Ilex Medical in the First Quarter: FX Weakens the Core, Cash Funds Starget's Proof Year
Ilex entered 2026 with dollar-denominated growth, but shekel appreciation cut reported revenue and core profit. Cash flow improved and the balance sheet still has room, yet more of that flexibility is now committed to Starget, the dividend and Medtechnica's proton project.
The first quarter of Ilex Medical does not look good at the bottom line, but it sharpens what the market needs to test in 2026: the core is still highly sensitive to currency, while cash flow and the balance sheet still give the company time to fund the innovation layer and the proton project. Revenue in dollar terms rose 3.7%, while shekel revenue fell 10.4% and net profit fell to NIS 4.9 million. The quarter is therefore not only a weak-demand story, but a story of a business that buys and sells in foreign currency and reports in shekels. On the positive side, operating cash flow of NIS 25.8 million, lower receivables and inventory, and no meaningful bank debt leave room to maneuver. On the negative side, NIS 9.5 million was invested in Starget during the quarter, a NIS 22.2 million dividend was paid after the balance-sheet date, and the proton project continues to tie up capital and a long timetable. The next proof point is not another quarter with reasonable accounting profit, but an improvement in diagnostic margins, continued positive cash flow after cash uses, and Starget progress that does not rely only on another financing round.
The Core Did Not Shrink in Dollars, but Margins Eroded
The group operates through two main engines: diagnostics, including laboratory equipment, kits and service for medical labs, and Medtechnica, which imports and markets medical equipment in Israel. This is a distribution and service business where working capital, inventory, customer credit and currency are part of the model. The right read separates activity volume in the original currency from the shekel-reported result.
That separation is critical this quarter. The average dollar rate fell to NIS 3.12 from NIS 3.61 in the comparable quarter, a 13.6% decline. Against that, group revenue in dollars rose to $68.4 million from $65.9 million. Diagnostics grew 4.2% in dollars, but fell 10.0% in shekels. Medtechnica grew 2.8% in dollars, but fell 11.2% in shekels. The activity did not collapse, but the currency protection is only partial.
| Segment | Q1 2026 Revenue | Shekel Change | Dollar Change | Segment Profit | Segment Margin |
|---|---|---|---|---|---|
| Diagnostics | NIS 102.5 million | (10.0%) | 4.2% | NIS 8.1 million | 7.9% |
| Medtechnica | NIS 110.0 million | (11.2%) | 2.8% | NIS 2.4 million | 2.2% |
| Other, software | NIS 1.1 million | 99.3% | immaterial | NIS 1.3 million loss | immaterial |
The real weakness is in diagnostics. Gross margin fell to 25.8% from 27.6%, and segment profit fell 38.8% to NIS 8.1 million. The company links this to a different sales mix, the dollar impact and lower revenue from Africa. This is the same proof point left open in the prior analysis of Ilex's earnings quality: for net profit to become less dependent on finance income, derivatives and fair-value effects, diagnostics needs to restore operating margin. Medtechnica looks somewhat better on gross margin, which rose to 19.7% from 18.7%, but its segment profit still fell to NIS 2.4 million. Even there, better sales quality is not yet enough to change group profit.
Cash Flow Bought Time, but the Dividend and Starget Are Already Using It
Cash is the positive data point. Operating cash flow was NIS 25.8 million, compared with NIS 15.1 million in the comparable quarter. Receivables fell from NIS 265.9 million at the end of 2025 to NIS 235.5 million at the end of March, and inventory fell from NIS 194.2 million to NIS 183.2 million. Cash and cash equivalents also rose to NIS 184.5 million.
But all-in cash flexibility after cash uses is narrower than the headline. During the quarter, operating cash flow covered NIS 13.1 million of investing cash use, mainly $3 million for Starget, and another NIS 3.7 million of financing cash use, mainly leases. That left about NIS 9.0 million of surplus before FX effects. In April, the company paid a NIS 22.2 million dividend, larger than quarterly net profit and larger than the surplus remaining in the quarter after investments and leases.
| Cash Movement | Q1 2026 | Economic Read |
|---|---|---|
| Operating cash flow | NIS 25.8 million | Collections and advances improved cash |
| Investing activity | NIS (13.1) million | Mainly additional investment in Starget |
| Financing activity | NIS (3.7) million | Mainly lease repayments |
| Surplus before the post-balance-sheet dividend | about NIS 9.0 million | The quarter added cash, but not much after uses |
| Dividend paid on April 20 | NIS (22.2) million | A distribution that reduced flexibility after the quarter |
There is no liquidity stress signal here. The group is financed mainly by equity, and the balance sheet remains comfortable. But the distribution and innovation investment define the demand on the core: it must generate recurring profit and cash flow. Without that, cash flowing to Starget and dividends competes with the need to hold inventory, customer credit and long projects.
Starget and the Proton Project Turn Working Capital Into an Execution Story
Starget is the most important note-level change. In January 2026, the company invested another $3 million as part of a round in which Starget raised $18.2 million. After the investment and SAFE conversion, Ilex holds 39.64% of Starget's capital, or 32.75% on a fully diluted basis, and the equity-method investment rose to NIS 55.4 million from NIS 25.1 million at the end of 2025. This is no longer a small option next to the distribution business, but a capital-allocation layer that appears on the balance sheet and in the share of associate losses.
The picture inside Starget is still early-stage and funding-dependent. There is no revenue, the quarterly loss was NIS 6.9 million, operating cash flow was negative NIS 6.2 million, and accumulated losses reached NIS 91.4 million. Starget's auditor draws attention to substantial doubt about its ability to continue as a going concern for at least one year from the financial statement issuance date unless additional funding is obtained. After the balance date, Starget's board approved a Series A extension of up to $5 million, and by quarter-end the first-in-human trial had not yet started. The round bought time, but did not complete the development path.
Medtechnica's proton project has also moved from headline backlog into a long execution phase. The manufacturer has informed Medtechnica that the system has been completed, but it is stored until installation at Ichilov, expected to begin in the first quarter of 2027 and continue through the second quarter of 2028. Short-term contract liabilities fell to NIS 19.0 million from NIS 27.3 million at the end of 2025, because Medtechnica advances were recognized as revenue. At the same time, long-term contract liabilities rose to NIS 35.4 million from NIS 8.2 million, mainly due to an Ichilov advance, and long-term receivables and other debit balances rose to NIS 60.6 million.
This is better than the picture behind the prior proton project analysis, because there is collection, lower inventory and lower supplier balances. It still does not prove higher Medtechnica profitability. The backlog is real, the system exists, and the customer is institutional, but the conversion into free cash and operating margin still depends on installation, recognition, service and working-capital control.
Conclusion
Ilex enters 2026 with a balance sheet capable of funding a proof year, but with a core business that has to prove its margins again. The quarter shows that dollar activity did not break, collections improved and the company can keep investing. It also shows that diagnostics is eroding, Starget still depends on funding and a trial that has not started, and the proton project is still far from free cash despite progress.
The counter-thesis is that the quarter was simply hurt by unusual shekel appreciation, while both segments grew in dollars and Medtechnica improved gross margin. That is a serious argument, but it needs proof in the next quarters: better diagnostic margins, positive cash flow after investments and distributions, the start of Starget's trial without excessive new funding pressure, and proton-project progress without renewed growth in inventory or receivables. The dollar can quickly change the market's interpretation, but business quality will be determined by the core's ability to fund the options without relying on finance income and fair-value lines.
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