UP Fintech - Q4 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to the UP Fintech Holding Limited Q4 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 this 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 (Head of Investor Relations)

Thank you, Operator. Hello everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's Q4 and full year 2023 earnings release was distributed earlier today and is available on our website at ir.itigerup.com, as well as GlobeNewswire. 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 US 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 the remarks. Now, let me cover the safe harbor. The statements we are about to make contain forward-looking statements.

To the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, a number of factors could cause actual results to differ materially from those containing 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.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

Hello everyone, thank you for joining the Tiger Brokers Q4 and full year 2023 earnings conference call.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

Today marks the 5th anniversary of Tiger's listing on NASDAQ. During the past 5 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 improvements 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.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

In 2023, we continue to advance our internationalization strategy, further solidifying our leading position in Singapore and officially entered Hong Kong. Benefiting from the higher interest rate environment, Q4 total revenue reached $70 million and a 9.6% increase compared to the same period of last year. Our full year total revenue amounted to $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 $32.6 million. Non-GAAP net profit reached $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 Q4 , due to depreciation of U.S. dollar against other currency, we recorded a $7 million non-cash foreign exchange loss versus a $2 million foreign exchange gain in the Q3, resulting in our non-GAAP net income decline quarter-over-quarter to $1.1 million.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

In the Q4 , we added 39,000 funded accounts and an increase of 58.6% from the previous quarter. The total number of funded accounts for the year reached 123,100, 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 Q4 , by leveraging our strong presence in 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 $150. In terms of total client assets, the trend of asset inflow remained strong. We saw a record $8.2 billion net asset inflow this quarter.

In addition to $3.5 billion mark-to-market gain, total client assets jumped 62.1% quarter-over-quarter and more than doubled year-over-year to $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 Q4 . The average net asset inflows of newly acquired clients in Singapore were above $16,000 in the Q4 , setting a historic high since our launch into Singapore retail market.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

We continue to add new products on our platform to enhance user experience, which we believe is the key to our long-term success. In the Q4 , we introduced Combo Option Strategy feature, a very user-friendly product that allows users to execute multi-leg options trades 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 positioned us as one of the first mainstream online brokerage firms in Hong Kong to receive approval for such a license upgrade.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

Our B2B business continues to perform well. In the investment banking service, we underwrote a total of 9 U.S. and Hong Kong IPOs in Q4 , including Shiyue Daotian Group and J&T Global 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 Q4 , bringing the total number of ESOP clients served to 535 as of the end of 2023.

Wu Tianhua (Chairman and CEO)

[Foreign language]

Speaker 8

Now I would like to invite our CFO John to go over our financials.

John Zeng (CFO)

Great. Thanks, Tian. Hi, Aaron. Let me go through our financial performance for the Q4 . All numbers are in U.S. dollars. Total revenue were $70 million this quarter, remained flat 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%, comes from cash equities, 30% from options, and the rest comes from futures and other products. Now onto 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 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. Marketing expense were $5.8 million this quarter, decreased 22% year-over-year as we remain prudent with marketing campaigns. General administrative expense were $7.3 million, an increase of 23% year-over-year due to professional service fees recorded in the Q4 . 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 our non-cash foreign exchange losses resulting from the depreciation of the US 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.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. 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 (Director)

[Foreign language]

Speaker 8

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. Have you seen any improvement in Q1 this year based on the current run rate? 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.

John Zeng (CFO)

[Foreign language]

Speaker 8

Okay. The Non-GAAP bottom line decreased in the Q4 versus the Q3. There are several factors. First one is, our total revenue is flat quarter over quarter, but we incur more interest expense during the Q4 due to the rate hike cycle. The total net revenue decreased $4 million quarter over quarter. The second factor is that in the Q4 , more costs will hit the book, such as professional service fees, which result in a $3 million jump in the cost. The third reason is about foreign exchange losses. In the Q4 , the US dollar depreciated against RMB and Singapore dollar, so we incur a non-cash $7 million foreign exchange losses in the Q4 versus a $2 million gain in the Q3.

Combine those two factors, it leads to a non-cash decrease of about $9 million on a sequential basis. In terms of run rate, we have seen an increase in trading activities during the first two months of this year, and we also saw very strong client net asset inflow. Given the foreign exchange rate was relatively stable in the Q1, we expect the profitability in the Q1 will be much better in the Q4 . Thanks.

Huang Lei (CEO)

[Foreign language]

Speaker 8

We're ready to answer 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 new number to increase from each market accordingly. We believe that the market they have already entered has tremendous potential. Taking Singapore, for example, where Tiger Brokers already has a relatively high market share. However, there's still significant room for growth.

This can be seen from the number and quality of our newly acquired clients in Singapore in the Q4 . In markets like Australia, New Zealand, and Hong Kong, we have even more room to improve and expand. 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. Thank you.

Operator (participant)

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 (Equity Analyst)

[Foreign language]

Speaker 8

Thank you for taking my question. I have two questions. The first question is regarding the commission and the turnover. We saw the customer AOM has increased significantly in the Q4 , but the commission turnover didn't improve that much. What's the underlying reasons behind? And second question is regarding the new funded customer. The new paying customer has increased a lot Q on Q, but the CAC reached a record low level. Can management share with us? Give us some color on the company's new customer acquisition strategy? Thank you.

Huang Lei (CEO)

[Foreign language]

Speaker 8

Okay. For the first question, by the end of the Q4 , total client asset increased by 62% compared to the previous quarter and more than doubled compared to the end of last year to $30.6 billion. There are a few factors contributing to this growth. Firstly, the rise in NASDAQ index and high names in the Q4 led to a mark-to-market gain of $3.5 billion on our total client asset. This means that even without considering that as an inflow, our total client asset would have seen an increase 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 Q4 , these efforts gained more trust and recognition from global investors who transferred their position to our platform. This significantly contributed to the total of $8.2 billion net asset inflow in the Q4 . However, to be honest, some of these institutional investors are venture capital and private equity on the primary market, which have lower velocity compared to retail investors or hedge funds. As a result, the contribution of the increased client assets from these kinds of institutional investors to our commission revenue was fairly limited in the Q4 and so far.

Huang Lei (CEO)

[Foreign language]

Speaker 8

For the second question, in the Q4 , we enhanced our brand presence in Singapore and Southeast Asia market by rolling out more online advertising. We have seen an increase in organic traffic and word-of-mouth referral, and led to a high number of new funded accounts in the Q4 . However, we've seen the users from different acquisition approaches may vary in quality. Moving forward, we will dynamically adjust our customer acquisition strategies based on their effectiveness to ensure the healthy ARPU and profit model. Thank you, Judy. Operator, please move on to the next question.

Operator (participant)

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 (Analyst)

[Foreign language]

Speaker 8

Thanks for taking my question. This is Han Pu from CICC. I have two quick questions. Firstly, could you please share the regional breakdown of the 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.

Huang Lei (CEO)

[Foreign language]

Speaker 8

Okay. Among the new funded accounts in the Q4 , about 60% came from Singapore and Southeast Asia. Nearly 20% came from the United States. The contribution from Hong Kong and Australia, New Zealand region accounted for around 10% each.

Huang Lei (CEO)

Okay. Hello, [Foreign language]

Speaker 8

We have entered Hong Kong retail market for one year, and so far we are relatively satisfied with our progress. To gain share in such a 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 platform fees when they are trading Hong Kong securities on Tiger 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 Q4 , we launched the UST bonds and trading share features in Hong Kong.

In the Q1 of this year, we uplifted Type 1 license with SFC, allowing professional investors, PI users, to trade crypto on the Tiger Hong Kong platform. We expect this feature to go live in the next 1 or 2 months. Our local business is gradually expanding, and the user quality also improved from time to time. In the early stage of our role in Hong Kong, we were exploring the market and understanding our local users, which took some time. In the Q4 , we implemented a more localized customer acquisition strategy. As a result, the net asset inflow in the Hong Kong market exceeded the total for the first three quarters of this year.

Additionally, the average net asset inflow from newly acquired clients in the Q4 exceeded $5,000, indicating a good user quality in the Hong Kong market and a big growth opportunity for us to explore in the future. Thanks.

Thanks, Mao. Let's move on.

Han Pu (Analyst)

Thank you, [Foreign language]

Operator (participant)

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

Aaron Li (Head of Investor Relations)

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 this 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.

Huang Lei (CEO)

Thank you.

Aaron Li (Head of Investor Relations)

Thank you.

Operator (participant)

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