UP Fintech Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 20, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited 4th Quarter 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.

Operator

Aaron Lee, the Head of Investor Relations. Thank you. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining us for the call today. Uplritech Koyun Limited's 4th quarter and full year 2023 earnings release was distributed earlier today and is available via our website at ir. Itigerapp.com as well as GlobeNewswire services. On the call today from UPFintech are Mr.

Speaker 1

Lu Tianhua, Chairman and Chief Executive Officer Mr. Zheng Zheng, Chief Financial Officer Mr. Huang Lei, CEO of US Tagger Securities and Mr. Kenny Zhao, our Financial Controller. Mr.

Speaker 1

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 and A session and follow their remarks. Now, let me cover the safe harbor.

Speaker 1

The statements we are about to make contain forward looking statements, based on 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, March 20, 2024, and our annual report on Form 20 F filed on April 26, 2023.

Speaker 1

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.

Speaker 1

Mr. Wu, please go ahead with your remarks. Hello, everyone. Thank you for joining the Tiger Brokers 4th quarter and full year 2023 earnings conference call. Today marks the 5th anniversary of Tiger's listing on NASDAQ.

Speaker 1

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 improvement in various aspects, including product offering, industry know how, user base and profitability. We've 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 market.

Speaker 1

We are proud of our international reach and will continue to serve our clients with dedication and innovation. 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, 4th quarter total revenue reached US70 $1,000,000 a 9.6% increase compared to the same period of last year. Our full year total revenue amounted to US273 million dollars 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 and D capabilities, which enabled us to save costs and deploy resources more efficiently.

Speaker 1

Full year net profit reached US32.6 million dollars Non GAAP net profit reached US42.7 million dollars a record high since our company funding and representing a jump of 14.8x and 3.4x of the same figure in 2022. In the 4th quarter, due to depreciation of U. S. Dollar against other currency, we recorded a US7 $1,000,000 non cash foreign exchange loss versus a US2 $1,000,000 foreign exchange gain in the 3rd quarter, resulted our non GAAP net income declined quarter over quarter to US1.1 million dollars In the Q4, we added 39,000 funded accounts, an increase of 58.6 percent from the previous quarter. The total number of funded accounts for the year reached 123 1,500 exceeded our annual guidance of 500,000 funded accounts, with majority came from markets outside of Mainland China.

Speaker 1

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 a rise in quarterly new funded accounts, while reducing average CAC to a historical low of below US150 dollars In terms of total client assets, the trend of asset inflow remains strong. We saw record US8.2 billion dollars in asset inflow this quarter, In addition to US3.5 billion dollars mark to market gain, total client assets jumped 62.1% quarter over quarter and more than doubled year over year to US30.6 billion dollars for 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 customer further improved in the Q4.

Speaker 1

The average net asset inflows of newly acquired clients in Singapore was above US16000 dollars in the 4th quarter, setting a historic high since our launch into Singapore retail 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 Q4, we introduced combo option strategy feature, a very user friendly product that allows users like options 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.

Speaker 1

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 positions us as one of the first mainstream online brokerage firm in Hong Kong to receive approval for such a license upgrade. Our 2B business continues to perform well. In the Investment Banking Service, we underwrote a total of 9 U.

Speaker 1

S. And Hong Kong IPOs in the Q4, including Xueya Daotian Group and J and T 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 4th quarter, bringing the total number of ESOP clients served to 535 as of the end of 2023.

Speaker 1

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

Speaker 2

Great. Thanks, Tianhua and Aaron. Let me go through our financial performance for the 4th quarter. All numbers are in U. S.

Speaker 2

Dollar. Total revenue were $70,000,000 this quarter, remained flat quarter over quarter and increased 9.6% year over year. Full year total revenue were 272,500,000, increased 20.9% compared to last year. Cash equity take rate was 6.5 bps this quarter, slightly increased from last quarter. Raising commission revenue, about 60% come from cash equities, 30% from options and the rest comes from futures and other products.

Speaker 2

Now on to costs. Interest expense was RMB 16,000,000 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 $2,200,000 decreased to 44% from the same quarter of last year, primarily due to more efficiency in self clearing for US and Hong Kong securities. Employee compensation and benefits expense were 26,500,000 an increase of 8% year over year due to an increase of global headcounts. Occupancy, depreciation and amortization expense increased 8.4% to 2,200,000 due to increase in rent.

Speaker 2

Communication and data expense were 8,500,000, dollars an increase of 21% year over year due to the increase in user base and IT related fees. Marketing expense were $5,800,000 this quarter, decreased 22% year over year as we remain prudent with marketing campaigns. General and administrative expense were $7,300,000 an increase of 23% year over year due to professional service fees recorded in the Q4. Total operating costs were RMB 52,500,000 dollars slightly increased 3.1 percent from the same quarter of last year. GAAP net loss was 1,800,000 dollars Non GAAP led income was $1,100,000 The sequential drop in bottom line was primarily due to a non cash foreign exchange losses resulted from the depreciation of the U.

Speaker 2

S. Dollar during this quarter. For the year of 2023, total GAAP profit was 32,600,000 and the non GAAP net income was $42,700,000 a historical high in our company history. Now, I have concluded our presentation. Operator, please open the line for Q and A.

Speaker 2

Thanks.

Operator

Thank Our first question comes from the line of Cindy Wang from China Renaissance. Please go ahead. Your line is open.

Speaker 3

Thanks for giving me this chance to ask questions. So 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. So have you seen any improvement in Q1 this year based on the current run rate? And the 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?

Speaker 3

Any new markets you will enter this year? Thank

Speaker 4

you.

Speaker 1

Okay.

Speaker 2

So the non GAAP bottom line decreased in the 4th quarter versus the 3rd quarter, there are several factors. So first one is for our total revenue is flat quarter over quarter, but we incurred more interest expense during the Q4 due to the rate hike cycle. So the total net revenue decreased RMB 4,000,000 quarter over quarter. The second factor is that in the Q4, there are more costs will hit the book, such as professional service fees, so which resulting in a $3,000,000 jump in the cost. The third reason is called foreign exchange losses.

Speaker 2

So in the Q4, the U. S. Dollar depreciates against RMB and SGD Singapore dollar. So we incurred a non cash $7,000,000 foreign exchange losses in the Q4 versus a $2,000,000 gain in the Q3. So combine those two factors, so it leads to a non cash decrease of our liability on a sequential basis.

Speaker 2

And in terms of run rate, so we have seen an increase in trading activities during the 1st 2 months of this year and we also saw very strong client led asset inflow. So given the foreign exchange rate was relatively stable in the Q1, we expect the profitability in the Q1 will be much better than the Q4. Thanks.

Speaker 1

The alternative answer to the second question. In 2024, our target is to add 150,000 new funded accounts, about 60% come from Singapore and Southeast Asia. Australia, New Zealand market and the United States accounts 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. And of course, with the target increase from 100,000 in 2023 to 150,000 in 2024, we will expect the incremental PO number to increase from each market accordingly.

Speaker 1

We believe that the market we have already entered have tremendous potential. Taking Singapore, for example, where HYDRA worker 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 Q4. In markets like Australia, New Zealand and Hong Kong, we have even more room to improve and expand.

Speaker 1

So in 2024, our focus will remain on the markets they've already entered by optimizing the efficiency of our R and D resources, introducing more product features including virtual asset 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

Thank you. Please stand by.

Speaker 4

Thank you for taking my question. I have two questions. The first question is regarding the commission and the turnover. We saw the customer AUM has increased significantly in the Q4, but the commission turnover didn't improve that much. What's the underlying reasons behind?

Speaker 4

And second question is regarding on the new funded customer. So the new paying customer has increased a lot Q on Q, but the CAC reached to the record low level. Can management share with us what's the give us some color on the company's new customer acquisition strategy? Thank you.

Speaker 1

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 US30.6 billion dollars There are a few factors contributing to this growth. Firstly, the rise in Nasdaq index and high names in the 4th quarter led to a mark to market gain of $3,500,000,000 on our total credit asset. This means that even without considering net asset inflow, our total credit 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.

Speaker 1

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 $8,200,000,000 net asset inflow in the 4th quarter. However, to be honest, some of these institutional investors are venture capital and private equity on primary market, which have lower velocity compared to retail investors or hedge funds. As a result, the contribution of the increased client assets from this kind of institutional investors to our commission revenue was fairly limited in the Q4 and so far. For the second question, in the Q4, we enhanced our brand presence in Singapore and Southeast Asia market by rolling out more online advertising.

Speaker 1

We have seen an increase in organic traffic and multiple referrals and led to high number of new branded accounts in the Q4. However, we've seen the users from different acquisition approaches may vary in quality. So moving forward, we will dynamically adjust our customer acquisition strategies based on their effectiveness to ensure the healthy ARPU and perfect model. Thank you, Rudy. Operator, please move on to the next question.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Han Pu from CICC. Please go ahead. Your line is open.

Speaker 3

Thanks for taking my question. This is Han from SICC. I have two quick questions. Firstly, could you please share the original breakdown of the newly funded accounts in Q4? Secondly, could you please give us more color on the Hong Kong business operation, especially for the crypto trading business?

Speaker 3

Thanks.

Speaker 1

Among the new funded accounts in the 4th quarter, about 60% came from Singapore and Southeast Asia, Nearly 20% came from United States, though contribution from Hong Kong and Australia and New Zealand region accounted for around 10% each. Okay.

Speaker 2

We have entered Hong Kong retail market for 1 year. And so far, we are really satisfied with our progress. So to get explained, such a competitive market in Hong Kong, we offer 1 of the most friendly pricing to our users. Until now, Hong Kong users can still enjoy 0 commission and 0 plan fees when they are trading 1000000 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.

Speaker 2

In the Q4, we launched the US T bonds and the trading Spark features in Hong Kong. In the Q1 of this year, we updated the Type 1 license with SFC, allowing professional investors to sorry, allowing 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 Hong Kong, we were exploring the market and understanding our local users, which may took some time.

Speaker 2

In the Q4, we implemented more localized customer acquisition strategy. As a result, the net asset inflow in the Hong Kong market exceeded the total for the 1st 3 quarters of this year. Additionally, the average net asset inflow from newly acquired clients in the Q4 exceeded USD 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.

Speaker 1

Thanks, Mel. Let's move on.

Speaker 3

Thank

Operator

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

Speaker 1

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. 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. Thank you. Thank you.

Operator

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

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