Hengge

Hi, I am Haruo Amano, director of Henge. Thank you for watching our financial results video for the second quarter of fiscal year 2026. Today, our CFO, Ryo Kobayashi, will explain our financial results for the second quarter of FY2026 and the progress against our full year forecast. Then, I will explain our growth strategy. Following that, our executive officer in charge of product strategy, Takeru Imaizumi, will explain about the future vision of Henga One.

Hi, I'm Ryo, CFO of Henge. First, let me explain the financial results for the second quarter of FY2026. This is the summary of our consolidated financial results. Results of the second quarter are progressing well against the full year forecast which was disclosed on November 7th, 2025. Our quarterly consolidated net sales are as presented on the slide. Since the net sales of Henga One Business is recurring in nature, it has been increasing throughout each quarter. Our year-on-year consolidated net sales are as presented on the slide. Our quarterly gross profit and gross profit margin are as presented on the slide. Our year on year gross profit and gross profit margin are as presented on the slide. Gross profit margin increased mainly due to higher ARPU, maintaining a high level. The quarter on quarter breakdown of operating expenses is as presented on the slide. The year-on-year breakdown of operating expenses is as presented on the slide. In accordance with our policy for FY2026, we have been increasing headcount and taking active advertising initiatives as a preparation for the future business expansion. Our quarterly net sales and operating expenses are as presented on the slide. The trend in the number of employees is as presented on the slide. The recruitment environment for sales personnel remains challenging. We will continue our initiatives to strengthen selling capabilities through organizational development and active recruitment efforts. The status of our cash flow is as presented on the slide. Let's move on to business activities during this quarter. This is an overview of our business highlights. As stated in our policy for FY2026, we have taken active efforts, including engaging in over 55 events. In March 2026, we launched a new service, Henga Endpoint and Managed Security. By combining device protection with 24x7 fully managed MDR, we offer a full-scale service that consistently monitors and responses to external attacks. We also integrated vulnerability assessment features, which allows us to deliver a holistic solution covering not only endpoint devices, but also web-facing IT assets. Next, I would like to explain the results of our KPIs. The progress of Henga 1 KPIs from the end of the last fiscal year is as presented on the slide. Year-on-year KPI results for Henga 1 are as presented on the slide. The churn rate of Henga 1 is as presented on the slide. We have maintained a low level of churn and the theoretical average contract period exceeds 25 years. The number of contracted companies and users is as presented on the slide. During this quarter, we acquired multiple contracts from relatively large companies. In addition, we continued to achieve stable growth in the number of contracts with small to mid-sized companies through deepening relationships with resellers. The number of contracted users also increased steadily, supported by robust new contract acquisitions. The quarterly trend of ARR and ARPU is as presented on the slide. During this quarter, several relatively large companies opted for single-featured plans. Nonetheless, both new and existing customers continued to choose Henga One Pro, our top-tier plan, which impacted the race in Arpu. Furthermore, the proportion of Henga One Pro within the total ARR is approximately 20% as of the end of this quarter. Next, I will touch on our full-year outlook of FY2026. in pursuit of 20 billion Japanese yen in ARR, strengthen sales structure and accelerate new customer acquisition, along with enhancing additional service value. This is the policy stated for FY2026 as shown on the slide. This slide shows our full year forecast for FY2026. There is no change from the forecast, which was disclosed on November 7th, 2025. The historical trend and current progress of net sales by business are as presented on the slide. Results of the second quarter are progressing well against our full-year forecast. The historical trend and current progress of advertising expenses and operating expenses, excluding advertising expenses, are as presented on the slide. We are carrying out various initiatives in line with our policy for FY2026. Specifically, we are putting our resources into two key drivers for mid- to long-term growth, which are strengthening our organization and establishing a powerful Henga brand. To be more specific, we're prioritizing investments in hiring and recruitment, as well as initiatives that boost Henga brand recognition and market presence. Given our business model, even if we were to experience a current shortfall in recruitment, we expect the impact on the short-term business performance to be minor. However, to ensure mid- to long-term growth, it is essential for us to continuously recruit the right talent that our company needs. Furthermore, we strongly believe that strengthening the Henga brand is essential to expanding the value we generate, whether that's by accelerating our current businesses or taking on new challenges such as cultivating new markets and M&As. We are convinced that strengthening our organization through recruitment and establishing our corporate branding will have a cumulative effect over time rather than showing immediate effects. Therefore, in addition to generating further value through the launch of new services, we are investing in activities to increase our visibility and help people understand us better.

Next, please let me explain our growth strategy. Our corporate philosophy is liberation of technology. We believe in the power of technology, we love technology and we strongly believe that technology will make our lives better. We want to deliver the power of technology to as many people as we can and to change the world to be a better place. We established Henge more than 25 years ago and since then we set our philosophy as liberation of technology which we actually have demonstrated in various areas. From the experience we gained, we think that software as a service is the most fair and sophisticated approach to liberate technologies. This is one of the reasons why we're providing software as a service and why we want to support our customers' transformation through cloud utilization. The total amount of technology that we provide to the customers and the total amount of liberated technology are the measures to prove our progress on our philosophy, and this is expressed as LTV. LTV or lifetime value is the total value arising from the current contracts with the customers. Our growth strategy is to maximize this LTV. Maximizing LTV, that is, by seeking to maximize the total gross profit earned over the future, we would like to build a solid business model that can stably increase profits even if the investments for further business growth are increased. Currently, our average contract period and gross profit margin are already in a high number. Therefore, in order to maximize LTV, we think that it is essential to maximize ARR. We will actively engage in activities with expected high return on investment and aim to accumulate ARR as much as possible. ARR can be broken into three factors, the number of contracted companies, average number of users per contracted company, and average revenue per user. In these three factors, we aim to increase ARR by focusing on increasing the number of contracted companies and ARPU. The KPIs for our growth strategy of Henga One are as presented on the slide. Including our main service Henga One, our group mainly operates a subscription model business. Barring any cancellations, the contracts secured this year will continue to generate sales and become the foundational sales from next year onwards. The figures on this slide demonstrate the robust and stable growth of ARR of Henga One. We view FY2026 as the beginning of a new value generation cycle, a vital preparation period for reaching our target of 20 billion Japanese yen in ARR. Let me take this opportunity to explain the value generation cycle, which is the very foundation of our growth. The cycle consists of three key steps, strengthening our framework for acquiring new customers, enhancing the added value of our services, and ensuring that this value is clearly communicated and delivered to our clients. We have continuously repeated and refined this multi-year cycle. We are evolving this cycle and making solid progress toward the goal of achieving 20 billion Japanese yen in ARR by the end of FY2029. Even beyond that, we plan to continue evolving our cycle to establish an even more robust foundation for growth, further realizing our corporate philosophy, liberation of technology. As you can see on the slide, we have introduced various new services to meet the expanding market and customer demands. Most recently, in March, we launched Henga Endpoint and Managed Security. We've also announced the plans to roll out several other new services. As Imaizumi will explain in more detail later, these are services within the concept of zero trust, which is one of the elements in our roadmap toward realizing the liberation of technology. I believe this demonstrates substantial progress in the enhancing the added value of our services step mentioned in the previous slide. We will focus on driving growth within our current business lines while we will take on various challenges to generate additional value including geographical expansion outside of Japan and pursuing M&A opportunities. By continuously evolving our value generation cycle through these initiatives, we will increase the certainty of achieving the future vision we are striving for. I would like to re-emphasize that this fiscal year marks the beginning of our next value generation cycle and a crucial year of preparation to achieve further growth. We are committed to solidify this robust business model for delivering sustainable growth and would sincerely appreciate your continued support from a mid- to long-term perspective. This concludes our briefing on the second quarter of fiscal year 2026. Next, Imaizumi, our executive officer in charge of product strategy, will explain about the future vision of Henga One.