Hi, I am Kazuhiro Ogura, the CEO of HENNGE. Thank you for watching our video today. Today, our director, Haruo Amano, will explain our financial results for the first 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 Amano. First, let me explain financial results for the first quarter of FY2023. This is a summary of our full year consolidated financial results. In the first quarter, overall result is on track against the full year forecast, which was disclosed on November 11th, 2022. Our quarterly trends for consolidated net sales is as shown in the slide. Sales for HENNGE 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 HENNGE 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 fluctuation 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 HENNGE One from exchange rate fluctuations, it still remains high. Our year-over-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 HENNGE One from exchange rate fluctuations. Personnel expenses increased year-over-year, mainly due to an increase in the number of employees and the revision of internal policy in July 2022. As for advertising expenses, it increased as a result of conducting wide-ranging activities such as holding HENNGE NOW! For the other SG&A, it increased mainly due to enhanced recruitment activities, additional internal system usage fees to accommodate increased employees, and an increase in transportation expenses.
The chart in the slide shows quarter-on-quarter fluctuation of operating expenses. As previously mentioned, cost of sales mainly increased due to an increase in infrastructure costs for HENNGE One from exchange rate fluctuations. Advertising expenses, while we conducted advertising activities aggressively, it decreased quarter-on-quarter due to differences in the contents and approaches that have been applied. The other SG&A, while we actively engaged in recruitment activities, it decreased quarter-on-quarter, mainly due to a temporary decrease in recruitment expenses through a revision of several activities. 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 first quarter of FY2023 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 11 for 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. I will explain our business activities during this quarter. This is an overview of our business highlights. As mentioned earlier, the main advertising activities for this quarter was HENNGE NOW!, which was held on site in October 2022 for the first time in three years. The previous HENNGE NOW! was held online with nearly 10,000 participants in February 2021. This time, it was aimed for nurturing new customers and promoting usage of new features and a new service for existing customers.
Not only by introducing various initiatives of HENNGE One and our HENNGE company, but also by setting up several workshops in person, we could have opportunities to deepen communications within the IT administrators and between participants and our sales representatives. Please let me explain the difference between this time's HENNGE NOW! and the previous one. The previous HENNGE NOW! aimed at a wide range of customers to capture the demands for remote work and cloud services, which were rapidly growing in interest during the COVID-19 pandemic, and to refresh our potential customer list significantly. This time's HENNGE NOW! was mainly aimed at promoting the use of new features and a new service for existing customers. In order to interact more closely with participants, it was an event with hundreds of people. Regarding the details of our marketing activities, please refer to the Q&A for Q1 FY2023.
In November 2022, we released a new service, Tadrill, to meet the growing demand for the solutions of targeted email attacks. It enables companies to improve their employees' security awareness by email training, which is self-implementing, continuous, and practical, and establishment of reporting flow. I would like to explain our result of KPIs. This slide shows the progress of KPIs for HENNGE One from the previous fiscal year. This slide shows the year-over-year fluctuation of KPIs for HENNGE One. This slide shows the average monthly churn rate. Compared to the past, since the amount of cancellations have slightly increased, the average monthly churn rate rose slightly in this quarter. The main reasons for cancellations so far were that the IT system was unified into a different system due to the merger of companies or the cloud migration plan itself was reconsidered.
In addition to that, from October 2022, there were some cancellations triggered by reviewing IT services used in our customers at the timing of contract renewal for existing customers. While we will continue to pay close attention to the trend, it is continuously very low, and the theoretical average contract period is approximately 30 years. This slide shows the quarterly trends in the number of contracted companies and users. Although we are still facing challenges to fulfill our sales force, the number of new contracted companies has been increasing. We acquired a number of contracts with relatively small companies as a result of strengthened relationships with resellers, and there are slightly more cancellations than before. For that reason, the number of contracted users has increased with the number shown in this slide. The quarterly trends in ARR and ARPU are shown in the slide.
An increase in ARPU during the quarter is brought from several factors. Firstly, it is a contribution from newly acquired customers with the new license lineup since October 2021. Another factor is that approximately 40% of existing customers out of circa 2,000 have moved to the new license lineups at the end of December 2022. As a result, ARR had grown steadily. We had some cancellations, but overall transition to new license lineups for existing customers who have to renew their contracts in this quarter progressed well. We plan to complete the migration of all applicable customers to the new license lineups by the end of this fiscal year. Turning to our full year outlook for FY2023.
This slide shows our policy for FY2023, which is to accelerate midterm growth in HENNGE One ARR by continuously carry out active marketing activities and build a more solid organization by enhancing our talent acquisition capability. As for HENNGE One business, we aim to achieve sustained annual growth of more than 20% for the ARR by increasing the number of contracted companies and ARPU. As for the marketing investments, we will hold interactive events which are focused on the specific target, such as large companies, resellers, existing customers, and so on. Carrying out a wide variety of advertisements such as web, print advertisements, out-of-home advertising, TV commercials, and so on to raise recognition of our company and our services will be continued. As for the personnel plan, we will actively recruit in each function and aim to increase more than 45 headcounts.
In order to strengthen the organization for acquiring new customers more, we will focus on increasing the number of experienced IT sales members. We will keep considering various actions which will contribute to our talent acquisition enhancement. This slide shows our forecast for FY2023. There is no change from the full year forecast, which was disclosed on November 11th, 2022. These charts show the transition of our sales by business over the last three years and the progress of the first quarter against the forecast for FY2023. Results of the first quarter is overall on track. These charts show the transition of advertising expenses and operating expenses, excluding advertising expenses over the last few years and the progress of the 1st quarter against the forecast for FY2023.
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 life 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.
Total amount of technology that we provide to the customers and total amount of liberated technology are the measure to prove our progress on our philosophy, and this is expressed as LTV. LTV or lifetime value is a total value arising from the current contracts with the customers. Our growth strategy is to maximize this LTV. Our average contract period and gross profit margin is already in a high number. In order to maximize LTV, we think that it is essential to maximize ARR. We do not focus that much on the result of short-term operating profit, but rather invest aggressively for the future and aim to accumulate the ARR as much as possible.
ARR can be broken into three factors: large N, small N, and ARPU, which represents the number of contracted companies, average number of users per contracted company, and average revenue per user respectively. The progress of three KPIs for HENNGE One is as shown in 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. You can see HENNGE One's ARR is steadily and stably increasing year on year. While ARR has been growing steadily, our challenge was that the ARR growth rate kept decreasing due to the denominator getting larger. COVID-19 pandemic has changed the ways of working, and we believe that there definitely will be a situation where cloud adoption will be expanded.
In order to capture such an opportunity, we are now taking a three-step tactic to create an inflection point for the ARR growth, which would create an accelerated upward trend of the ARR. The first step took place during FY2021. We invested aggressively on marketing activities, which led to the acknowledgment of the strength of HENNGE One and our brand value to the company's decision-makers, resellers, and more. We also announced new features of HENNGE One together with new license lineups. The second step took place during FY2022. We approached aggressively mainly to the new customers with new features and new license lineups. The growth rate of the ARR was slightly under 20% mainly due to the shortage of members, which was impacted by the change in the employees joining and leaving ratio.
We could increase large N and ARPU steadily by introducing new license lineups not only to new customers but also to some of our existing customers. Last but not the least, we are currently working on the third step, which is to approach existing customers with these new features and new license lineups. Through these three steps, our assumption is to create a growth cycle that will affect both large N and ARPU. Following this explanation, I would like to give my opinion for this quarter and our challenges. While the growth in the number of contracted users has been gradual, new customer acquisition and ARPU are growing steadily. This is the results of our sales and marketing activities which took advantages of our strength in being able to provide ID as a service and other solutions that meet recent demands, such as free PPAP in one stop.
As you can see from the increase in the number of contracted companies, I can feel that the market is actually expanding. I would like to capture this trend by strengthening the organization for acquiring new customers, which we are facing as a challenge. We are planning to complete the migration of existing customers to the new license lineups within this fiscal year by delivering the value of HENNGE One and gaining their understanding. At the same time, we will accelerate midterm growth in HENNGE One ARR by continuously carrying out active marketing activities and building a more solid organization by enhancing our talent acquisition capability. By proceeding these steps, we will achieve midterm ARR growth in the mid-20% average growth rate. Our aim is to achieve and exceed JPY 10 billion for HENNGE One's ARR.
We would like to establish a sustainable growth model by continuing the business cycle to increase the acknowledgment of our brand and increasing the number of potential customers. At the same time, we will also keep strengthening our sales force and the relationships with resellers, developing and releasing new features, and creating additional values of HENNGE One. We have been providing HENNGE One as an IDaaS consisting of five main features and one option for a long time, and we have enhanced our values by adding new features continuously, such as three new features added in October 2021 and HENNGE Connect added in April 2022. Moreover, we released a new service called Tadrill in November 2022. Besides releasing new features of HENNGE One, we are planning to provide new services that meets the customers' demands.
We will continuously add more and more essential features that will help our customers' transformation led by cloud utilization, which will maximize the amount of technology that we liberate and provide to our customers in accordance with our corporate philosophy. HENNGE One is mainly composed of ID as a service, which brings higher and higher value to the customers as those customers get powered by more and more Software as a Service. We will continuously stimulate further expansion of cloud adoption in Japan, and at the same time, collaborate more and more with other cloud companies to form a platform, bringing further growth in the market. This concludes our explanation of the first quarter of FY2023. Thank you for taking your time to watch our video.