Forge Global Holdings, Inc. Q3 FY2024 earnings call

Key Points

• Kelly Rodriques started by summarizing Q3 results, noting total revenue less transaction-based expenses were $19.1 million, with net marketplace revenue at $8.6 million (down from Q2 but up 21% year-over-year).
• Forge announced Forge Price, a breakthrough in pricing transparency for the private market, which underlies its indices and provides up-to-date pricing insights.
• The company continues to invest in the Forge Next Generation Platform to enhance client experience and trading efficiency.
• Mark Lee detailed financials, including total revenue less transaction-based expenses of $19.1 million, custodial administration fees of $10.5 million, and discussed net loss, adjusted EBITDA loss, and cash flow.
• Kelly highlighted initiatives such as Forge Pro, Forge Global Advisors, and the investible Forge Accuidity Private Market Index, emphasizing their role in growing the business and strengthening relationships with companies and investors.

In the third quarter of 2024, Forge's total revenue less transaction-based expenses was $19.1 million. Net marketplace revenue was $8.6 million, which accounted for approximately 45% of the total revenue less transaction-based expenses. Custodial administration fees totaled $10.5 million, making up roughly 55% of the total. Total revenue less transaction-based expenses decreased from the second quarter of 2024 but increased compared to the year-ago quarter. Net marketplace revenue was $8.6 million, down from the previous quarter but up 21% year-over-year. Custodial cash balances ended the third quarter at $470 million, essentially flat with the prior quarter. Year-to-date total marketplace revenues less transaction-based expenses increased 64% to $28.6 million from $17.4 million in the corresponding period of 2023. Transaction volume for the quarter was $338 million, down from $426 million in the prior quarter, while year-to-date volume was up 99% to $1 billion from $515 million year-over-year.

Forward-Looking Statements

• Forge expects marketplace revenue this quarter to be at par or better than the current quarter based on current knowledge.
• With the election behind us, the company hopes the uncertainty weighing on investors will subside, leading to sustained investor confidence and a meaningful recovery of the primary funding and IPO markets in 2025.

Risks Identified

• Factors like the highly contentious U.S. presidential election, uncertain pace of Fed interest rate reductions, and continued geopolitical instability and conflicts have weighed on investor sentiment.
• There may be increased engineering spend over the next couple of quarters due to investment in offshore engineering resources as part of efforts to reduce future engineering costs.

Q: Patrick Moley asked about marketplace revenue expectations and the reception of Forge Price.

A: Kelly Rodriques stated that historically Q4 is seasonally the biggest quarter and they saw some softness in October but signals indicated normalization. Mark Lee added leading indicators like declining bid-ask spreads. Kelly also discussed Forge Price's role in the data strategy, noting it fits into the enablement side along with Forge Pro.

Q: Devin Ryan inquired about Forge Pro engagement and the impact of the election on the business.

A: Kelly mentioned Forge Pro adoption is accelerating, and they are waiting to see regulatory changes post-election, staying engaged with regulators to help educate them and welcoming potential relief for more private market access. Mark Lee added Forge Pro was rolled out in early April and adoption is accelerating.

Q: Alex Kramm asked about cost cut realizations and competition.

A: Mark Lee talked about cost cuts including $1.2 million in partial quarter run rate savings offset by $2.6 million in severance expenses, and strategic investment in offshore technology. Kelly expressed confidence in Forge's position against competition, highlighting the company's scale, reputation, and range of products and services.

Q: Unidentified Analyst asked about Europe activity and BaFin license.

A: Kelly said they are happy with activity in Europe and deferring the BaFin license, focusing on balancing access to European participants with U.S. market supply and demand. Mark mentioned typical summer slowdown and election uncertainty impact on activity.

Q: Madeline Daleiden asked about volume concentration and bid-ask.

A: Mark and Kelly discussed concentration in the Mag-7 names, noting they make up a significant portion of the private market valuation. They also compared market concentration to public markets, stating concentration goes through peaks and valleys.