Hengge

Hi, I am Kazuhiro Ogura, the CEO of Henge. Thank you for watching our video today. Today, our CFO Haruo Amano will explain our financial results for first quarter of fiscal year 2022 and the outlook for this fiscal year, and then I will explain our growth strategy.

I'm Haruo Amano, the CFO of Henge. First, let me explain about our financial results of the first quarter for FY 2022. This is a summary of our consolidated financial results. In the first quarter, we performed steadily compared to the full year forecast disclosed on November 12, 2021. Our quarterly trends for consolidated net sales is as shown on the slide. Slight decrease in the consolidated net sales is due to the system integration service sales included in the professional service, and others' business was higher in the previous quarter due to the timing of project completion. Sales for Henry Wan business is composed of recurring revenue and leads growing steadily quarter on quarter. Year-on-year fluctuation for consolidated net sales is as shown on the slide. Sales for handgun business is steadily growing. As explained in the previous earnings course, sales for professional service and others business is decreasing due to the downsizing on some of the existing services. Our quarterly trends for gross profit and gross profit margin are as shown on the slide. Year-on-year fluctuation for gross profit and gross profit margin are as shown on the slide. Gross profit margin remained high and consistent through the previous quarters. Our year-on-year fluctuation of operating expenses by nature is as shown on the slide. The chart on the slide shows quarter-on-quarter fluctuation of operating expenses During the first quarter, in accordance with our policy for FY2022, we focused to invest on the activities which are expected to contribute for the further growth. As for the advertising expenses, like in the last quarter, in order to accommodate the demands from our customers for the new features, we've continued to hold events and advertisements. Also, we've increased the outsourcing resources in order to support our sales and customer success activities, which resulted in increase for both expense. As for the other SG&A, we continue to actively carry out recruitment activities during the quarter. However, as it was quieter than last quarter for advertisement and new grads hiring activities, the other SG&A has decreased. For the personal expenses, we've given additional support to the employees, such as for remote working in last quarter. However, such one cost has not been incurred during the current quarter. such as a decrease in the personnel expense. The sum of cost of sales and R&D expenses decreased queue on queue due to the timing of completion of the project, which corresponds to the sales of professional services and other businesses. This chart shows quarterly trends in net sales and operating expenses. The transition in the number of employees is as shown in the bar chart. While recruitment is progressing well in this quarter, the number of employees decreased by one from the previous quarter due to the changes in the employees' joining and leaving ratio. As we explained in the previous earnings call, team members for H1 Nalandin employees are mainly hired from overseas. Under the current COVID-19 restrictions, we are still experiencing our prospective employees living outside of Japan unable to cross the border. Like as in the previous quarters, we believe that there will be no significant impact on other activities. However, we will keep our close attention to the situation. Currently, it is becoming harder to hire experienced sales representatives due to the intensified hiring market in the B2B SaaS sales field. We will continue to actively recruit in each function intensively for sales and customer success positions. Now, I will explain our business activities in the first quarter. This is an overview of our business highlights. This quarter, we hosted Henge Rocket Pitch. It is a new online event with more than 50 sessions, not limited to introducing Henge One for our new businesses, but also introducing solutions for IT system managers on their pain points. Each session was introduced in less than three minutes and was handy to watch. Our aim was to introduce our services and activities from various perspectives in order for our current and potential customers to get a deeper understanding of who we are and create opportunities to proceed for the next steps. As we explained in detail during Q3 FY 2021 earnings call, new features of HENRYONE were announced in August 2021. and were launched from October 2021. As previously explained, three wonderful new features for Hengge 1 have been added to meet the demands newly recognized under the pandemic. We are proud that we can now provide more values to our customers. We have announced that the license lineups of Hengge 1 has been updated from October 2021. in the line with big version app. While we were mainly targeting to sell high-value-added suite plans, as a new attempt, we have also set up single-function plans that would be attractive for light users and allow us to approach a wider range of customers. Next, I would like to explain our results of KPIs. This slide shows the progress of each KPI for Hengge 1 from the previous quarter. This slide shows the year-on-year fluctuation of KPIs for Hengge 1. This slide shows the average monthly churn rate, and it is continuously very low. This slide shows the quarterly trends in the number of contracted companies and users. We had a gradual start of the year for the growth in the number of contracted companies.

We are currently having high interest from our customers and resellers, which resulted in higher number of contacts.