Forge Global Holdings, Inc. (FRGE Q4 FY2023 earnings call

Management Statement and Operational Highlights

• Investments: Forge invested in the Forge Next-Generation platform, focusing on technology development, data-driven strategies, and category leadership.
• Revenue Renaming: Renamed placement fee revenue to Marketplace revenue to better align with revenue types.
• Data Strategy: Prioritized data adoption over near-term revenue to create stickier customer relationships.
• Hiring: Maintained flat headcount while strategically hiring in Europe and investing in key positions.
• Product Launches: Launched Forge Pro, expanded Forge Europe, and introduced the Forge Private Market Index.

Segment Performance

• Marketplace Revenue: In Q4 2023, total Marketplace revenues less transaction-based expenses reached $8 million, up 12% from $7.1 million in the previous quarter. Transaction volume increased 7% to $250 million, and net take rate rose from 3% to 3.2%. For the full year 2023, Marketplace revenues less transaction-based expenses totaled $25.4 million, down from $40.2 million in 2022.
• Custodial Administration Fees: In Q4 2023, custodial administration fees were $10.9 million, down 3% from $11.3 million in the prior quarter. For the full year 2023, custodial administration fees grew 53% to $44 million. Assets under custody were up 5% for the year to $15.6 billion.

Guidance

• Cash Burn: Committed to lowering cash burn in 2024.
• Market Outlook: Optimistic about 2024 prospects with early signs of private markets regaining footing, rate cuts expected, and IPOs starting to return.
• Consolidation: Believes there will be consolidation in the market, enhancing Forge's competitive position.

Risks

• Market Volatility: Factors like market volatility could impact actual outcomes differently from forward-looking statements.
• Interest Rates: Lower interest rates in 2024 could affect custodial revenues.
• Competition: Potential competition in the private market space.
• Legal Matters: Non-cash legal expenses and warrant liability changes as discussed in SEC filings.

Question and Answer

Q: Discuss the bid-ask spreads improvement and its implications.

A: Kelly and Mark discussed that bid-ask spreads in the 9-11% range indicate a more normal market, and leading indicators like bids outnumbering offers and improved private company valuations suggest a positive market outlook.

Q: Drill down into Forge Pro's marketing and monetization.

A: Dominic and Mark explained Forge Pro combines data quality with automated trading capabilities, part of a subscription-based model targeting institutional traders, aiming to differentiate the platform and drive activity.

Q: Talk about headcount growth and Europe vs. US.

A: Mark stated headcount remains flat, with investment in Europe (growing from 2 to 8 employees in 2023) while maintaining total headcount, focusing on 2024 as a different year with market improvements.

Q: On expenses and headcount freeze.

A: Mark mentioned maintaining flat headcount, funding Europe investment while keeping total headcount flat, and focusing on reducing burn while growing top line.

Q: On legal expenses and warrant liabilities.

A: Mark explained non-cash legal expenses related to warrants and lawsuits, noting they are non-recurring but disclosed in SEC filings.