Q4 2023 UP Fintech Holding Ltd Earnings Call
Participants
Aaron Li; Head, IR; UP Fintech Holding Limited
Wu Tianhua; Chairman & CEO; UP Fintech Holding Limited
John Zeng; CFO; UP Fintech Holding Limited
Cindy Wang; Analyst; China Renaissance
Judy Zhang; Analyst; Citi
Han Pu; Analyst; CICC
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the UP Fintech Holding Limited fourth-1uarter and full-year 2023 earnings conference call. (Operator Instructions) I must advise you that this conference is being recorded today, March 20, 2024.
I would now like to hand the conference over to your first speaker today, Mr. Aaron Lee, the Head of Investor Relations. Thank you. Please go ahead.
Aaron Li
Thank you, operator. Hello, everyone, and thank you for joining us for the call today. UP Fintech Holding Limited's fourth-quarter and full-year 2023 earnings release was distributed earlier today and is available on our IR website at ir.itigerup.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. Qingli 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 US 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 20, 2024, and our annual report on Form 20-F filed on April 26, 2023. 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 English translation.
Mr. Wu, please go ahead with your remarks.
Wu Tianhua
(spoken in foreign language)
(interpreted) Hello, everyone. Thank you for joining the Tiger Brokers fourth-quarter and full-year 2023 earnings conference call.
(spoken in foreign language)
(interpreted) Today marks the fifth anniversary of Tiger's listing on Nasdaq. During the past five years, we're committed to our mission that technology redefines global investing, and we have expanded our business globally to Singapore, Southeast Asia, Australia, New Zealand, the United States, Hong Kong and the United Kingdom.
We have made significant improvement in various aspects, including product offering, industry know-how, user base and profitability. We've also navigated through market turbulent, geopolitical and regulatory uncertainties. This valuable experience will have us to have sustainable growth in the future.
As of the end of 2023, the majority of our total client assets came from users in oversea market. We are proud of our international reach, and we'll continue to serve our clients with dedication and innovation.
(spoken in foreign language)
(interpreted) In 2023, we continue to advance our internationalization strategy, further solidifying our leading position in Singapore and officially entered Hong Kong. Benefiting from the higher interest rate environment, fourth-quarter total revenue reached USD70 million, a 9.6% increase compared to the same period of last year. Our full-year total revenue amounted to USD273 million, representing a 21% increase from 2022. Additionally, we saw significant improvement in our bottom line in 2023, primarily due to our brand strength in R&D capabilities, which enabled us to save costs and deploy resources more efficiently.
Full-year net profit reached USD32.6 million, non-GAAP net profit reached USD42.7 million, a record high since our company funding and representing a jump of 14.8 times and 3.4 times of the same figure in 2022. In the fourth quarter, due to depreciation of US dollar against other currency, we recorded a USD7 million non-cash foreign exchange loss versus a $2 million exchange gain in the third quarter, resulting in our non-cash net income declined quarter over quarter to USD1.1 million.
(spoken in foreign language)
(interpreted) In the fourth quarter, we added 39,000 funded accounts, an increase of 58.6% from the previous quarter. The total number of funded accounts for the year reached 123,100, exceedeing our annual guidance of 100,000 funded accounts, with the majority came from markets outside of Mainland China.
The total number of funded accounts at the end of 2023 exceeded 900,000, representing a growth of 15.8% compared to the end of last year. In the fourth quarter, by leveraging our strong presence in Singapore, we're working with partners to explore customer acquisition initiatives in the Southeast Asian region, which resulted a rise in quarterly new funded accounts while reducing average CAC to a historical low of below USD150.
In terms of total client assets, the trend of asset inflow remains strong. We saw record USD8.2 billion net asset inflow this quarter, in addition to USD3.5 billion mark-to-market gain. Total client assets jumped 62.1% quarter over quarter and more than doubled year over year to USD30.6 billion at end of 2023. The increase in current assets was primarily due to our ongoing product development to meet the needs of institutional clients. Additionally, we are very glad to see the quality of our newly acquired customer further improved in the fourth quarter.
The average net asset inflows of newly acquired clients in Singapore was about USD16,000 in the fourth quarter, setting a historic high since our launch into Singapore retail market.
(spoken in foreign language)
(interpreted) We continued to add new products on our platform to enhance user experience, which we believe is the key to our long-term success. In the fourth quarter, wee introduced Combo Option Strategy feature, a very user-friendly product that allows user to execute multi-leg options trades based on our net marketing requirements.
Additionally, we launched the e Fixed Coupon Notes product, offering professional investors a more diversified wealth management experience. In addition, as crypto is becoming an important asset class globally, it's a natural extension of fitness as broker-dealer to address new asset class with Tiger's fintech background and know-how.
In January, we started to offer 11 Bitcoin ETF trading based on local regulatory frameworks. In Hong Kong, Hong Kong SFC uplifted our Type 1 license to include virtual asset dealing services for professional investors. This positions us as one of the first mainstream online brokerage firm in Hong Kong to receive approval for such a license upgrade.
(spoken in foreign language)
(interpreted) Our 2B business continues to perform well. In the investment banking service, we underwrote a total of nine US and Hong Kong IPOs in the fourth quarter, including Shiyue Daotian Group and J&T Express, bringing the total number of US and Hong Kong IPOs underwritten for the year to 28. In our ease of business, we added 30 new clients in the fourth quarter, bringing the total number of ESOP clients served to 535 as of the end of 2023.
(spoken in foreign language)
(interpreted) Now I would like to invite our CFO, John, took go over our financials.
John Zeng
Great. Thanks for your time, Aaron. Let me go through our financial performance for the fourth quarter. All numbers are in US dollar. Total revenues were USD70 million this quarter, remained flat quarter over quarter and increased 9.6% year over year. Full-year total revenue were USD272.5 million, increased 20.9% compared to last year.
Cash equity take rates was 6.5 bps this quarter, slightly increased from last quarter. Raising commission revenue about 60% come from cash equities, 30% from options and the rest comes from futures and other products.
Now onto costs. Interest expense was USD16 million, increased by 123% from same quarter of last year as the interest expense and securities in [Indian] expense both increased in line with the rate hike. Execution and clearing expense were USD2.2 million, a decrease of 44% from the same quarter of last year, primarily due to more efficiency in self-clearing for US and Hong Kong Securities. Employee compensation and benefits expense were USD26.5 million, an increase of 8% year over year due to an increase of global headcounts.
Occupancy, depreciation and amortization expense increased 8.4% to USD2.2 million due to increase in rent. Communication and data expense were USD8.5 million, an increase of 21% year over year due to the increasing user base and IT related fees. Marketing expenses were USD5.8 million this quarter, decreased 22% year over year as we remain prudent with marketing campaigns.
General and administrative expense were USD7.3 million, an increase of 23% year over year due to professional services fees recorded in the fourth quarter. Total operating costs were USD52.5 million, slightly increased 3.1% from the same quarter of last year. GAAP net loss was USD1.8 million. Non-GAAP net income was USD1.1 million. The sequential drop in personnel was primarily due to a non-cash foreign exchange losses resulting from the depreciation of the US dollar during this quarter. For the year of 2023, total GAAP profit was USD32.6 billion and non-GAAP net income was USD42.7 million a historical high in our company history.
Now I have concluded our presentation. Operator, please open the line for Q&A.. Thanks.
Question and Answer Session
Operator
(Operator Instructions)
Cindy Wang, China Renaissance.
Cindy Wang
(spoken in foreign language)
(interpreted) Thanks for giving me this chance to ask questions. So I have two questions. First one is the net profit has increased significantly in 2023, but profitability in Q4 was dropped sequentially, mainly because of the FX loss. So have you seen any improvement in first quarter this year based on the current run rate?
And the second is, could you give us guidance on new funded accounts in 2024 as well as the breakdown of each region and business development strategy, any new markets you will enter this year? Thank you.
John Zeng
(spoken in foreign language)
(interpreted) Okay. So the longest partner and I decrease in the fourth quarter versus the third quarter, there are several factors. So first one is for our total revenue is flat quarter over quarter, but we incur more interest expense during the first quarter due to the rate hike cycle. So the total net revenue decreased $4 million quarter quarter over quarter.
The second factor is that in the first quarter there are more costs will hit the books such as professional service fees, so which will resulting in a $3 million jump in the costs. The third reason is for the foreign exchange losses. So in the first quarter, the US dollar depreciates against [IBM], it's in Singapore dollar. So we incur a non-cash $7 million in foreign exchange losses in the fourth quarter versus a $2 million gain in the third quarter.
So combine those two factors, so it leads to a non-cash decrease of our liability on a sequential basis. And in terms of run rate, so we have seen a increase in trading activities during the first two months of this year. And we also saw very strong client net asset inflow. So given the foreign exchange rate was relatively stable in the first quarter. We expect the profitability in the first quarter will be much better than the fourth quarter. Thanks.
Wu Tianhua
(spoken in foreign language)
(interpreted) So I'll translate, answered that question. In 2024, our target is to add 150,000 new funded accounts, about 60% will come from Singapore and Southeast Asia. Australia, New Zealand market and the United States account for 15% each, and Hong Kong market account for 10%. This regional breakdown is quite similar to our actual result in 2023 and will adjust to include based on market opportunity and ROI of each region.
And of course, with the target increased from 100,000 in 2023 to 150,000 in 2024, we would expect the incremental RPU number to increase from each market accordingly. We believe the markets we have already entered have tremendous potential, taking Singapore, for example, where Tiger Broker already has a relatively high market share.
However, there's still significant room for growth. This can be seen from the number and quality of our newly acquired clients in Singapore in fourth quarter. In markets like Australia and New Zealand and Hong Kong, we have even more room to improve and expand.
So in 2024, our focus will remain on the market that have already entered that are optimizing the efficiency of our R&D resources, introducing more product features, including virtual assets trading to enhance our RPU and profitability. Additionally, we will also look for opportunities to enter new markets based on market conditions.
Thank you. Operator, let's move on to the next question. Thank you.
Operator
Judy Zhang, Citi.
Judy Zhang
(spoken in foreign language)
(interpreted) Thank you for taking my question. I have two questions. The first question is regarding on the commission and the turnover. We saw the customer AUM has increased significantly in the fourth quarter, but the commission turnover didn't improve that much. What's the underlying reason behind?
And second question is regarding on the new funded customer. So the new paying customer has increased a lot QoQ, but the CAC reached to the record low level. Can management share with us what's the -- give us some color on the company's new customer acquisition strategy? Thank you.
Wu Tianhua
(spoken in foreign language)
(interpreted) Okay. For first question, by the end of the fourth quarter, total client assets increased by 62% compared to the previous quarter and more than doubled compared to the end of last year to USD30.6 billion. There are two factors contributing to this growth. Firstly, the rise in Nasdaq index and high names in the fourth quarter that to a mark-to-market gain of USD3.5 billion are total current assets. This means that even without considering net asset inflow, our total client asset would have seen an increase of around 15% compared to the previous quarter.
Additionally, apart from focusing on the retail market, we have been serving a large number of institutional investors through efforts such as default and investment banking. In the fourth quarter this ForEx gain in more trust and recognition from global investors, who transferred their position to our platform. This significantly contributed to the total of USD8.2 billion net asset inflow in the fourth quarter.
However, to be honest, some of these institutional investors are venture capital and private equity on primary market, which have lower velocity compared to retail investors or hedge funds. As a result, the contribution of the increased client assets from this kind of institutional investors to our commission revenue was fairly limited in the fourth quarter so far.
(spoken in foreign language)
(interpreted) For your second question, in the fourth quarter, we enhanced our brand presence in Singapore and Southeast Asia market by rolling out more online advertising. We have seen an increase in organic traffic and month-to-month referral and lead to high number of new funded accounts in the fourth quarter. However, we've seen the users from different acquisition approaches may vary in quality. So moving forward, we will dynamically adjust our customer acquisition strategies based on their effectiveness to ensure the healthy RPU and perfect model. Thank you, Judy.
Operator, please move on to the next question.
Operator
Han Pu, CICC.
Han Pu
(spoken in foreign language)
(interpreted) Thanks for taking my question. This is Han Pu, CICC. I have two quick questions. Firstly, could you please share the original breakdown of the newly funded accounts in Q4? And secondly, could you please give us more color on the Hong Kong business operation, especially for the crypto trading business? Thanks.
Wu Tianhua
(spoken in foreign language)
(interpreted) Among the new funded accounts in the fourth quarter, about 60% came from Singapore and Southeast Asia. Nearly 20% came from United States, the contribution from Hong Kong and Australia and New Zealand region accounted for around 10% each.
John Zeng
(spoken in foreign language)
(interpreted) We have entered Hong Kong retail market for one year and so far, we are relatively satisfied with our progress. So to explain such a competitive market in Hong Kong, we offer one of the most friendly pricing to our users. Until now, Hong Kong users can still enjoy zero commission and zero plan fees when they are choosing [100 securities] on Tiger platform.
Also, we have been optimizing our product offering over the past year, and we are quite satisfied with the level of improvement in our current product features. In the fourth quarter, we launched the UST bonds, the trading spot features in Hong Kong.
In the first quarter of this year, we update the Type 1 license with SFC., allowing private -- professional investors to -- sorry, allowing PI users to trade crypto on the Tiger Hong Kong platform. We expect this feature to go live in the next one or two months.
Our local business is gradually expanding and the user quality also improved from time to time. In the early stage of our [ring] Hong Kong, we were exploring the market and understanding local users, which may take some time. In the first quarter, we implement a more localized customer acquisition strategy. As a result, the net asset inflow in the Hong Kong market exceeding the total for the first three quarter of this year.
Additionally, the average net asset inflow from newly acquired clients in the first quarter exceeded USD5,000, indicating a good user quality in the Hong Kong market and a big growth opportunity for us to explore in the future. Thanks.
Aaron Li
Thanks, [Mel]. Let's move on.
Operator
Thank you. There are no further questions at this time. So I'll hand the call back to Aaron for closing remarks.
Aaron Li
Thank you. I would like to thank everyone for joining our call today and now closing the call on behalf of the management team here at Tiger. We do appreciate your participation in this 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
Thank you.
Aaron Li
Thank you.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.
