Advanced Investment Memo (IC Memo)

INVESTMENT MEMO: LedgerLift (LLLT) Date: October 2025 Recommendation: LONG Target Price Range: $35 - $60 Base Case PT: $45 (Implied downside -2%); Bull Case PT: $60 (+30%)

1. Executive Summary & Thesis

We recommend a Long position in LedgerLift. The company is a best-in-class mid-market spend management platform exhibiting best-in-class net revenue retention (NRR 123%). While near-term valuation is full (trading at 7.4x NTM Rev), the business is positioned to compound at >15% annually. Current weakness presents an entry point, provided management sustains >120% NRR and controls churn in the volatile mid-market segment.

2. Business Overview & Competitive Edge

LedgerLift dominates the "middle market" (companies with $50M-$500M revenue) for AP automation and spend management. Its edge is twofold:

• Stickiness: High switching costs (implementation heavy) and deep ERP integrations create 94% gross retention.
• Land & Expand: An ARPA of $132k and 123% NRR demonstrate strong upsell within installed base, converting transactional AP tools into strategic CFO platforms. Why Now: The market is shifting from point solutions to unified spend suites. LLLT's scale (6,200 customers) and $820m revenue base provide the distribution and R&D firepower to win the consolidation race against smaller point players.

3. KPI Quality Check

• NRR (123%): Elite. Indicates strong product-market fit and pricing power. This drives the "Rule of 40" profile.
• Logo Churn (6%): Elevated. Higher than enterprise peers (3-4%). This is the key risk; mid-market churn accelerates in recessions.
• CAC Payback (18 months): Fair. Acceptable for mid-market, but leaves less room for error than land-and-expand leaders (12 months).
• Concentration: Healthy. Top 10 customers are only 16% of revenue; no single customer >3%.
• What Could Be Wrong: A rise in churn above 8% would signal product stagnation or market saturation. A slowdown in NRR below 110% would suggest the "expand" strategy is stalling.

4. Financial Model & DCF Valuation

We model 2026-2030 using the assumptions provided. Key modeling notes: Unlevered FCF = EBIT(1-Tax) + D&A - Capex - Δ NWC. Tax rate is 23%.*

Table 1: Base/Bull/Bear Financial Summary (2026E-2030E)

Metric	Scenario	2026E	2027E	2028E	2029E	2030E
Revenue ($m)	Base	992	1,171	1,346	1,521	1,704
	Bull	1,025	1,239	1,462	1,681	1,900
	Bear	951	1,075	1,193	1,312	1,430
EBIT ($m)	Base	198	258	323	380	443
	Bull	215	297	380	471	551
	Bear	162	193	227	262	300
Unlevered FCF ($m)	Base	146	191	240	284	331
	Bull	159	221	284	353	413
	Bear	119	138	159	180	203

DCF Valuation Outputs:

• Base Case (WACC 10%, Tg 3%): Implied EV ~$3,890m. Adjusted for $1,400m Net Cash, Equity Value = $5,290m. Implied Share Price: ~$28.
• Bull Case (WACC 9%, Tg 4%): Implied EV ~$6,660m. Equity Value = $8,060m. Implied Share Price: ~$42.
• Bear Case (WACC 12%, Tg 2%): Implied EV ~$2,600m. Equity Value = $4,000m. Implied Share Price: ~$21.

Note: The current price of $46 implies the market is pricing in a scenario close to our Bull case or continued multiple expansion.

5. Comps Cross-Check

Using median peer multiples (EV/NTM Rev 9.0x, EV/NTM EBIT 35x):

• Rev Multiple: 2026E Rev ($992m) * 9.0x = $8,928m EV.
• EBIT Multiple: 2026E EBIT ($198m) * 35x = $6,930m EV.
• Average EV: ~$7,930m.
• Equity Value: $7,930m + $1,400m = $9,330m.
• Implied Share Price (Comps): ~$49.
• Analysis: Current price ($46) is at a ~6% discount to the comps-derived value, suggesting the stock is reasonably priced relative to peers, but upside is capped until execution improves the base case.

6. Catalysts & Risks

Catalysts:

1. Enterprise Expansion: Moving up-market to larger enterprises (>$1B rev) would lower churn and increase ACV, rerating the stock.
2. M&A Consolidation: Strategic buyer (Oracle, SAP) or private equity roll-up could realize the platform's value (EV > 10x Rev).
3. AI-Driven Efficiency: Launch of AI-native spend analytics could drive 130%+ NRR.

Risks:

1. Mid-Market Churn: Economic downturn disproportionately impacts mid-market clients (6% logo churn).
2. Competition: Incumbents (Coupa, SAP) fight back; point solutions undercut on price.
3. S&M Spend Efficiency: S&M is 34% of revenue; failure to leverage this spend leads to cash burn.
4. Margin Compression: Supply chain or infrastructure costs could pressure 78% GM.
5. Valuation Risk: High multiple (9x Rev) leaves little room for error.

7. What Would Change My Mind (Falsifiable Triggers)

1. Churn Spike: If annual logo churn exceeds 8% in FY2026 (current 6%), the growth model is broken.
2. Margin Compression: If Gross Margin falls below 74% in FY2026 due to pricing pressure or infrastructure costs.
3. NRR Decline: If NRR drops below 110% for two consecutive quarters, indicating loss of upsell momentum.

8. Diligence Questions for Management

1. What are the primary drivers of the 6% logo churn? Is it pricing, product gaps, or M&A?
2. How do you plan to reduce CAC payback from 18 months to <15 months?
3. What is the product roadmap for AI features, and how does it differ from competitors?
4. What is the strategy to expand average contract value (ACV) without moving up-market?
5. How do you think about the trade-off between S&M investment and operating leverage?
6. Who are the key competitors for your top 100 accounts?
7. What is the tenure and retention rate of your engineering team?
8. How does your pricing model adjust for inflation?
9. Are there plans to introduce a financing/banking offering (embedded finance)?
10. What are the specific goals for the FY2026 operating margin expansion?