Kingsoft Corporation Limited ( OTCPK: KSFTF) Q1 2023 Outcomes Teleconference May 23, 2023 7:00 AM ET
Francie Lu – IR
Tao Zou – CEO
Yi Li – CFO
Xue Deng – CICC
Brian Gong – Citi
Linlin Yang – GF Securities
Great day, and thank you for waiting. Invite to the Q1 2023 Kingsoft Corporation Revenues Teleconference.[Operator Instructions]
I would now like to hand the conference over to your speaker today, Francie Lu. Please go on.
Thank you, operator. Ladies and gentlemen, great night and great early morning. I wish to invite everybody to our 2023 very first quarter revenues call. I’m Francie Lu, the IR Director of Kingsoft. I wish to begin by advising you that some info supplied throughout the revenues call might consist of positive declarations, which might not be trusted in the future for different factors.
These positive declarations are based upon our own info and info from other sources, which our company believe to be reputable. Please describe the other openly revealed files for in-depth conversation on threat aspects, which might impact our company and operations. Having stated that, please enable me to present our management group who joined us today: Mr. Zou Tao, our Executive Director and CEO; and Ms. Li Yi, our acting CFO.
And now I’m turning the call to Mr. Zou Tao.
[Foreign Language] I’ll do the translation for Mr. Zou. We had a great start in the very first quarter of 2023. Kingsoft Workplace Group actively checks out and promotes the useful application of AI innovation, buy associated R&D and continues to empower the digital change of institutional and specific users. Online video games company even more improves the worth of initial IP and stays dedicated to the method of establishing premium video games.
The group’s services stayed stable in this quarter, with overall profits reaching RMB 1,970 million, increasing by 6% year-over-year. Earnings from workplace software application and services company reached RMB 1,052 million, up 21% year-over-year. Both domestic specific workplace membership and institutional membership services experienced robust development throughout this quarter. showing the substantial result of the membership change.
Now I’m turning the call to Ms. Li. Li?
Thank you, Francie. Ladies and gentlemen, great night and great early morning. In face of the technological change produced by generative AI and big language designs, Kingsoft Workplace Group concentrates on the AI field, works together with business participated in the big language designs and focuses on core services to master the application layer. Fixating the requirements of organizational users, we continue to take advantage of the benefits of the digital workplace platform, actively promote the digital change and updating for companies of all sizes, and empower their digital building.
In April 2023, we released WPS 365, a thorough plan of workplace software application appropriate for a large range of institutional users, that includes effective workplace software application and partnership management abilities intending to enhance their work performance. In order to attain top quality advancement of specific workplace membership company, we regularly improved the user experience of our items in cross-platform situations like cloud and partnership and rebuilded the subscription system in April. Online video games company made development in repeating core IPs.
Based upon the top quality growth pack released in the 4th quarter of 2022, our flagship JX Online III accomplished a boost in brand-new users, broadening the user base. At the very same time, the variety of day-to-day active users and profits of JX Online III increased year-over-year in the very first quarter of 2023.
At the end of February 2023, a brand-new growth pack of JX World III mobile video game launched, together with efficient marketing and promos, promoted the video game’s vigor and enhanced user experience. At the end of March 2023, World of Sword Origin mobile video game was at first released in Vietnam. Upon its launch, it topped both the complimentary and earning charts in regional iOS and Android shops.
Our anime mobile video games, Snowbreak: Containment Zone and The Other Coast, are arranged for launch in the 2nd half of 2023. I will now go over the very first quarter functional and monetary outcomes utilizing RMB as currency. Earnings increased simply 6% year-over-year and reduced 7% quarter-on-quarter to RMB1,970 million. The profits split was 53% for workplace software application and services and 47% for online video games and others. Earnings from the workplace software application and services company increased 21% year-over-year and reduced 4% quarter-over-quarter to RMB 1,052 million.
The year-over-year boost was generally due to the robust development of domestic specific workplace membership company, and quick development of domestic institutional membership company of Kingsoft Workplace Group, partly balanced out by the decline in domestic institutional licensing company. The strong development of domestic specific workplace membership company was mostly credited to the constant optimization of cloud and partnership user experience.
The quick development of domestic institutional membership company was generally driven by the constant upgrades of digital workplace options and service quality, in addition to the continuous procedure of promoting cloud combination and collective workplace in federal government and business. The decline in domestic institutional licensing company was generally due to the reasonably high base in the very first quarter of 2022 and decrease in brand-new order on localization options in the present quarter. The small quarter-on-quarter decline was generally due to decreased web ad promo company.
Earnings from the online video games and others company reduced 6% year-over-year and 10% quarter-on-quarter to RMB919 million. The year-over-year decline was mostly due to a natural decrease in profits from the mobile video games such as JX World III and JX I: Gui Lai, which had a fairly high profits base in the very first quarter of 2022. The decline was partly balanced out by the profits development from JX Online III, which was credited to our constant efforts in boosting user engagement and online and in-game intake through video game material updates and operations optimization.
The quarter-on-quarter decline generally showed the natural decrease of particular existing video games. Expense of profits reduced 2% year-over-year and [7%] quarter-on-quarter to RMB345 million. The quarter-on-quarter decline was generally due to lowered acquiring expenses of product or services of Kingsoft Workplace Group. Gross revenue increased 8% year-over-year and reduced 7% quarter-on-quarter to RMB1,625 million.
Gross revenue margin increased by 1 portion point year-over-year and kept flat quarter-on-quarter to 82%. Research study and advancement expenses increased 9% year-over-year and kept flat quarter-on-quarter to RMB661 million. The year-over-year boost was generally attributable to greater personnel-related expenditures of Kingsoft Workplace Group.
Offering and circulation expenditures increased 31% year-over-year and 5% quarter-on-quarter to RMB351 million. The year-over-year boost generally showed higher marketing costs of Kingsoft Workplace Group to broaden its existence in the domestic business and federal government market. The quarter-on-quarter boost was generally due to greater marketing costs on mobile video games.
Administrative expenditures increased 2% year-over-year and reduced 8% quarter-on-quarter to RMB150 million. The quarter-on-quarter decline was generally due to the decrease in expert service charge. Share-based settlement expenses reduced 2% year-over-year and increased 21% quarter-on-quarter to RMB73 million.
The quarter-on-quarter boost was generally due to the grants of granted shares to the picked workers of particular subsidiaries of the business. Operating revenue prior to share-based settlement expenses reduced 7% year-over-year and 21% quarter-on-quarter to RMB533 million.
Net other gains for the very first quarter of 2023 were RMB44 million, compared to gains of RMB23 million for the very first quarter of 2022 and losses of RMB42 million for the 4th quarter of 2022, respectively. Share of losses of partners of RMB231 million were taped for the very first quarter of 2023, compared to losses of RMB275 million and RMB256 million for the very first and the 4th quarter of 2022, respectively. Earnings tax expenditure reduced 26% year-over-year and 82% quarter-on-quarter to RMB26 million.
As an outcome of the factors talked about above, revenue attributable to owners of the moms and dad was RMB192 million for the very first quarter of 2023, compared to revenue of RMB98 million and RMB48 million for the very first and the 4th quarter of 2022, respectively. Earnings attributable to owners of the moms and dad leaving out [Kingsoft] was RMB236 million for the very first quarter of 2023 compared to revenue of RMB142 million and RMB83 million for the very first and the 4th quarter of 2022, respectively. The net revenue margin leaving out the result of share-based settlement expenses was 12%, 8% and 4% for this quarter in the very first quarter and 4th quarter of ’22 respectively.
The Group had a strong money position towards completion of the reporting duration. As at 31st March 2023, the Group had a money resources of RMB21,510 million. Net money produced from running activities was RMB363 million, RMB189 million and RMB1,232 million for this quarter, the very first and the 4th of 2022 respectively. Capital investment was RMB80 million, RMB85 million and RMB206 million for this quarter, the very first quarter and the 4th quarter of 2022, respectively. We abide by technology-driven company.
Looking forward, Kingsoft Workplace Group will continue to cultivate in AI, totally leveraging brand-new innovations to drive the restoration and pattern development of workplace product or services.
Online video games company will constantly change and enhance product or services in action to user requirements, enhance video games credibility, present more distinct gameplay and material, and even more enhance user acknowledgment and self-confidence in our core IPs. We are devoted to developing long-lasting worth for our investors by boosting our core proficiencies. Thank you for your attention.
Now I turn the call to Francie. Thank you.
Thank you, Ms. Li. Operator, we’re now prepared for the Q&A session.
[Operator Instructions] We will take our very first concern. The very first concern originates from the line of Xue Deng Zhang from CICC.
[Foreign Language] Thanks management for taking my concerns and congrats on the strong quarter. My very first concern is on the video gaming company. Could you please upgrade us on the efficiency of [magnitude] complete platform release? And likewise what is our newest profits assistance for the video gaming section for complete year 2023. When it comes to our workplace software application company, we observed that WPS AI has actually released its [China-based] variation. So could you please share your views on the general public pipeline function upgrade and likewise the commercialization strategy?
I’ll equate for Mr. Zou. So for the video game concern, [indiscernible] was released, and we will discuss this video game in 2 elements. The very first one is from the user viewpoint. From the variety of users, this video game is somewhat less than our anticipated– expectation.
However from the ARPU viewpoint, the efficiency is really somewhat much better than our expectation.
And in the long term, we will continue to keep an eye on the efficiency of[indiscernible] I believe in general, the video game itself has actually satisfied our expectation for– in basic. And the 2nd part of the concern is on our complete year assistance for the video game company. In general, we did not alter the assistance that we have actually provided in the start of the year. Our assistance was based upon 3 aspects.
The very first one is the efficiency of JX Online III. The 2nd is the efficiency of the upcoming brand-new video games. And finally, we have the efficiency of our old mobile video games. So for JX Online III, it has really surpassed our expectation. Although in the very first quarter, the online video game company, its monetary efficiency has actually somewhat decreased quarter-over-quarter and year-over-year, however the JX III online video game itself is really carrying out really strong. And for the brand-new video games line of product, we have 3 approaching brand-new video games.
For the very first one, [indiscernible], this one will be released in July. And [BCA] this one will be released in August. And in October, we’re introducing the 2.0 variation for JX Online III. And finally, we have the efficiency of our old mobile video games, which is JX World III. We just recently released growth pack.
The natural decrease of this video game is somewhat much better than our expectation. So in general, we will keep the assistance that we have actually provided in the start of the year. Despite The Fact That JX Online III has actually carried out– surpassed our expectations, however we still have the unpredictability originating from the upcoming brand-new video games. So we’re not going to alter the assistance that we provided previously.
I’ll equate for Mr. Zou. So relating to the 2nd concern on WPS AI, beginning with the February, we have actually totally enhanced the item. We’re going to continue to enhance the item itself. The efficiency of this item has really surpassed our internal expectation.
Presently, we are not purchasing doing the big language designs. So we are complying with other partners in the big suffer designs. So the more money making of this item will depend upon the timing when our partners will get the license for their designs and likewise on the future efficiency and user experience from the items.
So we are going to begin– our strategy is that we’re going to begin the screening in June or July, however this likewise depends upon the timing of the license. And after screening, we’re going to initially do the optimization based upon the efficiency and likewise the user experience. And after the optimization, we will begin the money making of the WPS AI item.
So my own expectation is that the money making will not begin up until the 4th quarter of this year or possibly next year. Operator, we’re prepared for the next concern.
Your next concern originates from the line of Linlin Yang.
[Foreign Language] My very first concern has to do with video games. We state we released the brand-new video games overseas. So just how much development can this brand-new video game bring, and we see favorable development in Q2. What do you think of the effect of AI on video games? Are you believe now cost decrease or performance in your company? [Technical Difficulty]
I’ll do the translation for Mr. Zou. So concerning your concern on the Q2 assistance for the video game company. For JX III, it really surpassed our expectation in the very first quarter. However despite the fact that in the very first quarter, our video game profits had actually decreased quarter-on-quarter and year-on-year, however the real efficiency of JX III really surpassed our expectations, however it is because of the monetary profits deferment issues and a few of the outcomes will disappoint up until in the 2nd quarter.
And likewise due to the current launch of the brand-new growth pack, the efficiency of JX World III really likewise is much better than our expectation. We anticipated a natural decrease of this video game. However with the brand-new growth pack release, the decrease has actually not been as extreme as what we anticipated previously this year.
So normally speaking, Q2 will be an excellent quarter for the video game company, despite the fact that we do not have particular numbers yet. In the Board conference, I likewise had this comparable concern that I stated that despite the fact that the monetary outcomes for the very first quarter was not as great as anticipated, however the real efficiency in the very first quarter due to the piece de resistance of JX Online III and likewise the brand-new growth pack of JX World III, the real efficiency is really much better than our business’s expectation for the very first quarter. The brand-new video game pipeline launch is arranged in 2nd half of the year.
So we do not have– we do not understand the in-depth efficiency yet. However for the 2nd quarter, particularly, we believe the assistance needs to be much better than our expectations. And the 2nd part of the concern is on the expense of AI. We do have actually used AI innovation in the [3D] visual image and likewise the screening elements of the video game. So the AI innovation not just enhances the performance of these elements and likewise reduce the expense of this element. And some elements if the expense is not substantially reduced, however the quality and likewise the user experience has actually enhanced due to the application of AI innovation.
And likewise it depends upon the kind of video games. For instance, for the JX Online III with this 3D visual result, the AI is not really practical at this moment, however we believe that this will likewise enhance in the future. And finally, we have the concern on the AI application for the video game. We have not just used the AI innovation in the video game, however our subsidiary, Seasun Shiyou will have brand-new video games released possibly this year utilizing the AI innovation.
I’ll do the translation for Mr. Zou. So for the brand-new subscription system released for the Kingsoft Workplace company, the ARPU really enhanced. Today we remain in the development of enhancing the system based upon its present user experience. In the long term, we have self-confidence that the brand-new subscription system will fulfill our expectations and likewise enhance the ARPU with the– for the Kingsoft Workplace company. Operator, we’re prepared for the next concern.
We will take our next concern. Your next concern originates from the line of Brian Gong from Citi.
[Foreign Language] I will equate myself. Simply I have 2 follow-up concerns. Initially, for WPS AI money making, how does Zou Tao, you see the capacities of the money making in the future. And likewise for the application of big language designs, we just bring a modification to the competitive landscape for the workplace software application market in China.
I’ll equate for Mr. Zou. So for the concern on the capacity for money making of the WPS AI. We do not have any particular information yet. You might do the contrast with comparable items of peers in the market, for instance, like [Notion] despite the fact that Concept is now in China however its abroad information looks really positive.
So we might take that, for an example, let’s state, if all members of WPS AI are waiting to pay a particular additional quantity of cash each month, let’s state, for instance, like USD10 or USD8 monthly. The capacity is really fantastic if we do this duration contrast. And you can likewise do your own computation to state if it’s not all members utilizing ready to pay, what is the half of the numbers or 1/4 of the members. However even with this information, you might state the optimistically speaking, like the capacity of the money making is fantastic.
The 2nd concern is on the efficiency of the GPT is really strong, particularly in material and producing element. So we believe that in the future, the AI might change human beings in producing content information, however the modification is not an effect on software application is the method of producing material and information from human beings to AI.
So the worth of the presence of software application has actually not altered, however it’s the method of producing information and producing material that’s altered. So with WPS AI, in addition to producing material, we likewise enhanced visual effect. We have actually included excels. We have actually included chart, we have actually included solutions that likewise significantly enhanced the performance of our users. So we believe that the software application itself is now alters the method of producing information and the method of sharing and utilizing information that have actually significantly enhanced with utilizing the WPS AI functions. Operator, we’re prepared for the next concern.
[Operator Instructions] There appears to be no more concerns at this time. Please continue. There are no more concerns at this time.
Okay, operator. [Foreign Language].
Okay. Thank you for your presence of our discussion today. And if you have any more concerns, you can call our IR group of Kingsoft. Thank you. Thank you, operator.
This concludes today’s teleconference. Thank you for getting involved. You might now detach.