L is B Corp. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥1.56B
• Operating Income: ¥123M
• Net Income: ¥83M
• EPS: ¥16.14

Income Statement

Balance Sheet

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: A solid rebound quarter with sharp profit growth on strong top-line expansion and improved operating leverage, though cash flow validation is missing due to unreported CF data. Revenue rose 30.5% YoY to 15.64, with gross profit at 9.95 and a high gross margin of 63.6%, indicating strong pricing/pure-service mix. Operating income surged to 1.23 (+227.7% YoY), taking operating margin to 7.9%, up materially versus last year (exact bps change not available due to missing prior-period margin data). Ordinary income increased to 1.10 (+733.3% YoY) despite net non-operating expenses (0.12), as interest expense (0.10) weighed slightly. Net income climbed to 0.82 (+784.6% YoY), taking net margin to 5.2%, a significant improvement from last year’s implied low base. SG&A of 8.72 equates to 55.8% of revenue, suggesting better operating efficiency versus the prior year given the outsized operating profit growth relative to revenue, consistent with operating leverage. Interest coverage is strong at 11.83x, mitigating near-term financing risk despite 5.91 in long-term loans. Liquidity is robust: cash and deposits of 18.38 and a current ratio of 613.8% underpin strong short-term solvency. The balance sheet shows total equity of 17.86 (equity ratio approximately 64.5%), although retained earnings remain negative (-8.47), indicating a history of accumulated losses now being repaired. Asset turnover stands at 0.565, and with modest leverage (1.55x), DuPont ROE computes to 4.6%. Reported ROIC (framework metric) is 16.5%, which, if consistently defined, is well above typical targets and suggests improving capital efficiency. Earnings quality cannot be confirmed as operating and free cash flows are unreported; OCF/NI and FCF coverage of dividends/capex are not calculable. Non-operating items were small and net negative, implying core operating improvement drove the quarter. Forward-looking, sustaining the gross margin and managing SG&A intensity will be key to defending the higher operating margin. With abundant cash exceeding total interest-bearing debt, the company has flexibility to invest for growth and handle debt service. The main watchpoint is whether revenue growth is durable and cash conversion keeps pace, given the lack of disclosed cash flows.

Profitability Analysis

ROE decomposition (DuPont): Net Profit Margin (NPM) 5.2% × Asset Turnover (AT) 0.565 × Financial Leverage (FL) 1.55x = ROE 4.6%. The component with the largest implied change YoY is NPM, given net income grew +784.6% on +30.5% revenue, indicating significant margin uplift from operating leverage and cost discipline. Business driver: high gross margin (63.6%) coupled with slower growth in SG&A relative to revenue implied by the outsized growth in operating income (+227.7%), resulting in improved operating margin (7.9%). Non-operating effects were a slight headwind (net -0.12), so the improvement is fundamentally operational. Sustainability: partially sustainable if scale efficiencies persist and mix remains favorable; however, maintaining a 60%+ gross margin and curbing SG&A creep will be critical as headcount and go-to-market investments often rise with growth. Asset turnover at 0.565 is typical for an asset-light service/software-like model; significant improvement would likely require faster revenue growth than asset base expansion. Leverage is modest (1.55x), so future ROE gains will rely more on margin expansion and turnover than leverage. Watch for any sign that SG&A growth begins to outpace revenue; current-quarter SG&A ratio is 55.8%, which leaves room for operating leverage but could compress margins if growth slows.

Growth Assessment

Revenue growth of +30.5% YoY indicates healthy demand/momentum. Operating income grew +227.7% and net income +784.6%, reflecting strong operating leverage off a low base. Current margins: gross 63.6%, operating 7.9%, ordinary 7.0%, net 5.2%. The growth quality appears primarily core-operational as non-operating net was a modest drag. Outlook hinges on sustaining mix/pricing that support a 60%+ gross margin while scaling SG&A efficiently. Without disclosure of R&D or hiring trends, it is unclear whether cost intensity will rise in future quarters. Receivables of 4.08 versus revenue suggest normal collection exposure; days sales outstanding cannot be computed without period length and prior data. Given the cash balance and low short-term debt, the company can continue investing to support growth. Key unknowns are customer concentration and churn, which could affect top-line durability.

Financial Health

Liquidity is strong: current ratio 613.8% and quick ratio 613.8% with cash of 18.38 vastly exceeding current liabilities of 3.75; no warning (both ratios well above benchmarks). There is no maturity mismatch risk near term: short-term loans are 0.20 and accounts payable 0.41 against cash 18.38 and current assets 23.02. Solvency is comfortable: D/E 0.55x and an equity ratio of approximately 64.5% (17.86/27.68), with net cash of about 12.27 after offsetting total loans (0.20 + 5.91) with cash. Long-term loans of 5.91 are the main liability; refinancing risk is mitigated by the cash buffer and strong interest coverage (11.83x). Retained earnings are negative (-8.47), signaling historically accumulated losses, but current profitability helps repair equity over time. No off-balance sheet obligations were disclosed; none assessed from provided data.

Cash Flow Quality

OCF and FCF are unreported; thus OCF/Net Income and FCF coverage of dividends/capex are not calculable. Earnings quality cannot be validated against cash conversion, representing a key data limitation. Working capital indicators: accounts receivable of 4.08 versus accounts payable of 0.41 suggest a service-heavy model with limited supplier financing; however, without cash flow statements, changes in receivables and payables cannot be assessed for timing effects. With cash of 18.38 and net cash position of ~12.27, near-term liquidity appears ample even if cash conversion is lumpy. No signs of working capital manipulation can be identified from static balance sheet data alone.

Dividend Sustainability

Dividend data is unreported; payout ratios and FCF coverage are not calculable. Given negative retained earnings (-8.47), accumulated deficits may limit dividend capacity under JGAAP corporate law constraints until retained earnings turn positive, unless distributions are sourced from capital surplus subject to legal procedures. Cash holdings (18.38) and net cash suggest capacity exists, but sustainability must be judged against future OCF and capex needs, both undisclosed. Policy outlook cannot be inferred without guidance; monitor announcements and retained earnings trajectory.

Risk Assessment

Business Risks:

• Revenue growth sustainability risk given reliance on continued client demand and potential customer concentration (not disclosed).
• Margin pressure risk if SG&A scales faster than revenue as the company invests in sales, delivery, or product.
• Execution risk in maintaining a high gross margin mix (63.6%) amid competition and pricing pressures.
• Potential churn or project timing risk typical in service/solution businesses (no backlog disclosed).
• Industry-specific: talent acquisition and wage inflation risk impacting delivery costs and SG&A.

Financial Risks:

• Cash flow visibility risk: OCF and FCF unreported; earnings quality cannot be validated.
• Refinancing/interest rate risk on 5.91 long-term loans, partly offset by strong cash and coverage.
• Retained earnings deficit (-8.47) constraining dividend flexibility until repaired.
• FX risk if revenues/costs have cross-border exposure (not disclosed).

Key Concerns:

• Lack of cash flow disclosure limits assessment of earnings quality and FCF durability.
• Negative retained earnings despite current profitability.
• Non-operating net expense (0.12) reduces ordinary income; interest expense sensitivity if rates rise.
• Data gaps in SG&A breakdown, R&D, and capex obscure operating efficiency and reinvestment needs.

Investment Implications

Key Takeaways:

• Top-line growth (+30.5% YoY) coupled with strong operating leverage drove outsized profit gains.
• Margins are healthier: gross 63.6%, operating 7.9%, net 5.2%; sustainability depends on SG&A control.
• Balance sheet is robust with net cash ~12.27 and equity ratio ~64.5%.
• Interest coverage 11.83x mitigates debt-servicing concerns despite 5.91 in long-term loans.
• ROE at 4.6% is moderate; further improvement will depend on margin expansion/turnover, not leverage.
• Earnings quality remains unverified due to unreported OCF/FCF; a primary watchpoint.

Metrics to Watch:

• Operating cash flow and FCF (OCF/NI target >1.0).
• SG&A-to-sales ratio and its trajectory.
• Gross margin stability and mix/pricing indicators.
• Receivables days and collection trends.
• Debt amortization schedule and interest rate exposure.
• Retention/churn or backlog indicators, if disclosed.
• Progress in reversing negative retained earnings.

Relative Positioning: Within small-cap, asset-light Japanese service/software-like peers, the company shows superior liquidity and high gross margins, translating into strong operating leverage this quarter; however, ROE remains mid-single-digit and cash flow disclosure gaps place it at a relative disadvantage for investors prioritizing earnings quality validation.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis