FRGE - NYSE

Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Forge Global Holdings Fourth Quarter and Full-Year 2022 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. [Operator Instructions] Thank you. Dom, you may begin your conference.

Awesome. Thank you, Emma, and thank you all for joining us today for Forge's fourth quarter and full-year 2022 earnings call. This call will be a bit longer, so as we for the first time recap the full-year, appreciate you hanging with us. Joining me today are Kelly Rodrigues, 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 fourth quarter and full-year 2022 financial results. A discussion of our results is complementary to the press release, which is available on the IR page of our website. This conference call is being webcast and will be available for replay. There is also an accompanying investor supplemental page on our IR site. 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 these actual outcomes to materially differ from those included in the statements. We discuss these factors in our SEC filings, including our annual report on Form 10-K, which can soon to be found on the IR page of our 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 the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is also posted to the IR page. Today's discussion will focus on the fourth quarter and full-year 2022 results. As always, we encourage you to evaluate both annual and quarterly results for a full picture of Forge's performance, which can be affected by unexpected events that are outside our control. With that, I turn it over to Kelly, our CEO.

Thanks, Dom, and thanks, everyone, for joining this afternoon. We appreciate your interest in Forge. As many of you already know, Forge is committed to building what we call the private market of the future. We've made significant progress over the past year in enhancing and evolving access, transparency and efficiency in the private market of today. Against the backdrop of macroeconomic headwinds, we were focused throughout 2022 on what was within our control. Enhancing our technology, expanding internationally and developing new avenues for growth to diversify our entire portfolio. Among these efforts our achievements I believe have helped to both fortify and grow our business for the future. From a financial perspective, while the challenging market conditions in 2022 certainly affected our trade volumes, we were encouraged by a couple of key trends. We realize the benefit of our diversified revenue model, which includes predictable revenue from our custodial offerings that offset some of the impact to transaction-based revenue in down markets as designed. Specifically, as interest rates rose, our custodial administration fees grew in tandem, hedging the natural volatility that we have all observed across public and private markets. And while still in early innings with our data business, we've seen substantial growth over the first full-year and are inspired by the high rate of renewal and an increase in ticket sizes on renewing customers. As an annual factoid, our data bookings at the end of 2022 grew approximately 392% from $244,000 to about $1.2 million. I want to be clear, this is off a small base, yet our data business is diversifying our total revenue mix. And we believe it can create an avenue for high margin, SaaS-like revenue for the future. Data revenue for the two major U.S. financial exchanges is between 35% to 40% of their total revenue and we believe Forge’s opportunity is relatively untapped. I'll discuss some of our business highlights in more detail following our discussion of our financials. And for that, I'll turn it over to Mark Lee.

Thanks, Kelly. Discussion of Forge’s best performance in the fourth quarter will be compared to last quarter as we believe it's more meaningful to focus our remarks on a comparison to the prior quarter given the unique economic environment at this time. In the fourth quarter of 2022, Forge’s total revenue, last transaction-based expenses rose to $16.7 million, up 6% from $15.8 million last quarter. Total placement fee revenues, less transaction-based expenses reached $6.8 million, down 16% from $8.1 million last quarter. Transaction volume increased 9% from $226 million last quarter to $247 million in Q4, while our overall net take rate declined from 3.6% last quarter to 2.8% in Q4. To provide some context here, during the current period of volatility and illiquidity, many trading platforms and venues, including Forge, are working with third-party intermediaries to match the other side of the trade. This results in Forge [Indiscernible] commission on only side of the transaction, thereby reducing our net take rate. Total custodial administration fees were up 29% in Q4 to $9.9 million from $7.7 million last quarter. This gain is largely driven by increased cash administration fees in the current rising interest rate environment. Forge’s custodial cash balances totaled $635 million in Q4, down from $685 million at the end of last quarter. The decrease in cash balances during Q4 was primarily driven by increased outflows for distributions, which are historically high in Q4, as well as reduced net inflows from investment liquidity events and investment income. Total custodial accounts increased approximately 3% over a quarter to $1.9 million in Q4, up from $1.8 million last quarter. Assets under custody were essentially flat at $14.9 billion at the end of Q4 versus $15 billion last quarter. Fourth quarter net loss was $26.2 million, compared to $16.2 million net loss in the third quarter. This difference is explained by a $25 million gain in Q3 from warrant liabilities offset by a $15 million decrease in shares-based compensation. Adjusted EBITDA is a key measure of our operating results. In the fourth quarter, adjusted EBITDA loss was slightly higher at $14.3 million, compared to a loss of $13.3 million last quarter. In Q4, we recognized employee separation costs of $2.2 million, related to streamlining and efficiency initiatives and this contributed to the slight increase in loss. Net cash used in operating activities improved to $9 million in the quarter, compared to net cash used by operating activities of $11.4 last quarter, down 21%. Keep in mind the timing of cash flows that Forge pays out annual corporate bonuses in the first quarter. These bonuses are based on a combination of individual performance and overall revenue attainment. Cash and cash equivalents ended the quarter at approximately $193.1 million, compared to $202.6 million last quarter highlighting the continued strength of our balance sheet. From a housekeeping perspective, our weighted average basic number of shares used to compute net loss was 171 million shares and our fully diluted outstanding share count as of December 31st was 189 million shares. For the first quarter of 2023, we estimate 172 weighted average basic common shares for EPS modeling purposes, while in a loss position. At a recap full-year of 2022, in fiscal year 2022, Forge's total revenue less transaction-based expenses was $68.9 million, down from $125 million a year ago, driven by lower trading volumes, which we primarily attribute to macroeconomic and geopolitical instability. Creating uncertain and volatile market conditions. Of that amount, total placement fee revenues less transaction-based expenses totaled $40.2 million, down from $104.7 million last year. 2022 transaction volume was $1.2 billion, compared to $3.2 billion in 2021. The average net take rate for 2022 was constant at 3.3% year-over-year. Total custodial administration fees were up 41% in 2022 to $28.7 million from $20.3 million in 2021. Total custody accounts decreased year-over-year to $1.9 million from $2.1 million. Total custodial accounts declined during the year, due to closures of unfunded accounts in the second quarter as we discussed then. Assets under custody were $14.9 billion at 2022 year-end versus $14.3 billion at 2021 from year end. Forge’s custodial cash balances totaled $635 million at the end of 2022, down from $687 million at the end of 2021. Full-year net loss was $111.9 million in 2022, compared to a net loss of $18.5 million last year. Nearly three quarters of this decline was due to stock compensation expense and one-time cost of going public. Fiscal year 2022 adjusted EBITDA loss was $46.9 million, compared to an adjusted EBITDA gain of $8.8 million in 2021. Through our agile cost management, we were able to keep our total costs essentially flat year-over-year. We still invested in growth and strategic hires and limited our decrease in adjusted EBITDA to the decline in our top line. Net cash used in operating activities was $68.8 million in the year, compared to net cash provided by operating activities of $10.9 million last year. This included one-time transaction to cost of $13.2 million in connection with going public. Now to cost management. Responsible stewards of capital, we and the Board are monitoring the market, our resource allocation and capital spending on a regular and ongoing basis. As indicated previously, we are committed to lowering our overall cash burn in 2023, compared to 2022. We continue to focus on managing our expenses, while balancing the need and opportunity to invest in Forge’s platform, products and services and delivering and executing on our commitment to shareholders. Our total headcount decreased to 349 at the end of the quarter. Except for a small number of critical positions, our intent is to maintain total headcount at current levels until there is greater stability in the overall market. Besides highly managing our hiring in capital, we are scrutinizing and reducing the use of third-party service providers, moderating our discretionary marketing spend and consolidating our real estate needs. Macroeconomic conditions continue to create uncertainty, but on the positive side, we've seen a number of unique private companies with sell side IOIs on the Forge platform reach record levels, which speaks to the breadth of opportunities available for our investors. And the number of companies with active [Indiscernible] interest doubled from December 2022 to January, which we believe indicate an increased willingness by investors to test the waters again. We are confident that not if, but when markets normalize Forge will realize benefit of our active network of interested sellers and investors. And I'll hand it back to Kelly to summarize what forge has accomplished in 2022 to strategically position Forge for the future.

Thanks, Mark. Despite challenging market conditions in 2022, we invested in building for the future. And I'm proud of the progress and focus. Our incredible team demonstrated throughout the year. We focused on deepening and expanding our competitive position, enhancing our Forge trading platform and our data products to improve the experience, the transparency and the efficiency of participating in the private market. Notable 2022 milestones include: we became a publicly listed company. Forge was the first private market platform in our category to go public, which we did on the NYSE. It was a means to an end, allowing us to access the public capital markets in support of scaling our business and international growth. We announced in September our intention to expand into Europe through Forge Europe. We anticipate launching this year, starting in Germany, and moving into other markets thereafter pending the required regulatory approvals. We've added new products and upgraded existing ones, including Forge offerings. We built and launched a fund offering capability to our markets platform to facilitate block sales of single issuer stock to multiple buyers at a fixed price. This new mechanism allows Forge to lower the cost of entry, below our $100,000 historic minimum investment size on certain tranches of shares. An early signs indicate that investors are interested in participating in fund offerings at lower investment minimums. Additionally, we integrated a taxable custody capability into the Forge Trust Custody Solutions. This new function allows Forge clients to securely custody their cash and private shares with Forge, helping to support more efficient, and streamline participation in private market transactions. In October, Forge launched the pilot of our first lending product, which offers stock option exercise bridge loans, this enables employees to borrow funds to exercise their vested options and then sell their shares on the Forge platform. We believe our lending capability has the potential to expand sell side inventory for investors and increase the breadth of sellers able to participate in the private markets. In addition to building new products, we continue to expand our data offerings in 2022. Delivering new insights and analysis to institutional investors through additional avenues of distribution. We've added new features to Forge intelligence, including sector insights, private company comparables, and third-party trading data. And we built our now released first data API that investors and financial institutions can use to integrate Forge intelligence data into their existing investment portfolio management and risk analysis tools. To scale our content program in 2022, including launching our private market update, a monthly insights report on private market performance. Through our trading data, our reports and the company data and insights we offer through our Forge intelligence platform we are increasingly becoming a sought-after expert and go to source on the performance of the broader private market. Our private market data is regularly referenced by journalists and subject matter experts in financial publications, including Barron's, the Wall Street Journal, Bloomberg and others. And through our data and content, we've engaged new partners and clients and grown awareness of our brand. Finally, in December, we announced our strategic evolution to center the business around the evolving needs of customer segments, streamlining Forge’s complementary business units, and accelerating the development of Forge’s technology platform. It will support the unified customer experience and amplify Forge’s network effect. As we look forward to the future, we have optimized our strategy to deliver solutions, data, insights and training capabilities that institutional investors will increasingly recognize as a competitive advantage and that all market participants can leverage to access and navigate the private margin. We are excited about our progress against several major initiatives already underway that we intend to launch in coming months. We are optimistic that these initiatives will help extend our category leadership position and our competitive advantage, and I'm confident that we have the right structure and right leadership to execute for the future. Still, even as we're energized about Forge’s progress, we also are realistic and aware of market conditions and will remain committed to managing Forge to a lower cash burn in 2023, while still investing in our growth and evolution. Now I'll take just a few moments to conclude with brief remarks on what we're seeing in the current market. While Q4 remained challenging, we noted some green shoots in our data that we are watching closely. First, in Q4, the steep quarter-over-quarter pricing declines that characterized most of ‘22 began to show signs of leveling out in the last few months of the year. Active shares trading on board declined 8.8% on average from Q3 to Q4 2022, an improvement from the 22% decline in pricing from Q2 to Q3. And meanwhile, the number of distinct companies listing shares on the platform remained above historic averages. However, the market remained a buyer's market. Spreads remained elevated about 23% and investors in Q4 remain unconvinced that the market had troughed. Still, prices on both bid and at indications of interest trended up slightly in January from December's low point. And there were additional signs of optimism. As we noted, an improving sentiment toward possible 2023 IPOs, companies like Stripe, Instacart, Reddit and others are reportedly eyeing IPOs this year. Let me be clear, out of optimism do not a market make, it will take a sustained optimism in the form of declining spreads, improving buy side interest and stabilized valuations, which will be seen in our data first for the private market to regain its balance. And let's close with this. 2022 wasn't the year we all anticipated it would be. Even while we put up the Q4 with higher revenue, in Q3 last year, we continue to see weakness in our marketplace first quarter 2023 with trading volumes to be lower in Q4 2022. The market conditions remain challenging. And the volatility that we experienced in 2022 persists. Inevitably, as evidenced by the entire history of capital markets, there will be economic cycles that impact this asset class quarter-over-quarter and year-over -year. But the ultimate opportunity in this market is unwavering. I remind our team often that our vision is a long-term one, and in pursuit of that vision, Forge will stay focused on execution. We will continue to extend our category leadership; we will continue to create and pursue new growth opportunities and we will remain well positioned when the volatility comes and the latent economic power of this market is once again unleashed.

Thank you, Kelly. Emma, with that, can we open to questions?

Thank you. Your first question today comes from the line of Devin Ryan with JMP Securities. Your line is now open.

Hey, thanks. Good evening, everyone. I guess just want to start on placement fees and I think Mark you mentioned this dynamic where you were capturing one side of trade, I think, I heard you right. Is that a retail or institutional dynamic? Is that something that we could continue here moving forward? And you had a nice balance in the number of trades, the average volume was lower. So just trying to get a little bit of sense of whether that was just a shift towards more retail or something else just trying to understand the dynamics in 4Q?

Yes. Hey Devin. Thanks for the question. So a couple of key points and you have our supplemental filing that we provide other key metrics, so you can see the history of our net take rates. So when you look at our Q4 take rate of 2.8% it’s actually very similar to the take rate we experienced the year ago in Q4 of 2021 at 2.9%. And as we mentioned in the call, the overall take rate for the year 2021 versus 2022 was constant at 3.3%. And so it's something where from any quarter-to-quarter, we've always talked to you about mix of institutional versus retail. And how that mix can influence and fluctuate and drive the weighted average net take rate. But what we were talking about here for Q4 was a slightly different phenomenon in this time of the liquidity looking to find the best outcome for our customers in that. And that can involve working with outside external counterparties. It could be for retail trade, Devin, it could be for institutional trades, right? But what we believe is that for the most part, right? We can execute and give clients -- our clients the cleanest execution with the best probability of execution, we're managing both buyer and seller. And but there will be times when it makes sense to work with an outside counterparty to help complete that trade and serve our customer.

Okay, terrific. And then just in terms of the competitive landscape, clearly, as you guys articulated, it's been a difficult backdrop for the past year or so here. What are you seeing in terms of others that are in the industry, you guys are an industry leader, but are you seeing the peers pullback resources? And how is that maybe affecting any parts of the business or opportunities for market share over time and appreciate the cost focus on your side, as well to the extent volumes recover, how are you thinking about managing costs moving forward in kind of a growth environment that we hope happens where you get kind of a reacceleration. Can you keep kind of the expense at a lower level or will that reramp with kind of an improvement in volume?

Yes. So there's a -- this is Kelly, Devin. There's a couple of questions in there. Let me start with the first one. The TAM of the private market and the excitement we have about the long-term has gotten out other people know about other companies. And certainly, we like -- you see other entrants and some, you know, competitive noise continue to rise in all forms in the market. Most of what we see are smaller either earlier stage or nascent efforts just getting underway. We believe that part of the reason we went public acknowledging it was a difficult time was we felt that having combination of the balance sheet and scale lead would mean that when the market was challenged. And this is a very difficult time for capital raising broadly. That the benefits would accrue to the well capitalized market leader. And we remain hopeful in that capacity. And so we have the ability to carry a burn rate, both Mark and I come from histories of companies that don't have big burn rates. So it's definitely a balancing act, but we do have, and we mentioned the latent economic potential, it's easily in the call, because we think we're in a position to capture that, particularly given the investments we're making in tech and in people, when this market comes back, we think we'll be better positioned. And I think part of what Mark's answer was on the last question, was figuring out that other counterparties that may have supply and demand, they're going to come before to try and find the other side. Then I'd say the flip side of our take rate being down was that we may have captured a trade that a competitor or another financial institution need to find a counterparty too that may bound that in Forge. And so while the -- we got the volume, that was an example of not being able to represent both sides of the trade between overwhelmingly and the history of the company. So I'd say that we're very well positioned. We're excited about it, but we expect to see competition, we respect it no matter where it comes from.

Yes. Okay, terrific color. I'll leave it there. Hop back in the queue. Thank you, guys.

Thanks, Devin.

Your next question comes from the line of Alex Kramm with UBS. Your line is now open.

Yes. Hey, good evening, everyone. Just you mentioned a few green shoots that you saw in the fourth quarter and then also I think couple of comments that some of them I may have missed for the first quarter, but now maybe you can just go back to what you've seen in the first quarter, maybe expand a little bit. But then more importantly, anything quantitatively that you can share with us? I mean, with two months into the quarter, maybe some sort of average daily trade volume or something you've seen so far? And how that compares to the fourth quarter? Thanks.

Mark, why don't you start with some of the [Multiple Speakers] you mentioned.

Yes. Hey, Alex. This is Mark, so I mean, two of the things that I mentioned were you know, one of the things I -- one of the first things I said was about the increased interest on the buy side, right? We've been saying for some time now in 2022 that it's a buyer's market and there's an imbalance with two-thirds of our IOIs being sell side and one-third being buy side. And what we reported in our PMU and I described was that in Q1, we saw an increase in buy side IOIs. And in particular, we talked about the number of issuers, number of buy side, IOIs covering various issuers doubling from December to January. I mean, in addition, the total number of buy side IOIs actually increased over 60% from December to January. So it's just a start, we still are seeing the imbalance between buyers and sellers, but it's still a buyer's market. But these are positive signs that we wanted to share.

Yes.

The other thing that Kelly mentioned, Alex, and I don't think we're in a position to provide more mentioned that this was, Kelly did mention it. And as you know, we have declines provide forward guidance in the past, but we did share that the volumes and the Q1 continues to remain soft and we expect trading volumes to be lower in Q1 than in Q4.

Yes, I'll add one other point, which is -- these are a reason for optimism for us, but we're trying to manage that optimism with a little bit of discipline around how much in duration of time these earnings calls sometimes fall, not completely in line with the cycle where we've got a definitive proof in the data. But the combination of the buyer sentiment data that Mark's reporting on and the price declines that were pronounced coming out of Q4 give us reason to be optimistic, but we need to see it for a sustained period. And there's a lot of things out there in the press about valuations and we've talked about this and we've commented recently that the private market is still a place where people are looking for truth and valuations. And we see that combination of buyer, seller balance, spreads and valuations coming into focus as something we're going to continue to watch for the balance of Q1 into Q2 and look forward to reporting on it and talking more about that when we're back here on the next quarter. But I'll make this final point, even if we see this data start to emerge, there is some degree of latency in the way trades close. And volume is recognized in the platform. So I'm seeing really interesting things right now and we've described in previous calls that some percentage of our trades are roper required trades and some trade through funds like SPVs that a significant portion of actual finalized trades may be delayed for 30-plus days, while the market -- even if the market data has indicated people are coming back to buy. So we'll continue to watch it closely. And one of the commitments that we had to ourselves coming into this year is to think more about what critical, sort of, KPIs are we going to watch and talk about going forward and more on that to come. But thanks for the question.

Hey, Alex. Let me add one more thing, this is something that you would have seen in the PMU, but we didn't include in our prepared remarks. One of the other positive signs was that the new IOIs coming in the buy side previously, we're coming in at an average 50.5% discount to the prior funding round. And more recently, we've seen that discount narrow down to 39% of the discount. So in other words, bidders are increasing the average price that they're prepared to pay for acquiring private shares.

Excellent. Thanks for that color. And then just shifting to the cost side, and I know you gave some output color there as well, but maybe you can be more specific. If I look the fourth quarter, I look at your adjusted expenses, which is basically just net revenue minus the adjusted EBITDA at $31 million a quarter. So that's the run rate, it was up a little bit from the third quarter. So as we think about 2023, is that a good starting point? Any sort of seasonality would you call it? I mean, I know you stopped hiring. So is $31 million the right number for every quarter? Should that flex up or down? Are there -- again, are there some tax items maybe in the first quarter? Just help us a little bit, how we should be thinking about the cost base and kind of absolute dollars, because it sounds like that's how you're basically budgeting the business right now?

Yes, that's right, Alex. I think you're hitting it on the head. I mean, when you looked at 2022, there was a lot of one-time costs related to going public in the early quarters, net loss has a lot of movement in non-cash items like stock compensation expense and one mark-to-market, which get taken out when you look at adjusted EBITDA, but as we've communicated in stress, trying to manage to a flat headcount. At this point, we announced our hiring freeze. We're maintaining our hiring freeze. You noticed that we took some one-time cost in terms of employee separation costs in Q4. But for the most part, as we communicated in our prepared remarks, we're holding the line on our headcount and that really comprises majority of our total spend.

Okay. So no other items and also or any inflationary pressures that we need to be watchful for. So this is a good run rate. It's really the question.

Yes, that's right. That's right. I think as I mentioned, Alex, in the full-year comments that when you look at adjusted EBITDA in 2022, we don't cost flat even while we increase our headcount by 16%. And that's really because we have a cost structure that also has a variable component of our compensation. So that part of our expense base will fluctuate as our revenues go up or down. But yes, I think the answer to your question is, Q4 is a good starting point.

Excellent. Thanks guys.

Thank you, Alex.

Your next question comes from the line of Owen Lau with Oppenheimer. Your line is now open.

Thank you for taking my question. So could you please add more color on your international expansion strategy. So Kelly, you mentioned some color about Germany and also some other part of Europe pending regulatory approval. I just want to get a sense of are you on track to launch in Germany this year? And what month should we expect? And also what kind of product do you expect to launch in Germany? Thank you.

Yes. So let me just make sure I've got it for the details. So we are applying for a [path in license] (ph) now. And we do expect to be up and running this year. I'm trying to see if we had any previous visibility on the actual month, I'll come back to that. What I will give you is sort of the dynamics of the market as we see it. It's really the reason it converged to have us starting here in our international expansion. We were watching of the number of private unicorns that have developed and expanded in the region. And based on sort of the unicorn crop -- what we call pre-unicorn, it’s about 650 companies and mine market cap of $620 billion, which is fueling the growing demand for investors in that region. This is an area that's growing faster than the U.S. unicorn crop and we have one of our largest investors in Deutsche Börse really stepping up not only to invest in this, but to partner on a go-to-market plan. We've just gotten our offices opened in Berlin. I'll be traveling over there in the spring. And we think that, that's really the launching point. We understand and recognize that we will require additional licenses to expand into the U.K. market and ultimately in France and beyond. But we think Germany is a place where we've got a big partner, we've got expertise, we've already got some of the staffing on the ground, which combines some of our best talent in the U.S., which is relocated there. We've hired some senior management with deep experience in the private markets, as well as legal and compliance on the ground and Deutsche Börse has contributed expertise to the venture. So we're pretty excited about it. But again, we're being careful not to run up too big of a burn. And we think that the timing for really getting up and running in market is related to that. We could do trades now; we have enough visibility to see investors that are interested in buying and selling in the region. And as we've reported previously, we've got investors in over 70 countries, so really this path in license is the next domino for us. And will primarily initially be focused on companies. I'd say the dynamic there is a little bit different in terms of the equity dynamics of employees, I'd say different than the U.S. markets. And so the combination of capital formation and secondary need in the European market are something that we're watching really closely. So I'll stop there.

Hey, Owen. And as a reminder, we've also mentioned that we're in the process of transitioning our Asia presence from Hong Kong to Singapore. So Europe is our priority right now, but we also keeping an eye on that transition and you'll hear more about that in the future.

Got it. That's helpful. And then for Forge Intelligence, what additional products you expect to launch this year? I know you guys have launched a whole bunch of products in 2022. But how should we think about the penetration of your existing products to your customers right now? And how are you going to increase your penetration? Thank you.

Okay. So let me tell you what I can tell you and I'd say part of what my remarks were related to interesting announcements in the coming months, as well as the evolution to a customer centric model, we've really looked at how to accelerate or just lead position in this space. And we're focusing a lot of our energy on the institutional market. As you heard us reference, institutional competitive analysis several times, we have figured out that the relationship between the advanced features of Forge Intelligence and trading is really interesting. And so I would say wait for announcements in the coming few months to hear more about this. But we're really excited about the future Forge Intelligence and its impact on both the revenue stream and composition of revenue. Obviously, but more in terms of developing a lead position globally with institutions as we see data and trading as a very hard set of benefits to separate, so more to come.

Hey, Owen. I'd like to mention, in case you hadn't seen it, we put on a webinar the other day on the use of private data in private markets. I think it was an incredibly helpful presentation by our team that really talks about how people can really leverage our data product not to help think about the private markets. So I think that's something that if you haven't had a chance to take a look at, please do.

Sounds great. Thank you very much.

Your next question comes from the line of Jeff Schmitt with William Blair. Your line is now open.

Hi, thank you. I think Kelly mentioned the revenue contribution from data product at the beginning of the call, but I missed that. Was that -- could you go over that again? And are there any other details you can provide on that, like the renewal retention rate or just how successful full upselling efforts have been with the data product?

Yes. I think what I was citing at the very beginning of the call was the growth in bookings. And this was sort of a leading indicator of both what we've seen in the first full-year and while we didn't present an actual revenue contribution, let me go back and maybe add a little bit more color. So we are seeing very attractive indications of product markets fit. And coming from a SaaS background, I can tell you when you go through your first renewal cycle, you get a real sense for whether or not your initial test customers like, loved or in something other than that. And the renewals were high. The revenue contribution and the bookings growth and size of deals as the revenue -- as the data product has expanded is satisfactory. What I talked about at the beginning there, Jeff, was that we moved from 244,000 in bookings to 1.2 million, so a year-over-year growth rate of 392%. And look, we recognize that when things are starting up and they're small and they're off a small base, that may not be something that's sustainable, but we think that the diversification of the revenue, the actual margin in a product like this and the stickiness and predictability of it as a component of our revenue, that's one of the reasons why cited the exchanges, they didn't start out as data companies and figured out that data was a big part of their revenue going forward. So look, we're really excited about it. Otherwise, I wouldn't have let the call off with it. But we're still exploring all the different distribution opportunities and all the ways to dimensionalize data as a product across our customer segments. Obviously, we started off with institutions, so we've been asked over the year, hey, is this going to be available to retail investors? Is it going to be available to companies? These are the segments that we serve and the answers are TBD, but you can assume that we're looking for ways to essentially make data and Forge Intelligence pervasive across all of our customer segments, so more to come.

Hey, Jeff. Mark Lee here to add on [Technical Difficulty] Kelly. So, you know, we just talked about the API feature in the past we talked about providing data feeds to our clients. I just want to reemphasize some things we've mentioned in the past, Kelly talked about additional use cases. You know, our data product features over 18,000 marks on private companies from over 150 mutual funds. We have clients that are even interested in that information alone. And so we have bots that gather that data very efficiently for us. And venture lending, that turned out to be really interesting customer segment for our data product that I think was a nice positive surprise. The other thing I want to mention and I meant to mention that when Owen asked the question, I mean, we have competitors that have announced data partnerships to try to enhance their ability -- their abilities in the private markets. But typically, the data partnerships they've announced are static. They're based on a private funding around data. They don't have the dynamic, you know, real time prices that Forge offers on the hard data products. So we think there's a really big difference when you, kind of, dig under the covers and look at the kind of data and data information that other competitors are providing to their customers versus Forge.

Got it. And if there's a further downturn in the market evaluations, how should we think about the impact on strategic investments this year? I presume like a Forge Europe is going to take precedence, but is there sort of lower priority investments that would be put on hold to slow the cash burn in that case?

I just kind of feel like we've set ourselves up to be pretty heads down in execution, well this is for 2023, we really are focused on the initiatives that we talked about coming into this call. But by strategic initiatives, do you mean M&A?

No, just I mean just internal investments in the business and where that's being allocated to? I mean, if there's a downturn, you know, you're going to have the…

Yes. So look, we're going to maintain -- Mark mentioned this as usual cost structure that's in place. We think the combination of the way our compensation is structured and just our focus on organic execution this year gives us the feeling that we can manage our costs. The headcount is obviously a big part of it. We consolidated real estate at the end of last year. We think we're in a good position to moderate our cost structure. But look, if we see a more and significant downturn, then we'll adjust accordingly. We are committed, and I'll say it again, we're committed to lowering our cash burn. 2022 is a really expensive year, because we built up coming out of 2021. We had to pay for our process to get public. And we had to fund a lot of cost of being public, you know, just insurance, compliance, legal reporting in and of itself. Was a thread the needle for us coming into 2022. And so we feel like we're in a good position to control our costs and reduce our burn for ‘23.

Okay, great. Thank you.

Awesome.

[Indiscernible]

With that…

And I think we one…

I think we have one more. We have -- sorry. We have Ken, yes.

Please go ahead, Emma.

Your next question comes from the line of Ken Worthington with JPMorgan. Your line is now open.

Hi. Thanks for squeezing me in. I wanted to dig a bit more into the third-parties that help source trades. I guess maybe to start, what percentage of the business this quarter was sourced by these third-parties? And where does that percentage typically lay? Maybe second, to what extent do you have the ability of converting clients using third-parties directly to becoming Forge clients and how might that work? And then lastly, I think you mentioned in the prepared remarks pretty briefly that you're focused on reducing the number of third-parties. I guess, how do you do that? And maybe why if that's a source of liquidity and so on? Why don't it just try to grow the direct side and keep the third-parties as active as possible. So thanks for those.

So let me let me talk about the third-party part and you can talk more about the percentages.

Sure.

So I want to be clear that it's -- it is an evolution of the market and an expectation that other third-parties will be a part of the volume future at some level. At very least, we're going to feel the impact of institutions increasing their volume. In terms of potential pricing pressure around take rate markets mentioned this in the past, particularly as it relates to large block trades, I'd say that as a reality being the market leader, we will increasingly draw third-parties or others who traded away from us to Forge just by virtue of the fact that you're going to go where liquidity is to clear your trade. And so I'd say this is part of a phenomenon in Q4. I'll let Mark get into the numbers. But I'd say we should expect that from quarter-to-quarter from year -to-year we will see fluctuations in third-party, although up until now, I think we are overwhelmingly traded both sides here, but I'll let Mark speak to the numbers. I just want to make sure we understand that we will draw volume to the Forge platform where maybe in the past there has been a trade away and we get that's fine and we'll accept and welcome that.

Yes. Ken, a little bit of a backdrop, I mean, as Kelly mentioned, you know, year-after-year since Kelly came on board in 2018, the percentage of volume that we've done internally where we were able to cross both sides of the trade at Forge versus working with outside counterparties, has the amount of internalization, let's say, and internal [profit] (ph) has continued to increase, right? And it's kind of a volume big as volume, right? As we've gotten as we merge with shares post, you know, and really built up our critical mass the need to interact with third-party counterparts, you know, really started to go down significantly. But it's during this kind of time, illiquidity relative illiquidity, right, at a time, we're always going to do kind of what's best for our customers. There aren't going to be moments when the best thing for our customer to facilitate the trade is to kind of work with the third-party. But for the most part, you know, we fundamentally believe that we're going to get the cleanest execution, the highest probability of execution when we can manage both sides of the trade. And so that's ultimately, kind of, our driving goal. Now I would contrast that with you've heard us announce our distribution partnerships with significant outsized fires, right? We announced Wells Fargo in the prior year, we announced Morgan Stanley and there's others that we haven't been able to announce publicly. But those partnerships, you could also see as another form of expanding distribution through a partnership means, which could result in higher volume at a lower net take rate as there's kind of economic -- sharing of the economics with our distribution partners. So I think it all kind of plays together. Now as far as the math is concerned, what we're saying is there isn't a fundamental shift in what we charge for our commissions or take rates to institutions versus individuals. They're still the same dynamic going on. And so you can probably do your own math. We're not really disclosing kind of the level of detail of the use of outside counterparties. But you can do the math in terms of looking at kind of our take rate as it's been for the prior quarters and look at the change in Q4. And you can understand that there's a portion of our volume, you know, where we didn't take a fee. And I think the math will work out and you'll get a pretty good idea.

Okay, fair enough. I appreciate that. And since I guess on the last one, just on the spread between the buyers and the sellers, I think you said it was 22% for 4Q and it looks like it's widened out again in January? And I get that there's a lag between when trades may come on and when they actually get executed. What is the kind of macro factors that really drive that spread between buyers and sellers? It would appear to be maybe less equity markets and more IPO markets, but maybe there's something even better? And then just remind us again, where does that -- where do you really want that spread to be -- to like I know, spread of zero would be ideal, but like there's a level I don't know if it's like 10% or 15% where you're close enough where deals start getting done more actively. Just can you remind us what that level is?

Yes, sure. Tim, it's Kelly. As we repeated or previously reported, in periods where the price discovery or [librium] (ph) as we call it or the bid-ask spread, is in a reasonable territory in terms of friction, that's been around 12%. And so we've been around ‘23 pretty consistently, I wouldn't read into movements between ‘22 and ‘23 and ’23 and ’22. So that is something that is one of the three elements that I cited as what we're watching in terms of really sustained movement in the market and volume. That 12% bid-ask spread is what we're looking for. And the other thing that sort of affects that is sentiments around valuation. And I think what we're also watching is our buyers raising their price and we got into a point where the demand side is actually starting to raise their bid. I was looking at data today, Mark, reported on that or just reminded one of the questions that this is going up and the discount is coming down. This is the first time we've seen this in this cycle. So again, that's another indication. And then the other thing that I mentioned is that it will sometimes there'll be some latency of this, because of the way ROFRs work. And look, we're moving towards a market where some of these transactions happen through fund structures, which can happen relatively quickly, some of them require accompanied to approve and waive a right of first refusal. And that can create a lag effect such that even if we start to see trades set up. We may not be able to settle them for a 30-day or more window, because the company has got to approve them. So even though we could see volume and the indications in our data of a better market emerge, it may not appear in our traded volume until the next quarter depending on where we are in the cycle. Now in a world where companies increasingly know Forge and waive those ROFRs or give us a standing program, and we have some of these. Then those will need faster and less friction trading in a single name. And so part of what we're focused on here is having better trusted relationships with companies to decrease the friction as trades are trying to happen as the market starts to turn around and correct itself. So in closing here and Mark you can jump in on any point you want to make related to Ken's last question here. But we're starting to see these green shoots, but we need to see it for more time. And we need to hit to emerge and get through ROFR recycles for it to start to translate into revenue. And that's what we're carrying a moderate tone on here. We've not actually said anything before now that has indicated that we're starting to see a turnaround, but we're optimistic as to where we are now. And obviously, we're going to continue to stay patient and control our cost until it comes back. Mark, you want to add last point before we close out?

Hey, Ken, On your question about the connectivity with IPOs, I was talking to the head of our capital markets desk and historically, we would say that historically, the IPO market does, kind of, play well with our business that as a company announces an IPO, the year before they go IPO, there's increased interest and trading activity in that name. But the market that we're experiencing today is a little bit different. You've seen a couple of companies announced their intent to go IPO later this year or within the next 12-months. And you know, what was related to me was that right now, what's drawing the buyers in, the investors in, the institutions, the need to put money to work, it's really the valuations. They're able to buy a high-quality growth company at a 50% discount for the last funding round. That creates an attractive opportunity whether that company has announced an IPO or not, right? And so that seems for right now, in the current environment to kind of be what's driving the institutional buy side interest.

Awesome. Thank you.

Emma. I think one final question from Patrick from Piper Sander.

One last question from Patrick Moley with Piper Sander. Your line is now open.

Patrick, you can ask a multilevel question.

No. I was going to, I thought I pulled out. I was going to ask about the right of first refusal, but Kelly covered. So thank you.

Okay. Well then -- with that, Emma, thank you for hosting us, and we look forward to see you guys here in the next quarter. We'll be at the JPMorgan Conference come out here in the morning as -- or sorry, JMP Conference coming up on the 6th as well as the Oppenheimer conference relatively shortly as well. Thank you.