Hiper in the first quarter: backlog conversion is moving, but inventory and the equity raise are funding the transition

Hiper gave a partial answer in the first quarter of 2026 to the test investors had been waiting for since the end of 2025: demand is starting to show up in revenue, and the erosion in gross margin has at least stopped for now. Revenue rose to $91.5 million, gross margin improved to 16.9%, and operating profit held at 8.3% of sales. But this is still not clean proof that the company’s large backlog is already turning into high-quality profit and cash. Inventory jumped by $27.3 million in one quarter, operating cash flow remained negative, and Europe, after the 2025 acquisitions, contributed only $194 thousand to operating profit despite $13.8 million of revenue. The January equity raise solved the short-term cash cushion, but it is now also funding inventory, a new Israeli acquisition and dividends. The next quarters need to show that this inventory really turns into deliveries and collection, that Germany and the UK are not only adding volume, and that the margin improvement is not just a one-quarter mix benefit.

Growth Returned, But Cash Has Not Confirmed It Yet

The first attractive number is revenue: $91.5 million in the quarter, up 13.7% year over year. Gross profit improved faster than revenue, rising 22.9% to $15.5 million, and gross margin increased from 15.7% to 16.9%. After 2025, when margin pressure was the central yellow flag, this change deserves attention.

Still, operating profit is more restrained. It rose 13.7% to $7.6 million, exactly in line with revenue, so the operating margin stayed at 8.3%. The reason is that selling, general, administrative and other expenses rose 33.2% to $7.9 million, mainly because of the first-time consolidation of the German company acquired at the end of 2025, amortization of intangible assets recognized in the acquisition, and the higher dollar value of Israeli payroll costs as the shekel strengthened.

The more important signal sits in working capital. Operating cash flow was negative $660 thousand, much better than negative $4.7 million in the comparable quarter, but still not positive. Two opposite forces drove the result: a decline in customers and accrued revenue contributed $5.5 million, and suppliers contributed $19.1 million, but inventory alone consumed $27.3 million. In business terms, the company is not only delivering more. It is also stocking up before the next revenue wave.

That gap brings the tracking work back to the issue raised in the prior Deep TASE analysis on backlog quality: a large backlog is not enough if converting it requires more inventory, more supplier credit and more time before collection. The current quarter shows better gross profitability, but cash still says the business is in a preparation and delivery phase, not yet in a phase where growth is releasing cash.

Europe Adds Revenue, Still Not Margin

Europe is the largest structural change in the quarter. Segment revenue rose to $13.8 million, compared with only $3.6 million in the comparable quarter, mainly because of the consolidation of the companies acquired in the UK and Germany during 2025. On the surface, that proves the acquisitions are starting to enter the accounts. In practice, Europe generated only $194 thousand of operating profit.

This is the quarter’s main edge: Europe is already large enough to move the revenue line, but not yet large enough to change the group’s earnings quality. Europe’s segment operating margin was about 1.4%, compared with about 10.0% in Israel and 6.3% in the US. Even if part of the gap is explained by amortization of intangible assets created in the acquisitions, the result still leaves Europe in proof mode.

The balance sheet sharpens the point. Europe had $47.9 million of segment assets and $46.9 million of segment liabilities. Against those figures, quarterly operating profit of $194 thousand is still marginal. This is not an argument that the acquisitions have failed. It means the first quarter has not yet proved that the European platform built in 2025 has moved from a presence layer to a profit layer.

The US shows a different, more specific weakness. Segment revenue fell 18.8% to $20.3 million because of a temporary decline in sales to a key customer, tied to that customer’s product-generation replacement and preparation for supplying the new product generation from the second quarter. This is an important checkpoint: if that explanation is right, the second quarter should start to show recovery. If it does not, the US decline will look less like timing and more like pressure on one of the group’s older profit engines.

The E.P.S Acquisition And Dividends Keep The Equity Raise At The Center

The January 2026 raise changed the liquidity picture quickly. The company issued 3,811,650 shares and raised $26.7 million net, lifting cash to $30.3 million at the end of March. About $20 million of the proceeds were deposited in an interest-bearing shekel deposit. That gave the company immediate flexibility after a year of European acquisitions, but that flexibility already has new uses.

The central event is the agreement to acquire E.P.S (Israel) Tech 1992 Ltd., an Israeli company that designs, develops and supplies embedded computing systems, mainly for defense-sector customers. The base consideration was set at a valuation of NIS 60 million, subject to net-cash-minus-debt and working-capital adjustments, and part of the consideration will be held in escrow until the adjustment process is completed. The agreement also includes a contingent consideration mechanism at the end of 4 years, capped at an additional NIS 42 million. The transaction is still subject to approval from the Competition Authority.

The positive side is clear: the acquisition can strengthen the Israeli defense activity and improve the company’s position with customers looking for embedded computing systems. The practical friction is just as clear: this is another acquisition before the European acquisitions have demonstrated meaningful profitability, and it will be funded from the company’s own resources. Professional-service costs of about NIS 2.5 million are not material relative to the balance sheet, but they are a reminder that each acquisition carries transition costs before contribution.

The all-in cash picture for the quarter explains why this matters. Before the equity raise, the company burned cash in operations, spent a small amount on investing activity, repaid short-term credit, paid interest, repaid lease principal and repaid loans. The increase in cash came from the share issue, not from the core business. At the same time, the board declared a $3.3 million dividend in March and another $1.9 million dividend in May. The company passes the legal distribution tests, but for the quality of the thesis, the payout should be tested against positive free cash flow that did not appear in the first quarter.

The Next Quarters Will Decide Whether This Is A Proof Year Or An Inventory Year

The first quarter does not weaken the company’s story. It even improves it on several metrics: revenue grew, gross margin increased, Israel remains a strong profit engine, and Europe finally entered the revenue line in a meaningful way. But it does not close the core test. Inventory grew very quickly, operating cash flow remained negative, Europe barely contributed operating profit, and the US is waiting for second-quarter proof.

The market is already approaching this with caution. Short interest as a percentage of float rose from 0.07% at the end of December to 1.42% on May 8, above a sector average of 0.66%, and SIR stood at 3.56 versus a sector average of 1.70. This is still not an extreme short position, but the move is fast enough to show that skeptical investors want deliveries, collection and better profitability, not only inventory ahead of backlog.

The rest of 2026 looks like a proof year. A stronger read requires three things: inventory declining or at least stabilizing relative to revenue, a US recovery as the new product generation starts shipping, and a European operating profit contribution that rises above a near-symbolic level. If those three show up together, the first quarter will look in hindsight like a successful preparation quarter. If revenue keeps rising while cash remains stuck in inventory and acquisitions hover around break-even, the thesis will look more like volume expansion that needs more capital than a mature profit engine.