Q3 2023 Forge Global Holdings Inc Earnings Call
Yes.
Good afternoon. My name is Caitlin I will be your conference operator today at this time I would like to welcome everyone to the Fortune Global third quarter 2023 financial results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time.
I'm simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star and one.
Thank you and I will now turn the call over to Dominic Michelle SVP Dom you may begin your conference.
Awesome. Thank you Kayla.
And thank you all for joining us today for <unk> third quarter 2023 earnings call.
Joining me today are Kelly, Rodriques, Porges, CEO and Mark Lee <unk> CFO.
They will share prepared remarks regarding the quarter's results and then take your questions at the end.
Just after market close today, we issued a press release announcing <unk> third quarter 2023rd result.
A discussion of our results today is complementary to the press release.
Which is available on the Investor Relations page of our website.
This conference call is being webcast live and will be available for replay for 30 days.
There is also an accompanying investor supplemental PDF on our IR page.
That I would recommend you download.
During this conference call, we may make forward looking statements based on current expectations.
Forecasts and projections as of today's date.
Any forward looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those included in the statements.
We discuss these factors in our SEC filings, including our quarterly report on Form 10-Q, which can soon be found on the Investor Relations website.
And the SEC filings website.
As a reminder, we are not required to update our forward looking statements.
In our presentation today, unless otherwise noted we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating <unk> performance.
For detailed disclosures on these measures and GAAP reconciliations you should refer to the financial data contained.
Within our press release.
Which is also posted to the IR section. Additionally.
Additionally.
We have posted as I mentioned, the supplemental information on the same page.
Today's discussion will focus on the third quarter 2020, 2023 results.
As always we encourage you to value both annual and quarterly results for the full picture of <unk> performance, which can be affected by unexpected events better outside our control.
With that I'll turn it over to Kelly.
Thanks, Tom.
Thanks, everyone for joining.
Ill open today by summarizing some of the highlights of the quarter before turning over to Mark for a deeper dive into our financials and then we'll close with a quick overview of what we're seeing in the market.
In Q3, we witnessed the continued cautious return of investors to the private market.
Which drove higher volumes and revenue in our markets business compared to both Q1 and Q2.
This improvement was observed for the quarter, even as continued concern over interest rates and existing geopolitical conflicts served as a backdrop for a softer September.
And though the IPO window remains mostly closed we're seeing continued traction in markets activity.
And a narrower bid ask spread than we have seen since the start of the downturn.
These are encouraging signs that investment in the private market is returning amid the great reset the.
The effects of which we believe are still ongoing.
With that we saw improved results in the third quarter over that of Q1 and Q2.
In Q3 for just total revenue less transaction based expenses was up 11% to $18 4 million from $16 6 million in Q2.
Placement fee revenue less transaction based expenses for Ford in Q3 improved up 27% to $7 1 million compared to Q2. We believe this was due to modestly improving market conditions that again benefited our markets business.
Another encouraging indicator was the rise in transaction volume, which increased 53% to $234 million compared to Q2.
<unk> adjusted EBITDA loss narrowed in Q3 to $10 4 million better than both last quarter's loss of $11 eight and a $13 3 million loss in Q3 of last year. This reflects revenue growth and a disciplined and deliberate cost management strategy, including intention.
Will cost cutting enacted in prior quarters.
And we are reiterating our commitment to lowering our burn for 2023 and 2024.
Custody administration fees for the seventh straight quarter continue to rise to $11 3 million in Q3, benefiting again from the higher interest rate environment.
In addition to our financial highlights.
We're encouraged by the progress, we're making in technology and platform development and we are investing strategically to ensure that we can meet the needs of the expanding universe of private market participants as the market rebounds.
While we continue to build to drive more efficiency and scale to the market.
We're also continuing to develop our institutional product suite.
To bring more sophisticated capabilities.
The institutional investors.
We have expanded our data strategy to include index and.
An index related product development and are currently testing new innovations that combine the power of our proprietary market data with enhanced trading capabilities, we intend to debut new products related to those efforts to the general market in 2024.
With that let me turn it over to Mark.
Thank you Kelly.
In Q3, or just total revenue less transaction based expenses totaled $18 4 million up 11% from $16 6 million last quarter. This increase was largely driven by placement fee revenue.
Total placement fee revenues less transaction based expenses reached $7 1 million up 27% from $5 6 million last quarter.
Transaction volume for the quarter increased 53% to $234 1 million, while our overall net take rate was 3%.
The net take rate declined from three 7% last quarter was largely driven by a change in mix with a higher proportion of larger block trades executed at lower take rates.
We have previously indicated that net take rate fluctuates due to many factors such as the types of trades order size and issuers specific supply and demand dynamics.
In the long run we believe declines in net take rate will be offset by higher volumes as standardization automation and efficiency lower cost and increased trading turnover.
Total custodial administration fees rose, 3% in Q3 to 11 3 million up from $11 million last quarter.
Our custodial business continues to provide stability and balance to our revenue streams.
However, as the fed has paused.
Rate increases this may impact our cash administration fees.
Forges custodial cash balances totaled $518 million at the end of Q3 down from $550 million at the end of last quarter.
We believe the primary driver of these declines as cash sorting and search for return and yield.
As in the past.
This decrease was offset by the increase in the fed funds rate and our cash administration fees.
Total custody accounts were approximately $2 million in Q3, essentially flat from last quarter.
Assets under custody were $15 1 billion at the end of Q3 versus $15 3 billion last quarter.
As Kelly mentioned, we continue to actively control and manage our costs our head count at the end of Q3 was 344.
<unk> from 358 at the end of last quarter.
In the third quarter, adjusted EBITDA loss improved to $10 4 million compared to a loss of $11 8 million last quarter, driven by improved revenues and tight cost controls.
EBITDA improved even as we continue to invest strategically as early movers in the European private market.
Third quarter net loss decreased to $19 million compared to $25 1 million last quarter.
This improvement was largely the result of the $1 8 million increase in revenue.
And a decrease in noncash expenses, driven largely by a favorable $4 7 million change in the fair value of warrant liabilities.
Net cash used in operating activities was $3 5 million in the quarter.
An improvement compared to net cash used in operating activities up $13 6 million last quarter.
And as a reminder, the first half of our fiscal years include timing driven cash flows.
Such as the payout of our annual bonuses and corporate insurance, which did not recur in the second half.
Our corporate cash and cash equivalents, including term deposits in excess of 90 days ended the quarter at approximately $157 2 million.
Compared to $162 2 million last quarter.
From a housekeeping perspective, our weighted average basic number of shares used to compute net loss was 174 million shares and our fully diluted outstanding share count as of September 30 was 198 million shares.
For Q4, we estimate of $175 million weighted average basic common shares for EPS modeling purposes.
We continue to monitor both the geopolitical environment.
And interest rate direction, and investor sentiment as we move through Q4.
And in the meantime, we remain committed to lowering our overall use of cash and being good stewards of capital as we continue to invest through main growth.
I'll hand, it back to Kelly for a brief private market overview before we turn it over for questions.
Thanks Mark.
I'll close with some broader insights on the market.
Q3 marked a reversal and several of the trends that have weighed on the private market since the beginning of 2022.
The bid ask spread narrowed meaningfully in the quarter to a low of 12% in August and ending the quarter at 15% its lowest level in six quarters.
The spread has been trending downward since it peaked at 30% in April.
As valuations have shown some signs of leveling off compared to the steep declines since early 2022.
Meanwhile, the forged private market index credit positive for the first three months period since the downturn posting a one 1% performance gain in Q3 and outperforming both the S&P 500 and the NASDAQ.
As valuations have studied.
We have observed improvements in the breadth of the market the number of unique issuers with closed transactions on the <unk> platform has trended up the last two quarters growing 37% from Q1 to Q3.
And the number of unique issuers with sell side interest reached an all time high of 228 in August and remained high compared to prior periods through the quarter, which we believe reflects a pent up demand for liquidity at a growing number of companies that are staying private longer.
Though we are pleased about the continued improvements we delivered in the quarter and the signs are falling we observed Q4 began amid continued uncertainty about the interest rate environment and more geopolitical instability as a new war broke out in the middle East.
It's unclear what the ultimate impact of that volatility will be on Q4.
But given what we've seen this year.
A recovery may not be up into the right every quarter and may not be linear.
With that in mind.
We continue to keep a close eye on the state of the market.
And to actively manage our cost structure, even as we invest in the data technology and product innovations that will allow us to capture greater market share and drive more access efficiency and scale to the private market.
As we look forward to the continuing market recovery, we remain optimistic about the future of the business.
And about our privilege position as a market leader to accelerate this asset class towards its inevitable tipping point.
Thank you.
Kayla can we please open the line to Q&A.
And at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question comes from the line of Ken Worthington with Jpmorgan. Your line is open.
Hi, Good afternoon, Kelly, Boston and Bob Thanks for taking my question. This is Michael Cho in for Ken.
Just my first question Kelly.
Talk through the market environment and provide some very helpful color I'm just curious if we could peel that back a little bit we talked about kind of cautious improvement quarter over quarter, but I'm wondering if you could kind of also talk through that improvement when we think about retail versus institutional improvement trend and I realize there was some.
Moving in to take it in the quarter, but outside of that and just zooming out and just kind of curious how.
The sequential improvement has been on the retail side versus the institutional side.
How do you think that might impact take rate going forward as well. Thank you.
Let me start off with a comment and then I'll, let mark.
Jump in I know, we covered a little bit of this in Mark's comments about the relationship between institutional block.
Blocks and our take rate that we saw some shifts in previous.
Earnings calls we've talked about.
The point at which institutions starting to come back into the market.
And we've used this term about price discovery and delivery of in the market really not finding its footing I would say the combination of the bid ask spread.
That we reported on here.
The improvement specifically in the composition of institutions participating in Q3 is.
It is definitely a positive sign but we still believe that the market and you are seeing this in the public markets. It continues to be choppy. So we think that we are seeing improvement and we're hoping it continues to improve.
But with what's going on in the Middle East, we all sat around I'm sure a lot of people didn't board and said what can we catch a break here because it was feeling like the data was telling us the market was improving and we've got another geopolitical.
Emerging challenge there, but mark would you like to add anything on the actual.
Yes, the numbers that you are seeing yes, Michael I'll add a few more data points for you I think as you know historically.
We've always said that the sell side of our transactions tend to be.
<unk> founders employees early investors back, but a lot of the individual investors.
More often than not tend to be on the sell side right and the buy side.
At the transaction tend to be institutional buyers high net worth family office, and so forth and so so what we've seen and what we've described to you is that during the last 18 18 months 21 months.
You've seen as described the expansion on the sales side to record levels right.
Sell side interest whether that's represented by the breadth of the number of sellers.
That we have in terms of issuers or even the raw number of <unk> that come in from our sellers while the problem.
In the past 21 months has really been interest on the buy side now.
In Q3, one of the things we track is the volume and large block trades and in Q3, they constituted 36% of our total volume in the quarter right and Thats. How you. How you saw the net take rate decline that compares to 32%.
For full year, 2022, and probably a lower number in the first half of 2023.
I think the positive.
Remark here could be that in Q3, we start we're starting to see the return of the institutional buyer right and that's really important in some of the stats that I can also share in Q3.
In terms of buy side interest.
The total number of buy side <unk> that came in as well as the number of issuers represented on buy side, where.
Were the highest that we've seen since Q1 of 2022. So we are seeing some encouraging signs and.
I think it's obviously, we are hoping that this trend continues.
Perfect. That's great. Thank you for that.
Just a quick follow up on that point Mark.
I think historically.
If we think about the bid ask spread I think historically, you've talked about maybe maybe the 12% ish area might be a kind of a clearing area for.
Kind of more meaningful volumes to come back I realize there's a lot of things happening in the world today.
But I.
Just your sense of how long you think kind of bid ask.
Debt levels need to cut in this area before or do you think.
And more marubeni meaningful volumes from here.
Yes.
The numbers that we share here Michael is there a median numbers I think they are fairly represented itself and as you said I mean in the past prior to the downturn and we more typically soar bid ask spreads in the 10% to 12% range. So obviously, 15% is still a little bit higher than we'd like to say, but obviously.
Significant improvements from where we saw the bid ask spreads in 2022, so its headed in the right direction right.
I mean, I think we have you probably read the <unk> and the forge investment outlook.
We're reporting that are.
Balanced between buy side and sell side <unk> said, it's around 38% today ideally we'd like to see that continue to improve on the buy side and get to a more balanced 50 50 mix.
But I think the as Kelly mentioned the relative stabilization.
Valuation I think the bid ask spread headed in the right direction. The increase in buy side sentiment in terms of the ili. So we're seeing I think these are all positive indicators that that and give us some level of encouragement.
Great. Thank you so much guys.
And your next question comes from the line of Alex Kramm with UBS. Your line is open.
Yes, hi, good evening, everyone, just maybe switching to the cost side for a second Kelly you did make a comment that.
You continue to want to reduce the burn just still focused on it but can you maybe just give us an update on where you are and in particular with the little bit of a better environment, you kind of easing a little bit here in terms of the focus there like again like how is how is your cost action may be changed as a result of things seemingly.
Getting better.
Whereas serious about reducing burn today as we ever have.
If not more.
I wanted to make a commitment to that myself.
Because I think the state of the public markets is.
Strategically well positioned as we believe we are we.
We think we need to continue to strike that balance between making.
Critical investments in the things like the institutional efforts like data that we've prioritized, but we've just got to do it over time with a with a consistent movement to lower cash burn and I think.
The public markets expect us to continue in that direction, and we're not going to we're not going to let.
Let that not be part of our priority and the balancing act that we're running here. So if theres any indication that would suggest we're going to lighten up our emphasis on burn.
Let me just be really clear, we're going to continue to make that a priority and everybody in our leadership team knows it so.
I don't I don't want to sound or come off as anything other than committed and strong on that point, but.
Mark would you add anything to.
The specifics there and no outfits you as we've talked about head count.
Head count came down reflecting our actions that we took in July I mean, you will see head count fluctuate slightly quarter to quarter, just kind of ongoing turnover and replacements, but.
But we remain in a hiring freeze.
And remain committed as Kelly said to managing cost tightly during this during the current environment that we're operating in.
Alright, very good. Thank you and then maybe just coming back to Michael's question earlier, and sorry, if I missed it but can you actually talk a little bit about what you've seen so far in the fourth quarter I think Kelly you you sounded positive but at the same time with all the macroeconomic things happening here, maybe a little bit more cautious.
So just maybe balance the two in terms of what you've seen specifically in October so far off the important trends that we all track.
Yes, so look here's here's what I'll tell you and this is really a.
A reflection of Q3 as well at the same time that we reported on all of these positive data signals in Q3 within the quarter, we saw some choppy fluctuations in pipeline and.
And even looking forward with some of the observations we've made about institutions coming back.
About.
The breadth of the market expanding.
Week to week here, when we're watching what's going on in the broader market.
And so.
I would say that our view.
Is sort of optimistic but cautious.
And it's a little bit too early in the quarter given.
When the war broke out.
Whether or not we're going to see any more volatility.
That will change the way we feel about the ongoing positive trends that we now feel pretty good about I mean, I would say if you heard anything optimistic it's fit there are several data points. Now you guys have asked me. This in previous quarters. It's not just one thing if not just bid ask spread it's a combination of composition of <unk>.
And so it's a composition of institutions coming back.
It's a.
An observation that there are several data pointing to several data points pointing to some degree of recovery, but this great reset thing that we talk about we still have a lot of companies that haven't gone back out and raise capital and I'd say, if there's anything that I would say looking forward, we're still way.
<unk> and hoping that more companies will face.
The reality of resetting their evaluations.
Because the market is really needing that to happen for it to fully come back and that could that could play out over some time.
Excellent I'll jump back in the queue for some more follow ups. Thanks.
Thanks, Alex.
And your next question comes from the line of Devin Ryan with JMP Securities. Your line is open.
Okay, Great Hi, Kelly, Hi, Mark how are you.
Great. Thanks, Thanks, Kevin.
Yes.
I appreciate all the near term color I know, we're all trying to kind of time to inflection point here in business, but at the same time I think.
The secular story is really kind of the bigger picture.
So I just want to get a little flavor for me guys, maybe more on the intermediate term trends.
Got it anything that you can kind of share around just maybe success stories of bringing more investors onto the platform or kind of wins with with corporate just kind of helping them.
Navigate kind of private markets, and bringing kind of them to the <unk> platform can anything you can share just around traction that you guys are getting kind of a.
Amidst the market backdrop.
Okay.
Yes so.
One of the one of the things that we're really excited about.
In 2024.
Is about the expanding strategy.
Our data business.
And.
What we're seeing.
Is a relationship.
Between.
The data business the data strategy.
And its impact of bundling the data solution with other parts of the offering.
This is something that we had hoped would.
It would be.
A big strategic move for US we talked about data.
A couple of years ago before we went out and we're now starting to see.
So broader opportunities for us I would say up until this point and we purposefully are.
There are going to sort of tap the brakes on a few things that.
We could talk about in the not too distant future, but at this point, we are committed to broadening our data strategy.
Mark do you want to cover a couple of specifics there yeah, Devin I mean were by our excitement about data is Super high I mean, one thing I would I would start with this.
The feedback that we get on the research that we put out through the private market update in the <unk> investment outlook has just been tremendous I mean, a lot of the people our customers and prospective customers to that and received the information.
I mean, Jeff.
Whereas like World class.
<unk> start with that.
As Kelly talked about expansion of our data strategy, there's a couple of key points.
We've seen a lot of evidence that show us that when a customer signs up to our data product.
They would do more trading with us after they become a data subscriber than what they did before and I think this is a testament to as they get enhanced information that help give them the data that allow them to transact with more confidence.
As a win win all around so as Kelly said, we're testing solutions that now start to bundle our enhanced trading capability with our proprietary data and that is yes.
This is a product set that we do expect to rollout in 2024 and in addition, we are bringing in new leadership to help drive this data strategy and product forward.
And then the last thing I mean, we.
Just had really high conviction and the opportunity that we have with derived data products and that includes the <unk> private market index and the <unk> price, which we talk about in the forged investment outlook. So.
Data continues to be kind of a spotlight that we are prioritizing and it's one of the things that.
Talk about developments in the quarter and feedback we're getting.
I would highlight that.
That's great. Thanks, So much guys and then just a follow up here just on custody.
You continue to have pretty nice growth in custodial accounts.
Is that coming from forge customers onto the <unk> platform or is that kind of external just the kind of growth in some of your.
Partners that are using forward for custody.
And then Mark you mentioned kind of potentially some fee pressure.
Because of the cash sorting.
Which makes sense, we just have to model through the the decline in.
And cash balances from <unk> to <unk>.
The other part of your question is are you still seeing more cash sorting from here or if interest rates are kind of peaking.
Peaking if thats the assumption that you feel like the kind of the majority of that is behind us.
I'll start with the with the accounts.
So look we've been kind of on a journey with that.
Custodial platform.
And I'd say, we for the last couple of years.
<unk> been upgrading I would say the offering and.
Really trying to focus on.
The high quality.
Growth accounts, and so theres been a little bit of a.
Trend up until now where we've shed customer accounts within the custodial business either because our predecessors were collecting on time or we had accounts that were just older accounts that werent, adding new cash are making new investments I think we've reached a point now where we're really excited about.
Where we take.
And start to cross sell custody going forward and we really needed to get some foundational technology improvements around onboarding and a couple of other areas of integration for.
For custody accounts moving forward. So it's a story that we think is going to improve in 2024, certainly up until now at least in the last year, we've been the beneficiary of the rate environment.
<unk>.
That part of the business model is cyclical like anybody would expect and we're in a.
We're in a hell of a cycle right now in terms of where we came from even three years ago with rates.
I'll, let mark speak more about.
How to how we're thinking about that environment, but our hope is that as we see rates come down at some point in the future.
Composition of revenue that will improve relative to that rate loss revenue, we hope will be in our transactional markets business and in data.
And we think that we're going to find that that balancing point in the period in a market that starts to settle down the volatility we never expected that we would get this kind of sequential growth.
The custody business that we've gotten so we're excited to have it but clearly I think account growth is where our future is and growth in our other revenue contributors like data index on the markets business is what we hope to see in 'twenty four and beyond.
Yeah, Devin I don't have too much to add I mean, as you know we don't break out our accounts between what we've been calling our capacity as a service our cash business, which is true.
Which is through partners versus our self directed IRA.
Customer base, so I mean, what I would tell you is all the research that you guys put out like on Schwab and others in terms of they're trying.
Trying to to follow and watch cash sorting as it's playing out across the industry.
We'd tell you is that.
When we look at.
Customer cash obviously, the concentration of customer cash, which is spread out across all of our accounts, but the concentration has improved from from year to year. The day. If you look at our concentration from a year ago obviously.
Cash sorting impacts the accounts with the highest amount of cash. So so the concentration has improved.
Their exposure to further cash sorting and I mean, I don't think we can kind of put.
Sure.
Our forecast found at something that we watch very closely I think as Kelly indicated the key for us.
It's going to be.
It's going to be focused on growing the company business, adding new accounts, that's the way we're going to.
And to improve.
The business at our custodian.
Okay, great. Thanks, guys I appreciate it I'll leave it there.
Thanks, Adam.
And your next question comes from the line of Owen Lau with Oppenheimer. Your line is open.
Good afternoon, and thank you for taking my question.
Could you please provide a little bit more color on the trading volume in October so far I understand that you may not want to talk about a specific number but what's the expectation of the fourth quarter trading volume compared to the third quarter would that be bled, John go up a little bit.
Hey, Alan this is mark.
If you recall I think in the last two quarterly earnings call.
We were comfortable making comments, while we don't provide guidance, we were comfortable making comments about kind of the.
The coming quarter, right and as you recall.
The third quarter historically.
Been a slow quarter for us when you look at patterns throughout a year typically the summer months.
<unk> are a timeline when volume slows down.
But as you can kind of see and factoring volume increased significantly and <unk>.
In Q3 and.
You guys follow this stuff very closely but obviously the public markets performed very strongly in the first half I think the main indices S&P NASDAQ and the Russell.
Hit their peaks in July.
And we saw that we saw that momentum carrying into the private markets, but of course post labor day as Kelly mentioned with you.
The feds discussion at higher rates for longer with the war breaking out in October.
As Kelly said.
This balance are positive indicators in terms of <unk> and buy side interest and yet we're very aware of the tenuous macroeconomic environment and kind of what's happened to the public markets in September October.
In October right in so two other things that I would mentioned Allen.
We also watch very closely and we've indicated.
Are important factors in the return of the private market and Kelly talked about the great reset.
One is is kind of a funding round activity that we see for private companies.
This is information that that you can see in our forged investment outlook, but in Q3, roughly 6% of the companies that we track and there's about 1700 companies that we track for this about 6% of those companies raised capital in Q3 about 18% of the companies that we track.
On a year to date basis.
So while that's positive it's still the minority of SaaS that still 80 over 80% of the companies we have not raised a new round.
In 2023, there's.
There is data in the <unk> shows that know their time between funding round has increased to 21 months.
And so many companies are still kind of waiting to raise that next round or those that do raise capital are those that can raise capital at a premium.
An average of a 20% premium over the last round.
And so.
And then and then Ipos right. There has been a number of ipos that <unk> seen recently with kind of a mixture of results I think we believe that the great reset.
And kind of the return of the IPO market are also important drivers because they are particularly important to the private markets to show that companies can have successful exits.
And that private companies start to go through the great reset and primary funding rounds are important part of price discovery right. They gave investors.
High confidence that.
Valuations have kind of reset.
So those are some of the other factors that I think we watch closely.
And hopefully that's helpful.
Got it. Thank you very much and then maybe go to another steam which is your longer term trend could you. Please give us an update on your international strategy.
Yes, so we've we've previously.
I announced that we do have are.
Baffin application in and we've been building the European team.
And.
We're optimistic about.
Our ability to begin trading in 2024.
I would say that we believe that the European market.
So that is a great deal of opportunity for us and it's probably five years behind the U S market as we think about volumes.
But I was recently, there and we probably had three or four of the senior team out in Berlin in the last 90 days.
And the level of receptivity that we're getting.
Both at the issuer level and at the venture capital community.
Within the regions that we're operating has been really refreshing I'd say.
There is a real welcome attitude for Ford in Europe, I think the attitudes about about liquidity.
And about giving the flexibility to investors and venture capitalists to sell their positions before an IPO.
It has been a message that we've received.
<unk> been trying to get a sense for.
Since we started staffing there and we've really got a team of people there that.
That have staffed up in the last six months.
That half.
Have really proven our ability to attain and retain really great talent in the region.
There's a lot of reasons for us to be excited about it.
We're expecting revenue contributions in 2024.
I don't know would you add anything mark.
No Jay.
Yes.
Very excited about the opportunity in in Europe.
I mean, very much kind of being first movers on the continent right now.
And in the U K.
Got it thank you very much.
And your next question comes from the line of Jeff Schmitt with William Blair. Your line is open hi.
Good evening.
Are you seeing any competitive pressures on take rate just given that transaction volumes remain below historical levels. I know you mentioned the block trade sort of brought the rate down but just curious what your read is on the competitive environment.
I'll give you some anecdotal views and.
And we try to we try to stay close.
To the top competitors and what I mean by that is we have.
Reasonably regular check in and dialogue just to see what other people are seeing.
We are not seeing rate pressure and.
If anything the fact that you saw three 7% take rate that in in quarter in quarter two.
As an indication that if anybody is going to be applying rate pressure to the market, it's probably us.
And I'd say most of what we're seeing out there is is an indication that the rest of the market is still incredibly fragmented.
So.
We don't see the same names consistently.
And if anything we believe that our competitive set has struggled to raise capital.
So most of our competitors have really had the skinny up their staff.
And in some cases, we've been the beneficiary of that.
And so as we look at market prospects competitively. This is not a time, where our competitors are investing most of them are in cash preservation mode.
My comments about our own cash burn mentality.
<unk> is really important but if you think about it through the lens of somebody who is a competitor that doesn't have a balance sheet and is struggling through periods of difficulty in terms of volume I think a lot of the competition out there is nervous and is being extremely.
<unk> in terms of their investments in staffing or anything the burns cash. So I would say that if anything our competitors, we're going to try and harvest as many trades at the highest take rate that they can.
In order to continue to stay afloat, but protract.
A protracted period.
I think is better for forge.
Relatively speaking.
But.
We take everybody seriously but.
But we haven't seen any new entrants.
That really concern us, although we're always going to be looking over our shoulder and taking inventory of who is coming in trying to and trying to compete.
Hey, Jeff I would want to add.
As a reminder, I know you know these things, but where.
We're the one company that is a public company.
In this space I think we have a stronger balance sheet than then.
Most all of our competitors.
So we have the scale.
Forging shares plus were early movers in this space.
And I think that.
When you think about just the team we have that we put out on the playing field.
And Thats, our private market specialist team.
Our operations team, the legal and compliance folks that support them the technology that we built the data product.
City solutions, the lending product I mean.
I know.
<unk>.
That sounds like an advertisement, but but I think when you think about us versus our competitors I think we're we feel really good about where we're situated and I would say the last 21 months have been difficult for everyone, but probably much more difficult for our competitors and forge.
Okay.
And then I don't think you mentioned it but how to write a first refusal trends look I think that jumped quite a bit in the first and second quarters, but did they remain at those levels or how are they how are they trending.
So what we've been reporting and the unfortunate investing outlook Jack specifically is the number of issuers that are still there.
They have done a a roper in the current quarter and that number stays relatively elevated.
Yes.
Slightly over 20% both in Q2 and Q3. So the number of issuers that are doing <unk> is still at historic highs.
Compared to kind of what we've seen in the past.
Okay very helpful. Thank you.
And your final question comes from the line of Alex Kramm with UBS. Your line is open.
Oh, Hello, again, just a couple of follow ups from prior discussions if I may.
On the competitive environment question, maybe to turn that question around a little bit.
Not surprisingly some of your competitors are probably struggling a little bit more than you are so just wondering to what degree that's increasing your appetite for any sort of consolidation that space does it makes sense right now are the bid ask still too wide in this space in general or are there other areas outside of maybe direct competition that you'll be coming a little bit more interest.
And as you have still some firepower versus others.
We love the idea.
And part of the reason we went public was to use.
Our currency and our scale.
To selectively and carefully consider consolidation.
I'd say.
The competitors in this space.
Are no different than anybody else that's in the private market right now that is struggling with the reality of what.
Valuations have looked like not only within their customer base, but for their own.
Cap tables of their own ability to raise money. So I'd say that today we're.
We're watching and we clearly see some companies out there that we that we like but.
But we also believe that it's really important that we focus on our own organic performance and demonstrate to our shareholders and the broader market.
Forge.
Is as a company to support and.
And as long as we're getting support from the broader investment community, we will look to use.
Our currency to to consider consolidation now obviously the last couple.
Quarters of last year, and a half has been tough, but I think as we've seen some modest improvement in our share price and continued focus on performance quarter over quarter I think it will become a reality for us to look at in 2024 and I'd say, we're also opens.
Inbounds, we have had.
Companies.
Call Us an investment banks call us and say, hey, theres opportunities out there in the market, but we're going to be really careful very selective.
But I do think there are some opportunities but.
I'd say first things first we're going to stay focused on incremental improvement and improve that we can deliver.
Quarter over quarter as we move into 2024 so.
We.
We're we're optimistic with careful about that.
Hey, Alex.
I want to use this moment to just add to my.
Answer to Jeffs question Pat.
I should have mentioned when I think about our competitive advantages our research and analytics team.
Which together with our marketing team.
Put out the P M U R Ford and investment outlook.
Drive our index products and drive data I think I think I didn't explicitly call out kind of the marketing side and the analytic side of our teams that but we think we have capabilities in people there that that far surpass our competitors have I wanted to add that to my earlier answer yes, Let me clarify one point I made when I meant inbounds I meant in.
Bound interest to be sold to forge not forge.
Having.
Any interest in anything else. So this is I think by way of saying the market and our competitors view us as a potential place to end up.
As part of there as part of their liquidity future.
And we're going to be really careful about looking at that and being and being focused on our core strategic priorities, which are institutional and data.
Okay, great. Thanks, and then just a couple of other follow ups one.
The data and index revenues I mean anything notable that you can break out yet in terms of how much I think you've said in the past with the run rate is for revenues in that and then one follow ups, maybe just one last one on the.
On the sorting discussion I know, it's hard to have a forward look but anything in the quarter you could point to in terms of how the cash balances trended maybe SD.
The outlook for full rates changed again, just trying to figure out how the customer base is reacting to the realized rates makes sense. Thank you.
Yeah.
Don't really have anything else I think we can add I mean, we do track it very closely we break it down.
Now in great detail, Alex to try to understand.
Now what is happening and what if any kind of response.
We can formulate so but unfortunately I don't.
Really have.
<unk> detail.
We can share at this point on the cash sorting question.
And then your other question sorry was the first question was.
I shouldn't have made it a double question the data and index any anything notable in terms of revenue run rates to talk about yet, but you can breakout.
Yes, we are.
Still not at the point to breakout.
Our data business.
I think we do think it's a.
Part of our business that will probably provide.
Information on an annual basis at for at this point in time, Alex and I think we talked about kind of at least qualitatively.
What we're focusing on the data side of the business.
So I think thats kind of the extent of our disclosure at this point.
All good just figured I'd ask thanks, guys.
Awesome. Thank you thank.
Thank you Alex.
I think we're ready to end the conference call.
Thank you all for joining us.
Thank you all for joining us today, and we look forward to working and engaging with you.
Before 2024 comes.
And this concludes today's conference call you may now disconnect.
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