Earnings Call: Q3 2020

Nov 17, 2020

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 Kingsoft Corporation Earnings Conference Call. At this time, all participants are in 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 one on your telephone. Please be advised that this conference is being recorded today. I would now like to hand the conference over to your first speaker today, Ms. Francie Lu. Thank you. Please go ahead. Thank you, operator. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2020 third quarter earnings call. I'm Francie Lu, 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 own 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. Having said that, please allow me to introduce our management team who joined us today. Mr. Zhou Tao, our executive director and CEO. Mr. Francis Ng, our executive director and CFO. Now I'm turning the call to our executive director and CEO, Mr. Zhou. Zhou 总. Okay. Hello, everyone. We maintained a steady development in the third quarter of 2020. Our outstanding results are mainly attributed to the increasing market recognition of Kingsoft Office Group, as well as our continuous innovation in premium games. Regarding office software, Kingsoft Office Group licensing business and subscription services have been growing year-on-year. We continue to explore technology enhancement in the office software industry, optimize our user experience, and strengthen our competitive advantages in online collaborative office products. In the online game sector, we will further pursue product innovation and enhance our capabilities in product development and operations so as to extend our game categories. In the third quarter, our total revenue reached CNY 1,397 million, a 34% year-on-year showing strong resilience despite the impact of the pandemic. Both of our office software and services and other businesses, as well as online game business, have maintained strong revenue momentum as they were up 59% and 19% year-on-year respectively in the third quarter. Now I'm turning the call to our executive and CFO, Mr. Francis Ng. Hi. Thank you, Francie. Hi, everyone. I am pleased to talk to you again. In the third quarter, we saw significant growth in the office software and service and other business. Office software and licensing business from government and enterprise client maintained its rapid growth. Kingsoft Office Group has further enhanced its service and brand influence in several regional government and enterprise market as we continue to strengthen our technology capabilities and marketing efforts. We have also established close cooperation with the leading customer in the traditional industry, such as Shaanxi Heavy Duty Motor Company and Zhoushan Iron & Steel Group. Kingsoft Office Group organized the second office application development conference in the third quarter of 2020 and brought together a diverse group of around 200 developers in the ecosystem. Kingsoft Office Group has launched innovative office products such as WPS Online Preview and WPS Document Writing during the period, and we fully integrated Linux version and Sogou input method into WPS for Linux edition. Kingsoft Office has also acquired Beijing Shuke Wangwei Technology Company, Beijing Shuke Wangwei Keji Youxian Gongsi, in the third quarter. Going forward, Kingsoft Office Group and Shuke Wangwei collaboration in technology and product development will drive the fixed layout document format standards for government and enterprise customers. For you who are not familiar with this fixed layout document, you can refer to the PDF format, similar one. During the quarter, Kingsoft Office Group's personal subscription services maintained its rapid growth year-over-year, and we continue to explore the innovative channel for marketings, such as live streaming e-commerce. By launching new products and services such as PPT design manual, we aim to enrich the platform contacts and enrich user reputation for those then. In addition, WPS Docs has become the official office software supplier for the 31st Summer World University Games, and we launched the WPS Docs education edition. Kingsoft Office also entered into a smart office cooperation framework agreement with Tsinghua University, which further strengthened our presence in the different market segments. In the third quarter, revenue from online games business reached CNY 788.2 million, representing a 19% growth year-over-year, mainly attributable to the continuous growth of the flagship JX Online 3 PC game. In August 2020, we celebrated 11th anniversary of JX Online 3 PC game and shared with the gamer the latest development of its technological innovation and content creation. In addition, we introduced our development plan in the film and television, music, and animation through cosplays and e-sport, which will help to further increase its user base and build long-term growth potential to a core IP. In October 2020, we launched the anniversary expansion pack for JX 3 PC game with a new season and enriched content, which brought players a better gaming experience. In addition, JX Online mobile game has been renamed as New JX Online 1, with an all-new game appearances and received positive feedback from the players. I will now discuss the Q3 operational and financial result using CNY as a currency. Revenue increased 34% year-over-year and decreased 2% quarter-over-quarter to CNY 1,397 million. The revenue split was 56% for our online games and 44% for office softwares and service and others. Revenue from online game business increased 19% year-over-year and decreased 9% quarter-over-quarter to CNY 788 million. The year-over-year increase was mainly attributable to the robust revenue growth from flagship game JX Online 3 as we focused on providing high-quality gaming content and innovative gameplay for better user experience. The quarter-over-quarter decrease was largely due to the decline revenue from JX Online 3 as the last scale expansion pack was successfully launched in the second quarter 2020, which was partially offset by the revenue contribution from the newly released mobile games. Revenue from office software and services and others increased 59% year-over-year and 11% quarter-over-quarter to CNY 609 million. The year-over-year increase was largely due to the fast growth in both licensing business and subscription services of Kingsoft Office Group. Driven by the increased paid user resulting from a continuously improved product and services. The quarter-over-quarter increase was due to licensing business driven by the solid demand from governments and enterprise. Cost of revenue increased 9% year-over-year and 10% quarter-over-quarter to CNY 240 million. The increases were mainly due to higher server and bandwidth service fees associated with the increased user traffic. Gross profit increased 40% year-over-year and decreased 4% quarter-over-quarter to CNY 1,158 million. GP margin increased by 4 percentage point year-over-year and decreased by 2 percentage point quarter-over-quarter to 83%. The year-over-year increase of the group's gross profit margin was mainly due to the change of sales mix and improved operating efficiencies. Net R&D costs increased 25% year-over-year and 24% quarter-over-quarter to CNY 484 million. The year-over-year increase was mainly attributable to the increased headcount as well as the personnel-related expenses. This is because we continuously strengthen the development of our new products and services as well as the technology updates. The quarter-over-quarter increase was mainly due to increased personnel-related expenses, as well as temporary exemption or reduction of our social and medical insurance premium for large enterprise, which was stopped from implementation from July 2020. Selling and distribution expenses increased 14% year-over-year and 15% quarter-over-quarter to CNY 221 million, and the increase was largely due to the increased channel costs of Kingsoft Office Group, aiming to strengthen the regional technical service capability and branch influence. Administrative expenses increased 27% year-over-year and 16% quarter-over-quarter to CNY 117 million. The year-over-year increase was primarily due to the increased staff-related expenses and professional services fees. To accommodate for the rapid growth of our business, we moved to a new office building in Beijing, which naturally increased rental expenses, and the quarter-over-quarter increase was attributable to the increased staff-related expenses. Share-based compensation costs decreased 12% year-over-year and 15% quarter-over-quarter to CNY 31 million. Operating profit before share-based compensation increased 97% year-over-year and decreased 33% quarter-over-quarter to CNY 393 million. Net other gain was CNY 368 million, compared to a gain of CNY 5 million in the corresponding period of last year, and the losses of CNY 105 million in the second quarter 2020. The gain in the third quarter 2020 was mainly due to that we recognized a gain on deemed disposal of Kingsoft Cloud as a result of the dilution impact of the issue of the new share in this quarter. The losses in the second quarter 2020 were primarily due to the loss on deemed disposal of an associate, an impairment provision of certain invested companies. We recorded share of profit of associate of CNY 12 million, compared to a share of profit of CNY 128 million for the third quarter of 2019, and a share of losses of CNY 173 million for the second quarter 2020. The profit in the third quarter 2020 were mainly attributable to the gain recognized in Cheetah Mobile, partially offset by the losses recognized in Kingsoft Cloud. The profit in the third quarter of 2019 were mainly due to that Cheetah Mobile recognized a gain on disposal of a subsidiary in that quarter. The losses in the second quarter of 2020 were mainly due to the losses recognized in Kingsoft Cloud, which are also partially offset by the profit recognized in Cheetah Mobile and its disposal share in certain invested company in that quarter. Income tax decreased 63% year-over-year and 88% quarter-over-quarter to CNY 10 million. The loss for a period from a discontinued operation for the first quarter of 2019 reflected losses from Kingsoft Cloud, which was a loss of CNY 468 million. Profit for the period from a discontinued operation for the second quarter 2020 reflected the combination of the net loss and net gain on deemed disposal from Kingsoft Cloud, which was a profit of CNY 8,927 million. The net gain on deemed disposal of Kingsoft Cloud was CNY 9,096 million, recognized in the second quarter 2020, which was a loss from the spin-off and separate listing of Kingsoft Cloud. As a result of the reasons discussed above, profit attributable to the owners of parent, including that from the continuing operation and a discontinued operation for the third quarter of 2020 increased 1,749% year-over-year and decreased 93% quarter-over-quarter to CNY 667 million. Profit attributable to the owner of parent excluding eShop and including that from a continued operation and it is continued operation increased 749% year-over-year and decreased 93% quarter-over-quarter to CNY 687 million. The net profit margin excluding the effect of share-based compensation cost was 49%, 4%, and 500% of the three month ended September 30th, 2020, September 30th, 2019, and June 30th, 2020, respectively. Our statement of financial position, we have cash and bank deposit of CNY 15.3 billion as of September 30th, 2020. The net cash generated from the operating activity was CNY 670 million, compared to the net cash generated from the operating activity of CNY 88 million and CNY 763 million for the third quarter of 2019 and the second quarter of 2020, respectively. Capital expenditure was CNY 205 million, CNY 480 million, and CNY 76 million for this quarter, the third quarter of 2019, and the second quarter 2020, respectively. In the third quarter, we once again demonstrated stable performance across all business divisions amidst a turbulent economic environment and complex international situation. As you can see, they are very resilient to those adverse situations. We are confident in our strategy, business model, operation resilience and our prospects going forward. We will further strengthen our reserve and development capability, improve the operation efficiency, and promote product and service innovation. We strive to provide our customer with excellent service experience so as to achieve a sustainable growth in our business and create fruitful returns for our shareholders and business partners. This concludes my introduction for the Q1 results. Now handing back the floor to question and answer. Thank you, Francis. Hi, operator. We are ready for the Q&A session. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Kindly ask your question in both Mandarin and English if possible. There will be a short silence while questions are being collected. Once again, to ask question, please press star one. Thank you. The first question comes from the line of Liping Zhao of CICC. Please go ahead. 周总，Francis，晚上好，感谢接受我的提问。我这边有两个问题，我先用中文问一下，然后我自己翻译一遍。那第一个问题是关于游戏这边，我看到3Q的游戏收入的话，环比是略有下滑的，不知道这背后的原因是什么？那最近看到市面上有一些新的游戏出来，比如说像《原神》这种，它的表现还是非常不错的，那对我们来说的话，有没有一些竞争？然后最后想问一下四季度和明年游戏这边的一个展望。然后第二个问题是关于我们WPS以及金山云的，因为之前周总也有提到过，是要推进这两块业务的一个协同，那不知道现在整体的进展是怎么样的，能不能请管理层也稍微给我们update一下。 Okay, I will translate by myself. Thank you for taking my questions. I have two questions here. The first one is about the gaming business. We noticed that can the management share what is the main reason for the QOQ decline of gaming revenue? How should we expect Q4 and next year's game growth? My second question is about Kingsoft Cloud and WPS. Can management elaborate the collaboration between KC and WPS in the coming quarters? Thank you. 好，我来回答吧。第一个问题，就是游戏这块的几个问题。第一个是环比略有下滑，这个其实主要是两个方面原因。一个是我们端游，其实Q3本身，我记得我可能前几个季度有一次就回答过这个问题，可能去年也回答过。其实按照整个的季节性影响，我们是Q4大于Q1大于Q2大于Q3的，基本上过往端游都是这么一个顺序，今年也不例外。虽然我们今天谈的是Q3，但是其实包括这次Double 11，包括即将Double 12，我从目前的数据看，我们依然是这么一个势头。所以这是一块，就是我们端游，主要是剑网3的收入，它一直是随季节性的这种变化。第二个确实就是我们发布的剑2，就是剑客行，其实是没有达到我们的预期的。这个原因很多方面，有我们的原因，也有合作方的原因，也有市场整个形势发生一些变化的原因。我觉得主要是这两个原因。你谈到这个《原神》，我也很关注，这个确实是最近非常成功的一款游戏。它跟我们现在的产品不存在什么竞争关系，尤其是对我们剑网3系列，完全是不同的玩法，不同的类型、收费模式等等都不太一样。我觉得很直接地可以回答，这跟我们不存在竞争关系。然后Q4以及明年的展望，反正是这样的，我想可能很多投资人也都会关心这个问题，我也可以明确告诉大家，其实我们原计划在Q4上的几款游戏，可能暂时都要delay到明年Q1了，有的是版号没下来，有的是我们策略性的调整，包括剑侠世界3，包括卧龙吟，包括FFBE II，原计划都是在Q4。要上线的游戏可能都要delay，往后delay到明年Q1左右。最终幻想FFBE2可能还得看版号的进展情况，因为它毕竟是一个日本引进的游戏，所以版号审批起来可能相对周期会长一点。所以这个跟大家也说一下，好不好？然后明年我们当然无论是端游还是手游，其实我们都还是有一些相应的产品。尤其是这个我上个Q&A就回答过，有很多投资人也问了，就《剑与远征》今年表现很好，明年还会有什么动作？这里头我只能说肯定是有动作的，好不好？然后具体可能现在还不太方便对外去宣布，好不好？这是整个Q4和明年游戏的一个情况。我觉得可能明年再去谈可能会更准确。我们毕竟整个集团，包括我们跟合作方，我们从11月中旬已经开始了明年的整体的全年的规划和预算，所以可能要到年底会更准确一点，好不好？第二个关于云的协同，协同展旺这块，这个我上次谈过这个话题，但是可能没谈透。我指的绝对不是说简单的一个Q两个Q的，我指的是从更长远的角度看，其实目前这几个Q里头，说实话，我觉得他们自己都忙不过来。大家都知道，自从今年疫情开始，金山办公它的无论是PC的版本，还是它的在线的web版本，其实都是增长得很迅猛的，包括也有协同办公的这种很旺盛的需求出现。我们的金山文档经历过疫情期间的高峰，回落之后，现在基本上也回到了疫情期间的那个数值。所以金山云也一样，今年刚上完市，其实现在基本上围绕原有的这几个领域之外，在金融行业，在政企几个领域其实都扩张得非常厉害。金山云也是今天发财报了，大家也可以等一下，应该也能了解到这个情况。所以我就简单说，他们各自在各自的领域，应该说今年都呈现出很多机会。我上次表达得可能不够清晰，不是说它一个Q两个Q，这两家子公司就怎么样，我只是说从长远看，它们两个本身就具备很强的这种协同性，尤其是在To B To G这个领域，无论是从销售渠道还是产品形态，很多方面都有这种互补互通性。好吧？一鸣，我就给你再解释一下。 Okay, I'll translate for Mr. Zhou. Regarding the question on the slight decline in revenue quarter-over-quarter for the game business, there are mainly two reasons for it. The first one is that, like I said in the past, there is a seasonality pattern for the PC game JX Online 3. Usually for the four quarters of a year, the revenue for the fourth quarter is greater than the revenue from the first quarter, and then it's greater than the revenue from the second quarter. Lastly, it will be the third quarter. This is our pattern in the past. For this year, based on our data from the Double 11, Double 12 event, we think that the same pattern will repeat in 2020 as well. Another reason for the QOQ decline is that the new game that we launched, the JX Online 2 mobile game, the revenue result is actually less than our expectation, and that's due to various reasons on our own side and also reasons for our partner and also the market impact. The game that you just mentioned, 剑与远征, it's a very successful game, just launched, but it's a completely different game than our JX series. Currently, we don't think there's any competition relationship between that game and our own games. For the fourth quarter and also the next year outlook, we need to mention that some of the games that we originally planned to launch in the fourth quarter will be delayed to the first quarter of 2021. That includes 剑侠世界3, FFBE2, and also Wǒ Lóng Yún. The delay may be due to various reasons. For example, the FFBE2 may take a longer time to get the license approval as it's the IP from overseas, from Japan. So it may take longer than expected time to get the license approval. For the 2021 outlook for the game business, we do have new products for both our PC and mobile games. I mentioned in the past that JX3 had a very great performance this year, and there are also new development for the game next year as well. Also some of the other new plans for 2021 we're not ready to disclose yet, but there will be more products for both PC and mobile games. I think it will be better for us to have a more accurate forecast for next year, later to the end of this year. We have already started to do the budgeting and plan for next year starting in mid-November. It will be better for us to wait until the end of this year or early next year to disclose a more accurate plan for 2021. The second question on the WPS and cloud collaboration, I want to make it clear that the synergy and the collaboration I mentioned between these two businesses is not short term. It's not something that have a short-term impact in one quarter or two quarters. It's more a long-term plan that we think there's a lot of collaboration and synergy opportunities between the WPS and cloud businesses. This year, these two businesses are actually quite busy on their own. For example, the WPS, since the start of the pandemic early this year, they have a lot of development in their products, including online collaboration. For example, the Kingsoft Docs product have a very significant increase during the pandemic. Kingsoft Cloud, it just listed in the second quarter this year. It is also developing quickly in its current verticals. This year, these two businesses, they both have a lot of opportunities on their own. In the long term, we think that these two businesses will have a lot of collaboration and synergy opportunities in both the To B and To G segments, in both the products and also the distribution of businesses. Thank you. Hi, operator, we are ready for the next question. Thank you. Thank you, Liping. The next question comes from the line of Thomas Chung of Jefferies. Please go ahead. 晚上好，谢谢管理层接受我的提问。我的问题是关于我们的现金的，想问一下我们在未来的话，在投资的一个战略，或者是我们会怎么去return这个value给shareholders，这个use of cash可不可以分享一下吗？第二的话，就是刚刚提到游戏的，还有WPS的收入的一个趋势，如果是看OpEx的话，或者是看margin的话，我们应该怎么看Games跟WPS在20年跟明年的一个margin outlook呢？Thanks management for taking my questions. I have a question about our use of cash. Can management comment about our M&A strategies, as well as how we can return more value to shareholders like dividends? My second question is about the OpEx trend. Can management comment about the margin outlook for gaming as well as the WPS? Thank you. 谢谢Thomas。我来回答你的问题吧。首先你讲到我们的cash，怎么去利用cash。首先第一个，我们这个cash一如过往的话，还是要准备用在跟我们的战略协同方面相关的那个方面去做。那么这个是第一个大的原则。那你看到我们除了正式投资以外的话，对于现金管理的话，还是持有一个比较保守的原则。因为这个我们相信，我们主力不是去做投资的，那么我们还是以我们的战略协同方面去做一些收购兼并。除此以外的话，我们是会比较稳健地去做一些觉得非常安全的那一个现金理财，这个是一个方面。另外一个方面的话，在疫情期间，跟那个就是地缘政治的敏感时刻，大家看到其实在我们新的赛道上面，包括就是在我们高科技领域里面的话，其实给予了国产的一些选手一个很大的机会。那么你可以看到我们之前讲的一些信创的赛道的话，一个很明显的例子，其实越是有一些比方说美国制裁的情况出现的话，更就多了我们其实在国产信创方面很多的机会，我们也是在积极地拥抱这方面的一个机会。所以我们也会在人才培育，包括在信创相关的领域的话，我们也进行一些M&A，会好好地利用我们手头上面的现金。但你讲到dividend return to shareholder的话，那我可能理一下这个序吧。首先第一个，我们的那一个现金资源的话，首要还是投在我们能掌握，或者是我们能够接触到的，跟我们战略，在我们看重赛道上面的投入，包括了收购兼并，包括了培育我们的研发的能力。要是在这些都是经过了以后，那我们还有因为多出来的那个部分，我们会通过改变我们分红的战略，甚至乎通过我们回购的计划，去把这个给到股东。那这个其实董事会上面也是讨论过，我们也积极去研究。我们其实也在今天的董事会上面讲到，我们在不久的将来会推出我们未来五到十年的战略。那么这个时候，我可以跟大家再详细讲一下。另外，我也可以跟大家讲一下，我们有一些核心的战略的地点，包括武汉，那我们也是有一个比较大型的在建的人才研发的基地。这个现在还是在初期的阶段，到更成熟的话，我可以跟大家再汇报一下。那么，这个是利用我们的use of cash的一个战略。第二个，Thomas讲到我们的game跟办公方面，margin的outlook方面的展望。那首先第一个我先讲一下办公，虽然他们已经是一个独立的上市公司，大家也可以通过直接地跟他们去理解、了解。那我这方面可能不适合超越他们去讲到他们这方面更适合的地方。但是，在比较宏观的角度而言，办公的margin其实可以分短期或者是中长期两个维度去看。在短期里面来讲，我们可以看到，其实我们已经是从前几年，可能是2013年到2018年这个期间，去拥抱移动互联网，就需一个比较大的投入。所以你看到我们办公那个时候，几乎是可能只有OpEx的话是break even。但在后来的话，我们开始变现移动，其实已经恢复到一个20%以上的比较健康的水平。那么在短期之内，我们还是会更新很多在信创、在协同办公上面的一些机会，所以我们会陆续地投入我们的研发。这个你也可以看到，我们2019年、2020年，我们的研发人员几乎是翻倍，这个看得出我们对这方面的决心。但是尽管如此，我们的margin也是比去年有大几个百分点increase。那么在未来的一两年，我依然是非常有信心，他们还是往健康的方向发展。但是，在中长期，我觉得可能想象的空间可以更大胆地扩阔一点，因为毕竟我们办公是多年累积的一个功底，也是有相当部分是我们是一个软件销售，或者是软件服务的一个形式。那么当我们的售卖的copy量上去，然后我们的R&D也是一起累上去以后，我们的收入增长会比我们的R&D快。刚才我举个例子，我们2019年、2020年翻了一倍的人，但我们不可能每年都会翻倍，但是我们收入其实上升得是非常大。因为第一，其实周总刚才也讲到，我们的人数其实在三四月份的时候，疫情推进去后井喷式地上涨，我们有一个软件从6,000万在一个quarter里面增长4倍到2亿多。那么我们很多产品的DAU、MAU，其实在疫情里面到达一个前所未见的高峰，那个速度跟陡峭。那么到了七八月份，六七月份，随着疫情往回以后，我们是有一点下来的。但是其实我们在最近的季度会议，包括最近的董事会上面，也非常欣慰地看到，也可以跟大家汇报，我们在很多产品上面，不管是DAU、MAU，其实已经是超过了我们疫情期间，就是在四五月份的高峰，而且使用会更healthy，更健康。因为在当时候，我们可能用协同会统计一些大家的温度，或者是各方面疫情期间特殊的用处。但是在经过这个推广以后，其实在九月份、十月份，我们看到它又创新高。与此同时，我们也看到它其实是用在我们更广阔的协同办公上面去。所以这个我觉得是非常稳健的。至于利润方面来讲，我觉得这个空间的差距更大。因为大家可以看到，我们的信创其实今年的话，我们觉得有两个方面，一个总体的量，推进的话，首先有两个方面，一个就非常稳健，信创这个方向是非常稳健，因为中美关系还是打打停停。第二个的话就是说我们可能整体量会比原来的进度可能会慢一点，具体原因其实讲过很多次了，不在这里重复。在整体的大的picture是没有改变。所以这样的话，这个几百亿的市场，我可以说那个Kingsoft办公都是比较稳的。我汇报一下，非常高兴汇报一下，我们首先跟大家汇报，我们是要求一个重要的KPI，是在我们这个信创的那个市场率是达到90%，那么在一到九个月的话，我们应达到93、94的水平，远远超过了我们设下的目标。所以可以在长远来讲的话，那个margin会有一个非常大幅度的提升。所以这就是我们对于未来的一个展望。至于游戏方面，我今天可能不能跟大家讲太多，因为也适用于我们sales mix，刚才周总也讲到，就是说我们剑网3其实还有一些秘密武器，今天现在不讲，明年的话，要是想JX Online 3 PC单游，要是它有一个突破的话。今年已经是突破了，今年我可以跟大家讲的话，全年已经是肯定比我们两年前的高峰，2017年的话又创高峰，那么它的那个margin是非常高的，大家知道。所以明年在这个方面要是有一些新的进展的话，这个也是非常好的。当然要看到sales mix，我们也有一个业务线，也是在游戏发行，这个还是在前期阶段，要是它的量ramp up得不快的话，那可能这个mix会cannibalize我们的operating margin的，大家能理解吧？因为它要去推广的话，可能会用在推广费用方面，会导致它的margin不如我们的PC游戏那么多。所以这个我可能是比较更强势地回答了Thomas问的两个非常好的问题。那Francis你帮我翻译翻译一下吧。好的. I'll translate for Francis. For the first question on use of cash, in the past, we have made a plan that we'll use most of our cash in our business strategy related areas, in our core opportunities. Other than the M&A plan that will most likely take a conservative approach on our cash management. During the pandemic period, we have a lot of opportunities in the high tech development for domestic players. There's a lot of opportunities, for example, for the Xinchuang project, for Kingsoft Office, and we think that this is still the area that we will make our M&A strategies and also our R&D development team. We'll still have most of our cash in these areas. We'll prioritize our use of cash plan. Firstly, we'll use most of our cash on the related areas, in our core business strategy, in either M&A opportunities or R&D development. If we still have more cash left over from the M&A or the R&D development, we'll also use our cash into optimize our dividend policy or share repurchase plan to better return our shareholders. Even today, our board, we have discussed this in our board meeting, and then we will disclose our dividend policy or share repurchase plan once we have more confirmed details. We do have a big 5 to 10-year plan. Once we're ready, we'll also disclose that to the market as well. We have another R&D development center in Wuhan, so that's also where we're going to invest in the R&D development. For the WPS and also the game margin performance, WPS is already an independent listed company, so you can also approach them directly. We are not going to disclose more details than what they already disclosed to the market. But from a more high level view on this question, I'm going to discuss it in a short term, also in the mid to long term for the WPS margin development. In the short term, from the past previous years, especially from 2013 to 2018, we were focusing the development of the mobile Internet transformation for WPS business. Our operating profit margin was near breakeven level during the past years. Once we started to monetize this business, our margin immediately increased to over 20% in 2019, 2020. We think that it's going to maintain this healthy level going forward as well. There are still a lot of opportunities in the Xinchuang, also the online collaboration opportunities. We are still going to keep investing in 2019, 2020, the number of our R&D headcounts actually doubled. But even with that, we are still going to have a high single-digit percentage points improvement for the WPS margin this year. We think that for the upcoming few years, it's going to maintain a very healthy momentum. For the long term, we think that there is a lot of opportunities for the WPS business. We have been developed many years in the software licensing business. As we increase the number of licenses we sell, we are going to increase our margin performance. Like I said, our number of R&D headcount doubled in 2019, 2020, but it's not going to double every year. Once the number of licenses increase going forward, that will increase our margin performance for WPS significantly. Also in the past, this year we demonstrated a very healthy performance for our MAU and also DAU data for our top products. In March and April, during the pandemic period, some of our products reached their MAU and DAU increased significantly. For example, the Kingsoft Office, it increased its MAU from 60 million to over 200 million in one quarter. In June and July, there's a slight decline in some of the products on MAU and DAU. But now in September and October, we noticed that a lot of the MAU and DAU of our products actually reached to their peak level, is even higher than what we had back in April or May. We think that we do have a very strong product line, and the performance of these products are very healthy and stable. We think that there's also a lot of opportunities in the Xinchuang project, especially with the U.S.-China tension. We think the overall picture, the overall opportunity is massive. We mentioned that for one of our KPIs for the Xinchuang project, we have given to the market is that we want to get 90% of the total Xinchuang project in the market. Based on the performance from the previous nine months, our market share is actually 93%-94%. It's actually even better than our expectations. We think the long-term margin for WPS actually has a lot of opportunities. For the game business, we do have a new plan for the JX Online 3 PC game for 2021. The details of this new plan is not ready to disclose. But we think that if the new plans for this game turn out well, there's actually a lot of opportunities for this PC game as well. For this year, the JX Online 3 PC game is going to reach its historical high in terms of its gross billing. It's even higher than what we had in 2017. This game itself has a very good margin, high margin, so that also help with the total game margin performance as well. There's also a sales mix change in the game business. We also have a business on the game distribution, but that is still in the early stage. But if the revenue from the game distribution increase in the future, this may actually dilute our game margin for obvious reasons. This is for the game margin. Hi, operator. We're ready for one last question. Thank you. Certainly. The last question comes from Elsie Ching of Goldman Sachs. Please go ahead. Thank you, management, for taking my question. My first question is about the JX Online 3 operating situations after the October expansion pack launch. As we are also having another one in December, I just want to understand a little bit more in terms of the QOQ trend into Q4 this year. Can we expect the similar kind of QOQ growth versus last year? Second follow-up to that is the deferred revenue. We're looking at almost four times more deferred revenue for the quarter versus last year. Just want to understand a bit more, breaking down into the gaming and WPS. What's the color over there? The last question is about operating expenses. In terms of the R&D expenses on the non-gaming, sorry, non-WPS side, I recognize that we do have some social and medical insurance premium impact, but other than that, are we also investing into more of the game development and in which area if so? Thank you so much. 好，谢谢你，Elsie。我先回答你的每一个问题，然后Zou总就来补充。首先第一个，你问到我们JX3有一个新的资料片，然后你问到Q4跟Q3的一个对比。然后你也提到2019年的那个Q4，其实我们也是有一个比较好、非常成功的一个资料片，在2019年的四季度推出，成绩非常好，非常大卖。那么我们最近10月份推出的，在2020年，推出后的效果也是相当不错。在我们的活跃IP方面，看到明显的稳健的上升，我们其实看到IP是有个30%的增长。那么在Q4，其实我们内部也开过会，关于Q4游戏的表现。我觉得两点，一个我刚才讲了，整年的话，JX3肯定是会创新的纪录，比17年的那个高峰，其实我们一直做了八九年，到了17年达到高峰，18年有一个20%的下滑，然后19年差不多是平。2020年，其实我们又达到了一个新的高峰，比17年还要高。我只能讲到这里。那么至于你说四季度，我觉得这个可能内部的话，也需要稳一稳游戏，所以他们可能不会在12月方面，第四季度太去追求收入的增长，因为今年的已经长得非常不错了，这个是第一个。第二个的话，Zou总你刚才也讲到，我们有几个mobile game，其实因为种种原因，我们就会把它推到下一个季度。FFBE的话，能不能在Q1，其实我们要看它的版号，其他的《卧龙吟》、剑与远征，跟那个《魔域2》应该很大几率在明年的一个季度会上，推完一个季度。所以这个我想我应该回答了关于我们Q4的游戏的展望。第二个问题你问到我们的R&D有一个上涨，那么你也提到从我们资料里面也翻出来，有一个关于我们社保方面的补贴，在三季度会慢下来，然后四季度到底游戏的R&D是不是还会发生很多，这个到底是什么情况。那么这个我可以跟你讲一下，或者是Zou总可以再进一步补充。关于社保方面是有一个慢下来的节奏，具体的数值我看看我们是怎么disclose，之后我再跟你讲，好吗？然后R&D方面，确实其实我们一直以来，游戏看到我们有一个非常不错的毛利跟经营利润，但是从来都还是有很多游戏工作室，即使在没有推出游戏之前，都会发生R&D。这个一如过往是这样子，所以为什么我上一个quarter讲，一旦我们有的一些手游推出，而成功的话，这个将会对我们的operating margin有大幅度的提升。因为在一些工作室，他在研发游戏当中，其实他的费用是不资本化的，我们每年的话都会有费用化。所以我们一直这么多年都是背着有好多个游戏工作室，他在没有推出游戏的时候，我们也是会把他的那一个expenses发的。好吧，那Francis你帮我翻译一下吧。好的, I will translate for Francis. For the fourth quarter outlook on the game business, actually we launched our last extension of the year in October 2020, and the result has been quite impressive. The number of IP accounts actually increased after we launched the new expansion pack roughly about 30%, so the result of the expansion pack is actually quite good. For the fourth quarter of the game performance, first I would like to say that the JX Online 3 PC game is going to reach its historical high in terms of the total revenue, full year revenue. The full year revenue will be greater than what we had in 2017. So this will be the historical high for the JX Online 3 PC game. For the fourth quarter, our game team actually is going to more to stabilize its performance. We are now going to purely focus on pursuing the increase of our revenue performance as we already did quite good in the first three quarters of this year. For the fourth quarter, some of the games that were originally planned to be launched in the fourth quarter will be delayed to 2021. For example, FFBE, its launching time will be dependent on its license approval process. For 《卧龙吟》 and also 《魔域2》, these two games are likely to be launched in the first quarter of 2021. For the R&D expenses increase, we think that the social insurance plan impact will decline. I'll confirm with you on the details later. The gross margin, also the OpEx margin of our game business actually performed very well in the past, but we still have many game studios in-house, and they are developing new games. We also expense all of the developing expenses before the games are launched. So that's why, like I mentioned in the past, once we have new mobile games launched, our margin actually increased significantly because a lot of the R&D expenses are already expensed in the past. Thank you. Hi operator, this will conclude our presentation today. Thank you. Thank you very much. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect line.