Blackline Inc

NASDAQ:BL

Earnings Call Transcript 2019-Q1

[Operator]

Good day ladies and gentlemen, and welcome to the BlackLine, Q1 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Following managements prepared remarks we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded.

It is now my please to hand the conference over to Alexandra Geller, Vice President of Investor Relations. Maam, you may begin.

[Alexandra Geller, Vice President of Investor Relations]

Good afternoon and thank you for your participation today. With me on the call is Therese Tucker, Founder and Chief Executive Officer of BlackLine; and Mark Partin, Chief Financial Officer.

Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially, because the statements are based on our current expectations and are subject to risks and uncertainties.

We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Also, unless otherwise stated, all financial measures discussed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results is currently available in our press release, which may be found on our Investor Relations website at investors.BlackLine.com or on our Form 8-K filed with the SEC today.

Now, I will turn the call over to Therese to begin.

[Therese Tucker, Founder, Chief Executive Officer]

Good afternoon everyone, and thank you for joining us today. Q1 was a solid start to the year. We focused on execution, demonstrated early progress on our 2019 initiative and believe we are well positioned to achieve our goal of driving long term sustainable growth.

As we outlined on our prior earnings call, our 2019 focus is centered on driving growth and scaling the business. Today, I would like to highlight the progress we have made in Q1 around some of our customer, partner and sales initiative.

First and foremost our primary mission is delivering value to our customers. Our customer centric focus truly sets BlackLine apart from the competition. Increasingly our customers and prospects are asking for a true strategic partner to lead them in their accounting and finance transformation. BlackLine has more than 15 years of experience in our market, any competitor or new entrants offering only workflow functionality around the financial close process, without automation and business intelligence will still require accountants to perform manual processes, such as journal entry and reconciliations in excel.

While workflow alone can be an improvement over excel, it cannot support companies undergoing a digital transformation or seeking an alternative to their manual close processes. A core tenant of effective digital transformation is automation tailored for specific business needs.

From the beginning, BlackLine has incorporated automation engines into end-to-end accounting processes. These engines enable automation of the journal entry processes, multi-level reconciliation such as statutory to GAAP, IFRS to GAAP, Intelligent Transaction Matching

and other accounting processes in addition to streamlining the accounting workflow and enforcing segregation of duties.

Combined, we believe these capabilities represent the most advanced offering of automated, integrated, end-to-end accounting processes without requiring costly and time consuming customizations. This deep business logic delivers significant value to our customers.

To give you an example, let's take a look at the Automatic Certification of Reconciliations. BlackLine solution automates the creation of the reconciliation, populates all relevant information, identifies whether the reconciliation qualifies for automatic certification based upon a set of rules and then automatically certifies the rest that qualify.

To put that into perspective, our overall customer base has an automatic certification rate of 82%. That means that 82% of our customer’s reconciliations are being completed by BlackLine software without any manual review or interactions.

As the market leader, BlackLine believes that it is incumbent upon us to enable accountants to be strategic leaders in their enterprises. In addition to providing the most advanced technology in the space, this includes leading our customers to deploy more efficient and strategic accounting and finance processes.

In the past 12 months alone, we have invested millions of dollars on education, training and leadership resources to best equip our customers on their finance transformation journeys. In Q1 our customer success team hosted activities with more than 250 customers to improve their use of existing BlackLine solutions and identify a value creation roadmap. Our customer success team does not carry a sales quota; instead their mantra is helping not selling our customers.

We also significantly increase our training outreach with new eLearnings and more live training events in the quarter, resulting in twice as many users complaining BlackLine U Online Training and a seven fold increase in attendance at live training events in Q1 relative to a year ago.

Additionally, we launched our Accounting Innovation team in July of last year. This team is a highly skilled group of digital transformation specialists who target our leading global accounts. In a very short period the team has spent more than 3000 hours on site with more than 40 customers and prospects, holding multi-day workshops to outline a road map specific to the company's unique finance transformation journey, while also demonstrating leading, best practices from our large data sets.

These touch points are not only creating lifelong BlackLine advocates, but they are also shifting the mindsets of finance and accounting buyers to see past short term change management in favor of a reliable, efficient and transparent accounting and finance organization.

With our 2019 initiative of the whole product strategy which includes our Comprehensive Technology Solution, Visionary Road Maps and High Touch Services, BlackLine can now operate as a strategic partner to its customers. This is what truly differentiates BlackLine from any vendor who enters the space as it merges advanced end-to-end accounting automation technology with deep expertise around the constantly evolving complexities of accounting processes.

We believe there is no other company in the accounting and financial close market that has devoted the same level of time, resources or investment in support and value creation for its customers. This differentiator is a clear value proposition to companies who are embarking on digital transformation within their accounting and finance organizations and is driving demand of our solution. In the first quarter we closed a number of new logos and expanded our footprint among our installed base.

The EMEA team won the biggest deal in its history, with the UK's largest general insurer. This company had multiple reconciliation systems across different vendors in addition the home grown and manual system. Sponsored by the company's CFO, their finance transformation is centered around simplifying their business, reducing costs and removing duplication of efforts and systems across the 16 countries in which they operate. Faced with significant global requirements and limitations within their existing ERP vendor, they turned to BlackLine due to the depth of functionality, scale and ease of configuration.

The second largest one of the quarter also came from the EMEA team with one of the world's leading global pharmaceutical companies headquartered in the UK. This company replaced their point solution for account reconciliations with BlackLines finance transformation solution for greater visibility and control over the reconciliation process in addition to an expanded end to end financial close solution.

In North America we added a pioneer in Robotics Process Automation. The company was eager to replace their manual excel processes due to concerns around regulatory compliance. They chose BlackLine due to our seamless NetSuite integration and overall functionality. With this win, we now count the top three RPA vendors as BlackLine customers, which validates that even a robot need help with closing its books.

Within the installed base, a global industrial manufacture first became a BlackLine customer in 2011, with the purchase of our Finance Transformation Solution for their North American operations to enhance controls around SOX compliance.

In their eight year tenure, they have expanded their BlackLine footprint multiple times over to optimize automation, visibility and reporting. In 2016 they purchased the SAP Connector. In the following years they were an early adopter of the Intercompany Hub. That same year they expanded reconciliations to their European operations and then further expanded in 2018 to their Australian entities, and in Q1 they continued to grow their BlackLine footprint with the addition of transaction matching to automate millions of monthly transactions for bank and lease accounting, while also significantly reducing their manual processes. At this point they have nearly every product offered on our platform.

Moving on to the partner ecosystem, I would like to provide an update on the SAP Select Partnership. As previously reported late last year, we changed our relationship with SAP and created a reseller partnership to activate the global SAP sales force, expand global distribution and streamline the sales motion to existing SAP clients.

In Q1 Awe closed some SolEx deals in Europe and South Africa. Given the seasonal nature of the first quarter and the fact that this partnership is still very new, the sales results were in-line with our expectation. Our primary near term focus with SAP remains building awareness of the BlackLine value proposition with an SAP to lay the foundation for long term success.

Since the launch of SolEx we believe we have been able to drive success for SAP, both in terms of broader functionality of their product offering and improved value to their customers. One such example includes a leading financial services group who is looking to gain efficiencies within their general ledger and finance close process.

The customer wanted both immediate returns as well as a solution capable of supporting them throughout their transition to S/4HANA. With BlackLine SAP was able to offer this customer significant process improvements outside of their ERP, including an optimized financial close, reduced risk and enhanced efficiency of formerly manual spreadsheet driven processes.

Although a number of SAP account executives are familiar with BlackLine from our EBS relationship, one of our challenges and opportunities with this new partnership is sales enablement across SAPs thousands of global account executive. We've seen a lot of positive traction from the conversations we are having with be informed SAP account executives, but that remains a small portion of their global population today.

Our joint enablement plan is designed to drive awareness and insure readiness of the global SAP sales force. In Q1 we continue to enhance key assets and host several live and virtual knowledge sessions to engage a larger audience of account executives within the SAP go-to-market organization. Next week we will participate in SAP Sapphire Conference with a significantly larger presence than prior years. As we continue to enable and educate the broader SAP's sales force, we hope to more effectively partner together in what we believe remains a large global opportunity.

Moving on to sales initiatives, at the end of last year and the start of this year, we made changes to drive sales rep retention and productivity, including launching new comp-plans to better incentivize our sales reps and align our compensation with industry standards. It is early, but I'm pleased to report that in Q1 we are beginning to see improvements as sales reps have largely embraced our new leadership team, territory restructuring and compensation plans.

From an operational perspective, we are also seen improvements in morale, stronger partnering across sales, support and services and a tighter interlock between marketing and sales. As a result, we saw improvements in rep retention and in the number of reps who attained full quota in Q1 relative to the prior year. These customer, partners and sales initiatives saw positive traction in the first quarter. We look forward to building on these initiatives throughout the year.

We hosted a number of global customer and prospect events in the quarter. Mark and I recently traveled to Japan, one of the world's largest software markets to help launch our new Japanese entity. We have hired experienced team members, including technology industry veteran Yoshiko Furuhama, as the new Japanese country CEO. We also met with a number of prospective clients and had very positive conversations.

Japanese Corporate Entities are looking to have greater visibility around control and compliance with J-SOX regulations. We believe the BlackLine offering has strong alignment with the needs of Japan's largest organization.

Our travel also included our EMEA InTheBlack conference in London where we had record attendance of more than 350 customers, prospects and partners. An independent nuclear research report from an analyst who attended our ITB EMEA event highlighted that “automation was a consistent theme of conversation due to the progress BlackLine has made on bringing those capabilities to the product, from automated matching and journals to facilitating the continuous close.”

State side we continue to expand our best practices summit and strategic client forms across the country. These events are non-sales events where our customers learn best practices from one another. In Q1 customers discussed how they are using BlackLine to increase business agility, in the face of global accounting challenges and changing business conditions.

Last but not least, we continue to enhance our leadership team with the addition of Pete Hirsch, as our new Chief Technology Officer. Pete is a seasoned software engineer and architect with more than 30 years of experience scaling technology organization. With a background in operating large scale cloud software businesses primarily in Fintech and Procurement, we believe Pete is the right leader to oversee our global technology vision as we continue to scale.

We will continue to focus on driving growth and scaling the business through 2019.

And with that, I'll turn the call over to Mark.

[Mark Partin, Chief Financial Officer.]

Thank you, Therese, and good afternoon everyone. As a quick reminder unless otherwise noted, all numbers mentioned during my remarks today are non-GAAP.

We delivered a solid first quarter despite Q1 seasonality and launching a series of changes in our go-to-market model. Total first quarter revenue grew 25% year-over-year to reach $64 million.

A few other notes on our revenue mix. Our international business continues to grow on pace with our expectations representing 22% of the total in Q1, up from 20% in the prior year. Revenue from our SAP partnership was 25% of total revenue in Q1 up from 24% in Q4 and 22% a year ago. This metric represents our revenue with SAP customers under our previous EBS agreement and current select partnership agreements.

In the first quarter, existing SAP customers who had previously signed under the EPS partnership renewed and continued to grow on BlackLine paper in line with our expectations.

Strategic products represent a 19% of sales for the quarter, which remains consistent with our strategy of having a balance between the strong demand for core products and the gradual and evolving growth of our larger and more complex strategic products. These results were in line with our range of balanced expectations of 15% to 20% of sales for the quarter.

Moving on to our key performance metrics for the quarter, we added 76 net new customers and now serve over 2,700 customers globally. As you heard from Therese’s examples earlier, the quality of new logos was strong and with the help of our partnership in Q1 we had more large customers with an ARR $250,000 or more.

Our dollar based net revenue retention rate with 108%. Our renewal rate which is blended for both midmarket and enterprise customers remained high at 97%. Gross margin for the quarter was strong at just under 83% overall with subscription gross margins at 86%.

In Q1 our revenue over performance helped on the bottom line, as we generated net income attributable to BlackLine of $1.1 million, which was greater than our expectations and represented our seventh consecutive quarter of positive net income.

We generated approximately $3 million in operating cash flow and $700,000 in free cash flow for the quarter. We ended the quarter with approximately $135 million of cash and cash equivalents and marketable securities.

Before I move to our outlook, I would like to make a few comments for modeling purposes. For the full year we anticipate overall gross margins will trend towards our target model of approximately 80%. As a reminder, we anticipate a few timing differences in expenses between 2018 and 2019. First, we are moving the date of our annual user conference from the fourth quarter to the third quarter, so you will see expenses associated with the event shift accordingly into Q3.

Second, effective last October, we stopped incurring the fee on SAP revenue that we were paying under our EBS agreement and expect to see a gradual reduction in this expense in 2019. Given these two impacts, we expect to see operating leverage and the bulk of net income to be weighted towards Q4. Lastly the med-point of our annual guidance assumes we deliver free cash flow margin between 3% and 4% for the full year.

Now let's move to our second quarter and full year 2019 outlook. As Therese mentioned, we demonstrated good traction in the quarter, but it's still early in the year and there are key growth initiatives that we must execute on throughout the year.

As such and consistent with prior quarters, our guidance philosophy remains pragmatic. For the second quarter of 2019 total GAAP revenue is expected to be in the range of $67.4 million to $68.4 million. On the bottom line we expect to report non-GAAP net income attributable to BlackLine of breakeven to $1.5 million or breakeven to $0.03 on a per share basis. Our share count will be approximately $59.7 million deluded weighted average shares.

For the full year 2019, total GAAP revenue is expected to be in the range of $276 million to $281 million. Non GAAP net income attributable to BlackLine in 2019 is expected to be in the range of $9 million to $11 million. Utilize these diluted weighted average shares of $59.6 million, we expect non-GAAP net income per share between $0.15 and $0.18.

Lastly I'd like to announce that we plan to attend several upcoming investor conferences this quarter, including the Jefferies Software Conference, the Baird Global Consumer Technology & Services Conference and William Blair Growth Stock Conference. We will also be marketing in Toronto and Montreal. If you would like to participate in any of these meetings, please reach out to our Investor Relations team.

Therese and I will now take your questions.

[Operator]

Thank you. [Operator Instructions]. And our first question will come from the line of Rob Oliver with Baird. Your line is now open.

[Rob Oliver, Baird]

Great. Hey, thank you guys very much for taking my question. Therese thanks for the color around the SAP SolEx deal wins. I was hoping to push just a little bit more there. So you mentioned you had to in the quarter that you cited one in Europe and one in South Africa. I just wanted to get a sense and I know it’s you know seasonally a more challenging quarter and it's early in the partnership. But did those wins indicate to you that there was perhaps a broader pool of dollars that you guys were getting access to. I know at the beginning of your prepared remarks you talked a lot about digital transformation. I’d just be curious to know what sort of deals you guys found yourself into along with SAP and then I had a very quick follow-up? Thanks.

[Therese Tucker, Founder, Chief Executive Officer]

Well, you know I think Rob one of the things that’s good about what we've seen so far is that we are seeing SAP pricing power and we are seeing access to much larger global accounts. So that’s very good. The other thing that you know we really don't spend a lot of time on is that we're seeing good growth in the pipeline. So I am pleased with where we're at, given the earliness of the partnership and the fact that SAP historically you know this is a very seasonal quarter for them.

[Rob Oliver, Baird]

Got it, okay. That’s helpful. And then just on the international growth which is obviously solid and you now have, the Head of Sales in now four national and guys have done a nice job growing that business. On the international growth what percentage of business this quarter was that and I know the deals that you said on SAP were both deals abroad. So was that more partner led or was it more direct or any color there would be helpful? Thank you guys.

[Therese Tucker, Founder, Chief Executive Officer]

You know Rob on of the strengths of BlackLine is that we really do have a number of different levers of gross and you will see one sector perform better over different quarters, and it just so happens that international did a very nice job this quarter.

[Rob Oliver, Baird]

Great, thanks again.

[Therese Tucker, Founder, Chief Executive Officer]

Thank you.

[Operator]

Thank you. And our next question will from the line of Bhavan Suri with William Blair. Your line is now open. Pardon me Bhavan Suri, please check and see if you mute. Your line is now open for your questions.

[Bhavan Suri, William Blair]

Hello! I'm sorry can you hear me?

[Therese Tucker, Founder, Chief Executive Officer]

Yes.

[Bhavan Suri, William Blair]

Yes great, Therese and Mark. How are you?

[Mark Partin, Chief Financial Officer.]

Good, good.

[Therese Tucker, Founder, Chief Executive Officer]

Well, thank you.

[Bhavan Suri, William Blair]

Thanks for taking my questions and obviously I wanted to touch upon one of the things here on the mid-market business. As you look at that flywheel and sort of the expansion rates associate with that business, I’d love to just get some color on what you are seeing in terms of trend lines. Obviously with a larger business, multiple divisions, expansion rates stay difference. I mean you obviously have to deal with sort of the shift, the transaction based pricing or the matching pricing of [inaudible] products vis-à-vis the users.

But in the mid-market business, just wondering how you are seeing sort of expansion rates look like and its not been something to drag on those just because the mid-size business maybe I do the whole department or maybe I do the FD&A group, which is a small; group. Just trying to understand how those drive that expansion number or affect that expansion number.

[Therese Tucker, Founder, Chief Executive Officer]

Well, you know historically from mid-market the number of users has been far smaller than enterprise. So that's always been the case. Again we view it as a healthy lever of growth, but one of a number, okay.

And secondly I would say that one of the things the trends that we are seeing within the mid-market business right now is that our mid-market sales force is really starting to focus on the higher end of their range. And so as you get up into you know the $500 million companies that starts to look a lot more like an enterprise deal both in timing and in size.

[Mark Partin, Chief Financial Officer.]

Yeah I’d also like to add to that about the flywheel or net expansion rate that you mentioned. In the mid-market it's been pretty consistent over several years that we land with a big bite of the apple in the mid-market. It’s a $50 million to $500 million enterprise. But they are sort of limited in the number of users that they have at that stage. So the net expansion rate for mid-market is a drag on the overall net expansion rate for the business, where we have seen some uptake is in products like matching, with works really well in mid-market and help give us a deeper or broader footprint. So that’s an opportunity for mid-market.

[Bhavan Suri, William Blair]

Yeah, no that’s super helpful. That’s what I expected to hear and that’s what you are saying. I guess and then just as a quick follow-up on Smart Close. You know we talked about that product a while back, but I’d love to understand sort of the interest there, the adoption level and then as I think about the product as RPA sort of for the ERP market, is that resonating, and then are you sort of seeing broader adoptions Mark. How are we doing with that product in terms of customer adoptions then and sort of maybe is there a place for that to play in the oracle and the landscape too. Thank you.

[Mark Partin, Chief Financial Officer.]

Yeah, I’ll talk about the numbers of Smart Close for a minute. It's been a fairly consistent sales for Smart Close. It is a complex – we use an overlay team to help the sales people get that sold out into our SAP customer base. You know we have still a very large remaining opportunity within our own installed base for Smart Close to be sold. It’s a wonderful product that people who use it love it. We see demand, but it is a complex sale.

So it's also within the balanced expectations of how we're driving the business, we still put a heavier emphasis on the core platform demand and then look for sales in the kind of 15% to 20% from the three strategic products which includes Smart Close. So it’s a balanced effort of investment in that product and sales.

[Therese Tucker, Founder, Chief Executive Officer]

And just to address the second part of your question. Having Smart Close in the cloud is part of our longer product road map strategy, and so eventually we would like to make Smart Close available to a number of different ERPs and the market research that we've done to-date shows that there does appear to be an appetite for that.

[Bhavan Suri, William Blair]

Great, that's really helpful guy. Thank you. Nice job. Thanks.

[Therese Tucker, Founder, Chief Executive Officer]

Thank you.

[Operator]

Thank you. And our next question will come from the line of Chris Merwin with Goldman Sachs. Your line is now open.

[Unidentified Analyst]

Thanks. This is Steward on for Chris. I wanted to ask about the net expansion rate to start. Trended sequentially stable at 108%, recognizing you guys are landing larger within accounts to start. What are your expectations around net expansion rates for the remainder of the year?

[Mark Partin, Chief Financial Officer.]

Yeah, we think – thanks for the question. We think the net expansion rate stays fairly consistent through this year, plus or minus a point we think. The important components of that are we really focus on the renewal rate which remained strong again at 97% in Q1 and also on our strategic initiatives to drive towards larger, global companies, uptake of our strategic products. So we think over the long term we can get impact there, but on the 2019 we are expecting something about that consistent with what we had in Q1.

[Unidentified Analyst]

Okay, great. And then just a follow up on SAP, I’m wondering if you saw any deals that shifted from BlackLine to SAP paper during the quarter and then just anymore comments on that?

[Mark Partin, Chief Financial Officer.]

Yeah thanks. You know we didn’t. With the renewal of we've had since signing this partnership, we’ve been sort of validating that the relationships we have with our existing SAP customers are renewing and growing actually on our paper. So that’s what we expected to happen. It’s still early but its validating our assumptions so far.

[Unidentified Analyst]

Great. Thanks guys.

[Mark Partin, Chief Financial Officer.]

Yeah. Thank you.

[Operator]

Thank you. And our next question will come from the line of Pat Walravens with JMP Securities. Your line is now open.

[Pat Walravens, JMP Securities]

Oh great! Thank you and congratulations you guys. I guess I have two questions, I’ll just put them out there. The first one is, it just seems like with this relationship with SAP there is the potential for channel conflict in terms of the reps calling on – new reps calling on new account how do they know when it’s an SAP account and who are they allowed to call and who aren’t they and I’m just wondering how you manage that?

And then the second question is, does it make it harder to do business with the other ERPs. And I’m thinking in particular NetSuite where Mark came from and had a great relationship.

[Therese Tucker, Founder, Chief Executive Officer]

So let’s take the first one first. Our sales force is working very well, hand-in-hand with their SAP counterparts and part of the reason for that is we made the decision to compensate them this year on all deals regardless of what the ERP is. So right now if a sales rep finds out that a company utilizes SAP that simply gives them an additional tool set for their asset. So that actually, they work very well together.

In terms of working with other ERPs, we have seen absolutely no change or difference whatsoever. We continue to have a strong set of customers who utilize NetSuite, we still have more than a third of our business that utilizes Oracle products. So we have not seen any change in that at all.

[Pat Walravens, JMP Securities]

Alright, thank you very much.

[Mark Partin, Chief Financial Officer.]

Thank you.

[Operator]

Thank you. And our next question will come from the line of Mark Murphy with JP Morgan. Your line is now open.

[Matt Costa]

Hi, good afternoon. This Matt Costa on behalf of Mark Murphy. Therese if I heard you right, your customers are automating 82% of their reconciliations. How does this compare to someone that has an excel based or manual process? And then could you comment further? I know it's you know very early, but what has been customer feedback on the value that they have perceived initially with your innovation teams?

[Therese Tucker, Founder, Chief Executive Officer]

You know, actually that’s such a great question Matt, because our customers in the sales process typically don't believe the ROI. We tell them it’s possible or that our other customers will tell them that it's possible and so that actually has been one of our challenges all along. But really the automation is from 0% to 82%.

Now some of those are 0% in a manual process to 82% using our automation engines. Now some of those reconciliations might be very simple. They might be validating that a zero balance account had a zero balance and no activity in the period, right. But it still takes five, 10 minutes to do those checks, put it in a spreadsheet, print the spread sheet, sign it off, to have your boss sign it up and put in a paper, binder and put it in a closet.

So even though some of those are simple, not all but some, still the amount of time saved really does allow our customers to achieve significant ROI and that’s been sort one of the things that we are really starting to focus in on and getting you know outside firms to do ROI studies for us, to really validate those results. Does that help?

[Matt Costa]

Yes, thank you.

[Mark Partin, Chief Financial Officer.]

Oh yeah the question about [inaudible].

[Therese Tucker, Founder, Chief Executive Officer]

Oh yes! Okay, they are amazing. They are digital transformation specialists in the area of accounting, okay. And they are going into some of our larger strategic customers and really finding very specific areas where our automation engines can bring incredible value, okay. And I'll give you one example just from last week.

Someone – one of our large technology clients, they have 60 different payroll processes okay, and they have payroll logs and journals coming in from 60 different places around the world, and they sped 50% of the time for a team of 12 to 15 people simply reconciling those. We were able to take the payroll logs and then subsequently generate automated journals from those payroll logs and give them back all of that time. That was something that they did last week, that's one of the pieces of feedback on the accounting transformation team. Isn’t that cool?

Right, it's cool if you're an accounting nerd, but it's cool.

[Operator]

Thank you. And our next question will come from the line of Brent Bracelin with KeyBanc Capital Markets. Your line is now open.

[Brent Bracelin, KeyBanc Capital Markets]

Good afternoon and thank you for taking my question. A couple here if I could and maybe I’ll start with Therese. You stated out an referenced sales enablement as an area that you plan to focus on here to drive broader awareness across obviously a very large SAP sales base. What are you doing in Q2 to accelerate the sales enablement of the SAP kind of sales reps and then how should we think about the amount of cost that's going to take relative to training a very large base.

[Therese Tucker, Founder, Chief Executive Officer]

Okay, great question, because it really is one of our focuses and challenges for Q2, because you are right. It's a huge wildly diverse population, with many different titles, okay and many different roles and so we have a number of educational activities around training, around awareness of various marketing campaigns. We're doing a lot at SAPPHIRE this year, alright and you know it's almost like a general marketing campaign for almost a general population in some respects. You do many of the same marketing activities.

Now in terms of what it costs, I don't think we're actually – I think Mark would hit me if I told you how much, but I will saying that remember that we've got EDS costs coming back to us and so we're able to fund this type of awareness with some of those.

[Mark Partin, Chief Financial Officer.]

Yeah, that’s right. And I can add to that. Don't forget that our direct sales reps in each of their respective regions are reaching out to every SAP rap in that region to help cover their territory. So that’s sort of feet on the street interlocking that’s happening as well in terms of sales and awareness. And also we are putting some of our marketing budget to work of course on SAP partnership in Q2 and for the year.

[Brent Bracelin, KeyBanc Capital Markets]

Got it, super helpful color there and then just another one for Therese here. Just we attend a BlackLine customer event last month and one of the things that came up that surprised us a little bit was around transaction matching and this concept that you are starting to see customers you know leverage transaction matching beyond just accounting data.

Could you just talk a little bit about the opportunity around transaction matching within the installed base? Is this an anomaly or do you think there's a broader opportunity to leverage transaction matching in kind of new parts of the organization around new data sets.

[Therese Tucker, Founder, Chief Executive Officer]

Okay, let me put a disclaimer in place first. I'm a huge fan of our Transaction Matching product okay, because I do believe that it's enormously powerful; it's built for very, very large data sets and the number of applications is very large. Because here's the thing; anywhere where you need to reconcile at a transactional level it might be two different systems, okay. If you think about just the sheer number of systems that exist in corporations today, companies spend enormous amounts of manual time trying to make sure that the information in their system all lines up.

The payroll example that I mentioned earlier is an excellent example of that, right. They've got a payroll log and then they've got a journal. They've got – they spend a ton of time reconciling that. That’s such a narrow used case, but if you think about that, if you can save the time, the labor time of eight people for a month, every single month, that's a significant ROI and that is just one tiny little used case.

So yeah, I do believe that the market for this is substantial. You want to make sure that you stay true to your core and you're still the best at that, but I do believe there is more opportunities.

[Brent Bracelin, KeyBanc Capital Markets]

Super helpful! And then Mark, as we just think about, you may have answered this, I didn't catch it. What was the SAP revenue contribution in the quarter?

[Mark Partin, Chief Financial Officer.]

Yeah, it was 25% for Q1 up from 24% in the fourth quarter and up from 22% a year ago.

[Brent Bracelin, KeyBanc Capital Markets]

Got it, and then the last question for you Mark. You talked about some go to market changes in in Q1 – still put up really good numbers. How broad were those changes and are you – just walk us though what those changes were, thanks?

[Mark Partin, Chief Financial Officer.]

Of course, I’ll do it broadly. We did change out the leadership team last year, and they put in Q1 these initiatives which included a change in the comp plan, it included sort of the finalization of territory adjustments; it included an interlocking between marketing and the sales reps which is tighter, also between sales reps and services which is tighter.

I think that their partnership with SAP is also part of their initiative and how they engage with SAP. All of those things were sort of new to Q2 getting launched and I think what we saw in Q1 is that we made good progress in those areas.

[Brent Bracelin, KeyBanc Capital Markets]

Got it. Very helpful, thank you.

[Operator]

Thank you. And our next question will come from the line of Brian Peterson with Raymond James. Your line is now open.

[Alex Sklar, Raymond James]

Great thanks. This is Alex Sklar on for Brian. Last quarter you talked about 60% of the largest deals of the year included a partner, and that deal size just continues to be larger up front? Could you just provide an update on both partner sales in Q1 and then also your whole product initiative and how that’s progressed since it was initially announced?

[Mark Partin, Chief Financial Officer.]

Yeah, for sure, I'll take the first part of that. We continue to see in Q1 a consistent contribution of the partners somewhere in the 50% to 60% so we are very comfortable in Q1 with that contribution along with the number of large deals that we saw which again in Q1 as a seasonal quarter, was nice to have. Let me turn the second part over to Therese.

[Therese Tucker, Founder, Chief Executive Officer]

Yeah, regarding our whole product initiative, let me just recap on that for the people on the phone that are not familiar with it. We look at that as having three legs to it. The first is having a comprehensive platform that can actually, you know provide the right technologies that address our customer's needs. We have continued to build out certain things with a nice focus on connectivity and just making sure that the product performs as built, alright.

The second part of that is the visionary road map, alright. The ability to not just say, yeah here's a reconciliation product, right but to really start to look at how the financial close fits inside of a much bigger digital transformation project and how to use our technology to really affect that.

You know the accounting information team, another you know comment they came back in the last couple weeks was from a customer and they said, “you know we are so pleased that you came out here, we actually got things done, we didn't just have a piece of paper delivered to us at the end, you've exceeded our expectations. That's precisely what we're doing with these visionary road maps and then the third one is the ability to offer high touch services that are very specific to what we do.

All of those, I think we’ve made really good progress on those and the feedback that we get from our customers on it, in fact from our prospects as well, is just absolutely first rate.

[Alex Sklar, Raymond James]

Got it, that’s very helpful. And you actually hit on my second question on the product side Therese. Did you just hired a new CTO and I think we've talked in the past about continually working to make the product easier for customers to use and one of those of focus being around connectivity. Could you just give us an update on where we are today as far as connectivity with some of the other systems that you integrate with, as far as your long term goals there.

[Therese Tucker, Founder, Chief Executive Officer]

We’ve got a number of different connectors today and we’re always rolling out more. I'm sorry that I can't give you an exact count. I don't have that at my fingertips, I apologize. I can get that for you.

Now in terms of Pete, one of the things that we – I'm really pleased about is you know it's hard to find a CTO who has all of the organizational skills, people skills, scaling experience that Pete has, but is also still a very strong technologists. And you know when we think about looking forward down the technology roadmap, what's so interesting is all the new ways of doing things the new technologies that are coming out, right.

Even in terms of connectivity, in terms of public cloud, there's so many areas where I'm really pleased that we have such a great skilled technology leader to really you know find which ones of those new technologies are going to most benefit our customers.

[Alex Sklar, Raymond James]

Great, thank you.

[Operator]

Thank you. [Operator Instructions]. And our last question will come from the line of Koji Ikeda with Oppenheimer. Your line is now open.

[Koji Ikeda, Oppenheimer]

Hey guys, thanks for taking my questions. I’m hoping on here a little late so I apologized is this question has already been asked.

I wanted to dig in a little bit on that dollar base expansion rate, the 108% this quarter. I think you said on the mid-market side there was a potential drag there and that makes complete sense. But just thinking about the higher end of the market, could you remind us what the drivers are there for the expansion rate? I think you mentioned renewals and strategic initiatives earlier, but what else is there and if you could which one of those drivers or multiple drivers were the main contributors of the 108% dollar base retention we saw this quarter.

[Mark Partin, Chief Financial Officer.]

Yeah for sure, thanks Koji. So the strong renewal rate for us is the basis of the net dollar retention rate. The two big drags on this rate have been our own choices, mid-market being one of them and then second is that we are landing much larger initially, which takes a big bite out of the subsequent growth in the retention rate.

As we look forward, the drivers of our retention rate are first and historically have been user expansion. Second and increasingly becoming more product up-sell and expansion, our strategic product sold into our existing base is a great opportunity for us. At analysts day we spoke about how the whole product strategy and our you know high touch services towards our existing customers and prospects can help drive this. And then I would say finally would be a price increase. We annually get price increases in Q1. We had another good kind of 3% to 5% increase that we expected to be a contributor to this expansion rate.

And let me also kind of also finish up the other question, is that our expectation is that that rate will remain consistent in 2019, up or down a point to where it is now.

[Koji Ikeda, Oppenheimer]

Got it. Thank you for that and then just one quick question here on your cash balance. It’s been growing here pretty well here. You know sequentially it’s been at about $135 million. What’s the right way to think about your M&A strategy going forward? Thank you.

[Mark Partin, Chief Financial Officer.]

Sure, thank you. Yes we like to have a strong balance sheet and we do have one of those; it’s important for our customers. I think with respect to the M&A you know we don't comment on that, but we of course always look at opportunities in the future and M&A is certainly a strategy for us if and when we need to build out our platform further. I think that's probably the best way to describe it. Thank you for the question.

[Operator]

Thank you. And I'm showing no further questions. So now it is my pleasure to hand the conference back over to Therese Tucker for any closing comments or remarks.

[Therese Tucker, Founder, Chief Executive Officer]

Thank you everyone for joining us today. Thank you for your ongoing support and you're evangelism of BlackLine. It continues to bring us new referrals and customers. Do please keep it up. Thank you for joining us.

[Operator]

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day!