FRGE - NYSE

Good afternoon. My name is Krista, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Forge Global Fourth Quarter and Full Year 2023 Financial Results Conference Call. On today's Forge Global's call will be Kelly Rodriques, Chief Executive Officer; Mark Lee, Chief Financial Officer; and Lindsay Riddell, Executive Vice President of Corporate, Marketing, and Communications; and Dominic Paschel, Senior Vice President of Finance and Investor Relations. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I will now turn the call over to Lindsay Riddell. Ms. Riddell, you may begin your conference.

Thank you, Krista, and thank you all for joining us today for Forge's fourth quarter and full year 2023 earnings call. This call will be a bit longer as we recap the full year. Joining me today are Kelly Rodriques, Forge's CEO; and Mark Lee, Forge's CFO. They will share prepared remarks regarding the financial 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 2023 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 actual outcomes to materially differ from those included in the statements. We discussed these factors in our SEC filings, including our annual report on Form 10-K, which can 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 GAAP reconciliations, you should refer to the financial data contained within our press release, which is also posted to the IR site. Today's discussion will focus on the fourth quarter and full year 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, our CEO.

Thank you, Lindsay and Dom and thanks all for joining us. I'll first share some of our 2023 successes, followed by brief highlights of our Q4 results before turning it over to Mark for a deeper dive on our Q4 and annual financials. And I'll finish with some insight on the business and what we're seeing in the market. I'm proud to say that in 2023, we made important moves to invest in Forge's future vision and our path to profitability. Forge focused on three things; accelerating technology development, winning with data, and expanding our category leadership. We invested in 2023 in the Forge Next-Generation platform, a flexible and scalable technology platform on which we are building next-generation institutional trading and data tools. We announced our first two indexes, the Forge Private Market Index, a benchmark for private market performance and a First-of-its-Kind Investable Index, the Forge liquidity Private Market Index. And we delivered proprietary and meaningful market data through our products, reports and experts to the tens of thousands who turn, to Forge for perspective as the market bounced around the bottom throughout the year. Amid the volatility that persisted last year, we ran our business with a focus on lean growth and operational efficiency, meeting our targets for lowering cash burn and keeping headcount flat even, as we strategically invested for the future, hiring key positions to advance our business. So I'll now turn to financial highlights for Q4 and for the year. In the fourth quarter, the slow market recovery continued. And we grew revenue for the third consecutive period. Forge's total revenue less transaction-based expenses rose to $18.9 million, up 3% from $18.4 million last quarter, and up 22% from Q1 2023 trough of $15.5 million. For 2023, Forge's total revenue less transaction-based expenses, was $69.4 million, marginally up from $68.9 million a year ago. And although the macroeconomic environment dragged trading volumes in the first half of the year, we are optimistic that the worst is behind us; ahead of a meaningful recovery on the market side, total custodial administration fees in 2023 made-up the difference and grew 53% to $44 million. Meanwhile, assets under custody were up 5% in the year to $15.6 billion. Our modest improvements in the year reflect the strength of our diversified business model, which includes cyclical and countercyclical revenue streams from our Trading Business and our Custody Business, respectively. We anticipate that as the market continues to improve, we'll see the trend reverse again and marketplace revenue will eventually outpace Custody revenue. Now, I'll turn it over to Mark, to talk about the fourth quarter and annual financials in more detail, and then I'll return with some notable business highlights and Forge's market outlook.

Thanks, Kelly. Before I start, I would note that we have renamed the category of our revenue, which was previously called, placement fee revenue, as Marketplace revenue in order to align with the types of revenue included in this category. Marketplace revenue includes placement fees, subscription fees earned from our data products and private company solutions revenue. We believe this name better describes the revenue included therein and therefore, is more useful to investors by better characterizing the underlying types of revenue included. We have not adjusted methodology, assumptions or otherwise changed any aspects of placement fee revenue in making this name change to marketplace revenue. And this category of revenue remains comparable to prior period presentations. And so with that, in the fourth quarter of 2023, Forge's total revenue less transaction-based expenses rose to $18.9 million, up 3% from $18.4 million last quarter. Total Marketplace revenues, less transaction-based expenses, reached $8 million, up 12% from $7.1 million last quarter. Transaction volume increased 7% from $234 million last quarter to $250 million in Q4, while our overall net take rate increased from 3% last quarter to 3.2% in Q4. As a reminder, net take rate fluctuates due to many factors such as the type 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 were down 3% in Q4 to $10.9 million from $11.3 million last quarter. As we noted on our last call, we fully expect lower interest rates in 2024 to impact total custodial revenues. Forge's custodial cash balances totaled $505 million in Q4, down from $518 million at the end of last quarter. The decrease in cash balances during Q4 was largely due to cash sorting, which has slowed from the pace in previous quarters. While this is an encouraging sign, we continue to monitor this closely as rate cuts have yet to occur and rates are still at high levels. Total custody accounts increased approximately 3% quarter-over-quarter to $2.1 million in Q4, up from $2 million last quarter. Assets under custody increased to $15.6 billion at the end of Q4 from $15.1 billion last quarter. As a reminder, the vast majority of our total accounts in custody are what we call CAS accounts or custody as a service. But the main driver of our custody revenues, both cash administration and account fees derived from our core self-corrected accounts. Fourth quarter net loss was $26.2 million compared to $19 million net loss in the third quarter. This difference is largely explained by a $7.6 million non-cash loss in Q4 from the change in fair value of warrant liabilities and costs incurred in connection with legal matters. Adjusted EBITDA is a key measure of our operating results. In the fourth quarter, adjusted EBITDA loss was greater at $13.6 million compared to a loss of $10.4 million last quarter. This change was largely driven by $2.9 million of costs in connection with legal matters. Net cash used in operating activities increased to $6.6 million in the quarter, compared to net cash used in operating activities of $3.5 million last quarter. As a reminder, both Q2 and Q4 of 2023 had an extra payroll given our biweekly pay cycle, and this drove the majority of the increase. The remainder was driven by net disbursements for other working capital settlements partially offset by the impact of severance payments made in Q3. Cash, cash equivalents and restricted cash ended the quarter at approximately $145.8 million compared to $156.4 million last quarter, highlighting the continued strength of our balance sheet. This excludes $7.6 million in term deposits classified as other current assets as of the end of the year, which stood at $3.2 million in the third quarter. Including these term deposits as cash, our total cash stands at $153.4 million. Now to recap the full year of 2023. In fiscal year 2023, or is total revenue less transaction-based expenses, was $69.4 million, slightly up from $68.9 million a year ago. There was a significant change in the mix of our revenue portfolio between marketplace revenues and custodial administration fees. Total Marketplace revenues, less transaction-based expenses, totaled $25.4 million, down from $40.2 million last year. 2023 trading volume was down 37% to $766 million compared to $1.2 billion in 2022. The average net take rate for 2023 stayed constant with 2022 at 3.3%. While year-over-year results reflected the difficult market conditions during 2023, which included additional rate increases, banking crisis and continued geopolitical unrest. We are nonetheless encouraged by the steady and consistent improvement seen in our marketplace business since Q1 of 2023. Total custodial administration fees were up 53% in 2023 to $44 million from $28.7 million in 2022. Total custody accounts increased year-over-year to $2.1 million from $1.9 million. The growth in accounts came from our CaaS or Custody as a Service business. Forge's custodial cash balances totaled $505 million at the end of 2023, down from $635 million at the end of 2022. This was largely driven by cash sorting. Assets under custody ended 2023 up 5% year-over-year to $15.6 billion from $14.9 billion at the end of 2022. As we've explained throughout 2022 and 2023, higher interest rates resulted in higher cash administration fees. These fees have been the main driver to the growth in total custody revenues. As we head into 2024, we expect to generate lower cash administration fees based on lower cash balances and lower interest rates, resulting in lower total custody revenue. Full year net loss was $91.5 million in 2023, an improvement of $20.4 million from the net loss of $111.9 million last year. Please note that 2022 included significant onetime transaction costs related to going public, as disclosed in our investor supplemental and in the 10-K. Fiscal year 2023 adjusted EBITDA loss was $48.8 million compared to an adjusted EBITDA loss of $46.9 million in 2022. Forge capitalized software in the amount of $6.7 million in 2022, 2023 included a $2.2 million charge in connection with the previously mentioned legal matters. During 2023, Forge continued to make key hires to drive our strategic initiatives as described earlier by Kelly, while maintaining tight cost discipline, keeping total headcount flat and bringing down our total spend. Net cash used in operating activities was $41.5 million in the year, a $27.4 million improvement compared to net cash used in operating activities of $68.8 million in 2022. Excluding $14 million in 2022 costs related to going public, significant cost saves were made across the board, including incentive compensation, company liability insurance, marketing spend, professional fees and real estate consolidation. Keep in mind for the timing of cash flows that Forge pays out annual corporate bonuses in the first quarter. Our total headcount, including Forge Europe stayed relatively flat at 345 at the end of the year from 349 in 2022. Forge Europe continues to staff up with eight people at year-end. We continue to be very disciplined about managing costs and have maintained our overall hiring freeze. From a housekeeping perspective, our weighted average basic number of shares used to compute net loss was 173 million shares and our fully diluted outstanding share count as of December 31, 2023, was 199 million shares. For the first quarter of 2024, we estimate 180 million weighted average basic common shares for EPS modeling purposes, while in a loss position. We continue to focus on managing our expenses, while still investing in our top strategic priorities to continue to build and improve Forge's platform, products and services. The launch of Forge Pro, Forge Europe and the Forge Private Market Index are just the most recent examples of our traction. As the stewards of our shareholders' capital, we are committed to continue to lower our overall cash burn in 2024 as we did in 2023. Entering 2024, we see early signs as the private markets are starting to regain their footing, and we're feeling optimistic about our prospects for the year ahead. I'll hand it over to Kelly to further expand on this.

Thanks, Mark. At the beginning of 2023, we talked about how to put ourselves in a position to win in this market. Importantly, we focused on continuing to build the Forge next-generation private market platform to drive the market's evolution and to expose more participants to the high-quality data that will tie them to Forge and more deeply engage them in this asset class. We believe the Forge Pro, which we announced to the public last week represents a step change towards that goal. It is also Forge’s definitive stake in the ground that we intend to win the institutional market and believe that with our tech, our data and our expertise, we are best-positioned to do so. We also made strategic moves to win on data, and have identified data quality as a key differentiator for us. Because of our commitment to building long-term company relationships, we match trades at a high rate, but we also closed more than 90% of matched trades in 2023. The scale and quality of our data is a key to this execution. And what became clear over the last year is that the more access people have to Forge’s data, the more likely they are to engage meaningfully in this emerging asset class. So in 2023, we made changes to our data strategy aimed at maximizing adoption of and exposure to our data through our products and platform. These changes mean we are prioritizing data adoption over near-term data revenue and creating stickier relationships with our customers that we believe will drive higher lifetime value. Reflecting this transition, total bookings in 2023 were $1.3 million up slightly from $1.2 million in 2022, and we've seen positive signals to start the year in terms of an increased number of IOIs from investors exposed to our pricing data. To continue to expand our leadership position in the category, we made significant steps to invest in the right talent in 2023. Through this acquisition of talent, we made scaled improvements to many functions, including how we engage issuers and institutional customers and how quickly and effectively we bring new product innovations to market, and we continue to build out our Forge Europe team as we pursue the pattern license in Germany. While we had hoped for a more meaningful market recovery in 2023, we believe we emerge a stronger, more efficient company and that the progress we made on technology, data and category leadership will pay dividends this year. Today, we're also nearly one quarter through 2024, and I can tell you with confidence, things are looking up. There are a few signals that we are monitoring closely. Buy-side indications of interest on our platform outweighed sell-side indications of interest for the first time in two years in February. The bid-ask spread has jumped around month-to-month as new issuers emerge and buyers reengage, but it settled down to under 11% in February. And the Forge private market index turned positive year-to-date with a growing number of outperformers amongst our index names. Reading the headlines, there is growing optimism for our returning IPO market this year. But whether or not the IPO pipeline opens up meaningfully from our view, there's an energy in this market that we haven't felt for a long time. Given what we're seeing in the market now, momentum is building, and we're seeing increased buy-side activity and a growing pipeline. While I've warned that the recovery may not be linear or up into the right every quarter as the market comes out of this long winter, we're feeling optimistic about the spring. Thank you for joining us. We'll open it up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Devin Ryan from Citizens JMP. Please go ahead.

Hey, thanks. Good afternoon, everyone. Thanks for taking the questions here. First one, I just want to talk about the bid-ask spreads. And Kelly, you just hit on the improvement you've seen there in kind of sub 11% in February and it's coming down from, I think, 15% at the end of the third quarter and going back to some of the data you guys have provided. The media has been 11.6% from 2020. And then in some really strong periods in 2021, you were sub-5%. So just want to think about like what the 10.8% means and indicates and like do we need to see further improvement to really see people reengage? Do we need to get back down into that mid-single-digit range? And then that's kind of part one of the question. And part two is it does take time to kind of rev the engine back up here, particularly given that it's been slow for the last year, two years. And so what does that lag look like in your guys' mind in terms of people reengaging and then from that period to actually get to a point, where deals are closing and revenues are coming in or maybe said a different way, accelerating. Thanks.

Yes. So I'll start with part one, and I'll let Mark take part two. We've been talking about bid-ask spreads for two years. And I think it's interesting, your question refers to what the spreads look like in 2021, which is really an extraordinary kind of moment in the market. When I look back on the data, I'd say in the sort of zone of nine to 11, the market starts to feel normal again. And when I say normal that you've got a reasonable range we're trading can happen and buyers and sellers can meet. And this is true by looking back at the 2020 bid-ask spreads, so I'd say the second question is probably more of a forward-looking view about how quickly revenue will accelerate. And I'll let Mark take it. I just want to point out that in the zone that we're in right now, this is what we feel starts to look like a more healthy market than we've seen in the last two years. So we're pretty excited about that.

Yes. Devin, thanks for the question. So let me give you a little bit of a kind of a lengthy response. I mean as you point out, we had seen kind of the spreads fluctuating between 5% and 10% even going back to 2020. And so I think it's fair to say, obviously, the tighter spreads the better. But I think we feel pretty good about kind of where the spreads are now and our ability to increase volume and flow with spreads kind of where they are today and the direct shot that they're heading in. I mean, the way I would broaden the answer is, I mean, we share with you two leading indicators, bids and offers, and as Kelly indicated, we saw the bids out number of the offers in the more recent period. 52% of our IOIs are now bids versus offers. And that's a big change kind of from where we were. You remember, two-thirds sellers and one-third buyers, during the last two years. I think the other -- the tubing indicators therefore are kind of bid offers and spread. But we also provide you guys lagging indicators, the valuation of these private companies, and we're seeing improvement there, right? And so, these come from our PMU and our forage investment outlook. But we're seeing the median valuation of the companies that we're trading to trade at a 50% discount to their last round. But on the high end, these numbers are getting better. The top decile are trading at a 75% premium to the last round, whereas the bottom decile are trading at a 77% discount to the last round. But all those numbers are an improvement over what we've seen before. And then, if you kind of go online and look at forge.com and you track the forge private market index performance, you can see, as Kelly referred, our index turned positive in 2024. So, our index is now up 4% year-to-date through 2024. And that's a big change, right? If you recall, in 2023, the Forge private market index was down 20% in contrast to how well the public markets perform. So we still think this gap between private company valuations and public company valuations is another reason to feel good that perhaps, in fact, this could turn out to be a very strong vintage year from an investing in private company perspective. And we think all of that together kind of forms the foundation for how we're feeling about the market going forward.

Got it. Okay. Thank you guys so much for the detailed answer there, great color. Just a quick follow-up, I guess, hopefully quick. So great to see the continued rollout of some of these new offerings and the recent announcement around Forge Pro, I'd love to just drill down a little bit into that specifically and just kind of think about how that's going to be marketed? And is that something that's going to come with the data subscription or intertwined with that so there's kind of cross opportunities there? And then, is this something that's going to be a direct monetization opportunity? Or is this more just around growing the pie, the differentiation of the platform and creating a better experience to drive more growth in activity? Just trying to kind of think about what this means for you guys. Thanks.

Yes. Look, it's a pretty big deal for us. And clearly, we have been working on it for a while. Mark will give a little bit of color on sort of traction so far. I guess when we look at our business model, and I've been talking about subscription-based or data-driven revenues for a few years, this really represents a combination of two really powerful things. First of all, we talked about the quality of data and the fact that we run a platform where we can verify the quality of IOIs and obviously substantiate pricing through the platform. But when you combine that data with some of the automated trading capabilities and access to our global interest book, which we've not opened up for anyone else up to this point, this is a pretty major moment. Now we see this continuing along the path of a subscription-based model. So think of it as another dimension of how we sell a recurring revenue data product, but it's really targeting institutions that trade. So the combination of the global order book and that data quality, we think is the game changer for us. It's still early days. I'll let Mark speak to sort of where we are, but we're pretty excited about this. And obviously, my point earlier about the relationship between data and trading, we see and have a belief that that benefits forge in that network effect. But Mark, I'll let you take it from there.

Yeah. Let me expand a little bit, Devin, on that. So I mean, we all know when we rolled out Forge Intelligence, people could see trading data, our order book, VWAP, waterfall models, mutual fund data, phermographic information. So that was version 1.0. Now if you talk about Forge Pro, we really think this is important because it's our first step towards order and execution management, technology and capabilities for our institutional trading customers. It specifically gives our customers the ability to input their IOIs with full visibility to live, real-time visibility to our global order book. And so they can put in their orders, they can track the order status. It gives them full depth of market and institutional style view. So we really think that this is the first step of really improving the customer experience and the automation of the entire process. I think we've also talked about this that as we see the evolution for our data business, we really break it down into kind of three distinct segments where you have our institutional trading clients where we are looking to bundle our trading and data services, so that they can take advantage of the full basket of the information and the services that we can provide. Number two, those that are not trading clients, we see a business where we're getting subscriptions at Forge Intelligence. And then number three, you've heard us talk about this a lot, drive data, I’m referring specifically to our index products and Forge price. And that, of course, we think there's a lot of opportunity we've talked about the Forge Private Market Index, now the investable index. So we think about our data world in those three different categories.

That's great.

Okay. I leave it there. Thank you guys.

Your next question comes from the line of Patrick Moley from Piper Sandler. Please go ahead.

Yeah. Hi, guys. Good evening.

Hi, Patrick.

Yeah. So looking back a few years now, when you went public, I think one of the things that you had identified was that the TAM, I think, in 2021 was around $3 billion. You thought that could grow to around $8 billion by 2026. So I mean, obviously, we've hit a little bit of a cyclical downturn here, but just wondering if you still think that if we do get an uptick in the market, do you still think $8 billion is a reasonable TAM for 2026? And if so, what are maybe some of the things that we've seen since 2021 that would kind of indicate that we could see that kind of spring loaded acceleration?

Yeah. Hey, Patrick, this is Mark. Yes. So I think that we'll have to probably come back and refresh our TAM with you more directly. But here's how I think we think about it. Back in 2021, we looked at roughly 1,200 private companies across the world with maybe a $4 trillion market cap. I think at this point, now you look at kind of what's happened since 2021. There's still roughly that number of unicorns. Obviously, the market cap with these unicorns, have hit a snag in the last two years. But we still fundamentally believe that in the long run, that these are, again, I mean, our whole thesis, right? These are the most innovative companies in the world. We continue to see new unicorns emerge globally, right? We're seeing a lot of activity in Forge Europe and in Asia. And so, I think our thesis remains the same. Our TAM, we have an updated number that we've dropped that $8 billion down to $7 billion, I think, based on the kind of the most recent information. But I think our fundamental thesis remains the same as we talked about back in 2021. I don't know anything you want to add to that, Kelly?

No, no. I think, there's still some very large macro trends that will continue to make it attractive for companies around the world to stay private longer. We see that emerging with maybe a four or five-year lag in Europe but we see this trend remaining. Obviously, we're in a bit of a cycle turn now, and we've believed for a while that the longer-term opportunities there. And we felt making the investments while others couldn't, makes this a pretty important time. So we're really proud looking back on what we've built in 2022 and 2023 to come out of this with the right kind of tech and the right kind of reputation and data. So we're excited.

Patrick, the one thing I think I would add is, I think the difficulty of the last two years, which has affected really everybody in this space, I think disproportionately affected our competitors. So oddly enough, I actually think that we come out going into 2024 in almost a stronger competitive position relative to the other players in this space. We still believe, fundamentally, there's going to be consolidation, and especially after the experience of the last two years, we're convinced that will happen, and you'll start to see that. And you'll start to see -- we've always believed that this is a business for which you'll eventually see a few major players, and I think the last two years has kind of increased our conviction in that belief.

All right. Great, great color. And maybe just a follow-up. If we think about expenses, you did a good job keeping the headcount flat in 2023. I think I heard Mark say that, you were expecting to kind of keep that hiring freeze in effect, but you maybe indicated that you could look to hire more people in Europe. So can you just maybe talk about what you expect the headcount growth to look like in 2024, and then maybe what that looks like in Europe versus the US business?

Yes. Patrick, we -- as I said, I mean, we're still maintaining flat headcount. And in fact, the numbers that I shared, we basically funded our headcount growth in Europe, which went from two people at the end of 2023 to eight people at the end of -- sorry, two people at the end of 2022 to eight people at the end of 2023 and continuing to grow and invest in Europe. We basically managed to keep our total headcount flat while continuing to invest in Europe. And so, that's our view still, right? I mean, as you can tell from a lot of the commentary, we do think that 2024 is a very different year as we start off the year. We know rate cuts are coming, right? We can see the glimmer of IPOs starting to come back to the market. Obviously, the kind of recent experience with Astera and Reddit, we're very positive for the market. Other big names being talked about, Rubrik, Strike Plat [ph], Fanatics, Waystar. I mean it sounds like people are starting to feel good about IPOs maybe in the second half of 2024. So, I do think that kind of IPO is coming back, the great reset of private companies raising capital even when they're having to take a down round, I think that pace is expanding and I think all of those things will help. So, our focus is on continuing to manage that balance between investing in our business as we've been doing, rolling out new products, while keeping our costs very lean and to reduce our burn through top line growth.

All right. Thanks so much guys.

Yes.

Your next question comes from the line of Alex Kramm from UBS Financial. Please go ahead.

Yes, hi. Good evening everyone. Maybe following up on a couple of the things I've already discussed, just hoping that we can be a little bit more specific. I mean, on the trading side, I mean you gave a lot of good color on what you're seeing in terms of IOIs and spreads, et cetera. But look, we're like two more days in the quarter. So, hoping maybe you can be a little bit more specific in terms of the volumes that you're seeing. If you don't want to give exact numbers, maybe at least directionally or directionally with some magnitude of how we're trending so far in the first quarter? I mean, again, the quarter is almost over. Thank you.

Yes. So, Alex, it's Kelly. I think we've made the decision to stay away from providing detailed color and I was pretty deliberate in some of the terms that I use there, which is we are seeing the market improve, and we are seeing an indication that while we benefited in some ways from the interest rate environment around our custody business, we're starting to see a shift. You can see it in the Q4 numbers regarding the growth in volume that we saw in Q4, and we see that trend continuing in 2024 around what Mark described as the marketplace business. I'd say the only caution that I want to reiterate is that there is a certain level of quarter-over-quarter variability in terms of how the market works between the end of the year and the first part of the next year. I'd say we're very confident in the pipeline and the pipeline has improved. And I think we'd rather not talk about where we're going to be in Q1. I have, in the past quarters, talked about being at or above in the successive quarters as we move through time and I'd say I'll leave it that. We're optimistic in the pipeline and continued recovery. But it's clear to us that it continues to recover at a point where we can't commit to every quarter being up into the right from the previous one.

Alex and I would add that as you're tracking a lot of these other leading indicators in the PMU and the FIO that, as you know from our prior conversations, there's improvement in sentiment in these indicators, but there's always a lag between the time that people start to regain their confidence to invest in the time it takes to settle and close transactions, right? That's the 30- to 45-day window typically in the private markets. And so -- and there's always generally a big push at year-end. A lot of institutions want to kind of get certain trades in before the end of the year. So that always happens every year where Q4, there's a big push, and then you start off the year fresh. So I think that's -- yes, I think I would leave it at that.

No, very clear. Thanks for the color. And then again, sorry to be numbers focused here, but the question around expenses, maybe you can be a little bit more specific as well. I mean I hear you head count flat and that's great. When I look at I mean it's great from expense control. Hopefully, you're still investing enough. But in terms of the expense growth in total, I mean, it's been basically flat the way I look at it. It's basically revenue minus adjusted EBITDA, which I think was $118 million in 2023 and was basically flat for the last three years. So look, there's an inflationary environment, there's other costs that you have. So do you think in dollar terms, you want to try to keep the expenses flat as well? Or is there actually a scenario where things improve that overall expenses start ramping up a little bit. So just in terms of the expectations we should be having initially here? Thanks.

Yeah, Alex. Look, I think what's -- what I'll make very clear -- well, let me back up. When we talk about adjusted EBITDA year-to-year, we were very specific to identify that when you look and compare our adjusted EBITDA year-to-year, just please consider that we did capitalize software in 2022, and we have had legal expenses associated with 2023. And so we called those out specifically so you can kind of get a better idea of how to look engage us on an apples-to-apples basis. But the way we think about it, we're very clear that we're committed to our investors, to our shareholders, to our Board that we are going to be reducing burn year-over-year, right? And we look at it as trying to manage our costs while growing the top line, right, and taking back revenue growth while continuing to invest but reducing burn. So that's how we're thinking about the world right now. I mean, we've pointed out historically that this has always been a company that we've operated to be roughly breakeven, right? Kind of operating in the last two years at a deficit is not kind of in our DNA in terms of how we think about managing this company. So one of our top priorities really is to get that number down to kind of where we've been in the past. But at the same time, continuing to do -- to gain traction, all the announcements that we've talked about in the last several years, right? It's been that delicate balancing half.

Yeah. Look I want to make sure, Alex, you hear this, though. We are looking at our path to profitability now. We understand that as a public company, that there's an expectation that we're not going to burn forever. And our commitment two years ago was to systematically reduce burn each year. And I'd say, as we get through part of 2024, we're going to look at this and we're going to obviously be looking at what are the other scale drivers beyond just our organic growth and cost controls. One of the reasons we went public was to use our currency to consolidate other interesting players in the market. We view 2024 and the continued improvement, an opportunity for us to look at other inorganic ways to get additional scale. And that's part of the calculus for how we see our path to profitability, including our organic growth and these cost controls. But under all circumstances, we're reducing burn in 2024. I want to make that really clear with Mark on this.

Super clear. Thanks, guys.

Your next question comes from the line of Owen Lau from Oppenheimer. Please go ahead.

Good evening. Thanks for taking my question. So a follow-up question related to the outlook and new products. How should investors think about or even model out the revenue impact from some of the initiatives like Forge Pro, Forge Europe and Forge Intelligence in 2024. And is there any way you can help us get our arms around these numbers? Thanks a lot.

Yes. Let me start with just a couple of broad base points. We just started our initial trades in Europe. Mark will talk a little bit more about some of the specific modeling guidance, Owen. I'd say, you should think of Forge Pro, as I said earlier, as a subscription product that's meant to be driving revenue that would be in our marketplace revenue line as subscription revenue, but also as a bundling component with transactional revenue. And we think that, it's an evolution of the market as we see it. And then I'd say, Mark, you can jump in and talk a little bit more about any of the other new products ranging from the index and the investable index as we see it and how its contribution should be considered as well.

Yeah. Hey, Owen.. So look, on Forge Pro, as Kelly has described and I mentioned earlier, I mean, we see it as a product where the trading capability, state-of-the-art trading capability, combined with data is kind of completes and creates this experience for our customers, which will be superior to anything else kind of out there in the market. And that the way we'll roll out the product, the way we'll price the product, it will be done as a bundled product. One of the things we've mentioned in the past is that when we first rolled out Forge Intelligence, and we measured this some time ago that we saw an up-tick, right, in our customers' engagement with Forge from a trading perspective, right? And so I actually think that beyond the subscription revenue that we're talking about for the data product itself, a lot of the upside, right, isn't creating that stickier relationship that with our institutional customers, and that will result in higher revenues, not just through subscription revenues, but higher trading revenues as well. So with Forge Europe, I mean, we're really excited about the opportunity there. I mean the team is growing. As Kelly said, we've started to do some trades. We have the ability to trade as a tight agent through registered entities in each jurisdiction as we await approval by BaFin. But the team is out there talking to private companies. They're talking to institutional investors, right? We're getting indications of interest. And we just think it's an incredible opportunity where there's -- we don't really have kind of competitors to speak up on the ground. But it will take time, right? I think that as you model it, you have to kind of build it out over time. I think ultimately, right, we talked about cross-border flows across Europe, Asia and the US, but it's going to take time to mature and evolve. I think the other thing we wanted to mention is the Forge private market index. So as we had announced, we've created a partnership with Accuidity and the Accuidity Megacorn fund will start to track the Forge Accuidity Private Market Index on April 1. So as we said earlier, this will be an investable index. We're really excited about it. Again, it's something that we think will take time. But to have -- to have -- give investors the opportunity to invest in the private markets in a passive manner, right, complementary to active investing in private markets. I think we think it's a game changer in the long run. But again, we'll take time to mature and build scale. But that's something that we feel very excited about as well.

Got it. And then just a quick follow-up housekeeping question. Could you please add more color on the $2.5 million increase in the accrued legal expenses related to our settlement and also – I also saw another $3.8 million loss related to change in fair value of your warrant liabilities. I just want to make sure I understand these numbers correctly. So I assume they are non-recurring in nature. Is there anything we should be aware of? Thanks.

Yes, Owen, I think there's a fair amount of information about this in the 10-K. We have talked about -- we have provided information. We did have warrants, private warrants kind of -- as we went public, we did have legacy warrants and the lawsuits revolve around those private warrants. We've mentioned in prior calls that a lot of this is non-cash. And yet, it's an expense as a legal settlement. It's a cost you have to include in G&A in your adjusted EBITDA. So I think there's a -- it is a one-time related to that particular matter as a one-time kind of related to the acquisition of SharesPost back in 2020. I mean the Warren mark-to-market in general, obviously, which was a pretty significant number this quarter. I mean, it's related to the increased value of these warrants based on the stock price. And as you recall, I mean, the stock price got up into the threes and even approached $4 at the end of the year. And so a lot of that mark-to-market is driven by the increase in the stock price back at the end of the year.

Got it. Thanks a lot.

Your next question comes from the line of Ken Worthington from JPMorgan. Please go ahead.

Hi, good afternoon, Kelly and Mark. This is Michael Cho on for Ken. Thanks for taking the question. I just had a couple of quick follow-ups on the discussion we've been having. I guess just one on the on the data business, I think, Kelly, and you've certainly announced a number of good and forward-leaning initiatives around this business, and it seems like a good path forward here with the launch of Forge Pro as well supported by that data. But I guess, Kelly, I think I heard a comment when kind of a shift in the data business strategy, and you talked about kind of prioritizing adoption over kind of near-term revenues. I guess, one, is that a kind of a short-term strategy that you've taken in terms of positioning the data business? And two, is there like is there a point in which you will start to prioritize revenue again in the data business. And again, just trying to gauge if there's a tipping point at all or if this is a clear shift in strategy that's implemented for the medium-term? Thank you.

I guess you should, Mike read into it as a strategy for 2024. I'd say we're at a point right now where we see an advantage in the quality of our data. We think it's unique in the market. You've got a bunch of competitors out there that are aggregating third-party data that they don't own and that you could question the validity and quality of it. We think that not only is it time for us to dimensionalize data from just a subscription product, but into a trading product like Pro, that we've got an opportunity to make a pretty significant ramp for market share right now. And we think 2024 is the right time to do that. And we'll do that through a combination of bundling, pricing strategies and essentially being really aggressive in getting our data out to as many customers and prospective customers as we can. I'd say you and the other folks on the call should continue to watch for where you see Forge's data appear because beyond Forge Pro, this strategy for adoption and exposure will extend beyond just what we're going to market with and into a range of other activities that will play out over the course of the year. But this is a very lead to 2024 strategy. We believe, given the quality of it, it's really valuable to the relationship between those who trade, and those that we do business with on the institutional side. So that doesn't mean revenue is always going to be a priority, Mike. And we certainly want to see it translate into revenue. We just happen to believe this strategy here will translate particularly positively for Forge, given the scale of our marketplace business. So considered a 2024 strategy, and if we come back and decide to shift it and be more focused on revenue in follow-on quarters this year, we'll come back and let that be known to the investor community as we see fit. Mark, you want to add…

Thanks for all the clear. Go ahead, Mark

Michael, I was just going to say, I mean, when you think about institutional customers who are getting increasingly reactive in the private markets there and you think about kind of the size of trades and you think about the take rates that we charge, you can understand that we also have to be thoughtful about how we want to price the bundling of data and trading because obviously, there's just huge upside to be able to get dominant market share, a customer's trading activity, right? And so it's considering both. And that's why we kind of talk about having the strategy to bundle the two together. I think the combination of trading plus data is just kind of the winning combo in terms of positioning ourselves with our customers relative to competitors.

No. That makes sense. And I appreciate all the color there. Just a quick follow-up on M&A. I think, Kelly, I heard you say or discuss kind of maybe Darius [ph] for potentially more accelerated scale in the business and maybe that can get plugged with M&A or considerations of M&A. I guess my question is, are there some areas or segments of the business or of the market that seem of higher interest to you today. Thanks.

Yes, I don't think we're ready yet to talk about, but I think what you could assert from the priorities that we've laid out around institutional, what we call data domination and issuer-centric relationships. We're looking at any differentiated player that's got scale that have an aligned focus in the areas of our priorities. And so when we talked about the launch of Pro, that really lines up under our institutional focus. So anybody that's out in the business that operates with a high level of integrity, focused on institutions is interesting to us. Anybody that's out in the business that's got scale, that are focused on issuers and reputationally are in a good position with issuers. That's interesting to us. And clearly, high-quality sources of data where the data is proprietary and owned by a potential competitor are areas that all line up to our priorities for 2024. But we don't have anything or anybody specifically that we're ready to talk about yet.

Okay. Great. Thank you.

And we have no further questions in our queue at this time. I will now turn the call back over to Dominic Paschel for closing remarks.

Great. Thank you, guys, for joining us for this year-end call, was a bit longer. We are available for questions, just ping [email protected], and we will definitely engage. Thank you.

Thanks, everybody.