UP Fintech Holding Ltd

NASDAQ:TIGR

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited First Quarter 2024 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded on June 5, 2024, and I would now like to hand the conference over to your first speaker today, Mr. Aron Lee, the Head of Investor Relations. Thank you. Please go ahead.

[Aron Lee, executive]

Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's First Quarter 2024 earnings release was distributed earlier today and is available on our IR website at ir.itigerup.com as well as global newswire services.

On the call today from UP Fintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer; Mr. John Zeng, Chief Financial Officer. Mr. Lei Huang, CEO of U.S. 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 following their prepared remarks.

Now let me cover the safe harbor. The statements they 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 forward-looking statements, please refer to our Form 6-K 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. Mr. Wu will make remarks in Chinese, which will be followed by English translation. Mr. Wu, please go ahead with your remarks.

[Tianhua Wu, executive]

[Foreign Language]

Hello, everyone. Thank you for joining the Tiger Brokers Fourth Quarter 2024 Earnings Conference Call.

[Foreign Language]

In the first quarter, we saw a moderate rebound in market backdrop. Our total revenue reached $78.9 million, the highest quarter in the past 3 years, increased 12.8% sequentially and 19% year-over-year. 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 USD 12.3 million and up 55% year-over-year. Non-GAAP net income was USD 14.7 million, 13.9x that of the previous quarter and up 42% year-over-year. 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.

[Foreign Language]

In the fourth quarter, we added 28,800 new funded accounts and the total number of funded accounts reached 933,400 as of end of the first quarter, an increase of 15% year-over-year. In the first 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 current at least 150,000 new funded accounts in 2024. In terms of total balance assets, building from a historic high in net asset inflows in the fourth quarter of last year, the strong momentum continued in the first quarter of this year, with net asset inflows of USD 5.3 billion, mainly contributed by Singapore users and institutional users. After neutralizing the impact from mark-to-market loss, the total balance assets reached USD 32.9 billion for the end of the first quarter, an increase of 7% sequentially and 104% year-over-year.

[Foreign Language]

Our strategy to keep acquiring high-quality clients to ensure long-term profitability remains unchanged. In Singapore, where our headquarter is located, our brand advantage continues to attract high-quality organic traffic to onboard our platform. With an average net asset inflows of over USD 14,000 from newly acquired retail clients in the first quarter. Also, we are glad to see the average net asset inflow of newly acquired clients from the Hong Kong market in the first quarter exceeded USD 18,000, demonstrating we have gained more recognition from the local high-quality users, and we are committed to grow our Hong Kong presence.

[Foreign Language]

In addition, the average customer acquisition cost was around USD 150 in the first 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 industry-leading low levels, indicating that we keep reducing our variable costs and improve profitable efficiency, while ensuring user quality and product experience through our brand advantages and R&D strength over the years.

[Foreign Language]

In the fourth quarter, we rolled out numerous localized feature 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 license partner to launch the Tiger BOSS Debit Card in February, which is the first debit card in Singapore that allows users to earn fractional shares reward from their daily spending. This product connects users' everyday consumption to stock ownership and more naturally onboarding local users into U.S. stock investing.

Additionally, catering to local Singapore [ needs ] and the local credit system, we launched Cash Boost Account featured in April. The Tiger Brokers Cash Boost Account operates on Contra Trading strategy without an initial deposit required. Tiger Brokers were the first Fintech broker in Singapore to offer contract facilities.

[Foreign Language]

In Hong Kong, we uplifted our Type-1 license to include virtual asset billing services for professional investors in the first quarter and officially launched this feature in April, making us as well as the first mainstream online brokerage firm in Hong Kong to provide cryptocurrency trading services to professional investors. Also, we obtained a Type 9 license in March so that we can provide asset management services to investors.

[Foreign Language]

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 treat U.S. stocks and ETFs during local market hours and capture more market opportunities. Secondly, we have upgraded our Option trading capabilities by introducing the U.S. option early exercise or do not exercise features. This allows our clients to better mitigate potential volatility risk of the in-the-money options and the liquidity challenges of bid in-the-money options before expiration.

[Foreign Language]

Our 2B business continues to perform well. In Investment Banking, we underwrote 5 U.S. and Hong Kong in the first quarter, including Concord Healthcare Group and Lianlian Digitech. In our ESOP business, we added 22 new clients in the first quarter, bringing the total number of ESOP served to 557 at the end of the first quarter of 2024, an increase of 24% year-over-year.

[Foreign Language]

Now I'd like to invite our CFO, John, to go over our financials. All right.

[John Zeng, executive]

Thanks Tianhua and Aron. Let me go through our financial performance for the first quarter. All numbers are in U.S. dollar. As Tianhua mentioned earlier, we did see market sentiment improving this quarter versus last quarter. Commission income was $27.8 million, increased 9% year-over-year and 27% quarter-over-quarter. Interest income was $43.8 million, increased 27% year-over-year and 10% quarter-over-quarter.

Please note we reclassified the interest income generated from U.S. [indiscernible] from nonoperating 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 $78.9 million this quarter, an 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. 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 $14.8 million, increased by 70 -- sorry, increased by 76% from same quarter of last year, in line with the high interest rate environment. Execution and clearing expense were $2.2 million, decreased 8% from the same period of last year primarily due to more efficiency in self-clearing for U.S. -- for Hong Kong and Singapore securities.

We have gradually moved Hong Kong equity position to Tiger Broker Hong Kong since we onboard Hong Kong retail market. And we have seen cash equity clearing expense as percentage of commission went down from time to time during the past year. Employee compensation and benefit expense were $27.8 million, an increase of 14% year-over-year due to head count increase to strengthen overseas growth and R&D. Occupancy, depreciation and amortization expense decreased 12% to $2.1 million. Communication and market data expense were $8.6 million, an increase of 23% year-over-year due to the increase in user base and the IT-related services.

Marketing expense were $4.4 million this quarter, decreased 15% year-over-year as we keep optimizing our marketing channel and strategy. General and administrative expenses were $5.7 million, an increase of 26% year-over-year due to an increase in professional service fees. Total operating costs were $50.8 million, an increase of 11% from the same quarter of last year. As a result, bottom line increased on both GAAP and a non-GAAP basis. GAAP net income turned positive to $12.3 million versus a GAAP net loss of $1.8 million in the previous quarter and an increase of 55% year-over-year. Non-GAAP net income was $14.7 million, increased 42% compared to the same quarter of last year.

Now I have concluded our presentation. Operator, please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question comes from the line of You Fan from CICC.

[You Fan, analyst]

[Foreign Language]

This is You Fan from CICC. I have 2 questions here. The first one is regarding the 4-year guidance. We added nearly 29,000 new funded accounts in Q1 and in April and May already acquired more than 35,000 new funded accounts. So shall we still maintain our 4-year guidance? And the second question is about our business progress in Q2. How is the run rate of the asset inflow, trading velocity and total client assets up to now?

[Tianhua Wu, executive]

[Foreign Language]

We place great importance on our profitability model and will not compromise customer quality merely for the user number growth. During the first quarter, 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 first quarter, with average netted inflows of new funded clients in Hong Kong and Singapore markets reaching 18,000 and 14,000, respectively.

Recently, we've also seen a recovery in market activity in both U.S. and Hong Kong market. Based on this, we've increased our customer acquisition input in the second quarter. Although the launch of the Tiger BOSS Debt Card and the Contra Trading feature in Singapore this quarter has also been very well received by local users.

So consequently, we've already onboarded over 25,000 new funded users in April and May. We are therefore confident in meeting our full year guidance of adding at least 150,000 new funded users.

[Foreign Language]

For the second question, for the first 2 months of the second quarter, 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 first quarter, market activity has remained robust in the recent 2 months, and the percentage of our Hong Kong cash equity trading volume has also increased in the second quarter. 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-related income has also remained stable sequentially so far in the second quarter. We've also recently rolled out various new features on Tiger platform, including debit card, contract treating, Contra Trading and Overnight Trading and Crypto to further expand our product offerings, enhance the user experience and increase ARPU.

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

[Operator]

Our next question comes from the line of Edmond Fok from DBS.

[Edmond Fok, analyst]

[Foreign Language]

I have 2 questions. The first question is what is the original breakdown for the new fund account during the first quarter? And the second question is about Hong Kong market. Does the company think the business development in Hong Kong meets our expectation. Also in view of the fierce competition, does the company have any plans to maintain the growth momentum. And lastly, how is Tiger's latest progress in Crypto trading?

[Tianhua Wu, executive]

[Foreign Language]

On the first question, in the fourth quarter, over 50% of new funded accounts came from Singapore and Southeast Asia, around 20% came from the U.S. market, over 15% came from the Australia and New Zealand region and more than 10% from the Hong Kong market.

I now hand back the second question to our CFO, John.

[John Zeng, executive]

[Foreign Language]

So after we entered Hong Kong market a year ago, overall, the progress has been in line with our expectations. A 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. The fee was expensive and Hongkong 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&D, 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. Tiger Broker Hong Kong currently supports cash equity trading for both Hong Kong and U.S. shares, U.S. option trading, [indiscernible] trading, wealth management product like [ FCN ]. We recently rolled out Overnight Trading, and we will be adding short selling and Hong Kong equity options in the third quarter.

As for crypto, with our pipeline license uplifted, we are now one of the first fintech broker in Hong Kong, allowing clients to trade spot crypto as well as 11 U.S. 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. The quality and trading activities of our Hong Kong clients is also very good. The total client asset in Hong Kong have risen over 60% quarter-over-quarter and nearly 10x year-over-year in the first quarter.

[Operator]

Our next question comes from the line of Alan Chen from Citi.

[Alan Kuang, analyst]

[Foreign Language]

I have 2 questions today. The first question is on the 2 products that is launched in Singapore. Could management give us a little bit more color on the products and for the BOSS debt cards, is there any restrictions as to who can apply for this debt card? And could this product be used as a customer acquisition tool for Tiger? 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 manage risks if clients, let's say, make some loss in trading, perhaps no funds in their accounts. And on a longer term, how would this Contra Trading functions impact Tiger's financial performance?

And the second question is on FX gain, wondering if management could share how much FX gain you have booked in the first quarter and looking forward, have you taken any action to limit the impact of FX gain or loss on your earnings? That's my questions.

[Tianhua Wu, executive]

[Foreign Language]

For your first question regarding the Tiger BOSS debit card, this card is available for both our fixed users and incremental users' 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 activities. So specifically, the debit card allows users to link it with digital wallets like Apple Pay and Google Pay for high-rated purchases. For every transaction made through this card, 10% of transaction amount will be rewarded to the user security account on Tiger platform in the form of fractional shares of popular U.S. stocks like Tesla.

Compared to traditional bank card reward scheme and cashback, loyalty points or miles, we believe that the fractional share rewards provide a better user experience. Firstly, there is no expiration days, a lockup period for the fraction of 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 first fintech broker in Singapore to offer such services. Since its launch, the product has been very well received by local users. As of the end of May, nearly 7,000 local users have [ spend off ] for this card and the average transaction frequency from the cardholders has exceeded our expectations.

[Foreign Language]

So regarding the Contra Trading feature, Tiger was the fourth fintech broker in Singapore to offer this service, leveraging Singapore's comprehensive credit system. This feature caters to most seasoned traders by providing instant access to certain trading limits based on their credit assessment without requiring any initial capital input.

From the users' perspective, Contra Trading provides seasoned traders the flexibility to buy stock and sell them any time before or around the four trading days without needing to deposit funds. It also allows investors without immediate available capital in hand to purchase stocks using the provided trading limit. If the stock price rises, the difference can be pocketed as the contract 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 Contra 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. If losses exceeded 2 days after settlement day without a top-up, the limit will be automatic frozen, permitting only closing position. Payments are also automatically reduces -- sorry, reduced by Contra losses until the user replenishes the gap.

[Foreign Language]

So the FX gain and losses on our P&L are mainly due to the fluctuation in the U.S. dollar against the RMB, [ Singapore ] dollar and the New Zealand dollar. So in Q1, the appreciation of the U.S. dollar compared to Q4, resulting in over $3 million in FX gain. So because the FX gain or loss is not something we can control. So to better assess the group's profitability in operating, we decided to move the revenue from treasury bill into our top line under interest income. We feel this can give investors a better understanding of our routine business. So in Q1, interest income from U.S. treasury investment was about USD 4.7 million.

[Operator]

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

[Aron Lee, executive]

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. 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.