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Workday Inc (NASDAQ: WDAY)
Q4Â 2020 Earnings Call
Feb 27, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to Workday's Fourth Quarter and Fiscal year 2020 Earnings Call. [Operator Instructions]
And with that I'll hand it over to Justin Furby Senior Director of Investor Relations.
Justin Furby -- Sr. Director, Investor Relations
Welcome to Workday's Fourth Quarter Fiscal 2020 Earnings Conference Call. On the call we have Aneel Bhusri our CEO; Robynne Sisco our Co-President and CFO; Chano Fernandez our Co-President; and Tom Bogan our Executive Vice President of the Planning business unit. Following Aneel and Robynne's prepared remarks we'll take questions. Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast. Statements made on this call include forward-looking statements regarding our financial results applications customer demand operations and other matters. These statements are subject to risks uncertainties and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission including our most recent quarterly report on Form 10-Q for information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition during today's call we will discuss non-GAAP financial measures which we believe are useful as supplemental measures of Workday's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations page of our website. The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link. Also the customer page of our website includes a list of selected customers and is updated monthly. Our first quarter quiet period begins on April 16 2020. Unless otherwise stated all financial comparisons in this call will be to our results for the comparable period of our fiscal 2019.
With that let me hand it over to Aneel.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Thank you Justin and good afternoon everyone. Thank you for joining us today for our fourth quarter fiscal year '20 earnings call. I am pleased to report that Workday had another strong quarter ending the year with significant momentum and positioning us well as we enter fiscal year '21. Our success continues to be driven by the relentless dedication of our workmates and by our forward-thinking customers who expect more from their enterprise applications and who continue to choose Workday as their partner for their finance and HR cloud transformations. We now have over 3200 customers and our commitment to their success is demonstrated by our 97% customer satisfaction rate and broad referenceability. In Q4 we saw healthy demand across all product areas. Starting out with Workday HCM we had another strong quarter as we continue to be the market leader with our differentiated suite of products. In total we added 11 new Fortune 500 customers almost equaling our best-ever quarter and now have 45% of the Fortune 500 as HCM customers including 60% of the Fortune 50. We also added 16 new Global 2000 customers and now have almost 20% of the Global 2000. New customers include Spanish multinational bank BBVA; Southwest Airlines and Wells Fargo Bank. Notable HCM go-lives in Q4 included NatWest Group Banco Santander and the Prudential Company of America as we continue to have over 70% of our HCM customers in production. Switching over to our financial management applications. Q4 was our best quarter ever.
We added a record number of core financial management customers including Keybanc Beth Israel Lahey Health Dun & Bradstreet and West Virginia United Health System. In addition to the strong growth from our core financial applications we saw continued momentum from our expanding suite of products that support the office of the CFO. Both Workday Prism Analytics and the Adaptive Insights business planning cloud had outstanding quarters. We added over 100 new Prism customers and over 350 planning customers which includes over 100 on the broader Workday platform. Our new workmates at Scout RFP had an excellent initial quarter as well with strong momentum on sourcing opportunities both stand alone and as part of Workday spend management offerings. We believe the depth and breadth of our cloud-based finance products in combination with our industry-leading HCM suite Workday Prism Analytics Adaptive Insights business planning cloud and expanding spend management offerings with Scout RFP delivers a goal solution that is highly differentiated and helps to empower business leaders to plan execute analyze and extend all-in-one system powered by machine learning. Switching to the people front. A key part of our success continues to be our vibrant company culture which allows us to maintain high levels of employee satisfaction and really helps us attract and retain talent across all levels of the company. To that end we are proud of our recent recognition as Fortune Great Place to Work announced their 100 Best Companies to Work For list ranking Workday as number five.
This is the sixth consecutive year that Workday has made the list and the third year in a row that we've been in the Top 10. Being a Great Place to Work is something that Dave and I have prioritized since day 1 so it's an honor for Workday to be on this prestigious list. As we look forward to fiscal year '21 and beyond we are relentlessly focused on innovation and expect to see continued momentum on our growing family of applications. We're confident in the pipeline we have built and the sales execution model we have in place. As such we expect fiscal year '21 to be another strong year of growth. We continue to invest heavily in our company culture and our value system and have a great group of employees committed to delivering the highest levels of customer satisfaction to our great customers.
I will now turn over to our CFO and Co-President Robynne Sisco. Over to you Robynne.
Robynne D. Sisco -- Co-President and Chief Financial Officer
Thanks Aneel and good afternoon everyone. Our fourth quarter kept a strong year driven by solid executions across the company. We not only added a record number of net new HCM and FINS customers our high levels of customer satisfaction continued to drive 95-plus-percent gross renewal rates as well as strong add-on sales to existing customers. Subscription revenue was $840 million in Q4 and $3.1 billion for the full year representing growth of 25% and 30% respectively. Professional services revenue came in at $137 million for Q4 and $531 million for the full year. Fourth quarter revenue outside the U.S. increased 33% year-over-year to $244 million representing 25% of total revenue. We see significant global opportunity ahead and expect that our revenue mix from the rest of the world markets will continue to increase over both the near and longer term. Subscription revenue backlog was $8.29 billion at the end of the fourth quarter growth of 23% year-over-year. Backlog growth was driven by healthy net new bookings add-on business and strong renewals with our net retention once again over 100%. Subscription revenue backlog that will be recognized within the next 24 months was $5.48 billion growth of 22%. Our non-GAAP operating profit for the fourth quarter was $117 million or 11.9% of revenue with a margin overachievement primarily driven by our top line outperformance. For the year our non-GAAP operating profit increased 66% to $484 million or 13.4% of total revenue up more than 300 basis points from FY 2019 as we continue to scale and drive efficiencies in our business.
Operating cash flow for Q4 was $297 million bringing our operating cash flow for the full year to $865 million or 43% growth. This strong performance was driven by a combination of operating margin expansion and exceptionally strong collections in Q4. We successfully added and integrated more than 1650 net new employees to Workday this year including approximately 150 from the Scout RFP acquisition in Q4 bringing our total employee count at year-end to over 12200. Overall we're very pleased with the strong companywide execution in our seasonally most important quarter. Now let me turn to guidance. We entered the year with considerable momentum and we see significant opportunity ahead to support both our near and long-term growth aspirations while continuing our progression toward 25-plus percent non-GAAP operating margins. We are raising our FY '21 subscription revenue guidance to a range of $3.755 billion to $3.770 billion representing year-over-year growth of 22% at the high end. As a reminder Scout is expected to add less than one percentage point to our overall subscription revenue growth in FY '21. For the first quarter we expect subscription revenue to be between $873 million and $875 million representing 25% year-over-year growth. We expect subscription revenue to sequentially increase from the previous quarter by just under 6% in Q2 approximately 4% in Q3 and 4.5% in Q4. As we continue to expand our product portfolio we want to provide investors with increased visibility into the growth vectors across our business. At our Analyst Day last October we provided incremental disclosure around our HCM and FINS plus businesses.
As we look into fiscal '21 our current full year guidance assumes high-teens HCM subscription revenue growth and low-40% growth in our FINS plus business. We do not plan to provide quarterly updates to these numbers but we'll revisit them annually. On the professional services front we continue to value and support a growing systems integrator ecosystem. Our partners are seeing robust growth in their Workday practices and we will continue our tight alignment with them to help ensure customers have successful implementations that support the highest levels of customer satisfaction and business value. We're expecting professional services revenue to be approximately $137 million in Q1 and $580 million for FY '21. We expect FY '21 professional services margins to be flat from FY '20 as we continue to invest in programs to support customer deployments and to sustain our high levels of customer satisfaction. Based on our current outlook we expect total subscription revenue backlog growth in the low-20s for the first three quarters of FY '21 moderating to the high teens in Q4 against a very tough comp. We are raising our non-GAAP operating margin guidance for the full year to 14.5%. As a reminder our margin guidance includes roughly 150 basis points of dilution from the Scout RFP acquisition. We estimate non-GAAP operating margins of approximately 15% in Q1 and expect a normal seasonal sequential decline in Q2 as we invest in our people through our annual compensation process. The GAAP margins for the first quarter and the full year are expected to be approximately 26% to 27% points lower than the non GAAP margins.
We expect operating cash flow in FY '21 to be approximately $1.08 billion representing growth of 25%. The FY '21 non-GAAP tax rate is 19%. We continue to invest in our real estate footprint at our Pleasanton headquarters to support our continued growth. In FY '21 we expect approximately $230 million of owned real estate investments which includes the potential purchase of a 5-building complex that we are currently occupying. We expect to spend an additional $350 million in FY '21 to support our other capital needs including investments in customer data centers leased facilities and corporate IT infrastructure to support our continued business expansion. And finally I'll close by thanking our amazing employees customers and partners for their continued support and hard work which allowed us to deliver great results this past year. We are still in the early stages of executing against our long-term vision as a company but our progress wouldn't be possible without shared goals. We look forward to updating you on our progress throughout the year.
With that I'll turn it over to the operator to begin Q&A.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from the line of Mark Murphy with JPMorgan. Please proceed with your question.
Mark Murphy -- JPMorgan -- Analyst
Thank you and congrats on a very strong finish. Aneel I wanted to inquire about coronavirus situation. We certainly understand that there's no reason you would be experts on this. But we have seen the headlines about changes to your sales kickoff and I'm just wondering what you are seeing from your customers whether they are pulling out of conferences or restricting travel or having employees work from home if they visited Italy or Southeast Asia? And then just at a high level whether any disruption kind of seems manageable to you through this fiscal year or whether it's just too hard to gauge that.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
It's still early and we're not experts. As it relates to the sales kickoff I and I think the rest of the team didn't think the risk was very high in the U.S. but our Asia Pac folks could not attend. And then with the outbreak in Italy and we actually had a joint meeting with some of the U.K. and Italy team. We felt like just the U.S. team that's not really inclusive enough. It's not really the way Workday would go forward with a global sales kickoff meeting. So we're going to wait until we can get all the people together in person after this outbreak gets past us. In the meantime we're going to do things virtually. I think in the U.S. though right now it still feels like mostly business as usual.
Mark Murphy -- JPMorgan -- Analyst
Okay great. And just as a quick follow-up. I was wondering if you could just comment on how far-reaching your ambitions are going to be in procurement and whether you think in the long run it could be possible to replicate the kind of success you've had in recruiting. I think it took you five years to go from 0 to number one market share in the Fortune 500 there. Just curious whether you see that type of potential in that market.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
There's definitely a ton of potential. And as we've gotten smarter about the spend management market and in particular with Scout RFP and first of all they had a great first quarter as part of Workday really a great team. But the dollars that flow through sourcing are just massive. Even out of Workday the amount of money that goes through the procurement organization is huge. And I do think there's a chance to build a differentiated solution. In the short term that is more Scout as a stand alone solution plus as part of our suite. But over time you could see our procurement suite be a best-in-breed best-in-class suite and I think the market's only going to grow. I think it's a really exciting market opportunity for us. Can it mimic recruiting? Time will tell. I think what it can do is be a great driver of financial sales and I think financial sales can be a great driver of the spend management marketplace. And every company on the planet has to manage their spend effectively so it is a truly global opportunity.
Mark Murphy -- JPMorgan -- Analyst
Thank you very much.
Operator
Thank you. Our next question comes from the line of Kash Rangan with Bank of America Merrill Lynch. Please proceed with your question.
Kash Rangan -- Bank of America Merrill Lynch -- Analyst
Hi, thank you very much. I'll add my congratulations as well to the Workday team. Aneel I know that you started just a little cautious about the slowing HCM business. I'm curious given the particular strength in the quarter are we doing more of a smoother standing with the HCM business showing obvious trends in the quarter? And also if you could talk to the network effect of the platform. It looks like you are able to sell financial deals to existing HCM customers that have been very successful. And one for you Robynne. Should we stop looking at billings Scout as deferred revenue change and instead focus on your backlog because that calculation of bookings comes up with 28% and it has been more predictable more consistent. So is that the right way to look at total indicator of your business?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Yes so on the HCM market we had a great fourth quarter. We had 11 Fortune 500 accounts the second best where we've ever had as a company. So the large enterprise market is alive and well for HR. But we continue to gain and see growth in the medium enterprise business for HR and there's still a ton of greenfield opportunity in that medium enterprise market across the globe. So as we head into this year I think we're thinking about high-teens growth for HR. I think that's what we've been forecasting. And I think it's going to hold up. I'm not necessarily focused on the next 12 months. I think longer-term we'll just have to understand how that market matures and what we can do to come up with more add-ons to continue the growth of that marketplace. No question that the suite market is picking up. Today I think one of every four customers has both product lines. And what we saw in the fourth quarter for another quarter was a bunch again of financial-first customers and that's a great sign for us. That means our financial products are winning on a best-of-breed basis even without the without the leverage from the HR marketplace. And I still think for the foreseeable future large enterprises or the mega enterprises they will buy HR and finance separately. They're just that's just the way they've done it historically. But medium enterprise increasingly is buying HR and finance together and that's a really powerful trend for us.
Robynne D. Sisco -- Co-President and Chief Financial Officer
And Kash to your second question yes we absolutely do believe that looking at subscription revenue backlog is better indicator of our performance than billings or deferred revenue. Keep in mind however that there are several factors that influence the bookings calculation including renewal volume duration. So the quarterly bookings count can vary widely from actual ACV net bookings as we discussed at Analyst Day. We've been saying all along that this will be a back-end-loaded year for us and that's exactly what's played out which has led to the high-growth in the bookings number as you noted.
Kash Rangan -- Bank of America Merrill Lynch -- Analyst
Congratulation. Thank you very much.
Operator
Thank you. Our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.
Kirk Materne -- Evercore ISI -- Analyst
Thanks very much. I'll echo the congratulations on the good quarter and finish to the year. Aneel just on the financial side in talking to your partners healthcare seems to be one vertical and I think you mentioned a couple of companies in your prepared remarks that seems to be picking up some steam for you all. Can you just discuss that a little bit? And when you think into fiscal '21 maybe in addition maybe to healthcare are there any other verticals you feel that are starting to pick up some momentum for you in that area?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Sure. So we did have a good year and quarter in healthcare but we also had a very strong year and quarter in financial services. And I think that is a really key market for us. And of course Keybanc was a big win for Workday. That's a huge bank well-respected bank and they were already Workday HR customer. It was great to see them buy Workday financials. I think financial services is the next market. We've had good success in government. I think you'll see that continue. And I think you'll see business services be another great market for us with financials. But candidly it was strong across the board. It was the best quarter we've ever had for financials the best quarter we ever had for adaptive planning business insights. It was not only their best quarter. Growth accelerated in the fourth quarter for the planning products. And that was a it's a testament to the fact that the office of the CFO was looking at planning analytics and transactions together and want a unified system and our message is resonating so it's resonating to all types of companies.
Kirk Materne -- Evercore ISI -- Analyst
And then if I could just ask one quick follow-up along the same lines where you're just talking about. When you think about sort of selling in the office of the CFO are your partners aligned with you now in terms of being able to go in there with both planning and financials to have a little bit of a broader-based discussion? Because it seems like that's where the market wants to go. I was just kind of curious I know you all are there. But do you think your partner base is with you at this point?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Chano you want to comment on that?
Chano Fernandez -- Co-President
Yes. Thank you I will. Kirk definitely they are. I mean the interest on our partners in terms of enabling training resources both in planning and now in procurement has been increasing significantly. And we're pretty happy now with our vertical strategy as well very much easier to align toward the go-to-market for our partners.
Kirk Materne -- Evercore ISI -- Analyst
Super, thank you all.
Operator
Thank you. Our next question comes from the line of Brad Zelnick with Credit Suisse. Please proceed with your question.
Brad Zelnick -- Credit Suisse -- Analyst
Great. Thanks so much. And I'll echo my congratulations on a great finish to the year. I wanted to ask a question a competitive question perhaps Aneel or Chano specifically relative to Oracle. Because while we're all very familiar with your success replacing legacy HR systems we more recently picked up a couple of significant Oracle HCM cloud displacements which stood out to us just because this is their current generation product. Can you give us a sense of how prevalent these conversions are and what might be in common when you come across them?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
I'm not going to comment on how prevalent they are. I would just say that as it relates to all of our legacy competitors they were slow to move to the cloud. They have not had the success on the deployment side. They might have done a good job on some of the sales opportunities but the deployment side hasn't worked out and so those accounts come back to market. And that's happened with Oracle accounts. That's happened with SAP accounts. And what we hang our hat on is a great experience for our customers first on the deployment. And then once they're on deployment in their production phase. And that is how customers measure the success of these projects. It's not about what they buy. It's what they get live and what they get value from and that's going to continue to be the case.
Brad Zelnick -- Credit Suisse -- Analyst
And if I can follow-up with one for Robynne. I just wanted to check on the variability from your preliminary view of 14% non-GAAP op margin in 21 to now 14.5% what areas in the business gave you the flexibility? Can you speak to the levels of investment into Scout? Or is it sales and marketing? How should we think about that?
Robynne D. Sisco -- Co-President and Chief Financial Officer
Yes. So our raise in the margin guide is really the top line overperformance in the business in Q4 and running that through the year and the raise in the guidance that we had for sub revenue. But we do expect to continue to get efficiencies across all areas of the business. But one of the things you're going to see this year and going forward which is different is given our scale we do expect to start getting efficiencies out of R&D in FY '21 and beyond even as we continue to incrementally invest in our products.
Brad Zelnick -- Credit Suisse -- Analyst
Excellent. Thanks so much.
Operator
Thank you. Our next question comes from the line of Heather Bellini with Goldman Sachs. Please proceed with your question. Ms. Bellini can you check to see if your line is on mute? Our next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed with your question.
Josh Baer -- Morgan Stanley -- Analyst
Hi, This is Josh Baer on for Keith. There's been a couple of large acquisitions in the HCM space recently. And I'm just wondering how you expect those changes in the market to impact the competitive environment for you in HR?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
I think the two are probably Cornerstone and Saba. I don't really see any impact on us. We have displaced both of those learning products over time. I don't really see anything except upside for Workday on that one. As it relates to Kronos and Ultimate time will tell. I have a lot of respect for Aron a lot respect for the Ultimate team. I think bringing together two companies of that scale and that and different cultures is not an easy thing to do. But again Aron is a proven excellent CEO. The Ultimate team was strong so time will tell. It's definitely not a negative. Could there be some disruption that gives Workday some benefits? Yes but we're not going to count on that.
Josh Baer -- Morgan Stanley -- Analyst
Great. That's helpful. And I'm just wondering do you anticipate any disruption from canceling your the in-person sales kickoff conference?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
No. We'll replicate as much of it as we can virtually. And at the appropriate time we'll get the people together in person. There will be in-person meetings across the globe it just will not involve travel. And that what we want to do is minimize while we're in this kind of uncertainty minimize plane travel and I should say international plane travel. But you'll see clusters of folks getting together in all parts of the U.S. as we do this virtually. I don't know Chano if you want to add anything.
Chano Fernandez -- Co-President
Nothing to add. We're really excited about the virtual experience that we are creating for our colleagues across the world and as well in some of the EMEA offices that will be getting together. We're pretty positive we can deliver most of the content enablement and strategy that we have to through the virtual mode that we are creating.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
I actually think it's I actually think the there's no silver lining in a virus that's affecting so many lives but it's going to cause us to learn how to do things on a virtual basis that frankly we haven't thought about before. And I think that will be something we'll learn and use in the future.
Josh Baer -- Morgan Stanley -- Analyst
That's really interesting. Are there any costs that are shifting around associated with that? Or is it not enough to show up in a meaningful way?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Not really. Not really.
Josh Baer -- Morgan Stanley -- Analyst
Good, thank you very much.
Operator
Thank you. Our next question comes from the line of Ari Terjanian with Cleveland Research Company. Please proceed with your question.
Ari Terjanian -- Cleveland Research Company -- Analyst
Well, thanks for taking the question. Just hoping wondering if you could give a little bit more color on international performance this quarter any specific geos of outperformance. And then just which areas you're most excited about for FY '21.
Chano Fernandez -- Co-President
Yes. Thanks for your question. International remains a very big focus for us and we continue to see healthy subscription growth out of the international markets. I mean we saw great growth in terms of net new for. In terms of the areas mainly to highlight I would say our DACH which are Germany Austria and Switzerland markets as well as some of the continental markets did great performance. Our ANZ region in the other side Australia and New Zealand were some of the markets that maybe I would like to highlight in Q4. But overall we saw a healthy subscription net new ACV growth in Q4.
Ari Terjanian -- Cleveland Research Company -- Analyst
Got it. Any new areas to focus on for FY '21?
Chano Fernandez -- Co-President
From a geographical perspective nothing relevant to highlight. I mean we are considering entering Mexican market during this year but that would be basically more a market that we will be developing going forward FY '22 and onwards.
Ari Terjanian -- Cleveland Research Company -- Analyst
Alright, sounds great. Thanks so much.
Operator
Thank you. Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.
Luv Sodha -- Jefferies -- Analyst
Hi, This is Luv Sodha on for Brent Thill. I wanted to ask. Maybe it was impressive to me that you saw Prism Analytics becoming part of the net adds. Maybe could you talk about what you saw specifically in terms of deal flow in that and what it represents for the future?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
We saw 100 new accounts add Prism Analytics this past quarter which is a really strong showing again for a relatively young new product area. I think as we bring out more specific solutions like people analytics and we go into finance analytics and spend analytics I think it's going to be even more powerful. But the idea that you can plan execute analyze in one system and not have to worry about how data goes back and forth between the different systems and can do it in a real-time basis it's resonating. And as a result people look at Prism as a really great extension to gain not just better transformation from the business process side but better insight into their business.
Luv Sodha -- Jefferies -- Analyst
And then one quick follow-up if I may on the Workday Cloud Platform I was wondering if what the customer feedback has been when if when will it become generally available for deployment.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Customer feedback's been very positive. As we get ready I'd say stay tuned. You'll hear about our general availability fairly soon in the coming quarters. We are very focused on a set of repeatable use cases that we discovered in terms of working with our first wave of customers and we're just making sure that the platform is really ready for prime time with those set of use cases. So just stay tuned. You'll see it fairly shortly.
Luv Sodha -- Jefferies -- Analyst
Great, thank you.
Operator
Thank you. Our next question comes from the line of Matt Pfau with William Blair. Please proceed with your question.
Matt Pfau -- William Blair -- Analyst
Yes, guys, thanks for getting me on. Just wanted to ask on the vertical strategy for financials it seems like some of the efforts that you've put forth especially in healthcare and financial services yielded some nice results in your fiscal '20. Any plans or update on additional protocols that you plan to work on building out over fiscal '21?
Chano Fernandez -- Co-President
Matt this is Chano speaking. As Aneel mentioned I mean healthcare has been a vertical we've now been working for the last three or four years highly successfully on the back of inventory management as a unique value proposition. And then clearly customers taking on to financials and HCM on top. Education and government is another vertical with being quiet for a long time now. And the latest to our financial services where as you say we are seeing some good success with customers like Keybanc and some others on the back of our accounting center solution. And as Aneel also mentioned professional business services is becoming another significant one that we're going to start tackling from a go-to-market perspective and product perspective as soon as this year.
Matt Pfau -- William Blair -- Analyst
And just one follow-up. Have those vertical efforts resulted in larger enterprises whether being signed or in the pipeline in those specific verticals that you've put that effort into?
Chano Fernandez -- Co-President
Yes definitely when we are setting our vertical strategy as I said on the back of a unique value proposition that we have a good product and strategy for it and then we put our go-to-market efforts in terms of aligning toward our customers. And yes you are right in saying that that is pursuing more larger customers more with a financial solution offering onto those verticals and customers..
Matt Pfau -- William Blair -- Analyst
Great, thanks, guys.
Operator
Thank you. Our next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.
Karl Keirstead -- Deutsche Bank -- Analyst
Great, thanks, Maybe two for Robynne. Robynne just to start the growth rate of deferred revs and the growth rate of your subscription revenue backlog have been relatively similar through the first three quarters of the fiscal year just ended. But in the fourth quarter DR grew by 18% backlog by 23%. So the gap widened a little bit. I'd just love to ask you what might have happened in terms of invoicing duration or anything interesting around contract structure maybe more back-end-loaded deals something that might have caused that spread to widen a little bit.
Robynne D. Sisco -- Co-President and Chief Financial Officer
Yes Karl there's no really one thing for us to point to. I mean these metrics are going to vary with occasionally deferred revenue growth being above sub revenue and sometimes it being or backlog sometimes it being below. As you mentioned it really does vary with invoicing and contractual terms and renewals so don't read anything into the difference in those growth rates. And you'll continue to see some disconnects in those going forward just based on contractual invoicing terms.
Karl Keirstead -- Deutsche Bank -- Analyst
Yes. Okay. Got it. And then my second one for you Robynne is thank you for the beginning of fiscal year guidance around the seasonality in subscription revenue growth. When we look at it and try to compare it to the sub revs growth seasonality you experienced in the last couple of years it's a little bit tricky given that you've had some acquisitions that might have distorted that. So do you mind just taking a moment and just maybe qualitatively reflecting on how seasonality might be changing in fiscal '21 on the revenue growth line?
Robynne D. Sisco -- Co-President and Chief Financial Officer
Yes. I think the one thing I would point out is we've got an interesting dynamic in Q1 when we look at sequential growth from Q4 to Q1 this year and there's really two things behind that. First of all Q4 linearity within the quarter was actually more pronounced than what we've seen in FY '20. And so that's going to increase the step-up in revenue from Q4 to Q1. And then layering on top of that is the fact that we are in a leap year. And so we get one extra day of revenue recognition in Q1 as well. And so that's changing the sequential dynamics from Q4 to Q1 and then also from Q1 to Q2. But that's really the only thing that I would point out as being different this year.
Karl Keirstead -- Deutsche Bank -- Analyst
Yep. Got it. Okay. Thanks, Robin.
Operator
Thank you. Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.
Mark Marcon -- Baird -- Analyst
Good afternoon. Let me add my congratulations with regards to the strong end of the year. Obviously this is occurring real time and it's very fluid. But I'm just wondering to what extent COVID-19 ended up being factored into the guidance. And there have been other periods of uncertainty that we've gone through together over the years. Just wondering how you think that ends up playing out. I know it's obviously this is different but how are you thinking about how it could end up impacting things? And then I've got a couple of vertical questions.
Robynne D. Sisco -- Co-President and Chief Financial Officer
So Mark we really approached guidance this year the same way that we have every single year right? And so we think we've provided a realistic view based on what we know today. We today to date have not seen an impact to our business so far. But as you mentioned it's really early in this situation. We're going to continue to monitor and we'll obviously update you as we go through the year.
Mark Marcon -- Baird -- Analyst
Great. And then with regards to financials sometimes you give us client counts and you've had some really nice wins. Can you talk a little bit about like Keybanc who you ended up beating out key reasons why they went with you? And I think there's a few other companies within the Fortune 500 that you ended up winning within financials over the recent few months just the progress that you're seeing there.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Without getting into the deal-by-deal basis the two major competitors we see on everything are SAP and Oracle for financials. The more cloud-centric opportunities favor Workday. And if there's a second one we see it's Oracle. The more cloud-centric people are looking at it SAP tends to fall away. So you can you'll have to talk account by account. As the cloud continues to mature in the finance marketplace I think we'll see more of Oracle than we will have of SAP.
Mark Marcon -- Baird -- Analyst
Great. And any update on the number of clients on financials now?
Robynne D. Sisco -- Co-President and Chief Financial Officer
We did 90 in the quarter which was our most adds ever in any given quarter so we're really pleased with that result.
Mark Marcon -- Baird -- Analyst
Thank you.
Operator
Thank you. Our next question comes from the line of Heather Bellini with Goldman Sachs. Please proceed with your questions.
Heather Bellini -- Goldman Sachs -- Analyst
Great. Thank you so much. I wanted to touch a little bit on the success that you guys have had with planning. You gave some stats in the quarter about how many customers you've added. I guess if you could share with us kind of if you were since the acquisition if you could tell us kind of the number of customers if you could kind of give that to us on a cumulative basis if you have it. So just as if you could give us a sense as you look to this year how you think about the growth of this add-on and the penetration you're seeing into your installed base right? If you can you've given us some stats in the past about like payroll penetration into the installed base and learning and things like that. Just wondering if you could share with us kind of the momentum you're seeing there with the planning product.
Tom Bogan -- CEO, Adaptive Insights, a Workday company
Yes. Heather this is Tom. And we continue to see excellent progress with our planning products. I don't have an exact customer number but it's well over 1000 new customers that we've added. And that's a combination of customers that we're selling planning first as well as customers that we're selling into the Workday installed base. I'd say that it's we're very pleased with the progress we've made particularly with larger enterprise customers both as they look at financial planning and for workforce planning applications as well. So six quarters into the acquisition I think we're really pleased with the progress. There continues to be significant opportunity in the Workday installed base in terms of selling planning into that base as well as penetration both for large enterprise and middle enterprise customers.
Heather Bellini -- Goldman Sachs -- Analyst
And just if I may just one quick follow-up. Any commentary on kind of are you typically seeing greenfield opportunities legacy opportunities? Or is it head-to-head versus kind of newer companies such as Anaplan?
Tom Bogan -- CEO, Adaptive Insights, a Workday company
Yes we see both. I think there are customers who are converting from legacy on-premise solutions and they want a cloud solution for planning. And they are typically coming from an Oracle or an SAP solution. There are also customers who have used we see spreadsheets in many parts of their enterprises. Even if they have a legacy planning solution the model and business logic is in spreadsheets and we're a great solution to bring that planning process into the cloud. So it's typically Anaplan or Oracle for our cloud competes and we have we do exceptionally well in those competes.
Aneel Bhusri -- Co-Founder and Chief Executive Officer
If I could just add two things. In my prepared remarks I mentioned 350 new planning customers for the fourth quarter. That was really an outstanding performance. And the growth rate for the business planning cloud is significantly faster than the rest of Workday.
Operator
Thank you. Our final question comes from the line of Alex Zukin with RBC Capital. Please proceed with your question.
Alex Zukin -- RBC Capital -- Analyst
Hey, guys, thanks for squeezing me. I guess Aneel when you think about the durability of the growth rate in your HCM business and you think about the tailwinds there maybe even beyond next year but over a longer time duration which is going to add more of a growth tailwind in your mind? Going down market and seeing kind of continued success there selling into the base? Or new additional functionality that we haven't seen yet?
Aneel Bhusri -- Co-Founder and Chief Executive Officer
I would definitely say that the biggest opportunity at least in my mind is bringing the medium enterprise solution to the rest of the world. We've been doing that in the past 12 months where we brought the medium enterprise offering which is a different pricing and packaging and lower-cost services. We've taken them to places like the U.K. A lot of the rest of the world is a medium enterprise marketplace so that's a big opportunity. And it's largely a greenfield opportunity. Combine that with we're still largely underpenetrated in almost all parts of the world outside the U.S. where the market was first hot for cloud so we still have a tremendous amount of opportunity. There's always the ability to sell back into the base. But landing the new accounts is what drives the longer-term growth and durability growth because you need to first land the account before you can sell back into them. And so we're still very focused on that. Chano do you want to add anything?
Chano Fernandez -- Co-President
No I think the only thing obviously is kind of the financial plus opportunities. But I think it's a combination of those just to recap medium enterprise totally with you Aneel. Selling into the base we had a very strong record quarter this past Q4 Alex with over 50% growth in add-on ACV. So that was really good. And clearly me personally I'm very excited about the rest of the world opportunity joining with the ME1.
Alex Zukin -- RBC Capital -- Analyst
That's super helpful. And maybe just as a final one. If we think about the sales tweaks and changes that you make every year around this time what's the best way to characterize kind of the go-forward kind of or the focus areas that you're looking at for 2020 and kind of giving us a bit of a help on the magnitude of the changes made this year versus previous?
Chano Fernandez -- Co-President
Alex it's a great question. I think we try to always keep an evolution more than a revolution on our go-to-market and it's supporting our growth opportunities. So if you characterize those changes clearly one is the verticalization that we talk on our Analyst Day and we've been talking on this call and that is more to support our financials plus opportunity. I think strengthening our motion into the selling into the base during last year I just commented on some of the results in Q4 and you're going to see that going on and happening. And clearly last but not least Aneel is saying extending that medium enterprise and our offering in terms of shorter time to value in the rest of the world with the success we've been seeing in the U.S. So we've been taking go-to-market decisions to support some of these growth opportunities and motions. And as I said it's been more an evolution with some strengthening onto the talent that we have in some of the markets we needed to do so.
Alex Zukin -- RBC Capital -- Analyst
Perfect. Thank you guys. Congratulations.
Operator
[Operator Closing Remarks]
Duration: 46 minutes
Call participants:
Justin Furby -- Sr. Director, Investor Relations
Aneel Bhusri -- Co-Founder and Chief Executive Officer
Robynne D. Sisco -- Co-President and Chief Financial Officer
Chano Fernandez -- Co-President
Tom Bogan -- CEO, Adaptive Insights, a Workday company
Mark Murphy -- JPMorgan -- Analyst
Kash Rangan -- Bank of America Merrill Lynch -- Analyst
Kirk Materne -- Evercore ISI -- Analyst
Brad Zelnick -- Credit Suisse -- Analyst
Josh Baer -- Morgan Stanley -- Analyst
Ari Terjanian -- Cleveland Research Company -- Analyst
Luv Sodha -- Jefferies -- Analyst
Matt Pfau -- William Blair -- Analyst
Karl Keirstead -- Deutsche Bank -- Analyst
Mark Marcon -- Baird -- Analyst
Heather Bellini -- Goldman Sachs -- Analyst
Alex Zukin -- RBC Capital -- Analyst
