Hengge

Hi, I'm Kazuhiro Ogura, the CEO of Henge. Thank you for watching our video today. Today, I would like to go through our financial results of the second quarter of fiscal year 2021. We have prepared the video separately regarding our growth strategy and our full-year outlook for the fiscal year ending September 2021. Please refer to the link below. Let me first explain about our financial results of the second quarter. Our consolidated net sales expanded steadily as shown on the slide. This is a summary of our consolidated financial results. In the second quarter, we performed steadily compared to the full year forecast disclosed on November 13th. Gross profit margin remained high. These figures show a year-on-year comparison of our profit. This is a year-on-year comparison of the breakdown of operating expenses. The charts indicate quarter-on-quarter changes in the breakdown of operating expenses. Other SG&A expenses increased quarter-on-quarter due to the increase in recruiting expenses. As for advertising expenses, it increased considerably quarter-on-quarter due to the Hengedau event held in February and the accompanying TV commercials, the web, and out-of-home advertisements. While the sales of Hengewan increased steadily, the sum of the cost of sales and R&D expenses increased only slightly by ¥2 million quarter-on-quarter due to the improvements in the efficiency of the cloud service infrastructure for Hengewan. This chart indicates quarterly trends in net sales and operating expenses. As to the employees, currently we have 193 employees. The percentage breakdown is as shown in the pie chart. The transition in the number of employees is as shown in the bar chart. As initially planned, recruiting activities for Hengewan sales and customer success positions are on track. As for Hengewan R&D employees, currently over 70% of them are composed of non-Japanese employees and we have mainly hired them from overseas. The number of Hengewan R&D employees decreased slightly in this quarter. This is because some of prospective employees living outside of Japan are unable to enter Japan due to COVID-19. For now, we do not believe that there will be any significant impact on R&D activities for the quarter. However, we will continue to keep a close watch on the situation. Now, let's move on to the cash flow status. Operating cash flows in the first half decreased significantly compared to the previous two years. This is because there were IaaS-related upfront payments used to provide Hengewan services and payment of advertising-related expenses such as Hengenau. Cash and cash equivalents grew steadily year on year. Now I will explain our financial results in the second quarter. This is an overview of our business highlights. we held the large-scale virtual event Hengenau in this quarter. Besides the costs for holding the event itself, we aggressively carried out the advertising activities such as TV commercials, out-of-home advertising, and web advertisements for the purpose of attracting customers to the event, and spent approximately 490 million yen on advertising expenses. Therefore, the number of visitors to the Hengenau event exceeded 10,000 as initially planned. I would like to thank everyone who came to the event and all the speakers who made that event exciting. As shown in the pie charts, as a result of the aggressive advertising, we were able to approach a wide range of companies and partners across the country who are considering cloud adoption. Through HengeNow event and the other advertising activities, we would like many companies to know and to implement our services, and would like to promote the cloud adoption for companies more than ever. As HengeOne's sales lead time is relatively long, we believe that our marketing campaigns including this event will pay off starting at the next fiscal year, and we are not aiming for immediate results. which means that a large part of the advertising expenses spent in this fiscal year are mainly for the next fiscal year's growth. We are currently following up with the customers who participated in the event, and it is not yet the time to inform you of the effectiveness of the event. But I think our members' activities are quite active thanks to the event getting off to a good start. As to our sales power, we aim to hire more than 30 people on a net basis for the full year and we are making good progress toward that goal. We plan to continue to actively recruit so that the shortage of personnel does not become a bottleneck for our future growth. I would like to discuss our KPIs in the second quarter of fiscal year 2021. This slide shows a year-on-year comparison of KPIs for Hengewan. The progress of KPIs for Hengewan from the end of the previous quarter is as shown in the slide. The average monthly churn rate improves by 0.04 points from the end of the previous quarter to 0.18%, which is continuously very low. This slide shows the quarterly trends in the number of contracted companies and the number of contracted users. As you can see from the charts, both the number of contracted companies and contracted users increased steadily. ARPU was continuously on an upward trend. Also, ARR grew steadily. Finally, turning to our full-year outlook for fiscal year 2021. There is no change to our full year forecast from the announcement at the beginning of the fiscal year. As for Hengewan Business, we aim to achieve a sustained annual growth of above 20%, while at the same time we would like to create an inflection point for that. Due to our aggressive marketing investment for that purpose, operating income for this quarter decreased compared to the previous fiscal year. These charts show the transition of our sales by business over the last few years. Hengewan Business and Professional Service and others business grew steadily. Here you can see trends in our advertising expenses and operating expenses since fiscal year 2018. As I explained after the first quarter, advertising expenses increased significantly owing to the large-scale event and the accompanying series of marketing campaigns. As you can see, for the first half, the progress rate for operating expenses excluding advertising expenses is less than 50%. In the second half of the fiscal year, however, we are planning to aggressively invest for the future, including recruiting, and it will be in line with the forecast. This concludes our video today. Thank you very much for watching.