KE Holdings Inc

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc. Third Quarter 2025 Earnings Conference Call. Please note that today's call, including the management's prepared remarks and question and answer session, will all be in English, simultaneous interpretation in Chinese, is available on a separate line for the duration of the call. To access the call in Chinese, you will need to dial into the Chinese line. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Siting Lee, IR Director of the company. Please go ahead, Siting.

Thank you, Operator. Good evening and good morning, everyone. Welcome to KE Holdings or BECA's Third Quarter 2025 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 IR website, investors.ke.com. On today's call, we have Mr. Stanley Peng, our co-founder, chairman, and chief executive officer, and Mr. Tao Xu, our executive director and chief financial officer. Mr. Xu will provide an overview of our business updates and financial performance. Then Mr. Peng will share more on our strategic development and innovative initiatives. 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 Baker's earnings press release and these conference calls 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, unless otherwise stated, All figures mentioned during this conference call are in RMB. Certain statistical and other information relating to the industry in which the companies engaged to be mentioned in this call has been obtained from various publicly available official or unofficial sources. Neither the company nor any of its representatives has independently verified such data, which may involve a number of assumptions and limitations and you are cautioned not to give undue weight to such information and estimates. For today's call, the management will use English as the main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management's statements in their original language will prevail. With that, I will now turn the call over to our CFO, Mr. Qiao Xu. Please go ahead.

Thank you, Siting, and thank everyone for joining our Third Quarter 2025 Early Conference Call. In Q3, under the strategy of balancing skill and efficiency, we'll further optimize our business structure, enhance operational and middle and back office efficiency through AI technologies, and achieve the city-level profitability in both our home renovation and rental business before deducting high-cost expenses. Their combined contribution profit to company's total gross profit reached record high. The cost and expenses of our core business segment were further optimized. We also significantly enhanced execution of shareholder returns with the single-quarter share repurchase spending reaching its highest level in past two years. Regarding our overall financial performance in Q3, Our total GTV was RMB 736.7 billion, remaining flat year over year. Total revenues reached RMB 23.1 billion, up 2.1% year over year. Gross margin declined by 1.3 percentage points year over year to 21.4%. Gap net income was RMB 747 million, down 36.1% year over year. Non-GAAP net income was RMB 1.29 billion, down 27.8% year-over-year. With that overview, I'd like to provide some details on operational and financial performance for each segment. Looking at our housing transaction services, We have been continuously enhancing the productivity and operational performance through the application of AI and other technologies, as well as in-depth operational optimization. For ROV's in-home transaction services, we upgraded our AI tool, Haoku. As of the end of the third quarter this year, high-quality business opportunities identified through Haoku account for only a single-digit percentage of total potential leads. yet contributes over 50% of the transaction volume on our platform. On the housing supply side, we launched innovations such as agent specialization module, which agents are assigned to specially manage home listing or server, or serve the buyer based on their expertise, as well as innovative services, including home staging and open house events. These efforts have enhanced the buyer conversion and the marketing and the sales through efficiency of the home listings. For our new home transaction services, we have also continuously iterated our AI agent Qianji system for intelligent operations and the marketing, as well as AI system Qianzhi. In terms of the financial performance, revenue from these in-home transactions reached RMB 6 billion in Q3, down 3.6% year-over-year, and down 10.8% quarter-to-quarter. GTV was RMB 505.6 billion, up 5.8% year-over-year, and down 13.3% quarter-to-quarter. The GTV growth outpaced revenue on a yearly basis, mainly due to a higher GTV contribution from its in-home transaction facilitated by connect agent, for which revenue are recorded on that basis. While revenue performance outpaced the GDP quote of the quarter, mainly due to the structural shift at the revenue contribution from the rental brokerage services increased amid seasonal fluctuations, which have a relatively high take rate. The contribution margin of the in-home business was 39% in Q3. a decline of two percentage points year-over-year, primarily due to the stable fixed labor cost amid the revenue decline. The contribution margins declined by one percentage point due to the decline in revenue exceeding the fixed labor cost. Our new home GTV reached RMB 196.3 billion in Q3. down 13.7% year-over-year and a 23.1% quarter-of-quarter. Revenue from the new home transactions was only $6.6 billion in Q3, decreasing by 14.1% year-over-year and a 23% quarter-of-quarter. Revenue performance was in line with GTV performance both year-over-year and quarter-of-quarter, reflecting our steady monetization capability in new home business. The contribution margin from the new home transaction services was 24.1%, down by 0.7 percentage points year-over-year due to an increase in variable cost resulting from our agent benefit improvement last year. On quarterly basis, the new home contribution margin filled by 0.3 percentage points, largely due to a higher variable cost and a smaller decline in fixed labor cost compared with the revenue. For our home renovation and furniture services, we continued to strengthen our core capability to support long-term sustainable growth. On the product side, we successfully replicate our productized showroom model in multiple cities. On the supply chain side, we expanded our centralized procurement categories and adopt localized sourcing standards and the selection process. further reducing the overall unit purchase price. To enhance delivery quality, we focused on improving construction quality, standardizing onsite management, laying the foundation for a unified system to exercise construction site quality. In terms of the financial performance, revenue from our home renovation and the furniture business was RMB 4.3 billion. remaining relatively flat year-over-year. Contribution margin for the segment reached 32% of 0.8 percentage points year-over-year primarily driven by the reduced procurement cost resulting from a larger proportion of centralized purchasing and the decreased labor cost resulting from enhanced order dispatching efficiency. Sequentially, the contribution margin remained relatively stable. For our home rental service business, on product front, our new zero-mine products have been launched in 10 cities, offering property owners diversified service options. For unit size and occupation, our improved operational efficiency through AI-powered housing condition assessment and impassioned pricing, while further promoting our quality-based traffic allocation rules. to achieve faster housing turnover. In Q3, the conversion ratio of carefully run business opportunities to rental deals increased by more than two percentage points year over year. In terms of the operational management, we enhance the productivity for the property managers and other personnel through the further refinement of the road specialization of labor the integration of operational process, and the empowerment of AI technology. Regarding financial performance, revenue from our home rental services reached a record high of RMB 5.7 billion in Q3, up 45.3% year-over-year, driven by rapid growth in the number of rental units under management. At the end of Q3, we had over 660,000 rental units under management, compared with over 370,000 in the same period of 2024. The contribution margin for home rental services was 8.7%, up 4.3 percentage points year-over-year, and 0.3 percentage points quarter-of-quarter, largely driven by improved gross margin from our cafe-run business. As we continue to refine the business model, we have adopted a net revenue recognition approach based on service fees for the certain newly signed properties in line with the nature of the underlying service contracts. In Q3, our revenue from emerging and other services decreased by 18.7% year-over-year and 8.4% quarter-over-quarter to RMB 396 million. Now, moving to the other financial metrics in Q3, including other costs and expenses, profitability, and cash flow. Our store costs reached RMB 663 million in Q3, decreasing by 5.8% year-over-year and 13% quarter-to-quarter, mainly due to the lower store rental costs. Gross profit dropped by 3.9% year-over-year to RMB 4.9 billion. Growth margin was 21.4%, down 1.3 percentage points year-over-year. The decline was mainly due to the structural impact from a lower remnant proportion of existing home and new home business, which had relatively high contribution margins, as well as the decrease in contribution margin from the existing home business. This was partially offset by the increase in contribution margin from the home rental services. Growth margin declined by 0.5 percentage points, quote-of-quote, in Q3, mainly due to the structural impact as the revenue contribution of new home transaction service declined. In Q3, our debt operating expenses totaled RMB 4.3 billion, down 1.8% year-over-year, and a 6.7% quote-of-quote. Multiplied, G&D expenses were RMB 1.9 billion. relatively flat year-over-year, and down by 10.3% quarter-over-quarter, primarily attributable to the decreased beta provisions and the reduced share-based compensation expenses. Sales and marketing expenses, or RMB 1.7 billion, down 10.7% year-over-year, mainly due to the lower personnel expense and the reduced advertising and promotion expenses under the efficiency enhancement strategy On a quarterly basis, the sales and market expenses were down 9%, mainly driven by a reduction in labor-related costs. Our R&D expenses were R&D 648 million, up 13.2% year-over-year and 2.3% sequentially, largely driven by higher personnel expenses. In terms of the profitability, gap income from operations totaled RMB 608 million in Q3, down 16.4% year-over-year and a 42.6% quote-of-quote. Gap operating margin was 2.6%, dropping by 0.6 percentage point from Q3 2024 and a 1.4 percentage point quote-of-quote. The non-GAAP income from operations totaled RMB 1.17 billion, decreasing 14% year-over-year and 27% quarter-to-quarter. Non-GAAP operating margin was 5.1%, down 1 percentage point from Q3 2024, mainly due to the decline in gross margin. Non-GAAP operating margin was down 1.1 percentage point from the previous quarter, mainly due to the increase in operating expenses ratio sequentially. GAAP net income totaled RMB 747 million in Q3, down 36.1% year-over-year, under 42.8% quarter-of-quarter. Non-GAAP net income was RMB 1.29 billion, falling 27.8% year-over-year, under 29.4% quarter-of-quarter. Moving to our cash flow and balance sheet, we generated net operating cash inflow of RMB 851 million in Q3, New Home DSO remained at a healthy level with 54 days in Q3. In addition to spending approximately US$281 million in share repurchase during Q3, our total cash liquidity, excluding customer deposits payable, remained at around RMB$70 billion. Facing the short-term business challenges brought by external fluctuation and internal strategic transformation, we support and reward our shareholders through consistently active share repurchase to improve the efficiency of the capital operations. From the fourth to third quarter of this year, we spent US$139 million, US$254 million, and US dollar 281 million on share repurchase, respectively, with a cumulative amount of approximately US dollar 675 million in this year, up 15.7% year-over-year. As of the end of Q3, the number of repurchased shares accounts for about 3% of the company's total issued share at the end of 2024. Since the launch of our share repurchase program in September 2022, we had repurchased around US dollar 2.3 billion worth of shares as of the end of September this year, accounting for about 11.5% of our total issued shares before the program began. We have made progress in Q3 this year in proactively optimizing our business structure, strengthening technology improvements, and enhancing shareholder return. Our four looking layouts of the home renovation and furniture services and home rental services have both achieved profitability at the city level before deducting high quarter expenses in third quarter. The AI capabilities have shown initial result in driving the business development and improving the work efficiency of the service provider and the middle and the back office personnel. We are also fulfilling our shareholder return commitment with greater intensity, repurchasing your store at $281 million in a single quarter, increasing 38.3% year-over-year. As the industry enters a new stage of high-quality development, we are taking initiative in building a residential service ecosystem. With our combination of technological innovation anti-cyclical business portfolio, and highly efficient and well-structured operation system, we are well positioned to deliver great value to both customers and investors. Thank you. Next, I would like to turn the call to our chairman and CEO, Stanley.