KE Holdings Inc

Hello, ladies and gentlemen. Thank you for standing by for Cahey Holdings Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Please note that today's call, including management's prepared remarks and question and answer session, will all be available 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 language 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 Li, IR Director of the company. Please go ahead, Siting.

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings Incor Baker's fourth quarter and fiscal year 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. that Mr. Peng will share more on our strategic update and thinking. Before we continue, I refer you to our Steve Parker statement in our earnings press release which applies to this call as we will make forward-looking statements. Please also note that FACUS 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 reconfiguration of the unmatched non-GAAP measures to comparable GAAP 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 company is 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, 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 statements in their original language will prevail. With that, I will now turn the call over to our CFO, Mr. Tao Xu. Please go ahead, Tao.

Thank you, Siti. Hello, everyone. Thank you for joining our 2025 Q4 and full-year earnings call. To begin, I would like to provide a summary of our financial highlights for the fiscal year of 2025. In 2025, in response to evolving customer needs, we initiated a strategic pivot from sales-driven to efficiency-driven growth. To optimize our business model, better leverage technology, and improve our cost structure and unit economy, we implemented a series of initiatives. These efforts are laying the foundation for more sustainable growth. while strengthening the stability and the flexibility of our early model. First, our free revenue remains relatively stable amid market fluctuations, outperforming the broader industry trend. This performance was underpinned by a more diversified and counter-cyclical business structure. Revenue from non-housing transaction business accounted for a record high of 41% of total revenue. the internal structure of the housing transaction services also improved, with the steam home GTV accounting for 67.6% of our total GTV, reflecting our focus on market segments with greater structural growth potential. Notably, the GTV contribution from connected brands further increased to approximately 63%. indicating higher contribution of revenue with lighter business model. This in-home platform service revenue was a basically stable young year, also demonstrating the resilience of our platform business model. Second, our operational efficiency improved and cost structure was optimized, laying foundation for future property dysfunction. In our in-home business, fixed labor costs recorded sequential decline for the full consecutive quarters throughout the year significantly enhanced the profit elasticity. By the end of the year, we had the release of operating leverage with the contribution margin of existing home business rebounding, sequentially in Q4. In our new home business, both variable cost ratio and fixed personnel expenses decreased 0.2 percentage points year-on-year increase in the full-year contribution margin. The home renovation business significantly narrowed its operating losses, and home rental services turned profitable at the operating level for the full year, with their contribution margins rising by 0.7 percentage points and 3.6 percentage points year-on-year, respectively. The overall operational efficiency with operating expenses ratio down 1.4 percentage points year-on-year. Third, we remain steadfast in our commitment to delivering the actual shareholder returns. In 2025, our total share repurchase reached approximately US$921 million, a year-on-year increase of around 29%. Furthermore, we are pleased to announce our final cash dividend plan for 2025. bringing our full-year total shareholder return to approximately US$1.22 billion, a year-on-year increase of around 9%. This accounts for approximately 170% of our 2025 non-GAAP net profit, far exceeding the proportion in 2024. Turning to our Q4 performance, Due to the high price in the same period of 2024, our PTV and revenue saw a notable young year decline. Our PTV reached RMB 724.1 billion, representing a decrease of 36.7% young year. Revenue was RMB 22.2 billion, down 28.7% young year. As a result of the decline in transaction scale, our growth profit margin was 21.4%. A year-on-year decrease of 1.6 percentage points. Q4, GAAP net profit was RMB 823 million, down 85.7% year-on-year. Non-GAAP net profit was RMB 517 million, representing a year-on-year decline of 61.5%. It is important to note that our bottom-line performance in Q4 was partially affected by a lot of expenses related to our cost optimization initiatives. With this adjustment, with our near-term profitability, they are helping us to streamline our cost structure and position the company with greater operating leverage going forward. With that overview, I'd like to provide some details on the financial performance of each business segment In our existing home business, due to the rise of a higher base in the same period last year, the scale of our existing home transaction business declined in the fourth quarter, while the profitability improved. PTV from the existing home business reached RMB 482 billion in Q4, reflecting a 35.3% decrease year-on-year and a 4.7% decrease quarter-on-quarter. Revenue was RMB 5.4 billion. down 39% year-on-year and 9.2% quarter-on-quarter. GTV outperformed the revenue year-on-year was mainly due to higher GTV contribution from the in-home transaction facilitated by connected agents, for which revenue are recorded on a net basis. On a quarter-on-quarter basis, GTV out-performed revenue was mainly driven by the structural shift, as the revenue contribution from the rental brokerage services decreased amid seasonal fluctuations, which had a relatively higher take rate. In this segment, revenue from platform service decreased by 19.9% year-on-year, significantly outperforming the overall GTV decline and demonstrating the resilience of the platform model. Despite the year-on-year adjustments, and the superficial decline in revenue, the contribution margin of the 18-home business reached 48.4%, remaining stable in our year and rising 1.5 percentage points, quote-unquote. This resilience in profitability against accidental volatility is the direct result of our disciplined HICOM control and our focus on organizational efficiency in 2025. For new home business, Affected by high base, the skills declined in the young year, which probability improved. PTV reached RMB 207 billion in Q4, a young year decrease of 41.7%, and a sequential increase of 5.5%. Running from the new home business was RMB 7.3 billion, a young year decrease of 44.5%, and a sequential increase of 9.4%. GTV output from the revenue year-on-year was mainly due to the higher base of the monetization rate, while revenue output from GTV quote-on-quota primarily due to the system factors. Even with this significant skill fluctuation, the contribution margin of the new home business rose to 28.3%, an increase of 2.6 percentage point year-on-year and 4.2 percentage point quote-on-quota, benefiting from the cost structural optimization driven by the operations. For home renovation and services, revenue reached the 3.6 billion in Q4, a year-on-year decrease of 12% and a decrease of 15.9%. This temporary resulting in revenue reflects our prudent balance between skill and risk as we proactively optimize our training structure moderate pace of certain non-brokered channels. Contribution margin was 28.8% in Q4, down 0.9 percentage point year-on-year, and a 3.2 percentage point quote-unquote, mainly because we made a provision for potential warranty costs of the home renovation orders still on the warranty period at the end of 2025. Based on the principle of the prudence, excluding this impact, our core cost structure continues to improve. This increase in centralized procurement has led to a sustained saving in material costs. Turning to our home rental services, Renew reached RMB 5.4 billion in Q4, a year-on-year increase of 18.1%, with the profitability improved. The growth in revenue was mainly driven by the rapid growth in the number of the rental units under management. At the end of Q4, We had over 700,000 rental units on the management, a year-on-year increase of around 62%. On a sequential basis, revenue sold flat decreased by 5.5%, mainly due to changes in accounting methods brought by product model upgrade. The carefully run business has continued to iterate towards a lighter and lower-risk product model. leading to an increase in the proportion of rental units with revenue recognized on a night basis, which has temporary impact on the revenue scale. However, this does not change the robot's growth trajectory of our management scale or the service capability. Meanwhile, the contribution margin on rental services was 10.4% in Q4, up 5.9 percentage points year-on-year and 1.7 percentage points sequentially. mainly driven by two factors. First, the structural improvement from the ongoing shift towards a lighter product model. As of the end of 2025, the proportion of rental units that were recognized on that basis has exceeded 30%. Second, operational efficiency gains that optimized our unique common model. Since the process of restructuring and the professional road specialization, we have significantly improved the productivity of the property managers, leading to a notable optimization of labor costs. In addition, the gradual penetration of AI technology across the entire operation value chain has laid the foundation for the large-scale expansion and the sustained portability of the business. In Q4, our revenue from emerging and other services increased by 4.5% year-on-year and 16% quarter-on-quarter to RMB 459 million. Now, moving to other financial metrics in Q4, including other costs and expenses, profitability, and cash flow. Our store costs were RMB 710 million in Q4, the year-on-year decrease of 9.6%. This was primarily driven by the optimization of rental costs for our ninja stores, and the refinement of our store structure. On a sequential basis, store costs increased by 7.2%, primarily due to one-off expenses from the store closures. Q4 gross profit decreased by 33.7% year-on-year to RMB 4.8 billion, remaining relatively flat sequentially. The gross margin was 21.4%, a year-on-year decrease of 1.6 percentage points. mainly due to the declining revenue contribution of the existing homes by the new home segments, which have relatively higher contribution margins. This impact is partially off-site, as the ELE approved profit margin expansion of the home rental business. Our growth margin was relatively flat quarter-on-quarter. In Q4, gas operating expenses for RMB 4.9 billion. a young year decrease of 28.4% and a sequential increase of 13.3%. The quote-unquote increase was mainly due to one-off expenses related to the cost optimization initiatives. But coding this non-recurring impact, the trend of operating expenses is fully consistent with our efficiency improvement efforts. This expense optimization initiatives position us for greater operating leverage going forward. To break down the components, GND expenses for RMB 2.3 billion down 23.9% year-on-year, mainly due to the reduced better provisions and the lower service compensation. The 28.8% sequential increase was mainly due to the aforementioned wealth optimization costs. Sales and marketing expenses for RMB 1.9 billion down 17.7% year-on-year, mainly due to the lower personnel-related expenses driven by operational efficiency improvements. The 11.7% sequential increase was mainly due to the seasonal market and the promotion expenses. R&D expenses for R&D 750 million, relatively flat year-on-year, and up 10.3% on culture, mainly due to the formation of optimization costs. Moving to our ultimate performance, our gap operating losses was RMB 147 million in Q4, compared with the profit of RMB 1.01 billion in Q4 of 2024, and the RMB 6.08 million in Q3. The operation margin was 19.7%, a year-on-year decrease of 3.9 percentage points, and a secretional decrease of 3.3 potential points. The non-GAAP income from operations totaled RMB 323 million, decreasing 81.6% year-on-year and 72.5% quote-on-quote. The non-GAAP operating margin was 1.5%, a year-on-year decrease of 4.2 percentage points, and a sequential decrease of 3.6 percentage points, mainly due to the increase in operating expenses ratio. Finally, GAAP net income totalled R&D 82 million Q4, down 85.7% year-on-year, and 89 quote-on-quote. Non-GAAP net income was RMB 517 million, falling 61.5% year-on-year and 59.8% quote-on-quote. Moving to our cash flow and balance sheet, we generated net operating cash inflow of RMB 1.9 billion Q4. In 2025, our full-year net operating cash flow was below the profit performance. many affected by the timing factors in working capital, including the payment of the accrued bonus from the previous year and the changes in contract liability in our home renovation business due to order intake moderated. According to the impact of above timing factors, our net operating cash flow performance was broadly consistent with the profitability. Our new home accounts receivable, turnover days, was 44 days in Q4, a sequential decrease of approximately 10 days, remaining at a healthy level. In addition to spending approximately US$246 million on shares repurchased during Q4, our total cash liquidity, including custom deposit payable, remained at around RMB 68.7 billion. With the robot cash reserve, We place a high importance on shareholder returns. We spent approximately US$921 million on share repurchase for the full year of 2025, representing approximately 4.1% of total share outstanding at the end of 2024. Our track record reflects a consistent dedication to fulfilling our promise to shareholders. Since the launch of our share repurchase program in September 2022, We have repurchased a total of approximately $2.5 billion in shares at the end of 2025, a total reduction of approximately 12.6% of the company's total issued share prior to the program launch. On top of this robust shareholder reach, we are pleased to announce a final cash dividend plan totaling approximately $0.3 billion. which will be funded by surplus cash on our balance sheet. With this, our total shareholder return for 2025 significantly exceeded our non-GAAP net income, representing around 170% of our non-GAAP net income for the year. Overall, in 2025, we placed a greater focus on improving operation quality and resources allocation efficiency, while continuing to optimize our business mix, cost structure, and expense discipline. Our current cost structure is more streamlined. The profit model is clear, and the profitability quality of each business segment has improved. We have also adopted a more comprehensive and proven approach for the pace of our emerging business, capital investment, and risk control, which has ensured a sound balance sheet Looking ahead to 2026, we will need to improve in the financial system and describe a balance between efficiency and growth. We will continue to improve our learning qualities, optimize our capital and tuition structure, while safeguarding our long-term competitive needs, thereby creating sustainable value for our shareholders. Thank you. Next, I would like to extend a call to our Chairman and the CEO's family.