UP Fintech Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 5, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the UPFIMTECH Holding Limited First Quarter 2024 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, June 5, 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. Upscintech Coding Limited's Q1 2024 Earnings Release was distributed earlier today and is available on our IR website at ir. Itigerapp.com as well as GlobeNewswire services. On the call today from Upti Tech are Mr.

Speaker 1

Wu Tianhua, Chairman and Chief Executive Officer Mr. Zhuang Zheng, Chief Financial Officer Mr. Feng Lei, CEO of U. S. Tiger Securities and Mr.

Speaker 1

Kenny Zhao, our Financial Controller. Mr. Wu will give an overview of our business operations and discuss corporate highlights. Mr. Song will then discuss our financial results.

Speaker 1

They will both be available to answer your questions during the Q and A session or further remarks. Now let me cover the Safe Harbor. The statements we're about to make contain forward looking statements within the meaning of the U. S. Private Securities Litigation Reform Act of 1995.

Speaker 1

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 6 ks furnished today, June 5, 2024, and our annual report on Form 20 F filed on April 22, 2024. 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.

Speaker 1

Mr. Wu will make remarks in Chinese, which will be followed by English translation. Mr. Wu, please go ahead with your remarks. Hello, everyone.

Speaker 1

Thank you for joining the Tiger Brokers 4th quarter 2024 Earnings Conference

Speaker 2

Call.

Speaker 1

In the Q1, we saw a moderate rebound in market backdrop. Our total revenue reached US78.9 million dollars the highest quarter in the past 3 years, increased 12.8% sequentially and 19% year over year. On our bottom line, benefiting from the optimization of the company's revenue structure and increase in operating efficiency, the profitable momentum was back on track. GAAP net income turned positive to US12.3 million dollars and up 55% year over year. Non GAAP net income was US14.7 million dollars 13.9 times that of the previous quarter and up 42% year over year.

Speaker 1

The non GAAP net profit margin rebounded to nearly 20%. Going forward, we will further leverage fixed costs through the growth of user base and ARPU improvement, brought by product diversification, thereby achieving healthier and more sustainable profitability. In the Q4, we added 28,800 new funded accounts, and the total number of funded accounts reached 933 1,400 at the end of the Q1, an increase of 15% year over year. In the 1st 2 months of the second quarter, we've already acquired more than 35,000 new funded clients, and we are confident in achieving our full year guidance of acquiring at least 150,000 new funded accounts in 2024. In terms of total client assets, building from a historic high in net asset inflows in the Q4 of last year, the strong momentum continued in the Q4 of this year, with net asset inflows of US5.3 billion dollars mainly contributed by Singapore users and institutional users.

Speaker 1

After neutralizing the impact from mark to market loss, the total client assets reached US32.9 billion dollars at the end of the Q1, an increase of 7% sequentially and 104% year over year. Our strategy to keep acquiring high quality clients to ensure long term profitability remains unchanged. In Singapore, where our headquarter located, our product advantage continues to attract high quality organic traffic to onboard our platform, with an average net asset inflows of over US14000 dollars from newly acquired retail clients in the Q1. Also, we are glad to see the average net asset inflow of newly acquired clients from the Hong Kong market in the Q4 exceeded US18000 dollars demonstrating we have gained more recognition from the local high quality users, and we are committed to grow our Hong Kong presence. In addition, the average customer acquisition cost was around US150 dollars in the 4th quarter, and with the further improvement to our Hong Kong and Singapore shares clearing efficiency, the overall clearing fee as a percentage of commission income has dropped to a historical low of only 8%, both of which are at industry leading low levels, indicating that we keep reducing our variable costs and improve our profitable efficiency, while ensuring user quality and product experience through our brand advantages and R and D strength over the years.

Speaker 1

In the Q1, we rolled out numerous localized features across different markets to better serve our users and also gained more licenses to diversify our product offerings. In the Singapore market, we collaborated with a local licensed partner to launch the Tiger Gold debit card in February, which is the 4th debit card in Singapore that allows users to earn fractional shares rewards from their daily spending. This product connects users' everyday consumption to stock ownership and more naturally onboarding local users into U. S. Stock investing.

Speaker 1

Additionally, catering to local Singaporean SNS and the local credit system, we launched the cash boost account feature in April. The Tiger Brokers cash boost account operates on contra trading strategy without an initial deposit required. Tega Brokers were the 1st Fintech broker in Singapore to offer contract facilities. In Hong Kong, we updated our Type 1 license to include virtual asset dealing services for professional investors in the Q1 and officially launched this feature in April, making us one of the first mainstream online brokerage firm in Hong Kong to provide cryptocurrency trading services to professional investors. Also, we opted a Type 9 license in March, so that we can provide asset management services to investors.

Speaker 1

Apart from those, we rolled out 2 major product upgrades to better meet investor needs. Firstly, we launched the overnight trading feature, which allows users, particularly in the Asia Pacific region, to trade U. S. Stocks and ETFs during local market hours and capture more market opportunities. Secondly, we've upgraded our option trading capabilities by introducing the U.

Speaker 1

S. Option early access or do not access features. This allows our clients to better mitigate potential volatility risks of the in the money options and the liquidity challenges of the deep in the money option before expiration. Our 2B business continues to perform well. In Investment Banking, we underwrote 5 U.

Speaker 1

S. And Hong Kong SEOs in the Q1, including Concord Healthcare Group and Lian LiDiete. In our ESOP business, we added 22 new clients in the Q1, bringing the total number of ESOP clients served to 557 at the end of the Q1 of 2024, an increase of 24% year over year. Now, I'd like to invite our CFO, John, to go over our financials.

Speaker 2

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

Speaker 2

Dollar. As Tianhua mentioned earlier, we did see market sentiment improving this quarter versus last quarter. Commission income was $27,800,000 increased 9% year over year and 27% quarter over quarter. Interest income was RMB43.8 million increased 27% year over year and 10% quarter over quarter. Please note we reclassified interest income generated from U.

Speaker 2

S. TBO from non operating gain or loss to interest income in the top line. We see this revenue going forward as part of our routine business, so it should be reflected in our operating income. Together, total revenue reached $78,900,000 this quarter, increase of 19% year over year and 13% quarter over quarter. Cash equity take rate was 6.3 bps this quarter, slightly decreased from 6.5 bps of last quarter.

Speaker 2

Within commission revenue, about 65% comes from cash equities, 30% from options and the rest from futures and other products. Now switching to cost. Interest expense was $14,800,000 increased by 76% from same quarter of last year, in line with the high interest rate environment. Execution and clearing expense were $2,200,000 decreased 8% from the same period of last year, primarily due to more efficiency in self clearing for Hong Kong and Singapore securities. We have gradually moved Hong Kong equity position Tiger Broker Hong Kong since we onboard Hong Kong retail market and we have seen cash equity clearing expense as a percentage of commission went down from time to time during the past year.

Speaker 2

Employee compensation and benefits expense were 27,800,000 dollars an increase of 14% year over year due to headcount increase to strengthen overseas growth and R and D. Occupancy depreciation and amortization expense decreased 12% to 2,100,000 dollars Communication and market data expense were $8,600,000 an increase of 23% year over year due to the increase in user base and IT related services. Marketing expense were $4,400,000 this quarter, decreased 15% year over year as we keep optimizing our marketing channel and strategy. General and administrative expense were $5,700,000 an increase of 26% year over year due to an increase in professional service fees. Total operating costs were $50,800,000 an increase of 11% from the same quarter of last year.

Speaker 2

As a result, bottom line increased on both GAAP and the non GAAP basis. GAAP net income turned positive to 12 $300,000 versus a GAAP net loss of $1,800,000 in the previous quarter and increased 55% year over year. Non GAAP net income was $14,700,000 increased 42% compared to the same quarter of last year. Now I have concluded our presentation. Operator, please open the line for Q and A.

Operator

Thank you. Our first question comes from the line of Yufan from CICC. Please go ahead with your question. Thanks management for taking my question. This is Youyou Fan from CICC.

Operator

I have 2 questions here. The first one is regarding the full year guidance. We added nearly 29,000 new funded accounts in Q1 and in April May already acquired more than 35,000 new funded accounts. So shall we still maintain our full year guidance? And the second question is about our business progress in Q2.

Operator

How is the run rate of the asset inflow, trading velocity and total client assets up to now?

Speaker 1

Operator, can you hear us now?

Operator

Yes, you may commence.

Speaker 1

We place great importance on our profitability model and will not compromise customer quality merely for the user number growth. So in the Q1, we adjusted our acquisition channels and terminated partnership with some vendors that did not meet our ROI or payback period target. So as a result, the quality of our new user has continued to improve in the Q1. This average net inflows of new funded clients in Hong Kong and Singapore market reaching 18,000 and 14,000 respectively. Recently, we've also seen a recovery in market activity in both U.

Speaker 1

S. And Hong Kong market. Based on this, we've increased our customer acquisition input in the Q2. Also, the launch of the Tiger Post debit card and the contract trading feature in Singapore this quarter has also been very well received by local users. So consequently, we've already onboarded over 35,000 new branded users in April May.

Speaker 1

We are therefore confident in meeting our full year guidance of adding at least 150,000 new funded users. Okay. For the second question, for the 1st 2 months of the Q2, as I mentioned, the number of new funded accounts has improved significantly sequentially. Our client net asset inflow has also maintained strong momentum. Building on the momentum from the Q4, market activity has remained robust in the recent 2 months, and the percentage of Hong Kong cash equity trading volume has also increased in the second quarter.

Speaker 1

And we believe that the mix of Hong Kong and U. S. Trading volume will be more diversified along with the growth of our Hong Kong clientele. Interest rate income has also remained stable sequentially so far in the Q2. We've also recently rolled out various new features on TEGR platform, including debit card, contra trading, over net trading and crypto to further expand our product offerings, enhance the user experience and increase ARPU.

Speaker 1

Thank you, operator. Please move on to the next question.

Operator

Thank you. Please stand by. Our next question comes from the line of Edmond Foch from CVS. Please go ahead. Your line is open.

Speaker 3

Thank you, management. I have two questions. The first question is, what is the regional breakdown for the new funded account during the Q1? And the same question is about Hong Kong market. Does the company think the business development in Hong Kong meets our expectation?

Speaker 3

Also in view of the fierce competition, does the company has any plans to maintain the growth momentum? And lastly, how is Tiger's latest progress in crypto trading? Thank you.

Speaker 1

So for first question, in the Q4, over 50% of new funded accounts came from Singapore and Southeast Asia, around 20% came from the U. S. Market, over 15% were from the Australia and New Zealand region and more than 10% were from the Hong Kong market. I'll hand back the second question for April

Speaker 2

So after we enter Hong Kong market a year ago, overall, the progress has been in line with our expectation. Few key points. First of all, when we first started, one of our priority was to reduce the clearing cost for Tiger's Hong Kong trading. So far, we have achieved this goal. Before we had Hong Kong license, we have to clear Hong Kong equities through other brokers.

Speaker 2

The fee was expensive and Hong Kong stock trading was unprofitable for us. So our investment in Hong Kong market was limited. Now the clearing expense for Hong Kong equity is less than 20% of gross commission, which has helped lower the group's overall clearing fee rate to around 8%. This is very important for us as we offer 0 commission and 0 platform fee for local users to trade Hong Kong cash equity. With lower clearing expense, we can increase our Hong Kong trading volume and invest more resource into product R and D.

Speaker 2

As our Hong Kong trading volume gradually increase, the clearing fee will further go down. In addition, we have a much more comprehensive product offering in Hong Kong versus before. TEGR Broker Hong Kong currently supports cash equity trading for both Hong Kong and U. S. Shares, U.

Speaker 2

S. Option trading, lossbound trading, wealth management product like FCM. We recently rolled out overnight trading and we will be adding short selling and Hong Kong equity options in the Q3. As for crypto, with our Type 1 license uplifted, we are now 1 of the first Fintech broker in Hong Kong, allowing clients to trade spot crypto as well as US11 dollars Bitcoin ETFs. And for customer acquisition over the past year, we keep optimizing our account opening process, try out different marketing strategies and we are going to see the contribution from Hong Kong market has steadily increased to around 10% in terms of new funded users this quarter.

Speaker 2

The quality and trading activities of our Hong Kong clients is also very good. The total client assets in Hong Kong have risen over 60% quarter over quarter and nearly 10 times year over year in the Q1.

Speaker 1

Okay. Thank you. Operator, please welcome the next question.

Operator

Thank you. Please stand by. Our next question comes from the line of Alan Chen from Citi. Please go ahead. Your line is open.

Speaker 3

Thanks management for taking my questions. I have two questions today. The first question is on the 2 products that launched in Singapore. Could management give us a little bit more color on the products? And for the post debit cards, is there any restrictions as to who can apply for this debit card and could this product be used as a customer acquisition tool for Tiger?

Speaker 3

And for the contra trading function, you mentioned that clients can trade stocks without depositing any funds into their brokerage accounts. Wondering how would Tiger Management manage risks if clients, let's say, make some loss in trading, but have no funds in their accounts? And on a longer term, how would this contract trading functions impact Tiger's financial performance? And the second question is on FX gain, wondering management if you could share how much FX gain you have booked in the Q1? And looking forward, have you taken any actions to limit the impact of FX gain or loss on your earnings?

Speaker 3

That's my questions. Thank you.

Speaker 1

Alan, your first question regarding the TEGR Boost debit card. This card is available for both of our existing user and incremental users to use and apply. Okay. So we launched this card with local licensed partner. The intention behind this product was to connect users' daily spending with their stock trading activity.

Speaker 1

So specifically, the debit card allows users to link it with digital wallets like Apple Pay and Google Pay for everyday purchases. For every transaction made through this card, 1% of transaction amount will be rewarded to the user's security account on Tether platform in the form of fractional shares of popular U. S. Stocks like Tesla. Compared to traditional bank card reward scheme, the cashback, loyalty points or miles, we believe that the fractional share rewards provide a better user experience.

Speaker 1

Firstly, there is no expiration days or lock up period for the fractional share. More importantly, this unique type of reward can stimulate new users' investment motivation and increase their stickiness to our platform. It also allows them to gradually build their investment portfolio through daily bank card spending without requiring large initial capital. And we are proud to be the 1st FinTech broker in Singapore to offer such a services. Since its launch, the product has been very well received by local users.

Speaker 1

As of the end of May, nearly 7,000 local users have signed up for this card, and the average transaction frequency from the cardholders has exceeded our expectations. Okay. So regarding the contract trading feature, Tega was the 4th Fintech broker in Singapore to operate a service, leveraging Singapore's comprehensive credit system. This feature caters to most seasoned traders by providing instant access to a certain trading limit based on their credit assessment without requiring any initial capital input. From the user's perspective, contract trading credit seasoned trader the flexibility to buy stock and sell them anytime before or on the full selling date without needing to deposit funds.

Speaker 1

It also allows investors without immediate available capital in hand to purchase stock using the provided trading limit. If the stock price rise, the difference can be pocketed as the contra gain. Conversely, if the share price drops, investors can settle the difference up to 7 days later using their own funds. Given the credit based nature of the contract trading, we have applied thorough risk control. For example, this feature is currently only available to Singapore users, with a strict approval process to ensure credit rating matches the authorized limit.

Speaker 1

If losses exceed 2 days after settlement day without a top up, the limit will be automatically frozen, permitting only closing positions. Same as also automatically reduces sorry, reduced by counter losses until the user replenishes the gap.

Speaker 2

So the FX gain and losses on our P and L are mainly due to the fluctuation in the U. S. Dollar against the RMB, CIN dollar and New Zealand dollar. So in Q1, the appreciation of the U. S.

Speaker 2

Dollar compared to Q4 resulting in over $3,000,000 in FX gain. So because the FX gain or loss is not something we can control, So to better assess the group's profitability and operating, we decided to move the revenue from treasury bill into our top line under interest income, we feel this can give investor a better understanding of our routine business. So in Q1, interest income from U. S. Treasury investment was about $4,700,000 Thank you.

Speaker 1

Hey, Mao. Please move on to the next question, please.

Operator

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'd 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.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.

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Earnings Conference Call
UP Fintech Q1 2024
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