KNOT Offshore Partners LP (KNOP) Cash Flow Statement

The wedge between net income and operating cash flow is almost entirely depreciation and amortization, which averaged roughly $31M per quarter and reached $42.1M in 2026Q2 — larger than the entire quarterly operating cash flow of early 2024. This is structurally typical for a tonnage-provider with a leveraged, depreciating fleet, and it means the depressed net income figures the market sees (including losses in 2024Q2, 2024Q3, and 2025Q4) understate genuine cash generation. However, the conversion ratio has been falling from 12.73x in 2026Q1 to 9.69x in 2026Q2, consistent with the cost-of-sales inflation flagged in the income statement analysis — operating cash margins appear to be following net margins downward, even if from a much higher base.

The trajectory shows a plateau followed by early erosion: FCF climbed from $26.7M in 2024Q1 to a $44.3M peak in 2025Q3, then retreated to $32.9M-$33.0M in the first half of 2026 despite revenue growing double digits. Investors should note this decoupling — incremental revenue from vessel additions is not translating into incremental free cash, mirroring the gross-margin compression identified in the income statement review. If the 2026 cost drag persists, the structural cash advantage versus peers could narrow more quickly than the headline margin suggests.

CapEx/Revenue of 0.0%-1.1% is extraordinarily low for a shipping operator, implying the near-term fleet program concluded with the vessel deliveries that drove the 2025 D&A step-up and the $26M acquisition outflow in 2025Q3. The analytical concern is asymmetry: maintenance requirements (drydocking, special surveys) for a Suezmax-class fleet typically materialize in lumpy multi-year cycles, and the near-absence of cash capital outlays in the data suggests such costs may be running through operating expenses or are yet to hit. Investors should test whether the reported FCF is sustainable maintenance-level FCF or a temporary trough in the capital cycle.

The distribution level is unusually modest for a partnership structure, where unitholders typically expect near-full cash distribution; the restrained payout may reflect covenant constraints or deleveraging priorities, though financing activity is not disclosed in the data provided. Buybacks of $1.4M and $1.7M in 2025Q4 and 2025Q3 are de minimis signals of capital return intent. If retained cash is accumulating against the balance sheet, this represents dry powder for vessel acquisitions or debt reduction — but until disclosed, it functions analytically as unallocated capital with no measurable return attached, weighing on implied returns on incremental assets.

This is the healthiest form of earnings-cash divergence: the cash never existed as profit in the first place because it was consumed acquiring the fleet in prior years, and depreciation is now the accounting proxy for that historical outlay. The critical judgment call is whether depreciation faithfully represents the economic replacement cost of these vessels; if secondhand Suezmax values are holding, the $42M quarterly D&A may overstate true economic consumption, flattering free cash flow. Conversely, if newbuild costs have escalated materially, the modest capex currently reported may understate what maintaining this fleet base will ultimately require.