CAPCOM CO.,LTD. FY2027 Q1 Earnings Report

Quick View

Executive Summary

Capcom recorded substantial increases in both revenue and earnings, driven by strong sales of major titles and catalog products in its core Digital Contents Business. Revenue was ¥704.1B (+54.7% YoY), Operating Income was ¥410.5B (+66.9%), Ordinary Income was ¥414.5B (+81.1%), and Net Income attributable to owners of the parent was ¥291.6B (+69.2%), with all items recording double-digit growth. Operating Income growth outpaced Revenue growth, and the Operating Margin improved to 58.3% from 54.1% in the same period of the previous year. This improvement was attributable to the higher sales mix of the high-margin Digital Contents Business, together with improvements in both the gross profit margin and the SG&A expense ratio.

Factors Affecting Performance

【Revenue】Revenue increased 54.7% YoY to ¥704.1B. By segment, Digital Contents led the overall performance with revenue of ¥546.5B (77.6% of total, +83.0% YoY), while Amusement Facilities also recorded higher revenue of ¥67.6B (+20.6%). In contrast, Amusement Equipments posted lower revenue of ¥71.0B (-9.2%), and Other Businesses declined to ¥19.0B (-14.6%).

【Profit and Loss】Operating Income increased 66.9% YoY to ¥410.5B, outpacing revenue growth, and the Operating Margin improved by +4.2pt to 58.3% from 54.1% in the previous year. Both the gross profit margin, at 69.3% (68.1% in the previous year, +1.2pt), and the SG&A expense ratio, at 11.0% (14.1% in the previous year, -3.1pt), improved, indicating the emergence of operating leverage. Ordinary Income was ¥414.5B (+81.1% YoY). Non-operating income of ¥5.6B, mainly interest income, and non-operating expenses of ¥1.6B, mainly foreign exchange losses, were largely offset, resulting in Profit Before Tax of approximately the same level at ¥414.5B. No extraordinary gains or losses were recorded. After deducting income taxes of ¥122.7B (effective tax rate: 29.6%), Net Income attributable to owners of the parent was ¥291.6B (+69.2% YoY). Revenue and earnings increased.

Segment Analysis

Digital Contents serves as the core of the business in terms of both revenue and profit. Revenue was ¥546.5B (+83.0% YoY), Operating Income was ¥376.0B (+87.5%), and the profit margin was 68.8%, substantially exceeding the company-wide margin of 58.3%. Amusement Equipments recorded lower revenue and earnings, with revenue of ¥71.0B (-9.2% YoY) and Operating Income of ¥40.5B (-17.6%), while maintaining a high profit margin of 57.0%. Amusement Facilities recorded higher revenue of ¥67.6B (+20.6%), but Operating Income declined to ¥9.0B (-4.5%), with a profit margin of 13.3%, substantially below the company-wide average. Other Businesses, including the Character Business, recorded revenue of ¥19.0B (-14.6% YoY), Operating Income of ¥12.7B (-7.5%), and a profit margin of 66.6%. Digital Contents accounted for more than 90% of company-wide Operating Income, confirming a business portfolio structure heavily concentrated in Digital Contents.

Key Financial Metrics

【Profitability】The Operating Margin improved to 58.3% from 54.1% in the previous year, while the Net Profit Margin improved to 41.4% from 37.9%. The increase in the gross profit margin to 69.3% from 68.1% reflects the higher margins of Digital Contents and the increased sales mix of catalog products.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥271.5B, representing 0.93x Net Income attributable to owners of the parent of ¥291.6B. The OCF-to-EBITDA ratio was only 0.64x, based on EBITDA of ¥422.3B, calculated as Operating Income plus depreciation and amortization. Payments of income taxes of ¥145.6B and the reversal of the provision for bonuses of ¥55.5B were factors weighing on OCF.【Investment Efficiency】ROE was 10.2%. Given the high Equity Ratio of 84.1% (78.8% in the previous year), ROE was relatively subdued compared with the accumulation of equity.【Financial Soundness】Cash and deposits of ¥1,612.1B accounted for 47.2% of total assets of ¥3,413.1B. Against current assets of ¥2,577.2B, current liabilities were ¥387.1B, resulting in a current ratio of approximately 666%. Interest-bearing debt was virtually nonexistent, and financial leverage remained low.

Cash Flow Analysis

OCF was ¥271.5B, a substantial increase from ¥51.7B in the previous year. In addition to the increase in Net Income, the ¥158.0B decrease in trade receivables made a positive contribution, while income tax payments of ¥145.6B and the ¥55.5B decrease in the provision for bonuses were negative factors. Investing Cash Flow was positive at ¥210.6B, as proceeds from the redemption of time deposits of ¥250.2B exceeded expenditures including capital expenditures of ¥37.4B. As a result, Free Cash Flow (OCF + Investing Cash Flow) was ¥482.1B, comfortably exceeding cash outflows from financing activities of ¥110.5B, including dividend payments of ¥106.6B. Cash and cash equivalents at the end of the period stood at ¥1,407.5B, increasing from ¥1,028.3B in the same period of the previous year.

Earnings Quality

No extraordinary gains or losses were recorded during the period, and earnings were primarily generated by core operating activities. Non-operating income of ¥5.6B represented only 0.8% of revenue, with interest income of ¥5.1B as the primary component, indicating limited dependence on non-recurring factors. Non-operating expenses of ¥1.6B included a foreign exchange loss of ¥1.2B, but its impact on Ordinary Income of ¥414.5B was immaterial, and Ordinary Income and Profit Before Tax of ¥414.5B were almost identical. After deducting income taxes of ¥122.7B (effective tax rate: 29.6%), Net Income attributable to owners of the parent was ¥291.6B. Comprehensive Income was ¥296.9B, with the difference from Net Income limited to ¥5.3B. Foreign currency translation adjustments of +¥7.9B made a positive contribution, while deferred hedge gains and losses of -¥2.7B made a negative contribution; both were small in scale, and the discrepancy was limited. The fact that OCF was only 0.93x Net Income was attributable to working capital factors, namely tax payments and the decrease in the provision for bonuses. Although this does not materially impair earnings quality, it should be noted as a time lag in cash conversion.

Earnings Forecasts and Guidance

Against the full-year company plan, progress was 33.5% for Revenue (70.4/210.0B), 49.5% for Operating Income (41.1/83.0B), 49.9% for Ordinary Income (41.5/83.0B), and 50.3% for Net Income (29.2/58.0B). This significantly exceeded the standard Q1 progress rate of 25%, with profit items already achieving approximately half of the full-year plan. This early progress appears to have been driven by the strong launch of major titles and catalog sales. The company has not revised either its earnings forecast or dividend forecast, and it should be noted that the high progress rate does not immediately imply a change to the full-year plan.

Shareholder Returns

The annual dividend forecast is ¥23.00 per share, representing a planned increase from the previous fiscal year’s actual dividend of ¥20. Based on an average number of shares outstanding during the period of approximately 418M shares, total annual dividends are estimated at approximately ¥96B, implying a Payout Ratio of approximately 16.6% against the full-year Net Income forecast of ¥580B. Q1 Free Cash Flow of ¥482.1B substantially exceeded the expected annual dividend amount, indicating that the dividend burden is limited relative to cash generation capacity. No disclosure regarding share repurchases has been made, and shareholder returns are evaluated based on the Payout Ratio.

Risk Factors

1. Concentration in the Digital Contents Business: Digital Contents accounts for 77.6% of revenue and more than 90% of Operating Income. The title cycle and release timing of key franchises may therefore cause fluctuations in quarterly performance.

2. Working Capital Turnover Efficiency: Trade receivables decreased 47.4% YoY to ¥175.1B, but the OCF-to-Net Income ratio remained at 0.93x and the OCF-to-EBITDA ratio at 0.64x, confirming a time lag in cash conversion.

3. Early Progress Against the Full-Year Plan: The progress rates for Operating Income and Net Income were approximately 50%, a high level for Q1. Strong performance in the first half may fluctuate depending on the pace of title releases in the second half and thereafter.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Profitability substantially exceeded the industry median and was at an exceptional level even within the IT and communications sector.

Growth and Capital Efficiency

Revenue growth also substantially exceeded the industry median, demonstrating a growth pace at the top level within the industry.

※Source: Compiled by the Company

Key Takeaways from the Financial Results

1. Profitability was exceptional compared with the industry benchmark, with an Operating Margin of 58.3% versus an industry median of 8.0%. The high-margin structure of the Digital Contents Business is driving company-wide profitability.

2. Q1 progress against the full-year plan was high at 49.5% on an Operating Income basis, confirming the characteristic that quarterly performance is susceptible to title release timing.

3. The financial foundation is conservative, with an Equity Ratio of 84.1% and cash and deposits of ¥1,612.1B, providing capacity to implement the planned dividend increase with a Payout Ratio of approximately 16.6%.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥955–¥1,015 at ±1% for the cost of equity, and ¥976–¥997 at ±0.1 for ω.

Notes:

• Amortization of goodwill of ¥0.2 per share has been added back to earnings (as a non-cash expense and for comparability with IFRS companies).
• Since Net Income progress against the full-year forecast (50%) exceeds the standard level (25%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies ahead of plan tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Net assets as of the end of the quarter have been used (there is a timing difference from the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated at a somewhat high level.

(Calculation model: Residual Income Model / Interest Rate Reference Month: 2026-06 / This value does not predict or guarantee future share prices)

---

This report is an earnings analysis document automatically generated by AI based on XBRL financial summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting professionals as necessary.

---End of Report---

---

AI Financial Analysis

Executive Summary

Capcom delivered an exceptionally strong FY2027 Q1, with revenue growth translating into materially faster operating and net-profit growth. Revenue rose 54.7% year on year to ¥704.1bn-equivalent? No—the reported unit is ¥100m, therefore revenue was ¥70.41bn. Operating income increased 66.9% to ¥41.05bn, while profit attributable to owners rose 69.2% to ¥29.16bn. The operating margin expanded by 420bp year on year to 58.3%, from 54.1%. Gross margin improved by roughly 120bp to 69.3%, demonstrating favorable product mix and strong digital-content economics. SG&A increased 20.6% to ¥7.73bn, substantially below revenue growth, lowering the SG&A-to-sales ratio by approximately 310bp to 11.0%. Digital Contents was the decisive earnings driver, with segment revenue increasing 83.2% and segment profit increasing 87.4%. The core Digital Contents segment generated ¥54.65bn of revenue and ¥37.60bn of segment profit, equivalent to an exceptional 68.8% segment margin. Amusement Facilities achieved revenue growth but saw a modest segment-profit decline, while Amusement Equipments recorded lower revenue and profit. Ordinary income growth of 81.1% exceeded operating-income growth, supported by ¥0.51bn of interest income and much lower foreign-exchange losses. Net income was not distorted by extraordinary items, supporting the recurring character of reported earnings. Operating cash flow was ¥27.15bn and covered 93% of net income, which is adequate though below the level normally associated with the highest cash-earnings quality. Cash conversion, measured as OCF/EBITDA, was 0.64x and is a material quality alert, indicating that only 64% of EBITDA converted to operating cash flow during the quarter. Receivables declined ¥15.78bn year on year, which supported cash generation and reduces concerns over revenue being funded through extended customer credit. The balance sheet remains exceptionally conservative, with cash and deposits of ¥161.21bn, a current ratio of 665.7%, and D/E of just 0.19x. Q1 revenue progress reached 33.5% of the full-year forecast and operating-income progress was 49.5%, both ahead of the standard 25% Q1 run rate. The substantial front-loading indicates that the current full-year plan may be conservative or reflects a release schedule concentrated in the first quarter; subsequent digital sales momentum and the release pipeline will determine whether this outperformance persists. The forecast was not revised despite the strong start, appropriately preserving caution given the inherent hit-driven nature of the game software business.

Profitability Analysis

Annualized DuPont ROE was 40.6%, comprising a 41.4% net profit margin, 0.825x asset turnover, and 1.19x financial leverage. The principal source of annualized ROE strength is profitability rather than leverage: Capcom earns very high margins while maintaining a low-leverage balance sheet. Financial leverage of 1.19x is conservative and means returns are not dependent on aggressive debt financing. The Q1 operating margin increased to 58.3% from 54.1% in the prior-year quarter, a 420bp expansion, and was the most significant earnings improvement. Gross margin improved to 69.3% from approximately 68.1%, while SG&A rose only 20.6% against 54.7% revenue growth, evidencing powerful operating leverage. EBITDA was ¥42.23bn and the EBITDA margin was 60.0%, reinforcing the cash-generative potential of the digital-content model before working-capital and tax effects. The five-factor decomposition is also favorable: the tax burden was 0.703, interest burden was 1.010, and EBIT margin was 58.3%. Interest burden above 1.0x reflects net non-operating income, primarily interest income, rather than an interest-cost drag. Interest coverage of 5,131.75x confirms that financing expense is immaterial to the earnings structure. Under JGAAP, goodwill amortization was only ¥0.02bn, or approximately 0.1% of EBITDA, and therefore has no material effect on comparability with IFRS peers. Segment profitability was led by Digital Contents, the core business, where segment profit rose from ¥20.06bn to ¥37.60bn and margin expanded from 67.2% to 68.8%. Amusement Facilities revenue increased 20.6% to ¥6.76bn, but segment profit declined 4.5% to ¥0.90bn and margin compressed from 16.8% to 13.3%. Amusement Equipments revenue declined 9.2% to ¥7.10bn and segment profit declined 17.6% to ¥4.05bn, reducing margin from 62.8% to 57.0%. Other businesses, including character business, saw revenue decline 14.6% to ¥1.90bn and segment profit decline 7.5% to ¥1.27bn, although margin improved to 66.6%. The profit structure is thus increasingly concentrated in the highly profitable Digital Contents franchise, which is favorable for margins but increases sensitivity to title performance.

Growth Assessment

Revenue growth of 54.7% and operating-income growth of 66.9% demonstrate both strong demand and incremental margin scalability. Digital Contents accounted for ¥54.65bn, or 77.6% of consolidated revenue, and generated the overwhelming majority of segment profit, making it the primary determinant of group growth. The segment's 83.2% revenue increase indicates a strong quarter for software sales and catalog monetization, with the margin gain suggesting favorable digital distribution mix. Consolidated gross profit rose 57.3%, slightly faster than revenue, validating the positive mix effect. Operating income rose faster than gross profit because fixed corporate and selling expenses grew much more slowly than sales. The full-year sales forecast is ¥210.0bn, implying Q1 progress of 33.5%, 8.5 percentage points above the standard 25% Q1 progress rate. Full-year operating-income guidance of ¥83.0bn implies Q1 progress of 49.5%, 24.5 percentage points above the standard pace. Full-year net-income guidance of ¥58.0bn implies Q1 progress of 50.3%, also substantially ahead of a standard Q1 trajectory. This front-loaded performance creates potential upside to current forecasts if digital sales momentum, new releases, and catalog demand remain resilient. However, quarterly results in game publishing can vary sharply with launch timing, post-launch sales curves, platform promotions, and the market reception of individual titles. Amusement Facilities' profit decline despite revenue growth indicates that growth outside the digital business has lower operating leverage in the current period. The decline in Amusement Equipments suggests that hardware or arcade-equipment demand did not participate in the group-wide growth surge. The two-period consistency score of 2/10 should be interpreted as evidence of a volatile quarter-to-quarter earnings pattern rather than a deterioration in current operating momentum. Sustainability should therefore be assessed through digital title sales, catalog durability, release timing, and the ability to retain the elevated Digital Contents margin.

Financial Health

Financial health is very strong. Current assets were ¥257.72bn against current liabilities of ¥38.71bn, producing a current ratio of 665.7% and working capital of ¥219.01bn. The quick ratio was similarly robust at 657.9%, showing that liquidity is overwhelmingly supported by cash and receivables rather than inventories. Cash and deposits totaled ¥161.21bn, equal to 47.2% of total assets and nearly three times total liabilities of ¥54.39bn. D/E was 0.19x, well below the 1.0x conservative benchmark and far from the 2.0x level that would warrant an explicit leverage warning. Total liabilities represented only 15.9% of total assets, while total equity was ¥286.92bn. Interest expense was only ¥0.08bn, and EBITDA interest coverage was 5,279.12x, leaving no meaningful debt-servicing pressure. Current liabilities of ¥38.71bn are fully covered by cash alone, so there is no short-term maturity mismatch. Accounts receivable fell 47.4% year on year, from ¥33.28bn to ¥17.51bn, improving balance-sheet efficiency and reducing the amount of sales capital tied up in customer balances. Accounts payable fell 30.4% year on year, from ¥4.08bn to ¥2.84bn, which partly offsets the cash benefit from lower receivables but does not alter the strong liquidity position. Total liabilities decreased by ¥17.20bn year on year, or approximately 24.0%, driven primarily by lower current liabilities. Total equity increased ¥19.21bn, or 7.2%, supported by retained earnings and positive comprehensive income. Treasury stock was ¥49.87bn, representing 14.6% of total assets, and the 114.69m treasury shares materially reduce the average share count used for EPS. Capital expenditure of ¥3.74bn exceeded depreciation and amortization of ¥1.18bn by 3.17x, indicating continued investment in production capacity and development infrastructure rather than underinvestment.

Notable B/S Changes

Accounts receivable: -¥15.78bn (-47.4%) to ¥17.51bn - substantially improved cash collection and lower working-capital intensity; this decline supported Q1 operating cash flow. Accounts payable: -¥1.24bn (-30.4%) to ¥2.84bn - lower supplier balances partly offset the cash benefit from receivable collection and may reflect payment timing. Total liabilities: -¥17.20bn (-24.0%) to ¥54.39bn - further strengthens an already conservative balance sheet and reduces financial risk. Total equity: +¥19.21bn (+7.2%) to ¥286.92bn - earnings accumulation and positive comprehensive income increased capital resilience. Cash and deposits: +¥13.21bn (+8.9%) to ¥161.21bn - liquidity remains very high at 47.2% of total assets.

Cash Flow Quality

Operating cash flow was ¥27.15bn, equivalent to 0.93x net income of ¥29.16bn. This is below a 1.0x high-quality cash-conversion threshold but remains above the 0.8x level that would indicate a more serious accrual-quality concern. The accruals ratio was only 0.6%, which supports the view that reported earnings are not heavily dependent on aggressive accrual accounting. The mandatory quality alert is low cash conversion: OCF/EBITDA was 0.64x, below the 0.7x warning threshold. The root cause is that EBITDA of ¥42.23bn was not fully converted into operating cash flow after working-capital movements, bonus provisions, and cash tax payments. Cash income taxes paid were ¥14.56bn, a meaningful use of operating cash and an important reason why cash flow trails EBITDA. The ¥5.55bn reduction in bonus provisions was also a cash-flow headwind relative to earnings. In contrast, the ¥15.80bn reduction in trade receivables was a major positive working-capital contributor, consistent with collection of previously recognized sales. Inventories increased by ¥0.63bn, but the absolute inventory balance of ¥3.03bn remains low relative to revenue and does not signal material inventory accumulation. Cash dividends paid were ¥10.66bn, which were amply covered by operating cash flow. Reported free cash flow was ¥48.21bn, reflecting positive investing cash flow of ¥21.06bn. This investing inflow was materially influenced by time-deposit activity, including ¥25.02bn of proceeds from time deposits, and should not be interpreted as recurring operating free cash flow. A more conservative operating free-cash-flow proxy, operating cash flow less capital expenditures, was ¥23.41bn, still positive and sufficient to fund the quarter's ¥3.74bn capital expenditure. The positive cash balance movement of ¥37.92bn further strengthens already substantial liquidity, although investment cash-flow inflows should be separated from underlying operating cash generation when assessing recurring cash yield.

Dividend Sustainability

The full-year dividend forecast is ¥46.0 per share against forecast EPS of ¥138.65, implying a dividend payout ratio of approximately 33.2%. This is comfortably below the 60% sustainability benchmark and leaves substantial earnings capacity for investment, acquisitions, balance-sheet resilience, or additional shareholder returns. Q1 EPS was ¥69.71, already equal to 50.3% of forecast full-year EPS, providing a strong earnings base for the planned dividend. Operating cash flow of ¥27.15bn exceeded cash dividends paid of ¥10.66bn by approximately 2.5x. Capital expenditure of ¥3.74bn was also covered by operating cash flow after dividends, leaving positive internally generated cash before considering investing inflows. The conservative D/E ratio of 0.19x and cash and deposits of ¥161.21bn provide substantial balance-sheet support for dividend continuity. The planned payout remains prudent even if earnings normalize from the unusually strong first-quarter run rate. No share repurchases were reported for the period, so the relevant distribution measure is the dividend payout ratio rather than a total return ratio. Dividend sustainability is therefore strong, with the principal sensitivity being the volatility of future software-release performance rather than financial capacity.

Risk Assessment

Business risks include Digital-content concentration is high: Digital Contents represented 77.6% of consolidated revenue and is the primary source of group profit, increasing sensitivity to the sales trajectory and critical reception of major titles., The game publishing model is inherently hit-driven, with quarterly revenue and earnings influenced by release timing, sell-through, platform promotion, catalog performance, and the longevity of individual franchises., Amusement Facilities generated revenue growth but segment profit declined 4.5%, with margin falling to 13.3%, indicating cost, traffic, or operating-efficiency pressure in the physical entertainment business., Amusement Equipments revenue declined 9.2% and segment profit declined 17.6%; sustained weakness could reduce diversification outside digital software., Industry-specific risks include intensified competition for player engagement, rapid shifts in console and PC platform economics, digital storefront terms, content-development cost inflation, cybersecurity exposure, and piracy..

Financial risks include The low cash-conversion alert is material: OCF/EBITDA of 0.64x means cash realization lagged EBITDA despite strong reported profits., Operating cash flow was 0.93x net income rather than above 1.0x, making tax payments, provisioning movements, and future working-capital normalization important to monitor., Positive reported free cash flow of ¥48.21bn includes positive investing cash flow associated with time-deposit activity, so it overstates recurring operating free cash flow., Foreign-exchange losses were ¥1.23bn, demonstrating some sensitivity of non-operating results to currency movements, although the impact was immaterial relative to operating profit..

Key concerns include The Q1 operating-income progress rate of 49.5% versus the full-year forecast is unusually high; investors should assess whether this represents sustainable outperformance or earnings pulled forward by the release calendar., Digital Contents segment margin reached 68.8%, an exceptionally high level that may normalize if the sales mix shifts toward lower-margin products, marketing intensity rises, or development costs increase., The decline in receivables materially supported working capital; subsequent quarters may not receive the same cash-flow benefit., Capex at 3.17x depreciation indicates active investment, which is strategically positive but requires continued content monetization to sustain high returns..

Investment Implications

Key takeaways include FY2027 Q1 combined 54.7% revenue growth with 66.9% operating-income growth, driven by high-margin Digital Contents and strong operating leverage., Operating margin reached 58.3%, up 420bp year on year, while Digital Contents achieved a 68.8% segment margin., The capital structure is exceptionally conservative, with ¥161.21bn of cash and deposits, a 665.7% current ratio, and 0.19x D/E., Q1 performance is substantially ahead of full-year guidance progress, especially for operating income and net income, but no forecast revision was made., Cash earnings remain positive and dividends appear well covered, though OCF/EBITDA of 0.64x requires attention..

Metrics to watch include Digital Contents revenue growth, segment margin, title sell-through, and catalog sales durability, Progress against full-year sales guidance of ¥210.0bn and operating-income guidance of ¥83.0bn, Operating cash flow relative to EBITDA and net income, particularly whether OCF/EBITDA improves above 0.7x, Receivables and bonus-provision movements, which materially affect quarterly operating cash flow, Amusement Facilities margins and Amusement Equipments demand recovery, Capital expenditure intensity relative to depreciation and the monetization of development investment, Foreign-exchange gains or losses and their effect on ordinary income.

Regarding relative positioning, Capcom's current financial profile is characterized by unusually high profitability, a digital-content-led earnings mix, and an exceptionally strong net-cash balance sheet. Its 58.3% operating margin, 40.6% annualized ROE, and negligible interest burden position it strongly relative to typical entertainment and software publishers, while the main comparative vulnerability is greater exposure to title-cycle volatility and a Q1 cash-conversion ratio that is below the level implied by its EBITDA margin.