UP Fintech - Earnings Call - Q1 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by. Welcome to the UP Fintech Holding Limited First Quarter twenty twenty 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, Thursday, 05/28/2020.

I would like to hand the conference over to your first speaker today, mister Clark Souzi. Thank you. Please go ahead.

Speaker 1

Thank you, Karina. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's first quarter twenty twenty earnings release was distributed earlier today and is available on our IR website at ir.itiger.com as well as GlobeNewswire services. On the call today from UP Fintech are mister Wu Tianhua, chairman and chief executive officer, mister John Zheng, chief financial officer, mister Huang Lei, CEO of US Tiger Securities, and mister Kenny Zhao, our financial controller. Mister Wu will give an overview of our business operations and discuss corporate highlights.

Mister Zheng will then discuss our financial results. They will both be available to answer your questions during the q and a session that follows their remarks. Now let me cover the safe harbor. Today's discussion contains forward looking statements within the meaning of The US 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 six k published today, 05/28/2020, and our annual report on form 20 f filed on 04/29/2020. 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. Good evening, everyone, and thank you very much for attending the Tiger Brokers first quarter twenty twenty Earnings Conference Call. In the first quarter, despite the severe global impact of the pandemic, we leveraged the strength of our online model and were able to demonstrate solid progress on multiple initiatives.

Our key business metrics showed notable improvement compared to previous quarters. Total revenue was $23,200,000, a new high and represented an increase of 136.7% on the same period last year. Thus, the 2020 had the fastest quarterly revenue growth since our firm's IPO. Furthermore, in the first quarter, we reported our first ever GAAP net income of $3,000,000 versus a loss of $2,900,000 in the same period last year and $600,000 the past quarter. Achieving positive net income is a major milestone for our firm and is a result of our commitment to improve efficiency and drive growth from a diverse range of business segments.

We are also satisfied to report that as we continue to provide more differentiated products and services, more and more clients are placing ever greater trust in our firm. In the first quarter, we added 20,900 new accounts with deposits, a 2.5 times increase over the same quarter last year in terms of quarterly new account additions. Total accounts with deposits also increased 53.1% over the same quarter last year. I would also like to highlight that in the first quarter, when global markets and all asset classes evidenced extreme volatility, Our risk control policy was prudent. And as of today, there was no material adverse impact to our firm in terms of p and l.

In the first quarter, clients entrusted with more of their assets. Total account balance reached a new high of $5,500,000,000, an increase of 79.7% on the same period last year. Our clients continued to diversify their trading away from US listed Chinese ADR companies. Chinese ADRs only accounted for 25% of our US equity trading volume. Our US and Singapore offices are starting to onboard clients.

I expect to see more offshore clients using our services. Moving on to IPO underwriting. Most of the deals on the street are somewhat delayed due to the pandemic, but our pipeline remains very strong. We migrated roadshows online from offline by connecting issuers and investors using video conferencing and phone calls and achieved good results for the issuers. In the first quarter, we underwrote four US IPOs, including Huiza Holdings and Zhongchow Inc.

Tiger's ESOP business continues to grow with good momentum. In addition to new customers ranked in the top 10 of Chinese Internet companies, we are also adding customers from traditional industries. We keep investing in our system architecture and customer service capabilities and are now able to manage complex ESOP plans for multinational firms in different jurisdictions. In the first quarter, in total, we added eight customers. I am confident ESOP will continue to obtain growing numbers of customers.

I would like to conclude my remarks by giving an update on our wealth management business. Near the end of the first quarter, we officially launched our Fund Mall, a new feature of our platform that allows clients to seamlessly invest in global mutual funds. The Fund Mall presently offers over 50 funds from top tier global asset managers, including Fidelity, BlackRock, Morgan Stanley, HSBC, and other notable institutions. Funds offered in the Fund Mall include fixed income funds and equity funds that span a wide range of currencies and global markets, assisting our clients to increase their portfolio diversification. In the second quarter, we plan to offer over 100 funds as well as launch our internally developed rating system for clients to evaluate funds across a wide range of metrics, including fund income, risk, size, and manager quality.

This system will assist our customers to increase their knowledge about mutual funds and thus their propensity to invest more of their assets in our fund mall. Finally, I would like to comment on the progress of our share buyback program. From 04/01/2020 to 05/26/2020, we spent approximately $1,500,000 to repurchase 508,000 ADS.

Speaker 2

I

Speaker 1

would now like to invite our CFO, John, to go over our financials.

Speaker 2

Thanks, Tinghua and Clark. A solid first quarter performance as we broke even on a GAAP basis for the first time. Total revenue was USD 23,200,000.0, increased over 137 percent on a year over year basis. Our users were very active in the first quarter given the volatile market backdrop. Commission increased 125% to 14,300,000.0.

Interest related income, which combines financial service fee and interest income, increased to 129 from the same quarter last year. Other revenue primarily consists revenue from corporate services such as IPO underwriting grew 291% year over year to JPY 2,500,000.0. Across the street, IPO underwriting has slowed down due to COVID-nineteen. Our deal pipeline remains very strong. We are optimistic more deals will get printed once market sales size to stabilize.

Interest expense increased 357% year over year to 1,000,000 this quarter. After interest expense, net revenue was USD 22,200,000.0, increased to 132 percent from same quarter last year. Now switching to expense. Clearing expense increased to five times to 1,800,000.0 due to increased trading volume. Salary expense increased to 34% year over year to JPY 10,500,000.0 as our headcount grew 37 in the same period.

In 2020, our headcount growth will moderate, but we will keep adding key positions. Occupancy expense almost doubled to JPY 1,200,000.0 due to increased headcount in the office space. Communication and market data expense also grew 54% year over year to JPY 1,800,000.0 as we have more users. In the first quarter, given the more active market sentiment, we increased our marketing spending and the total marketing expense increased 45% to JPY 2,800,000.0. SG and A expense slightly increased 5% to JPY 2,300,000.0, primarily due to business expansion and professional services.

Total expense for the first quarter was JPY 20,300,000.0, an increase of 45% year over year. Income before tax was CNY 4,700,000.0. Net income was USD 3,000,000, and non GAAP net income was CNY 4,200,000.0. Overall, we are satisfied with our progress in the first quarter. We are taking advantage of the short term market volatility, higher user acquisition rate and starting to see operating leverage across our business units.

That being said, a prolonged volatile market caused by COVID-nineteen could have adverse impact on our business and financials. We are closely monitoring the situation and make adjustments when necessary. This concludes our prepared remarks. Now we can open for questions.

Speaker 0

If you wish to cancel your request, please press the pound or hash key. Once again, if you wish to ask a question, please press star one on your telephone and wait for a name to be announced. Your first question comes from the line of Sherry Zhang from Citi. Please ask your question.

Speaker 3

Hi, management. Thank you very much for giving me the chance to ask questions. I have two questions here. The first one is about our lending business. So may I know why the margin financing best balance was down quarter over quarter in the first quarter?

And is it mainly due to client unwinding their positions or because, like, the company has tightened leverage ratio And why the interest income is down more than the margin finance balance? Is there any pricing pressure? And second question is about fund supermarket. Could management share what is current client AUM and the fee structure? I what is the subscription fees, and how much do like, does how much management fee are you able to share from the managers, and what is the typical settlement period for the funds?

And do you have any target on the AUM and revenue contribution for 2020? Thank you.

Speaker 2

Sherry. Thanks. Let me answer your first question in regards to margin, and Tian Hwa will answer your second question. So the margin balance was down year over year because during the market downturns, people tends to hold on cash. So not that many users are taking on margins.

So that's why the total margin balance was down. So during the meantime, yes, we did we do have a very prudent risk control policies. For certain stocks, we do increase maintenance margins. So that's why you see some of those margin the margin policy will get tighter. When marketing starts to get back to normal, we will see we are seeing more people taking our margin to start trading the securities.

So to answer your question, yes, you know, the mark the balance was down was due to more most likely the market, you know, downturn, and it'll also have a tighter margin policies for certain stocks. Yeah. Just to answer your question, let me translate. It's now we just started FarmVault, you know, by end of third first quarter. So right now, don't have much data to share.

In terms of your question on how how we split the management fee with the fund companies, we don't really disclose that data, but we will give you some trends once we have more data to share. Thank you.

Speaker 0

There are no further questions at this time. I would like to hand the conference back to mister Clark Souzi. Please continue.

Speaker 1

I would like to thank everyone for joining our call today. I am now closing the call on behalf of the management team here at UP Fintech. 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.

Speaker 0

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