BlackLine, Inc. (BL) Q1 2019 Earnings Call Transcript

BlackLine, Inc. (BL -0.83%)
Q1 2019 Earnings Call
May. 02, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the BlackLine Q1 2019 earnings conference call. [Operator instructions] As a reminder, this conference call may be recorded. It is now my pleasure to hand the conference over to Alexandra Geller, vice president of investor relations. Ma'am, 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 and 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 initiatives 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 initiatives. 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 strategy partner to lead them in their accounting and finance transformations.

BlackLine has more than 15 years of experience in our market. Any competitor or new entrant 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 entries 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 tenet 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, multilevel reconciliations, 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 recs that qualify. To put that into perspective, our overall customer base has an automatic certification rate of 82%. That means that 82% of our customers' reconciliations are being completed by BlackLine software without any manual review or interaction.

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 road map.

Our customer success team does not carry a sales quota. Instead, their mantra is helping, not selling, our customers. We also significantly increased our training outreach with new e-learning and more live training events in the quarter, resulting in twice as many users completing 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 3,000 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 set. These touch points are not only creating lifelong BlackLine advocates, but they're also shifting the mindset of finance and accounting buyers to see past short-term change management and favorable reliable, efficient and transparent accounting and finance organization. With our 2019 initiative of a 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 this 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 U.K.'s largest general insurer. This company had multiple reconciliation system across different vendors in addition to homegrown and manual systems. Sponsored by the company's CFO, their finance transformation is centered around simplifying their business, reducing cost 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 win of the quarter also came from the EMEA team, with one of the world's leading global pharmaceutical companies headquartered in the U.K. This company replaced their point solution for account reconciliations with BlackLine's 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 network integration and overall functionality. With this win, we now count the top three RPA vendors as BlackLine customers, which validates that even a robot needs help with closing its books. Within the installed base, a global industrial manufacturer 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 had expanded their BlackLine footprint multiple times over to optimize automation, visibility and reporting.

In 2016, they purchased the SAP connector. In the following year, 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, SOLEX 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, we 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 expectations. Our primary near-term focus with SAP remains building awareness of the BlackLine value proposition within 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 was looking to gain efficiencies within their general ledger and financial 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 SAP's thousands of global account executives. We're seeing a lot of positive traction from the conversations we're having with the 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 ensure readiness of the global SAP sales force. In Q1, we continued 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's SAPPHIRE Conference with a significantly larger presence than prior years. As we continue to enable and educate the broader SAP 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 seeing 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, partner 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 organizations. 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 nucleus 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 summits and strategic client forums 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 organizations. 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 SOLEX partnership agreement.

In the first quarter, existing SAP customers, who had previously signed under the EBS partnership, renewed and continued to grow on BlackLine paper in line with our expectations. Strategic products represented 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 partnerships in Q1, we added more large customers with an ARR of $250,000 or more. Our dollar-based net revenue retention rate was 108%. Our renewal rate, which is blended for both mid-market 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 overperformance helped on the bottom line as we generated net income attributable to BlackLine of $1.1 million, which was greater than our expectation 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 in 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 margin will trend toward 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 toward Q4. Lastly, the midpoint 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 diluted 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.

Utilizing 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 the 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.

Questions & Answers:

Operator

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

Rob Oliver -- Baird -- Analyst

Great. 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 two in the quarter that you cited, one in Europe and one in South Africa. And I just wanted to get a sense, and I know, it's seasonally a more challenging quarter and it's early in the partnership, but do 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 what sort of deals you guys found yourselves into along with SAP. And then I had a very quick follow-up.

Thanks.

Therese Tucker -- Founder and Chief Executive Officer

Well, I think, Rob, one of the things that's good about what we've seen so far is that we are seeing SAP's pricing power. And we are seeing access to much larger global account. So that's very good. The other thing that 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 -- this is a very seasonal quarter for them.

Rob Oliver -- Baird -- Analyst

Got it. OK. That's helpful. And then just on the international growth, which is obviously solid and you now have -- a head of sales who's now for international, and you 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 settled 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 and Chief Executive Officer

Rob, one of the strings at BlackLine is that we really do have a number of different levers of growth. 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 -- Analyst

Great. Thanks again.

Operator

Thank you. And our next question will come from the line of Bhavan Suri with William Blair. Your line is now open.

Bhavan Suri -- William Blair and Company -- Analyst

I'm sorry, can you hear me?

Mark Partin -- Chief Financial Officer

Yes.

Therese Tucker -- Founder and Chief Executive Officer

Yes.

Bhavan Suri -- William Blair and Company -- Analyst

Great. Thanks for my questions. Obviously, wanted to touch on one of the things here on the mid-market business. As you look at that flywheel on sort of the expansion rates associated with that business, I'd love to just get some color on what you're seeing in terms of trend lines.

Obviously, with a larger business, multiple divisions, the expansion rate [Inaudible] difference. How may -- you always just deal with sort of the shift, the transaction-based pricing or the matching business through your products vis-a-vis the users. But in the mid-market business, just somehow and how you're seeing sort of expansion rates look like? [Inaudible] something a drag on those just because it's a midsize business maybe I do the whole department or maybe I do the FP&A group, but just a small group. Just trying to understand how those drive that expansion number or affect that expansion number.

Therese Tucker -- Founder and Chief Executive Officer

Well, historically, from mid-market, the number of users has been quite 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, OK? And secondly, I would say that one of the things that we're 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 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

Yes. 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're sort of limited in the number of users that they have at that stage.

So the net expansion rate from 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, which work 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 and Company -- Analyst

Yes. No, that's super helpful. That's what I suspected. It's great to hear that's what you're seeing.

I guess, and then just a quick follow-up on Smart Close. We've talked about the 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 in the ERP market, is that resonating? And then are you sort of seeing broader adoption of Smart Close? How are we doing when that kind of becomes -- a customer adopts and then -- so there may be -- is there a place for active play in the Oracle landscape, too?

Mark Partin -- Chief Financial Officer

Yes. I'll talk about the numbers of Smart Close for a minute. It's been a fairly consistent sales for Smart Close. It is complex.

We use an overlay team to help the sales people get that sold out into our SAP customer base. We have a -- still a very large remaining opportunity within our own installed base for Smart Close to be sold. It's a wonderful product. The 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 include Smart Close. So it's a balanced effort of investment in that product and in sales.

Therese Tucker -- Founder and 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 and Company -- Analyst

That's really helpful, guys. Thank you.

Operator

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

Stuart Michler -- Goldman Sachs -- Analyst

Thanks. This is Stuart on for Chris. 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 rate for the remainder of the year?

Mark Partin -- Chief Financial Officer

Yes. 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 initiative's to drive toward 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're expecting something about -- consistent with what we had in Q1.

Stuart Michler -- Goldman Sachs -- Analyst

OK, great. And then just a follow-up on SAP. Wondering if you saw any deals that shifted from BlackLine to SAP Paper during the quarter. And then just any more comments on that?

Mark Partin -- Chief Financial Officer

Yes. Thanks. We didn't. We -- with the renewals 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 it's validated in our assumptions so far.

Stuart Michler -- Goldman Sachs -- Analyst

Thanks, guys.

Operator

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

Pat Walravens -- JMP Securities -- Analyst

Great. Thank you. 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's the potential for channel conflict in terms of the reps calling on -- your reps calling on new accounts. And how did 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 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 and 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 to go after.

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 -- Analyst

All right. Thank you very much.

Operator

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

Matt Coss -- J.P. Morgan -- Analyst

Good afternoon. This is Matt Coss 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 very early, but what has been customer feedback on the value that they've perceived initially with your innovation team?

Therese Tucker -- Founder and Chief Executive Officer

Well, actually that's such a great question, Matt, because our customers in a sales process typically don't believe the ROI that we tell them is possible or that our other customers will tell them that is 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% on 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 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 spreadsheet, sign it up, have your boss sign it up, put it 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 of one of the things that we're really starting to focusing on and getting outside firms to do ROI studies for us to really validate those results.

Does that help?

Matt Coss -- J.P. Morgan -- Analyst

Yes. Thank you.

Mark Partin -- Chief Financial Officer

Oh, yes, the question about...

Therese Tucker -- Founder and Chief Executive Officer

Oh, the accounting.

Mark Partin -- Chief Financial Officer

Yes.

Therese Tucker -- Founder and Chief Executive Officer

Yes. OK. They're amazing. They are digital transformation specialists in the area of accounting, OK? 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, OK? And I'll give you one example just from last week.

Someone -- one of our large technology clients, they have 60 different payroll processes, OK? And they have payroll logs and journals coming in from 60 different places around the world. And they spend 50% of the time for a team of 12 to 15 people simply reconciling those. We were able to take their 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.

Matt Coss -- J.P. Morgan -- Analyst

All right. It's cool if you're an accounting nerd, but it's cool.

Operator

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

Brent Bracelin -- KeyBank Capital Markets -- Analyst

Good afternoon and thank you for taking my question. A couple here, if I could. Maybe we'll start with Therese. You started out and 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 you think about the amount of costs that's going to take relative to training a very large base?

Therese Tucker -- Founder and Chief Executive Officer

OK. Great question because it really is one of our focuses and challenges for Q2 because you're right. It's a huge wildly diverse population with many different titles, OK, and many different roles. And so we have a number of educational activities around training, around awareness, various marketing campaigns, we're doing a lot at SAPPHIRE this year, all right? 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 say that remember that we've got EBS 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

Yes. 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 rep in that region to help cover their territories.

So that sort of feet on the street interlocking is 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 -- KeyBank Capital Markets -- Analyst

Got it. Super helpful color there. And then just another one for Therese here. Just we attended 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're starting to see customers 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 datasets?

Therese Tucker -- Founder and Chief Executive Officer

OK. Let me put a disclaimer in place first. I'm a huge fan of our Transaction Matching product, OK, because I do believe that it's enormously powerful, it's built for very, very large datasets 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, OK? 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 information in their systems 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 use 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 use case.

So yes, 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 opportunity.

Brent Bracelin -- KeyBank Capital Markets -- Analyst

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

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

Brent Bracelin -- KeyBank Capital Markets -- Analyst

Got it. And then last question for you, Mark. You talked about some go-to-market changes in Q1, still put up really good numbers. How broad were those changes? And just walk us through what those changes were.

Thanks.

Mark Partin -- Chief Financial Officer

Yes, of course. I'll do it broadly. We did change out the leadership team last year. And they put in, 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 initiatives and how they engage with SAP. All of those things were sort of new to Q1 getting launched.

And I think what we saw in Q1 is that we made good progress in those areas.

Brent Bracelin -- KeyBank Capital Markets -- Analyst

Very helpful. Thank you.

Operator

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

Alex Sklar -- Raymond James -- Analyst

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 sizes just continued to be larger upfront.

Can you just provide an update on both partner sales in 1Q and then also your whole product initiative and how that's progressed since it was initially announced?

Mark Partin -- Chief Financial Officer

Yes. For sure. I'll take the first part of that. We continued to see in Q1 a consistent contribution of the partners somewhere in the 50% to 60%.

So we were 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 and Chief Executive Officer

Yes. 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 provide the right technologies that address our customers' needs.

We've continued to build out certain things with a nice focus on connectivity and just making sure that the product performs as built, all right? The second part of that is the visionary road maps, all right, the ability to not just say, "Yes, 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 comment that came back in the last couple weeks was from a customer, and they said, "You know, we're 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 -- Analyst

Got it. that's very helpful. And you actually hit on my second question on the product side, Therese. But 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 areas 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 integrated with as far as your long-term goal there?

Therese Tucker -- Founder and Chief Executive Officer

We've got a number of different connectors today and -- with 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 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 technologist. And when we think about looking forward down the technology road map, what's so interesting is all the new ways of doing things and new technologies that are coming out, right? Even in terms of connectivity, in terms of public cloud, there is so many areas where I'm really pleased that we have such a great, skilled technology leader to really find which ones of those new technologies are going to most benefit our customers.

Alex Sklar -- Raymond James -- Analyst

Great. Thank you.

Operator

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

Koji Ikeda -- Oppenheimer -- Analyst

Hey, guys. Thanks for taking my questions. I'm hopping on here a little late, so I apologize if this question has already been asked. I wanted to dig in a little bit on that dollar-based expansion rate, the 108% this quarter.

I think you said on the mid-market side, there is 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-based retention we saw this quarter?

Mark Partin -- Chief Financial Officer

Yes, 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, an increasingly becoming more product up-sell and expansion. Our strategic products sold into our existing base is a great opportunity for us. At analyst day, we spoke about how the whole product strategy and our high-touch services toward our existing customers and prospects can help drive this. And then I would say, finally, would be price increase.

We annually get price increases in Q1. We had another good kind of 3% to 5% increase that we expect to be a contributor to this expansion rate. And let me also kind of finish up there the 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 -- Analyst

Got it. Thank you for that. And just one quick question here on your cash balance. It's been growing here pretty well here just sequentially, sitting at about $135 million.

What's the right way to think about your M&A strategy going forward?

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.

And with respect to the M&A, 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.

Operator

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 and Chief Executive Officer

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

Thank you for joining us.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Alexandra Geller -- Vice President of Investor Relations

Therese Tucker -- Founder and Chief Executive Officer

Mark Partin -- Chief Financial Officer

Rob Oliver -- Baird -- Analyst

Bhavan Suri -- William Blair and Company -- Analyst

Stuart Michler -- Goldman Sachs -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Matt Coss -- J.P. Morgan -- Analyst

Brent Bracelin -- KeyBank Capital Markets -- Analyst

Alex Sklar -- Raymond James -- Analyst

Koji Ikeda -- Oppenheimer -- Analyst

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