UP Fintech Holding Ltd

NASDAQ:TIGR

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the UP Fintech Holding Limited Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, November 12, 2024.

I would now like to hand the conference over to your first speaker today, Mr. Aaron Lee, the Head of Investor Relations. Thank you. Please go ahead.

[Aron Lee, executive]

Thank you, Mao. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's third 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 contains 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, November 12, 2024, and our annual report on Form 20-F filed on April 22, 2024. We undertake no obligation to update any forward-looking statements, 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]

[Aron Lee, executive]

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

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] In the third quarter, driven by expanded client base, comprehensive product offerings and active market backdrop in the U.S., total trading volume reached USD 163 billion. Cash equity trading volume was USD 41.4 billion, reflecting a quarter-over-quarter increase of 54% and 24%, respectively. Commission income reached USD 41.2 million, increased 21% quarter-over-quarter and 78% year-over-year, the highest in the past 3 years.

The uptick in market activity also contributed to a rise in market financing and securities lending business, which increased 29% quarter-over-quarter and doubled year-over-year, reaching USD 4.5 billion at the end of the third quarter.

Despite the ongoing rate cut cycle, interest income increased 9% quarter-over-quarter to USD 48 million. Our total revenue for the third quarter was all-time high of USD 101 million, a quarter-over-quarter increase of 16% and year-over-year increase of 44%.

GAAP and non-GAAP net income attributable to UP Fintech was USD 13.8 million and USD 20.1 million this quarter, both exceeded the total amount for the first half of this year and increased 34% and 26% year-over-year, respectively.

Also, we are glad to see our operating profit margin increase to 26% in the third quarter, indicating ongoing improvement in the operating leverage of our business model.

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] In the third quarter, we added 50,500 newly funded accounts, representing a 3% sequential increase and a 105% increase year-over-year. Singapore and Southeast Asia region were the primary contributors.

The number of funded accounts at the end of the third quarter reached 1,000,300, increased 19% year-over-year. In the first 3 quarters of this year, we added a total of 128,000 newly funded accounts. By now, we have already achieved our annual guidance of acquiring 150,000 newly funded accounts.

In terms of total client assets, retail clients' net asset inflow remained strong at USD 1 billion for this quarter. Total client assets increased by 7% quarter-over-quarter and 116% year-over-year to USD 40.8 billion, setting another historic high. We are glad to see that our client assets have now risen for 8 consecutive quarters and kept setting new records for the past 4 consecutive quarters.

Notably, in addition to steady growth in client assets from Singapore market, we've seen over 25% quarter-over-quarter increase in client assets from new markets like Hong Kong, Australia, New Zealand and the U.S.

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] In the third quarter, we continued to upgrade our product offerings on our platform to enhance user experience. In September, we officially launched Hong Kong stock options and Hong Kong short selling features on our platform. And in early November, we collaborated with Hong Kong Exchange to upgrade the Hong Kong stock option feature by offering weekly contracts in addition to monthly contracts to better meet investors' trading and risk management needs, allowing them to trade based on short-term events.

Additionally, Tiger Boss debit card is gaining more popularity since its launch in Singapore. So we upgraded the product to include T+0 automatic subscription and redemption feature for Tiger Vault, our wealth management product.

The integration allows users to manage their investment portfolios more conveniently, seamlessly bridging daily spending, wealth management and stock investment.

Moreover, in October, we enhanced our overnight trading capabilities. Filled next session orders will be automatically passed on to the pre-market and regular trading session to ensure user experience and execution quality.

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] Our 2B business continues to perform well. In investment banking, we underwrote 13 U.S. and Hong Kong IPOs in the third quarter, including NIP Group and Voicecomm Group, and we served as the exclusive lead bank for NIP Group and XCharge U.S. IPO.

In our ESOP business, we added 18 new clients in the third quarter, bringing the total number of ESOP clients served to 597 at the end of the third quarter of 2024, increased by 18% year-over-year.

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

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

[John Zeng, executive]

Okay, thanks -- thanks, Tianhua and Aron. Let me go through our financial performance for the third quarter. All numbers are in U.S. dollars. Thanks to our expanded user base and robust market activities, we saw healthy growth in all top line items this quarter.

Commission income were $41.2 million, increased 21% quarter-over-quarter and 78% year-over-year. Interest-related income were $48 million in this quarter, increased 9% quarter-over-quarter and 25% year-over-year. As a result, total revenue increased 16% quarter-over-quarter and 44% year-over-year to reach an all-time high at USD 101 million.

Cash equities take rate was 6.4 bps this quarter, slightly decreased from 6.7 bps of last quarter. Within commission revenue, about 63% comes from cash equities, 30% from options and the rest from futures and other products.

Now on to cost. Interest expense was $15.7 million, increased 29% from the same quarter of last year, in line with the growth of margin and securities lending balance.

Execution and clearing expense were $3.5 million, increased 48% from the same period of last year, primarily due to an increase in our trading volume, and we keep improving our clearing efficiency. Cash equity clearing expense as a percentage of cash equity commissions is about 3.6% this quarter and remains one of the lowest in the industry.

Employee compensation and benefits were $28.8 million, an increase of 11% year-over-year due to headcount increase to strengthen overseas growth and R&D. Occupancy, depreciation and amortization expense slightly decreased 3% to $2.2 million.

Communication and market data expense were $9.7 million, an increase of 28% year-over-year due to the increase in user base and IT-related services.

Marketing expense increased 59% year-over-year to $8.2 million this quarter. We see market backdrop was supportive for more customer acquisition and branding campaigns while maintaining ROI targets.

General and administrative expenses were $6.9 million, an increase of 27% year-over-year due to more professional service fees and general expense incurred alongside with our business expansion.

Total operating costs were $59.3 million, an increase of 22% from the same quarter of last year. Our bottom line increased quarter-over-quarter and year-over-year on a GAAP and a non-GAAP basis. GAAP net income were $17.8 million, increased 585% quarter-over-quarter and 34% year-over-year, while non-GAAP net income were $20.1 million, increased 287% quarter-over-quarter and 26% year-over-year.

Now I have concluded our presentation. Operator, please open the line for Q&A. Thanks.

[Operator]

[Operator Instructions] Our first question comes from the line of Cindy Wang from China Renaissance.

[Yun-Yin Wang, analyst]

[Foreign Language] I have 2 questions here. First one is, please give us the breakdown of the regional mix of newly funded accounts. And the second question is the commission income up quarter-over-quarter nicely in third quarter. The blended take rate and cash equity take rate both down sequentially. What is the reason behind it? Does NVIDIA stock split have positive impact to your take rate? And what is the Q4 trend?

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] In the third quarter, about 60% of our newly funded users came from Singapore and Southeast Asia, about 15% each from Australia and New Zealand region and Hong Kong market, more than 5% were from the U.S. market.

[John Zeng, executive]

[Foreign Language] So first of all, the decline in blended take rate is largely due to an increase in future trading volume. Since futures are accounted based on nominal value instead of contract value, so the trading volume will amplify in the third quarter. That's why we saw a 24% increase in stock trading volume, while total trading volume jumped to 54%.

There are several reasons for the drop in cash equity take rate. Number one is the NASDAQ had a general upward trend in Q3, which pushed average stock price higher, so lowered the take rate. And also, the second reason is the ADR in the third quarter accounted for only 10% of the trading volume, while the major U.S. stock, especially McAfee, have increased a lot, which further raised the average trading price and lowered the take rate.

And also, even though -- in Hong Kong, our trading volume has gone up a lot during the end of third quarter. But in Hong Kong, we offer zero commission, zero platform fee. So the Hong Kong trading volume increase didn't really help much with the -- help much on the take rate.

In regards to NVIDIA stock split, it does help the take rate a little bit, but the impact isn't that huge. Several reasons. First of all is NVIDIA completed its stock split in early June and the trading volume for NVIDIA in June was much higher than in April and May. By second quarter, the average trading price was already below $400 on our platform, not the $1,000 level. In Q3, the average price was about like $120. So in terms of price, the impact is only a bit over 3x.

Another factor is fractional share. Before the split, a lot of users trade NVIDIA through fractional shares. We charge 1% on trading volume for fractional shares. So this helped the take rate. After the split, the trading volume through fractional shares dropped. So putting all this together, NVIDIA take rate in Q3 was only about double what it was in second quarter.

It's still a high price name even after the split. If you look at our U.S. stock pricing, the post rate take rate for NVIDIA is only about 2 bps, while our overall cash equity take rate is between 6 to 7 bps. So it's not going to have a major impact on our overall cash equity take rate.

[Operator]

Our next question comes from the line of Emma Xu from Bank of America Securities.

[Emma Xu, analyst]

[Foreign Language] So congratulations on achieving the guidance ahead of schedule. The market conditions have been favorable since October. So could you please share the run rate for asset -- for AUM, trading volume, revenue and profit, et cetera, since October? And on a quarter-over-quarter basis, the growth rate of your revenue exceeds that of profit without regard to the impairment losses of around $13.2 million in the second quarter. So how do you view the improvement in the operating efficiency and leverage?

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] Okay. I will translate. In terms of our client assets, we continue to see net inflow in October, primarily driven by the contribution from our retail investors. The number of newly funded accounts has also maintained the rapid growth trend as we saw in the third quarter, allowing us to hit our annual guidance so far of 150,000 newly funded users by now.

Looking at our financials, October was, I'd say, a standout month for us with trading volume and commission performance reaching the highest level in our history. Both trading volume and commissions for October more than doubled the average monthly performance for the first half of this year. Although we are not yet half through November yet, the trading volume is looking solid so far. For instance, on November 6, which was the U.S. election day, order volume on our platform increased by about 50% compared to the October daily average, particularly for U.S. stocks, which saw even more significant growth.

Looking ahead to the remainder of Q4, there are some uncertainties related to the post-election initiatives and Federal Reserve's interest rate decisions. But overall, we are quite satisfied with how the Q4 has been shaping up so far.

[John Zeng, executive]

[Foreign Language] So in the third quarter, Fed rate cuts led to a depreciation of the U.S. dollar. As a result, our subsidiaries that don't use U.S. dollar as their base currencies like Singapore, New Zealand and Mainland China, so the dollar-denominated asset loses value, which resulted in foreign exchange losses. For the entire group, the foreign exchange loss in the third quarter was around $5.1 million. But of course, those FX loss was noncash and a nonoperating impact.

If we look at our operating profit, it was roughly $26 million in the third quarter. In the second quarter, after excluding $13.2 million one-off impairment, the operating income was about like $18 million. This means we saw about like 45% growth quarter-over-quarter, which is significantly higher than the 16% growth we saw in the top line. This indicates our overall operating leverage has improved.

The reason we were able to achieve this aside from our business model is that we have been very prudent with our fixed cost. Both labor and G&A expense have remained relatively stable, while variable costs like clearing and customer acquisition cost may rise with increased market activities, but both of our clearing fees and average CAC remains at industry-leading low levels.

[Operator]

Our next question comes from the line of You Fan from CICC.

[You Fan, analyst]

[Foreign Language] I have 2 questions here. The first one is about the Hong Kong market. We see the market velocity rebounded since October. So would you please share more color on our current business progress in Hong Kong market? What's the impact on our customer acquisition and trading volume in Hong Kong market?

And the second question is about the wealth management business. How is it going on? And can you share more data such as AUM and the number of the wealth management clients?

[John Zeng, executive]

[Foreign Language] We are quite satisfied with our ongoing development in Hong Kong. Since the end of September, we have seen a large improvement in market sentiment based on our operating data. Number one is currently, we already met our annual guidance of 150,000 funded users, of which about like 15%, over 20,000, came from Hong Kong. This is a significant increase compared to our first year in the Hong Kong market.

And also, the quality of our Hong Kong customer is very high. The average client asset in Hong Kong has now surpassed Singapore, making it the highest among -- reaching among international markets we entered.

In the third quarter, the average net asset inflow for newly acquired users in Hong Kong is about like USD 20,000 and the total client asset in Hong Kong market increased by over 30% quarter-over-quarter. Thanks to the high average client asset and high velocity, the ARPU for retail users in Hong Kong was the highest across all regions in the third quarter, double that of the retail users in Singapore.

In October, we saw a significant increase in Hong Kong trading volume. The trading volume for October already exceeded the total trading volume of the third quarter. And also to enhance our trading capability in Hong Kong, we officially launched the Hong Kong stock option and short selling in the third quarter. Additionally, in November, we upgraded the Hong Kong stock option feature by offering weekly contracts in addition to monthly contracts.

[Tianhua Wu, executive]

[Foreign Language]

[Aron Lee, executive]

[Interpreted] Okay. So regarding your second question about the wealth management, overall, we are quite satisfied with the growth pace of our wealth management business and the current diversity of our product offerings. We offer stable U.S. products like money market funds and U.S. treasury bonds for investors to manage their idle cash as well as fixed coupon notes and services like the EAM platform and DPM discretionary accounts for the advanced users, institutions and family office, et cetera. In the future, we will continue to develop our wealth management business and enhance the synergy with our current brokerage business.

If we look at numbers, in Q3, our wealth management AUM increased over 40% quarter-over-quarter and doubled year-over-year, exceeding USD 1 billion. Among newly funded users in the Q3, around 30% of them started using our wealth management services. Additionally, in the Hong Kong market, the wealth management business saw even more significant growth with the number of clients increasing by nearly 50% quarter-over-quarter and AUM doubled quarter-over-quarter.

[Operator]

There are no further questions at this time. So I'll hand the call back to Aron for closing remarks.

[Aron Lee, executive]

Thanks, Mao. I'd 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 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. Bye-bye.

[John Zeng, executive]

Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.