UP Fintech - Q2 2024
August 30, 2024
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by, and welcome to the Up Fintech Holding Limited Second Quarter Twenty Twenty-Four 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, 30th August, 2024. I'd now like to hand the conference over to your first speaker today, Mr. Aaron Li, the Head of Investor Relations. Thank you. Please go ahead.
Aaron Li (Head of Investor Relations)
Thank you, Desmond. Hello, everyone, and thank you for joining us for the call today. Up Fintech Holding Limited's second quarter twenty twenty-four earnings release was distributed earlier today and is available on our IR website at ir.upfintech.com, as well as global newsletter 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 US 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 nineteen ninety-five. 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 thirtieth, twenty twenty-four, and our annual report on Form 20-F, filed on April twenty-second, twenty twenty-four. 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.
Tianhua Wu (Chairman and CEO)
[Foreign language]
Hello, everyone.
Thank you for joining the Tiger Brokers second quarter 2024 earnings conference call. Hello, everyone. Thank you for joining the Tiger Brokers second quarter 2024 earnings conference call.
[Foreign language]
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 $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 $87.4 million, an all-time high, and reflected a quarter-over-quarter increase of 10.8% and year-over-year increase of 32.4%.
In bottom line, our GAAP and non-GAAP net income attributable to Up Fintech was $2.6 million and $5.2 million, respectively. The bottom line was negatively impacted by a loss provision of $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 condition and risk, and there is no such risk exposure among existing users anymore. Excluding the impact of the loss provision, our pre-tax profit for the quarter would be $19.4 million, reflecting a 13.9% increase quarter-over-quarter and 8.3% increase year-over-year.
[Foreign language]
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 acquiring 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 $1.7 billion, primarily from the Singapore and Hong Kong markets, fueled by a $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 $38.2 billion, an all-time high. We are glad to see seven consecutive quarterly growth in total client assets with new highs in the past three 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]
In the second quarter, we continued to enhance our product offerings by introducing a range of localized features. In August, we launched two 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 received 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 stock, cryptocurrency on Tiger platform, and supporting real-time settlement of virtual asset transaction US dollar.
This provides users with a truly secure, convenient, and cost-effective global trading experience.
[Foreign language]
We are also pleased to report that after introducing Tiger Boss debit card and Contra Trading feature in Singapore market in the fourth 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 nine thousand five hundred 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 four-leg options trade and execution based on net margin requirements, further enhancing trading strategy, flexibility and margin efficiency.
[Foreign language]
Our To B 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 Tamboran Resources 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 at the end of the second quarter of 2024, increased by 21% year-over-year.
[Foreign language]
Now, I would like to invite our CFO, John, to go over our financials.
John Zeng (CFO)
Thanks, Tianhua and Aaron. Let me go through our financial performance for the second quarter. All numbers are in USD. 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 11% quarter-over-quarter and 32% year-over-year. Cash equities take rate was 6.7 basis points this quarter, slightly increased from 6.3 basis points of last quarter. Within commission revenue, about 65% comes from cash equities, 30% from options, and the rest from futures and other products. Now on to cost.
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 clearing expense 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 among 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 a $13.2 billion one-time 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 pre-tax profit for the same quarter would be $18.4 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 (participant)
Thank you. As a reminder, if you'd like to ask question, please press star one one and wait for your name to be announced. To cancel your request, please press star one one again. One moment for the first question. Our first question comes from the line of Yu Fan from CICC. Please go ahead.
Fan Yu (Equity Research Analyst)
[Foreign language]
I will quickly translate my question. This is Yu Fan from CICC. I have two questions here.
The first one is that we see the U.S. stock market has been quite volatile in others, and Q3 has already been underway for two months. Can you share some growth rates over the past two months, such as the number of new users, the trend of client assets, and also the impact on the financial performance? And second, if we enter a rate cutting cycle, how might Tiger adjust your business? And what kind of impact, say, like a twenty-five basis point rate cut would have on the company's interest income?
Tianhua Wu (Chairman and CEO)
[Foreign language]
Okay, I'll translate for the first question. In terms of client assets, the trend of net asset inflow was still strong in the first two 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 we look at numbers, in July, we saw the highest single month revenue in our operating history. While August is 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.
John Zeng (CFO)
[Foreign language] A rate cut by the Federal Reserve may negatively impact our interest income, but we also believe we could boost 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. If the rate cut is twenty-five basis points this next month, our calculation based on our second quarter business scale and interest income, such as the impact on total revenue for a quarter, would be about 1%.
Fan Yu (Equity Research Analyst)
[Foreign language]
Aaron Li (Head of Investor Relations)
Operator, please move on to the next question. Thank you.
Operator (participant)
One moment for the next question. Our next question comes from Cindy Wang from China Renaissance. Please ask your question.
Yuyin Wang (Director Equity Research)
好问Thanks management for giving me the chance to ask questions. So I have two 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 write-back, what is the risk of such loss 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? Thank you.
Tianhua Wu (Chairman and CEO)
[Foreign language]
This impairment was linked to a Hong Kong stock pledging transaction business. To be cautious, the full amount was written off in the second quarter. First of all, we're 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've 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 on our risk procedures and existing stock pledging transaction.
Now, there are no outstanding stock pledging and cash withdrawal transactions using Hong Kong stock as collateral anymore.
[Foreign language]
So in the second quarter, about 65% of our new funding clients came from Singapore and Southeast Asia, around 15% from Hong Kong market, and about 10% each from Australia and New Zealand region and the US. We are quite pleased with this result, which are the best we've seen in the last 10 quarters in terms of the number of, you know, quarterly new funding accounts. We believe there are a couple of reasons for this growth. First of all, the US 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 fourth quarter, like the Tiger BOSS Debit Card and contract 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 cardholders, mostly new funded users from the second quarter. Plus, in the past three months, contract trading feature alone also made meaningful contribution to dollar 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 year-over-year. thank you.
Operator (participant)
Thank you for the question. One moment for the next question. Our next question comes from Judy Zhang from Citi. Please go ahead.
Judy Zhang (Analyst)
[Foreign language]
Let me translate my two questions. So the first question is regarding on 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 plans for deploying this business, such as pricing, customer acquisition strategy, and what is the expected results, you know, 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? Thanks.
John Zeng (CFO)
[Foreign language] So, regards to the traditional brokerage business, we are quite pleased with our progress in Hong Kong.
In the second quarter, average net asset inflow from our newly acquired clients was over $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 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 users are onboarding in the second quarter, which is about 2.5 times the number from the previous quarter. 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 Five 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 a crypto campaign for professional investors back in June, 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 zero commission plus zero platform fee to trade the spot crypto on our platform. Thanks.
Operator (participant)
At this time, there are no further questions from the line. Allow me to hand the call back to management for closing.
John Zeng (CFO)
Operator, there is one more question haven't been answered.
Operator (participant)
I beg your pardon. Please continue.
Tianhua Wu (Chairman and CEO)
[Foreign language]
In the second quarter, our wealth management business saw strong growth, with client 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 accounts, clients in the second quarter, more than thirty of them started using our Tiger Vault product. They 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 twenty-eighth, Tiger Vault had already implemented T+0 functionality across all licenses, supporting USD, HKD, and SGD. 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 USD money market fund and 4.2% for HKD money market fund, and 3.6% for SGD money market fund.
Providing investor with returns above the market average for cash management. So looking back over the past two years of the, you know, 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, UST bonds, FCNs, and more. For users with different risk appetites diversify from pure equity investment. Thank you.
Aaron Li (Head of Investor Relations)
Desmond, is there any other questions?
Operator (participant)
At this time, there are no more questions. Please continue.
Aaron Li (Head of Investor Relations)
All right. Okay. I would like to thank everyone for joining our call today. I'm now closing the call on behalf of the management team here at Tiger. We do appreciate you participating to this 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.
Operator (participant)
Ladies and gentlemen, that concludes our conference call today. Thank you for your participation. You may now disconnect your lines.