Earnings Call: Q1 2021

May 24, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the UPFintech Holding Limited First Quarter 2021 Earnings Conference Call. Session. I must advise you that this conference is being recorded today, Tuesday, May 25, 2021. I I would now like to hand the conference over to your first speaker today, Mr. Clark L. Sousi. Thank you. Please go ahead. Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UPFintech Holding Limited's Q1 2021 earnings release was distributed earlier today and is available on our IR website at ir. Itiger.com as well as Globe Newswire Services. On the call today from UPFintech are Mr. Wu Tianhua, Chairman and Chief Executive Officer Mr. John Zong, 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 and 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 $19.95 A number of factors could cause actual results to differ materially from those contained in any forward looking statement. 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 ks furnished today, May 25, 2021, and our annual report on Form 20F 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. Hello, everyone, And welcome to Tiger Brokers 2021 First Quarter Earnings Conference Call. Substantial investments in our platform and services coupled with strong growth in new clients led to notable increases across our core operating and financial indicators. In the Q1, total revenue reached an all time high of US81.3 million dollars 3.6 times that of the Q1 of last year. The profit growth and operating efficiency of our firm continue to accelerate. We reported non GAAP profit of US23.5 million dollars which was not only 22x higher than that of the same period last year, but also a sum that exceeded the total for fiscal year 2020. Another notable achievement was our addition of 117,000 funded accounts, a new record high for a single quarter. Clients continue to allocate more capital to our platform and total client assets reached $21,000,000,000 3.9 times higher than the same period last year. I would now like to take this opportunity to provide investors with an update on 3 key business initiatives at our company. First, I am pleased to report that our internationalization strategy is progressing well. Tiger Brokers has established offices and licensed subsidiaries in the U. S, Australia, Singapore, New Zealand as well as other countries and regions and our group possesses licenses pertaining to brokerage, investment banking and asset management among others. Recall what I said during our 20 2Q3 earnings that our goal was to have offshore clients account for more than 50% of our quarterly newly funded accounts within the next 6 to 12 months. I am proud to announce that we have already achieved that objective. In the Q1 of newly funded accounts, over 50% came from outside of China. Internationalization not only helps us fuel user growth, it also equips us with the know how for dealing with regulatory bodies across multiple jurisdictions, which boosts our capability to meet the global investing needs of both individual investors and Corporate Clients alike. 2nd, as our firm scales, we expect our core businesses, namely brokerage, investment banking, ESOP as well as our internationalization strategy to contribute to each other's respective growth. Our Investment Banking business continues to be highly active. In the Q1, we participated in 14 IPOs, of which we underwrote 8, such as Zhuhu and Kloopen Group, among others. We continue to remain appreciative of the trust issuers place in our firm. We started this business just a little over 2 years ago, but in that short time, we have already become the number one underwriter by deal count for Chinese ADR issuance. Moving on, growth in our ESOP business remains very impressive. In the Q1, we added 41 new ESOP clients for a grand total of 165 clients. We are thankful of the trust corporate clients have conferred on our firm, and I'm happy to report that in the last year Of the Chinese issuers that have pursued a U. S. Listing, approximately 50% of issuers chose Tiger to provide ESOP service. Finally, I would like to provide an update on our self clearing capabilities. In July of 2019, When we acquired Marsco, a broker dealer with over 30 years experience in self clearing, we also acquired their self clearing license. This acquisition is a landmark in our firm's history as we now exert control over every aspect of our brokerage system. While implementing self clearing has, of course, raised new technical compliance and operational requirements, it has also created a new moat around our business. I am pleased to report that as of the Q1 of 2021, over 30% of our clients were having their U. S. Cash equities self cleared by Marsco. In addition, since the Q4 of 2020, all new clients onboarding the U. S. Are having their trades self cleared by Marsco. Furthermore, all new Chinese clients are having their U. S. Cash equities trades self cleared by Morrisco. We project that by the end of this year, we will be self clearing over 70% of our clients. Finally, We are grateful to the consortium of leading institutional investors who participated in our convertible bond issuances in February April of this year. We in total raised $155,000,000 which we will employ to advance our international expansion as well as make further investments in our research and development capabilities. I would now like to invite our CFO, John, to review our financial results. Thanks, Tianhua and Clark. Let me go through our Q1 financial performance. All numbers are in U. S. Dollar. As Tianhua mentioned earlier, all of our business units, including both retail and corporate services, have performed very well this quarter. Our internationalization is also progressing rapidly that enable us to acquire more user, increase customer to funded account conversion and bring in more client assets. As a result, total revenue were $81,300,000 for this quarter, an increase of 2 56% from the same quarter of last year. Within total revenue, commission were RMB 53,000,000, an increase of 2 77% year over year as our user base is much bigger versus a year ago and our users have been active with favorable market backdrop in the Q1. Interest related income, which combines financing service fee and interest income, increased 179% year over year to reach RMB 17,900,000 this quarter, also due to bigger user base and increased market activities. Other revenue, Mostly revenue from our Investment Banking business increased 3 31% year over year to RMB 10,500,000. Our underwriting pipeline is very strong, and we've maintained the number one position in terms of deal counts for Chinese ADR underwriting. Now on the cost. Interest expense increased 480% year over year to $5,500,000 this quarter, in line with our user growth and increase in margin activities. Execution and clearing expense were $8,200,000 this quarter, increased 3 66% year over year and 97% quarter over quarter as we have more consolidated account customers and starting to record more clearing expense on our book. Thanks to our gradual wrap up of self clearing. Our clearing cost as a percent of commission actually came down quarter over quarter from 16.5% in the 4th quarter last year to 15.5% this quarter, even when we had a huge increase in consolidated account customer this quarter. We expect clearing cost to further come down when we self care for more clients. Employee compensation increased 58% year over year to RMB 16,500,000 as we keep adding headcounts, especially in R and D and products to support global expansion. Along with headcount increase, occupancy expense increased slightly to $1,200,000 this quarter. SG and A increased 78% year over year to $4,100,000 this quarter. Marketing expense were $12,800,000 this quarter, an increase of 3.71% from the same quarter last year as Q1 market sentiment was favorable towards investors and we took this opportunity for client acquisition. We will keep spending in branding and customer acquisition to accompany our global expansion. As a result of rapid user growth, communication and data usage also increased 116% year over year to $4,000,000 this quarter. After taking all the expense, our net income was $21,100,000 this quarter versus a net loss of $200,000 in the same quarter last year. Non GAAP net income, which excludes share based compensation, impairment loss from equity investment and fair value change from convertible bonds, was RMB 23,500,000 this quarter, increased 21 times from the same quarter of last year. Now I have concluded our presentation. Operator, please open the line for Q and A. Thank you. Yes. As a reminder, to ask your question, Our first question comes from the line of Han Fu of CICC. Please go ahead. Hi, management. This is Han Fu from CIBC. And big congrats on such a strong quarter. I have two questions. The first one is about the Estar business. We see the strong growth in the number of clients this quarter. Could you please give us more color on the growth momentum, competitive advantages and the potential synergies of this business. This is my first question. And my second question is about the competitive landscape of the Singapore market and our potential market share considering more online brokers have joined the market aggressively. Thanks. Okay. Let me translate the first question. So first of all, ESOP is Coming a standard to new economy companies. And we think there are a lot more new economy company coming to the market, we see ESOP has a huge potential. So Tiger ESOP is not only a SaaS software. It offers actually a comprehensive service ranging from benefits consulting trust service, covers the whole spectrum of stock option management. Also with Tiger's global licenses, we can service We can service companies with global footprints to satisfy their stock option needs. Our e software service is getting very good brand recognition, especially for Chinese ADR offerings. In the past year, over 50% of the Chinese ADR issuers choose us as the eSoup provider. In addition to service U. S. And Hong Kong listed companies, Now we can also provide ease of service to Asia listed or potential Asia IPO companies. We see Asia is a market with huge potential and confident we can grab big market share in the Asia space as well. First of all, we always welcome competition. Competition is good for investor and for the industry. It's also driving force for us to keep innovate and offer differentiated product and services. We feel very confident to maintain our market leading position in Singapore. We offer more trading products versus our competitors. In addition to U. S, Hong Kong, Singapore equities, we also offer DLC Trading and Fanmoo, which is our digital wealth management platform. We also started to offer U. S. IPO subscription service to qualify Singapore investors. This is not a service offered by existing brokers and it can only do so by leverage in Tiger's market leading U. S. IPO underwriting capability. Furthermore, we are in the process to apply SGX clearing license. Once we have the SGX screen license, we can offer more competitive pricing for local stock trading and penetrate deeper into the existing in Singapore Investment Market. One more point I want to highlight is our collaboration with Singapore local companies. For example, last month we started co promotion with Grab. So far, we have received good response from both Grab and Tiger users. We will roll out more partnership like this to offer localized service to Singapore investors. Thanks. That's very helpful. Thank you. Thank you. Our next question comes from the line of Jacky Zuo of China Renaissance, your line is open. Please go ahead. So thanks, management, and congrats for the decent results. I have two questions. Number 1 is about our U. S. Stock self As John mentioned, our clearing fees as a percentage of our Revenue start to decrease Q on Q and 30% of our existing customers Start to switch to Masco Self Clearing. So just want to understand from stock trading volume perspective, 1, can we achieve 100% self clearing? And what is the P and L implication? And second question is about the So do we plan to launch cryptocurrency trading in the future? Thank you. Okay. Let me translate. So by end of last quarter, all U. S.-based investor are using Marshalls to clear U. S. Cash equities. As of March 31, about 30% of Tiger's users are using mask for clearing. In the Q2, we just started using Masco for new accounts from China region. We expect by end of this year, more than 70% of our users will be clearing through Moscow. In terms of trading volume, we think by early next year, we will have All the trading volume for cash equity is cleared by Masco. We already seen clearing costs came down due to self clearing on a quarter over quarter basis. We expect clearing costs to further come down once we have more clients trading through Moscow. Just roughly estimate, if we use the 2020 Clearing expense as a proxy, I think if we clear everything by ourselves, the clearing expense can save for USD 30,000,000. Thanks. So we loaded cryptocurrency, for example, Bitcoin has becoming more are acceptable by mainstream investors since last year and is emerging as an asset class. Tiger's mission is to make More efficient and enjoyable for investors, so crypto is definitely a product in our pipeline. Given crypto is a new asset class and the many regulations are still work in progress. At Tiger, we will take a very prudent approach. First of all, We will only offer crypto trading to offshore clients. We are not going to offer such service to Chinese nationals. In addition, The Tiger subsidiary offering crypto trading needs to apply local license and be compliant with local regulation. For example, in the U. S, brokers need money service license to offer crypto trading. In Singapore, it needs PSA license. We are in the process to apply those licenses. Thanks. Thank you. Our next question comes from the line of Julia Chong Citigroup, please go ahead. I will first translate my question. Thank you very much for giving me this opportunity to ask questions. This is Julia from Citi. I have one question. We have seen the market experience some level of pullback lately. Can management please give us guidance in terms of the impact on the business? Thank you. We do see some moderating market sentiment added activities in the 2nd quarter, but our key priority, User acquisition has been going very well due to our value added service and more geographic expansion. We see that inflow coming out to our platform even when market is more choppy lately. And from a broker's perspective, Relative volatility is actually good for our business sentiment. Some investment wonder whether market pullback will affect Tiger's underwriting business. In the short term, market pullback has delayed quite a few offerings, same impact to Tiger and other investment bank. But on the other hand, when market is not very good, we can actually better differentiate Tiger's service and capabilities versus traditional banks. And we actually have acquired more mandates mainly as the LiBank. Our pipeline is very strong, and we look forward to more revenue from our underwriting business later this year. Thanks. Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer Session. I'd now like to hand the conference back to Mr. Clark S. Soucy. Please go ahead. I'd like to thank everyone for joining our call today. I am 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