Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Forge Global Holdings Inc (FRGE, Financial) recorded its fifth consecutive quarter of revenue growth.
- Revenue grew 15% over the last quarter and rose 32% compared to the year-ago quarter.
- Marketplace revenue is up 103% compared to the year-ago quarter, indicating strong market recovery.
- The company has introduced new products and innovations, including Forge Pro and private market indices.
- Forge Global Holdings Inc (FRGE) has announced a decisive action to reduce expenses and accelerate profitability, resulting in an estimated $11.3 million in annualized savings.
Negative Points
- The company announced a reduction in headcount costs by roughly 11%, affecting employees and their families.
- Net take rate in the second quarter moved from 3.2% to 2.7%, indicating a decrease in profitability per transaction.
- Total custodial administration fees were roughly flat compared to the prior quarter, showing limited growth in this area.
- Second quarter net loss was $14 million, although it declined from $19 million quarter-over-quarter.
- Cash, cash equivalents, and restricted cash ended the quarter at $121.6 million, down from $130.7 million last quarter.
Q & A Highlights
Q: With the expense actions you're taking, how should we think about a revenue range that could support a break-even level for the company going forward?
A: Kelly Rodriques, CEO: We are using the growth in marketplace revenues from the first half of 2024 compared to the back half of 2023 as a proxy for future growth. This extrapolation of prior historical growth helps us model the break-even point in 2026.
Q: Trading volumes came in well above expectations, but take rates were lower. Was this due to more institutional players coming back to the platform?
A: Kelly Rodriques, CEO: Yes, we are seeing an increase in institutional interest. The ratio of buy-side IOIs to sell-side IOIs has shifted positively, indicating more institutional activity. This has led to higher volumes and lower take rates, a trend we've seen in previous years.
Q: Can you provide some color on the cash burn trajectory in relation to the break-even 2026 comments?
A: Kelly Rodriques, CEO: The primary difference between adjusted EBITDA and cash flow breakeven is the interest income on our cash. Adjusted EBITDA breakeven implies a low level of cash flow profitability. We expect our gross margins to improve due to productivity and efficiency gains from our technology investments.
Q: Could you remind us of the dynamics between the IPO market and your transaction volume?
A: Kelly Rodriques, CEO: A normally functioning IPO market generates enthusiasm for investing in private companies before they go public. Historically, there's increased activity in companies that announce IPOs, as shareholders look to take gains and avoid lockups. We've plotted the relationship between our market revenue and IPO counts, showing a high correlation.
Q: How much savings do you expect to capture for the second half of this year from the expense reduction plan?
A: Mark Lee, CFO: The $11.3 million in savings is against our budgeted expenses. Roughly two-thirds of it is against our current run rate, and one-third is future cost avoidance. The bulk of the savings should be realized in Q3 and Q4, excluding one-time severance charges.
Q: How is your data business performing, and what are you doing to increase adoption?
A: Kelly Rodriques, CEO: We are seeing good uptake on Forge Pro and Forge Data. Our strategy is to get Forge data everywhere, and we look forward to reporting more specifics in our next earnings call.
Q: What does the competitive landscape look like for private market indexes?
A: Kelly Rodriques, CEO: There is growing interest in private market indexes, evidenced by recent acquisitions and product launches by major firms like BlackRock and MSCI. Our competitive advantage lies in the depth of our clean data from being the market volume leader. We believe this part of the market will consolidate, and we are well-positioned to lead.
Q: Will there be any reinvestment of the savings from the expense reduction plan?
A: Kelly Rodriques, CEO: No, we are committed to continuing our investment levels in the next-gen platform while realizing the full amount of savings in 2025. We will continue to prioritize resources towards opportunities with the biggest payback.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
