Advanced Investment Memo (IC Memo)

To: Investment Committee From: Equity Research Team Date: October 26, 2023 Subject: Investment Recommendation: LedgerLift (LLLT)

---

1. Recommendation: LONG

12-Month Price Target Range: $58 – $76 (Base to Bull Case) Thesis: LedgerLift is a high-quality mid-market SaaS compounder with exceptional unit economics (123% NRR) and a clear path to operating leverage as it moves from high-growth to steady-state profitability. The market is currently underestimating the margin expansion potential inherent in its 80%+ subscription gross margins and improving CAC efficiency.

---

2. Business Overview & Competitive Moat

LedgerLift provides a unified B2B spend management and AP automation platform specifically tailored for mid-market enterprises ($100M–$1B revenue).

Why it wins:

• Integrated Workflow: Unlike point solutions, LLLT combines procurement, AP, and expense management. This creates high switching costs and deep ERP integration.
• Mid-Market Sweet Spot: LLLT captures the "Goldilocks" zone—too complex for SMB tools like Bill.com, but more agile and cost-effective than enterprise legacy systems like Coupa or SAP Ariba.
• Why Now: Macro pressures are forcing mid-market CFOs to digitize manual back-office tasks to reduce headcount. LLLT's 18-month CAC payback suggests a high-velocity sales motion that is resonating in the current "efficiency-first" environment.

---

3. KPI Quality Check

• NRR (123%) & Gross Retention (94%): These are "best-in-class" metrics. The 29% "expansion gap" (NRR minus Gross Retention) indicates a successful land-and-expand strategy, likely driven by seat expansion or module cross-selling.
• Churn (6%): Consistent with mid-market norms. It suggests the product is "sticky" and integrated into the daily accounting workflow.
• CAC Payback (18 months): Healthy for a $132k ARPA product. While S&M is high (34% of revenue), the payback period justifies the spend.
• Concentration: Low. Top 10 customers representing only 16% of revenue mitigates platform risk and suggests a broad, diversified market.
• What could be wrong: The 8% services mix is low, but if implementation becomes more complex, services could drag down blended margins or slow down the sales cycle.

---

4. Financial Modeling & Valuation

Financial Forecasts (2026–2030)

Metric ($M)	2026E	2027E	2028E	2029E	2030E
Base Case Revenue	$992	$1,171	$1,346	$1,521	$1,704
Growth (%)	21%	18%	15%	13%	12%
Base Case EBIT	$198	$258	$323	$380	$443
EBIT Margin (%)	20%	22%	24%	25%	26%
Base Case UFCF*	$154	$201	$252	$297	$347

*UFCF Calculation: EBIT * (1-Tax) + D&A - Capex - NWC Inv. (Assumes 23% tax, 2.5% D&A, 3% Capex, 1% incremental rev NWC).

Scenario DCF Analysis

Terminal Value calculated via Gordon Growth Method.

Scenario	DCF Enterprise Value	Net Cash	Equity Value	Per Share
Bull Case	$13,040M	$1.4B	$14,440M	$76.00
Base Case	$9,620M	$1.4B	$11,020M	$58.00
Bear Case	$5,640M	$1.4B	$7,040M	$37.05

---

5. Comps Cross-Check

Peer Universe Median: EV/NTM Revenue: 9.0x | EV/NTM EBIT: 35.0x

• Revenue Multiple Approach: Applying a 9.0x multiple to 2025E Revenue ($820M) yields an EV of $7.38B. Adding $1.4B cash = $8.78B Equity Value ($46.21/share).
• EBIT Multiple Approach: Applying a 35.0x multiple to 2025E EBIT ($147.6M) yields an EV of $5.17B. Adding $1.4B cash = $6.57B Equity Value ($34.58/share).

Valuation Note: LLLT currently trades at its peer median on revenue but at a premium on EBIT due to its superior NRR and margin profile. The DCF suggests the market is currently pricing in the "Bear Case" growth/margin profile, offering an attractive entry point for the "Base Case" trajectory.

---

6. Catalysts, Risks, & Falsifiability

Catalysts:

1. Operating Leverage Inflection: First quarterly print showing S&M declining as a % of revenue while maintaining 20%+ growth.
2. M&A: With $1.4B in cash, a strategic acquisition in the "Payments" space could instantly boost take-rates and ARPA.
3. Rule of 40 Achievement: Transitioning from "High Growth/Low Margin" to "Moderate Growth/High Margin" (e.g., 20% growth + 20% FCF margin).

Risks:

1. Compression in Mid-Market IT Spend: General macro slowdown hitting the target customer base.
2. Competitive Pricing: Incumbents (SAP/Coupa) moving down-market or SMB players (Bill) moving up-market.
3. Execution Risk: Failure to transition services-heavy implementations to automated self-service.
4. Interest Rate Sensitivity: High-growth SaaS valuations are sensitive to WACC fluctuations.
5. Integration Risk: Misallocation of the $1.4B cash pile on a value-destructive acquisition.

"What would change my mind?" (Falsifiable Triggers):

1. NRR drops below 110%: Indicates the "expand" engine has stalled or the product is losing its mission-critical status.
2. CAC Payback exceeds 24 months: Suggests the mid-market is saturated or competitive pressure is driving up customer acquisition costs.
3. Gross Margin erosion (<75%): Indicates a shift toward lower-margin services or a loss of pricing power in the core subscription product.

---

7. Diligence Questions for Management

1. What percentage of the 123% NRR is driven by seat expansion vs. new module cross-sell?
2. Can you bridge the gap between subscription GM (82%) and services GM (25%)—what is the long-term target for blended GM?
3. In the top 10 customers (16% of revenue), what is the average contract length and remaining term?
4. What is the specific roadmap for the $1.4B cash balance? Is there a "buy vs. build" framework for international expansion?
5. How much of your 2024/2025 growth is coming from the existing partner channel vs. direct sales?
6. What is the typical "trigger event" that causes a customer to switch from an ERP-native tool to LedgerLift?
7. How has the sales cycle length changed over the last four quarters?
8. What is the churn profile of customers who have been on the platform for >3 years?
9. Are you seeing any pricing pressure from legacy ERP vendors discounting their own AP modules?
10. What is the steady-state S&M as a % of revenue once you reach $1.5B in scale?