Hennge K.K. (4475.T) Q1 FY2026 Earnings Call Transcript & Summary

Hi. I'm Haruo Amano, Director of HENNGE. Thank you for watching our financial results video for the first quarter of fiscal year 2026. Today, our CFO, Ryo Kobayashi, will explain our financial results for the first quarter of FY 2026 and the progress against our full year forecast. Then I will explain our growth strategy.

Hi, I'm Ryo Kobayashi, CFO of HENNGE. First, let me explain the financial results for the first quarter of FY 2026. This is the summary of our consolidated financial results. Results of the first quarter are progressing well against the full year forecast, which was disclosed on November 7, 2025. Our quarterly consolidated net sales are as presented on the slide. Since the net sales of HENNGE 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. 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. Let's move on to business activities during this quarter. This is an overview of our business highlights. As stated in our policy of FY 2026, we have actively taken actions to expand a stable customer base. Especially, we have engaged in over 65 events in various regions across domestic and overseas markets with a focus on in-person events. We also continued our branding initiatives to raise awareness of HENNGE One, building on our initiatives from the previous quarter. Next, I would like to explain the results of our KPIs. The progress of HENNGE One KPIs from the end of the last fiscal year is as presented on the slide. Year-on-year KPI results for HENNGE One are as presented on the slide. The churn rate of HENNGE One 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 continue to achieve stable growth in the number of contracts with small to midsized 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, both new and existing customers continue to choose HENNGE One Pro, our top-tier plan. Nonetheless, as several relatively large companies opted for single feature plans, the overall increase in ARPU was limited. Furthermore, the proportion of HENNGE One Pro within the total ARR is approximately 18% as of the end of this quarter. Next, I will touch on our full year outlook of FY 2026. In pursuit of JPY 20 billion in ARR, strengthen sales structure and accelerate new customer acquisition, along with enhancing additional service value. This is the policy stated for FY 2026 as shown on the slide. This slide shows our full year forecast for FY 2026. There is no change from the forecast, which was disclosed on November 7, 2025. The net sales by business are as presented on the slide. Results of the first quarter are in line with 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. As stated in our policy of FY 2026, we remained focused on building a robust foundation for sustainable growth by enhancing the value of our services, building an organizational structure for future customer acquisition, along with continuing our investment in corporate branding. This quarter, we were able to continue active investments toward marketing and branding initiatives as we did in the previous year. We will continue to have proactive investments to generate new value toward our target of JPY 20 billion in ARR and beyond throughout FY 2026.

Finally, 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 HENNGE 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 are providing Software as a Service and why we want to support our customers' transformation through Software-as-a-Service 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 3 factors: the number of contracted companies, average number of users per contracted company and average revenue per user. In these 3 factors, we aim to increase ARR by focusing on increasing the number of contracted companies and ARPU. The KPIs for our growth strategy of HENNGE One are as presented on the slide, including our main service, HENNGE 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 HENNGE One. We view FY 2026 as the beginning of a new value generation cycle and a vital preparation period for reaching our target of JPY 20 billion in ARR. It was mentioned in our previous earnings briefing. However, let me take this opportunity to reinforce the concept of the value generation cycle. In FY 2025, we achieved the target of JPY 10 billion in ARR, which we have been pursuing since 2021. The value generation cycle has been the core of this growth. Over the past several years, we have continuously repeated the 3 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 will build on this success and continuously improve the value generation cycle as we move toward our next target of reaching JPY 20 billion in ARR in FY 2029. Looking beyond the milestone of JPY 20 billion in ARR, we will continue to further evolve the value generation cycle to build a foundation for sustainable and robust growth. By doing so, we aim to further realize our corporate philosophy, liberation of technology. To achieve this, 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. This concludes our briefing on the first quarter of fiscal year 2026. Thank you for your time and attention.