Business Context and Reporting Period
Company: Freedom Holding Corp. (FRHC)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended June 30, 2026
Business Overview: FRHC operates as a holding company for subsidiaries providing securities brokerage, banking, insurance, and lifestyle services (payments, e-commerce, telecommunications) primarily in Kazakhstan, Europe, and Central Asia. The company is expanding its digital fintech ecosystem and recently acquired ChessBase GmbH.
Key Financial Metrics
| Metric (in thousands) | Q2 2026 | Q2 2025 (Recasted) |
|---|---|---|
| Total Revenue, Net | $732,527 | $523,981 |
| Net Income | $31,660 | $37,356 |
| Earnings Per Share (Diluted) | $0.52 | $0.61 |
| Total Assets | $14,046,883 | $13,155,239 (Mar 31, 2026) |
| Total Liabilities | $12,511,607 | $11,665,960 (Mar 31, 2026) |
| Shareholders' Equity | $1,535,276 | $1,489,279 (Mar 31, 2026) |
| Cash & Cash Equivalents | $1,351,050 | $966,115 (Mar 31, 2026) |
| Restricted Cash | $1,473,196 | $1,246,312 (Mar 31, 2026) |
| Debt Securities Issued | $1,470,693 | $1,261,120 (Mar 31, 2026) |
| Net Cash from Operating Activities | $(341,624) | $480,831 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 40% to $732.5 million, driven by a 49% rise in interest income ($295.1M) and a 46% increase in fee and commission income ($156.7M). Brokerage fee income surged 60% due to higher institutional and retail activity.
- Profitability Decline: Despite revenue growth, Net Income decreased 15% to $31.7 million. This was primarily due to a 102% increase in insurance claims and policyholder benefits ($131.6M) and a 57% rise in interest expense ($177.6M) linked to expanded deposit and debt balances.
- Expense Increases: Total expenses rose 45% to $691.7 million. Key drivers included payroll and bonuses (+66%), general and administrative expenses (+82%), and allowance for expected credit losses (+266%).
- Balance Sheet Expansion: Total assets grew to $14.0 billion. Investment securities increased to $4.2 billion, while margin lending receivables decreased to $4.0 billion. Customer liabilities remained stable at $7.0 billion.
- Cash Flow: Operating cash flow turned negative ($341.6M outflow) compared to a positive $480.8M in the prior year, largely due to increased purchases of trading securities and changes in brokerage customer liabilities. Financing activities provided $1.2 billion, driven by a $300 million private placement and net deposit growth.
Guidance, Outlook, Risks, and Unusual Items
- Acquisitions: Completed the acquisition of ChessBase GmbH (chess software/analytics) for $4.9 million in June 2026. Subsequently, on July 31, 2026, acquired ~99.32% of Turkish Bank A.Ş. for $33.4 million.
- Capital Markets: Issued $400 million in Freedom SPC bonds due 2029 during the quarter. Completed a $300 million private placement of common stock in July 2026 (proceeds recorded as liability at quarter-end).
- Regulatory & Legal Risks: The Company and CEO Timur Turlov received a Wells Notice from the SEC in March 2026 regarding an investigation into settlement practices, internalized trades, and accounting controls. The Company cannot estimate potential losses but notes the risk of civil enforcement actions.
- Arbitration: Lost an arbitration case against Einride AB in May 2026, resulting in a liability of approximately $10,000.
- Accounting Changes: Adopted ASU 2018-12 (LDTI) for long-duration insurance contracts, impacting the presentation of insurance revenue and liabilities. Prior periods were recast.
- Outlook: Management continues to pursue an aggressive growth strategy in telecommunications (Freedom Telecom) and media (Freedom Media), requiring significant capital expenditures. No cash dividends are anticipated in the foreseeable future.
Investor Verification Checklist
- SEC Investigation Status: Monitor developments regarding the Wells Notice and potential civil enforcement actions against the Company and CEO.
- Insurance Segment Performance: Verify the sustainability of the 102% increase in insurance claims and the impact of the new LDTI accounting standard on future profitability.
- Related Party Transactions: Review the $11.8 million in advertising/sponsorship expenses paid to entities controlled by management (e.g., Kazakhstan Chess Federation, Football Club Shakhter).
- Concentration Risk: Note that a single non-related party customer contributed $100.9 million (14% of total revenue) in fee and commission income.
- Debt Obligations: Assess the impact of rising interest expense ($177.6M) on future margins, particularly with $1.47 billion in outstanding debt securities.
- Credit Quality: Review the 266% increase in the allowance for expected credit losses, driven by purchased retail loans and SME loans.