Elad in the first quarter: profit jumped, working capital took the cash

Elad opened 2026 with a quarter where profit looks much stronger than the cash picture. Revenue rose 7.5%, gross profit rose 18.5%, and operating profit jumped to NIS 8.7 million, so the core technology services and solutions business did not merely hold its pace, it improved profitability. But the same quarter quickly brought back the issue raised in the prior cash-quality analysis: customers and accrued income increased by NIS 41.4 million from the end of 2025, and operating cash flow was negative NIS 22.1 million. This is not a liquidity-stress picture, because average short-term credit is still far below the comparable quarter, covenants are distant, and the company still has meaningful net cash. Still, the quarter sharpens the unresolved operating question from year-end 2025: can growth become cash without rebuilding customers and accrued income? Chameleon, LayerX and the AI layer continue to give the company a real product option, but this quarter's proof still came mainly from a labor-heavy services business, not from software products already changing group economics. Over the next two quarters, the market will look for a cleaner combination: profitability that stays high, customer balances that start to collect, and evidence that the healthcare activity adds profit rather than only strategic narrative.

The Business Remains Services-Led, Even With Product Optionality

Elad is an Israeli IT company providing software projects, CRM, digital, data, AI, consulting and outsourcing. The group also includes Elad Health, which owns and develops Chameleon, an EMR system for clinical medical records. The company presents Chameleon as software deployed in about 80% of Israeli hospitals, with 45 medical centers, more than 1,000 clinical units and more than 65,000 active users. That is a real product asset, but it is still not the numerical center of gravity for the group.

The company's first-quarter economic machine combines margin and working capital. On one side, the business shows organic growth and better profitability. On the other side, delivering that growth still requires the company to finance collection gaps, customers and accrued income. Headcount rose to 1,590 at quarter-end, up 58 employees from the start of the year, so the company's AI story has to be tested through productivity, not only through a technology label.

The segment breakdown explains why the cautious read matters. Almost all revenue and segment profit still come from the core technology solutions and services, consulting and management activity. “Others,” where the activities that are supposed to change the mix over time sit, remains relatively small.

This is a simple business map. If the company wants to be viewed over time as a product, healthcare and AI company, it has to show that this small layer can grow without requiring the same amount of labor and customer financing. In the first quarter, that proof is not yet there. Profitability improved mainly because the core services engine worked better.

Chameleon and LayerX still leave the company with quality optionality. Chameleon is company-owned software, it sits deeply inside the healthcare system, and together with LayerX it is supposed to enable revenue expansion over an installed base. But in the first quarter, “Others” still did not change the group. Reported segment revenue fell from NIS 9.7 million to NIS 7.4 million, yet the reported comparison is misleading because the comparable quarter included NIS 3.3 million of revenue, with no profit, from Elad Campus, which was sold in April 2025. Excluding Campus, “Others” revenue rose from about NIS 6.4 million to NIS 7.4 million, growth of about 16%, but segment profit slipped from NIS 1.8 million to NIS 1.7 million. The product path is progressing, but it still has not proven profit improvement.

The new option plan fits this picture. In March, the company approved a plan to allocate up to 1.75 million options, with an exercise price of NIS 10.20 and an estimated fair value of NIS 6.7 million. Relative to about 51.6 million shares outstanding, that is potential dilution of about 3.4%. It can be an important tool for retaining employees and technology talent, but it also reminds investors that the model still needs good people to grow. A true software product should reduce that dependency over time, not only compensate it.

Profitability Improved, But The Comparison Base Helps

The first quarter showed real operating improvement. Revenue was NIS 143.9 million, compared with NIS 133.9 million in the comparable quarter. Gross profit rose to NIS 20.4 million, and the gross margin rose to 14.2% from 12.9%. Operating profit rose to NIS 8.7 million, and the operating margin rose to 6.0% from 4.5%. This cannot be explained only by financing or tax.

The strongest data point comes from the core activity. Revenue from technology solutions and services, consulting and management rose from NIS 124.2 million to NIS 136.5 million, and segment profit rose from NIS 15.5 million to NIS 18.8 million. In other words, most of the improvement came from where the company actually makes most of its money: software services, projects, outsourcing and systems implementation.

But the comparison base is not fully clean. The comparable quarter included about NIS 2.0 million of expenses related to accelerated vesting terms in the option plan, which did not recur in the current quarter. In the current quarter, however, the company carried public-company costs and investment in future growth activities. The implication is that the 44% jump in operating profit includes some benefit from an easier comparison, not only clean operating improvement.

The bottom line also benefited from the new balance-sheet structure. Net finance expenses fell to only NIS 43 thousand, compared with NIS 465 thousand in the comparable quarter. That reduction was supported by lower credit consumption and interest income from a money-market fund. Net profit rose to NIS 6.7 million, but part of the improvement sits above and below the operating business: option expenses that did not recur, lower financing, and interest on cash raised in the IPO.

Customers Took Cash Back Out Of The Business

The quarter's important gap is between accounting profit and cash flow. The company earned NIS 6.7 million, but operating cash flow was negative NIS 22.1 million. The reason is direct: customers and accrued income increased from NIS 122.5 million at the end of 2025 to NIS 163.9 million at the end of March 2026. That NIS 41.4 million increase more than erased the quarter's accounting profit.

This should not be read too dramatically. In the first quarter of 2025, customers and accrued income also consumed NIS 39.6 million. In project and services businesses there is seasonality and collection timing. But in the first quarter of 2026 there was less support from other payables and suppliers than in the comparable quarter, so operating cash flow looked much weaker. This is exactly the test left open at the end of 2025: was the sharp working-capital release the start of better collection discipline, or mainly a convenient year-end snapshot?

In an all-in cash flexibility view, not a normalized earnings view, the quarter consumed about NIS 27.9 million before the net increase in short-term credit. That includes negative operating cash flow, NIS 2.8 million used for investments and capitalized development, and about NIS 3.0 million of lease principal and interest. A NIS 7.1 million net increase in short-term credit reduced the actual cash decline to NIS 20.8 million.

The reassuring side is that the company is not close to financial pressure. Short-term credit was NIS 12.8 million at quarter-end, compared with NIS 51.4 million at the end of the comparable quarter. Average short-term credit in the quarter fell to NIS 9.4 million, compared with NIS 46.1 million in the comparable period. Financial debt to EBITDA was 0.58 against a ceiling of 3, equity was NIS 176 million against a NIS 100 million requirement, and the equity-to-balance-sheet ratio was 55% against a 23% requirement. The issue is therefore not immediate liquidity. The issue is the quality of profit-to-cash conversion.

The Next Quarters Need To Show Profit Entering Cash

The first quarter improves the read on core-services execution, but it does not close the cash-quality question. The current conclusion is that the company looks operationally stronger than it did at the end of 2025, but it still has not proven that improved profitability can hold without rebuilding working capital. If customers and accrued income start to decline in coming quarters while the operating margin stays around 6%, this quarter will look like a good opening to a proof year. If customer balances keep growing faster than profit, the market will read the quarter mainly as accounting improvement that comes with a cash bill.

The second issue is mix. Chameleon and LayerX remain the company's quality upside, but in the current quarter they still did not take the lead. That makes 2026 look, for now, like a proof year rather than a breakout year: the company needs to show that higher profitability also works without an easier options and financing comparison, that cash returns through collections, and that the product layer starts adding tangible profit. The strongest counter-thesis is that the first quarter is seasonal, the balance sheet is strong enough to absorb the collection gap, and the core-services improvement already shows better productivity. The answer should come fairly quickly, through customer balances, average short-term credit, and the “Others” profit line.