KE Holdings Inc. American Depositary Shares (each representing three Class A Ordinary Shares) 2026 Q2 Earnings Call

Ladies and gentlemen, thank you for standing by for KE Holdings' second quarter 2026 earnings conference call. I am Siting Li, IR director of KE Holdings. Please note that today's call, including the management's prepared remarks and Q&A session, will all be in Chinese. Simultaneous interpretation in English will be 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. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website. 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 CFO.

Mr. Xu will provide an overview of our business update and financial performance. Mr. Peng will share more on the progress of our strategic transformation. 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 note that both the earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this call are all 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 Chinese as the main language. Please note that English translation is for convenience purposes only. In case of any discrepancy, management statements in their original language will prevail. Now, I will turn the call over to our CFO, Mr. Tao Xu.

Thank you, Siting. Hello, everyone. Welcome to our Q2 2026 earnings call. Let me begin with the key financial takeaways. Our total GTV returned to growth. Despite a modest year-over-year revenue decline, profits increased significantly, materially outperforming both GTV and revenue. In Q2, GTV increased 6.3% year-over-year, while revenue decreased 5.7% year-over-year.

This revenue decline stemmed primarily from adjustments in our home renovation and furnishing business, and revenue recognition impacts from iterative product modeling in home renovation services. Non-GAAP net income grew 74.9% year-over-year to RMB 3.185 billion. Non-GAAP net margin reached 13%, up 6% year-over-year, a three-year high. Profit improvements were driven by a healthier cost structure, strict financial discipline, and a higher operating efficiency. Contribution margins across all core business lines improved year-over-year and quarter-over-quarter, driving the group's gross margin up 6.7 percentage points year-over-year to 28.6%. Simultaneously, GAAP operating expenses fell 14.1% year-over-year. This combination of gross margin expansion and a lower operating expenses fueled our profit growth. Next, I will review our segment financial performance. First, existing home transaction services. Q2 scale returned to growth and profitability improved significantly. GTV reached RMB 629.89 billion, up 8% year-over-year and 17.9% quarter-over-quarter. Revenue was RMB 7.02 billion, up 4.5% year-over-year and 14.5% quarter-over-quarter.

GTV outpaced revenue growth year-over-year, primarily because non-Lianjia GTV, where platform service fees are recognized on a net base, accounted for a larger share. This quarter, non-Lianjia platform service revenue increased to 27.8% year-over-year and 29.8% quarter-over-quarter. With a stable network scale, we advanced and refined our operations to boost per store output, helping connected stores outperform the market in enhancing overall platform efficiency. Q2 contribution margin reached 46.1%, up 6.1% year-over-year, driven by lower fixed labor costs and a structural shift toward a higher-margin platform service revenue. It also rose 4.8% quarter-over-quarter, benefiting from operating leverage amid revenue recovery and further business mix improvements. Second, the new home business. Q2 scale remained stable year-over-year, while profitability continued to improve. GTV reached RMB 258.39 billion, up 1.2% year-over-year and 77.1% quarter-over-quarter. Revenue reached RMB 8.95 billion, up 3.8% year-over-year and 75.9% quarter-over-quarter.

Despite a pressured market, we maintained a stable scale by collaborating on high-quality projects, improving customer conversion, and optimizing costs. Q2 contribution margin reached 28.8%, up 4.4 percentage points year-over-year, driven by cost structure optimization from refined operations. It also rose 3.1 percentage points quarter-over-quarter, benefiting from the same factors plus operating leverage from revenue growth. Third, home renovation and furnishing. Q2 revenue was RMB 3.19 billion, down 30.1% year-over-year, and up 36.4% quarter-over-quarter. The year-over-year decline reflects our proactive adjustments of inefficient customer acquisition channels and exits from cities with a weak unit economics. New home market pressures also dampened renovation demand. The quarter-over-quarter revenue increase reflects a seasonal business recovery. Q2 contribution margin was 39.6% up 7.5 percentage points year-over-year and 3.4 percentage points quarter-over-quarter, driven by lower material costs through centralized procurement and refined cost management. Fourth, home rental services. Q2 revenue was RMB 4.83 billion, down 14.8% year-over-year and 3.6% quarter-over-quarter.

This stemmed from transitioning Carefree Rent to a lighter, lower-risk product model utilizing net basis revenue recognition. While this reduces reported accounting revenue, managed rental units continued rapid growth. By end of Q2, managed units exceeded 790,000, up approximately 34% year-over-year, with a net base product comprising over 50%. Q2 contribution margin reached 15.3%, up 6.9 percentage points year-over-year. This reflects a favorable product mix shift and operating improvement from lower labor, installation, and post-lease costs. Quarter-over-quarter contribution margin rose 0.5 percentage points, driven by continued increase in net-based products. Fifth, emerging and other businesses. Q2 revenue reached RMB 550 million, up 26.4% year-over-year and 70% quarter-over-quarter. Next, turning to costs, expenses, and profits. Q2 store-related costs were RMB 560 million, down 25.9% year-over-year and broadly stable quarter-over-quarter.

The year-over-year decline reflects Lianjia's rent cost optimization and network adjustments. Total Q2 GAAP operating expenses were RMB 3.989 billion, down 14.1% year-over-year, driven by improved organizational efficiency, optimized marketing spend, and continued financial discipline. Operating expenses rose 21.3% quarter-over-quarter due to higher selling expenses from the home renovation seasonal recovery and bad debt provisions in new home business. Specifically, G&A expenses were RMB 2.04 billion, down 2.1% year-over-year. The 18.9% quarter-over-quarter increase resulted from a full bad debt provision of around RMB 280 million, following a prudent assessment of sinecure-related receivables and collateral value. Sales and marketing expenses were RMB 1.4 billion, down 26.1% year-over-year due to optimized sales personnel costs and refined marketing spend, but rose 29.6% quarter-over-quarter from seasonally higher home renovation selling expenses.

R&D expenses were RMB 550 million, down 13.4% year-over-year due to lower labor and technical service costs, but up 11.4% quarter-over-quarter due to increased technical service fees. On the bottom line, Q2 GAAP operating profit reached RMB 3.026 billion, up 185.6% year-on-year. Non-GAAP operating profit was RMB 3.592 billion, up 123.6% year-over-year. GAAP operating profit rose 137.8% quarter-over-quarter with a 12.3% margin, up 8.3 percentage points year-over-year and 5.6 percentage points quarter-over-quarter. Non-GAAP operating profit grew 115.7% quarter-over-quarter with a 14.6% margin, up 8.5 percentage points year-over-year and 5.8 percentage points quarter-over-quarter. This year-on-year and quarter-over-quarter margin expansion was driven mainly by higher gross margins and lower operating expenses ratios. Q2 GAAP net income was RMB 2.624 billion, up 100.8% year-over-year and 109.1% quarter-over-quarter.

Non-GAAP net income was RMB 3.185 billion, up 74.9% year-over-year, 97.6% quarter-over-quarter. Finally, turning to cash flow, balance sheet, and shareholder returns. Our Q2 net operating cash inflow was RMB 6.61 billion. Our new home accounts receivable turnover was around 39 days, down around 12 days year-over-year, reflecting effective risk management. Excluding customer deposits, our end of Q2 broad cash balance remained at around RMB 67.3 billion. This ample liquidity strengthened our risk resilience while supporting business development and shareholder returns. In Q2, we spent around $250 million on share repurchases, including our first buyback in the Hong Kong market. In first half, we spent around $460 million on repurchases, up around 14% year-over-year, representing around 2.4% of our year-end 2025 outstanding shares.

Since launch of this share repurchase program in September 2022 through Q2 2026, we have repurchased around $2.99 billion in shares, representing around 14.8% of outstanding shares prior to the program start. In summary, Q2 profitability improvements reflect combined cost optimizations, operating enhancements, and a favorable business mix. Looking ahead, maintaining a solid balance sheet and ample liquidity will anchor our long-term growth. Across all core, new, and technical investments, we will enforce strict ROI discipline and take customer value, operating efficiency, and sustainable returns as our priority or key metrics. Ultimately, we will balance business development with the shareholder returns to consistently create long-term value. Next, I'll turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead. Thank you.

Investors and analysts, good evening. Last quarter, we discussed our shift toward a consumer-centric transformation. This quarter, I will talk about how the changes translate into our operations. In Q2, I observed two trends. Our operation foundation stabilized, and our organization truly mobilized. This foundation enables the long-term change. I will address five key questions. The first one, what changes as transformation enters daily operations? Second, does being consumer-centric mean bypassing agents? Thirdly, as AI advances, will agents become obsolete? Fourthly, how is AI applied in our business, and what is the result? Fifthly, how will we know we are on the right track moving forward? For the first question, what change as transformation enters daily operation?

In this quarter, I spent a lot of time on the front line visiting stores, properties, construction sites, and discussing issues with clients, agents, and the store owners. The changes boil down to three areas. First, refined operation. We are shifting from the one-size-fits-all approach to the district-specific and the project-specific strategies. Rather than tracking a single citywide metric, we analyze specific districts or projects to tailor solutions and what is the solution for each community. For example, in a high-end community where clients view property across districts, our legacy geographic bound model failed, and we regrouped operational units based on actual clients' viewing path, assigning project experts for professional presentations and clients' experts to address specific family needs.