KE Holdings Inc

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.' 's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to your host today, Mr. Matthew Dowell, IR Director of the company. Please go ahead, Matthew.

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings, Inc. albeit for the second quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IRF website, investors.ke.com. On today's call, we have Mr. Stanley Yongdongpeng, our co-founder, chairman, and chief executive officer, and Mr. Tao Xu, our executive director and chief financial officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our Steve Harper statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Baker's earnings press release and this conference call include discussions of an audit gap financial information as well as all the non-GAAP financial matters. Please refer to the company's press release, which contains a reconsideration of the non-GAAP matters to comparable GAAP matters. Lastly, and as otherwise stated, all figures mentioned during this conference call are . With that, I will now turn the call over to our chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Thank you, Master. Hello, everyone. Thank you for joining FICA's second quarter 2022 earnings conference call. In the second quarter, under proactive easing policies for the industry and effective pandemic controls, China's real estate transaction market saw serious or positive changes, especially in the existing home market. Meanwhile, we improved our platform's operation efficiency and stability in the scale of our stores and agents. as well as their productivity, but the internal and external environment we live in remains full of challenges. Micro uncertainty continues to increase, and our businesses are becoming more diverse and complex as we advance our one body, two wins strategy. Faced with such a complex internal and external environment to command and control our diversifying businesses, Our organization needs to have deeply rooted beliefs. At the center of that, we need to believe service providers, the real estate agents, renovation workers and foremen, designers, customer service representatives, rental housekeepers, they are our customers and our valuable assets. In terms of market corrections, our tried and true practice over the years is to seek from industry's front line, finding strengths from the day-to-day work of ordinary service providers. This is even more necessary today because we face market adjustments with greater than your magnitude. And the skill and the complexity of our organization have also reached a new level. First, going to the front line will help us to award the potential big company disease as we grow in scale by our management and platform teams connecting with those we serve as equals instead of from the top while the front line remains at a distance. We can bring everyone's heart together and establish a true understanding amongst one another. Second, we need to be of heart to our front line to be an industry internet platform require deep industry insights is only through our complex industry immersion that we can leverage the advantage of the platform, formulate useful rules and mechanisms, and develop helpful functions and products. To that end, close to half of the 147 middle and senior management members on the Baker platform Myself included, spent one to two months working on the front line over the past few months as a junior agent, inter-designers, or rookie housekeeper. Going back to the front line has filled our organization with energy to fulfill our mission of admirable service. Promoting us to again think about how to truly help our service providers improve their productivity, job security, and enhance their sense of happiness at work. It has also urged us to streamline our process and get our organization lean. At the same time, by going to the front line, we are more convinced that than ever for our positioning to become industry spokesman, person. Our opponents are not the other high quality providers in the industry, but all the low quality service providers that hurt the industry's reputation and customer experiences. We will make the industry better by accelerating the eliminating of this sub-bar players going to the front line, we have gained more confidence in our one body, two win strategy. Our infrastructure foundation, the agents installed network in the communities is already completed. Like a high quality road, it's now open for more vehicles based positioning us as a full living service platform. providing a complete range of services, including home purchase and sales, home rental, home renovations, and other home-related services. Moving on to our progress in the second quarter with our one body part, existing and new home transaction services. At the end of the second quarter, the number of stores and active stores on Baker's platform was over 42,800 and 41,100, down 6% and 4% quarter over quarter respectively. At the same time, the number of agents and active agents on our platform was over 415,000 and 380,000 respectively. with a moderated quarter-over-quarter decline of 3% and 0.4% respectively. The number of stores and agents in most cities stabilized in the second quarter, with a churn rate for Lianjia agents dropping to just 1% to 3% in Beijing and Shanghai. Non-Lianjia stores' actual agent churn rate fell to only 5.6% in June, significantly better than the industry average of over 12%. In cities where existing homes showed a stronger recovery trend on our platform, such as Suzhou and Fuzhou, the number of agents even started to grow. Total MIUs on Beka's platform reached 43 million. up 8% quarter-over-quarter. Our existing home transaction services continue to outpace the market. According to data from the Baker Research Institute, nationwide GTV of existing home sales dropped 45% year-over-year in the second quarter, whereas GTV of existing home transaction on Baker's platform was RMB 300. and 93.5 billion, down 40% year-over-year, of which existing home sales declined 41%, outperforming the market. Throughout the second quarter, the year-over-year decline of our existing home GTV continued to narrow from 41% in April to 17% in June. In 2021, out of 31%, 32 bigger key cities. Existing home GTV exceeded the average 2021 level in June. The frequent release of easing policies in second and lower city-cities brought the pent-up reduced home upgrade demands back to the market and spurred the recovery of using home market in these cities. Reflected in our Q2 existing home transactions, GTV of non-Landjiaz Canadian stores increased by as much as 33% quarter-over-quarter. In Beijing and Shanghai, effectual pandemic controls firmly took root in June, and we saw transactions recover rapidly and return to normal levels in the final weeks Over the months, our firm investment in infrastructure and the products have supported a more stable network of stores and agents and a higher operating efficiency, allowing us to substantially outpace the market in the recovery cycle. On the infrastructure side, we constantly iterate our fear and a competitive platform operation mechanism. to motivate and retain high-quality service providers. In the second quarter, we optimized our business leads allocation mechanism to prevent cheating and enhance the sense of fairness. We also iterated our business leads matching model to make it more accurate and the operation more focused. In terms of operations, we continue to refine our operations of existing home sales that center on home listings, improving home listing maintenance, listing promotion and conversion efficiencies, effectiveness. For Lianjia, this year, Lianjia has focused on improving operations to solidify the foundation for quality services and organizational development In the second quarter, we rolled out several major initiatives. First, we reduced number of loss-making stores through more granularized management and by establishing single-store P&L models. As a result, the proportion of loss-making stores in Lianjia's 20 pilot cities dropped by a significant 80%. from January. Secondly, we further improved D&J's agent productivity by establishing a 5A productivity management model to enhance overall management perspective and capabilities. Apart from Beijing and Shanghai, in the other 27 cities, D&J's agents versus Canadian stores' agents per agent productivity ratio expanded by more than 21% from the 2021 level. Certainly, D&J's agents actively participated in community pandemic prevention services and won recognition from community residents, which further supported the rapid recovery of our basis of the pandemic resurgence past since July. There have been some corrections in the existing home market affected by the unusually hot temperatures in southern cities and the micro market fluctuations. But we are more convinced than ever that existing home services will be the core of our future. And we will strategically redouble our focus on existing home services. Turning to new home transaction sources, according to data from the National Bureau of Statistics, in the second quarter, the GTV, or new residential home sales, were down 36% nationwide year over year. It expanded from the first quarter and was the second largest single quarter decline since 1999. The GTV or CRIC's top 100 real estate companies fell by 43.4% year over year. The new home market remained tough with weakness on both the supply and the demand side. Amidst the market headwinds, GTV or new home sales on our platform were the RMB 222.7 billion, down 55% year over year, and up 15.6% quarter over quarter. Positive changes emerged at the end of May, and the number of new home purchases offers on Baker's platform materially increased on a sequential basis in May and June, but the industry continues to face significant challenges in the short term, making improvements in financing and consumer demand with mountain pressure on sales through as the industry undergoes rapid and powerful changes. high-quality developers have begun to establish new understandings. That is, long-term advantages will be built through better and comprehensive utilization of qualified sales channels. Against this backdrop, first, in terms of new home listings, we have been vigorously carried out corporate-to-corporate collaboration with high-quality developers increasing our share of sale by state and central owned developers to 37% in the second quarter, seven percentage point higher quarter over quarter. This has improved the quality of our new home listings and made our sales easier and more risk resistant. Second, with respect to channels, During the recent round of market corrections, agents placed more emphasis on operational safety, preferring to collaborate with a platform with high-quality listings, strict risk control, and safe, fast receivable collections. Channels with weak risk control, inadequate receivable collection management, and single-minded pursuit of scale have been winded out by the market. This will result in high concentration for new home sales channels and our higher coverage of new home agent and stores. Third, operationally, we continue to promote and reinforce execution of the commission and advance model and other focused sales strategies. The commission in advance model offered developers the opportunity to pay in advance, projects with commission in advance consistently deliver higher sales efficiency, making it widely accepted by the developers. Agents and our receivable collection were further secured, setting in motion a positive cycle. In the first half of the year, Commission in advance accounted for 22% of revenue from new home sales on our platform. Despite the short-term challenges, we expect a stable new home market with higher certainty in the long term after this round of correction. We will continue to strengthen our strategic focus and increase cooperation with high-quality state and centrally owned developers iterate on risk control protocols data products and other value-added products and services while further reducing costs and enhancing efficiency moving on to the home renovation and furnishing business of our two wings july 6 this year marked the first anniversary of our official announcement of the Chengdu acquisition. Our financials were officially consolidated with Chengdu during the second quarter this year. Over the past year, Beike and Chengdu have carried out efficient, all-rounded integrations of terms, of teams, organization structure, operations, and systems. The process has progressed very smoothly, driving diverse synergies. For example, the supply chain advantage brought by Shendu has helped raise paywalls up by 33% year-over-year. And the referral customers from our core business contribute to over 25% of home renovation and furnishings contractors' services. In the second quarter, our home renovation and furnishing business achieved robust growth against challenges of the pandemic. According to data from the China Building Decoration Association, the broad output value of leading home renovation and furnishing companies declined 21% year-over-year in the second quarter, while Our home renovation and furnishing business generated per-format revenue, or RMB, 1.37 billion, rising more than 10% year-over-year and 58% quarter-over-quarter. And our contract sales reached close to RMB 1.7 billion. Meanwhile, we established organizational structure as well as ground rules, and systems to support a better connection between core and emerging businesses. Real estate brokerage stores owners can receive commissions within five days of their referral traffic to home renovation and furnishing sign contract. For the incentive traffic referrals in June, contracted sales from our business transaction traffic referrals accounted for over 25% of home renovation and furnishings contracted sales. Home renovation and furnishing is a low transaction frequency industry. To improve the quality and the consumer experience, we started with the industry role that interacts with the platform with high frequency, the service providers. Only happy service providers can bring quality services and happy customers. Service providers in the industry have many pain points, including unstable order dispatching, untimely settlement, and that good service does not necessarily yield good income. We build transparent frameworks and systems cover the service provider's qualification, admission, ranking, promotion, and rewards, all on the basis on service quality. To address these pinpoints in terms of project delivery, we carry out refined process management to ensure on-time construction completion. Establish systematic all online, offline, closed-loop management, and a promoted standardization of construction technology, projects, acceptance, and other actions. For consumers, we further advanced our service commitments of 10 permits for 10 virus. Our construction process can be monitored online by customers in real time, and after sales maintenance can be completed within six days. As a result, The absolute construction delivery period was shortened. In the customer satisfaction NPS, our construction completion increased from 40% in January to 35% in June. We are exploring how to raise our top line potential and profitability beyond the range you're already seeing in the traditional home furnishing business. Our home renovation is a service business. It's about quality service with a high entry barrier, but carry relatively low profitability furniture and home furnishing. On the other hand, is a manufacturing business with good traffic acquisition, significant economics of scale can be shown. We are trying to find out if it is possible to drive the sales of furniture and home furnishing including customized furniture, soft furnishings, electrical appliances, etc. Through home renovation, we are assessing this by tracking furniture and home furnishing sales as a percentage of full service contracted sales. We believe on a single city basis and for our overall business unit, 30% represents the initial validation milestone of this model's feasibility, and 50% will represent the mid-term milestone of its maturity. Today, we are rapidly growing our furniture and home furnishing sales at a percentage of full service control sales, raising it from 11% in the first quarter to 16% in the second quarter, yet there is still tremendous upside potential. Moving to our home rental services, creating social value as a society, as a social responsibility enterprise, we achieved rapid, high-quality development in our home rental services in the second quarter while attaching greater importance to cost control and sales efficiency. is to achieve long-term operational sustainability of this business. As of the end of the second quarter, the number of contracted rental units manager or co-manager on our rental services exceeded 42,000, an increase of nearly 22,000 units from the end of the first quarter. Among them, there were 31,000 units under carefree rent. We also took various measures to improve staff productivity and occupancy rate, aiming to balance skill and profitability. Through business model iterations, scientific management, systematic incentive mechanisms, we strive to sign up the high and the high units at the right price, realize fast sales through, all with enhanced services quality and productivity. With these initiatives, the occupancy rates of our carefree vets continue to improve as the pandemic resurgence passed. In addition, we jointly launched the new youth initiatives in June to provide fresh college graduates with favorable rental rates and commission reductions or exemptions. To help them address the difficulty of renting houses at affordable prices, as of July 31, 2022, over 8,000 transactions were completed under the New Youth Initiative, saving the graduates approximately RMB 12 million. I'd like to go back and talk about our return to the front line. Our business boils down to be about people. This is especially the case for the housing-related service industry, which points to both consumers and service providers. For managers on the platform and myself, it's easier to connect and relate to consumers because every one of us is a consumer at some points, but it's more difficult to identify with service providers by going back to the front line. Many of us have the power to empathize with service providers. Relating to consumer convinced us that their quest for joyful living will never change. By the same token, identifying with service providers enables us to understand and strengthen our conviction that to service providers, the need for long-term practice and pride in their occupation remains a constant. As the poem goes, when the water ends, clouds will rise. The business world of the future may never stop changing, presenting us with one change after another. But as long as we connect with the constant elements while continuing to iterate ourselves, we will only get better and help the industry get better. Thank you. Next, I would like to turn the call over to our CFO, Tao, to review our second quarter financials.