10-Q: Freedom Holding Reports Mixed Q3, Boosts Assets Amid Expansion

Freedom Holding Corp. reported a 2% decrease in net income for the three months ended December 31, 2025, despite significant asset growth and strategic expansion into telecommunications and digital services.

Summary

• Total revenue for the three months ended December 31, 2025, was $628.6 million, a 5% decrease from $664.6 million in the prior year, primarily due to lower insurance premiums and trading gains.
• Net income for the three months ended December 31, 2025, decreased by 2% to $76.2 million, compared to $78.1 million in the same period last year.
• For the nine months ended December 31, 2025, total revenue was $1.688 billion, a 1% decrease from $1.706 billion in the prior year.
• Net income for the nine months ended December 31, 2025, was $145.4 million, a 36% decrease from $226.9 million in the prior year.
• Total assets increased to $12.4 billion as of December 31, 2025, from $9.9 billion as of March 31, 2025.
• Brokerage segment net income was $81.0 million for the three months, Banking segment net income was $79.6 million, Insurance segment net income was $23.6 million, and the Other segment reported a net loss of $108.0 million.
• Customer growth was strong across Banking (4.47 million), Insurance (1.18 million), and Brokerage (828,000) segments as of December 31, 2025, compared to March 31, 2025, except for a decrease in active insurance contracts for Freedom Life due to regulatory changes.
• Freedom SPC issued U.S.$269.7 million bonds due October 10, 2028, with a 9.5% annual interest rate, guaranteed by Freedom Holding Corp.
• The company acquired 100% interest in Astel Group Ltd. (renamed Freedom Cloud Holding Ltd.), a telecommunications and digital solutions provider, on April 30, 2025.
• Kazakhstan's tax legislation changes, effective January 1, 2026, include an increase in corporate income tax for the banking sector to 25% and an increase in the VAT rate to 16%.
• The company is involved in an ongoing SEC Division of Enforcement inquiry regarding settlement practices, relationships with institutional market makers, accounting practices, disclosures, and internal controls.
• Capital expenditure commitments for telecommunications expansion amounted to $112.3 million as of December 31, 2025.
• Foreign currency translation resulted in a gain of $87.7 million for the three months ended December 31, 2025, due to a 7.9% appreciation of the Kazakhstan Tenge against the U.S. dollar.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this filing as neutral to slightly negative. While asset growth and strategic expansions are positive, the significant decline in net income and revenue, coupled with regulatory headwinds in the insurance sector and ongoing legal inquiries, present notable concerns that balance out the positives.

Positives

• Total assets increased significantly to $12.4 billion as of December 31, 2025, from $9.9 billion as of March 31, 2025, indicating balance sheet expansion.
• Net interest income increased by 8% to $100.9 million for the three months ended December 31, 2025, and by 14% to $295.4 million for the nine months ended December 31, 2025.
• Customer base expanded across Banking (4.47 million, up from 2.51 million), Brokerage (828,000, up from 683,000), and Other (697,000, up from 605,000) segments as of December 31, 2025.
• S&P Global Ratings revised its outlook to positive for Freedom KZ, Freedom EU, Freedom Global, and Freedom Bank KZ, affirming 'B+/B' ratings.
• S&P raised its long-term issuer credit and financial strength ratings on Freedom Life to 'BB+' from 'BB' and Freedom Insurance to 'BB-' from 'B+'.
• Net gain on foreign exchange operations increased significantly to $45.8 million for the three months ended December 31, 2025, from $3.9 million in the prior year, primarily due to Tenge strengthening.
• Net gain on derivatives increased by 123% to $26.5 million for the three months ended December 31, 2025, and by 27% to $38.8 million for the nine months ended December 31, 2025.
• Sales of goods and services increased by 170% to $29.1 million for the three months and by 137% to $66.4 million for the nine months, driven by telecommunications expansion and Arbuz activity.
• Allowance for expected credit losses decreased by 79% to $6.3 million for the three months and by 41% to $23.1 million for the nine months, reflecting improved macroeconomic conditions and updated forecasts.
• Acquisition of Astel Group Ltd. strengthens the company's telecommunications business and digital solutions offerings.
• The company is acting as the principal financing and implementation partner for a potential $2 billion Sovereign AI Hub in Kazakhstan, utilizing NVIDIA's architecture.

Negatives

• Total revenue decreased by 5% for the three months and 1% for the nine months ended December 31, 2025, compared to the prior year.
• Net income decreased by 2% for the three months and 36% for the nine months ended December 31, 2025, compared to the prior year.
• Insurance premiums earned, net of reinsurance, decreased by 40% to $106.9 million for the three months and by 18% to $385.4 million for the nine months, primarily due to a regulatory cap on commissions to insurance agents.
• Net gain on trading securities decreased by 51% to $43.5 million for the three months, driven by a decline in the value of securities positions held.
• Fee and commission income decreased by 12% for the three months and 4% for the nine months, mainly due to lower income from banking services (cashback program) and payment processing.
• Interest income on trading securities decreased by 57% for both the three-month and nine-month periods due to a lower volume of trading securities held.
• The 'Other' segment reported a net loss of $108.0 million for the three months and $231.8 million for the nine months ended December 31, 2025.
• Effective tax rate increased to 25.4% for the nine months ended December 31, 2025, from 15.5% in the prior year, due to changes in Kazakhstani tax legislation and Pillar Two top-up tax.
• Freedom Life experienced a decrease in active contracts from 1,038,516 to 329,167 due to the regulatory cap on insurance agent commissions.

Risks

• Ongoing SEC Division of Enforcement inquiry regarding settlement practices, relationships with institutional market makers, accounting practices, disclosures, and internal controls, with potential for fines or other penalties.
• Einride AB filed an arbitration claim against the company for $10,000 related to a convertible loan subscription, alleging breach of a Subscription Commitment.
• Involvement in additional employment-related claims, complaints, and legal/regulatory proceedings in the ordinary course of business.
• Exposure to market risk from adverse impacts of market changes on trading and investment positions, including interest rate risk, foreign currency exchange risk, and equity price risk.
• Significant portion of trading securities and cash/cash equivalents are subject to collateralization agreements, enhancing risk of loss in volatile markets.
• Credit risk from margin lending activities, which increases during fast market movements or concentrated collateral, with unlimited and unquantifiable exposure from short sales.
• Loan portfolio quality may be impacted by global, regional, and local macroeconomic and market dynamics, including GDP weakness, consumer spending reductions, property value decreases, and changes in interest rates.
• Cybersecurity risk from inadequacies or breaches in control processes, leading to penetration, disruption, integrity violation, or misuse of information systems and data.
• Operational risk from inadequate or failed operations or external events, including business disruptions, improper transaction execution, and technology deficiencies.
• Legal and compliance risk due to operating in multiple jurisdictions with unique legal and regulatory structures, including AML, counter terrorist financing, anti-corruption, and sanctions rules.
• Geopolitical conflicts (e.g., Russia-Ukraine war, Middle East tensions) contribute to market volatility, sanctions, trade restrictions, and increased cybersecurity threats.
• Inflation affects expenses (employee compensation, IT, office leasing) which may not be readily recoverable from customers, potentially impacting results if interest rates rise or securities markets are adversely affected.

Future Outlook

The company plans to continue expanding its digital fintech ecosystem, including further development of its telecommunications and media businesses in Kazakhstan. This involves significant capital expenditures for network infrastructure, licenses, and potential acquisitions. The company is also exploring expansion of its banking segment to other jurisdictions, contingent on market conditions and regulatory approvals. A non-binding arrangement for a potential $2 billion Sovereign AI Hub in Kazakhstan is under consideration, with the company acting as a principal financing and implementation partner. The company intends to retain future earnings to fund business operations, development, and expansion, and does not anticipate paying cash dividends on common stock in the foreseeable future.

Management Comments

• 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 decrease in insurance premiums earned was primarily driven by lower written insurance premiums as a result of the regulatory cap on commissions paid to insurance agents for policies associated with bank and microfinance loan products, which reduced new business volumes during the period.
• The decrease in fee and commission from banking services was primarily driven by active use by our customers of a cashback-based loyalty program, with cashback amounts reflected as a reduction of banking service revenue. 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 decrease in interest expense on securities repurchase agreement obligations primarily reflects the Group's strategic decision to reduce exposure to market risk by liquidating a portion of the trading portfolio, which historically has been primarily funded through repurchase agreements.
• The increase in payroll and bonus expenses was driven by the expansion of our workforce through hiring, the establishment of new subsidiaries and acquisitions, as well as higher salary and bonus amounts between the two periods.
• The decrease in the provision for allowance for expected credit losses was primarily driven by lower provisions relating to purchased retail loans, loans to SME and mortgage loans, reflecting improved macroeconomic conditions and other factors that reduced the estimated probability of default across our loan portfolio, as well as the incorporation of updated forward-looking information.
• Our plans and budget for Freedom Telecom continue to be regularly reassessed and are subject to revisions, which may be material.

Industry Context

StockSavvy.ai notes that Freedom Holding Corp.'s strategic focus on expanding its digital fintech ecosystem, including telecommunications and AI initiatives, aligns with broader industry trends towards integrated digital platforms and AI adoption in financial services. The growth in banking and brokerage customer numbers, despite a challenging revenue quarter, suggests successful customer acquisition in competitive markets. However, the impact of regulatory changes in Kazakhstan on the insurance segment highlights the sensitivity of financial services to local policy shifts, a common challenge for multi-jurisdictional operators. The company's efforts to reduce market risk exposure by liquidating trading portfolios and managing repurchase agreements indicate a proactive approach to capital management in a volatile global financial landscape.

Comparison to Industry Standards

• Freedom Holding Corp.'s customer growth in banking (4.47 million) and brokerage (828,000) demonstrates strong market penetration, comparable to rapidly expanding fintechs in emerging markets, though specific regional benchmarks are needed for direct comparison.
• The 9.5% coupon rate on the new U.S.$269.7 million bonds due 2028 is competitive for a company operating in emerging markets like Kazakhstan, reflecting a balance between investor yield expectations and the company's cost of capital, potentially higher than rates offered by established global financial institutions like JPMorgan Chase or Goldman Sachs for similar debt instruments.
• The acquisition of Astel Group Ltd., a telecommunications provider, and the pursuit of a $2 billion Sovereign AI Hub in Kazakhstan, positions Freedom Holding Corp. uniquely, similar to how large tech conglomerates (e.g., Tencent, Alibaba) integrate diverse services, rather than traditional financial institutions.
• The decrease in insurance premiums earned due to a regulatory cap on commissions is a specific regional challenge, contrasting with more stable regulatory environments in mature markets where insurance commission structures are typically more entrenched and less prone to sudden, significant changes.
• The increase in the effective tax rate to 25.4% for the nine months ended December 31, 2025, due to Kazakhstani tax law changes, indicates a higher tax burden compared to the average corporate tax rates in some developed markets (e.g., Ireland's 12.5% corporate tax rate for certain activities), impacting net profitability.

Management Changes

Corporate Governance

Legal Proceedings

• The company and certain officers/directors are subject to an ongoing SEC Division of Enforcement inquiry related to settlement practices, relationships with institutional market makers, accounting practices, disclosures, and internal controls.
• Einride AB filed an arbitration claim against the company in January 2025 for $10,000, alleging breach of a Subscription Commitment related to a convertible loan.
• Involvement in certain additional claims, complaints, and legal or regulatory proceedings arising in the ordinary course of business, including employment-related matters, which the company believes are without merit.

Related Party Transactions

• Loans issued include $19.534 million to related parties as of December 31, 2025, down from $188.445 million as of March 31, 2025.
• Restricted cash includes $463.254 million to related parties as of December 31, 2025, up from $30,000 as of March 31, 2025.
• Customer liabilities include $104.683 million to related parties as of December 31, 2025, up from $48.161 million as of March 31, 2025.
• Advertising and sponsorship expense includes $10.759 million from related parties for the three months ended December 31, 2025, and $21.164 million for the nine months ended December 31, 2025.
• Prepayment to Freedom Data Centers LLP (formerly, Freedom Telecom LLP) for the potential acquisition of A-Telecom LLP constituted 26% of total related party other assets as of December 31, 2025.
• Bank deposits from Turlov Family Office Securities (PTY) LTD held with Freedom Bank KZ constituted 11% of total related party customer liabilities as of December 31, 2025.
• Liabilities from FFIN Credit constituted 99.6% of total related party liabilities from insurance activity as of December 31, 2025, with the Group providing voluntary credit risk insurance.
• Sponsorship contributions were made to the Kazakhstan Chess Federation ($5.698 million for 3 months, $8.157 million for 9 months) and Freedom Youth Football League of Kazakhstan ($4.649 million for 3 months, $9.905 million for 9 months), both controlled by Timur Turlov.

Stakeholder Impact

• Shareholders: Potential negative impact from decreased net income, ongoing SEC inquiry, and increased tax burden. However, strategic expansions and asset growth could offer long-term value.
• Employees: Workforce expansion through hiring and acquisitions, leading to increased payroll and bonuses, indicates positive impact on employment opportunities.
• Customers: Expansion of digital fintech ecosystem, including SuperApp and new banking/brokerage services, aims to enhance customer experience and engagement. Cashback loyalty programs reduce transaction costs for banking customers. Regulatory cap on insurance commissions may affect new business volumes for some insurance products.
• Creditors: New bond issuances increase debt, but the company's strong asset base and compliance with capital adequacy requirements provide reassurance. The guarantee by FRHC on Freedom SPC bonds enhances security for bondholders.
• Regulatory Authorities: The company is subject to various regulatory oversight and inquiries, including the SEC, NBK, AFSA, ARDFM, and CySEC, indicating high scrutiny and compliance requirements.

Next Steps

• Continue expansion of the telecommunications market in Kazakhstan through Freedom Telecom, requiring significant capital expenditures for network infrastructure, licenses, and acquisitions.
• Further develop the digital fintech ecosystem, including the Freedom SuperApp and Freedom Business mobile application.
• Proceed with obtaining a license to provide brokerage services in Turkey, following principal approval.
• Continue phased rollout of Freedom Bank TJ operations.
• Evaluate the impact of new accounting pronouncements (ASU 2018-12, 2023-06, 2023-09, 2024-01, 2024-03, 2024-04, 2025-03, 2025-04, 2025-05, 2025-06, 2025-07, 2025-09, 2025-10, 2025-11, 2025-12) on consolidated financial statements and disclosures.
• Monitor and respond to the ongoing SEC Division of Enforcement inquiry.
• Continue defending against the Einride arbitration case, with a final award preliminarily scheduled for May 2026.
• Potentially collaborate on the development of a $2 billion Sovereign AI Hub in Kazakhstan, following a non-binding arrangement with the Kazakhstan Ministry of Artificial Intelligence and Digital Development.

Key Dates

Recommendation

The company exhibits a mixed financial performance with declining net income and revenue for the reported periods, primarily due to regulatory changes impacting the insurance segment and lower trading gains. However, significant asset growth, strategic expansion into telecommunications and AI, and strong customer acquisition in banking and brokerage are positive long-term indicators. The ongoing SEC inquiry and increased tax burden in Kazakhstan introduce uncertainty. Given the blend of growth initiatives and financial headwinds, a 'hold' recommendation is appropriate, suggesting investors monitor the resolution of regulatory issues and the execution of strategic projects before making further investment decisions.

Keywords

Freedom Holding Corp., FRHC, SEC 10-Q, Financial Services, Brokerage, Banking, Insurance, Kazakhstan, Digital Fintech Ecosystem, Bonds, Capital Expenditures, SEC Inquiry, Astel Group, Telecommunications, AI Hub, Regulatory Risk, Credit Risk, Market Risk, Earnings Report