賽富時 (CRM) 2006 Q3 法說會逐字稿

Good day, everyone. Welcome to the salesforce.com third-quarter 2006 financial conference call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. David Hevlick (ph), Vice President of Investor Relations for salesforce.com. Please go ahead, sir.

Thanks, Patty. I'd like to welcome everyone to salesforce.com's third-quarter fiscal year 2006 earnings release conference call. Joining me today are CEO and Chairman, Marc Benioff and CFO, Steve Cakebread. Marc will begin today's discussion with a brief review of our third-quarter performance and update you on some of our key achievements. Steve will then review the key financial metrics for Q3 before discussing our outlook for Q4 and for fiscal year '07. Following our prepared remarks, we will open things up for your Q&A.

Before we get started today, let me quickly take care of a few formalities. First, during our discussion today, we may reference certain non-GAAP measures. A reconciliation of GAAP and non-GAAP results is available in the earnings press release issued earlier today and filed on Form 8-K with the SEC. The press release contains a complete review of our financial performance for Q3. Additional financial information beyond what is provided in the press release may be found on our website.

Second, today's call is being webcast, and a replay will be available shortly following the conclusion of the call through November 30. To access the press release, the financial detail, or the webcast replay, please consult our Investor Relations website at www.salesforce.com/investor.

Finally, it would not be an earnings call without a Safe Harbor statement. To that end, the primary purpose of today's call is to provide you with information regarding our third-quarter fiscal year 2006 performance. However, some of our discussions or responses to your questions will contain forward-looking statements regarding our projected financial results and operating metrics, business strategy, the timing of future services, product or platform releases and their capabilities, demand for on-demand services generally or our products or application-sharing platform specifically, anticipated growth, market opportunities, expected implementation of our services by certain customers, datacenter capacity, the decline of the enterprise application market, or other business-related topics.

These statements are subject to risks, uncertainties and assumptions. And if such risks or uncertainties materialize or our assumptions prove to be incorrect, actual Company results could differ materially from these forward-looking statements. These risks, uncertainties and assumptions as well as other information on potential factors that could affect our financial results are included in our reports filed with the Securities and Exchange Commission, including our Form 10-Q for the period ended July 31, 2005 and our Form 10-K for the fiscal year ended January 31, 2005; both of which are also available on our IR website.

Please be reminded that any unreleased services or features referenced in today's discussion or other public statements are not currently available and may not be delivered on time or at all. Customers who purchase our services should make the purchase decision based upon features that are currently available.

With those formalities behind us, let me turn the call over to Marc.

Thanks, David. Good afternoon, everyone, and welcome to our third-quarter earnings call. Our third-quarter results were yet another indication that the end of software is upon us, and the market is clearly moving towards salesforce.com. During the quarter, we introduced a game-changing strategy, witnessed the capitulation of a long time rival, and saw the dominant force in technology attempt to mimic our model in an effort to catch up. And we did this while executing against ambitious goals for both customer success and financial performance.

Let me begin with some financial highlights from the quarter. Our fiscal third-quarter revenue was $82.7 million, representing a sequential increase of 15% and a year-over-year increase of 78%. This was an excellent performance by any standard and better than our expectations coming into the quarter. We continue to grow at a faster pace than any sizable software company or any vendor who considers themselves a competitor to salesforce.com. More importantly, we now believe we are the third-largest independent provider of on-demand business applications in the world.

Net income grew to roughly $13.1 million, benefited in part by a one-time tax adjustment that Steve will discuss in a moment. Even without the adjustment, non-GAAP earnings per share of $0.05 was above the outlook we provided you at the beginning of the quarter. On the customer front, Q3 was another excellent quarter. We added roughly 1,800 customers for a total of approximately 18,700 worldwide. This represents a 50% increase from Q3 of last year.

Equally impressive, paying subscriber account grew to approximately 351,000, up about 43,000 from last quarter and up roughly 156,000 from Q3 of last year. To put our performance in perspective, we added more than eight times as many on-demand subscribers this quarter as our closest competitor did in this most recently-announced quarter. This performance was not the result of a few big deals. Instead, the broad adoption of web-based services by customers of all kinds combined with our leading technology and brand led to another outstanding quarter of subscriber additions. Driven by the need for IT solutions that offer a greater return on investment, shorter development times, and superior flexibility and integration, the transition of customers to the on-demand model is occurring at an increasingly rapid pace.

In addition to the growing adoption of on-demand services, our subscriber growth this quarter was fueled by three major customer groups. First, our add-on business within existing accounts was particularly strong this quarter, reflecting our continued focus on customer success. At Corporate Express, for example, total paying subscribers grew to more than 3,500 during the quarter, up from 3,000 at the end of last quarter. They started with our Salesforce SFA service and are now using Salesforce Service and Support to help them manage their roughly 300,000 customer requests they get each month.

In addition, in Q2, we announced a large Bay Area technology company had joined us for about 2,000 subscribers. I am pleased to announce today that salesforce.com has expanded its contract with this company, which we can now disclose was Symantec Corporation. They selected salesforce.com because it provided them the platform they needed to quickly and cost effectively integrate Veritas in Symantec's sales organization. And they now have approximately 3,900 subscribers with salesforce.com.

We also continued to see growth at many of our other major marquis accounts. In fact, ADP now has over 6,100 subscribers, up from approximately 5,200 subscribers in the previous quarter. And Cisco ended the quarter at roughly 2,500 subscribers. Air Products and SunTrust Bank also added users during the quarter.

Second, we again added a significant number of large customers this quarter. In Europe, ALD Automotive, a division of Societe Generale and one of Europe's largest automobile fleet management providers, selected salesforce.com for 1,100 professionals in 26 countries. ALD plans to take full advantage of the new AppExchange platform for customization and integration.

We also won substantial implementations with Symbol Technology and Option One Mortgage that together represented more than 1,600 subscribers.

And just as important as these large deals, we added a significant number of major accounts, where the initial purchase size represents only a small fraction of what the ultimate size of the account could be as we prove our value over time. And of course, these deals would include companies like ADC, Alltel, Deutsche Bank, and Lawson Software, which together represent more than 1,900 new subscribers for the quarter.

Finally, we had another excellent quarter in the small and medium business segments of our business. Despite adding roughly the same number of subscribers as last quarter, our 1,800 new customers were a full 200 more than the 1,600 we added in the second quarter. The SMB market remains a large and relatively untapped market opportunity, and we are very excited about our SMB customers as well as our very large enterprise customers.

All of this customer subscriber growth is translating into tremendous growth in the usage of our application. This quarter, we delivered roughly 1.9 billion transactions, up almost 50% from the roughly 1.3 billion transactions we delivered in the second quarter. And more than 45% of our transactions were API calls; that is computers calling our computer for information, an indication of how our Web services transparently interact with other legacy applications. We believe that adoption is going to create usage, and usage is going to create loyalty. And we are continuing to watch these measures with great interest.

We also saw evidence that the on-demand revolution is gaining momentum at our events. I'm sure many of you attended our Dreamforce User Conference. And the response from all of you, including our customers, ISVs and partners was tremendous, with over 3,000 attending Dreamforce this year in San Francisco at Moscone Center.

And without question, the biggest news coming out of Dreamforce was the announcement of the AppExchange, our groundbreaking new application-sharing platform which you can find at www.AppExchange.com. The AppExchange is nothing less than a revolution in the way that applications are developed, distributed and deployed. And it is undoubtedly the most exciting thing I have ever worked on. More importantly, it represents the key to fulfilling our goal of managing and sharing all corporate information on-demand. And longer-term, we believe it represents another level to fuel our industry-leading growth.

Like so many of our innovations, the AppExchange was inspired by the creativity of our customers. Using the customization capabilities of our platform, they built entirely new apps that went way beyond CRM. And for those of you who have taken a look inside AppExchange, you will find applications for things like product management and project management, human resources and others. And we're seeing a lot of creativity in the AppExchange. Frankly, we needed a way for customers, partners and other publishers to save these applications and publish them to a directory. That directory is the AppExchange, an online marketplace and ecosystem, if you will, that lets our customers browse and try new applications written for our platform.

Customers benefit from a single database, security and sharing model and the easy-to-use interface that they already love. ISVs benefit from the dramatically easier product development cycles and a virtually frictionless go-to-market strategy. The response from customers and developers has already been amazing. What we hear is that in the same way that we democratized access to enterprise applications, we are also democratizing access to development and also providing that same democratization to distribution.

Now while the AppExchange product won't go live until the fourth quarter, we have 85 applications already available, up from the 70 applications we announced at Dreamforce. But more importantly, customers already trying out the applications during our test drive feature is really exciting to us. At Dreamforce alone, we had over 10,000 test drives, and all of the applications listed in the directory were tested by users. By the end of the third quarter, customers had taken more than an additional 22 or 32,000 total test drives of our AppExchange applications. And remember, this product doesn't go live until our fiscal fourth quarter. But these customers are not only experiencing the AppExchange applications, but they're getting inspired through their own creativity by seeing so many examples of different types of applications that they can now deploy even on their own with our platform.

Also in the quarter, we launched a major upgrade to Salesforce Service and Support, which we introduced previously as Supportforce a little over a year ago. And this product aimed at the customer service applications market is already showing strong acceptance in the marketplace. And with over 50 new features and an AJAX-based Agent Console that reduces page clicks per task by 50%, the new product is drawing rave reviews.

Our services launch also introduced the introduction of AppExchange Service and Support, which will feature 22 new applications for our platform, for the service and support marketplace. Now this extends our core functionality with all kinds of new functionality, some that we've created and a lot that's been created by third parties. We see this as an ideal way for our partners to extend the value of Salesforce Service and Support and for our customers to share best practices with just a few clicks.

During our third quarter, we also made tremendous enhancements to the operational capabilities of our Company. First, we are very fortunate this quarter to have added some of the industry's top talent to our management team and also to our Board of Directors. John Freeland joined us as President of Worldwide Operations and is overseeing currently our services, support training, alliances and customer success management organizations on a worldwide basis. Previously, for the past 26 years, John had been leading a variety of critical Accenture businesses, most recently Accenture's $4 billion a year CRM practice with I think approximately 4,000 CRM consultants. John is bringing tremendous experience to our management team. We are just delighted to have him onboard with us.

Steve Russell has joined us now as President of our Asia-Pacific region based out of Singapore. And Steve is bringing more than 25 years of senior management experience in the Asia-Pacific market. And he is strategizing our expansion into new Asian markets, including China.

In addition, we also expanded our Board this quarter by bringing two new Board members in, and that brings our total Board membership up to eight members, seven of whom are fully independent. Joining our Board this quarter were Craig Conway, the former CEO of PeopleSoft, and Shirley Young, who is a highly experienced director based out of Shanghai. They bring and add experience and background to an already outstanding group of Board members.

The second operational area where we made real progress during the quarter was in our datacenter infrastructure build-out. At Dreamforce, we announced our plans to build an entirely new datacenter architecture to run salesforce.com and our new platform in the AppExchange. And we are planning now to build two production datacenters in the US via our Mirrorforce program. Well, first of all, I am extremely pleased to report that Phase I of this project is now complete. The cutover last Saturday from our old datacenter to our new California datacenter went exactly according to plan, and customers experienced virtually no unplanned downtimes during the transition. This was a significant technology accomplishment.

With the completion of our Phase II East Coast datacenter in the next few months, we'll have the infrastructure redundancy necessary to provide virtual real-time failover and the capacity necessary to support our amazing growth. Personally, I just was at our Northern Virginia datacenter on the East Coast, which is getting ready to come live. And this datacenter combined with our new Northern California datacenter are state-of-the-art datacenters, offering our customers perhaps some of the very, very best infrastructure for running their businesses.

Saturday's near-perfect transition was the culmination of months of planning and hard work by our technical teams worldwide. And I'd like to give special thanks to my Co-Founder, Parker Harris, as well as our Vice President of Infrastructure, Chris Almondkroger (ph), and his entire team for a job well done. I'd also like to thank all of our core architects and executives, who have been so instrumental in running this and delivering such an outstanding result to our customers.

In summary, third quarter was an outstanding quarter. The on-demand revolution is continuing to gain momentum, and our results show that we remain the clear market leader for on-demand solutions. At the same time, we're making the right investments in people and technology to extend that leadership position going forward.

With that, let me turn things over to Steve for a more detailed review of our financial performance this quarter.

Thanks, Marc. Good afternoon, everyone. Thanks for joining us today. Let me begin by providing you some detail on our revenue and subscriber performance for the quarter. The third-quarter Company revenue of $82.7 million was up 78% year over year and 15% sequentially. In North America, revenue grew 78% from a year-ago quarter to $66 million; this represents 14% sequential growth. European revenue of $11.4 million was up 73% year over year and 13% sequentially. Revenue in Asia-Pacific including Japan doubled from last year to 5.3 million and up 26% from Q2.

Subscription and Support revenue continued its torrid growth in Q3, ending the quarter at $74.4 million; this represents growth of 79% from last year and 13% over Q2. This outstanding performance was due in large part to our exceptionally strong Q1/Q2 subscriber additions as well as another great subscriber quarter in Q3. As Marc already discussed, subscriber growth this quarter was remarkable. We added roughly 43,000 new subscribers, and our current subscriber total of approximately 351,000 is 80% more than we had just a year ago.

Let me take a moment to discuss some of the drivers behind this growth. First, as Marc noted, our focus on customer satisfaction continues to yield dividends in the form of growth within existing accounts. This is the cornerstone of our model, and it's really gratifying to see existing customers expand their relationship with us. Our ability to expand subscriber accounts within existing customers is why I am enthusiastic about the large number of midsized deals at major accounts we saw this quarter.

Second, our performance was very strong across all customer-sized businesses. This quarter, we saw particularly strong performance in the SMB market space. This cross business strength really demonstrates the resiliency of our model. One quarter, we see exceptional growth in enterprise. The next quarter, we see exceptional growth in small business and so on. The net result is a diversified model that allows us to continue to grow at these levels without specific reliance on any one business segment.

And finally, our momentum in the enterprise continued in Q3 albeit in a slightly different fashion. While we did sign several large deals during the quarter, we saw real strength in deals 3 to 500 subscribers at major accounts.

Then finally, a couple comments about subscribers. As I have said in the past, forecasting subscriber growth on a quarterly basis is by no means an exact science. Predicting the timing of major account additions or subscriber additions within existing accounts is challenging. For this reason, we'll continue to see some volatility in our sub numbers quarter to quarter. However, remember that while our reported subscriber number is an important indicator of future performance, it has little impact on our near-term revenue and profit performance. Because we recognize subscription revenue on a daily basis, there is virtually no difference in our quarter-to-quarter revenue performance if a deal is booked in the last week of a quarter or the first week of the next quarter. And yet, that booking does impact reported subscriber number and thus calculated average revenue per subscriber.

Similarly, while enterprise deals are essential to our long-term business objectives, our quarterly results are not driven by any single account. To put that in context, consider that our largest customer represents less than 3% of our total subscriber count. And as we add more and more subscribers, the relative size of each account gets smaller, not larger.

Now on to professional services. Third-quarter revenue of 8.3 million was up 69% year over year and 31% sequentially. As you know, we have been adding a number of headcount to our professional services organization, and that was the primary driver of the sequential jump in revenue we saw this quarter. As Marc noted earlier, we have added John Freeland to the management team to help us grow this business more profitably going forward.

On to the P&L. Overall gross margin for the quarter was 76%, down 1 point from Q2 and 5 points from last year. Primary driver for the decline is the investments in people and technology we have been discussing with you the past couple quarters. Subscription margins continue to reflect the incremental IT investments we have made to support our Mirrorforce datacenter initiatives. Remember, this was a large investment in hardware and software, most of which had cost of sales in the form of lease costs. Since the ramp-up in costs is essentially a step function increase, subscription margins were impacted. These investments have resulted in increased delivery costs of 2.5 million sequentially and 4.6 million versus the prior year.

Professional services margins improved this quarter, but we still have a lot of work to do here to get these margins where they need to be. We are still growing headcount, adding technical capabilities where it's needed most to support some of our large implementations. And also as I mentioned to you last quarter, some professional services revenue is amortized into future quarters per EITF-0021, and this caused us some near-term margin pressure. In that context, while we are focused on improving billing efficiency, I do expect margin pressure to continue.

Operating expenses including sales, marketing, G&A and R&D ended up 10% sequentially and 59% year over year. OpEx now stands at 68% of revenues. The biggest increase was in R&D expenses, which rose 168% (ph) year over year and 21% versus Q2. In addition to normal growth in R&D this quarter, the creation of a new development datacenter in San Francisco pushed R&D costs higher. I am comfortable with the R&D spend, especially given the critical nature of R&D to our goal of leading in the on-demand data management business.

Sales and marketing expenses grew 9% sequentially, primarily the result of geographic expansion of our sales organization and the number of marketing events that Marc described earlier.

And finally, G&A costs rose by 7% sequentially and 47% versus the prior year. The primary driver of this growth is again related to our need for a local presence to support our rapid business expansion.

Operating income for the quarter was approximately $6.4 million; this despite the mild pressure on gross margins that I described earlier. Solid expense management allowed operating margins to improve to approximately 7.7% or more than double our year-over-year result of roughly 3.8% and up 1.9 points from Q2.

Turning to taxes. As Marc noted in his comments, we had a favorable tax adjustment this quarter that resulted in roughly $6.8 million of additional income. As you know, we have never recognized any deferred tax assets in our financial statements. And the value of net operating loss carryforwards and temporary differences have historically been fully reserved. Because we have been able to demonstrate sustained profitability and we believe that we realize these deferred tax assets in specific taxing jurisdictions, we are now required to reverse some of this valuation allowance. Net of the effect of that reversal, our tax rate would have been 20% for the third quarter, just as it was in Q1 and Q2. Because the valuation allowance has been reversed, we also saw a large deferred tax asset appear in our balance sheet. And although this event had been anticipated, there is no way to predict exactly when the valuation allowance would be reversed prior to this quarter.

As Marc indicated, the net effect of this adjustment was to add roughly $0.06 to our reported EPS. And I will give you some more color on our tax expectations in our outlook as I address Q4 and FY '07 expectations.

Headcount -- before I go to the balance sheet -- I want to tell you that we exited our quarter with 1,116 people, up 57 from Q2. This ramp was smaller than the 183 people we added in Q2. But with so many hires in the second quarter, we felt it prudent to slow down the hiring a bit so that we could assimilate those people into our respective organizations. However, looking ahead, we are planning to increase our hiring of both quota-carrying and infrastructure headcount to support our business growth again.

On the balance sheet, we closed the quarter with $256.9 million in cash, cash equivalents and marketable securities. This was up from 232.7 million in Q2 and 205 million at the beginning of the year, reflecting another strong operating quarter in Q3. Accounts Receivable grew 6% sequentially to 53.4 million. And in context of our reported and deferred revenue growth for the same period, this was an excellent result.

Reflecting our continued strong sales performance, deferred revenue ended up the quarter at 127.1 million, up 8% sequentially and 71% year over year. And it's also worth noting that the valuation allowance reversal that I commented on earlier resulted in roughly $6 million in deferred tax assets appearing on our balance sheet.

Turning to cash generation, Q3 was a record cash flow quarter with cash generated from operations coming in at approximately 24.6 million. Continued growth in our business combined with excellent management of our fundamentals contributed to this record performance.

Let me close my remarks by providing some detail on our outlook for the remainder of this year and a glimpse into fiscal year 2007. First, Q4 FY '06 -- on the top line, the subscriber growth we have seen in the last several quarters will continue to push subscription revenues higher as we exit the year. However, after growing our professional services revenue by roughly $2 million sequentially in Q3, I expect Q4 ProServ revenues to be roughly flat; this primarily reflects the seasonal effects of the holidays on the services business.

From an operating margin perspective, higher subscription revenue will be offset by continued increases in delivery costs related to planned completion of our Mirrorforce datacenter transition. In addition, after adding 183 people in Q2, we added just 57 people in Q3. We are turning the hiring engine back on. So this quarter, expect hiring to be much more like Q2. And finally, Q4 will be heavy in customer events with our winter '06 launch and an increase in our city tour activity.

Tax rates should return to first-half levels or roughly 20%, and share count is expected to be 120 million shares for the quarter. Given all these dynamics, we now expect fourth-quarter revenue in the range of 88 to $90 million and GAAP EPS in the range of $0.02 to $0.04.

Let's take a look at our preliminary outlook for fiscal year '07, and keep in mind we've just started the budgeting process, so these are fairly preliminary. And we will do a more detailed outlook on our Q4 earnings call, but I wanted to give you a brief update today.

Given the strong subscriber growth and the acceleration in the transition to on-demand that Marc discussed, we remain optimistic about our core subscription business. And our recent investments in professional services personnel should benefit those businesses heading into next year as well. As such, we now expect fiscal year '07 revenue in the range of 460 to $465 million. Gross margin should improve slightly as we begin to leverage our Mirrorforce investments across a larger revenue base and we improve our services business.

Remember too that we are in a high-growth phase of our business, and we will continue to invest in sales, infrastructure and delivery to bolster our leadership position in the fast evolving on-demand market. As a result, we now expect as well our effective tax rate to raise to 45% in fiscal year '07 and project an average share count for the year of 123 million shares. Given these effects, we now expect non-GAAP earnings to be in the range of $0.20 to $0.22 next year, keeping in mind that these projections do not include the cost of expensing options, which will commence in Q1. And I will have more to say about stock option expense next quarter.

Summing up, Q3 was an excellent quarter. We continue to make the necessary investments in people, technology and events to maintain our leadership position in the on-demand market. And we did it without missing a beat on our growth or our financial performance goals.

At this time, I will turn things back to the operator, and we will open up the call for questions. Thank you all very much.

(OPERATOR INSTRUCTIONS). Kash Rangan, Merrill Lynch.

Congrats on the quarter. One question for you, Marc, and one for you, Steve. Question for you, Marc -- how do you see the landscape changing as you get into 2006 with Siebel now tucked into Oracle and there is increasing volume of talks from the big three -– Oracle, SAP, Microsoft -- about getting into the on-demand market. How do you see that changing the landscape positively or negatively?

And question for you, Steve -- with the cash flow as strong as it has been this quarter, almost equal to last year's full-year cash flow, how do you see this on a quarter-to-quarter basis moving forward? Do we get more predictable? Or was there any one-time thing that really helped the cash flow this quarter? Thanks. Congrats again.

In regards to competitive situation -- also before I go on, I misspoke. I think I said during my comments that we are the third-largest independent provider of on-demand business applications in the world. Actually, I meant to say that as of this quarter, we now passed what is now the second-largest provider of on-demand business services in the world, WebEx, and that we are now the largest independent provider of on-demand business applications in the world delivered on-demand.

In regards specifically to the competition, we, as you know, have a rapidly changing competitive environment. At the beginning of this quarter, of course, there was a very large independent CRM company out there, Siebel, that has now basically suffered the same fate as PeopleSoft. We expect the same market dynamic to take hold. And so we are optimistic about that from a competitive position. But also, of course, we're cautious. We're watching what everyone is doing. Microsoft is making announcements; everyone is making announcements.

But in terms of technology, we are really the only ones who have really delivered kind of the solid incremental improvement. And also, we are the only ones that have been able to deliver the solid customer success in both the small, the medium and the very large deployments. So we are very optimistic about the competitive situation, and we are excited.

Certainly, there was a large CRM company out there that is essentially disappearing and getting integrated into Oracle. And so from an independent CRM perspective, that makes us certainly one of the largest stand-alone independent CRM providers in the world -- that is an exciting place to be right now -- and doing it all on-demand.

And with regards to the cash flow comments, clearly we do manage the cash flow and it is a very important metric that we look at. We had an extraordinary quarter this quarter as everybody was focused on managing the business from operations. It's still tough to do the predictable part as we still ramp up our growth in a variety of countries in the world. And as you know, the big drivers of cash flow are net income, changes in receivables, and timing of payables and accruals.

So we had a great quarter. It's a key focus for us. But also, we're still in this heavy ramp cash flow area. It is going to be tough to be predictable for a while.

Rick Sherlund, Goldman Sachs.

A couple questions. Steve, if you can explain why we are going up to a 45% tax rate next year. And also, is there more evaluation (ph) reserve left to be reversed? And any comments on subs for Q4?

Good questions, Rick. On the valuation reserve, there is some. But those will all go to the equity, so they won't necessarily impact the profit and loss statements going forward. A lot of the valuation reserve is around stock options. And those will go, like I said, to equity.

With regards to the 45% tax rate, typically, a company will -- as they're growing, they start to make income and they start to pay income taxes, which is a good thing I guess. With our international expansion, we have issues around where we make profit versus where we have deductible net operating losses. That causes this rate to be slightly higher than you would expect from most companies in this growth phase. But I think you'll see that start to moderate over time.

But for next year, our current estimates -- and we will certainly revise these as we get into our budgets -- look at our specific geographic mix of revenue and income and where we are having losses versus where we make money. But this is our best guess at this time. But I think also you can anticipate it will moderate over the next couple years as well.

And subs for Q4, any stabs at that?

Subs at Q4, we haven't necessarily been giving guidance. The revenues will give you a good indication of our expectations of the business going forward. But it's like we said and I said in my commentary, subs are certainly an area that we manage to. But it's tough to predict those because our customers drive that number so much.

And the 43,000 increase, can you give any direction on how much of that was from new customers versus existing?

There was a lot of add-on business that we got. We talked about in Marc's component as well as mine a lot of existing customers got to add on. But we also added 1,800 new customers, which is a top number. So I can't give you the percent breakouts, but it was good business across the board. New customers coming on, the 1,800 new customer adds was fairly significant for us. But we also in terms of subscriber adds had great add-on business from existing customers.

So again, it was across the board, not so much in big, big deals though, like we have had in previous quarters. This was just good solid business across all aspects of it.

Great quarter.

Peter Coleman, ThinkEquity.

Just one question on the Mirrorforce launch, at least the first phase. We have talked a lot about obviously the cost of this. I'm wondering what you might be able to comment on the opportunity from the revenue side may be, especially from the large end of the market, if there are people demanding this type of failsafes back end for you and maybe this unlock some bigger business down the road?

Well, as you know and as I commented, salesforce.com has been building a datacenter. We built our business on a datacenter that is located in Northern California. And honestly, we just outgrew that architecture, we outgrew the datacenter, we outgrew the power and the bandwidth available in that datacenter and on and on and on.

We have our customers come in on a regular basis, and they do detailed reviews of our infrastructure technology as well as security and so forth. And we really believed that it was time for us to upgrade that datacenter.

We made a decision when we said, okay, we are going to cut loose this old datacenter. We want to not only build a brand-new datacenter with a state-of-the-art architecture built on the latest technology, but also we want to be able to build a mirror of that data center. And so we built a brand-new data center in Northern California. And we have also built a brand-new datacenter in Northern Virginia. And I'd have been to both datacenters. In my opinion, they are state-of-the-art.

This weekend, we cut the old datacenter loose, so we cut the cord. We moved all the data, the applications, the software, everything from the old datacenter into our new datacenter architecture and turned it on for all of our customers worldwide. And that datacenter was live and operational at 8:30 San Francisco time on Saturday night.

Since then, that datacenter has been running just fine. And now our attention is focusing on our Northern Virginia datacenter to create not only just a hardware mirror, which is what it is today. So in many ways, it is redundant that if for some reason we were to lose the entire datacenter, we would cut over and work to cut over to that Northern Virginia datacenter. We're now working to make that a live mirror, or a replicated -- fully replicated mirror datacenter so that if for some reason we lost the Northern California datacenter, it would be an automatic failover to the new Northern Virginia datacenter. We expect that software transition to happen this quarter.

So we are very excited about the new datacenter architecture. The majority of that investment occurred in this quarter and partially in the second quarter as well. And we are very excited to be on this new infrastructure.

Any plans on needing to locate one over in Europe somewhere at some point?

We today have this very solid infrastructure. We serve all of our customers worldwide with tremendously fast response times and excellent reliability out of our datacenter. And we expect that over time to add other datacenters. But when we are going to do that and where they are going to be located is something that I don't think we are willing to talk about at this point.

Thanks a lot, guys. Nice job.

Jason Maynard, Credit Suisse First Boston.

A question about 2007. From an operating margin perspective, it appears you are going to be hiring fairly aggressively in sales and building out infrastructure. Steve or maybe Marc, can you guys talk a little bit about how we should think about margin expansion for the next year or so relative to your growth opportunities? And what is the dynamic in as much as you can quantify this between points of revenue growth versus operating margins?

Let me just comment on that briefly, and then I'll pass it to Steve. Unlike a lot of enterprise software companies who today are trying to maximize their maintenance revenues amid declining top-line growth and try to milk their existing customers for these kinds of additional fees, our approach is very, very different. And that is we believe we are in a new segment, a new market and a new opportunity. And we intend to capitalize on it.

Now you have been following our Company for a long time, as have most of the analysts on this call. You'll know that that is not a new mantra for salesforce.com. We have said for a long time that we are in aggressive expansion and investment mode. And honestly, as these competitors kind of just vanish, we are more energized by that and feel that it is in our interest to expand our Company on a global basis, not only in infrastructure, which I just mentioned, but in distribution capacity and a lot of different areas. This is really becoming our time.

But to maximize that and to get the market share that we believe is opportune for us, we need to invest and invest heavily. And that's very much reflected in our FY '07 guidance. So while you're seeing again very strong top-line growth for any other midsized enterprise software company, perhaps some of the highest that you're seeing in that size company, we are also investing very strongly and we want to be able to continue to invest very, very strongly as well.

Yes, and I think, a good example is we talked about adding Steve Russell to Asia-Pacific based out of Singapore and going after the areas between south of Tokyo and north of Sydney. So you'll see us continue to ramp that region.

Also keep in mind, and we've discussed this before, we serve a lot of customers in over 47 different countries. But we don't have our physical presence there yet. And this is going to take some time to build out. One is -- and let's not forget the US -- we don't have a physical presence in a lot of major cities in the US, which we are going after, let alone Europe and Asia.

So we certainly are going after growth. We certainly respect the profit margins and the goals there, but they're going to remain modest vis-à-vis going after market share, increasing our distribution and getting presence in all the countries we want to be in for our customers.

Maybe just one follow-up on that. Was there a change within the last say 30, 60 days as you started looking at your planning to accelerate the investment in infrastructure and hiring, given some of the moves by Oracle acquiring Siebel and Microsoft?

Well, I think that we could not forecast specific actions like that. But certainly, we can forecast the general movements. We don't think that companies are getting excited about buying big software packages and buying big hardware packages and trying to put it all together when they get this very affordable, low-risk approach with our service. And now as you know with the AppExchange, we are trying to get our customers to diversify their portfolio salesforce.com inside their companies -- how do we want them to use us in new and exciting ways.

And this means that what we are trying to do is push -- we want to push the top-line numbers in the top-line revenue growth. And we want to push the top-line subscriber number. We want a market share gain. And so this year, we have been able to get that. And we feel -- if you look at this fiscal year compared to last fiscal year, this has been a very solid year for us so far. And we are by our guidance on the fourth quarter; you can see that we feel good about that as well.

But next year is another pivotal year for us. And I do not want to say that every year is a pivotal year for us, but it is. It is another pivotal year for us that we need to be able to execute. You know, at Salesforce, we have a tremendous vision around the end of software, as you know. But there's three values that are extremely important to us, and they are the customer and partner success. But also growth is very important to us as well as execution. And to make these things happen and make that values combination really occur internally, we need to invest. And the datacenter change is just a great example because it not only shows what we're preparing for in terms of new customers coming in, but also the tremendous accomplishment of our employees and technical teams in making this very smooth datacenter transfer. So this is very much our mantra ongoing.

Thank you very much. Nice quarter.

Laura Lederman, William Blair.

Good quarter. A few questions. One, if you could please give us any update on churn? Has that changed at all from the last number you gave? And also for Steve, any thoughts on cash flow -- free cash flow for full year '06 and '07? And then I have got some separate questions.

You know, Laura, we talked about churn last quarter, and we probably won't give any updates for a while longer on that -- continue to say however we're focused on customer retention and customer success. And I think the fact that we had such strong, good add-on business from existing customers is testament to the fact that we are providing solutions that people love to use and keep adding to their organizations.

On cash flow going forward, like I said, it's a major focus for us, but it is still tough to predict given the build-out that we have and the growth in the business that we are experiencing right now. Suffice it to say it's one of the key metric focuses for the management team.

Also switching gears -- and maybe this is a question for Marc -- so far, since Oracle's announcement they are going to acquire Siebel, is your sense that's been a net positive when you talk to your salespeople and your customers in terms of creating a decision point in the Siebel base that benefits you?

Honestly, there is two net positives, if you want to put it that way. First, of course, is Siebel essentially becoming part of Oracle creates tremendous uncertainty for the Siebel customer base and prospect community. And so for our salespeople, they can sell into that uncertainty, and we are optimistic that we can train them and execute with them to be able to do that. And that's a process that we are engaging with.

Then two, of course, Microsoft I am sure you saw 2 weeks ago or a week ago now, coming along and announcing that they are moving in on-demand; that on-demand is the future; it's the future of technology. Just about every major CEO of a software company has now said on-demand is the future and it is the way their company is going. I am sure you saw Henning Kagermann's comments last week to Dow Jones Newswires, to Chris Writer (ph). I am sure that you have seen all of the software CEOs say that the future is on-demand.

We've been saying that for about almost 7 years now; it will be 7 years March 8th. But we have done something different. We have written the code. And you've got to write the code; you have got to build the software. You have got to get the datacenters. You have to create the scaleable infrastructure.

One thing that's very unique about our offering is, as you know, we have very large customers. And we announced ADP with 6,100 live subscribers, all the way down to companies with one user or five users. That's a very unusual thing in the software industry to see a technology company that has created one piece of code that can run small, medium and very large companies.

So while it's very exciting on the high end with kind of the capitulation of Siebel and kind of their disappearance as Tom Siebel's departure from the software industry entirely, as well as in the low end with Microsoft telling all their customers that the future is on-demand. We are excited about the market trends. But we have to execute, and that's really the key. Every quarter is a new quarter. Every day is a new day. Every month is a new month here.

We don't take anything for granted. The software industry, you know, it's very tough; it's very competitive. We have a lot of competitors out there. We probably must have over 100 competitors is my guess. And they are all selling against us and honing their messages and trying to figure how they are going to beat us. Our job is to take our investment and to win those deals. That is a day-to-day process. And we just have to continue to be able to execute that.

Fortunately for us, this quarter was very good, with strong subscriber growth and strong customer growth and strong revenue and net income and then some. But every quarter is a new quarter, and we try to do our best every day. And that is how we take it, one day at a time.

Brendan Barnacle, Pacific Crest.

I just wanted to follow up on the earlier cash flow question. Any even high-level sense of what may be percentage of revenue we may see that traps the cash flow in 2007 -- any high-level ideas? Then AppExchange, can you give us a sense of what percentage you’ve factored that into some of the revenue guidance for next year, what sort of contribution we might look for that for next year?

On the cash flow, a couple of things here. We are real early stages on our '07 planning, so I just want to throw that in. And secondly, like I have said, we have not typically given guidance around cash flow at this time. Again, it's a focus for us, but it's also a difficult metric at the moment to take a look at because of the wide-ranging investments that we are making. Marc, do you want to talk about AppExchange?

Yes, I would be delighted to. You know, when we look at AppExchange for us -- and I'm not going to avoid your question with this answer, but I want to give you an honest answer. And that is it's taken us almost 7 years as I mentioned to get salesforce.com to where it is today. People always tend to overestimate what you can do in 1 year in our industry and underestimate what you can do in 1 decade. And we have a 1 decade dream at salesforce.com, and we have our targets for where we want to be after a decade. We're almost 70% into that timeframe, and we feel good about where we are right now but we have higher goals of course.

Now with the AppExchange, it is not even live yet; it is coming live this quarter. And we look at it exactly the same way. We have got a 10-year horizon for this product. We think that salesforce.com is a killer app. I will be totally honest with you, I think AppExchange has the potential to be our second killer app. But it's not going to be an overnight sensation. That's not how it has been architected; that is not what it's about. AppExchange is going to require investment. It's going to require time; it's going to require caution over a long period of time. There is a lot of things that we have to do right to make AppExchange work.

AppExchange is a great idea. It's one of the most exciting things I have ever worked on, as I have mentioned. But we need to focus on it over a long time. I personally work on a lot of the plans for that product. As you probably know, I've got some spectacular engineers and architects and product managers and business development executives on that. But we will need time to make that happen.

We then of course announced it in September. And then we will need to grow it and extended (ph) enhancement. It's not kind of a consumer product, which starts out, you launch it. And 9 months later, it gets replaced with something else, like a new TV or the next version of the iPod or something like that. This is something that you really take a long-term view on. And that's what we're going to do to make this successful.

Philip Rueppel, Wachovia Securities.

A couple questions. First of all, you talked a number of times about investment in the salesforce. Could you give us a little color on how do you plan to do that? Is it really just in geographies, where you don't have as broad a presence? Or is it more on the enterprise side or inside sales versus enterprise etc? Just how you think you'd like to expand going into '07?

And then second, on Mirrorforce, I am trying to balance some of the comments that suggest that much of the investment has already taken place. And it appears from where you are at least in turning it on, that it appears to be true. I'm trying to balance that with sort of the commentary that gross margins will still be under pressure as we enter the fourth quarter. Can you tell us what still has to be done with Mirrorforce? And then kind of when that step function will be 90 or 100% complete?

Well, first and foremost in distribution, in our distribution strategy, it is an essential part of our business. We do need to invest in it. We have not found other channels to be able to sell our product other than ourselves. There have been other companies who have come along and tried to develop other channels and have failed at that. We don't think the traditional channels are totally ready for that. We're working and trying to develop those channels. We hope that ISVs and software developers can participate in the AppExchange -- could be another channel for example.

But very much our distribution is self-made and self-executed. And as the Company scales, as it goes into new geographies, as it goes into new markets, as it goes into different sized companies, we need different types of distribution. But again, those are self-executed initiatives, and so they do require our own investment.

I will let Steve comment on the Mirrorforce investment going forward. But let me first just give you a little bit of color that the investment that we just made was kind of a step function up. That is, we did just make -- I think we characterized it on the call last time -- this $50 million investment in Mirrorforce. This was a significant investment. These datacenters, there's three of them that are replacing one. The three datacenters are two production mirrored datacenters.

But also, we have this new development datacenter, and these are world-class initiatives. And it did require us to initiate a step function that we were willing to kind of bear down and take, the majority of which was in the third quarter and partly in the second quarter, but now we assume in our expense run rate.

But let me just say of course we will buy more technology of course as we continue the lifespan of this Company. And we expect to continue to upgrade and update our systems over time. But these step functions don't happen every day.

Marc is right in that keep in mind we have leased a fair amount of our equipment. So as we bring on the leases, we start to expense it, a lot of the equipment obviously showed up in the last quarter. So you got the step function up. Now the fact that they turn on the solutions in the fourth quarter means we will have some amount of expenses that will be there in the fourth quarter as well. But it's a big step function year over year that you should look at. And since it is a fairly large expense in the third and fourth quarter, then you'll start to see the leverage come about as we grow our subscriber base going into next year.

Thomas Ernst, Deutsche Bank.

Marc, quick question here on the IBM side. Any developments there in how you work with IBM as a partner?

I will give you my honest answer. There are certain groups in IBM that I think really understand how to work with us. And we've tried very hard to work with those groups over the last 5 or 6 years that we have been out in the marketplace. A great example is the WebSphere group. You probably know that IBM has done extensive integration work between WebSphere and our service. Our customers can buy WebSphere, build applications, but use salesforce.com data to drive WebSphere applications. And we really like IBM's WebSphere organization.

However, as we have moved around in the company and talked to different organizations at IBM, and of course we have some very senior former IBM executives in our Company, including Jim Steele, who is my President of Worldwide Distribution -- who was 22 years at IBM, including running significant parts of their Asian-Pacific and Americas businesses.

Not all parts of IBM really understand what it is we do, why we are successful, how we are successful and what we can offer customers. I think IBM is a company that is in transition. They have done a great job at advertising on-demand and educating people on on-demand. They do some beautiful television commercials. They just have no products.

So we thank them for that market development. But we just have not seen them be able to understand how to work with a company like ours to be perfectly honest with you, except in isolated situations like the leadership in their WebSphere group.

Okay, so no real shift either relatively recently either, I would assume?

I don't expect anything honestly. I do not have a lot of optimism about IBM's ability to deliver in on-demand, nor have I in the past as you know.

Maybe a follow-up on that as well. IBM has been closely aligned with Siebel. But what are you seeing directly out of Siebel as a competitor? I recognize they are not everywhere. But they have been fiercely aggressive in trying to win business in the past. Do they still have that same posture here right up until now? Or has anything changed in terms of what you have observed tactically out of them as a competitor?

Well, that’s a very good question. First of all, the first part of your question, as you know, Siebel built their on-demand product on DB2 and WebSphere. And that did not go very well for Siebel as far as we can tell. As you know, they've had fairly pathetic growth in on-demand.

But when we talk to customers, we believe that Siebel has suffered substantial quality issues also with their product, including poor performance by IBM's datacenters. They have not had the same level of customer success that we have been able to deliver our customers. For more information on that, you should just talk to their customers. I think that will bring you the information that you are looking for.

But also let me say that we believe that much in the same way that PeopleSoft has disappeared out of our opportunity pipeline over the last year since they have been acquired, we expect that that very well could happen as well with Siebel. It's still too early to tell. I do not want to give unbridled optimism in an area that's unknown. But customers do not respond well to this type of acquisition situation. They lose confidence in the vendor. They tend to stop looking for them for new solutions.

That may be different than existing Siebel customers, who are trying to lower their long-term maintenance agreements by buying licenses or additions in any specific quarter. But this is not something that we think the customers are very excited about going forward.

Ross MacMillan, Morgan Stanley.

Steve, just a quick one first on capital expenditures. It sort of bounced around for three quarters. I think it was nine and then three and now five. Can you just help us understand -- I know you've got the buildout in the datacenter, but a lot of that is leased. So I'm just trying to understand what is making up those numbers. And then as we look into next year, would you expect CapEx to actually be up year over year?

Well, you know, you are right. We do lease a lot of equipment. We also have and did buy some software and other capital assets over the last two or three quarters. You have to keep in mind as well as we add offices, we have to capitalize leasehold improvements as well. So you've got a number of effects going on because of our expansion.

We are more focused on cash flow from operations than capital asset growth. But it does happen just because of those couple activities. For next year, we haven't got into the budgeting cycle enough to know. Certainly, we will continue to invest. As Marc said, we add datacenter equipment on a fairly routine basis. We are adding offices on a fairly routine basis as well. So you should expect us to make future investments. But it is not an area that drives the company. It's really more focused on cash flow from operations.

Maybe one just for you, Marc. Obviously pricing was something we looked at last quarter. It seems to be a little bit more stable this quarter. I'm just curious as to -- clearly at least in some accounts, you had had more competition from a pricing perspective from Siebel. Is that changing at all? And in addition to that, just how do you sense customers are viewing the prices you charge? Are they still very much willing to pay? Or do you have to give incremental discounts to some of the larger accounts?

Well, pricing is extremely interesting part of our business because we do have a new pricing model. Customers have to learn about kind of this new on-demand pricing model, where you kind of have less risk because you're paying over a long period of time. There's more consistency. Customers really have not I think appreciated this change from kind of the typical end of the quarter license slam. And I wouldn’t say that we've seen a lot of change in the pricing situation over the last few quarters. And I think that's probably reflected in our results.

One thing that we probably will see changing going forward is as we get ready to release our winter '06 version, I expect that we may have some different products, combinations and pricing combinations for customers. So that I think will probably be the only change that we will really see in pricing going forward is our own implied pricing changes, which you will see as we get ready to bring our winter '06 production with some exciting new high-end features associated with that product.

Heather Bellini, UBS.

I was just wondering -- back to the cash flow question -- I am sorry to keep hitting this -- should we expect that your cash taxes paid are also going to be similar to 45%? Or is that just a P&L 45% we should (multiple speakers)--?

It is a P&L 45%. Because now that we have the deferred tax assets, you're going to see us have the ability to have expense and tax cashes paid differently.

So what type of cash tax rate should we be modeling? Because I think that's what everyone is kind of perplexed by -- is what type of cash flow number are we going to have next year, and with net income -- with people's EPS numbers coming down due to the higher tax rate, how do we think about the cash taxes to adjust for that?

Certainly, we are looking at that. But again, we're early in budget. It has a lot to do with country mix. The effective tax rate that we have, the tax expensed is driven by a lot of that. It is virtually impossible at this time to tell you what that tax cash is going to be. And I am probably -- not an area I'm going to go to right now just given the state of the budgets and where we are at. We can talk further later on this year when we give the Q4 guidance. But that number is pretty darn hard to call based on the taxing jurisdictions you are in.

You guys know we are focused on cash flow from operations. We've done very, very well this year. I don't think that attitude is going to change. But really it is about changes in receivables, it is about the net income you deliver, and it's about changes in deferreds that really drive cash flow from operations. The tax cash payment is not going to be a big driver.

Dave Koning, Robert W. Baird.

Another great quarter. I just had a question on the Service and Support group. I'm wondering how many user adds came from this group in Q3? And then how many total subs are in this group and what percent of your total subs this could represent at some point?

Well, it's a great question, and I wish I had the answer, honestly. I do not know if you saw the slides from our Salesforce Service and Support announcement. But I would just characterize that product as roughly about 10% of our business. That probably is not an exact number; that's an approximate rough scale. That's how many customers we roughly said we had in that area that are using this type of functionality and product. There is certainly an opportunity for us to expand in our sales customers the use of service and support. We are working to identify a demand in our customers for this product. We're marketing aggressively to them.

And like AppExchange and my comments there, this is a long-term initiative for us. We are in this one only about a year. For where we are after a year, we are very comfortable. We think that there's more work to do. We have made substantial investment in the Salesforce Service and Support group over the last, I would say, 6 months.

We hired a new Vice President and General Manager to run the group. She has done a fabulous job. She has also added a number of product management and marketing and business development executives. We have hired quite a few new developers. And we are looking to invest in the long-term in the Salesforce Service and Support product line. And I am cautiously optimistic that this also could be another very substantial way for us to be able to expand inside of our existing customers.

That said, let me just a step back and say Salesforce as a product remains our primary product that we're selling. It is where we are closing most of our deals. It is our Trojan horse. It is the product that goes in to the customer first. And from there, we expand through sales for Service and Support or through AppExchange applications. And we feel very, very good about the direction there and the potential of that product.

Peter Goldmacher, SG Cowen.

Just a quick question on the winter release and what sort of features will be in there to tantalize adoption of that exchange?

Well thank you for that question. In the winter '06 release, there is of course the whole AppExchange platform as you know, Peter. There is the ability to build applications for the AppExchange, which is an integrated and inherent part of the winter '06 release -- builds your tabs, your forms, your workflow and so forth. But of course, there's a major new feature in the winter '06 release, which is the ability to save your application. We have never had a save button before. You can hit save, and it packages all that stuff up. And then you can save it off to the directory, either a private or a public directory.

And that ability to save apps, we've never had it before. So we don't know how many apps are going to get saved. But we are going to teach people how to save apps. We are going to go out and encourage developers to build and save apps. And then customers are also going to find something else that's very exciting in the winter '06 release.

You have seen -- Peter, I'm sure you seen the Multiforce technology, which was the on-demand OS and the ability to switch between multiple applications, right? And that has evolved into AppExchange, as you know. You are going to find the ability to go right to that menu, switch between different apps. And then, you're going to see that there is a more function there. So you will click on there, you'll say -- oh good, Salesforce. So, go to the Service and Support product. Oh, go to the custom recruiting application or product management application I built. And then it will say more. And then when you go to more, it will bring you the AppExchange and you will say -- oh, and now add this additional application. And it will automatically get populated into that menu. Your data will automatically be integrated. The applications will have the same user interface that you are already familiar with, the same data model. Your security model will get inherited automatically.

So those are the key functions for AppExchange for the winter '06 release. And I'm really, really looking forward to seeing how customers like this technology. I think it will take two or three quarters before we know what kind of traction we have with this. But we are really excited about this opportunity.

Mark Murphy, First Albany.

Steve, on the cash flow statement, the amortization of deferred commissions has been down year over year for several quarters in a row now, while the revenue is growing 70 to 80%. Can you just walk us through that dynamic? Is there a change in the amortization schedule?

And also, Marc, relative to the API calls that you referenced, can you shed any light on the nature of the systems that are making the API calls? In other words, what part of that mix is exchange servers versus ERP apps or other CRM systems or database calls?

On commissions, nothing has really changed. Again, as you all know, we amortize commission expense. What shows up on the balance sheet is a function of the types of business that we have. If we have a lot of small business, it doesn't tend to have longer-term agreements and tends to be on shorter quarterly billings. So you will have some influence there. But there's no changes at all in our programs, and there won't be until next year.

On the API calls to enterprise, I don't --

Well, here's the deal. I don't actually know. I guess we could look at it -- I don't really know where all those different API calls are going. Customers are just doing more types of integration. Some of it is happening on the desktops, which is what you mentioned. A lot of it is happening on the enterprise. I can tell you for large customers like Cisco, we are tightly integrated with their internal systems through secure Web services messaging; that's true of a lot of our large customers. So you see deep integration on the enterprise as well as on the desktop, and it's really across the board. I have not actually seen any characterization of it internally before.

And that does conclude our question-and-answer session and also our conference call today for salesforce.com. We do appreciate your participation. You may now disconnect.