Serverworks (4434) Q1 FY2027 Earnings Deep Dive Report

Serverworks (4434) Q1 FY2027 Earnings Deep Dive Report

Introduction

Serverworks announced its financial results for the first quarter of the fiscal year ending February 2027 (March 1, 2026 – May 31, 2026). Based on the attached materials, this report provides a detailed analysis of the company's Q1 performance highlights, progress on key growth strategies, KPI trends, and future outlook. The current financial results indicate significant growth in both sales and profit compared to the previous year, showing steady progress , suggesting that the three-pillar strategy of "AI, Security, and Overseas Expansion centered on strategic collaboration with AWS (SCA)" outlined in the medium-term management plan is steadily advancing.

Q1 Earnings Highlights and Key Drivers Analysis

For the first quarter of the fiscal year ending February 2027, consolidated net sales reached 11,933 million JPY (up 29.4% year-on-year) , operating profit was 398 million JPY (up 99.6% year-on-year) , and net profit attributable to owners of parent was 324 million JPY (up 185.1% year-on-year) , achieving substantial increases in both revenue and profit. This strong performance is primarily attributed to the following factors:

1. Positive impact of the weak yen : The depreciation of the yen contributed to an increase in net sales.
2. Resolution of unprofitable projects : Unprofitable projects that occurred in the previous period were resolved, leading to improved profit margins.
3. Contribution from subsidiary G-gen : Subsidiary G-gen's net sales significantly increased to 2,885 million JPY (up 58.4% year-on-year), and operating profit rose to 174 million JPY (up 180% year-on-year), contributing significantly to consolidated performance. In particular, the acquisition of partner-oriented funds (subsidies) boosted operating profit.

The following slide concisely illustrates the consolidated and individual company performance highlights for this quarter. This "Earnings Highlights" slide clearly demonstrates strong growth in consolidated performance and the respective contributions of Serverworks (standalone), subsidiary G-gen, and Smart Operations. Notably, G-gen's high growth rates in both net sales and operating profit are significant, suggesting the success of the M&A strategy and the realization of synergy effects. Serverworks (standalone) also showed solid growth with net sales of 9,055 million JPY (up 22.4% year-on-year), confirming the stable growth of its core business. Regarding operating profit, Serverworks (standalone) saw a year-on-year decrease, primarily due to limited profit growth from strategic pricing proposals for account acquisition and the absence of high-margin special factors recorded in the previous period. However, the overall consolidated operating profit significantly increased due to G-gen's contribution, indicating an improvement in the group's profitability.

Looking at key income statement items, the gross profit margin improved to 10.2% (up 0.2pt year-on-year) , and the operating profit margin improved to 3.3% (up 1.2pt year-on-year) . This improvement was mainly driven by the resolution of unprofitable projects and G-gen's profit contribution. Regarding the impact of exchange rates, the average exchange rate for Q1 was 159.90 JPY/USD. Compared to the guidance rate of 150.22 JPY/USD, there was a positive impact of approximately 643 million JPY on net sales and 51 million JPY on operating profit.

Full-Year Forecast and Direction of Medium-Term Management Strategy

For the fiscal year ending February 2027, the full-year consolidated forecast projects net sales of 47,184 million JPY (up 17.9% year-on-year) and operating profit of 1,310 million JPY (up 209.5% year-on-year) , anticipating continued high growth. The company states that its medium-term management policy remains unchanged: to prioritize "share of resale" to maximize future AI revenue, centered on strategic collaboration with AWS (SCA), with AI, security, and overseas expansion as the three main pillars .

Progress of Growth Strategies: Deep Dive into Key Topics

Strengthening Cloud Business and Key Partner Certifications

The company is strengthening its collaboration towards the next SCA (strategic collaboration with AWS) and has been certified as the first "AWS Partner Led AMS" provider in Japan . This means the company can offer AWS Managed Services (AMS), an automated operational platform provided by AWS, as its unique "Serverworks AMS Integrated MSP" in Japan. This aims to strengthen its proposal capabilities for enterprise clients. Subsidiary G-gen received the "2026 Google Cloud Partner of the Year Award." This global partner award recognized G-gen's significant contribution to promoting Google Cloud in the Japanese market.

Materialization and Investment in Generative AI Strategy

In the generative AI field, the number of AWS Top Engineers in AI is No.1 in Japan , demonstrating the depth of its talent externally. Specific initiatives include:

• Capital alliance with Ragate : Integrating a large customer base with the latest AI and serverless technologies to provide comprehensive cloud and AI support.
• Company-wide adoption and official license provision of Claude Enterprise : Through the Anthropic Authorized Reseller Program for Amazon Bedrock, Claude Enterprise will be adopted company-wide and utilized for customer support.
• Launch of "AI-Driven Development Support Service" : This service supports the construction of a secure and sustainable development system using frameworks like AWS's "AI-DLC (AI-Driven Development Life Cycle)" and the latest AI development tools.

These initiatives aim to strengthen generative AI-related service capabilities and establish a competitive advantage in the market.

Progress of Overseas Expansion Strategy

Overseas expansion is one of the key pillars of the medium-term management strategy, and the company has decided to establish a local subsidiary, "Serverworks Thailand." This is positioned as an important first step towards establishing a revenue base in the ASEAN market. The following slide illustrates the concrete progress and potential market opportunities in overseas expansion. This "Overseas Expansion Related" slide indicates that the company has entered the execution phase of its global strategy . The establishment of a local subsidiary in Thailand signifies a full-scale entry into the ASEAN market, potentially serving as a future growth driver. Notably, the data showing over 1,400 leads acquired at AWS Summit Bangkok 2026, with approximately 35% being promising leads , highlights the high demand for cloud services in the Thai market and strong interest in the company's offerings. It is recognized that the Thai market, similar to the Japanese market a few years ago, is in a rapid growth phase for generative AI, with system migration and innovation accelerating through AI utilization. Collaboration with IIJ will also enable one-stop service provision and accelerate business development in the region. These movements clearly demonstrate the company's intent to apply its expertise and achievements from the domestic market to overseas markets and capture new growth opportunities.

Expansion of Security Business

In the security field, the company has also achieved the No.1 position in Japan for the number of certified engineers , similar to the AI field. In 2025, it was also certified with the AWS MSSP Competency , an official recognition of its specialized security operations capabilities from AWS, expanding its security service portfolio. Furthermore, it has begun offering Wiz, a leading AI security platform, to support customer security operations through alert monitoring, threat analysis, and implementation support.

Key KPI Trends and Business Status

Sales Trends

Consolidated and individual company sales have shown consistent quarter-on-quarter growth. Sales have significantly grown from the previous quarter, driven by robust and continuous cloud demand. This "Sales Trend" slide visually demonstrates the company's sustained growth trajectory . It clearly shows a consistent increase in consolidated net sales from Q1 FY2023 to Q1 FY2027. Notably, with the merger of G-gen and Topgate in July 2026, G-gen's contribution to consolidated net sales has increased, accelerating the overall group's growth . Serverworks (standalone) also maintains stable growth, suggesting that the expansion of the overall cloud market and the company's service delivery capabilities align with market needs. This graph is crucial data that confirms the company's business is expanding from a long-term perspective , rather than being influenced by temporary factors.

Stock Sales Ratio and Product/Service Segments

The stock sales ratio remains high at 94.2% , indicating a stable revenue base. By product and service segment, all categories—cloud integration, resale, and MSP—recorded their highest sales ever . This is attributed to the increasing cloud demand driven by generative AI needs.

Cloud Integration KPIs

In the cloud integration business, project unit prices have increased , and the number of projects has been maintained. This is due to the acquisition of some high-value projects, and the current strategy is to maintain growth by focusing on securing project numbers. The number of client companies is also increasing, and the number of projects per company remains stable.

Resale KPIs

In the resale business, as a result of the strategic collaboration with AWS (SCA), the number of AWS accounts has steadily increased , reaching 8,061 at the end of Q1 . Furthermore, ARPU (average revenue per account) also shows an increasing trend at 20.1 K USD . AWS usage fees in USD are also growing steadily, confirming actual business growth unaffected by exchange rate fluctuations.

Human Resources Strategy and Initiatives for Productivity Improvement

Group headcount reached 557 at the end of Q1 , an increase year-on-year. The FY2027 mid-career hiring plan is approximately 47.8% complete as of Q1, with a strategy to strategically secure next-generation cloud-native talent. Specifically, the company is curbing hiring in areas where AI can substitute and concentrating investment in highly specialized domains. Additionally, the company is working on changes in its hiring strategy through the utilization of generative AI . By leveraging generative AI, it is explained that profit creation is possible by curbing personnel costs in the previously anticipated hiring plan. This is based on the idea that generative AI enhances productivity and helps control excessive personnel growth.

Conclusion

Serverworks' Q1 FY2027 financial results marked a very strong start, achieving significant growth in both consolidated net sales and operating profit . The positive impact of the weak yen, the resolution of unprofitable projects, and the contribution from subsidiary G-gen were key factors. The three-pillar strategy of AI, security, and overseas expansion outlined in the medium-term management plan is steadily progressing, with the establishment of a local subsidiary in Thailand and the materialization of generative AI-related services being notable future growth drivers. Key KPIs such as AWS account numbers and ARPU are also steadily increasing, indicating that investments in new growth areas are accelerating on a stable recurring revenue base. In its human resources strategy, the company is also undertaking advanced initiatives , such as aiming for productivity improvement and cost reduction through the utilization of generative AI. These elements suggest that the company's foundation for sustainable growth and improved profitability is being strengthened.