UP Fintech Holding Limited (TIGR) Q4 2022 Earnings Call Transcript

UP Fintech Holding Limited (NASDAQ:TIGR) Q4 2022 Earnings Conference Call March 29, 2023 8:00 AM ET

Company Participants

Aaron Lee - Head, Investor Relations

Wu Tianhua - Chairman and Chief Executive Officer

John Zeng - Chief Financial Officer

Conference Call Participants

Cindy Wang - China Renaissance

Han Pu - CICC

Brandy Wang - Citi

Operator

Ladies and gentlemen, thank you for standing by and welcome to the UP Fintech Holding Limited Fourth 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, March 29, 2023.

I would now like to turn the conference over to your first speaker today, Mr. Aaron Lee, the Head of IR. 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’s fourth quarter and full-year 2022 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 U.S. 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. Then they both will 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 those in the forward-looking statements, please refer to our Form 6-K furnished today March 29, 2023 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 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’ fourth quarter and full-year 2022 earnings conference call.

[Foreign Language] 2022 was a year with challenge. Geopolitical [indiscernible] with high [passenger reserves] [ph] to counter high inflation, meltdown in crypto sector, all hampered investor confidence, and slowed down market activity. Under this macro backdrop, we remain committed to international growth with the emphasis in cost and efficiency.

In 2022, we further solidified our market leading position in Singapore, entered Australia and New Zealand markets to expand our footprint. Officially launched retail brokerage in Hong Kong and keep improving our trading efficiency with upgraded self-clearing infrastructure. Total revenue for 2022 was US$225 million. Non-GAAP net profit was US$12.7 million for the full-year.

[Foreign Language] In the fourth quarter, interest related income and IPOs underwriting income both increased compared to the fourth quarter. Total revenue was US$63.9 million increased 15.2% quarter-over-quarter and 2.7% year-over-year. GAAP and non-GAAP net profit attributable to UP Fintech was US$1.2 million and US$4.5 million both improved from the same quarter of last year, demonstrating the resilience of our business model in volatile market conditions.

[Foreign Language] In the fourth quarter, we added 27,300 new funded accounts, and the total number of funded accounts for the year reached 108,100 exceeding our annual guidance of 100,000 funded accounts. The total number of funded accounts end of 2022 exceeded 780,000, representing a growth of 16.1% compared to the end of the last year. Among the new funded accounts this quarter, over 90% [came from] [ph] markets outside Mainland China.

In terms of total client assets, the [share] [ph] of asset inflow remains strong. This net inflow equating US$1.4 billion in the fourth quarter. After neutralizing the impact from mark-to-market loss, total planned assets in this quarter increased by 8.1%, compared to the third quarter, reaching US$14 billion. We are very glad to see the quality of our newly acquired customers further improved in the fourth quarter.

Taking Singapore as an example, [indiscernible] most client base, the average net asset inflows of newly acquired clients in Singapore was around US$12,000 in the fourth quarter, further increased from over US$11,000 in the first quarter and US$9,000 in the second quarter, demonstrating our growth presence in this key market and unwavering commitment to provide our clients with exceptional services.

In addition, the overall average CAC was US$271 in the fourth quarter, decreased 17% quarter-over-quarter, demonstrating we keep acquiring high quality clients while being prudent with marketing and branding expenses.

[Foreign Language] We continue to invest through research and development to improve operational efficiencies and to enhance user experience. Benefiting from self-clearing capability in the U.S., [indiscernible] the percentage of growth commissions significantly decreased from 21% in 2021 to 14% in 2022. And now we expect further reduction in clearing expenses, as well in progress offset clearing Hong Kong equity in 2023.

We also launched the recurring investment function for U.S. Stock and [ETX] [ph] in the fourth quarter, making it more convenient for long-term investors to invest periodically. In addition, since our official launch in Hong Kong was last December, we have [kept hiring] [ph] products to serve local investors with the most competitive package in the industry.

Now, we offer Hong Kong and U.S. equities, warrants, options, margins. We will add Tiger Vault, our wealth management product in April.

[Foreign Language] Our Tubi business continues to perform well. In the investment banking business, with the IPO market rebound, we underwrote 17 U.S. and Hong Kong IPOs in the fourth quarter, including [indiscernible], bringing the total number of U.S. and Hong Kong IPOs underwritten for the year to 48.

According to Wind data, Tiger Brokers was third globally and fourth globally in terms of deal counts and value for U.S. IPOs underwriting in 2022. Additionally, in our ESOP business, we added 26 new clients in the fourth quarter, bringing the total number of ESOP clients served to 419 at the end of 2022, increased by 34% year-over-year.

[Foreign Language] Now, I would like to invite our CFO, John to go over our financials.

John Zeng

Great. Thanks, Tianhua and Aaron. Let me go through our financial performance for the fourth quarter. All numbers are in U.S. dollar. Total revenue were 63.9 million this quarter, an increase of 2.7% year-over-year. For the whole year, total revenue were 225.4 million, a decrease of 14.8% from last year, due to a slowdown in market activities, which dragged down commission and IPO underwriting.

On a quarter-over-quarter basis, total revenue increased to 15.2%, primarily due to a 23% jump in interest related income and a 46% increase in other revenue versus prior quarter. Cash equities take rate was about 6.9 bps this quarter, slightly better than 6.7 bps of last quarter. Within commission revenue about 60% comes from cash equities, close to 30% from options and the rest from futures and other products.

Now on to cost. Interest expense was $7.2 million, increased 80% from same quarter last year as interest expense and securities lending expense both increased in line with the rate hike. Execution and clearing expense were $4 million, decreased 42% from the same period of last year. We expect further reduction in clearing expense as we are in progress of self-clearing Hong Kong equities.

Employee compensation decreased 14% year-over-year to 24.5 million this quarter as we added adjusted headcounts in response to challenges arise from the market backdrop. In-line with the employee compensation, G&A expense, which was 6 million, decreased 31% from the same quarter of last year due to one-off professional service fees occurred last year.

Occupancy, depreciation, and amortization expense increased 12% to 2 million, due to an increase in overseas office space and rental and leasehold improvements. Marketing expense was 7.4 million this quarter, decreased to 36% year-over-year. We focused on quality of new users, don't see current market condition is suitable for major marketing as we keep a close eye on CAC and a payback. Overall, CAC dropped 17% quarter-over-quarter to US$271. We will have adjusted our marketing strategy based on the market environment.

Communication and market data expense were US$7.1 million, a decrease of 9% from a year ago. Total operating costs were 51 million, decreased 22% from the same quarter of last year. As a result, [bottom-line] [ph] increased on both GAAP and non-GAAP basis year-over-year.

GAAP net income turned positive to 1.2 million versus a GAAP net loss of 5.4 million last year. Non-GAAP net income further increased to 4.5 million from a non-GAAP breakeven in the same quarter of last year. Total non-GAAP net income for the whole year of 2022 was 12.7 million.

Now, I have concluded 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 the line of Cindy Wang from China Renaissance. Please go ahead. Your line is open.

Cindy Wang

[Foreign Language] So thanks management to taking my question. So, I – this is Cindy from China Renaissance. So, I have two questions. First question is regarding to the new funded accounts. So, in fourth quarter, Tiger Brokers added 27,000 new funding accounts, and it actually increased sequentially. So, could you provide original breakdown of new funding accounts in fourth quarter?

The second question is related to the Hong Kong retail market. Since you entering to the Hong Kong retail market has been a quarter, so can you share the current business progress and customer acquisition strategies in Hong Kong? Thank you.

Wu Tianhua

[Foreign Language] Okay. Regarding the first question, in the fourth quarter, around 90% of our newly funded accounts were from outside of Mainland China with around 55% coming from Singapore, nearly 20% from Australia and New Zealand and 15% from the United States has already stopped attracting new onshore clients based on CSRC notice on December 30th.

Currently, only serving [15] [ph] onshore clients and they will follow the regulatory guidance when more detailed policies are in place.

[Foreign Language] Okay. Regarding the second question about Hong Kong launching progress. Given Hong Kong retail is a new market for us that's been testing different marketing strategies in the fourth quarter. For example, for offline marketing, with [both] [ph] branding advertisement on traditional newspapers, [with the] [ph] Chinese New Year greeting advertisement will hold this customer panel with safe user [indiscernible] feedback.

For online marketing, we have several promotion packages for new users. So, overall, Hong Kong marketing strategy is in-line with our global strategy, which is balance [CAC is ROI] [ph]. We will keep continuing our Hong Kong marketing strategy to meet this objective. On the product side, in addition to cash equity options warrant, we will add Tiger Vault, which is our wealth management product in the second quarter.

Our goal is to provide users, [diversified] [ph] products, while enjoying the most competitive price and friendly user experience. I think our price is very competitive for Hong Kong investors. Currently, we charge zero commissions and zero platform fee to trade Hong Kong equities and warrants.

Although we only launch for one quarter, local investors took notice and we were awarded the best equity trading platform by local newspaper. We expect the number of Hong Kong funding accounts will gradually increase this year. Thank you.

Operator

Thank you. We'll now move onto our next question. Please standby. Our next question comes from the line of Han Pu from CICC. Please go ahead. Your line is open.

Han Pu

[Foreign Language] This is Han Pu, CICC. Thanks for taking my question. I have two questions. First one is regarding the [indiscernible] issue, is there any current influence on Tiger and our future precautions? Secondly, could you please give us some updates on the regulatory environment and our business operations since the CSRC announcement by the end of last year? Thank you.

Wu Tianhua

[Foreign Language] Okay. So, regarding the recent high profile incident, involving Silicon Valley Bank. Firstly, I want to assure you that Tiger Brokers have no accounts or funds with SVB. And therefore this incident has no impact on our operations. Besides they operating as license broker overseas, and collaborating with [loss over feedback] [ph] at our custodian and settlement banks such as [ICBC Asia] [ph], DBS, and Citibank, etcetera.

Such incident occurred has been closely monitoring our operational data. During the two weeks from March 5 to March 24, our [indiscernible] remained stable with a slight increase. And overall, we still see the trend of net asset inflows. We take our responsibility as a broker seriously and we'll be evaluating the risk of our current partner events currently in-light of the recent events. We will go to [indiscernible] to view our responsibility and obligation as brokers and to issue the safety of our clients'.

[Foreign Language] Okay. Regarding your second question, Tiger Brokers has always [set] [ph] high emphasis on complying with global regulation and requirements. Recently on December 30 of last year, the CSRC released the announcement. As further clarified on regulations for China domestic investors to participate [in cross-border securities] [ph] activities.

While this announcement resulted in a short-term decline in stock price. As entrepreneurs, we take this as a milestone in cross-border securities regulations and will facilitate industry development in an orderly manner, and prevent that money [indiscernible]. In response to this update, Tiger Broker have asked decisively to fully cooperate with CSRC. We have stopped accepting new clients from Mainland China immediately at midnight of December 30.

As a matter of fact, in 2022, around 90% of our new funded clients from the overseas market. So, this policy update will not have material impact on our business. In addition, we have completed on price inspections in collaboration with the Beijing Securities Regulatory Bureau, and are currently awaiting positive guidance from the regulator.

On February 15, in the press conference, the CSRC mentioned that the relevant brokers have fully and accurately understand the regulatory requirements and comply rapidly. As we stated, the key requirement to prohibit the increments of funds. Domestic investors are allowing existing investors to continue trading through their original overseas accounts. We will speak to this policy until further guidance from the regulator. Thank you.

Operator

Thank you. We'll now move on to our next question. Please standby. Our next question comes from the line of Brandy Wang from Citi. Please go ahead. Your line is open.

Brandy Wang

Thank you management for taking my questions. I have two questions here. First, we saw that income tax in fourth quarter increased a lot by around 38% quarter-over-quarter, which is driving the effective tax rate to over 65%, any reason behind this? And my second question is regarding the business outlook. As the market sentiment was weak in 2022, what's management's preview and guidance for 2023? And do we observe any business recovery lately? Thank you.

John Zeng

Okay. So, let me answer the first question regarding tax rate. Okay. [Foreign Language] Okay. So, in terms of the tax rate, the large portion of the 2.3 million, which is about 2 million was due to unrealized foreign exchange losses. This was caused by the continued appreciation of the U.S. dollar in 2022, which resulted in non-cash foreign exchange loss for subsidiaries in Singapore and New Zealand. According to local tax regulation, those losses cannot be deducted as expense before tax.

Therefore, we have to add them back as a tax basis, which resulted in the current context of our 2 million in the consolidated P&L in the fourth quarter. Of course, those expense are allowed to be reversed with the depreciation of the U.S. dollar in the future and vice versa. Thank you. You go for the next question.

Wu Tianhua

[Foreign Language] Okay. So we go to our second question about the preview and guidance of the coming year. With the challenging and uncertain market of 2022, we still achieved a non-GAAP profit of US$12.7 million for the year, gain over 100,000 new funded accounts and saw net asset inflows exceed US$7 billion. These results demonstrate the trust they’ve earned from users globally, the profitability of our business model, and the effectiveness of our financial operations.

As we all know that the online brokerage industry has done very strongly in fact. And it gave our relatively recent entry into the market of Australia, New Zealand, and Hong Kong. With this uncertainty being that our target is to acquire at least 100,000 new funded accounts this year in 2023.

[Foreign Language] In 2023, Tiger Brokers will continue to deepen our international [indiscernible] and focus on improving the operating efficiency of our existing markets. After launch in Singapore, we’ve achieved profitability in less than two years. However, relying solely on Singapore for growth is a healthy business model in the long-run.

Therefore, whether it is Australia, New Zealand, or Hong Kong, we will further enhance the user experience product diversity and self-clearing efficiency, hoping that they will become another successful market just like Singapore. This will enable us to better leverage our fixed cost and better navigate the market turbulence along with the company to continue to develop while maintaining stable profitability. Thank you.

Operator

Thank you. That was the last question. As there are no further questions at this time, I'll hand the call back to you for closing remarks.

Wu Tianhua

I would like to thank everyone for joining the call today. I'm now closing the call on behalf of a management team here at Tiger. We do appreciate your participation in today's call. If you have any further questions, please switch out to our Investor Relations team. This concludes the call and thank you very much for your time.

John Zeng

Thank you.

Operator

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