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Operator: Good afternoon. My name is Kayla, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Forge Global Third Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you, and I will now turn the call over to Dominic Paschel, SVP. Dom, you may begin your conference.

Dominic Paschel: Awesome. Thank you, Kayla, and thank you all for joining us today for Forge’s Third Quarter 2023 Earnings Call. Joining me today are Kelly Rodriques, Forge’s CEO, and Mark Lee, Forge’s CFO. They will share prepared remarks regarding the quarter’s results and then take your questions at the end. Just after market closed today, we issued a press release announcing Forge’s third quarter 2023 results. 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.

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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 discussed 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 Forge’s 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 site. Additionally, we have posted, as I mentioned, the supplemental information on the same page. Today’s discussion will focus on the third quarter 2020 — sorry, 2023 results. As always, we encourage you to evaluate both annual and quarterly results for the full picture of Forge’s performance, which can be affected by unexpected events that are outside our control. With that, I’ll turn it over to Kelly.

Kelly Rodriques: Thanks, Tom. Thanks, everyone, for joining. I’ll open today by summarizing some of the highlights of the quarter before turning it 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. 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 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, Forge’s 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 Forge in Q3 improved, up 27% to $7.1 million compared to Q2. We believe this was due to the 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. Forge’s adjusted EBITDA loss narrowed in Q3 to $10.4 million, better than both last quarter’s loss of $11.8 million and a $13.3 million loss in Q3 of last year.

This reflects revenue growth and a disciplined and deliberate cost management strategy, including intentional cost cutting enacted in prior quarters, and we’re reiterating our commitment to lowering our burn for 2023 and 2024. Custody administration fees for the seventh straight quarter continued 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’re 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 to institutional investors.

We have expanded our data strategy to include index and 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.

Mark Lee: Thank you, Kelly. In Q3, Forge’s 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 3.7% last quarter. It 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 issuer-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 its rate increases, this may impact our cash administration fees. Forge’s 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 is 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 headcount at the end of Q3 was 344, down 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 continued 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 non-cash 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 of $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 do 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 175 million weighted average basic common shares for EPS modeling purposes. We continue to monitor both the geopolitical environment, Fed 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 lean growth. I’ll hand it back to Kelly for a brief private market overview before we turn it over for questions.

Kelly Rodriques: Thanks, Mark. I’ll close with some broader insights on the market. Q3 marked a reversal in 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 Forge Private Market Index trended positive for the first three-month period since the downturn, posting a 1.1% performance gain in Q3 and outperforming both the S&P 500 and the NASDAQ. As valuations have steadied, we had observed improvement in the breadth of the market.

The number of unique issuers with closed transactions on the Forge 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 and 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 of stalling 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 and to 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 privileged position as a market leader to accelerate this asset class towards its inevitable tipping point. Thank you.

Dominic Paschel : Kayla, can we please open the lines for the Q&A?

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Operator: [Operator Instructions] Our first question comes from the line of Ken Worthington with JPMorgan. Your line is open.

Unidentified Analyst: Hi, good afternoon, Kelly, Mark and Dom. Thanks for taking my question. This is [indiscernible] in for Ken. Just my first question, Kelly, you just kind of talked through the market environment and provided some very helpful color. I’m just curious if you could peel that back a little bit. We talked about kind of cautious improvement quarter-over-quarter. But I’m wondering if you can kind of also talk through that improvement when we think about retail versus institutional improvement trends. And I realize there was some movement in the paper in the quarter. But outside of that, I’m just assuming — I’m just kind of curious how the sequential improvement has been on the retail side versus the institutional side. And then how you think that might impact take rates going forward as well? Thank you.

Kelly Rodriques: 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 blocks and our take rate, that we saw some shifts. In previous earnings calls, we’ve talked about the point at which institutions started to come back into the market. And we’ve used this term about price discovery equilibrium and the market really not finding its footing. I’d say the combination of the bid-ask spread that we reported on here and the improvement specifically in the composition of institutions participating in Q3 is definitely a positive sign, but we still believe that the market, and you’re 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 did on the 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 got another geopolitical emerging challenge there. But Mark, would you like to add anything on the actual numbers that you’re seeing?

Mark Lee: Yeah, Michael, I’ll add a few more kind of data points for you. I think as you know, historically, we’ve always said that the sell side of our transactions tend to be founders, employees, early investors, but a lot of the individual investors more often than not tend to be on the sell side, right? And the buy side of the transaction tends to be institutional buyers, high net worth, family office and so forth. And so what we’ve seen and what we’ve described to you is that during the last 18 months, 21 months, you’ve seen us describe the expansion on the sell side to record levels, right, of 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 IOIs 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 in large block trades. And in Q3, they constituted 36% of our total volume in the quarter, right? And that’s 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. So I think the positive remark here could be that in Q3, we’re starting to see the return of the institutional buyer, right? And that’s really important. Some of the stats that I can also share, in Q3, in terms of buy-side interest, the total number of buy-side IOIs that came in as well as the number of issuers represented on buy-side IOIs 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’re hoping that this trend continues.

Unidentified Analyst: No, that’s great. Thank you for that. I guess just a quick follow-up on that point, Mark. I think historically, if we think about the bid-ask spread, and I think historically, you’ve talked about 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 guess, just your sense of how long you think kind of bid-ask spread level needs to trend in this area before you think we’ve seen influx in more meaningful volumes from here.

Mark Lee: Yeah. Look, the numbers that we share here, Michael, they’re median numbers. I think they’re fairly representative though. And as you said, I mean in the past, prior to the downturn, we more typically saw bid-ask spreads in the 10% to 12% range. So obviously, 15% is still a little bit higher than we’d like to see, but obviously, significant improvements from where we saw the bid-ask spreads in 2022. So it’s heading in the right direction, right? I mean I think we — if you probably read the PMU and the Forge Investment Outlook, right, we’re reporting that our balance between buy-side and sell-side IOIs, 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 of valuation, I think the bid-ask spread headed in the right direction, the increase in buy-side sentiment in terms of the IOIs that we’re seeing, I think these are all positive indicators that give us some level of encouragement.

Unidentified Analyst: Great. Thank you so much guys.

Operator: And your next question comes from the line of Alex Kramm with UBS. Your line is open.

Alex Kramm: 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, you’re still focused on it. But can you maybe just give us an update on where you are? In particular, with a little bit of a better environment, are you kind of easing a little bit here in terms of the focus there? Like again, how has your cost action maybe changed as a result of things seemingly getting better?

Kelly Rodriques: We’re as serious about reducing burn today as we ever have, if not more. And 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 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 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 let that not be part of our priority and the balancing act that we’re running here. So if there’s an 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 the leadership team knows it. So 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?

Mark Lee: No, Alex, as we talk about headcount, headcount came down, reflecting our actions that we took in July. I mean you will see headcount fluctuates slightly quarter-to-quarter, just kind of ongoing turnover and replacements, but we remain in a hiring freeze and remain committed, as Kelly said, to managing costs tightly during the current environment that we’re operating in.

Alex Kramm: All right. 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 sounded positive, but at the same time, with all the macroeconomic things happening here, maybe a little bit more cautious again. So just maybe balance the two in terms of what you’ve seen specifically in October so far of the important trends that we all track.

Kelly Rodriques: Yeah. So look, here’s what I’ll tell you, and this is really 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 even looking forward with some of the observations we’ve made about institutions coming back, about the breadth of the market expanding, we’re week-to-week here. We’re watching what’s going on in the broader market. And so I’d 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 would change the way we feel about the ongoing positive trends that we now feel pretty good about.

I mean I’d say if you heard anything optimistic, it’s that there’s several data points now. You guys have asked me this in previous quarters. It’s not just one thing. It’s not just bid-ask spread. It’s a combination of composition of buy and sell. It’s a composition of institutions coming back. It’s an observation that there are 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 raised capital. And I’d say if there’s anything that I would say looking forward, we’re still waiting and hoping that more companies will face the reality of resetting their valuations because the market is really needing that to happen for it to fully come back.

And that could play out over some time.

Alex Kramm: Excellent. I’ll jump back in the queue for some more follow-ups. Thanks.

Kelly Rodriques: Thanks, Alex.

Operator: And your next question comes from the line of Devin Ryan with JMP Securities. Your line is open.

Devin Ryan: Hey, great. Hi, Kelly and Mark. How are you?

Kelly Rodriques: Great. Thanks, Devin.

Mark Lee: Hi, Devin.

Devin Ryan: Appreciate all the near-term color. I know we’re all trying to kind of time the inflection point here in business. But at the same time, I think the secular story is really kind of the bigger picture. And so I just want to get a little flavor from you guys, maybe more on the intermediate term trends. And just kind of anything that you can share around just maybe success stories of bringing more investors on to the platform or kind of wins with corporates, just kind of helping them navigate kind of the private markets and bringing them to the Forge platform. Anything you can share just around traction that you guys are getting amidst the market backdrop?

Kelly Rodriques: Yeah. So one of the things that we’re really excited about in 2024 is about the expanding strategy of 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 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 some broader opportunities for us. I’d say up until this point, and we purposely 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’re committed to broadening our data strategy. Mark, do you want to cover a couple of the specifics there?

Mark Lee: Yeah. Just Devin, I mean we’re — boy, our excitement about data is super high. I mean one thing I would start with is the feedback that we get on the research that we put out through the Private Market Update and the Forge Investment Outlook has just been tremendous. I mean a lot of the people, our customers and prospective customers that receive the information, I mean just we hear words like world-class. So it kind of starts with that. As Kelly talked about, expansion of our data strategy, there are 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 helps give them the data that allow them to transact with more confidence, it’s a win-win all around.

So as Kelly said, we are testing solutions that now start to bundle our enhanced trading capability with our proprietary data. And this is a product set that we do expect to roll out in 2024. And in addition, we’re 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 conditions in the opportunity that we have with derived data products. And that includes the Forge Private Market Index and the Forge price, which we talk about in the Forge Investment Outlook. So data continues to be kind of a spotlight that we’re prioritizing. And it’s one of the things that as you talk about developments in the quarter and feedback we’re getting, I would highlight that.

Devin Ryan: That’s great. Thanks so much guys. And then just a follow-up here just on custody. So you continue to have pretty nice growth in custodial accounts. Is that coming from Forge customers on to the Forge platform? Or is that kind of external just to kind of growth in some of your partners that are using Forge for custody? And then, Mark, you mentioned potentially some fee pressure because of the cash sorting, which makes sense because we just have to model through the decline in cash balances from 2Q to 3Q. The other part of the question is, are you still seeing more cash floating from here? Or if interest rates are kind of peaking, if that’s the assumption, that you feel like the kind of the majority of that is behind us. Thanks.

Kelly Rodriques: I’ll start with the accounts, Devin. So look, we’ve been kind of on a journey with the custodial platform. And I’d say we, for the last couple of years, have been upgrading, I would say, the offering and really trying to focus on high-quality growth accounts. And so there’s been a little bit of a trend up until now where we shed customer accounts within the custodial business, either because our predecessors weren’t collecting on time or we had accounts that were just older accounts that weren’t adding new cash or making new investments. I think we’ve reached the 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 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. But that part of the business model is cyclical, like anybody would expect, and we’re in a hell of a cycle right now in terms of where we came from even three years ago with rates. So I’ll let Mark speak more about how we’re thinking about that environment. But our hope is that as we see rates come down at some point in the future, the 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 balancing point in the period of a market that starts to settle down the volatility.

We never expected that we would get this kind of sequential growth from 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 and the markets business is what we hope to see in ’24 and beyond.

Mark Lee: 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 custody as a service, our CaaS business, which is through third — which is through partners versus our self-directed IRA customer base. So I mean what I would tell you is I follow the research you guys put out like on Schwab and others in terms of their trying to follow and watch cash sorting as it’s playing out across the industry. What I would 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 year to year. If you look at our concentration from a year ago, obviously, the cash sorting impacts the accounts with the highest amount of cash.

So the concentrations improved, but is there exposure to further cash sorting? I mean I don’t think we can kind of put a forecast on that. Something that we watch very closely. I think as Kelly indicated, the key for us is going to be focused on growing the custody business, adding new accounts, and that’s the way we’re going to continue to improve the business at our custodian.

Devin Ryan: Okay. Great. Thanks guys. I appreciate it. I’ll leave it there.

Kelly Rodriques: Thanks, Devin.

Operator: And your next question comes from the line of Owen Lau with Oppenheimer. Your line is open.

Owen Lau: 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 your expectation of the fourth quarter trading volume compared to the third quarter? Would that be flat, down or up a little bit? Thanks.

Mark Lee: Hey, Owen, this is Mark. If you recall, I think in the last two quarterly earnings calls, we were comfortable making comments. While we don’t provide guidance, we were comfortable making comments about kind of the coming quarter, right? And as you recall, the third quarter historically has been a slow quarter for us when you look at patterns throughout a year. Typically, the summer months are a time when volume slows down. But as you can kind of see, in fact, trading volume increased significantly and 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 momentum kind of carrying into the private markets.

But of course, post Labor Day, as Kelly mentioned, with the Fed’s discussion of higher rates for longer, with the war breaking out in October, it’s as Kelly said, it’s this balance of positive indicators in terms of IOIs and buy-side interest. And yet, we’re very aware of the tenuous macroeconomic environment and kind of what’s happened to public markets in September and October, right? And so two other things that I would mention, Owen, that we also watch very closely, and we’ve indicated are important factors in the return of the private market and probably talks about the grade reset. One is kind of the funding round activity that we see for private companies. This is information that you can see in our Forge Investment Outlook. But in Q3, roughly 6% of the companies that we track, and there’s about 1,700 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. It says that still over 80% of the companies we track have not raised a new round in 2023. There’s data in the FIO that shows that now the time between funding rounds has increased to 21 months, and so many companies are still kind of waiting to raise the next round. Those that do raise capital are those that can raise capital at a premium, with an average of a 20% premium over the last round. And then IPOs, right? There’s been a number of IPOs that you’ve 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’re 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 those primary funding rounds are an important part of price discovery, right?

They give 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.

Owen Lau: Got it. And then maybe go to another theme, which is your longer-term trend. Could you please give us an update on your international strategy? Thanks.

Kelly Rodriques: Yeah. So we previously announced that we do have our [indiscernible] application in, and we’ve been building the European team and are optimistic about our ability to begin trading in 2024. I’d say that we believe that the European market possesses a great deal of opportunity for us. And it’s probably five years behind the US 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’s a real welcome attitude for Forge in Europe. I think the attitudes about liquidity and about giving the flexibility to investors and venture capitalists to sell their position before an IPO has been a message that we’ve received and been trying to get a sense for since we started staffing there.

And we’ve really got a team of people there that are staffed up in the last six months that have really proven our ability to attain and retain really great talent in the region. So there’s a lot of reasons for us to be excited about it, and we’re expecting revenue contributions in 2024. I don’t know, would you add anything, Mark?

Mark Lee: No. It’s just very, very excited about the opportunity in Europe, Owen, I mean, very much kind of being first movers on the continent, right, so — and in the UK.

Owen Lau: Got it. Thank you very much.

Operator: And your next question comes from the line of Jeff Schmitt with William Blair. Your line is open.

Jeff Schmitt: Hi, good evening. Are you seeing any competitive pressures on take rates, 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.

Mark Lee: I’ll give you some anecdotal views, and we try to stay close to the top competitors. What I mean by that is we have a 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 a 3.7% take rate back in quarter two is 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 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. And so most of our competitors have really had to 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 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 conservative in terms of their investments in staffing or anything that burns cash. So I’d say that if anything, our competitors are going to try and harvest as many trades at the highest take rate that they can in order to continue to stay afloat. But a protracted period, I think, is better for Forge, relatively speaking.

But we take everybody seriously. 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’s coming and trying to compete.

Kelly Rodriques: Hey, Jeff, I would want to add, just as a reminder, I know you know these things, but we’re the one company that is a public company in this space. I think we have a stronger balance sheet than most all of our competitors. So we have the scale. Forge and SharesPost were early movers in this space. And I think that when you think about just the team we have that we put out in the playing field, and that’s our private market specialist team, our operations team, the legal and compliance types to support them, the technology that we’ve built, the data product, the custody solutions, the lending product, I mean I know I’m — it sounds like an advertisement, but I think when you think about us versus our competitors, I think 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 than for Forge.

Jeff Schmitt: Okay. And then I don’t think you mentioned it, but how do right of first refusal trends look? I think they jumped quite a bit in the first and second quarters, but did they remain at those levels? Or how are they trending?

Mark Lee: So what we’ve been reporting in the Forge Investment Outlook, Jeff, specifically is the number of issuers that are still — that have done a ROFR in the current quarter. And that number stays relatively elevated in the slightly over 20%, both in Q2 and Q3. So the number of issuers that are doing ROFRs is still at historic highs compared to kind of what we’ve seen in the past.

Jeff Schmitt: Okay. Very helpful. Thank you.

Operator: Your final question comes from the line of Alex Kramm with UBS. Your line is open.

Alex Kramm: 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, I mean 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 in that space. Does that make sense right now? Or are the bid-asks still too wide in the space in general? Or are there other areas outside of maybe direct competition that you’re becoming a little bit more interested in, as you have still some firepower versus others?

Kelly Rodriques: 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 the 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 and their own ability to raise money. So I’d say that today, we’re watching and we clearly see some companies out there that we like, 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 that Forge is a company to support.

And as long as we’re getting support from the broader investment community, we will look to use our currency to consider consolidation. Now obviously, the last couple quarters, the last 1.5 years 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 open to inbounds. We have had companies call us and investment banks call us and say, hey, there’s 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 prove that we can deliver quarter-over-quarter as we move into 2024.

So we’re optimistic but careful about that.

Mark Lee: Hey, Alex, I want to use this moment to just add to my answer to Jeff’s question that 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 PMU, our Forge Investment Outlook, drive our index products and drive data, I think I didn’t explicitly call out kind of the marketing side and the analytics side of our team. But we think we have capabilities and people there that far surpass our competitors. So I wanted to add that to my earlier answer.

Kelly Rodriques: Yeah. And let me clarify one point I made. When I meant inbound, I meant inbound interest to be sold to Forge, not for any interest in anything else. So this is, I think, my way of saying the market and our competitors view us as a potential place to end up as part of their liquidity future. And we’re going to be really careful about looking at that and being focused on our core strategic priorities, which are institutional and data.

Alex Kramm: Okay. Great. And then just a couple of other follow-ups. One, the data index revenues, I mean anything notable that you can break out yet in terms of how much — I think you’ve said it in the past, so what the run rate is for revenues in that? And then one follow-up, maybe just one last one 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 as the outlook for rates changed. Again, just trying to figure out how the customer base is reacting to the live rate pictures. Thank you.

Mark Lee: Yeah. I don’t really have anything else I think we can add. I mean we do track it very closely. We break it down in great detail, Alex, to try to understand what is happening and what, if any kind of response, we can formulate, but unfortunately, I don’t really have additional detail that I think we can share at this point on the cash sorting question. And then your other question, sorry, was — the first question was…

Alex Kramm: I should have made it a double question. The data index, anything notable in terms of revenue or run rate to talk about yet that you can break out?

Mark Lee: Yeah. We’re still not at the point to break out our data business. I think we do think that it’s a part of our business that we’ll probably provide information on an annual basis at this point in time, Alex. And I think we talked about kind of at least qualitatively what we’re focusing on, on the data side of the business. So I think that’s kind of the extent that our disclosure at this point.

Alex Kramm: All good, just wanted to ask. Thanks guys.

Kelly Rodriques: Thank you.

Dominic Paschel: Thank you, Alex. Kayla, I think we’re ready to end the conference call. Thank you all for joining us today, and we look forward to working and engaging with you before 2024 comes.

Operator: And this concludes today’s conference call. You may now disconnect.