Earnings Call Transcript - TIGR Q3 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited Third Quarter 2024 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, November 12, 2024. I would 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, 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 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 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 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 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.

Wu Tianhua, Chairman and CEO

Hello, everyone. Thank you for joining Tiger Brokers' third quarter 2024 earnings conference call. In the third quarter, driven by an expanded client base, comprehensive product offerings, and an active market backdrop in the US, total trading volume reached US$163 billion. Cash equity trading volume was US$41.4 billion, reflecting a quarter-over-quarter increase of 54% and 24%, respectively. Commission income reached US$41.2 million, with a 21% quarter-over-quarter increase and a 78% year-over-year increase, the highest in the past three years. The rise in market activity also contributed to an increase in marketing financing and securities lending business, which rose 29% quarter-over-quarter and doubled year-over-year, reaching US$4.5 billion at the end of the third quarter. Despite ongoing rate cut cycles, interest income increased by 9% quarter-over-quarter to US$48 million. Our total revenue for the third quarter was an all-time high of US$101 million, with a quarter-over-quarter increase of 16% and a year-over-year increase of 44%. GAAP and non-GAAP net income attributable to UP Fintech was US$17.8 million and US$20.1 million this quarter, both exceeding the total amount for the first half of this year with increases of 34% and 26% year-over-year, respectively. We are also pleased to see our operating profit margin increased to 26% in the third quarter, indicating ongoing improvement in the operating leverage of our business model. In the third quarter, we added 50,500 newly funded accounts, representing a 3% sequential increase and a 105% year-over-year increase, with Singapore and Southeast Asia as the primary contributors. The number of funded accounts at the end of the third quarter reached 1,000,300, a 19% year-over-year increase. In the first three quarters of this year, we added a total of 128,000 newly funded accounts and 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 US$1 billion for this quarter. Total client assets increased by 7% quarter-over-quarter and 116% year-over-year to US$40.8 billion, setting another historic high. We are glad to see our client assets have now risen for eight consecutive quarters and have set new records for the past four consecutive quarters. Notably, in addition to steady growth in client assets from the Singapore market, we've seen over a 25% quarter-over-quarter increase in client assets from new markets like Hong Kong, Australia, New Zealand, and the US. 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. In early November, we collaborated with the Hong Kong Exchange to upgrade the Hong Kong stock option feature by offering weekly contracts along with monthly contracts to better meet investors' trading and risk management needs, allowing them to trade based on short-term events. Additionally, the Tiger Boss debit card is gaining more popularity since its launch in Singapore. We upgraded the product to include T+0 automatic subscription and redemption features for Tiger Vault, our wealth management product. This 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. Unfilled night session orders will be automatically passed on to the pre-market and regular trading session to ensure user experience and execution quality. Our 2B business continues to perform well. In investment banking, we underwrote 13 US 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 XCHG US IPO. In our ESOP business, we added 18 new clients in the third quarter, bringing the total number of ESOP clients served to 597 by the end of the third quarter of 2024, which is an 18% year-over-year increase.

John Zeng, CFO

All right. Thanks, Tianhua and Aaron. Let me go through our financial performance for the third quarter. All numbers are in US dollars. Thanks to our expanded user base and robust market activities, we saw healthy growth in all top-line items this quarter. Commission income was US$41.2 million, increased 21% quarter-over-quarter and 78% year-over-year. Interest-related income was US$48 million 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 US$101 million. Cash equities take rate was 6.4 bps this quarter, slightly decreased from 6.7 bps of the 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 was $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 was $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 the 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 non-GAAP basis. GAAP net income was $17.8 million, an increase of 585% quarter-over-quarter and 34% year-over-year, while non-GAAP net income was $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

Thank you. Our first question comes from Cindy Wang from China Renaissance. Please go ahead. Your line is open.

Cindy Wang, Analyst

Thanks for taking my call. I have two questions. First, could you provide the breakdown of the regional mix of newly funded accounts? Secondly, I noticed that commission income increased nicely quarter-over-quarter in the third quarter, but the blended take rate and cash equity take rate both decreased sequentially. What is the reason for that? Did the Nvidia stock split impact your take rate, and what are the trends for Q4? Thank you.

Wu Tianhua, Chairman and CEO

In the third quarter, approximately 60% of our newly funded users originated from Singapore and Southeast Asia, around 15% each from the Australia and New Zealand region, and the Hong Kong market, with more than 5% coming from the US market. Thank you.

John Zeng, CFO

So, first of all, the decline in the blended take rate is largely due to an increase in future trading volume. Since futures are based on nominal value instead of contract value, 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 by 54%. There are several reasons for the drop in cash equity take rate. Number one is NASDAQ had a general upward trend in Q3, which pushed average stock price higher and thus lowered the take rate. The second reason is that the ADR in the third quarter accounted for only 10% of the trading volume, while major US stocks, especially the Magnificent Seven, increased significantly, which further raised the average trading price and lowered the take rate. Even though in Hong Kong, our trading volume has gone up a lot during the end of the third quarter, we offer zero commission, zero platform fee, so the increase in Hong Kong trading volume didn't really help the take rate. Regarding the Nvidia stock split, it does help the take rate a little bit, but the impact isn't that significant. Several reasons: first of all, Nvidia completed the stock split in early June, and the trading volume for Nvidia in June was much higher than in April and May. By the second quarter, the average trading price was already below US$400 on our platform, not the US$1,000 level. In Q3, the average price was about US$120. Thus, in terms of price, the impact is only a bit over three times. Another factor is fractional share. Before the split, many users traded Nvidia through fractional shares. We charge 1% on trading volume for fractional shares, which 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 the second quarter. It's still a high price even after the split. When looking at our US stock pricing, the post-split take rate for Nvidia is only about 2 bps, while our overall cash equity take rate is between 6 bps to 7 bps. So, it's not going to have a major impact on our overall cash equity take rate.

Aaron Li, Head of Investor Relations

Thanks. Mao, please move on to the next question, please.

Operator, Operator

Our next question comes from the line of Emma Xu from Bank of America Securities. Please go ahead. Your line is open.

Emma Xu, Analyst

Congratulations on achieving your guidance ahead of schedule. The market conditions have been favorable since October. Could you please provide the run rate for assets, AUM, trading volume, revenue, and profit since October? Additionally, on a quarter-over-quarter basis, your revenue growth rate is higher than your profit growth rate, excluding the impairment losses of around 13.2 million dollars in the second quarter. How do you view the improvement in operating efficiency and leverage?

Wu Tianhua, Chairman and CEO

In terms of our client assets, we continue to see net inflow in October, primarily driven by contributions from retail investors. The number of newly funded accounts has maintained a strong growth trend, allowing us to meet our annual guidance of 150,000 newly funded users. October was a remarkable month for us, with trading volume and commission performance reaching the highest levels in our history. Both metrics more than doubled the average monthly performance from the first half of the year. Although November is not yet complete, trading volume remains solid. For example, on November 6, US Election Day, order volume on our platform increased by about 50% compared to the October daily average, especially for US stocks, which saw even more significant growth. Looking ahead to the rest of Q4, there are some uncertainties regarding post-election initiatives and the Federal Reserve's interest rate decisions, but overall, we are pleased with how Q4 has been progressing. Thank you.

John Zeng, CFO

In the third quarter, the Federal Reserve's rate cuts led to a decline in the value of the US dollar. Consequently, our subsidiaries that operate with currencies other than the US dollar, such as those in Singapore, New Zealand, and Mainland China, experienced a decrease in the value of their dollar-denominated assets, resulting in foreign exchange losses. For the entire group, the foreign exchange loss in the third quarter was approximately US$5.1 million, but these losses were non-cash and non-operational. In terms of operating profit, it was about US$26 million in the third quarter. When excluding a US$13.2 million one-time impairment from the second quarter, the operating income was around US$18 million. This reflects a roughly 45% growth quarter-over-quarter, significantly exceeding the 16% growth we observed in our top line. This demonstrates that our overall operating leverage has improved. The improvement can be attributed not only to our business model but also to our careful management of fixed costs. Both labor and general administrative expenses have stayed largely stable, while variable costs such as clearing and customer acquisition may increase with heightened market activity; however, our clearing fees and average customer acquisition costs are still among the lowest in the industry. Thank you.

Aaron Li, Head of Investor Relations

Thanks. Operator, let's move on to the next question, please.

Operator, Operator

Thank you. Our next question comes from Hua Fan from CICC. Please go ahead; your line is open.

Unidentified Analyst, Analyst

I have two questions. The first one is about the Hong Kong market. We have seen the market velocity rebound since October. Could you provide more insights into our current business progress in the Hong Kong market? What has been the impact on our customer acquisition and trading volume there? The second question relates to the wealth management business. How is it performing? Could you share more data, such as assets under management and the number of wealth management clients? Thank you.

John Zeng, CFO

We are very pleased with our progress in Hong Kong. Since the end of September, we have observed a notable improvement in market sentiment based on our operational data. We have already achieved our annual goal of 150,000 funded users, with approximately 15%—over 20,000—originating from Hong Kong, marking a substantial increase compared to our first year in the Hong Kong market last year. Moreover, the quality of our clients in Hong Kong is exceptional. The average client asset in Hong Kong has now exceeded that of Singapore, making it the highest among the international markets we entered. In the third quarter, the average net asset inflow for newly-acquired users in Hong Kong was around US$20,000, and total client assets in the Hong Kong market rose by over 30% quarter-over-quarter. Due to the high average client asset and activity level, the ARPU for retail users in Hong Kong was the highest among all regions in the third quarter, double that of retail users in Singapore. In October, we experienced a significant boost in trading volume, which already surpassed the total trading volume from the third quarter. Furthermore, to enhance our trading capabilities in Hong Kong, we officially launched the Hong Kong stock option and short-selling features in the third quarter. Additionally, in November, we upgraded the Hong Kong stock option feature by adding weekly contracts alongside monthly contracts. Thank you.

Wu Tianhua, Chairman and CEO

Okay. So, in response to your second question about wealth management, we are pleased with the growth of our wealth management business and the diversity of our product offerings. We provide stable US products such as Money Market Funds and US Treasury Bonds for investors managing their idle cash, along with fixed coupon notes and services like the EAM platform and DPM discretionary accounts for advanced users, institutions, and family offices. Looking ahead, we will continue to develop our wealth management business and enhance its synergy with our brokerage business. In Q3, our wealth management assets under management increased over 40% from the previous quarter and doubled year-over-year, surpassing US$1 billion. Among new users in Q3, about 30% began using our wealth management services. Additionally, in the Hong Kong market, our wealth management business experienced even greater growth, with the number of clients rising by nearly 50% quarter-over-quarter and assets under management doubling quarter-over-quarter. Thank you.

Aaron Li, Head of Investor Relations

Operator, please move on to the next question.

Operator, Operator

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

Aaron Li, Head of Investor Relations

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 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.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.