Senior Vice President

Thanks. Just a quick one on FlashBlade, a piece of feedback that I think some of us have heard from your partners, at least, in the enterprise channel -- sounds like the product maybe lacks some maturity in terms of features and other capabilities that enterprises require for further and structure data requirements. I guess the question is, is that fair, and what do you think you need to add in terms of capability to the product for it to become more of a mainstream buy for enterprises, and when might you expect that to happen? Thanks.

David Hatfield -- President

Hi, Edward, this is Hat. There's two distinct markets for FlashBlade as we're getting more stick time with it. First, is the next-gen, AI, machine learning, and real-time analytics segment. That is a great fit and completely differentiated from anything else in the market in that world. I think the second area is the replacement of legacy IT and this is going after the NAS and the object stores that are out there and this is actually taking the fight to NetApp where we really haven't focused in their file-based world. And, that, it is a first-generation product and so, you're going to have years of features that we're going to build out to be able to hit more and more of that addressable market, but we're having great success in both of those categories today. And maybe I'll hand it to Kix for either commentary on it.

Matt Kixmoeller -- Vice President of Products

Yeah. No, I just said I think the strategy's working. When we set out a couple years ago, we made a choice to say do we go after the legacy existing market, which we knew was a feature game, or do we try to really build something that no one had seen before to go after the next-gen use cases and we decided to go after the next-gen use cases -- we're winning there -- and we'll, of course, have the features over time to build abroad to the whole market.

Operator

The next question is from Steven Fox with Cross Research.

Steven Fox -- Cross Research -- Managing Director

Yeah. Thanks. Just a couple of quick questions on top line. First of all, Tim, on your 41% year-over-year growth, is there any way to maybe qualify how much came from existing customers versus new customer acquisitions and where there are deal sizes on a year-over-year basis contributing to the growth on an average? And then, secondly, do you see any constraints in terms of the top line because of how tight NAAND or do you think this is a pretty trued-up growth rate for you, given the NAAND supply environment? Thanks.

Tim Riitters -- Chief Financial Officer

Yeah, so Steven, on your first part of your question, the relative split between new customers and existing customers has stayed about the same, a very healthy number on each side of that equation, if you will. Deal sizes, there was a question earlier. We don't talk, really, a lot about deal sizes, but they continue to hold where we like to see them so we're very happy about that, as well. And then, as it relates to NAAND supply, we continue to manage very well and have good line of sight and visibility -- supply constraints are not something that concerns us from a revenue perspective.

Steven Fox -- Cross Research -- Managing Director

Thanks very much.

Operator

And that was our last question. I will now turn the call over to Charlie Giancarlo for closing comments.

Charles Giancarlo -- Chief Executive Officer

Well, thank you and thank you all very much for joining us today. In closing, we had a very solid Q3. We believe the future will be driven by information and all of us here at Pure are focused on helping customers build a better world with data. Momentum remains strong across our leading technology portfolio and we're really looking forward to a strong finish for the year. And thank you, again, for joining us and that's the end of the call. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 51 minutes

Call participants:

Matt Danziger -- Head of Investor Relations

Charles Giancarlo -- Chief Executive Officer

David Hatfield -- President

Tim Riitters -- Chief Financial Officer

Matt Kixmoeller -- Vice President of Products

Aaron Rakers -- Wells Fargo -- Managing Director, Technology Analyst

Wamsi Mohan -- Bank of America Merrill Lynch -- Equity Research Analyst

Katy Huberty -- Morgan Stanley -- Managing Director, Research

Mark Moskovitch -- Barclays -- Equity Analyst

Steven Milunovich -- UBS -- Managing Director

Jason Ader -- William Blair and Company -- Analyst

Alex Kurtz -- KeyBanc Capital Markets -- Managing Director

Eric Martinuzzi -- Lake Street -- Equity Research Analyst, Technology

Jason Nolan -- Barrett Asset Management

Simon Leopold -- Raymond James Financial, Inc -- Managing Director

Tim Long -- BMO Capital Markets -- Managing Director

Erik Suppiger -- JMP Securities -- Senior Research Analyst

Nehal Chokshi -- Maxim Group -- Enterprise and Consumer Technology Senior Analyst

Edward Parker -- BTIG -- Senior Vice President

Steven Fox -- Cross Research -- Managing Director

More PSTG analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Pure Storage
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Pure Storage wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.