Hilan 2025: Profit Is Up, Cash Softened, and AI Still Has to Show Up in the Numbers

Getting to Know the Company

At first glance Hilan looks like a stable payroll and HR software company. That is already too narrow. In practice this is a broad IT platform with four very different engines: payroll, HR, and enterprise systems; business solutions; computing infrastructure; and software product distribution. In 2025 the group reached ILS 3.01 billion of revenue, ILS 366.6 million of operating profit, ILS 262.8 million of net profit, and ILS 488.3 million of EBITDA. The headline is straightforward: this was another record year.

What is clearly working right now does not require much interpretation. All four segments remained profitable, the fourth quarter grew in both revenue and operating profit, the balance sheet strengthened, net cash rose to ILS 327.0 million, and the company is entering 2026 with no leverage story and no covenant story. At a current market cap of roughly ILS 4.45 billion, this is not a survival case. It is an efficient operating machine.

What can mislead a first read is where the real economics sit. The payroll, HR, and enterprise systems segment generates only 18.5% of revenue, but 43% of group operating profit. By contrast, business solutions contributes almost 58% of revenue, but only 36% of operating profit. So Hilan is no longer just a payroll company, but the payroll engine still funds and anchors a large part of the group's quality.

That also explains the active bottleneck today. Hilan's problem is not demand, liquidity, or ratings. The problem is proof. The market still needs to see that the AI, cloud, and managed-services layer is not only broadening the story and the product catalog, but also improving profit quality and cash generation at group level. Until that happens, Hilan may continue to be read mainly as a high-quality IT services platform with a strong payroll core, not as a platform that has already moved up a level.

That is why 2026 looks like a proof year. The business base is strong, the balance sheet is supportive, and short interest is low. What is still missing is cash flow moving back in line with earnings, and AI showing up not only in strategy language, presentations, and small acquisitions, but also in measurable numbers.

Events and Triggers

The first trigger: 2025 ended with a fairly strong fourth quarter. Revenue rose to ILS 805.9 million from ILS 764.4 million, and operating profit rose to ILS 112.8 million from ILS 103.5 million. That matters because the year itself had two soft patches buried inside the annual headline: weaker infrastructure demand in the second quarter, especially in June during the military operation, and currency pressure through much of the year. The fourth quarter says the year did not fade out.

The second trigger: After the balance-sheet date, on March 16, 2026, the board approved a dividend of ILS 2 per share, or about ILS 45.9 million in total. That came on top of three 2025 cash dividends totaling about ILS 115 million. For readers, this sends a double message: management is comfortable with the balance sheet, but it is also still moving cash out while operating cash flow itself weakened.

The third trigger: The AI layer received a clear strategic push in 2025 and early 2026, but not yet a meaningful financial one. In August 2025 Ness completed a 33.33% investment in Boost, a company that manages and markets Monday solutions, with a future call option. In February 2026 it also completed the acquisition of 55% of Summit, a company with an AI solution for transcription, captions, translation, and meeting summaries. In both cases the company explicitly says the amounts are not material. The direction matters, but the financial contribution is still too small to move the thesis by itself.

The fourth trigger: Israel's security backdrop did not stop the company. Hundreds of employees were called to reserve duty since October 2023, and in the operation that began on February 28, 2026 around 300 employees were called up, yet as of the report date the company said the impact on results was not material. This is not just a PR point. It reinforces the read that a meaningful part of the customer base, especially government, public-sector, health, and defense customers, helps the group maintain continuity even in a difficult external environment.

Efficiency, Profitability and Competition

The core insight is that Hilan keeps growing, but each engine is growing with a different quality profile. At group level gross profit rose 10.5% to ILS 711.1 million, gross margin improved to 23.6% from 22.7%, and operating margin rose to 12.2% from 11.6%. That looks healthy. But behind the consolidated number sit four very different stories.

What Really Pulls Profit

The payroll, HR, and enterprise systems segment is Hilan's profit moat. Revenue rose 6.5% to ILS 558.9 million, but operating profit rose 9.8% to ILS 157.6 million and margin improved to 28.2% from 27.3%. That is a dramatic gap versus the other segments. Beyond that, the segment rests on a very broad client base, about 6,080 customers in Israel and the US, with 1.365 million payslips produced every month in Israel and another roughly 224,000 in the US. There is no single-customer dependency here, and in Israel the company estimates that it produces around 31% of the country's monthly payslips.

Put simply, this is the engine that allows Hilan to look like a broad platform without losing its earnings quality.

The Scale Engine Is Not the Margin Engine

Business solutions is Hilan's scale engine. In 2025 it produced ILS 1.75 billion of revenue, 57.9% of the group's top line, and operating profit rose 20.2% to ILS 133.4 million, with margin improving to 7.6% from 6.8%. That is good, but it is still not a high-quality profit engine like payroll.

There is another important point here: 67.7% of segment revenue came from government and public-sector bodies, up from 64.4% in 2024. That provides a relatively stable demand base, and it also explains why the company keeps highlighting the public, government, and defense verticals in the report and in the presentation. But it also means that a meaningful part of Hilan's scale story is tied to budgets, tenders, and regulation, not only to free private-market demand.

At the same time, this is the segment where the AI, cloud, data, cyber, and managed-services story is supposed to show up. The company describes a market with more than 40 meaningful players, and with rising competition even from customers that choose to build certain capabilities themselves. So the question here is not whether demand exists, but whether Hilan can turn that demand into better margin, not just more volume.

Where the Headline Looks Better Than the Economics

Software product distribution is the noisiest point in the 2025 read. Revenue jumped 16.9% to ILS 425.5 million, but operating profit actually fell 0.9% to ILS 42.3 million, and margin compressed to 9.9% from 11.7%. This is not a random contradiction. The company itself says the revenue increase came partly from a shift to gross revenue recognition in part of the activity, with an annual impact of about ILS 25 million, from the first-time consolidation of WideOps and Europe Cloud from October 2024, and from organic growth.

That means readers should not read the 16.9% headline as if all of it were clean growth of the same economic quality. More than that, the company explicitly says that the industry shift from one-time licensing to subscription can depress short-term revenue and profit versus classic license sales, even if it may be better over time. This is exactly the kind of growth the market has to unpack before it gets impressed by the headline number.

Infrastructure Was Weaker in the Headline, Not in the Base Business

The computing infrastructure segment fell 6.7% in revenue to ILS 299.9 million, yet operating profit still rose 2.6% to ILS 36.5 million and margin improved to 12.2% from 11.1%. The company says the revenue hit came from weaker demand in the second quarter, especially in June, and from the 12.6% fall of the US dollar against the shekel. By contrast, the fourth quarter already returned to 2.8% revenue growth and 7.4% operating profit growth.

That does not mean the issue is solved. It does mean the segment did not break. In this segment competition shows up both through margin pressure and through longer credit terms to customers, so one of the key 2026 checkpoints is whether the fourth quarter was the start of stabilization or just a temporary rebound.

AI Is Still More of a Positioning Layer Than a Profit Layer

Management's language is very clear. It sees AI as a thread running across the whole group: payroll with analytics, business solutions with automation and cloud, infrastructure with cyber and AI, and software distribution with data and GenAI products. The problem is that disclosure still does not isolate a clear profit pocket coming from that layer.

So the right 2025 read is not that Hilan has become an AI company. It is that Hilan is trying to move up the value stack through AI. Strategically that matters. Financially it is still not enough to support a new valuation framework on its own.

Cash Flow, Debt and Capital Structure

This is where the real story of 2025 sits. Two pictures need to be held in mind at once. The balance-sheet picture improved sharply. The cash-flow picture softened relative to earnings. Both are true, and the mistake would be to choose only one.

Cash Flow Softened, but Not Because the Business Broke

Net profit rose 6.1% to ILS 262.8 million, but cash flow from operations fell 10.3% to ILS 379.3 million, from ILS 422.9 million in 2024. The company says the main reason was the change in assets and liabilities, especially lower customer advances received versus the prior year. That matters, because it means the problem is not weaker core profitability but timing in working capital.

Still, this should not be waved away. If operating cash flow falls while earnings rise, that is something the market will keep checking, especially in a company that pays steady dividends and is building a growth narrative around AI, cloud, and acquisitions.

On the other hand, visibility remains strong. At year-end the group had remaining performance obligations of ILS 2.59 billion, of which ILS 1.92 billion are expected to be recognized within one year. That is not the same thing as cash, but it is a useful sign that the base of recurring and long-duration service activity is still healthy.

On an All-In Cash Basis, There Is Real Flexibility, but It Still Requires Discipline

Here I am using the all-in cash flexibility frame, because that is the right one for this story: how much cash is left after actual cash uses, not only before CAPEX or before distributions. In 2025 Hilan generated ILS 379.3 million from operations, used a net ILS 41.5 million for investing activity, used ILS 229.1 million for financing activity, and also absorbed a negative ILS 9.0 million FX effect on cash balances. Even so, cash increased by ILS 99.7 million.

That number says two things at once. First, there is no real liquidity pressure here. Second, management still cannot ignore cash quality. Hilan can pay dividends, invest, reduce debt, and still end the year with more cash. But for the market to ascribe more value to the growth story, it will want to see cash flow rising again alongside earnings instead of lagging them.

The Balance Sheet Is Very Strong, and Covenants Are Nowhere Near Tight

The read here is simple. Cash and cash equivalents rose to ILS 442.7 million, long-term loans fell to ILS 10.0 million, short-term credit including current maturities stood at ILS 20.0 million, and net cash increased to ILS 327.0 million. Equity rose to ILS 1.264 billion, and the equity-to-assets ratio improved to 42.5% from 36.7%.

On top of that, the group had ILS 107.3 million of unused credit lines at year-end, with no utilization, and by the report date those lines were already up to ILS 125.3 million, still with no utilization. The company itself has only ILS 30 million of bank debt left at a fixed 1.65% rate. The covenant picture is even more relaxed: the company is required to keep at least ILS 75 million of equity, and in practice it stood at ILS 1.264 billion. The net-debt ratios are practically irrelevant because there is no net financial debt, only net cash.

Finance Expense Is a Revaluation and FX Story, Not a Debt Story

One more point that matters: net finance expense jumped to ILS 20.4 million from ILS 8.1 million. Anyone reading this as higher debt pressure would miss the story. The main move came from revaluation of contingent consideration and from FX turning negative in 2025 after being positive in 2024. At the same time, interest income from deposits rose to ILS 13.6 million from ILS 10.5 million, and bank fees and interest expense fell to ILS 3.7 million from ILS 5.0 million. So finance expense weighed on net profit, but not because debt was squeezing the company.

Outlook

Before getting into 2026, here are the five less obvious points that shape the current read:

2026 Looks Like a Proof Year, Not a Passive Transition Year

The company itself clearly marks the direction: defend leadership in Israel, expand activity outside Israel, deepen managed services, add more cloud, more security, more data and AI, and keep evaluating synergistic acquisitions with IP and software platforms. That is a very reasonable strategy for a company operating from a position of strength.

But operating from strength does not remove the need for proof. For the story to upgrade, Hilan has to show that investment in the AI layer does more than prevent it from falling behind. It has to improve margin or deepen customer economics. If AI remains another service layer sold alongside existing projects, that is positive but not transformative. If it becomes a value layer that lifts margins, improves renewals, and deepens the customer relationship, that is a different level.

What Has to Happen in the Next 2 to 4 Quarters

First, operating cash flow needs to move back toward net profit. That does not require new formal guidance from management. It mainly requires a healthier working-capital pattern and better timing of customer advances.

Second, the business solutions segment needs to hold on to its margin improvement. If it already moved from 6.8% to 7.6% in a year when AI, cyber, and cloud were all in focus, the market will want to see that this was not a one-off.

Third, the software and cloud layer needs to show that the move toward subscription and cloud economics is not eroding margin faster than it is building a longer-duration revenue base. In 2026 the market read here will be about growth quality, not only growth rate.

Fourth, the Summit acquisition and the Boost investment need to start showing up in something more concrete. Not necessarily as a separate line item, but at least as more evidence that Hilan is selling more AI, cloud, and content solutions into the existing customer base, not just talking about it.

What the Market May Miss on First Read

The market can miss two things in opposite directions. On one side, it can fixate on the softer cash flow and miss how much the balance sheet actually strengthened and how little debt pressure there is. On the other side, it can get too excited about the AI narrative and the acquisition headlines while missing that the financial contribution of that layer is still not separated in the numbers.

The right read sits in the middle: Hilan does not need rescuing, but it does need another round of proof for the story to look cleaner than it does today.

Risks

The first risk is that AI turns into a commodity tool faster than it turns into a margin engine. In business solutions the company itself says some customers are already considering building and implementing certain capabilities on their own. If that deepens, competition could shift from selling value to fighting on price.

The second risk is growth quality in software product distribution. The company explicitly says the move to subscription in cloud can reduce short-term revenue and profit versus classic license sales, even if the long-term picture may improve. That means the market needs to be careful not to translate revenue growth automatically into value growth.

The third risk is currency. A 12.6% fall in the US dollar hurt US payroll activity, computing infrastructure, and software product distribution. In software product distribution some of the pressure was offset by hedging, but not all of it. So even if the underlying activity is healthy, the reported number can still be dragged by FX.

The fourth risk is execution inside business solutions. This segment includes both fixed-price projects and time-and-material activity, and it is also the engine through which the company is trying to connect cloud, cyber, data, and AI. If project costing proves inaccurate, or if competition forces aggressive pricing, the margin improvement could reverse fairly quickly.

The fifth risk is working capital and cash quality. Not because Hilan needs financing, but because if the gap between earnings and cash persists in 2026 as well, the market will start asking whether the pace of distributions and investment is running ahead of the pace of cash creation.

The sixth risk is legal, even if it is not central to the thesis. A long-running criminal competition-law case against We-Ankor is still pending judgment, and the company says it cannot assess the odds or the effect. This is not what drives Hilan's stock today, but it is still an external signal worth keeping on the radar.

Conclusion

Hilan exits 2025 from a strong position. Profitability improved, the balance sheet strengthened, debt fell, and all four segments finished the year profitable. That is the strong side of the story. The less clean side is that cash flow from operations went backward, and the AI story still lives more in strategy language, product maps, and small acquisitions than in numbers showing a new profit engine.

Current thesis: Hilan is a high-quality IT platform with a strong payroll engine that preserves earnings quality, but 2026 has to prove that the newer AI, cloud, and acquisition layers improve cash flow and mix quality as well, not only broaden the story.

What changed versus the simpler read of Hilan is that the company no longer looks like a payroll house with add-ons. 2025 sharpened the view that it is really a broad IT platform, but it also sharpened the fact that the payroll engine still funds most of the quality while AI remains an option rather than proof.

Counter-thesis: It is possible to argue that the cash-flow concern is overstated because the contractual base is strong, the group is net-cash positive, and the recent acquisitions were designed precisely to lift project value and customer depth. If that is right, 2025 will later look like a normal investment phase rather than a deterioration in quality.

What the market will measure now: recovery in cash flow, the ability of business solutions to hold its better margin, growth quality in software product distribution, and a first appearance of AI as a measurable revenue or profit layer.

Why this matters: because the Hilan story is no longer about stability. It is about capital-allocation quality and the ability to lift platform value without diluting the good economics that already exist in the core.

What has to happen for the thesis to strengthen? Operating cash flow needs to move back toward earnings, business solutions needs to hold its better margin, and the AI layer needs to become more measurable. What would weaken it? Another year in which the headlines look strong, but cash still trails behind and margins in the cloud and software-related segments keep slipping.