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UP FINTECH HOLDING LTD (NASDAQ:TIGR)
Q4 2019 Earnings Call
Mar 25, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the UP Fintech Holding Limited, Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]. There will be a presentation followed by a question-and-answer session. I must advise you that this conference is being recorded today, Wednesday the 25th, 2020.

I would now like to hand the conference over to your first speaker today, Mr. Clark Soucy. Thank you. Please go ahead.

Clark S. Soucy -- Investor Relations

Thank you, Rachel. Hello everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's fourth quarter 2019 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 US Tiger Securities; and Mr. Kenny Jao [Phonetic], 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. Today's discussion will contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC.

Any forward-looking statements that we make on this call are based on assumptions as of today. But we do not take any obligation to update these statements except as required under applicable law.

It is now my pleasure to 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 -- Chief Executive Officer and Director

[Foreign Speech].

Good evening, everyone, and thank you very much for attending the Tiger Brokers' 2019 fourth quarter and full year earnings conference call. Before I elaborate on our business results, I would like to make a brief comment on the virus pandemic.

Since we operate an online platform, there has not been a substantial impact on our business. However, the health and safety of our employees is paramount and our firm has taken extra precautions. At our global offices, employees are working in shifts or from home. I will now continue with my prepared remarks.

In the fourth quarter, Tiger delivered impressive financial results. Total revenue was $20 million, a new all-time high and nearly 110% increase over the same period last year. In the fourth quarter of 2019, we achieved the fastest year-over-year revenue growth of any quarter last year.

In addition, I would like to highlight that we continue to optimize our revenue mix. Interest rate income which is interest income, plus financing service fee exceeded commission income and accounted for 38% of total revenue. 2B revenue, which includes our corporate services of IPO distribution and ESOP administration services, increased to 26% of total revenue.

This is compared to 2018 when 74% of our income was derived from commission. In the fourth quarter, we reported our first ever non-GAAP operating income of $0.3 million, a significant improvement from a non-GAAP operating loss of $2.8 million in the same period of 2018 and a $1.3 million loss in the third quarter of 2019 demonstrating the improvement in Tiger's operating efficiency and earnings quality.

[Foreign Speech]. We are also pleased to report that our innovative platform and differentiated services continue to drive ever more investors to choose Tiger to manage their assets. In the fourth quarter, we added approximately 11,300 new accounts with deposits, an increase of 86% from the same quarter in 2018.

In addition, total client assets increased to $5.1 billion, a nearly 114% increase from the same period in 2018 and an increase of $1.3 billion from the third quarter of 2019.

[Foreign Speech]. In aggregate, our 2019 financial results evidenced a solid improvement over 2018. Total revenues in 2019 was $58.7 million, a 75% increase over 2018. We also achieved consecutive non-GAAP profit for the third and fourth quarter of 2019.

[Foreign Speech]. 2019 was a monumental year in the history of our Company. In March, we successfully listed under NASDAQ and embarked on a new journey in our Company's history. 2019 was full of challenges, but we remain focused and continue to emphasize transparency and made positive progress on our business. I would now like to highlight four key components of our corporate strategy that we successfully implemented over the last year.

[Foreign Speech]. First and foremost, we are following our strategy of shifting from relying on clearing counterparties to developing our self clearing capabilities. Self clearing will not only reduce our expenses and drive increased interest income, it will also limit the impact to revenue from commission volatility. This was our reason for acquiring Marsco in July. System integration is on track, we expect to gradually self clear US cash equities for the end of the second quarter of 2020.

[Foreign Speech]. Second, our strategy to increase our international reach progressed nicely in 2019. Besides our New Zealand office, we now have a presence in the United States and Singapore. We are confident that our international expansion will increase our customer base and give us access to more business development opportunities.

[Foreign Speech]. Third, our ESOP business and IPO underwriting delivered strong growth in 2019. In 2019, we participated in 18 U.S. IPOs, in 12 of which we served as underwriter. We were the number one IPO underwriter in terms of deal number for Chinese issuers in 2019 by a wide margin, and the scale of our IPO business greatly exceeded that of any other Chinese broker. Besides the contribution to our revenues, we view the development of our investment banking services as beneficial to our reputation and accretive to user stickiness.

Our ESOP business also grew rapidly in 2019. We developed a large client base in just one year's time and it started to yield results. I am pleased to report that in the fourth quarter, over 20% of newly funded accounts came from our ESOP customers.

[Foreign Speech]. In addition, we are investing in our asset management business. Tiger's actively managed cash plus product has delivered good investment returns for our users since launch. We also recently launched our Fund Mall where users may choose from over 30 investment funds. We view brokerage and asset management as complementary as our growing range of services increases user stickiness. Over the long term, this strategy will comprehensively develop commission, interest income, and asset management fees, diversifying our revenue and increasing customer lifetime value.

[Foreign Speech]. Finally, after discussion and agreement by the Board of Directors, we have decided to implement a share buyback program. Over the next 12 months, we will allocate a maximum of $20 million to ADS buybacks. In conclusion, we look forward to continuing to implement the four aforementioned points of our corporate strategy and growing our business.

[Foreign Speech]. I would now like to invite our CFO, John Zeng to discuss our key financial results.

John Fei Zeng -- Chief Financial Officer

Thanks Tianhua, thanks Clark. Hello everyone. Overall, a very strong fourth quarter for Tiger, total revenue was $20 million, grew more now 100% year-over-year and 30% quarter-over-quarter. Commission income was $7.3 million, increased 4% from last year and 17% from previous quarter. Cash equity blended commission was 8 bps this quarter versus 5 bps for the same quarter last year. Financing service fee increased 18% year-over-year to $2 million this quarter.

Interest income grew more than 100 times year-over-year to $5.5 million this quarter, as we have more consolidated account customers versus last year. The gross for financing service fee and interest income also both benefited from increased marketing and securities lending activity this quarter.

Other revenue primarily consists revenue from corporate services such as IPO underwriting grew close to 700% year-over-year to $5.1 million. We were very active in IPO underwriting last year in terms of deal counts far exceeded any of our competitors. It's also effective customer acquisition to develop retail and institutional business.

Comparing revenue composition with fourth quarter last year, we are happy to see revenue mix is getting more healthy, interest related income this quarter accounted for 38% of total revenue. Corporate Services accounted for 26%, while in the first quarter last year, commissioning accounted for 74% of the total revenue.

Interest expense grew to $1.5 million this quarter due to more consolidated account customers. After interest expense, net revenue was $18.5 million, a 94% increase from same quarter last year. Now switching to expense. Clearing expense increased from $0.1 million in the fourth quarter last year to $0.9 million this quarter, in line with our growth of consolidated accounts. Salary expense increased 61% to $10.6 million, primarily due to a 49% headcount increase year-over-year.

In 2020, we will keep adding key positions, but our headcount growth rate will moderate. Our occupancy expense increased 72% to $1.1 million as we opened the offices in New York and Singapore. Communication and market data expense also grew 100% year-over-year to $1.9 million as more users are using our services.

Marketing expense decreased to 25% year-over-year to $1.7 million this quarter as we optimized our marketing strategies which netted to higher efficiency. General and administrative expense increased 14% to $2.8 million primarily due to business expansion and professional services. Total expense for fourth quarter was $19.1 million, an increase of 46% year-over-year. Operating loss was $0.7 million this quarter, an improvement of 80% year-over-year.

Non-GAAP operating income turned positive for the first time at $0.3 million compared to a non-GAAP operating loss of $2.8 million last year. Net loss for UP Fintech was $0.6 million in the fourth quarter of 2019 compared to a net loss of $2 million in the fourth quarter of 2018.

Our net loss of $0.6 million this quarter was primarily due to a $1.9 million foreign currency exchange loss we laid [Phonetic] out as other expenses. Let me elaborate a little bit more on this FX loss. As of now, we booked majority of our revenue and acquired [Phonetic] assets in New Zealand entity. Under New Zealand regulation, financial reporting needs to be in local currency, which is New Zealand dollar while most of our revenue and asset inflows are settled in USD or Hong Kong dollar on a daily basis.

So when our New Zealand entity prepares local financial reporting on a monthly or quarterly basis, there will be difference due to different exchange rate when revenue and the net asset are booked and when reporting is done.

So in the fourth quarter, New Zealand dollar has been gradually rising against the U.S. dollar and Hong Kong dollar. So we booked this difference as a FX loss. There was low FX transaction took place and the low cash loss. It's just a pure accounting treatment to reconcile the difference between our consolidated book and local book. And our non-GAAP net income was $0.3 million this quarter, as compared to our $1.2 million non-GAAP net loss in the fourth quarter of 2018.

So to summarize, we are satisfied with our progress in the fourth quarter. Revenue mix is more balanced. New accounts with deposit showed accelerated growth quarter-over-quarter and year-over-year and the total client assets also grew at a fast pace. We are confident now as we exceed the strategies laid out in Tianhua's earlier remarks we can deliver good growth for 2020.

This concludes our prepared remarks. Now we can open for questions.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Livy Lv from HSBC. Please ask your question.

Livy Lv -- HSBC Global Research -- Analyst

Thanks management. I have three questions today. First one is that, why is our trading volume down Q-on-Q, but our commission income up Q-on-Q? And second question is about the liquidity and risk management. Could management share with us the liquidity situations and also the margin cause situations recently, especially during this month? And third question is about the competitive advantage. So what's the competition strategy for us as we have seen that a lot of similar Internet brokers for overseas security trading recently have sprung up in China and also invested by some Internet companies quite a lot of apps are joining this competition. So what do you think is our competitive advantage compared to all these competitors? Thank you.

John Fei Zeng -- Chief Financial Officer

Thanks Livy. I will answer your question number one and number two. Then Tianhua will answer your question number three, OK? So let me answer your second question first, what's the liquidity issue or how we manage the risk? So, you know, at Tiger, we have a really, I would say very prudent margin policies. So we do have a team of risk managers to monitor client's positions especially during this volatile time. So to answer your question there was low margin call or low any principal losses we have experienced so far. We will keep exercising our prudent strategies going forward to make sure with the volatile market backdrop we are not going to suffer any losses in those spaces.

And then to answer your first question, the trading volume difference and commission, the blended commission. So at Tiger we do have a lot of people trading futures and also a lot of people trading equities. So if you just use the overall trading volume to calculate our blended commission, I think sometime it's getting more volatile. It's not really a good indicative commissioning of how we operate our business. So we give you the pure cash equity commissions, which means it's more stable.

So the rates increased from 5 bps in fourth quarter 2018 to 8 bps in fourth quarter 2019. It's because in the U.S. we charge by shares. And in fourth quarter 2019, there are people trading more low dollar amount shares, which means even though the total value looks low, but actually there are more shares to be traded. So that's why our cash equity commission has gone up from 2018 fourth quarter. Tianhua?

Tianhua Wu -- Chief Executive Officer and Director

[Foreign Speech]. Okay, let me just quickly translate. So, the landscape of brokers, actually brokerage business has been -- been around for a long time, same as the reason we started our business six years ago. We think there are a lot of areas we can improve. And there are a lot of optimization we can do. So compared to other Internet brokers especially those new start-ups, first of all, Tiger has a lot of licenses. For example, in the U.S., in Australia, Singapore, New Zealand and it took a while -- will take a while for those newcomers to get all relevant license and knowledge and know-how to run those broker-dealer business. So that's one differentiator we have.

The second differentiator is most of those online brokers, especially China online brokers, they don't have U.S. Self-Clearing License and they cannot clear trades by themselves. That's the reason we acquired Marsco. We hope we can be able to self clear in the U.S. Once we become self clear, it can clear a huge barrier of entry because we are really in the building the infrastructure of brokers from bottom up. This will take a long time and then for the newcomers to catch up.

The third thing is on the product offering, is what we want to do is now to enhance the user experience with different type of product offering. So Tiger pioneered the IPO subscription for Chinese ADRs. And typically the retail investors, they most likely will get most allocation from Tiger. During the past years, we participated in those IPOs like PDD [Indecipherable]. And also give us a competitive edge in terms of how we offer differentiated product to retail investors.

And also we have those Fund Malls and cash products, those wealth management products. It's also another way for us to try to have a comprehensive product offering to enhance the user experience. So combine those three points together, I think there will always be competition, but I think these are the differentiated factors can set us apart.

Livy Lv -- HSBC Global Research -- Analyst

Thanks, both.

Operator

Your next question comes from the line of Daphne Poon of Citi. Please ask your question.

Daphne Poon -- Citi -- Analyst

Hi, management. Thanks for taking my question. So also three questions from my side. The first one is regarding the other revenue. So there is a big jump in the fourth quarter. I understand the profit because of the IPO subscription. But can you just help us break down how much is from different category, how much is from the IPO underwriting related? And also how much is from the interest income on the bank deposit? And whether you see that strong other revenue would be sustainable going forward? And the second question is regarding the current rate cut cycle.

Have you done any respective [Phonetic] analysis on what would be the impact on your earnings, whether that would affect the pricing on your margin loans as well? And the last question is about regarding the recent coronavirus situation. I'm actually wondering like whether that has benefit you in terms of your new client [Phonetic] growth and also your turnover because we understand that from some of your peers and also from the onshore Chinese investors that the trading activity in the stock market actually picked up quite a bit during this virus outbreak. So just wanted to get a sense of the trend you see in Q1? Thanks.

John Fei Zeng -- Chief Financial Officer

Alright, thanks, Daphne. So let me answer your question two first, then Tianhua will answer your question three. And for number one, Tianhua and I will split, because I think that's two questions in -- actually in question number one. So in terms of the rate cuts, I think your question is how is that going to affect our business, right? So the rate cut, on the liability side, because we don't have much there or loan. So it doesn't help us to reduce any funding costs. But going forward, we were looking at opportunities to put on that, because right now if the liquidity is cheap, as long as we can generate decent return spread on that, that's something we will consider. And on the asset side for the first quarter, I think it's still OK interest income. For the third -- starting from second quarter, we will wait and see.

Because right now a lot of banks, they've lowered their interest rate to zero and also our partners made -- our clearing brokers, partners, they also lowered their interest rate to zero. So if you just look at the second quarter, it could have an impact on our interest generating income, but how big is that impact is yet to see because we just started the zero interest rate cycle. But still, we still have some banking partners offer interest rates above zero, so we will efficiently allocate our cash or our client asset to make sure we can generate returns out of the available cash.

To your first question, in the other revenue section, I would say IPO related is more than 80%. I would say 85% of the composition. The rest of the 10% to 15% is from interest income of the bank deposits. And then I will let Tianhua answer your question, how sustainable is the other revenue and also your third question about the coronavirus, how does that impact our trading volumes?

Tianhua Wu -- Chief Executive Officer and Director

[Foreign Speech]. All right, let me translate the other revenue, whether it's sustainable, first. So what Tianhua mentioned is still right now the pipeline is very strong. Even some of those potential issuers delays are timetabled due to the virus. But their intention to get listed is still very strong and we are working with a lot of them to help them with the preparation, because we are a FinTech Company, so we do -- right now we do a lot of online MDR and road show for those guys to help them to manage their IPO timetable. So we think the pipeline is very strong and we still think the business going forward can generate decent returns.

[Foreign Speech]. Okay. So just briefly recap what Tianhua mentioned is that right now the coronavirus caused a lot of volatility in the market, especially in the US market. So the volatility, first of all give us -- give people, got more people interested and got their attention to invest in the U.S. market and give people the two way opportunities they can [Indecipherable]. So given Tiger's reputation in this -- in U.S. market, it actually does help us to generate more accounts with deposits and also help us to generate more customer trading volume.

So in short, it does help our trading patterns and with our brokerage business.

Daphne Poon -- Citi -- Analyst

Okay, that's very helpful. Thank you.

John Fei Zeng -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Han Pu of CICC. Please ask your question.

Han Pu -- CICC Research Department -- Analyst

Hi, management. Thanks for taking my question. And first, congratulations on the strong quarter. I have two questions. First is about the Fund Mall. Could you introduce more on the new business and what kind of rates we plan to charge the investors as well as they fund companies maybe the possible fee rates compared to the peers? And second one is about the customer acquisition. We have 11,000 new customers with deposits in the fourth quarter and how many of them were from the Mainland China and the other from oversea regions? Do we have any guidance on the customer acquisition in the coming year as well as the regional location as we try to do more international business? Thanks.

Tianhua Wu -- Chief Executive Officer and Director

[Foreign Speech]. Okay, so to answer your first question for Han, regarding the Fund Mall, so the rationale we are doing Fund Mall is traditionally Tiger has a lot of customer, they like to trade by themselves, but we also have a lot of customers who don't really know what to buy. So we want to have Fund Mall those [Phonetic] like mutual fund products on our platform to give people more choice and we also diversify our product offering from active trading to passive trading so we can capture all the needs of our customers.

So how we're going to make money is we're going to make -- work with our partners on selling and also fund administration fees. In terms of customer acquisition, so going forward once we -- our operation is fully on the ground in Singapore, U.S., Australia, we target to have on a quarterly, -- no, over a year, by end of this year at least 10% of our new accounts come from international, new clients. And also one thing to mention is we hope our ESOP also accounts for about a 20% of the deal clients on a yearly basis.

Han Pu -- CICC Research Department -- Analyst

May I have a follow-up question, on the AUM of our Cash Plus product currently?

Tianhua Wu -- Chief Executive Officer and Director

Right. Okay, so our Cash Plus AUM right now is still relatively small, it's probably like $25 million at this moment where -- recently it has been growing pretty decent, because the tremendous return given the volatility has been pretty attractive there. That's not -- that's like one product managed by our in-house asset management team.

Han Pu -- CICC Research Department -- Analyst

Got it. Thanks very much.

Operator

Your next question comes from Livy Lv from HSBC. Please ask your question.

John Fei Zeng -- Chief Financial Officer

Hi, just a follow-up question on the Cash Plus product because it's now the extremely low rate environment. Are we seeing any margin pressure for this product? And also just wondering the latest update of the Hong Kong license? What's the obstacles that we are facing for -- like, applied for that? Thanks.

Tianhua Wu -- Chief Executive Officer and Director

So to answer your first question on the Cash Plus, we don't have any margin pressure because we, first of all it's not levered and also like we invest in very liquid products like TPOs and other fixed income. So, so far we don't have any margin pressure. And then your question regarding the license, we don't really come under license, but I think you can follow our release once we have something to publish.

Operator

There are no more further questions at this time. I would now like to hand the conference back to today's presenters. Please continue.

Clark S. Soucy -- Investor Relations

Hello, this is Clark. I would like to thank everyone for joining our call today. I am now closing the call on behalf of the management team here at UP Fintech. We do appreciate your participation in today's call. If you have any further questions or concerns, please reach out to our Investor Relations team. This concludes the call and thank you very much for your time.

Operator

[Operator Closing Remarks].

Duration: 45 minutes

Call participants:

Clark S. Soucy -- Investor Relations

Tianhua Wu -- Chief Executive Officer and Director

John Fei Zeng -- Chief Financial Officer

Livy Lv -- HSBC Global Research -- Analyst

Daphne Poon -- Citi -- Analyst

Han Pu -- CICC Research Department -- Analyst

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