UP Fintech Holding Limited (TIGR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, March 29, 2023. I would now like to hand the conference over to your first speaker today, Mr. Aron Lee, the Head of IR. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us on the call today, UP Fintech Holding Limited Fourth Quarter and Full Year 2022 earnings release was distributed earlier today and is available on our IR website at ir.itigerup.com, as well as GlobeNewswire services. On the call today from UP Fintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer; Mr. John Zeng, Chief Financial Officer; Mr. Huang Lei, 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 that follows their remarks. So 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 Reform Act of 1995, and net 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-K furnished today, March 29, 2023, and our annual report on Form 20-F filed on April 28, 2022. 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.

[Foreign Language]

[Interpreted] Hello, everyone. Thank you for joining the Tiger Brokers Fourth Quarter and Full Year 2022 Earnings Conference Call.

[Foreign Language] .

[Interpreted] 2022 was a year with challenges. Geopolitical conflicts, cost went high [indiscernible] reserves to counter high inflation, meltdown in crypto sectors all hampered investor confidence and slowed down market activities. Under this macro backdrop, we remained committed to international growth with the [ efficacy ] in cost and efficiency. In 2022, we further solidified our market-leading position in Singapore, entered Australia and New Zealand markets to expand our footprint, officially launched retail work rate in Hong Kong and keep improving our trading efficiency that upgrade the self-clearing infrastructure. Total revenue for 2022 was USD 225 million. Non-GAAP net profit was USD 12.7 million for the full year.

[Foreign Language]

[Interpreted] In the fourth quarter, interest-related income and IPO underwriting income both increased compared to the third quarter. Total revenue was USD 63.9 million, increased 15.2% quarter-over-quarter and 2.7% year-over-year. GAAP and non-GAAP net profit attributable to UP Fintech tax was USD 1.2 million and USD 4.5 million, both improved from the same quarter of last year, demonstrating the resilience of our business model in volatile market conditions.

[Foreign Language]

[Interpreted] In the fourth quarter, we added 27,300 new funded accounts, and the total number of funded accounts for the year reached 108,100, exceeding our annual guidance of 100,000 of funded accounts. The total number of funded accounts at the end of 2022 exceeded 780,000, representing a growth of 16.1% compared to the end of the last year. Among the new funded accounts this quarter, over 90% of our market outside of Mainland China. In terms of total client assets, the trend of asset inflow remained strong, with net inflow exceeding USD 1.4 billion in the fourth quarter. After neutralizing the impact from mark-to-market loss, total client assets in this quarter increased by 8.1% compared to the third quarter, reaching USD 14 billion. We are very glad to see the quality of our newly acquired customers further improve in the fourth quarter. Taking Singapore as an example, where we have most client base, the average net asset inflows of newly acquired clients in Singapore was around USD 12,000 in the fourth quarter, further increased from over USD 11,000 in the third quarter and USD 9,000 in the second quarter, demonstrating our growth presence in this key market and unwavering commitment to provide our clients with exceptional services. In addition, the overall average CAC was USD 271 in the fourth quarter, decreased 17% quarter-over-quarter, demonstrating we keep acquiring high-quality clients while being prudent with marketing and branding expenses.

[Foreign Language]

[Interpreted] We continue to invest in research and development to improve operational efficiency and to enhance user experience, benefiting from self-clearing capability in the U.S. to execute and [ clearing fee ] as a percentage of growth commissions significantly decreased from 21% in 2021 to 14% in 2022. And now we expect further reduction in clearing expenses as well in progress of self-clearing Hong Kong equities in 2023. We also launched the recurring investment function for U.S. stock and ADS in the fourth quarter, making it more convenient for long-term investors to invest periodically. In addition, since our official launch in Hong Kong was last December, we have keep adding products to serve local investors with the most competitive price package in the industry. Now, we offer Hong Kong and U.S. equities, warrant, options market, we will add Tiger Vault, our wealth management products in April.

[Foreign Language]

[Interpreted] Our CB business continues to perform well. In the investment banking business with the IPO market rebound, we underwrote 17 U.S. and Hong Kong IPOs in the fourth quarter, including Atour Lifestyle Holdings Limited and [indiscernible] Technology, bringing the total number of U.S. and Hong Kong IPOs underwritten for the year to 48. According to Wind data, Tiger Brokers ranked 3rd globally and 4th globally in terms of the deal cost and value for U.S. IPOs underwritten in 2022. Additionally, in our ESOP business, we added 26 new clients in the fourth quarter, bringing the total number of ESOP clients served to 419 at the end of 2022, increased by 34% year-over-year.

[Foreign Language]

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

Thanks, Tianhua and Aron. Let me go through our financial performance for the fourth quarter, all numbers are in U.S. dollar. Total revenue were $63.9 million this quarter. an increase of 2.7% year-over-year. For the whole year, total revenue were $225.4 million, a decrease of 14.8% from last year due to a slowdown in market activities, which drove down commission and IPO underwriting. On a quarter-over-quarter basis, total revenue increased 15.2%, primarily due to a 23% jump in interest-related income and a 46% increase in other revenue versus prior quarter. Cash equity take rate was 6.9 bps this quarter, slightly better than 6.7 bps of last quarter. Within commission revenue, about 60% comes from cash equities, close to 30% from options and the rest from [ futures ] and other products. Now on to cost. Interest expense was $7.2 million, increased 80% from same quarter last year, as interest expense and security lending expense both increased in line with the rate hike. Execution and clearing expenses were $4 million, decreased 42% from the same period of last year. We expect further reduction in clearing expense as we are in progress of self-clearing Hong Kong equities. Employee compensation decreased 14% year-over-year to $24.5 million this quarter as we add adjusted headcount in response to challenges are raised from the market backdrop. In line with the employee compensation, G&A expense, which was $6 million, decreased 31% from the same quarter of last year due to one-off professional service fees occurred last year. Occupancy, depreciation and amortization expense increased 12% to $2 million due to an increase in overseas office space and relevant leasehold improvements. Marketing expense were $7.4 million this quarter. decreased 36% year-over-year. We focused on quality of new users, don't see current market condition is suitable for major marketing as we keep a close eye on CAC and payback. Overall, CAC dropped 17% quarter-over-quarter to USD 271. We will adjust our marketing strategy based on the market environment. Communication and market data expense were USD 7.1 million, a decrease of 9% from a year ago. Total operating costs were $51 million, decreased 22% from the same quarter of last year. As a result, bottom line increased on both GAAP and non-GAAP basis year-over-year. GAAP net income turned positive to $1.2 million versus a GAAP level of $5.4 million last year. Non-GAAP net income further increased to $4.5 million from a non-GAAP breakeven in the same quarter of last year. Total non-GAAP net income for the whole year of 2022 was $12.7 million. Now I have concluded our presentation. Operator, please open the line for Q&A. Thanks.

[Operator Instructions] Our first question comes from the line of Cindy Wang from China Renaissance.

[Foreign Language] So thanks management to taking my questions. So I -- this is Cindy from China Renaissance. So I have 2 questions. First question is regarding to the new funded accounts. So in fourth quarter, Tiger Brokers added 27,000 new funding accounts. And it actually increased sequentially. So could you provide regional breakdown of new funding accounts in fourth quarter? The second question is related to the Hong Kong retail market. Since you enter into the Hong Kong retail market, it's been a quarter, so can you share us the current business progress and customer acquisition strategies in Hong Kong?

[Foreign Language]

[Interpreted] Okay. Regarding your first question, in the fourth quarter, around 90% of the newly funded accounts were from outside of Mainland China, with around 55% coming from Singapore, nearly 20% from Australia and New Zealand and 16% from the United States. As already stopped accepting new onshore clients based on CFRC notice on December 30, currently, only serve existing onshore clients and we will follow the regulatory guidance when more detailed policies are in place.

[Foreign Language]

[Interpreted] Okay. Regarding the second question about Hong Kong long-term progress. [indiscernible] Hong Kong retail is a new market for us, we have been testing different marketing strategies in the fourth quarter. For example, for offline marketing, we've done branding advertisement on traditional newspapers. With this New Year greeting advertisement, we hold discussion panel with [ safe ] users to [ solicited ] feedback. For online marketing, we have several promotion packages for new users. So overall, Hong Kong marketing strategy is in line with our global strategy, which is balance CAC with ROI. We will keep fine-tuning our Hong Kong marketing strategy committed objective. On the product side, in addition to cash equity, options, warrants we will add Tiger Vault, which is our wealth management product in the second quarter, our goal is to provide users with diversified products that we enjoy in the most competitive price and friendly user experience. I think our price is very competitive for Hong Kong investors. Currently, we charge 0 commission and 0 platform fee to these Hong Kong equities and warrants. Although we only launched for 1 quarter, but investors took notice and we were awarded the best equity trading platform by local newspapers. We expect the number of Hong Kong funded accounts will gradually increase this year. Thank you.

Our next question comes from the line of Han Pu from CICC.

[Foreign Language] This is Han Pu from CICC. I have 2 questions. First one is regarding the fund safety concerns raised by the SVB issue, is there any current influence on Tiger and our future precaution? Secondly, could you please give us some updates on the regulatory environment and our business operations since the CSRC announcement by the end of last year?

[Foreign Language]

[Interpreted] Okay. So regarding the recent high-profile incident involving Silicon Valley Bank. Firstly, I want to assure you that Tiger Brokers has no account upfront with SVB. And therefore, this incident has no impact on our operations. Besides we're operating as licensed broker overseas, and collaborating with large overseas banks as our custodian and settlement banks, such as SCDC Asia, DBS and Citibank, et cetera. Such incident outer has been globally monitoring our operational data. During the 2 weeks, from March 9 to March 24, our client total assets remained stable with a slight increase. And overall, we still see the trend of net asset inflows. We take our responsibility as broker seriously, and we'll be evaluating the risks of our current partner banks carefully in light of the recent events. We will go to great length to fulfill our responsibility and obligations as brokers and to ensure the safety of our clients' funds.

[Foreign Language]

[Interpreted] Okay. Regarding your second question,Tiger Brokers have always put a high emphasis on complying with global regulations and requirements. Recently, on December 30 of last year, the CSRC released the announcement that further clarified on regulations for China domestic investors to participate cross-border securities activities. While this announcement resulted in a short-term decline in stock price, as entrepreneurs. We take place as a milestone in cross-border security speculation, and we will facilitate industry development in an orderly manner and prevent bad money to enter our group. In response to this update, Tiger Brokers has acted effectively to fully cooperate with the CSRC. We have stopped accepting new clients from Mainland China immediately at midnight of December 30. As a matter of fact, in 2022, around 90% of our new funded clients came from the overseas market. So this policy update will not have a material impact on our business. In addition, we have completed on-site inspection in collaboration with the Beijing Securities Regulatory Bureau and are currently awaiting further guidance from the regulator. On February 16, in the press conference. The CSRC mentioned that the relevant brokers have fully and accurately understand the regulatory requirements and complied rapidly, and restated the key requirement to prohibit the increments of domestic investors by allowing existing investors to continue trading through the original overseas accounts. We will stick to this policy until further guidance from the regulator.

Our next question comes from the line of Brandy Wang from Citi.

I have 2 questions here. First, we saw an income tax in fourth quarter increased a lot by around 38% quarter-over-quarter, which is driving the effective tax rate to over 65%. Any reason behind this? And my second question is regarding the business outlook. As the market sentiment was weak in 2022, what's management's preview and guidance for 2023? And do we observe any business recovery lately?

Okay. So let me answer the first question regarding tax rate. Okay. [Foreign Language] Okay. So in terms of the tax rate, the large portion of the $2.3 million, which is about $2 million was due to unrealized foreign exchange losses. This was caused by the continued appreciation of the U.S. dollar in 2022, which resulted in non-cash foreign exchange loss for our subsidiaries in Singapore and New Zealand. According to local tax regulation, those losses cannot be deducted as expense before tax. Therefore, we have to add them back as a tax basis, which results on the incurring income tax of about $2 million in the consolidated P&L in the fourth quarter. Of course, those expenses are allowed to be reversed with the depreciation of the U.S. dollar in the future and vice versa. Thank you. Okay. Tian, you go for the next question.

[Foreign Language]

[Interpreted] Okay. So regarding your second question about the preview and guidance of the coming year. With the challenging and uncertain market of 2022, we still achieved a non-GAAP profit of USD 12.7 million for the year, gained over 100,000 new funded accounts and saw net asset inflows exceed USD 7 billion. These results demonstrate the trust we have earned from users globally, the profitability of our business model and the effectiveness of our financial operations. As we all know that the online brokerage industry has very strong effect, and given our relatively recent entry into the market of Australia, New Zealand and Hong Kong. With these uncertainties being said, our target is to acquire at least 100,000 new funded accounts this year in 2023.

[Foreign Language]

[Interpreted] In 2023, Tiger Brokers will continue to deepen our internationalization strategy and focus on improving the operating efficiency of our existing markets. After launch in Singapore, we've achieved profitability in less than 2 years. However, relying solely on Singapore for growth is an unhealthy business model in the long run. Therefore, whether it's Australia, New Zealand or Hong Kong, we will further enhance the user experience, product diversity and self-clearing efficiency, hoping that they will become another successful market just like Singapore. This will enable us to better leverage our fixed costs and better navigate market turbulence, allowing the company to continue to develop while maintaining stable profitability. Thank you.

That was the last question. As there are no further questions at this time, I'll hand the call back to you for closing remarks.

I would like to thank everyone for joining the 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.

Thank you.

Thank you.

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