UP Fintech Q2 2023 Earnings Call Transcript

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August 29, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Uptimech Holding Limited Second Quarter 2023 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, August 29, 2023. I'd now like to hand the conference over to your first speaker today, Ms.

Operator

Aaron Li, the Head of IR. Thank you. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining us on the call today. OFBTAC Holding Limited's 2nd quarter On the call today from Hu Tien Hua, Chairman and Chief Executive Officer Mr. Zheng Zheng, Chief Financial Officer Mr. Huang Lei, CEO of U.

Speaker 1

S. Taggart Securities and Mr. Kenny Zhao, our Financial Controller. Mr. Wu will give an overview of our business operations and discuss corporate highlights.

Speaker 1

Mr. Zheng will then discuss our financial results. They will both be available to answer your questions during the Q and A session as 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.

Speaker 1

S. Private Securities Litigation Reform Act of 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 6 ks furnished today, August 29, 2023, and our annual report on Form 20 F filed on April 26, 2023. 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.

Speaker 1

Wu. Mr. Wu will make remarks in Chinese, which will be followed by English translation. Mr. Wu, please go ahead with your remarks.

Speaker 1

Hello, everyone. Thank you for joining Tiger Brokers Second Quarter 2023 Earnings Conference Call. In the Q2, we remain committed to the strategy of Optimizing our revenue mix and expense management, total revenue increased by 23.5% year over year, reaching US66 $1,000,000 Our non GAAP our net profit attributable to Upti in Tech was $13,200,000 representing a turnaround from a net loss in the same quarter last year and an increase of 66% compared to the previous quarter. The non GAAP net profit attributable to FinTech was $15,300,000 about 4.5 times same quarter last year and a significant increase of 48% compared to the previous quarter. Non GAAP net profit earned this quarter has already exceeded the total non GAAP net profit for the In the 2nd quarter, We added 29,077 new funded accounts, bringing the total number of new funded accounts in the first half of this year to approximately 60,000.

Speaker 1

We are confident to deliver our annual guidance of acquiring at least 100,000 new funded accounts in 2023. Total number of funded accounts at the end of the second quarter reached 840,000, representing a growth of 15% compared to the same quarter of last year. In terms of total client assets, the trend of asset inflow remains strong, with net inflow over US1.6 billion dollars in the 2nd quarter. After neutralizing the impact from mark to market loss, total client assets in this quarter increased by 7.1% compared to the 4th quarter, reaching US17.3 billion dollars Additionally, our average CICE data further decreased to 162 in the second quarter, representing a 5% decline compared to the previous quarter. This reduction highlights our success in expanding our internationalization strategy As Tiger Broker brand gained traction among local users in Singapore through positive word-of-mouth referrals, resulting in Organic traffic and cost efficiencies.

Speaker 1

Moving forward, we will dynamically adjust our customer acquisition strategy based on market conditions, Prioritizing user quality will steadily increase in client base and profitability. We have continued to increase our investment in research and development to enhance operational efficiency and user experience. We are delighted to announce that our Tiger GPT feature, After 6 months of internal testing officially launched in July this year, it is now available for free to registered users in other markets we entered except Mainland China. We will continue to refine and optimize the user experience of this feature. Your Hong Kong business, following our entry in the retail market in December last year, we have successfully achieved staff clearing for the majority of Hong Kong equities in the first half of this year, have to bring down the total carrying expense as proportion of commission to below 10% in the second quarter.

Speaker 1

Additionally, we introduced recurring investment feature for Hong Kong shares in the Q2, catering to long term investors and those with a fixed investment budget. This makes us one of the few brokers that offer recurring investment function for both U. S. And Hong Kong equities. We also added Hong Kong Futures in June to better serve our local clients.

Speaker 1

In Wealth Management Business, Following the introduction of a USD denominated money market fund in the 4th quarter, we introduced a Hong Kong dollar denominated money market fund in the 2nd quarter, providing user with more options to match idle cash during rate hiking cycles. Our 2B business continues to perform well. In Investment Banking, we entered 7 U. S. And Hong Kong IPOs in the 2nd quarter.

Speaker 1

Notably, we served as the exclusive lead underwriter for Aspire Technology US IPO. In our ESOP business, we added 30 new clients in the 2nd quarter, bringing the total number of ESOP clients served to 4.78 by the end of Q2 of 2023, increased by 31% year over year. Now I'd like to invite our CFO, John, to go over our financials.

Speaker 2

Okay. Thanks, Tianna and Aaron. Let me go through our financial performance for the Q2. All numbers are in U. S.

Speaker 2

Dollar. Total revenues were 60 6,100,000 this quarter, flat quarter over quarter and increased 23.5% year over year, primarily due to a 146% jump in interest related income versus same quarter of last year. Cash equities take rate was 6.3 bps this quarter, remained unchanged from the last quarter. Within commission revenue, About 60% comes from cash equities, 30% from options and the rest comes from futures and other products. Now on to cost.

Speaker 2

Interest expense was 10,400,000 increased by 195% from the same quarter of last year as interest expense and securities lending expense both increased in line with the rate hike. Execution and clearing expense were $2,000,000 decreased 47% from the same quarter of last year, primarily due to more efficiency in self clearing for U. S. And Hong Kong securities. Employee compensation and benefit Expenses were $23,900,000 a decrease of 7% year over year due to a one time We incurred last year when restructuring our ESAL business.

Speaker 2

Actual headcount increased year over year as we keep adding people to Our global expansion. Occupancy, depreciation and amortization expense slightly increased 2% to 2,500,000 due to an increase in overseas office space and relevant NISCO improvement. Communication and market data expense were 7,800,000, an increase of 8% year over year due to the increase in user base. Marketing expense were $4,700,000 this quarter, decreased 44% year over year. Average CAC dropped 5% quarter over quarter from 171 to 162 as we didn't see market condition in the 2nd quarter was suitable for major marketing campaigns.

Speaker 2

We will dynamically adjust our marketing strategy based on the market sentiment in different regions. General and administrative expense were $4,500,000 a slight increase of 5% year over year. Total operating costs were $45,500,000 decreased 12% from the same quarter of last year. As a result, both GAAP and non GAAP Basana increased year over year. GAAP net income turned positive $13,200,000 versus a GAAP net loss of $900,000 in the same quarter of last year.

Speaker 2

Non GAAP net income was 15,300,000 about 4.5 times higher compared to the same quarter of last year. Now I have concluded our presentation. Operator, please open the line for Q and A. Thanks.

Operator

Thank you. Our first question comes from the line of Han Hu from CICC. Please ask your question.

Speaker 3

Thanks for taking my question. This is Han from CICC. Congrats on the strong quarterly results. I have two quick questions. Firstly, could you please provide the original breakdown of new funded In the Q2, secondly, could you please give us more recent updates on the management regulation requirements?

Speaker 2

Thanks.

Speaker 1

For your first question, In the Q2, around 45% of newly funded accounts came from Singapore, nearly 25% from Australia and New Zealand, About 20% from the U. S. And about 10% from Hong Kong. After CSRC announcement on December 30 last year, TEGR brokers made a prompt response and comprehensive efforts to comply with the regulatory statements set forth by the CSRC. Subsequently, the Beijing Securities and Regulatory Bureau conducted an on-site inspection for a week before the Chinese New Year.

Speaker 1

During that time, we provided the regulators with our remediation plan and related reports. We have maintained good and direct Communication with the regulatory authorities throughout the period and have received clear guidance on certain special scenarios for PRC passport holder to open new accounts with us. For example, allowing PRC passport holders who work or live overseas to open accounts and permitting the transfer or opening of new securities accounts for users from other brokerage firms. Recently, in mid July, We submitted the final remediation report to the CSRC in accordance with regulatory requirements. Subsequently, in mid July, The regulatory authorities conducted an on-site acceptance inspection based on our remediation report.

Speaker 1

Thank you.

Speaker 3

That's very helpful. Thank you.

Operator

Thank you, Han. Our next question comes from the line of Judy Zhang from Citi. Please ask your question, Judy.

Speaker 3

I will translate my questions. Thank you for taking my questions. This is Judy Zhang from Citi. I have two questions. The first question is, After Tiger APP was removed from X4, have you seen asset outflow or losing onshore investors?

Speaker 3

How do you think the long term impact on the existing onshore investors' trading activities and settlement? And second question is regarding Hong Kong market strategy. How do you think you can gain market share in the very competitive Hong Kong market? And how this is going to impact in the company's like cost like for this year and going forward? Thank you.

Speaker 1

Okay. So I'll take your first question and our CFO, John, will take your second question. About your first question, we've been aware of concerns in the market regarding the overall user count in Mainland China with almost no incremental growth and gradual loss of existing users. However, based on our data from the first half of this year, we have confidence in the retention of our clients in Main China. In terms of user retention, the overall retention rate for user with assets as well as the retention rate for 1,000,000 China users in the first half of this year has remained above 99%.

Speaker 1

Regarding

Speaker 2

client cash flow,

Speaker 1

mainland Chinese users have shown a trend of net asset inflow in both of the Q4 and the Q2 of this year. Besides, there has been no significant change in the trading activity of mainland users, Indicating that our existing clients have a rough understanding regarding recent events at December 30 last year and their trading velocity

Speaker 2

So from a user acquisition perspective, Hong Kong accounts for more than 10% of the newly acquired user in the 2nd quarter, Up from low single digit in the Q1, we will keep investing in branding to build our corporate image in Hong Kong, so we can reach out to more potential Hong Kong users. From product perspective, 1st of all, we offer 1 of the most competitive pricing. We don't charge commission on platform fee for Hong Kong trading And we don't charge commission for U. S. Equities on the options neither.

Speaker 2

We're also one of the first one of the few brokers that offer recurring investment for both U. S. And Hong Kong trading And have USD and hankangd. Money market funds to help our user manage their liquidity. And in terms of infrastructure, we are fully self clearing for Hong Kong Equities, which brings down group's total clearing expense to below 10%.

Speaker 2

Our proprietary system also allows us to offer differentiated services such as fractional share and offer portfolio buying power for U. S. And Hong Kong trading. Thanks.

Speaker 3

Thanks.

Operator

Thank you, Judy. Our next question comes from the line of Cindy Wang from China Renaissance. Please go ahead, Cindy.

Speaker 3

Thanks management for taking my question. This is So I have two questions. First question is related to customer acquisition cost. So customer acquisition cost in 2nd quarter was US162 dollars which has at a relatively low level. How do you lower customer acquisition cost?

Speaker 3

And what's the strategy for customer acquisition cost to Customer acquisition strategy to going forward. The second question is Tiger's non GAAP net profit has turned So together with high interest rate environment, The non GAAP profit margin is also expanding. Does that mean Tiger has reached the inflection point from breakeven to profitability? Thank you.

Speaker 1

Okay. Your first question about the CAC. In the Q2, the average CAC was 162, which was further decreased compared to 171 in the 4th quarter, reaching historically lower level. In the Q2, we pay very close attention to client quality and payback period and we will not to protect our client quality and a reasonable ROI ratio merely for the number of funded accounts. With the underperformance of Chinese ADRs and Hong Kong Technology names Our clients experienced some mark to market losses.

Speaker 1

However, strong net asset inflows due led to a 7.1% increase in total client Compared to the previous quarter, this indicates that we have maintained good customer quality while reducing the average CEC. Furthermore, if we look at the average CAC from newly acquired clients through advertising channels in the second quarter, Their average CAC is more than twice the overall average CAC. This demonstrates that we have gradually gained I'm glad to see our non GAAP net profit reached US50 $1,000,000 in the 2nd quarter, which is the highest quarterly net non GAAP profit in the past 2 years. Looking back at the early stage of the interest rate hike cycle, during reduced market activities, we experienced some quarterly losses. However, through optimizing interest income and prudent capital deployment, we gradually improved our profitability.

Speaker 1

Over the past few quarters, Our net profit margin has been expanding, indicating a robust and healthy business model for the company. Given most of our costs are relatively fixed And tied to market activities, we believe that if we can better penetrate in Hong Kong, Australia, New Zealand markets, If there is overall improvement in the market backdrop, we can enjoy more operating leverage, which leads to more stable profit margins. So to answer your question, assuming there is no extreme market swings, we should be in the black in terms of profitability. Thank

Operator

you. Right. Thank you, Cindy. Our next question comes from the line of Ling Tan from Daiwa Capital Markets. Please ask your question, Ling.

Speaker 3

Thank you, management, for taking my question. This is Blaine from Daiwa. I noticed that there's USD 7,800,000,000 other non operating income under the P and L. Can management provide more color in terms of the breakdown of their non operating Thank

Speaker 2

you. So about half of the other income comes for FX gain due to USD appreciation against other currencies this quarter. So, this part is pure accounting item. The other part of the other income actually comes from our treasury management. As you can see from our balance sheet, our financial instrument balance has increased quarter over quarter.

Speaker 2

So we are doing treasury management. We are investing some of those money into the U. S. Short term bonds. So we think this kind of interest income will be sustainable for the next few quarters.

Speaker 2

Thanks.

Operator

The conference back to Mr. Aaron Li for closing comments.

Speaker 1

Thank you, operator. 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 your participation in today's call. If you have any further questions, Please reach out to our Investor Relations team.

Speaker 1

This concludes the call and thank you very much for your time.

Operator

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

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