Participants

Aaron Li; Investor Relations; UP Fintech Holding Ltd

Tianhua Wu; Chief Executive Officer, Director; UP Fintech Holding Ltd

Fei Zeng; Chief Financial Officer, Director; UP Fintech Holding Ltd

Hua Fan; Analyst; CICC

Cindy Wang; Analyst; China Renaissance

Judy Zhang; Analyst; Citi

Presentation

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 advise 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. Aaron Li, the Head of Investor Relations. Thank you. Please go ahead.

Aaron Li

Thank you, Desmond. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's 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. 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 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 US 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

(interpreted) Hello, everyone. Thank you for joining the Tiger Brokers' second-quarter 2024 earnings conference call.
In the second quarter, the US 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 future. With commission income reaching USD34.1 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 USD87.4 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 USD2.6 million and USD5.2 million, respectively. The bottom line was negatively impacted by a loss provision of USD13.2 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 conditions and risks. And there is no such risk exposure among existing users anymore. Excluding the impact of the loss provision, our pretax profit for the quarter would be USD19.4 million reflecting a 13.9% increase quarter-over-quarter and 8.3% increase year over year.
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 of at least 150,000 newly funded accounts in 2024.
In terms of client assets, cash net asset inflow remained strong in the second quarter, amounted to USD1.7 billion, primarily from the Singapore and Hong Kong markets, fueled by USD3.6 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 USD38.2 billion at all-time high. We are glad to see seven consecutive quarterly growth in total client assets with net high -- sorry, with new highs in the past three quarters. Notably, client 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.
In the second quarter, we continue 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 receive approved 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 spot cryptocurrency on Tiger platform and supporting real-time settlement of virtual asset transaction in US dollar. This provides user with a truly secure, convenient, and cost-effective global trading experience.
We are also pleased to report that after introducing Tiger BOSS debit card and Contra Trading functions 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 existing features. For instance, our Overnight Trading for US stock has now expanded to support up to 9,500 stocks and ETFs, offering greater convenience for clients to trade US stocks and ETF during local market hours and capture more market opportunities. Moreover, Contra option strategy feature for US stock was upgraded in July to support full leg options trade and execution based on net market requirements, further enhancing trading strategy flexibility and marketing efficiency.
Our 2B business continues to perform well. In investment banking, we underwrote 12 US and Hong Kong IPOs in the second quarter, including Laopu Gold and Dida. And we served as the exclusive lead bank for Tungray Technologies and YY Group, US IPO. In our ESOP business, we added 22 new clients in the second quarter, bring the total number of ESOP clients served to 579 at the end of the second quarter of 2024, increased by 21% year over year.
Now I would like to invite our CFO, Zeng, to go over our financials.

Fei Zeng

Thanks, Tianhua and Aaron. Let me go through our financial performance for the second quarter. All numbers are in US 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 equity's take rate was 6.7 bps this quarter, slightly increased from 6.3 bps last quarter. Within commission revenue of about 65% comes from cash equities, 30% from options, and the rest from futures and other products.
Now onto costs. 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 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 benefits expense were $28.6 million, an increase of 20% year-over-year due to head count increase to strengthen overseas growth and the 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 million 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 net 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 [$13.4 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.

Question and Answer Session

Operator

(Operator Instructions) Hua Fan, CICC.

Hua Fan

(spoken in Chinese) I will quickly translate my question. This is Hua Fan from CICC. I have two questions here. The first one is that we see the US stock market has been quite volatile in August. And Q3 has already been underway for two months. Can you show some run rates over the past two months, such as the number of new users of the Chinese 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, would have on the company's interest income?

Tianhua Wu

(interpreted) Okay. I'll translate for the first question. In terms of client assets, the China 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 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 US election and Fed interest rate decision. But overall, we are quite satisfied with how Q3 has been shaped up so far.

Fei Zeng

(spoken in Chinese) So a 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 rate cut and the market reactions, ensure we will find a balance among our commission interest-related business and wealth management.
So if the rate cut is 25 bps next, next months, our calculation based on our second quarter business scale and the interest income suggests the impact on total revenue for fourth quarter would be about 1%.

Aaron Li

Operator, please go on to the next question. Thank you.

Operator

Cindy Wang, China Renaissance.

Cindy Wang

(spoken in Chinese) Thank 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 writeback. 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? Thank you.

Tianhua Wu

(interpreted) 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 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 already stopped our Hong Kong stock pledge with core 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.
So in the second quarter, about 65% of our new funded clients came from Singapore and Southeast Asia, around 15% from Hong Kong market and about 10% each from Australia, New Zealand region and the US. 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 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 Contra Trading features.
The popularity of this functions among local clientele exceeded our expectations. By the end of August, we already have around 10,000 Tiger BOSS cardholder, mostly new funded users from the second quarter. Plus, in the past three months, Contra 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. Thank you.

Operator

Judy Zhang, Citi.

Judy Zhang

(spoken in Chinese) Let me translate my two 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 how's the company's wealth management business progressing? And what is the current scale and any updates on the product offerings. Thanks.

Fei Zeng

(spoken in Chinese) 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 USD15,000. 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 2.5 times 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 Hang Seng Index experience for consecutive weeks of gains, 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 1 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 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 spot crypto trading, outsizing with zero commission cost, zero platform fee to trade a spot crypto on our platform. Thanks.

Operator

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

Aaron Li

Operator, there is one more question, haven't answered.

Operator

I beg your pardon. Please continue.

Tianhua Wu

(interpreted) 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 [150%] 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 US stock market switched to T+1 settlement on May 28, Tiger Vault had already implemented T+0 functionality across all licenses, supporting US dollar, Hong Kong dollar, and Singapore dollar. 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 US dollar margin market fund and 4.2% for Hong Kong dollar money market fund and 3.6% for Singapore dollar money market fund, providing investors with returns above the market average for cash management.
So looking back over the past two years of the 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, US T-bonds, FCS, and more for users with different risk appetite diversified from pure equity investment. Thank you.

Aaron Li

Desmond, is there any other questions?

Operator

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

Aaron Li

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 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

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.