Backlog versus cash: why 1.39 billion ILS still does not solve R.G.A.'s core question
R.G.A.'s backlog says there is work, not cash. It is measured across multi-year municipal tenders, includes option periods, sits on average net-90-plus collection terms, and requires a heavy layer of fleet, labor, and working capital. Even the acquisition valuation points to the same conclusion: without fixed assets, working capital, and skilled labor, the backlog has little standalone economic value.
The main article argued that R.G.A.'s real bottleneck is not a lack of work but a lack of proof that work converts into cash without another funding step. This follow-up isolates that issue through the easiest number in the annual report to overread: a 1.39 billion ILS backlog.
That is the core point: the large backlog does not contradict the cash question. It postpones it. At R.G.A., the backlog sits on multi-year municipal tenders, long collection cycles, roughly 500 vehicles and heavy equipment units, subcontractors, and the working capital needed to carry all of that before cash comes in. The backlog is operational visibility. It is not, by itself, proof of shareholder value.
The annual report provides the first part of the answer. The company calculates backlog as the first year's service volume multiplied by the contract term, including option periods where relevant. In some contracts the customer also has a generic right to cancel on 30 days' notice, and the company still includes those contracts in backlog because it says historical cancellation rates have been negligible. That does not mean the backlog is fake. It does mean that the 1.39 billion ILS headline is not the same thing as cash on hand, or even one year's billings.
The acquisition valuation provides the second part of the answer, and it is even sharper. The valuer tested whether customer relationships and backlog should be recognized as a separate intangible asset and concluded that the cash flow attributable to them was negligible, even negative, mainly after charging them for the required contribution of fixed assets, working capital, and skilled labor. That may sound technical. It is actually the most important business clue in this continuation. If even a valuation prepared for a purchase says backlog has little economic value on a standalone basis, investors should stop reading backlog as if it solves the funding question.
The investor call sharpens the same gap. Management describes 2026 as a year that should benefit from a heavier waste mix and better margins. That may prove right. But even the optimistic version of that story still runs through the same bottleneck: how much cash the company has to put up along the way.
What the backlog really measures
At headline level, backlog rose to 1.39 billion ILS at year-end 2025 from 852.6 million ILS a year earlier. That is real growth. But the breakdown matters more than the headline.
Only 403.3 million ILS, about 29% of backlog, is scheduled for revenue recognition in 2026. Another 315.1 million ILS is tied to 2027, roughly 253.5 million ILS to 2028, and 418.2 million ILS to 2029 and beyond. In other words, backlog is a multi-year revenue stream, not an immediate cash event. That distinction matters because R.G.A. is not receiving 1.39 billion ILS today. It is carrying a future revenue pipeline that still has to be executed, funded, and collected.
The mix of backlog says something about quality as well. About 827.7 million ILS, nearly 60%, still sits in cleaning, while only 562.4 million ILS sits in waste collection. So even inside the big backlog headline, the center of gravity is still not the activity management describes as the higher-quality future engine.
The measurement logic matters too. The company explicitly says backlog is based on the first year's service volume multiplied by the relevant contract term, including option periods. Put differently, the number is not just a picture of work already locked in over the near term. It also embeds what management expects to continue if options are exercised. Add the generic customer cancellation rights, and the result is a strong demand signal, but not a hard cash-conversion signal.
| Quality point | What the evidence says | Why it matters |
|---|---|---|
| Backlog formula | First-year service volume multiplied by contract life, including options | This is legitimate, but it stretches the number well beyond the near-term revenue base |
| Cancellation rights | Some contracts allow the customer to cancel on 30 days' notice | Even if historical cancellation is low, this is still backlog with meaningful customer flexibility |
| Backlog mix | 827.7 million ILS cleaning, 562.4 million ILS waste collection | The pivot toward waste is progressing, but it still does not dominate the backlog |
| Timing | Only 403.3 million ILS is earmarked for 2026 | Most of the claimed value sits beyond the next year |
That leads to the first conclusion. Backlog proves demand, not liquidity. And it proves demand under terms that make revenue quality at least as important as revenue volume.
Where the cash gets stuck
To understand why backlog does not solve the company's core question, three numbers need to be read together: 362.8 million ILS of revenue from local authorities, 111.8 million ILS of receivables at year-end, and 2.1 million ILS of cash and cash equivalents.
Almost 95.4% of 2025 revenue came from local authorities. Those are relatively sticky customers, but average payment terms in the tenders run at net 90 plus. That is exactly the kind of model where revenue is recognized long before cash actually lands. So the 111.8 million ILS receivables balance is not surprising. What should matter more to investors is the ratio between that balance and the cash cushion, which was only 2.1 million ILS at year-end.
Customer concentration makes that reading tighter, not looser. The three major customers generated 125.3 million ILS in 2025 revenue, almost one third of the total. The company does not disclose their names, but it does disclose their size: 44.8 million ILS, 42.3 million ILS, and 38.3 million ILS. Put concentration together with net-90-plus collection terms and generic customer cancellation rights, and revenue quality looks less clean than the backlog headline suggests.
The segment note adds another layer. Receivables at year-end totaled 111.8 million ILS, of which 77.7 million ILS was attributed to cleaning and 34.1 million ILS to waste collection. So even the stated pivot toward waste does not bypass the collection question. It simply changes the activity mix inside the same municipal framework.
It is true that the company still reported positive working capital. But at roughly 6.8 million ILS, that is a very thin cushion for a business built on heavy equipment, labor, subcontractors, performance guarantees, and net-90-plus payment terms. That is not real breathing room. It is barely a narrow buffer.
This leads to the second conclusion. At R.G.A., backlog quality is determined less by whether a municipality signs and more by how long it takes the municipality to pay.
Why backlog needs fleet, labor, and credit
This is the part investors can miss if they look only at the revenue line. R.G.A. is not a software company sitting on contracts and high incremental margins. It is a heavy operating machine.
Cost of services reached 334.4 million ILS in 2025. Of that, 185.4 million ILS was subcontractors, 95.5 million ILS was wages and related costs, 35.7 million ILS was vehicle maintenance and equipment, and 15.1 million ILS was depreciation. This is a model where almost every shekel of revenue depends on labor, fleet, and upkeep. The backlog cannot turn into cash unless all three layers keep running.
The balance sheet reinforces the same point. At year-end 2025 the company carried 110.3 million ILS of net fixed assets. In the business description it says it operates a fleet of roughly 500 vehicles and heavy equipment units, and that vehicle purchases are made in line with tender requirements using full bank financing, with payments spread over the tender period. That is not a footnote. It is the core economic mechanism of the business. The company buys fleet to win work, funds the fleet to operate, and only then tries to collect the receivable.
This is an all-in cash flexibility bridge, meaning cash left after the period's actual cash uses. The answer for 2025 is simple and uncomfortable: none. Operating cash flow was 7.1 million ILS, but reported CAPEX of 50.0 million ILS, lease principal repayments of 7.3 million ILS, a 4.2 million ILS cash dividend, and 3.3 million ILS of bank loan repayments created a 57.8 million ILS deficit before new funding. That does not mean the company is distressed. It does mean backlog is being carried in practice by banks and the capital market.
The debt stack says the same thing. End-2025 balances included 75.1 million ILS of short-term bank credit and loans and 52.9 million ILS of long-term bank loans, or 128.0 million ILS of bank debt in total. The company met its financial covenants, and that matters. But what the numbers show is not "problem solved." What they show is that the operating model depends on continuous control over financing.
That is also why wage and fuel dynamics are not just margin variables. They are funding variables. The company says most tenders are linked to minimum wage and CPI, but it also says roughly half of its workforce is employed through subcontractors, so part of the upside flows back out through that channel. Fuel works the same way. There is some indexation support, but annual diesel spending of 18.0 million ILS still sits on a fleet that keeps moving before the receivable is paid.
That produces the third conclusion. R.G.A.'s backlog is not a passive asset. It is a package of operating commitments that produces revenue only if the company keeps putting up fleet, labor, guarantees, and credit.
The valuation clue investors should not ignore
The valuation prepared in February 2025 can look like a technical acquisition document. In practice, it gives the sharpest answer to the question behind this follow-up.
The valuer tested whether customer relationships and backlog should be recognized as identifiable intangible assets. The conclusion was that the standalone economic value was negligible, even negative, because those revenues required substantial contributory charges for fixed assets, working capital, and skilled labor. At the same time, the valuer noted that fixed assets represented about 43% of total assets at the valuation date and that a large share of enterprise value came from owning those assets and avoiding high theoretical rental costs.
That is not just accounting language. It is a business conclusion. Value does not sit in backlog by itself. It sits in the funded execution machine that makes backlog real.
| Valuation lens | What was assumed in February 2025 | What 2025 reported | Why it matters |
|---|---|---|---|
| Customer days | 88 days | 111.8 million ILS receivables against 380.5 million ILS revenue, with net-90-plus terms | Even the valuation model assumed heavy working-capital needs |
| CAPEX | 19.4 million ILS in 2025, then convergence toward depreciation | Reported 2025 CAPEX was 50.0 million ILS | Fleet funding can run far above the normalized picture |
| Net debt | 76.6 million ILS at the valuation date | By end-2025, bank debt alone had reached 128.0 million ILS against 2.1 million ILS of cash | Growth does not automatically lighten the funding layer |
| Value of backlog and customer relationships | Negligible, even negative, after contributory charges | The annual report shows exactly those charges in real life: fleet, labor, subcontractors, and working capital | The backlog headline does not offset the cash weakness. It helps explain it |
That comparison should be read carefully. It is not a perfect like-for-like bridge. The valuation was prepared at the February 2025 acquisition date, while the annual report reflects the first public year after the merger. But that is precisely why the gap is useful. Even in a model prepared for a purchase, under more normalized assumptions, backlog was not awarded much standalone value without fixed assets and working capital. The first public year only reinforced that instinct: CAPEX was heavy, receivables expanded, and cash stayed thin.
The claim here is not that backlog is worthless. The claim is narrower, and more important. Backlog is only valuable if R.G.A. can execute it without letting fleet, credit, subcontractors, and collection timing absorb most of the economics.
Bottom line
The main article asked whether R.G.A. can turn its shift toward waste collection into cash proof. This follow-up narrows the answer into one line: a 1.39 billion ILS backlog does not solve the question because the backlog itself requires cash, fleet, and working capital to exist.
What supports the thesis is obvious. There is demand, there are contracts, there is scale, and the company keeps winning tenders. What blocks a cleaner read is just as obvious. Roughly 95% of revenue comes from local authorities, payment terms average net 90 plus, receivables stand at 111.8 million ILS, cash at 2.1 million ILS, and 2025 required 50.0 million ILS of CAPEX. None of that invalidates the backlog. It explains why backlog on its own is not enough.
That makes the 2026 test even sharper. The company does not just need more wins and more backlog. It needs at least some combination of faster collection, CAPEX moving closer to a normalized level, operating cash flow no longer stuck near single digits, and better waste economics after funding and working-capital burdens. If that happens, the backlog headline will start to carry real economic meaning. If not, it will remain mostly a headline about activity, not proof of value.
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