LTS,Inc. FY2025 Q3 Earnings Report

Financial Highlights

• Net Sales: ¥12.88B
• Operating Income: ¥884M
• Net Income: ¥697M
• EPS: ¥103.54

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

LTS Co., Ltd. (TSE:6560) delivered steady top-line growth and stronger operating profitability in FY2025 Q3 year-to-date, with revenue up 5.2% YoY to ¥12,881m and operating income up 15.4% YoY to ¥884m. Gross profit was ¥4,352m, implying a gross margin of 33.8%, consistent with a consulting/professional services model with limited inventory exposure. Operating margin expanded to roughly 6.9% (¥884m/¥12,881m), indicating positive operating leverage as revenue growth outpaced cost escalation. Ordinary income reached ¥917m, and interest burden remains manageable with an interest coverage ratio of 23.3x. Despite stronger operating performance, net income declined 32.4% YoY to ¥473m, compressing the net margin to 3.67%; this suggests non-operating factors, higher tax burden, or one-off items impacted the bottom line. Based on net income and reported income tax expense (¥236m), the implied effective tax rate is approximately 33%, indicating the 0.0% metric shown in the calculated section is not reflective of the underlying statements. Balance sheet strength appears solid: total assets are ¥10,178m and total equity ¥4,646m, implying an equity ratio of about 45.6% (despite the 0.0% placeholder) and financial leverage (assets/equity) of 2.19x. Current assets of ¥8,281m against current liabilities of ¥3,653m yield a current ratio of 2.27x and working capital of ¥4,628m, underpinning strong near-term liquidity. The company reports no inventories, which is typical for a human-capital intensive advisory/IT services business. Cash flow statement line items are unreported (shown as zero), limiting direct assessment of operating cash flow and free cash flow quality. ROE is 10.18% via DuPont (net margin 3.67% × asset turnover 1.266 × leverage 2.19), an acceptable level for the sector but with room for improvement through margin enhancement. The divergence between operating income growth and the decline in net income points to the need to scrutinize non-operating results, tax items, or minority interests in subsequent disclosures. With annual DPS currently shown as zero, retained earnings appear to be prioritized over distributions, but dividend policy is unclear from the provided data. Interest expense (¥38m) is modest relative to operating income, and solvency metrics look comfortable given the inferred equity ratio and liability mix. Overall, LTS shows healthy core operations and liquidity, tempered by weaker bottom-line conversion and limited transparency on cash flows due to unreported items. Data gaps (cash flows, per-share equity data, equity ratio metric) necessitate caution in interpreting cash generation and distribution capacity. Near-term outlook hinges on sustaining utilization and pricing, managing wage inflation, and stabilizing non-operating impacts that weighed on net income.

Profitability Analysis

ROE_decomposition: ROE 10.18% = Net profit margin 3.67% × Asset turnover 1.266 × Financial leverage 2.19. Operating margin is approximately 6.9% (¥884m/¥12,881m). Ordinary margin is around 7.1% (¥917m/¥12,881m). margin_quality: Gross margin at 33.8% reflects solid value-add for consulting/services. The spread between operating margin (~6.9%) and gross margin indicates meaningful SG&A (primarily personnel costs, recruitment/training, and corporate expenses). Net margin compressed to 3.67% despite stronger operations, implying non-operating expenses, higher taxes, or one-off losses impacted profitability. operating_leverage: Operating income grew 15.4% YoY versus 5.2% revenue growth, evidencing positive operating leverage from better utilization/mix or SG&A discipline. Sustaining this requires managing wage inflation and bench time; continued leverage depends on maintaining pricing and utilization.

Growth Assessment

revenue_sustainability: 5.2% YoY growth is moderate and consistent with steady demand in advisory/IT-enabled services; absence of inventory and high current assets suggest a project/service-driven revenue model with receivables as a key component. profit_quality: Operating income outpaced sales growth, pointing to improving core efficiency. However, the drop in net income (-32.4% YoY) signals weaker translation from operating profit to bottom line, likely from non-operating factors or tax effects. outlook: If utilization and pricing hold and wage pressures are contained, operating margins could remain firm or improve. Normalization of non-operating items and a stable effective tax rate (~33% implied) are key for EPS recovery. Pipeline visibility (backlog/order intake) and headcount capacity will determine growth durability.

Financial Health

liquidity: Current assets ¥8,281m vs current liabilities ¥3,653m yield a current ratio of 2.27x and working capital of ¥4,628m, indicating strong short-term liquidity. Quick ratio is effectively the same given no inventories are reported. solvency: Total liabilities ¥6,835m against equity ¥4,646m imply a debt-to-equity (liabilities/equity) of 1.47x and an inferred equity ratio of ~45.6%. Interest coverage is robust at 23.3x, suggesting low financial risk from interest-bearing debt. capital_structure: Financial leverage (assets/equity) is 2.19x, consistent with a healthy balance of growth funding and equity. With limited tangible assets typically needed for consulting businesses, leverage appears appropriate.

Cash Flow Quality

earnings_quality: Cash flow items are unreported (displayed as zero), so OCF/Net Income and FCF cannot be assessed from this dataset. The net income decline versus stronger operating profit raises the importance of validating non-cash/non-operating impacts once cash flow data are available. FCF_analysis: Free cash flow is not disclosed. Given the asset-light model, maintenance capex is typically modest, but confirmation requires OCF and capex details. working_capital: No inventories are reported, consistent with services. Receivables and contract assets (not itemized here) likely drive working capital; DSO trends would be the critical indicator for cash conversion.

Dividend Sustainability

payout_ratio_assessment: Annual DPS is reported as ¥0 with a payout ratio of 0%. Without cash flow data, we cannot judge policy sustainability, but retention seems prioritized amid mixed bottom-line trends. FCF_coverage: FCF is unreported; thus, dividend coverage cannot be computed. With net income of ¥473m and strong liquidity, initiation or increases would hinge on demonstrable OCF and capex needs. policy_outlook: Absent explicit guidance, we assume a prudent stance prioritizing growth investment and balance sheet flexibility until bottom-line stability and cash conversion are clearly evidenced.

Risk Assessment

Business Risks:

• Utilization and pricing risk in consulting/project-based revenues
• Wage inflation and talent retention amid competitive hiring market
• Project timing/acceptance delays affecting quarterly revenue recognition
• Client concentration and IT/discretionary budget cycles
• Execution risk in potential M&A/integration (if pursuing inorganic growth)

Financial Risks:

• Non-operating losses or valuation effects that suppress net income despite solid operations
• Tax rate volatility (implied ~33% but could vary with credits/one-offs)
• Receivables collection and lengthening DSO, affecting cash conversion
• Potential increase in interest costs if leverage rises

Key Concerns:

• Net income down 32.4% YoY despite stronger operating profit
• Lack of reported cash flow data impedes assessment of earnings-to-cash conversion
• Unclear dividend policy and future capital allocation priorities

Investment Implications

Key Takeaways:

• Core operations strengthening: operating income +15.4% on 5.2% revenue growth
• Net margin compressed to 3.67%, pulling ROE to 10.18%
• Solid liquidity (current ratio 2.27x) and comfortable solvency (equity ratio ~45.6%, coverage 23.3x)
• Cash flow disclosure missing; validate OCF/FCF before drawing conclusions on cash generation
• Monitor non-operating items and tax effects that drove YoY net income decline

Metrics to Watch:

• Operating margin and SG&A ratio
• DSO/receivables turnover and OCF/Net income conversion
• Order intake/backlog, utilization, billing rates
• Headcount growth vs. revenue growth (productivity)
• Effective tax rate and non-operating gains/losses
• Interest-bearing debt levels and interest coverage

Relative Positioning: Within Japanese consulting/IT services peers, LTS exhibits mid-teens operating resilience with moderate growth, an average ROE around 10%, strong liquidity, and reasonable leverage; bottom-line volatility from non-operating/tax items currently weighs on EPS relative to peers with cleaner translation from operating income to net income.

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