Claude Sonnet 4.6
INVESTMENT COMMITTEE MEMORANDUM
LedgerLift (LLLT) | Long Recommendation Prepared by: Equity Research, Long/Short Fund | Confidential
1. RECOMMENDATION & THESIS
Recommendation: LONG | 12-Month Price Target Range: $58–$91 (Base $72)
LedgerLift is a competitively positioned AP automation and spend management platform with durable NRR of 123%, low customer concentration, and an accelerating path to 25%+ operating margins—yet trades at a meaningful discount to peers on a growth-adjusted basis. At $46/share, the market is ascribing minimal value to the company's $1.4B net cash fortress and underpricing the compounding effect of best-in-class retention in a mid-market segment with low penetration.
2. BUSINESS QUALITY & WHY NOW
LedgerLift serves mid-market enterprises ($50M–$1B revenue) with an integrated spend management and AP automation suite. The business wins on three vectors: (1) workflow stickiness—AP automation embeds into ERP and treasury workflows, making rip-and-replace costly; (2) land-and-expand motion—ARPA of $132K with NRR of 123% implies consistent module attach and seat expansion post-initial sale; and (3) underserved TAM—mid-market has historically been under-served by enterprise vendors (SAP, Coupa) and over-served by point solutions, creating a consolidation opportunity.
Why now: Revenue inflected from $560M (FY2023) to $820M (FY2025), a 21% CAGR, while operating margins expanded 800bps to 18%. The company is entering a phase where S&M leverage (currently 34% of revenue, elevated) should convert to margin expansion. Macro tailwinds—CFO pressure on working capital efficiency and AP headcount reduction—are structural, not cyclical.
3. KPI QUALITY CHECK
| Metric | Value | Assessment |
|---|---|---|
| NRR | 123% | Strong; implies ~$100M+ annual expansion revenue |
| Gross Retention | 94% | Healthy; logo churn of 6% is acceptable for mid-market |
| CAC Payback | 18 months | Efficient; S&M at 34% of rev is the tension point |
| Top 10 Concentration | 16% | Low; top customer only 3%—minimal key-account risk |
| ARPA | $132K | Suggests meaningful product depth; room to grow |
What could be wrong: (1) NRR of 123% could be inflated by a cohort of early large-logo expansions that are now maturing—we need vintage NRR data. (2) 6% logo churn in mid-market can accelerate sharply in a credit tightening environment as SMB-adjacent customers downsize or fail. (3) S&M at 34% of revenue is high relative to the margin profile; if CAC payback is lengthening (not disclosed), the unit economics story deteriorates. (4) Services revenue at only 25% GM and 8% of mix is a drag; if professional services attach is required to onboard customers, true CAC may be understated.
4. DCF MODEL — BASE / BULL / BEAR
Key Model Mechanics: UFCF = EBIT × (1 – 23% tax) + D&A – Capex – ΔNWC. D&A = 2.5% rev; Capex = 3.0% rev; ΔNWC = 1.0% of incremental revenue. Terminal value via Gordon Growth. Equity Value = DCF EV + $1.4B net cash ÷ 190M shares.
Revenue & EBIT ($M)
| Year | 2026B | 2027B | 2028B | 2029B | 2030B |
|---|---|---|---|---|---|
| Base Revenue | 992 | 1,171 | 1,347 | 1,522 | 1,705 |
| Base EBIT | 198 | 257 | 323 | 381 | 443 |
| Bull Revenue | 1,025 | 1,240 | 1,463 | 1,683 | 1,902 |
| Bull EBIT | 215 | 298 | 380 | 471 | 551 |
| Bear Revenue | 951 | 1,075 | 1,193 | 1,312 | 1,430 |
| Bear EBIT | 162 | 194 | 227 | 262 | 300 |
Unlevered FCF ($M)
| Year | 2026 | 2027 | 2028 | 2029 | 2030 |
|---|---|---|---|---|---|
| Base UFCF | 148 | 194 | 246 | 292 | 341 |
| Bull UFCF | 161 | 226 | 292 | 363 | 427 |
| Bear UFCF | 121 | 147 | 173 | 201 | 232 |
UFCF = EBIT(1-t) + D&A – Capex – ΔNWC; D&A and Capex roughly offset; ΔNWC is modest given subscription-heavy mix.
DCF Summary
| Base | Bull | Bear | |
|---|---|---|---|
| WACC | 10% | 9% | 12% |
| Terminal Growth | 3% | 4% | 2% |
| PV of FCFs (2026–2030) | ~$862M | ~$985M | ~$668M |
| Terminal Value (PV) | ~$3,920M | ~$5,810M | ~$2,190M |
| DCF Enterprise Value | ~$4,782M | ~$6,795M | ~$2,858M |
| + Net Cash | $1,400M | $1,400M | $1,400M |
| Equity Value | ~$6,182M | ~$8,195M | ~$4,258M |
| Per Share (190M) | ~$72 | ~$91 | ~$58 |
Current market cap at $46: ~$8.74B — implying the market is pricing in a scenario worse than our bear case on a standalone DCF basis, OR the market is discounting the net cash as partially deployed/at risk. This is a key variant perception.
5. COMPS CROSS-CHECK
Median peer multiples: EV/NTM Revenue = 9.0x; EV/NTM EBIT = 35x
NTM (FY2026) estimates: Revenue ~$992M (base); EBIT ~$198M
| Multiple | Implied EV | + Net Cash | Equity Value | Per Share |
|---|---|---|---|---|
| 9.0x NTM Revenue | $8,928M | +$1,400M | $10,328M | $54 |
| 35x NTM EBIT | $6,930M | +$1,400M | $8,330M | $44 |
Adjustment rationale: LLLT's NRR of 123% and 94% gross retention warrant a premium to the median peer on revenue multiple (peer set likely includes lower-retention businesses). We apply a modest 10% premium to revenue multiple → 9.9x, yielding ~$58/share. On EBIT, the 18% current margin vs. peers likely at 20–25% warrants a slight discount; we hold at 35x. Blended comps range: $44–$58, with $54 as anchor. Comps suggest the stock is fairly valued to modestly cheap on near-term multiples alone—the upside case requires DCF/growth-rate credit.
6. CATALYSTS, RISKS & WHAT CHANGES MY MIND
Catalysts (3)
- FY2026 guidance beat + margin raise: Any operating margin guide above 21% at next earnings would confirm S&M leverage thesis and likely re-rate the stock 15–20%.
- Strategic M&A or partnerships: An ERP integration deal (e.g., with a major mid-market ERP vendor) could dramatically expand TAM access and accelerate logo growth.
- Net cash deployment: A buyback authorization or tuck-in acquisition announcement would unlock the $1.4B cash overhang that the market appears to be discounting.
Risks (5)
- NRR compression: If expansion revenue plateaus as the customer base matures, NRR could fall toward 110–112%, compressing growth and multiple simultaneously.
- Competitive displacement: Coupa, SAP Concur, or a well-funded startup targeting mid-market could accelerate logo churn above 8–10%.
- S&M efficiency deterioration: If CAC payback extends beyond 24 months, the go-to-market model requires restructuring, pressuring near-term margins.
- Macro-driven SMB attrition: A credit tightening cycle could elevate logo churn among smaller mid-market customers, hitting gross retention.
- Net cash burn on M&A: A dilutive or strategically unclear acquisition could destroy the $1.4B balance sheet advantage.
What Would Change My Mind (Falsifiable)
- Two consecutive quarters of NRR below 115% would signal the expansion engine is structurally impaired—I would exit.
- Logo churn exceeding 9% in any reported period would indicate competitive pressure or macro stress beyond our bear case assumptions.
- S&M as % of revenue rising above 37% without a corresponding acceleration in new logo growth would indicate deteriorating go-to-market efficiency and challenge the margin expansion thesis.
7. DILIGENCE QUESTIONS FOR MANAGEMENT
- Can you provide vintage-cohort NRR data for customers by year of onboarding? Is 123% NRR consistent across cohorts or driven by early large-logo expansions?
- What percentage of new logos in FY2025 required professional services to onboard, and how does this affect true fully-loaded CAC?
- What is the CAC payback trend over the last 6 quarters—is 18 months stable, improving, or lengthening?
- How do you define and measure logo churn—is it revenue-weighted or count-weighted, and are downgrades included?
- What is the competitive win/loss rate against Coupa and SAP Concur in competitive deals, and has it changed over the past 12 months?
- What is the intended use of the $1.4B net cash position—organic investment, M&A, or return of capital?
- What percentage of revenue is subject to annual price escalators, and what has been the realized price increase per cohort over the last 3 years?
- What is the average contract length and renewal timing profile—how much ARR is up for renewal in FY2026?
- How does NRR differ between your top 50 customers and the rest of the base? Is expansion concentrated?
- What is the headcount plan for R&D and S&M in FY2026, and what is the expected trajectory of S&M as a percentage of revenue over the next two years?
This memo is prepared for internal investment committee purposes only. All data is fictional and for illustrative use. Not investment advice.