Karman Holdings Inc. (KRMN) Cash Flow Statement

The persistent gap between net income and operating cash flow, particularly in 2026Q2, suggests that revenue recognition under percentage-of-completion is not translating into cash collections. The large negative working capital changes, averaging -$22.8M over the last two quarters, imply that receivables and inventory are absorbing cash faster than payables provide it. Investors should monitor whether this is a timing issue tied to program milestones or a structural strain on liquidity.

Despite record revenue growth, FCF has been consistently negative in most quarters, with only 2025Q4 and 2024Q4 showing positive FCF. The negative FCF margin of -9.7% in 2026Q2, despite a 58% revenue increase, indicates that growth is consuming cash rather than generating it. This pattern suggests that the company is in a heavy investment phase, but the sustainability of this trajectory depends on whether working capital normalizes as programs mature.

The rising capital intensity, with CapEx of $14.5M in 2026Q2, suggests management is investing in specialized autoclaves and machining assets to support future production. However, the depreciation and amortization of $15.2M in the same quarter nearly matches CapEx, implying that the asset base is being replaced at a similar rate. This balance between maintenance and growth capex is critical; if growth capex does not yield higher utilization, the high fixed-cost base could pressure margins.

The consistent negative working capital changes, particularly in quarters with strong revenue growth, suggest that KRMN is funding its growth through cash rather than supplier credit. The $34.7M outflow in 2026Q2 is nearly double the net income, indicating that collections are lagging behind revenue recognition. This may be due to the nature of government contracts with milestone-based payments, but it warrants close monitoring as it directly impacts liquidity.

The substantial acquisition-related outflows, despite no dividends or buybacks, highlight management's focus on inorganic growth. These outflows are likely funded by debt or equity, but the low reported debt/equity of 1.53% suggests that the parent entity may hold leverage. The integration of these acquisitions appears to be suppressing net margins, as evidenced by the 3.68% net margin versus 15.47% operating margin, likely due to amortization of intangibles.

The cumulative gap of nearly $50M between net income and operating cash flow suggests that earnings are not being converted into cash, likely due to aggressive working capital build-up and acquisition-related costs. This divergence is a red flag for earnings quality, as it implies that reported profitability may not be sustainable without improvements in cash conversion. Investors should assess whether this gap narrows as the company matures or if it reflects structural issues in its contract terms.