UP Fintech Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 27, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the R FinTech Holdings Limited Third 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, November 27, 2023. I would now like to hand the conference over to your first speaker today, Mr.

Operator

Aaron Li, the Head of IR. Thank you. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining us for the call today. Our FinTech Holdings Limited's Q1 2023 earnings release was distributed earlier today and is available on our IR website at ir. Itigerapp.com as well as Globe News for our services. On the call today from UPFintech are Mr.

Speaker 1

Wu Tianhua, Chairman and Chief Executive Officer Mr. Zhang Zeng, Chief Financial Officer Mr. Huang Lei, CEO of US Tech Securities and Mr. Kenny Zhao, our Financial Controller. Mr.

Speaker 1

Wu will give an overview of our business operations and discuss Harvard's highlights. Mr. Zong 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 safe harbor.

Speaker 1

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 ks furnished today, November 27, 2023, and our Annual Report on Form 20 F filed on April 26, 2023.

Speaker 1

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 English translation.

Speaker 1

Mr. Wu, please go ahead with your remarks. Hello, everyone. Thank you for joining the Tiger Brokers Third Quarter 23 Earnings Conference Call. In the 3rd quarter, we saw improvement in both commission and interest related income.

Speaker 1

As a result, total revenue was US70 $1,000,000 an increase of 6.2% quarter over quarter and 26.6 percent year over year. On the bottom line, as we started to see more operating leverage, net income attributable to FinTech were US13.2 million dollars a slight increase from the previous quarter and approximately 4 times that of the same quarter of last year. Non GAAP net income attributable to FinTech was US60 $1,000,000 up 4.3% from Q2 of this year an increase of 141% from the same quarter of last year. We are glad to see a consistent quarter over quarter growth in the company's bottom line for all 3 quarters this here. Total non GAAP net income of the 4th 3 quarters of this year were US41 $1,000,000 already exceeding the combined full year non GAAP net income of 2021 2022.

Speaker 1

We are confident in our business model to be adaptable in different In the Q3, we added 24,604 new funded accounts, bringing the total number of new funded accounts in the 1st 3 quarters of this year for over 84,000. Total number of funded accounts at the end of the 3rd quarter reached 865,000, representing a growth of 15% compared to the same quarter of last year. In terms of total client assets, The trend of asset inflow remains strong with net inflow over US1.5 billion dollars in the 3rd quarter. After neutralizing the impact from mark to market loss, total client assets in this quarter increased by 9.3% quarter over quarter and 45.4 percent year over year, reaching US18.9 billion dollars Specifically, in the Singapore market, Net inflow from local users remained stable and strong. In Singapore, the average net asset inflows of our newly acquired clients in the 3rd quarter were approximately US10 $1,000 and we see similar trend in terms of net asset inflows from previous quarterly cohort groups.

Speaker 1

This demonstrates our ability to attract high quality new users in Singapore and solidify our leading position in the local market. 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 Q3, the Tether community introduced the Trading Sparks feature. Users can follow best performing traders on our platform and leverage their trading ideas for investment opportunities. Additionally, on the wealth management business, following the launch of U.

Speaker 1

S. Dollar and Hong Kong dollar money market On TigerVault earlier this year, we recently added U. S. Treasury to our wealth management platform in Singapore. We anticipate launching of this new feature for Hong Kong users in December.

Speaker 1

Our 2B business continues to perform well. In Investment Banking, We ended up 4 U. S. And Hong Kong IPOs in the Q3, including EarlyWorks and KIP. In our e book business, We added 27 new clients in the 3rd quarter, bringing the total number of e book clients served to 505 for the end of the Q3 of 2023, increased by 29% year over year.

Speaker 1

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

Speaker 2

Hello, everyone. Thanks, Tianhua and Aaron. Let me go through our financial performance for the Q3, all numbers are in US dollar. Total revenues were $70,100,000 this quarter, increased 6.2% quarter over quarter and 26.6% year over year. Both commission income and interest related income saw a sequential increase this quarter.

Speaker 2

Cash equity take rate was 6.1 bps this quarter, Slightly decreased 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 on cost, Interest expense was $12,100,000 increased to 182% from the same quarter of last year, in line with the rate hike. Execution and clearing expense were $2,400,000 decreased 26% from the same period of last year, primarily due to more self clearing in U. S.

Speaker 2

And Hong Kong Securities. Employee compensation and benefits expense were $26,000,000 an increase of 8% year over year due to an increase in global headcounts. Depreciation expense decreased 10% to 2,200,000 as the depreciation of the headquarters office declaration has been completed. Communication and market data expense were $7,600,000 an increase of 16% year over year due to the increase in user base. Marketing expense were $5,200,000 this quarter, decreased 30% year over year as we remain prudent with our marketing approach in the 3rd quarter.

Speaker 2

General and administrative expense were $5,400,000 an increase of 55% year over year Due to increase in professional service fees, total operating expenses were 48,800,000 slightly increased 3.1% from the same quarter of last year. As a result, both GAAP and the non GAAP bottom line increased Quarter over quarter and year over year GAAP net income was $13,200,000 slightly increased 1% from the previous quarter and about 4 times that of the same quarter of last year. Non GAAP net income was $16,000,000 up 4% from the previous quarter and increased 141% versus the same quarter of last year. Now we have concluded our presentation. Operator, please open the line for Q and A.

Speaker 2

Thanks.

Operator

Thank you. We will now begin the question and answer session. One moment for the first question. First question comes from the line of Han Pu from CICC. Please go ahead.

Speaker 3

Thanks management for taking my question. I have two questions. Firstly, could you please give us the regional breakdown of the new funded accounts in Q3. And secondly, we have seen the obvious improvement in the bottom line this year. Strategically, how do you balance the growth and probability in 2024, do we have any plans for new markets?

Speaker 3

Thank you.

Speaker 1

Okay. So for the first question, among the new funded accounts in the Q3, approximately 55% came from Singapore, Contributions from Hong Kong, Australia, New Zealand region and the United States accounted for around 15% each. We've seen quarterly growth

Speaker 4

on the

Speaker 1

bottom line throughout the 1st 3 quarters of this year, accumulating over US41 $1,000,000 As of now, the number of new funded clients has already exceeded our annual guidance of $500,000 and total client assets for the end of the 3rd quarter have increased by 9.3 percent quarter over quarter and 45.4% year over year, reaching US18.9 billion dollars So we have improved our profitability while growing user base and asset under custody. I believe the growth of user base and client assets goes hand in hand with the profit growth in the long run. There is a cap on how much cost saving can have profitability, Especially with some variable costs, for example, our clearing expenses are already one of the lowest in the industry. So the key is still to acquire more high quality user, get more assets on our platform to increase total revenue and net income. It's a great question that you asked and it's also a question we keep asking ourselves, how to achieve better operating leverage if we incur more costs like CEC.

Speaker 1

That's why we use ROI and the payback period as important metrics to evaluate our different subsidiaries. As of now, our focus will continue to be on driving sustained profit growth in the existing market with manageable investment. So we can build buffer for company's future expansion, we will carefully evaluate our aspects of company's resources before determining the pace And direction of new markets we want to enter. Thank you.

Operator

The questions, one moment for the next question. Next up, we have the line from Cindy Wang from China Renaissance. Please ask your question.

Speaker 5

So thanks management for taking my questions. So I have two questions. First question is market, is that The Fed rate hike cycle is coming to the end and may start to cut interest rate in the mid-twenty 24. So based on this scenario, how would you adjust strategy and operations to maintain the current or even higher profit margin? And the second question is, the blended take rate in Q3 was down sequentially.

Speaker 5

So what's the reasoning behind it? Thank you.

Speaker 1

Okay. I'll translate to answer her first question. We think a good thing about the broker dealer business model is trading velocity in general nature hedge with interest rate. When rates go up, velocity and trading commission tend to go down and vice versa. In our business, a big chunk of interest income comes from margin financing And of course, we will also adjust our product and operational strategy based on different market backdrop.

Speaker 1

For example, In the past year, with the Fed rate hikes, we introduced more yield products such as U. S. Dollar and Hong Kong dollar money market funds and feature for investments in U. S. Treasury.

Speaker 1

We also generated more interest income through treasury management and margin financing securities lending business. In the future, as market activity improves with interest rate costs, more client assets will likely to shift from fixed income investment to equity investments. We will roll out more tailored investor education and promotions based on market condition. So overall, we still consider future interest with

Speaker 2

So the slight decrease in blended take rate was due to high priced names Tesla and Envida accounted for a big portion of our trading volume in the Q3. So, the increase in share price of those names outpaced The increase in number of shares traded. Since we charged commission by number of shares, the blended take rate came down slightly versus last quarter, Even our pricing remains the same. Thanks.

Operator

Thank you for the questions. One moment for the next questions. The next question comes from the line of Alan Kuang from Citibank. Please go ahead.

Speaker 4

Thanks management for taking my questions. This Alan from Citi Research. I have two questions today. The first one is about the Singapore market. Recently, we have seen one of our Tiger competitors building up growth momentum in Singapore with decent paying customer growth and market share gain during the Q3.

Speaker 4

As Singapore is Tiger's core markets, Wondering if management have any comments on the latest local market share trends and on a forward looking basis, Could management give us some color or updates on the latest growth strategy for the Singapore markets? And the second question is about crypto trading license. Wondering if management have any updates on the license application? Thanks.

Speaker 1

So, for your first question regarding our business in Singapore, The Singapore market has been a key profit driver for Tiger. Thanks to our low average DC, which staying below US200 dollars in the 1st 3 quarters. We've seen a double digit compound growth on the bottom line throughout the 1st 3 quarters of this year. Also, the success in Singapore has boosted Tiger's reputation in The entire Southeast Asian market brings a solid foundation and brand advantage for future entry into those Southeast Asian market. In the Q3, the overall net asset inflow continued its strong momentum with around US1.5 billion dollars Singapore played a big part in it With average net asset inflows of our newly acquired clients in the Q3 reaching around US10 $1,000 and more importantly, our existing users from Singapore market shows a similar trend in terms of net asset inflows.

Speaker 1

The retention rate of our local users with assets remained at 99% And the cash equity trading volume saw quarter over quarter increased about 10% and we ranked at number 1 among all online brokers in Singapore in So whether we are looking at our strategic position, profitability, net inflows of client assets Our retention rates, we are comfortable with where we stand in Singapore. Our success locally is closely tied to our focus on user quality and our commitment to balancing ROI. So looking ahead, we will continue this strategy ensuring profitability while attracting

Speaker 2

So in our view, crypto is becoming a very important It's a natural extension of business as a broker dealer to add a new asset class and the Web3 technology is also integrated with Tiger's FinTech Background and the Low How. So we are applying for multiple licenses across regions. For example, in the US, We are applying for MSP license in each state. In Singapore, we are applying for PSA license. In Hong Kong, we already submitted our VATP application following SFC's consultation back in June.

Speaker 2

So hopefully, by next year, we will get approval and offer crypto trading to investors. Thank you.

Operator

The questions? Now I would like to hand the call back to management for closing remarks please.

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 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.

Speaker 2

Thank you.

Operator

Ladies and gentlemen, that concludes the conference call for today. You may now disconnect.

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Earnings Conference Call
UP Fintech Q3 2023
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