Earnings Call Transcript - WDAY Q4 2020

Operator, Operator

Welcome to Workday's Fourth Quarter and Fiscal Year 2020 Earnings Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the call. I will now hand it over to Justin Furby, Senior Director of Investor Relations.

Justin Furby, Senior Director of 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 will take questions. Our press release was issued after the close of the 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, CEO

Thank you, Justin. Good afternoon, everyone. Thank you for joining us today for our fourth quarter fiscal year '20 earnings call. I'm pleased to report that Workday had another strong quarter, ending the year with significant momentum in position as 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 use Workday as their partner for their finance and HR cloud transformations. We now have over 3,200 customers and our commitment to their success is demonstrated by our 97% customer satisfaction rate and broad reference-ability. 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 quarter ever, 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. New HCM go-lives in Q4 included Natwest Group, Banco Santander, and 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 and 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 and 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 a broader Workday platform. Our new workmates of Scout RFP had an excellent initial quarter as well, with strong momentum on sourcing opportunities, both standalone and as part of Workday fund 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 global 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 fund, a key part of our success continues to be our vibrant company culture which allows us to maintain high levels of employee satisfaction and greatly helps us attract and retain talent across all levels of the company. To that end, we are proud of our recent recognitions as Fortune A 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 one. So, it's an honor for Workday to be on these prestigious lists. As we look forward to fiscal year '21 and beyond, we are relentlessly focused on innovation and expect to see continued momentum from our growing family of applications. We're confident in the pipeline we have built on the sales execution while 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'll turn it over to our CFO and Co-President, Robynne Sisco. Over to you, Robynne?

Robynne Sisco, CFO and Co-President

Thanks, Aneel, and good afternoon everyone. Our fourth quarter capped a strong year driven by solid execution across the company. We not only added a record number of net new HCM and financial 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 US increased 33% year over year to $244 million, representing 25% of total revenue. We see a 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 the 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 '19 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 1,650 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 12,200. 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 towards 25% plus 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 sectors across our business. At our Analysts Day last October, we provided incremental disclosure around our HCM and Financials 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 Financials 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 for the annual compensation process. The gap margins for the first quarter and the full year are expected to be approximately 26 to 27 percentage 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-debt 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 five-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.

Operator, Operator

Our first question comes from Mark Murphy with JP Morgan. Please go ahead with your question.

Mark Murphy, Analyst

Thank you. And congrats on a very strong finish. I wanted to inquire about the coronavirus situation. We certainly understand that there's no reason you would be experts on this, but we had 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 just at a high level, whether any disruption seems manageable to you through this fiscal year or whether it's just too hard to gauge that.

Aneel Bhusri, CEO

Yeah, it's still early and we're not experts. As it relates to the sales kickoff, I think the rest of the team and I didn't think the risk was very high in the US, but our Asia PAC folks could not attend. With the outbreak in Italy, we actually had a joint meeting planned with some of the UK and Italy team, but we felt like just having the US team not inclusive enough. Not really the way Workday would proceed 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 passes. In the meantime, we're going to do things virtually. I think in the US, though, right now it still feels like mostly business as usual.

Mark Murphy, Analyst

Okay, great. Just as a quick follow-up, I was wondering if you could just comment on how far-reaching your ambitions are 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. It took you five years to go from zero to number one market share in the Fortune 500 there. I'm just curious whether you see that type of potential in that market.

Aneel Bhusri, CEO

There's definitely a ton of potential. As we've gotten smarter about the spend management market, particularly with Scout RFP, first of all, they had a great first quarter as part of Workday, really an excellent team. The dollars that flow through sourcing are just massive. Even at Workday, the amount of money that goes through the procurement organization is huge. I do think there's a chance to build a differentiated solution in the short term that is more Scout as a standalone solution plus as part of our suite. But over time, you could see our procurement suite being a best-in-breed, best-in-class suite. The market is only going to grow, and it's a really exciting opportunity for us. Can I mimic recruiting? Time will tell. What it can do is drive financial sales, and I think financial sales can drive the spend management marketplace. Every company on the planet has to manage their spend effectively, so it is a truly global opportunity.

Operator, 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, Analyst

Aneel, I know that you sounded 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 ending with the HCM business showing obvious strengths in the quarter? And also, you could talk to the network effects or the platform effect or 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 counted as deferred revenue change and instead focus on your backlog because that calculation of bookings comes up at 28%, and it has been more predictable and consistent. Is that the right way to look for an indicator of your business? Thank you very much.

Aneel Bhusri, CEO

So on the HCM market, we had a great fourth quarter. We had 11 Fortune 500 accounts, the second best quarter we've ever had as a company. 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. 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 in that marketplace. No question that the suite market is picking up today. I think one out of every four customers has both product lines. What we saw in the fourth 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 leverage from the HR marketplace. For the foreseeable future, large enterprises or mega enterprises will buy HR and finance separately. That's just how they've historically done it, while the medium enterprise increasingly is buying HR and finance together, and that's a really powerful trend for us.

Robynne Sisco, CFO and Co-President

And Kash, to your second question, yeah, we absolutely do believe that looking at subscription revenue backlog is a 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 and duration. So the quarterly bookings count can vary widely from actual ACB net bookings, as we discussed at Analysts Day. We've been saying all along that this would 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, Analyst

Wonderful. Congratulations. Thank you very much.

Operator, Operator

Thank you. Our next question comes from the line of Kirk Materne with Evercore ISI. Please proceed with your question.

Kirk Materne, Analyst

Thanks very much. I'll echo that congratulations on a good quarter and finish to the year. Aneel, just on the financial side 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 gaining some steam for you all. Can you just discuss that a little bit and when you think in this fiscal year '21, maybe in addition to healthcare, are there any other verticals you feel that are starting to pick up some momentum for you in that area? Thanks.

Aneel Bhusri, CEO

So we did have a good year and quarter in healthcare, but we also had a very strong year and quarter in financial services. I think that is a really key market for us, and of course, KeyBanc was a big win for Workday. That's a huge, well-respected bank, and they already worked as an 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, and I think you'll see that continue. Business Services will 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. It was also the best quarter we ever had for adaptive planning business insights. Growth accelerated in the fourth quarter for the planning products. That says a lot about the fact that the Office of the CFO is looking at planning, analytics, and transactions together and wants a unified system, and our message is resonating.

Kirk Materne, Analyst

And then if I just ask one quick follow-up along those same lines, when you think about selling and 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 broader base discussion? Because it seems like that's where the market wants to go. I'm just kind of curious. I know you are there, but do you think your partner base is with you at this point?

Aneel Bhusri, CEO

Chano, you want to comment on that?

Chano Fernandez, Co-President

Thank you, I will. Hi, Kirk. Definitely, they are. The interest from our partners in terms of enabling training resources, both in implanting and now in procuring, has been increasing significantly. We're pretty happy now that our vertical strategy is much easier to align towards the go-to-market for our partners.

Operator, Operator

Thank you. Our next question comes from the line of Brad Zelnick with Credit Suisse. Please proceed with your question.

Brad Zelnick, Analyst

Great. Thanks so much, and let me also congratulate you on a great finish to the year. I wanted to ask a competitive question of perhaps Aneel or Chano specifically relative to Oracle, because while we're all very familiar with your success replacing legacy HR systems, we've 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, CEO

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. Those accounts come back to market, and that's happened with Oracle accounts. It's happened with SAP accounts. What we hang our hat on is a great experience for our customers first and the deployment. Once they're in production, that's how customers measure the success of these projects. It's not about what they buy; it's about what they get live and the value they get from it. That's going to continue to be the case.

Brad Zelnick, Analyst

Thanks so much. 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 operating 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? Thanks.

Robynne Sisco, CFO and Co-President

Yeah, 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 subscription revenue, but we do expect to continue to get efficiencies across all areas of the business. You're going to see this year and going forward, which is different, is, given our scale, we expect to start getting efficiencies out of R&D in FY '21 and beyond, even as we continue to incrementally invest in our products.

Operator, Operator

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?

Josh Baer, Analyst

Hi, this is Josh Baer on for Keith. There have 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, CEO

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 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 Aaron and the Ultimate team. Bringing together two companies of that scale and with different cultures is not an easy thing to do. But again, Aaron is a proven excellent CEO, and the Ultimate team was strong. So time will tell; it's definitely not a negative. There could be some disruption that may give Workday some benefits, but we are not going to count on that.

Josh Baer, Analyst

That's helpful. And I'm just wondering if you anticipate any disruption from canceling your in-person sales kickoff conference?

Aneel Bhusri, CEO

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, but it just will not involve travel. What we want to do is minimize that plane travel during this time of uncertainty. I should say international plane travel. You'll see clusters of folks getting together in all parts of the US as we do this virtually. I don't know Chano if you want to add anything.

Chano Fernandez, Co-President

No, nothing to add. We're really excited about the virtual experience that we are creating for our colleagues across the world, and in our EMEA offices, they will be getting together. We are optimistic we can deliver most of the content enablement and strategy.

Aneel Bhusri, CEO

I actually think there's no silver lining in a virus that is affecting so many lives, but it's going to cause us to learn how to do things on a virtual basis that we haven't thought about before. That will be something we'll learn and use in the future.

Josh Baer, Analyst

That's really interesting. Are there any costs that are shifting around associated with that or is it not big enough to show up in a meaningful way?

Aneel Bhusri, CEO

Not really.

Josh Baer, Analyst

Got it. Thank you very much.

Operator, Operator

Thank you. Our next question comes from the line of Ari Terjanian with Cleveland Research Company. Please proceed with your question.

Ari Terjanian, Analyst

Hello, thanks for taking my questions. I'm hoping to gather a little bit of color on international performance this quarter. Any specific geographies of outperformance, and then just which areas you're most excited about for FY '21. Thank you.

Chano Fernandez, Co-President

Yeah, 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. We had great growth in Q4, mainly in the DACH region, which includes Germany, Austria, and Switzerland, as well as some other continental markets that performed excellently in Q4. Our A&Z region, specifically Australia and New Zealand, were also standouts this quarter. Overall, we still have healthy subscription net new ACV growth in Q4.

Ari Terjanian, Analyst

But any new areas to focus on for FY '21?

Chano Fernandez, Co-President

From a geographical perspective, nothing of relevance to highlight. We are considering the Mexican market for this year, but that's more a market we will be developing going forward into FY '22 and onwards.

Operator, Operator

Thank you. Our next question comes from the line of Brent Bell with Jefferies. Please proceed with your question.

Luv Sodha, Analyst

Hi, this is Luv Sodha on for Brent, too. I wanted to ask maybe, it was impressive to me that you saw Prism Analytics becoming part of the net adds. Maybe you could talk about what you saw specifically in terms of deal flow in that and what it represents for the future.

Aneel Bhusri, CEO

We saw a hundred new accounts at Prism Analytics this past quarter, which is a really strong showing for a relatively new product area. I think as we bring out more specific solutions like people analytics, finance analytics, and spend analytics, it's going to be even more powerful. The idea that you can plan, execute, and analyze in one system without having to worry about how data goes back and forth between different systems and can do it on a real-time basis is resonating. As a result, people are looking at Prism as a great extension to gain not just better transformation from the business process side, but better insight into their business.

Luv Sodha, Analyst

And then a quick follow-up if I may on the Workday cloud platform. I was wondering if you could share customer feedback and when it will become generally available for deployment.

Aneel Bhusri, CEO

The customer feedback has 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 have discovered in working with our first wave of customers, and we're just making sure that the platform is really ready for prime time with those use cases. So just stay tuned. You'll see it fairly shortly. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Matt Pfau with William Blair. Please proceed with your question.

Matt Pfau, Analyst

Thanks for getting me on. I just wanted to ask on the vertical strategy of core financials. It seems like some of the efforts that you put forward, especially in healthcare and financial services, yielded some nice results in your fiscal '20. Any plans or updates on additional protocols that you plan to work on building out over fiscal '21?

Chano Fernandez, Co-President

Hi, Matt, this is Chano speaking. As Aneel mentioned, healthcare has been a vertical we've been working on for the last three or four years with great success, particularly on the back of inventory management as a unique value proposition, and customers taking on financials and HCM on top of that. Education and government have also been long-term verticals for us, and we're seeing significant success with financial services where we see good outcomes with customers like KeyBanc and others on the back of our accounting center solution. Aneel also mentioned that professional business services will become a significant focus from the go-to-market and product perspective this year.

Matt Pfau, Analyst

Just one follow-up. Have those vertical efforts resulted in larger enterprises, whether being signed or being in the pipeline in those specific verticals that you've put that effort into?

Chano Fernandez, Co-President

Yes, definitely. When we set our vertical strategy based on unique value propositions, we have a solid product, and the strategy behind it, we align our go-to-market efforts with our customers. It tends to yield more value, leading to customers seeking our financial solution offerings in those verticals.

Operator, Operator

Thank you. Our next question comes from the line of Karl Keirstead with Deutsche Bank. Please proceed with your question.

Karl Keirstead, Analyst

Great, thanks. Maybe two for Robynne. Robynne, just to start, the growth rate of deferred revenues 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%, while backlog grew by 23%. So the gap widened a little bit. I just want to ask what might have happened in terms of invoicing duration or anything interesting around contract structure, maybe more backend-loaded deals, something that might have caused that spread to widen a little bit. Thank you.

Robynne Sisco, CFO and Co-President

Yeah, 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 subscription revenue. Sometimes it will be backlog, and sometimes it will be 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. You'll continue to see some disconnects in those going forward based on contractual invoicing terms.

Karl Keirstead, Analyst

Yep. 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 subscription revenue growth seasonality you've experienced in the last couple of years, it's a little tricky given that you've had some acquisitions that might have distorted that. So do you mind reflecting qualitatively on how seasonality might be changing in fiscal '21 on the revenue growth line? Thank you.

Robynne Sisco, CFO and Co-President

Yeah, I think the one thing I would point out is we have an interesting dynamic in Q1 when we look at sequential growth from Q4 to Q1 this year. There are really two things behind that. First, Q4 linearity within the quarter was more pronounced than what we've seen in FY '20, which is going to increase the step-up in revenue from Q4 to Q1. Layering on top of that is the fact that we are in a Leap Year, so we get one extra day of revenue recognition in Q1 as well. That's changing the sequential dynamics from Q4 to Q1, and then also from Q1 to Q2. That's really the only different aspect I would highlight this year.

Karl Keirstead, Analyst

Yep. Got it. Okay. Thanks, Robynne.

Operator, Operator

Thank you. Our next question comes from the line of Mark Marcon with Baird. Please proceed with your question.

Mark Marcon, Analyst

Good afternoon, let me add my congratulations regarding 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 impact things? And then I've got a couple of vertical questions.

Robynne Sisco, CFO and Co-President

So Mark, we approach guidance this year the same way we have every single year. We think we've provided realistic guidance based on what we know today. To date, we have not seen an impact on our business so far. But as you mentioned, it's really early in the situation. We're going to continue to monitor and will update you as we go through the year.

Mark Marcon, Analyst

Great. And then with regards to financials, sometimes you give us client counts, and you've had some nice wins. Can you talk a little bit about KeyBanc, who you ended up beating out? Key reasons why they went with you, and I think there are a few other companies within the Fortune 500 that you've won over financials in recent months. Just the progress you’re seeing there.

Aneel Bhusri, CEO

Without getting into a deal-by-deal basis, the two major competitors we see are SAP and Oracle for financials. The more cloud-centric opportunities favor Workday. If there’s a second one we see, it's Oracle. The more cloud-savvy people are looking at it, SAP tends to fall away. So we'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 of SAP.

Robynne Sisco, CFO and Co-President

We added 90 customers in the quarter, which was the most adds we've ever had in any given quarter. We were really pleased with that result.

Operator, Operator

Thank you. Our next question comes from the line of Heather Bellini with Goldman Sachs. Please proceed with your question.

Heather Bellini, 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. Can you share if you have kind of a cumulative customer number since the acquisition to showcase the growth of this add-on and penetration you're seeing into your installed base?

Tom Bogan, EVP of Planning Business Unit

Heather, this is Tom, and we continue to see excellent progress. I don't have the exact customer number, but it's well over a thousand new customers that we've added, which is a combination of customers we're selling planning first and those we're selling into the Workday install base. We're very pleased with the progress we've made, particularly with larger enterprise customers as they look at financial planning and workforce planning applications as well. Six quarters into the acquisition, I think we're really pleased with our progress. There continues to be significant opportunity in the Workday install base in terms of selling planning into that base as well as penetration both for large enterprise and mid-enterprise customers.

Heather Bellini, Analyst

And just if I may, a quick follow-up. Any commentary on whether you're typically seeing greenfield opportunities, legacy opportunities, or head-to-head versus newer companies such as Anaplan?

Tom Bogan, EVP of Planning Business Unit

We see both. Some customers are converting from legacy on-premise solutions and want a cloud solution for planning. They're coming from Oracle or SAP solutions. We also see customers that are using spreadsheets in many parts of their enterprises, even if they have a legacy planning solution. The model and business logic comes from spreadsheets, and we are a great solution for bringing that planning process into the cloud. We typically see Anaplan or Oracle as our cloud competitors, and we do exceptionally well in those competitions.

Heather Bellini, Analyst

Thank you.

Aneel Bhusri, CEO

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, Operator

Thank you. Our final question comes from the line of Alex Zukin with RBC Capital. Please proceed with your question.

Alex Zukin, Analyst

Hey, guys, thanks for squeezing me in. I guess, Aneel, when you think about the durability of the growth rate in your HCM business, what do you think are the tailwinds, even beyond next year, that will add more of a growth tailwind in your mind? Going down-market and continuing to see success there by selling into the base or new functionality that we haven't seen yet?

Aneel Bhusri, CEO

I would definitely say the biggest opportunity 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 when we introduced the medium enterprise offering, which is a different pricing and packaging and lower cost services. We've taken it to places like the UK. Much of the rest of the world is a medium enterprise marketplace, so that's a big opportunity. It's largely a greenfield opportunity. I combine that with the fact that we’re still largely under-penetrated in almost all parts of the world outside the US, where the market was first hot for cloud. We still have tremendous opportunities. There's always the ability to sell back into the base, but landing the new accounts drives longer-term growth and durability because you need to first land the account before you can sell back into them. So we’re still very focused on that. Chano, do you want to add anything?

Chano Fernandez, Co-President

The only thing to add, of course, is the financial class opportunities. It's a combination with those just to recap. In Q4, we had over 50% growth in add-on ACV. That was a really strong performance, and I'm very excited about the rest-of-world opportunities.

Operator, Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes Workday's fourth quarter and fiscal year 2020 earnings conference call. Thank you again for joining us. You may disconnect your lines and have a wonderful day.