BEKE(BEKE) - 2023 Q2 - Quarterly Report

Business and Financial Highlights In the first quarter of 2023, KE Holdings experienced significant year-over-year growth, with total GTV increasing by 65.8% to RMB 971.5 billion and net revenues rising by 61.6% to RMB 20.3 billion. The company achieved a net income of RMB 2.75 billion, a substantial turnaround from a net loss in the prior year. While the number of stores and active stores saw a slight decrease, the number of agents and active agents increased, alongside a rise in mobile monthly active users Q1 2023 Key Financial and Operational Metrics | Metric | Q1 2023 | YoY Change | | :--- | :--- | :--- | | Gross Transaction Value (GTV) | RMB 971.5 billion | +65.8% | | - Existing Home Transactions | RMB 664.3 billion | +77.6% | | - New Home Transactions | RMB 277.9 billion | +44.2% | | - Home Renovation & Furnishing | RMB 2.7 billion | +1250% | | - Emerging & Other Services | RMB 26.7 billion | +40.6% | | Net Revenues | RMB 20.3 billion | +61.6% | | Net Income | RMB 2.75 billion | From Net Loss | | Adjusted Net Income | RMB 3.56 billion | +12618% | | Number of Stores | 41,275 | -9.8% | | Number of Agents | 435,780 | +2.0% | | Mobile MAU | 45.4 million | +14.4% | Management Commentary Management attributed the strong Q1 performance to a rebound in China's real estate market, the release of pent-up demand, and the company's strategic advantages, including its ACN (Agent Cooperation Network) and focus on high-quality growth. The company significantly outpaced the industry's GTV growth. Looking forward, the focus remains on improving service quality, strengthening the ACN, enhancing brand and platform efficiency, and expanding into the broader residential services sector to meet consumer needs for higher quality homes and services - The company's GTV growth in both existing and new home transactions significantly outpaced the industry, driven by a market rebound and the company's ACN advantages[6] - Future strategy involves strengthening the ACN, enhancing brand and platform efficiency through technology, and expanding to meet consumer needs for higher quality housing-related products and services[6] - The CFO highlighted that a streamlined cost structure led to the highest gross and operating margins since the company's NYSE listing, with non-GAAP net income increasing by 137% compared to Q1 2021, a period with similar revenue scale[7] Financial Results Analysis The company's financial performance in Q1 2023 showed a dramatic improvement. Net revenues surged 61.6% to RMB 20.3 billion, driven by strong GTV growth across all business lines. Gross profit more than doubled to RMB 6.3 billion, with gross margin expanding to 31.3% from 17.7%. The company swung from an operating loss to an operating income of RMB 3.0 billion and from a net loss to a net income of RMB 2.75 billion, reflecting both top-line recovery and effective cost management Net Revenues Total net revenues grew 61.6% YoY to RMB 20.3 billion, primarily due to a 65.8% increase in total GTV. Existing home transaction services revenue rose 49.3% to RMB 9.2 billion. New home transaction services revenue increased 42.2% to RMB 8.4 billion. Home renovation and furnishing revenue saw a massive jump to RMB 1.4 billion, largely due to the Shengdu acquisition. Emerging and other services revenue grew 222.1% to RMB 1.3 billion Q1 2023 Net Revenues by Segment (in RMB billions) | Segment | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Existing Home Transaction Services | 9.2 | 6.2 | +49.3% | | New Home Transaction Services | 8.4 | 5.9 | +42.2% | | Home Renovation and Furnishing | 1.4 | 0.09 | +1509% | | Emerging and Other Services | 1.3 | 0.4 | +222.1% | | Total Net Revenues | 20.3 | 12.5 | +61.6% | - The significant increase in home renovation and furnishing revenue was primarily due to the acquisition of Shengdu Home Renovation Co., Ltd. in Q2 2022[13] Cost of Revenues and Gross Profit Cost of revenues increased 34.9% to RMB 13.9 billion, a slower pace than revenue growth. The increase was mainly driven by higher commission splits and internal commissions due to increased GTV. However, costs related to stores decreased by 22.4% due to a reduction in Lianjia stores. Consequently, gross profit surged 186.1% to RMB 6.3 billion, and gross margin expanded significantly from 17.7% in Q1 2022 to 31.3% in Q1 2023 Q1 2023 Gross Profit and Margin | Metric | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Gross Profit (RMB) | 6.3 billion | 2.2 billion | +186.1% | | Gross Margin | 31.3% | 17.7% | +13.6 p.p. | - The improvement in gross margin was driven by higher contribution margins across all segments and a relatively lower percentage of fixed costs like store-related expenses[20] - Cost related to stores decreased by 22.4% to RMB 0.7 billion, mainly due to the decrease in the number of Lianjia stores[17] Operating Expenses and Income Total operating expenses rose 7.5% to RMB 3.4 billion. Sales and marketing expenses increased 50.3% due to the consolidation of Shengdu, while R&D expenses decreased by 39.0% due to lower personnel costs. The company reported an income from operations of RMB 2,978 million, a significant turnaround from a loss of RMB 918 million in the prior-year period. The operating margin was 14.7%, compared to -7.3% in Q1 2022, reflecting higher gross profit and improved operating leverage Q1 2023 Operating Expenses (in RMB millions) | Expense Category | Q1 2023 | Q1 2022 | YoY Change | | :--- | :--- | :--- | :--- | | General & Administrative | 1,621 | 1,528 | +6.1% | | Sales & Marketing | 1,294 | 861 | +50.3% | | Research & Development | 457 | 749 | -39.0% | | Total Operating Expenses | 3,372 | 3,138 | +7.5% | Q1 2023 Operating Income and Margin | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Income (Loss) from Operations (RMB) | 2,978 million | (918 million) | | Operating Margin | 14.7% | -7.3% | | Adjusted Income from Operations (RMB) | 3,830 million | (450 million) | | Adjusted Operating Margin | 18.9% | -3.6% | Net Income and Earnings Per Share (EPS) The company achieved a net income of RMB 2,750 million in Q1 2023, compared to a net loss of RMB 620 million in Q1 2022. Adjusted net income was RMB 3,561 million. This resulted in a diluted net income per ADS of RMB 2.26 (US$0.33), a stark contrast to the net loss per ADS of RMB 0.52 in the same period last year. Adjusted diluted net income per ADS was RMB 2.92 (US$0.43) Q1 2023 Net Income and EPS | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Income (Loss) (RMB) | 2,750 million | (620 million) | | Adjusted Net Income (RMB) | 3,561 million | 28 million | | Diluted Net Income (Loss) per ADS (RMB) | 2.26 | (0.52) | | Adjusted Diluted Net Income per ADS (RMB) | 2.92 | 0.02 | Liquidity As of March 31, 2023, KE Holdings maintained a strong liquidity position with a combined balance of cash, cash equivalents, restricted cash, and short-term investments amounting to RMB 66.6 billion (US$9.7 billion) - The company's combined balance of cash, cash equivalents, restricted cash, and short-term investments was RMB 66.6 billion (US$9.7 billion) as of March 31, 2023[31] Business Outlook and Corporate Actions The company provided a positive outlook for the second quarter of 2023, forecasting net revenues between RMB 18.5 billion and RMB 19.0 billion, representing a YoY increase of 34.3% to 37.9%. Additionally, the company continued its share repurchase program, having purchased approximately 16.2 million ADSs for US$228.6 million between September 1, 2022, and March 31, 2023 - For Q2 2023, the company expects total net revenues to be between RMB 18.5 billion and RMB 19.0 billion, an increase of 34.3% to 37.9% year-over-year[32] - Under its US$1 billion share repurchase program, the company bought back approximately 16.2 million ADSs for a total of US$228.6 million from September 1, 2022, to March 31, 2023[33] Unaudited Condensed Consolidated Financial Statements The unaudited financial statements provide detailed figures for the company's financial position and performance. The balance sheet as of March 31, 2023, shows total assets of RMB 118.0 billion and total liabilities of RMB 46.0 billion. The statement of operations details the significant revenue growth and return to profitability in Q1 2023. The cash flow statement indicates strong net cash provided by operating activities at RMB 7.6 billion Consolidated Balance Sheets As of March 31, 2023, total assets increased to RMB 118.0 billion from RMB 109.3 billion at year-end 2022. This was driven by a significant increase in cash and cash equivalents. Total liabilities also increased to RMB 46.0 billion from RMB 40.3 billion, primarily due to higher customer deposits payable and contract liabilities. Total shareholders' equity rose to RMB 72.0 billion Key Balance Sheet Items (in RMB billions) | Account | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | 118.0 | 109.3 | | Cash, Cash Equivalents, Restricted Cash & Short-term Investments | 66.6 | 61.1 | | Total Liabilities | 46.0 | 40.3 | | Total Shareholders' Equity | 72.0 | 69.1 | Consolidated Statements of Operations For the three months ended March 31, 2023, the company reported total net revenues of RMB 20.3 billion, a 61.6% increase from RMB 12.5 billion in Q1 2022. Gross profit was RMB 6.3 billion, up from RMB 2.2 billion. The company recorded an income from operations of RMB 3.0 billion, reversing a loss of RMB 0.9 billion, and achieved a net income of RMB 2.75 billion, reversing a net loss of RMB 0.62 billion in the prior-year period Q1 2023 vs Q1 2022 Income Statement Highlights (in RMB billions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Net Revenues | 20.3 | 12.5 | | Gross Profit | 6.3 | 2.2 | | Income (Loss) from Operations | 3.0 | (0.9) | | Net Income (Loss) | 2.75 | (0.62) | Consolidated Statements of Cash Flows For Q1 2023, net cash provided by operating activities was robust at RMB 7.6 billion, a significant improvement from RMB 0.8 billion in Q1 2022. Net cash provided by investing activities was RMB 5.6 billion, a reversal from cash used in the prior year, while financing activities used RMB 0.3 billion. This resulted in a net increase in cash, cash equivalents, and restricted cash of RMB 12.9 billion for the quarter Q1 2023 vs Q1 2022 Cash Flow Highlights (in RMB billions) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 7.6 | 0.8 | | Net Cash from (used in) Investing Activities | 5.6 | (4.3) | | Net Cash from (used in) Financing Activities | (0.3) | 0.1 | | Net Increase (Decrease) in Cash | 12.9 | (3.3) | Reconciliation of GAAP and Non-GAAP Financial Measures The company provides reconciliations for non-GAAP measures to their most comparable GAAP counterparts. For Q1 2023, adjusted income from operations was RMB 3.8 billion after excluding share-based compensation and amortization of certain intangible assets. Adjusted net income was RMB 3.6 billion, primarily adjusted for share-based compensation, amortization, changes in fair value of investments, and related tax effects. Adjusted EBITDA for the quarter was RMB 4.6 billion Q1 2023 GAAP to Non-GAAP Reconciliation (in RMB billions) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Income from Operations | 3.0 | +0.8 | 3.8 | | Net Income | 2.75 | +0.81 | 3.56 | - Major non-GAAP adjustments include share-based compensation expenses (RMB 701.8 million), amortization of intangible assets (RMB 150.1 million), and changes in fair value of investments[65]