UP Fintech Holding Ltd. Sponsored ADR Class A (TIGR) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, March 18, 2022. I would now like to hand the conference over to your first speaker today, Mr. Clark S. Soucy. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's fourth quarter 2021 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. 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. 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 those in the forward-looking statements, please refer to our Form 6-K furnished today, March 18, 2022, and our annual report on Form 20-F filed on April 28, 2021. 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 an English translation. Mr. Wu, please go ahead with your remarks.

[Foreign Language] Hello, everyone, and thank you for joining the Tiger Brokers Fourth Quarter 2021 Earnings Conference Call. Despite the difficult macroeconomic and market backdrop during the previous 2 quarters, by focusing on executing on our international expansion, Tiger Brokers was able to achieve notable progress during the fourth quarter. In the fourth quarter, total revenue was $62.2 million, an increase of 31.7% over the same period last year. The company is committed to further leveraging internationalization to drive growth and in the fourth quarter, the company added 61,400 accounts, of which more than 90% were from overseas markets. Total customer assets were $17.1 billion in the fourth quarter. Net customer asset inflows remained healthy and exceeded $2 billion in the quarter. However, since some of our institutional clients experienced losses on their holdings of Hong Kong listed equities, and Chinese ADRs during the fourth quarter, total client assets declined sequentially from the third quarter. In 2021, Tiger Brokers in total added 415,000 funded accounts exceeding our 350,000 account annual guidance. The total number of funded accounts reached 673,000, half are from Singapore or other overseas markets, demonstrating the firm's internationalization strategy is yielding solid results. For the full year 2021, total revenues were USD264.5 million, an increase of 91% on the previous year. Non-GAAP net profit attributable to UP Fintech Holding Limited was $24.5 million for the year. [Foreign Language] In October of 2021, we acquired a Hong Kong broker dealer license, setting the stage for our firm to not only increase the future profitability of our Hong Kong securities business, but also to eventually onboard Hong Kong local residents. Including Hong Kong, our firm now holds 50 licenses and qualification that span the United States, Australia, Singapore, New Zealand and other jurisdictions. Holding such a rich range of licenses and qualifications sets the stage for the firm's long-term international growth. [Foreign Language] I would now like to provide investors updates on 2 key business initiatives at our company. Internationalization is progressing well. As stated in the fourth quarter, over 90% of our accounts were derived from overseas markets, demonstrating the appeal of our next-generation FinTech platform and its value proposition in competitive international markets. In the past year, Singapore by both the total number of new accounts and the total number of accounts became our company's largest market. In 2022, we are confident that we can achieve similar success in other global markets as we did in Singapore. In the first quarter of this year, we officially entered the Australian market. We view Australia as having certain similar competitive dynamics of Singapore, namely that high commission traditional brokers have a substantial market share. Even though we face competition from many respectable online brokers in Australia, we are confident that the distinctive features of our app, such as our interactive social media community, comprehensive financial and market data as well as our rich range of securities trading features will distinguish us from the pack. [Foreign Language] Corporate and Institutional Services continue to perform well and attract new clients. ESOP continues to expand at a fast rate and in the fourth quarter, we added 51 new companies for a grand total of 313. Investment banking also performed well, and we participated in 22 IPOs in Hong Kong and the U.S., of which we underwrote 18. It's important to note that our firm possesses extensive capabilities to serve both new issuers as well as listed companies across multiple markets. Following the acquisition of our Hong Kong broker-dealer license, in the fourth quarter, we underwrote the listings of a series of famous companies, including NetEase Cloud Music, SenseTime and Beijing Airdoc. We do appreciate the trust of these issuers in our firm. [Foreign language] I'd now like to invite our CFO, John, to go over our financials.

So let me go through our financial performance for the fourth quarter. All numbers are in USD. Total revenue were $62.2 million, up 32% from the same quarter of last year. For the whole year, total revenue were $264.5 million, up 91% from last year. In the fourth quarter, commissions were $29.9 million, increased 18% year-over-year, but down 11% from the third quarter. The quarter-over-quarter drop in commission was primarily due to lower trading volume with less trading days in the fourth quarter and a weaker ADR and the Hong Kong market. Although our margin and securities lending balance was lower than the third quarter due to the weaker market backdrop, we were able to generate more interest income through our self-clearing capabilities. Interest-related income, which combines financing service fee and interest income was $22.5 million in the fourth quarter, increased 70% year-over-year and 12% quarter-over-quarter. Factor in interest expense, net interest income increased 110% year-over-year and 18% quarter-over-quarter. Other revenue increased 12% from the same period last year to $9.8 million. Now on to the costs. Execution and clearing expenses were $6.9 million, increased 65% year-over-year due to rapid user growth in 2021, but down 28% quarter-over-quarter as more trades were cleared through self-clearing. We are in the process to migrate Singapore clients to our own Singapore clearing and custodian platform, which should result in further reduction in clearing costs in the coming quarters. Employee compensation increased 82% year-over-year to $28.4 million as we keep adding headcount across region to support our global expansion. In line with the headcount increase, occupancy expense increased 41% to $1.8 million. SG&A increased 76% to $8.5 million year-over-year. Marketing expense were $11.6 million in the fourth quarter, increased 77% year-over-year and on par with the third quarter. We have been very prudent with our marketing spending and will adjust our marketing strategy based on market conditions. Communication and market data expense were $7.7 million, an increase of 97.5% from USD3.9 million in the same quarter last year due to rapid user growth. Total operating costs were $6.4 million -- $64.9 million, increased 79% from the same quarter of last year. Non-GAAP net income, which excludes share-based compensation, was $0.1 million this quarter. Total non-GAAP net income for the year of 2021 was $24.5 million. Now, I have concluded our presentation. Operator, please open the line for Q&A. Thanks

[Operator Instructions] Our first question comes from Han Pu with CICC.

[Foreign Language] This is Han Pu from CICC and congrats on strong performance during such a volatile market. I have 2 questions. Firstly, how do we see influence of the policy signals from last Wednesday's FSDC conference to our business. Secondly, we see the cost increased a lot quarter-over-quarter. What is the main reason behind that? And how about the user quantity in fourth quarter and how do we see the trend of the user cost in coming quarters?

[Foreign Language] So let me quickly translate the first question. So first of all, the timing of the financial stability and the development committee meeting is very crucial. At the comments made by Vice Premier, Liu, showed senior policymakers are aware of the recent strength in the capital markets, and they are ready to take action to reinstall market confidence. This is an encouraging first step. Hopefully, there will be more favorable concrete policy rolling out in the near future to stabilize the market and stimulate growth. At the meeting mentioned, there was good progress on PCLB issue, government will support -- qualify the Chinese company to these offshore. So both will benefit Tiger's ESOP and investment banking business and drive further future user and AUM growth. Our focus at this stage is still internationalization. We already do - headquartered in Singapore. Singapore clients already account for more than 50% of our user base. We look forward to expanding to other region to replicate our success in Singapore. [Foreign Language] So market sentiment was still relatively weak in the fourth quarter, which makes it harder to acquire users. We think an uptick in CAC is very normal under this kind of market sentiment. That being said, we have been very cautious with marketing spending since third quarter of last year. We pay close attention to key metrics such as payback, new customer quality retention to make sure our marketing spending is efficient and cost effective. So even CAC had some uptick in the fourth quarter, the quality of funded accounts actually was pretty good. For Singapore retail clients acquired in the fourth quarter, their average initial deposit is close to USD7,000, higher than the average initial deposits in the third quarter. For each cohort of Singapore clients acquired during a particular quarter, we see net asset inflow every quarter since their acquisition, shows clients are willing to allocate more assets to Tiger platform with high user stickiness.

Our next question from Julia Cheung with Citigroup Global Markets.

[Foreign Language] I would quickly do a translation for my question. So first of all, thank you management for giving me this opportunity to ask questtion. Just 2 questions from me. First, we noticed that client assets declined Q-on-Q, can management give us some guidance in terms of the first quarter, quarter-to-date operational data in terms of the client asset trading volume velocity as well as the customer growth? And the second question is that we noticed Tiger has just entered the Australian market. Just wondering if management can share your thoughts on the room for growth and competitive landscape in Australia? And what’s Tiger's key growth strategy there?

[Foreign Language] So as we mentioned earlier, in the fourth quarter, we had net asset inflow over USD2 billion. The quarter-over-quarter drop in total AUM is primarily due to mark-to-market loss of some of our institutional users. The mark-to-market loss also leads to a quarter-over-quarter drop in margin balance as some clients need to deliver it. So market is choppy year-to-date. We saw a small shift in trading volume and the total AUM in average broader index. We have been prudent with marketing spending. We likely will see smaller number of funded account in the fourth quarter versus the -- in the first quarter versus the fourth quarter. But the average initial deposit net asset inflow will be similar to fourth quarter. [Foreign Language] So we entered Australian market last month. Although, there are already several online brokers in Australia, we feel Tiger's comprehensive offering will set us apart from competition. Based on latest data, only 1 week after we launched in Australia, our ranking in terms of Google Play download has jumped to a nice place from below 100. We look forward to onboard Australian clients and provide them with unparalleled trading experience. We feel very confident we can replicate our success in Singapore to other regions like Australia.

Our next question is a follow-up from Han Pu with CICC.

[Foreign Language] Can I have a follow-up question on our self-clearing progress in U.S. market?

[Foreign Language] Thanks for the question, Han. So in terms of self-clearing, over 80% of U.S. cash equity are self-cleared by fourth quarter -- by end of fourth quarter. So self-clearing also improved our capital utilization as we were able to generate more interest income quarter-over-quarter with lower margin balance. So this year, we will still use IB to clear a small portion of trades as some customer has positions may cover core, which requires both options and cash equity clearing. Tiger, we already have option clearing license in the U.S. and started to self-clear options. So during the transition period, we will use both Tiger and IB for customers with different option strategies.

[Foreign Language] Can I ask new paying clients guidance in 2022?

[Foreign Language] Yes. So as Tianhua mentioned, so right now, the market has been very volatile, okay? So it's relatively hard for us to give accurate estimates given the market backdrop is not stabilized. And in addition, we just entered a new market. So we want to let it run for a couple of months. So we get a feel like how we can give a better guidance to the investors.

Our next question comes from [Cindy Wang] with China Renaissance.

[Foreign Language] So since you have already obtained the broker-dealer license in Hong Kong in October last year, what is the current progress? And what is the strategy you are going to adopt this year in Hong Kong?

[Foreign Language] Okay. So as Tianhua mentioned, Hong Kong has been really important for us. Traditionally, we didn't have a Hong Kong license. So our UE per user was somewhat lagged behind our competitors in local Hong Kong. So then since we got the license back in October last year, there are 3 steps we plan to enter Hong Kong. First of all is to be more active on Hong Kong IPO. As we mentioned earlier, we have been very active in Hong Kong IPO in the fourth quarter for a lot of Chinese ADR secondary listing and Hong Kong local listings. But for second and third step, which is to replace IB to clear Hong Kong trades and also to roll out Hong Kong retail customer acquisition. So we are building the infrastructure and systems, but we're -- unfortunately due to the COVID situation in Hong Kong, our hiring system development and testing all have been somewhat delayed. So we hope the COVID situation will get better soon, so we can work on the system integration for our plan 2 and plan 3, which is clearing -- self-clear Hong Kong equity trades and also grow our Hong Kong marketing.

This concludes questioning session. I would now like to turn the call back over to Clark Soucy for closing remarks.

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