Q1 2024 UP Fintech Holding Ltd Earnings Call

Participants

Aaron Li; Investor Relations; UP Fintech Holding Ltd

Tianhua Wu; Chief Executive Officer, Director; UP Fintech Holding Ltd

Fei Zeng; Chief Financial Officer, Director; UP Fintech Holding Ltd

Hua Fan; Analyst; CICC

Edmond Fok; Analyst; DBS Bank

Alan Chen; Analyst; Citi

Presentation

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 today, June 5, 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

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 Globe 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. 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 after 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 the factors that could cause actual results to materially differ from the 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 an English translation. Mr. Wu, please go ahead with your remarks.

Tianhua Wu

(interpreted) Hello, everyone. Thank you for joining the Tiger Brokers first-quarter 2024 earnings conference call. In the first quarter, we saw a moderate rebound in market backdrop. Our total revenue reached USD78.9 million, the highest quarter in the past three 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 to positive USD12.3 million and up 55% year over year. Non-GAAP net income was USD14.7 million, 13.9 times 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.
In the first quarter, we added 28,800 new fund accounts and the total number of funding accounts reached 933,400 as of end of the first quarter, an increase of 15% year over year. In the first two 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 client assets, building from a historic high in net asset inflows in the first quarter of last year, the strong momentum continue in the first quarter of this year, with net asset inflows of USD5.3 billion, mainly contributed by Singapore users and institutional users. After neutralizing the impact from mark-to-market loss, the total client assets reached USD 32.9 billion for the end of the first quarter, 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 brand advantage continues to attract high-quality organic traffic to onboard our platform. With an average net asset inflows of over USD14,000 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 USD18,000, 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 USD150 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 year.
In the first quarter, we rolled out numerous localized feature across different markets to better serve our users and also gain 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 US stock investing. Additionally, catering to local Singaporean (inaudible) and the local credit system, we launched the Cash Boost Account feature in April. The Tiger Brokers cash flows account operates on Contra Trading strategy without an initial deposit required. Tiger Brokers were the first fintech broker in Singapore to offer Contra facilities.
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.
Apart from those, we rolled out two 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 US stocks and ETFs during local market hours and capture more market opportunities. Secondly, we have upgraded our option trading capabilities by introducing the US 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 a deed in the money option before expiration.
Our 2B business continues to perform well. In investment banking, we underwrote five US and a Hong Kong IPOs 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. Now I'd like to invite our CFO, John, to go over our financials.

Fei Zeng

All right. Thanks, Tianhua and Aaron. Let me go through our financial performance for the first quarter. All numbers are in US 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 US 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 $78.9 million 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 from 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 US -- 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 and productivity of commission went down from time to time during the past year.
Employee compensation and benefits 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.

Question and Answer Session

Operator

(Operator Instructions) Hua Fan, CICC.

Hua Fan

(interpreted) Thanks, management for taking my question. This is Hua Fan from CICC. I have two questions here. The first one is regarding the four-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 full 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

(spoken in Chinese)

Operator

Please stand by while the speakers re-connect.

Aaron Li

Hi, Operator. Can you hear us now?

Operator

Yes. You may commence.

Tianhua Wu

(interpreted) We place great importance on our profitability model, and we 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 US and Hong Kong market. Based on this, we've increased our customer acquisition input in the second quarter. Also, the launch of the Tiger BOSS Debit 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 35,000 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.
Okay. For the second question, for the first two 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 two 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 US 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, Contra Trading, 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

Edmond Fok, DBS

Edmond Fok

Thank you, management, I have two questions. The first question is what is the original breakdown for the new funded account during the first quarter? And the second question is about the 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? Thank you.

Tianhua Wu

(interpreted) So for the first question, in the fourth quarter, over 50% of new funded accounts came from Singapore and Southeast Asia, around 20% came from the US market, over 15% were 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.

Fei Zeng

So after we enter 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 zero commission and zero 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 US shares, US option trading, loss on trading, wealth management product like (inaudible). 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 US bitcoin ETFS. And as for customer acquisition over the past year, we keep optimizing our account opening process, try out different marketing strategies, and we are glad 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 10 times year over year in the first quarter.

Aaron Li

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

Operator

Alan Chen, Citi.

Alan Chen

(interpreted) Thanks, management for taking my questions. I have two questions today. The first question is on the two products that launched in Singapore. Could management give us a little bit more color on the products and for the BOSS 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? 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, makes 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 management if -- management could share how much FX gain you have booked in the first quarter? And looking forward, have you taken any actions to limit the impact of FX gain or loss on your earnings? And that's my questions. Thank you.

Tianhua Wu

(interpreted) Thank you, Alan. For your first question regarding the Tiger BOSS Debit Card, this card is available for both of our existing users 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 activities. 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, 10% of transaction amount will be rewarded to the users' security account on Tiger platform in the form of fractional shares of popular US stocks like Tesla.
Compared to traditional bank card reward scheme of cashback, loyalty points, or miles, we believe that the fractional share rewards provide a better user experience. Firstly, there is no expiration dates or 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 signed up for this card and the average transaction frequency from the cardholders has exceeded our expectations.
So regarding the Contra Trading feature, Tiger was 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 a certain trading limits based on their credit assessment without requiring any initial capital input.
From the user's perspective, Contra Trading credit seasoned trader, the flexibility to buy stock and sell them any time before or around the full selling date without needing to deposit funds. 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 positive as the Contra gain. Conversely, if the share price drops, investors can settle the difference up to seven 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 two days after the settlement day without a top-up, the limit will be automatically frozen, permitting only closing positions. Payments are also automatically reduces -- sorry, reduced by Contra losses until the user replenish the gap.

Fei Zeng

So the FX gain and losses on our P&L are mainly due to the fluctuation in the US dollar against the RMB, Sing dollar and the New Zealand dollar. So in Q1, the appreciation of the US dollar compared to Q4, resulting in over USD3 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 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 US treasury investment was about USD4.7 million. Thank you.

Aaron Li

And now 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.

Aaron Li

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. Speakers, please stand by.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event. In addition, this transcript falls below LSEG's quality threshold due to poor audio and highly accented speech. This file has been reviewed to minimize indiscernible language.