Forge Global Holdings, Inc. Q2 FY2024 earnings call

• Second quarter recorded fifth consecutive quarter of revenue growth, with revenue up 15% q-o-q and 32% y-o-y, and marketplace revenue up 103% y-o-y.
• Over past two years, invested heavily in next-generation technology platform, introduced new products like Forge Pro and private market indices.
• Announced action to reduce expenses, reducing headcount costs by roughly 11%, expected to save $11.3 million annually and aim for breakeven adjusted EBITDA in 2026.
• Custodial cash balances, fees, accounts, and assets under custody details provided.

In the second quarter of 2024, Forge’s total revenue less transaction based expenses totaled $22 million, up 15% from last quarter and up 32% from the year ago quarter. Marketplace revenue is up 103% compared to the year ago quarter. Custodial cash balances total $495 million at the end of Q2, up from $481 million at the end of the first quarter. Total custodial administration fees were $10.6 million, roughly flat to the prior quarter. Total custody accounts were $2.2 million and assets under custody were $16.6 billion, both essentially flat the last quarter. Second quarter net loss declined from $19 million to $14 million quarter-over-quarter. Adjusted EBITDA loss was $7.9 million in the second quarter, compared to a loss of $13.5 million last quarter.

• Expect to achieve breakeven adjusted EBITDA in 2026 based on models.
• Cost-cutting actions will generate approximately $11.3 million in annualized savings, including ~11% reduction in headcount costs.

• Forward-looking statements subject to various risks and uncertainties; actual outcomes may differ materially from expectations, with factors discussed in SEC filings.

Q: How should we think about a revenue range that could support a break-even level for the company going forward?

A: Our revenue model extrapolates revenues using recent growth, looking at marketplace revenue growth in first half of 2024 compared to back half of 2023 to model breakeven in 2026.

Q: What's the dynamic between trading volumes and take rates, with more institutional players coming back?

A: Seeing increase in institutional interest, buy-side IOIs exceeding sell-side IOIs recently. Higher volume from large block trades and institutional activity led to lower take rate, seen in prior years too.

Q: Color on cash burn trajectory in relation to break-even 2026 and longer-term margins?

A: Adjusted EBITDA breakeven implies low cash flow profitability considering interest income. Cost actions combined with technology investment-driven productivity enhancements model improved margins for longer term.

Q: Dynamics between IPO market and transaction volume?

A: Normally functioning IPO market generates enthusiasm for pre-IPO trading, and when a company announces IPO, increased activity in those names as shareholders look to take gains and avoid lockup.

Q: Savings in second half and reinvestment?

A: ~two-thirds of $11.3 million savings expected in Q3 and Q4. Will continue to invest in next-gen platform despite cost cuts.

Q: Data business performance and competitive landscape?

A: Forge Pro, Forge intelligence, etc., data products have good uptake. Forge has advantage with deep clean data vs competitors using fund-level info; excited about future of data business with indices etc.