Custom Truck One Source, Inc. (CTOS) Cash Flow Statement

The gap between net income and operating cash flow is substantial, with OCF exceeding NI by a wide margin in most quarters, indicating that non-cash items like depreciation and amortization (around $68M quarterly) are the primary drivers of cash generation. However, working capital changes have been volatile, with swings from -$102.6M in Q1 2024 to +$120.5M in Q4 2024, suggesting that reported earnings may not reliably predict cash flow. Investors should monitor the sustainability of these working capital swings, as they appear to be a significant source of cash flow variability.

Despite a recent revenue acceleration, FCF margins have remained negative in most quarters, with Q2 2026 at -24.3%, reflecting the company's aggressive fleet expansion. The positive FCF in Q4 2024 and Q1 2026 appears to be an exception, driven by favorable working capital inflows, rather than a sustainable trend. This suggests that CTOS is in a heavy investment phase, and investors should expect continued FCF pressure until capital expenditures moderate.

The capital intensity is high, with CapEx/Revenue averaging around 23% over the past ten quarters, far above the levels seen in mature rental peers like URI (which typically runs below 20%). This suggests that CTOS is prioritizing growth over near-term cash returns, likely to capitalize on utility T&D spending. However, the elevated capex, combined with high leverage, raises concerns about the company's ability to fund future fleet replacements without additional debt or equity.

The large positive working capital inflows in Q4 2024 and Q3 2025 suggest that CTOS may be stretching payables or collecting receivables aggressively, while the negative swings in other quarters indicate the opposite. This volatility makes it difficult to assess the underlying cash-generating ability of the business. Investors should focus on the trend in operating cash flow excluding working capital changes to gauge the true earnings quality.

The absence of shareholder returns is consistent with a growth-oriented strategy, but it also means that investors are entirely reliant on capital appreciation. The small buybacks in 2024 and Q1 2025 appear to be opportunistic rather than a consistent program. Given the high leverage, investors should monitor whether management will need to redirect cash toward debt reduction in the future, which could limit growth investments.

This divergence is primarily due to large non-cash charges, particularly depreciation and amortization, which totaled over $600M in the same period. While this suggests that the company is generating cash to support its operations, the negative net income indicates that the business is not yet profitable on a GAAP basis. The sustainability of this cash generation depends on the company's ability to eventually convert its fleet investments into profitable operations, which remains uncertain given the high interest burden.