Good day, and thank you for standing by. Welcome to Q1 2025 Kingsoft Corporation's earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one-one on your telephone. You'll then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to turn the call over to Ms. Yinan Li, our Director of Kingsoft. Thank you. Please go ahead.
Thank you, Operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2025 first quarter earnings call. I'm Li Yinan, the 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 consecutive interpretation into English. During the Q&A session, we will accept questions in both English and Chinese, with alternating interpretation provided by the third-party interpreter.
On-site translation is solely to facilitate communication during the conference call. In case of any discrepancies 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.
[Foreign language]
Hello everyone, and thank you all for joining Kingsoft's 2025 first-quarter earnings call. We delivered a solid start to 2025 with steady performance. The group revenue reached RMB 2.34 billion, up 9% year-over-year. Kingsoft Office Group continued to focus on users, refining product experiences, strengthening WPS 365's leadership in enterprise collaboration, deepening AI integration in office productivity, and expanding our global footprint. Online game business continues its Premium Game Strategy, with flagship IPs and new game genres developing synergistically.
[Foreign language] [Foreign language]
Now, I will walk you through the business highlights of the first quarter 2025. This quarter, Kingsoft Office total revenue reached RMB 1.301 billion, marking a 6% year-on-year increase. By proactively addressing market shifts, refining operational strategies, and prioritizing the expansion of AI-active users, we successfully sustained growth in both our user base and paid subscription members. The WPS individual business generated revenue of RMB 857 million in first quarter, up 11% year-on-year. Domestically, the WPS individual business maintained steady growth, where overseas market achieved rapid revenue growth through the localized operations and differentiated feature offerings. As of March 31, 2025, WPS Office's global monthly active devices reached 647 million, an 8% year-on-year increase, including 301 million monthly active devices for the PC version, up 11% year-over-year, and 346 million for the mobile version, up 5% year-over-year.
WPS [Foreign language]
WPS 365 leverages its three core capabilities: document management, collaboration, and AI, to continuously empower institutional clients in achieving digital and intelligent office solutions. The platform has accelerated its adoption among private enterprises and local standalone enterprises, generating revenue of RMB 151 million in first quarter, 16.3% year-on-year increase. In March, we launched an upgraded channel strategy for enterprise customers, established an integrated partner ecosystem for self-service renewal to strengthen our presence in the enterprise AI office market. In April, we released an enhanced version of the Kingsoft Government Office model in Wuhan, introducing advanced reasoning capability to further drive the adoption of AI-powered government solutions across all levels of government departments.
[Foreign language]
Under the guiding principle of primary game strategy, our gaming business remains focused on deepening the legacy of the classic JX series, while expanding into new genres. This quarter, total revenue reached RMB 1.037 billion, a 14% year-on-year increase. In the first quarter, JX 3 Online solidified its core Wuxia player base through version updates and refreshed gameplay. In April, JX 3 Online launched its new expansion pack, Taiji Archives, returning to the core gameplay experience and reigniting player enthusiasm. For the anime shooter game Snowbreak: Containment Zone, a core product in this category, it maintained stable user engagement and positive reception thanks to its differentiated content and long-term operational strategy.
The sci-fi mecha game, Mecha Break, garnered widespread attention from global players and the industry during its testing phase, peaked at fifth on Steam's global wishlist, and is scheduled for release this summer. Additionally, Fate of the Empress: Zero, a classic sequel to the Empress series, will carry forward the IP's legacy, and it's planned for launch at the end of May.
[Foreign language]CFO Li Yi[Foreign language]
Looking ahead, Kingsoft Office Group will remain focused on AI collaboration and global expansion, sustaining R&D investment to transform innovative technologies into practical office productivity tools for users. In gaming, we will deepen ecosystem development for flagship IPs. We'll prioritize emerging genres such as anime style and sci-fi genres, strengthening content innovation capabilities to deliver more immersive and differentiated high-quality gaming experiences for players. Next, I would like to invite Ms. Li Yi to introduce the financial performance for the first quarter. Thank you.
Thank you, Yinan. Good evening and good morning, everyone. I will now discuss the Q1 financial results using RMB accounting. Revenue increased 9% year-on-year and decreased 60% quarter-on-quarter to RMB 2,338 million. The revenue split was 56% for office software and services and 44% for online games and others. Revenue from the office software and services business increased 6% year-on-year and decreased 30% quarter-on-quarter to RMB 1,301 million. The year-on-year increase was mainly attributable to the growth of WPS individual and WPS 365 businesses, partially offset by the decline of WPS software business of Kingsoft Office Group. The steady growth of WPS individual business was mainly driven by the expansion of user base and paying subscribers, supported by operational strategies to boost AI-active users and enriched membership benefits.
The robust increase of WPS 365 business primarily reflected our continuous efforts on assisting institutional clients in digital and intelligent office, along with the accelerated coverage of private enterprises and local state-owned enterprises. The decrease of WPS software business mainly reflected the adjustment of new procurement process in localization in 2025. The quarter-on-quarter decrease was mainly due to the decreased WPS software business. Revenue from the online games and others business increased 40% year-on-year and decreased 20% quarter-on-quarter to RMB 1,037 million. The year-on-year increase was mainly attributable to the revenue contribution by Anime Games Snowbreak: Contain ment Zone, and JX 3 Online, as the launch of JX 3 Ultimate in June 2024 enhanced player experience and boosted user growth and engagement.
The quarter-on-quarter decrease was mainly due to the release of fewer commercial content updates for JX 3 Online in the first quarter of 2025. Quarter-on-quarter revenue increased 6% year-on-year and decreased 7% quarter-on-quarter to RMB 419 million. The year-on-year increase was mainly due to the growth in server and bandwidth costs and the rising channel costs associated with new games. The quarter-on-quarter decrease was primarily due to the declined service costs of institutional clients and lower channel costs of Kingsoft Office Group. Gross profit increased 10% year-on-year and decreased 18% quarter-on-quarter to RMB 1,119 million.
Gross profit margin increased by 1 percentage point year-on-year and decreased by 2 percentage points quarter-on-quarter to 82%. Research and development costs increased 60% year-on-year and 30% quarter-on-quarter to RMB 828 million. The year-on-year increase was primarily driven by the increased headcount and rising AI-related expenses to support the development of AI and collaboration capabilities of Kingsoft Office Group, as well as enhanced investment in new game genres in new game business. The quarter-on-quarter increase was largely due to higher personal-related expenses, including accrued performance-based burden. Selling and distribution expenses increased 30% year-on-year and kept flat quarter-on-quarter to RMB 340 million.
The year-on-year increase was mainly driven by the greater promotional and advertising efforts in supporting testing and pre-launch activities of our new games. The quarter-on-quarter stability reflected increased marketing activities of new games, offset by reduced promotional spending of office software and service business. Administrative expenses kept flat year-on-year and increased 5% quarter-on-quarter to RMB 160 million. Share-based compensation costs decreased 13% year-on-year and 9% quarter-on-quarter to RMB 54 million. Operating profit before share-based compensation costs decreased 3% year-on-year and 44% quarter-on-quarter to RMB 655 million.
Net other losses were RMB 22 million for this quarter, compared with losses of RMB 4 million and RMB 74 million for the first and the fourth quarter of 2024, respectively. Share of losses of associates of RMB 153 million were recorded for this quarter, compared with losses of RMB 169 million and RMB 148 million for the first and the fourth quarter of 2024, respectively. Income tax expenses increased 40% year-on-year and decreased 77% quarter-on-quarter to RMB 48 million. As a result of reasons discussed above, profit attributable to owners of the parent was RMB 284 million, compared with profit of RMB 285 million and RMB 460 million for the first and the fourth quarter of 2024, respectively.
Profit attributable to owners of the parent, including share-based compensation costs, was RMB 360 million, compared with profit of RMB 329 million and RMB 496 million for the first and the fourth quarter of 2024, respectively. The net profit margin, including the effect of share-based compensation costs, was 14%, 50%, and 80% for this quarter, the first quarter, and the fourth quarter of 2024, respectively. The group had a strong cash position towards the end of the reporting period. As at March 31, 2025, the group had cash resources of RMB 26 billion.
Net cash used in operating activities was RMB 102 million for this quarter, and net cash generated from operating activities was RMB 329 million and RMB 1,826 million for the first quarter and the fourth quarter of 2024, respectively. Capital expenditure was RMB 121 million, RMB 150 million, and RMB 153 million for this quarter, the first quarter, and the fourth quarter of 2024, respectively. That's all for the introduction of our financial results. Thank you all. Now, we are ready for the Q&A section.
Thank you. As a reminder, to ask questions, please press star one-one and wait for a name to be announced. Our first question comes from the line of Xiaod an Zhang from CICC. Please go ahead.
[Foreign language]
So thanks, management, for taking my questions. First of all, as Seasun Games have just celebrated its 30th anniversary, so could management share your views on the strategic plans for gaming business going onwards, and also any updates on the launching schedules for Mecha Break? And secondly, could management update on the overseas business of WPS office business? Thank you.
[Foreign language]
So firstly, I would like to do the answer regarding the first question. Actually, for the season once, this game has been passed for 30 years. It's a very good topic. Internally, we have discussed several times as well. For this 30 years anniversary, I would like to share about my own opinion. The key thing is that how we can transfer this successful experience to the future, especially for the season once in the past 30 years. We withdrew the development of the whole game. We have some breakthroughs, but how we could make this continue in the future, this is going to be the core things. I think that firstly is that the passion, we love it very much, and we have to work hard on it.
From the strategy, there are three points. The firstly is that we need to follow the principle to make good quality game. Secondly is that we need to do the martial arts better. Except for to do the martial arts better, we also have to develop the other categories. The year before last year, we have released another game, and this year we're going to continue to have this restriction limitation. We think that the categories of the game should not be limited for the martial arts. We need to have multiple different types of games. Thirdly is that we need to make it internationally. In the past for this season once, especially in the 20 years anniversary, we have mentioned that our product, we only focus on this Chinese culture for the martial arts part.
The target players is mostly in China, and also the Chinese in overseas, and also the Southeastern countries. Generally speaking, the mainly players are in China domestic market. In the future, we need a target for the whole global market. We need to more actively develop this market. These are several things. We need to have a passion, we need to work hard, and we need to have a good quality product. Then multiple categories, internationalization. Basically, this is the future, the next stage, the development principle and ideas, we think.
Secondly is that regarding the restriction breaker, our initial plan is that after the test of March, we internally did some tests, and we collected some opinions from the players. We did some modification. Basically, we're going to release it in July. But at the beginning of June, we're going to organize an official announcement. During that official announcement, we're going to mention the exact time, what time and which country we're going to release, and what type of content we're going to release. Basically, based on that official announcement. Currently, we can see is that basically we're going to launch in July.
[Foreign language] [Foreign language]
Okay. So the second question is regarding the offering. So it's a choosing strategy for the whole offering this year, the core strategy, and also the future, how many years we're going to continue. Basically, we're going to focus on the AI, the collaboration, plus the overseas. Especially overseas, this is the first time to clearly mention after 2018. Because as we noticed that in 2018, they were blocked or paused. But this year, we mentioned this word, which is the overseas strategy. So regarding that, I would like to explain in the two perspectives. One is the product perspective, the other is operations perspective. For the product, we need to make a multiple languages version, target for the region we're going to work on in the future.
We're going to complete the multiple language version, including that we're going to have the comprehensive bilingual, multiple lingual versions in terms of the products, and also to make it easy to connect with the other things. Currently, we can see is that basically we can complete that in the middle or the end of June, and we can complete the multiple languages version. This is from the product perspective.
For the operations perspective, so that is quite a lot of content because in the first, the second year, basically we have selected the regions, and we analyzed our competitors, and we have the strategy with the different strategy, and also the combination to have a good organization for the whole team. We think that in June, we can complete all of that. But for the details, we believe that in June, when the time is good for us, we could have further communication with our investors. So this is target for this offering overseas content.
Another thing we would like to add is that not only for the offering, actually in the past, the overseas actually have a very strong ability for the safe growing. A lot of these Chinese companies, they would like to go overseas. We think that this is going to be a very good opportunity because we're going to fully consider that we're going to combine together with the other Chinese companies because we believe that if some of the region, we have a very good influence over that, probably we could have a combination together with the other Chinese companies, then this is going to be a very important consideration we would like to target for and make it into our strategy.
Hello, operator. We are ready for the next question.
Thank you. One moment for the next question. Our next question comes from Went ing Yu from CLSA. Please go ahead.
[Foreign language]follow up[Foreign language] The first question is regarding Mecha Break. Since last testing, could you please elaborate a bit more on what major optimization and changes have been implemented in this title, and how do you expect the performance post-launch? And the second question is, could you please share the recent trends in the active user base and ARPU of the JX 3 title? Considering the upcoming high base effect in the second half of the year, how do you foresee JX 3's revenue growth and the potential impact on our gross margin and operating margin? Thank you.
[Foreign language]
We would like to answer your question regarding this restriction breaker. We actually did the test. It's not a public test. This we can see is an extremely limited test. Based on that, we are currently doing some modifications in different parts. First, that is the bug. After we did the test, we realized that something is not to match with our initial design, either programming perspective or whatever. We're going to do these modifications accordingly. Secondly is from the design perspective, for example, the balance and also the playability and the durability. We're going to base it on the test results to do some adjustments based on underlying design. Thirdly is that based on the players' experience.
For example, some players told us that for this trial mecha, it could be enabled for them to collect it freely so that they could be able to play it once they started to play. Instead of wait for several times, they could be able to get it. In that case, they can give a better experience for the players. Also for the 6v6 module, we also need to do some modification because we get the information that it's going to influence the fairness. We're going to do the adjustment. After launching, and we're going to for the activities, we hope that we're going to have more activities to make the content more richer. Which means that after the previous task, this is part kind of the job we are doing and also the content we would like to modify.
Regarding the expectation, actually in our internal group, we have the basic line, we have middle line, we have higher line. But for the game, I always would like to give people a surprise instead of bad news. I still would like to wait until July when the game is officially released. We're going to give a more accurate, more reasonable, better result, and also the performance's conclusion for the whole year.
[Foreign language]
Okay. So actually regarding the JX 3, since Q1, their whole monthly active players and also the up value basically is quite good, but compared with Q4 of last year, so their year-over-year is slightly decreased. That is very common because for Q4, that is the biggest, most busiest season, and we're going to get their highest income during the whole year. So from the data perspective, generally speaking, it's quite stable. Secondly is for their second half year. Actually, I have at least answered five years that I still can remember since 2009 when it's officially launched. During that time, the game has already been passed for 16 years.
Since the 10th year, almost every year, either the analysts or the investors are going to ask this question because they think that for such a long time, why you still have the confidence that you can make it better and make it higher, better results and better performances? Even last year, we also asked about the same question, 2024 compared with 2023, because we know that 2024 is already their highest value historically. I would like to see is that the challenges still exist in the past 16 years. So whether the players would like to recognize it, whether the players still care about this type of game, it's going to have some technical and ways to do that. Up to now, we can see is that we still have the confidence to do it, and we're going to stably and operate properly for JX 3.
Of course, we cannot 100% give the whole market any certain promise because it's the same thing as that last year, at the beginning of the year when we had communicated with market. Our kind of the guidance was not that high. We didn't have a very high expectation for last year. But when it's complete of last year, it's quite good performances. So the reason is the same. Because for the game, it has a lot of uncertainty, no matter for the uncertainty is coming from ourselves. For example, we're going to have a new version, we're going to have the new content, how much it's going to attract the players, and we're going to have a lot of their internal elements.
Also externally, we also have a lot of challenges there, whether there are some new type of game launched into the world, whether they're going to have some challenges, whether the players themselves, they are tired of this type of martial arts games. So generally speaking, internally and externally, there are a lot of uncertainty. But anyway, we have the confidence to operate JX 3 good and well.
[Foreign language] I'll translate into English. Xiaomi has recently made breakthroughs in AI software large models. Is there an opportunity for Kingsoft to collaborate with Xiaomi in the AI field? And what potential forms could this cooperation take? Thank you.
[Foreign language] [Foreign language] [Foreign language]
Okay. So this is going to be a very good question. It's kind of strategic level question. Last year, in the beginning of last year, I have talked to the outside, always frequently mentioned that reaching 2023, the whole Kingsoft, so including the office, including the cloud, we're going to target for AI. That is why we call them all in. So in 2024, in June of 2024, Xiaomi actually officially announced that they're going to base on AI as the core development strategy. So basically, since Q3 of last year, I mentioned to the external world is that basically we have completed the WPS AI layout for the big module, for this WPS enterprise. We're going to base on Xiaomi as the core and cover of the officing, the gaming, and collaboration.
In the future, we're going to base on the core, Xiaomi's big module, to open their up level applications. So basically, the whole WPS enterprise is going to have this type of the layout for their AI strategy. That is why for this type, just now I have mentioned that I understand for the Kingsoft is a whole group, the Kingsoft group, including the cloud, including office, including game, the whole group. We have officially set up their AI product center on the 31st of March. So during the roadshow in March, I discussed with several of our investors that AI in the future is going to be the core power for their enterprises in the future. So my understanding is that basically all of their digital systems have to be rewritten by AI.
However, some of the enterprises, their company themselves has a very strong ability for the IT ability and AI ability. So themselves could upgrade themselves. But still, we have a lot of enterprises, they don't know how to get the value from AI. They cannot get the empowering from AI because they don't have the ability for the AI. So they have no idea how they could have empowered themselves. In that case, we think that we need to have, we believe that in the future, we're going to target for those type of the customers, and we need to firstly empower ourselves. We need to understand how to empower for the other enterprises. The way we need to do is that we're going to do our work. Before we empower the other people, we have to empower ourselves.
For the whole Kingsoft group, we need to, as quickly as possible, have the upgrading of ourselves. During the whole process, we're going to understand and control, we know exactly how we could get the empower through AI. After we complete that part, we're going to get the common things from this process, like different modules, different products, how we could have the empower for the other enterprises. Then we can add this into our service to finish the whole complete AI. The module is going to be the Xiaomi, and this is the basic logic. The up level applications, we're going to have this Kingsoft whole group, like the officing, the game, everything else. We're going to focus on their empower enterprises using AI. This is going to be the breakthrough in the future. As I mentioned previously, we need to upgrade ourselves.
Then we could be able to empower the other enterprises. This is the whole ecosystem, the whole AI ecosystem strategy for the WPS. For the details, we have mentioned previously is that we need to make ourselves intelligent enough. Then we could be able to empower the other enterprises. This is actually where we have better next step progress, where we have more collection than I would like to share with us more.
Thank you for the que stions. With that, I would like to hand the call back to the management for closing.
Hello. Thank you for joining us today. This will conclude our presentation for the 2025 first quarter earnings call. Thank you.
That concludes today's conference call. Thank you for your participation. You may now disconnect.