Advanced Investment Memo (IC Memo)

TO: Investment Committee
FROM: [Your Name/Team]
DATE: 20 March 2025
RE: Investment Recommendation – LedgerLift (LLLT)

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1. Recommendation & Thesis

Recommendation: LONG
12-Month Price Target Range: $58 – $72
Thesis: LedgerLift is a capital-efficient, high-retention SaaS platform in a non-discretionary spend category, trading below intrinsic value due to overly conservative growth expectations. Our base case implies ~35% upside, supported by durable mid-teens growth, expanding margins, and a robust net cash balance sheet. The combination of a 123% NRR and reasonable 18-month CAC payback suggests a scalable model not fully reflected in the current multiple.

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2. Business & Why It Wins / Why Now

LedgerLift provides B2B spend management and accounts payable automation software to mid-market enterprises. This is a “must-have” category focused on operational efficiency and cost control, making it relatively resilient in economic downturns. The company wins by targeting the underserved mid-market, where legacy systems and manual processes create a high ROI for automation. The “why now” is driven by the ongoing digitization of finance functions, regulatory push for transparency, and the need for working capital optimization post-higher interest rates. Its integrated suite (from procurement to payment) drives stickiness and cross-sell, evidenced by strong net revenue retention.

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3. KPI Quality Check & What Could Be Wrong

• NRR (123%) & Gross Retention (94%): Excellent. Indicates strong up-sell/cross-sell and high core utility. However, 123% is at the upper end of sustainability for mid-market; some moderation over time is likely.
• Logo Churn (6%): Respectable for mid-market, but not best-in-class. Suggests some vulnerability in the lower end of the customer base.
• CAC Payback (18 months): Solid at current growth rates, implying efficient growth investments. However, it assumes stable sales efficiency; competition could drive CAC higher.
• Concentration (Top 10 = 16%, Top 1 = 3%): Acceptable risk. Low single-customer dependency is a positive.

What Could Be Wrong: The KPIs paint a picture of health, but the key risk is aggregation bias. The high NRR could be driven by price increases rather than usage growth, masking potential erosion in user engagement. The 6% logo churn, while good, could accelerate if the product fails to keep pace with enterprise-grade features demanded by larger mid-market clients.

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4. Financial Forecast & DCF Valuation

We project financials from FY2026–2030 under three scenarios, discounting unlevered FCFs at scenario-specific WACCs.

Key Forecast Table (Base Case)

Year	Revenue ($m)	EBIT ($m)	UFCF ($m)*
2026	992	198	161
2027	1,171	258	215
2028	1,347	323	268
2029	1,522	381	322
2030	1,705	443	378

UFCF calc: EBIT(1-23% tax) + D&A – Capex – ΔNWC. D&A ~2.5%, Capex ~3%, ΔNWC ~1% of incremental revenue.

DCF Valuation Summary

Scenario	PV of Explicit FCF ($B)	Terminal Value ($B)	Enterprise Value ($B)	Equity Value ($B)	Implied Share Price
Bull	0.7	10.2	10.9	12.3	$72
Base	0.6	6.4	7.0	8.4	$62
Bear	0.4	3.0	3.4	4.8	$38

Calculation Steps (Base Case Example):

1. Projected Revenue & EBIT using given growth and margin assumptions.
2. Calculated UFCF: EBIT less cash taxes, added back D&A, subtracted Capex and NWC investment.
3. Discounted 2026-2030 UFCF at 10% WACC: PV = $0.6B.
4. Calculated Terminal Value as of 2030: TV = (UFCF₃₀ * (1+3%)) / (10% - 3%) = $6.4B. Discounted to PV: $4.0B.
5. Enterprise Value = $0.6B + $4.0B = $7.0B.
6. Equity Value = EV + Net Cash ($1.4B) = $8.4B.
7. Per Share = $8.4B / 190M shares = $62.

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5. Comps Cross-Check

Median peer multiples: EV/NTM Revenue: 9.0x, EV/NTM EBIT: 35x.

• Using EV/NTM Revenue (9.0x): We estimate LLLT's FY2026 revenue at $992m. Implied EV = $992m * 9.0 = $8.93B. Equity Value = $8.93B + $1.4B = $10.33B. Implied Share Price = $54.
• Using EV/NTM EBIT (35x): FY2026 EBIT = $198m. Implied EV = $198m * 35 = $6.93B. Equity Value = $6.93B + $1.4B = $8.33B. Implied Share Price = $44.

Adjustment & Range: LedgerLift's growth profile (~21% in '26) is healthy but may be below the highest-flying comps. Its superior retention and cash generation warrant a premium to the median EBIT multiple but a modest discount to the highest revenue multiples. A blended view suggests a fair comps-based EV range of $7.5B–$9.0B, or $47–$55 per share. This supports our DCF-derived base case.

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6. Catalysts, Risks & Falsifiable Triggers

Catalysts:

1. Profitability Inflection: Operating margin expansion from 18% (FY25) toward 20%+ in FY26, demonstrating operating leverage.
2. Strategic Partnerships: Announcements with major ERP or banking platforms to accelerate customer acquisition.
3. Capital Deployment: Initiation of a share repurchase program, leveraging the strong net cash position.

Risks:

1. Competitive Intensification: Entry of larger fintech/ERP players into the mid-market niche.
2. Growth Deceleration: Failure to maintain >20% growth as the base expands, triggering multiple contraction.
3. Customer Concentration Risk: Loss of a top-5 customer could impact revenues and sentiment.
4. Integration/M&A Risk: Attempts to accelerate growth via acquisitions that are dilutive or disruptive.
5. Macro Sensitivity: A severe recession could pressure mid-market customer budgets and increase churn.

What Would Change My Mind (Falsifiable Triggers):

1. NRR sustained below 115% for two consecutive quarters, indicating deteriorating product stickiness.
2. CAC payback extending beyond 24 months while growth decelerates, signaling broken unit economics.
3. Operating margins failing to expand year-over-year in FY26 despite revenue growth >20%, indicating poor cost control or pricing pressure.

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7. Diligence Questions for Management

1. What is driving the 123% NRR? Please break it down between price, seat expansion, and new module adoption.
2. How are you mitigating the risk of logo churn (6%) at the lower end of the mid-market?
3. What is the strategy for the top 10 customers (16% of revenue)? Are you investing in dedicated resources to protect and grow these accounts?
4. How do you plan to deploy the $1.4B net cash balance?
5. What are the key assumptions behind your long-term operating margin target of 26%+?
6. What is the competitive win/loss analysis showing? Who are you losing to, and why?
7. How much of the revenue growth is coming from international expansion, and what are the unit economics there?
8. Can you discuss the pipeline for new product modules or platform extensions over the next 18 months?
9. How does the sales motion differ for acquiring a new logo versus expanding within an existing customer?
10. What is the single most important operational metric you track that isn't on this slide?