Advanced Investment Memo (IC Memo)

Internal Investment Committee Memo: LedgerLift (LLLT) – Long/Short Consideration Recommendation: Long | 12-Month Price Target: $70–$95 Thesis: LedgerLift is a high-quality, capital-efficient SaaS business with best-in-class unit economics (NRR 123%, CAC payback 18 months) and accelerating mid-market penetration, trading at a discount to peers despite superior growth and margins. The combination of durable revenue growth, margin expansion, and a net-cash balance sheet creates a compelling risk/reward skew, with upside catalysts from product expansion and M&A.

---

1. Business Model & Competitive Edge

What it does: LedgerLift provides B2B spend management and AP automation software for mid-market enterprises (500–5,000 employees), replacing manual processes with AI-driven invoice capture, approval workflows, and payment automation. The platform integrates with ERP systems (e.g., NetSuite, SAP) and offers embedded financing (e.g., early-pay discounts).

Why it wins:

• Defensible moat: Mid-market AP automation is a $15B+ TAM with low penetration (<10%), and LedgerLift’s 6,200-customer base (ARPA $132k) benefits from high switching costs (94% gross retention) and network effects (supplier onboarding).
• Superior unit economics: NRR of 123% (vs. median 110% for peers) and 18-month CAC payback (vs. 24–36 months for competitors) reflect sticky, high-LTV customers. Services revenue (8% of mix) acts as a loss leader to drive subscription adoption.
• Why now: Mid-market digitization is accelerating post-COVID, and LedgerLift’s focus on this segment avoids direct competition with enterprise incumbents (e.g., Coupa) or SMB players (e.g., Bill.com). FY2025 guidance implies 25% YoY growth, above the 18–22% peer median.

Risks to the thesis:

• Concentration: Top 10 customers = 16% of revenue (top 1 = 3%), but this is below the 20–30% threshold for most SaaS peers. Churn risk is mitigated by gross retention (94%) and multi-product adoption (avg. 2.3 modules/customer).
• Competition: Enterprise players (e.g., Workday, SAP) could move downstream, but LedgerLift’s mid-market specialization and vertical-specific templates (e.g., healthcare, manufacturing) create differentiation.
• Macro sensitivity: AP automation is counter-cyclical (cost-saving focus during downturns), but a prolonged recession could slow new logo growth.

---

2. KPI Quality Check

Metric	LedgerLift	Peer Median	Grade	Watchouts
NRR	123%	110%	A	Could decline if upsell saturation occurs (current 2.3 modules/customer).
Gross Retention	94%	90–92%	A	Logo churn (6%) is slightly high; monitor for cohort degradation.
CAC Payback	18 months	24–36 months	A	S&M efficiency (34% of revenue) is best-in-class but may face pressure if competition intensifies.
Revenue Concentration	16% (top 10)	20–30%	B+	Top customer (3%) is diversified, but a single large churn could impact growth.

Red flags:

• Services gross margin (25%) is below subscription (82%), but this is intentional (loss leader). Monitor if services mix grows >10%.
• ARPA growth has slowed (FY2023: +12% YoY; FY2024: +8% YoY). Management attributes this to mid-market expansion (lower ARPA but higher volume); validate with cohort data.

---

3. Base/Bull/Bear Model (2026–2030)

Key assumptions:

• Revenue: Starts at $820M (FY2025) and grows per scenario. Bull case assumes faster mid-market penetration and international expansion.
• EBIT: Operating margins expand via S&M leverage (FY2025: 34% → FY2030: 26–29%) and R&D efficiency.
• Unlevered FCF: EBIT × (1 – tax rate) + D&A – capex – NWC. FY2025 FCF margin = 14% (18% EBIT – 2.5% D&A – 3% capex – 1% NWC – 23% tax).
• Terminal value: EBIT(2030) × (1 + terminal growth) / (WACC – terminal growth).

Output table (in $M except per share):

Scenario	2026	2027	2028	2029	2030	DCF EV	Net Cash	Equity Value	Implied Share Price
Base
Revenue	$992	$1,171	$1,346	$1,521	$1,704
EBIT	$198	$258	$323	$380	$443	$9,200	$1,400	$10,600	$56
Unlevered FCF	$139	$191	$248	$298	$352
Bull
Revenue	$1,025	$1,230	$1,452	$1,669	$1,886
EBIT	$215	$295	$378	$467	$547	$14,500	$1,400	$15,900	$84
Unlevered FCF	$153	$224	$300	$381	$456
Bear
Revenue	$951	$1,075	$1,193	$1,312	$1,430
EBIT	$162	$194	$227	$262	$299	$5,800	$1,400	$7,200	$38
Unlevered FCF	$113	$142	$171	$202	$235

Key steps:

1. DCF EV: Sum of discounted FCFs (2026–2030) + terminal value (EBIT × multiple).
   • Example (Base): Terminal value = $443M × (1.03) / (0.10 – 0.03) = $6,500M. EV = $9,200M.
2. Equity value: EV – net cash ($1.4B) = $10,600M.
3. Per share: Equity value / shares outstanding (190M) = $56.

---

4. Comps Cross-Check

Median multiples: EV/NTM Revenue = 9.0x; EV/NTM EBIT = 35x. Adjustments:

• Growth: LedgerLift’s FY2025 revenue growth (25%) is above peer median (~18%). Apply +1.0x revenue multiple (9.0x → 10.0x).
• Margins: FY2025 EBIT margin (18%) is below peer median (~22%). Apply -0.5x EBIT multiple (35x → 34.5x).
• Quality: NRR (123%) and CAC payback (18 months) are best-in-class. Apply +0.5x revenue multiple (10.0x → 10.5x).

Implied valuation:

• Revenue multiple: $820M (FY2025) × 10.5x = $8,610M EV → $7,210M equity value → $38/share.
• EBIT multiple: $148M (FY2025 EBIT) × 34.5x = $5,106M EV → $3,706M equity value → $19/share.
• Blended range: $38–$55/share (weighted 60% revenue, 40% EBIT).

Takeaway: DCF ($56–$84) is more bullish than comps ($38–$55), suggesting the market undervalues LedgerLift’s growth and margin expansion. The discrepancy likely reflects:

1. Peer set includes lower-quality businesses (e.g., higher churn, worse CAC payback).
2. LedgerLift’s net-cash balance sheet ($1.4B) is not fully reflected in EV-based multiples.

---

5. Catalysts, Risks, and Falsifiable Triggers

Catalysts (next 12 months):

1. Product expansion: Launch of embedded payments (FY2025) could drive ARPA growth (currently +8% YoY).
2. M&A: Mid-market SaaS consolidation (e.g., acquiring a procurement or expense management player) could accelerate TAM expansion.
3. Margin beats: S&M leverage (34% of revenue in FY2025) could surprise to the downside if sales efficiency improves.

Risks (top 5):

1. Customer concentration: Top 10 churn could pressure growth (e.g., 20% churn in top 10 = 3% revenue hit).
2. Competition: Enterprise players (e.g., SAP) moving downstream could compress pricing.
3. Macro: Recession-driven budget cuts could slow new logo growth (though AP automation is counter-cyclical).
4. Execution: International expansion (currently 15% of revenue) could dilute margins.
5. Integration risk: M&A could disrupt product roadmap or culture.

What would change my mind (falsifiable triggers):

1. NRR declines to <115% for two consecutive quarters (signals upsell saturation or churn).
2. CAC payback extends to >24 months (indicates competitive pressure or sales inefficiency).
3. Services revenue mix grows to >12% (suggests subscription adoption is stalling).

---

6. 10 Diligence Questions for Management

1. Cohort analysis: How has NRR trended for the 2020–2022 customer cohorts? Are newer cohorts performing better/worse?
2. Product roadmap: What % of FY2025 revenue growth comes from existing vs. new modules (e.g., payments, procurement)?
3. International: What are the unit economics (CAC payback, NRR) for non-U.S. customers?
4. Competition: How do win rates vs. Coupa/Workday differ by customer size (mid-market vs. enterprise)?
5. M&A: What’s the pipeline for tuck-in acquisitions, and how are integration risks mitigated?
6. Churn drivers: What % of logo churn is due to bankruptcy vs. competitive losses vs. M&A?
7. Pricing power: Have you tested price increases for existing customers? What’s the elasticity?
8. Sales efficiency: How has S&M spend per new logo trended YoY? Are you seeing diminishing returns?
9. Cash flow: Why is capex (3% of revenue) higher than D&A (2.5%)? Is this a one-time investment or structural?
10. ESG: How are you addressing customer data privacy concerns (e.g., AI-driven invoice processing)?

---

7. Conclusion

Positioning: LedgerLift is a high-conviction long for a long/short fund given its:

• Superior unit economics (NRR 123%, CAC payback 18 months) vs. peers.
• Accelerating growth (FY2025: 25% YoY) with margin expansion (FY2025: 18% EBIT → FY2030: 26%).
• Net-cash balance sheet ($1.4B) providing downside protection.

Valuation upside: DCF implies $56–$84/share (base/bull), while comps suggest $38–$55. The gap reflects LedgerLift’s quality premium, which we expect to close via:

1. Multiple expansion as growth and margins outperform peers.
2. Catalysts (payments launch, M&A, margin beats).

Risk management: Short interest (hypothetical 5%) could rise if NRR or CAC payback deteriorates, but the net-cash position limits downside. Target entry: $45–$50; stop-loss: $35 (bear case DCF).