Hi, I am Haruo Amano, Director of HENNGE. Thank you for joining us today for our full-year financial results briefing of FY2025. Today, our CFO, Ryo Kobayashi, will explain our full-year financial results. Then, I will explain our full-year forecast for FY2026 and our growth strategy.
Hi, I'm Ryo Kobayashi, CFO of HENNGE. First, let me explain our full-year financial results for FY2025. This is the summary of our consolidated financial results. The results were in line with the revised full-year forecast disclosed on May 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.
Expenses increased mainly for strengthening recruitment capabilities, along with personnel expenses driven by a higher headcount and branding-related advertising expenses. 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. While the recruitment environment remains challenging, our various initiatives have yielded favorable results in hiring. In addition, the number of resignations was low, leading to a net increase of 79 employees, which was higher than the initial target of 40. That said, the recruitment of sales personnel fell behind our initial target and continues to be a challenge. The status of our cash flow is as presented on the slide. Now, I will explain our business activities during this quarter. This is an overview of our business highlights. Major advertising activities for the fourth quarter are as presented on the slide.
We also focused on activities to raise awareness and strengthen our brand. Notably, from August, we have launched a campaign featuring three ultra-heroes to boost recognition of HENNGE One. 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. 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 mid-sized companies through deepening relationships with resellers.
Despite cancellations from relatively large companies, 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, the trend of choosing HENNGE One Pro has continued among both new and existing customers. At the same time, we also saw an increase in the number of new customers opting for single-feature plans, such as DLP, regardless of the company size. As a result, the overall increase in ARPU for this quarter was limited. Furthermore, the proportion of HENNGE One Pro within the total ARR has increased to approximately 17% as of the end of this quarter.
Next, I will touch on our full-year outlook of FY2026. At the end of 2021, we set a goal to reach JPY 10 billion in ARR by the end of FY2025. Since then, we've been driving our business forward to make that goal a reality. In pursuing this goal, we focused on what we call our Value Generation Cycle, which primarily consists of three steps: first, strengthening our capability to acquire new customers, second, enhancing the value of our services, and third, effectively communicating and delivering the value to our customers. By repeating and improving this cycle over the years, we successfully achieved the target of JPY 10 billion in ARR in FY2025. Now, we're ready to leverage this success for the next phase of growth.
We will evolve our Value Generation Cycle and proceed toward the next goal of achieving JPY 20 billion in ARR by the end of FY2029. Even beyond achieving the next milestone, we plan to continue evolving our Value Generation Cycle and establish a foundation for sustainable and robust growth, which will further realize our corporate philosophy, Liberation of Technology. This slide highlights some of our newly launched services that demonstrate the added value generated through our Value Generation Cycle. As you can see on the slide, we've introduced a variety of new services to meet the expanding market and customer demands. The launch of services has especially accelerated since the end of 2021, when we announced the goal to achieve JPY 10 billion in ARR. FY2025 marked the completion of one full round of our Value Generation Cycle.
Thus, we see FY2026 as the beginning of the next Value Generation Cycle and a crucial year of preparation to achieve our goal of 20 billion JPY in ARR. Specifically, for the HENNGE One business, our first focus will be on initiatives that enhance the value of our service. At the same time, we will continue marketing efforts to further build the foundation of new customer acquisition. Furthermore, to ensure sustainable future growth, we will continue to invest in strengthening organizational structure and corporate branding. The consolidated forecast is as presented on the slide. In FY2026, we will generate additional value that contributes to achieve 20 billion JPY in ARR and plan to proactively invest to create future growth. Even with these ongoing initiatives, we anticipate an increase in each profits. 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. We will continue to pursue our corporate philosophy, Liberation of Technology, aiming first to achieve JPY 20 billion in ARR in FY2029.
The main driver for reaching this JPY 20 billion ARR milestone will be the growth of our existing business. In addition to this, we believe it is crucial to take on further challenges, including geographical expansion and M&A, to create an inflection point in our future ARR growth. Looking further ahead, our long-term ambition is to build a business model that would create JPY 100 billion in ARR and a potential operating profit margin of 50% by FY2035 and FY2037. Achieving this target will require us to maintain an average annual ARR growth rate of 20%-30% for over the next decade, which is not an easy path. That is why we will continue to evolve our value generation cycle by undertaking various challenges, including proactive exploration of new markets such as geographical expansion outside of Japan and the generation of additional value through methods including M&A.
By sustainably carrying out these initiatives, we will increase the certainty of achieving the future vision we are striving for. We anticipate various hurdles in achieving these goals. We will overcome these difficulties and, as one team, drive our business forward to become a world-class IT company. In order to make this happen, establishment of a strong and robust HENNGE brand is essential. To establish a strong and robust HENNGE brand, we will continuously focus on brand-building activities to firm up our path toward achieving JPY 100 billion in ARR. That concludes our overview of our full-year financial results for FY2025. Finally, we have an announcement from our CEO.
Hi, I'm Kazuhiro Ogura, the CEO of HENNGE. Today, as announced in our timely disclosure along with our financial results, our board of directors has resolved to proceed with preparations to apply for a change of our market segment to the Tokyo Stock Exchange Prime Market. This decision reflects our commitment to achieving further mid- to long-term growth and enhancing our corporate value. Enhancing recognition, trust, and credibility. This was the belief that we had as essential factors for our future growth. It has been six years since we were listed on the former TSE Mothers market in 2019, which marked the first step toward realizing this vision. Since then, we have been grateful to have more customers and partners with us, and we feel that our trust, track record, and credibility have steadily strengthened. As one of these efforts, we achieved JPY 10 billion in ARR during FY2025.
In addition, while continuing to make proactive growth investments, we were also able to, little by little, begin returning profits to shareholders by initiating our first dividend from FY2024. Currently, we are moving toward the next stage, aiming for JPY 20 billion in ARR and further ahead, JPY 100 billion . The major challenge for the next growth phase is brand enhancement. We have been always providing B2B service, which target corporate IT admins for most of the case. Within the target, we think that we have a certain level of recognition to us. However, the level of recognition and presence in the market is still not sufficient to realize our next stage of growth. To address these challenges and to achieve sustainable growth, we intend to pursue a change of our market segment to the TSE Prime Market.
While we are not yet in a position to share specific schedules or details at this stage, we will disclose once further information becomes available. I would like to take this opportunity to inform our investors of this decision and to express my sincere appreciation for your continued support. Thank you for taking your time.