Hengge

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

Hi, I'm Haruo Amano.

First, let me explain about our financial results for the second quarter for FY 2022. This is the summary of our consolidated financial results. In the second quarter, we performed steadily against the four-year forecast disclosed on November 12, 2021. Our quarterly trends for consolidated net sales is as shown on the slide. Sales for Henga One business is composed of recurring revenue, and it is growing steadily quarter on quarter. Year-on-year fluctuation for consolidated net sales is as shown on the slide. Sales for Henga 1 business is steadily growing. Sales of professional service and others business increased slightly due to a temporary increase in system integration sales that occurred in the quarter. Our quarterly trends for gross profit and gross profit margin are as shown on the slide. Year-on-year fluctuations for gross profit and gross profit margin are as shown on the slide. Gross profit margin remained high and consistent to the previous quarters. Our year-on-year fluctuation of operating expenses by nature is as shown on the slide. As for advertising expenses, while we held a large digital event hangar now, and the accompanying TV commercials in the second quarter FY 2021, we did not have such large events in the first half of current fiscal year. As previously explained, we are trying a multi-layered approach for advertising activities rather than holding one particular event. Thus, the advertising expenses have decreased significantly. The chart on the slide shows quarter-on-quarter fluctuation of operating expenses. During the second quarter, in accordance with our policy for FY 2022, we focused to invest on the activities which are expected to contribute for the further growth. As for the advertising expenses, in order to accommodate the demands from our customers for the new features, we've continued to hold events and advertisements. Also, we created content such as for TV commercials, which resulted to an increase in the expenses. As for the other SG&A, it increased quarter on quarter as we actively carried out recruitment activities during the quarter. For the personnel expenses, while we are actively engaged in recruitment activities, there was only slight increase due to the changes in the employees' joining and leaving ratio. I will explain about the details of employee transition in the later slides. This chart shows quarterly trends in the net sales and operating expenses. The number of employees and its breakdown by function as of the second quarter end is as shown in the pie chart. The transition in the number of employees is as shown in the bar chart. While our aim is to increase 50 headcounts for this fiscal year, the number of employees decreased in the first quarter, and we had an increase during the second quarter, but it only increased by 3 compared to the end of previous fiscal year. However, our recruitment activities have been progressing well in the third quarter, and this time, we have listed the results of April 2022 as well. As we have explained in the earnings call so far, members for Henga 1R and D employees are mainly hired from overseas. Fortunately, the immigration restrictions have gradually eased since March 2022, and our prospective employees from overseas have started to join our company from April. In addition to employees from overseas, although our company carry out the recruitment activities throughout the year, we could hire quite a number of people in April. This is due to April being a common timing for people to join and leave their companies in Japan. We will continue to actively engage in recruitment activities in order to achieve our plan to increase 50 headcounts. Regarding the retention plan mentioned briefly in the first quarter's earnings call, we are currently considering several plans and some of them will be conducted during the fiscal year. However, we do not think this will give a significant impact to our forecast. Besides these stories, the act on child care leave and family care leave has been revised in Japan and has been gradually reinforced since April 1, 2022. From this quarter, we started to disclose the number of members who was taking maternity, childcare, and family care leave. A large number of members in our company are taking maternity and childcare leave, and its rate for members taking leave for the period between April 2021 and March 2022 was at 100% for the employees who gave birth, and at 75% for the employees who were partners of people giving birth. As of March 2022, there were 11 members who took leave and some of them returned to work in April The figure as of April 2022 is shown in the slide Now, let's move on to the cash flow status. During first half of the year, there was upfront payment related to our cloud infrastructure. But there were no large payments of advertising expenses related with the events such as Henga Now which we had in the previous fiscal year. Therefore, operating cash flows in this quarter increased significantly year on year. Cash and cash equivalents grew steadily year on year. Now, I will explain our business activities in the second quarter.