UP Fintech Holding (TIGR) Q1 2022 Earnings Call Transcript

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UP Fintech Holding (TIGR 5.30%)
Q1 2022 Earnings Call
Jun 10, 2022, 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 UP Fintech Holding Limited first quarter 2022 earnings conference call. [Operator instructions] 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. [Inaudible].

Thank you. Please go ahead.

Unknown speaker

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. Fang 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 those in the forward-looking statements, please refer to our Form 6-K furnished today, June 10th, 2022, and our annual report on Form 20-F filed on April 28th, 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 -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

Hello, everyone. Thank you for joining the Tiger Brokers first quarter 2022 earnings conference call.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

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.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

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.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

Now I would like to update on several key business developments at our company.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

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 two market data for Singapore stocks and it's 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.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

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.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

Our IPO underwriting business continued to perform, even with weak market backdrop. In the first quarter, we underwrote [Inaudible] and [Inaudible] 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 [Inaudible] wind data consulting.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

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.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

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 base of services, from plan design to digital management, and have become the go-to choice for many start-up and public companies.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

Unknown speaker

Now I would like to invite our CFO, John, to go over our financials.

John Zeng -- Chief Financial Officer

Thanks, Tianhua and [Inaudible]. Let me go through our financial performance for the first quarter. All numbers are in U.S. dollars.

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 [Inaudible] 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. option 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, account for 72% of total commission. The other 28% are mostly commissions 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 CAC 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.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Han Pu from CICC. Please ask your question.

Han Pu -- CICC -- Analyst

[Foreign language] Thanks for taking my questions. This is Han 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. Thanks.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

John Zeng -- Chief Financial Officer

Let me translate. OK. So Pu Han, so to your first question, OK. 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 -- Chief Executive Officer and Director

[Foreign language]

John Zeng -- Chief Financial Officer

OK. So in general, the market sentiment is weak, investors prefer to stay on the sideline. 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 CAC 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 pay back to make sure we can have a very healthy like unique [Inaudible] model, and we will just be very dynamic to adjust our marketing strategy. Thank you.

Han Pu -- CICC -- Analyst

Thanks. That's very helpful.

Operator

Thank you. Your next question comes from the line of Julia Cheung from Citi. Please ask your question.

Julia Cheung -- Citi -- Analyst

[Foreign language] Thanks for taking my question. This is Julia Cheung from Citi Research. I have two questions here. First, could you give more color on the [Inaudible] 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 land customer accident cost per head in Hong Kong versus other markets? Thank you.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

John Zeng -- Chief Financial Officer

OK. 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 underwritings. In the first quarter, we worked on multiple deals. And today 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 little bit delayed due to COVID earlier this year. Now we have completed several rounds of testing with Hong Kong Exchange and is upgrading the training system to handle more volume. With Tiger use -- with Tiger, we 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 toward 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 low house 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-clearing, I will just answer that 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 are Singapore local clearing at 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 U.S. Tiger broker Hong Kong for Hong Kong execution once we finish the system upgrades.

Thank you.

Julia Cheung -- Citi -- Analyst

Thank you, management.

Operator

The next question comes from Cindy Wang from China Renaissance. Please go ahead.

Cindy Wang -- China Renaissance Securities -- Analyst

[Foreign language] OK. I will translate 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, etc., in the Australia market? Thank you.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

John Zeng -- Chief Financial Officer

OK. 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 entered new market at very beginning, the CAC is 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 sneaky. Users we acquired in the first quarter last year as a cohort.

For the past five quarters, we saw that as inflow from this cohort every quarter. Net asset inflow this quarter for the company's $3.5 billion, of which $2.6 billion came from Singapore region.

Cindy Wang -- China Renaissance Securities -- Analyst

[Foreign language] Sorry, I have one more question from Singapore market. Can I then talk about the CAC in the Singapore market as well as the competitive expense landscape? Thank you.

Wu Tianhua -- Chief Executive Officer and Director

[Foreign language]

John Zeng -- Chief Financial Officer

OK. So first of all, in Singapore right now, based on a new survey, we accounted for the already registered in Singapore account for 19% of the population above H'20. So we think, first of all, we are appeal 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 a -- which 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 a -- 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. Thank you.

Cindy Wang -- China Renaissance Securities -- Analyst

[Foreign language] Thank you.

Operator

All right. Thank you. There are no further questions. I'll turn the call back to the management team for closing remarks.

Unknown speaker

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 -- Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 36 minutes

Call participants:

Unknown speaker

Wu Tianhua -- Chief Executive Officer and Director

John Zeng -- Chief Financial Officer

Han Pu -- CICC -- Analyst

Julia Cheung -- Citi -- Analyst

Cindy Wang -- China Renaissance Securities -- Analyst

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