Freedom (US:FRHC)2025-08-08 20:06PART I — FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Q2 2025 present the company's financial position, operations, and cash flows, noting a decrease in total assets and net income Condensed Consolidated Balance Sheets Total assets decreased to $9.69 billion as of June 30, 2025, driven by lower cash and receivables, while total shareholders' equity increased to $1.23 billion Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Total Assets | $9,689,753 | $9,914,017 | | Cash and cash equivalents | $567,907 | $837,302 | | Investment securities | $2,796,881 | $2,814,733 | | Margin lending, brokerage and other receivables, net | $2,896,713 | $3,319,145 | | Loans issued | $1,749,402 | $1,595,435 | | Total Liabilities | $8,460,694 | $8,699,659 | | Securities repurchase agreement obligations | $1,070,787 | $1,418,443 | | Customer liabilities | $4,446,747 | $4,304,999 | | Debt securities issued | $670,125 | $469,551 | | Total Shareholders' Equity | $1,229,059 | $1,214,358 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, total net revenue increased to $533.4 million, primarily due to a gain on trading securities, while net income decreased to $30.4 million due to higher operating expenses Statement of Operations Summary (in thousands USD, except EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Revenue, Net | $533,423 | $454,999 | | Fee and commission income | $107,642 | $115,489 | | Net gain/(loss) on trading securities | $45,602 | $(52,102) | | Interest income | $198,571 | $226,004 | | Insurance premiums earned, net | $153,257 | $129,408 | | Total Expense | $492,908 | $413,401 | | Interest expense | $113,410 | $145,718 | | Payroll and bonuses | $93,101 | $57,524 | | Net Income | $30,396 | $34,259 | | Diluted EPS (USD) | $0.50 | $0.57 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $480.8 million for the three months ended June 30, 2025, while net cash used in investing activities significantly increased to $505.5 million Cash Flow Summary (in thousands USD) | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash flows from operating activities | $480,831 | $854,066 | | Net cash flows used in investing activities | $(505,516) | $(94,685) | | Net cash flows from financing activities | $123,381 | $245,534 | | Net Change in Cash, Cash Equivalents and Restricted Cash | $24,096 | $890,467 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, business segments, investment concentrations in Kazakhstan sovereign debt, loan portfolio specifics, and the acquisition of Astel Group Ltd., alongside related party transactions - The company operates through four main segments: Brokerage, Banking, Insurance, and Other, with a significant presence in Kazakhstan and expanding into telecommunications and media151618 - As of June 30, 2025, the Group held significant concentrations in debt securities from two issuers: the Ministry of Finance of the Republic of Kazakhstan ($1.55 billion) and the Kazakhstan Sustainability Fund JSC ($477 million)58 - On April 30, 2025, the company acquired 100% of Astel Group Ltd., a Kazakh telecom operator, for a total purchase price of $22.3 million, recognizing $1.74 million in goodwill148149 - The company has significant related party transactions, including purchasing uncollateralized retail loans from FFIN Credit, a company controlled by CEO Timur Turlov, and providing credit risk insurance to the same entity132136 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a 17% revenue growth driven by trading gains and insurance premiums, offset by a 19% expense increase leading to a net income decrease, alongside strategic expansion into telecommunications Financial Highlights for Q1 FY2026 (Three months ended June 30, 2025) | Metric | Q1 FY2026 | Q1 FY2025 | Change | | :--- | :--- | :--- | :--- | | Total Revenue, Net | $533.4M | $455.0M | +17% | | Total Expense | $492.9M | $413.4M | +19% | | Net Income | $30.4M | $34.3M | -11% | - The company is expanding its digital fintech ecosystem by entering the telecommunications market in Kazakhstan through its subsidiary Freedom Telecom, which recently acquired Astel Group Ltd217218 Customer Growth | Segment | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Brokerage | 725,000 | 683,000 | | Banking | 2,927,000 | 2,515,000 | | Insurance | 1,396,000 | 1,170,000 | Qualitative and Quantitative Disclosures About Market Risk The company faces significant market risks including interest rate, foreign currency, and credit risk, with a hypothetical interest rate increase impacting the trading portfolio by $91.0 million and substantial margin lending receivables - A hypothetical increase in interest rates (200 bps for non-USD/EUR, 50 bps for USD/EUR) would result in a $91.0 million decline in the fair market value of the trading portfolio as of June 30, 2025342 - The company has significant foreign currency exchange risk, particularly with the Kazakhstan tenge, where a 10% adverse change in the USD relative to other currencies would result in a total loss of $147.4 million as of June 30, 2025343346354 - Credit risk from margin lending is substantial, with $2.86 billion in receivables as of June 30, 2025, of which three non-related party customers accounted for $1.40 billion351 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective370 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls371 PART II — OTHER INFORMATION Legal Proceedings The company is involved in an arbitration case with Einride AB regarding a $10 million convertible debenture, with a final award expected in May 2026, while other legal matters are routine - Einride AB filed an arbitration claim against the company for an alleged failure to pay a $10,000 subscription for a convertible debenture, which the company contests, with a final award scheduled for May 2026153373 Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025, were reported - No material changes from the risk factors disclosed in the 2025 Form 10-K were reported as of June 30, 2025374 Exhibits The report includes various exhibits, such as bond program prospectuses, recent bond offering terms, and CEO/CFO certifications, as required by regulations - Exhibits filed with the report include details on the $1 billion bond program, recent bond offerings in May 2025, and certifications from the CEO and CFO376