Hi, I'm Haruo Amano, Director of HENNGE . Thank you for joining us today for our Fnancial Results Briefing for the Third Quarter of Fiscal Year 2025. Today, our CFO, Ryo Kobayashi, will explain our financial results and the progress against our full-year forecast. I will explain our growth strategy and give my impression of this quarter.
Hi, I'm Ryo Kobayashi, CFO of HENNGE . First, let me explain the financial results for the third quarter of FY 2025. This is the summary of our consolidated financial results. The result of this quarter is progressing well against the revised full-year forecast, which was disclosed on May 7, 2025. Our quarterly consolidated net sales are as presented on the slide. Since the net sales of HENNGE One Business are 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. As a result of our continued focus on strengthening hiring, recruitment expenses have increased, and personnel and related expenses have also risen due to the growth in headcount. Our quarterly net sales and operating expenses are as presented on the slide. The trend in number of employees is as presented on the slide. Net employee growth resulted in a 58th compared to the end of the previous fiscal year. From this quarter, the number of employees in overseas subsidiaries is shown in parentheses. Now, I will explain our business activities during this quarter. This is an overview of our business highlights. Major advertising activities for the third quarter are as presented on the slide. We continued to accelerate advertising activities. 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. There has been no major change in the trend of conventional reasons for the cancellations, such as corporate mergers and acquisitions, or the reconsideration of cloud migration plans. Although we saw a few cancellations from relatively large companies, the total churn has been lower than expected, leading to a churn rate below expectations. The theoretical average contract period exceeds 20 years. The numbers of contracted companies and users are as presented on the slide. We have continued to achieve robust growth in the number of contracted companies through acquiring contracts with small to mid-sized companies by deepening our partnerships with resellers.
On the other hand, the number of contracted users increased steadily despite cancellations from relatively large companies. Our ARR and ARPU are as presented on the slide. During this quarter, we were able to increase ARR and ARPU as presented on the slide, despite the reduced impact from the price revision implemented until the end of the previous quarter. Both new and existing customers have continuously chosen HENNGE One Pro, our top-tier plan. As a result, HENNGE One Pro represents approximately 15% of our ARR at the end of this quarter. Next, I will touch on our full-year outlook of FY 2025. This slide shows our policy for FY 2025. Let me explain the update from the previous quarter. HENNGE One's ARR is showing steady progress. Marketing activities are also on track, and our annual advertising expenses are expected to settle in line with the revised annual plan.
We also continue to seek business investment opportunities to maximize ARR of the group. There have been changes in the status of our personnel plan since the initial policy, so I would like to explain that in more detail. Initially, our target of net increase in employees was set, reflecting the challenging environment of the recruitment market. However, recently, we have fortunately been able to hire many high-quality talent. While we still see the recruitment market as competitive, we believe this positive trend is a result of our continued multifaceted initiatives. These initiatives include not only activities that require a large investment, such as the JPY 100 million recruitment advertisement launched last fiscal year, but also efforts beyond financial investment, such as enhancements to our recruitment process and strengthening our internal talent acquisition team. In addition to this, the number of resignations has also been lower than initially projected.
Due to this balance of new hires and resignations, we anticipate significantly exceeding our initial target of net increase in employees. On the other hand, we are still facing challenges, especially in recruiting sales personnel, where we have not yet met our initial hiring targets. Therefore, we will continue to actively pursue recruitment in the areas that will bring us future growth. Our consolidated result forecast remains unchanged from the revised full-year forecast disclosed on May 7, 2025, and is as presented on the slide. In our previous earnings presentation, we outlined our policy for the latter half of strengthening our talent acquisition capabilities, enhancing the security of our services, and investing in sales activities to build future ARR. We have already implemented several initiatives.
For instance, as part of our service security enhancements, we have conducted bug bounty through IssueHunt Inc., which is one of the companies we have invested in. Furthermore, we have implemented nurturing events as part of our sales activities. Additionally, we expect investments focusing on strengthening our talent acquisition capabilities in the ongoing quarter. We remain committed to proactively investing in building future ARR, rather than overly focusing on short-term operating profit levels. Therefore, we will continue to seek opportunity with high expected returns on investment that contribute to ARR growth, primarily to achieve our mid-to-long-term growth strategies.
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're providing software as a service, and we want to promote the use of cloud services among our customers as well.
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 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. Especially for the recent years, the number of companies who transferred to cloud-based working style in major cities other than Tokyo is increasing. Capturing these opportunities, we have acquired small to mid-sized contracts efficiently through strengthening relationships with resellers.
By releasing new services and features which met the expanding market demands, ARPU has also successfully increased. While focusing on driving growth within our current business lines, we will also pursue initiatives that solidify our path to achieving JPY 20 billion in ARR and further growth beyond. This includes expansion into new geographic markets beyond Japan and pursuing M&A activities. Recently, there has been an increasing trend of our customers choosing HENNGE One Pro. We see this as a result of our sustained dedication to enhancing the value of HENNGE One and effectively communicating the value to our customers, thereby maximizing the total amount of technology that we deliver to our customers. We remain committed to achieving future business growth and enhancing enterprise value by strengthening our brand and improving our talent acquisition capabilities. This concludes our briefing on the third quarter of fiscal year 2025.
Thank you for your time and attention.