10-Q: Freedom Holding Q1 2026: Revenue Up, Net Income Down

Freedom Holding Corp. reports a 17% increase in total revenue to $533.4 million for Q1 fiscal 2026, but net income decreased by 11% to $30.4 million, driven by higher expenses and a foreign currency translation loss.

Summary

• Total revenue, net, for the three months ended June 30, 2025, increased by 17% to $533.4 million, compared to $455.0 million for the same period in 2024.
• Net income for the three months ended June 30, 2025, decreased by 11% to $30.4 million, from $34.3 million in the prior year.
• Insurance premiums earned, net of reinsurance, increased by 18% to $153.3 million for Q1 2025, up from $129.4 million in Q1 2024.
• A net gain on trading securities of $45.6 million was reported for Q1 2025, a significant improvement from a net loss of $52.1 million in Q1 2024.
• Fee and commission income decreased by 7% to $107.6 million in Q1 2025, from $115.5 million in Q1 2024.
• Net gain on derivatives increased by 24% to $15.5 million in Q1 2025, compared to $12.5 million in Q1 2024.
• Total expenses rose by 19% to $492.9 million in Q1 2025, from $413.4 million in Q1 2024.
• A foreign currency translation loss of $41.8 million was recorded in Q1 2025, primarily due to a 3.3% weakening of the Kazakhstan tenge against the U.S. dollar.
• Total assets decreased to $9.7 billion as of June 30, 2025, from $9.9 billion as of March 31, 2025.
• Brokerage customer accounts grew to 725,000 as of June 30, 2025, from 683,000 as of March 31, 2025.
• Banking customer accounts increased to 2,927,000 as of June 30, 2025, from 2,515,000 as of March 31, 2025.
• Insurance customer accounts grew to 1,396,000 as of June 30, 2025, from 1,170,000 as of March 31, 2025.
• The company acquired Astel Group Ltd. for approximately $22.3 million on April 30, 2025, to expand its telecommunications business.
• S&P Global Ratings revised its outlook to positive from stable for Freedom KZ, Freedom EU, Freedom Global, and Freedom Bank KZ, affirming 'B+/B' ratings on June 26, 2025, while Freedom Holding Corp.'s 'B-' rating maintained a stable outlook.

Sentiment

Score: 4

Explanation: Net income decline and rising expenses, coupled with FX loss and increased credit loss provisions, overshadow strong revenue and customer growth, indicating operational challenges and external pressures. The rising effective tax rate further impacts profitability. The strategic expansion into new, loss-making businesses also adds to short-term financial pressure.

Positives

• Total revenue, net, increased by 17% to $533.4 million for the three months ended June 30, 2025.
• Insurance premiums earned, net of reinsurance, increased by 18% to $153.3 million, driven by expansion in pension annuity and accident insurance.
• Achieved a net gain on trading securities of $45.6 million, a significant improvement from a $52.1 million net loss in the prior year, primarily due to increased market prices of Kazakhstan sovereign bonds.
• Net gain on derivatives increased by 24% to $15.5 million, mainly from favorable currency swaps at Freedom Bank KZ.
• Brokerage customer accounts grew by approximately 6.1% to 725,000 as of June 30, 2025.
• Banking customer accounts increased by approximately 16.4% to 2,927,000 as of June 30, 2025.
• Insurance customer accounts grew by approximately 19.3% to 1,396,000 as of June 30, 2025.
• Acquired Astel Group Ltd. for $22.3 million to strategically expand the telecommunications business.
• S&P Global Ratings revised the outlook to positive for several key subsidiaries (Freedom KZ, Freedom EU, Freedom Global, Freedom Bank KZ) and affirmed 'B+/B' ratings, reflecting substantial achievements in risk management and compliance.
• S&P also raised ratings for Freedom Insurance and Freedom Life, citing improved operating performance and strategic importance.
• Interest income on loans to customers increased by 18% to $61.7 million due to loan portfolio growth.
• Interest income on margin loans to customers rose by 18% to $60.3 million, reflecting increased customer activity in margin lending.
• Interest income on available-for-sale securities increased by 59% to $13.4 million due to a higher volume of such securities.
• Inclusion in the Russell 3000 Index, which management believes may raise the company's profile among institutional investors and could improve the liquidity of its common stock.

Negatives

• Net income decreased by 11% to $30.4 million for the three months ended June 30, 2025.
• Total expenses increased significantly by 19% to $492.9 million, outpacing revenue growth.
• Fee and commission income decreased by 7% to $107.6 million, mainly due to lower income from bank services and payment processing.
• A net loss on foreign exchange operations of $12.9 million was recorded, compared to a net gain of $8.1 million in the prior year, primarily due to the 3.3% weakening of the Kazakhstan tenge against the U.S. dollar.
• Insurance claims incurred, net of reinsurance, increased by 70% to $80.3 million, driven by growth in pension annuity and accident insurance products and higher redemptions/terminations.
• Payroll and bonuses expense increased by 62% to $93.1 million due to workforce expansion, new subsidiaries, and increased salaries/bonuses.
• Professional services expense increased by 79% to $13.0 million, mainly due to higher auditing service costs.
• Stock compensation expense increased by 117% to $23.1 million due to new stock grants and amortization.
• Allowance for expected credit losses increased to $4.8 million from a recovery of $1.8 million in the prior year, attributed to deteriorating macroeconomic conditions and revised forward-looking information.
• The effective tax rate increased to 25.0% from 17.6%, impacting profitability due to changes in revenue composition, tax treatment, incremental U.S. GILTI tax, and accrued top-up tax from Global Anti-Base Erosion Model Rules (Pillar Two).
• Total assets decreased to $9.7 billion from $9.9 billion.
• S&P Global Ratings maintained a negative outlook on Freedom Holding Corp.'s 'B-' long-term rating.
• New telecommunications and media businesses are in a developmental stage and expected to be loss-making for several years.

Risks

• Limited operational history during sustained market growth may not be predictive of future operating results.
• Inability to manage rapid growth effectively, including integrating acquisitions and expanding into new business areas.
• Substantial risks associated with acquisitions and expansion into new business areas (e.g., telecommunications, media), including unfamiliarity, insufficient revenue to offset costs, competition, and inadequate internal controls.
• Engagement in related party transactions and arrangements, increasing the risk of misstatements, non-arms-length terms, and regulatory non-compliance.
• Intense competition in all markets (brokerage, banking, financial services, telecommunications, media) from larger firms with greater resources.
• Anticipated losses in new telecommunications and media businesses for several years.
• Inability to successfully implement the digital fintech ecosystem strategy, including challenges in constructing network infrastructure, obtaining licenses, and achieving profitability in new ventures.
• Significant losses from credit exposure (loans, margin lending, derivatives, debt securities) due to declines in borrower/counterparty financial condition, macroeconomic factors, and potential misjudgment in credit loss estimates.
• Concentration of revenues in certain customers and products (e.g., institutional market maker customers, Kazakhstan government/quasi-government debt securities), making the company vulnerable to changes in these relationships or market conditions.
• Risks related to business relationships with third-party broker-dealers, clearing firms, and market makers, potentially leading to reduced profitability, increased compliance costs, regulatory violations, and negative publicity.
• Potential losses from clearing and execution activities due to errors, system breakdowns, or customer/counterparty defaults.
• Dependence on access to identified sources of liquidity at a reasonable cost, with risks from over-reliance on particular funding sources, changes in credit ratings, or market dislocations.
• Need to raise additional capital, with no assurance of availability or attractive terms, potentially leading to dilution or increased debt service costs.
• Reductions in credit ratings or increased credit spreads could adversely affect business, liquidity, and cost of funding.
• Significant risk of capital loss from proprietary investments, particularly concentrations in sovereign debt instruments of a few non-U.S. countries and debt/equities of a number of companies, exacerbated by leverage.
• Potential significant loss from changes in KASE's requirements related to discount coefficients on securities in repurchase transactions.
• Risk management framework may not be effective in mitigating all risks.
• Modeling and assumptions used in assessing risks may differ materially from actual results.
• Inability to obtain reinsurance at required levels or prices, or collect on reinsurance, increasing exposure or limiting ability to write new policies.
• Dependence on executive management team, particularly Timur Turlov, and ability to hire/retain skilled personnel.
• Extraordinary events beyond control (pandemics, political discord, war, cyber attacks, natural disasters) could negatively impact business.
• Financial results depend on interest rate volatility, with potential negative impacts from rate increases.
• Exposure to foreign currency fluctuation risks, particularly the Kazakhstan tenge against the U.S. dollar.
• Damage to reputation could harm business, especially from issues related to legal/regulatory actions, AML, related party transactions.
• Ongoing Russia-Ukraine conflict and potential secondary sanctions on Kazakhstan's financial sector, or expansion of sanctions limiting services to Russian persons.
• Sanctions imposed by Ukraine on CEO Timur Turlov and former Ukrainian subsidiary could adversely affect relationships with counterparties and regulators.
• Non-compliance with U.S., EU, UK, Russian, or other sanctions programs could lead to penalties and reputational damage.
• Emerging markets (Kazakhstan, Uzbekistan, Kyrgyzstan, etc.) are subject to greater political, economic, and legal risks than mature markets.
• Economies of Kazakhstan and other operating countries are vulnerable to external shocks (oil prices, global financial shifts, Russia-Ukraine conflict) and internal political/social unrest.
• Extensive government regulation, licensing, and oversight in multiple jurisdictions; failure to comply could lead to monetary penalties or sanctions.
• Increased regulatory scrutiny in the financial services industry, leading to higher risk of financial liability and reputational harm.
• Substantial regulatory reporting obligations as a U.S. public company listed on Nasdaq.
• Risks related to anti-corruption laws (FCPA) in international operations.
• Failure by subsidiaries to meet capital adequacy and liquidity requirements could affect operations, financial condition, and cash flows.
• Changing regulatory regimes, policies, and interpretations in operating countries, particularly emerging markets.
• Measures to prevent money laundering and terrorist financing violations may not be completely effective, especially with omnibus brokerage accounts.
• Violation of securities laws or involvement in litigation could adversely affect reputation and results of operations.
• Risks related to potential litigation (customer claims, employment claims).
• High dependence on the continued and proper functioning of information technology systems; failures could lead to financial loss, business disruption, liability, or reputational damage.
• Interaction with large volumes of sensitive data exposes the company to IT breach and data security risks, including cyber attacks and compliance challenges with data privacy laws.
• Infrastructure dependence on external events (natural disasters, conflicts, power outages) could interrupt the ability to operate.
• Failure or compromise of third-party systems operations or security could adversely affect business and expose the company to data breaches and cyber attacks.
• Need to keep pace with rapid technological change to remain competitive; failure could lead to customer losses or reduced revenue.
• Global anti-offshore measures (BEPS, CRS, MLI) could adversely impact tax planning and increase the tax burden.
• Frequent tax law changes in operating regions (e.g., Kazakhstan) could adversely affect business and the value of investments.
• Uncertainties in Kazakhstan's tax regime, including AIFC tax benefits and beneficial owner determination, could lead to additional tax liabilities.
• Changes in regulations related to taxes on stock transfers and other financial transactions could reduce the volume of market transactions and impact business.
• As a diversified holding company, FRHC is reliant on the operations of its subsidiaries to fund its holding company operations.
• As a controlled company under Nasdaq rules, the company qualifies for exemptions from certain corporate governance requirements that may adversely affect its stock price.
• The interests of the controlling shareholder (Timur Turlov) may conflict with those of other shareholders.
• Civil liability may be difficult or impossible to enforce against the company due to directors/assets being outside the U.S.
• Past material weaknesses in internal control over financial reporting, and the risk of identifying material weaknesses in the future or failing to maintain effective internal control over financial reporting.
• The price of common stock has fluctuated historically and may be volatile.
• Future offerings of securities which would rank senior to common stock may adversely affect the market price of common stock.
• No intention to pay dividends on common stock for the foreseeable future; stockholders' ability to achieve a return on investment will depend on appreciation in the price of common stock.

Future Outlook

Management believes that inclusion in the Russell 3000 Index may raise the company's profile among institutional investors and could improve the liquidity of its common stock. The company anticipates that acquisitions will continue to play a key role in its growth strategy. The new telecommunications subsidiary, Freedom Telecom, is currently expected to be loss-making for the first several years of its operations, and its strategy and budget are subject to material revisions. The Freedom Media subsidiary is projected to incur losses from 2024 to 2026, with profitability forecasted from 2027 onwards. The company intends to either acquire Microfinance Organization Freedom Finance Credit LLP or implement an in-house solution to replicate its functions. Freedom Bank KZ may place bonds from its established programs as needed to support liquidity. The company does not anticipate paying cash dividends on common stock for the foreseeable future, intending to retain future earnings for operations, development, expansion, working capital, and general corporate purposes. The regulatory environment is expected to continue raising standards and imposing new regulations. The company believes its current cash and cash equivalents, cash generated from operating activities, forecasted returns from proprietary trading, and ability to raise additional capital will be sufficient to meet present and anticipated financing needs.

Management Comments

• Management believes that index membership may raise our profile among institutional investors and could improve the liquidity of our common stock.
• Our mission has always been to democratize access to financial markets for global customers.
• Our company was founded to provide access to the international capital markets for retail brokerage customers and has rapidly grown providing a world-class digital infrastructure that has led to innovative, integrated financial technologies that address customer needs in Kazakhstan, our home market, and dozens of other countries across Europe, Asia, and North America.
• The expansion of our retail customers activity has been a major driver of our growth, particularly in Kazakhstan, Europe and other Central Asian jurisdictions.
• The increase in the loan and deposit portfolios reflects continued customer demand and growth in our banking services, while the decline in trading portfolio aligns with our strategic focus on core banking operations.
• As part of our strategic approach, we do not prioritize revenue generation from banking service commissions. Instead, the loyalty program is leveraged to effectively reduce transaction costs for customers by supporting our customer base expansion and increasing engagement across the ecosystem.
• The overall growth in advertising and sponsorship expenses is consistent with the Company's broader strategy to strengthen brand recognition, expand market presence, and support impactful community-oriented projects.
• We believe that our current cash and cash equivalents, cash expected to be generated from operating activities, and forecasted returns from our proprietary trading, combined with our ability to raise additional capital will be sufficient to meet our present and anticipated financing needs.

Industry Context

Freedom Holding Corp. operates in highly regulated financial services industries (brokerage, banking, insurance) across diverse jurisdictions, including emerging markets like Kazakhstan, Uzbekistan, and Kyrgyzstan, as well as Europe and the US. The company's strategic expansion into telecommunications and media in Kazakhstan aligns with a broader industry trend of financial institutions building integrated digital ecosystems (SuperApps) to enhance customer engagement and leverage data. This strategy is common among modern financial service providers aiming for comprehensive customer solutions and operational efficiency. The company faces intense competition from international, regional, and local firms in all its segments. The economic resilience of Kazakhstan, its primary market, is vulnerable to external shocks such as oil price fluctuations and regional geopolitical events, which is a significant regional industry factor. The financial services industry globally is also experiencing increased regulatory scrutiny and evolving tax regimes, posing ongoing compliance challenges.

Comparison to Industry Standards

• Brokerage customer growth of approximately 6.1% in Q1 2025 (from 683,000 to 725,000) is strong, potentially outpacing more mature global brokers like Interactive Brokers or Charles Schwab.
• Banking customer growth of approximately 16.4% in Q1 2025 (from 2,515,000 to 2,927,000) is exceptionally high, indicating successful digital banking penetration in emerging markets, likely surpassing traditional banks such as Halyk Bank or Kaspi Bank in Kazakhstan.
• Insurance customer growth of approximately 19.3% in Q1 2025 (from 1,170,000 to 1,396,000) is robust, suggesting effective cross-selling within its ecosystem or strong market penetration in Kazakhstan's insurance sector.
• The development of the Freedom SuperApp, integrating banking, payments, credit, brokerage, insurance, and lifestyle services, mirrors strategies seen in other successful digital ecosystems in emerging markets (e.g., Kaspi.kz in Kazakhstan, Grab in Southeast Asia) aiming for comprehensive customer engagement and lower acquisition costs.
• S&P Global Ratings affirming 'B+/B' for core subsidiaries and 'B-' for the holding company, with a positive outlook for subsidiaries, indicates a sub-investment grade but improving credit profile, which is generally lower than major global financial institutions but competitive within emerging markets.
• The upgrade for Freedom Insurance to 'BB-' and Freedom Life to 'BB' (stable outlook) from S&P shows improving financial strength in specific insurance segments, reflecting strong performance in a competitive market.
• The expansion into capital-intensive, loss-making telecommunications and media sectors is a diversification strategy that carries significant execution risk, similar to other conglomerates expanding beyond their core competencies, and contrasts with more focused financial services firms.

Management Changes

Corporate Governance

Legal Proceedings

• In January 2025, Einride AB filed a request for arbitration and statement of claim with the SCC Arbitration Institute against the Company, alleging failure to pay $10,000 to subscribe for a convertible debenture. The Company contests the claim, and a final award is preliminarily scheduled for May 2026.
• No governmental, legal, or arbitration proceedings (including any such proceedings which are pending or threatened and which the Company is aware of) which may have or have had a significant impact on Freedom Finance SPC Ltd.'s financial position and profitability during the last 12 months prior to the Prospectus date.
• Accruals for potential losses related to legal, regulatory, and governmental actions and proceedings were not material as of June 30, 2025, and March 31, 2025.

Related Party Transactions

• Loans issued include uncollateralized bank customer loans purchased from Microfinance Organization Freedom Finance Credit LLP (FFIN Credit), a company controlled by Timur Turlov (FRHC's CEO and controlling shareholder).
• As of June 30, 2025, 56% of the company's total related party other assets consisted of a prepayment to Freedom Data Centers LLP (formerly, Freedom Telecom LLP), a company controlled by Timur Turlov, for the potential acquisition of A-Telecom LLP.
• As of June 30, 2025, 6% of the company's total related party customer liabilities were bank deposits from Turlov Family Office Securities (PTY) LTD, a private securities brokerage company wholly owned by Timur Turlov, held with Freedom Bank KZ.
• As of June 30, 2025, 64% of the company's total related party customer liabilities were from ITS Central Securities Depository Limited, an affiliate of the Group.
• As of both June 30, 2025, and March 31, 2025, 99.9% of the company's total related party liabilities from insurance activity were liabilities from FFIN Credit, for which the Group provides voluntary credit risk insurance.
• During the three months ended June 30, 2025, the Group recognized $5,462 thousand in insurance premiums earned, net of reinsurance, from FFIN Credit for such insurance services.
• During the three months ended June 30, 2025, the Group incurred advertising and sponsorship expense from Kazakhstan Chess Federation ($1,608 thousand) and Freedom Youth Football League of Kazakhstan ($2,526 thousand), both associated with Timur Turlov.

Stakeholder Impact

• Shareholders face potential dilution risk from future equity offerings, no anticipated dividends, stock price volatility, and potential conflicts of interest due to the controlling shareholder's influence.
• Bondholders are exposed to the risk of not recovering amounts in case of Issuer bankruptcy or default, U.S. withholding tax implications without proper IRS forms, market price volatility, and the risk of guarantor default.
• Customers benefit from increased access to integrated digital financial services through the SuperApp and expanded product offerings (telecom, media), but face risks from operational system failures, cybersecurity threats, and potential adverse impacts from regulatory non-compliance.
• Employees benefit from workforce expansion and increased payroll/bonuses, but the company's dependence on key management and competition for skilled employees are ongoing challenges. Stock compensation is a significant part of remuneration.
• Regulators are actively scrutinizing the company's operations across multiple jurisdictions, requiring significant compliance efforts and resources.
• Suppliers and creditors are exposed to credit risk from the company's operations, particularly in its lending and trading activities.

Next Steps

• Continue to develop the digital fintech ecosystem, including integrating online and mobile brokerage, banking, insurance, payment processing, and online commercial ticketing services.
• Further develop the telecommunications market in Kazakhstan through Freedom Telecom, including constructing network infrastructure, obtaining licenses, and acquiring smaller companies.
• Reassess and revise the strategy and budget for Freedom Telecom.
• Continue to establish Freedom Media as a national media platform in Kazakhstan.
• Potentially acquire Microfinance Organization Freedom Finance Credit LLP or implement an in-house solution to replicate its functions.
• Freedom Bank KZ may place bonds from its established programs to support liquidity as needed.
• Continue construction of Elysium Tower in Limassol, Cyprus, with remaining capital expenditures of approximately $4.5 million expected in fiscal year 2026.
• Obtain a license to provide brokerage services in Turkey following principal approval received on January 9, 2025.
• Address the Einride arbitration case, with a final award preliminarily scheduled for May 2026.

Key Dates

Recommendation

While Freedom Holding Corp. demonstrates strong customer acquisition and revenue growth, particularly in its core brokerage, banking, and insurance segments, the significant increase in operating expenses, a net income decline, and a foreign currency translation loss raise concerns about profitability and efficiency. The strategic expansion into new, loss-making telecommunications and media businesses, coupled with increased credit loss provisions, adds to short-term financial headwinds. The positive S&P outlook for subsidiaries is a good sign for risk management, but the holding company's stable 'B-' rating and the inherent risks of operating in emerging markets and with related party transactions warrant caution. A 'Hold' recommendation is appropriate as the company navigates these growth and operational challenges, with investors advised to monitor the execution of its digital ecosystem strategy and its ability to control costs and improve net profitability.

Keywords

Freedom Holding Corp., FRHC, Financial Services, Brokerage, Banking, Insurance, Telecommunications, Media, Kazakhstan, SEC Filing, Quarterly Report, Q1 2026, Astana International Financial Centre, AIX, Nasdaq, Investment, Fintech, Digital Ecosystem, Risk Management, Corporate Governance, Bond Programme, Debt Securities, S&P Global Ratings, Customer Growth, Revenue Growth, Net Income Decline, Foreign Exchange Loss, Credit Risk