BEKE - KE Holdings Inc. Announces Third Quarter 2020 Unaudited Financial Results

KE Holdings Inc. (“Beike” or the “Company”) (NYSE: BEKE), a leading integrated online and offline platform for housing transactions and services, today announced its unaudited financial results for the third quarter ended September 30, 2020.

Business Highlights for the Third Quarter of 2020

• Gross transaction value (GTV) ¹ was RMB1,050.0 billion (US$154.6 billion), an increase of 87.2% year-over-year. GTV of existing home transactions was RMB576.1 billion (US$84.8 billion), an increase of 71.8% year-over-year. GTV of new home transactions was RMB420.7 billion (US$62.0 billion), an increase of 105.7% year-over-year. GTV of emerging and other services was RMB53.2 billion (US$7.8 billion), an increase of 151.5% year-over-year.
• Net revenues were RMB20.5 billion (US$3.0 billion), an increase of 70.9% year-over-year.
• Net income was RMB75 million (US$11 million). Adjusted net income ² was RMB1,858 million (US$274 million), an increase of 210.6% year-over-year.
• Number of stores was 44,883 as of September 30, 2020, a 41.7% increase year-over-year.
• Number of agents was 477,810 as of September 30, 2020, a 50.7% increase year-over-year.
• Mobile monthly active users (MAU) ³ averaged 47.9 million, an increase of 82.1% year-over-year.

Mr. Stanley Yongdong Peng, Co-founder and Chief Executive Officer of Beike, commented, “We are pleased to deliver strong results for our first quarter as a public company. In the third quarter, we continued to strengthen our infrastructure, including the Agent Cooperation Network, by scaling up our network of community centric stores and agents, as well as expanding our online presence at a rapid pace. With improved customer experience on our platform, we achieved an 87.2% increase in GTV and a 70.9% increase in net revenues year-over-year. For existing home transaction services, with strong demand for quality housing transaction services from both home sellers and buyers, we further grew our GTV by 71.8% year-over-year. For example, facilitated by our big data technology, the Premium Package for Home Sellers was tailor-made for home sellers for more effective housing transactions. For new home transaction services, with increasing demand from real estate developers for professional brokerage services and our enhanced capability to achieve effective sell-through, our GTV of new home transaction services increased by 105.7% year-over-year. We partnered with real estate developers to adopt the 3-Day Free Return policy, while performing extensive risk assessment to ensure strong management of receivables. Leveraging our world-class database for residential housing and A.I. technology, we continued to standardize and digitalize the industry by adopting innovative applications, such as our Online Mortgage Processing Service , Xiaobei AI-assistant 2.0 and VR Lite . As we further execute our strategic initiatives centered on taking care of our customers and supporting service providers, we remain enthusiastic about our future path and are confident to deliver sustainable value to our housing customers, agents and other platform participants over the long-term.”

Mr. Tao Xu, Chief Financial Officer of Beike, further commented, “We achieved robust financial and operational growths in the third quarter. Our net revenues increased by 70.9% year-over-year to RMB20.5 billion, driven by solid growth of GTV of both existing home and new home transaction services, along with increased productivity and continuously improved service quality on our platform. Additionally, we achieved strong improvement in profitability in the third quarter as a result of greater operating leverage. Adjusted net income increased by 210.6% to RMB1,858 million (US$274 million) from RMB598 million for the same period in 2019. Looking ahead, drawing upon our infrastructure that we endeavor to iterate, amplifying our extensive industry experience in reconstructing and streamlining the complex housing transactions, we will continue to grow in all fronts, diversify our business offerings across housing related products and services. We remain strongly committed to our mission of admirable service and joyful living, and reshaping the industry while capturing the tremendous opportunities along with all our platform participants.”

Third Quarter 2020 Financial Results

Net Revenues

Net revenues increased by 70.9% to RMB20.5 billion (US$3.0 billion) in the third quarter of 2020 from RMB12.0 billion in the same period of 2019, primarily attributable to the increase in GTV of both existing home transaction services and new home transaction services.

• Net revenues from existing home transaction services increased by 46.2% to RMB8.8 billion (US$1.3 billion) in the third quarter of 2020 from RMB6.1 billion in the same period of 2019, primarily attributable to a 71.8% increase in GTV of existing home transactions to RMB576.1 billion (US$84.8 billion) in the third quarter of 2020 from RMB335.4 billion in the same period of 2019. Among that, (i) the revenue derived from platform service, franchise service and other value-added services, which are mostly charged to connected agents on the Company’s platform increased by 95.7% to RMB0.9 billion (US$0.1 billion) in the third quarter of 2020 from RMB0.5 billion in the same period of 2019, as the GTV of existing home transactions served by connected agents on the Company’s platform increased by 110.7% to RMB290.4 billion (US$42.8 billion) in the third quarter of 2020 from RMB137.8 billion in the same period of 2019; (ii) commission revenue increased by 42.0% to RMB7.9 billion (US$1.2 billion) in the third quarter of 2020 from RMB5.6 billion in the same period of 2019, driven by the GTV of existing home transactions served by the Company’s Lianjia brand increased by 44.6% to RMB285.7 billion (US$42.1 billion) in the third quarter of 2020 from RMB197.6 billion in the same period of 2019.

• Net revenues from new home transaction services increased by 95.0% to RMB11.1 billion (US$1.6 billion) in the third quarter of 2020 from RMB5.7 billion in the same period of 2019, primarily attributable to an increase in the GTV of new home transactions to RMB420.7 billion (US$62.0 billion) in the third quarter of 2020 from RMB204.5 billion in the same period of 2019, among which, RMB82.8 billion (US$12.2 billion) and RMB49.3 billion, respectively, were served by Lianjia brand.

• Net revenues from emerging and other services increased by 116.6% to RMB0.6 billion (US$0.1 billion) in the third quarter of 2020 from RMB0.3 billion in the same period of 2019. The increase was primarily due to the increase of penetration level of the Company’s financial services around the housing transaction services.

Cost of Revenues

Cost of revenues increased by 78.0% to RMB16.2 billion (US$2.4 billion) in the third quarter of 2020 from RMB9.1 billion in the same period of 2019, primarily attributable to the increase in split commission to connected agents and other sales channels and the increase in internal commission and compensation.

• Commission - split. The Company’s cost of revenues for commissions to connected agents and other sales channels increased by 143.8% to RMB7.7 billion (US$1.1 billion) in the third quarter of 2020 from RMB3.2 billion in the same period of 2019. The increase was primarily attributable to the incremental increase in the number of new home transactions completed through connected agents and other sales channels, which in turn was driven by the increasing number of connected agents and other sales channels joining our platform, as well as the promotional measures related to new home transaction services to incentivize the connected agents and other sales channels on our platform in the third quarter of 2020.

• Commission and compensation - internal. The Company’s cost of revenues for internal commission and compensation increased by 36.2% to RMB6.6 billion (US$1.0 billion) in the third quarter of 2020 from RMB4.9 billion in the same period of 2019. The increase was primarily attributable to the increase in the number of new and existing home transactions completed through Lianjia brand.

• Cost related to stores. The Company’s cost related to stores remained relatively stable at RMB0.8 billion (US$0.1 billion) in the third quarter of 2020 as compared to the same period of 2019, mainly attributable to the Company’s efforts to optimize the Company’s store network and store size and improve the efficiency of each store.

Gross Profit

Gross profit increased by 49.1% to RMB4.4 billion (US$0.6 billion) in the third quarter of 2020 from RMB2.9 billion in the same period of 2019. Gross margin was 21.3% in the third quarter of 2020, compared to 24.4% in the same period of 2019. The decrease in gross margin was mainly attributable to the increase of share-based compensation expenses and structural change that more new home transactions were facilitated by connected stores and agents and other sales channels.

Income (Loss) from Operations

Operating expenses increased by 75.8% to RMB4.5 billion (US$0.7 billion) in the third quarter of 2020 from RMB2.5 billion in the same period of 2019. General and administrative expenses were RMB2,649 million (US$390 million) in the third quarter of 2020, compared to RMB1,367 million in the same period of 2019, mainly due to the increase of share-based compensation expenses and number of supporting staff in city-level. Sales and marketing expenses were RMB1,026 million (US$151 million) in the third quarter of 2020, compared to RMB737 million in the same period of 2019, mainly due to the increase of the brand advertising and promotional marketing activities and share-based compensation expenses. Research and development expenses were RMB789 million (US$116 million) in the third quarter of 2020, compared to RMB436 million in the same period of 2019, mainly due to the increase of share-based compensation expenses.

Loss from operations was RMB81 million (US$12 million) in the third quarter of 2020, compared to income from operations of RMB400 million in the same period of 2019. Operating margin was negative 0.4% in the third quarter of 2020, compared to 3.3% in the same period of 2019, primarily due to the increase of share-based compensation expenses.

Adjusted income from operations ⁴ increased by 185.1% to RMB1,740 million (US$256 million) in the third quarter of 2020 from RMB610 million in the same period of 2019. Adjusted operating margin increased to 8.5% in the third quarter of 2020 from 5.1% in the same period of 2019. Adjusted EBITDA ⁵ increased by 122.3% to RMB2,248 million (US$331 million) in the third quarter of 2020 from RMB1,011 million in the same period of 2019.

Net Income (loss)

Net income was RMB75 million (US$11 million) in the third quarter of 2020, compared to RMB384 million in the same period of 2019.

Adjusted net income increased by 210.6% to RMB1,858 million (US$274 million) in the third quarter of 2020 from RMB598 million in the same period of 2019.

Net Income (loss) attributable to KE Holdings Inc.’s ordinary shareholders

Net loss attributable to KE Holdings Inc.’s ordinary shareholders was RMB271 million (US$40 million) in the third quarter of 2020, compared to RMB77 million in the same period of 2019.

Adjusted net income attributable to KE Holdings Inc. ⁶ increased by 212.3% to RMB1,857 million (US$274 million) in the third quarter of 2020 from RMB595 million in the same period of 2019.

Net Income (loss) per ADS

Diluted net loss per ADS attributable to KE Holdings Inc.’s ordinary shareholders ⁷ was RMB0.33 (US$0.05) in the third quarter of 2020, compared to RMB0.17 in the same period of 2019.

Adjusted diluted net income per ADS attributable to KE Holdings Inc.’s ordinary shareholders ⁸ increased by 762.5% to RMB1.38 (US$0.20) in the third quarter of 2020 from RMB0.16 in the same period of 2019.

Cash, Cash Equivalents, Restricted Cash and Short-Term Investments

As of September 30, 2020, the combined balance of the Company’s cash, cash equivalents, restricted cash and short-term investments amounted to RMB59.2 billion (US$8.7 billion).

Business Outlook

For the fourth quarter of 2020, the Company expects total net revenues to be between RMB19.2 billion (US$2.8 billion) and RMB20.2 billion (US$3.0 billion), representing an increase of approximately 33.5% to 40.5% from the same quarter of 2019. This business outlook reflects the Company’s current and preliminary view on the business situation and market condition, which is subject to change.

Conference Call Information

The Company will hold a conference call on 8:00 PM U.S. Eastern Time on Monday, November 16, 2020 (9:00 AM Beijing/Hong Kong Time on Tuesday, November 17, 2020) to discuss the financial results. Details for the conference call are as follows:

Event Title: KE Holdings Inc. Third Quarter 2020 Earnings Conference Call

Conference ID: 1175472

All participants must use the link provided below to complete the online registration process in advance of the conference call. Upon registering, each participant will receive a set of participant dial-in numbers, the Direct Event passcode, and a unique registrant ID by email.

PRE-REGISTER LINK: http://apac.directeventreg.com/registration/event/1175472

A live and archived webcast of the conference call will also be available at the Company’s investor relations website at http://investors.ke.com/ .

The replay will be accessible through November 24, 2020, by dialing the following numbers:

Exchange Rate

This announcement contains translations of certain RMB amounts into U.S. dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB6.7896 to US$1.00, the noon buying rate in effect on September 30, 2020, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.

Non-GAAP Financial Measures

The Company uses adjusted income (loss) from operations, adjusted net income (loss), adjusted net income (loss) attributable to KE Holdings Inc., adjusted operating margin, adjusted EBITDA and adjusted net income (loss) per ADS attributable to KE Holdings Inc.’s ordinary shareholders, each a non-GAAP financial measure, in evaluating its operating results and for financial and operational decision-making purposes. Beike believes that these non-GAAP financial measures help identify underlying trends in the Company's business that could otherwise be distorted by the effect of certain expenses that the Company includes in its net income (loss). Beike also believes that these non-GAAP financial measures provide useful information about its results of operations, enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by its management in its financial and operational decision-making. A limitation of using these non-GAAP financial measures is that these non-GAAP financial measures exclude share-based compensation expenses that have been, and will continue to be for the foreseeable future, a significant recurring expense in the Company’s business.

The presentation of these non-GAAP financial measures should not be considered in isolation or construed as an alternative to gross profit, net income or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review these non-GAAP financial measures and the reconciliation to the most directly comparable GAAP measures. The non-GAAP financial measures presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to the Company’s data. Beike encourages investors and others to review its financial information in its entirety and not rely on a single financial measure. Adjusted income (loss) from operations is defined as income (loss) from operations, excluding (i) share-based compensation expenses, (ii) amortization of intangible assets resulting from acquisitions and business cooperation agreement, and (iii) changes in fair value of financial assets recognized as deemed marketing expenses. Adjusted operating margin is defined as adjusted income (loss) from operations as a percentage of net revenues. Adjusted net income (loss) is defined as net income (loss), excluding (i) share-based compensation expenses, (ii) amortization of intangible assets resulting from acquisitions and business cooperation agreement, (iii) changes in fair value from long term investments, loan receivables measured at fair value and contingent consideration, and (iv) tax effects of the above non-GAAP adjustments. Adjusted net income (loss) attributable to KE Holdings Inc. is defined as net income (loss) attributable to KE Holdings Inc., excluding (i) share-based compensation expenses, (ii) amortization of intangible assets resulting from acquisitions and business cooperation agreement, (iii) changes in fair value from long term investments, loan receivables measured at fair value and contingent consideration, (iv) tax effects of the above non-GAAP adjustments, and (v) effects of non-GAAP adjustments on net income (loss) attributable to non-controlling interests shareholders. Adjusted EBITDA is defined as net income (loss), excluding (i) interest income, net, (ii) income tax expense (benefit), (iii) depreciation of property and equipment, (iv) amortization of intangible assets, (v) share-based compensation expenses, and (vi) changes in fair value from long term investments, loan receivables measured at fair value and contingent consideration. Adjusted net income (loss) per ADS attributable to KE Holdings Inc.’s ordinary shareholders is defined as adjusted net income (loss) attributable to KE Holdings Inc.’s ordinary shareholders divided by weighted average number of ADS outstanding during the periods used in calculating adjusted net income (loss) per ADS, basic and diluted.

Please see the Unaudited reconciliation of GAAP and non-GAAP results included in this press release for a full reconciliation of each non-GAAP measure to its respective comparable GAAP measure.

About KE Holdings Inc.

KE Holdings Inc. is a leading integrated online and offline platform for housing transactions and services. The Company is a pioneer in building the industry infrastructure and standards in China to reinvent how service providers and housing customers efficiently navigate and consummate housing transactions, ranging from existing and new home sales, home rentals, to home renovation, real estate financial solutions, and other services. The Company owns and operates Lianjia , China’s leading real estate brokerage brand and an integral part of its Beike platform. With more than 19 years of operating experience through Lianjia since its inception in 2001, the Company believes the success and proven track record of Lianjia pave the way for it to build the industry infrastructure and standards and drive the rapid and sustainable growth of Beike.

Safe Harbor Statement

This press release contains statements that may constitute “forward-looking” statements pursuant to the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “aims,” “future,” “intends,” “plans,” “believes,” “estimates,” “likely to,” and similar statements. Among other things, the business outlook and quotations from management in this press release, as well as Beike’s strategic and operational plans, contain forward-looking statements. Beike may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the “SEC”), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about KE Holdings Inc.’s beliefs, plans, and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Beike’s goals and strategies; Beike’s future business development, financial condition and results of operations; expected changes in the Company’s revenues, costs or expenditures; Beike’s ability to empower services and facilitate transactions on Beike’s platform; competition in our industry; relevant government policies and regulations relating to our industry; Beike’s ability to protect the Company’s systems and infrastructures from cyber-attacks; Beike’s dependence on the integrity of brokerage brands, stores and agents on the Company’s platform; general economic and business conditions in China and globally; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in KE Holdings Inc.’s filings with the SEC. All information provided in this press release is as of the date of this press release, and KE Holdings Inc. does not undertake any obligation to update any forward-looking statement, except as required under applicable law.