UP Fintech - Earnings Call - Q4 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to UP Fintech Holding Limited Fourth Quarter twenty twenty Earnings Conference Call. Well, 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, Friday, 03/26/2021. I'd now like to hand the conference over to your first speaker today, Mr.

Clark Soc. Thank you. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's fourth quarter twenty twenty earnings release was distributed earlier today and is available on our IR website at ir.itiger.com as well as GlobeNewswireServices. On the call today from UP Fintech are mister Wu Tianhua, chairman and chief executive officer, mister John Zhang, 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. The statements we are about to make contain 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 furnished today, 03/26/2021, and our annual report on form 20 f filed on 04/29/2020. 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, mister 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 day, everyone, and I appreciate your attendance in Tiger Brokers' fourth quarter twenty twenty earnings conference call. In the fourth quarter, our operating and financial metrics exhibited solid improvement due to a surge in new clients as well as enhancements to our platform and services. In the fourth quarter, total revenue was $47,200,000 point four times compared to that of the same period last year and a new all time high.

Kaiser's operating efficiency and profitability continue to improve. Non GAAP net income was $10,300,000 in the fourth quarter, nearly 30 times the non GAAP net income in the same quarter last year. In addition, I'm pleased to report that we added 44,000 new funded accounts this quarter, nearly quadruple the number from the same period last year. Total funded accounts reached 259,000 by the 2020, more than double that of 2019. Growth in client assets was outstanding.

Total account balance reached $16,000,000,000, more than triple that of the fourth quarter of twenty nineteen and forty six point two percent higher than the 2020. Overall, for 2020, total revenue was $138,000,000, more than double versus 2019. We were profitable for the first time on a yearly basis. Non GAAP net income was $22,300,000 in 2020, a big improvement from a non GAAP loss of $1,800,000 in 2019.

Speaker 2

I

Speaker 1

would now like to take this opportunity to comment on three notable milestones in our development. First and foremost, our internationalization strategy continues to progress nicely. Tiger Brokers now has subsidiaries and offices in The US, Australia, Singapore and New Zealand that possess a wide range of licenses that span brokerage, investment banking and asset management, among others. In the fourth quarter, I am pleased to report that our expansion in the aforementioned overseas markets accelerated. International clients represented 40% of newly funded accounts.

We expect that in 2021, we will add more than 350,000 funded accounts. International clients will comprise more than 50% of the new funded accounts. Moving on. Our investment banking and ESOP services continue to lead the market. We are committed to our growth strategy of leveraging Tiger's core brokerage business to generate synergies among ESOP, investment banking, and internationalization.

In 2020, in total, we participated in 26 Chinese ADR IPOs in The US. And in q four, we participated in eight listings, such as Seventeen Technology, iHuman Inc, and Yatzen Holding Limited. Recently, we also underwrote the secondary listings of Bilibili and Autohome in Hong Kong. I would like to express my appreciation to all of these companies for their trust at such an important time. Reflecting on the development of our investment banking business, in just two years, we have become the number one underwriter globally in terms of deal counts for Chinese ADR issuance.

ESOP, our system for managing employee stock options, continues to grow at a rapid pace. In the past year, of the Chinese ADR issuers that listed in The US, over half chose to adopt our ESOP system, including popular issuers like Lee Auto, Kingsoft Cloud, and Yassen Holding Limited, among others. The growth in adoption of our ESOP system accelerated as we added 35 clients in the fourth quarter for a cumulative total of 124 clients. We expect our ESOP system to maintain its leading position and foresee further increases in market share. Finally, we continue to invest in developing our self clearing capabilities.

In July 2019, when we acquired Marsco, a U. S. Broker dealer with over thirty years of self clearing experience, we also acquired their clearing licenses. Our investment to transition to self clearing remains a key milestone in our firm's development. We now have the technological and operational prowess to control every aspect of our brokerage system from the front end to the back end.

Self clearing has also created a competitive barrier for our firm due to its extensive technical compliance and operational requirements. The percentage of clients having their US cash equities trades self cleared by Marsco continues to increase, and at the end of the fourth quarter, reached over 20%. In addition, Marsco is conducting clearing for all new clients onboarded in The US. As I conclude my prepared remarks, I would like to thank the investors who participated in our convertible bond issuance for their support of our firm. In February 21 February 2021, we, in total, issued $65,000,000 of convertible bonds.

This capital will accelerate our international expansion as well as support further investments in our research and development capabilities. I would now like to invite our CFO, John, to summarize our financial performance.

Speaker 2

Hello, everyone. Thanks to Tianhua and Clark. So let me go through our financial performance for the fourth quarter. All numbers are in USD. Total revenue were CNY 47,200,000.0 this quarter, increased 137% from the same quarter of last year.

The increase was due to bigger user base as more people entrust us with their assets and more active market backdrop. Within the total revenue, commission increased 245% from last year to reach 25,200,000.0. Interest related income, which combines financing service fee and interest income, was million dollars an increase of 53% from last year. Other revenue, mostly revenue from our investment banking business, increased 119% from last year to 8,700,000.0. Interest expense increased to CNY 4,300,000.0 from CNY 1,500,000.0 last year as we have more consolidated account customers.

Net revenue after interest expense was 43,000,000, an increase of 135% from the same quarter last year. Now on the cost. Execution and carrying expenses were 4,200,000.0, increased 363% year over year due to increase in user base and more engaged treating activities. The increase in user base also increased communication and market data expense by 103% to 3,900,000.0. Employee compensation increased 47% to EUR 15,500,000.0 as we keep adding headcounts, especially in R and D and product to support our global expansion.

As a result of headcount increase, our occupancy expense increased 12% to RMB 1,300,000.0. SG and A also increased 70% to RMB 4,800,000.0 year over year. Marketing expenses were 6,500,000.0 this quarter, an increase of 277% from same quarter last year. We will keep spending in branding and customer acquisition to accompany our internationalization. Total operating costs were 36,300,000.0, an increase of 90% from same quarter last year.

As a result, our net income was 8,500,000.0 this quarter. Non GAAP net income, which excludes share based compensation, CNY 10,300,000.0 this quarter, 30x the non GAAP net income in the same quarter of last year. Now I have conclude our presentation. Operator, please open the line for Q and A. Thanks.

Speaker 0

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question now, please press star one on your telephone and like for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Our first question comes from Jackie Tuo from China Renaissance.

Please ask your question.

Speaker 3

Hi, management. Thanks for taking my questions. I have two questions. Number one is about our guidance. I heard we expect 350,000 new paying users for this this year.

Just want to understand the drivers behind this guidance, what is trend in the in the first quarter this year. And we also mentioned 50% of it will come from overseas markets. So can you give us more details in terms of breakdown of, like, Singapore, US, and other countries? And second question is about our Singapore business. I saw that Futu actually entered Singapore in March.

Do we expect some impact from from this in terms of our growth? And how do we deal with, you know, intensifying computation in Singapore? Thank you.

Speaker 2

Let me translate. All right. Thanks, Yaki. So let me quickly translate Tianhua's answer for your first question. So

Speaker 0

let me

Speaker 2

put it this way. So traditionally, Tigress user mostly are onshore Chinese. So starting from last year, we started to onboard Singapore clients. So far, it's showing good results. So this year, we will expand The US and Australia.

So on a high level, more geographic expansion and our experience in Singapore give us the confidence to acquire more users this year. So we understand investors are getting nervous recently about the market this year. So the 350,000 guidance is not based on our high growth in 2020. Instead, we use 2019 data when market activity was much lower as our base case. So in 2019, each quarter, add about like 42,000 customer accounts.

So assuming U. S. And Australia will gradually reach that number this year, combining with Singapore, we feel pretty comfortable each quarter we will have at least 100,000 new customer accounts from offshore investors. And based on our experience, offshore clients have much higher customer to funded account conversion, typically loss of 60. So this translates to around 60,000 funded account each quarter from offshore.

And we are confident onshore clients and ESOP also add another 20,000 to 30,000 funded accounts each quarter. So combining that, we feel pretty confident we can reach our guidance of 350,000 funded accounts this year. Okay. So regarding Singapore, so there will be some competition. But we don't think it's a zero sum game because we feel the TAM in Singapore is still very big for us to grab.

So if you look at Singapore's existing market, based on CDP data, there are about 1,300,000 accounts that trade Singapore local stocks. And most of them still prefer to place order by phone. And this is a market we haven't really penetrated yet. So currently, Tiger, our focus is on the incremental market, the younger Singaporeans similar to our Chinese users who is more interested in U. S.

Or Hong Kong stock. This incremental market is showing good momentum. So we will tap into the existing market by adding more local products on our platform such as BLC, FanMo and getting Singapore SGX self clearing license so we can provide better service and acquire more users from those market segments. Thanks. Thank you.

Thank you.

Speaker 0

Next question comes from Ziyu Yao from CICC. Please ask your question.

Speaker 4

Hi, management. Thanks for taking my questions. I'm Pei Yuao from CICC. And firstly, congrats on the exciting results we have achieved. And I have two questions here.

The first one is about our growing customers. We see a total of 44,000 from these accounts added in this in this quarter, and the total paying of customer has reached nearly $260,005.20 20. But we also see the volatile market environment strictly. I'm wondering, suppose it would be it would be if it's the bear market since the second quarter, then what major from your retake on customer acquisition and how to increase the customer activities? And then the second question is regarding on our corporate business.

In this quarter, we see a rapid growth of new ESOP clients with 35 newly added and existing existing that most of our major competitors. Could management share more with us that why we have grown so rapidly on the ESOP business in the recent years and which are our unique advantages? Thank you.

Speaker 2

Okay. Zhui, thanks for your question. To answer your first one, so since our inception in seven years ago, we have experienced quite a few market volatility. So we have experience on that. So in general, for our business, especially for the online broker business, tend to have higher retention.

Quarterly retention rate is around 98% through our operating history. How do we increase user activities and keep the retention? So for the past year, we actually have been spending quite a resource to optimize our online community operation. So far we have seen positive results. For example, our content consumer or content creators, in general, their retention rate will be 20% higher than the rest of the users.

Good content can also help users to make decision and increase trading activities. On average, content users, their trading activity will more than double. If you log on to Tiger community, you can see right now our offshore clients, they are actually more engaging in our community. We have seen more and more engaged pros in our community, which is good progress. We think we'll keep investing.

And also for brokers, this is my volatility in certain extent is good for us. So for example, in first quarter last year, even during big corrections, user engagements were still pretty high. We think throughout this year, the media coverage and also the transparency of the information, we think the market volatility will continue. In the worst case scenario, say if it's a fair market, we also have more wealth management product for our users. For example, we added mutual fund automatic investment plan.

We also have cash management product like cash cost. So we think those wealth management product will help our users to manage their investment during bear markets. Okay. So regarding ESOP, we think, you know, the the mode actually, you know, it's it's pretty high. You need a lot of know how to be able to be a good ESOP provider.

So first of all, given a lot of our ESOP clients, they are international company, now

Speaker 1

they

Speaker 2

have subsidiaries or employees from different countries, different regions. So I think as a service provider, ourself needs to be a global company to have the global platform to service their different reaching employees. So type that we have licensing Singapore, US, Australia. So we feel we are more capable to be customized and tailored to the different needs of our clients. So that's the first point.

The second, I would say the second growth driver for our ESOP business is like, as you can see from our past reports, so far we have been generating good synergy between Esoft and our investment banking business. So we not only help company to get invested to raise funds, also help them from the very beginning to help them to manage the plan to satisfy all the local regulations and also to help them go through the IPO process and to manage their plans when the stock options are vested. So the combination or I would say the bundled service between our ESOP and IPO has been showing really good results. And the way we are confident going forward this strategy will keep working and provide the best service for our clients. Lastly is Easeof is a pretty, I would say, complex business.

And we are investing heavily in research and development and also acquire recruit talents to build a one stop solution provider combining HR, tax, legal, compliance, accounting expertise to make the use of management more efficient and user friendly for our corporate users. Thank you.

Speaker 0

Our next question comes from Han Yang Wang from 86Research. Please ask your question.

Speaker 5

Let me check with my questions. Have two questions. The first one is regarding on the Hong Kong license. Could you mention the share of the progress of our Hong Kong brokerage license application? Second question is about our international business.

We mentioned the increase of the marketing expense was primarily due to global expansion. Could you share the custom organization cost per paying client in China, Hong Kong overseas market? And how we should look at the brokerage revenue contribution from the overseas market after two to five years? And my third question is on the commission rate. So in my calculation, our commission rate increased sequentially during the quarter.

Any color for that will be helpful. Thank you.

Speaker 2

So to answer your question on internationalization, so we are very committed and optimistic about our global expansion strategy. Because first of all, see the global expansion strategy is a good way for us to increase the customer account to funday.com conversion. Like we mentioned earlier, a lot of those regions, the conversion rate can be more than 50%, sometimes 60%, 70%. So in this way, this will give us a big tailwinds once we generate good customers offshore and build a good momentum. It can help us to reach over a million funded account customers in the near future.

So our goal is to become a one stop investment platform for global investors no matter where they are based. So we are very committed to internationalization. And in addition to the operating data growth by internationalization, we feel by acquiring more investors offshore will also help us to generate better financial results for the company and for the shareholders. So that's your question on internationalization. So on marketing, the customer acquisition.

So if you look at our 2020 data, our customer acquisition cost is about like 100 USD per person. So this actually has came down from earlier, and I say 2019, when our customer acquisition cost was about like 200 to 300. So the reason of the decrease is due to, of course, we have a better branding now and there are more natural traffic. And also we are providing more comprehensive services to the users. So there are more users coming to our platform.

Going forward, when we expand offshore, we think the customer acquisition costs will go up. Because first of all, there might be other players who will be competing for the users. Second thing is, if we go to a new market, it will take us some time to build up our brands. So at the very beginning, we will spend more to do more branding to increase our brand awareness. But through our past experience, we think all those marketing experience are well worth it.

Because if you look at our customer payback period, it actually came down to just maybe one quarter. So if we go to more market, will mimic the same strategy to keep spending to acquire users. So in the short term, I think operating data will build a bigger user base is more important for us. So we will keep spending once we get into the new markets. And for your take rates, yes.

So the commission rate, if you calculate commission rates go up a little bit versus last quarter on a quarter over quarter basis. But eventually, we haven't done any pricing change. So our pricing stay the same. For US, it's about $01 per share, minimum 2.99. And for Hong Kong, it's 2.9 bps for Hong Kong securities trading.

And to answer your question on the Hong Kong license, so we resubmitted our application to acquire Hong Kong stockbroker earlier last month. So we believe the application contains all the information required by SFC. As a result of the discussion, we initiated with them to confirm what was required. So the regulation may require further information from us, although we believe we have given them a very comprehensive material. So far, they have not asked for any follow-up information.

They may do so in due course, but so far they haven't done that yet. So typically, you know, the application will take six to twelve weeks to process. Obviously, we cannot guarantee the outcome or timing, but we are as confident as we can be that we have filed everything. The regulator reasonably needs to consider the application. Thanks.

Speaker 5

So so,

Speaker 2

you know, we just break even for this year. Right? So, you know, as every start up, when they break even, they before they were break even, they have a huge losses before. So we have accumulated a lot of tax benefits. So once we started to break even, you know, we'd be able to, you know, utilize those tax benefits for this quarter.

Understood. Very helpful. Thank you.

Speaker 0

Thank you. We have reached the end of the question and answer session. I'll now turn the call back to presenters for closing remarks.

Speaker 1

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 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

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.