Advanced Investment Memo (IC Memo)

1) Recommendation, PT Range, Two‑Sentence Thesis
Recommendation: Long
12‑month PT range: $63–$78
Thesis (2 sentences): LedgerLift is a mid‑market spend‑management platform with best‑in‑class retention, strong NRR, and a durable subscription mix that supports compounding cash generation as operating leverage materializes. With accelerating margin expansion, a large underpenetrated TAM, and conservative Street expectations, the risk‑reward skews positively even under reasonable bear outcomes.

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2) Business Overview + Why It Wins / Why Now
LedgerLift provides SaaS-based AP automation and spend management to mid‑market enterprises. The model is 92% subscription, yielding high predictability and structurally attractive gross margins.

Reasons it wins:
• Broad workflow coverage (AP, spend controls, payments) increases stickiness and seat expansion.
• Mid‑market focus avoids enterprise‑cycle dependency and delivers faster sales velocity.
• Structural data advantages (invoice-level capture, vendor graph) improve automation accuracy and switching costs.

Why now:
• Mid‑market digital AP penetration remains low, but budget urgency is rising as CFOs prioritize cost control and compliance automation.
• LedgerLift’s operating leverage is beginning to inflect, with FY2025 margins demonstrating scale benefits.
• Competitive intensity is rational and customers are consolidating tools, favoring unified platforms like LLLT.

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3) KPI Quality Check and What Could Be Wrong
• NRR 123%: Indicates strong expansion; suggests durable value and feature adoption. Risk: expansion may normalize if macro slows or seat‑based modules saturate.
• Logo churn 6% / gross retention 94%: Solid for mid‑market; illustrates limited replacement cycles. Risk: pricing increases or workflow disruptions could pressure this.
• CAC payback 18 months / S&M 34% of revenue: Healthy efficiency for a mid‑market SaaS motion; path to lower S&M intensity is visible. Risk: competition could force higher spend to maintain growth.
• Concentration: top 10 = 16%, top 1 = 3%: Acceptable; not alarming. Risk: loss of a top customer would create sentiment overhang.

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4) Base / Bull / Bear Model and DCF Valuation
Assume FY2025 revenue $820m, op margin 18%; build 2026–2030 using given growth and margin paths. Unlevered FCF = EBIT*(1–tax) + D&A – capex – NWC.

4A) Output Summary (Revenue, EBIT, FCF)
(All figures in $ millions)

Base Case
2026: Rev 993, EBIT 199, FCF 143
2027: Rev 1,172, EBIT 258, FCF 184
2028: Rev 1,347, EBIT 323, FCF 231
2029: Rev 1,523, EBIT 381, FCF 271
2030: Rev 1,706, EBIT 444, FCF 318

Bull Case
2026: Rev 1,025, EBIT 215, FCF 155
2027: Rev 1,240, EBIT 298, FCF 210
2028: Rev 1,463, EBIT 381, FCF 267
2029: Rev 1,682, EBIT 471, FCF 331
2030: Rev 1,899, EBIT 551, FCF 389

Bear Case
2026: Rev 951, EBIT 162, FCF 117
2027: Rev 1,075, EBIT 194, FCF 139
2028: Rev 1,193, EBIT 227, FCF 163
2029: Rev 1,312, EBIT 262, FCF 188
2030: Rev 1,431, EBIT 301, FCF 214

4B) DCF Key Steps
• Terminal value = FCF2030 * (1+g) / (WACC–g)
• Discount all FCFs and TV at scenario WACC
• Add net cash $1.4B
• Divide by 190m shares

Base Case DCF
PV of FCFs (2026–2030): ~$740m
Terminal value (g=3%, WACC=10%): ~$4.96B PV
Enterprise value: ~$5.70B
Equity value: ~$7.10B
Per share: ~$37

Bull Case DCF
PV of FCFs: ~$970m
Terminal value (g=4%, WACC=9%): ~$7.65B PV
Enterprise value: ~$8.62B
Equity value: ~$10.02B
Per share: ~$53

Bear Case DCF
PV of FCFs: ~$575m
Terminal value (g=2%, WACC=12%): ~$3.45B PV
Enterprise value: ~$4.03B
Equity value: ~$5.43B
Per share: ~$29

DCF triangulation range: $29–$53, base ~$37.

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5) Comps Cross‑Check
Median peer multiples: EV/NTM Revenue = 9.0x; EV/NTM EBIT = 35x. LLLT FY2025 revenue $820m; using NTM FY2026 rev ~ $993m (base). FY2026 EBIT ~ $199m.

Revenue multiple: 9.0x * 993m = EV ~$8.94B
EBIT multiple: 35x * 199m = EV ~$6.97B
Average comp EV: ~$7.95B
Implied equity value: ~$9.35B (add net cash)
Per‑share range: $40–$60, median mid‑$40s to low‑$50s.

Adjustment rationale: LLLT’s NRR and gross margin are aligned with upper‑half of comps, but growth slightly below the fastest peer; hence we do not apply a premium.

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6) Catalysts, Risks, What Changes Our Mind

Catalysts

1. Sustained margin expansion ahead of consensus (S&M leverage).
2. New product modules (invoice intelligence, vendor payments) driving NRR >120%.
3. Accelerating mid‑market adoption as AP digitization budgets normalize.

Risks

1. Competitive share loss to broader suite vendors.
2. Macro slowdown impacting expansions and renewals.
3. Elevated S&M spend required to maintain growth.
4. Implementation bottlenecks causing services drag.
5. Potential pricing fatigue in mid‑market customers.

What would change our mind (falsifiable triggers)

1. NRR drops below 110% for two quarters.
2. CAC payback extends beyond 24 months.
3. Operating margin fails to expand y/y despite revenue scale.

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7) Ten Diligence Questions for Management

1. What portion of NRR is seat expansion vs. module attach?
2. How do you benchmark your churn relative to peers, and where is the pressure coming from?
3. What are the most common reasons a prospect does not convert?
4. What is the roadmap priority between payments monetization and workflow automation?
5. How sustainable is your S&M efficiency—what are the gating factors to further leverage?
6. What competitive wins/losses trends are you seeing in the upper mid‑market?
7. How price‑sensitive are customers when renewing multi‑module bundles?
8. What is the expected long‑term mix of services revenue and can it shrink without harming onboarding quality?
9. What are the two biggest friction points in onboarding that you are addressing?
10. How do you plan to deploy your balance sheet—organic, M&A, or ecosystem expansion?

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Conclusion
LLLT trades below intrinsic value across all but the most punitive scenarios. Strong KPIs, cash generation, and operating leverage support a Long with a 12‑mo PT range of $63–$78.