UP Fintech - Earnings Call - Q2 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited Second Quarter twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Tuesday 08/18/2020. I would now like to hand the conference over to your first speaker today Mr.

Clark S. Hassie. Thank you. Please go ahead.

Speaker 1

Thank you, Ralph. Hello everyone and thank you for joining us for the call today. UP Fintech Holding Limited's second quarter twenty twenty earnings release was distributed earlier today and is available on our IR website at ir.itiger.com as well as GlobeNewswire services. On the call today from UP Fintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer Mr.

John Zheng, 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 and 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 US 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 statement. 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 six ks furnished today, August 18, and our Annual Report on Form 20 F filed on 04/29/2020. 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 an English translation. Mr.

Wu please go ahead with your remarks. Good day, everyone, and thank you very much for attending the Tiger Brokers twenty twenty Second Quarter Earnings Conference Call. We saw moderated market volatility in the second quarter but our users remained very active which fueled our strong growth this quarter. Total revenue exceeded $30,000,000 122% increase on the same period last year. This marks the second quarter this year when revenue growth exceeded 100% on a year on year basis.

Our operating efficiency and earnings quality keep improving. We achieved consecutive quarters with GAAP profits. In the second quarter of this year our company reported operating income and non GAAP operating income of $5,100,000 and 6,800,000.0 US dollars respectively. Please refer to our Form six ks furnished today August 18 for a reconciliation of non GAAP financial measures to GAAP financial measures. Our improving financials are dependent on the trust and goodwill of our users.

As Tiger continues to grow our business and our brand as well as provide more differentiated services, more people entrusted us with their money. In the second quarter, we added 33,800 new accounts with deposits, a new quarterly high for our company. And total accounts with deposits increased 76.7% from the same quarter last year. We saw strong inflows this quarter. Total client assets reached a new high of $8,300,000,000 one hundred and thirty 3% higher than the same period last year and a 51% increase on the previous quarter.

I expect that with high growth in client numbers and client assets, Tiger will keep delivering good financial performance in the near future. While brokerage is of course our core business, investment banking, ESOP and our internationalization efforts continue to develop nicely. Our U. S. And Singapore businesses are on the right track.

They are expanding our customer acquisition channels while diversifying our revenue streams. In addition, we completed our self clearing infrastructure setup and gradually started to self clear U. S. Equities. Thanks to our growing influence in capital markets as well as our strong retail and institutional client base, our investment banking business continues to grow rapidly.

In the second quarter, Tiger participated in eight U. S. IPOs. Recently, we also served as an underwriter for Lee Auto solidifying our number one position as the most active ADR underwriter in terms of deal count. We were also active in high profile Hong Kong IPOs.

In the second quarter, we were a joint book runner for NetEase Hong Kong listing which demonstrates Tiger is an indispensable partner for Chinese companies looking to enter global capital markets. In the past half year, our ESOP business has grown rapidly. We have invested heavily in this system to gradually improve its functionalities. The system now supports complex plans that span multiple countries and corporate entities. In the second quarter I am proud to report that we added 16 ESOP customers.

In the first half of this year over 50% of Chinese ADR issuers have chosen TIGR's ESOP system. We look forward to continuing to grow our dominant market share and are resolute in our conviction that our outstanding service and comprehensive capabilities will attract more clients to our ESOP system. With regards to our wealth management business, at the end of the second quarter we unveiled our proprietary fund analysis system that assists clients analyze the rich range of investments available on our Fund Mall which presently features over 100 mutual funds from distinguished global asset managers. Finally, I would like to provide an update on our share repurchase program. From April 1 to August 17, we in total repurchased 700,000 ADS for an approximate consideration of $2,200,000 would now like to invite our CFO John to go over our financial results.

Speaker 2

Thanks, Tianhua and Clark. So as mentioned earlier, second quarter was a strong quarter in terms of both operating and financials With favorable market backdrop, increased user base and trading activities, commission revenue went up 1800% year over year to million this quarter. Interest related income, which combines financial service fee and interest income, went up 69% year over year to NT8.8 million dollars thanks to increased margin trading and securities lending activities. Other revenue also increased 54% year over year to $2,500,000 primarily due to more IPO underwriting. Total revenue were 30,100,000.0 up 122% from same quarter last year.

Taking our interest expense of EUR 1,900,000.0, total net revenue were EUR 28,200,000.0, an increase of 125% from same quarter last year. Now switching to cost. So execution and carrying costs were $900,000 increased almost four times year over year as we have a much bigger user base and increased trading volume. Compensation expense increased 39% year over year to $300,000 Taking our share based compensation, the cash portion of compensation expense increased 36% year over year. The increase was due to we keep adding accounts into key positions to support the rapid growth of our business.

Marketing expense increased 48% year over year to $2,900,000 this quarter as market backdrop remains favorable for user acquisition. We likely will keep investing in marketing in the second half. Occupancy depreciation and amortization increased 42 to 1,100,000.0 SG and A increased 43% to 2,800,000.0. Both increases are in line with our business expansion. Total operating costs were EUR 23,100,000.0, an increase of 52% year over year.

Operating income, which is a key metric we focus on internally, increased to $5,100,000 this quarter, a significant improvement from negative $2,600,000 in the same quarter last year and $1,900,000 in the first quarter of this year. Net income attributable to OPP Fintech was $1,100,000 compared to a net loss of $1,900,000 in the same quarter of last year. One thing I want to elaborate is our effective tax rate of 49% this quarter looks very high. The reason is why we started to make profit on a consolidated group basis. Some of our subsidiaries still don't have profit.

So deferred tax asset accumulated at those entities cannot apply. We expect our effective tax rate to gradually go down as more subsidiaries will make profit and can apply deferred tax asset benefits. That's it for the management presentation. We are now open for questions.

Speaker 0

Thank you so much ladies and gentlemen. We will now begin the question and answer session. Thank you. And your first question comes from the line of Daphne Poon from Citi. Your line is now open.

Speaker 3

Hi, management. Thanks for taking my questions. So my first question is about your commission rate. So we see a meaningful increase in terms of your net commission rate in the second quarter to about 3.4 basis points. So just can you explain the reasons behind?

And what's the outlook going forward? And also, in terms of your new customer growth, we have seen some very strong momentum year to date. Just wondering if it's possible to give some color on your full year new customer growth outlook or maybe the run rate in the third quarter so far? And also lastly, I want to check on your overseas market expansion. So we understand you are tapping into, for example, The U.

S. Market and also the Singapore market since beginning of the year. So just wondering if you can share any progress there, for example, number of new clients and also the maybe the client assets contribution. Thank you.

Speaker 2

Okay. Daphne, let me answer your first two questions regarding the commission rate and also the new customer growth. Then I will let Tian Hwa to answer your question regarding the offshore international expansion. Okay. So our commissioning in the second quarter, actually commission has been gradually increasing for the first February this year.

I think the main reason is, first of all, are more people trading. Second thing is, are some people are trading more diversified product. So instead of trading U. S. Equities, have also a lot of people trading U.

S. Options, which relatively is a higher, I would say, margin product for us. So that's why you can see the blended commission rate also goes up. Okay. So that's the reason for that's the answer for the first question.

Then for the second question is my unfortunately, I cannot give you a very clear guidance in terms of the total customer growth this year. The reason is because like you know our international expansion just started. So U. S. Started last fourth quarter last year and Singapore started this year.

So for those two regions so far the growth has been pretty positive. But right now, I still don't have the full grasp their growth potential. So I cannot give you a very clear guidance. But I can share with you the momentum is pretty strong. So I will let Tianhua to answer your third question.

In terms of international expansion, so far we see very promising growth out of U. S. And Singapore. So if you average them up, the international new user probably listing accounts for more than 10% of our quarterly user growth. By June, the new user growth in the offshore region is actually growing much faster than the April composition.

So overall, we are very positive on the international expansion. I think we have a good brand and also user experience and product offering in those regions. So we are very positive on the growth prospect. Stephanie, you have other questions?

Speaker 3

Yeah. Actually, if I may, can you actually share the breakdown of your trading volume, like, by different just for example, what is the percentage of Series six trading accounting for your trading volume in Q2?

Speaker 2

Sure. So the cash equity accounts for over 50% of our trading volume. Other derivatives like futures options is probably like a lot of 45%. That's the total composition of our trading volume.

Speaker 0

Okay, understood. Thank you.

Speaker 2

Thanks.

Speaker 0

Thank you so much. And your next question comes from the line of Yadde Li from CICC. Your line is now open.

Speaker 4

Hello, management. So firstly, congrats to an impressive financial performance for this quarter, and thanks for giving me the chance to ask these questions. So after we reach your financial performance, I think I've got three questions for you today. So first of all, I saw the number of accounts with deposits increases by approximately 33,800 this quarter. And I was wondering if you can share with us more information on the geographical distribution of this number.

So what are the specific percentages of this number that are for Mainland China, Hong Kong and other regions, respectively? And secondly, I saw you gradually started to use Moscow Investment Corporation to do the self clearing. So I was wondering, what is the percentage of transactions are using the self self clearing for for right now and what's the percentage will be in the future and for the rest of the year? And at last, I have a one follow-up question for the previous question about the inter internalization about your international business. So earlier, I saw on the news that you got five more U.

S. Licenses. So could you please share more information on how you will plan to use these licenses to expand your businesses in The United States and how you will view or position your U. S. Business sector to the development of your whole company?

Yes, that's all. Thanks.

Speaker 2

Okay. Yes. So I will let Tianhua answer your first question. Right. So in terms of our new user risk deposits in this quarter, so far still majority comes from the PRC region, okay.

But like we mentioned earlier, so our international business, even though just started a couple of quarters ago, but right now we are seeing positive growth. So going forward, we expect more users will come outside of China. Okay. To answer your second question regarding Moscow. So as you know, we acquired Moscow back in last July.

It took us a year to set up the infrastructure, get the system fully integrated. And also we did a bunch of testing. So in the second quarter, we finished all the testing and we just did very minimum self care and trades to make sure everything is in place and we don't jeopardize any user experience. Starting in the third quarter and fourth quarter, I think we will gradually putting more trading volume into Moscow. Exact volume percentage, it's hard to say right now.

But my goal is to have about 15%, 20% by the third quarter and eventually we have another 30%, 40% by the fourth quarter. That's our goal, depends on how the market goes and how the clearing system works from our day to day operation. So to answer your third question regards to the license, yes, so we have a really strong team in The U. S. They are based in New York and all the guys used to work for the bulge bracket firms in The States.

So we got a research license, prop treaty license, FA license recently. What So we're going to do is it's a lot of way for us to expand our institutional business because right now we call a lot of U. S. Institutions, which definitely helps us in terms of getting IPO mandates. And also with the research license, we will be able to issue research on those IPO deals we underwrote.

So actually we already start to issue research on Bloomberg. So if you guys can check, guys can see the type of piece in terms of how we cover the Chinese ADR business and also the Hong Kong listing companies. So I think overall getting more license in The U. S. Will definitely help us to increase our plan and also help us acquire more users, both institutional and the retail investors.

Speaker 0

Thank you so much. Ladies and gentlemen, if you wish to ask a question, it's star and one on your telephone keypad. Again, it's star and one on your telephone keypad. Once again, ladies and gentlemen, it's star and one if you wish to ask a question. There are no further question at this time.

Speakers, you may continue.

Speaker 1

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 UP Fintech. We do appreciate your participation 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.

Speaker 2

Thank you.