BEKE

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings first quarter 2026 earnings conference call. I am Siting Li, IR Director of KE Holdings. Please note that today's call, including management-prepared remarks and a Q&A session, will all be in Chinese. Simultaneous interpretation in English will be available on a separate line. To access the call in Chinese, you will need to dial the Chinese line. At this moment, 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. With us today, we have Mr. Stanley Peng, our Co-founder, Chairman, and Chief Executive Officer, and Mr. Xu Tao, our Executive Director and CFO. Mr. Xu will provide an overview of our business update and financial performance.

Mr. Peng will share more on our strategic transformation and insights. 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 a forward-looking statement. Please also know that because earnings press release and this conference call included 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 the comparable GAAP measures. Unless otherwise stated, all figures mentioned in today's 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 Chinese as the main language. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management statement in the 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 CNY 1.67 billion, up 45.1% year-over-year and 416.2% quarter-over-quarter.

Non-GAAP operating margins stood at 8.8%, reaching the highest level in the past 7 quarters. The optimization of our cost and expenses structure in 2025 has been reflected in our operating profit in Q1 this year, and we expect it to provide long-term positive support to our operating performance going forward. Guided by the 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 property in Q1, our contribution margin continued to expand, validating the release of profit elasticity.

Meanwhile, our operational efficiency continued to improve. The absolute amounts of the R&D, selling, and administrative expenses all decreased both year-over-year and quarter-over-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 a non-GAAP net profit margin hitting a record high for the past seven quarters. We continue to deliver on our commitments to shareholders. During the quarter, we spent around $195 million on share repurchases, an increase of about 40% year-over-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 GTV and revenue declined year-over-year. GTV was CNY 711.2 billion, down 15.6% year-over-year. The revenue was CNY 18.9 billion, down 19% year-over-year. That said, we attributed 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 CNY 1.26 billion, up 46.7% year-over-year, while the non-GAAP net income was CNY 1.61 billion, up 15.7% year-over-year. 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 CNY 534.4 billion, down 7.9% year-over-year and up 10.9% quarter-over-quarter. Revenue from existing home transaction services reached CNY 6.1 billion, down 10.7% year-over-year and up 12.7% quarter-over-quarter.

The GTV 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 as per platform services fees. On a quarter-over-quarter basis, revenue growth outperformed GTV, mainly due to an improvement in Lianjia commission rate. In particular, platform service revenue increased by 3.8% year-over-year and 12.5% quarter-over-quarter, outperforming the overall GTV 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%, the highest level in past seven quarters.

It was up 3.2 percentage points year-over-year, mainly attributable to the decline in the fixed labor costs driven by the optimization of the Lianjia agent and store scale, as well as improved organizational efficiency. The contribution margin also increased by 0.9 percentage point quarter-over-quarter, mainly driven by the operating leverage from the revenue recovery in Q1, with fixed labor costs remaining relatively stable. For new home businesses, business scale declined year-over-year due to a high market base in the same period last year, while profitability improved year-over-year. Q1 GTV reached CNY 145.9 billion, down 37.2% year-over-year and 29.5% quarter-over-quarter. New home business revenue was CNY 5.1 billion, down 37% year-over-year and 30% quarter-over-quarter.

The year-over-year and quarter-over-quarter GTV performance was largely consistent with revenue, reflecting our stable monetization capability for the business segment. Even amid significant fluctuations in scale, Q1 contribution margin of 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 caused by the one-off factors in the previous quarter. For home renovation and furnishing services, Q1 revenue reached CNY 2.3 billion, down 20.6% year-over-year and 35.3% quarter-over-quarter. The year-over-year and quarter-over-quarter revenue decline was due to our proactive exit from low-quality and inefficient customer acquisition channels, as well as cities with poor UE models.

The contribution margin of the 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 tender-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 effects from certain one-off factors in previous quarter. For our home renter services, revenue in Q1 reached CNY 5 billion, 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 Carefree Rent toward a 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 the reported revenue scale. However, this doesn't change the growth strategy or trajectory of our managed renter units and service capability. 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, the contribution margin for our home renter services business reached 14.8% in Q1, up 8.1 percentage points 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, continued to increase. Second, labor costs per unit declined, driven by productivity improvements enabled by AI and a more specialized division of labor. For emerging and other businesses, net revenue in Q1 was CNY 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 CNY 571 million, down 20.3% year-over-year and 19.6% quarter-over-quarter, mainly benefiting from the rental cost optimization and the store network adjustments for Lianjia.

Q1 gross profit had decreased by 5.4% year-over-year to CNY 4.6 billion 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, a 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 a higher mix of existing home revenue and improvement in the existing home contribution margin. Q1 total GAAP operating expenses were CNY 3.3 billion, reaching the lowest level in nearly three years, down 22.3% year-over-year.

This was mainly attributable to the operating leverage released from improved organizational efficiency, strengthened financial discipline, and optimized marketing spending efficiency. All operating expenses decreased by 33% quarter-over-quarter, partly due to the high base from one-time expenses related to the organizational efficiency improvement and resource allocation in the prior quarter. Specifically, general and administrative expenses were CNY 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, G&A expenses decreased by 24%, mainly due to the high base of the one-time expenses in the prior quarter and low expenses driven by the improved organizational efficiency. Sales and marketing expenses were CNY 1.1 billion, down 39% year-over-year, mainly driven by an improved 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 a high base of one-time expenses in the prior quarter. R&D expenses were CNY 493 million, down 15.6%, mainly due to improved organizational efficiency and lower technical services fees. On a quarter-over-quarter basis, R&D expenses decreased by 31.1%, primarily due to the high base one-time expenses in the prior quarter. Moving on to our bottom line performance. Our GAAP operating profit was CNY 1.27 billion in Q1 compared with a profit of CNY 591 million in Q1 2025 and a loss of CNY 147 million 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 CNY 1.67 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 the gross margin, and a sequential increase of 7.4 percentage points, mainly due to the decrease in the operating expense ratio and the increase in the gross margin. Finally, GAAP net income totaled CNY 1.26 billion in Q1, up 46.7% year-over-year and 1,425% quarter-over-quarter.

Non-GAAP net income was CNY 1.61 billion, up 15.7% year-over-year and 211.5% quarter-over-quarter. In terms of the cash flow and balance sheet, we recorded a net operating cash outflow of CNY 1.5 billion in Q1. Operating cash flow was lower than our profit performance, mainly due to the timing factors related to the payment of accrued employee compensation from the previous year. Excluding the impact of this timing factor, our operating cash flow performance was broadly in line with our profitability. In Q1, the turnover days of accounts receivable for our new home business were 64 days, largely stable year-over-year and remaining at a healthy level.

Even after spending approximately $195 million on share repurchases during this quarter, our broader cash balances, excluding customer deposits, remain at approximately CNY 65.6 billion. Supported by our solid cash reserves, we place great importance on shareholder returns. In the first quarter, we spent over around $200 million on share repurchases, with the number of shares repurchased representing around 13.5% of the company's total shares outstanding before the program began.

In summary, in the first quarter, we delivered on our operating commitments and achieved a meaningful enhancement in our operating capabilities through proactive cost structure optimization, technology-driven empowerment, and more refined management. Looking ahead, we'll continue to uphold the principle of maximizing the company's overall value as our core priority. We will allocate resources around our long-term strategic direction, avoiding pursuing local optimums and shorter-term gains. At the same time, we'll use data and business fundamentals as basis for decision-making and maintain our clear ROI discipline for key investments, directing resources toward areas where we can better enhance customer experiences and service and better efficiency. Now I'll hand over the call to our CEO.

Well, thank you, Mr. Tao. Now, I'd like to welcome all of you for joining us at KE Holdings 2026 first quarter earnings call. In the first quarter, we saw some encouraging early signs across the property market. The existing home market, in particular, experienced a noticeable spring rebound after Chinese New Year, with transaction momentum into deal conversion, buyer decisiveness, and seller sentiment all improving. In some key cities, the price expectations are moderating towards rational levels. Previously pent-up move-up and trade-up demand is now beginning to clear the market in an orderly manner. That said, in divergence of core cities and market segments remains pronounced. We are still in a phase of structural adjustment and confidence rebuilding. We're not reading too much into one quarter's data, nor are we disheartened by the continued volatility inherent in any cycle.

More importantly, consumers are placing greater emphasis on authentic living needs, asset quality, and long-term lifestyle fit. The overall industry is now evolving toward a more stable, healthy, and sustainable path. Our company's operational quality is also on the rise. Despite a high base in the prior period, Q1 GTV and revenue declined year over year, yet adjusted net income climbed at 15.7% year-on-year. We have seen three notable improvements. First, efficiency gains. In Q1, Lianjia nationwide per capita transaction volume rose 26% year-on-year, with per capita commission up 8.5%. From January to April, cumulative per capita commission increased by 20% year-on-year, comfortably outperforming local real estate transaction market. Second, no compromise on scale. Our platform's existing home transactions grew 12% year-on-year. Non-Lianjia existing home transactions rose 16% year-on-year, markedly outpacing the market.

In Beijing and Shanghai, where Lianjia posted the strongest per capita efficiency gains, market penetration also rebounded from the second half of last year. Third, improved profitability. The group's adjusted operating margin recovered to over 8.8%, up 3.9 percentage points year-on-year, while adjusted operating profit rose by approximately CNY 500 million year-on-year. These measurable Q1 improvements stem from our relentless pursuit of efficiency-driven growth. This is not merely about cutting investment, controlling costs, or downsizing to boost profits. It means fundamentally re-evaluating which services truly solve consumer pain points in today's market, which providers can deliver sustainable value, and how our platform amplifies that value through technology, mechanisms, and resource allocation. At the end of March this year, we announced a new round of strategic and organizational restructuring.

This transformation rests on one fundamental premise: the housing service industry is undergoing fundamental changes. An industry creates value by solving for what is the scarcest. For years, China's housing market was defined by rapid growth, tight supply, and strong expectations of rising prices. Listings were the scarce resource. Value came from controlling listing information and the path clients took to reach it. Consumers wanted to know where the listings are, what they cost, if I can get one, and if we can close fast. The earlier brokerage industry organized naturally around listings. For KE Holdings, we are trying to make sure that the industry's core is now within our adjustment. Listings used to be what mattered most, and now it is the ability to guide decisions. Value creation is upgrading from organizing supply to delivering decision support and housing advisory services.

What consumers really need today is to make sure that they make the right decision with high tickets, risks, and sorted information so that they can make well-informed decisions. For buyers, decision support means helping them understand whether, where, and what truly fits. For owners, consumer functions have also changed. Their core anxiety has shifted from, Can I get one? Am I getting it wrong? What they care about now is, Should I even buy right now? How do I weigh school districts against the commute and living comfort? These two units each have their strengths, and which one should I get? For buyers, decision support means helping them understand whether to buy or not, where to buy, and what truly fits. For owners, it means helping them understand how to present value, price right, find the right buyer, and increase closing certainty.

AI will accelerate this shift. It'll rapidly commoditize computer information sorting and shallow matchmaking, while further amplifying the value of service providers who can guide decisions. It can also turn top agent expertise into platform capabilities. For us, our real-world scenarios, service network, transaction loops, and continuous data feedback give us the opportunity to combine with AI and build a deep moat. The strategic restructuring we launched this year is neither short-term cost-cutting nor a defensive move. It is about reorganizing production around a new scarce resource. KE Holdings is evolving from a platform that organizes transactions into one that supports higher quality housing decisions, redefining the very paradigm of value creation for this era. Here, the key is to be more professional, and professionalism for us is simple. It is decision support. What exactly does it take to be more professional? Three things.

First, the key organizational change towards better professionalism is to get managers back to the front lines. We have 500 core managers and 2,534 directors who are, in theory, our most capable, highest-leverage people. Yet today, many spend over half of their time in meetings, parsing metrics, and cranking out reports. The management system, metrics, and processes we built once drove our growth and made the industry more efficient. Any system that doesn't center around the consumer's real needs risks becoming an end in itself. That is why a critical part of this transformation is sending managers back to the front lines to re-understand consumers, re-understand what service provider means, and redefine their own professional values. In Beijing, our Regional Director, Zhang, has done a lot that I consider truly returning to the front line.

He manages 16 commercial districts and 12 stores. Every week, he reviews listings in person. Every week, he joins owner interviews. Every Saturday, he hosts office signing. Every time he was involved, efficiency improved. There was an owner and an agent deadlocked over a small price gap, and the deal stuck for ages. When Zhang stepped in, he stopped talking about a price and started asking, Why are you selling? Where are you heading next? What is this money used for? He discovered that the owner didn't need a better price. They need a trade-up plan. He helped them rethink their housing options, ultimately driving both the new home purchase and the existing home sale. He feeds store and competitor data into AI to generate diagnostic reports, shifting from reading metrics to prescribing solutions.

Oversight has given way to spotting specific problems and helping fix them. Next, he's building a knowledge base across district, store, and individual tiers, codifying property details, customer profiles, and listing presentation playbooks. Second, service providers must become more professional. In the past, agents were essentially generalists. They took every client, handled every need, and touched every stage of the deal, and the model worked when listings were scarce and deals moved fast. Today, AI is rapidly flattening the traditional agent's edge in process, scripted talk, and policy know-how. At the same time, customer needs are clearly segmented. School districts, luxury upgrades, new homes, asset dispositioning, leasing, renovation, et cetera, each demand a different knowledge base and service approach and trust-building process.

The true professionalism in the future will be defined by three things AI cannot do: understanding a client's real pain points and needs, efficient support, helping them think through the trade-offs. This is analytical and proposal capabilities and delivering reliable accountable and recommendations. This is accountability for high-stakes decisions. These three capabilities can only grow in real-world scenarios. To make our service providers more professional, first we need to do is train them from tech knowledge to hands-off drills and case-based reviews. The system will also capture frontline best practices and, with AI, structure them for people to study and benchmark against. Second, judging whether a service provider is professional may shift from a static exam or certificate to how they serve clients over time and what clients say about them.

AI can track a service provider, analyzing their service process and client feedback, making their professional capabilities visible, evaluable, and able to continuously accumulate and grow. Third, the platform must turn non-standard services into products. Much of our best service used to depend on individual know-how, but these skills are scattered, inconsistent, and hard to replicate. The platform's job is to codify this expertise into product tools and processes so every consumer gets consistently great service and every agent is properly equipped. For sellers, we're pushing decision support further upstream to cover the entire sales cycle. Before listing, we help owners understand the market, comparable properties, likely buyers, and fair price ranges so agents can craft a sharper sales plan. After listing, we feedback information that actually matters to that specific property, helping owners make informed calls on pricing, pacing, and strategy.

For owners with different needs, we are testing differentiated products through owner segmentation and listing tiering. For example, community open days concentrate exposure and buyer feedback. For owners ready to sell and entering price negotiations, Commit to Sell uses a deposit, online bidding, and system comparisons to cut down back-and-forth and help both sides reach agreement faster. A recent Commit to Sell deal illustrates this very well. An owner in Beijing, Desheng District, had a property worth over CNY 10 million. She was firm in price, more anxious about locking in a sale before month-end. In the past, this meant endless showings and price ping pong and stalled deals. Commit to Sell compresses everything into a clear window. The owner put down a deposit, the listing got concentrated promotion, and buyers bid online, and everyone knew the clock was ticking.

The winning buyer wasn't even first in line, but with transparent rules and a firm deadline, she bid online on Friday evening and closed at the owner's price. The buyer saw an opportunity. The seller got certainty. No price slashing, just a product mechanism that matched a real seller, a real buyer, and an agent who knows the property and the market. For buyers, we're also pushing services earlier. Today, clients enter a content-driven pre-decision phase long before they need an agent. They search everywhere, but credible, neutral, structured guidance is very scarce. They need professional support as a reference in their decision-making.

We're putting our front-line leaders, managers, directors, and district heads who know the market and consumer best on the front lines of content creation and building a tiered content matrix with the platform. We're not trying to turn them into influencers chasing traffic. Rather, this pushes them to truly present their expertise about communities, listings, transactions, and clients already in their hands.

Simultaneously, before the client reaches the agent, we're adding a more neutral decision service layer. Through middle office service roles, combined with AI experts in legal, finance, school districts, and high-end properties, we help the client conduct, you know, clarification of needs, purchasing power calculation, risk disclosure, preliminary asset planning. We match these clear, better understood needs to the most suitable service provider. We will pivot to a more precise matching stage. I wanna say that AI is not a single tool but a new organizational capability. For instance, with our application building platform for frontline employees, staff simply describe their needs using natural language, and AI helps generate and deploy the application. As of the end of April, the platform has covered over 7,100 employees with more than 4,400 applications seeing actual traffic and total visits surpassing 4.12 million.

This proves that tools originating from the front lines are being utilized by the business, and organizational resources will traditionally flow toward the real problems. Furthermore, one city is piloting a new collaboration model. Business experts define the scenarios; functional staff design the skills; and the scenario engineers provide tool and API support. A three-person squad can simultaneously advance over 20 specific scenarios. In the past, the business proposed needs and waited for the development. Now, whoever best understands the scenario participates in its definition and rapid iteration. In this way, the frontline expert's expertise is no longer just a personal experience. It can be amplified and institutionalized by AI. Beyond property transactions, I would also like to briefly talk about home renovation and leasing.

Q1 contract value and revenue declined year-over-year, primarily due to our proactive focus on specific cities and channels since last year, coupled with the new home market volatility that also impacts the demand. However, we are more focused on the underlying capabilities and the path to monetization or profitability. In Q1, the contribution margin of home renovation reached 36.2%, up 3.6 percentage points year-over-year, with the losses narrowing significantly. For the past year, we have done substantial fundamental work in product modularization, digitalization of tools, centralized supply chain procurement, and other types of work. Driving the business from being highly nonstandardized toward becoming more stable, replicable, and manageable. For leasing business, units under management reached 740,000 in Q1, maintaining rapid growth. The share of net method products rose quickly.

The profit margin contribution from Carefree Rent increased from 6.7% in the same period last year to 14.8%. Behind all these are product structure optimizations, UE management, AI empowering, and organizational process restructuring. The leasing business proves that a seemingly fragmented, heavy, operationally heavy business can also enhance efficiency and gradually form economies of scale through AI and a process restructuring. Looking further ahead, we aim to center our efforts on communities to reconstruct long-term operational capabilities. Stores in the future will gradually upgrade into community housing service nodes, and agents will also evolve from single transaction roles into client managers capable of deploying platform capabilities across existing homes, new homes, leasing, renovation, design, delivery, and et cetera. Regarding how investors can track this progress, I believe there are several metrics. First, core business efficiency and operational quality.

Second, the pilot programs in community operational units and also our actions of putting managers into the front line. Number three, this is the productization of buyer and seller services. Number four, the adoption of AI across the organization and also its improvement in customer experience and operational efficiency. Number five, the expansion from single transactions to long-term community operations and long-term value. Number six, long-term incentive direction and organizational stability. These are not short-term commitments but rather a framework to guide our transformation progress. These decisions cannot be accomplished, or goals cannot be accomplished, in a single quarter. We are planning this round of transformation across a multi-year cycle. Our principles are clear. Pilots come first without blind expansion.

We're going to have prudent operations, ensuring core business operational quality and cash flow remain stable, and continuous iteration, constantly optimizing service providers, division of labor, resource allocation, AI tools, service products, buyer decision service layers, et cetera. In conclusion, I would like to summarize Beike's long-term value in one sentence. The industry is transitioning from finding listings to making decisions. What Beike must do is upgrade our platform capability from organizing transactions to supporting higher-quality residential decisions.

The significance of Q1 results lies not only just in margin improvement but also in validating that a virtuous cycle can be formed among organizational efficiency, per capita efficiency gains, service provider structure optimization, and platform growth. Going forward, we'll continue to invest resources, mechanisms, AI, and product capabilities where genuine customer value is created, driving Beike to forge more stable, higher-quality, and more sustainable long-term value. Thank you, everyone. We will now open the floor for the Q&A session.

Thank you, Stanley. As a reminder, we only accept the questions on the Chinese language line. If you would like to ask a question, please press star-one and wait for your name to be announced. If you'd like to cancel your request, please press the pound key. For the benefit of all participants on today's call, please limit yourself to one question. If you have additional questions, you can re-enter the queue. All right. First question comes from Thomas Chong from Jefferies. Please go ahead.

Good evening, management. Thank you for taking my question. We noticed that the existing home market saw a spring rally in Q1. What were the main drivers, and how does it compare to previous? Is this trend sustainable?

Thank you, Thomas, for your question. Compared with the previous rebounds, this round of recovery stands out in three ways. First, it's not just a short-term volume bump driven by policy stimulus. It reflects genuine demand being released as price corrections have lowered the price barrier to home ownership. Second, it's not only a simple case of trading price for volume. We're seeing prices stabilize at this stage. Third, it's not only buyers coming back to the market. Seller expectations and supply mix are also showing incremental improvements. This recovery is more resilient than we have seen in the past. Looking at volume and price performance, first, existing home transactions on our platform grew 12% year-over-year in Q1, and in March set a new all-time monthly record, up 21% year-over-year.

At the same time, core cities showed clear signs of phased price stabilization, according to the Beike Research Institute. Existing home prices in Tier-1 cities rose by 1.5% month-over-month in March, marking two consecutive months of sequential growth. In Beijing and Shanghai, prices increased by 3.8% and 3.3%, respectively, during Q1. We see three factors driving this shift. First, it's the policy. The government signal to stabilize the housing market has been clear. Measures such as tax optimization and Housing Provident Fund adjustment have reduced transaction costs. Second, on the price side, after deep correction, the entry barrier for home buyers has come down substantially. In March, the rental yield across the top 50 cities rose 40 basis points year-over-year to 28%, and spread versus mortgage rates continue to narrow.

Housing is gradually regaining its appeal. Third, on the demand side is a combination of policy support and the lower price brought up previously hesitant buyers back to the market, driving the recovery in transactions. More importantly, we're seeing market expectations' supply-demand structure improving on the margin. On the one hand, buyers are making decisions faster. The conversion rate from viewings to transactions has improved. On the other hand, seller expectations are stabilizing, and pressure to cut a price has eased. In Q1, the share of sellers willing to offer a sharp discount for a quick sale fell by 3 percentage points quarter-over-quarter, and new listings in March were down 14% year-over-year. Looking at the transaction mix, upgraded demand remains a long-term driver in Q1.

Seasonal factors like residential re-registration and school enrollment, combined with the targeted policies favoring lower-priced homes, lead to a seasonal increase in the share of first-time home buyers in tier-one cities. That side, from a long-term perspective, upgrade demand has continued to rise and now is approaching 60% and has become a core driver of the market. Heading into Q2, the market and transaction volume came down seasonally from its March peak, but the pace of adjustment has been more moderate than the same period of last year. In April, year-over-year growth in existing home transactions on our platform expanded further to over 30%, and the absolute volume hit a second-highest record, showing resilience. In terms of price, Beike Research Institute data shows that existing home prices in the top 50 cities held steady month-over-month for a second consecutive month in April.

In top Tier-1 cities, prices are up 2.8% cumulatively from January through April, with Shanghai up 5.9% and Beijing up over 4%. The trade-up chain is also recovering since April. Larger-sized and mid- to-high-priced homes have accounted for a slightly higher share of transactions in core cities, indicating a recovery in upgraded demand and providing some support to market resilience. Overall, we believe existing home transaction volumes should continue to grow year-over-year in Q2. On pricing, core areas in tier-one cities have relatively solid support, but a broader nationwide stabilization would need more months of data to confirm.

Thank you. Next question comes from [Shantal] at CITIC Securities. Please go ahead.

Congratulations on the non-cyclical revenue uptick for the past quarter. Here's my question for the management. The company is advancing its strategic transformations. We noticed that you have been piloting a program called Commit to Sell in Beijing. Could you share an update on that progress? Are there any cases that validate its impact? Can it effectively improve the transaction efficiency? Thank you.

Thank you for the question. Well, some investors may not be familiar with this product yet. Chángqī Mài, or Commit to Sell, is one of the products under our homeowner side of service transformation in Beijing. It is still in its early, piloted stage. It's not a simple auction-style listing.

It's a matching tool designed to help both buyers and sellers come down on the back and forth in negotiating. The sellers set a reserve price online, and buyers place bids backed by a deposit, and the system matches the bids against the reserve price to close the deal. It focuses on the bidding and closing stages. You know, even when the transaction didn't go through, the bidding results provided some incredible valuable insights that feed the sellers into making better decisions going forward. We have noticed that early signs are encouraging. Transaction cost cycles have been shortened. Homeowner satisfaction has been high. That said, the sample size is still quite small. We are being prudent in how we read these early results.

Before I dive any further, I'd like to bring it back and put it in the context of our broader strategic transformation, which I think will make the things clearer. In today's market, listings are rising, buyers are more cautious. You know, homeowners essentially sell by playing the odds. You know, they don't get a clear read on the market feedback, and they don't have many effective tools beyond cutting the price. That's why the core of our homeowner-side service transformation is to help sellers make better decisions throughout the selling process and improve the certainty of closing. Namely, whether now is the right time to sell, at what price, and through what approach. In practice, we're not building a single product.

Instead, we are identifying seller objectives, expectations, and property characteristics, and we bring our services across the entire selling life cycle, covering listing, pricing, marketing, exposure, viewing, feedback, and bid negotiation. For Commit to Sell, you know, is one of the pilot products designed for a specific group of sellers. These products aren't a fixed lineup. They, you know, continue to evolve based on the feedback of the seller and also market changes. The core idea is to match the right transaction path and the right service to each seller and each property rather than pushing every listing through the same playbook.

From the pilot programs that we have at hand so far, these products indeed improve the price discovery and transaction efficiency. We are also piloting other services such as community open day events designed to concentrate buyer interest. Going forward, for each of these new products and services, we'll continue tracking key operating metrics, including product adoption rates, transaction efficiency, and agent productivity.

On the agent side, I want to make one point especially clear. This new model doesn't diminish the value of agents. It emphasizes. It elevates the agent's role from passing along information and relaying offers to helping sellers assess price, identify genuine buyers, and build trust and momentum in the negotiation process. Every successful closing reflects the core value that a professional agent brings. Finally, I want to emphasize that this transformation is a long-term journey. Our approach is a small-scale piloting, continuous integration, and data-driven validation over the long run. If we can keep improving the decision quality of both sellers and buyers, there is significant room to expand the service penetration and efficiency.

The next question comes from Timothy Zhao at Goldman Sachs.

Thank you for giving me this opportunity to raise a question. My question is about the home renovation and furnishing business. We have seen some decline in this part of the business. Could you share with us what reasons are now driving this decline, and how do you make of the recent tendencies in this business? Since, given the current KPIs of this part of the business, what are exactly are the major KPIs you're focusing, and what progress have you made in that regard? Thank you.

Well, thank you for the question. I want to explain three reasons. First is our business changes. We have shut down some of our traditional business parts, and that is the first reason. The second one is that we have narrowed down some part of our furnishing and renovation businesses in some cities.

The other one is that we have seen a declining market trend, and there are also some declines in the demand for renovation and furnishing. How do we read the decline? As you said, this year, our focus is not to focus on the scales. Instead, we're focusing on optimizing the business model around healthy and sustainable profitability, personalized offerings under a well-defined framework, and higher quality fulfillment and delivery. These are the important foundations for the next stage of growth. We have already seen tangible improvements in delivering capabilities and profitability. Going forward, we'll continue to deepen synergies with our home transaction services to improve conversion and gradually enhance revenue performance.

This year, we are focused on three key areas: improving product capabilities, standardization construction fulfillment and delivery, and upgrading our design tools to improve efficiency. On the product side, our approach is not to view customer demand as a simple trade-off between standardization and personalization. Instead, we're using a two-dimensional product matrix to better address different customer needs. Vertically, we design different packages based on budget level and service depth, helping customers with different needs, from those seeking practical solutions to those looking to upgrade their living quality. Horizontally, we break down customers' high-frequency lifestyle needs into modules such as file storage and soft furnishing. This allows customers to combine modules within a clear product framework and get solutions that better fit their family needs.

At the same time, it allows us to improve efficiency, control costs, and enhance unit economics through module reuse and SKU concentration, design tools, and standardized delivery processes. In terms of construction fulfillment and delivery standardization, this year we have extended professionalization of project managers to the works level. For certain key types of workers, we are moving away from a relatively loose labor cooperation model to a model-based platform selection, platform evaluation, and platform coordination dispatch. Workers with a stronger delivery performance and better customer feedback can receive more jobs. At the same time, this helps us build a more stable delivery workforce, creating a positive cycle amongst risk, quality, worker income, and delivery consistency.

In March, among these, professionalized workers and plumbing and electrical workers saw their average monthly order volume increase by over 50% compared with the average in the second half of 2025. At the same time, we continue to deepen the development of our self-developed BIM design tools. We're promoting the full-process digitalization of floor plan imports and solution design rendering, online quotation, and construction drawing output. This enables us to build a closed data loop on the platform, which in turn supports the continuous iteration of our BIM tools and helps improve design productivity.

Overall, while the revenue side has been affected in the near term by adjustments and a volatility in external demand transmission, we're seeing improvements in the underlying capabilities of the business, and particular standardization and replicability are gradually being strengthened across key areas. We believe revenue from our home renovation furnishing business can stabilize and return to quality growth.

The next question, please.

Congratulations on the positive trend. It has been clear year-over-year improvement in profit margins across the company's businesses in Q1. How does the management assess the sustainability of current margin levels? Is there further room for improvement going forward?

Thank you, John, for the question. Our profitability improved significantly year-on-year in Q1. Our gross margin reached 24.1%, up 3.5 percentage points year-on-year, and non-GAAP operating margin reached 8.8%, up 3.9 percentage points, both at a seven-quarter high. This margin improvement wasn't driven by any single business or one-off factor. It is the result of a series of proactive optimizations across operating quality, resource allocation, cost structure, and unit economics.

Looking at each business in Q1, contribution margins improved year-over-year across all our core businesses. Starting from our housing transaction business, the contribution margin improvement in existing home transactions came mainly from lower fixed labor costs and higher agent productivity. Fixed labor costs in existing home transactions were down 24% year-on-year in Q1, which was a key driver of the margin expansion. This reflects the work we've been doing since last year on Lianjia, including refining store and agent scale, optimizing organizational structure, improving resource allocation efficiency, et cetera. In the long run, further upside will come from continued gains in Lianjia store and agent productivity and resource conversion efficiency as our business and transformation go forward. The new home business's more refined operational management brought the overall variable cost ratio down 2.7 percentage points.

Going forward, we'll innovate our service model by providing developers with a full lifecycle project solution by leveraging our data, marketing, and other capabilities. This will diversify our revenue mix and support stable profitability. In home renovation and furnishing, contribution margin improved mainly thanks to lower material costs and higher labor productivity. Since last year, we've been actively advancing centralized procurement alongside localized embedding. This has driven down prices on some materials by more than 20%, and those cost savings continue to flow through this year. We've also optimized our order dispatch system, routing more orders to project managers with stronger execution capabilities who focus on serving platform customers and tightening their service radius to improve productivity per person.

Looking ahead, as supply chain scale benefits continue to materialize and service provider productivity further improves, there's still room to optimize the unit economics of our home renovation business. In home rental services, contribution margin improved quarter-over-quarter, mainly driven by better unit economics in our Carefree Rent and a structural shift toward rental units accounted for under a net accounting method, which carries a higher gross margin. As of the end of March, net method home units accounted for over 40% of our managed inventory. Meanwhile, the UE improvement came from several drivers. Higher productivity, which both reduced internal costs and streamlined operational labor, better supply chain pricing, which lowered the maintenance and cost ratio, and some seasonal factors as well.

Looking forward, with quarterly margins fluctuating in May, the shift toward higher-margin revenue, combined with continued improvements in our products and operations, leaves room for further improvement in the unit economics in rental services. On the expense side, total operating expenses in Q1 hit a near record low. The decline across all three expense lines was driven by improvements in organizational productivity and disciplined financial management, including refined control of marketing spend. On AI, we're maintaining a disciplined investment approach. We continue to scale up investment in core business models and foundational AI capabilities while actively reviewing and reallocating resources from lower ROI projects to areas with higher long-term value creation. This lets us keep investing in long-term capabilities on a solid financial foundation, support sustainability, and continue opening up new and more efficient avenues for growth.

For the whole year, our home transaction business has built great earnings flexibility. The profitability model in our two-wing businesses will continue to improve, and our cost discipline remains firm. Our quarterly margins may show some seasonal fluctuations, but we stay confident in year-on-year margin improvement for the full year. Thank you.

Thank you, Mr. Xu. With that, we conclude our Q&A session. Thank you once again for joining today's conference call. Should you have any further questions, please reach out to KE Holdings' investor relations team via the contact details listed on our website. This brings today's earnings call to a close. We look forward to connecting with you again next quarter. Thank you and goodbye.