On Tuesday, KE Holdings (NYSE:BEKE) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
KE Holdings reported a significant increase in non-GAAP operating profit to 1.67 billion RMB for Q1 2026, marking a 45.1% year-over-year increase and 416.2% quarter-over-quarter rise.
The company is focusing on strategic initiatives to balance scale and efficiency, including technology-driven empowerment and refining debt operations.
Despite a year-over-year decline in revenue, operational efficiency improved, with non-GAAP net profit margin reaching a record high over the past seven quarters.
The company spent approximately $195 million on share repurchases, reflecting confidence in its sustainable development and commitment to shareholder returns.
KE Holdings experienced a decline in GDV and revenue due to a high base effect from the previous year but achieved improvements in contribution margins across key business lines.
The company emphasized strategic restructuring and AI-driven improvements to enhance decision-making capabilities in its service offerings.
Management highlighted significant progress in their home renovation and leasing businesses, focusing on improving underlying capabilities and profitability.
The company anticipates continued year-over-year margin improvements and emphasized the importance of long-term strategic planning over short-term gains.
Full Transcript
Xu Tao (Chief Financial Officer)
Translation is for convenience purposes only. In the case of any discrepancy, management statement in their original language will prevail. With that, I will now turn the call over to our CFO, Mr. Xu Tao. Please go ahead. Thank you. Hello everyone. Thank you for joining our Q1 2026 earnings call. First, let me summarize the financial highlights of the quarter. In Q1, our non-GAAP operating profit reached 1.67 billion RMB up 45.1% year over year and 416.2% quarter over quarter. Non GA operating margin stood at 8.8% of reaching the highest level in the past seven quarters. The optimization of our cost and expense structure in 2025 has been reflected in our operating profit in Q1 this year and we expect it to provide a long term positive support to our operating performance going forward. Guided about a strategic focus on balancing scale and efficiency, we have rolled out initiatives including Refining Debt Operation and Technology driven empowerment. In Q1, the contribution margin of all of our core business lines improved year on year, reflecting the translation of our cost structure optimization efforts in 2025 into our income statement. We believe this is structural improvement rather than a cyclical one. Even with a year on year decline in the revenue in Q1, our contribution margin continued to expand, validating the release of property. Meanwhile, our operational efficiency continued to improve. The absolute amount of R and D selling and administrative expenses all decreased both year on year and quarter of quarter, marking the effectiveness of our refined management and cost control measures. Driven by the simultaneous improvement in both gross margin and operating expense ratios on a year over year and quarter over quarter basis, we saw further release of operating leverage with the non-GAAP net profit margin hitting a record high for the past seven quarters. In addition, we continue to deliver on our commitments to shareholders. During the quarter we spent around US$195 million on share repurchases and increasing of about 40% year on year. This move not only represents ongoing returns to shareholders, but also underscores our firm confidence in the company’s sustainable and steady development over the medium to long term. Turning to our key financial metrics for Q1 due to the high base from the real estate market in the same period last year, the group’s GDV and revenue decline year over year GTV reached 711.2 billion RMB down 15.6 rent year over year. The revenue was 18.9 billion down 19% year over year. That said, we achieved a meaningful improvement in operating efficiency. The group’s Gross margin reached 24.1% up 3.5 percentage points Year over year driven by gross margin expansion and improved operating efficiency. Our net margin also increased year over year. In the first quarter GAAP net income was 1.26 billion RMB up 46.7% year over year while the non-GAAP net income was 1.61 billion RMB up 15.7% year over year. Now let me provide you some more details for our existing home transaction services Business scale declined year over year due to the high base in the same period last year while profitability continued to improve in Q1 GTV reached 534.4 billion RMB down 7.9% year over year and up 10.9% quarter over quarter. Revenue from existing home transaction services reached 6.1 billion RMB down 7.7% year over year and up 12.7% quarter over quarter. The GDV declined less than revenue year over year mainly because of the higher proportion of existing home transaction GTV facilitated by connected agents where revenue is recognized on a net basis at platform services fee. On a quarter over quarter basis. Revenue growth also from GDV mainly due to an improvement in land job commission ratess. In particular, platform Service revenue increased by 3.8 percentage over year and 12.5% quarter over quarter, outperforming the overall GDV and demonstrating resilience of our platform model. Despite the year over year decline in revenue scale, contribution margin for the existing home transaction services reached 41.3% at the highest level in the past seven quarters. It was up 3.2 percentage point year over year, mainly attributable to the decline in fixed labor costs driven by the optimization of lean agent and store scale as well as improved organizational efficiency. The contribution margin also increased by 0.9% points quarter over quarter mainly driven by the operating leverage from the revenue recovery in Q1 with fixed labor costs remain relatively stable for new home businesses. Business scale declined year over year due to high market base in the same period last year while profitability improved year over year. Q1 GDV reached 1 45.9 billion RMB downs 37.2% year over year and 29.5% quarter on quarter. New home business revenue was 5.1 billion, down 37% every year and 30% quarter over quarter. The year on year and quarter over quarter. GDV performance was largely consistent with revenue reflecting our stable monetization capability for the business segment even amid a significant fluctuation in scale Q1 contribution margin of a new home business was 25.7% up 2.3 percentage points year over year benefiting from cost structure optimization brought by refined operations. It fell 2.6 percentage points quarter over quarter mainly due to the high base cost by the one off factors in the previous quarter for home renovation and furnishing services, Q1 revenue reached 2.3 billion RMB down 20.6% year over year and 35.3% over quarter. The year on year and quarter over quarter revenue decline was due to our proactive exit from low quality and efficient customer acquisition channels as well as cities with poor UE models. The contribution margin of home renovation and furnishing business was 36.2% in Q1 up 3.6 percentage points year on year, mainly driven by material cost savings from our continued efforts in centralized purchasing and tenor based local procurement as well as labor cost savings from improved order assignment efficiency. On a quarter over quarter basis, contribution margin increased by 7.4 percentage points mainly due to material cost savings and low base effect from certain one off factors in previous quarter. For our home rental services, revenue in Q1 reached 5, representing a slight year over year decline of 1.5% and a quarter over quarter decline of 7.4%. The decline was mainly due to the continuing iteration of Tier 3 ran toward our lighter and lower risk product model with a higher proportion of the home units recognized on a net revenue basis which had a temporary impact on reported revenue scale. However, this doesn’t change the growth strategy. A Trajectory of our managed rental units and service capabilities. As of the end of Q1, the number of rental units under our management exceeded 740,000 units, representing an increase of around 47% year over year. Meanwhile, contributory margin for our home rental services business reached 14.8% in Q1, up 8.1 percentage point year over year and 4 percentage points quarter over quarter, marking the sixth consecutive quarter of sequential improvement. This was mainly attributable to two factors. First, proportion of products recognized on the net revenue basis which have higher contribution margins continue to increase. Second, labor cost per unit declined driven by productivity improvements enabled by AI and a more specialized vision of labor for emerging and other businesses. Net revenue in Q1 was $321 million down 8.1% year over year and 30% quarter over quarter. Now let me walk you through the specific key financial metrics for the quarter Q1 store costs were $571 million down 20.3% year over year and 19.6% quarter quarter, mainly benefiting from the rental cost optimization and store network adjustments for Lianjia Q1 gross profit decreased by 5.4% year over year to 4.6 billion RMB and decreased by 4.1% quarter over quarter. Gross margin was 24.1% up 3.5 percentage points year over year and 2.7 percentage points quarter over quarter. Gross margin expanded year over year driven by three factors. First, improvement in rental services contribution margin. Second, favorable mix toward the existing home transactions which carry a higher contribution margin. Third, improvement in existing home contribution margin sequentially. The expansion was mainly due to higher mix of existing home revenue and improvement in existing home contribution margin. Q1 Total GAAP operating expenses were 3.3 billion RMB, reaching the lowest level in nearly three years down 22.3% of year over year. This was mainly attributable to the operating leverage released from improved organizational efficiency, strength in the financial discipline and optimized marketing spending efficiency. Operating expenses decreased by 33% quarter over quarter partly due to the high base from one time expenses related to the organization efficiency improvement and resource allocation in the prior quarter. Specifically, general and Administrative expenses were 1.7 billion down 8.6% year over year mainly due to a decrease in share based compensation expenses on a quarter over quarter basis. GNA expenses decreased by 24% mainly due to the high base of one time expenses in the prior quarter and low expenses driven by the improvement organizational efficiency. Sales and marketing expenses were $1.1 billion down 39% over year mainly driven by the improvement organizational efficiency and more refined management of marketing and promotion expenses on a quarter over quarter basis. Sales and marketing expenses decreased by 43.9% mainly due to the seasonal factors and high base of one time expenses in the prior quarter. R and D expenses were 493 million down 15.6% mainly due to improved organizational efficiency and lower technical services fees on a quarter on quarter basis. R and D expenses decreased by 31.1% primarily due to the high base one time expenses in the prior quarter. Moving to our bottom line performance, our GAAP operating profit was 1.27 billion RMB in Q1 compared with a profit of 591 million RMB in Q1 2025 and a loss of 147 million RMB in Q4 2025. The operating margin was 6.7%, a year over year increase of 4.2 percentage points and a sequential uptick of 7.4 percentage points. Q1 non-GAAP income from operations totaled 1.86 billion increasing 45.1% year over year and 416% quarter over quarter. The non-GAAP operating margin was 8.8% a year over year increase of 3.9 percentage points mainly due to the increase in gross margin and a sequential increase of 7.4 percentage point mainly due to the decrease in the operating expense ratio and the increase in the gross margin. Finally, GAAP net income total at 1.26 billion in Q1 up 46 billion 1425% quarter to quarter. Non GAAP net income was $1.61 billion up 15.7% year over year and 211.5% quarter. In terms of cash flow and balance sheet, we recorded a net operating cash outflow of $1.5 billion in Q1. Our operating cash flow was lower than our profitable performance mainly due to the timing factors related to the payment of accrued employee composition from the previous year. Excluding the impact of this timing factor and our operating cash flow performance was broadly in line with our profitability. In Q1. The turnover date of accounts receivables for our new home business was 64 days, largely stable year over year and remaining at a healthy level. In addition, even after spending approximately US$195 million on share repurchases during this quarter, our broader cash balances excluding customer deposits remain at a promising 65.6 billion RMB. Supported by our solid cash reserves. We place great importance on …
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