UP FINTECH HOLDING LTD (TIGR) Q1 2019 Earnings Call Transcript

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UP FINTECH HOLDING LTD (NASDAQ: TIGR)
Q1 2019 Earnings Call
May 17, 2019, 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 First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. I must advise you that this conference is being recorded today Friday 17th of May 2019.

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

Clark S. Soucy -- Investor Relations

Thank you, Albert. Hello everyone and thank you for joining us for the call today. UP Fintech Holding Limited earnings release was distributed earlier today and is available on our IR website at ir.itiger.com, as well as the 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 Wei (ph), the Chief Executive Officer of US TIGR Securities; Ms. Wang Irene, (ph) Legal Manager; and Mr. Kenny Jao (ph), 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 followed 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 and we do not take any obligation to update these statements except as required under applicable law.

It is my pleasure to now introduce our Chairman and Chief Executive Officer, Mr. Wu. Mr. Wu, please go ahead with your remarks.

Tianhua Wu -- Chief Executive Officer and Director

Thank you everyone for joining us for our first earnings call as a public company. I am unable to announce that (inaudible) for the first quarter. Total revenue was $9.6 million despite Chinese New Year holiday.

I would like to highlight three new developments in our business. First, our IPO subscription business enjoy the revenue growth in Q1. We pecioneer US IPO subscription service for retail investors. Our users are enjoying the growth benefits of emerging companies. Since we announced this service, we have participated in more than 30 US IPO's, the most among Chinese online brokers.

Secondly, our ESOP business is growing rapidly as they are free from issue on managing their employee benefits and looking future high quality users. Last, but not least, we have obtained the property in the AIP from the Monetary Authority of Singapore.

As you know, I'll call you to SOL Global Chinese and obtaining AIP in Singapore IP's is an important milestone for our international growth strategy. We will keep getting more licenses across some major regions. Once these licenses are in place with our advanced trading platform and focus on user experience, we will be able to rapidly expand our user base and generate more revenue. Although all of these developments will help us expanding into international markets. Since this is our first earning call, I will like to take this opportunity to reiterate our vision and strategy.

Moving now to the high (ph) trade four years ago, we sought to use cutting edge of technology to enable our user to trade it all over the world. We are more responsible to the needs of our customers than traditional brokers. And are reaping (ph) heavily to continue developing our proprietary infrastructure. We are now over treating customers in the USA, Hong Kong, UK and Asia through TIGR programs and also a truly diverse range of securities to our customers.

Our IPO in late March of this year was a great milestone for the company. We look forward to leveraging our increased brand recognition and are committed to investing in technology and talent. We aim to create a comprehensive financial services in ecosystem for both the individual and the institutional investors as well as our corporate partners. We are confident we can deliver long term value to our shareholders.

I will now conclude my remarks and hand the call over to Mr. John Zeng, our CFO. Thank you.

John Zeng -- Chief Financial Officer

All right. Thank you, Tianhua. Let me just quickly go through the financials. Our total revenue in the first quarter were $9.6 million well of which $6.4 million came from trading commissions. Net revenue over $9.4 million after interest expense. Financing service fee in the first quarter were $2.1 million or 22% of the revenue. This increase was attributed increasing the margin trade balance.

Interest income was $0.5 million or 5% of the revenue. The interest income represents the interest fee, we derived from the marginal balance of this consolidated accounts as well as portion of the interest from their cash balance. Other revenue were $0.6 million up 6.8% from the same quarter last year primarily derived from the fees we gathered for IPO subscription service and ESOP promotional services we provide for two corporate clients.

Now on the cost, total cost were $40 million, up 36.4% over the same quarter last year. The increase was due to the much larger size of operating mostly came from our headcount increase compared to one year ago.

Employees compensation and benefits were $7.8 million for this quarter up 61% from first quarter last year. This is due to the rapid growth of our headcount in 2018, which almost doubled from last year. Much of the increase came from our investment in R&D, finance and compliance personnels as well as share based compensation.

Occupancy, depreciation and amortization was $0.6 million, up 14.5% from the same quarter last year. As we are expanding onshore and offshore, which result in office space. Communication and market data costs was $1.2 million, up 87% from the same quarter last year. The increase is due to -- we offer more market data to our customers and our platform. Marketing and branding cost was $1.9 million, down 28% from the same quarter last year. As we are optimizing our operating to decrease referral payments to third-party platform and marketing partners.

SG&A was $2.2 million up 39% from the same quarter last year, mostly due to increased the consulting expense and preservation of fees, we paid out in the same company. Execution (ph) and carrying costs were $0.3 million, this increase was reflecting the increased number of consolidated outcomes.

Net loss attributable to ordinary shareholder in the quarter was $2.9 million compared to a loss of the $2.2 million in the same quarter of last year. Net loss per ADS was $0.6 compared to a loss of $0.7 per ADS during the same quarter of last year. As of March 31st, our company had a very strong balance sheet with the cash and cash equivalent balance of $144 million. Our IPOs closed on March 20, so we are comfortable in our ability to continue investing our business.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your first question comes from the line of Edward Du from Deutsche Bank. You may now ask the question.

Edward Du -- Deutsche Bank -- Analyst

(Foreign Language)

(Foreign Language) Now, let me just transfer to English mode. I have two question. My first question is that you know, share some color on your oversea license application progress and what's your expectation on a contribution to your business. Once you successfully acquired those license and my second question follows that, can you sure the impact, what's your expectation on the impact from the Xiaomi acquisition of the Digital banking license, especially in the cost saving angle and any potential contribution to your revenue? Thank you.

John Zeng -- Chief Financial Officer

(Foreign Language) Okay. So let -- me let me just quickly translate answer to your first question, Eddy. So in terms of licensing, you know, our goal is to be able to serve the global Chinese population. So having more licensing enables us to you know conduct more business in the other region of China. So the AIP, we got in Singapore is a good example of executing our global expansion strategy. So another type of licenses, which will enable us to increase our revenue and decrease our cost, when we reach certain scales. But this is something we are working on, based on our current operating and hopefully one day we will be able to, you know, extract more revenue out of our operations.

Unidentified Speaker

(Foreign Language) It's just a quick summary. So we do it now. We know that Xiaomi other than digital banking license. As you know Xiaomi is our long term shareholder. They are the investors in the first one. So we have already a good relationship with Xiaomi. Now to be candid in the short term, we don't think this will have a meaningful difference to our business based on what the digital banking license can operate under the current Hong Kong regulating. But we do think going forward, if you look at long-term this will definitely help us with our account conversions especially with the transformation in technology in the banking system. We do hope, you know, a long two years down the road. This kind of digital license will help our operation.

Operator

(Operator Instructions) Your next question comes from the line of Jiaxing Zhou (ph) from CICC. Please go ahead. You can now ask question.

Jiaxing Zhou -- CICC -- Analyst

(Foreign Language) Thank you management. Congratulations again on our successful listing. I have two questions. First, we observed TIGR has already participated in many eye-catching IPO subscription in the US stock market such as TME and Zoom, which is really popular and value added service for our organization. So should we expect TIGR will continue expanding US IPO subscription service in the next few years and how can we get more proportions of market shares in those IPOs. And secondly, and our compensation and benefits increased significantly in this quarter and so what's the outlook for our recruitment playing and how should we project this expense in our forecast? Thank you.

Unidentified Speaker

(Foreign Language). Right. So a quick summary. At Philadelphia or not all of you know the US IPO process is different from Hong Kong and Asia. So in the US, the tipping point is, there is no retail tranche. Most of this retail came from DSP, which means now you have to know the management -- or part of the employee program to be able to participate.

So TIGR, you know, a broker way -- pioneer of this kind of IPO subscription service for the retail investors a year ago. And we want to just you know pass the benefits of to buying the high gross US companies such type of benefits to the retail investors. And also now -- this kind of service is actually a good way for us to also get closer either with corporate issuers, we can you know supply with retail demands also institutional events. We can also provide IR, PR services to those proper issuers, which is a good way for us to help them to you know build it a public image.

I think that if -- as Mr. Wu just mention that, I think that if retail investors they do see the value of TIGR broker provides to see it's differentiated from other brokers in this kind of industry. So that's why they do want to you know, joining us you know, use our platform to be able to subscribe for US IPOs.

Jiaxing Zhou -- CICC -- Analyst

(Foreign Language)

Unidentified Speaker

In terms of employee compensation and headcount. So as you can see from 2018 or 2017, we have been increasing our -- in terms of to attract talents. Most of the increase came from R&D. We think this is something sets us apart from other traditional brokers. Yes, we do see technology can transform, you know, brokerage business. So we will keep investing but headcount increase won't as be as dramatic as last year given we know our headcount is almost doubled from last year. We look selectively keep recruiting key talents to make sure, we stay on top of this kind of industry. Thank you.

Jiaxing Zhou -- CICC -- Analyst

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Daphne Poon from Citibank. You may now ask the question.

Daphne Poon -- Citibank -- Analyst

Hi. Good evening, management. Thanks for taking my question. So my first question is about the ESOP management scheme, that we understand that you launched that quite recently in late 2018. So I would like to understand, while how is your progress here, for example in terms of the number of corporates that you have signed up so far. And also how is that expected to contribute in terms of your longer term, like current growth and also the IPO revenue growth.

And secondly, I would like to check on your progress in terms of the migration of current accounts from the fully disclosed account model to the consolidated account model. Like so far what percentage of the, kind of, current account has been migrated. And how is the client's acceptance level to that change and you see any major pushback from your clients.

And lastly, the first question is regarding the outlook on your commission income or maybe your trading volume of the rest of the year. So we see Q1 is a little bit slow, as you are expecting, is due to the weaker current sentiment. But actually in Q1, we see the US and Hong Kong market both performed quite well while going into Q2 and now we have this like favorable concern and market become more volatile. So how do you see that trading volume or kind activity trending into Q2 or into rest of the year. Thank you.

Unidentified Speaker

(Foreign Language) Hi, let me translate the ESOP question. So ESOP, you know, just frankly say where we started relative in May, but we have been making a really good progress. So right now, those -- ESOP clients haven't really reflecting to our revenue that we believe in the next 6 months to 12 months, when the IPO is completed. They will be able to be our high calibre customers for the next several quarters.

So also -- how we are approaching ESOP service, is now we don't just treat it as a single product. We do think it's a company package, we will offer to proper issuers. that we mentioned earlier, no matter it's a IPO subscription or PR you know IR services. So we do think you know, by mixing it with a company package especially now in our reputation in the US market, we do think it's offer us a competitive edge over our competitors in this current US IPO and ESOP services.

And to answer your second question, I would just -- as your segments for now. So what do you know one migration back in February -- five people consulted their accounts. So far you know the transaction has been pretty smooth. We don't see much pushback from the investors and we think, you know, this may consolidate account do give us more flexibility to better serve our customers in terms of some other value added services. For example, like IPO subscription services.

For your third question on outlook of the transaction volume. So you are right that the transaction value, if you just look at the market you know the January especially second half of January. The marketing Hong Kong and US do pick up. For our transaction volumes, it's a little bit slower to pick up. I think there is a lagging effect, plus there is a Chinese holiday in February. So that's why our net commission revenue was a little bit nice decrease or slow versus the last quarter.

By looking forward the trade was so far we think just by looking at the management account or some numbers. We think it's going OK that transaction volume and also the incomes of tradition and it's commissions but we don't know like you, of course, you can start a huge swing in the market volatility -- it will definitely impact our business. But so far I think we are on the right track.

Operator

(Operator Instructions) Your next question comes from the line of Edward Du from Deutsche Bank. You may now ask the question.

Edward Du -- Deutsche Bank -- Analyst

Hi. Thanks, management. I just have some follow-up question for the financial data for your first quarter and may I have the color or the gross rate or is the -- that number above your margin finance and the trading amounts. And my second questions is about that, can I have the gross commission breakdown in fourth quarter, preferably into like Hong Kong stocks, US stock, US futures, US options and other products. And in the meanwhile I have also the share trading volume for example share units in the above mentioned products and the total trading amount by dollar -- US dollar or Hong Kong dollar by above mentioned product and that's all my question. Thank you.

Unidentified Speaker

Okay, Eddy. I will answer your questions. So in terms of trading volumes, I think it's on par with our numbers last year, OK. The same quarter last year the trading mix in terms of the mix of the different products is -- US equities, it's about like -- sorry -- in terms of the revenue mix the US equities is probably close to 50% of our revenue. The Hong Kong equities -- in terms of revenue is probably high -- close to 20%. Then we also have fortune (ph) is about like 20% of our revenue futures comes for like high single digits of our revenue.

In terms of transaction volume mix, it's about like US accounts for close to 30%, the Hong Kong about like it's maybe over 10%. Future is about like 40s, option is about like high single digits. That's the mix of the transaction volume and the revenue. In terms of the marginal balance, also it's on par slightly above our first quarter last year. So that's why you see our financial service fee may increase from last year. We do see more people adding on margins, starting from late first quarter and we're thinking, you know, so far the train machine on here, so far it is still on the right track. So hopefully -- for the next quarter, we can report more financing income from margin balance.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

Duration: 33 minutes

Call participants:

Clark S. Soucy -- Investor Relations

Tianhua Wu -- Chief Executive Officer and Director

John Zeng -- Chief Financial Officer

Unidentified Speaker

Edward Du -- Deutsche Bank -- Analyst

Jiaxing Zhou -- CICC -- Analyst

Daphne Poon -- Citibank -- Analyst

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