Freedom (US:FRHC)2021-08-08 16:00PART I — FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements Unaudited condensed consolidated financial statements for the three months ended June 30, 2021, detailing financial position, operations, and cash flows Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Metric | June 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,127,343 | $2,018,645 | | Cash and cash equivalents | $674,076 | $698,828 | | Trading securities | $825,364 | $736,188 | | Total Liabilities | $1,794,502 | $1,742,974 | | Customer liabilities | $1,067,864 | $1,163,697 | | Total Shareholders' Equity | $332,841 | $275,671 | Condensed Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands USD, except per share data) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | | :--- | :--- | :--- | | Total Revenue, Net | $124,137 | $56,415 | | Fee and commission income | $97,406 | $43,339 | | Total Expense | $66,760 | $27,534 | | Net Income | $51,708 | $24,276 | | Net Income Attributable to Common Shareholders | $51,760 | $23,853 | | Basic EPS (USD) | $0.87 | $0.42 | | Diluted EPS (USD) | $0.87 | $0.42 | Condensed Consolidated Statements of Cash Flows Consolidated Cash Flow Highlights (in thousands USD) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | | :--- | :--- | :--- | | Net cash flows (used in)/from operating activities | $(70,941) | $690,726 | | Net cash flows (used in)/from investing activities | $(2,583) | $5,234 | | Net cash flows from/(used in) financing activities | $6,687 | $(980) | | Net Change in Cash, Cash Equivalents and Restricted Cash | $(43,664) | $708,870 | Notes to Condensed Consolidated Financial Statements - The company provides financial services including retail securities brokerage, research, investment counseling, securities trading, and banking services primarily in Eurasia, headquartered in Almaty, Kazakhstan16 - As of June 30, 2021, the company held a 32.88% interest in Freedom Finance Ukraine (Freedom UA) but consolidates it as a VIE due to contractual control over 90% of net profits18 - On May 18, 2021, the company awarded restricted stock grants totaling 1,031,500 shares to 56 employees, with stock-based compensation expense for the quarter at $2.16 million110112 - Total lending-related commitments, including bank guarantees and unfunded lines of credit, amounted to $10.34 million as of June 30, 2021125 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2022 financial performance, highlighting significant revenue and net income growth, liquidity, and capital resources Results of Operations Q1 FY2022 vs Q1 FY2021 Performance (in thousands USD) | Metric | Q1 FY2022 (ended June 30, 2021) | Q1 FY2021 (ended June 30, 2020) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue, Net | $124,137 | $56,415 | +120% | | Fee and commission income | $97,406 | $43,339 | +125% | | Interest income | $18,077 | $4,249 | +325% | | Total Expense | $66,760 | $27,534 | +142% | | Net Income | $51,708 | $24,276 | +113% | - The 125% increase in fee and commission income was primarily driven by a $50.7 million increase from brokerage and banking services due to customer expansion and higher client activity153154 - The 281% increase in interest expense was mainly due to a $7.7 million rise in short-term financing costs and a $3.2 million increase in interest on client deposits165 - Operating expenses rose by $15.9 million (110%), largely due to a $7.2 million increase in payroll and bonus expense from workforce expansion168 Liquidity and Capital Resources Key Liquidity Metrics (in thousands USD) | Metric | June 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $674,076 | $698,828 | | Trading securities | $825,364 | $736,188 | | Total assets | $2,127,343 | $2,018,645 | - Short-term financing is primarily obtained through securities repurchase arrangements, with $460.5 million (56%) of trading securities subject to these obligations as of June 30, 2021182 - The aggregate minimum net capital requirement for regulated subsidiaries was approximately $30.1 million as of June 30, 2021, exceeded by all subsidiaries188189 Item 3. Qualitative and Quantitative Disclosures About Market Risk Outlines primary market risk exposures, including interest rate, foreign currency, equity price, and credit risk, with quantitative disclosures - A hypothetical 100 basis point increase in interest rates would result in a $45.3 million decline in the investment portfolio's fair market value207 - A 10% adverse change in the U.S. dollar's value would result in an estimated $2.3 million reduction in pre-tax net income210 - As of June 30, 2021, the company had $113.0 million in margin lending receivables, exposing it to customer credit risk216 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2021225 - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2021226 PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is subject to routine legal proceedings and regulatory inquiries, which management believes will not materially affect its financial condition or operations - The company is subject to routine legal proceedings and regulatory inquiries inherent to the financial services industry228 - Management does not expect current routine legal matters to have a material adverse effect on the company's financial condition or operations229 Item 1A. Risk Factors No additions to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2021 - There are no additions to the risk factors disclosed in the company's annual report on Form 10-K for the year ended March 31, 2021230 Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in inline XBRL format - The exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act sections, and financial data in inline XBRL format231 Signatures