Forge Global Holdings, Inc. (FRGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to Forge's Second Quarter Fiscal 2022 Financial Results Conference Call. [Operator Instructions] Please note that this event is being recorded and transcribed. I would now like to turn the conference over to Dominic Paschel, Senior Vice President at Forge. Please go ahead.

Thank you, Abby, and thank you all for joining us today for Forge's Second Quarter 2022 Earnings Call. Joining me today are Kelly Rodriques, Forge's CEO; and Mark Lee, Forge's CFO. They will share prepared remarks regarding the quarter's results and then take your questions at the end. Just after market closed today, we issued a press release announcing Forge's second quarter financial results. This conference call is being webcast live and will be available for replay 30 days beginning about 1 hour after the conclusion of the call. There is also an accompanying Investor Presentation on our Investor Relations page. During the course of this call, we may make forward-looking statements based on current expectations, forecasts and projections of today's date. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those included in the statements. We discussed these factors in our SEC filings included in our quarterly report form on 10-Q for this quarter, which we will file soon and to be found on the IR site as well. As a reminder, we are not required to update forward-looking statements. In our presentation today, unless otherwise noted, and 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 on the IR site. Today's discussion will focus on the second quarter of 2022. As always, we encourage you to evaluate Forge's performance on an annual basis as well as a quarterly date -- as well as quarterly results can be affected by unexpected events outside of our [ future ]. With that, I'll turn the call over to Kelly.

Thank you, Dom. Good afternoon, everyone, and thank you for joining us today. We delivered our results to you this quarter against a continued backdrop of heightened market volatility. Despite this turbulence, we remain steadfast on building toward a long-term vision with a commitment to build prudently, while delivering on the strength of our balance sheet. With that, we will share with you our second quarter 2022 results. I'll briefly touch on the broader market context within which we're all operating before moving into our results and business highlights. As you're all aware, much like in the first quarter, Q2 was characterized by the full quarter's impact of ongoing macroeconomic headwinds, including inflation, rising interest rates and new workforce reductions across the corporate landscape and geopolitical anxiety with the ongoing war in Ukraine. Investors and companies continue to reset expectations and valuations. The IPO window remained almost completely closed and the public markets continued their volatility. And yet, and we said this before, the private market opportunity remains as clear in volatile times as it does in stable times. As the time line to liquidity is pushed further and further out, private companies need for liquidity solutions and the investor opportunity to access private companies at attractive prices become more pronounced. We believe we're well positioned for market stabilization as more new companies continue to arrive on the Forge platform and as investor and equity holder expectations trend toward equilibrium. Some of the market insights we noted in our Q2 Private Market Update released in late July showed that while companies in Q1 largely staved off down rounds for primary financing. In Q2, we began to see the inversion of primary fundraising values, with companies in Q2 on average raising primary rounds at a discount to their previous rounds. We also saw price depression in secondary trades. It took some time. But after consistently trading at a premium to the company's last primary round in Q1, in Q2, Forge saw secondary trade prices declined to an average 6% discount to their last fundraising round as buyers and sellers continue to engage in realtime price discovery. On the secondary market, the number of unique issuers with shares offered for sale on the Forge platform was higher than in any other quarter as companies delayed IPOs, canceled SPACs, marked down 409A valuations and liquidity in the public market remained out of reach for many. For example, Instacart's valuation was reduced by key investors to $14 billion, a further reduction to the more than 38% Instacart self-administered in March when it valued itself at $24 billion. Last month, Swedish fintech company, Klarna, raised new financing at $6.7 billion, down 85% from the $46 billion valuation it secured just 14 months ago. And just recently, Stripe once the most highly valued private fintech company guide its valuation by 28%. Following suit, on average, secondary prices fell 20.2%, and when comparing the price of companies that traded on Forge markets in Q1 of 2022 and subsequently, this quarter -- I'm sorry, in Q2 of 2022. That's a 20.2% secondary price reduction. Public tech indices made similar moves during the same period with the QQQs falling about 23% and the IPO ETF falling about 32% through the end of the second quarter. And finally, Barron's recently reported over 300 companies are currently holding off an IPO due to deteriorating market conditions and canceled SPACs are everywhere. However, even in volatile times, we continue to see new companies arriving to the Forge platform. The record number of unique companies that showed up to the platform in Q2 was accompanied by a slight narrowing of the spread between pricing that sellers are asking for their shares and the price at which buyers want to buy. The point at which average for sale prices and average buy prices converge is something we at Forge refer to as price discovery equilibrium. We spoke about this previously. In addition, the slight narrowing of the spread and declining prices could be signed that sellers are resetting expectations as more private companies announce valuation reductions, and investors continue to signal they're seeking discounts to last year's prices. Bid/ask spreads peaked at 19% in April of 2022 and decreased slightly to 18% in June of 2022, but spreads remain wide compared to the historical median of about 11% that we tracked since January of 2019. We appreciated and listened to the analyst feedback following our first public quarterly call and are introducing 2 additional business metrics. The first is the total number of companies with indications of interest or what are known as IOI. In Q2, they were up 26% year-over-year to 463, up from 368 in Q2 of last year. We became a public company through our marketing efforts, media recognition of our thought leadership and brand awareness. Forge is now becoming synonymous with the private market and the place people increasingly turn for insights, expertise and liquidity solutions in the private market. This means we are getting more private companies showing up to Forge and this becomes latent economic power. Unique companies with sell-side IOIs also continue to build momentum and grow, hitting an all-time high, up 75% over a year ago quarter. And as we've seen over the first half of the year, businesses are trying to calibrate inventory with demand. Businesses as storied and big as Walmart have been saddled with inventory that buyers aren't buying as the supply and demand curve resets. But unlike those businesses, holding inventory doesn't cost Forge anything. We're building the book in anticipation that price discovery equilibrium is reestablished. We have optimism about the long term as more unicorns continue to be minted and the levels of dry powder poised for deployment into innovative technology companies remains hot. So now on to Forge's second quarter 2022 financial results. In the second quarter of 2022, total revenues, less transaction-based expenses were about $16.5 million compared to about $37.1 million in the year ago quarter, which I will note was an all-time record in terms of revenue generation for Forge. In the second quarter of 2022, as said before, there were more unique private companies with shares offered for sale on the Forge platform than in any previous quarter and extremely encouraging to see relative to that inventory point I just made. Total custodial administration fees were flat year-over-year at $5.7 million and up 6% from Q1's $5.4 million. Also listening to your feedback, the second new business metric we are giving is Forge's custodial cash balances. They totaled $680 million, up 10% year-over-year from $620 million. Our supplemental investor information on our IR site as the historical data for both new business metrics if you're interested. Assets under custody increased 5% year-over-year to $15.3 billion in Q2, up from $14.6 billion in the second quarter of '21. And I'd like to highlight some notable business highlights Forge made during the second quarter. First of all, Forge Markets, in Q2, our Forge Markets and custody business segments delivered impressive updates in functionality and experience. New updates in the Forge platform include predictive analytics that use machine learning to recommend the most likely buyer and seller of certain stocks. And dashboard features that enable faster, more efficient trading, including IOI management capabilities that reduce the time it takes to close trades. Forge Trust released a new client portal for self-directed IRA account holders, which gives the client access to key documents and enables them to more seamlessly execute self-directed transactions as well as improved support for their advisers and representatives. Now on the Forge data side, in our Forge Data business, we announced upgrades to Forge Intelligence, designed to enhance the experience for our customers and provide even more visibility into the private market. Additional enhancements include front and center data on the biggest price movers on the Forge platform; visual summaries of trade activity, now alert data customers to changes in pricing since they last logged in to Forge Intelligence and instantly summarize companies with the most prolific trading activity. Additional enhancements also include 2 new integrated data sets accessible to Forge Intelligence customers. Membership interest transfers and Enhanced Public Marks Data, providing users with an expanded breadth of data points to enhance pricing and valuation analysis. In addition to enhancement to Forge Intelligence, we extended volume-weighted average price of private stocks, known as VWAP, beyond the data platform to Forge Markets clients. Extending VWAP to our markets clients is one more way that we're increasing the visibility participants have so they can confidently participate in the private market. We also continue to make traction and create new relationships through partnerships and alliances with multiple top-tier banks in the quarter, including signing an agreement with Morgan Stanley, under which Morgan Stanley may direct their customers' orders equity securities of private issuers to Forge Markets platform. On hiring, we hired Johnathan Short as our new Chief Legal Officer. Johnathan's experience and leadership, building and running an impressive legal and regulatory organization for the Intercontinental Exchange, or ICE, parent company of NYSE, one of the world's most respected financial services company. And his expertise in corporate governance, M&A, regulatory and government affairs is invaluable to Forge as we focus on our next stage of growth to enable an accessible liquid and transparent private market. Johnathan spent 14 years as General Counsel of ICE and was part of the team that built this juggernaut to a $45 billion public financial services company for both domestic and international operations. He grew the legal function from a 2-person team when he joined to a team of 75 legal and regulatory personnel. We're very excited to have Johnathan on board. I'm also pleased to announce we promoted Jose Cobos to President in the quarter. Jose has been an integral and strategic leader for the business as we transition from private to public. Now as responsible stewards of capital, we are taking a judicious approach to hiring, including growing our engineering team to accelerate technology development, we ended the quarter with 350 team members. Reflecting on the environment, we have slowed the pace of hiring and will continue to be deliberate in adding head count. However, the opportunity remains clear. Alternative asset classes are growing as clients continue to rebalance their overall portfolio. And as their advisers and RIAs continue to allocate towards Alt in general, the AUM for alternative assets is expected to approach $13 trillion by 2025. And as a result, the private market trading for total addressable market is expected to hit $8 billion by 2026. Very simply, we want to be prepared to own the market. So in this period of heightened market disruption and turbulence, we are still focused on building both for now and for the future with the goal of improving our trading platform to drive down the cost and time of trade, building the products that will continue to broaden access to this market like lending and taxable customers, growing our strategic partnerships and expanding our presence internationally and improving the way we deliver data and insights. So all who interact with Forge get more value out of those engagements. To be clear, we're also mindful of the critical need to build prudently. And so we are scrutinizing the ROI potential of every dollar we invest to prioritize the long-term profitable growth of the Forge platform. We are helping investors, companies and private shareholders navigate this unprecedented market with our data, expertise and programs. And believe that with continued enhancements to our offering and with the value we're bringing to customers and potential customers during this disruptive time, we are well positioned to capitalize when markets stabilize. Now I'll turn it over to Mark Lee, our CFO.

Thanks, Kelly. In the second quarter of 2022, Forge's total revenue less transaction-based expenses, were $16.5 million, down from $37.1 million in the year ago quarter. Of that amount, total placement fee revenues reached $11 million, down from the second quarter of 2021, where total placement fee revenues came in at $33 million. As Kelly previously noted, last year was an extraordinary year for the overall market due to record public market debuts and significant flows of VC investments into private companies, with Forge achieving record quarterly revenues and high watermarks for year-over-year comparisons. Transaction volume in this quarter was $332 million, a 64% decrease from the quarter ended June 30, 2021. The ongoing results of macroeconomic and geopolitical instability that continues to create dislocation. The average net take rate for the quarter was down 6% year-over-year at 3.2%. And as we previously described, fluctuations and take rates are generally attributable to changes in the mix of individual versus institutional block trades. Total custodial and administration fees were flat year-over-year at $5.7 million. Total custody accounts decreased 7% year-over-year to 1.7 million in the second quarter of '22 from 1.9 million in the second quarter of 2021. This decrease was driven by a onetime deactivation of billable inactive accounts from one of our past clients. The financial impact was negligible, and this does not affect custodial cash balances. We expect account growth to continue and for Forge Trust to benefit from continued interest rate increases. Second quarter GAAP net loss was $5.1 million compared to GAAP net loss of $8 million in the second quarter of 2021. Adjusted EBITDA is another measure of our operating results. In the second quarter, adjusted EBITDA loss was $12.3 million compared to adjusted EBITDA gain of $6.5 million in the year ago quarter. We've included a reconciliation of adjusted EBITDA to the most recently comparable GAAP measure both in the press release and in our SEC filings. Cash flow from operations. Net cash used in operating activities was $18.2 million in the quarter compared to net cash provided by operating activities of $19.2 million in Q2 of 2021. The year-over-year changes for both adjusted EBITDA and cash flow from operations are primarily driven by lower revenues, but they also reflect our continuing investment in technology and growth initiatives. We also are investing in finance, legal and risk infrastructure that will support our future growth. As Kelly said, we're mindful of the evolving macroeconomic environment, and we continue to strike a balance between positioning and for growth as well as being a prudent steward of investors' capital. Cash flow from financing activities. Net cash provided by financing activities was $22.6 million in the 3 months ended June 30, 2022 compared to net cash provided by financing activities of $32.7 million in the 3 months ended June 30, 2021. Total cash balances from financing activities increased in connection with the redemption of our public warrants. Of the approximate 18.5 million public warrants previously outstanding, approximately 2 million were exercised, and cash proceeds generated from these warrant exercises were approximately $23 million. We were able to simplify the cap table and reduce shareholder dilution. The cash and cash equivalents on the balance sheet ended the quarter at approximately $205 million. From a housekeeping perspective, our weighted average basic number of shares used to compute net loss was 167 million shares and our fully diluted outstanding share count as of June 30, 2022, was 189 million shares. Within our supplemental investor information on our IR site, we've also provided an estimate for Q3 and Q4 of our average basic common shares outstanding and our noncash stock expense for modeling purposes. We outlined during our first quarter conference call, given the continuing volatility and uncertain market conditions, Forge is not in position to provide guidance at this point in time. Forge will continue to monitor and evaluate to determine whether to change our forward guidance practice in the future. It is important to note, August has historically been a seasonally slow month. Inevitably, there are tough comps from our all-time record first half that we saw in 2021. As markets stabilize, we expect our growth to resume to normalized levels relative to the huge opportunity in front of us. While managing through this environment of uncertainty and high market volatility, we're actively managing our costs and investments to be good stewards of capital while maintaining our focus on growth and building the company. We continue to invest in technology and sales and marketing to support our growth. As we scale and our investments bear fruit, we expect our costs to de-accelerate as a percentage of revenue. We ended the quarter with 350 in total head count up 36% year-over-year. Our most important asset is our people, and we will continue to invest in and expand our employee base and an appropriate, albeit at slower pace. This is a very important consideration that the management and Board continually evaluate in real time. So let me hand the call back to Kelly.

Thank you, Mark. In closing, I want to thank our shareholders for their confidence in Forge and our vision for building the private market future. The second quarter has been a challenging economic environment for all companies and especially challenging environment for the companies whose shares are traded in the private market. In private markets, it takes time for company valuations to recalibrate when there has been broad-based market turbulence like we're experiencing today. The valuations will recalibrate. That is a fundamental tenet of how markets work. And when they do, we believe we're well positioned. In the meantime, through our data, our expertise, our market insights, we're helping the participants in the private market navigate this moment. And we'll continue to build prudent so that we don't miss the opportunity that we have in this moment to convert that latent economic power into closed trades, to cement our leadership position and to advance our powerful trading engine to deliver greater value for our customers and our shareholders. Dom, I'll turn that back to you.

We are now open to taking questions from the audience.

[Operator Instructions] We will take our first question from Devin Ryan with JMP Securities.

I guess really where I want to start here is kind of this conversation around markets moving into the equilibrium and I appreciate all the detail you guys provided. And I also appreciate July and August probably aren't going to be necessarily great months to judge engagement. But can you maybe just talk a little bit about the monthly progression in terms of what you guys have been seeing over the course of the second quarter into the early days of the third quarter? And assuming that we are kind of moving closer to equilibrium, as you talked about, I'm assuming we'll see an improvement in the number of trades and so hopefully, re-acceleration there that's meaningful. And then also, how should we think about kind of the volume per trade to the extent we're maybe a lower price environment?

Let me start, this is Kelly. Let me start with the first part. We, as you can imagine, are watching the data carefully. And clearly, from our last call, we continue to see a market that's driven by more sellers than buyers. And while we're watching the bid-ask spread, it's also important to understand that these are averages. We are careful to not overstate what we think could be indications that the market is turning. However, given some of the facts that we've cited, including valuations being accepted now by companies and even proactively being moved by companies, some of the trade activity that we see relative to what the bid/ask spreads were in the previous period, we're hopeful that equilibrium is coming. I'd say, as Mark pointed out, this has historically been a seasonal time of year when institutions sometimes are off, whether it's vacations or what have you. But we do believe and have said in the past, that in periods of volatility, as we saw during the pandemic, the first movers were institutions coming back in to buy at attractive pricing. So we're watching that carefully. We are not seeing meaningful changes in our fees if you're asking that around the lower price environment. But we definitely are seeing trades getting done now at prices that weren't getting done in Q1. And so I'd say we're going to continue to watch it. The last time we saw anything disruptive like this in 2020, it was about 2 quarters, but there's a lot going on in the world right now that we don't control. So I'd ask Mark to jump in if I'm not hitting any of the other points that indicate what we're seeing as a sort of forward look.

Devin. A couple of things, I guess, I would mention. One of the things is that we typically don't see significant movement -- don't expect to see seen movement in the average size of public trade as typically institutions that are on our platform looking to take a position in a particular name are usually looking to take a certain bite size that has a meaningful impact, right, to their portfolio. So if there's a price decrease in a particular stop, more often, what you'll see is they'll be acquiring more shares at a lower price in order to take a position that is meaningful to the size of the portfolio. The other thing that I would note is that -- no, and we're all watching this. But at the macroeconomic level, I mean watching the public markets and looking at the volatility and looking for the moments when you feel that the public markets are starting to normalize or stabilize. I think that's an important kind of factor that we keep an eye on because it will encourage the buyers to jump back in the market. Same with kind of the views on the Fed if the response that it will start to slow the pace of increase of interest rates. And then finally, with regard to your comments about July and August, it's important to note that as we kind of start to see improvement in our engagement in our matching of trades with our clients, there is a time lag in the private markets for the time that it takes to close and settle trades. It's not the kind of same process. The D 1 plus 2, 3 plus 3 an kind of in public markets. And so that's another thing that obviously has to be taken into consideration.

Okay. Great color, guys. Just as a follow-up here, maybe to hit on expenses. Obviously, I appreciate we don't have guidance but love maybe a little bit just more context around how you're thinking about spending and whether that's evolved at all just given the shifting market backdrop and whether maybe you're reprioritizing into certain areas or pulling back in certain areas? I still see that you're hiring, and obviously, is such a big addressable market and secular opportunity. But in the near term, has the thinking shifted at all around where to spend or how much to spend?

Yes. Let me, Devin, let me handle that question first. This is Mark again. So, and as a reminder, I think we've mentioned this kind of in Analyst Day although that sometimes passed down. But just as a backdrop, with the exception of the second half of 2019, Forge has been a positive adjusted EBITDA company since 2017. And so our operating philosophy has always been and remains to run the company with positive to breakeven adjusted EBITDA, with breakeven to slightly negative operating cash flow. And in fact, we entered 2022, no difference, right? We were targeting 2022 to achieve positive, slightly positive adjusted EBITDA. So while the current macroeconomic environment has significantly affected our top and bottom line for 2022, we continue to believe that the right approach is to moderate our spend but to stay focused on building the business for the long-term benefit of our shareholders. And so to kind of directly answer your question, and as you pointed out, I mean, the opportunity in the TAM for this business has not changed. If anything, I think our clients need our support and services even more so in this time of turbulence. And so we think that at this phase in the evolution of Forge, now is not the time to pull back significantly. We have to be prudent. So we're moderating the pace of our hiring. We're very cognizant of that. We're watching it closely, but we need to continue to build out the infrastructure for the future of being the leader in this space. And so that's our goal. As Kelly said, a lot of our growth that we've been focused on is continuing to build technology, our marketing and go-to-market efforts and also making sure that we're providing the finance, legal and risk that we need to support our future growth.

Yes. I guess I wouldn't add much to the fact that we did slow. We made a deliberate move to slow hiring at this point in 2022, and we're going to watch the rest of this quarter before we make any decisions on the acceleration of that -- of those staffing plans.

And Devin, the one other thing I might add is, with the cash in our balance sheet, I think we feel like we're in a significantly stronger position than many of our direct competitors. And in fact, now is the best time to kind of capitalize on that gap and that difference, the competitive advantage we have. We have the wherewithal, I think, to -- we believe that we have the wherewithal to kind of get through this period and we stay focused on growing the company.

We will take our next question from Ken Worthington with JPMorgan.

This is Michael Cho for Ken. Mark, I guess I just wanted to touch on the last point you highlighted around the balance sheet and just realize that your moderating spend is on hiring. But again, as you mentioned, you do have a very solid balance sheet during this kind of stress period. So I'm just curious if there ways you're considering as you mentioned to take advantage of the situation, whether organic or inorganic, just given your balance sheet trend today?

Yes, I'll start and Kelly can chime in, Michael. Appreciate the question. Look, I think that since kind of we spoke with everyone kind of went through Analyst Day, did our first quarter presentation, we outlined kind of a number of key initiatives. And really in the quarter's time, that hasn't changed materially, building out our core business, continuing to improve our technology and increase the efficiency of our trading process, building our data business, which we're really -- we continue to be really excited about in terms of the opportunity, and we think the reception that we're getting from the market. We talked about lending in a new product that we're working on and that we expect to kind of roll out in the future. And then Kelly has also mentioned international expansion. All of these things are things we've talked about. And these are the things that we're focusing on building. We think there being kind of -- will help us to be successful. So that's what we're funding through our technology and our go-to-market and marketing hiring, and we'll continue to do so.

Yes. I'd add on the M&A side. Part of the reason we went public was because we felt there was an opportunity to continue on organic growth as while looking selectively at M&A targets. We think the market will create some opportunities for us. We're going to be really careful. But we think that there are opportunities that will advance for us to look at in the market as periods of liquidity not only helps our core business problem that we're solving but provides us with opportunities to scale inorganically as well. So I think we have to be really careful and mindful of our balance sheet. But as Mark pointed out, this is a time of relative strength for us that making a move that's inorganic could be in our best interest if it's the right kind of deal price at the right at the right point. But again, a lot of sellers out there, whether they're on our platform or not are being careful and are watching valuations carefully, and so are we. So we're going to keep our heads down. We're going to continue to build, we've got a great team of people here. And I think if anybody on this call looks at the opportunity and scale of the private markets, you're going to want a team that's committed, poised and capitalized to go out and execute on that even if the short term looks a little tough. So we're ready and very excited about continuing to keep our heads down and execute.

And Michael, and the last point, I want to reiterate, Kelly mentioned this, but we announced the agreement that we signed with Morgan Stanley. So with a roster of partners, including Morgan Stanley and Wells Fargo and BNP and others that we're working with or others that cannot be named, that's another important part of building out the Forge brand and platform out to the market. So I just want to kind of stress that point because that's another important element of our strategy.

Great. Great. And just a follow-up. I just wanted to make sure costs i got this correctly. Kelly, you mentioned -- you talked to this a little bit, but when you talked about spreads being kind of 19% at the start of the quarter and heading into 18%, did I hear that correctly, where you should assume to miss some transaction bonds picked up? Has the quarter progressed? Really, I'm just trying to get a characterization of or how you characterize activity or pipeline exiting Q1 versus exiting Q2?

Yes. So look, I guess the point there to be really clear is that the difference between 19% and 18% doesn't really indicate a meaningful shift in volume, much as a little shine of light that could potentially be viewed as an indicator of what's to come. But in terms of volume, I think the number that I also cited was that if you look back over a couple of years, a broader data set, you see bid/ask spreads around 11% that really were present during the period of incredible volume that we saw in 2022. So we got a little ways to go, but we're all sitting here like everybody else, optimistic about that equilibrium moving closer towards that point where we start to see trades happen. So I wouldn't go out as far as to say that 18 is a meaningfully better number than 19.

Michael, too, and reemphasize some of the points that were mentioned earlier, and the fact that we're starting to see our trade at valuations that are below the last round is an important indication that the private market shareholders are starting to acknowledge and recognize the decrease in their valuations and the multiples that they had previously been trading at. And the examples of Klarna, right, and Instacart and Stripe, I think we will continue to see private companies start to realize and they start to see as they continue to raise money from the venture world, you'll start to see those reduced valuations recognized in both the primary and secondary market. And I think we're encouraged by that trend.

Mark, a question on [indiscernible]. If valuations decline and the take rate is constant. Does that mean your revenue associated with the decline in valuation both the dynamics associated there? [indiscernible]

I think that was the question that was asked by Devin. So the question is, I guess, with lower valuation, does that imply lower trade size and the lower trade size implies lower revenues, right? And I think historically, we have not seen that. Historically, we've seen people want to trade at a certain size in order to -- if you want to put $100,000 to work or $0.5 million work in a private company, the private company stock was down 30%. They're not necessarily going to reduce your trade down to the $350,000 trade. You still want to buy, you still want to take a meaningful bite-size position in that spot. So you'll still buy $500,000 of stock, you'll just get more shares due to the lower price. So that's historically been kind of the pattern that we've seen. So we don't expect a direct relationship between decreased valuation and smaller trade sizes. The other thing I would remind people is again, when you kind of go back to the TAM, when you think about the total addressable market, the valuation of private companies, the relatively low base of trading activity that Forge and our competitors currently trade, right? This is a staff that was in our prior Analyst Day position -- presentation. But even Forge as the leader in this space, the total volume in 2021 that we traded in those private companies that were on our platform was only 0.2% turnover. So the opportunity -- even if there was some minor diminishment of the valuation, there are just so many more companies to trade, so much more opportunity to give shareholders liquidity than kind of where we are today. So that, again, it just gets back to the massive TAM and the opportunity and the early stage that we're at in this opportunity. Sorry, Michael, have we finished, Michael?

Michael, did we answer all your questions?

Yes.

Thank you. Abby, I think we're ready for our last question Abby.

[Operator Instructions]. And will take our next question from Owen Lau with Oppenheimer.

So I saw that your total custodial accounts declined sequentially from 2.2 million to 1.7 million, but your assets under custody actually increased from $14.9 billion to $15.3 billion. Could you please explain a little bit more on these dynamics? Why account went down, but assets went up?

Yes, this is Mark. Let me answer that question. So as we said, as I said earlier, the decrease now it's -- you're exactly right, the quarter-over-quarter change was more significant than the year-over-year change. But this was a onetime deactivation of accounts. These were billable accounts. These were accounts that we were charging fees on, but these were inactive accounts for our clients so this is our custody as a service business where we provide custody to other financial institutions. And we have a CaaS client that had inactive accounts that -- and therefore, when they were to deactivate these accounts, it had -- did not have an impact on the amount of assets under custody because these are inactive accounts.

Correct.

Got it. So my follow-up is about the indications of interest. And I try to understand how to leverage this information. I think you mentioned that the total number of companies were 463 and up 26% year-over-year. I understand that we need to think about demand as well, the supply-demand imbalance. But historically speaking, when you see this increase in indication of interest, how long does it take them to start issuing and trading shares?

Mark, why don't you take the first part?

So Owen, I think the thing we're excited about is the increased understanding and awareness of Forge, as we've become a public company as we continue to invest in marketing to help people understand Forge is there kind of meet needs in the price markets. And I think what we're saying is, as a result, we're seeing against in of the amount of private companies that have shares available for trading on our platform. And then obviously, as you've heard us describe price discovery equilibrium, there's other elements that kind of have to drive or have to happen for those IOIs to translate into closed trades and revenues. Obviously, we've spoken about the spread -- bid/ask spread, and that's an important variable, that has to -- obviously, the prices have to meet. And so you can have a bigger limit order book. But if the spread between bid and offer remains elevated, that's going to be a challenge to get those trades closed. And then as we've said, we're seeing record levels of sell-side activity and representation in our book. And so we're very encouraged about that. But what we're describing is the late in economic power because once the buyers regain the confidence to engage, once they move from a risk-off position and they're willing to kind of come back in with their dry powder, right, then the inventory is there to meet the demand. And then it's at that point that we'll start to see kind of the rebound in the recovery.

I guess the only thing I'd add here is that sometimes when we're presenting the data, it's presented in averages. And so what's lost in that is depending on the name. Owen, the time between when IOI comes on to Forge and a trade can happen is going to rely on interest in that name and the mindset of the seller, particularly in this particular environment where you haven't or just recently seeing signal in the market around companies lowering the valuation expectation. It is still a market that's looking around. And while our data product helps people navigate what's come before them. What you're seeing happen in Q2 is companies starting to signal lower valuations, and you're seeing that also in the primary fundraising data which makes sellers more likely to enter into a transaction that they may not have entered into previously. And so the IOIs, as we described, as Mark talked about, in terms of latent inventory really starts to move once buyers and sellers show and demonstrate a willingness to meet and make a trade. So that first trade in this period is part of what starts to establish that TD needs. And then we start to reach that period of equilibrium across the board, but it really starts with individual names. And right now, what we're presenting is averages. But internally, on the desks, we're watching the individual names. And I'd say the good news is signal that we're getting across the board from companies as noteworthy as Stripe all the way down the line, starting to signal officially, that they're raising money or proactively reducing the valuation into the public. So we'll continue to watch that, and we're optimistic that when it does come back, we're going to be in a very advantaged place to take it, to take and deliver on the scale and the technology and data that we've built.

Thank you, owen. Abby unless we have any additional questions, we look forward to be out on the road in San Francisco, New York and Boston this coming quarter. And so we're hoping to meet in person for the first time in a couple of years. And we appreciate the time you've taken to balance our call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.