Seach Medical in the First Quarter: Margin Improved, and Cash Flow Leaned on Inventory Release
Revenue stayed near NIS 39 million, while gross margin rose to 35.7% and Adjusted EBITDA reached NIS 5.2 million. The quarter supports the internal-production thesis, but operating cash flow leaned on inventory release and will be tested again after the dividend paid in April.
Seach Medical opened 2026 with a quarter that answers part of the question left open at the end of 2025: revenue has not returned to growth, but each shekel of sales left more gross profit, and operating profit almost doubled year over year. This is not a quarter that proves a demand breakout. It is a quarter that shows the company’s plant, product mix, and lower purchase and production-service costs can already move profitability even when the top line is flat. The counterweight is important: net profit looks too strong if read without the deferred-tax effect from the Shefa Can merger, and positive operating cash flow relied heavily on inventory reduction that was partly offset by higher receivables and lower supplier balances. After the 2025 annual analysis, which framed 2026 as a proof year for the vertical model, the first quarter gives only a partial answer: the model supports margin, but it has not yet shown renewed growth or recurring cash flow sufficient after a roughly NIS 6 million dividend. The next checkpoint is therefore not another headline about liquidity, but whether the company can hold a mid-30s gross margin without continuing to extract cash from inventory and without expanding customer credit.
Margin Improved, Sales Stayed in Place
The company is a vertical medical-cannabis platform: cultivation, raw-material purchasing, production, distribution, brands, exports, and a pharmacy network. In this sector, revenue size alone is not enough. A company that holds a plant, inventory, and a retail channel has to show that control over the value chain improves profitability and cash flow. Otherwise, vertical integration becomes an expensive operating structure.
The first quarter improved on the profitability side. Revenue was NIS 39.0 million, almost unchanged from the comparable quarter, but cost of sales fell to NIS 25.1 million from NIS 26.9 million. Gross profit before fair-value effects was NIS 13.9 million, up about 15%, and gross margin reached 35.7%, compared with 31.1% in the comparable quarter and 30.9% for full-year 2025.
The company’s explanation matters more than the number itself: the improvement came from a different product mix, higher activity at the company-owned plant, and lower purchase and production-service costs. That is exactly the point that was still missing at the end of 2025. If the plant acquired in 2023 is now carrying more volume through the company, it not only reduces dependence on third parties, it can also lift profitability on the same level of revenue.
Still, this is not full proof. Revenue stayed in place, while the company’s strategy still talks about expanding sales, strengthening the sales-agent network, launching products, and expanding exports. In the current quarter, that promise is not visible in the top line. The improvement is in the quality and cost of sales, not in sales volume.
The competitive backdrop also did not give the company a clear regulatory gift. The anti-dumping process on imported cannabis effectively ended without a new import-protection benefit appearing in the company’s current operating picture, after the finance minister’s opposition, the attorney general’s opinion, and the dismissal of the petition filed by local producers. That makes the margin improvement more meaningful: it looks more operational than the result of an external regulatory shift.
Net Profit Jumped, but Not All of It Came From the Business
Operating profit rose to NIS 4.1 million from NIS 2.2 million in the comparable quarter. Adjusted EBITDA reached NIS 5.2 million, about 13.4% of revenue, compared with NIS 3.4 million in the comparable quarter. That is a real improvement because it appears before the tax line and is driven mainly by gross margin and better control of selling and marketing expenses.
Net profit needs to be separated. The company reported profit for the period of NIS 5.4 million and profit attributable to shareholders of NIS 5.6 million, but the quarter included a tax income of NIS 1.4 million. A key driver was the merger of Shefa Can into Seach on March 31, 2026, which led to recognition of deferred taxes for Shefa Can’s accumulated losses of about NIS 2.3 million.
That matters for anyone looking for recurring profit. The Shefa Can merger may simplify the pharmacy layer and improve use of tax losses, but it does not prove that the retail pharmacy link has already moved to operating profitability. After the pharmacy economics analysis, the current quarter mainly closes the structural and accounting side of the merger, not the return question of the pharmacy network.
Operating profit and Adjusted EBITDA are therefore cleaner measures for the quarter’s progress. Net profit strengthens equity, but part of it came from deferred tax. If the coming quarters show a similar operating profit without unusual tax support, the read will become much stronger.
Positive Cash Flow Ran Through Inventory
Operating cash flow was NIS 6.5 million, compared with NIS 3.8 million in the comparable quarter. That is positive, but the route matters. Inventory fell by NIS 6.4 million during the quarter, while receivables rose by NIS 1.3 million and suppliers fell by NIS 3.3 million. In other words, the company released cash from inventory, while part of the cash was absorbed by sales not yet collected and by lower supplier credit.
| First-quarter cash item | 2026 effect | Why it matters |
|---|---|---|
| Operating cash flow | NIS 6.5 million | The quarter generated cash before investing and financing |
| Inventory reduction | NIS 6.4 million | The largest visible working-capital cash source |
| Increase in receivables | NIS 1.3 million negative | Part of sales still stayed in customer credit |
| Decrease in suppliers | NIS 3.3 million negative | The company also used cash to reduce supplier credit |
| Property and equipment purchases | NIS 0.2 million negative | Reported CAPEX was low in the quarter |
| Loan repayment and interest paid | NIS 2.3 million negative | Bank debt continued to decline |
All-in cash flexibility for the quarter, meaning cash left after leases, reported CAPEX, debt repayments and interest paid, was about NIS 3.4 million before moving surplus cash into marketable securities and before the dividend paid after the balance-sheet date. This is an all-in bridge for the period itself, not an estimate of normalized cash generation. It shows that the quarter was positive even after real cash uses, but not enough by itself to fund a roughly NIS 6 million dividend without using existing liquidity.
This continues the question raised in the analysis of financial flexibility after the dividend. At quarter-end the company held NIS 31.8 million in cash, cash equivalents and marketable securities, compared with NIS 28.3 million at the end of 2025. But the NIS 5.959 million dividend was declared in the quarter and paid on April 20, 2026. After such a payment, that liquid layer would fall arithmetically to about NIS 25.8 million before any other movements.
The positive side is that the balance sheet is not stretched. The company used NIS 1 million out of NIS 25 million in credit facilities, leaving NIS 24 million unused. Covenant room also looks wide: tangible equity to adjusted balance sheet was 54% versus a 20% requirement at Bank Hapoalim and 80% versus 20% at Bank Leumi, while working-capital financing was 3% versus a 50% cap at both banks. This is not a debt-pressure story. It is a recurring cash-quality story after a cash distribution.
The Next Quarters Need to Turn Margin Into Recurring Profit
The key point for the next few quarters is not whether the company can show a large cash balance on a given date. It already has cash, money-market funds and bank facilities. The question is whether the plant, product mix and pharmacy network can generate profitability and cash flow without another large inventory reduction, without an unusual tax benefit and without postponing the growth proof.
There is also a regulatory layer that should stay on the screen. After the balance-sheet date, the Health Ministry committee published recommendations that included stopping the use and marketing of cannabis for smoking within three years and prioritizing oils and accurate inhalers. The health minister rejected the recommendations and froze implementation. The immediate meaning is that there is currently no sharp product-mix change forcing the company to change its activity profile, but the fact that the issue was raised is a reminder that the company operates in a sector where regulation can quickly shift demand between product categories.
The current read is more positive than at the end of 2025, but still not complete. The first quarter gives initial evidence that control over production and product mix can raise gross margin even without revenue growth. The counter-thesis is that the company benefited from timing: inventory release, deferred-tax recognition and dividend payment after the balance-sheet date. For the market to read 2026 as a successful proof year, two things need to happen together in the coming quarters: gross margin needs to remain high, and operating cash flow needs to stay positive even without inventory falling at this pace.
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