UP Fintech Holding Limited (NASDAQ:TIGR) Q4 2023 Earnings Call Transcript

UP Fintech Holding Limited (NASDAQ:TIGR) Q4 2023 Earnings Call Transcript March 20, 2024

UP Fintech Holding Limited misses on earnings expectations. Reported EPS is $-0.01 EPS, expectations were $0.07. TIGR isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by, and welcome to UP Fintech Holding Limited Fourth Quarter and Full Year 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 today’s conference is being recorded today, March 20, 2024. I would now like to hand the conference over to your first speaker today, Mr. Aaron Li, the Head of Investor Relations. Thank you. Please go ahead.

Aaron Li: 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 2023 earnings release was distributed earlier today and is available on 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. They will both be available to answer your questions during the Q&A session that follows their remarks.

Now let me cover the Safe Harbor. Some 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 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, March 20, 2024 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 English translation.

Mr. Wu, please go ahead with your remarks.

Tianhua Wu: [Foreign Language] Hello everyone. Thank you for joining the Tiger Brokers’ fourth quarter and full year 2023 earnings conference call. Today marks the 5th Anniversary of Tiger’s listing on NASDAQ. During the past five years, we committed to our mission that technology redefines global investing and have expanded our business globally to Singapore, Southeast Asia, Australia, New Zealand, the United States, Hong Kong, and the United Kingdom. We have made significant improvement in various aspects, including product offering, industry know-how, user base, and profitability. We have also navigated through market turbulence, geopolitical and regulatory uncertainties. This valuable experience will help us to have sustainable growth in the future.

As of the end of 2023, the majority of our total client assets came from users in overseas markets. We are proud of our international reach and will continue to serve our clients with dedication and innovation. [Foreign Language] In 2023, we continue to advance our internationalization strategy, further solidifying our leading position in Singapore and officially enter Hong Kong. Benefiting from the higher interest rate environment, fourth quarter total revenue reached US $70 million, a 9.6% increase compared to the same period of last year. Our full year total revenue amounted to US $273 million, representing a 21% increase from 2022. Additionally, we saw significant improvement in our bottom line in 2023, primarily due to our brand strength and R&D capabilities, which enabled us to save costs and deploy resources more efficiently.

Full year net profit reached US $32.6 million, non-GAAP net profit reached US $42.7 million, a record high since our company founding and representing a jump of 14.8 times and 3.4 times of the same figure in 2022. In the fourth quarter, due to depreciation of U.S. dollar against other currency, we recorded a US $7 million non-cash foreign exchange loss versus a US $2 million foreign exchange gain in the third quarter, resulting our non-GAAP net income decline quarter-by-quarter to US $1.1 million. [Foreign Language] In the fourth quarter we added 39,000 funded accounts, an increase of 58.6% from the previous quarter. The total number of funded accounts for the year reached 123,110, exceeding our annual guidance of 100,000 funded accounts. This majority came from markets outside of Mainland China.

The total number of funded accounts at the end of 2023 exceeded 900,000, representing a growth of 15.8% compared to the end of last year. In the fourth quarter, by leveraging our strong presence in the Singapore, we were working with partners to explore customer acquisition initiatives in the Southeast Asian region, which resulted in a rise in quarterly new funded accounts while reducing average CAC to a historical low of below US $150. In terms of total client assets, the trend of asset inflow remains strong. We saw a record US $8.2 billion net asset inflow this quarter, in addition to US $3.5 billion from market-to-market gain. Total client assets jumped 62.1% quarter-over-quarter and more than doubled year-over-year, to US $30.6 billion at the end of 2023.

The increase in client assets was primarily due to our ongoing product development to meet the needs of institutional clients. Additionally, we are very glad to see the quality of our newly acquired customers further improved in the fourth quarter. The average net asset inflow of newly acquired clients in Singapore was above US $16,000 in the fourth quarter, setting a historic high since our launch into the Singapore retail market. [Foreign Language] We continuance to add new products on our platform, to enhance user experience, which we believe is the key to our long-term success. In the fourth quarter, we introduced Combo Option Strategy feature, a very user-friendly product that allows users to execute multi-leg options traits based on our net margin requirements.

Additionally, we launched the Fixed Coupon Notes product, offering professional investors a more diversified wealth management experience. In addition, as crypto is becoming an important asset class globally, it’s a natural extension of business as broker-dealer to add this new asset class with Tiger’s Fintech background and know-how. In January, we started to offer 11 Bitcoin ETFs trading based on local regulatory frameworks. In Hong Kong, Hong Kong SFC uplifted our Type 1 License, to include Virtual Asset dealing services for Professional Investors. This positions us as one of the first mainstream online brokerage firms in Hong Kong to receive approval for such a license upgrade. [Foreign Language] Our 2B business continues to perform well.

In Investment Banking Service, we underwrote a total of nine U.S. and Hong Kong IPOs in the fourth quarter, including Shiyue Daotian Group and J&T Express, bringing the total number of U.S. and Hong Kong IPOs underwritten for the year to 28. In our ESOP business, we added 30 new clients in the fourth quarter, bringing the total number of ESOP clients served to 535 as of the end of 2023. 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 was $70 million this quarter, remain last quarter-over-quarter, and increased 9.6% year-over-year. Full year total revenue were $272.5 million, increased 20.9% compared to last year. Cash equity take rate was 6.5 bps this quarter, slightly increased from last quarter. Within commission revenue, about 60% come from cash equities, 30% from options, and the rest comes from futures and other products. Now on to cost. Interest expense was $16 million, increased by 123% from same quarter of last year, as interest expense and securities lending expense both increased in line with the rate hike.

Execution and clearing expense were $2.2 million, decreased to 44% from the same quarter of last year, primarily due to more efficiency in self-clearing for U.S. and Hong Kong Securities. Employee compensation and benefits expense were $26.5 million, an increase of 8% year-over-year due to an increase of global headcounts. Occupancy depreciation and amortization expense increased 8.4% to $2.2 million due to increase in rent. Communication and data expense were $8.5 million, an increase of 21% year-over-year due to the increase in user base and IT related fees.

remember: Total operating costs were $52.5 million, slightly increased 3.1% from the same quarter of last year. GAAP net loss was $1.8 million. Non-GAAP net income was $1.1 million. The sequential drop in bottom line was primarily due to a non cash foreign exchange losses resulted from the depreciation of the U.S. dollar during this quarter. For the year of 2023, total GAAP profit was $32.6 million and non-GAAP net income was $42.7 million, a historical high in our company history. Now I have concluded our presentation. Operator, please open the line for Q&A, thanks.

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Q&A Session

Operator: Thank you. [Operator Instructions]. Please stand by while we compile the Q&A queue. Our first question comes from the line of Cindy Wang from China Renaissance. Please go ahead, your line is open.

Cindy Wang: [Foreign Language] Thanks for giving me this chance to ask questions. I have two questions. First one is, the net profit has increased significantly in 2023, but profitability in Q4 was dropped sequentially, mainly because of the FX loss. So have you seen any improvement in first quarter this year based on the current run rate? And the second is, could you give us guidance on new funded accounts in 2024 as well as the breakdown of each region and business development strategy? Any new markets you will enter this year? Thank you.

Wu Tianhua : [Foreign Language] So the non-GAAP bottom line decreased in the first quarter versus the third quarter. There are several factors. So, first one is, our total revenue is flat quarter-over-quarter, but we incurred more interest expense during the first quarter due to the rate hike cycle. So the total net revenue decreased $4 million quarter-over-quarter. The second factor is that in the first quarter, there are more costs will hit the book such as professional service fees, which results in $3 million jump in the cost. The third reason is foreign exchange losses. So in the first quarter, the U.S. dollar depreciated against RMB and Singapore dollar. So we incurred a non-cash $7 million in foreign exchange losses in the first quarter versus $2 million gain in the third quarter.

So, combine those two factors, so it leads to a non cash decrease of about $9 million on a sequential basis. And in terms of run rate, so we have seen an increase in trading activities during the first two months of this year, and we also saw very strong client-led asset inflow. So given the foreign exchange rate was relatively stable in the first quarter, we expect the profitability in the first quarter will be much better than the fourth quarter. Thanks. [Foreign Language] I’ll translate the answer for the second question. In 2024, our target is to add 150,000 new funded accounts. About 60% will come from Singapore and Southeast Asia. Australia, New Zealand market and the United States account for 15% each, and Hong Kong market accounts for 10%.

This regional breakdown is quite similar to our actual result in 2023 and we will adjust the input based on market opportunity and ROI of each region. Of course, with the target increase from 100,000 in 2023 to 150,000 in 2024, we will expect the incremental PUE [ph] number to increase from each market accordingly. We believe that the markets we have already entered have tremendous potential. Take Singapore for example, where Tiger Broker already has a relatively high market share. However, there’s still significant room for growth. This can be seen from the number and the quality of our newly acquired clients in Singapore in the fourth quarter. In markets like Australia, New Zealand and Hong Kong, we have even more room to improve and expand.

So in 2024, our focus will remain on the markets they’ve already entered by optimizing the efficiency of our R&D resources, introducing more product features, including virtual assets trading to enhance our ARPU and profitability. Additionally, we will also look for opportunities to enter new markets based on market conditions. Thank you. Operator, let’s move on to the next question.

Operator: Thank you. Please stand by. Our next question comes from the line of Judy Zhang from Citi. Please go ahead. Your line is open.

Judy Zhang : [Foreign Language] Thank you for taking my question. I have two questions. The first question is regarding the commission and the turnover. We saw the customer AUM has increased significantly in the fourth quarter, but the commission turnover did not improve that much. What are the underlying reasons behind this? And second question is regarding on the new funded customers. The new paying customer has increased a lot, Q-on-Q but the CAC reached the record low level. Can the management share with us and give us some color on the company’s new customer acquisition strategy? Thank you.

Wu Tianhua: [Foreign Language] Okay, for the first question. At the end of the fourth quarter, total current asset increased by 62% compared to the previous quarter and more than doubled compared to the end of last year to USD $30.6 billion. There are two factors contributing to this growth. Firstly, the rise in NASDAQ index and [inaudible] in the fourth quarter, back to a mark-to-market gain of USD $3.5 billion on our total current asset. This means that even without considering net asset inflow, our total current asset will have been increased of around 15% compared to the previous quarter. Additionally, apart from focusing on the retail market, we have been serving a large number of institutional investors, through efforts such as ESOP and investment banking.

In the fourth quarter these efforts gain more trust and recommendation from global investors, who transferred their provision to our platform. This significantly contributed to the total $8.2 billion net asset inflow in the fourth quarter. However to be honest, some of this institutional investors are Venture Capital and Private Equity are primary market, which have lower velocity compared to retail investors or hedge funds. As a result, the contribution of the increased current asset from this kind of institutional investors to our commission revenue was fairly limited in the fourth quarter so far. [Foreign Language] In the fourth quarter we had our brand prevalence in Singapore and Southeast Asia market by building or more online advertising.

We have seen an increase in organic traffic and month-to-month referrals and led to high number of new funded accounts in the fourth quarter. However we’ve seen the users from different acquisition approaches may vary in quality. So moving forward we will dynamically adjust our customer acquisition strategies based on their effectiveness to insure they have the ARPU and profit model. Thank you, Judy. Operator please move on to the next question.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Han Pu from CICC. Please go ahead. Your line is open

Han Pu: [Foreign Language] Thanks for taking our questions. This is Han Pu from CICC. I have two quick questions. Firstly, could you please share the regional breakdown of newly funded accounts in Q4. And secondly, could you please give us more color on the Hong Kong business operation, especially for the crypto trading business? Thanks.

Wu Tianhua : [Foreign Language] Among the newly funded accounts in the fourth quarter, above 60% came from Singapore and Southeast Asia, nearly 20% came from the United States, while contributions from Hong Kong and Australia and New Zealand regions accounted for around 10% each. [Foreign Language] We have entered Hong Kong retail market for one year, and so far we are relatively satisfied with our progress. So to the extent such as our competitive market in Hong Kong, we offer one of the most friendly pricing to our users. Until now Hong Kong users can still enjoy zero commission and zero plan fees when they are trading Hong Kong securities on Tiger’s platform. Also, we have been optimizing our product offering over the past year, and we are quite satisfied with the level of improvement in our current product features.

In the fourth quarter, we launched the U.S. T Bonds and the Trading Sparks features in Hong Kong. In the first quarter of this year, we uplifted the Type 1 License with SFC, allowing professional investors to — sorry, allowing PI users to trade crypto on the Tiger Hong Kong platform. We expect this feature to go live in the next one or two months. Our local business is gradually expanding, and the user quality also improved from time-to-time. In the early stage of our in Hong Kong, we were exploring the market and understanding our local users, which may took some time. In the fourth quarter we implemented a more localized customer acquisition strategy. As a result, the net asset inflow in the Hong Kong market exceeded in the total for the first three quarters of this year.

Additionally, the average net asset inflow from newly acquired clients in the fourth quarter exceeded $5,000 USD, indicating a good user quality in the Hong Kong market and a big growth opportunity for us to explore in the future. Thanks.

Aaron Li : Thanks, Mel. Let’s move on.

Operator: Thank you. There are no further questions at this time, so I’ll hand the call back to Aaron for closing remarks.

Aaron Li : Thank you. 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. Thank you.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.