Nextcom’s Cash Behind the Backlog: Working Capital, Guarantees, and Covenant Room After the Bond Expansion

The main article already established that the real argument around Nextcom has moved from backlog size to backlog conversion quality. This follow-up isolates the money layer beneath that backlog: how cash flow was really built, where working capital got stuck, how much capital is already supporting guarantees, and why comfortable covenants after the bond expansion still do not mean free capital.

At first glance, the picture looks reassuring. At year-end the group had NIS 79.0 million of cash and cash equivalents plus NIS 21.2 million of current financial assets, while the liquidity note shows only NIS 39.7 million of contractual financial liabilities due within one year. Short-term approved bank lines stood at about NIS 100 million at year-end, including NIS 62 million earmarked for solar-project financing, and only about NIS 16.9 million was used for documentary credit. Near the report date those approved lines were already about NIS 108 million, and the company also had about NIS 12 million of additional short-term lines from non-bank lenders.

That is exactly where the easy mistake begins. There is no near-term liquidity wall here, but there is no free capital either. Out of current financial assets, NIS 12.6 million was pledged against guarantees. Inventory nearly doubled to NIS 29.8 million. Other receivables and prepayments rose to NIS 14.5 million. Customer and supplier guarantees reached NIS 105.9 million. And in the same year in which cash increased, the company also relied on NIS 29.9 million of net proceeds from the Series C bond expansion and NIS 7.5 million of new long-term bank loans.

So this is not a company trapped in a financing corner. But it is also not a company whose backlog already funds itself. Nextcom bought breathing room, not capital independence.

Cash Flow Depends On The Frame You Use

The Operating Cash Frame

In the consolidated cash-flow statement the company reported positive operating cash flow of NIS 23.4 million in 2025 despite a NIS 5.9 million net loss. That is a good number. But the way it was built matters more than the headline.

Appendix A shows that the bridge from loss to cash leaned on two main drivers. The first was NIS 18.6 million of non-cash adjustments. The second was a NIS 26.4 million decrease in receivables. Against that, much of the improvement was absorbed by a NIS 10.6 million increase in other receivables and prepayments and a NIS 15.0 million increase in inventory. Suppliers and payables added NIS 9.9 million of operating funding, but that still means the cash mostly moved between working-capital pockets rather than reflecting a suddenly light-asset business.

The interesting part is that the receivables release does not look like aggressive factoring that merely shifted the picture around. The receivables derecognized under the non-recourse factoring agreement were only about NIS 1.7 million at the end of 2025, essentially unchanged from year-end 2024. So most of the receivables improvement came from collections, milestone timing, or billing cadence rather than from moving a large receivables book off balance sheet.

That creates a two-sided reading. On one hand, 2025 consolidated operating cash flow was not fake. On the other hand, it was not a clean story of broad working-capital improvement either. Customers released cash, but inventory and other receivables almost took it back.

The All-In Cash Frame

Once you move from the operating frame to the full cash picture, the reading becomes less generous. Financing cash flow was only NIS 1.4 million negative in 2025, but before fresh funding the company had heavy cash uses: a NIS 10.0 million reduction in short-term credit, NIS 3.5 million of long-term loan repayments, NIS 14.25 million of bond principal repayment, NIS 1.5 million of lease-principal repayment, NIS 6.0 million of interest paid, and a NIS 3.5 million dividend. Together that is roughly NIS 38.8 million of actual financing and capital-allocation cash uses.

Against that stood two funding sources: NIS 29.9 million of net proceeds from the Series C bond expansion and NIS 7.5 million of new long-term bank loans. That is the difference between a business that generates cash and a business that protects execution room partly through fresh debt. This is not a liquidity crisis, but it is also not a year in which backlog funded itself.

Where Working Capital Is Still Trapped

The company itself explains that the NIS 15.3 million increase in current assets came mainly from a NIS 15.8 million rise in cash and other financial assets, a NIS 15.0 million increase in inventory, and a NIS 9.1 million increase in other receivables and prepayments, partly offset by an approximately NIS 26 million fall in receivables. That alone is enough to show that the working-capital surplus is not sitting only in cash.

Inventory is the most important line here. The note makes clear that this is not generic stock. It is finished goods used in project execution, including solar equipment, panels, inverters, cabling, communications equipment, and communications piping. In other words, part of the backlog has already been translated into a cash outlay, but not yet into final billing or profit recognition.

Inventory quality deserves attention too. The slow-moving inventory provision increased to NIS 658 thousand from NIS 335 thousand a year earlier. That is still not a balance-sheet threat, but it does show that a larger inventory base also carries a larger risk of equipment sitting too long.

The timing mismatch adds another layer. The company says most customers pay on net 90 days from completion. Raw-material suppliers also average around net 90. But subcontractors typically stand at net 30 to 60. So once more of the execution mix runs through subcontractors or earlier equipment purchases, the bridge financing burden remains on the company.

That is where the Nextcom paradox comes from. The backlog is real. Some of the cash has already gone out to support it. But until projects move through enough milestones, that cash remains stuck in inventory, prepayments, and timing gaps.

Guarantees, Liens, And The Money That Is Not Really Free

If you want to understand why covenant room is not the same thing as capital freedom, you have to look at the guarantee and collateral layer.

First, current financial assets totaled NIS 21.2 million at the end of 2025, but the note says NIS 12.6 million of that amount was pledged against guarantees provided by banks. So even inside the liquidity layer itself, part of the money is already designated.

Second, guarantees to customers and suppliers rose to NIS 105.9 million from NIS 91.0 million at the end of 2024. That is a sharp increase in a year when revenue actually declined. It shows that the company’s large backlog requires not only execution and working capital, but also a meaningful envelope of financial guarantees, performance guarantees, tender guarantees, and warranty guarantees.

Third, the guarantee layer does not stop at the consolidated customer-facing guarantee stock. The note also details unlimited reciprocal guarantees between the company and its consolidated subsidiaries for bank obligations in Israel, covering NIS 31.9 million. In Sh. Nextcom, the joint residential venture, the company sits alongside NIS 26.7 million of bank credit net of financial assets and NIS 32.6 million of guarantees, of which NIS 31.4 million are apartment-sale-law guarantees. There is also a capped NIS 7.2 million guarantee for Mesh Communication and NIS 5.2 million of the company’s share in its bank obligations, plus a joint-and-several guarantee at Milicom against NIS 2.5 million of bank liabilities.

The result is that Nextcom’s execution capital is spread across several layers, not just the consolidated EPC book. It also supports joint ventures and project-finance structures where guarantees are part of the business model. That is why the cash line alone does not tell you how much capital is truly available.

The cost also appears in finance expense. In 2025 finance expense included NIS 3.56 million for credit and loans, NIS 2.90 million of bond interest and discount amortization, NIS 1.18 million of guarantee commissions, and NIS 723 thousand of lease interest. This is not only debt. It is the carrying cost of the backlog.

On top of that, the bank-security package is broad. It includes a first-ranking floating charge with no amount limit, fixed charges over the office building, solar systems and equipment, vehicles, shares and goodwill, customer contracts, agreements with power distributors, securities and deposits, rights to receive money from customers, and insurance rights. That does not mean the company is under immediate stress. It does mean that capital and flexibility here are measured through a full collateral system, not through a clean pile of unused cash.

Debt, Covenants, And The Breathing Room

The debt layer itself is not small. At the end of 2025 the company had NIS 39.2 million of bank and other debt, NIS 72.9 million of Series C bonds at amortized cost, and NIS 12.2 million of lease liabilities. Together that is about NIS 124.2 million of interest-bearing obligations. Against that, short-term liquidity still looks reasonable: NIS 100.2 million of cash and current financial assets, and only NIS 39.7 million of contractual financial liabilities due within one year.

So the right reading of 2025 is real breathing room, not immediate pressure. The maturity profile of the bank loans is also fairly manageable, with only NIS 3.5 million due within one year and the rest spread over multiple years. In the bond layer, the current portion stood at NIS 24.0 million at the end of 2025.

The covenants reinforce the same conclusion:

That matters, because the point here is not to turn every debt layer into a panic story. The covenants are comfortably distant. The report explicitly says the company complied with all bank and bond covenants and was not close to an immediate-repayment trigger under the trust deed. It also says Mizrahi joined the pari passu bank arrangement in January 2026 and added credit and guarantee lines.

But this is exactly where the analysis needs to stop short of going too far in the other direction. Comfortable covenants do not mean capital is available for easy distributions, and they do not mean backlog has become easy to fund. They only mean the company is currently far from a covenant event. The same year still ended with higher inventory, higher other receivables, a larger guarantee layer, lower equity, and a dividend that had already been paid in May 2025. In other words, covenant room protects the company, but it does not erase the weight of working capital and guarantees.

Bottom Line

The July 2025 bond expansion did what it was supposed to do. It strengthened liquidity, balanced the financing year, and kept Nextcom far from covenant pressure. The credit lines and short-term liquidity picture also say there is no near-term funding choke point.

But anyone reading that as “problem solved” misses the core point. The cash behind the backlog is still tied into a heavy execution system: NIS 15 million was added to inventory, NIS 9.1 million was added to other receivables and prepayments, NIS 12.6 million of financial assets was pledged against guarantees, and customer and supplier guarantees climbed to NIS 105.9 million. So 2025 proved that Nextcom can finance the bridge. It did not prove that the bridge is already behind it.

What has to happen now for the reading to improve? Inventory and prepayments need to start converting into deliveries and revenue. The guarantee layer needs to grow more slowly than activity, or ideally start releasing as projects are completed. And cash needs to remain strong without another meaningful debt raise. If that happens, covenant room will stay a technical footnote. If it does not, the market will look less at the backlog headline and more at how much money is really left behind it.