Good day, and thank you for standing by. Welcome to Kingsoft Corporation's third quarter 2025 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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. Please go ahead.
Thank you, Operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2025 third quarter earnings call. I'm Li Yinan, 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 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 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, our acting CFO. Now, I'm turning the call to Mr. Zou.
[Foreign language]
Hello everyone, and thank you for joining Kingsoft's 2025 third quarter earnings call. This quarter, we continue to prioritize strengthening our core businesses, with AI collaboration and internationalization as its strategic priorities. Kingsoft Office Group continues to deepen AI application scenarios and strengthen its brand and ecosystem development. Our online game business advanced the general experience and extended its global reach, notably with the global launch of the sci-fi game Metal Brick.
[Foreign language]
In the third quarter, Kingsoft's total revenue reached RMB 2.419 billion, representing a year-on-year decrease of 17% and a quarter-on-quarter increase of 5%. Specifically, our office software and services business maintained a steady growth momentum. This growth was supported by robust momentum in WPS software business, rapid growth of WPS 365 business, and steady growth in the WPS individual business. Revenue from online games and other businesses decreased primarily due to low revenue contributions from certain executive games, and because the new game is still in its early development phase and gradually builds its market influence.
[Foreign language]
Now, I will walk you through the business highlights of the third quarter 2025. In the third quarter, Kingsoft Office Group demonstrated overall improvement in its financial indicators, with continuously optimized profitability and a significant acceleration in revenue compared to the previous two quarters. For WPS individual business, the rollout and promotion of new AI-powered products, together with refined operations in both domestic and international markets, drove a steady increase in WPS AI monthly active users, paying subscribers, and user value. Revenue reached RMB 899 million, up 11% year-on-year. As of 13 September 2025, WPS Office's global monthly active devices reached 669 million, an increase of 9% year-on-year. Specifically, WPS Office PC versions' monthly active devices grew by 14% to 316 million, while the mobile versions' monthly active devices increased by 5% to 315 million.
[Foreign language]
For WPS 365 business, we continuously enhanced our collaboration and AI product offerings, achieving significant progress in expanding our customer base among private enterprises and local standalone enterprises, and strengthening our product competitiveness and industry influence. This segment continued its high growth trend, with revenue reached RMB 201 million, a significant increase of 17% year-on-year.
[Foreign language]
The WPS software business saw acceleration programs in localization projects. Our AI-enabled products for government scenarios continue to integrate and deploy across government agencies, supporting the digital and intelligent transformation of localization customers. Revenue for this segment reached RMB 391 million, up 15% year-on-year.
[Foreign language]
In the third quarter, for our online game business, our flagship game Jian Wang 3 Online celebrated its 16th anniversary in August, followed by the launch of its annual expansion pack in October, which delivered innovative new gameplay. The anime shooter game Snowbreak: Containment Zone maintained its core user base through long-term content updates and user operations. Sci-fi mecha game Jie Xian Ji has been continuously optimizing its gameplay and operations to enhance the player experience. Additionally, two international IP games, Goose Goose Duck and Angry Birds, are expected to launch this and next year in China, respectively.
[Foreign language]
Looking ahead, Kingsoft Office Group will stay committed to its core strategy of AI collaboration and internationalization, meeting the scenario needs from individual users to enterprises through its core product portfolio. The online games business will focus on developing high-quality content and expanding global publishing. It can see the long-term vitality of its classic franchises while driving the growth and sustainable development of new genres. Now, I will—ready for
CFO Li Yi [Language language]
Thank you, Zou and Yilan. Good evening and good morning, everyone. I will now discuss the third quarter operational and financial results using RMB as currency. Revenue decreased by 17% year-on-year and increased by 5% quarter-on-quarter to RMB 2,419 million. The revenue split was 33% for office software and services business and 37% for online games and other businesses. Revenue from the office software and services business increased by 26% year-on-year and 12% quarter-on-quarter to RMB 1,521 million. These increases were mainly attributable to the growth of WPS software, WPS 365, and WPS individual business of Kingsoft Office Group. The remarkable increase of WPS software business was primarily driven by the robust orders of localization projects. The rapid growth of WPS 365 business was mainly due to our continuous improvement in collaboration and AI products, as well as expansion of our customer base among private and local state-owned enterprises.
The steady growth of WPS individual business was primarily attributable to the increased number of paying subscribers, supported by our active promotion of AI futures and refined operations. Revenue from the online games and other business decreased by 47% year-on-year and 6% quarter-on-quarter to RMB 898 million. The decreases primarily reflected lower revenue from certain existing games, partially offset by the newly contributed from newly launched games. Cost of revenue increased by 3% year-on-year and 5% quarter-on-quarter to RMB 475 million. The year-on-year increase was primarily due to higher server and bandwidth costs, greater channel costs, as well as increased service costs of institutional clients, along with the business growth of Kingsoft Office Group, partially offset by the lower channel costs of online games business. The quarter-on-quarter increase was primarily due to higher channel costs and increased server and bandwidth costs both associated with online games business.
Gross profit decreased by 21% year-on-year and increased by 5% quarter-on-quarter to RMB 1,944 million. Gross profit margin decreased by 4% year-on-year and kept flat quarter-on-quarter to 8%. The year-on-year decrease was mainly due to the decline in the revenue contribution from certain self-development high-margin games. Research and development costs increased by 4% year-on-year and 5% quarter-on-quarter to RMB 100 million. The year-on-year increase was mainly attributable to higher investment in AI and collaboration products, partially offset by lower accrued performance-based earnings. The quarter-on-quarter increase was mainly driven by the increased headcount and AI-related expenses of Kingsoft Office Group. Selling and distribution expenses increased by 55% year-on-year and 33% quarter-on-quarter to RMB 564 million. These increases primarily reflected higher promotional and advertising expenditures associated with online games business. Administrative expenses increased by 7% year-on-year and 2% quarter-on-quarter to RMB 178 million.
The year-on-year increase was mainly due to higher personal-related expenses and increased depreciation arising from the completion and operation of our Wuhan Campus, which was constructed to support the group's long-term development. Share-based compensation costs increased by 37% year-on-year and 30% quarter-on-quarter to RMB 80 million. These increases were mainly due to the grants awarded shares to the selected employees of certain subsidiaries of the company. Operating profit before share-based compensation costs decreased by 70% year-on-year and 21% quarter-on-quarter to RMB 357 million. Net other gains were RMB 30 million for this quarter, compared with losses of RMB 63 million and gains of RMB 443 million for the third quarter of 2024 and the second quarter of 2025, respectively. Share of profits associated of RMB 5 million were recorded for this quarter, compared with losses of RMB 428 million and RMB 170 million for the third quarter of 2024 and the second quarter of 2025.
Income tax expense was RMB 66 million for this quarter, compared with income tax expense of RMB 31 million and RMB 104 million for the third quarter of 2024 and the second quarter of 2025, respectively. As a result of the reasons discussed above, profit attributable to owners of the parent was RMB 213 million for this quarter, compared with profit of RMB 413 million and RMB 532 million for the third quarter of 2024 and the second quarter of 2025. Profit attributable to owners of the parent, excluding share-based compensation costs, was RMB 277 million for this quarter, compared with profit of RMB 453 million and RMB 570 million for the third quarter of 2024 and the second quarter of 2025, respectively. The net profit margin, excluding share-based compensation costs, was 11%, 16%, and 25% for this quarter, the third quarter of 2024, and the second quarter of 2025.
The group had a strong cash position towards the end of the reporting period. As of 30 September 2025, the group had cash resources of RMB 26 billion. Net cash generated for operating activities was RMB 494 million, RMB 1,387 million, and RMB 767 million for this quarter, the third quarter of 2024, and the second quarter of 2025. Capital expenditure was RMB 72 million, RMB 109 million, and RMB 81 million for this quarter, the third quarter of 2024, and the second quarter of 2025. That's all for the introduction of our operational and financial results. Thank you all. Now, we are ready for the Q&A section. Thank you.
Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We will now take our first question from the line of Xiaodan Zhang from CICC. Please go ahead, Xiaodan.
[Foreign language] Thanks, management, for taking my question, and my first question is regarding the gaming business. Game revenue for the quarter is down both year-on-year and quarter-on-quarter. Could management elaborate on the operational strategies for existing game as well as the new game pipelines? Also, could you share some color on the update progress of Metal Brick? Regarding the office business, what are the main drivers behind the accelerated growth in Q3, and will this momentum be sustainable? Thank you.
[Foreign language]
Okay. Firstly, regarding the question for the games. We have discussed the privacy for the future and future strategy of the different versions. We currently have already obtained the version numbers, and we are going to be launching different games, including Jie Xian Ji and Goose Goose Duck, and also the other products. For the old games, we are mainly focusing on the Fate of Swords and also Snowbreak: Containment Zone. We are going to have the target for the customer, for the operation service. We are going to have the long-term upgrading the generations, including the new playway, including new content. We are going to continue to upgrade that. This is the regular way. Targeting the technology and operation, we are going to have some new improvements. This is relevant to the strategy of the game.
For the Merchant Break, because it has just launched for one season roughly, and the target for this game for the playway, for the operation, and also the rich content, we are still doing the operation and improvement. We think that we need longer time to give the answer.
[Foreign language]
Actually, regarding the growth factors, we think that we could take a look from three perspectives. I can see that basically they are all good, but I would like to separate into personnel, for the enterprise, and also the information innovation, three aspects to do the introduction. For the personnel, actually the growth rate of the members is we have the basic number, including the payment for the up value, and for the PCs, growth rate is actually out of exceeded of expectations. This is going to be the key things, which is the members. The second is the AI. Once we have released the 3.0 version, through the AI we have this monthly activity, members compared with last year is going to increase 20%, especially launch 3.0 version. Compared with the first half year, we have realized doubled, and this is the second point.
Another thing is that from the basic for the membership goals, we can see that the feedback from the users are quite good. We can see that basically it's exceeded than what we expected. It means that more and more enterprise customers, they started to accept us, and also for our product and service are quite satisfied. That is why we have increased the industry's competitiveness. Third is about the software and information, the information innovation. Regarding this part is that we can see that the Q3 is quite smooth, and it has increased 51% no matter for the personal or information innovation. Basically it's going to be a very positive situation. The growth element, whether we could be sustainable development, we would like to talk through three perspectives: personnel, enterprise, and information innovation.
Firstly, for the information innovation, that is kind of policy-oriented. Basically, we can realize more than 90% of the growth rate. This is from the short-term perspective. We can see that Q4 is quite good, probably because we're going to complete in 2027, but the acceleration is quite good. Unless we have the big policy direction, it's going to have some adjustment. Otherwise, we have the confidence that we could realize this much growth constantly. For the personal business, regarding the growth rate for these three businesses, we have realized more than 10% increase. From the increase of the membership, and secondly is the payment, is the payment conversion rate, and also the UP value. Up to now, we can see that the users' membership growth is quite good, and especially for the AI members, it's growth rapidly.
Generally speaking, we have confidence, but of course, it is a little bit lower than the expectation and then the enterprise membership growth. From the enterprise perspective, my personal judgment is that if we could realize the delivery, if the delivery is on time, in the future we have pretty big space to improve. In the next two years, we believe that we have more and more enterprise members to use our product. We can see that our productivity is quite good, and our service is going to have a reputation. For our team, we need to strengthen their internal and external cooperation to strengthen our delivery ability.
We believe that this has a certain pressure for us, but generally speaking, from this report, we can see a lot of data was renewed, including our R&D and our staff percentage, and also the investment of the R&D could reach 35%-36%. Previously, it was 32%-33%. We can see that we continue to do a further bigger investment for the R&D. This is, we believe, that it's going to be the very basic reason we could have such increase, especially Wuhan, the industrial center, started the construction was in 2018, and up to now it has become the largest industry base for Kingsoft. This is going to be a very solid foundation for us.
Hello, operator. We're ready for next question.
Thank you. We will now take our next question from the line of Wen Ting Yu from CLSA. Please ask your question, Wen Ting.
Hey, [Foreign language] My first question is, how does the company view the opportunities for WPS Office and 365 in international markets, and which countries or regions will be the strategic priorities, and how does management assess the competitive dynamics overseas, particularly against the Microsoft Office? The second question is about the online game. Over the next two years, on top of the two IP titles mentioned in our pipeline, which game genres will be the main focus in the company's pipeline, and how does management view the opportunities for games to expand into the overseas market? Thank you.
long. Please translate.
Okay. So regarding the first question, this is actually a very good question. From the strategic perspective, since last year we have raised the concept that AI collaboration plus overseas. From the data's perspective, the growth rate overseas is quite good from the users' members' perspective and also the other perspectives. Since started from this year, we have increased the overseas R&D investment. We actively did a lot of preparations for our to go overseas. From my perspective, especially when we talk about the competition with Microsoft, because our main competitor is Microsoft, our competition strategy overseas is that I think I would need to separate it from 2B and 2C two perspectives. For WPS in domestic market, we have actually gone through with the competition with Microsoft for almost 30 years up to now. It is a long term. Several key points.
The first is that from the edit tour to the content service platform, we have did this transformation because everybody really knows that if they're going to use our product, we're going to provide a module so our members target for the content and to have the PDF content transformation and also to search their content information, etc. This is actually very early stage we did this. Except for very early stage, we have the document edit tour, we also have provided the document content service to convert it into a platform. This is the first point. Secondly is that since 2013, we started the mobile end. This is actually early two years earlier than Microsoft. Actually for us, just an app would be solve all of the problems, but for Microsoft, it's going to be more complex.
Our package, the installation package, is smaller for the mobile end. That is why in overseas, a lot of customers actually know about us through the mobile end. We have the mobile end, we have these advantages, and in the past 10 years, we have collected pretty good foundation. From the technical perspective, from the mobile end, we have some certain advance than Microsoft. This is going to be the core things. This time we have the AI, and especially we have released 3.0 version since 2023, after two years optimization. Ourselves, together with our users, they're going to give us the feedback, and we constantly do the practice, and we have a very good both parties, both end interaction. We think that from the AI's perspective, target for the content application, we are stronger than Microsoft.
This is actually from the 2C's perspective, and we are actually platform to provide the content and also the service, not just a simple document editor. Also from the mobile end, we have the advantages together with our technology, we have the correct way, so we have difference from the technical route. For the 2B's perspective, I think we have a bigger advantage, and actually all the domestic members are all clear, especially we have the first package released to the market. Our WPS 365 is not just a content treatment platform, this is actually an office platform, especially we have the AI added. We are not just a document treatment set compared with Microsoft, we are actually the whole office platform.
This platform, in our company internally, we have used for two years, and in the domestic market, we also have a lot of enterprises, they are same, they actually could, this software could have a very perfect integration with their enterprise OA system. This is actually a significant advantage. We can say that at least for our office platform and to compete with Microsoft, this is actually a very early stage, we have this module, we are going to have different components, so we have different modules, it is very flexible, and also the layout is also quite flexible. This is from the 2B's perspective. We make a conclusion that we have two perspectives from 2C and 2B.
In the past few years, especially for the mobile end, it has been released. In the past 10 years, we have a very good public members' foundation through the mobile end. On the other hand, they would like to actively download the PC end to remake the promotion and layout. Secondly, from the national perspective, we have a lot of Chinese friends. They would like to do the promotion and development. I think that this is the core things.
[Foreign language]
Okay. So the second is regarding the games, actually we have a pretty good foundation. Currently we have some of the games already obtained their version numbers, including the GX4 and Angry Birds and Goose Goose Duck, and also the Snowbreak: Containment Zone, and we also have some games which did not get their certification yet, but probably we are going to launch it next year. So we think that from the overseas, the overseas opportunity is quite good. So including when we did the launch the game for the Snowbreak: Containment Zone and also the Jie Xian Ji, we tried several times, especially for the mobile end. So we realized that in domestic market, some of the companies did a pretty good performance overseas, so we believe that this direction is correct. So we are going to continue to optimize our product, our technical ability, operation ability.
Hi, operator. We are ready for next question.
Thank you. We will now take a next question from the line of Lin Yang from Guangfa Securities. Please go ahead, Linlin.
[Foreign language] I have two questions. The first question is, could you share the progress of our AI business? How do you think about its commercialization pace and market potential? My second question is the expenses. We see sales and marketing expenses were relatively high in the short term. As the business stabilizes, will it return to normal by next quarter or Q1 in 2026? Thank you.
[Foreign language]
Okay. We would like to answer the first question, and Li Yi is going to answer the second question. Regarding the AI business improvement progress, actually since April this year when we found the manager firstly to collaborate with Kingsoft Cloud, target for the enterprises and different application services from the strategic way we are going to do the support. Actually including Zhuhai, we have the local big model, and we have the feasibility reports regarding the transportation. We have different project delivery and also in different industries like the law industries, etc., with different regions. We all started all of the development. For more details, it is not convenient for us to disclose at this moment.
We would like to set up an AI product center because we strongly believe that the whole industry, when we do this practice for the big module, is going to get into the specific application for different industries. To make it simplified, we think that in the future, different industries are going to have restructured systems for the big module, including the internality of the enterprises for their organization's way, and it is going to have some change. The manager of this year is to this part. For Kingsoft Cloud, we have some progress. At this moment, at this stage, the business is still in a very early stage. Because of comprehensive reasons, it is not convenient to disclose too much detail at this moment.
[Foreign language]
Regarding the second question for those expenses for the marketing, actually when we promote it into launch it into market, and we believe that for the long-term perspective, it's going to get back to a normal situation. When we have promote the launch of different products, and we think that the cost is going to different season is going to have slightly change. The previous season it was 15%-16%, and also the season is going to reach to 20% and more than 20%. From the whole year's perspective, this is going to get we think that it's going to be a reasonable level because we need to have all of this cost for the R&D, especially for the AI, specifically in the early stage. We need to have more investments, but that is for the long-term sustainable development.
We believe that in the long term, we're going to control the rates, the investment rates, and finally get a reasonable profit level. Thank you. I am showing no further questions. Thank you all very much for your questions. With that, we conclude our conference call for today. Thank you for participating. You may now disconnect your line.