Earnings Call Transcript - TIGR Q4 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to UP Fintech Holding Limited Fourth 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 today's conference is being recorded today, March 20, 2024. 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, operator. Hello everyone and thank you for joining us for the call today. UP Fintech Holding Limited's fourth quarter and full year 2023 earnings release was distributed earlier today and is available on the 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. Now let me cover the Safe Harbor. Some statements we 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 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-K furnished today, March 20, 2024 and our Annual Report on Form 20-F filed on April 26, 2023. 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. Mr. Wu, please go ahead with your remarks.

Tianhua Wu, Chairman and CEO

Hello everyone. Thank you for joining the Tiger Brokers' fourth quarter and full year 2023 earnings conference call. Today marks the 5th Anniversary of Tiger’s listing on NASDAQ. During the past five 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 improvements in various aspects, including product offerings, industry know-how, user base, and profitability. We have also navigated through market turbulence, geopolitical and regulatory uncertainties. This valuable experience will help us achieve sustainable growth in the future. As of the end of 2023, the majority of our total client assets came from users in overseas markets. We are proud of our international reach and will continue to serve our clients with dedication and innovation. In 2023, we continued to advance our internationalization strategy, further solidifying our leading position in Singapore and officially entering Hong Kong. Benefiting from the higher interest rate environment, fourth quarter total revenue reached $70 million, a 9.6% increase compared to the same period last year. Our full year total revenue amounted to $273 million, 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&D capabilities, which enabled us to save costs and deploy resources more efficiently. Full year net profit reached $32.6 million, non-GAAP net profit reached $42.7 million, a record high since our company's founding, representing a jump of 14.8 times and 3.4 times the same figure in 2022. In the fourth quarter, due to the depreciation of the U.S. dollar against other currencies, we recorded a $7 million non-cash foreign exchange loss versus a $2 million foreign exchange gain in the third quarter, resulting in our non-GAAP net income decline quarter-over-quarter to $1.1 million. In the fourth quarter, we added 39,000 funded accounts, an increase of 58.6% from the previous quarter. The total number of funded accounts for the year reached 123,110, exceeding our annual guidance of 100,000 funded accounts. The majority came from markets outside of Mainland China. 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 fourth quarter, by leveraging our strong presence in Singapore, we worked with partners to explore customer acquisition initiatives in the Southeast Asian region, which resulted in a rise in quarterly new funded accounts while reducing average customer acquisition cost to a historical low of below $150. In terms of total client assets, the trend of asset inflow remains strong. We saw a record $8.2 billion net asset inflow this quarter, in addition to $3.5 billion from market-to-market gains. Total client assets jumped 62.1% quarter-over-quarter and more than doubled year-over-year, totaling $30.6 billion at 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 pleased to see the quality of our newly acquired customers further improve in the fourth quarter. The average net asset inflow of newly acquired clients in Singapore was above $16,000 in the fourth quarter, setting a historic high since our launch into the Singapore retail market. We continue to add new products on our platform to enhance user experience, which we believe is key to our long-term success. In the fourth quarter, we introduced the Combo Option Strategy feature, a user-friendly product that allows users to execute multi-leg options trades based on our net margin requirements. Additionally, we launched the Fixed Coupon Notes product, offering professional investors a more diversified wealth management experience. As crypto is becoming an important asset class globally, it’s a natural extension of our business as a broker-dealer to add this new asset class with Tiger's Fintech background and expertise. In January, we started to offer 11 Bitcoin ETFs trading based on local regulatory frameworks. In Hong Kong, the Hong Kong SFC upgraded our Type 1 License to include Virtual Asset dealing services for Professional Investors. This positions us as one of the first mainstream online brokerage firms in Hong Kong to receive approval for such a license upgrade. Our 2B business continues to perform well. In Investment Banking Service, we underwrote a total of nine U.S. and Hong Kong IPOs in the fourth quarter, including Shiyue Daotian Group and J&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 fourth quarter, bringing the total number of ESOP clients served to 535 as of the end of 2023. Now, I would like to invite our CFO, John, to go over our financials.

John Zeng, CFO

Great. Thanks, Tianhua and Aaron. Let me go through our financial performance for the fourth quarter. All numbers are in U.S. dollars. Total revenue was $70 million this quarter, remaining flat quarter-over-quarter, and increased 9.6% year-over-year. Full year total revenue was $272.5 million, increased 20.9% compared to last year. Cash equity take rate was 6.5 bps this quarter, slightly increased from last quarter. Within commission revenue, about 60% came from cash equities, 30% from options, and the rest comes from futures and other products. Now on to costs. Interest expense was $16 million, increased by 123% from the same quarter of last year, as interest expense and securities lending expense both increased in line with the rate hike. Execution and clearing expenses were $2.2 million, decreased by 44% from the same quarter of last year, primarily due to more efficiency in self-clearing for U.S. and Hong Kong Securities. Employee compensation and benefits expense were $26.5 million, an increase of 8% year-over-year due to an increase in global headcount. Occupancy depreciation and amortization expense increased 8.4% to $2.2 million due to increase in rent. Communication and data expenses were $8.5 million, an increase of 21% year-over-year due to the increase in user base and IT-related fees. Total operating costs were $52.5 million, slightly increased by 3.1% from the same quarter of last year. GAAP net loss was $1.8 million. Non-GAAP net income was $1.1 million. The sequential drop in bottom line was primarily due to non-cash foreign exchange losses resulting from the depreciation of the U.S. dollar during this quarter. For the year of 2023, total GAAP profit was $32.6 million and non-GAAP net income was $42.7 million, a historical high in our company history. Now I have concluded our presentation. Operator, please open the line for Q&A, thanks.

Operator, Operator

Thank you. Please stand by while we compile the Q&A queue. Our first question comes from Cindy Wang from China Renaissance. Please go ahead, your line is open.

Cindy Wang, Analyst

Thanks for giving me the opportunity to ask questions. I have two inquiries. First, while the net profit has increased significantly in 2023, profitability in Q4 declined sequentially, primarily due to the FX loss. Have you observed any improvements in the first quarter this year based on the current run rate? Secondly, could you provide guidance on new funded accounts for 2024, including the breakdown by region and your business development strategy? Are there any new markets you plan to enter this year? Thank you.

Tianhua Wu, Chairman and CEO

The non-GAAP bottom line decreased in the first quarter compared to the third quarter due to several factors. First, our total revenue remained flat quarter-over-quarter, but we faced higher interest expenses in the first quarter as a result of the rate hike cycle, leading to a $4 million decrease in total net revenue quarter-over-quarter. Second, the first quarter saw an increase in costs, including professional service fees, which resulted in a $3 million rise in expenses. Third, we experienced foreign exchange losses; the U.S. dollar depreciated against the RMB and Singapore dollar, resulting in a non-cash loss of $7 million in the first quarter, compared to a $2 million gain in the third quarter. These two factors combined led to a non-cash decrease of about $9 million sequentially. On a positive note, we've observed an increase in trading activities in the first two months of this year and strong client-led asset inflows. Given the relatively stable foreign exchange rate in the first quarter, we anticipate that profitability will significantly improve compared to the fourth quarter. In 2024, our goal is to add 150,000 new funded accounts. Approximately 60% will come from Singapore and Southeast Asia, while the markets of Australia and New Zealand, along with the United States, will each contribute 15%, and Hong Kong will account for 10%. This breakdown is similar to our actual results in 2023, and we will adjust our strategy based on market opportunities and ROI in each region. With our target increasing from 100,000 in 2023 to 150,000 in 2024, we expect the incremental PUE number to rise across each market. We believe that the markets we have entered hold significant potential. For example, in Singapore, where Tiger Broker already holds a relatively high market share, there is still considerable room for growth, evident from the number and quality of newly acquired clients in the fourth quarter. In markets such as Australia, New Zealand, and Hong Kong, we see even greater potential for improvement and expansion. Therefore, in 2024, our focus will remain on these established markets, optimizing our R&D resources, introducing more product features including virtual assets trading to boost our ARPU and profitability, and exploring opportunities to enter new markets based on prevailing conditions. Thank you.

Operator, Operator

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

Judy Zhang, Analyst

Thank you for taking my question. I have two questions. The first is about the commission and turnover. We've noticed a significant increase in customer AUM in the fourth quarter, but the commission turnover hasn't improved much. What are the reasons behind this? My second question is about new funded customers. There has been a substantial increase in new paying customers quarter over quarter, but the CAC has reached a record low. Can management provide some insight into the company's strategy for acquiring new customers? Thank you.

Tianhua Wu, Chairman and CEO

Okay, for the first question. At the end of the fourth quarter, total current assets increased by 62% compared to the previous quarter and more than doubled compared to the end of last year, reaching USD $30.6 billion. This growth is due to two main factors. Firstly, the rise in the NASDAQ index and market recovery in the fourth quarter resulted in a mark-to-market gain of USD $3.5 billion on our total current assets. This indicates that even without accounting for net asset inflow, our total current assets would still have risen by about 15% compared to the previous quarter. Additionally, while we have been focusing on the retail market, we've also been catering to many institutional investors through initiatives like ESOP and investment banking. In the fourth quarter, our efforts gained more credibility and recommendations from global investors, leading to a transfer of their provisions to our platform and significantly contributing to the total net asset inflow of $8.2 billion in the fourth quarter. However, I must acknowledge that some of these institutional investors, such as Venture Capital and Private Equity, mainly come from the primary market, which tends to have a lower transaction frequency than retail investors or hedge funds. Consequently, the increase in current assets from these types of institutional investors had a limited impact on our commission revenue in the fourth quarter thus far. In the fourth quarter, we enhanced our brand presence in the Singapore and Southeast Asia markets through more online advertising. We have observed a rise in organic traffic and monthly referrals, which has resulted in a significant number of new funded accounts in the fourth quarter. Nonetheless, we have noticed that users acquired through different methods may vary in quality. Therefore, we will dynamically adjust our customer acquisition strategies based on their effectiveness to ensure they contribute to our ARPU and profit model. Thank you, Judy.

Operator, Operator

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

Han Pu, Analyst

Thanks for taking our questions. This is Han Pu from CICC. I have two quick questions. Firstly, could you please share the regional breakdown of newly funded accounts in Q4? And secondly, could you please give us more information on the Hong Kong business operation, especially regarding the crypto trading business? Thank you.

Tianhua Wu, Chairman and CEO

Among the newly funded accounts in the fourth quarter, over 60% came from Singapore and Southeast Asia, nearly 20% from the United States, while contributions from Hong Kong and Australia and New Zealand made up around 10% each. We have been in the Hong Kong retail market for a year now, and we are fairly pleased with our progress. In our competitive Hong Kong market, we offer some of the most favorable pricing to our users. Currently, Hong Kong users can enjoy zero commission and zero plan fees when trading Hong Kong securities on our platform. We have also been enhancing our product offerings over the past year and are satisfied with the improvements in our features. In the fourth quarter, we introduced U.S. T Bonds and the Trading Sparks features in Hong Kong. In the first quarter of this year, we upgraded our Type 1 License with the SFC, allowing professional investors to trade crypto on our Hong Kong platform, which we expect to launch in the next month or two. Our local business is steadily growing, and the quality of our users has improved over time. Initially, we focused on exploring the market and understanding our local users, which took some time. In the fourth quarter, we adopted a more localized customer acquisition strategy, leading to a net asset inflow in the Hong Kong market that exceeded the total from the first three quarters of this year. Furthermore, the average net asset inflow from newly acquired clients in the fourth quarter surpassed USD $5,000, highlighting good user quality in the Hong Kong market and a promising growth opportunity for us moving forward. Thank you.

Aaron Li, Head of Investor Relations

Thanks, Mel. Let's move on.

Operator, Operator

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

Aaron Li, Head of Investor Relations

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. 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.

Operator, Operator

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