Hilan in the first quarter: dollar pressure, better margins, and a new cash test
Hilan opened 2026 with operating profit growing faster than revenue, even against a sharp decline in the dollar. But operating cash flow was still negative for the quarter, and acquisitions, dividends, and the buyback plan turn the rest of the year into a capital-allocation test.
Hilan received a clearer first-quarter test of the question left open after 2025: whether the pressure on software and cloud margins was a transition phase, or an early sign that new growth is being bought at the expense of profitability. The current evidence leans positive, because operating profit grew faster than revenue, gross and operating margins improved, and the infrastructure and software-products segments lifted margins despite a materially weaker dollar. But the picture is still not clean: operating activity consumed cash, cash balances fell because of acquisitions and repayments, and the company has already flagged the Log-On acquisition and a share buyback program after the balance-sheet date. That turns 2026 from a margin-proof year into a capital-allocation proof year. The next proof points are continued software margin improvement, positive operating cash flow in the coming quarters, and whether Log-On and Summit add higher-quality profit rather than only a wider activity base.
The company is a services platform, not a pure software equity
Hilan is a technology-services group with about 6,450 employees and four segments: payroll, human resources and enterprise systems; business solutions through Ness; computing infrastructure; and software-products distribution. The word “technology” can be misleading here, because the economic machine is not a single high-gross-margin software product. It combines a stable and highly profitable payroll engine, a much larger and thinner services activity, and cloud, data and AI layers still measured mainly through projects, product distribution and small acquisitions.
The segment map explains why the company cannot be read only through revenue growth. Business solutions delivered 58.6% of revenue, but only about one third of segment operating profit, with NIS 483.1 million of revenue and NIS 31.2 million of operating profit. Payroll and HR delivered 18.9% of revenue and about half of segment operating profit, with a 32.7% operating margin. That means the real moat still sits in payroll and enterprise systems, while Ness, computing infrastructure and software-products distribution determine whether the group can expand without diluting earnings quality.
The early investor screen is straightforward: margin improvement is visible across almost every business layer, especially in the segments that were under scrutiny after 2025. What still blocks a cleaner thesis is negative quarterly cash flow and the fact that the company is already allocating cash to acquisitions, a dividend and a buyback. This is not a survival issue, but a test of capital-allocation quality.
Dollar pressure makes the margin improvement more meaningful
The key number in the quarter is not the 5.3% revenue growth to NIS 824.0 million. That growth is reasonable, but not exceptional. The more important number is that operating profit increased 9.4% to NIS 97.7 million, and operating margin rose to 11.9% from 11.4%. Add the gross margin improvement to 23.6% from 23.0%, and the quarter gives an initial answer to whether 2025 marked deeper margin erosion or only a transition year.
The gap in the chart matters. In payroll and HR, operating profit grew 11.2% on 6.0% revenue growth. In software-products distribution, operating profit grew 21.6% while revenue grew only 3.3%. In computing infrastructure, revenue fell 9.4%, but operating profit was almost flat and the margin rose to 13.3%. That is a useful proof point, because the 13.6% decline in the average dollar exchange rate against the shekel hurt revenue in several layers and increased net finance expenses through exchange-rate effects.
The skeptical read still has room. Some growth came from newly consolidated acquisitions, Summit entered the software-products segment from the start of 2026, and payroll has mild first-quarter seasonality. Still, if the 2025 concern was that cloud, subscription and AI solutions expanded revenue while pressuring profitability, the first quarter provides an early answer in the other direction: even with a weaker dollar, the company improved margins rather than only increasing volume.
Cash flow has not yet confirmed the profit, and acquisitions raise the proof bar
This is where the friction starts. The all-in cash picture for the quarter, meaning cash after operating activity, investments, lease and loan repayments, and acquisitions actually made during the period, was still negative. Operating activity consumed NIS 31.0 million, compared with NIS 57.4 million in the comparable quarter. The main reason remained working capital: higher trade receivables and lower suppliers and other payables.
That gap changes how the quarter should be interpreted. Net profit of NIS 70.6 million looks strong, but it did not enter the cash account during the quarter. Investing activity consumed NIS 61.6 million, mainly because of the Summit acquisition and the Y.L.M activity purchase, versus only NIS 6.3 million in the comparable quarter. Financing activity consumed another NIS 29.8 million, mainly from lease-liability and long-term bank-loan repayments. The result was a NIS 123.0 million decline in cash and cash equivalents during the quarter.
| Cash item | Q1 2026 | Q1 2025 | What changed |
|---|---|---|---|
| Operating cash flow | NIS 31.0m used | NIS 57.4m used | Better, but still negative |
| Investing cash flow | NIS 61.6m used | NIS 6.3m used | Acquisitions started consuming cash |
| Financing cash flow | NIS 29.8m used | NIS 33.8m used | Lease and loan repayments continued |
| Net cash at period-end | NIS 187.1m | NIS 327.0m at year-end 2025 | A sharp decline in flexibility versus the start of the year |
The balance sheet is still strong. The company had NIS 319.7 million of cash and cash equivalents at the end of March, short-term bank debt was NIS 20.0 million, long-term bank loans fell to zero, and it complies with its financial covenants. The question is not immediate pressure. The question is how quickly the improved operating profit turns back into cash.
Summit and Log-On need profit proof, not only activity expansion
Summit is the best example of the gap between the AI story and economic proof. Ness acquired 55% of Summit, which owns an AI-based solution for transcription, captions, translation and meeting summaries. Ness can increase its holding to 100% from February 2027, while Summit’s shareholders have a put option that can raise Ness’s holding to 75% under certain conditions. The initial consideration, NIS 55.0 million, is not material to the group in balance-sheet terms, but the structure says something about the nature of the investment.
The acquisition note shows that the value attributed to Summit sits mainly in intangible assets and goodwill: NIS 55.4 million of intangible assets and NIS 62.6 million of goodwill, against negative net working capital of NIS 0.9 million and non-controlling interests of NIS 34.2 million. The value comes from expected synergy, cross-selling and integrating an AI solution into the group’s customer base. It still has to prove itself through sales and profitability.
Log-On came after the balance-sheet date. Ness signed an agreement to acquire 100% of Log-On Software and its subsidiaries, which develop and market software solutions, computing services, managed IT services and technology consulting. The consideration to the sellers is NIS 164.5 million, and Ness also committed to inject NIS 27.5 million into Log-On for a dividend to the sellers. The transaction is still subject to conditions, including Competition Authority approval and third-party consent.
Those numbers matter against the cash balance. The NIS 45.9 million dividend paid in April and the Log-On cash framework, if completed, together total about NIS 237.9 million. That is above the NIS 187.1 million net cash position at the end of March, even though the company has higher gross cash and the transaction is not yet closed. On top of that sits a buyback program of up to NIS 150 million, which had not been used by the report publication date. The buyback is therefore not only a signal of confidence. It is another cash-flow test: if it is executed quickly alongside acquisitions, the company will have to show faster evidence that operating cash flow has turned positive.
Conclusion
The first quarter improves the read on Hilan, but it does not close the story. It strengthens the possibility that 2025 was a transition year in software and cloud margins, because the company improved profitability even against a sharp decline in the dollar and continued activity expansion. At the same time, it reminds investors that accounting profit is not enough: in a quarter where operating activity still consumed cash, every acquisition, dividend and buyback is immediately measured against the cash-generation ability of the next quarters.
The current conclusion is that the company enters 2026 from a better operating position than the 2025 annual read suggested, but with a tougher cash test. The strongest counter-argument is that the company is front-loading investments before stronger quarters, and that first-quarter seasonality makes the negative cash flow less concerning. For that read to win, the second and third quarters need to show positive operating cash flow, continued margin improvement in software products and computing infrastructure, and progress at Log-On or Summit that creates profit rather than only more volume. If that does not happen, the market may shift the discussion from growth to cash quality and the price paid to expand the platform.
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