Peax Solutions in the First Quarter: Software Supports Profitability, Inventory Brings Funding Pressure Back
Peax Solutions opened 2026 with a 6.4% revenue decline and a 42.6% drop in net profit, but the software, cloud applications and digital segment increased operating profit by 10.4% despite nearly flat revenue. The problem is that this improvement has not yet reached cash: negative NIS 20.2 million operating cash flow and inventory rising to NIS 59.3 million brought the discussion back to short-term credit.
Peax Solutions, formerly A.M.T. Computing, opened 2026 with a quarter that supports the business direction but brings the discussion back to cash and short-term credit. Revenue fell 6.4% to NIS 357.0 million and net profit fell 42.6% to NIS 5.1 million, mainly because of the shekel's appreciation against the dollar, equipment supply delays and higher financing expenses. Still, the more important point is that the software, cloud applications and digital segment increased operating profit by 10.4% despite almost unchanged revenue, and already contributed about 42% of group operating profit. That means the shift discussed in the previous annual analysis is not only a name change or presentation story: software really is improving earnings quality. But the quarter did not close the question left open in the working-capital analysis. Operating cash flow was negative NIS 20.2 million, inventory rose by NIS 24.7 million, and short-term credit from banks and others increased to NIS 226.7 million. The coming quarters need to show that software keeps lifting margin, inventory starts to unwind, and dividends plus the new lease do not push the company toward even heavier short-term borrowing.
Software Improves Earnings Quality, Infrastructure Still Sets the Revenue Base
The company is an IT services and integration group with two very different engines. Cloud infrastructure, computing and cyber still carry most of the revenue through hardware, infrastructure projects, equipment and global suppliers. Software, cloud applications and digital generate a smaller revenue base, but with a higher profit contribution and less direct dependence on the dollar price of equipment.
The first quarter shows the split clearly. Infrastructure revenue fell 9.0% to NIS 254.9 million and segment operating profit fell 34.6% to NIS 7.8 million. Software revenue fell only 0.5% to NIS 102.4 million, while segment operating profit increased to NIS 5.6 million. Software operating margin rose to roughly 5.5%, compared with about 3.1% in infrastructure.
| Segment | Q1 2026 revenue | Change vs. Q1 2025 | Operating profit | Change vs. Q1 2025 | Operating margin |
|---|---|---|---|---|---|
| Cloud infrastructure, computing and cyber | NIS 254.9 million | 9.0%- | NIS 7.8 million | 34.6%- | 3.1% |
| Software, cloud applications and digital | NIS 102.4 million | 0.5%- | NIS 5.6 million | 10.4%+ | 5.5% |
| Group total | NIS 357.0 million | 6.4%- | NIS 13.4 million | 21.2%- | 3.8% |
That gap matters because it prevents too shallow a conclusion. The quarter is not weak only because revenue declined. In fact, gross margin rose to 16.2% from 15.4%, despite an estimated NIS 4.8 million gross-profit hit from the shekel's appreciation. The issue is that better profit mix was not enough to offset lower infrastructure revenue, expanded sales teams and higher selling, general and administrative expenses.
For common shareholders, it is still a weaker quarter. Profit attributable to shareholders fell to NIS 3.5 million from NIS 7.3 million, and basic earnings per share fell to NIS 0.079 from NIS 0.165. Software proves that the group is moving in a better direction, but it is still not large enough to neutralize a weak infrastructure and financing quarter.
Inventory and Suppliers Turned Quarterly Profit Into Negative Cash Flow
The number that makes the story less comfortable is cash. Net profit was NIS 5.1 million, and profit adjustments, mainly depreciation, taxes and financing expenses, added NIS 15.3 million. Before working capital and cash taxes, the starting point was positive by about NIS 20.4 million. Working capital erased NIS 35.9 million, and net tax payments erased another NIS 4.6 million. Operating cash flow therefore came in negative at NIS 20.2 million.
This is an interesting shift from the late-2025 discussion. Customers and contract assets actually declined versus year-end, and customers contributed a positive NIS 41.8 million to cash flow. The problem is therefore not exactly the same customer balance issue. Pressure moved elsewhere: other receivables consumed NIS 18.5 million, inventory consumed NIS 24.7 million, suppliers consumed NIS 19.7 million, and other payables consumed another NIS 13.4 million.
The inventory increase is tied partly to the global disruption in computer-component production and supply, while the infrastructure segment was also affected by delays in equipment supply and arrivals into Israel following Operation Lion's Roar. That is not only an external explanation. In an IT infrastructure and distribution business, higher inventory can protect customer availability, but it also transfers the risk to the balance sheet: the company finances equipment before revenue and collection are fully closed.
The relevant cash bridge here is all-in cash flexibility, meaning cash left after the period's actual uses. In this quarter, before new credit, the picture was negative: negative NIS 20.2 million operating cash flow, negative NIS 3.4 million investing cash flow, NIS 4.1 million of lease principal repayment, NIS 5.0 million of long-term loan repayment, NIS 4.2 million of interest paid and NIS 3.3 million of dividends paid to non-controlling interests. Cash rose at quarter-end only because the company received NIS 65.1 million of net short-term credit.
Dividends, the Lease and Citadel Raise the Price of Flexibility
The balance sheet does not point to an immediate liquidity problem, but it does show that the quarter was built on more short-term liabilities. Credit from banks and others rose to NIS 226.7 million from NIS 160.4 million at the end of 2025, and net financial debt stood at NIS 191.1 million. Equity fell to NIS 196.6 million, and the equity-to-balance-sheet ratio declined to about 19.4% because total assets expanded to NIS 1.01 billion.
The new lease for the company's offices in Petah Tikva adds another layer of fixed cash use. The lease period began on February 15, 2026, and includes offices and warehouses totaling about 4,900 square meters and 180 parking spaces. Rent and management fees are about NIS 540 thousand per month, CPI-linked, for five years with an option for another five years. The quarter included recognition of NIS 51.8 million in right-of-use assets and lease liabilities. Operationally, this can support a unified campus and execution synergies. Financially, it increases the fixed burden that profit and cash flow need to carry.
The distribution policy also requires more proof after this quarter. In March the company declared a NIS 6.3 million dividend to shareholders, paid in April, and in May it declared another NIS 2.0 million dividend. Together, that is about NIS 8.3 million to shareholders around a quarter in which profit attributable to them was NIS 3.5 million and operating cash flow was negative. This does not mean the annual dividend policy is unsustainable, but in this quarter the distribution relies more on the balance sheet and credit than on current operating cash flow.
The completion of the second stage in the Citadel transaction adds another layer to value access. The company approved the purchase of 9.3% of Citadel in exchange for issuing 409,154 company shares to Citadel's CEO. This uses equity rather than cash, so it did not hurt quarterly cash flow. But it is a reminder that growth through acquisitions and minority structures is still part of the background. At quarter-end, the balance sheet still included NIS 26.6 million of financial liabilities for contingent consideration and purchases of non-controlling interests, almost unchanged from the end of 2025.
Conclusion
The first quarter of 2026 gives Peax Solutions one real credit point: the software segment continues to lift relative profitability even when infrastructure is hurt by the dollar, supply delays and inventory. The conclusion is therefore not that the business story weakened. A more precise read is that the quality improvement is still too small relative to the weight and cash needs of infrastructure.
The strongest counter-thesis is that the quarter simply suffered from a temporary combination of shekel appreciation, import delays and inventory stocking, so inventory release and a more stable dollar could quickly restore part of profit and cash flow. That is a reasonable possibility, but it needs to appear in the numbers. The coming quarters need to show lower inventory, lower short-term credit, continued software profit improvement and a recovery in infrastructure operating margin. Without that, the name change and software expansion remain the right direction, but not enough to change the group's cash quality.
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