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spk03: Ladies and gentlemen, thank you for standing by and welcome to Upson Tech 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 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, Mr. Aaron Lee, the head of IR. Thank you. Please go ahead.
spk00: Thank you, operator. Hello, everyone, and thank you for joining us on the call today. OpsFintech Holding Limited's second quarter 2023 earnings release was distributed earlier today and is available on our IR website at ir.itigerup.com, as well as Globe News Service Services. On the call today from OpsFintech, Mr. Wu Tianhua. Chairman and Chief Executive Officer, Mr. Zhuang Zeng, Chief Financial Officer, Mr. Huang Lei, CEO of U.S. Tiger Securities, and Mr. Kenny Zhao, our Financial Controller. Mr. Wu will give an overview of our business corporations 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 the 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 Litigation Reform Act of 1995, a number of factors could cause actual results to differ materially from those containing 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, 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. Wu. Mr. Wu will make remarks in Chinese, which will be followed by an English translation. Mr. Wu, please go ahead with your remarks.
spk01: Hello. Hello, everyone. Thank you for joining Tiger Broker Second Quarter 2023 Earnings Conference Call. In terms of profits, Germany's internationalized business expansion and its efforts to reduce the cost-effectiveness, the second quarter continues to maintain a strong cash flow. The net profit of the parent company is 13.19 million US dollars. Compared to the same period last year, the loss is zero. Compared to the previous quarter, the increase was 66%. The net profit of the parent company is 15.33 million US dollars. Compared to the previous quarter, the increase was 48%.
spk00: In the second quarter, we remain committed to the strategy of optimizing our revenue mix and expense management. Total revenue increased by 23.5% year-over-year, reaching 66 million U.S. dollars. Our net profit attributed to the upstream tax was $13.2 million, 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 attributed with UpFintech was $15.3 million, about 4.5 times the 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 entire year of 2022.
spk01: There are 29,077 new entry users in the second quarter. In the first half of this year, there were about 60,000 new entry users. We are confident that there will be more than 100,000 new entry users in 2023. The total number of new entry users in the second quarter is more than 840,000. Compared to the same period last year, the growth was 15%. In terms of the total market share, the trend of the market share going in and out remains the same. The second quarter achieved a net entry of more than $1.6 billion. After the impact of the neutralization of Mark-to-Market-and-Loss, this quarter's total revenue rose by 7.1% in the first quarter of this year, reaching $1.73 billion. In addition, the total revenue of the second quarter was $162, and the $1.7 billion in the first quarter fell by 5%. This shows that we have achieved certain results in expanding our international strategy. In the second quarter, we added 29,077 new friendly accounts.
spk00: bringing the total number of new funded accounts in the first half of this year to approximately 60,000. 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 1.6 billion U.S. dollars in the second quarter. After neutralizing the impact from market-to-market loss, total client assets in this quarter increased by 7.1% compared to the first quarter, reaching 17.3 billion U.S. dollars. Additionally, our average CEC 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. Moving forward, we will dynamically adjust our customer acquisition strategy based on market conditions, prioritizing user quality while steadily increasing client base and profitability.
spk01: We continue to expand our investment in the R&D department to enhance the efficiency and user experience. We are happy to inform everyone that after half a year of internal testing, our TypeGPT function has been officially launched in July this year. Currently, it can be used for free by registered users in other areas outside of mainland China. We will continue to improve and improve the use of this function in the future. In the Hong Kong Business Strategy, we started our business in Hong Kong in December of last year. In the first half of this year, we have completed the second quarter of the Hong Kong stock market. This means that the overall cost of the second quarter is still below 10% in terms of revenue. In addition, we have introduced the Hong Kong stock booking function in the second quarter, which is better suited for investors who are familiar with long-term investment and fixed capital. This is one of the advantages of the domestic stock market, which has become one of the few countries with the same share of US stocks and Hong Kong stock booking functions. We have continued to increase our investment in research and development to enhance operational efficiency and user experience
spk00: We are delighted to announce that our Tiger GPT feature, after six 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. In our Hong Kong business, following our entry in the retail market in December last year, We have successfully achieved self-clearing for the majority of Hong Kong equities in the first half of this year, have to bring down the total clearing expense as proportion of commission to below 10% in the second quarter. Additionally, we introduced recurring investment feature for Hong Kong shares in the second quarter, 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. In wealth management business, following the introduction of a USD denominated money market fund in the fourth quarter, we introduced a Hong Kong dollar denominated money market fund in the second quarter, providing users with more options to match adult cash during risk-hiking cycles.
spk01: R2B business continues to perform well.
spk00: In investment banking, we underwrote seven US and Hong Kong IPOs in the second quarter. Notably, we served as the exclusive lead underwriter for Aspire Technology US IPO. In our ESOP business, we added 13 new clients in the second quarter, bringing the total number of ESOP clients served to 478 by the end of the second quarter of 2023, increased by 31% year-over-year. Now I'd like to invite our CFO, John, to go over our financials.
spk02: OK. Thanks, Tianhua and Aaron. Let me go through our financial performance for the second quarter. All numbers are in US dollar. Total revenues were $66.1 million this quarter. Flat quarter-over-quarter and increased 23.5% year-over-year, primarily due to a 146% jump in interest-related income versus the same quarter from last year. Cash equities take rate was 6.3 bps this quarter, remain 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. Interest expense was $10.4 million, increased by 195% from the same quarter of last year, as interest expense and securities lending expense both increased in light with the rate hike. Execution and clearing expense were $2 million, decreased 47% from the same quarter of last year, primarily due to more efficiency in self-clearing for US and Hong Kong securities. Employee compensation and benefits Expense were $23.9 million, a decrease of 7% year-over-year due to a one-time expense we incurred last year when restructuring our ESOP business. Actual headcount increased year-over-year as we keep adding people to support our global expansion. Occupancy depreciation and amortization expense slightly increased 2% to $2.5 million due to an increase in overseas office space and relevant fiscal improvements. Communication and market data expense were $7.8 million, an increase of 8% year-over-year due to the increase in user base. Marketing expense were $4.7 million 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 second quarter was suitable for major marketing campaigns. We will dynamically adjust our marketing strategy based on the market sentiment in different regions. General and administrative expense were 4.5 million, a slight increase of 5% year-over-year. Total operating costs were 45.5 million, decreased 12% from the same quarter of last year. As a result, both gap and non-gap bottom line increased year-over-year. Gap-led income turned positive to $13.2 million versus a gap-led loss of $0.9 million in the same quarter of last year. Non-gap-led income was $15.3 million, 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&A. Thanks.
spk03: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Once again, that's star 1 1 for questions. Our first question comes from the line of Han Pu from CICC. Please ask your question.
spk07: Thanks for taking my question. This is Han from CICB. Our Congress on the strong quarter without I have two quick questions, firstly, could you please provide the original breakdown of the new founded accounts in the second quarter second any could you please give us more recent updates on the mainland regulation requirements thanks.
spk01: In the second quarter, around 45% of newly funded accounts came from Singapore, nearly 25% from Australia and New Zealand,
spk00: about 20% from the U.S. and about 10% from Hong Kong.
spk01: The second question is about the progress of China's supervision. After the announcement of the China Procuratorate on December 30 last year, we also followed China Procuratorate's requirements and quickly responded and changed our attitude. Later, the Beijing Procuratorate conducted a one-week on-site inspection of the old securities before this year's Spring Festival. We also provided guidance and related reports to various departments. Over the course of time, we have maintained a good and direct communication with the regulators, and have obtained clear control over some of the special scenarios in the mainland. For example, we have allowed investors to open their accounts in and out of the country, and we have allowed the transfer of savings of other stockholders, or the opening of new credit accounts, etc. After CSRC announcement on December 30th last year, Tiger Brokers made prompt response and comprehensive efforts to comply with the regulatory requirements set forth by the CSRC.
spk00: Subsequently, the Beijing Securities Regulatory Bureau conducted an on-site inspection for a week before the Chinese New Year. 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 holders 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 regulator authorities conducted an on-site acceptance inspection based on our remediation report. Thank you.
spk07: That's very helpful. Thank you.
spk03: Thank you, Han. Our next question comes from the line of Judy Zhang from CT. Please ask your question, Judy.
spk05: Thank you for giving me this opportunity. I'm from Huaqi Bank. I have two questions. The first one is about the situation of our mainland users after the app was downloaded in May. How did this affect the mood of mainland customers and the activity of the government? The second question is about a strategy of our Hong Kong market. What are the measures and updates that the future Hong Kong market can develop? 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 export, have you seen asset outflow or losing onshore investors? How do you think the long-term impact on existing onshore investors' trading activities and sentiment? 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 is this going to impact the company's cost for this year and going forward? Thank you.
spk01: Let me answer the first question, and then John will answer the second one. We have noticed that the market does not have a large number of domestic users. Will there be a loss of stock? We have noticed that the market is worried about this. But looking at the figures for the first half of this year, we are full of confidence in the stock of domestic users. In terms of the storage rate, Laowu International's second quarter's overall storage rate of real estate users and China's mainland users' storage rate of real estate users in the first half of this year is at more than 99%. In terms of the entry rate of users, China's mainland users' entry rate in the first quarter and the second quarter of this year has been reduced. 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
spk00: 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 mainland China. In terms of user retention, the overall retention rate for users with assets as well as the retention rate for mainland China users in the first half of this year has remained above 99%. Regarding clients' cash flow, Mainland Chinese users have shown a trend of net asset inflow in both of the first quarter and the second quarter of this year. Besides, there has been no significant change in the trading activity of mainland users, indicating that our existing clients have Russian understanding regarding recent events since December 30th of last year, and their trading velocity and trust in Tiger Broker has not changed.
spk02: Okay. Hello, Judy. Let me answer this question about Hong Kong. First of all, let's break down the progress and future plans of Hong Kong. First of all, in terms of customers, there are more than 3,000 people in Hong Kong in the second quarter, which is more than 10% of the number of people in the second quarter. In the first quarter, there are only about five people in Hong Kong in the current quarter. So in the current market environment, we can still accept the number of Hong Kong users. Of course, in the future, our main goal is to attract customers. Currently, the brand of Tiger in Hong Kong is not strong enough. So we will be releasing more brand ads in Hong Kong in the near future. For example, ads in Chinese subway stations and other places, as you can see in Hong Kong. Last weekend, we also participated in the Hong Kong Computer Expo. We will continue to increase our investment in the brand to expand our popularity and credibility in Hong Kong to attract more natural traffic. At the same time, in terms of trading services, we think our products are still very attractive. First of all, our price is very competitive. Hong Kong stocks are free of charge and also free of platform fees. In terms of U.S. stocks, we are also free of charge for U.S. stocks and U.S. stocks. We believe that reducing trading costs can attract more users. Of course, we are not only competitive in terms of price. In the second quarter, we also listed the stock of Hong Kong stocks, which has become a few in the market. We can provide stock of U.S. stocks as well as stock of Hong Kong stocks. Our wealth management products, such as Tiger前鷹, in addition to the US dollar, also listed the stock of Hong Kong dollars. From the point of view of the entire trading service, we have been able to cover the main line of active trading, passive trading, and wealth management. The service system is also relatively formed. In the future, we will continue to add more products to each main line. For example, we will launch more gold-selected funds to our wealth platform. The last aspect is that in Hong Kong, we have completely self-calculated, so it can help the group to reduce the overall calculation fee to 10 billion. So from a user acquisition perspective, Hong Kong accounts for more than 10% of the newly acquired users in the second quarter, up from no single digit in the first quarter. 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, first of all, we offer one of the most competitive pricing. We don't charge commission and platform fee for Hong Kong trading, and we don't charge commission for U.S. equities on the auctions either. We are also one of the few brokers that offer recurring investment for both U.S. and Hong Kong trading, and have USD and Hong Kong money market funds to help our users manage their liquidity. And in terms of infrastructure, we allow fully self-clearing for Hong Kong equities. which brings down group's total clearing expense to below 10%. Our proprietary system also allows us to offer depreciated services such as fractional share and offer portfolio buying power for US and Hong Kong trading. Thanks.
spk03: Thank you, Judy. Our next question comes from the line of Cindy Wang from China Renaissance. Please go ahead, Cindy.
spk04: Thank you, Manager, for giving me this opportunity to ask questions. Congratulations on your outstanding performance this quarter. I have two questions I would like to ask. The first is about the cost of goods. We can see that the cost of goods in the second quarter has actually reached US$162. This entire trend is actually continuing to decline and reaching a relatively low level. Can you share with us the main reason why the overall cost of goods has decreased? and a future plan for customers. The second question is that we see that the company's non-GAAP progress has been proven in the last five seasons. Especially in this period of increase, the company's non-GAAP profit margin is gradually expanding. We can understand that Tiger is now at a point of break-even. I will quickly translate my question. Thanks, Benjamin, for taking my question. This is Cindy from China Renaissance. So I have two questions. First question is related to customer acquisition costs. So customer acquisition costs in second quarter was $162, which is at a relatively low level. How do you lower customer acquisition costs, and what's the strategy for customer acquisition strategy to going forward? The second question is the Tigers non-GAAP net profit has turned positive for the five consecutive holders. 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.
spk01: Let me answer the question about the cost of human resources. In the second quarter, the cost of CAC was $162. Compared to the first quarter, it was $171. The cost of CAC continued to drop and reached a low level in history. We are very concerned about the quality of the users and the return period. We will not sacrifice the quality of the users in pursuit of increasing the number of users and the reasonable rate of return on investment. As we can see, the performance of China and Hong Kong stocks in the second quarter is relatively normal. This also brought some market loss to our commercial assets. However, the stronger interest rate is still rising by 7.1% compared to the overall commercial assets. This also shows that while the CAC has dropped, we have still ensured good commercial quality. OK, your first question about the CEC.
spk00: In the second quarter, the average CEC was 162, which was further decreased compared to 171 in the first quarter, reaching a historically low level. In the second quarter, we paid very close attention to client quality and payback period and will not jeopardize our client's quality and reasonable ROI ratio merely for the number of funded accounts. With the underperformance of Chinese ADRs and Hong Kong technology names in the second quarter, our clients experienced some market-to-market losses, However, strong net asset inflows still led to a 7.1% increase in total client assets 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 CEC from newly acquired clients through advertising channels in the second quarter, their average CEC is more than twice the overall average CEC. This demonstrates that we have gradually gained more organic traffic from overseas regions and could save us some customer acquisition costs. Thank you.
spk01: The second question is about the situation of the company's non-GAAP credit. We are also very happy to see that the company's non-GAAP credit for the second quarter has reached more than $15 million. This is also our new high in recent years. In the early days of the holiday period, due to a decrease in market activity, the company indeed had small losses. Through the optimization of the revenue, as well as the detailed operation of the cost-benefit unit, we have gradually stabilized our liquidity trend. And in the recent few seasons, we have gradually expanded our liquidity rate, which shows that the company's liquidity model is stable and healthy. At the same time, due to the old-age securities, our cost-benefit ratio is relatively stable. In a situation where the market sentiment is not clearly disturbed, we can still achieve good performance. We believe that Thank you.
spk00: I'm glad to see our non-GAAP net profit reached 50 million US dollars in the second quarter, which is the highest quarterly net non-GAAP profit in the past two years. Looking back at the early stage of the interest rate hike cycle, during reduced market activity, we experienced some quarterly losses. However, through optimizing interest income and prudent capital deployment, we gradually improved our profitability. Over the past two 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, or 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 you.
spk03: All right. Thank you, Cindy. Our next question comes from the line of Ling Tan from Daiwa Capital Markets. Please ask your question, Ling.
spk06: Thank you, Manager Chen, for giving me this opportunity to ask a question. Congratulations to Manager Chen for achieving excellent performance in this quarter. I have a small question for Manager Chen. The company's profit chart in this quarter has a relatively large income. I would like to ask Manager Chen, which income is included in this non-regular income? And is this income sustainable in the next few quarters? Thank you, management, for taking my question. This is Ling from Daiwa. I noticed that there's USD 7.8 billion. Are there non-operating income under the P&L? Can management provide more color in terms of the breakdown of their non-operating income? And is it sustainable in the next few quarters? Thank you.
spk02: Okay, let me answer your question. So, in this other income of 7.7 million, there are actually two parts. The first part is that almost half of it comes from the exchange rate from the US dollar. This part is handled by an accounting customer. And then there is almost the other half, which actually comes from the cash management of the group. If you look at our balance sheet, you can see our financial instrument Dollars are rising. This is because we have invested in some short-term U.S. bonds. This part is actually part of our treasury managing process. So we expect this part of the interest income to continue in the future. Let me briefly translate it. So about half of the other income comes from FX gain due to U.S. dollar appreciation against other currencies this quarter. So this far 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. So we are doing treasury management. We are investing some of those monies into US shortened bonds. So we think this kind of interest income will be sustainable for the next few quarters. Thanks.
spk03: All right, thank you. I'm showing no further questions. Thank you very much for all your questions. I'll now turn the conference back to Mr. Aaron Lee for closing comments.
spk00: Thank you, Dr. Peter. 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. This concludes the call, and thank you very much for your time.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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