UP Fintech Holding Limited (TIGR) Q1 2023 Earnings Call Transcript

UP Fintech Holding Limited (NASDAQ:TIGR) Q1 2023 Earnings Conference Call May 30, 2023 8:00 AM ET

Company Participants

Aaron Lee - Head, IR

Wu Tianhua - Chairman and CEO

John Zeng - CFO

Conference Call Participants

Hua Fan - CICC

Cindy Wang - China Renaissance

Judy Zhang - Citi

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the UP Fintech Holding Limited First Quarter 2023 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, May 30, 2023.

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.

Aaron Lee

Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's first quarter 2023 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 May 30, 2023 and our annual report on Form 20-F filed on April 26, 2023. 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' first quarter 2023 earnings conference call.

In the first quarter, we saw a moderate rebound in the market condition. However, the high inflation expectation in the U.S. and continues threatening still hampered investor confidence and market activities. Under this market backdrop, we remain committed to our internationalization strategy on optimizing our revenue mix and expense management.

In the first quarter, commission income and interest rate income further improved sequentially, with total revenue increased by 3.9% quarter-over-quarter and 26% year-over-year, reaching US$66.3 million.

GAAP and non-GAAP net profit attributable to UP Fintech were US$8 million and US$10.3 million respectively, an increase of 541% percent and 129% compared to the previous quarter and a big turnaround compared to the net loss in the same quarter of last year. Non-GAAP bottom line in the first quarter was the highest into the past two years demonstrating our execution strategy can weather challenging market conditions and regulatory headline news.

In the first quarter we added 30,392 new funded accounts, increased 11.2% quarter-over-quarter. We are confident to deliver our annual guidance of acquiring at least [1,000] new funded account in 2023. Total number of funded accounts at the end of first quarter reached 810,000, representing a growth of 15.4% compared to the same quarter of last year.

In terms of total current assets, the trend of asset inflow remained strong, with net inflows nearly US$1.2 billion in the first quarter mainly contributed from Singapore and Mainland China. With the market recovery leading to mark-to-market gain, total client assets in the first quarter increased by 15.2% compared to the last quarter, reaching US$16.1 billion.,

In addition, we are very glad that we can keep acquiring high quality users while optimizing our customer acquisition cost. The overall average net asset inflows of the newly acquired retail client exceeded [US$17,000] for the first quarter, an average fees in the first quarter was US$175 dollars with 37% drop quarter-over-quarter. This indicates our ongoing international expansion efforts have been recognized by local investors in various regions and ROI remains at an industry leading level giving us the flexibility to dynamically adjust our customer acquisition strategy while maintaining a reasonable unit economics.

We continue to invest in research and development to improve operational efficiency and to enhance user experience, benefiting from self-clearing capability in the U.S. Our self-clearing efficiency has consistently maintained at a leading level in the industry.

In the first quarter, execution and clearing expenses as a percentage of commissions further depreciated from 16.1% in the previous quarter to 9.6% as we started to self-clear more Hong Kong equities since February.

In addition, we launched a beta test of TigerGPT. This feature based on the underlying model of ChatGPT combined with financial figures to information and market data accumulated by Tiger Brokers' over the years. It allows experienced users to quickly extract and then analyze the investment related data to help them with the reinvestment research also significantly reduces the learning curve for new users.

In wealth management business, following the Singapore market, we launched Tiger Vault, our wealth management products in Hong Kong in April, to tap users diversify their portfolio and enhance energy by combining cash management and other investment products.

Our Tubi business continues to perform well. In the investment banking, we underwrote 8 U.S. and Hong Kong IPOs in the first quarter including content and [indiscernible].

In our ESOP business, we added 29 new clients in the first quarter, bringing the total number of ESOP clients served to 448 by the end of the first quarter of 2023, increased by 33% year-over-year.

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 first quarter. All numbers are in U.S. dollar.

Total revenues were US$66.3 million, an increase of 26% year-over-year and 3.9% quarter-over-quarter primarily due to a 13% jump in interest-related income versus last quarter. Cash equity take rate was 6.3 basis this quarter, slightly decreased from 6.9 basis from last quarter, raising commission revenue of about 60% comes from cash equities, 30% from options and the rest from futures and other products.

Now on to cost. Interest expense was $8.4 million, increased by 130% from the same quarter of last year as interest expense and securities lending expense both increased in line with the rate hike. Execution and recurring expenses were $2.4 million, decreased 46% from the same period of last year, primarily due to more efficiency in sales clearing for U.S. and Hong Kong securities. Given we only started to move Hong Kong equities to Tiger Vault Hong Kong this February, we expect cash equity clearing expense as a percentage of commission can go down.

Employee compensation and benefits were $24.4 million, a decrease of 11.2% year-over-year as we adjusted our headcount in response to challenging market conditions. Occupancy, depreciation and amortization expense increased 19% to $2.4 million due to an increase in oversea office space and relevant leasehold improvements. Communication and market data expense were $7 million, an increase of 9.2% year-over-year due to the increase in user base.

Marketing expense were $5.2 million this quarter, a decrease to 48% year-over-year. Average CAC dropped 37% quarter-over-quarter from US$271 to US$171. We focus on quality of new users don't see current market condition suitable for major marketing campaign, so we scaled back marketing spending. That being said, we will look - adjust our marketing strategy based on the market sentiment in different regions. [indiscernible] we see payback from new acquired users still attractive.

General and administrative expense were $4.5 million, flat year-over-year. Total operating costs were $46 million, decreased by 16% from the same quarter of last year. As a result, bottom line increased on both GAAP and a non-GAAP basis. GAAP net income turned positive to $8 million versus a GAAP loss of $5.9 million in the same quarter of last year. Non-GAAP net income also turned positive to $10.3 million from a non-GAAP net loss of $1.9 million in the same quarter of last year.

Now I have concluded our presentation. Operator, please open the line for Q&A. Thanks.

Question-and-Answer Session

Operator

[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Hua Fan from CICC. Please ask your question.

Hua Fan

[Foreign Language] Okay, I will translate. Thanks management and congratulations on the results achieved this quarter. This is Hua Fan from CICC. And I have three questions itself. The first one is on the regional breakdown of the newly added funded account in this quarter. And the second one is about the client in Singapore. We know that Tiger has been in leading possession since entering the market. So how is the current net asset inflows and the average asset balance of the clients in Singapore? And after ramping up for over three years, how is the asset balance of the clients that we acquired early when we first entered the market? And the third question is on the progressing on the Hong Kong retail market. Would the management give us more color on this? These are my questions. Thanks.

WuTianhua

[Foreign Language] In the fourth quarter, around 60% of newly funded accounts came from Singapore, about 15% from Australia and New Zealand, above 20% from the United States and nearly 5% from Hong Kong.

To the second question, for Singapore, where we have the most existing and new users, we are desperately importance to the user experience and solidify our market position. Of the $1.2 billion net asset inflow in the first quarter, about 2/3 came from Singapore. At the end of the fourth quarter, the average plan asset of all funded accounts in this region was about $15,000. We officially entered the Singapore retail market in the first quarter of 2020. And we see that the average plan assets of the first quarter in the first half of 2020 reached nearly US$25,000 for the end of the first quarter of 2023, which was a 3x to 4x increase compared to the first '20 quarter.

So in the first quarter, in terms of user equities in Hong Kong only accounted for low-single digit of new funding account. A couple of reasons. First, we didn't want to spend too much. The market backdrop is still weak. We wanted to make sure UE remains attractive within our internal hurdle.

Second is we are still testing new customer acquisition strategies and fine-tuning those strategies based on user feedback. In the second quarter, we will do more client campaign to celebrate Tiger's next year anniversary, which might increase CAC in the short term, and we will keep a close eye on payback.

And in the second quarter, we started to transfer [indiscernible] to Tiger. So you can see CCAS more for this in under Tiger Vault in Hong Kong. More Hong Kong equity trades are clear to Tiger Vault Hong Kong held total clearing expense as a percentage of commission decreased from 16% in the fourth quarter to 9.1% in the first quarter. We expect further reduction in the clearing expense for Hong Kong cash equities.

We also launched the Tiger Role, our wealth management platform in April. We will have more loss management product to Tiger Vault to increase user stickiness and offer value-added services. Thanks.

Hua Fan

Thanks a lot.

Operator

[Operator Instructions] We are now going to proceed with our next question. And the questions comes from the line of Cindy Wang from China Renaissance.

Cindy Wang

[Foreign Language] Thanks management for taking my call. And congrats for the great first quarter results. So I have two questions. First question is what kind of the function Tiger ChatGPT provide? And when will this be officially launched? And what's the R&D cost for Tiger ChatGPT?

And my second question is related to the customer acquisition costs and self-clearing efficiency. So for customer acquisition cost further drop in first quarter sequentially. So however, we see the number of the new customers with deposits actually up quarter-over-quarter. So could management provide some color how to achieve this result? And will customer acquisition will maintain at the same level for the next few quarters in 2023?

For the self-clearing efficiency, we see that increased quite a lot in first quarter. So how should we expect the clearing expenses in the second quarter on Vault]? Is there still room for further decline? Thank you.

WuTianhua

[Foreign Language] Regarding the first question about TigerGPT, we think the AI technology can significantly improve productivity in many aspects of our lives and work such as programming, copywriting, design and more. So our mission is to make investment better through technology, and we have always paid close attention to the synergy between technology and finance. We have high expectations for TigerGPT's language interaction capability in improving user experience.

While our offers excellent market data and information, but many users may not know just exactly where to find them. So TigerGPT can help users improve their efficiency in this scenario. We are glad to have this opportunity to become the first technology-oriented broker to launch GPT functionality. TigerGPT's products dedicated to answering questions in the field of financial investment. It can act like the bridge between user inquiries and Tiger's numerous investment content and paid market data.

So this product can help our users greatly improve information collecting efficiency, including like market data, industry insights, third-party market data, individual stock option and financial knowledge. It can also greatly reduce the learning costs for new users taxing various functions of our app. We believe that TigerGPT will become a differentiated function to optimize the user experience and will contribute accordingly to user acquisition and retention.

Currently, this product is in still in the internal testing phase, and we expect to open it to more market users at the end of the second quarter of this year. As for the cost, since TigerGPT only serves the financial sector instead of being a general purpose model, the cost is very controllable and will not have significant impact on our P&L.

We are glad to see the number of new fundings per account increased while average CAC dropped potentially quarter-over-quarter after CSRS's update on December 30. A couple of reasons, firstly, with our brand being better received by the local user in Singapore market and attracting more organic traffic from overseas to save us some customer accusation costs.

Secondly, we have reevaluated our cooperation with partner vendors in terms of advertising and branding and terminated the cooperations with those cannot generate a reasonable ROI. In the future, we will continue to adjust our customer acquisition cost dynamically risk by market condition and payback.

Generally, our current low customer acquisition cost provides us with flexibility to expand into new markets such as our recent launch Hong Kong market to help maintaining healthy unit economics.

Thanks to our self-clearing capability in the U.S. stock market, the clearing cost as a percentage of total commission for U.S. cash equities were around 3% to 12%, keeping our overall self-clearing efficiency at an industry-leading level. Since mid-February of this year, we have gradually self-cleared more Hong Kong stocks with our launch in the local retail market. That clear cost as a percentage of commission income dropped to below 10% in the first quarter.

Future clearing costs will be affected by factors such as market volatility and user trading behavior, but we expect that our overall clearing efficiency will further improve along with full self-clearing of Hong Kong stocks. Thank you.

Operator

We are now going to proceed with our next question. And the questions come from the line of Judy Zhang from Citi. Please ask your question.

Judy Zhang

[Foreign Language] Let me translate. I have two questions. The first question is regarding on the take rate. We saw the U.S. stock market rebound, but the take rate decreased. Can you explain the key reason behind? And also, we saw the interest income increased continuously during the rehike cycle. What is the breakdown of the interest income?

And the second question is regarding the regulation. We saw [Tiger APP] has been removed from the App Store. How can we understand the current situation, and how much it will impact on the existing customers? And also did regulator give us any further clarification on what kind of criteria the onshore investors need to meet to open the overseas brokerage accounts? Thank you.

WuTianhua

[Foreign Language] Okay. So commission rate actually remained unchanged during the first quarter. As we charge commission per share for U.S. stopped trading, the trading volume increase in high market rebound, resulting a decrease in cash equity take rates. As for the interest income breakdown, around 30% came from customers ideal cash and the rest were from the margin financing and securities and other business. Thank you.

We have touched importance to compliance and regulatory requirements globally and maintain direct communication with regulators. Recently, regulators have clarified some guidelines. Firstly, allowing onshore users who lease or work overseas to open new accounts with us. Secondly, for onshore users who can prove that they already opened brokerage account offshore they will be considered as existing clients of the industry. Therefore, we can accept their investors to open new accounts with us or transfer their existing securities to us.

The third one is allowing us to keep supporting team and R&D facilities and systems within Mainland China to serve our existing onshore investors. And the last one, it's recently requested to remove our app from the onshore application market to ensure we don't have onshore equipment clients apart from the aforementioned scenarios.

These guidelines provide clarity to industry regulations, promoting long-term and orderly development, while preventing [indiscernible]. Following the announcement by CSRS's on December 30 of last year, we have immediately stopped accepting new offshore clients from Mainland China to support and cooperation with regulatory requirements.

The recent request to remove our app from the Chinese application market is essentially an implementation of the aforementioned announcement since May 18, 2023. We have removed our app from the onshore application market while providing detailed instructions for existing users to download and update the app. This adjustment does not affect existing clients, and we will continue to provide core services and keep our client's money safe.

WuTianhua

We have also noticed that compared to the end of last year, the total client assets of onshore clients increased by about 10% with the trend of net asset inflows in the first quarter of this year. Besides the trading volume and commission income contributed by onshore clients has also slightly increased sequentially. These numbers indicate that our existing clients have rational understanding regarding recent events since December 30 of last year, and their trading velocity and trust in Tiger Brokers has not changed. Thank you.

Operator

We have no further questions at this time. I will now hand back the call to Aaron Lee for closing remarks.

Aaron Lee

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 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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.