Tetra Tech, Inc. (TTEK) Cash Flow Statement

The OCF/NI ratio of 2.09 in 2026Q3 suggests strong cash generation relative to net income, but the extreme volatility across quarters—ranging from 17.49 in 2025Q1 to -1.08 in 2025Q2—points to project billing cycles and milestone payments driving cash flows. Investors should monitor whether the recent positive conversion persists, as the 2025Q2 negative OCF coincided with a large working capital outflow, likely due to project mobilizations.

The FCF margin of 17.2% in 2026Q3 is well above the 7.2% in 2025Q4 and the 9.4% in 2024Q2, indicating a positive trajectory. This improvement appears driven by a $83.3 million working capital release in 2026Q3, reversing the prior quarter's outflow. The elevated FCF relative to net income (OCF/NI of 2.09) suggests strong cash conversion, but the quarterly volatility warrants caution in extrapolating the trend.

CapEx/Revenue ratios consistently below 0.6% indicate that the business requires negligible fixed asset investment, freeing up cash for acquisitions and shareholder returns. This low capital intensity supports the company's ability to generate high FCF margins, but it also implies that growth is primarily organic or through acquisitions, which may carry integration risks.

The large positive working capital change in 2025Q3 likely reflects milestone billings on large projects, while the negative change in 2025Q2 suggests increased receivables or unbilled work. The 2026Q3 outflow of $83.3 million may indicate a build-up in unbilled receivables, which could pressure future cash flows if collections lag. Monitoring DSO trends is critical, as government clients often have extended payment cycles.

The company returned $118.6 million to shareholders in 2026Q3, exceeding its FCF of $225.1 million, suggesting a payout ratio of over 50%. The increased buyback activity, combined with acquisition outflows (e.g., $216.6 million in 2026Q2), indicates management is actively deploying cash. However, the rising debt-to-equity ratio (0.55%) following acquisitions may limit future flexibility, and investors should monitor whether buybacks are funded by debt rather than operating cash flow.

The cumulative OCF/NI ratio of approximately 1.44 suggests that earnings are backed by real cash generation, with the gap likely driven by non-cash charges like D&A and favorable working capital timing. This divergence supports the quality of earnings, but the quarterly swings highlight the importance of analyzing cash flows over a longer horizon rather than a single quarter.