This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: ladies and gentlemen thank you for standing by and welcome to the up fintech holding limited third quarter 2022 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 the 23rd 2022. I would now like to hand the conference over to your first speaker today, Mr. Aaron Lee, the head of IR. Thank you. Please go ahead.
spk00: Thank you, operator. Hello, everyone, and thank you for joining us for the call today. App Fintech Holding Limited's third quarter 2022 earnings release was distributed earlier today, and it's available on our IR website at ir.itiger.com, as well as global newsware services. On the call today from UpFintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer, Mr. Zhang Zeng, Chief Financial Officer, and 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. Both will be available to answer 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 Security Execution Reform Act of 1995. 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-K, furnished today, November 23, 2022. and our annual report on Form 21, filed on April 28, 2022. 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 an English translation. Mr. Wu, please go ahead with your remarks. Hello, everyone.
spk05: Hello, everyone. Thank you for joining us for Tiger Brokers' 3rd Quarter 2022 Earnings Conference Call. The overall revenue of the third quarter is 3.6% higher than that of the second quarter, reaching $5541 million. In terms of profit, the optimization of the company's revenue structure and the detailed operation in terms of cost-benefit expenses, the non-Gam profit of the third quarter belongs to the mother company, which is 26.2% higher than that of the second quarter, and 91.3% higher than that of the third quarter, reaching $663 million. At the same time, the non-Gam profit of the third quarter, which belongs to the mother company, has also achieved a loss-to-profit profit in the first half of this year.
spk00: The macro environment showed no significant improvement over the first quarter, but tightening and rate increase has slowed down market activity and transaction volume, which drags down our trading commission and IPOs underwriting incomes. Yet income from margin financing and security funding benefited due to the higher interest rate. The total revenue of the third quarter slightly increased by 3.6% from the previous quarter to reach $55.4 million. Non-GAAP net income was $6.6 million, increased 91.3% quarter-over-quarter and 26.2% year-over-year. GAAP net income also turned profitable at $3.3 million compared to a net loss in the first half of this year. demonstrating the resilience of our business model and product capital deployment.
spk05: This quarter, the total number of new users is 22,700. The total number of new users is more than 750,000 at the end of the third quarter. Compared to the same period last year, it has increased by 23.2%. In the third quarter of this year, the total number of new users was more than 80,000. We are full of confidence in the new 100,000 new users this year. In terms of corporate capital, the market is weak. We added 22,720 accounts this quarter.
spk00: Total number of funded accounts also exceeded 750,000 by the end of this third quarter, an increase of 23.2% from the same quarter last year. We have acquired over 80,000 new funded accounts in the first three quarters, so we are confident to deliver our annual guidance of acquiring 100,000 new funded accounts this year. In the third quarter, mark-to-market loss still had an adverse impact on the total client assets. which decreased by 12.8% to 13 billion U.S. dollars compared to the end of the second quarter. But the trend of healthy asset flow continues. Net asset inflows exceeded 700 billion U.S. dollars this quarter. Funded account retention rate exceeded 98% this quarter, demonstrating users' confidence and trust in our platform.
spk05: We are very concerned about the quality of the users and return to this period, because it is a turbulent period in the market. will not sacrifice the quality of the users and the reasonable rate of investment in pursuit of the number of users. The total cost of goods in the third quarter is 326 US dollars. Compared to the second quarter, there is a small rise, but the efficiency of goods is still at the leading level in the industry. At the same time, we are also very happy to see the improvement of the quality of new users in the third quarter. In the international, global market increase and the largest volume of users in Singapore, We pay very close attention to client quality.
spk00: We will not jeopardize ROI merely for the growth of funding attack. In the third quarter, the overall average CEC was $326, a slight increase from last quarter due to several branding campaigns, but remained one of the most efficient within our industry. We are very glad to see the quality of our newly acquired customers further improve in the third quarter. In Singapore, as an example, our company's largest market in terms of both incremental and existing clients The average net asset inflows of our newly-acquired clients in Singapore exceeded US$11,000 in the third quarter, further increased from over US$9,000 in the second quarter, which presents our healthy business model in balancing customer acquisition efficiency and client quality.
spk05: We are actively investing in the development of the project to enhance the efficiency and user experience. In terms of self-calculation, in the third quarter of this year, The overall settlement cost has been improved by the proportion of total income income, and the interest rate has been reduced to 13%. Among them, the settlement cost of U.S. stocks has fallen to a low level of about 3%. Now, I am an Internet blockchain merchant with a complete control of U.S. stocks and a clean-up system. In the third quarter, our self-proclaimed U.S. stock breakdown function has been successfully launched. By lowering the trade threshold, we can better improve for the participation of high-price stocks. In terms of management and business strategy, we continuously optimize the function of cash management services. For three months, we have launched the product of the Tiger wallet in the Singapore market, which provides the function of automatic buying and redeeming for users. The funds in the Tiger wallet can be directly used for investment in Tiger M-class stocks, funds, securities, and IPOs. We have achieved the link between cash management products and other investment varieties.
spk00: We continue to invest in research and development to improve operational efficiency and to enhance user experience. With self-clearing, the execution and clearing cost as a percentage of the trading commission down to 13% further decreased compared with the previous quarter. Specifically, the execution and clearing cost as a percentage of the trading commission for U.S. cash equity has come down to only 3%. As a leading online broker with comprehensive risk control and self-clearing capability, we have added fractional shares trading for U.S. equities this quarter, aiming to provide retail investors with easier access to high-quality names. In wealth management business, we keep optimizing cash management products to better serve our users. In Singapore, we launched Tiger Vault, our wealth management platform in the third quarter, to help users diversify their portfolio and combine cash management and other investment products.
spk05: 老五国际的2B业务保持迅猛发展势头。 同行业务侧,三季度参与成箱的11个港美股IPO项目, 在其中两个美股项目中作为主要牵头行。 预售部业务方面,今年三季度新增29家预售部客户, 累计服务客户已达393家,同比增长50%。 R2B business continues to perform well. In the investment banking business, we underwrote 11 U.S. and Hong Kong ICOs in the third quarter, in which we were the lead bank in two U.S. ICOs.
spk00: In terms of ESOL, in the third quarter, we added 29 new companies to a total of 393 ESOL clients, a year-to-year growth rate of 50%. To better grow the ESOL business, we hired Hiro, a reputable valuation specialist, for fairness opinion on valuation, and closed an annual run financing with few strategic investors.
spk05: In terms of Hong Kong business, we have improved the capability of our Hong Kong IPOs underwriting, self-clearing efficiency, and completed the Hong Kong infrastructure update. We are now very excited to announce that
spk00: We are ready to onboard Hong Kong Retail Marketing in December of this year. Now I would like to invite our CFO, John, to go over our financials.
spk06: Thanks, Tianhua and Aaron. So let me go through our financial performance for the third quarter. All numbers are in U.S. dollars. Total revenue were 55.4 million this quarter, a decrease of 9% year-over-year due to a slowdown in market activities, which dragged down commission and IPO underwriting. On a quarter-over-quarter basis, total revenue increased 4%, primarily due to a 69% jump in interest-related income versus last quarter. Cash equities take rate was about 6.7 pips this quarter. slightly better than 6.5% of last quarter. Within commission revenue, about 60% come from cash equities, 30% from options, and the rest from futures and other products. On cost side, interest expense was $4.3 million, a slight increase from the same quarter of last year, as we still have some margin borrowed from interactive broker. So the borrowing cost increased in line with the rate hike. Execution and clearing expense were 3.2 million, decreased 66% from the same quarter of last year. We expect further reduction in clearing expense when we start self-clear Hong Kong equities. Employee compensation increased 11% year-over-year to 24.2 million this quarter, as we added HECON during last year to support our global expansion. In other words, the HECON increase Occupancy expense increased 50% to $2.5 million. General and administrative expense decreased 30% year-over-year to $3.5 million due to someone off professional service fee occurred last year. Marketing expense worth $7.4 million this quarter decreased 34% year-over-year. Our marketing strategy has been the same for the past few quarters. We don't just chase for the number of new users. Instead, we focus on quality of new users and keep a close eye on CAC and the payback. We will dynamically adjust our marketing strategy based on market environment. Communication and market data expense were US $6.5 million, an increase of 23% from a year ago due to rapid user growth and expanded market data coverage. Total operating costs were $47.3 million, decreased 13% from the same quarter of last year. As a result, gap-led income turned positive to $3.3 million versus a gap-led loss of $0.9 million last quarter. Non-gap-led income further increased to $6.6 million from $3.5 million of last quarter. So I have concluded our presentation. Operator, please open the line for Q&A. Thanks.
spk02: Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from the line of Yufan from CICC. Please go ahead. Your line is open.
spk04: I have two questions for you, Mr. Guan. First of all, I would like to ask you how you see the impact of the current financial environment on our company's profits, including whether we should take some measures or make some corresponding adjustments to better adapt to the financial environment. Okay, I will translate my question. Thanks, management, for taking my questions. This is Yo-Yo Fan from CICC. I have two questions here. First one is that considering the interest rate cycle, how do you evaluate its impact on our income statement? And have you made any changes in business strategy to better adapt to the rate hikes? Secondly, we have seen that meaningful contribution of new paying clients in Australia and New Zealand in the past few quarters. And at the same time, we still have well-controlled cash. Would you please introduce more on the strategies and initiation in these two markets? And do we have any target to further penetrate these markets?
spk06: Okay. So, in terms of the first question regarding the impact from rate hikes, so as you can see from our third quarter results, overall net impact from rate hikes is positive. Growth in interest-related income won't offset the decrease in trading commission underwriting due to a tightened liquidity. So, in terms of business strategy, we will keep investing in our U.S. business, particularly in self-care infrastructure. so we can better utilize our asset base during this rate hike cycle. We expect to see more interest-related income from Hong Kong as well once we become self-clearing and don't need to share interest income with our clearing partners in Hong Kong. It's a little bit hard to quantify the impact for Hong Kong yet as this will be determined by the growth of our Hong Kong operations. Okay, Tianhua, so question number two on Australia and digital business.
spk05: Okay, so we have two complete seasons in the Australian industry. In the second and third seasons of this year, Auxin has contributed nearly 20% of our new entry-level users. As the performance of the previous brand is gradually showing, we see that the cost of human resources in the Auxin market this season has decreased compared to the second season. But in general, it is still in a relatively early stage. We are also constantly following the user's habits and looking for suitable market strategies. From the perspective of products, we are leading in the local circle. Based on the underlying construction of U.S. stock capital, we can more flexibly meet the needs of local users in the product function. Okay, I will translate.
spk00: We have entered the Australian market for two full quarters. So nearly 20% of our new funded accounts in the past two quarters were from Australia and New Zealand. And we saw a quarter over quarter decrease in CEC in Australia during the third quarter. That being said, our expansion there is still in early stage. We think the total addressable market is big, but to be honest, we haven't found the most effective marketing strategy yet. We will keep progressing with more user feedback and data analysis. So in terms of product offering, we have clear competitive advantages compared to local brokers. Our self-developed infrastructures allow us to be more flexible to meet local needs, such as 8.0 version app with both Pro and Lite version, and our fractional shares trading function. Thank you.
spk04: Thank you, Guan Licheng. Thanks for the answer.
spk02: Thank you. We will take our next question. Our next question comes from the line of Brandy Wang from Citi. Please go ahead. Your line is open.
spk03: Thank you for the opportunity to ask me a question. I am Brandy from Huaxi Bank. I have two questions for you. The first is about the cost of goods. We see that the cost of goods in the third quarter has increased. What is the main reason behind this? How should we look at the cost of goods in the fourth quarter and the whole year? My first question is about overall average customer acquisition costs as we see CAC increased in the quarter. and would like management to elaborate a bit on the reason behind, and also how do we expect CAG trend in future? The second question is the regional breakdown of the new funded accounts in the quarter, and how do management expect the breakdown of total funded accounts by end of 2022? Thank you.
spk05: Let me answer this question. In the third quarter of this year, our net sales cost is about US$326, which is a small increase compared to the second quarter. This is mainly because this quarter we have conducted a series of brand activities in Singapore and Australia. For example, we sponsored the Southeast Asian Football Cup at the end of the year. This is our first collaboration with the Southeast Asian International Football Championship, and has become the official online trading platform of the stock, equity, funds and goods of the competition. This makes it possible for us to get more radiation for the entire Southeast Asia market. After deducting the cost of these brands, the overall cost of human resources is about $175. Compared to the second quarter, the human resources of $200 have dropped by about 12.5%. In the next few quarters, Well, the average CEC was around US$326, a slight increase from last quarter.
spk00: The increase was primarily due to our sponsorship of the Aisin Football Club, which will take place in December. The agreement will be Tiger Broker's first-ever partnership with Southeast Asia's flagship international football competition, and we will see the forum become the tournament's official online trading platform for stock, options, funds, and futures, to help us better reach out to potential users in the region of Southeast Asia. If we deduct this branding expense, the average CEC was around US$175, decreased 12.5% compared to about US$200 in the second quarter. In the next few quarters, CEC might go up after we start to onboarding Hong Kong. It's very normal to incur more branding expense after entering a new market. But our long-term strategy of balancing user quality and capital deployment will remain the same.
spk05: The second question is about the breakdown of each region. This quarter, the entire company continues to promote the development of internationalized services. Of the new users, about 60% come from Singapore, nearly 20% come from Australia and New Zealand, and more than 20% come from the mainland. Okay, so regarding the question about the regional breakdown of our new funded accounts, our internationalization is progressing well.
spk00: In the third quarter, about 20% of funded accounts came from mainland China. More than 60 came from Singapore, and nearly 20% were from Australia and New Zealand. We expect the trend of regional breakdown will remain fairly consistent in the fourth quarter, and we will expect to see more users from Hong Kong region next year. Thank you.
spk02: Thank you. We will take our next question. Our next question comes from the line of Cindy Wang from China Renaissance. Please go ahead. Your line is open.
spk01: and ready to start in December to attract retail customers in Hong Kong. I would like to ask, because we have seen that Tiger Tengchun has seen a better growth in sales in the past two seasons, so how should the management team balance the cost of entering Hong Kong in the future season and maintain the overall profit ability of the company? My second question is about the new product line-up. Can the management team So congrats on completing the infrastructure update in Hong Kong and ready to onboard Hong Kong retail investors in December. So my question is, since your bottom line has shown a positive trend over the past two quarters, So how do you balance customer acquisition costs in Hong Kong and the company's profit margin in the next few quarters? The second question is related to your product upgrades. So could you provide more colors on fractional shares for U.S. stocks and Tiger Vault, your wealth management platform in Singapore? Thank you.
spk06: So in terms of Hong Kong, so Hong Kong, of course, is a very important market for us. So I think, you know, a lot of people already know that before you have the Hong Kong license, we couldn't onboard Hong Kong clients. which has slowed down our user growth. It also hurt our profitability because we had to choose a third party for execution and clearing of Hong Kong security. So once we start, you know, offering our retail service in Hong Kong, we look forward to improve on both ends starting next year. So our customer acquisition strategy in Hong Kong is the same with our strategy in other regions. So we focus on user quality, ROI, and payback. And we are confident we can under the trust of Hong Kong users with comprehensive product offerings, friendly user experience, and high-quality trade execution. We understand Hong Kong is very competitive. So in the near term, with more marketing spending or branding campaigns, we might see some fluctuation in CAC, but we will stick to our core marketing strategy and adjust accordingly with market condition and user feedback. Thanks. We can have question number two.
spk05: Okay. This quarter, we are facing the global market to launch the U.S. stock market trading function. Through the U.S. stock market trading function, we can reduce the investment threshold of popular U.S. stocks such as Amazon, Tesla, etc. from a large amount of $700 per share to further expand the potential customer base. As the first company to launch the U.S. stock market trading function based on self-calculation, we hope to serve global customers better.
spk00: In the third quarter, we rolled out U.S. fractional share trading function. This fractional share trading will make high-quality names such as Amazon and Tesla more affordable for retail investors. They can invest in these names with $5 instead of paying a few hundred for just one share. Using our in-house fractional share execution and clearing infrastructure, we can be innovative in product offering to better serve global retail users.
spk05: In order to better serve users in the holiday period, Singapore's cash management products have been upgraded to TypeVault. Customers can not only set up multiple types of cash and automatically purchase, but also hold assets that can be directly used in the product investment in the Tiger App to achieve the perfect combination of cash management and real-time transactions. In the future, under the backdrop of a high-end global economic growth expectation, In Singapore, we also upgraded our cash management products to Tiger Vault.
spk00: A more comprehensive platform combines currency management with different trading products. With flight tightening still on the horizon, We will roll out more wealth management products for users with different risk archetypes to have them diversify for pure equity investment. Thank you.
spk01: Thank you, very clear.
spk02: There seems to be no further questions at this time. I would like to hand back to Aaron Lee for closing remarks.
spk00: Thank you, operator. I would like to thank you everyone for joining our call today. I'm now closing this 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.
spk02: This concludes today's conference call. Thank you all for participating. You may now disconnect. Speakers, please stand by.
Disclaimer