エル・ティー・エス（6560） – [Delayed]Summary of Financial Results for First Quarter of the Year Ending December 2022

Summary of Financial Results for First Quarter of the Year Ending December 2022 [Japan GAAP] (Consolidated) Name of Company: Stock Code: Representative: LTS, Inc. 6560 Title: President and CEO Title: Executive Vice President and Manager of Group Management Office Contact Person: Date of filing of quarterly report: Date of commencement of dividend payment: Preparation of quarterly supplementary materials: Convening of a quarterly results meeting: May 13, 2022 Yes No May 13, 2022 Stock Exchange Listing: Tokyo URL https://lt-s.jp/en/ Name: Hiroaki Kabashima Name: Sungil Lee Phone: +81-3-5312-7010 1. Financial results for first quarter of fiscal year ending December 2022 (January 1, 2022 – March 31, 2022) (1) Operating results (consolidated) (Percentage figures represent year-on-year change) (Amounts less than one million are rounded down) Net sales Operating profit Ordinary profit million yen % million yen % million yen 2,154 23.6 265 54.0 1,742 26.9 172 7.4 Profit attributable to owners of parent million yen % 180 121 48.9 19.6 % 46.8 16.5 262 178 Q1 FY2022: 184 million yen (52.5%) Q1 FY2021: 121 million yen (22.2%) Q1 of the year ending December 2022 Q1 of the year ended December 2021 (Note) Comprehensive income Profit per share Profit per share fully diluted yen Q1 of the year ending December 2022 Q1 of the year ended December 2021 (Note) The Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) has been applied from the beginning of the first quarter of the year under review. Figures for the first quarter of the year ending December 31, 2022 have been restated to reflect application of the standard. 29.39 41.40 27.31 43.11 yen (2) Financial position (consolidated) Q1 of the year ending December 2022 Year ended December 2021 (Reference) Shareholders’ equity Total assets Net assets million yen million yen Capital adequacy ratio % 4,290 5,080 1,961 2,076 45.6 40.9 Q1 FY2022: 1,957 million yen FY2021: 2,076 million yen (Note) The Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) has been applied from the beginning of the first quarter of the year under review. Figures for the first quarter of the year ending December 31, 2022 have been restated to reflect application of the standard. 2. Dividends End of Q1 End of Q2 End of Q3 End of FY Total Dividend per share Year ended December 2021 Year ending December 2022 Year ending December 2022 (forecast) (Note) Revision to the most recently announced dividend forecast: No yen yen 0.00 0.00 yen yen 0.00 0.00 yen 0.00 0.00 ―1― —–Net sales Operating profit Ordinary profit Profit per share 3. Forecast for the fiscal year ending December 2022 (January 1, 2022 – December 31, 2022) Full year million yen 8,542 % 15.8 million yen 480 % -20.0 million yen 460 % -20.7 (Note) Revisions to the most recently announced earnings forecast: No (Note) There is no first half forecast. (Percentage figures represent year-on-year change) Profit attributable to owners of parent million yen 297 % -23.5 yen 69.99 ―2― * Notice (1) Changes in main subsidiaries during year to quarter end (Changes in specific subsidiaries accompanied by changes in the scope of consolidation): None New consolidations: company(ies) (Company name(s)); Exclusions: company(ies) (Company name(s)) (2) Application of accounting treatment specific to the preparation of the quarterly consolidated financial statements: No (3) Changes in accounting policies, accounting estimates, and restatements (a) Changes in accounting policies due to revision of accounting standards: Yes (b) Changes in accounting policies other than those in (a): No (c) Changes in accounting estimates: No (d) Restatements: No (4) Number of shares outstanding (common shares) (a) Shares outstanding (including treasury shares) at Q1 of year ending end of period (b) Treasury shares at end of period (c) Average number of shares during period December 2022 Q1 of year ending December 2022 Q1 of year ending December 2022 4,371,500 shares 4,371,100 shares 271,202 shares 127,802 shares 4,191,328 shares 4,128,958 shares Year ended December 2021 Year ended December 2021 Q1 of year ended December 2021 *Quarterly financial results summaries are not subject to audit. * Cautionary statement regarding business results forecasts and special notes The financial forecasts and other forward-looking statements herein are based on currently available information and assumptions considered by the Company to be reasonable and do not represent a commitment from the Company that they will be achieved. Actual results may differ substantially due to various factors. ―3― Contents of Accompanying Materials 1. Qualitative Information related to the Consolidated Business Results……………………………………………………………………………………… 5 (1) Explanation of Operating Results ………………………………………………………………………………………………………………………………….. 5 (2) Explanation of Financial Position …………………………………………………………………………………………………………………………………. 6 (3) Explanation of Consolidated Earnings Forecasts and Other Future Projections ……………………………………………………………………. 6 2. Quarterly Consolidated Financial Statements and Main Notes ……………………………………………………………………………………………….. 7 (1) Quarterly Consolidated Balance Sheet …………………………………………………………………………………………………………………………… 7 (2) Quarterly Consolidated Statement of Income and Quarterly Consolidated Statement of Comprehensive Income …………………….. 9 (3) Notes to the Quarterly Consolidated Financial Statements ……………………………………………………………………………………………… 11 (Notes Related to Going Concern Assumptions) …………………………………………………………………………………………………………….. 11 (Notes on Significant Changes in Shareholders’ Equity) ………………………………………………………………………………………………….. 11 (Changes in Accounting Policies) …………………………………………………………………………………………………………………………………. 12 (Additional Information) ……………………………………………………………………………………………………………………………………………… 12 (Segment Information) ………………………………………………………………………………………………………………………………………………… 13 (Revenue Recognition) ……………………………………………………………………………………………………………………………………………….. 13 ―4― 1. Qualitative Information related to the Consolidated Business Results (1) Explanation of Operating Results During the first three months of the fiscal year (January 1 to March 31, 2022), the Japanese economy continued to struggle due to COVID-19. Although there were some signs of economic normalization, the number of cases has continued to fluctuate up and down in Japan and around the world, and the uncertainty in the global economy has further increased with the Russian invasion of Ukraine on top of soaring energy and material prices. In the information services industry, which is the main business domain of our Group, COVID-19 has had a prolonged impact on corporate management. Digital transformation (DX) continues to attract a high level of attention for addressing changes in the social environment during and after the COVID-19 pandemic. As such, demand remains strong for providing support for such internal reform activities as work style reform, including introducing task performing robots such as AI and RPA (robotic process automation) and promoting telecommuting. Under these circumstances, the Group has been developing a professional services business and a platform business as a company that supports and promotes corporate transformation and work style reform based on the Medium-Term Business Plan established in the previous year. In our professional services business, we enter our customers’ work sites and deliver expected solutions, utilizing robotics, AI, and business process management to provide one-stop support catered to the customer’s unique challenges and reform objectives. In this business, we actively hired human resources to promote efforts to expand our capacity to provide stable services. In our platform business, we solve IT personnel shortages and, in addition to actively rolling out existing Assign Navi and Consultant Job services, we promoted development of our new CS Clip service that matches operating companies with DX companies. In addition, efforts to further enhance the corporate culture and brand have begun to mark the Group’s 20th anniversary. As a result of the above, during the first three months of the fiscal year under review, we achieved net sales of ¥2,154.172 million (up 23.6% year on year), operating profit of ¥265.171 million (up 54.0% year on year), and ordinary profit of ¥262.077 million (up 46.8% year on year), and profit attributable to owners of parent of ¥180.695 million (up 48.9% year on year). A summary of financial results by segment (net sales includes internal sales) is provided below. (Professional Services Business) In our professional services business, the environment surrounding our IT division is undergoing drastic changes due to various restrictions on corporate activities. In the midst of these circumstances, favorable conditions created by robust demand for DX provided a boost for us to steadily acquire traditional consulting projects (operational analysis/design, IT introduction support, on-site deployment) based on our strength of visualizing and improving operations utilizing business process management. We focused on communicating information to the outside on such topics as our DX approach leading to municipal and regional sustainability transformation (SX) through the example in Hiroshima Prefecture and our effectuation mentoring activities as well as on structural expansion to enhance hiring. We also received an award from a job search website operator for our new graduate As a result, net sales in the professional services business came to ¥2,089.298 million (up 24.2% year on year) and segment profit (operating profit) came to ¥243.485 million (up 54.6% year on year). hiring activities. (Platform Business) In the platform business, the number of members in the Assign Navi platform, which provides business matching and a learning forum specialized for the IT industry, grew to 11,654 including both corporate and individual members as of March 31, 2022. This steady growth represents a 218-member increase over the end of the previous year. Net sales were strong as the Assign Navi and Consultant Job matching and member service results increased in conjunction with expansion of the membership base. We continued to invest in development in our new CS Clip service, conducted more aggressive marketing activities aimed at monetization, and reinforced our organizational structure for boosting the profitability of existing services. As a result, net sales in the platform business came to ¥100.602 million (up 37.6% year on year), and the segment profit (operating profit) came to ¥21.686 million (up 48.4% year on year). ―5― (2) Explanation of Financial Position Total assets at the end of the first three months of the fiscal year were ¥4,290.902 million, down ¥789.201 million from the end of the previous fiscal year. This was primarily due to a ¥409.976 million decrease in cash and deposits, a ¥280.589 million decrease in advance payments made, and a ¥70.277 million increase in accounts receivable and contract assets (accounts receivable – trade the previous fiscal year). Liabilities amounted to ¥2,329.101 million, down ¥674.233 million from the end of the previous fiscal year. This was primarily due to a ¥483.626 million decrease in advances received, a ¥98.763 million decrease in accounts payable – other, a ¥65.651 million decrease in income taxes payable, a ¥62.896 million decrease in provision for bonuses, and a ¥74.382 decrease in long-Net assets amounted to ¥1,961.800 million, down ¥114.968 million from the end of the previous fiscal year. This was primarily due to a ¥299.850 million increase in treasury shares, and a ¥180.695 million increase in retained earnings. The equity ratio was term borrowings. 45.6%. (3) Explanation of Consolidated Earnings Forecasts and Other Future Projections In regard to the consolidated earnings forecast for the fiscal year ending December 2022, no changes have been made to the full-year consolidated earnings forecast announced on February 10, 2022. The impact of COVID-19 on the Group’s business results is currently limited, but we will continue to monitor any changes in the situation and will engage in prompt disclosure in the event that there is a need to revise the earnings forecast. ―6― 2. Quarterly Consolidated Financial Statements and Main Notes (Thousands of yen) Previous consolidated fiscal year (ended December 31, 2021) First three months of the current fiscal year (ended March 31, 2022) (1) Quarterly Consolidated Balance Sheet Assets Current assets Cash and deposits Electronically recorded monetary claims – operating Accounts receivable – trade Accounts receivable and contract assets Work in process Advance payments made Allowance for doubtful accounts Other Total current assets Non-current assets Property, plant and equipment Intangible fixed assets Goodwill Software Software in progress Total intangible fixed assets Investments and other assets Deferred tax assets Leasehold and guarantee deposits Investment securities Other Total investments and other assets Total non-current assets Total assets 2,430,782 132,014 1,155,870 127,772 280,589 (1,891) 81,113 4,206,251 52,850 141,034 2,150 138,519 281,704 147,779 197,780 127,500 66,236 539,297 873,851 2,020,805 121,718 1,226,147 16,473 (1,995) 75,369 3,458,519 55,060 130,848 1,707 147,410 279,966 113,147 192,045 127,500 64,662 497,355 832,382 5,080,103 4,290,902 ―7― — Liabilities Current liabilities Accounts payable – trade Current portion of long-term borrowings Accounts payable – other Income taxes payable Provision for bonuses Provision for bonuses for directors (and other officers) Advances received Other Total current liabilities Non-current liabilities Long-term borrowings Retirement benefit liabilities Deferred tax liabilities Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Accumulated other comprehensive income Foreign currency translation adjustment Total accumulated other comprehensive income Non-controlling interests Total net assets Liabilities and net assets (Thousands of yen) Previous consolidated fiscal year (ended December 31, 2021) First three months of the current fiscal year (ended March 31, 2022) 654,178 283,668 295,972 117,010 146,765 12,500 506,432 199,102 2,215,629 682,216 102,133 539 2,815 787,704 3,003,334 575,000 507,775 1,277,611 (284,164) 2,076,223 426 426 119 2,076,769 5,080,103 698,139 282,168 197,209 51,358 83,868 22,805 278,698 1,614,248 607,834 103,629 539 2,849 714,852 2,329,101 575,150 507,925 1,458,306 (584,014) 1,957,368 597 597 3,835 1,961,800 4,290,902 ―8― -(2) Quarterly Consolidated Statement of Income and Quarterly Consolidated Statement of Comprehensive Income (Thousands of yen) First three months of the previous fiscal year (January 1 – March 31, 2021) First three months of the current fiscal year (January 1 – March 31, 2022) Quarterly consolidated statement of income First three months of the fiscal year Net sales Cost of sales Gross profit Operating profit Non-operating income Interest income Selling, general and administrative expenses Surrender value of insurance policies Subsidy income Share of profit of entities accounted for using equity method Other Total non-operating income Non-operating expenses Interest expenses Foreign exchange losses Purchase of treasury shares Other Total non-operating expenses Ordinary profit Profit before income taxes Income taxes-current Income taxes-deferred Total income taxes Profit Profit (loss) attributable to non-controlling interests Profit attributable to owners of parent 1,742,609 1,125,972 616,637 444,489 172,147 14 1,080 6,968 295 8,357 1,662 231 116 2,010 178,494 178,494 39,464 18,254 57,718 120,776 (582) 121,358 2,154,172 1,334,407 819,764 554,593 265,171 6 7 104 118 1,409 166 1,499 137 3,212 262,077 262,077 43,034 34,631 77,666 184,411 3,715 180,695 ―9― —-Quarterly consolidated statement of comprehensive income First three months of the fiscal year (Thousands of yen) First three months of the previous fiscal year (January 1 – March 31, 2021) First three months of the current fiscal year (January 1 – March 31, 2022) Profit Other comprehensive income Foreign currency translation adjustment Total other comprehensive income Comprehensive income (Breakdown) Comprehensive income attributable to owners of parent Comprehensive income attributable to non-controlling interests 120,776 257 257 121,034 121,616 (582) 184,411 170 170 184,581 180,866 3,715 ―10― (3) Notes to the Quarterly Consolidated Financial Statements (Notes Related to Going Concern Assumptions) Not applicable. (Notes on Significant Changes in Shareholders’ Equity) In the first three months of the fiscal year under review, treasury shares increased by ¥299.850 million with the purchase of 143,400 treasury shares based on the resolution passed at the Board of Directors meeting held on February 10, 2022. In addition, with the exercise of stock acquisition rights granted under the stock options plans, share capital increased by ¥0.15 million and capital reserves increased by ¥0.15 million during the first three months of fiscal year under review. As a result, at the end of the first quarter, share capital was ¥575.150 million, capital surplus was ¥507.925 million, and treasury shares were ¥584.014 million. ―11― (Changes in Accounting Policies) First three months of the current fiscal year (January 1 – March 31, 2022) (Changes in Accounting Policies) (Application of Accounting Standard for Revenue Recognition) The Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) has been applied as of the beginning of the first quarter of the fiscal year under review. The amount to be received in exchange for goods or services is recognized as revenue at the point when control of the promised goods or services is transferred to the customer. Previously, all revenue from consulting, software development, and other work received by the Group was recognized at the time of the acceptance inspection, but starting with the first quarter of the fiscal year under review, this has been changed to a method in which a reasonable estimate is prepared for progress on fulfillment of performance obligations during a certain period and revenue is recognized over that period based on the progress made. The method of estimating progress on fulfillment of performance obligations is to calculate the percentage of costs incurred with respect to total estimated costs (input method). If a reasonable estimate cannot be made for progress but costs incurred are expected to be recovered, revenue is recognized based on the cost recovery method. An alternative treatment is applied to software development contracts that have very short periods between the transaction start date and when the performance obligation is expected to be completely fulfilled. Rather than recognizing revenue over a certain period, it is recognized when the performance obligation is completely fulfilled. In regard to application of the Accounting Standard for Revenue Recognition, following the transitional treatment set forth in the proviso in Paragraph 84 of the Accounting Standard for Revenue Recognition, the Company has applied a new accounting policy from the beginning of the fiscal year under review in which the cumulative effect is added to or subtracted from retained earnings at the beginning of the first quarter when a new accounting policy is applied retroactively from before the beginning of the first quarter. As a result, net sales decreased by ¥113.234 million in the first three months of the fiscal year under review, and cost of sales decreased by ¥113.234 million, while operating profit, ordinary profit, and profit before income taxes were unaffected. There was also no impact on the beginning balance of retained earnings. Because the Accounting Standard for Revenue Recognition was applied, accounts receivable – trade, which was presented under current assets in the consolidated balance sheet for the previous fiscal year, is included under accounts receivable and contract assets as of the first quarter of the fiscal year under review. Following the transitional treatment set forth in Paragraph 89-2 of the Accounting Standard for Revenue Recognition, the Company has not restated the financial results of the previous fiscal year to reflect the new method of presentation. Furthermore, following the transitional treatment set forth in Paragraph 28-15 of the Accounting Standard for Quarterly Financial Reporting (ASBJ Statement No. 12, March 31, 2020), there is no information on a breakdown of revenue from contracts with customers in the first three months of the previous fiscal year. (Application of Accounting Standard for Fair Value Measurement) The Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019) has been applied from the beginning of the first quarter of the fiscal year under review. Following the transitional treatment set forth in paragraph 19 of the Accounting Standard for Fair Value Measurement and paragraph 44-2 of the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, July 4, 2019), the new accounting policy set forth in the Accounting Standard for Fair Value Measurement will be applied into the future. This has no impact on the quarterly consolidated financial statements. (Additional Information) First three months of the current fiscal year (January 1 – March 31, 2022) (Application of Tax Effect Accounting Relating to Transition from Consolidated Taxation System to Group Tax Sharing System) LTS, Inc. and some domestic subsidiaries have calculated the amounts of deferred tax assets and deferred tax liabilities according to the tax acts before they were amended based on the treatment of Paragraph 3 of “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (ASBJ Practical Issues Task Force No.39, March 31, 2020) instead of applying the provision of Paragraph 44 of “Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No.28, February 16, 2018) with respect to the transition to the group tax sharing system established in “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 8 of 2020) and items for which the nonconsolidated taxation system has been reviewed in the line with the transition to the group tax sharing system. ―12― (Segment Information) First three months of the current fiscal year (January 1 – March 31, 2022) 1. Information Regarding Amounts of Net Sales, Profit, and Loss for Each Reporting Segment (Thousands of yen) Total Shown in Quarterly Consolidated Statement of Income *1 Reporting Segment Professional Services Business Platform Business Total Adjustment Net sales Net sales to unaffiliated customers Transactions with other segments 2,085,338 68,833 2,154,172 2,154,172 3,960 31,768 35,728 (35,728) Total 2,089,298 100,602 2,189,900 (35,728) 2,154,172 Segment profit 243,485 21,686 265,171 265,171 *1. Segment profit is reconciled to operating profit presented in the quarterly consolidated statement of income. *2. As stated under Changes in Accounting Policies, the Accounting Standard for Revenue Recognition was applied from the beginning of the first quarter of the fiscal year under review, which changed the accounting treatment related to revenue recognition. As a result, compared to the previous method, net sales in the professional services business decreased by ¥113.234 million in the first three months of the fiscal year under review, and cost of sales decreased by ¥113.234 million, while segment profit was unaffected. (Revenue Recognition) Breakdown of revenue from contracts with customers First three months of the current fiscal year (January 1 – March 31, 2022) Reporting Segment Professional Services Business Platform Business (Thousands of yen) Total Business process management Consulting/engineering Strategy establishment/digital utilization Assign Navi Consultant Job Revenue from contracts with customers Net sales to unaffiliated customers 11,532 57,301 68,833 68,833 285,099 1,425,676 374,561 11,532 57,301 2,154,172 2,154,172 285,099 1,425,676 374,561 2,085,338 2,085,338 ―13― ——–