Advanced Investment Memo (IC Memo)

MEMORANDUM

TO: Investment Committee
FROM: [Your Name]
DATE: June 9, 2025
RE: LLLT LONG/SHORT RECOMMENDATION & VALUATION

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1. RECOMMENDATION & THESIS

Recommendation: LONG
12-Month PT Range: $62–$68
Thesis:
LedgerLift is a rare combination of capital-light cash cow, pricing power, and product stickiness. NRR at 123% and 18-month CAC payback in an AP vertical with low tech risk = sustainable margin expansion. Valuation is undemanding vs. peers, and the net-cash pile provides downside protection. Risk/reward is favorable on any rational FCF base-case.

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2. WHY IT WINS & WHY NOW

How It Wins:

• Product Stickiness: Logged-in context accounting workflows = hard to replace once AP is live. The 6,200 customers already generates ~$820m in annual revenue.
• Pricing Power: 123% NRR = price increases more than offset churn, and gross retention holds at 94% despite S&M spending.
• Low Capex Intensity: 3% Capex/revenue lets free cash flow scale faster than subscription revenue.
• Net-Cash Backstop: $1.4B cash/equivalents vs. current EV of ~$8.9B = ~$7.5B actual enterprise value.

Why Now:

• Recurring cash flow multiples are expanding as rates fall, but LLLT trades at a 40%+ FCF yield, valuing it like a value stock, not a SaaS grower.
• The next leg of EBITDA growth will outpace top-line growth (unusually for SaaS) as S&M spend % of revenue naturally de-levers.

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3. QUALITY-OF-EARNINGS & RISK CHECK

• NRR (123%) and Retention (94%) are strong. But if S&M spend erodes as a % of revenue, is there a risk retention will fall? If S&M keeps attracting low-LTV accounts, current metrics will disappoint.
• Concentration: 16% from top 10 customers is good for now. But if ARPA goes up (price increases), how many will churn?
• CAC Payback (18mo): Extremely good, but if it slips to 21-24 months, leverage ratios or operating margins will burn through cash.

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4. BASE/BULL/BEAR MODEL (2026-2030)

This model links revenue, gross margin, and operating margin to EBIT and free cash flow using the key assumptions provided.

A. Base Case Forecasts

Year	Revenue ($M)	EBIT ($M)	Unlevered FCF ($M)
2026	$992	$198	$155
2027	$1,171	$258	$210
2028	$1,346	$323	$275
2029	$1,521	$380	$330
2030	$1,704	$443	$390

B. Bull Case Forecasts

Year	Revenue ($M)	EBIT ($M)	Unlevered FCF ($M)
2026	$1,025	$215	$175
2027	$1,240	$298	$250
2028	$1,462	$380	$320
2029	$1,681	$470	$390
2030	$1,900	$551	$465

C. Bear Case Forecasts

Year	Revenue ($M)	EBIT ($M)	Unlevered FCF ($M)
2026	$951	$162	$120
2027	$1,075	$194	$150
2028	$1,193	$227	$175
2029	$1,312	$262	$200
2030	$1,430	$300	$230

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DCF CALCULATION (Base Case Example)

1. Unlevered FCF for each year (2026-2030): $155M, $210M, $275M, $330M, $390M
2. Terminal Value (Gordon Growth Model):
   • EV = $8,834M (using terminal growth rate of 3% and WACC of 10%)
3. Implied EV:
   • Present Value (PV) of Terminal Value = $8,834M / (1 + 0.10)^5 = $5,476M
   • PV of 2026-2030 Cash Flows: $155 / (1.10) + $210 / (1.10)^2 + ... = $1,074M
   • Net Cash: $1,400M
4. Implied Equity Value: $5,476M + $1,074M + $1,400M = $7,950M
5. Implied Value per Share: $41.85 per share (190M shares outstanding)
   • "5.26": The price-to-EBIT margin ratio will compress as margins improve, resulting in a strong FCF multiple of 10-12x. (The 5.26x EBIT multiple is actually used for valuation.)

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5. COMPS CROSS-CHECK

• Median Multiple: EV/NTM Revenue = 9x, EV/NTM EBIT = 35x
  • Revenue Multiple: $8.9B ÷ $820M = ~10.9x → ~$56-$62 (close to PT range)
  • EBIT Multiple: $8.9B ÷ $146M (23% EBIT margin) = ~61x → higher than peers, suggesting re-rating potential

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6. CATALYSTS & RISKS

Catalysts

1. S&M Spend Leverage: FY2026 S&M expected to fall below 32%, leading to upside to consensus margins.
2. Acquisition: A bolt-on AP extension could expand to another vertical (e.g., payments processing).
3. Post-IPO "Spice": Free cash flow is a significant majority of net income.

Risks

1. Price Elasticity: If top-tier customers push back on 10%+ price increases, NRR falters.
2. Tenure Decline: If new customers have low retention, LTV:CAC falls below 2.5x, reversing current S&M leverage.
3. Airline Turnover: Competition heats up (e.g., service 4,000+ employees) in established SaaS for enterprise, compelling price cuts.
4. Economic Downturn: Mid-market CFOs defer software spend at the first sign of macro distress.
5. Data Breach / Compliance: A material data leak could reverse mid-market client trust.

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7. QUESTIONS FOR MANAGEMENT

1. What’s the current S&M and retention profile for new vs. existing accounts?
   Are we overspending on net-new accounts to chase "expansion within"?
2. How will you manage price elasticity when/if ARPA reaches $150k+?
   What if top accounts push back?
3. How will you monitor the #1 client risk, since it accounts for 3% of revenue?
   What’s your contingency if the top client churns?
4. When will you deploy your cash pile, and what type of returns are you targeting?
   Do you plan to acquire something bolt-on, or deploy it to products?
5. What percentage of your accounts is fully automated, and what drives the ~6% churn?
   If it’s your "product stickiness," why not 1-2%?

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CONCLUSION

LedgerLift's quality is incontestable: 123% NRR, 18-month CAC payback, and 26% long-term margin potential at a discount to SaaS/Fintech. The cash backstop and cheap valuation amplify the opportunity. Long at $41-$43.

If the thesis cracks — churn jumps to 10%+ or S&M as a % of revenue stays >35% — it will be a warning flag. Until then, risk/reward is skewed to the upside.

END MEMO.