David Havlek - Investor Relations Marc Benioff - Chairman of the Board, Chief Executive Officer Graham V. Smith - Chief Financial Officer, Executive Vice President

Brent Thill - Citigroup [Greg Donovan] - Deutsche Bank Securities Laura Lederman - William Blair & Company, LLC Kash Rangan - Merrill Lynch Heather Bellini - UBS Mark Murphy - Piper Jaffray Adam Holt - Morgan Stanley Rich Baldry - Canaccord Adams Philip Rueppel - Wachovia Capital Markets, LLC Brendan Barnicle - Pacific Crest Securities

Good afternoon. My name is [Barbara] and I'll be your conference operator today. At this time I'd like to welcome everyone to the Salesforce.com fourth quarter fiscal 2009 financial results conference call. (Operator Instructions) I'd now like to turn the call over to David Havlek, Vice President of Investor Relations. Mr. Havlek, you may begin your conference.

Thanks, Barbara, and good afternoon. I'd like to welcome everyone to Salesforce.com's fourth quarter fiscal year 2009 earnings conference call. Joining me today as always to discuss our results are Chairman and Chief Executive Marc Benioff and Graham Smith, our Chief Financial Officer. Marc and Graham will offer some brief prepared remarks and then we'll open things up to your questions. A full disclosure of our fourth quarter results can be found in a press release issued about an hour ago as well as in our Form 8-K filed with the SEC. Additional financial information, including historical financial detail beyond what is provided in the press release can also be found on our company website. I'd like to remind you that all of our financial commentary today will be in GAAP terms unless otherwise stated. In addition, at times in our prepared comments or in response to your questions we may offer certain metrics about our business that help provide greater understanding. Please be advised that we may or may not update these metrics in future calls. In addition, it's important to note that company subscriber updates include only those subscribers that have been provisioned. We may have in the past or we may today announce certain customer wins that have not yet been fully provisioned and thus these wins not be fully reflected in any subscriber update. And now a quick safe harbor before we begin: The primary purpose of today's call is to provide you with information regarding our fourth quarter fiscal year 2009 performance; however, some of our discussion or responses to your questions may contain forward-looking statements. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. All these risks, uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are included in our reports filed with the SEC, including our most recent Form 10-K, particularly under the heading Risk Factors. I also remind you that today's call is being webcast. A dial-in replay will be available shortly after the call until March 13th, and we'll have that on our website for approximately 90 days. To access the press release, the additional financial detail, the webcast or any of our SEC disclosures, I encourage you to visit our website at Salesforce.com/Investor. Lastly, before I turn the call over to Marc, please be reminded that any unreleased services or features referenced in today's discussion or in 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 on features that are currently available. With that, let me turn the call over to Marc.

Thanks, David. We're pleased to report record financial results for our fiscal fourth quarter. With the completion of this fiscal year, we've achieved a major milestone for our company and our industry. We have become the first enterprise cloud computing to report more than $1 billion in revenue in a singe fiscal year. That's a remarkable achievement in any environment, let alone the one that we're currently facing. Fourth quarter revenue of $290 million was up 34% from a year ago. For the full year, revenue rose to $1.077 billion, an increase of $328 million from fiscal year '08 and more than double what we did just two years ago. Our FY '09 growth makes us the fastest growing software company of our size in the world today. We exited the year with an annualized run rate of nearly $1.2 billion. While growth and share continue to be our priority, we've also done a very good job of growing our profitability by becoming more operationally efficient. Fourth quarter GAAP EPS rose by 83% from a year ago to $0.11 per share. For the full year, GAAP EPS of $0.35 rose by more than 130%. Graham will have more to say in a moment about how we're adjusting to the current economic environment. Fourth quarter operating cash flow was approximately $76 million. For the full year we delivered more than $1.80 per share in operating cash and more than $1.30 per share in free cash. Also, we exited the year with more than $880 million in cash and marketable securities on our balance sheet and no debt, an amount that now translates into more than $7 per share cash. Deferred revenue showed a strong seasonal improvement in the fourth quarter, rising by roughly $124 million from the third quarter to finish at $594 million. This represents growth of 24% from a year ago. As you might expect, the Salesforce CRM and Force.com community is growing as well. As of the end of the fourth quarter, our global community of net paying subscribers stood at more than 1.5 million, up more than 35% from a year ago. Equally important, we added roughly 3,600 net customers during the fourth quarter to bring our total net paying customer count to more than 55,400. That's an increase of roughly 14,000 customers for the year, more customers than we added in our first six years of business. These new customer additions are key to our growth strategy not only because they result in new business today, but because of their growth potential in the future. There's a common theme in the deals we won in the fourth quarter. Customers are taking a hard look at the maintenance payments that they're making to enterprise software companies and replacing those stagnant legacy technology costs with predictable scalable subscriptions in constant built-in innovation of cloud computing. Whether it's our Salesforce CRM sales, customer services and support, or Force.com platform, customers are choosing the low cost, low risk, and fast results of cloud computing over expensive hardware, software, and data centers that burn through precious capital and yet rarely produce the promised returns. In face offs with Oracle, Microsoft, and SAP, customers moved to the cloud in record numbers in FY '09. That's because in days like these, when cash is king, liquidity is critical and credit is scarce, the predictable flexible cost of cloud computing is overwhelmingly the right choice. Now let's take a look at some of the wins for the quarter. Highlighting the quarter was an enterprise agreement with EMC for roughly 17,000 subscribers, replacing the maintenance fees that it was paying Oracle. EMC is using Salesforce.com for Salesforce CRM sales, partner management, and custom application development on our Force.com platform. This was a great win against Oracle and replaces their existing Siebel infrastructure. But the EMC deal was just one of many big wins in which we actually replaced those legacy maintenance streams of Siebel and Oracle CRM, including wins at CMC, Canon, Corporate Executive Board, DeVry, Equinox, Axiom, one of Oracle's largest on-demand CRM customers, and others. We also beat Oracle head to head in significant new CRM wins at Cigna Health, Epson, Williams Scotsman and others as well. But our success was not confined to wins against Oracle. We saw the same kind of success against SAP during the quarter, with large transactions at Baker Hughes, AREVA, the Brady Corporation, Lennox International, which was one of SAP's very first U.S. customers, and finally, in an enterprise license agreement with one of SAP's largest manufacturing customers as well. ELAs like this one, Dell, and others that we completed during the quarter and the year are evidence that Salesforce CRM and Force.com are evolving into true and complete enterprise standards. McGraw-Hill has also standarded their enterprise on Salesforce in a major win against Microsoft, one of many wins against Microsoft this quarter, including Websense, Old Second Bancorp, SL Financial, Arthur Gallagher, here in San Francisco the Academy of Art University, and Trapeze Software. In addition to our competitive success, some of our largest installed base customers got even larger in the fourth quarter. In fact, our new business signings in the fourth quarter were once again balanced between new customer wins and add-ons and upgrade activity from our existing base of customers. Let me highlight just a few of our great growth stories in the fourth quarter with existing customers: Additions at Aon pushed their total deployment to more than 11,000 subscribers globally; First Data grew their deployment by more than 30% during the quarter and now has nearly 4,000 subscribers; Symantec became one of our elite customers, with more than 25,000 subscribers now deployed; and InterCall signed an enterprise license agreement making our product the standard way to manage all of their information. All of these wins highlight one of the biggest benefits of our business model, namely the diversity of our customer base. As the customer names I just read indicate, we're winning deals in companies of all sizes in virtually every industry - technology, media, pharmaceuticals, consumer retail, chemicals, education, and financial services. We're selling to a wide variety of industries and a broader mix of products. Non-Salesforce automation services accounted for roughly 25% of new business in the fourth quarter. A big reason for that momentum is the service cloud. A month ago in San Francisco we launched the service cloud, our vision of how service and support should work in an age of cloud computing with call center, customer portal, knowledge base, and ideas all running in the cloud. Highlighting another record quarter for our service and support business was a very large call center and service and support and customer portal transaction with DeVry University, where we are again replacing a leading customer service provider. This new deployment will include more than 3,000 subscribers and a customer portal that will serve nearly a half a million users. Key in this win was the knowledge search capability we added in the third quarter when we acquired InStranet. DeVry joins Orange, Comcast, and many other large enterprises discovering the power of the new service cloud. Other large service and support transactions this quarter included Avid Technology, Perceptive Software, TRANSCOM and Novapost and Maxwell Systems. And some of our newest cloud offerings also continued to gain momentum in the fourth quarter. Our Salesforce ideas application helped the Obama-Biden transition team build the first Citizen's Briefing Book in the cloud. During the transition, Change.gov was the home for healthy debate and vigorous voting on important issues to the electorate. We're also seeing an acceleration in the use of our Salesforce-to-Salesforce service, the ability for Salesforce customers to share information between the tenants of our database with more than 200,000 records now shared between customers. Our Force.com platform also finished the year on a high note, with our largest subscriber win ever at Avon. Using Force.com, Avon will be deploying a custom application to more than 75,000 users globally on mobile devices. We also completed an agreement with Lawson, Japan's second-largest convenience store chain, to replace 600 Lotus Notes databases. Force.com will be used to integrate 2,000 suppliers, 8,500 stores, and 150,000 contract workers with a corporate-wide deployment of nearly 5,000 Force.com subscribers. These innovative companies join other pioneers like Japan Post and Dell as major enterprise customers who are building their enterprise applications in the cloud with Force.com. For the quarter, platform subscriptions represented more than 5% of new business in the quarter for a second quarter in a row. The numbers from the fourth quarter clearly demonstrate increasing adoption of the Force.com platform, so let's take a look here at a few of our statistics: Custom applications, that is, applications built by our customers natively on the Force.com platform crossed the 100,000 mark for the first time. Pretty incredible. There are now more than 452,000 custom objects or traditional custom database tables now serving our customers. Our servers are now running 21 million lines of Apex Code, our procedural language that runs on our multi-tenant virtual machine, up from 15 million last quarter and 10 times the level of the first quarter. Visualforce, our custom user interface development environment, more than doubled in the fourth quarter to 109,000, again, more than 10 times the number in the first quarter. And our newest service, Force.com Sites, has seen a dramatic response in its pilot, which started at Dreamforce in November. Already customers have created 1,500 sites that have received 130 million hits, 15 million page views, and served up 2 terabytes of data. Starbucks, for example, is using sites for their innovative new Pledge Five program, the company's campaign to encourage people to donate five hours to their communities. All of these statistics, the key aspects of Force.com, indicate its dramatic momentum forward. Look, it's not just customers who are embracing the Force.com platform cloud. ISV partners are investing, too. The number of native apps more than tripled to 166 in the fourth quarter, up from 50 at the end of the third quarter. Developers signed on at a brisk rate as well, leaving the legacy client server application development world and entering the cloud. And today more than 124,000 have already signed up to receive our developer addition. Those partners are delivering apps to an eager marketplace of customers looking to extend their Salesforce.com implementations with these exciting new applications from ISVs. Approximately 28,000 or approximately 50% of our customers have already installed one or more applications from the app exchange. Pretty incredible. More important to us, we delivered all of this success with greater than 99.9% reliability and we did so with an average transaction speed of a quarter of a second. All that platform momentum with Force.com is a clear indication to us that customers are ready for cloud computing applications and are eager to build their own as well, so we're capitalizing on that enthusiasm with two key events in the first quarter - Cloudforce New York and Cloudforce London. In New York on March 23rd we're also conducting a special analysts day session in the afternoon for financial analysts and investors. We hope all of you in the analyst community will join us, so please look for details in the days ahead or contact David immediately to reserve your space. And on April 7th we'll take Cloudforce to London to give customers and prospects a chance to put cloud computing to work in Europe. Before I close I'd like to thank Steve Cakebread for his contributions to Salesforce.com over the past seven years. As many of you know, Steve was our CFO and helped to take the company public and then transitioned into a position as President and Chief Strategy Officer. At the end of our fiscal year '09 Steve decided to return to the world of the CFO and took a new role outside the company as the Chief Financial Officer of Exactly, a partner of ours on the AP Exchange. We wish him the very best and thank Steve for everything he's done for Salesforce.com. In just a few days we'll mark our 10th anniversary. Many of you have heard us say that in our industry people overestimate what you can do in a year, but underestimate what you can do in a decade. At the end of our first decade the real congratulations go to our customers, who have created an unprecedented record of success and inspired our best innovations. On behalf of my fellow employees here at Salesforce.com, thank you. We start our next decade in times that are testing the resources and resolve of every company. That extends, of course, to the way businesses think about how they use and, most important, how they pay for technology. Now that credit is as tight as it has been in generations, big invoices for hardware, software and data centers are surrendering to the far more predictable costs and benefits of cloud computing. Of course, the greatest weight of the economic downturn will be borne by the least fortunate, and many companies may reconsider charitable donations in this environment. That's why we're happy that 10 years ago we establish our model of integrated corporate philanthropy. The Salesforce.com Foundation, a separate 501(c)(3) public entity, was funded with 1% of our equity and was charged with helping employees donate 1% of their time in enabling nonprofits to succeed with our service at no charge. A decade ago, it was an easy thing to do. There were almost no employees, no product, and the equity, well, it wasn't worth anything. But today the Salesforce.com Foundation donates or deeply discounts our service to more than 5,200 nonprofits around the world. Our more than 3,500 employees have made a huge impact, with more than 125,000 volunteering hours to date, and I should just add more than 90% of our employees participate in our volunteering efforts on a global basis. It's a model that is more important than ever before and to everyone who has helped us make this dream a reality, we also say thank you. Our shareholders, too, have supported us in the belief that we can embrace this model of integrated corporate philanthropy and still create shareholder value. We look forward to speaking with you more in the next decade of growth, a period that we believe will be driven by the low cost, low risks and faster turns of cloud computing. And now let me turn this over to Graham for a detailed review of our financials. Graham V. Smith: Thanks, Marc. Q1 was a very solid quarter and a fitting way to end our biggest year ever. For the fourth quarter, revenue and GAAP earnings both exceeded our outlook and for the full year we grew revenue almost 44% while exceeding our operating margin expansion plan against a backdrop of worsening economic conditions. We believe that our strong finish in fiscal 2009 positions us well for FY '10. As Marc noted, fourth quarter revenue was just under $290 million. That's an increase of 34% from a year ago and almost $5 million over the high end of our outlook. In constant currency terms, revenue grew 34%. International revenue represented 28% of total revenue, up from 27% a year ago. On a geographic basis, revenue in the Americas rose 32% from a year ago to approximately $209 million; Europe, at just over $48 million, grew 25% in dollar terms but rose 39% in constant currency terms, while Asia-Pacific, at just over $32 million, increased 60% in dollar terms and 44% in constant currency terms. For the full fiscal year, revenue of $1.077 billion was up nearly 44% in dollar terms and 42% in constant currency. Many of you have asked about the pricing environment in past quarters, and I'm pleased to report that we've seen no significant change in year-over-year average selling prices. We believe this is a clear validation of the value of our offerings. Gross margin for the quarter was approximately 8%. That's up 2 points from Q4 a year ago, primarily as a result of improving consulting margins. And for the full year it was up 3 points over fiscal 2008, again, largely due to improving consulting margins. Turning next to operating expenses, we did a good job controlling spending in Q4. Overall operating expense as a percentage of revenue increased by 1 point from a year ago to finish at roughly 74%. Sales and marketing was up a point, but remember that Dreamforce, our biggest customer event, took place in Q4 this year versus Q3 in fiscal 2008. Research and development increased 2 points, reflecting our continued focus on product development. And G&A was down 2 points. It's encouraging to see some of the efficiencies we've been working on in the G&A function showing up in the numbers. In addition, after a decade of growth we're also getting more aggressive with expense management. We've already taken several actions to control costs and improve operating efficiency. Let me discuss just a few: First, instead of hosting a global sales kickoff meeting here in the U.S., earlier this month we hosted several regional meetings connected via live satellite video. By reducing the travel requirement, we reduced the cost of the meeting and, as importantly, gave our salespeople more time to spend with customers. Similarly, to help minimize the cost and time investment for our customers, we've restructured our European Dreamforce event from a three-day London-based event to several oneday regional events. Importantly, we also expect this change to result in significant cost savings. Also, as you may have read, we eliminated a layer from our U.S. field sales management organization. As is often the case, we make changes in Q1 to optimize our sales organization going into the new year. While this changes reduces our costs, it also puts our executive team closer to our large enterprise customers. And finally, we've also reduced our contractor expense by eliminating a number of contractor positions, converting some critical positions to full-time employees, and by reducing the hours worked by others. Turning to headcount, we finished the fourth quarter with approximately 3,560 full-time employees. That's an increase of roughly 250 from Q3. Approximately three-quarters of our Q4 net hiring was in our sales and engineering functions. We exited fiscal '09 with roughly 950 more employees than a year earlier, an increase of around 35%. However, our sales and [inaudible] capacity has increased by significantly more than this average. We do expect to slow our hiring in Q1. Operating margin for the quarter was approximately 5.6%, up just under 1 point from Q4 a year ago, but remember my earlier comment on Dreamforce expenses. For the full year I'm very pleased to report that we exceeded our 300 basis points operating margin goal by finishing the year at 5.9%. That's an increase of 320 basis points. Excluding the financial impact of the InStranet acquisition, we would have delivered over 400 basis points of margin expansion in fiscal 2009. Please remember that we report GAAP only results. Excluding share-based compensation that's 7% of revenue - our full year operating margin would have been approximately 13%. Our Q4 tax rate was just under 36%, a significant reduction from our 43% rate last quarter. As we said on prior calls, we expect our tax rate to decline over time as our international operations become more profitable and this was the major reason for the rate decrease in the fourth quarter. Our full year rate was 44%, a decrease of almost 7 points over fiscal 2008. I also want to point out that although we expect our effective tax rate in the income statement to decrease again in fiscal 2010, we do expect to start paying more cash taxes as we exhaust our federal net operating loss carryforward some time in mid to late fiscal 2010. GAAP EPS was $0.11 for the quarter versus $0.06 in Q4 last year. We got some help this quarter from a lower effective tax rate and from lower minority interest expense. For the full year GAAP EPS was $0.35 versus $0.15 for fiscal 2008. Operating cash flow for the fourth quarter was just over $76 million. For the full year operating cash flow rose by roughly 12% to $230 million, and on a per share basis operating cash for fiscal 2009 was approximately $1.83. Capital spending totaled roughly $12 million for the fourth quarter. As in prior quarters, this CapEx was comprised primarily of leasehold improvements, office furniture and equipment, some capitalization of internally developed software, and miscellaneous software and hardware purchases. For the full year, CapEx was $61 million. It was up over $17 million from the prior year, with $8 million of that increase the result of a large infrastructure software purchase we discussed back in Q1. Netting capital spending from operating cash, our free cash performance for the full year of roughly $168 million translates into approximately $1.34 a share. Despite the current economic conditions, we continue to believe that investing for growth is the best way to create long-term shareholder value, and some investments take time to generate a cash return. For instance, a new field sales account exec typically takes six to nine months to start to win new business, and it can take 12 to 15 months before we see a cash payback on that hire. Turning to the balance sheet, total cash and marketable securities finished the quarter at approximately $883 million. That's an increase of roughly $230 million from a year ago. With no debt on the balance sheet, our net cash now totals more than $7 a share. This financial strength is important during challenging times, both for our shareholders and for our customers. As is typical in Q4, our receivables balance rose significantly from a year ago to finish the quarter at roughly $267 million. Strong collections pushed DSO for the quarter to 84 days. That's down from 92 days a year ago. I'm also pleased to report that our deferred revenue balance rose by roughly $124 million from Q3 to finish at approximately $594 million. This number included less than $1 million of currency benefit versus Q3. It included a headwind of more than $9 million from the fourth quarter a year ago. Total deferred revenue including on and off balance sheet now totals approximately $1.3 billion. As I've discussed on past calls, the somewhat seasonal nature of new business with the fourth quarter being the largest creates seasonality in our invoicing and receivables, deferred revenue and cash flow. That's why Q4 deferred revenue once again spiked higher and also why we expect Q1 deferred revenue to be down sequentially, just as it was a year ago. Also, while logic might suggest that customers would repress shorter invoicing durations in a challenging economy, to date we've not seen any meaningful change in the invoicing patterns for our customers. Because invoice duration affects both deferred revenue and ultimately cash, we'll continue to watch this closely. Before I close with our outlook I'd like to discuss the economic environment and its implications for our business. At a high level, there's little question the macro environment continues to deteriorate. Assessing the depth or the length of the current downturn or predicting how customers will respond based on historical trends is virtually impossible. Next, while we closed a number of large transactions in the quarter, as Marc discussed earlier, we're seeing some big deals get downsized and others get delayed as customers look to manage near-term expenses. While we remain confident that our cloud computing business model is compelling in challenging economic times, current market uncertainty makes forecasting the scale and timing of large transactions more difficult. Retaining our installed base is an equally important priority in the year. Attrition is a significant variable that can create upside or downside to our revenue forecast. While there was a small uptick in attrition in the fourth quarter, it continued to be less than 1% of net paying subscribers per month, as it has been since we went public in 2004. However, given the current economic environment, we are expecting higher attrition rates in fiscal 2010 than we saw in fiscal 2009. We're reflected that in our fiscal 2010 outlook. And finally, forecasting revenue in an environment of foreign exchange rate volatility also presents a challenge, and our outlook accommodates a small percentage strengthening of the U.S. dollar, but clearly a significant strengthening would have a significant impact on our revenue forecast. Just to put this in perspective, a $0.10 strengthening of the dollar versus the euro would reduce fiscal 2010 revenues by roughly $15 million. With these comments as a backdrop, let me move to our outlook. For fiscal 2010 we're now projecting revenue to be in the range of approximately $1.3 billion to $1.33 billion. Our planning assumptions for fiscal 2010 include approximately 250 basis points of operating margin expansion, a full year GAAP tax rate of approximately 43%, an expected average fully diluted share count of roughly 128 million shares, and a minority interest expense of approximately $1 million. We also expect approximately $91 million of share-based compensation and roughly $9.3 million of expense related to purchased intangibles. Combining all these factors gives rise to a projected GAAP EPS of approximately $0.54 to $0.55. Regarding cash flow, please bear in mind my earlier comment that we will be paying higher cash taxes in fiscal 2010. The increase in cash tax payment versus fiscal 2009 could be as much as $25 million. In that context and also in the context of investing in growth, we expect operating cash flow to be roughly flat next year. More immediately, we are projecting revenue for our first fiscal quarter to be approximately $304 to $305 million. Our EPS projection for Q1 assumes a GAAP tax rate of 43%, a fully diluted share count of 126 million shares, and minority interest expense of approximately $200,000. In addition we expect roughly $22 million in share-based compensation, approximately $2.6 million in purchased intangibles expenses. Given these assumptions, we project GAAP EPS to be in the range of $0.10 to $0.11. And finally, while Q1 is expected to be our biggest collections quarter of the year, we project Q1 operating cash flow to be slightly down from last year. As previously noted, we expect deferred revenue to decline sequentially due to seasonal invoicing patterns. So to close, Q4 was a very solid quarter and a great way to close fiscal 2009. We exceeded our revenue and earnings goals while at the same time adding a lot of sales and development capacity that we believe positions us well to achieve our growth and share gain goals in fiscal 2010 and beyond. We exit the year with a strong balance sheet and strong cash flow. I look forward to describing our progress against our fiscal 2010 goals in the quarters ahead. With that, let me open the call up to your questions. Operator?

(Operator Instructions)

Just quickly while we're queuing your calls I'd like to remind everyone of a couple upcoming events. First, Marc will be presenting tomorrow - in fact, keynoting - at the Pacific Crest SAS Conference that's at noon Pacific Time here in San Francisco. Marc will also be presenting next Monday, the 2nd, at 11:00 a.m. Pacific Time at the Morgan Stanley Technology Conference, again here in San Francisco. Finally, as Marc indicated, we're [inaudible] now to half day analyst day in conjunction with our next Cloudforce event in New York City on March 23rd. Following our customer event in the Morning, Marc, Graham and several other senior executives will be there to offer more details on our long-term business plan. Look for your invitation in the coming days or you can register on our website or, as always, you can contact Investor Relations. With that, let's go ahead and take our first question.

Your first question comes from Brent Thill - Citigroup. Brent Thill - Citigroup: Graham, if you could just comment on the mechanics on the operating cash flow being flat for the year, what's driving that? And if you could also just discuss your rationale behind the margin expansion. You mentioned over 300 basis points in the current year and it looks like you're looking for a little bit less in the next year, albeit still good growth. If you could just walk through both those, that'd be great. Graham V. Smith: Well, sure. Obviously, the two are related. I think in terms of the operating margin expansion I think we saw good performance this year. As you know, we've slightly lowered the guidance range so there's increasing uncertainty out there and I think we have to reflect that in our revenue guidance and that obviously then impacts our operating margin, which is why I guided slightly lower than we did last year. And that therefore sort of feeds into the operating cash equation. Clearly, we do I think a good job trying to manage cash. You see that DSOs have come down significantly in the fourth quarter, so we definitely are very focused on cash. But I think combining the small decrease in the margin expansion and also the cash taxes I talked about earlier, where we could see as much as a $25 million swing going through operating cash flow just makes me think right now I want to set that guidance at roughly flat.

Your next question comes from [Greg Donovan] - Deutsche Bank Securities. Greg Donovan - Deutsche Bank Securities: Clearly the customer wins in the billings of nearly 20% show some market share gains, but your end markets are definitely under pressure here in this environment. The question is: How has pricing as a part of your strategy changed in this environment looking back over the last six to 12 months? And a follow up would be: What are you seeing in terms of up sell here more recently?

I'm going to have Graham fill this in because this is something that Graham has been talking about and we've been monitoring this closely for the last six months. But the reality is that there has been no material change in how we price the products, not only through this entire fiscal year but really for the last several years. Our pricing model is incredibly flexible based on a number of additions and also this year we added a major new pricing model, which is our enterprise license agreement which you heard us talk about completing with several large customers, and what has resulted on our side is virtually no change to our ASPs or to how we price products. In fact, we haven't even changed prices. In fact, in the last couple weeks we did an extensive pricing analysis for the whole fiscal year and so I just want Graham briefly to comment on what we found through that pricing analysis. Graham V. Smith: Yes. We look at pricing over the last eight quarters and we look at it both in terms of our corporate sales organization and our field sales organization, and then also we drill into it by additional level. Clearly, major additions are professional, enterprise and unlimited. And basically certainly there are some fluctuations on some lines from quarter to quarter, but if you look over the long run, the trends are all surprisingly stable given the environment we're in, so we're pretty pleased about that.

And I would just exactly reinforce we're extremely pleased with the pricing environment and we are, of course, flexible in how we price with all of our customers, but we've seen virtually no change.

Your next question comes from Laura Lederman - William Blair & Company, LLC. Laura Lederman - William Blair & Company, LLC: When you talk about increasing churn in guidance, can you give us a sense is it kind of like the type of increase you saw in Q4, a little bit more, give us a little bit of sense of what you're modeling there? And also when you look at the pricing of companies out there, are any acquisitions more attractive in terms of buying app exchange partners, that sort of thing?

Well, I think that in specific regards to attrition, as Graham said, it's still below the kind of traditional model that we've looked at, which is 1% per month, though we did see a slight uptick in the fourth quarter. And of course we're not blind to the economic environment, so we could see potentially additional uptick so we've reflected that in our guidance that we've issued today. That said, we're very pleased with our adoption rates and our levels of customer success and customer satisfaction are spectacular. We've just received back some very exciting new customer satisfaction statistics that we'll review with you at the analysts day, and we're very pleased with how that has come along. In regards to acquisitions and the acquisition environment, that's not something that we comment on. Graham V. Smith: Yes, I think, Laura, just to give you a sense, I mean, we tried to be actually in the last round of guidance we gave and this round, we tried to be, I think, mindful of the uncertainty out there around attrition. And Q4, the experience, I mean, debatably some of the upside we saw in the quarter was due to the fact we'd assumed maybe we'd get more attrition in the fourth quarter than we actually saw. But we've continued, I think, with appropriate assumptions for fiscal 2010 because of the uncertainty out there.

I would say we have a balanced view, but we've been very pleased.

Your next question comes from Kash Rangan - Merrill Lynch. Kash Rangan - Merrill Lynch: One question for Marc and one from Graham. Marc, on the topic of coming back to the customer base for renewals, be it small businesses or large businesses, what are the things that you can do considering that there is likely going to be attrition due to unemployment increases, etc.? What are the things that the company can do to increase it's - you might want to call it same-store sales with the same customer? What are your strategies for increasing cross-sell, up sell, etc., so as to maintain your revenue content per customer or grow that per customer, even though you might have some attrition in the margin?

Can you complete the question for Graham so we can answer them together? Kash Rangan - Merrill Lynch: Sure, absolutely. Graham, for you, for a period of time over the last several years the billings growth rate that is revenue plus change in deferred, you've looked at in on a year-over-year basis, has been north of the actual revenue growth rate, and then for the past couple of quarters the equation has flipped the other way. And I think this quarter, if I'm doing the math correctly, the billings growth rate was 17%, the revenue growth rate was well north of that. How should we think about your visibility and your revenue forecast and your confidence level in the revenue forecast as it relates to the deferred revenue and what we've been seeing in terms of the trend of that billings growth rate?

In regards to continuing to maintain the high levels of customer adoption and customer success that we've had, traditionally we have of course developed a series of best practices that we employ within our customer base, Kash. It's one of the reasons why 50% of our new business in the fourth quarter came from these existing customers. So we're seeing tremendous growth within our customers and we expect to continue to see substantial growth within our customers. A great example is I mentioned EMC as a huge transaction for the quarter, but it's part of a legacy of transactions with that company. We've previously announced a relationship with VMware. We've done work with their RSA division. It was really only the total frustration of their organization with Seibel that resulted in us being able to assume such a significant position inside EMC, but it's not the end of the story with that company by any means. Like you saw with companies like Dell, we've seen tremendous growth as we move from adding applications and adding groups and divisions all the way up to an enterprise license agreement. Just in this quarter, I didn't mention it, but Dell deployed an 80,000 user Force.com application to manage all their NDAs. It's very exciting, something that they are planning to do for their company. And we see other things going on inside that customer, but inside lots of our customers we see a lot of innovation and growth, as I'm sure you do. Customers traditionally start with either our sales application or a service application or ideas and then add maybe partner management, add content management. They move on to building some applications in Force.com. Maybe we see their whole sales and service organization come online. And it's not that unusual that we start talking about an enterprise license agreement. Just this quarter I've been involved in a discussion with a very large company. A third of the company currently uses Salesforce.com; they have a third of the company on our unlimited edition product. But, frankly, the CIO is under a tremendously constrained CapEx environment, can't afford more software and hardware, data centers for the year, and has been talking to us about an enterprise license agreement for the whole company to help reduce his total cost. And then he has a significant agreement with an Indian outsourcer in Bangalore and is going to take a third of their consultants and move them over to Force.com. Now in that example that's our total strategy, right? We call it seed and then grow and then dominate that account, and so they're fully vested into our architecture. And at the end of the day that's how we have achieved these high levels of customer success and adoption and how we've done a good job of managing our attrition. And even in these unusual environments, you know, where we might see customers reduce their employees or right size their organizations, in many cases we'll see them grow with us and we could probably go through a list of those customers this year that that's true. In some cases, of course, we'll see some customers decline and that's reflected in the guidance that we gave today in an appropriate and balanced way. Graham V. Smith: And then to follow up on the other part of the question, Kash. Obviously, I think that calculation that I know many of you do, it's not a pure measure of bookings growth and obviously it's all our renewal on an installed base in that number as well. I think I'd make a couple of comments. First of all just remember that I think, you know, Q4 last year was a spectacular quarter, maybe unlike almost any other quarter we've ever seen, and so I think that has created sort of a lasting impact that's been felt through deferred revenue this year. And secondly, I think we're clearly trying to push for market share gains. And I think we've added a lot of sales capacity this year, and I think we have a lot of confidence in what we're providing as guidance. In absolute terms we added $320 million of revenue this year and our guidance for next year is at $250 million, approximately, so clearly there's some tempering of the growth here, but I think that's reflective of the environment we're in, the uncertainty we have going forward.

Your next question comes from the line of Heather Bellini - UBS. Heather Bellini - UBS: I was wondering, Marc or Graham, regarding the net add to deferred, I guess a little bit on the question that was just asked, I think that your net change to deferred this year went down year-over-year versus the prior year and I think this is the first time that might have happened. I'm just wondering if you could walk us through what drives that just to help educate me a little bit about, you know, is this being impacted by a change in contract length, changes in churn that you saw this year or some other metric that I might not be thinking of. Graham V. Smith: As we talked about on prior calls, there are a number of different things that have an effect on deferred including new business we sign, renewal rate and certainly, as we said, we saw a slight uptick in Q4 - we are pleased with our performance - but, I mean, clearly that's something that could have impact on that overall growth in deferred. And then billing cycles, I did say earlier we hadn't really seen any significant change in billing cycles and ultimately I think, as I just said on the prior question, I think Q4 last year was truly - I know it was the first quarter I was here, but truly it was an exceptional quarter in terms of the amount of business we added, so I think people shouldn't maybe draw a conclusion that that was kind of standard performance for a fourth quarter. I think all those things affect deferred and we can only provide guidance around the things we control, which is what we've done in terms of revenue and EPS.

One thing I might add is remember the amortization coming off the balance sheet, because our business is 34% higher in the fourth quarter than last, it's a lot more, so you have a lot more amortization headwind coming off of the deferred as well.

Your next question comes from Mark Murphy - Piper Jaffray. Mark Murphy - Piper Jaffray: Marc, I was wondering if you could just give us any update on the traction of some of the third-party applications that have been rewritten natively to run on Force.com, applications such as CODA.

We are, as I mentioned in the script, very excited about the growth of native apps. I think it's more than tripled since Dreamforce, which is only like three months. And as you probably remember, at Dreamforce we put a major push on ISVs building natively on our platform, not just doing mashups but right inside our data centers on our software stack, and the reason why is that customers were really coming to us saying that they wanted to be assured of the security and scalability, reliability and availability of the ISV environment and they knew if it was built natively that they were getting frankly our best practices, but with the business functionality from the ISVs. We've seen ISVs like CODA really develop a lot of innovative and exciting new capabilities. As you know, CODA's developing a full financial suite - payables, receivables, general ledger. I'm sure you'll see some very exciting new announcements by other large ISVs on apps that they are building as well as small and innovative ISVs. In all cases we continue to see native app development by the ISV and, as I mentioned, especially the customer environment; it's spectacular. I think that the group that we really motivated at Dreamforce just because they were there en masse was also the customers who went back and were talking to them about building all kinds of new apps and taking advantage of our new sites technology. You know, what I found out in the marketplace, especially over the last 90 days, is there's a tremendous push by customers to lower their cost of their IT environment. CEOs are putting tremendous pressure on CIOs to lower their traditional enterprise software maintenance fees. They're asking them not to build new data centers. They're asking them not to buy more hardware and software and are giving them very modest CapEx budgets because they just don't have the credit to be able to extend to the CIO for these large purchases. So what that is pushing the CIO to do is to look for alternatives, and we, of course, are a reasonable and validated alternative in many of these customers and that's why they're coming to us as their new enterprise standard for CRM, for sales, for customer service, which had tremendous growth in the quarter and the fiscal year was spectacular for our customer service application, and thirdly, our platform, and the three of those together bringing us in as a key and strategic new enterprise supplier. And one of my key goals for fiscal 2010 is to amplify and accelerate Salesforce.com's role as becoming a true enterprise supplier and standard in so many of the customers that we have such great relationships with around the world.

Your next question comes from Adam Holt - Morgan Stanley. Adam Holt - Morgan Stanley: I had a couple of questions about the billings in the quarter. Can you comment either qualitatively or quantitatively about what the impact was of the stub billings in the quarter, where you get the true-up for partially written contracts throughout the year? And then secondarily, can you talk about what the impact was or what the mix was, I guess, of annual billings in the quarter versus, say, previous fourth quarters? Graham V. Smith: Yes, Adam. When we've talked about stub billings before, we've used that as an example to describe, as we said, why there are a lot of moving parts in deferred revenue. It's not something we track as an important metric or statistic for the business, so I don't have any specific large examples of that that have happened in the quarter. I think I said earlier that certainly from a ratio point of view of annual to quarterly invoicing terms we didn't see any significant changes in the fourth quarter.

Your next question comes from Rich Baldry - Canaccord Adams. Rich Baldry - Canaccord Adams: Can you talk a little bit about linearity in wins in the quarter, if there was any sort of swings to that, maybe, as a way to break into momentum kind of heading into the first quarter of the year? And then I think on a prior call - I'm not sure if it was last quarter or the one before but you talked about the fact that there is a difference between deferred revenue growth and a true backlog and that backlog was certainly larger than might have been inferred by deferred calculations. Could you maybe qualitatively address that issue as well?

Well, first of all, this was a great fiscal year for Salesforce.com. I mean, in a year where there was tremendous economic volatility, unprecedented swings in foreign exchange rates, we delivered a spectacular result both in revenue as well as in profitability. But specifically into the fourth quarter, probably the most interesting aspect was so many customers of Seibel looking to get off their maintenance streams, and that's really what I see. There's been such a push, as I was saying, by these CIOs of these big companies that when we look at companies like EMC and VMC and Canon and Corporate Executive Board and DeVry and Equinox and Axiom and, you know, actually there is a huge list of others that we're not able to name that we really say wow, this is something that we have to figure out how to exploit more fully. We recognize that those customers feel they are not getting innovation. I think that that was really evident this week in a blog I read by Vinnie Mirchandani, the Deal Architect blog, when he went through in detail kind of the customer lament around not getting innovation from the traditional enterprise software company, whether it's Oracle, SAP or Microsoft, but yet they're still having to spend these 20% maintenance fees. Well, we're trying to take that angst and turn it into Salesforce.com subscription agreements, showing them technology that's superior to that software that they're running today and yet at a dramatically lower cost, yet while receiving continued innovation. I don't think there's probably too many more examples I could give than one of SAP's largest customers in the manufacturing sector - unfortunately, it's not a customer that I can name that we've evolved from being a tremendous successful CRM and SFA customer into what is now an enterprise license agreement, really focused in and working in that area. And that's one of the key areas. As Graham said, we did our sales training a couple of weeks ago and when we trained our sales force, this sales training in this year was extremely different than last year because it was not just about a great sales app or even an emerging, but a really world class service app and now a world class platform and example after example of companies that want to make deep commitments to us and how we as a company of evangelists can show them how to move out of that maintenance trap that they're all in. Graham V. Smith: Just to follow up on Marc's comment, linearity in the fourth quarter I don't think was appreciably any different to what we see in most quarters, particularly fourth quarter, so no big news there. I think the other part of your question was about backlog or deferred revenue off balance sheet. We did actually say what that number was on the call. Total deferred revenue, that's including all of billed and unbilled, was approximately $1.3 billion as of January 31.

Your next question comes from Philip Rueppel - Wachovia Capital Markets, LLC. Philip Rueppel - Wachovia Capital Markets, LLC: First of all, on your new '10 guidance, could you quantify at least from a high level how much of that is due to currency - the lowered guidance - how much of that is due to currency versus the higher churn rate versus sort of uncertainty over new orders. And then second of all, on the attrition rates have you been able to discern whether that's more about companies going out of business or turning off the service versus lower seat counts at your existing customers?

I would say first and most importantly, when we put together the guidance for this year, all of the aspects that you mentioned were included, but it's kind of like last year. There's no way we could have predicted the economic environment last year, the foreign exchange changes last year or the overall uncertainty in the world last year. But this year, because we look at last year, we're able to kind of say well, those variables are still in play, so we should reflect those appropriately and in a balanced view in our guidance, which is what we think that we have done. And specific to managing and continuing to support having such a high adoption rate and such a low attrition rate, as we've done and continued to do, we're really seeing, as I've said, continued growth and success in so many of our customers, but we're also mindful of the environment and, although our attrition continues to remain at less than 1% per month and is an industry best practice, we're mindful of the environment and we're watching exactly how it proceeds, but it's also an environment where we see customers coming to us and even customers who are cutting come to us to grow with us because we have tremendous opportunities for them to expand their infrastructure and expand their investments with Salesforce. Graham V. Smith: Just to follow on, I think on attrition certainly we see really all those aspects you mentioned, Phil. I mean, there's clearly companies going out of business; there's some that continue to get acquired, although that's less so, and then there's certainly some customers who reduce seat counts, but I don't think that mix has particularly changed. I think just generally there was a broad small uptick, if you like, in terms of what we saw in Q4. I just want to stress what we saw in Q4 is well within what we've included in our guidance for fiscal 2010, so hopefully we've been sensible in terms of what we've built into that number. And yes, I think increased uncertainty, deterioration in the economy in the last 90 days just leads us to be incrementally, you know, want to reflect that in our guidance in terms of revenue for next year.

Unfortunately, we still have a really full call queue and we only have time for one more question, so I apologize to all those of you still in the queue. Feel free to contact Investor Relations following our call. Operator, why don't you go ahead and give us one last question.

Your last question comes from Brendan Barnicle - Pacific Crest Securities. Brendan Barnicle - Pacific Crest Securities: First off, on the new business, you mentioned that 5% of the new business came from the Force.com part of the business. Can you give us a revenue contribution there? Second, on the margins, Graham, we saw over 300 basis points of improvement this year; it looks like 250 for next year. Is this 200 to 300 sort of a multi-year goal for margin improvement? And then lastly, is there any change in the breakdown between small, medium and large customers?

Well, I think that my favorite transaction - and we have thousands of transactions, of course, that we completed during the quarter - but my favorite transaction in the quarter was really Avon. I am just delighted to see Avon come onboard with Salesforce. But the reason I'm so delighted is not a CRM application. It's a critical application that they're using with many of their distributors and employees and users across the world - currently, it's 75,000 and has the opportunity to grow well beyond that - built entirely on Force.com. And after an extensive review of all the major application development environments out there, databases, application servers, user interfaces, they chose us. And that's probably only followed by the Lawson transaction in Japan, replacing those 600 Lotus Notes databases and automating their 2,000 suppliers and 8,500 stores and 150,000 contract workers. It's another incredible app that perhaps a year ago we technically were not able to deliver. But in an environment where there's a high level of CapEx being constrained and yet companies have to continue to innovate and build these next generation applications, there's no better place to do that in my world than Force.com. Of course, we've seen this year some exciting action at Japan Post and Dell and others, but these two applications specifically, I think, are really exciting. We've seen 100,000 in custom apps now inside our base, and when we look at the over 450,000 custom objects and database tables, well, that really speaks to the level of sophistication that we're able to offer and manage for our customers and for the ISVs. And I think you're going to continue to see that grow. We really think this is going to be a year of the cloud at Salesforce, and it will be driven a lot by Force.com. And as it becomes a more material part of the revenue stream we'll be able to give you more specifics, but that is the second quarter in a row with more than 5% of our bookings being delivered by Force.com. We're delighted with it. Graham V. Smith: Yes. Just to follow up, Brendan, in terms of margins, I don't want to get too far ahead. Clearly, we exceeded 300 basis points last year. I think given the environment uncertainty we've lowered that guidance slightly this year. I think certainly the company's committed to creating long-term shareholder value and that means over time we should get more profitable. We've said in the past, I believe, that that could vary from one year to the next, but certainly we would hope to be able to deliver this kind of improvement each year. Your last part of the question was small, medium, large. I don't think we saw any significant change in the revenue composition between those three buckets. I think one of the remarkable things about Salesforce is, as I mentioned earlier, larger deals clearly can get downsized and delayed in this kind of environment, and yet we were still able to execute well on our business plan and that diversity of transaction size also serves us very well in this kind of market.

I want to thank everybody for joining us today. We hope to see you at either of the events I mentioned that Marc will be at in the next week or so, and obviously we hope to see all of you next month at our analysts day in New York. Thanks and have a good evening.

This does conclude today's conference call. You may now disconnect.