UP Fintech Holding Ltd

NASDAQ:TIGR

Earnings Call Analysis

Record Revenue and Strong Client Growth in Q2 2024

UP Fintech achieved record revenue of $87.4 million in Q2 2024, increasing 10.8% from the previous quarter and 32.4% year-over-year. Commission income reached $34.1 million, a rise of 22.7% quarter-over-quarter and 54.9% annually. Despite a loss provision of $13.2 million, net income was $2.6 million. Client assets rose 16% from Q1, reaching $38.2 billion, with strong contributions from Singapore and Hong Kong. The company added 48,900 new accounts, up 69% sequentially. Guidance for the year includes at least 150,000 new accounts.

Strong Performance Amid Market Improvements

In the second quarter of 2024, Tiger Brokers demonstrated significant growth, driven primarily by the improved U.S. stock market conditions. The trading volume for clients across stocks, auctions, and futures increased, resulting in a robust commission income of $34.1 million, marking a 22.7% increase from the previous quarter and a 54.9% rise year-over-year. These figures represent the second-highest quarterly commission revenue in the company's history, indicative of their growing client engagement and market presence.

Record Revenue and Client Growth

Total revenue reached an unprecedented $87.4 million, an all-time high for the company. This reflects a quarter-over-quarter growth of 10.8% and a year-over-year increase of 32.4%, showcasing the company's strong operational performance. Furthermore, the addition of 48,900 newly funded accounts in Q2 alone, equating to a remarkable 69% sequential growth and 68% year-over-year, underscores Tiger Brokers' expanding customer base, particularly in the burgeoning markets of Singapore and Southeast Asia.

Earnings and Expense Insights

Despite the impressive revenue figures, net income was impacted by a $13.2 million loss provision related to a Hong Kong stock pledging case. This led to net income attributable to UP Fintech being $2.6 million (GAAP) and $5.2 million (non-GAAP). Excluding the loss provision, the pretax profit would have reached approximately $19.4 million, reflecting an 8.3% year-over-year increase and a 13.9% quarter-over-quarter improvement. However, the company's operating costs also saw a significant increase to $69 million, partly due to an uptick in marketing and general expenses.

Growing Client Assets and Inflows

Tiger Brokers reported strong net asset inflows totaling $1.7 billion, primarily driven by markets in Singapore and Hong Kong, further enhanced by a $3.6 billion mark-to-market gain. Consequently, total client assets surged to a record $38.2 billion at the end of the second quarter, which marks a 16% increase quarter-over-quarter and a staggering 121% year-over-year. The company noted consecutive quarterly growth in total client assets, illustrating its effective strategies in attracting and retaining high-quality users.

Strategic Product Enhancements

Tiger Brokers is actively enhancing its product offerings. In August, they introduced two significant functions: Hong Kong stock options and short selling services for Hong Kong stocks. This move not only expands their product portfolio but also solidifies their competitive edge in local markets. The ongoing development of localized features, including the combo option strategy for Hong Kong stock options, demonstrates the company's commitment to catering to the specific needs of their clients.

Guidance and Future Outlook

Looking ahead, Tiger Brokers is optimistic. They are on track to meet their annual goal of adding at least 150,000 new funded accounts by the end of 2024, having already added 77,700 in the first half of the year. In terms of revenue guidance, management noted a potential impact of approximately 1% on total revenue should there be a 25 basis points interest rate cut. They are adjusting their strategies to maintain growth, balancing commission interests and wealth management amidst evolving market conditions.

Earnings Call Transcript 2024-Q2

[Operator]

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 surprise 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.

[Aron Lee, executive]

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.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 Zeng, Chief Financial Officer; Mr. [indiscernible], CEO of U.S. Tiger Securities; and Mr. [indiscernible], 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 and follow 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 Education 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 20F 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.

[Tianhua Wu, executive]

[Foreign Language] 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, auctions 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-on-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 restore.

Since 2023, our company had already stopped similar Hong Kong equity stock pledging and restore in response to market conditions and risks. And there is no such risk exposure among excessive users animal. 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]

In the second quarter, we added 48,900 newly founded 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 new defined accounts in 2024.

In terms of client assets, [ cash ] 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 at 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, plan assets from the Hong Kong market doubled quarter-to-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]

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, both 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 TechOne license to include virtual asset billing service for professional investors in January of this year. The receive approved in June to expand this license to retail investors in Hong Kong. We offer 0 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. [indiscernible] progress user with a truly secure, convenient and cost-effective global trading experience.

[Foreign Language]

We are also pleased to report that after introducing Tiger Vault debit card and contract 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 [ lifting ] features. For instance, our overnight trading for U.S. stock has now expected to support up to 9,500 stocks and ETFs, offering greater convenience for clients to trade U.S. stocks and ETF during local market hours and capture more market opportunities.

Moreover, [indiscernible] option strategy feature for U.S. stock was upgraded in July to support 4 [indiscernible] options trade and execution based on net market requirements, further enhancing treating strategy flexibility and margin efficiency.

[Foreign Language]

Our [indiscernible] business continues to perform well. In Investment Banking, we [indiscernible] 12 U.S. and [indiscernible] in the second quarter, including our [indiscernible] and data, and we serve as exclusive lease bank for tankering technologies and YY Group U.S. IPO. In our [indiscernible] business, we added 22 new clients in the second quarter, bring the total number of [indiscernible] 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, Zeng, to go over our financials.

[John Zeng, executive]

Thanks, Wu Tianhua. 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 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 last quarter. Beijing commission revenue of 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 [indiscernible] the high interest rate environment. Execution and 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 head count increase to [indiscernible] oversea 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 euro based 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 [indiscernible] 45% year-over-year due to 13.2 billion 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 rating 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.

[Operator]

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

[Han Pu, analyst]

[Foreign Language]

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

[Tianhua Wu, executive]

[Foreign Language]

Okay. I'll trasnlate 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 [indiscernible] interest rate decision. But overall, we are quite satisfied with how Q3 has been shaped up so far.

[John Zeng, executive]

[Foreign Language]

So recap 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 Rica and the market reactions, ensure we will [indiscernible] among our commission interest-related business and wealth management.

So if the Rica is 25 bps next month, our calculation based on our second quarter business scale and the interest income suggests the [indiscernible] impact on total revenue for fourth quarter would be about 1%.

[Operator]

Our next question comes from Cindy Wang from China Renaissance.

[Unknown Analyst]

[Foreign Language] So I have 2 questions. First 1 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 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?

[Tianhua Wu, executive]

[Foreign Language] 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're taking this very seriously and doing everything possible to recover the loss. We already signed a repayment agreement with the client and have a controlling shareholder as ceritental.

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 with [indiscernible] 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 transaction.

Now there are no outstanding stock pledging and cash risk transaction using Hong Kong stock as collateral anymore.

[Foreign Language] 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, 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 fourth quarter, like the Tiger Vault debit card and contract treating features.

The popularity of data functions among local clientle exceeded our expectations. By the end of August, we already have around 10,000 [ pageable ] cardholder, mostly new funded users from the second quarter. Plus in the past 3 months, contract trading feature along 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-to-quarter and year-over-year.

[Operator]

Our next question comes from Judy Zhang from Citi.

[Judy Zhang, analyst]

[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 as the business that now supports retailer and the PI trading. And what has 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 post the company's wealth management business progressing? And what is the current scale and any updates on the product offerings.

[Tianhua Wu, executive]

[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 [ 50,000 ]. 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 onboarding 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 [indiscernible] index experience for consecutive weeks of games, our asset under custody from Hong Kong market by the end of the second quarter down sequentially.

In terms of virtual asset business our type license was [indiscernible] back in June -- sorry, back in January to [indiscernible] treating for professional investors. In June, we got additional approval to offe spot crypto trading for retail investors. We launched our critical 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 Spark Crypto Trading, outsizing 0 commission class 0 platform fee to trade the spark free [indiscernible] on our platform.

[Operator]

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

[Unknown Executive]

Operator, there is be more questions haven't answered.

[Unknown Analyst]

[Foreign Language]

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 50% 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, Tagovo had already implemented C 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 participant in faster market trading.

The underlying asset of Tiger Vault also continued to perform well. with average 7-day annualized yields during the second quarter, exceeding 5.2% for U.S. dollar margin market fund and 4.2% for Hong Kong dollar bond market fund and 3.6% for Singapore dollar market, 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 -- 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, FCS and more for users with different risk appetite diversified from pure equity investment.

Thank you [indiscernible], is there any other questions?

[Operator]

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

[John Zeng, executive]

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.

[Operator]

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect your lines.