UP Fintech Holding Limited (NASDAQ:TIGR) Q2 2022 Earnings Conference Call September 7, 2022 8:00 AM ET
Company Participants
Aaron Lee – Investor Relations Director
Wu Tianhua – Chairman and Chief Executive Officer
John Zeng – Chief Financial Officer
Ken Zhao – Financial Controller
Conference Call Participants
Han Pu – CICC
Judy Zhang – Citi
Cindy Wang – China Renaissance
Operator
Ladies and gentlemen, thank you for standing by, and welcome to UP Fintech Holding Limited Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only-mode. There will be a presentation followed by question-and-answer session. I must advise you that this conference is being recorded today, September 7, 2022.
I’d now like to hand the conference over to your first speaker today, Mr. Aaron Lee, Investor Relations Director. Thank you. Please go ahead.
Aaron Lee
Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited second quarter 2022 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; and Ken 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 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 these in the forward-looking statements. Please refer to our Form 6-K furnished today, September 7, 2022, and our annual report on Form 20-F filed on April 28, 2022. We undertake no obligation to update any forward-looking statements, except as required under the 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 an English translation. Mr. Wu, please go ahead with your remarks.
Wu Tianhua
[Foreign Language] Hello, everyone. Thank you for joining the Tiger Brokers second quarter 2022 earnings conference call.
[Foreign Language] The market backdrop remained challenging in the second quarter, particularly in the U.S. capital markets. The weak U.S. market performance somewhat slowdown the trading activities and asset growth, given that our clients had more exposure in the U.S. market compared to Hong Kong.
With growth in the Tubi [ph] business and prudent capital deployment, the total revenue of the second quarter increased by 2% from the first quarter to US$53.5 million. Non-GAAP net income also turned profitable to $3 million – sorry, US$3.5 million demonstrates the resilience of our business model during market turbulence.
[Foreign Language] We added 27,900 funded accounts this quarter with over 70% coming from outside of China. Our total number of funded accounts also exceeded 730,000 by the end of the second quarter, an increase of 38.2% from the same quarter last year. And we are confident to deliver our annual guidance of acquiring at least [indiscernible] new funded account this year.
In the second quarter, mark-to-market loss too had an adverse impact on the total current asset, which slightly decreased by 2.3% to US$14.9 billion compared to the end of the first quarter. But the trend of healthy asset inflow continued. Net asset inflows exceeded US$1.5 billion this quarter. Funded account retention rate exceeded 99% this quarter, demonstrating user’s confidence and trust in our platform.
[Foreign Language] We pay very close attention to current quality and payback period. In the second quarter, average CAC for credit account was about US$300, a 10% decrease from the first quarter where we’ll keep acquiring high quality clients.
Taking Singapore as example. That’s been Singapore for two years. And now Singapore already becomes our company’s largest market in terms of both incremental and accepting clients. More than 60% [ph] are from new funding accounts in the second quarter coming from Singapore, a testament to our industry-leading user acquisition in the region. The average net asset inflow of our newly acquired clients in Singapore exceeded US$9,000 in the second quarter, further decreased from around US$8,000 in the second quarter – sorry, in the first quarter, solidifying our leading position in both market share and client quality in Singapore.
[Foreign Language] We continued to invest in research and development to improve operational efficiency and to enhance user experience. With clearly, with execution and clearing cost as a percentage of the trading commission further deceased compared with the first quarter. To better help our users to navigate the market turmoil, we have launched the 8.0 version of our app with both lite and pro models, which provides a more simplified interface and diversified products offering.
[Foreign Language] Our Tubi business continues to grow. In the second quarter, we added 23 new companies to a total of 364 ESOP clients, a year-to-year growth rate of 68%. We provide a comprehensive ESOP services from plan design to digital management and have become the go-to choice for many startup and public companies listed in PRC, Hong and U.S.
In terms of investment banking business, we underwrote 11 U.S. and Hong IPOs in the second quarter, in which we were the lead bank in 3 [ph] U.S. IPO. According to [indiscernible] consulting. We read number 3 in number of deals underwrote for the first half of this year, and number 1 globally for the second quarter.
[Foreign Language] Now I would like to invite our CFO, John, to go over our financials.
John Zeng
Thanks, Tianhua and Aaron. Let me go through our financial performance for the second quarter. All numbers are in U.S. dollar.
Total revenues were $53.5 million this quarter, a decrease of 11% year-over-year, as market backdrop, particularly in the U.S. market was still choppy, which is slow down trading and margin activities. On a sequential basis, we managed to offset the slowdown in commission with more corporate service revenues such as underwriting and IR/PR services. So total revenue grew 2% on a quarter-over-quarter basis.
Cash equity take rate was $6.5 bps this quarter, slightly better than 6.3 bps of last quarter and 6 bps in the same quarter last year. Our pricing strategy has been consistent. The difference in take rate are primarily due to changing share price, as for U.S. equities, we charged by number of shares in our trading volumes.
Now on the cost. Interest expense was $3.5 million, a decrease of 27% from the same quarter of last year, primary due to more interest expense savings from self-clearing. Execution and clearing expense were $3.9 million, decreased to 41% from same period last year. Since we started self clearing, clearing expense as a percentage of commissioning have come down from over 20% a year ago to under 5% this quarter for both U.S. cash equities and options. We expect further reduction in clearing expense when we start self-clearing Hong Kong equities. As of right now, we are paying about 50% of our Hong Kong Commission as clearing expense.
Employee compensation increased 25% year-over-year to $25.6 million this quarter, as we added headcount during last year to support our global expansion, in line with the head count increase, occupancy expense increased 69% to $2.5 million, but general and administrative expense decreased 15% year-over-year to $4.3 million due to one off professional service fee occurred last year.
Marketing expense were $8.4 million this quarter, decreased 65% year-over-year. We focus on quality of new users. We don’t see current market condition is suitable for major marketing campaigns, as we keep a close eye on CAC and payback. We will dynamically adjust our marketing strategy based on marketing environment.
Communication and market data expense were $7.2 million, an increase of 40% from a year ago due to rapid user growth and expanded market data coverage. Total operating costs were $50.1 million [ph] decreased to 17% from the same quarter of last year. As a result, we narrowed our GAAP loss to $0.9 million from a loss of $21.5 million in the same quarter last year. Non-GAAP net income turned positive to $3.5 million versus a non-GAAP net loss of $4.4 million last year.
Now I conclude our presentation. Operator, please open the line for Q&A. Thanks.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Han Pu from CICC. Please ask your question.
Han Pu
[Foreign Language] Thanks, management for taking my question. This is Han Pu from CICC. I have two questions related to the Singapore market. First, how do we maintain and penetrate Singapore market with the increasing competitive environment. Secondly, what is the customer acquisition cost at Singapore this quarter? And how do we see the trend to continue? Thanks.
Wu Tianhua
[Foreign Language] Okay. I’ll translate. Well, yes, the landscape is getting more competitive in Singapore because you know, these are two traditional broker, there are also some online brokers, more online brokers coming to Singapore. We are – we do embrace the healthy competition as long as it could bring you know better products and service to the local clients.
Well for broker, customer acquisition cost control and acquiring clients with high quality are the imperative tasks to cope with during the competition. And our purpose is to be the largest and the most trustworthy broker in Singapore. Our strategy is shooting for you know the long term development. So we will not sacrifice the quality of clients or incur high CAC [ph] just for short term growth.
We believe the research and development is the core competitiveness of Tiger. So we do attach great importance to product – our product quality. We continue to optimize our products and do more functions to meet the investment needs of you know different types of investors that will improve client engagement, the user business [ph] sickness as well as ARPU.
As we can see from our financials in the second quarter, we keep stating ahead in the Singapore market under the Wake [ph] market backdrop and intensive competitive landscape. More than 60% of our total newly acquired clients in the second quarter coming from Singapore and the average net asset inflows of our new funded clients in Singapore exceeded US$9000, while average CAC [ph] decreased sequentially. So it’s solidified the – you know our leading position in both market share and client quality.
Wu Tianhua
[Foreign Language] Okay. So in the second quarter, the average CAC in Singapore was around US$250 and if we left the operating expense, the average CAC will just go down to US$156. Meanwhile, we launched our services in Australia in the first quarter, right. So when we enter a new market similar to what we’ve done in Singapore, we will spend more branding to, you know, branding costs to promote our company. Therefore, average CAC in Australia and New Zealand is still relatively high, which brings the total average CAC to about us$300 in the second quarter, decreased about 10% on a quarter-over-quarter basis.
Well, the market sentiment was weak during the first half year and investors prefer to stay on the sidelines. Under this kind of circumstance, we’re very prudent with the marketing spending we keep a very close eye on safety and payback period you know to make sure we can have a very healthy business model and we’ll just be very dynamic to our marketing strategy.
Han Pu
Thanks, management. That’s very helpful.
Operator
Thank you for your question. Our next question comes from the line of Cindy Wang from China Renaissance. Cindy, please ask your question. Cindy’s line has disconnected. [Operator Instructions] Our next question comes from the line of Judy Zhang from Citi. Judy, please ask your question.
Judy Zhang
[Foreign Language]
Wu Tianhua
[Foreign Language]
Judy Zhang
[Foreign Language] Thanks, management for giving me this opportunity to ask questions. This is Judy Zhang from Citi. Two questions. The first question is we saw Tiger has acquired Hong Kong brokerage license for almost a year. What is the latest status and the development plan for like to develop business in Hong Kong?
And second question is in light of Fed accelerating rate hike cycle? What is the impact to the – to the company’s business? And what is the potential response from the company? Thank you.
Wu Tianhua
[Foreign Language] Okay. So in regards to our progress in Hong Kong. So we have some delays earlier this year due to COVID. Now I think everything is progressing on the track. So far, we are upgrading the trading infrastructures, for example, getting more direct lines expand our server, doing testing with the exchange and back test all the book and record using our own system.
So far, I think everything is on the right track, and hopefully, we can have a soft launch in the near future. And also, recently, we have obtained the Type 4 and 5 license from SFC which allows us to create more content for users and our online communities. So we will apply for more license you know, down the road so we can provide more value added service to our Hong Kong users.
[Foreign Language] Okay. Your second question about the rate hike. You see the broker-dealer industry has very strong [indiscernible] effect. We think Fed tightening will have major impact on our business and the whole industry. So on the bright side, we can, of course, generate more interest income from the increased risk cycle, especially with our increased client base and the Fed [ph] efficiency.
But on the other side, to a certain extent, the liquidity tightening will have negative impacts on the capital market activity and transaction volume, as well as you know, the IPO efforts. So, to neutralize the downside of strategically speaking, we will keep concentrating on investor education and product optimization, and consequently to have our clients to better navigate market turmoil and enhance client engagement. So in addition, we will keep upgrading the infrastructure in Hong Kong so that we can provide better services to our clients when the market recovers. Thank you.
Operator
All right. Thank you. Our next question comes from the line of Cindy Wang from China Renaissance. Please ask your questions, Cindy.
Cindy Wang
[Foreign Language] Thanks for – management to give me the opportunity to ask questions. So I have two questions here. First question is, could you provide a business update for Australia and New Zealand market in second quarter of 2022? And what’s the marketing strategy you will adopt? And any new products will be launched in these two markets in second half of this year?
Second question is regarding to the new paying clients. Could you provide a breakdown by geographies? And how do you expect the distribution of the new paying clients in the second half of this year? Thank you.
Wu Tianhua
[Foreign Language] Okay. So I’ll translate. in general, in the second quarter, more than 2% of our new funded account coming from Australia and New Zealand. Thus due to may our effort such as sponsoring the local sports team, just to localize our products and services by adding more features that will give the local investors more control over the investment. So in the meantime, to you know, keeping the user experience simple and efficient.
In addition, the renting of the you know, Tiger Trade app rose to number 31 by the end of the second quarter, which is how you amount online brokerage in Australia. As a result, our newly registered users increased more than 80% and the trading wallet also doubled on a sequential basis in Australia. We keep fine tuning our local marketing strategy and localized – and sorry, localization and we’re confident that there will be more local users you know coming on board of Tiger platform.
[Foreign Language] Okay. So second question about our new client acquired, acquired, okay. So basically, our internationalization is progressing very well. In the second quarter, over 70% of newly funded users were acquired from overseas markets in which about 20% of funded accounts came from Mainland China, more than 60% came from Singapore and for the rest 10% to 20% were from Australia and New Zealand. We do expect the proportion of new clients acquired in Australia and Singapore will increase in the second half year of 2022 alongside with our local development and expansion. Thank you, Cindy.
Cindy Wang
Thank you. Very clear.
Operator
Thank you. There are no further questions at this time. I’ll now turn the conference back to Mr. Aaron Lee for closing remarks.
Aaron Lee
Okay. Thank you, operator. 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.
Wu Tianhua
Thank you.
Operator
Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.
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