Earnings Call Transcript - TIGR Q1 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a presentation followed by the question-and-answer session. I must advise you that this conference is being recorded today, May 30th, 2025. I would now like to hand the conference over to your first speaker today, Mr. Aaron Li, the Head of Investor Relations. Thank you. Please go ahead.

Aaron Li, Head of Investor Relations

Thank you, Lydia. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's first quarter 2025 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 US 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. Now let me cover the Safe Harbor. The statements we are about to make contain forward-looking statements within the meaning of the US 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 differ materially from those in the forward-looking statements, please refer to our Form 6-K furnished today, May 30th, 2025, and our Annual Report on 20-F filed on April 23rd, 2025. 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 CEO, 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, Chairman and CEO

Hello, everyone. Thank you for joining the Tiger Brokers first quarter 2025 earnings conference call. In the first quarter, our total revenue reached $122.6 million, reflecting a 55.3% increase year-over-year. Despite increased volatility in the Hong Kong and US markets, trading activity remained robust. Consequently, total trading volume reached $217 billion, resulting in commission income hitting a record-high of $58.3 million, more than double the previous year. Additionally, marketing, financing, and securities lending balances grew to $5.2 billion, an increase of 89.4% year-over-year. Net interest income rose to $53.8 million, an increase of 22.7% year-over-year. Our continued growth in user base and rising average revenue per user, driven by product diversification, have helped us leverage fixed operational costs further, leading to stronger and more sustainable profitability. Non-GAAP net income attributable to UP Fintech increased to $36 million, marking an 18.3% sequential rise and a 145% increase year-over-year. GAAP net income attributable to UP Fintech reached $30.4 million, up 8.4% quarter-over-quarter and 146.7% year-over-year. Both net income and profit margin reached record highs, and this continuous improvement in earnings quality provides us with greater flexibility to pursue strategic initiatives and accelerate long-term growth. In the first quarter, we added 60,900 new funded accounts, which represents over 40% of our target for acquiring at least 150,000 new funded accounts in 2025, with a 2.9% increase quarter-over-quarter and strong 111.2% growth year-over-year. The total number of funded accounts reached 1,152,900 at the end of the first quarter, an increase of 23.5% year-over-year. Regarding client assets, net inflow remained robust, reaching $3.4 billion for the quarter, primarily driven by retail clients in Singapore and the Greater China region. Combined with approximately $780 million in mark-to-market gains, total client assets reached a record high of $45.9 billion, up 9.9% quarter-over-quarter and 39.5% year-over-year, marking our 10th consecutive quarter of growth. Client assets from the Greater China region also showed over 20% growth quarter-over-quarter. We are pleased to note that the average net asset inflow from newly acquired clients in the Hong Kong market in the first quarter exceeded $30,000, indicating the increasing trust and engagement we've built in the market since our entry two years ago. Following our success in Singapore, Hong Kong has become a critical strategic market where we are investing further to strengthen our presence. In the first quarter, we continued to enhance our product offerings and improve user experience. On the AI front, we officially upgraded TigerGPT to TigerAI, marking significant progress in personalization and intelligence. This upgrade expanded our AI capability from a single model to a dual-model architecture and introduced new features that allow integration with users' watchlists and portfolio data, enabling TigerAI to provide more personalized and relevant investment insights. Following this upgrade, user satisfaction with TigerAI exceeded 80%. In the crypto space, after obtaining Type 1 license uplift, Tiger Brokers Hong Kong has now received approval from the Hong Kong SFC to offer virtual asset trading, along with deposit and withdrawal services for both retail and professional investors. This allows us to support multiple asset classes within a single account while building greater synergy between traditional investors and digital asset holders, setting the stage for increased market participation and advisory activities. Moreover, we recently launched the equity repo and delivery versus payment features, significantly boosting the efficiency of our stock borrowing and lending operations and enhancing our service capabilities for institutions and high-net-worth clients. In our Corporate business, we underwrote four Hong Kong IPOs in the first quarter, including Chifeng Gold and Nanshan Aluminum, and participated in the Mixue Group's IPO, which set a new record for IPO subscription amounts in the Hong Kong market, with total subscriptions exceeding HKD100 billion on our platform. In our ESOP business, we added 20 new clients in the first quarter, bringing our total number of ESOP clients to 633 as of March 31st, 2025, an increase of 14% year-over-year. Now I would like to invite our CFO, John, to discuss our financials.

John Fei Zeng, Chief Financial Officer

Great. Thanks, Tianhua and Aaron. Let me go through our financial performance for the first quarter. All numbers are in US dollar. Commission income was $58.3 million, increased 4% quarter-over-quarter and more than doubled year-over-year. Interest income was $53.8 million, increased 23% year-over-year, but slightly decreased 4% quarter-over-quarter. The slight decrease was due to the majority of our US treasury holdings maturing in the fourth quarter. So in this quarter, we had a one-time decrease of $1.5 million in interest income. Together, total revenue reached $122.6 million, up 55.3% year-over-year. Cash equities take rate was 6.7 bps this quarter, slightly decreased from 6.9 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 on to cost. Interest expense was $50 million, decreased 10% quarter-over-quarter, in line with the decrease in interest income, and slightly increased 2% compared to the same quarter of last year. Execution and clearing expense were $5.3 million, increased 139% from the same period last year, in line with the increase in commission and trading volumes. Employee compensation and benefits expense were $33.8 million, an increase of 22% year-over-year due to headcount increase to strengthen overseas growth and R&D. Occupancy depreciation and amortization expense were $2.1 million, remain flat year-over-year. Communication and market data expense were $9.8 million, an increase of 14% year-over-year due to the increase in user base and IT-related service fees. Marketing expenses were $10.9 million this quarter, increased 148% year-over-year, as market conditions are more favorable versus a year ago for user acquisition. General and administrative expenses were $5.1 million, a decrease of 9% year-over-year due to a decrease in professional service fees. Total operating costs were $67.1 million, an increase of 32% from the same quarter of last year. As a result, the bottom line increased on both GAAP and non-GAAP basis. GAAP net income was $30.4 million, up 8.4% quarter-over-quarter and 146.7% year-over-year. Non-GAAP net income was $36 million, an 18.3% increase quarter-over-quarter and a 145% increase year-over-year. The non-GAAP net profit margin expanded from 25% in the previous quarter to nearly 30% this quarter. Now I have concluded our presentation. Operator, please open the line for Q&A. Thanks.

Operator, Operator

Thank you. Now we're going to take our first question. The question comes from Cindy Wang from China Renaissance. Your line is open. Please ask your question.

Cindy Wang, Analyst

Thank you for taking my question and congratulations on the excellent first quarter results. I have two questions. First, with markets staying volatile in the second quarter, how has this impacted the company's run rate so far? Can you also share any early trends regarding trading volume, client assets, and newly funded accounts? Second, the company experienced further improvements in profitability in the first quarter. Looking forward, how should we consider costs, especially regarding headcount and customer acquisition? Can you provide some guidance on the outlook for customer acquisition costs? Thank you.

Tianhua Wu, Chairman and CEO

Overall, we are quite pleased with the progress in the second quarter so far. In April, we experienced a significant increase in market volatility driven by tariff concerns, which resulted in our monthly trading volume surpassing $100 billion for the first time in history. So far in Q2, there has been an improvement compared to Q1. While it's difficult to predict what news might surface in June, we will be closely monitoring market activity throughout the month. Regarding client assets, net inflows remained strong in April and May, continuing the solid pace from the first quarter, with contributions from both institutional and retail clients in all licensed markets. The market rebound starting in late April also led to meaningful mark-to-market gains. Currently, client assets have reached another record high, reflecting a double-digit increase since the end of Q1. In terms of new funded accounts, during the heightened volatility in Q2, we adapted our acquisition strategies. Consequently, we expect a decrease in the number of new funded users compared to the elevated figures in Q1, although user quality remains strong and net asset inflow continues robustly. Therefore, we are confident in our annual goal of acquiring at least 150,000 new funded users this year.

John Fei Zeng, Chief Financial Officer

In terms of labor costs, we will persist in investing in products and research and development to uphold our competitive advantage, as technology is central to our platform. We will also increase our team in essential markets like Hong Kong and the US, covering various functions from front to back office. However, our overall headcount growth will be carefully managed. We anticipate that compensation expenses will rise by approximately 10% to 20% annually. We plan to allocate more resources to customer acquisition to strengthen our brand and deepen our presence in core markets. Our marketing expenditure will be influenced by market conditions, but we expect to increase spending in the latter half of this year. Our average customer acquisition cost is estimated to be between $150 and $180 through 2024 and into the first quarter of 2025. In the upcoming quarters, we expect this average cost to rise to around $250 to $300. This increase is due to two primary factors. First, we will enhance our focus on high-value markets like Hong Kong, where user quality is substantially higher. From a payback standpoint, a higher customer acquisition cost in these markets is justifiable. Additionally, we are prepared to invest significantly in brand awareness. Although these kinds of investments may not result in immediate conversions and could elevate customer acquisition costs in the short term, they are crucial for our long-term growth and brand visibility. Thank you.

Aaron Li, Head of Investor Relations

Thank you. Lydia, please go for the next question.

Operator, Operator

Thank you. Now we're going to take our next question. And the next question comes from the line of Emma Xu from Bank of America. Your line is open. Please ask your question.

Emma Xu, Analyst

Congratulations on another quarter of strong growth. I have two questions. The first is about net asset inflow, which was particularly strong in the first quarter and contributed to a double-digit increase in your total client assets. Could you elaborate on the breakdown of these inflows by regions and account types? My second question concerns your interest income. I noticed that your margin financing and securities lending balances grew around 15% in the first quarter, yet the net interest income remained essentially unchanged. Was this primarily due to the declining interest rate? If the Fed cuts interest rates twice this year, say by 25 basis points each time, what would be the estimated impact on your profit and loss?

Tianhua Wu, Chairman and CEO

In the first quarter, we recorded about $3.2 billion in net asset inflows, with around 60% coming from users in the Greater China area, 30% from Singapore, and the remaining 10% from the US and Australia, New Zealand markets. Overall, approximately 60% of the net asset inflow was contributed by retail clients.

John Fei Zeng, Chief Financial Officer

The growth in margin financing and securities lending balance was primarily due to a more active market. Our net interest income from margin financing increased from the previous quarter despite the implications of rate cuts. The reason our total net interest income stayed flat this quarter is that a larger portion of our US treasury investments matured at the end of last year, which affected us by $1.5 million compared to the previous quarter. Regarding potential future rate cuts, we estimate that for each 25 basis points cut by the Federal Reserve, our quarterly net interest income could be adversely affected by about $1 million to $1.5 million, which is approximately 1% of our quarterly revenue. Thank you.

Aaron Li, Head of Investor Relations

Thanks, Emma. Operator, please proceed to the next question.

Operator, Operator

Thank you. Now we're going to take our next question. And the question comes from the line of You Fan from CICC. Your line is open. Please ask your question.

You Fan, Analyst

[Foreign Language] Thanks, management, for taking my questions. This is You Fan from CICC. I have two questions here. The first one is that we see the strong new customer acquisition this quarter. Could you please provide a regional breakdown of the newly funded accounts in Q1? The second question, could you please update on your progress in the Hong Kong market during Q1 and how you view the market opportunity and strategic focus going forward considering the recent Ant Group's merger with Bright Smart Securities? Will this intensify the local competition? Thank you.

Tianhua Wu, Chairman and CEO

In the first quarter, about 45% of our newly funded clients were from Singapore and Southeast Asia, around 35% were from Greater China, and Australia, New Zealand, and the US each made up about 10%. Hong Kong continues to be a highly competitive market, and we believe that the recent merger between Ant Group and Bright Smart Securities further confirms its appeal. Whether considering its position as a global financial hub or the quality of its user base, Hong Kong remains an attractive market, and the increasing number of participants underscores its long-term potential. We see increased competition as beneficial for local users, as it raises industry standards and motivates continuous improvement. As a technology-focused brokerage, Tiger has established strong advantages in key areas, including clearing efficiency for Hong Kong and US equities, a strong product portfolio, particularly in US derivatives, virtual asset trading capabilities, and the deep integration of AI in our investment process. We have also introduced product differentiation to better cater to local users, such as lower trading commissions compared to most platforms and attractive yields on our emerging market funds. These strategies reflect our commitment to providing significant value to our users. Looking forward, we plan to invest further in talent and marketing in Hong Kong to enhance the overall product experience. We are confident that through continued optimization and steady execution, we can capture a meaningful share of the Hong Kong market. Regarding the Q1 operational highlights for Hong Kong, thanks to high average client assets and strong trading activity, our average revenue per user from Hong Kong clients remains the highest among all markets. During the first quarter, new funded clients in Hong Kong had an average net asset inflow exceeding $30,000. Additionally, planned assets in Hong Kong rose over 20% quarter-over-quarter and more than four times year-over-year, making it our third-largest market in terms of assets under custody.

Aaron Li, Head of Investor Relations

Operator, next question, please.

Operator, Operator

That's it for today. I would now like to hand the conference over to Aaron Li for any closing remarks.

Aaron Li, Head of Investor Relations

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. Bye-bye.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.