Hengge

Hi, I am Kazuhiro Ogura, the CEO of Hengei. Thank you for watching our video today. Today, our director, Haruo Amano, will explain our financial results for the second quarter of fiscal year 2023 and progress of full-year forecasts, and then I will explain our growth strategy and give my impression for this quarter.

Hi, I'm Haruo Mano. First, let me explain financial results for the second quarter of FY 2023. This is the summary of our four-year consolidated financial results. In the second quarter, overall result is on track against the four-year forecast, which was disclosed on November 11, 2022. Our quarterly trends for consolidated net sales is as shown in the slide. Sales for Henga One Business is composed of recurring revenue, and it is continuously on an increasing trend quarter on quarter. Year on year fluctuation for consolidated net sales is as shown in the slide. Sales for Henga One Business shows a steady progress year on year. Our quarterly trends for gross profit and gross profit margin are as shown in the slide. Year-on-year fluctuations for gross profit and gross profit margin are as shown in the slide. While the gross profit margin decreased slightly mainly due to an increase in R&D members and an increase in infrastructure costs for Hangar 1 from exchange rate fluctuations, it still remains high. A year-on-year fluctuation of operating expenses by nature is as shown in the slide. Cost of sales increased mainly due to an increase in R&D members and an increase in infrastructure costs for Hangar 1 from exchange rate fluctuations. Arsenal expenses increased mainly due to an increase in the number of employees and the revision of internal policy which is effective from July 2022. Advertising expenses increased as a result of various events and seminars, including Henga Now, which targeted large companies, resellers, existing customers, and new customers. For the other SG&A, it increased mainly due to enhanced recruitment activities and additional internal system usage fees to accommodate increased employees. The chart in the slide shows quarter-on-quarter fluctuation of operating expenses. Personnel expenses increased mainly due to an increase in the number of employees. As for advertising expenses, while we conducted advertising activities aggressively, it decreased due to differences in the contents and approaches that have been applied from the previous quarter. This chart shows quarterly trends in the net sales and operating expenses. The number of employees and its breakdown by function as of the end of the second quarter of FY 2023 is as shown in the pie chart. The transition in the number of employees is as shown in the bar chart. We aim to increase more than 45 headcounts in net for this fiscal year, and we had a net increase of 19 at the end of this quarter. In order to strengthen the organization for acquiring new customers more, we are focusing on increasing the number of experienced IT sales members. We will keep considering various actions which will contribute to our talent acquisition enhancement. Now, let's move on to the cash flow status. During the first half of the year, there was an upfront payment related to our crowd infrastructure same as the previous year, and we conducted active advertising activities. Therefore, operating cash flow in this first half of this fiscal year decreased year on year. Financial cash flow decreased year on year due to the acquisition of treasury shares for the future use in the stock compensation plan. Cash and cash equivalents grew steadily year on year. Now, I will explain our business activities during this quarter.

This is an overview of our business highlights.