Q4 2020 UP Fintech Holding Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to up Fintech Holding Ltd fourth quarter 2020 earnings Conference call.
Well at this time all participants are in a listen only mode. There will be a presentation followed by question and answer session. I must advise you that this conference is being recorded today Friday March 26 2021.
I'd like to hand, the conference over to your first speaker today, Mr. Clark 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 2020 earnings release was distributed earlier today and.
It is available on our IR website.
IR dot.
Dot com as well as globe Newswire services on the call today from up Fintech are Mr. Luciano <unk>, 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. <unk> will give an overview of our business operations and discuss corporate highlights. Mr. Zone will then discuss our financial results. They will both be available to answer your questions. During the Q&A session that follows a remarks now.
Now let me cover the Safe Harbor the statements were 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 a forward looking statements. Please refer to a form 6K furnished today March 'twenty six 2021 and our annual report on form 20-F filed on April 29 2020.
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. Hu.
Mr. <unk> will make remarks in Chinese which will be followed by English translation. Mr. Luo. Please go ahead with your remarks.
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Good day, everyone and I appreciate your attendance in Tiger brokers fourth quarter 'twenty 'twenty earnings Conference call.
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In the fourth quarter, our operating and financial metrics exhibited solid improvement due to a surge in new clients as well as enhancements to a platform and services in the fourth quarter total revenue was 47.2 million U S dollars.
2.4 times compared to that of the same period last year and a new all time high.
Tiger's operating efficiency and profitability continue to improve.
Non-GAAP net income was $10 $3 million in the fourth quarter, nearly 30 times. The non-GAAP net income in the same quarter last year.
In addition, I'm pleased to report that we added 44000, new funded accounts this quarter nearly quadruple the number from the same period last year.
Total funded accounts reached 259000 by the end of 2020 more than double that of 2019.
Growth in client assets was outstanding.
Total account balance reached $16 billion more than triple that of the fourth quarter of 2019 and 46 point.
2% higher than the third quarter of 2020 overall for 'twenty 'twenty total revenue was $138 million more than double versus 2019, we were profitable for the first time on a yearly basis non-GAAP net income was $22 three.
$3 million in 2020, a big improvement from a non-GAAP loss of $1.8 million in 2019.
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I would now like to take this opportunity to comment on three notable milestones in our development.
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First and foremost our internationalization strategy continues to progress nicely.
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Tiger brokers now have subsidiaries in offices and a U S, Australia, Singapore, and New Zealand that possess a wide range of licenses that spanned brokerage investment banking and asset management among others in.
In the fourth quarter I am pleased to report that our expansion any aforementioned overseas markets accelerated international.
Clients represented 40% of newly funded accounts, we expect that in 2020, one we will add more than 350000 funded accounts.
International clients will comprise more than 50 per cent of the new funded accounts.
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Our investment banking and Aesop services continue to lead the market.
We are committed to a growth strategy of leveraging Tigers core brokerage business to generate synergies among aesop investment banking and internationalization.
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In 2020 in total we participated in 26 Chinese ADR ipos in the U S and in Q4, we participated in eight listings such as 17 technology, a human Inc, and yachts and holding Ltd.
Recently, we also underwrote the secondary listings, a Billy Billy and auto home and Hong Kong.
I would like to express my appreciation to all of these companies for their trust, it's such an important time.
Reflecting on the development of our investment banking business in just two years, we have become the number one underwriter globally in terms of deal counts for Chinese ADR issuance.
Aesop our system for managing employee stock options continues to grow at a rapid pace in the past year of the Chinese ADR issuance that listed in the U S over half chose to adopt our aesop system, including popular issuers like the auto kicks off cloud and <unk>.
Watson holding ltd among others.
Growth in adoption of our Aesop system accelerated as we added 35 clients from the fourth quarter for a cumulative total of 120 for clients.
We expect our aesop system to maintain its leading position and foresee further increases in market share.
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Finally, we continue to invest in developing our self clearing capabilities.
Our range audience share.
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In July of 2019, when we acquired Morris co a U S broker dealer with over 30 years, a self clearing experience. We also acquired their clearing licenses our investment to transition to self clearing remains a key milestone in a firm's development.
We now have the technological and operational prowess to control every aspect of a brokerage system from the front end to the backend.
Self clearing has also created a competitive barrier for for due to its extensive technical compliance and operational requirements.
The percentage of clients, having their U S cash equities trades south cleared by Marco continues to increase and at the end of the fourth quarter reached over 20 per cent.
In addition, Morris co is conducting a clearing for all new clients on board in the U S.
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As I conclude my prepared remarks, I would like to thank the investors who participated in a convertible bond issuance for their support of a firm.
In February 'twenty, one February 2021 we in total issued $65 million a convertible bonds.
This capital will accelerate our international expansion as well a support further investments in a research and development capabilities.
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I would now like to invite our CFO John to summarize on for their performance.
[noise] Hello, everyone since Tampa and a cock so let me go through our financial performance for the fourth quarter all numbers a USD.
Total revenue were $47 2 million this quarter increased a 137 per cent from the same quarter of last year. The increase was due to a bigger user base as more people you can trust us with their assets and a more active market backdrop.
Within the total revenue Commission increased 245 per cent from last year to reach $25 2 million.
Interest related income, which come by a financing service fee and interest income was $13 3 million a increase of 53 per cent from last year.
Other revenue, mostly revenue for our investment banking business increased 119% from last year to $8 7 million.
Interest expense increased to $4 3 million from $1 5 million last year as we have more consolidated our current customers.
Net revenue for interest expense was 43 million a increase of 135 per cent from the same quarter last year.
A lot on the cost.
Execution on a carrying expense were $4 2 million increase for 363 per cent year over year due to increase in user base and a more engaged for treating activities.
The increase in user base also increased communication on a market data a expenses by 100 up 3% to a $3 9 billion.
Employee compensation increased 47 per cent to a $15 5 million as we keep adding head count, especially in R&D and product to support our global expansion.
As a result of headcount increase our occupancy expenses increased 12% to a $1 3 million S. T. In a also increased 70 per cent to four point Amy on a year over a year.
Marketing expenses were $6 5 million this quarter.
Kris off 277 per cent from same quarter last year, we will keep spending in branding and customer acquisition to accompany our internationalization.
Total operating costs were $36 3 million a.
An increase of 90 per cent from same quarter last year.
As a result, or a net income was $8 5 million this quarter non-GAAP net income, which excludes share based compensation was $10 3 million. This quarter three times the lung GAAP net income in the same quarter of last year.
Now I have a conclude our presentation.
Operator, please open a knife for Q&A. Thanks.
Thank you ladies and gentlemen, we will now begin the question and answer session.
If you wish to ask a question now please press star one on your telephone and light for your name to be announced.
If you wish to cancel your request please press the pound or hash key once again, ladies and gentlemen that stopped one for questions.
Our first question comes from Jackie to other from China Renaissance. Please ask a question.
Hi management, Thanks for taking my questions I have a two questions number one is about our guidance I heard a we expect a 350000 a.
On new paying users for this for this year.
Just want to and extend the drivers behind this guidance a what is the trend in the in the first quarter. This year and we also mentioned a 50% up it won't come from overseas markets.
Give us a more details a in terms of a breakdown of like a Singapore U S and other countries.
And second question is about or a single business I saw that from two actually answered a Singapore in March do we expect a some.
Some impact from a from a from this in terms of a gross and Oh, how do we do with a you know a in Pennsylvania, a combination anything thank you.
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So let me put it this way so traditionally tigris user mostly onshore Chinese so starting from last year, we started to onboard a single book clients. So far is showing good results. So this year, we will explain the U S and Australia. So on a high level more geographic expansion and our experience in Singapore, It gave us the confidence to.
A quite a more users this year.
So we understand investors stuck at a low.
A very recently about the market. This year. So the 350000 guidance is not a based on our high growth in 2020 in state. Instead, we use 20, a 19 data when market activity was much lower as a base case. So in 2019 each quarter, we add up all of a 42, a thousand customer accounts, so assuming U S N Austria.
Yeah, well gradually which Dan on for this year.
My name is summed up what we feel pretty comfortable each quarter, we will have a atleast 100, a southern new customer accounts from offshore investors and up.
Based on our experience offshore clients have much higher customer accounts, a funded a conversion typically a loss of 60%. So this translates to around 60000 funded alcon each quarter, a from offshore and the way a comfort on onshore kinds. I know you saw a call also add a lot of a 20 to 30000, a funded a car each quarter, so combining that with.
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So regarding you know a Singapore, so there will be on competition, but we don't think it's a zero sum game, because we feel that the etame in Singapore is still a very big for us to go up so if you look at a.
Singapore, it's a existing market based on CDP data center about a 1.3 million accounts that trade, Singapore, a local stocks and on most of them still prefer to a place order by phone a and this is a.
A market, but haven't really penetrate yet. So currently you know a tiger you know our focus is on the incremental market. The younger generation the younger a Singapore and similar to our Chinese users who is more interested in the U S or a Hong Kong stock on this incremental market is showing good momentum. So we're a little what about tapping into the existing market by adding more local product.
That's on our platform such as DLC for more and getting a Singapore SPX self clearing license. So it can provide better service and acquire more users a from both market segments. Thanks.
Thank you take on any of them.
Thank you on the.
Next question comes from it's a yell from a C. ICC. Please ask a question.
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Hi management, Thanks for taking my question.
So you go from here in D C and congratulate you on that because 19 a itself we have achieved.
I have two question on here the first.
First of all about our growing customers, we see a total of 44000 founded accounts added in.
In this culture and has a total paying a customer in a passive reached a nearly 260000 flights into 'twenty. How do we also see the volatile market environment.
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Okay.
So it's a it's actually a question to answer your first one you know a.
So since our inception, a 70 years ago, we have experienced quite a few a market volatility so we a.
Have a experienced on that so in general you know a flower business, especially for the online a broker business night, a we tend to have higher retention. So a quarterly retention rates for around 88 per cent through our operating history.
Like how do we how do we you know a.
Increased use of activities that would keep the retention a so for the past year, a we actually have been spending quite a resource to optimize our unlike commodity operations. So far we have seen positive results for example, our content consumer or content creators.
In general as a retention rate will be 20% higher than rest of the users.
Good content can also help users to make decisions and a increased treating activities on it.
Average a content user a series of trading activity will more than double a.
If you log on to you know Tiger a commodity you can see right now our offshore clients they actually a more engaging and you know a in all of a commodity.
Have seen why on a more English class in our community, which is a it's a good.
A good progress you know, we think now that we will keep investing.
And also you know for for brokers busiest night, a volatility you're starting to extend its good for us. So for example, you on your first quarter of last year. A you went through a big corrections user engagements where steel pretty high.
What do we think you know a.
Throughout this year up given the you know the media coverage and also as a transparent with the information we think the market volatility will continue.
In the worst case scenario lets say if its a bear market.
We also have more wealth management product for our users for example, we added a mutual fund automatic investment plan.
Also have a cash management partner on a cash class. So we're thinking a those wealth management part a will help our users to manage their investment during bear markets.
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Sure.
Okay. So regarding yourself, we think you know the the.
For the MAU actually you know, it's it's it's a pretty high and you need a lot a low how to be able to be a good a yourself provider.
So so first of all you know a given that up you know.
Our use of clients see a international company and now they have subsidiaries or employees from different countries.
Countries different regions.
As a service provider ourselves needs to be a global company to have a global platform to service their you know a night.
Different reaching employees, so tiger, we have licensing Singapore U S Australia.
So we feel we're a more capable to to be customized and tailored to a different needs. So far you'd see yourself you know a client. So that's that's the first a point.
Second I.
I would say, it's a sicker than you know a growth driver for yourself because this is a night.
As you can see a flower past reports a so.
So far we have been generating gross synergy between yourself and our investment banking business. So we're not only help company to get the state to response way. We also help them from the very beginning to help them manage the plant to satisfy what the local regulations and also to help them go through the IP.
Fuel prices and a two to manage their percentage of when the stock options southwest debt. So the combination or I would say that a the bundled a service between all of a yourself on a IPO has been showing a really good result in a way we a comfort and you know going forward is this strategy will keep working on a provide the best service for our clients Lastly is not a.
Yourself is a pretty I would say a complex business and we are investing heavily in a research and development and also acquire you know recruit talent to build a one stop solution provider, combining a HR tax legal compliance and a cognex expertise to make the yourself management.
If fishing in a user friendly for our corporate users.
Thank you.
Yeah.
Thank you.
Thank you.
Mind on ladies and gentlemen, if you wish you asked a question. Please press star one on your telephone keypad.
Our next question comes from hang on one from 86 research. Please ask a question.
But anything like that.
Good day.
Alright, thanks for your thinking on.
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Well, thanks, everyone for it doesn't exactly map.
I have some questions from folks in Washington was already not only come from a license.
Imagine a share of the program for our Hong Kong brokerage license application.
Second question is about a more international business.
Including yourself the marketing expenses.
It was primarily due to a global expansion could you share the.
A question mobilization costs.
For pain trying to in China, Hong Kong market and how we should look at a book would your revenue contribution from overseas knock on Doctor on.
For me five years.
And my other question is on a commission rate.
Michael for nationwide.
Sequentially during the quarter and credit for that.
It would be helpful. Thank you.
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Okay.
So so to answer your question on International Day, you see its amortization. So we are very committed and optimistic about our a global expansion strategy because first of all a isn't I you know, we we see the global expansion strategy is a good way for us to increased a funded dot com customer accounts a funded our current conversion.
Like we mentioned earlier you know a lot of those regions you know.
The commission a it can't be more than a 50%, sometimes a 60, 70%. So in this way this will give us a big you know a Taliban in Seattle once we generate good customers offshore and build up a momentum you can help us to reach a night over a b only a funded our current customers in the near future. So on.
Goal is to become a one stop investment platform for a global investors no matter, where that base. So we're very committed to them to a internationalization and you know in addition to the operating data a growth spurt internationalization, we feel you know.
By acquiring more investors offshore will also help us to generate better you know a financial results for for the company on it for the shareholders.
So that's a question on international day, they see so on marketing you know what a customer acquisition. So if you look at our 'twenty 'twenty data or a customer acquisition cost is for like a hunter USD per person. Okay. So this actually helps came down from earlier and I say 2019 zone or a customer.
You can call us up on what's about a 202 a 300. So the result of the decrease is due to of course, neither way up.
Although you have a better pattern now and is a more natural you know a traffic and also you know a way of providing more comprehensive services to a user's soldier on a more users coming to our platform.
Going for only expert offshore we think the customer acquisition costs will go up because first off was there might be a.
Other players we will be competing for it a for the for competing for the users. It's a continuing it's not a you know if we go to a new market. It will take us some time to build up our brands. So at a very beginning you know we will spend more to do more branding you know a two to increase our.
As you know a brand awareness.
Through our past experience with them you know all those net marketing expense a.
Well, well well worth it because if you look at our you know a.
Customer pay back period, it actually came down to just like maybe one quarter. So if we go to market a little you know its just night, maybe it's the same strategy to keep spending to a card users. So in a short term I think operating data a hook up.
A bigger user base is more important plus a so so we will keep spending once we get into the new markets.
Adam for your take rate yes.
For the commission rate if you're if you calculate blended commission rates go up a little bit light versus last quarter on a quarter over quarter basis.
But eventually you know we haven't done any pricing change okay. So our prices stay the same for U S is about a one cents per share medium on to $2 99 at a for a hung Kai it's now a two point like a lie.
Biggs you know for a Hong Kong Securities trading.
And to answer a question on a hunting license. So we have resubmit our application to a car a Hong Kong stockbroker earlier last month.
So we believe the application content to other information required up by SFC.
As a result of that discussion we can you share with them to confirm what was required.
The regulation may require a further information for us.
Although we believe we have give them a very comprehensive a material. So so far you know we have a they have a lot of ask for any follow up people are you seeing a they may do so in due course a.
So far they haven't found that yet so typically you know the application will take six to 12 weeks to process a.
Obviously, a we cannot guarantee the outcome of a tiny but we are as confident as we can beat that we have filed a everything.
So a later based on what he needs to consider a application.
How did you think what do you tell all of them for you go from.
Sure a woman.
It's a horse for me to detect a benefit.
Most of my Yang.
All right.
Orange on a horrible question on the tax benefits on what constitutes a tech center during the quarter.
Oh, yeah. So so you know we just breakeven for this year a right. So you know as every start up when they breakeven they before they were breakeven as they have a huge losses before so they have a accumulated a lot a tax benefits. So once we started for breakeven you know we'd be able to utilize those tax benefits for this quarter.
I'll take on things, which you said if anything on this.
Very helpful. Thank you.
Thank you we have reached the end of the question and answer session I'll now turn the call back to presenters for closing remarks.
Yeah.
I would like to thank everyone for joining our call today I'm now closing the call on behalf of a management team here at up a fintech. 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.
Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for participating you may all disconnect.
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