Up Fintech [TIGR] Conference call transcript for 2022 q1
2022-06-10 13:58:03
Fiscal: 2022 q1
Operator: Ladies and gentlemen, thank you for standing by, and welcome to UP Fintech Holding Limited First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation follow-up by a question-and-answer session. I must advise you that this conference is being recorded today, 10th of June 2022. I'd now like to hand the conference over to your first speaker today, Ms. Zing. Thank you. Please go ahead.
Unidentified Company Representative: Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's first quarter 2022 earnings release was distributed earlier today and is available on our IR website at ir.itiger.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. Fan Lei, CEO of U.S. Tiger Securities; and Mr. Ken 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 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 these in the forward-looking statements. Please refer to our Form 6-K furnished today, June 10, 2022, 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 an English translation. Mr. Wu, please go ahead with your remarks.
Wu Tianhua: Hello, everyone. Thank you for joining the Tiger Brokers First Quarter 2022 Earnings Conference Call. Macro environment was more difficult in the first quarter versus a year ago, which leads to a slowdown in trading commission and underwriting revenue. Total revenue in the first quarter was $52.6 million, decreased 35.2% year-over-year. But interest income stayed flat thanks to the gradual buildup of self-clearing for U.S. securities. On a quarter-over-quarter basis, Total trading volume increased 6% from fourth quarter last year with moderate increase in trading commissions. We added 30,150 funded accounts this quarter with over 80% coming from outside of China. Our total number of funded accounts also exceeded 700,000 by the end of the first quarter, an increase of 87.1% from the same quarter last year. Our goal is to acquire at least 100,000 new funded accounts this year. Total client assets decreased year-over-year to $15.2 billion due to mark-to-market loss. But we saw strong net asset inflow of $3.5 billion this quarter, demonstrating user confidence in our platform even with increased market uncertainty. Now, I would like to update on several key business developments at our company. Our internationalization is progressing well. In the first quarter, over 80% of newly founded users were derived from overseas markets, demonstrating the appeal of our next-generation fintech platform across regions. In the first quarter, we officially launched in Australia and our ranking as the head of competitors in the local iOS app store. We also spent lots of efforts to localize our products, for example, in Australia, we launched option trading for cash accounts. In Singapore, we added Level 2 market data for Singapore stocks and is working with SGX to livestream investor education to promote Singapore market. We have been in Singapore for only two years. And now Singapore already becomes our company's largest market and home base. We are confident we can achieve similar results in other countries or regions. We continue to invest in research and development to improve operational efficiency and to enhance user experience. In March, we started to self-clearing and self-custodian Singapore equities, so we can fully leverage our self-developed brokerage infrastructure to better serve Singapore users. In the U.S., by the end of the first quarter, over 90% of cash equities and 70% of options contracts are already self cleared through our U.S. subsidiaries, further strengthening our competitive advantages in trading U.S. securities. We are also in the process to upgrade our Hong Kong trading system, so we can start self-clearing Hong Kong equities in the next couple of quarters to achieve better unit economics. Our IPO underwriting business continued to perform, even with weak market backdrop. In the first quarter, we underwrote in Hong Kong. In the U.S., we were an underwriter for seven U.S. IPOs, making us one of the most active U.S. underwriters according to Data Consulting. In terms of corporate services, we added 13 clients on Tiger community in the first quarter and reached 300 corporate clients in total, including clients such as Alibaba and WWS Singapore. We are proud to be the bridge connecting issuers with investors. Our ESOP business continues to expand. In the first quarter, we added 25 new companies to a total of 338 ESOP clients a year-to-year growth rate of 105%. We provide a comprehensive ESOP services, from plan design to digital management and have become the go-to choice for many startup and public companies. Now, I would like to invite our CFO, John, to go over our financials.
John Zeng: Thanks, Tianhua, Zeng and Lei. Let me go through our financial performance for the first quarter. All numbers are in U.S. dollar. Total revenue were $52.6 million, down 35% year-over-year as weaker market backdrop in the first quarter slowed down commission and underwriting revenue. In line with market sentiment, margin and securities lending balance also decreased but we managed to increase net interest-related income by 80% year-over-year by lowering interest expense and generate more security spending revenue through self-clearing. As we mentioned in the earnings release, starting from this quarter, we will report our derivatives trading, mostly U.S. auction and U.S. futures using a number of contracts. Cash equities will be reported on a stand-alone basis using trading volume. This change will allow effect previously disclosed operating data. The goal is to help investors better understand our operation. So for this quarter, commission from cash equities were $22 million, accounted for 72% of total commission. The other 28% are mostly commissioned from derivatives trading, based on 34.7 billion equity trading volume this quarter, take rate is 6.3 bps for cash equities. In the first quarter of last year, cash equity accounted for 76% of total commission and the derivatives accounted for 24%. Cash equity take rate was 6.6 bps in this first quarter last year. Now on the cost. Execution and carrying expense were $4.5 million, decreased 45% year-over-year and 34% quarter-over-quarter primarily due to more self-clearing of U.S. equities. Employee compensation increased 67% year-over-year to $27.5 million. As last year, we kept adding headcounts across region to support our global expansion. In line with the headcount increase, occupancy expense increased 69% to $2 million. SG&A Increased 12% to $4.5 million year-over-year. Marketing expense for $10 million in the first quarter decreased 22% year-over-year. We are very prudent with our marketing spending because we feel now is not the best market window to attract high-quality users. We will keep a close eye on CSC and payback to adjust our marketing strategy. Communication and market data expense were $6.4 million, an increase of 61% from a year ago due to rapid user growth. Total operating costs were $55 million, increased 17.6% from the same quarter last year. Non-GAAP net loss, which excludes share-based compensation and impairment loss from the long-term investment was $1.9 million this quarter. Now, I have concluded my remarks. Operator, please open the line for Q&A. Thanks. Thank you.
Operator: Our first question comes from the line of Han Pu from CICC. Please ask your question.
Han Pu: This is Han Pu from CICC. I have two questions. First of all, could you please help break down the new repaying clients in region for the first quarter? And how about the mix of our full year guidance? Secondly, we see the operation cost per paying client went up a lot in the first quarter. What would be the reason? And how do we see the trend in the coming quarters.
Wu Tianhua: John Zeng: Let me translate. Okay. So Pu Han, so to your first question, okay. So in the first quarter, about 15% of the funded accounts came from Mainland, China, including ESOP clients. 80% came from Singapore and the rest 5% from Australia and New Zealand and the U.S. In total, 85% of the funding account this quarter is from outside of China. So, our target is to acquire at least 100,000 newly funded accounts this year, we expect the distribution will be around 15% from Mainland, China, 60% from Singapore and the rest 25% from countries regions like Hong Kong, Australia and the U.S.
Wu Tianhua: John Zeng: Okay. So, in general, the market sentiment is weak, investors prefer to stay on the Sinai. So customer account to funding account conversion rate will be lower, thus the CAC tends to be higher versus when market is more active. In addition to the market effect, we launched our service in Australia in the first quarter. When we enter a new market, similar to what we have done in Singapore, we will spend more on branding to promote our company. Branding accounted for around 25% of our marketing expenses in the first quarter, and we expect branding remains a big portion of our marketing for the next few quarters. So branding expenses plus trying out various marketing strategies also leads to a higher CIC when we just entered a new market. So in short, we are very prudent with the marketing spending. So, you can see our total marketing expense decreased year-over-year and quarter-over-quarter. We keep a very close eye on CAC and payback to make sure we can have a very healthy like unique class model, and we will just be very dynamic to adjust our marketing strategy.
Operator: Thank you. Your next question comes from the line of Julia Cheung from Citi. Please ask your question.
Julia Cheung: This is Julia Cheung from Citi Research. I have two questions here. First, could you give more color on the progress for U.S., Hong Kong and Singapore as well as the target pace in the near to midterm and the expected earnings contribution? And second, could you share the update on Hong Kong business especially the time lines for acquiring retail customers and the sales and marketing budget like the planned customer acquisition cost per head in Hong Kong versus other markets?
Wu Tianhua: John Zeng: Okay. So to answer your question regarding Hong Kong. So as communicated before, our Hong Kong strategy will be three stage. First stage is be more active in Hong Kong IPO. Right now is -- we are very active in Hong Kong IPO underwriting. In the first quarter, we worked on multiple deals. And today and the mega genomics, which just notch book building today, Tiger is also an underwriter. So, we will keep expanding our Hong Kong underwriting business. And the second step will be to use Hong Kong to clear our Hong Kong securities tradings. So this step was a very bit delayed due to COVID earlier this year. Now we have completed several rounds of testing with Hong Kong Exchange and is upgrading the trading system to handle more volume. We target to use Tiger Hong Kong to execute on clear Hong Kong trading in the next couple of quarters. The third stage, which is the retail marketing. So in addition to upgrading our trading infrastructures, we are also fine-tuning our product experience and formulary marketing strategies. Our goal is to leverage our global operations experience to help us to expand in Hong Kong. Our aim is to start retail marketing towards later this year. In terms of customer acquisition costs in Hong Kong, so right now, given we haven't launched, we don't have a firm grasp, but we understand the acquisition cost in Hong Kong among our peers is pretty high. So what we're going to do is to leverage their experience and the knowhow and also the strategies in other regions to apply to Hong Kong. Hopefully, by then, when we launch, we can find a sustainable in the CAC and payback model. Regarding self-caring, I will just answer in English. So overall, our self-clearing progress is according to schedule. By end of first quarter, we self-clear over 90% of U.S. cash equities and over 70% of U.S. options. The clearing expense for both products actually have decreased from close to 20% of commission from first quarter last year to single digits this quarter. So clearing expense varies based on trading volume and product mix, use this quarter's clearing expense as an example. Within the $4.5 million clearing expense, about $2.1 million are expense repaid to interactive broker primarily for Hong Kong securities and U.S. option clearing. About 1.5 million of Singapore local clearing add a custodian expense. We expect the clearing expense to further go down as we started self-clearing Singapore equities in April. And we can -- we will clear more U.S. options through U.S. Tiger and use Tiger Broker Hong Kong for Hong Kong execution once we finish the system upgrades. Thank you.
Operator: Thank you. The next question comes from Cindy Wang from China Renaissance. Please go ahead.
Cindy Wang: Okay. I will transfer my question. So the first question is regarding to the Singapore market. Can management share some color on the customer acquisition and also the customer assets in Singapore for the first quarter and also the second quarter as well as the competitive landscape in Singapore. The second question is for the Australian market. Since tiger brokers enter into Australia market in March this year, can management share some of the customer acquisition costs as well as the new customers' numbers, et cetera, in the Australia market?
Wu Tianhua: John Zeng: So first of all, Australia, we launched our Australian business after Chinese New Year. So far, our app ranks ahead of our competitors in local app store. Last year at a very early stage, we are training our different marketing strategies. For example, we sponsored a local rocket team to build our brand and want to be more localized. So far, CAC looks very high, given branding expense and a small number of funded accounts. But I understand, as we already mentioned earlier, when we enter a new market at very beginning the CAC always look relatively higher. So hopefully, in the next couple of quarters, we can improve unique economics with better understanding of the local markets. Singapore, so we have a leading position in Singapore. So far, it's our biggest market and home base. Over 80% of the newly funded account is from Singapore this quarter. Client asset quality remains very good. Even with weak market sentiment in the first quarter, we saw a very healthy debt asset inflow from Singapore users. Average deposit for new users in the first quarter is around $7,500 improved from average first deposit of $6,500 in the fourth quarter. Users are also really sticky, users we acquired in the first quarter last year as a cohort. For the past five quarters, we saw net asset inflow from this cohort every quarter. Net asset inflow this quarter for the Company is $3.5 billion, of which $2.6 billion came from Singapore region.
Cindy Wang: Sorry, I have one more question from Singapore market. Can you then talk about the CAC in the Singapore market as well as the competitive landscape?
Wu Tianhua: John Zeng: Okay. So first of all, in Singapore right now, based on a new survey, we accounted for -- our registry in Singapore account for 19% of the population above age 20. So we think, first of all, we are appealed to the younger generation. And also based on the percentage stage, we feel there is still a lot of room to grow. So, we still have a lot of market to tap into. Compared with our peers, we feel we are still in a very leading market position this in Singapore. As you can see this quarter, over 80% of the funding account came from Singapore, which shows -- we still have a very strong graph in the local market. In terms of CAC, so the average CAC for Singapore, it did increase a little bit for the past couple of quarters due to the weaker market backdrop. So, the CAC for Singapore user is about slightly above $250 -- sorry, $250 for the past quarter. So compared to the group's average, CAC is actually lower, means our marketing strategy is more effective in Singapore and our branding is stronger in Singapore.
Operator: There are no further questions. I'll turn the call back to the management team for closing remarks.
Unidentified Company Representative: 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.
John Zeng: Thank you.
Operator: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
