UP Fintech Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 30, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the UPFintech Holding Limited First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. There will be a presentation followed by question and answer session. I must advise you that this conference is being recorded today, May 30, 2023.

Operator

I would now like to hand the conference over to your first speaker Today, Mr. Aaron Lee, the Head of IR. Thank you. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining us to the call today. AspenTech Holding Limited's 4th quarter 2023 earnings release was distributed earlier today and is available on our IR website at ir.ifigerapp.com as well as Global Newspaper Services. On the call today from Pingtan are Mr. Wu Jie Hua, Chairman and Chief Executive Officer Mr.

Speaker 1

Zheng Zheng, Chief Financial Officer Mr. Huang Lei, CEO of U. S. Tiger Securities and Mr. Kenny Zhao, our Financial Controller.

Speaker 1

Mr. Wu will give an overview of our business operations and discuss corporate highlights. Mr. Sun will then discuss our financial results. They will both be available to answer your questions during the Q and A session that follows the remarks.

Speaker 1

Now let me cover the Safe Harbor. 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.

Speaker 1

For more information about factors May 30, 2023, and our annual report on Form 20 F filed on April 26, 2023. 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.

Speaker 1

Wu will make remarks in Chinese, which will be recorded by English translation. Mr. Wu, please go ahead with your remarks. Hello, everyone. In the Q4, we saw a moderate rebound in the market condition.

Speaker 1

However, the high inflation expectation in the U. S. And continuous price tightening still hampered investor confidence and market activities. Under this market backdrop, We remain committed to our international addition strategy of optimizing our revenue mix and expense management. In the Q1, commission income and interest related income further improved sequentially.

Speaker 1

The total revenue increased by 3.9% quarter over quarter and 26% year over year, reaching US66.3 million dollars GAAP and non GAAP net profits attributable to FinTech were US8 $1,000,000 US10 $300,000 respectively, an increase of 5 41% and 129 compared to the previous quarter and a big turnaround compared to the net loss in the Q2 of last year. Non GAAP bottom line in the 4th quarter was the highest into the past 2 years, demonstrating our In the Q4, we added 30,392 new funded accounts, increased 11.2% quarter over quarter. We are confident to give our annual guidance of acquiring at least 100,000 new funded accounts in 2023. Total number of funded accounts at the end of 4th quarter reached 810,000, representing a growth of 15.4% compared to the same quarter of last year. In terms of total client assets, The trend of asset inflows remains strong with net inflows nearly US1.2 billion dollars in the 4th quarter, mainly contributed from Singapore and Mainland China.

Speaker 1

With the market recovery leading to mark to market gains, total client assets in the 4th quarter increased by 15.2% compared to the last quarter, reaching US16.1 billion dollars In addition, we are very glad that we can keep acquiring high quality users While optimizing our customer acquisition costs, the overall average net asset inflows of the newly acquired retail clients exceeded US17000 dollars for 4th quarter. An average CEC in the 4th quarter was US171 dollars a 37% drop quarter over quarter. This indicates our ongoing international expansion effort has been recognized by local investors in various regions and ROI remains at the industry leading level, We continue to invest in research and development to improve operational efficiency and to enhance user experience. When you're speaking from SaaS clearing capability in the U. S, our SaaS clearing efficiency has consistently maintained at a leading level in the industry.

Speaker 1

In the Q4, the execution and clearing expenses as a percentage of the commissions further decreased from 16.1% in the previous quarter to 9.6% as we started to self clear more Hong Kong activities since February. In addition, we launched beta test of Tiger GPT. This feature is based on the underlying model of CheckTGT combined with financial figures to information and market data accumulated by Tiger Brokers over the years. It allows experienced users to quickly extract and then analyze investment related data to help them with their investment research, also significantly reduces the learning curve for new users. In Wealth Management Business, following the Singapore market, we launched Tiger Road, Our wealth management product in Hong Kong in April to help users diversify their portfolio and enhance synergy by combining cash management and other investment products.

Speaker 1

Our 2B business continues to perform well. In Investment Banking, we enrolled 8 U. S. And Hong Kong IPOs in the 4th quarter, including Contacting Group Limited and YH Entertainment Group. Your eSource business rallied 29 new clients in the 4th quarter, bringing the total number of eSource clients served to 4 48 by end of the Q4 of Now I would like to invite our CFO, John, to go over our financials.

Speaker 2

Okay. Thanks, Tianhua and Aaron. Let me go through our financial performance for the Q1. All numbers are in U. S.

Speaker 2

Dollar. Total revenue were $66,300,000 this quarter, an increase of 26% year over year and 3.5% quarter over quarter, primarily due to a 13% jump in interest related income versus last quarter. Cash and equity take rate was 6.3 bps this quarter, Slightly decreased from 6.9 bps from last quarter. We did commission revenue about 60% comes from cash equities, 30% from options and the rest from futures and other products. Now on to cost, Interest expense was $8,400,000 increased by 130% from the same quarter of last year As interest expense and securities lending expense both increased in line with the rate hike.

Speaker 2

Execution and recurring expense were 2,400,000 decreased to 46% from the same period of last year, primarily due to more efficiency in self clearing for U. S. And Hong Kong Securities. Given we are only starting to move Hong Kong equities positions to tighter bulk of Hong Kong this February, we expect cash equity clearing expense Employee compensation and benefits were $24,400,000 a decrease of 11.2 percent year over year as we adjusted our headcount in response to challenging market conditions. Occupancy, depreciation and amortization expense increased 19% to $2,400,000 due to an increase in overseas office space and relevant fiscal improvements.

Speaker 2

Communication and market data expense were $7,000,000 an increase 9.2% year over year due to

Speaker 1

the increase in user base.

Speaker 2

Marketing expenses were $5,200,000 this quarter, decreased 48% year over year. Average CAC dropped 37% quarter over quarter from 271 to 171. We focus on quality of new users, don't see current market conditions suitable for major marketing campaigns. So we scale back marketing spending. That being said, we will dynamically adjust our marketing strategy based on the market sentiment in different regions.

Speaker 2

Total operating costs were 46,000,000 decreased by 16% from the same quarter of last year. As a result, bottom line increased on both GAAP and the non GAAP basis. GAAP net income turned positive to $8,000,000 versus a GAAP net loss of $5,900,000 in the same quarter of last year. Non GAAP net income Also, it's positive to $10,300,000 from a non GAAP net loss of $1,900,000 in the same quarter of last year. Now I have concluded our presentation.

Speaker 2

Operator, please open the line for Q and A. Thanks.

Operator

Thank you, We are now going to proceed with our first question. And the questions come from the line of Yu Fan from CICC. Please ask your question.

Speaker 3

Okay. I will translate. Thanks, management, and congratulations on the results achieved this quarter. This is Loyo Fan from CICC. And I have 3 questions to help.

Speaker 3

The first one is on the original breakdown of the newly added funded account in this quarter. And the second one is about the clients in Singapore. We know that Tiger has been in many positions since entering the market. So how is the current net asset inflows and the average asset balance of the clients in Singapore? And after ramping up for over 3 years, How is the asset balance of the clients that we acquired early when we first entered the market?

Speaker 3

And the third question is on the progressing on the Hong Kong retail market.

Speaker 1

In the Q4, around 60% of newly funded accounts came from Singapore, about 15% from Australia and New Zealand, About 20% from the United States and nearly 5% from Hong Kong. The second question, for Singapore where we have the most existing and new users, we are such great importance to the user experience and solidify our market position. Of the US1.2 billion dollars net asset inflow in the Q4, about 2 thirds came from Singapore. At the end of the Q4, the average planned asset of all funded accounts in this region was about US15000 dollars We officially entered the Singapore retail market in the Q4 of 2020 and we see that the average client assets of the 4th quarter in the 4th half of twenty twenty reached nearly US25000 dollars at the end of the Q4 of 2023, which was a 3 to 4 times increase compared to the 4th funded quarter.

Speaker 2

Okay. So in the Q1, in terms of user acquisition, Tantan only accounted for low single digits of new funded accounts. Couple of reasons. First, we didn't want to spend too much when market backdrop is still weak. We want to make sure UE remains attractive by raising our internal hurdle.

Speaker 2

Secondly, we are still testing new customer acquisition strategies and fine tuning those strategies based on user feedback. In the Q2, we will do more flight campaigns to celebrate Tiger's last year anniversary, which might increase CAC in the short term and we will keep a close eye on Payback. And in the Q2, we start to transfer more position, customized NIB to Tiger. So you can see in CCaaS more position under Tiger Broker Hong Kong. Mohan Han equity trades are clear through Tiger Broker Han Han held total clearing expense as a percentage of commission decreased From 16% in the 4th quarter to 9.1% in the Q1, we expect further reduction in clearing expense for Hong Kong cash equities.

Speaker 2

We also launched the Tiger Wall, our voice management platform in April. We will add more voice management product to Tiger Wall to increase user stickiness

Speaker 3

Thanks a

Operator

We are now going to proceed with our next question. And the question comes from the line of Cindy Wang from China Renaissance, please ask your question.

Speaker 4

Thanks management for taking my call and congrats for the great first quarter results. So I have two questions. First question is what kind of the And And my second question is related to the customer acquisition cost and self clearing efficiency. So for customer acquisition cost for the drop in Q3 sequentially, so however, we see the number of the new customers with Cost is actually up quarter over quarter. So could management provide some color how to achieve these results?

Speaker 4

And will customer acquisition cost to maintain at the same level for the next few quarters in 2023? And for the self cleaning efficiency, we see it actually increased quite a lot in Q1. So how should we expect the clearing expenses in the second quarter onwards? Is there still room for further decline? Thank you.

Speaker 1

Regarding the first question about TEGR PTT, We think the AI technology can significantly improve productivity in many aspects of our life and work such as programming, copywriting, design and more. So our mission is to make investment better through technology We have always paid close attention to the synergy between technology and finance. We have high expectations for Taglitivity's language interaction capability in improving user Well, our app offers excellent market data and information, but many users may not know just exactly where to find them. So TEGR GPT can help users improve their efficiency in this scenario. We are glad to have this opportunity to become the 1st technology oriented broker To launch GPT functionality, TEGR GPT's product dedicated to answering questions in the field of financial investment.

Speaker 1

It can act like the bridge between user inquiries and Hager's numerous investment content and paid market data. So this product can have our users greatly improve information collecting efficiency, including like market data, industry insights, 3rd party market data, individual stock option and financial knowledge. It can also greatly reduce the learning cost for new users And we expect to open it to more market users by the end of the Q2 of this year. As for the cost, Since TEGR Tivity only serves the financial sector instead of being a general purpose model, the cost is very controllable We are glad to see the number of new funded accounts increased while average CEC dropped Potentially quarter over quarter after CSR and success days on December 30. Couple of reasons, firstly, with our brand being better received by the local user in Singapore market And attracting more organic traffic from overseas to save us some customer acquisition costs.

Speaker 1

Secondly, we have reevaluated our cooperation with partner vendors in terms of advertising and branding and terminated the cooperation with those cannot generate a reasonable ROI. In the future, we will continue to adjust our customer acquisition cost dynamically based on market condition and payback. Generally, our current low customer acquisition cost provides us with flexibility to expand into new markets Thanks to our step clearing capability in the U. S. Stock market, the clearing cost as a percentage of total commission for U.

Speaker 1

S. Cash equity was around 3% to 5%, Keeping our overall step clearing efficiency at an industry leading level. Since late February of this year, we have gradually stepped in more Hong Kong stocks With our launch in the local retail market, led the delivery cost as a percentage of commission income dropped to be below 10% in the 4th quarter. Future clearing costs will be affected by factors such as market volatility and user trading behavior, but we expect that

Operator

We are now going to proceed with our next question. And the questions come from the line of Judy Zhang from Citi. Please ask a question.

Speaker 5

Let me translate. I have two questions. The first question is regarding on the take rate. We saw the U. S.

Speaker 5

Stock market rebound, but the take rate decreased. Can you explain the key reason behind? And also, we saw the interest income increased Continuous date during the re hike cycle, what is the breakdown of the interest income? And the second question is regarding on the regulation. We saw Tiger app has been removed from the App Store.

Speaker 5

How can we understand this is the current situation? How much it will impact on the existing customers? And also did the regulator give us any further clarification on what kind of criteria that onshore investors need to meet to open the overseas brokerage account? Thank you.

Speaker 2

Okay. So commission actually remained unchanged during the Q1. As we charge commission per share for U. S. Stock trading, The trading volume increase in netlist of market rebound, resulting in a decrease in cash equity take rates.

Speaker 2

As for the interest income breakdown, Around 30% came from customers' idle cash and the rest were from the margin financing and securities and NPE business. Thank you.

Speaker 1

We are touch group importance to compliance and regulatory requirements And maintain direct communication with regulators. Recently, regulators have clarified some guidelines. Firstly, allowing onshore users who leave or work overseas to open new accounts with us. Secondly, for onshore users We can prove that they already opened brokerage accounts offshore. They will be considered as existing clients of the industry.

Speaker 1

Therefore, we can accept their these investors to open new accounts with us or transfer their existing securities to us. The third one is allowing us to keep supporting team and R and D facilities and systems within Main China to serve our existing onshore investors. And the last one is recently requested to remove our app From the onshore application market to ensure we don't have onshore incremental plans apart from the aforementioned scenarios. These guidelines provide clarity to industry regulations promoting long term and other redevelopment Well, preventing bad money, dress out good. Following the announcement by CFOA on December 30 last year, We have immediately stopped accepting new offshore clients from Med China, Yinsu support and cooperation with regulatory requirements.

Speaker 1

The recent request to remove our app from the Chinese application market is essentially an implementation of the aforementioned announcement since May 18, 2023. We have removed our app from the onshore application market, while providing detailed instructions for existing users This adjustment does not affect existing clients and we will continue to provide quality services and keep our clients' money safe. We have also noticed that compared to the end of last year, The total client assets of onshore clients increased by about 10% with the trend of net asset inflows in the Q4 of this year. Besides the trading volume and commission income contributed by onshore clients has also slightly increased sequentially. These numbers indicate that our existing clients have rational understanding regarding recent events since December 30 last year And their trading velocity and 12th integrated broker has not changed.

Speaker 1

Thank you.

Operator

We have no further questions at this time. I will now hand back the call to Aaron Lee for closing remarks.

Speaker 1

Thank you, operator. 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.

Speaker 1

This concludes the call and thank you very much for your time.

Speaker 2

Thank you.

Operator

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

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Key Takeaways

  • UPFintech reported Q1 revenue of US$66.3 million, up 3.9% sequentially and 26% year-over-year, with GAAP net income of US$8.1 million (a 541% QoQ increase) and non-GAAP net income of US$10.3 million, reversing last year’s loss.
  • The firm added 30,392 new funded accounts in Q4 (an 11.2% QoQ increase), bringing total funded accounts to 810,000 and reaffirmed guidance to acquire at least 100,000 new accounts in 2023.
  • Total client assets increased to US$16.1 billion in Q4, driven by net inflows of nearly US$1.2 billion—primarily from Singapore and Mainland China—and marked-to-market gains.
  • Customer acquisition costs fell 37% QoQ to US$171 per account while execution and clearing expenses as a percentage of commissions dropped from 16.1% to 9.6%, reflecting expanded self-clearing in the U.S. and Hong Kong.
  • The company continued technology investments, launching the Tiger GPT beta for AI-driven investment research and debuting Tiger Road wealth-management products in Hong Kong to deepen user engagement.
AI Generated. May Contain Errors.
Earnings Conference Call
UP Fintech Q1 2023
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