Malam Team in Q1 2026: demand is stronger than revenue, cash is still the test

In the first quarter of 2026, Malam Team did not deliver an earnings breakout, but it did deliver a more useful proof point: demand in parts of the business is stronger than the revenue line suggests. Revenue rose only 1.2% and operating profit was nearly flat, yet infrastructure equipment orders more than doubled to USD 177 million and the order backlog reached USD 112 million. That changes how the quarter should be read, because the decline in infrastructure revenue also reflects NIS 54 million of revenue recognized on a net basis, supply disruptions, and a weaker dollar, not necessarily weaker customer demand. The second positive signal comes from payroll and HR services, especially the sharp reduction in the operating loss of the long-term savings activity, which was the key checkpoint after the 2025 reset. Still, this is not a clean quarter: operating cash flow remained negative at NIS 48.7 million, customers and receivables absorbed cash, and the company is expanding through acquisitions before cash returns to the balance sheet. For now, 2026 looks like a proof year for execution and cash conversion, not only for growth. Over the next several quarters, the market will need to see infrastructure orders turn into revenue and collection, Mango bring the long-term savings activity closer to break-even, and the tender offer not turn the operating analysis into a purely structural issue for minority shareholders.

Infrastructure Demand Is Stronger Than The Revenue Line

Malam Team is an IT services, integration, and software group with four operating layers: infrastructure and cloud, software and projects, payroll and HR services with long-term savings operations, and startup investments such as 4CAST. This is not a single software product that scales with minimal incremental cost. It is a growth company that still requires a working-capital, margin, and collection test. In Q1, the group reported revenue of NIS 1.013 billion and operating profit of NIS 60.3 million, but the consolidated line is too stable relative to what is happening inside the segments.

The exposure to public-sector and defense customers supports demand, but it also makes budgets and collection a key checkpoint. About 50% of infrastructure revenue in Israel in 2025, about 44% of software revenue in Israel, and about 41% of payroll-services revenue in Israel came from the defense-public sector. That base can soften volatility, but it does not remove the timing question: when orders become delivery, and when delivery becomes cash.

The sharpest point in the quarter sits in the segment that looks weak on the surface. Infrastructure and cloud revenue fell 4.4% to NIS 526.0 million, and operating profit declined 5.5% to NIS 23.2 million. That could have looked like ordinary erosion in the group’s largest activity.

That would be too partial a read. Equipment orders, excluding projects, rose to USD 177 million in the quarter, compared with USD 83 million in the corresponding quarter. The order backlog stood at about USD 112 million when the report was published. At the same time, the company recognized NIS 54 million of infrastructure revenue on a net basis, meaning only the consideration retained after payment to a third party. In addition, the average dollar rate fell by about 13.6% versus the corresponding period, and the chip crisis, together with supply issues following Operation Roaring Lion, delayed delivery of hardware equipment and infrastructure.

The implication is that Q1 did not solve the infrastructure margin question, but it made the question more precise: can the larger backlog convert into revenue at a reasonable pace without a heavy cash cost. If deliveries are completed and the margin holds around current levels or improves, this quarter will look in retrospect like a transition period. If delays continue, or if the backlog requires unusually comfortable payment terms for customers, the order growth will be less impressive than it looks.

The Higher-Quality Profit Comes From Payroll And Software, But Not All Software

The software, projects, business solutions and AI segment grew revenue by 8.1% to NIS 407.9 million. This is the layer that should improve the group’s earnings quality over time because it is less dependent on equipment sales and more on services, development, products, and managed activity. The problem is that segment operating profit edged down to NIS 26.0 million and the operating margin declined to 6.4%, from 7.0% in the corresponding quarter. The company links the erosion to reserve duty and unpaid leave for employees stationed at customer sites following Operation Roaring Lion, so this does not yet look like structural damage. But until the margin starts rising again, software growth is still not clean enough.

Payroll and HR services provided a better proof point. The entire segment reached revenue of NIS 78.1 million and operating profit of NIS 16.8 million, with a 21.6% operating margin. Excluding the long-term savings activity, payroll and HR posted revenue of NIS 70.2 million and operating profit of NIS 17.6 million. That is a 25.0% margin, almost unchanged from 25.2% in the corresponding quarter, despite the weaker dollar.

The most important development is in long-term savings. After the prior Deep TASE analysis of the impairment and Mango transition, the current quarter gives the first signal that the reset is starting to work operationally: revenue in the activity rose from NIS 7.5 million to NIS 7.9 million, the operating loss narrowed from NIS 2.6 million to NIS 0.7 million, and EBITDA moved from a NIS 0.7 million loss to a small positive NIS 0.1 million. This is not yet annual profitability, but it is real progress from the 2025 starting point.

Management expects completion of the IT-system unification and deeper activity with existing clients to bring the activity to operating break-even in 2026 and profitability from 2027. Precision matters here: Mango has not yet proved full profitability, but it has already reduced the quarterly loss in a period when the whole group faced reserves duty, unpaid leave, and a weaker dollar. That raises the probability that the activity stops being a constant drag on the payroll segment, but it is still not enough to turn it into a standalone profit engine.

Cash Says 2026 Is A Collection Year, Not Only A Growth Year

Accounting profit looks stable, but the all-in cash picture is still tighter. The right framing here is all-in cash flexibility: what remains after the quarter’s actual cash uses, including operating activity, investments, acquisitions, leases, debt, and dividends to non-controlling interests. Under that framing, the first quarter consumed cash.

Operating cash flow was negative at NIS 48.7 million. That is an improvement from negative NIS 107.1 million in the corresponding quarter, but still a large gap versus net profit of NIS 31.6 million. Working capital is the main explanation: customers absorbed NIS 90.4 million, receivables and other debit balances absorbed NIS 28.8 million, and suppliers and service providers absorbed NIS 22.5 million. Inventory released NIS 14.3 million and payables added NIS 17.9 million, but that was not enough to turn profit into cash.

Investing activity also mattered. The company spent NIS 4.9 million on property and equipment, NIS 10.8 million on intangible assets and capitalized development costs, and another net NIS 17.0 million on acquisitions of companies, activities, and investments in associates. The March acquisitions, A.G. Michun and Metrotech together with a software and hardware print-management activity, cost NIS 18.0 million and the purchase accounting remains provisional. These are small deals relative to the group, but they join the same picture: the company keeps buying capabilities and activities while cash has not yet returned fast enough from customers.

Net financial debt increased to NIS 299.6 million, from NIS 195.0 million at the end of 2025, but remained below NIS 329.3 million at the end of the corresponding quarter. Net financial debt to EBITDA over the last four quarters was 1.01, so this is not an immediate leverage problem. The decision not to distribute a dividend for 2025 and not to set a 2026 distribution policy for now explains how the board reads the situation: preserving cash and reducing debt and finance expenses is preferable to distributing capital while working capital is still absorbing money.

Three Events Can Still Move The Year

Comtec can add almost-clean software profit, but the transaction is not binding yet. In February, Comtec signed a non-binding memorandum of understanding to sell an unlimited internal-use license for the source code of its core insurance system to an Israeli insurance company. The expected consideration is about NIS 45 million, and the company estimates that completion would generate pre-tax profit close to that amount. As of report publication, no binding agreement had been signed, making this a clear 2026 trigger but not earnings that can already be underwritten.

4CAST received an order that proves interest, not scale. The order from an army of a European country totals EUR 2.7 million, includes licensing, implementation, integration, and support, and runs for one year with options to extend up to a cumulative 10 years. NATO army discussions and the SAP Solution Extension agreement support the story, but the numbers are still small: the startup formation and investment segment reported Q1 revenue of NIS 1.3 million and an operating loss of NIS 2.7 million.

The tender offer can turn valuation into a holding-structure question. The controlling shareholder, Malam-Team Holdings, published a full exchange tender offer in February for the company’s shares at an exchange ratio of 0.555 Holdings shares for each Malam Team share. The offer was not accepted in March, but it was renewed after the reporting period, with the final acceptance date set for May 25, 2026. If completed, the company will become private and its shares will be delisted. For minority shareholders, this makes the coming quarters less about a standalone multiple and more about the exchange ratio, liquidity in the holding company share, and whether folding the layer really improves access to value.

Conclusion

The first quarter of 2026 strengthens the read from the annual Deep TASE analysis of Malam Team in 2025, but shifts the emphasis. The company has already proved scale. It now has to prove that growth flows into two higher-quality layers: software and payroll on one side, and cash entering the balance sheet on the other. Infrastructure orders say demand is not the main issue right now. The test is delivery pace, margin, and collection.

The current conclusion is that the quarter leans positive operationally, but remains mixed from a cash and structure perspective. On the positive side, payroll and HR services remain a strong profit engine, long-term savings is approaching break-even, and infrastructure holds a backlog that explains why the revenue line is too weak a gauge of demand. On the cautious side, operating cash flow is still negative, net debt rose from year-end, the Comtec transaction is not yet binding, and 4CAST is still far from a scale that can move the group. Above all, the tender offer can move the focus from operating improvement to minority shareholders’ access to value. For the read to improve over the next few quarters, the company needs to show three things: conversion of the infrastructure backlog into revenue and cash, continued reduction in the long-term savings loss toward break-even, and a binding software trigger such as Comtec without meaningful damage to recurring profit.