KE Holdings Inc

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.' 's fourth quarter and full year 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, Ms. Satine Lee, IR Director of the company. Please go ahead, Satine.

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings, or FACUS, fourth quarter and fiscal year 2022 earnings conference call. The company's financial and operating results were published in press release earlier today and are posted on the company's IR website, investors.ke.com. On today's call, we have Mr. Stanley Pohn. 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 safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Bayco's earnings press release and this conference call include discussions of unnoticed gap financial information as well as unnoticed non-gap financial measures. Please refer to the company's press release which contains a reconciliation of the unnoticed non-gap measures to comparable gap measures. Lastly, unlike otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Stanley Peng Thank you, Siti. Hello, everyone. Thank you for joining FACR's first quarter and full-year 2022 Audience Conference Call. For the past two years, the industry has faced unprecedented challenges, but every venture will pass, and the spring will come as promised. In January and February, people around the country quickly emerged from the pandemic. At the same time, the real estate market began to recover. By the end of February, existing home sales on our platform had rebounded sharply, reaching a level close to the same period in 2021, the most active year for existing home transactions. Sales of new homes have also increased significantly year over year, returning nearly to the post-lockdown level in 2020. As we transcendence this realm of market correction, our firmly held views have been proven correct and our underlying capabilities have been validated. First, our market neutral view and the persistence in that view has been proven. As part of our digital service platform for the housing industry, professional agents must act as a counterbalance of her mentality and down market cycles. This means they must not blindly follow the crowd or engage in hype. Rather, they must evaluate the market objectively, multidimensionally, and rationally. They must be a stabilizer for the market and never magnifying anxiety. The market has been in a downward trend since the middle of 2021. But through it, We have always believed that a consumer's desire for better living will not change and the market will return to a normalized level. We also see opportunities in the market recovery. Therefore, with a stable state of mind, we quickly made a series of inventory adjustments to cope with short-term fluctuations and prepare for market recovery. We launched a one-body-to-win strategy, transforming from scale expansion to quality growth and implemented a series of measures to reduce costs and enhance efficiency. We protected the Commission collection and operation security of source providers on our platform, provided them with tools and capabilities in order to support them through the truth of the cycle. In addition, hundreds of our measurement members went to the frontline to help with the battles Our market-neutral view has allowed us to strengthen our muscles and watch for our recovery when the market was in a downturn. Facing the current market in recovery, we will continue practicing our market-neutral view, acting as a counterbalance against market-changing behaviors. Since significant market volatility harms the industry in the long run, we hope to facilitate and oddly market recovery. Second, the credibility of BIG as a platform has been further validated during the large market fluctuations. We established the BIG platform in 2018. In order to open up the capabilities we have accumulated during 20 years to the industry, we have constantly refined our protocols, ecosystems, and digital infrastructure to further unlock the ACA network effect and the skill effort of our platform, providing support for customers, service providers, and industry partners such as developers, helping them to better interact, cooperate, learn from one another, and achieve win-win results. This run of market vitality is the first major task we have experienced as a platform We have delivered more stable profitability than before by proving our ability to expand our business, which demonstrates our strength as a digital service platform for the housing industry. We have also prepared the momentum needed for the industry long-term development. High-quality industry supplies have been protected and stabilized. and the low quality and efficient supplies, not only on our platform, but also outside our platform, have accelerated their exit, which is a good thing for the entire industry. We proved our more stable profitability In 2022, the national existing home market CTV fell by 31% year-over-year, and sales of about 100 new home developers fell by 42% year-over-year. However, our annual non-GAAP net profit backed the trend and achieved a year-over-year increase of 24%. Our operating cash inflow grew by 135% in 2022. against the significant fluctuations in the external market, we have demonstrated the stability of profitability and power of our platform model. We also tested out our platform's sustainability. In 2022, the first year for us to advance our OneBody2Win strategy, our home renovation and furnishings contracted sales reached RMB 6.9 billion increased 31% year-over-year on our pro-forma basis, also backing the market trend. This result benefited from our network infrastructure of stores and agents, our digital transformation capabilities for low-frequency, complex, and heavy decision-making industries, and our full integration with Shandong in Beijing, two ways accounted for more than 10% of our revenue in 2022. increasing from less than 3% in 2021, while our one body provided more than 90% of their customer leads. The ability of our platform to extend to a wide range of sources around the sector of leading has been initially validated, showcasing the high replicability of our industrial capabilities and our ability to meet more and more complex needs of our customers. This represented a solid step in our never-ending innovation and development. Sir, our view on the accelerated arrival of the era of agent empowerment and quality service has been validated. With accelerated usage of low-quality and inefficient supply in the industry, we expect an increase in unit store productivity in the future. The trend of larger stores will become more pronounced, given their wide coverage of both home listings and community customer leads, and more diversified business operations, leading to stronger risk resistance. As such, store efficiency has become a key management variable, and high-quality agents are crucial to our operations. Store owners' abilities in store operations team management, as well as recruiting and energizing agents have become differentiating factors in successful operations. With respect to agents, the industry will not and should not be flooded with access capability. In the future, the industry will enter the era of efficiency improvement of existing capability and agent empowerment. The productivity of high-level agents is two times the industry median, which shows that the mid-level group of agents will become the most vital force in the industry in the future. We have always been and will continue to be committed to helping agents improve efficiency, obtain a decent and stable income, realize long-term employment, and pride themselves of their professionalism on our platform Therefore, we have been firmly moving forward with our large store strategy. In 2022, we supported and empowered the reorganization of over 3,000 stores on our platform. We also consistently strengthened the professional competencies of store owners. By the end of 2022, more than 6,900 store owners completed the study of our Baker Huajiao Academy. Moreover, we build out the store and agent ranking infrastructure with competencies ranking standards, which improve the management and operating capabilities of the platform and store owners, and assist in building an agent talent pipeline. We also advance the governance of existing and new home business conducts, resolutely cracking down on coincidences of wrong behavior. We set up a comprehensive monitoring mechanism to encourage customers, business partners, and platform employees to supervise and report violations such as off-platform transactions. We also fully implemented and jointly promised with new home developers that there will be no customer information leakage, customer poaching, and so on. and promoting the customer contact information to be provided throughout the showing process. All this works to enhance security in agents' operations. While the store and agent count on our platform declined in 2022, with the number of actual stores and actual agents at around 37,400 and 350,000. Respectively, the structure and efficiency of stores and agents on our platform continue to improve throughout our efforts. In the fourth column, the proportion of interactive stores in cities including Beijing and Shanghai increased by 5.5 percentage points year-over-year, and the monthly agents' true rate dropped to less than 5% for non-Lianjia stores and only 3.1% for Lianjia stores. Together as a group, we have gone through a difficult winter, and this experience has given us a lot of strength. Our team will be more determined than ever and become the backbone of the industry. It's also the most valuable asset of Baker. One who possesses a piece of land should have his piece of mind. Turning to our one body, our existing and new home transaction services. In 2022, we transitioned to a stage of quality growth from when of scale expansion. We quickly adjust our operation to improve efficiency and cut expenses, scaling down the P&L units for operation and management. With digital tools, we can check gross margin per order and personnel basis as well as profit for each store, which encourages business teams to focus on profitability indicators as well as cultivate cost-effective mindsets among managers at all levels. Driven by these initiatives, we significantly enhance our platform's operational efficiency and optimize costs and expenses. Moving to existing home transaction sources, according to data from the Baker Research Institute, Full-year GTV of existing home sales in China were RMB 4.83 trillion in 2022, dropping by about 31% year-over-year and declined by about 3% year-over-year in the fourth quarter, whereas existing home transaction GTV on Baker's platform fell by only 23% year-over-year in 2022 and lost by 1.5% year-over-year in the fourth quarter. We outperformed the industry amidst challenges thanks to our empowerment and the retention of high-quality store owners and agents, enhanced of the AC network defense, continuously deepening platform operations, and increased user value delivered to end-customer and business partners. For example, we rebuilt our platform's lease allocation mechanism For existing homes in 2022, the new mechanism allocates leads based on store-type performance scores, raising the percentage of agents matching with familiar home listings by 10%. It reduces the number of unproductive actions agents took to acquire leads, allowing them to be more focused. And as such, agents provided customers with more professional services, Next, moving to new home transaction services. On the market funds, according to data from National Bureau of Statistics, GTV of new residential home sales in China amounted to RMB 11.7 trillion in 2022, down 28% and 27% year-over-year for the full year and the first quarter respectively. GTV of CRIC's top 100 real estate companies fell by 42% and 30% year-over-year in 2022 and the first quarter. Respectively, in comparison, GTV of new home sales on our platform declined by 42% year-over-year in 2022 and by 26% in the first quarter. While our four-year GTV performance was in line with the market, we realized a right back of our new home and debt provision for the year, and our DSO hit the lowest, while our profitability reached a record high since our listing. This represents the excellent results of our core strategy, which is not compromising agents and consumers' interest in exchange for expansion. At the same time, we proactively strengthen our risk controls security and profitability. Specifically, we consistently integrated our developer risk evaluation system to manage business risk in a preemptive way. In the first quarter, commissioning an advanced model accounted for 44% of our total commission, doubling from the beginning of the year. It ensures the security of agents' receivable collection. The average number of homes sold by projects under the commission-in-advance model was 35% higher than general new home projects, reflecting that developers' sales through were also accelerated. The proportion of state-owned developers continued to rise, with their projects accounted for 45% of our new home revenues in the first quarter. Moving to our two-wind businesses. Over the past years, we validated our authenticity, our strengths and capabilities in the two-wind industry, and further demonstrated that our two-wind business are not only a natural fit for our whole business, but also feedback to it. 2022 was also a challenging year for the home renovation and the furniture industry. According to data from the China Building Decoration Association, the total revenue of leading home renovation and furnishing companies in 2022 decreased by about 9% year-over-year. Our home renovation and furnishing business generated contracted sales of RMB 6.9 billion in 2022, rising by 31% year-over-year on our pro forma basis. Among our contracted sales, 33% were attributable to core business customer referrals. On top of this, in April 2022, we launched our new retail sales of home furniture and furnishing strategy, which leverages our full service innovation offerings. New retail home furnishings contribution to our total contractor sales grew from 12% in the first quarter to 26% in the first quarter of 2022. further retaining the platform's business beyond low-frequency transactions. With respect to our rental services in 2022, the number of rental units managed by our home rental services exceeded 120,000, with over 17,000 units under decentralized leasing management or carefree rents. More than 90% of this was contributed by core business customer referrals. Clearly, the mobilization and the empowerment of our core business has enabled our Two Wins business to substantially outperform the market. Meanwhile, the broad market space of the Two Wins business, as well as the recognition from customers and society, greatly boosted Agile Professionals' value. And more importantly, rest fresh, enduring vitality into our organization, setting the stage of boundaries possibilities for us to unleash our potential. Leveraging our digitalized transformation endurance in decision-heavy industries with low transaction frequencies, complex processes, and a focus on offline operations. We have been working to resharp the home renovation and the furnishing industry. Through digitalization and online operations, we scroll to standardized construction practice while restructuring the home renovation, construction, and customized furniture delivery process. We establish a quality-based service provider management and incentive mechanism, as well as our other dispatching system as part of our scientific management capabilities. Additionally, our home, SAS 2, will also take part in these initiatives to lead and implement industry digital transformation. In December 2022, 80% of our orders in key cities were automatically dispatched. Our renovation delivery cycles were shortened by five days from previous year. and our A-rated service providers' retention rate reached 97%. These capabilities will help us to grow with quality. In 2022, we worked even harder to fulfill our society's responsibilities and be an enterprise of the era. As the only private enterprise selected among the first group of affordable rental housing operations services enterprises in Chengdu, we have provided more than 1,700 rental homeowners and talents with superior leasing operations services, including leasing brokerage services, as of the end of 2022, leaving behind a year of challenges but also rewards. We are ready to embark on a new journey in 2023, facing the recent notable market recovery We will maintain a consistent strategy for our core business based on our market neutral view. That is, on top of cost reductions, efficient enhancement, and risk controls, we will continue to deepen our operations and improve our ecosystem to capture high-quality growth opportunities. In 2023, we will work to enhance our long-term capabilities, which require persistence. and continuous investment in areas such as business conduct governance services and product delivery or home renovation, and incremental efficiency enhancement of our existing core of agents. Through these efforts, we will seek and fill the gap between our capability and the needs of consumers and service providers, fulfilling our society's responsibilities to be a great company in the hearts of the society and the people. Thank you. Next, I would like to turn the call over to our CFO, Paul, to review our first quarter and full-year financials.