This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk11: to borrow funds, to exercise their vested options, and then sell their shares on the Forge platform.
spk02: We're being deliberate about the rollout, starting small and with a long-term strategy of working with banking partners to provide the capital this product requires. We believe our lending offering can help unlock sell-side inventory and generate additional revenue as the product gains traction. Switching topics to what is top of mind for the investment community, for our executive team and board, is capital allocation. During this period of market instability, we've been conscious about cost containment and reduction of cash burn. And we have instituted a hiring freeze, which continues to build for the future and will do so with an expected flat headcount in 2023. We will continue to consciously manage spend while investing for growth, but we're committed to lowering our overall cash burn in 2023 compared to 2022. Despite the challenging macroeconomic environment we're building for the future, we're excited about the progress we've made, debuting our first lending product to unlock new inventory, increasing the value we deliver to customers through our data products, and expanding internationally through Forge Europe, all of which accelerates the network effects of our unique model.
spk11: I've said this before, but it's worth reiterating.
spk02: With a strong balance sheet and a growing need for private markets infrastructure, we believe we're well positioned to extend our category leadership and return to revenue growth when the market stabilizes.
spk11: I'll turn it over to Mark Lee, our CFO. Thanks, Kelly.
spk03: Given the unique economic environment at this time, I will also be focusing my Q3 remarks in comparison to the prior quarter. The third quarter of 22 forges total revenues less transaction-based expenses were $15.8 million, down from $16.5 million last quarter. Of that amount, Total placement fee revenues reached $8.2 million, down from $11 million last quarter. Transaction volume in this quarter was $226 million versus $332 million in the second quarter, the ongoing result of inflationary and recession concerns compounded by geopolitical instability, which continues to create market dislocation.
spk11: The average net take rate for the quarter was up to 3.6% versus 3.2% in Q2.
spk03: And as a reminder, net take rates are directly related to the mix of institutional versus individual volume in any given period. Total custodial and administration fees were up in Q3 quarter over quarter to $7.7 million from $5.7 million last quarter. This gain is largely driven by our ability to increase cash administration fees in a rising interest rate environment. FORGE's custodial cash balances totaled $685 million at the end of the third quarter, roughly flat from $680 million at the end of last quarter. Total custody accounts increased quarter over quarter to $1.8 million in Q3 from $1.7 million last quarter. And as Kelly previously stated, assets under custody were essentially flat at $15 billion into 3.2 versus $15.3 billion into 2. Soft base compensation was up to $26.7 million versus $10.7 million last quarter. Our third quarter gap net loss was $16.2 million compared to a gap net loss of $5.1 million last quarter. This $16.2 million in the quarter includes an incremental $10.7 million in non-cash expenses due to an increase in stock compensation and offset by the change in the fair value of our private mortgage liabilities. Objective EBITDA is another key measure of our operating results. In the third quarter, Adjusted EBITDA loss was $13.3 million compared to adjusted EBITDA loss of $12.3 million last quarter. It included a reconciliation of adjusted EBITDA to the most recently comparable GAAP measure, both in the press release and in our SEC filing. Net cash use and operating activities improved to $11.4 million in the quarter compared to net cash used by operating activities of $18.2 million last quarter. The quarter-over-quarter improvement was driven by one-time costs related to being a public company and the timing of annual insurance payments in Q2. In the current macroeconomic environment, we continue to actively manage expenses to mitigate our cash burns. Let me spend a minute on the structure of Forge Europe, which was the driver behind the 8.1 million in net cash provided by financing activities in the three months ended 2022. As Kelly has highlighted, the private market in Europe has demonstrated tremendous growth in recent years. Forge and Deutsche Börse have formed a strategic partnership that was funded with 14.1 million 4.6 million from Forge and 9.5 million from Deutsche Börse. Forge Europe financial results are now consolidated under Forge Global, with Forge having a controlling interest. 2023 will be the year of building Forge Europe and evangelizing our private market vision throughout the EU and the UK. Cash and cash equivalents ended the quarter at approximately $203 million, down from $205 million last quarter, highlighting a well-fortified balance sheet. From a housekeeping perspective, our weighted average basic number of shares used to compute net loss was 169.8 million shares, and our fully diluted outstanding share count as of September 30th was 184 million shares. For the fourth quarter, we estimate 171 million weighted average basic common shares for EPS modeling purposes while in a lost position. We ended the quarter roughly flat in total headcount at 357. As Kelly has stated, Forge has instituted a hiring freeze. 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. As responsible stewards of capital, we and the Board are monitoring the market, our resource allocation, and capital spending on a regular and ongoing basis. 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 needs and the opportunity to invest for the growth of Forge's platform, products, and services, in keeping with our vision and strategic plan, and delivering and executing on our commitment to shareholders.
spk11: Thank you, Kelly and Mark. Emma, can we please open to questions?
spk01: Thank you. As a reminder, if you would like to ask a question today, press star followed by the number one on your telephone keypad. Your first question today comes from the line of Devin Ryan with JMP Securities. Your line is now open.
spk07: Okay, great. Good afternoon, Kelly, Mark, and Dom. How are you?
spk08: Good. Maybe I want to start on the bid-asks. equilibrium and appreciate the update um there and some of the comments um you know love to just dig in when when you think about some of the improvement um that you're seeing and hopefully that continues um i'm assuming um some of the names are getting closer than others and so um you know there's gonna be names that are within kind of that average and so you're just trying to think about that to the larger names larger companies where there's probably more liquidity on both sides are they even getting maybe quite a bit closer than that, you know, does the spread tighten around company events or, you know, just ultimately just trying to think about what other drivers we should be watching from the outside to think about kind of that tightening even further from here?
spk11: I mean, I'll start with just an overall view of the,
spk02: of the question relative to what we've put forth. We've been speaking in averages. I'd say even in this time of disruption, there are still companies that are performing well. And one of the key indicators of bid-ask spread is, is there a new financing? Is there a company that's demonstrated their ability to raise capital in this period, given their performance relative to the broader macroeconomic trends. So if a company has successfully raised capital, we believe that that is likely to be a company that would have a lower bid-ask spread to the extent it traded. I think we're also seeing the data product being a critical factor in determining where bid-ask spreads are on individual names. So remember, we put out this PMU every quarter, which is meant to give the market a broad sense of what's happening. But I think if you're a data subscriber at Forge, you can zoom into one name and take a look at what's actually going on in that name. And so, as you could imagine, there are names that continue to trade and trade with lower bid-ask spreads than others. So, but look, I think everyone's affected in some way by the condition that we're in right now.
spk03: You want to add anything? Yeah, Devin, I would add that while, you know, looking at the existing bid-ask spreads is an important, helpful indicator. The other thing that we mentioned during this call was the fact that the transactions that we are closing are being completed at, greater and greater discounts to the last round, as well as, you know, I think 44% decreases from valuations that were created, you know, back in Q4 of 2021. And so you could take a given name where there could be a widespread, but ultimately what happens is that the seller, you know, accepts the bid. We close the transaction. it's at the bid price, which adds a significant discount to either the last round or where that stock traded in 2021. You know, and a trade gets completed despite that being a widespread at the time, right? And so I think the important kind of data point to incorporate in addition to the spreads is kind of where are those trades being closed? And, you know, we mentioned in the last call The more public, you know, visible markdowns that private companies are taking, you recall Pharma raising capital at an 85% discount. Instacart going through three rounds of valuation decreases, 57% decline in total. Stripe dropping their valuation 64%. That was actually a valuation that T. Rowe put on their strike holding. And then recently, Mobilize went public and they were anticipating a range of $30 to $50 a share and ended up issuing at $16 or down 50% kind of where their expectations were. So I do think that the positive information that we're taking from all of this is that we are seeing valuations adjust in the private markets. And if in fact If, in fact, that leads to more transactions, I think that could very much be the outcome.
spk07: Okay. Great. Thanks for the color there.
spk08: Follow-up here on the lending product. Sounds like that could be a nice ancillary revenue stream. I appreciate it's going to take time to scale and to get more adoption there, but just remind us on
spk02: um you know how to think about kind of when this product would be applicable um and then just how you're thinking about the potential opportunity for the product as it scales well um we're really excited about this we and we really started thinking about lending with a range of different applications um we fundamentally have a view that employees that become owners and not just stock option holders really serve broadly the private market and companies that are participants that are trying to change the world, realizing particularly in difficult times that employee retention is a big deal. And so the idea that we started with something that was relatively small, and relatively low risk. Now, on an enterprise basis, it's conceivable that you could see companies in the global unicorn crop today that want to broadly institute programs to convert their option holders into owners. And so we thought this is a logical place to start because the loan sizes are small The loan term was very small because we identified with our data and with our platform buyers of the same name that companies or employees were looking to get loans on. So our ability to match a buyer with a stock and to pay off a stock option bridge loan, we think is uniquely qualified in the market. We think we could do this better than anyone else in a scale. So we started here, but we recognize that over time, this could expand into other lending products, and that we will need capital partners. And so it shouldn't be a surprise to anybody that Forge is backed by some of the most sophisticated and interested banks in the world in the private markets. We've announced partnerships, and we'll look at our banking partners as sources of capital as this scales and gets bigger over time. But we thought this was the place to start. It serves employees, it serves companies' interests, and it really creates a unique opportunity for Forge to enter the market and be competitive.
spk03: And Devin, I would add that in the current environment, unfortunately, you're reading about many unicorn companies reducing their staffing. And for those affected by this, they typically have a short window to exercise their stock options, many of which would be in the money. And so that would be an opportunity to work with Forge to be able to monetize kind of their approach to their labor, you know, the wealth that they generated while working at those unicorn companies.
spk02: And I'm sure, Devin, you've seen some of the companies modifying those plans to help assist with employees who have been part of a RIF or essentially looking at the work they've put into a company thus far. And so we think there's a particular acute opportunity here at this moment in the market. Also, Mark, what type of balance sheet liability do you anticipate or any risk associated with Forge?
spk03: Yeah, in case you guys didn't hear the question, it was kind of the amount of capital that we envision putting to work in entering the loan business. So initially, we expect that the amount of capital will be funded off of our balance sheet. We don't think it's gonna be, because these are short-term loans, typically 30 to 60 day loans, we think that the amount of total capital that we need in our initial pilot will be relatively minimal. And that, as Kelly mentioned, you know, as we start to scale this product and move beyond our pilot, we envision bringing in capital partners to help with the capital requirements for this product.
spk07: Okay, great. Thanks so much, guys.
spk08: Actually, maybe you did more, you know, since we're talking about the balance sheet and, you know, you ended the quarter with a strong cash position and expect to reduce cash burn, right? from here, which is great. I'm assuming that doesn't assume any improvement in the operating environment. And so just what are some of the levers to do that? And then just interrelated based on the comments for kind of flat headcount into next year, how does that impact growth plans or priorities, if at all?
spk11: Thanks. Well, I'll start with just the growth plans and priorities.
spk02: we think that this is a time when our competitors in this funding environment and anybody that's investing in this environment is really a cautious time. And for Forge, we think the market needs critical infrastructure. So we'll continue to put engineering resources against developing the next generation of markets infrastructure and while we haven't given forward guidance on revenues for 2023 we're working on the assumption that the conditions that we're in right now will continue to persist until we start to see that price discovery equilibrium be reached so we're watching very carefully in q4 but we believe through a combination of careful management of our costs and being really focused in 23 as the market recovers, we've got the potential to both lower our cash burn, and we're going to do that. We're going on record and saying we're doing that, and also be ready as the revenue opportunities for the transaction part of our business returns. But let me make it clear. We talked about If you didn't hear it, the inverse relationship between our interest rate-sensitive business around custody and the relationship between that and the relative volatility of both public and private markets, and you can see in the data already that in our Q3, part of our performance was buoyed by better-than-expected cash administration fees from the interest rate environment. We think we're uniquely positioned to benefit from those things, and with lending coming online and the uptake of data, we need the quality of revenue and our relative performance in 2023 to other competitors that don't have that composition will serve us. I'll let you talk, Mark, to any other specifics.
spk03: Yeah, I think Kelly covered most all of that answer, Devin. I would just add that we are looking at other opportunities, too. you know, continue to improve our market's revenue, even in, you know, a challenging environment. Our data business, though we're not breaking that out separately, we continue to see a strong pipeline, high interest. Kelly mentioned, you know, strong high levels of renewal, upsell opportunities. So we think that will continue to contribute in 2023. You know, we expect lending to kind of start to improve and add to the bottom line. And then Kelly mentioned, of course, you know, our custodial revenues. Obviously, there was another rate increase in November, another expected in December. And so, that will continue to also help contribute towards our ability to lower our 2020 fee burn.
spk11: Understood.
spk07: Well, thanks for all the details.
spk11: Appreciate it, guys. Thank you, Devin. Emma, we can take our next question.
spk01: Your next question comes from the line of Patrick Moley with Piper Sandler. Your line is now open.
spk06: Yeah. Hi, guys. I was just wondering if you could maybe expand a little bit more on the partnership with Deutsche Force and then maybe how you guys look at the size of that opportunity relative to the U.S. And then I think at the press release, you guys said that you were going to be first movers in Europe. So maybe you could just talk about the competitive landscape over there, what competitors there are, if any. Thanks.
spk11: Yeah, so let me talk first about the structural part of the question.
spk02: We took a lot of time to consider and enter the European market, and we view it as a market that currently is pretty concentrated in the UK, France, and Germany. We've been watching some of the data around growth of European unicorns, and for years have been doing business with both European companies and European investors that are working primarily through our US regulated operation. And we could see an opportunity emerge to get a bigger piece of that market as it came to be a reality by having regulated entities on the ground in Europe. And while we entered into a partnership with one of the most respected market operators in the world, we also weren't naive about the fact that joint ventures often don't work. And so this is structured, and I would say will be executed and led in the same founder-led mentality that we built Forge. And so some of the critical talent required to run the standing up of that entity and the first trades are coming from our Forge U.S. operation. And we've started to staff positions in market with local folks. And so we think we've got the right mix of a partner in Deutsche Börse The capital, as you heard from Mark, was mostly Deutsche Börse's capital, but we retain a controlling interest in the entity. So we think it's going to be a nimble, executionally savvy entity, but we also think we've got the right balance of local talent and people that have come from the years of expertise that we've built here. And Deutsche Börse will be very active. And I'll just tell you, as market operators go, they're true believers in the private market. And so as far as competitors go, it's super fragmented. It looks like the U.S. market six or seven years ago, where nobody was doing more than $10 million of revenue. It may be even smaller than that. And then you've got the whole issue of companies in Germany versus companies in the U.K., And just generally, the fact that trying to do transactions within the region and across European entities requires a regulatory structure that we could see was going to be complicated and take some time to invest in. But look, the valuation of European tech and unicorns over the last seven years has gone from $50 billion to $625 billion.
spk11: So this is a market that's growing faster than the U.S. market right now. Very helpful. Thanks.
spk01: Your next question comes from the line of Jeff Schmidt with William Blair. Your line is now open.
spk10: Hi. Good afternoon. Question on the custody client cash balances. Could you maybe discuss the dynamics there? Do you have suite vehicles? What type of securities are those invested in, the type of yield that you're earning there?
spk02: Yeah, I'm just going to start with one point just to make it really clear, and then, Mark, I'd like you to talk about the yield and regulatory dynamics of that business. So our custodial enterprise holds... private securities investors. And like the asset class that we're all talking about, familiar with, there are periods when those investments have a component of the account that is in liquid cash that sits in idle cash. And those balances in the experience that Mark, Lee, and I have both here and in our previous company that specialized in this type of custody grow over time. And they even grow through periods of market volatility that we see here. And so we think that that's a real value to our business model in terms of both the balances itself and the fact that they grow over time, particularly as people start to liquidate assets and may have to liquidate assets if they need cash. So some of that cash stays idle in our accounts. Mark, I'll let you talk to the specific dynamics in terms of the yields. and how we manage it.
spk03: Hey, Jeff, just for the benefit of all the others on the call, let me give a really high-level summary for those on the call. As you recall, Forge Custody earns revenue by providing administrative services. We charge quarterly account and asset fees, transaction fees, and cash administration fees. And you're asking specifically about the cash administration fees. So, you know, and we said this, previously, but during periods of lower interest rates, right, our cash administration fees are compressed. And then during rising rates environments, as we're currently in, we're able to increase our cash administration fees. Now, your specific question is, was about the mechanics of, you know, how that's structured. And I think specifically when you read reports, you know, of other firms, brokerage firms and the like, you read about cash sorting issues and um that affecting uh brokerage firms revenues for us our client cash is typically very small amounts held for each account as kelly described it typically tends to be transitional cash either someone's in between an investment you know or they have residual um you know dividends or income flows from their investments it's not typically you know large amounts of of cash So we haven't been subject to the same type of cash sorting issues. It's small accounts, amounts of cash across a lot of various accounts. The cash balances are placed in depository banks. Depository banks, you know, pay an interest that is related to kind of the movement of Fed funds. And it's from that interest that customers receive interest and we're able to earn our cash administration fees.
spk11: Okay.
spk10: Yeah, and I was just curious, is that sort of Fed funds rate plus a small spread? Are you looking to invest that in kind of locking in higher rates, or is there anything you can kind of speak to on the type of yield that you're seeing on a gross basis?
spk03: Yeah, no. I mean, this is client cash, right? It just sits in demand deposit accounts at banks, and it Really straightforward, Jeff. You know, the interest is earned on these accounts. Customers earn, you know, an amount of interest on their balances and cash administration fees are deducted, you know, from that interest. And this is very similar, by the way, you know, with all of the similar custodial firms that are similar to Forge Trust.
spk10: Okay. Okay. And then on the headcount, you know, it was up, 28% of the year over the year, you'd mentioned hiring freeze, but just when we think about, so if you're keeping the current head count, you know, when we think about 2023, you know, what should we expect from sort of a wage inflation perspective? Cause I look at it now, you know, when you include stock comp, I mean, it's over a hundred percent of revenue. So what should we think about in terms of like growth of that from an inflation side and, and the stock comp component, frankly.
spk11: Yeah, let me start with stock comp, Jeff.
spk03: We mentioned this in the prior call, and in fact, in our supplemental schedule, we were providing additional information, stock compensation, given the unique nature of kind of what we're going through. But to recap, when we went through, when we went public, we approve a certain amount of retention RSUs for our employees. But due to the timing of when those were approved, we have to amortize them for accounting purposes, right? You know, alongside, based on the price at the time that they were granted. And so what you're seeing in stock compensation is the amortization of the various amounts of restricted stock options, that are granted to our employees and our board. And we're providing you specific insight into stock compensation and how it shifted from Q2 to Q3 to Q4. So I think you have a lot of visibility with regard, and it does decrease significantly in Q4 and then further in Q1 of 2023. I mean, with regard to compensation with a flat head count, I mean, as you As you have described, given that we are maintaining a flat level, as you look forward, you would have to look at the full year impact of those headcounts in 2023 and any kind of increase that you would model in that we would have to give, you know, offer to our employees year to year.
spk10: Any indication of what type of inflation that is, wage inflation? I mean, is it 6, 7, 8?
spk03: Yeah, we're in the process of kind of going through that 2022 planning process with our comp committee and our board. I don't think we have any guidance on that at this point.
spk11: Okay. Great. Thank you. Jeff, just keep in mind, a lot has changed in the labor market, even within the last 24 hours, so Right, right. Okay, thanks.
spk01: Your next question comes from the line of Ken Worthington with JP Morgan. Your line is now open.
spk00: Hi, thanks for taking the question. Okay, beating the dead horse on cash and custody fees. Of the $15 billion of AUC, how much is in cash? What is the normal percentage that is in cash? And are the fees, the cash admin fees, are those standardized across clients? And if they are, can you just sort of give us what you're charging on cash and how that should fluctuate as rates change?
spk03: Yeah, Ken, in the supplemental schedule that we filed and is also on our website, we're disclosing the level of cash balances So you can look at kind of our total assets under custody, and you can look at the cash balances to see the relationship there. I mean, as I kind of commented earlier, too, I think it was Jeff's question. You know, we have not been subject to the same type of cash sorting issues that you see at other firms.
spk11: And let's see, what was part two of your question? It was about the composition.
spk03: Yeah, so the fees are uniform across our accounts. And as we go through different rounds of increasing rates, it's an evaluation by the management team at the trust company to evaluate and determine the appropriate level of cash administration fees. relative to kind of current rates.
spk02: Okay.
spk00: Okay. Thank you.
spk02: But Ken, I think we did report that it's 680 million on the 15 billion, just to speak to specifically the percentage of the 15B that's in cash.
spk00: Okay. Perfect. Thank you. You mentioned in the prepared remarks the right of first refusal. And your comments around that is based on what you're seeing, it could be signaling a trough. So can you just walk us through, again, what the right of first refusal is and just the logic behind the signaling and your interpretation? Yeah, sure.
spk02: So structurally, in previous calls, we've talked about the different ways that trades happen within companies. is employees want to sell and they're bound by a transfer restriction within those cap tables that requires them to provide typically a 30-day notice of desire to sell. And the company then has, within its own private market bylaws, extended the right for existing investors to purchase those shares And while this isn't the case in every structure, we have certain SPV structures that sit on cap tables that have approvals or are allowed to trade without ropers. If there is a roper in place and we track it, there's an indication that we can read into this, which is that the insiders who are on the cap table already, who see the roe for being tender they see the the potential for a sale they get to elect whether or not they want to step in front and buy the shares themselves and our view of this is that if you have more knowledge of the company because you're already on the cap table you may be a board member you may have information rights your purchase of those shares at that price is an indication that it's a deal that is worth getting additional exposure on. And so if we see that more ropers are being executed by existing cap table participants, we could interpret that that's a price based on knowledge that could be equivalent to a price setting in a fundraising because that's an indication that someone with knowledge and disclosure is willing to buy the company at that roper price. And so when we see that systematically across the company over some duration of time, that could tell us something about a trough. And so I think what we reported was we could start to see signals of this in parts of our quarter in Q3. And that trough and obviously that data could indicate a market bottom. Now, it could be a market bottom for a name and not the whole market in general, but when you see it across companies, you could start to draw broad trend insights from that. Does that make sense?
spk00: Yep. Great. Thanks. Appreciate the color. Okay, last for me. Stock price is at $150. What are your listing requirements, and how are you thinking about the stock price here and anything you need to do to make sure you continue to fulfill your requirements?
spk11: Yeah.
spk09: When we look at the listing requirements on the NYC, we're pretty lucky because we have a lot of former NYC people working with us to help build out the product. You know, at the end of the day, it's a function of the denominator. And the listing requirements are a dollar per share. according to NYC standards. But, you know, they are very accommodating given, you know, the current state of the world, I would say. And then at the end of the day, you can essentially do a reverse split, which is just math, so.
spk03: Yeah, and I would add that, you know, we did look at it specifically, you know, to make sure that we understood the specific rules and as Tom reiterated you know we don't really see kind of an issue there at this point in time and and so um i mean this is what what i'm sure you've heard from us before while while we obviously monitor our stock price very closely in the trading volumes um we don't focus on what we can't control and and so we are focusing on what we can do which is just to execute kind of all of it and it's everything kelly just described that we've been working on in this last quarter. European expansion, our data product, stock option lending, custodial services for our trading clients, and obviously much, much more.
spk02: We all have, both in this room and in the company, mad conviction about this market. And there's just no doubt in our minds that while this may be a difficult time environment, and there's a lot going on out in the world that we don't control. Everything that we've said that were the foundations for why this company was formed, the vision of it, and the size of the market are continuing to be very exciting for people here. And nobody likes to see the stock down where it is, but we continue to be focused on that bigger, bolder opportunity, and we're going to keep focused on that for 2023. Okay.
spk11: Great. Thank you very much. Emma, can we take our last question from Owen Lau?
spk01: Certainly. So your last question will come from the line of Owen Lau with Oppenheimer. Your line is now open.
spk05: Thank you for taking my question. Could you please add more color on your data and analytics product and also when we should expect your data revenue could become more material? Thank you.
spk02: Well, I'll start with the product. We launched it last September. It's fundamentally today an institutional product. And institutional can mean a lot of things to a lot of people, but we focused it primarily on our institutional buyers. But increasingly, you're seeing hedge funds, you're seeing capital markets desks, and asset managers enter the private markets at levels that you hadn't seen before and all of them need uh data uh and insights and so the product was meant and priced initially last september at a starting price in the low mid twenty thousand dollars per seat annually um and it went up depending on the number of seats you held or If you wanted access to what we talked about as the data feed version or the file-based version, so you could essentially take our product raw data, including all historical data, and use it however you want to drive product decisions or essentially generate your own sort of mechanism for passive or passive-active trading. We see this as an incredibly important part of the market future. We see that we have gotten product market fit, both in terms of the response that we've gotten over the year that it's been out. And now it's really just a matter of us executing on the distribution and broad-based marketing and sales of the product. We're going to continue to evolve it. And I think I said on the roadshow a year ago, that we saw in the next four to five years that this could be a material piece of our revenue. NASDAQ and ICE get between 36% and 38% of their revenues from data. And I think I talked about this being 25% of our revenue over the next five years. I think there's a world where the relationship to trading and trading volumes becomes increasingly reliant on data. And the more data that we put out and the more people use it, we think it will increase the decision-making power of the market. So this is really strategic. And, Owen, I think we're going to look at this in 23. And we talked about not giving certain forward guidance during this particularly difficult time. That doesn't mean we're never going to give forward guidance. And I'd say one of the things that's particularly interesting about data is as you look at data products that have a subscription component, or you look at SaaS-based software products. There's a booking dynamic that builds over time. And we're just now, you know, reached our first anniversary. So I'd say look for us to get better, you know, insight into how this is performing in the future. But right now we're really excited about the product market fit of Forge Intelligence. Mark, I'll let you add any color you want on how it's effect on the model.
spk03: No, and as you know, we're not at this point in time breaking out data, and so I can't kind of give you specifics for now. What I will kind of reiterate, Kelly mentioned this previously in our discussion, but I just want to repeat, we rolled out the product about over a year ago now, We have very, very high levels of retention. We have very high levels of upsell, where our existing clients are interested in expanding types of products and features that they can use, and we're able to upsell them and provide a higher level of service. In addition to kind of the basic subscription that we talk about, We also provide a data feed product where people can get this information sent to them electronically. And we also have a product where people can acquire history, kind of a database of our information, historical database of information. So we're finding a lot of different expanded uses for the information that we have. When I talk to the data team, there's just a tremendous level of excitement and optimism in terms of what they're seeing and encountering in the market. And so we're feeling quite good about data and intelligence.
spk02: And also, as we talked about, and this is inclusive of our custody, product as well. I think custody services and data are both predictable recurring revenue. In the case of the data product, it's very high margin and scale. And it really is low cost to serve incremental customers. And to Mark's point, if we upsell someone from one seat to 10 seats, it's just an incredibly attractive model. And look, we think that there are going to be others that and the competitive set that will try and come into this space. And we firmly believe that our position as the market leader and a marketplace that provides significant liquidity for the space will put us in a position to continue to occupy a competitive advantage in the range of data that we put out. And it should not be lost on anybody on the call that our ability to go out and now aggregate third-party data sources is also key to our scaling of this. And that started to happen this year, actually, in this last quarter.
spk03: Yeah. Oh, and I mean, I think we hope that eventually Forge Intelligence can become like the private market tape. But one more thing I was going to add was that our sales team is going out there and talking to clients. I mean, we're discovering that there are other channels and segments that we didn't originally fully anticipate. For example, venture lending is turning out to be an area where there's a lot of opportunity, a lot of people interested in our data products. I think there are use cases that are expanding beyond how we originally envisioned where we would sell this product. That's another positive for Forge Intelligence and Forge Data. Maybe one last question. before we conclude.
spk01: There are no further questions at this time.
spk11: Awesome. Thank you, Emma.
spk09: Thank you all for joining us today. We look forward to the conversations over the next quarter.
spk01: Thank you for attending today's conference call. You may now disconnect.
Disclaimer