Teradyne, Inc. (TER) Cash Flow Statement

The 2026Q2 OCF/NI ratio of 1.25 reflects strong cash generation relative to reported earnings, but the 0.66 ratio in the prior quarter highlights significant timing differences. Working capital changes swung from -$195.5M in 2026Q1 to +$53.4M in 2026Q2, suggesting that cash conversion is heavily influenced by customer acceptance timing and inventory build-ups. Investors should monitor whether the AI-driven revenue surge translates into sustained cash conversion or remains volatile.

The FCF trajectory shows a sharp inflection from near-zero in 2025Q3 to record levels in 2026Q2, with FCF margins expanding from 0.3% to 28.5%. This aligns with the revenue acceleration and suggests that the company is converting its AI-driven top-line growth into cash. However, the sustainability of this trajectory depends on whether the demand surge is front-loaded or structural, as management's conservative guidance implies a potential digestion period.

CapEx as a percentage of revenue has trended upward, from 5.0% in 2026Q1 to 6.8% in 2026Q2, reflecting investments in production capacity and R&D for next-generation testers. This suggests that Teradyne is positioning for sustained AI-driven demand, but the higher capital intensity may pressure near-term FCF if revenue growth moderates. The maintenance vs. growth split is not disclosed, but the increase appears aligned with the company's strategic focus on AI and HBM testing.

The large negative working capital change in 2026Q1 suggests a build-up of receivables or inventory ahead of the record Q2 shipments, while the positive change in Q2 indicates conversion to cash. This pattern is typical for a company with customer-acceptance-based revenue recognition, but the magnitude of the swings warrants attention. If the AI demand surge normalizes, working capital dynamics could become a source of cash drag.

Capital deployment has been active, with buybacks fluctuating significantly quarter-to-quarter, from $243.8M in 2025Q3 to $5.5M in 2026Q1, and acquisitions appearing in 2026Q2 ($165.6M) and 2025Q2 ($127.4M). This suggests management is balancing returning cash to shareholders with pursuing growth opportunities, likely in the robotics or test segments. The fortress balance sheet (minimal debt) provides ample flexibility for continued deployment.

The cumulative OCF/NI ratio of approximately 1.11 suggests that Teradyne's reported earnings are well-backed by cash generation, with no significant accrual distortions. This is consistent with the company's low SBC (reported as zero) and conservative accounting. However, the quarterly volatility in conversion highlights the cyclicality of the business, and investors should monitor whether the AI-driven earnings surge maintains this cash-backed quality.