UP Fintech Holding Limited (TIGR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to the UP Fintech Holding Limited Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. I must advise you that this conference is being recorded today, August 30, 2024, I would now like to hand the conference over to your first speaker today, Mr. Aron Lee, the Head of Investor Relations. Thank you. Please go ahead.

Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited Second Quarter 2024 earnings release was distributed earlier today and is available on our IR website at ir.itigerup.com as well as GlobeNewswire services. On the call today from UP Fintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer; Mr. John Zeng, Chief Financial Officer; Mr. Huang Lei, CEO of U.S. Tiger Securities; and Mr. Kenny Zhao, our Financial Controller. Mr. Wu will give an overview of our business operations and discuss corporate highlights. Mr. Zeng will then discuss our financial results. They will both be available to answer your questions during the Q&A session that follows their remarks. Now let me cover the safe harbor. The statements we are about to make contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. A number of factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about factors that could cause actual results to materially differ from those in the forward-looking statements. Please refer to our Form 6-K furnished today, August 30, 2024, and our annual report on Form 20-F filed on April 22, 2024. We undertake no obligation to update any forward-looking statement, except as required under applicable law. It is my pleasure to now introduce our Chairman and Chief Executive Officer, Mr. Wu. Mr. Wu will make remarks in Chinese, which will be followed by English translation. Mr. Wu please go ahead with your remarks.

[Foreign Language]

[Interpreted] Hello, everyone. Thank you for joining the Tiger Brokers Second Quarter 2024 Earnings Conference Call.

[Foreign Language]

[Interpreted] In the second quarter, the U.S. stock market continued to perform well and overall market activity further improved compared to the first quarter. This led to a sequential increase in client trading volume across stocks, options and futures. With commission income reaching USD 34.1 million, up 22.7% quarter-over-quarter and 54.9% year-over-year. The second highest quarterly commission revenue in our operating history. Our total revenue for the second quarter was USD 87.4 million, an all-time high and reflected a quarter-over-quarter increase of 10.8% and a year-over-year increase of 32.4%. In bottom line, our GAAP and non-GAAP net income attributable to UP Fintech was USD 2.6 million and USD 5.2 million, respectively. The bottom-line was negatively impacted by a loss provision of USD 13.2 million relating to a case of Hong Kong stock pledging and withdrawal. Since 2023, our company had already stopped similar Hong Kong equity stock pledging and withdrawal in response to market conditions and risks. And there is no such risk exposure among existing users anymore. Excluding the impact of the loss provision, our pretax profit for the quarter would be USD 19.4 million reflecting a 13.9% increase quarter-over-quarter and 8.3% increase year-over-year.

[Foreign Language]

[Interpreted] In the second quarter, we added 48,900 newly funded accounts, representing a 69% sequential increase and a 68% increase year-over-year. Singapore and Southeast Asian regions were the primary contributors. In the first half of this year, we added a total of 77,700 newly funded accounts, and we are confident of delivering our annual guidance [ for quarter ] at least 150,000 newly funded accounts in 2024. In terms of client assets, client net asset inflow remained strong in the second quarter, amounted to USD 1.7 billion, primarily from the Singapore and Hong Kong markets, fueled by USD 3.6 billion mark-to-market gain that total client assets by the end of the second quarter increased by 16% quarter-over-quarter and 121% year-over-year to USD 38.2 billion at all time high. We are glad to see 7 consecutive quarterly growth in total client assets with high -- sorry, with new highs in the past 3 quarters. Notably, client assets from the Hong Kong market doubled quarter-over-quarter, highlight our competency in attracting high-quality users in markets like Singapore and Hong Kong through superior product experience and local knowledge, also underscores the significant growth potential in the markets we currently focus on.

[Foreign Language]

[Interpreted] In the second quarter, we continue to enhance our product offerings by introducing a range of localized features. In August, we launched 2 key functionalities, Hong Kong stock options and short selling for Hong Kong stocks. Now we offer all major trading products for Hong Kong market, boosting our competitiveness and appeal to local users. Looking ahead, we also plan to introduce the Combo Option Strategy feature for Hong Kong stock options. Additionally, since our Hong Kong subsidiary officially uplifted its Type 1 license to include virtual asset dealing service for professional investors in January of this year. We receive approval in June to expand this license to retail investors in Hong Kong. We offer zero commission and no platform fee for both professional investors and Hong Kong retail clients to trade spot cryptocurrency on Tiger platform and supporting real-time settlement of virtual asset transaction in U.S. dollar. This provides user with a truly secure, convenient and cost-effective global trading experience.

[Foreign Language]

[Interpreted] We are also pleased to report that after introducing Tiger BOSS Debit Card and Contra Trading feature in Singapore market in the first quarter, we have received widespread positive feedback from existing users, which led to a significant increase in the number of newly funded accounts and cardholders with notable improvement in both user activity and stickiness. In addition to launching new products, we continue to refine the user experience of our existing features. For instance, our Overnight Trading for U.S. stock has now expanded to support up to 9,500 stocks and ETFs, offering greater convenience for clients to trade U.S. stocks and ETFs during local market hours and capture more market opportunities. Moreover, Combo Option Strategy feature for U.S. stock was upgraded in July to support full-leg options trade and execution based on that market requirements, further enhancing trading strategy's flexibility and marketing efficiency.

[Foreign Language]

[Interpreted] Our 2B business continues to perform well. In Investment Banking, we underwrote 12 U.S. and Hong Kong IPOs in the second quarter, including Laopu Gold and Dida, and we serve as the exclusive lead bank for Tungray Technologies and YY Group U.S. IPO. In our ESOP business, we added 22 new clients in the second quarter, bringing the total number of ESOP clients served to 579 by the end of the second quarter of 2024, increased by 21% year-over-year.

[Foreign Language]

[Interpreted] Now I would like to invite our CFO, John, to go over our financials.

Thanks, Tianhua and Aron. Let me go through our financial performance for the second quarter. All numbers are in U.S. dollar. Market was more active in the second quarter versus the first quarter. Trading commission reached $34.1 million, increased 23% quarter-over-quarter and 55% year-over-year. Total revenue reached all-time high to $87.4 million increased to 11% quarter-over-quarter and 32% year-over-year. Cash equities take rate was 6.7 bps this quarter, slightly increased from 6.3 bps of last quarter. Trading commission revenue, about 65% comes from cash equities, 30% from options and the rest from futures and other products. Now on to costs. Interest expense was $13.6 million, increased by 30% from the same quarter of last year in line with the high interest rate environment. Execution and the clearing expenses were $2.8 million, increased 38% from the same period of last year, primarily due to an increase in our trading volume, and we're keeping improving our clearing efficiency. Cash equity clearing expense as a percentage of cash equity commission is about 2.1% this quarter, which remains one of the lowest in the industry. Employee compensation and benefit expense were $28.6 million, an increase of 20% year-over-year due to headcount increase to strengthen overseas growth and R&D. Occupancy, depreciation and amortization expense decreased 17% to $2.1 million. Communication and market data expense were $8.8 million, an increase of 14% year-over-year due to an increase in user base and IT-related services. Marketing expense were $6.4 million this quarter, increased 36% year-over-year as we saw market backdrop was more supportive for user acquisition and branding in the second quarter. General and administrative expense were $20.2 million, an increase of 345% year-over-year due to $13.2 million onetime loss provision we incurred this quarter. Total operating costs were $69 million, an increase of 52% from the same quarter of last year. As a result, our GAAP net income and non-GAAP net income for the second quarter were $2.6 million and $5.2 million, respectively. If excluding the impact from the loss provision, our pretax profit for the same quarter would be [ $19.4 million, ] increased 14% quarter-over-quarter and 8% year-over-year. Now I have concluded our presentation. Operator, please open the line for Q&A. Thanks.

[Operator Instructions] Our first question comes from the line of You Fan from CICC.

[Foreign Language] I will quickly translate my question. This is You Fan from CICC. I have 2 questions here. The first one is that we see the U.S. stock market has been quite volatile in August. And Q3 has already been underway for 2 months. Can you show us some run rates over the past 2 months, such as the number of new users, the China's client assets and also the impact on the financial performance. And second, if we enter a rate-cutting cycle, how much tighter adjust to your business and what kind of impact, say, like a 25 basis point rate cut, would have on the company's interest income?

[Foreign Language]

[Interpreted] Okay. I'll translate for the first question. In terms of client assets, the China net asset inflow was still strong in the first 2 months of the third quarter, and the number of newly funded users also continued the rapid growth as we saw in the second quarter. If you look at numbers in July, we saw the highest single month revenue in our operating history. While August has not yet completed, trading volume in August so far is also very active. September is a bit uncertain due to factors like U.S. election and Fed interest rate decision. But overall, we are quite satisfied with how Q3 has been shaped up so far.

[Foreign Language] So rate cut by the Federal Reserve may negatively impact our interest income, but we also believe we could grow market activities leading to a more active trading volume and commission income. Therefore, we will adjust our strategy based on the actual pace of the rate cut and the market reactions, to ensure we will find a balance among our commission interest-related business and wealth management. So if the rate cut is 25 bps next month, our calculation based on our second quarter business scale and the interest income suggests the impact on total revenue for the fourth quarter would be about 1%.

Our next question comes from Cindy Wang from China Renaissance.

[Foreign Language] Thanks management for giving me the chance to ask questions. So I have 2 questions. First one is, we see the profitability in this quarter, mainly impacted by loss provisions. Could you tell us the reason why for the allowance for receivables from customers? And any following treatment with clients and the possibility of writeback. What is the rate of such growth provisions might happen again in the future? Second question is, the second quarter new funded accounts grows very nicely. And can you give us the regional breakdown and any new customer acquisition strategy adopted in this quarter?

[Foreign Language]

[Interpreted] This impairment was linked to our Hong Kong Stock Pledging Transaction business. To be cautious, the full amount was written-off in the second quarter. First of all, we are taking this very seriously and doing everything possible to recover the loss. We already signed a repayment agreement with the client and have the controlling shareholder as guarantor. However, to be cautious, the full amount was written-off in the second quarter. If we do receive repayment in the future, we will reverse this loss provision when the payment is made. Secondly, since last year before this incident happened, we already stopped our Hong Kong Stock Pledge withdrawal business due to the market condition and risk. This particular transaction continued because it was still under contract. And finally, after the event, we had a thorough review of our risk procedures and existing stock planning transactions. Now there are no outstanding stock pledging and cash withdrawal transaction using Hong Kong stock as collaterals anymore.

[Foreign Language]

[Interpreted] So in the second quarter, about 65% of our new funded clients came from Singapore and Southeast Asia, around 15% from Hong Kong market and about 10% each from Australia, New Zealand region and the U.S. We are quite pleased with these results, which are the best we've seen in the last 10 quarters in terms of the number of quarterly new funded accounts. We believe there are a couple of reasons for this growth. First of all, the U.S. and Hong Kong stock market did well in the second quarter. So we increased our market spending like on branding and advertisements by about 45% quarter-over-quarter, which helped boost new user numbers across different markets. And secondly, we also saw a big boost from new products we launched in Singapore in the first quarter, like the Tiger BOSS debit card and Contra Trading features. The popularity of these functions among local Clientele exceeded our expectations. By the end of August, we already have around 10,000 Tiger BOSS cardholder, mostly new funded users from the second quarter. Plus in the past 3 months, Contra Trading feature, alone, also made meaningful contribution on dollars and commission income. So we are seeing significant growth in not only just user numbers, but also trading volume and commission income in Singapore quarter-over-quarter and year-over-year.

Our next question comes from Judy Zhang from Citi.

[Foreign Language] Let me translate my 2 questions. So the first question is regarding the development in Hong Kong market. How is the progress in the Hong Kong market development including the traditional Brokerage business and the company's Virtual Currency Asset business that now supports retail and the PI trading. And what are the plan for deploying this business such as pricing, customer acquisition strategy, and what is the expected results from the management? And second question is how is the company's wealth management business progressing? And what is the current scale and any updates on the product offerings?

[Foreign Language] So regards to the traditional Brokerage business, we are quite pleased with our progress in Hong Kong. So in the second quarter, average net asset inflow from our newly acquired clients was over USD 15,000. The Hong Kong market also saw the highest ARPU for the group, with ARPU doubled compared to the fourth quarter of last year. Market was a little bit -- was more active in the second quarter. So we capitalized on this backdrop by increasing local partnership and advertising. As a result, over 7,000 new funded user on-boarded in the second quarter, which is for like 2.5x the number from the previous quarter. And in terms of client asset, we saw a robust net asset inflow in the second quarter. And with the Hang Seng Index, experienced [ four ] consecutive weeks of gains. Our asset under custody from Hong Kong market by the end of the second quarter doubled sequentially. In terms of Virtual Asset business, our Type 1 license was uplifted back in June -- sorry, back in January to provide crypto trading for professional investors. In June, we got additional approval to offer spot crypto trading for retail investors. We launched our crypto campaign for professional investors back in May. The campaign was very successful. By end of June, we already doubled our PI users on our platform. So far, we offer the most competitive pricing in Hong Kong in terms of spot crypto trading, our pricing is 0 commission plus 0 platform fee to trade the spot crypto on our platform.

At this time, there are no further questions from the line. Allow me to hand the call back to management for closing.

Operator, there is one more question have not been answered.

I beg your pardon. Please continue.

[Foreign Language]

[Interpreted] In the second quarter, our Wealth Management business saw strong growth with current assets and user numbers increased by over 20% quarter-over-quarter and around 150% year-over-year. Platform penetration also improved. Now among the new funded clients in the second quarter, more than 30 of them started using our Tiger Vault product. We also made some upgrades to the Tiger Vault in the second quarter. Before the U.S. stock market switched to T+1 settlement on May 28, Tiger Vault had already implemented T+0 functionality across all licenses, supporting U.S. dollar, Hong Kong dollar and Singapore dollar. This allows customers to instantly convert their balance into buying power and participate in faster market trading. The underlying asset of Tiger Vault also continued to perform well. With average seven-day annualized yields during the second quarter, exceeding 5.2% for U.S. dollar money market fund and 4.2% for Hong Kong dollar money market fund and 3.6% for Singapore dollar money market fund, providing investors with returns above the market average for cash management. So looking back over the past 2 years of the interest rate hike cycle, our Wealth Management business has seen significant growth in both product categories and AUM. In the second quarter, we have moved our Wealth Management business to the home interface of our app, making it easier for users to access a variety of asset management products, this includes Money Market Funds, Stable Income products, Top Performing Funds, ETFs, U.S. T-bonds, FCNs and more, for users with different risk appetite diversified from pure equity investment. Is there any other questions?

At this time, there are no more questions. Please continue.

Okay. I would like to thank everyone for joining our call today. I am now closing the call on behalf of the management team here at Tiger. We do appreciate you participating in today's call. If you have any further questions, please reach out to our Investor Relations team. This concludes the call, and thank you very much for your time. Bye-bye.

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]