G1 2025: Profit jumped, but the PAL financing line shows the shift to tech is not clean yet

Introduction to the Company

At first glance, G1 looks like a legacy guarding company with net profit that suddenly doubled. That is only part of the picture. In 2025 the group ended the year with NIS 1,012.9 million of revenue, more than 60,000 customers, and roughly 74% recurring revenue. But the more important shift sits underneath that scale: most of segment profit is no longer coming from the labor-heavy layer, but from monitoring centers and technology.

That is the real story. Security solutions still account for 57.3% of revenue, yet only 31.5% of segment profit. Monitoring centers and technology together account for 42.7% of revenue, but 68.5% of segment profit. Anyone reading G1 only through the guarding revenue line is missing the direction of travel: the company is trying to turn itself from a heavy manpower platform into a broader security-solutions platform built around monitoring, integration, and control-and-command systems.

What is working now? Security solutions returned to growth, technology kept expanding, and the technology backlog reached NIS 253.6 million. What is still not clean? Adjusted EBITDA rose only to NIS 91.0 million from NIS 88.4 million in 2024, while operating cash flow fell to NIS 58.0 million from NIS 78.7 million. That is not the profile of a company that suddenly unlocked major balance-sheet room. It is the profile of a business that is progressing, but still funding a meaningful part of its transition through working capital, leases, and bank lines.

The active bottleneck right now is not demand. It is cash conversion. The PAL acquisition, which closed after the balance-sheet date, can deepen the technology layer further. But it also makes clear that 2026 is not a harvest year. It is a bridge year: investors need to see whether the larger technology layer can actually produce profit and cash that are accessible to ordinary shareholders, rather than just a better strategic narrative.

Events and Triggers

The centers unit lost activity, but it did not break

The most important operating event in 2025 was the end of the Israel Prison Service electronic-monitoring leasing and patrol activity. The company says explicitly that this had a material effect on results, partly offset by efficiency measures and stronger core activity in the centers segment. That shows up in the numbers: centers revenue fell 5.3% to NIS 185.7 million, segment profit fell 18.7% to NIS 19.6 million, and adjusted EBITDA in the segment fell from NIS 38.8 million to NIS 33.8 million.

The right reading is neither “the segment weakened” nor “everything was replaced successfully.” The answer sits in between. G1 lost a meaningful activity line, but the remaining base of monitoring, patrol, video analytics, parking, and maintenance activity was strong enough to prevent a sharper fall. That matters because it shows the centers unit has a real business beyond one contract. But it also means the next test is not survival. It is rebuilding the profit layer.

2025 cleaned up the structure, but it also consumed cash

During the year G1 completed the buyout of the minority stake in Moked Shahar, after fully buying out the minority in Moked Amon at the end of 2024. Strategically, both steps make sense: if the centers activity is a meaningful profit engine, management would rather own all of it. But the more important line sits in the balance sheet and the cash flow statement, not in the headline. In 2025 the company paid NIS 14.5 million to buy non-controlling stakes, and the Moked Shahar put liability disappeared after exercise.

At the same time, in Mizug Plus the shareholder agreement was amended so that if the put option is exercised in the future, the company can settle it with ordinary shares rather than only with cash. The immediate result was a reclassification of roughly NIS 35.3 million from liability to equity. That is a material point. Equity looks stronger, but part of the improvement did not come from free cash flow or operating earnings. It came from a change in how a future obligation is structured.

PAL is the main trigger, but it is not inside 2025 yet

In November 2025 G1 signed an agreement to acquire 50% of PAL Electronics Systems for NIS 125 million. Competition approval arrived in January 2026, and the deal closed on January 28, 2026. The company describes PAL as a developer, manufacturer, and marketer of control-and-command systems in gates and low-voltage systems in Israel and abroad. On paper the fit is obvious: deeper capabilities in control, access, and command, which means another step in strengthening the technology layer.

But it is important to separate what is already inside the 2025 numbers from what only surrounds them. The 2025 results do not yet include PAL’s contribution. The financing, however, already shapes the 2026 setup. After closing, the company had used about NIS 180 million out of total bank lines of roughly NIS 460 million, at prime minus 0.6%, with no financial covenants and with on-call structure, meaning repayment on demand. That helps close the deal. It also brings a much sharper financing angle into the technology-expansion story.

Efficiency, Profitability and Competition

The true improvement is smaller than the headline

Group revenue rose 5.0% to NIS 1,012.9 million. Gross profit rose 3.7% to NIS 167.0 million. So even at the first layer of profitability there is no dramatic jump, only a moderate improvement. Gross margin actually slipped slightly, from 16.69% to 16.48%. Anyone stopping at net profit, which rose to NIS 41.3 million from NIS 20.6 million in 2024, could conclude that the business moved to a sharply better earnings level. That would be only partly right.

The main reason the bottom line jumped is that the 2024 comparison base carried much heavier other expenses and financing noise. Other expenses fell from NIS 13.4 million to NIS 1.6 million, and net financing expense fell from NIS 15.8 million to NIS 8.9 million. Inside financing, the company explains that the improvement mainly came from a NIS 9.9 million decline in expenses related to put options and dividends to non-controlling interests. In other words, a meaningful part of the improvement came from cleaning up structural and financing layers, not from an operating step-change in the core business itself.

The number that organizes the picture more clearly is adjusted EBITDA: NIS 91.0 million in 2025 versus NIS 88.4 million in 2024, only a 2.9% increase. That is not weak, but it tells a much more modest story than the doubling in reported net profit. The right conclusion is that the business improved, but has not yet proven a deep quality jump.

Technology keeps gaining weight, but not for free

Technology revenue rose 8.4% to NIS 246.6 million and segment profit rose 10.2% to NIS 20.6 million. Backlog in the segment reached NIS 253.6 million, of which NIS 128.6 million is expected to be recognized in 2026 and another NIS 124.9 million from 2027 onward. In addition, continuing agreements in the segment produced NIS 48.1 million of revenue in 2025. That is a better visibility layer than what the consolidated line alone suggests.

But it is also a layer that consumes resources. The company says suppliers in the field are raising prices and extending delivery times, forcing earlier equipment purchases for projects and service. That fits well with inventory jumping to NIS 28.2 million from NIS 20.4 million in 2024. So part of technology growth is being carried by more working capital and more exposure to the supply chain, not just by better pricing or better mix.

The supplier side is not completely clean either. G1 discloses dependence on Honeywell in fire-detection products and NOTIFIER distribution, with purchases from that supplier amounting to NIS 11.3 million in 2025 under an agreement that can be terminated with 30 days’ notice. This is not a red flag by itself, but it is a reminder that an integrator does not control the full value chain.

Security solutions improved, but the structural ceiling is still there

Security solutions rose 7.3% to NIS 580.6 million and segment profit rose 35.1% to NIS 18.5 million. Segment margin improved from 2.5% to 3.2%. That is a good result, especially in a labor-heavy business where minimum wage changes, sector wage agreements, travel reimbursements, and related costs can consume a large part of revenue growth.

The company explains that in most cases its exposure to minimum wage changes in the security-solutions segment is contractually covered with customers. That helps explain why the guarding activity could grow without suffering a much sharper margin squeeze. Still, this is a business where pricing discipline, hiring, service quality, and collections matter almost as much as selling. The fact that G&A rose by NIS 3.7 million, including a NIS 2.6 million increase in wages and related costs and almost NIS 1.0 million more in credit-loss expense, shows how sensitive this segment remains to management discipline.

There is no single-customer problem, but execution still matters

On customer concentration, the picture is actually comfortable. The company says it has no dependency on a major customer, and the wide customer base reduces credit risk. In addition, 76% of revenue comes from the business and private market and only 24% from the government sector. That lowers the risk of a heavily government-dependent revenue profile.

But in companies like this, a single problematic customer is not required to create pressure. A few projects priced incorrectly, delayed equipment deliveries, or slower collections can do the job just as effectively. The fact that receivables and accrued income rose by NIS 35.4 million while revenue rose by NIS 48.3 million makes the point: G1 did grow, but part of that growth arrived with slower cash conversion.

Cash Flow, Debt and Capital Structure

Cash bridge: the business still generates cash, but flexibility narrowed

This is where the framing matters. The first frame is normalized / maintenance cash generation. Starting from NIS 58.0 million of operating cash flow and deducting reported capex and acquired intangible assets of roughly NIS 5.7 million, the business generated about NIS 52.2 million before leases, distributions, and capital-allocation choices. That is still a reasonable number.

The second frame is all-in cash flexibility. Here the picture is much tighter. In 2025 the group carried total lease cash of NIS 26.5 million, dividends to shareholders and non-controlling interests of NIS 21.7 million, minority buyouts of NIS 14.5 million, contingent consideration payments of NIS 0.7 million, and net repayment of short-term bank debt of NIS 22.6 million. Before investment inflows from the equity-accounted associate, that is already a negative flexibility picture.

That gap was bridged partly through the investment layer: in 2025 the company received NIS 12.5 million of principal repayment from the equity-accounted investee, NIS 7.25 million of dividends from it, and another NIS 8.1 million of interest received. Without that bridge, year-end would have looked much tighter. Even with it, cash ended at only NIS 8.1 million versus NIS 15.3 million at the end of 2024.

Working capital looks better, but this is not a cash cushion

The company is right to note that working capital moved from a NIS 24.5 million deficit at the end of 2024 to a NIS 20.0 million surplus at the end of 2025. That is real. But it also needs to be decomposed. The improvement did not come from a rise in cash or a sharp fall in receivables. Quite the opposite: receivables and accrued income rose by NIS 35.4 million, inventory rose by NIS 7.7 million, and the credit-loss provision increased to NIS 7.0 million.

What actually changed the working-capital picture was a NIS 22.6 million drop in short-term bank debt, an NIS 18.1 million rise in suppliers, and the fact that the Mizug Plus put liability was reclassified from liabilities into equity. So the working-capital surplus does not mean G1 suddenly sits on a wide liquidity cushion. It means the short-term balance-sheet structure became less tight, but not yet loose enough to make a step like PAL trivial.

The jump in equity is less clean than it looks

Equity rose from NIS 140.0 million to NIS 204.6 million. That headline looks excellent, but again the accounting and the economics are not the same thing. During the year the company generated NIS 43.2 million of comprehensive income, paid NIS 19.7 million of dividends, and added NIS 5.9 million through option exercises. But above all that sits the NIS 35.3 million reclassification of the Mizug Plus put option into equity.

The analytical implication is straightforward: equity did strengthen, but not all of that strengthening came from free cash flow or accumulated operating earnings. Part of it came from giving a future obligation a share-settlement route. That reduces immediate pressure, but it leaves a possible dilution path in place.

Year-end debt has one character. Early 2026 debt has another

At the end of 2025 short-term bank credit stood at NIS 23.4 million, down from NIS 46.0 million a year earlier. Lease liabilities stood at NIS 79.4 million in book value and NIS 89.0 million in contractual cash terms. At year-end alone, that is not a balance sheet telling a crisis story.

But that is not the full picture anymore. After the PAL closing in early 2026, the company had already drawn roughly NIS 180 million out of NIS 460 million of lines. The fact that the PAL financing has no financial covenants is clearly helpful. But on-call debt is not permanent capital. It is flexible financing, but it also demands much tighter liquidity discipline.

Outlook

First finding: 2026 starts with a larger technology engine, but without the cash cushion that would allow investors to ignore conversion quality.

Second finding: the fourth quarter did not close the year with acceleration. Revenue was almost flat versus the third quarter, but gross profit fell 4.2%, operating profit fell 12.5%, and profit before tax fell 14.7%.

Third finding: PAL is a strategically important trigger, but at this stage it is more a management commitment than a proven earnings contribution.

Fourth finding: the company has good visibility in its core engines, but that visibility comes mainly from backlog, recurring service activity, and existing holdings, not from a clean step-up in margin.

From an operating-visibility perspective, the starting point for 2026 is not weak. Security solutions carry NIS 355.9 million of binding backlog plus NIS 439.7 million of revenue from continuing agreements generated in 2025. The centers segment has only NIS 18.4 million of binding backlog, but also NIS 108.7 million of continuing-agreement revenue. Technology carries the NIS 253.6 million backlog already noted, plus NIS 48.1 million from continuing agreements. In other words, visible demand is there.

But the coming year still looks like a bridge year, not a breakout year. Why? Because three tests sit on top of the same period. The first is the PAL integration test: how much the acquisition actually expands the solution set, strengthens the control-and-command layer, and perhaps improves pricing power. The second is the cash test: whether technology backlog and security growth arrive with healthier collections and without another step-up in receivables and inventory. The third is the centers test: whether the segment can rebuild its profit layer after the loss of the prison-service activity.

There is also a subtler point. Management’s strategic direction toward broader technology, integration, and advanced solutions makes sense. But as long as the business is not yet generating clearly wider free-cash room inside the existing perimeter, every growth step still depends on disciplined use of credit lines, distributions, and payment timing. So the question for the next 2 to 4 quarters is not only “how fast can G1 grow,” but “how much of that growth comes with higher cash quality.”

Risks

PAL financing is still an open question even without covenants

The fact that PAL financing comes without financial covenants is a real relief. But that does not mean financing risk is gone. When a deal is funded through on-call borrowing from uncommitted lines, the risk shifts from covenant breach to liquidity discipline and refinancing behavior. With only NIS 8.1 million of cash at the end of 2025, it is hard to treat the transaction as frictionless.

The Policity stream is helpful, but it is not fully free cash

In 2025 Policity helped G1 through equity-method earnings, shareholder-loan repayment, and dividends. That clearly supported the cash bridge. But the Policity financing agreements include dividend restrictions tied to coverage ratios and project-finance conditions. So the stream should not be read as an unrestricted reservoir that can always be tapped at will.

Wages, labor availability, and supply chain still define margin quality

The group operates in two sensitive worlds. In guarding and security services, minimum wage updates and labor-sector changes always pressure cost, even if much of that can be passed through contractually. In technology, suppliers are pushing higher prices and longer lead times. The implication is that demand can remain healthy while profitability still compresses if pricing, procurement, and collections are not tightly managed.

Litigation, warranty, and cyber remain background risks that can become real costs

The group reports third-party legal claims totaling about NIS 22 million, in addition to employee claims of roughly NIS 1.3 million. Provisions exist, but in a broad service-and-operations platform this is not a line that can simply be ignored. Cyber also remains a material risk because the business relies on computerized systems, control infrastructure, and remote-service layers.

The market is not challenging the name through short positioning right now

This matters not because it proves the thesis is correct, but because of what it does not say. Short interest as a percentage of float fell to effectively zero at the end of March 2026, with SIR of only 0.03, very low even versus the sector average SIR of 0.613. That means there is currently no meaningful short camp building an aggressive negative view on the stock. It removes one layer of market pressure, but it also means the real test will come through reported numbers rather than through market-position dislocation.

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Conclusion

G1 exits 2025 as a better company than it entered it, but not as a freer one. What supports the thesis is the continued shift toward the monitoring and technology layers that already generate most of segment profit, together with good growth in security solutions and technology. What blocks a cleaner read is that cash did not improve at the same pace, and the transition enters 2026 with meaningful on-call financing behind PAL.

Current thesis: G1 is no longer just a guarding company, but it still has not proved that its shift toward technology can produce profit and cash cleanly enough to absorb a step like PAL without financing strain.

What changed versus the simple reading of the company is not the existence of a technology engine, but its weight. By 2025 that engine is already visible in the numbers. At the same time, the balance-sheet picture also improved, but part of that improvement is accounting-driven rather than purely economic.

Counter-thesis: one can argue that the market should read 2025 only as a transition point, because with PAL, a broad customer base, and high recurring revenue, G1 is building a stronger integration-and-service platform and the debt taken for that step is entirely reasonable.

What could change the market reading in the short to medium term is not the PAL headline itself, but three numbers in the next report: collections relative to growth, centers margins after the prison-service exit, and the actual level of bank-line usage after initial integration.

Why does this matter? Because the debate around G1 is no longer whether demand exists. It is whether management can translate the shift from labor-heavy activity into integrated solutions that create operating and cash value accessible to shareholders, not just a higher accounting profit line.

Over the next 2 to 4 quarters the company needs to show three things: that technology activity and PAL convert into revenue, execution, and collections without another working-capital swell; that the centers segment does not keep eroding after the prison-service exit; and that the dividend policy does not consume flexibility precisely when the balance sheet needs to carry the PAL transaction. If one of those three starts to crack, the positive 2025 reading will weaken quickly.