Malam-Team Holdings in the first quarter: operations held up, but cash is still tied in working capital

Malam-Team Holdings did not report a weak quarter, and that is precisely why the result is worth reading carefully. Revenue rose slightly to NIS 1.013 billion, operating profit was almost unchanged, and net profit even edged up to NIS 31.0 million. But the first quarter did not close the questions that were open after 2025. It sharpened them. Working capital still consumed cash, operating cash flow was negative by NIS 49.7 million, and the cash balance declined by NIS 83.7 million in three months. At the same time, the infrastructure and cloud segment presents a useful contradiction: revenue and operating profit declined, while computer equipment orders jumped to USD 177 million and backlog reached USD 112 million. This is therefore not a deterioration story. It is a proof year: the company needs to show that backlog converts into revenue at acceptable margins, working capital eases, and the tender-offer simplification becomes more than a legal restructuring. Until those three things happen together, the stable income statement matters, but it is not enough to make growth cleaner or more accessible for shareholders.

Company Overview

Malam-Team Holdings is now effectively a holding company centered around Malam-Team, an IT services, infrastructure, software, projects, AI solutions, payroll and HR services group. The 2024 restructuring removed Isras and Hasin Esh from the company. The January 2025 name change already tells investors what remains at the center: a large IT engine, with a listed holding layer above it and a public minority layer inside the operating subsidiary.

The economics are simpler than the legal structure. This is not an early-stage software company selling a product dream, and it is no longer a diversified holding company. It is a services, integration and infrastructure group that earns meaningful profit from a large revenue base, but a large part of the money moves through customers, suppliers, inventory, projects, leases and capitalized development. Reported profit is only the starting point. The practical question is how much cash remains after real cash uses, and whether the structure above the subsidiary lets holding-company shareholders access that value.

At the end of the first quarter, the group employed 5,240 people, up from 5,172 at the end of 2025. That number explains the nature of the business: growth depends on people, projects, large customers and execution capacity, not only on selling high-margin software licenses. The activity benefits from broad customer diversification and exposure to government, public-sector entities, defense, finance and healthcare, but it was also affected by 180 employees called to reserve duty and 120 employees posted at customers who were put on unpaid leave. That makes this quarter a useful test: it shows how the business behaves when underlying demand is still there, while operations, currency and working capital move against it.

Profit Held Up, But Not All Engines Improved

The headline numbers are comfortable: NIS 1.013 billion of revenue, up 1.2%, gross profit of NIS 116.2 million and a gross margin of 11.5%, slightly above 11.4% in the comparable quarter. Operating profit was NIS 59.8 million, almost identical to last year, and net profit rose by 2.5%. This is not a quarter that points to a business break.

The segment split matters more than the total. Infrastructure and cloud, the largest revenue engine, declined in both revenue and operating profit. Software, projects and business solutions grew nicely in revenue, but profit declined and margin compressed. Payroll and HR looked better, but that also needs a split: the full segment benefited from a lower loss in long-term savings activity, while payroll and HR excluding that activity kept a high margin, but slightly lower than the comparable quarter.

The sharper point sits in infrastructure. Segment revenue declined to NIS 526.0 million and operating profit fell to NIS 23.2 million, but computer equipment orders, excluding projects, rose to USD 177 million from USD 83 million in the comparable quarter, and backlog reached USD 112 million. That can be a positive signal for the coming quarters, but it is not profit yet. For the market to read this as higher-quality improvement, orders need to become deliveries, revenue and margins, without equipment shortages, cloud-supplier pricing pressure or a weaker dollar absorbing the value.

Finance expenses also carry part of the story. Net finance expenses rose to NIS 19.0 million, mainly because exchange-rate and other expenses jumped to NIS 5.0 million. The dollar fell by 13.6% against the shekel compared with the prior-year quarter, and the company identifies the main impact in infrastructure and cloud and in payroll, HR and long-term savings. The operating profit held up in an unfriendly environment, but the group remains exposed to currency swings that can reach the line below operating profit quickly.

Working Capital Still Consumed Cash

The cash test remains less comfortable than profit. Operating cash flow was negative by NIS 49.7 million. That is better than the negative NIS 107.3 million in the comparable quarter, but it still means quarterly profit did not convert into cash. Working capital is the main reason: customers and contract assets rose by NIS 90.4 million, other receivables rose by NIS 29.6 million, and trade payables declined by NIS 22.7 million. A NIS 14.3 million inventory decline helped, but did not change the picture.

The all-in cash picture for the quarter, after actual cash uses, is sharper. The company began the year with NIS 500.9 million in cash and ended the quarter with NIS 417.1 million. During the quarter it invested NIS 4.9 million in fixed assets, NIS 10.8 million in intangible assets and capitalized development, paid NIS 17.0 million net for acquired companies and activities, and repaid NIS 16.0 million of lease liabilities. Even after higher short-term credit and new long-term debt drawdown, the cash balance declined.

This links the quarter to Deep TASE's earlier cash work. The 2025 cash analysis highlighted the gap between operating cash flow and cash left after CAPEX, development and leases. The first quarter did not disprove that yellow flag. It did show improvement versus the comparable quarter, but not surplus cash. At the same time, gross bank debt, short-term credit plus long-term debt, rose to about NIS 706.4 million from about NIS 684.6 million at the end of 2025. Net of cash and short-term investments, bank debt was about NIS 276.3 million, compared with about NIS 170.6 million at year-end.

The acquisition of A.G. Michun, Metrotech and another printing-management software and hardware activity is not a problem in itself. Total acquisition cost was NIS 18.0 million, and the accounting treatment remains provisional. But in a quarter where operating cash flow is negative, each small acquisition reminds investors that the group's growth requires cash before it proves a return. 2026 is not only a year of organic growth. It is a test of how much working capital and investment are needed to sustain the activity pace.

What Decides The Rest Of 2026

Three events can shift the read later this year, but none has solved the test yet. The first is the tender offer. The first offer for Malam-Team shares was not accepted and no shares were purchased. After the balance-sheet date, Malam-Team Holdings published another offer at the same 0.555 exchange ratio, with the acceptance date set for May 25, 2026. Completion would simplify the structure and delist the subsidiary, but the company still has to show improved access to value and cash for holding-company shareholders.

The second is the Comtec transaction. The non-binding MOU to sell an unlimited self-use license for insurance-core source code for about NIS 45 million could generate pretax profit close to the consideration, but no binding agreement has been signed. The third is order-to-cash conversion. 4Cast's EUR 2.7 million order is positive, but small next to quarterly revenue above NIS 1 billion. The bigger impact will come from infrastructure backlog, working capital, and the subsidiary's no-dividend decision while it reduces debt and finance expenses.

Malam-Team Holdings opened 2026 better than operating cash flow alone would suggest, but weaker than the income statement alone implies. The core business is holding up, infrastructure backlog gives visibility, and payroll remains a relatively high-quality profit engine. The blocker is unchanged: cash is still being absorbed by working capital, leases and investment, while the structural simplification has not yet improved shareholder access. Without positive operating cash flow, order conversion at reasonable margins and a clear tender-offer outcome, the first quarter remains evidence of stability, not an inflection point.