Kingsoft Corporation Limited ($3888)

Good day, and thank you for standing by. Welcome to Kingsoft Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Yinan Li, IR Director of Kingsoft Corporation. Please go ahead.

Thank you, operator. Ladies and gentlemen, good evening, and good morning. I would like to welcome everyone to our 2026 first quarter earnings call. I'm Lean, the IR Director of Kingsoft. I would like to start by reminding you that some information provided during the earnings call may include forward-looking statements, which may not be relied upon in the future for various reasons. These forward-looking statements are based on our information and information from other sources, which we believe to be reliable. Please refer to the other publicly disclosed documents for detailed discussion on risk factors, which may affect our business and operations. Additionally, in today's earnings call, the management will deliver prepared remarks in both Chinese and English. A third-party interpreter will provide a consecutive interpretation into English. During the Q&A session, we will address the questions in both English and Chinese with alternating interpretation provided by the third-party interpreter. Onsite translation is always to facilitate communication during the conference call. In case of any discrepancy between the original remarks and the translation, the statements made by the management will prevail. Having said that, please allow me to introduce our management team who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO. Now I'm turning the call to Mr. Zou Tao.

Hello, everyone, and thank you all for joining Kingsoft's 2026 First Quarter Earnings Call. In the first quarter, we remain committed to technology empowerment and maintained strategic core focus. Kingsoft Office Group continued to deepen its core strategy of AI collaboration and internationalization and steadily advanced the implementation of AI service capabilities across office scenarios. For the online games business, we focus on premium games and long-term operations. We increased the investment in our stake in core games and actively expanding into new game genres. In the first quarter, the group recorded revenue of RMB 2.02 billion, representing a year-on-year increase of 3%. Revenue from office software and services business reached RMB 1.61 billion, up 24% year-on-year, maintaining steady growth. Revenue from online games and other business amounted to RMB 804 million, down 22% year-on-year. This was primarily due to the decline in revenue from existing games. Since its launch in January, Goose Goose Duck has focused on growth its user base with monetization in its early stage. Now I will walk you through the business highlights for the first quarter 2026. During the quarter, the results of the Kingsoft Office Group's R&D investment in AI and collaboration gradually became evident. Together with the improved effect from refined operations, all 3 core business segments achieved growth and the quality of earnings continue to improve. For WPS individual business, revenue reached RMB 975 million, representing a year-on-year increase of 13%. We continue to upgrade and integrate its AI products will further enhance refined operations in both domestic and overseas markets. The continued enhance of AI features effectively drove simultaneous growth in WPS AI monthly active users, paid conversion rates and average revenue per paying user. This supported stable revenue growth for the business. For WPS 365 business, revenue reached RMB 244 million, representing a year-on-year increase of 51%. We continue to upgrade our AI and collaboration product capabilities, which further strengthen our growth momentum in the enterprise market. Orders from large-scale customers continue to increase, driving rapid revenue growth. For WPS software business, revenue reached RMB 347 million, representing a year-on-year increase of 32%. Procurement demand for localization continued to grow and the government AI products have been rolled out in orderly manner across government departments. This provides stronger support for customers' digital and intelligent transformation and rapid revenue growth. For online game segment, our flagship game, JX3 Online continued to operate steadily with its active user base remaining stable. In terms of content, we not only launched innovative in-game event during the Spring Festival and the Lantern Festival, but also released a new expansion park shadow of Solvent Machine in April, continuously enriching our content offerings in terms of product, the flagship version completed refigure the quality of optimization, advanced game player integration and undergate platform technology upgrades. Going forward, we will increase R&D investment, continue to enhance game quality and further consolidate our core user ecosystem. Our classical GX series IP of PC Games reminded DC committed to long-term operations, continuously innovating content to strengthen the product heritage and [indiscernible] and the community ecosystem to bolster their loyalty. Goose Goose Duck performance well in the domestic market, gaining their recognization from localized content innovation and social games. Its user base continued to expand. In April, it ended the top of the App Store top growth chart with gross receipts gradually increasing, broadening our strategic presence in the parting and social deduction segments. Moving forward, we will focus on continued product refinement and long-term community operations, enhancing user engagement through high-quality interaction. Looking ahead, Kingsoft Office Group will continue to deepen its AI capabilities. We will focus on advancing the implementation of AI agent products, empowering intelligent office scenarios through WPS 365 and accelerating our international expansion. The online games business will continue to strengthen R&D investment in core games and leverage AI to enhance content creation, providing players with high-quality gaming experience. Next, I would like to invite Mr. Li Yi to introduce the financial performance for the first quarter of 2026. Thank you.

Thank you,. Good evening, and good morning, everyone. I will now discuss the first quarter financial results using RMB as currency. Revenue increased 3% year-over-year and decreased 8% quarter-over-quarter to RMB 2,470 million. The revenue split was 67% for office software and services and 33% for online games and others. Revenue from the office software and services business increased 24% year-over-year and decreased 8% quarter-over-quarter to RMB 1,630 million. The year-over-year increase was primarily attributable to the growth across 3 principal business of Kingsoft Office Group. The steady growth in WPS individuals business was primarily driven by the ongoing enhancement of AI capabilities, which drove growth in WPS AI monthly active users and commercial rate. The strong growth in WPS 365 business was mainly driven by continuous integration of AI and collaboration capabilities as well as the broader and deeper customer penetration in private enterprise and local state-owned enterprises. The growth in WPS software business was primarily supported by increasing demand from localization. The quarter-over-quarter decrease mainly reflected the seasonal decrease from WPS software business, partially offset by continued growth in WPS 365 business. Revenue from the online games and others business decreased 22% year-over-year and 7% quarter-over-quarter to RMB 803 million. The decreases were mainly due to decline in revenue from certain existing games, partially offset by revenue contributions from new games. Cost of revenue increased 16% year-over-year and 3% quarter-over-quarter to RMB 487 million. The year-over-year increase was primarily due to higher revenue sharing cost of new games as well as great server and bandwidth costs driven by the growing user base of the office software and services business. Gross profit increased 1% year-over-year and decreased 10% quarter-over-quarter to RMB 13 million. Gross profit margin decreased by 2 percentage points year-over-year and quarter-over-quarter to 80%. Research and development costs increased 40% year-over-year and decreased 1% quarter-over-quarter to RMB 942 million. The year-over-year increase was primarily driven by increased headcount and AI-related expenditures, reflecting the group's strategic focus of advancing AI capabilities. Selling and distribution expenses increased 60% year-over-year and decreased 5% quarter-over-quarter to RMB 395 million. The year-over-year increase primarily reflected higher personnel-related expenses and increased marketing expenditures for Kingsoft Office Group. The quarter-over-quarter decrease was mainly due to high base effect from promotional activities for Kingsoft Office Group in the prior quarter. Administrative expenses increased 8% year-over-year and decreased 7% quarter-over-quarter to RMB 188 million. The year-over-year increase was mainly due to higher personnel-related expenses and increased depreciation arising from the completion and operation of Wuhan campus. The quarter-over-quarter decrease primarily reflected a reduction in professional service fees. Share-based compensation costs increased 65% year-over-year and decreased 3% quarter-over-quarter to RMB 89 million. The year-over-year increase was mainly due to the grant of awarded shares to the employees of certain subsidiaries of the company in the past year. Operating profit before share-based compensation costs decreased 26% year-over-year and 20% quarter-over-quarter to RMB 484 million. Net other gains were RMB 82 million for this quarter compared with losses of RMB 22 million and gains of RMB 819 million for the first and the fourth quarter of 2025, respectively. The gains in the fourth quarter of 2025 were mainly due to that we recognized the gain on disposal of Kingsoft Cloud as a result of the dilution impact of issuing new shares. Share of profit of joint ventures were RMB 1,857 million for this quarter compared with losses of RMB 12 million for the first quarter of 2025 and profit of RMB 163 million for the fourth quarter of 2025, respectively. The profit in this quarter were primarily due to the net unrealized gains on equity investments. Share of losses of associates were RMB 111 million for this quarter compared with losses of RMB 153 million and RMB 132 million for the first and fourth quarter of 2025, respectively. Income tax expenses were RMB 230 million for this quarter compared with expenses of RMB 48 million and RMB million for the first and fourth quarter of 2025, respectively. As a result of this discussed above, profit attributable to owners of the parent was RMB 1,091 million for this quarter compared with profit of RMB 284 million and RMB 975 million for this quarter -- for the first and the fourth quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs was RMB 1,139 million for this quarter compared with profit of RMB 316 million and RMB 1,026 million for the first and fourth quarter of 2025. The net profit margin, excluding share-based compensation cost, was 47%, 40% and 39% for this quarter, the first and fourth quarter of 2025. The group had a strong cash position towards the end of the reporting period. As at 31st March 2026, the group had cash resources of RMB 27 million. Net cash generated from operating activities was RMB 89 million for this quarter, and net cash used in operating activities was RMB 102 million for the first quarter of 2025. And net cash generated from operating activities was RMB 1,133 million for the fourth quarter of 2025. Capital expenditure was RMB 81 million, RMB 121 million and RMB 67 million for this quarter, the first and the fourth quarter of 2025, respectively. That's all for the introduction of our operational and financial results. Thank you all. Operator, now we are ready for the Q&A session. Thank you.

[Operator Instructions] And our first question comes from the line of Liping Zhao of CICC.

I got 2 questions about the gaming business. So the company has undergone some strategic adjustment in your gaming segment. What is the revenue and profit margin outlook for this division? And what do you -- when do you anticipate the gaming revenue returning to growth trajectory? And second, could you walk us through the upcoming game release pipeline?

So I would like to answer the 2 questions. So regarding the first question, that is true that in the Q1 of this year compared with last Q1, it is true that we have like the products for like the JX3 and also for the Snow break, we have a limited drop and this trend is going to continue to the next section. And we're actually doing the internal adjustment. So our general strategy is that for the JX3, we're going to do a further investment and also to reach the more content for this game, and we could be able to further improve the customer experience. And I can see that the feedback from the customers that is going to be more and more positive, and they can feel our change and also give a pretty high reputation and comments for our games. That is why we believe that for the key point is that we're going to focus on the Q3 and Q4. And also in the future for the Q2, although the customer is going to have a better positive feedback to ours and this e-commerce is going to recover back. But from the income perspective, we believe that it's going to until Q3 and Q4, we could have a significant increase. And second point is that for the products like brands and categories is that in the Q3 and Q4, we're going to have some new type of products launched. In that, we probably going to reach our expectations financially. But we believe that it's going to until next year or the earliest is going to be Q4 this year. So the general situation of this year is going to be like we would like to answer -- my third [ quarter ] is that for this first and second [ section ], the Q1, Q2 for the game perspective, we already have some -- got some license. Like for example, we're going to have -- for example, we're going to have like cat and soap and also for like Bird and also like we have like the face of the [indiscernible] for the fourth and the type of products we're going to launch very quickly. And for the others, we didn't get the license, we're not going to talk too much about it. So this is going to be the core products for this year, and that's it.

We will now proceed to the next question from the line of Daley Li of Bank of America Securities.

I have 2 questions here. One is regarding our game business. Management mentioned we're going to have adjustments in last earnings call. And could you update us how is the progress and what results we are looking for? And what will be our strategy for the core game business we have? And in second half of this year, what type of new game we are trying to launch? And my second question is about the office business. And what will be the key growth driver for this year? And for example, like WPS 365 or the video overseas business? And how should we -- what will be our strategy to accelerate the business growth?

So actually, we can answer this question is that we cannot see the whole adjustment. We can say that this actually belongs to the whole section. And we actually did some adjustments. One part is for the Cone section, the other part is others. So we're going to separate into 3 parts. The first is that for the operation perspective, we would like to put more energy and more focusing on the projects which has a future good development potential. For some of the projects which doesn't have a strategic way to have a proper development, we're going to do some adjustment, no matter for the old project or new project. And the second is that we have a solid foundation. So especially for the JX series, especially for the JX3, this is the most important. So in the past 3 months, we actually have strengthened their investment for the JX3 series. So our customers can significantly fear it. And third is about the new layout. And typically for the game is that for this year, we have launched, but we plan to launch. But right now, at this moment, it's not that convenient to release that information because we didn't receive the yet and the product didn't get into the test section, and we are still doing the internal development. So it's not that convenient for us to release the name. And second part is about the AI creation, the new creation desire. So actually, in the past 1 month, we have already finished the Phase 1. So based on the AI competition, we actually have a lot of new products come out. We have more than 1,000 colleges actively getting involved, which has submitted more than 300 products. And we have selected all of them. which is like 70 to 80 of the products were accident. So we can expect that this like new category has achieved like results. And so we need to think about it. The first is that how we could successfully commercialize the excellent works and also we could make this activity into a regular development. And second is that how we can make a pretty successful commercialization for these excellent products. And third is that how we can do a proper adjustment. We could do some further investment for the foundation and also into this AI new way of the creation, how we could be able to create a better content and also provide a better service, better experience for our customers. In that case, we could be able to finish the first stage trial. So actually regarding this positive fact for the second question for the Kingsoft Office, the general development strategy is that we can call it as 1 horizontal and 3 vertical directions. So the 3 vertical direction, we can call it AI. And since 2023, the Kingsoft Office has about the development of AI from the 1.0 to 2.0. This is actually the name, the master line. And based on like together with the big module, have the new way and then office like collaboration system construction. At the beginning, we have this com and we also have a series of different AI products comes out. And we can see that the whole horental line, the AI actually go through all them. So from the vertical line, we can see that the personal WPS 365 and also we have like CF Creative. And currently, you see that 365 still keep a 65% -- more than 65% increase. we can see is that more and more companies could accept the WPS 365. And this is actually the core driver to drive the increase. And secondly is about like the self creation. We can see that have kept up for more than 30% increase. So my personal judgment is that in the future, and while we have like new star and also old star to have the transformation in the future, the development space is going to have more and more opportunity. And together with like this year has widely coverage and more and more people is going to recognize it and would like to use it. So the AI is actually for the working efficiency is going to have a tremendously increase. That is why we believe that this is going to have a bigger space for increase in the future. From the person for the individual perspective, we believe that for the PC users, we can see that for the PC users' perspective, the increase based on the 300 million basic users we have, we still keep a 10% increase. That is why more and more customers have recognized that AI can help them to increase their working efficiency a lot and also the number of the users and also the payer rate is going to be increased quite a lot. That is why we can see that we still have a very big space for the increasement for the office business. And this is actually a very good stage. Since 2023, we have a strategic opportunity that AI is going to strengthen the office and from AI to native, it's going to have a step-byferent improvement and also the technology also have a very big improvement. So generally speaking, from the office, either for the BN or CN and also for the overseas, we can also separate into different sections. It's actually the same. You have a very big demand. So we can see that we have a very big space, and we believe that our customer is going to be it together with us, and this is going to be a core like driving power for us to develop in the future.

We will now take our next question from the line of Linlin Yang of Guangfa Securities.

My first question is Goose Goose Duck with the game peaked at #5 on the bestseller chart in April, yet its ranking has fluctuated recently. What's your outlook on its future revenue performance and operational plan? The second question is about WPS. As agent solutions are deployed on a large scale, the new pay-as-you-go model has impacted the traditional pricing system. So will WPS adjust its pricing model going forward? How will it affect revenue?

So from the game perspective for actually the good back. And basically, currently, we can see that from the income perspective, this is quite stable. And so we can see that in the April and May is quite stable and most probably is that for the product general plan and strategy, we actually separate into 2 parts. The first is that we need to maintain the rich content of this game to provide a better customer service. This is first thing. And second is that we make this judgment of this market is that we still have a lot of customers we didn't get in touch with. So we would like to continue to make a bigger volume for their customers and increase the volume for the users. This is going to be the priority, and then we could be able to like increase the value. And third is that we plan like based on the different seasons, like each season, we're going to have a tremendous version like launch out. And we're going to constantly reach the playway and content of the game. In that case, we could be able to like have a higher volume of the users. And we hope that and when we could have certain stable and pretty high volume of users, then we could be able to get more income. This is going to be like our target. And in the second stage is that once we're going to have proper stable users and then we can step by step get into the commercialization to increase their income. So currently, generally speaking, is that after launch of the game, and we can see the performances of this game. And basically, for the 2 core targets, we are quite confident for it. The first is that the users' quantity will be higher and then we could be able to trade the commercialization. So recently that we are actually made the plan for the July version. So currently, for the specific action, it's not convenient for us to release it because we can only say that we are actively prepare the version in July. So actually -- so regarding the second question that I would like to see from another perspective, the con is that from this mode from the traditional mode is that whether we could be able to affect it. So here is going to get back to just I mentioned for the horizontal and 3 vertical. So I would like to see is that when we are facing to the AI new technology, what exactly the change we have? So this is actually for the new things probably people don't know that much about it. So I would like to firstly describe about the 2B end. So like for the cohort. So initially for the like Kingsoft collaboration plus co-MI'ing to completely realize the enterprise level of the off mixture. It is not like traditional way. This is actually the product optimization. And all we can see is that privacy you compared with the private part, you already have this AI product matrix. So it means that WPS collaboration plus the AI com. This is actually completely like enterprise level of AIOS. So this is actually we just launched. And internally, they also use it. So this is actually like tightly follow up with the AI technologies improvement. We actually follow up with this and to constantly improve our sales. This is not like a fixed mode. We are actually -- together with the technology improvement, we are doing the improvement as well. So this is actually helping our customers from the traditional office to the AI office. So this is actually to be. And so we can see that from the Link 1.0 to 2.0 in July, we're going to release some different version. And also from the CN, we also provide a different update the agency to our customers to use it and compared with the previously the content creation sharing and until right now, we have the AI area to have some creation sharing mode. We can see that mostly we can think about is that whether our service could be good enough. So actually, we are constantly reach our content compared with the previous increasement like speed. We can -- we believe that our customer could be excessive because we can see that this is not just a pricing system strategy and question. This is actually the product service ability where we could be able to follow up with that. So either for the 2B and or 2C, we can not only could follow up with several years, but we can see that in the AI application, the creative mentioned that how we could be able to have a better use for the AI technology in the office area, either for the internally or externally. We can see that we are very suitable for this area.

We have now reached the end of the question-and-answer session. I'd now like to turn the conference back to Ms. Yinan Li for closing comments.

Thank you for joining us today, and this will conclude our presentation for the 2026 fourth quarter earnings call. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.