Elad Software Systems published its second-quarter report. This is the third company from the same sector we have read over these two weeks, and comparing the three teaches more than any one of them alone.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 285.5 | |
| Gross profit | 41.5 | 14.6% |
| Operating profit | 18.8 | 6.6% |
| Pre-tax profit | 19.0 | 6.6% |
| Net profit | 14.8 | 5.2% |
| Attributable to shareholders | 14.4 | |
| Non-controlling interests | 0.4 | |
| Basic earnings per share | NIS 0.28 | |
| Balance sheet total | 322.7 | |
| Shareholders' equity | 185.0 |
Three IT Companies, the Same Quarter
According to the filing, Elad provides information technology solutions and services, consulting and management - establishing, implementing, developing, deploying and maintaining information systems, alongside outsourcing services. That is precisely the field of Matrix and of One Technologies.
| Q2 2026 | Revenue | Gross margin | Operating margin | Survival |
|---|---|---|---|---|
| Matrix | 2,119.4m | 18.3% | 9.5% | 52% |
| One Technologies | 1,390.7m | 12.1% | 6.6% | 54% |
| Elad | 285.5m | 14.6% | 6.6% | 45% |
And three facts emerge from this table.
The first: Elad's operating margin is identical to One Technologies' - 6.6% at both - even though Elad is five times smaller by turnover. In this sector, size does not translate automatically into margin.
And the second: Elad starts from a higher gross margin than One - 14.6% against 12.1% - and arrives at the same operating line. That is, it keeps less of it along the way: 45% against 54%.
And the third, which is the general one: in IT services, the gross margin is essentially the gap between what is charged to the client and what is paid to the employee. It moves within a relatively narrow band across the three companies - 12.1% to 18.3% - and everything that happens after it is the company's cost structure.
And what sets the gross margin itself is the mix: the balance between hourly work and projects, products or managed services. The structured filing does not detail it, so I will not determine what the explanation is here.
The Figure the Filing Does Give: 1,618 Employees
And that is a rare disclosure in a quarterly filing, and it is exactly the figure I was missing at every other company in the sector.
| Revenue in the quarter | NIS 285.5 million |
| Employees | 1,618 |
| Revenue per employee in the quarter | about NIS 176 thousand |
And here is why that is the right ratio in this sector.
An IT services company sells, in essence, person-hours. So headcount is almost its capacity - it determines how much it can sell, and it is also the bulk of its cost.
And that is why I wrote this week, in the piece on One Technologies, that the figure I would place alongside the two companies is headcount - and that it does not appear in the structured filing. At Elad it does.
What it makes possible: testing whether a low margin comes from low pricing or from low productivity. Two entirely different explanations for the same line in the accounts.
And what I cannot do with it is compare - because Matrix and One did not publish their headcount in the structured quarterly filing. Without that, NIS 176 thousand per employee is a correct figure with no reference point.
And the Line Below the Operating Line
NIS 18.8 million of operating profit, and NIS 19.0 million before tax. About NIS 174 thousand was added.
And that is rare among today's filings, where that line mostly subtracts - sometimes more than the entire operating profit.
And the explanation is in the balance sheet: NIS 322.7 million of assets on equity of NIS 185.0 million - a ratio of 1.7 to one. A services company is not an asset-heavy business: no plant, no inventory and no fleet. So it does not pay meaningful interest, and what it earns on cash balances offsets what it pays.
And the tax rate, 22.1%, is close to Israel's corporate rate.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What interests me in this report is that it closes a gap I left open this week.
When I read One Technologies against Matrix, I wrote that the figure missing from the comparison was headcount - because in a business sold in person-hours, revenue per employee separates the companies better than any other ratio. Elad is the only one of the three that published it.
And what I take from the three together is that the gross margin in IT services moves within a narrow band - 12% to 18% - and that the real difference between them lies in how much of it survives. Elad keeps 45%, Matrix 52%, One 54%.
And that ratio measures one thing: how much head office is required to manage the same volume of hours. And at the smallest of the three, it is reasonable that it is higher - head office costs do not scale down in proportion to size.
And what I would look for in the full accounts is the split between person-hours and the sale of licences and infrastructure. The two components carry entirely different margins, and the balance between them is what sets the 14.6% - not success or failure in pricing.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
