BlackLine - Earnings Call - Q1 2020

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2020 BlackLine earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one on your telephone. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Alexandra Geller, Vice President of Investor Relations. Please go ahead.

Alexandra Geller (VP 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, Marc Huffman, President and Chief Operating Officer, 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, in particular our guidance for Q2, 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 may make are reasonable, actual results could differ materially because the statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our report filed with the Securities and Exchange Commission, as well as risks related to the ongoing COVID-19 pandemic and the related responses by government and private industry, including macro and regional economic risks. 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 disclosed on this call will be non-GAAP.

A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our 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 CEO)

Good afternoon, everyone, and thank you for joining us today. Let me start off by saying that our thoughts and prayers are with everyone affected by the coronavirus pandemic. At BlackLine, our top priority has been and will continue to be ensuring the health and safety of our employees, customers, and partners around the world. BlackLine responded quickly to the pandemic by creating an executive task force to monitor the COVID-19 situation daily. We immediately restricted non-essential travel and enabled work-from-home protocols. Shortly thereafter, and in line with the guidance provided by government agencies and international World Health Organization, we restricted all travel, mandated a work-from-home policy across our global workforce, and moved all in-person customer-facing events to virtual ones. To enable collaboration, we have frequent team check-ins and utilize collaboration tools.

I'm pleased to report that BlackLine was able to rapidly shift to a distributed work environment with minimal disruption to our business operations. We have continued to provide strong customer service and support levels consistent with our unique BlackLine culture. With the onset of the pandemic, many accounting and finance organizations suddenly found themselves shifting to a remote workforce for the first time. Most of these teams are in the office daily, and even a small handful of staff offsite or unable to work could have an adverse impact on closing the books. To further complicate matters, tax incentives and other regulatory items are changing frequently, sometimes on a daily basis, which is impacting key business assumptions and forecasts. Last but not least, audits must now be conducted remotely as well. This situation becomes exponentially more complex for large multinational organizations who are managing the close manually.

Throughout this time, our commitment to serve our customers has grown stronger than ever. At BlackLine, we wanted to do more to help our community of global accounting and finance professionals in these challenging times, and we quickly responded with COVID-19 customer relief programs. The first was announced on 24 March when we granted free access to our entire training library. This includes CPE-eligible courses so CPAs can keep their accreditations current at no cost, saving accounting professionals hundreds or even thousands of dollars. We added a new curriculum with live virtual trainings focused on closing in a remote workforce environment. From a product perspective, we also offered the Task Management and Reporting complimentary for six months to existing customers to enable a more effective remote close.

In addition, we announced complimentary one-on-one coaching sessions with BlackLine subject matter experts so customers can optimize their existing BlackLine instance in this challenging environment. The following week, we formally launched our Modern Accounting Playbook, or MAP, to help mid-market companies get up and running quickly on BlackLine. MAP incorporates all of the best practices we have learned from over 1,400 mid-market companies. We also offered complimentary implementations for a limited time to reduce the burden on mid-sized companies who have less access to capital in these difficult times. The week after that, BlackLine unveiled its resource hub for closing virtually to help finance and accounting professionals worldwide navigate the challenges surrounding this pandemic. The resource hub is available to all finance and accounting professionals regardless of whether they are a BlackLine customer or not.

It provides insight, guidance, and leading practices from both BlackLine and our partners to enable companies to close with confidence in this new virtual world. The response to these relief measures has been very strong. We've had nearly 300 CPAs enroll in more than 700 CPE classes, and that number continues to grow on a weekly basis. More than 30 of our customers have taken advantage of our free task management and reporting products, with half already implemented and realizing value from the addition of those products. In the mid-market, we've seen interest in our MAP solution and have already filled 25% of the capacity for our complimentary MAP implementations. BlackLine's relief efforts are really resonating with our customers, and many have provided feedback of how appreciative they are to have the support of BlackLine in this time of uncertainty.

I'm very pleased to share that we are working on additional customer relief efforts and plan to roll them out as quickly as we can to support our customers. At BlackLine, we know that we are part of a larger community, and I was incredibly proud of the number of BlackLine employees who volunteered in their local communities to help with the COVID-19 crisis. From food banks to donations to checking in on neighbors and vulnerable individuals, this outreach further reinforces BlackLine's core value to serve. While these times are trying for all of us, we have confidence that our customers and BlackLine will emerge stronger, and we're working hard to ensure that. I am really proud of our leadership team, their dedication to our customers, and their focus on the safety of our employees.

With that, I'm going to turn it over to Marc Huffman to discuss our recent business performance.

Marc Huffman (President and COO)

Thank you, Therese, and good afternoon, everyone. I'd like to begin with a quick overview of Q1 performance. I'll then address the changes we made in our go-to-market strategy, followed by the trends our sales leadership has seen in the market from early March through today. Starting with the quarter, sales activity was very strong in January and February, and we were operating above plan. However, we began to see purchasing decisions being deferred in early March due to COVID-19. Globally, our new logo business was off to a good start in the first two months but was hit the hardest near the end of the quarter. In EMEA, we saw a meaningful decline in deals closing before the end of the quarter. We experienced delay in large deals, and we saw a slowdown in the mid-market in North America.

Our Solex performance was also strong at the start of the quarter and then saw deals get postponed in March. On a positive note, business within our install base remained resilient throughout the quarter for both account growth and renewals. In addition, there was minimal disruption to our implementation work with projects in flight continuing to progress as scheduled and generating record services revenue. Our go-to-market teams were quick to respond to the impacts of COVID-19. In early March, we adopted a virtual sales motion. Our sales team is no longer able to meet with customers in person, but they continue to build and maintain relationships with customers and prospects through virtual meetings and calls. We shifted to a fully remote implementation strategy. Our teams are accustomed to doing remote implementations, so there was minimal disruption to our implementation operation.

At the same time, we reallocated our marketing resources to focus on digital engagements and events, digital lead generation, and tools to help our sales reps connect with prospects in a virtual world. As part of this effort, we shifted our In the Black London event to a virtual event within a week's time. In spite of the short turnaround time, we were able to deliver double the participation rate than our planned in-person event, and we received rave reviews from our attendees. For the Solex partnership, we created a marketing and sales campaign to better position SAP for success in a virtual world with remote deployments and faster time to value using BlackLine. These quick wins include shorter sales cycles, smaller deployments, faster time to value, and preparing SAP customers for a future move to S/4HANA.

We strengthened our relationships with Deloitte, EY, KPMG, and RSM by hosting more partner enablement sessions, additional certifications, virtual sales engagements, and featured our partners as prominent thought leaders in our resource hub. Together, we created and launched joint offers in response to COVID-19, focusing on faster delivery and time to value. We also put protocols in place with planned redundancies in activities and staff roles, as well as plans to reallocate some of our existing resources to better support future capacity needs if they experience a slowdown. One example of this is shifting implementation resources into customer success roles. Now, I'd like to address the trends our sales leadership has seen in the market in the past several weeks. The biggest change as a result of COVID-19 is in the impact to company budgets.

Prospects and customers still want to invest in modern accounting, some even more so in these challenging times, but they have less access to capital and are fighting for budget among a long list of other mission-critical priorities. This is even more true for prospects and customers in impacted industries such as travel, hospitality, retail, and oil and gas. We believe those deals have been delayed indefinitely and that new logo acquisition will be more challenged in this climate. Historically, large transformational deals have been significant drivers of our performance in previous quarters. Over the past two years, this has been an area of strength for us as we've continued to grow our largest accounts with the addition of strategic products as well as large new deals.

In this current climate, we have seen our large strategic deals get pushed, and we expect that will continue as long as budgets are constrained. We expect these COVID-19-related changes to meaningfully impact our sales performance in Q2. As a result, we've adjusted our expectations for the quarter, which Mark Partin will speak about shortly. What has not changed at BlackLine is our commitment to support our customer success. Given the recent relief efforts articulated by Therese, our customer success teams have been busier than ever. They quickly mobilized to address the urgent needs within our customer base with outbound efforts spanning coaching sessions, business review discussions, success reviews, and adoption and expansion demos. We believe this is a moment for BlackLine's customer success teams to shine, to stay engaged, and be supportive across our global customer base.

As a result, our customers were able to seamlessly transition to a work-from-home model with consistent use of our platform the weeks immediately following global shelter-in-place orders. We also received multiple customer testimonials, including one who told their customer success manager, "We are so glad that you led us to where we are today with BlackLine. Our month-end close was smooth. We didn't miss a beat. I can't imagine what month-end must be like for companies that don't have BlackLine." Over the last two years, we have heavily invested in global resources around account management, and we believe we can capture expansion within our existing accounts. Our marketing, sales, and support teams have aligned their strategy and messaging around customer teams to help our customers adapt and be successful in this new reality.

We believe we are well-positioned to drive growth within our install base for customers in the verticals less impacted by COVID-19. For our customers in impacted industries, our success and support teams are available to serve in these trying times. Another differentiator for BlackLine is a change we made to our accounting transformation specialists unrelated to this pandemic. In Q4 of last year, they shifted to an optimization blitz model that breaks the strategic transformation project into multiple smaller projects that are easier to sell, cheaper, quicker to implement, and faster to generate ROI. The idea behind this model was to help accountants manage a large, time-consuming project, knowing they would have to step away from that project to prioritize the month-end close for at least one week per month.

The customer still gets the same end result of digital transformation over a longer time frame, but the smaller projects make it easier for them to manage and easier for us to serve them. With the exception of one hospitality customer, all of our large strategic customers engaged in these optimization blitz models are pushing straight ahead on their digital transformation journeys. In this current climate, we anticipate that some implementation projects will get pushed. We think this model can keep customers engaged, successful, and on track for continued progress towards their long-term goal of finance transformation. Moving to our partner ecosystem, we're hearing from our partners, SAP included, that there is a clear demand for guidance around business continuity, including the financial close, as well as strong interest in virtual close.

To put that into perspective, EY hosted a webinar to prepare companies for their first remote financial close in late March, and the event was oversubscribed at more than 19,000 attendees. We're also hearing that there is partner appetite for deals with faster time to value, particularly as ERP providers are seeing larger digital transformation initiatives being postponed. With partners involved in a majority of BlackLine's largest deals, we believe the current climate has created an opportunity to partner smarter within this ecosystem, and we're focused on working together to support our customers and drive more mutual business. We grew this ecosystem in Q1 with the addition of Capgemini as a new global alliance partner. Our partners have quickly adapted to this new model of fast first, transformation second, to best support customers in today's climate.

As these partners anticipate potential softness in their utilization levels, we believe we can use that time to grow the number of active and certified BlackLine consultants. While this has not impacted pipeline yet, partners are very excited about working with us to stay productive and drive revenue. As it pertains to Solex, SAP has included BlackLine Solutions as part of its COVID-19 response to its customers to help with quick wins and continued progress towards S/4HANA transformation. This approach is brand new, and although we are hearing that SAP account executives are very interested in working with BlackLine to help their customers during this crisis, we expect this will take time to develop. Despite this near-term disruption, we believe this further strengthens our relationship and mind share with SAP.

These are the latest trends we're seeing in the business, but please note the economic landscape is continually evolving in response to the impact of COVID-19. While this creates uncertainty, BlackLine remains at the center of massive long-term market opportunities across modern accounting and digital transformation. We will endeavor to manage the company for the long term while we navigate through this environment. For us, that means first maintaining our goodwill and loyalty with employees and customers. Second, strengthening our brand as the category leader known for customer advocacy. Third, investing in product innovation and modernizing our technology infrastructure. Fourth, evaluating the broader market for opportunities. With that, I'll turn the call over to Mark Partin.

Mark Partin (CFO)

Thank you, Therese and Marc, and good afternoon, everyone.Before I move to our financial performance of the quarter, I wanted to address how this pandemic has impacted the role of the CFO. Today's CFO is playing a central role in stabilizing their businesses in the near term while also positioning it to thrive when conditions improve. To keep my team operational and productive in this distributed environment, we have further embraced digitization. As a result, we were able to beat our own internal record on closing and reporting, thanks in part to our BlackLine software. We're seeing the same dynamic across our customer base where digital initiatives are now deemed business-critical to ensure accurate reporting, informed decision-making, and business continuity in the current crisis and into the next normal. As we think about what that new normal looks like, we believe this climate is a long-term accelerator for digital transformation.

First, we all have to get through the uncertainty of this current climate, and that is exactly what we intend to do. For the majority of Q1, we were operating well above plan on all key metrics. Throughout the quarter, we hired a record number of employees, and in January, the company hosted one of its largest and most influential company kickoff events yet as we transitioned from a strong 2019 to a plan of acceleration in 2020. Despite the strong start, the impact of COVID-19 caused a number of deals to push out of the quarter or delay indefinitely, which impacted sales by roughly 20% to 25% in the quarter. We saw the greatest impact to EMEA sales, the mid-market, and large digital transformation deals.

Our current operating model and guidance for Q2 will be informed by what we have experienced since this began in mid-March through today. Total first-quarter revenue grew 29% year over year to reach $82.6 million. Despite the strong performance, Q1 revenue was negatively impacted by lower bookings, the impact of FX volatility, and an increase in our estimated revenue reserves related to customers that are in impacted industries. A few other notes on revenue include services revenue delivered its strongest quarter ever at $5.6 million, or 7% of total revenue. This represents 95% growth year over year. Our international business represented 24% of total revenue in Q1, up from 22% in the prior year. Revenue from our SAP partnership was 24% of total revenue in Q1 compared to 25% in the prior year.

More than 75% of our large deals in the quarter included a partner, and strategic products represented 20% of sales for the quarter. We are fortunate to have a well-balanced land-and-expand business model where historically half of our growth comes from customer expansion and the other half from new logo acquisition. In Q1, we saw resiliency in customer expansion with a strong renewal rate of 97%, and dollar-based net revenue retention rate remained steady at 110%. As Marc mentioned, we did not see a material impact to these metrics in Q1. Helping support these metrics is our 23-month average contract length, which lessens the number of contracts up for renewal in any given quarter. One metric where we were negatively impacted, however, was our net customer adds. We only added 32 net new customers in the quarter for a total of 3,056 customers.

This metric was disappointing and well below our expectations due to a drop-off in new customers for the month of March, which typically represents two-thirds of new customer additions in the quarter. We also saw fewer large deals and Solex deals, which are generally three years in term. In Q1, we generated net income attributable to BlackLine at $6 million, which was driven by higher revenue. We realized nominal cost savings in the quarter from our restricted travel policy and expect to capture the benefit from those savings in upcoming quarters. We generated $8.5 million in operating cash flow and $4.9 million in free cash flow for the quarter. We finished the quarter with approximately $614 million in cash, cash equivalents, and marketable securities.

We believe our strong cash position will enable us to continue to support and retain our customers, as well as drive our long-term strategic initiatives that Marc mentioned earlier. Before I move to our outlook, I wanted to speak to how this climate has impacted our near-term growth trends and overall investment strategy. We feel confident in the core secular trends in our industry and believe these will get stronger on the other side of this crisis. We also feel good about our ability to execute on our priorities and long-term initiatives until that demand strengthens. With that said, timing is everything, and until we have better visibility, we will proceed with a great deal of pragmatism. You heard Marc highlight a number of measures we have taken to protect the top line.

As he mentioned, we expect many of the trends we saw in the last several weeks of Q1 and through today will continue into the second quarter of 2020 and impact growth. Our assumptions for Q2 are not dependent on closing any new large transformational or strategic deals, and we have reduced our expectations from the Solex partnership. Additionally, we expect services revenue to decrease sequentially as we complete existing work and new implementation projects are delayed. Approximately 25% of our revenue comes from customers in the verticals most impacted by COVID-19. BlackLine has a strong liquidity position, and we intend to use that strength to provide relief programs to customers in impacted industries that may request extended billing and payment terms in Q2 and, in certain situations, reduced billing.

Our plan is to meet that demand where appropriate to keep our customers operational, create goodwill over the long term, and reduce churn and attrition. We expect these relief efforts to impact free cash flow in Q2, as well as other key metrics such as revenue and calculated billings. We believe churn and attrition risk is mitigated by the long-term duration of our contracts, the stickiness and mission-critical nature of our product, and our willingness to provide relief programs to our customers in impacted industries. On the bottom line, we have confidence that our high recurring revenue model will smooth the impact of reduced sales in the near term. Many of our expenses have naturally adjusted, which help protect cash and income margins in the short term without hurting the business over the long term.

For example, T&E has been nearly eliminated, virtual marketing events are less costly and highly efficient, and sales and services hiring downshifted. On these cost levers, we plan to be balanced, nimble, and disciplined in the near term, but still long-term oriented so that we are well positioned once markets begin to recover. The areas of the business where investments are not expected to change in light of the pandemic include R&D, product, and public cloud infrastructure such that we can accelerate our roadmap and technology initiatives and hiring. We also plan to redeploy resources and excess capacity as available toward our large existing customer base. We believe we are well positioned to execute on these goals and emerge from this crisis with an even stronger business.

Turning now to guidance for the second quarter of 2020, total GAAP revenue is expected to be in the range of $80 to 82 million, with services revenue in the range of $3 to 4 million. On the bottom line, we expect to report net income attributable to BlackLine in the range of $5 to 8 million, or $0.08 to 0.13 on a per-share basis. Our share count will be approximately 60.5 million diluted weighted average shares. For the full year, despite our high level of recurring revenue, due to the uncertainty surrounding the ongoing impact of COVID-19, we are withdrawing the full year 2020 outlook.

Operator (participant)

Certainly, ladies and gentlemen, if you have a question at this time, please press star then one on your touch-tone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Rob Oliver from Baird. Your question, please.

Rob Oliver (Senior Research Analyst)

Great. Thank you guys very much for taking my questions. Really appreciate it. First one is for Marc Huffman. Marc, appreciate your commentary and good to hear you on the call. Wanted to just ask about the ways in which your sales team has shifted its behaviors, particularly how the handoff from marketing under the new marketing funnel creation, given the digital events is happening, how you guys are qualifying leads, and how they're able to go after customers in this environment. If you could provide some color around that, and then I had a brief follow-up.

Marc Huffman (President and COO)

Sure. Thanks, Rob. We, like most companies, have had to shift to a virtual sales motion. Historically, good portions of sales activities for a lot of organizations have been done electronically or via the telephone, and then there is obviously some parts of it that are done in person. That shift has gone really seamlessly for us. With the exception of a period of time in the early infancy of these changes in the pandemic and guidance, there are certain parts of the world and buyers that were hard to reach. That sort of cleared itself up over time. It is sort of a new norm. We are able to function very well there. We have adjusted our marketing accordingly.

As you mentioned, we have shifted how we view our events. We have historically been very heavy in in-person events. We feel like we have got a great deal of expertise to offer people, and the events are the way that we do that. We've had really good success transitioning those to virtual events and starting to drive a lot of attendance, which we're pretty pleased about the interest and what we offer to people and think over the long term, this is going to drive more eyeballs to us.

Rob Oliver (Senior Research Analyst)

Just to follow up, I know you provided a little bit of detail, but what gives you the confidence that current customers will be any less impacted in terms of deal closures than new logos? In other words, this is a rapidly evolving situation. I know you guys are going to allocate resources to your current customers, and clearly you're doing a lot of that. Just if budgets are going to come under pressure and things are going to be on hold, why wouldn't that also impact your existing customers? Thank you, guys.

Marc Huffman (President and COO)

None of us have a crystal ball, so we do not know that. What we do know is customer success and the intimacy that we maintain with our customers through the investments that we have made over the past several years in those customers and our staffing levels and how we thought about allocating those resources is like a core value of BlackLine. We are able to interact with them, understanding what they are going through, and where we have the ability to serve them or excess capacity that may exist in our model, we are able to really react quickly and deliver value to them.

Therese Tucker (Founder and CEO)

If I could just jump in, I mean, we have a lot of customers that are now finding how valuable BlackLine is because they are trying to close their books remotely.

Rob Oliver (Senior Research Analyst)

Thanks, guys.

Marc Huffman (President and COO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Terry Tillman from SunTrust. Your question, please.

David Unger (Analyst)

Hi, folks. Thanks for taking my question. This is actually David Unger filling in for Terry Tillman. Hope everyone's doing well tonight. In respect to your free offering rollout that you gave back in late March, I think you might have mentioned some data points related to customers signing up for the Task Management and Reporting six-month free trial. Are there any insights so far that suggest to you that this is an underserved tool and is a must-have? If so, could you size that revenue opportunity over the next one to two years based on the data you're seeing since the rollout?

Therese Tucker (Founder and CEO)

You know, Dave, this is Therese. I always believe that our products are underutilized because I think everybody should have all of our products.

However, the fact that our customers are really starting to value the ability to log in remotely 24/7 to get their work done, to manage their close checklist, I think we have a number of customers that are really starting to value that. I think that in general, we are going to come out of this stronger. We do not know when that is going to be. I do not think anybody's got that foresight. Therefore, I could not size that opportunity at this time. I do feel like it is a great example for BlackLine to shine.

Marc Huffman (President and COO)

David, if I might add, it is Marc Huffman, that task management piece. There are multiple use cases that it supports. We have a lot of expertise, as I mentioned, that we are able to turn around and provide back to customers. You will continue to see us deliver some of that expertise in the coming weeks geared at customers around different use cases for something like tasks.

David Unger (Analyst)

That's great. If I could just have one follow-up, I appreciate it. I am just curious when thinking about the work-from-home era and understanding the time that it took for BlackLine existing customers to close the books this year versus last year, and if there are any notable differences that you can cite based on customer size and industries that were served, just trying to get a good grasp on how efficient things were this period versus last year. Thank you.

Marc Huffman (President and COO)

Yeah, for sure. We have some great examples internally with our customer success and our automation teams that talk to our customers about how much working from home and how successful those companies have been in this environment. We're a great example. I mentioned it earlier that in this environment, we had a record close period. Our accountants all began working from home. They closed the quarter, and even this earnings call is earlier than usual.

I think that experience from what I hear from my CFO customers and what we hear up through our customer success teams is that this has been a real blessing to have a tool that works in this collaborative environment that has transparency, that can close these mission-critical functions in this environment. Really good feedback. I do think Therese is right that this is going to be a real wake-up call for a lot of companies that do not use something. Even for those that do, they'll see the benefit of this in new new.

David Unger (Analyst)

Thank you very much for answering my questions. Appreciate it, guys. Have a great night. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Mark Murphy from JPMorgan. Your question, please.

Matt Cost (Analyst)

Hi, good afternoon. This is Matt Cost on behalf of Mark Murphy. Thanks for taking my questions. I'm not sure if you guys know this one off the top of your head, but if you look at your total booking mix in any given quarter, what percentage would you say are achieved from a sort of inside or telesale sales motion versus in person?

Marc Huffman (President and COO)

I think we probably know that number internally. We don't share it externally. We think of our mid-market sales team as at different ranges within the mid-market. Remember, it's a wide dispersion. It's a $50 million company to a $500 million company. For many years, we can be successful in selling to a certain customer in that range. We have never really marketed that number, but it was enough that when we got to this point, we had experience that we could sort of roll that out to the rest of the globe and not just on the mid-market, but also enterprise.

Matt Cost (Analyst)

Okay. Understood. It is great to hear that you'll be continuing to invest in R&D. I think that's the right thing to do at these times. Have you been able to identify any product area or particular need that might be more pressing in six months or a year's time from now that you can spend time sort of thinking about now and then sort of ready to go with it when we're all sort of in a more normal state?

Therese Tucker (Founder and CEO)

Actually, I would put it a little differently, Matt. We have a long-term product strategy. We have a roadmap that goes over a three-year time frame. Part of it is moving to the public cloud. Part of it is utilizing some of the machine learning tools that are available. I mean, it's all part of a longer plan. Really, what we were trying to express in our remarks is that that plan is proceeding as we think that is the best thing to do for the company. It is not necessarily impacted by this COVID-19 crisis at all in terms of what we're doing.

Matt Cost (Analyst)

Very good. Thank you very much.

Operator (participant)

Thank you. Our next question comes from the line of Koji Ikeda from Oppenheimer. Your question, please.

Koji Ikeda (Senior Analyst)

Great. Thank you for taking my question. Hey, everyone. I had a question here on the ex-SAP segment of the business. According to our model, it looks like it grew right around 30% in the first quarter. I guess hypothetically, thinking if the crisis didn't occur, wouldn't it be safe to assume that the ex-SAP portion of the business probably had a good chance to grow in the mid-30s or even better in the first quarter?

Marc Huffman (President and COO)

It's a great question. We called out our revenue growth as being very good and then also talked about things that worked against Q1 revenue. Yes, there would be a three on the revenue growth rate if not for those things COVID-related. To answer your question, I would just say it starts with a three.

Koji Ikeda (Senior Analyst)

Got it. Thank you for that. Just want to be absolutely clear on the exposure to some of these troubled verticals out there. The 25% exposure, is it travel, hospitality, retail, and oil and gas, or are there any other verticals that we should be aware of in that exposure?

Marc Huffman (President and COO)

Yeah. Great. I appreciate that question. The 25% is spread out amongst a number of industries. Mark mentioned some of them. There are a couple others. It's retail, it's energy, it's food and beverage, hospitality, transportation, entertainment. Within any of those industries, we're spread out amongst a number of companies. Do not forget, we are a large enterprise company. 80% is global large enterprises. We are just taking a very thoughtful and pragmatic approach about those impacted industries as we work through our business in this economic climate.

Koji Ikeda (Senior Analyst)

Got it. One quick housekeeping question. Marc, the RPO number, did I completely miss that, or could we get that if we did not hear it?

Marc Huffman (President and COO)

Yeah. It's $368.7 million at the end of the quarter, and it is 61% to be recognized in the next 12 months.

Koji Ikeda (Senior Analyst)

Got it. Thank you for taking my questions. Appreciate it.

Marc Huffman (President and COO)

You're welcome.

Operator (participant)

Thank you. Our next question comes from the line of Brent Bracelin from Piper Sandler. Your question, please.

Brent Bracelin (Head of Technology Equity Capital Markets)

Thank you. I'll start here with Therese. Good afternoon. On one hand, it definitely sounds like you have 25% of the business exposed to some challenged customers. You have budget uncertainty that's now emerging as a new headwind. There are also some tailwinds here. You're talking about the remote audits, virtual close, that oversubscribed EY event. Certainly sounds like there is a lot of appetite. I guess my question here is, as you think about remote audits and virtual close, what is it going to take for that to evolve from kind of a nice-to-have to kind of a must-have? It seems like it's a nice-to-have today, but is there an opportunity to promote that and move that to kind of a must-have?

Therese Tucker (Founder and CEO)

I think that's exactly the opportunity that we see in all of this, is that people, companies that currently close with spreadsheets and paper and carrying things from one desk to another, that's not something that they can do either efficiently or in an environment that makes any sense. We do think that that's the opportunity in front of us, and we are going to maximize that in every way possible. Marc?

Marc Huffman (President and COO)

Brent, if I just play back on some of my prior experience with the company that I was at as we went through the global financial crisis, obviously that's a crisis of a financial nature. It doesn't involve the pandemic and the human loss. That organization, we were trying to move financial systems to the cloud at the time.

The impact that that sort of period had when we came out of it was really a big accelerant. We are looking at this event in terms of how this might be an accelerant for us in the future in the same very way. Hopefully, we take this time to invest in our business based on our relative strength, and we come out of this as a catalyst for future growth.

Brent Bracelin (Head of Technology Equity Capital Markets)

Great. Just to follow up, Marc Huffman, on that, how much of the sales resources have been shifted away from those impacted industries? As you think about those large transformational deals, have you been able to repurpose those sales resources to other areas or customer success? How quickly have you made a turn? Is all that kind of done now, or is there still more work to do relative to the reallocation of sales resources?

Marc Huffman (President and COO)

Yeah. Good question. Thank you. There's multiple parts to that. We have a geographic coverage model per se in our enterprise space. You do not necessarily pivot resources away from one to the other. You sort of think about the top end of the funnel and where you're spending your money. That starts with marketing planning and how we're going after a market to create top-of-funnel motion there. In terms of the rest of your question, it's mostly a pipeline and a progression question. What you see is a lengthening of some cycles depending on industry, so cycle time lengthening, depending on which industry and how impacted they are. There are still large transformation opportunities that are in our pipeline.

Some of them are just sort of being recast across time as people reassess the depth and length of the economic impact on their business.

Brent Bracelin (Head of Technology Equity Capital Markets)

Totally makes sense. Last question here for Mark. You talked about net customer additions dropping off in March. I guess the first question here, last one for me, did anything change in April as you think about some of the changes to marketing efforts and sales?

Mark Partin (CFO)

Yeah. Look, thanks. April has been consistent with what we saw at the end of March. It is, as Marc described, we're using as much data as we can. April is still early. It's early in the quarter, and we're watching metrics and activity as we move through it. We're seeing something similar to what we saw at the end of March.

Brent Bracelin (Head of Technology Equity Capital Markets)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Pat Walravens from JMP Securities. Your question, please.

Joe Goodwin (VP of Equity Research)

Great. Thank you. This is Joe on for Pat. I appreciate it. Marc, I was wondering, how are you approaching these upsell and renewal conversations? And then also, can you just give us an update on the competitive side? Have you seen anything change at all? Thank you so much.

Marc Huffman (President and COO)

Okay. First of all, I'll start with the competitive thing. Thank you, Joe, for the question. We're really fortunate to be in a position where we are with our customers. In these types of moments, when there's economic doubt and things are going on, people that have the best focus on customers, in my opinion, succeed the best. That's really what our brand is based upon.

We were quickly able to take, as Therese mentioned in her comments, resources that we had and expertise that we had, and pivot that out towards our customers on an advisory basis, offering some free software and really invest in those things. From a competitive standpoint, we were first to market on all those things, and we saw some of our competitors follow us in that regard. We really think of ourselves as a leader. We're worried about what we're doing, and what we're doing is focused on our customers. In terms of that, your second question about how we're approaching those upsell conversations, we have such great customer centricity and good coverage and relationships that are based on more than a commercial activity. They still come fairly naturally, especially in unaffected industries.

These companies took a pause in terms of the work they were doing for a finite amount of time. A lot of those things have returned to normal right now, and people are continuing their finance transformations and having dialogue with us about how they can progress their rollouts of BlackLine to get quicker time to value, better ROI in a shorter amount of time. There are still some positive things happening in the upsell side of our business.

Joe Goodwin (VP of Equity Research)

Thank you so much.

Operator (participant)

Thank you. Our next question comes from the line of Chris Merwin from Goldman Sachs. Your question, please.

Kevin Kumar (VP)

Hi. This is Kevin on for Chris. Thanks for taking my question. I had one about the mid-market segment. I believe it's roughly 20% of your business. Can you talk a bit about what you're seeing here in terms of deal activity and renewals? Is the weakness more broad-based, or is it more segmented to kind of the highly impacted industries?

Mark Partin (CFO)

Yeah. Thanks for that. I appreciate it. Our mid-market, you're right, it's about 20%. We saw the same sort of percentage at the end of Q1. The weakness that Marc has talked about is broad-based, so there's nothing particular about the mid-market. On the renewals, however, I can tell you that our renewals experience through the first quarter was strong and also through April to this point, also strong. Even in the impacted industries, we are having conversations with companies where appropriate, but our experience has been so far, and it's early, has been pretty positive.

Kevin Kumar (VP)

Great. Thanks for the call.

Operator (participant)

Thank you. Our next question comes from the line of Brian Peterson from Raymond James. Your question, please.

Brian Peterson (Managing Director of Application Software)

Hi, everyone. Thanks for taking the question. I hope you and your families are all safe. It's kind of crazy times. Maybe just following up on that last question, it sounds like upsell has kind of been a point of strength. I'm curious, as we go through a remote close type of process, as you look at your customers, are there some that used more or kind of went all in on BlackLine that actually did a lot better than those that maybe only had one or two modules? Is there a natural kind of upsell motion for people that you already have into the fold?

Therese Tucker (Founder and CEO)

This is Therese, and we definitely have had our customers express the sentiment that they cannot imagine trying to close with not using BlackLine at all or using less of BlackLine. I think we're also seeing a good validation of that when we offered out the task module, the number of different things, the additional training, the coaching sessions. All of that has been extremely well received. I think that we'll see. Right now, we're very focused on just helping people get through this time and into their new normal. I do think over the long term, it will help with the strength and the upsell. There is a big difference between those that use it fully and those that maybe are just checking a box.

Brian Peterson (Managing Director of Application Software)

Understood. Thanks, Therese. Maybe just for those that aren't using BlackLine, and obviously, paper is going to be hard in this environment, but I'm imagining sitting here in my office trying to close books with my dog barking at me. Frankly, that sounds pretty bleak. I'm curious, are you already seeing potential prospects kind of come in in the top of the funnel, or when do you think that would potentially start? Understanding that there's budget pressures, but for those that are seeing this complexity real time, I would assume that has an impact on the top of the funnel. Thanks, guys.

Mark Partin (CFO)

Yeah. That's a great question. I would say interest continues. We continue to build pipeline. Interest continues. In fact, you can see by the EY example we gave you, other areas of our business and our partnerships, there's a high degree of interest. The economic concern still remains the same. Their access to their budgets and what they want to turn to actualize those things is the constraint. You can imagine a period where people have gone through this, and in the future, when they have budget in place, their headcount, and the human capital necessary to pull off the change, that it's going to be a driver for us.

Brian Peterson (Managing Director of Application Software)

Understood. Thanks, Mark.

Thank you. Our final question today comes from the line of Matt Stotler from William Blair. Your question, please.

Matt Stotler (Analyst)

Hey, guys. Thanks for taking my question. Just a couple of quick ones for me. First, obviously, on the SAP Solex side, you spoke about some of those deals getting pushed out. We'd love to get an update in terms of what traction you were seeing pre-COVID, January and February with that partnership, and then any traction with the COVID-specific kind of offerings that you mentioned where SAP is featuring BlackLine there?

Marc Huffman (President and COO)

Hey, thanks for the question.As our normal business was in January, February, the SAP relationship was quite strong also in the early parts of the quarter. Now you have a scenario where, just like the rest of our business, that sort of is being recast across time in some of those opportunities. What we are actually seeing is that the interest level in Solex and the conversations with customers, prospects, partners, and then most importantly, the SAP account executives, our distribution strategy there is on the rise.

There is a higher degree of interest in learning more about BlackLine. Some of the programs that we have launched recently for continued enablement and awareness of our solution in conjunction with SAP's have been oversubscribed. I think this is going to strengthen the relationship and the partnership over time, much like the other interests. The thing that stands in the way is the economic climate and uncertainty.

Matt Stotler (Analyst)

Right. That's helpful. Just one more. Just on the you've spoken a little bit about the spending within the installed base itself and seeing implementation accelerated, seeing renewals very strong, which is encouraging. The dollar-based net expansion also pretty stable as it's been for the last six, seven quarters at this point. Any thoughts on the stability?

Mark Partin (CFO)

Yeah. Thanks for the question.

Matt Stotler (Analyst)

Any thoughts on the stability of that going forward and kind of how much confidence you have in continued growth and spend within that installed base over the next in the foreseeable future? Thank you.

Mark Partin (CFO)

Yeah. I think that's a timing question.In the future, on the other side of this, we've been talking at length about how we think this can be an accelerant for digital transformation and companies. We have a lot of resources invested in that. I think here in the short term, particularly, let's just take Q2, I think the impact, I think that it will be impacted by the things that we've talked about with respect to demand. Also, frankly, I do think there's a bit of risk planning that more subscription companies like us are doing right now for impacted industries, for attrition within accounts, and customer relief programs.

I do think those things are at work to favor long-term customer loyalty programs and long-term customer success. That number can be impacted negatively by those things, particularly here in the short term. The long term is that we still believe these opportunities to sell more products, like we talked about earlier, and accelerate in this environment is strong.

Matt Stotler (Analyst)

Right. Absolutely. Thank you for taking my questions.

Mark Partin (CFO)

Thank you.

Therese Tucker (Founder and CEO)

Thank you.

Operator (participant)

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Therese Tucker, founder and CEO.

Therese Tucker (Founder and CEO)

It's Therese Tucker. I want to thank all of you for your ongoing support and give a very special thank you to our employees. During these challenging times, our employees have banded together to look after one another while remaining true to our values to serve our customers and to serve each other. We believe that BlackLine is built to last, and we will weather this storm together. Thank you.

Operator (participant)

Thank you, ladies and gentlemen, for your participation in today's conference.This does conclude the program. You may now disconnect. Good day.