Claude Opus 4
INVESTMENT COMMITTEE MEMO
Company: LedgerLift (LLLT)
Date: December 2024
Analyst: [Name]
RECOMMENDATION: LONG | PT: $58-65 | Position Size: 3.5%
Thesis: LLLT is a high-quality B2B SaaS compounder trading at a discount to intrinsic value due to recent sector rotation out of growth software. The company's strong unit economics (123% NRR, 18-month CAC payback) and accelerating operating leverage position it to compound FCF at 20%+ annually while the market underappreciates its durability in a downturn.
BUSINESS OVERVIEW & COMPETITIVE POSITION
LedgerLift provides spend management and AP automation software to mid-market enterprises (6,200 customers, $132k ARPA). The company has built a defensible position through:
Why It Wins:
- Network effects: Supplier integrations create switching costs; 94% gross retention validates stickiness
- Product superiority: 123% NRR indicates strong land-and-expand motion and product-market fit
- Efficient GTM: 18-month CAC payback with S&M at only 34% of revenue vs. peers at 40-45%
Why Now:
- Digital transformation tailwinds accelerating post-COVID
- CFO budgets expanding for automation/efficiency tools
- Consolidation opportunity as point solutions struggle with funding
KPI QUALITY CHECK
Strengths:
- NRR of 123% is best-in-class for mid-market (peers: 110-115%)
- 6% logo churn impressive for this segment (industry avg: 8-10%)
- CAC payback of 18 months with improving S&M efficiency
Concerns:
- Customer concentration moderate but manageable (top 10 = 16% of revenue)
- Services revenue at 8% with low margins (25% GM) could indicate implementation complexity
- Logo churn could spike in recession as SMBs fail
FINANCIAL PROJECTIONS & VALUATION
Scenario Analysis (2026-2030)
Base Case:
| Year | 2026 | 2027 | 2028 | 2029 | 2030 |
|---|---|---|---|---|---|
| Revenue ($m) | 992 | 1,171 | 1,346 | 1,521 | 1,704 |
| Growth % | 21% | 18% | 15% | 13% | 12% |
| EBIT ($m) | 198 | 258 | 323 | 380 | 443 |
| EBIT Margin | 20% | 22% | 24% | 25% | 26% |
| uFCF ($m) | 178 | 231 | 289 | 340 | 396 |
Bull Case:
| Year | 2026 | 2027 | 2028 | 2029 | 2030 |
|---|---|---|---|---|---|
| Revenue ($m) | 1,025 | 1,240 | 1,464 | 1,683 | 1,902 |
| EBIT ($m) | 215 | 298 | 381 | 471 | 552 |
| uFCF ($m) | 193 | 267 | 341 | 421 | 493 |
Bear Case:
| Year | 2026 | 2027 | 2028 | 2029 | 2030 |
|---|---|---|---|---|---|
| Revenue ($m) | 951 | 1,075 | 1,193 | 1,312 | 1,430 |
| EBIT ($m) | 162 | 193 | 227 | 262 | 300 |
| uFCF ($m) | 145 | 173 | 203 | 235 | 268 |
DCF Valuation
Key Assumptions:
- Tax rate: 23%
- D&A: 2.5% of revenue
- Capex: 3.0% of revenue
- NWC: 1.0% of incremental revenue
DCF Results:
- Base Case EV: $12.4B | Equity Value: $13.8B | Price/Share: $73
- Bull Case EV: $17.2B | Equity Value: $18.6B | Price/Share: $98
- Bear Case EV: $7.8B | Equity Value: $9.2B | Price/Share: $48
Probability-Weighted Target: $65 (40% base, 30% bull, 30% bear)
COMPS VALUATION CROSS-CHECK
Median peer multiples: 9.0x EV/NTM Revenue, 35x EV/NTM EBIT
LLLT deserves a premium given:
- Superior NRR (123% vs peers 110-115%)
- Better CAC payback (18 months vs 24-30)
- Higher growth trajectory
Applying 10x revenue / 38x EBIT on 2026E:
- Revenue-based: EV $9.9B → $58/share
- EBIT-based: EV $7.5B → $47/share
Comps-implied range: $47-58
CATALYSTS (Next 12 Months)
- Q1 2025 Earnings (Feb): Expect FY25 guidance raise on strong Q4 bookings
- Analyst Day (May): Management to unveil adjacent product roadmap and TAM expansion
- Large Enterprise Wins: 2-3 Fortune 500 logos would validate upmarket motion
KEY RISKS
- Competition from incumbents: SAP/Oracle could bundle competing features
- Macro sensitivity: SMB customers vulnerable in recession
- Execution risk: Scaling from $820m to $1.7B requires operational excellence
- Valuation multiple compression: Software multiples remain volatile
- Key person risk: Founder-CEO owns 12% and drives product vision
WHAT WOULD CHANGE MY MIND
- NRR drops below 115% for 2 consecutive quarters
- Logo churn exceeds 8% indicating product-market fit deterioration
- CAC payback extends beyond 24 months suggesting GTM inefficiency
MANAGEMENT DILIGENCE QUESTIONS
- How does win rate trend by competitor? Where do you lose and why?
- What % of customers use 3+ modules? How does this correlate with retention?
- Walk through your largest customer loss this year - what happened?
- How do you think about M&A given your cash balance?
- What's preventing faster international expansion (currently 15% of revenue)?
- How much pricing power remains? When did you last raise prices?
- What technical moat exists? How many engineers vs. competitors?
- How do you measure ROI for customers? Payback period they see?
- What's your framework for R&D allocation across existing vs. new products?
- If recession hits, what levers would you pull to maintain FCF?
CONCLUSION
LLLT offers compelling risk/reward with 30%+ upside to fair value and limited downside given quality fundamentals. The market is mispricing durability - even our bear case supports the current price. Size up on any weakness below $50.