Welcome to Kingsoft Corporation First Quarter 2026 Earnings Conference Call. At this time all participant are only listen mode. After the speakers presentation there will be question-and-answer session. To asked a question during session, you will need to press star one one on your telephone. You will hear automated advising you hand is raise. To withdraw a question press star one one again. Please be advice today conference is been recorded. And 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 Li Yinan, the Investor Relations 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 of 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 and 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. Tao Zou, our Executive Director and CEO, and Ms. Yi Li, our Acting CFO. Now I'm turning the call to Mr. Zou.
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Hello everyone, and thank you all f or joining Kingsoft's 2026 first quarter earnings call. In the first quarter, we remained committed to technology empowerment and maintained strategical 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 premier games and long-term operations. We increased the investment in our existing core games and actively expanding into new game genres.
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In the first quarter, the group recorded revenue of RMB 2.042 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 others 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 stages.
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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 improved effectiveness from refined operations, all three core business segments achieved growth and the quality of earnings continued 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 enhancement of AI features effectively drove simultaneous growth in WPS AI monthly active users, paid conversion rates, and average revenue per paying user. This supports stable revenue growth for the business. For WPS 365 business, revenue reached RMB 214 million, representing a year-on-year increase of 61%.
We continue to upgrade all our AI and collaboration product capabilities, which further stressed 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 an orderly manner across government departments. This provided stronger support for customer digital and intelligence transformation and drove rapid revenue growth.
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For online game business, our flagship game, "JX3 Online," continued to operate steadily, with its active user base remaining stable. In terms of content, we not only launched an innovative in-game event during the Spring Festival and the Lantern Festival , but also released a new expansion pack, "Shadows of Thousand Machines," in April. Continuously enriching our content offerings in terms of product, the flagship version completed the refactoring, quality optimization, advanced gameplay integration, and undertake two 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 JX series IP of PC games remained deeply committed to long-term operations, continuously innovating content to strengthen the product heritage, and the community ecosystem to foster player loyalty. "Goose Goose Duck" performed well in the domestic market, gaining player recognition from localized content innovation and social gameplay.
Its user base continued to expand. In April, it entered the top of the App Store top gross chart, with gross receipts gradually increasing, broadening our strategic presence in the party game and social deduction segments. Moving forward, we will focus on continuing product refinement and long-term community operations, enhancing user engagement through high-quality interaction experience.
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Looking ahead, Kingsoft Office Group will continue to deepen its AI capabilities. We will focus on advancing the implementation of AI agent products empower intelligent office scenarios through WPS 365, 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 Ms. Yi Li to introduce the financial performance for the first quarter of 2026. Thank you.
Thank you, Zou and Yinan . 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 1,613 million. The year-over-year increase was primarily attributable to the growth across three principal businesses of Kingsoft Office Group. The steady growth in WPS Individual's business was primarily driven by the ongoing enhancement of AI capabilities, which drove growth in WPS AI monthly active users and commercial rank. The strong growth in WPS 365 business was mainly driven by continuous integration of AI and collaboration capabilities, as well as the broad 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 for 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 declined 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 greater 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 1,913 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 head count and AI-related expenditures, reflecting the group's strategic focus on advancing AI capabilities. Selling and distribution expenses increased 60% year-over-year and decreased 50% 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 80% 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 cost 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 select employees of certain subsidiaries of the company in the last year. Operating profit before share-based compensation cost 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 890 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 deemed disposal of Kingsoft Cloud as a result of the dilution impact of issuing new shares of it.
Share of profits of joint venture were RMB 1,859 million for this quarter, compared with losses of RMB 12 million for the first quarter of 2025 and profits of RMB 163 million for the fourth quarter of 2025, respectively. The profits in this quarter were primarily due to the net unrealized gains on equity investments. Share of losses associated 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 218 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 the first and the fourth quarter of 2025.
Profit attributable to owners of the parent, excluding share-based compensation cost, 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 billion. Net cash generation 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. 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 and A session. Thank you.
Thank you. We will now begin the question- and- answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. A moment for first question. Our first question comes from the line of Liping Zhao of CICC. Please ask your question. Liping, your line is open.
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Good evening, Mr. Zou and Ms. Li. Thanks for taking my questions. I got two questions about the gaming business. The company has undergone some strategic adjustment in your gaming segment. What is the revenue and profit margin outlook for this division? When do you anticipate the gaming revenue returning to a growth trajectory? Second, could you walk us through the upcoming game release pipeline? Thank you.
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I would like to answer the two questions regarding the first question, that is true that in the Q1 of this year compared with last Q1, it is true that we have the products for their JX3 and also for the Snowbreak, we have a little bit drop and this trend is going to continue to the next sections. We actually doing internal adjustments. Our general strategy is that for the JX3, we are going to do a further investment and also to reach the more content for this game. We could be able to further improve the customer experience. I can feel that the feedback from the customers that it 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. Also in the future for the Q2, although the customer is going to have a better positive feedback to ours and this comments is going to come back. From the income perspective, we believe that it's going to Q3 and Q4, we could have a significantly increase. The second point is that for this products like range and categories, is that in the Q3 and Q4, we're going to have some new type of the products launched. In that case, we probably going to reach our expectation financially, but we believe that it's going to next year or the earliest is going to be Q4 this year.
The general situation of this year is going to be like we would like to answer like question is that for this first and second section, the Q1, Q2. For the game perspective, we already have got some license, like for example, we're gonna have like Cats & Soup; and also for like Angry Birds; and also we have JX4. This type of products we can launch very quickly. For the others, we didn't get the license, we were not going to talk too much about it. This is going to be the core products for this year. That's it.
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Thank you. We will now proceed to the next question from the line of Daley Li of Bank of America Securities. Please ask your question. Daley, your line is open.
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Yeah, thanks management taking my question. I have two questions here. One is regarding our game business. Management mention we're gonna have business adjustments in last earnings call. Could you update us how is the progress and what results we are looking for? What will be our strategy for the core business, core game business we have? In second half this year, what type of new game we are trying to launch? My second question is about the office business. What will be the key growth driver for this year? For example, like the WPS 365 or individual overseas business. What will be our strategy to accelerate the business growth? Thank you.
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Actually we can answer this question is that we cannot see the whole adjustment, we can see it is that it is actually belongs to the whole like Seasun section and we actually do some adjustment. One part is for the Seasun section, the other part is others. We're gonna separate into three parts. The first is that for the operation perspective, we would like to put more energy and more focusing on the project 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 gonna do some adjustment no matter for the old project or new project. The second is that we need to have a solid foundation. Especially for the JX series, especially for the JX3, this is the most important.
In the past three months, we actually have strengthened their investment for their JX3 series, so our customers can significantly feel it. Third is about their new layout, and it's typically for the game is that for this year we have launched, but we plan to launch, but right now at this moment is not that convenient to release that information because we didn't receive the license yet, and the product didn't get into the tester section. We are still doing the internal development. It's not that convenient for us to release the name. Second part is about the AI creation, the new creation style. Actually in the past one month, we have already finished the phase I. Based on the AI competition, we actually have a lot of new products come out.
We have more than 1,000 coders actively get involved, which has submitted more than 300 products, and we have selected all of them, which is like 70-80 of the products were excellent. We can expect that it is like new category has achieved like great results. We need to think about it. The first study is that how we could successfully commercialize the excellent works, and also we could make this activity into a regular development. Second is that how we can make a pretty successful commercialization for these excellent products. Third is that how we can do a proper adjustment. We could do some further investment for the foundation and also facing to 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 stage 1 trial.
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Actually regarding this part of the Stats show for the second question for the Kingsoft Office, the general development strategy is that we can call it as one horizontal and three vertical directions. The three vertical direction, we can call it AI. Since 2023, the Kingsoft Office has go past about the development of the AI from the 1.0 to 2.0. This is actually the master line. Based on together with the big model have a new way, and then the office like a collaboration system construction. At the beginning, we have the CoMate, and we also have a series of different AI products comes out, and we can see that the whole horizontal line, the AI is actually goes through all of them.
From the vertical line, we can see that the personal WPS 365, and also we have like a CF creative. Currently, we can see that WPS 365 still keep more than 65% increase. We can see that more and more companies could accept the WPS 365, and this is actually the core driver to drive the increase. Secondly is about the CF creation. We can see that it still should have kept up for more than 30% increase. My personal judgment is that for in the future, when we have new style and also old style to have the transformation in the future, the development space is going to have a more and more opportunity. Together with OpenQuant this year has widely coverage and more and more people is going to recognize it and would like to use it.
The AI is actually for the working efficiency is going to have a tremendous increase. That is why we believe that this is going to have a bigger space for increase than in the future. From the individual perspective, we believe that no matter for the PC users, 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 could help them to increase their working efficiency a lot, and also their number of users, and also the pay 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 increment for the office business. This is actually a very good development stage.
Since 2023, we have a strategic opportunity that AI is going to sprint into office. From AI to native is going to have a step-by-step different increment. The technology also has a very big increment and improvement. Generally speaking from the office, either for the B-end or C-end, and also for the overseas, we can also separate into different sections. It's actually the same. It will have a very big demand. We can see that we have a very big space, and we believe that our customer is going to do it together with us. This is going to be a core driving power for us to develop in the future.
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Right. Thank you. We will now take our next question from the line of Linlin Yang of GF Securities. Please ask your question. Linlin, your line is open.
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My first question is about the Goose Goose Duck. We see the game peaked at number five on the best seller 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. Will WPS adjust its pricing models going forward? How will it affect revenue? Thank you.
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Okay. From the game perspective, for actually the good news is that, basically currently we can say is that from this income perspective, it is quite stable. We can see that in the April and May is quite stable and most probably is that for this product, the general plan and strategy, we actually separate it into two parts. The firstly is that we need to maintain the rich content of this game to provide a better customer service. This is first thing. Secondly 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. We would like to continue to make a bigger volume for the customers and increase the volume for the users. This is going to be the priority. Then we could be able to increase the value.
Third is that we plan based on the different seasons, like each season, we're going to have a Trimiander's version launch out, we're going to constantly reach the play way and content of the game. In that case, we could be able to have a higher volume of the users. We hope that when we could have certain stable and pretty high volume of the users, then we could be able to get more income. This is going to be our target. In the second stage is that once we're going to have a proper stable users, then we can step by step to get into the commercialization to increase the income.
Currently, generally speaking, is that after launch of the game, and you can see the performances of this game, and basically for the two 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 trace the commercialization. Recently that we are actually make the plan for the July version. Currently for the specific action, it's not convenient for us to release it, because we can only say is that we are actively prepare the version in July.
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Regarding the second question is that I would like to say from another perspective, the core thing is that from this mode, from the traditional mode, is that whether we could be able to affect it. Here is going to get back to just now I have mentioned for the one horizontal and three vertical. I would like to say is that when we are facing to the AI new technology, what exactly does change we have? This is actually for the new things, probably the people don't know that much about it. I would like to firstly describe about the 2B end. Like for the proposed WPS CoMate. Initially for the Kingsoft Collaboration, the WPS CoMate is going to completely realize the enterprise level of the officing mixture. It is not like traditional way. This is actually the products optimization.
All we can see is that previously you compared with the previous product, you already have this AI product matrix. It means that WPS Collaboration plus the WPS CoMate, this is actually completely enterprise level of AIOS. This is actually we just launched, and internally they also use it. This is actually like tightly follow up with the AI technologies improvement. We actually follow up with it and to constantly improve ourselves. This is not like a fixed mode. We are actually together with the technology improvement. We are doing the improvement as well. This is actually helping our customers from the traditional office to the AI office. This is actually a 2B end. We can see is that from the Lingxi 1.0 to 2.0 in July, we're going to release some different version.
Also from the CN, we also provide these different updated Agent to our customers to use it. Compared with the previously the content creation sharing, here right now we have the AI area to have some creation sharing mode. We can see is that mostly we can think about is that whether our service could be good enough. Actually we are constantly reach our content compared with the previous increase like increased speed. We believe that our customer could bear accept it, because we can see is that this is not just a pricing system strategy and question. This is actually the product service ability, whether we could be able to follow up with that.
Either for the 2B end or 2C end, we can not only could follow up with several years, but we can see is that in the AI application, the creativity 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 is that we are very suitable for this area.
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Thank you. 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.
Hi, thank you for joining us today. 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 line.