Matrix I.T — Information Technology

Matrix I.T Ltd. is Israel's largest information technology company, employing more than 17,000 people across software, hardware, engineering, integration and training, at over 50 sites. Incorporated in 1989, it trades on the Tel Aviv Stock Exchange. It is a direct subsidiary of Formula Systems (1985) Ltd., which is itself controlled by Asseco Poland S.A.

On 24 February 2026 Matrix completed the acquisition of the entire share capital of Magic Software Enterprises Ltd. by way of a reverse triangular merger. Magic became a wholly owned subsidiary and was delisted from Nasdaq and from the Tel Aviv Stock Exchange. Because Magic was previously held by the same controlling shareholder, the transaction was accounted for as a business combination under common control using the As-Pooling approach: Magic's assets were consolidated at their carrying amounts in the controlling shareholder's books, comparative figures were restated, and the difference between the consideration and the carrying amount was recognised directly in equity. The auditor's review report includes an emphasis of matter paragraph — without qualification — referring to the notes on the merger.

Following the merger the company updated its reporting structure to three segments: IT solutions, products and software services, consulting and systems engineering in Israel (including the defence arm, the engineering arm, and BPO and call-centre services); IT solutions, products and software services abroad (including Governance, Risk & Compliance solutions for financial institutions, and Magic's core business); and Cloud, computing infrastructure and systems solutions in Israel and abroad. The customer base spans government ministries, banks, defence industries, healthcare and transport, and technology companies.

Three growth figures, three bases. Reported revenue grew 6.3% in the quarter. Neutralising the erosion of the dollar, on a constant currency basis, growth stands at 15.3%. Excluding the contribution of newly consolidated companies, organic shekel growth is 5.7%, and excluding both together — 14.7%. For the half: 4.3% reported, 12.3% constant currency, 4.0% organic in shekels, 12.0% organic constant currency.

Profit attributable to shareholders and earnings per share move at different rates. Net profit attributable to shareholders grew 36.0% in the quarter, while basic earnings per share grew 12.8%. The gap comes from the share count: the weighted average number of shares rose from approximately 77.0 million to approximately 92.5 million following the share issuance in the merger. At the same time, non-controlling interests in profit fell from 29,244 to 12,830 thousand shekels, as the minority previously held in Magic was absorbed. Total group net profit grew 13.4%, and earnings per share grew 12.8%. In its investor presentation the company itself presents growth in profit attributable to shareholders on a basis adjusted to full ownership: 12.4% in the quarter and 10.7% in the half.

Where the margin expansion originated. Gross margin fell from 18.8% to 18.3%; the company attributes this to "a change in transaction mix". Operating expenses as a share of revenue fell from 9.6% to 8.7%, and the operating margin therefore rose from 9.2% to 9.5%. The company attributes the decline in research and development and in operating expenses mainly to the erosion of the dollar on the costs of foreign subsidiaries, and to costs recorded in connection with the Magic transaction in the comparative period — without quantification. It should be noted that on a constant currency basis as well, where both revenue and the costs of exposed units are translated at prior-year rates, the operating margin stands at 9.58% against 9.16% in the comparable quarter.

Equity — what moved and what did not. Equity attributable to shareholders rose by ₪427,815 thousand, and non-controlling interests fell by 484,462. Total group equity fell by ₪56,647 thousand. Net of goodwill and intangible assets, tangible equity attributable to shareholders stands at ₪217,813 thousand — below net financial debt (238,756). The board notes in the report that the goodwill balance is material to the company's total assets, and that beyond the annual test, indications of impairment are examined during the year; the interim report does not state whether an indication was examined in this quarter.

Debt structure. Gross financial debt of approximately ₪992 million, comprising commercial paper, loans from financial institutions, on-call loans, Series B bonds and Series 2 convertible bonds. The Series B bonds carry a fixed 4.1% coupon and amortise in 14 semi-annual instalments through 1 February 2030. The Series 2 convertible bonds were issued on 4 February 2026 with a par value of approximately ₪297 million, carry a coupon of only 0.5% and are repayable in a single instalment on 1 February 2031; most of the proceeds were used to repay approximately ₪200 million of Magic's existing bank debt. Every ₪178.4 of par value is convertible into one share — potential dilution of approximately 1.67 million shares, roughly 1.8% of the share capital. Both series carry a mechanism adding up to 1% to the coupon in the event of a breach of financial covenants or a rating downgrade.

Liquidity. The company reports liquid resources including unused credit facilities of approximately ₪2,442 million. On 23 March 2026 Midroog raised the issuer rating to Aa2.il with a stable outlook, and raised both bond series to the same level. The report notes that as at 30 June 2026 the company's separate (solo) financial statements show a working capital deficit; the board reviewed the financial metrics, covenant compliance and cash sources, determined that this does not indicate a liquidity problem, and accordingly the company was not required to publish a projected cash flow report.

Capital return. Company policy is distribution of up to 75% of annual net profit attributable to shareholders, quarterly, subject to the statutory distribution tests. In the first half of 2026 ₪162.9 million was distributed (79 agorot paid on 5 May 2026 and 97 agorot paid on 1 July 2026). The dividend in respect of the second quarter, as presented in the investor presentation, stands at ₪91.6 million — approximately 74.7% of profit attributable to shareholders in that quarter.

Revenue from outside Israel accounts for roughly 19% of total revenue, while the company reports that approximately 40% of revenue is dollar-denominated. The gap arises because a substantial part of transactions in cloud activity, computing infrastructure and software product sales within Israel is denominated in dollars. The report states this explicitly. An arithmetic check of the constant currency presentation gap (₪181,064 thousand) against the exchange rate erosion (17.6%) implies exposed revenue of 40.0% of total revenue — identical to the figure the company discloses.

The cloud and infrastructure segment grew fastest and also carries the lowest operating margin (7.3%). Its rise from 23.3% to 25.3% of total revenue shifts the mix toward lower profitability rates. The company notes that growth in the segment was partly offset by a decline in the marketing, implementation and support of advanced technological solutions — mainly at the subsidiaries Radat and Ortek — "which is characterised by higher profitability rates".

The inter-segment adjustment line grew from 21,735 to 53,014 thousand shekels in the quarter, and from 51,859 to 103,611 in the half — increases of approximately 144% and 100% respectively. The report does not detail the source of the increase.

Matrix operates in a market where the source of revenue is people's working time, and therefore the two variables that determine the result are headcount and utilisation. The report notes that salaries account for more than 50% of operating expenses, and that as at the publication date the company had hundreds of open positions for recruitment. At the same time, 417 of the company's employees were called up for reserve duty as at the date of the financial statements (346 as at the publication date).

The company reports 21 consecutive years ranked TOP Vendor #1 in value-added IT services by the research firm STKI, and rankings in dozens of professional categories. The customer base spans government ministries, banks, defence industries, healthcare and transport, telecommunications, industry and retail. In enterprise core systems, the cost of switching integration vendors is high, both because of familiarity with the system and because of regulatory and security requirements.

The artificial intelligence question runs in two opposite directions. On one hand, according to an Israel Innovation Authority survey from January 2026, approximately 35% of Israeli technology companies reported layoffs in the preceding six months, partly on the back of accelerated adoption of artificial intelligence tools in development and operations. The company notes that a moderation in demand for technology personnel may ease its own recruitment and retention and temper wage pressure. On the other hand, the company notes that the same trends "may affect the composition of the workforce, salary costs, and the scale of recruitment and employment in the medium and long term" — that is, a model that prices working time is exposed to a tool that compresses it. The report also notes that approximately 20% of 2025 revenue came from customers in the technology sector.

The answer the company presents to this question in its investor presentation is positioning as a provider of artificial intelligence infrastructure rather than a provider of hours: "integration, permissions, monitoring, identity, API management, cyber, data governance and human-in-the-loop become an ongoing service". The company reports executing the largest civilian artificial intelligence project in Israel. The extent to which this positioning is being realised cannot be measured from the interim report, which contains neither an order backlog nor a breakdown between recurring and project revenue.