Freedom Holding Corp.: Form 10-Q for the period ended Dec 31, 2024
Filed with the SEC on Feb 7, 2025 and accepted by EDGAR at Feb 7, 2025, 06:10 ET.
Management's discussion and analysis
As filed, 127,139 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
The following discussion and analysis presents management’s perspective on the financial condition and results of operations of Freedom Holding Corp. ("FRHC") and its consolidated subsidiaries. Except where the context otherwise requires or where otherwise indicated, references herein to the "Company," "Freedom," "we," "our," and "us" mean Freedom Holding Corp. together with its consolidated subsidiaries. References to a "fiscal year(s)" mean the 12-month periods ended March 31 for the referenced year. The following discussion and analysis is intended to highlight and supplement data and information presented elsewhere in this quarterly report on Form 10-Q, and it should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included in this quarterly report on Form 10-Q and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities Exchange Commission ("SEC") on June 14, 2024 (the “2024 Form 10-K”).
Special Note About Forward-Looking Information
All statements other than statements of historical fact included herein, any documents incorporated herein by reference, or any related discussions in this quarterly report on Form 10-Q, if any, including without limitation, statements regarding business strategy, credit rating, impact of new accounting pronouncements, expected capital expenditures and plans to finance such capital expenditure in the telecommunications business, treasury policy, expected outcome of litigation, aims, goals, and plans and objectives, and other than non-historical statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “strategy,” “will,” “ would,” and other similar expressions and their negatives.
Forward-looking statements are not guarantees of future performance and involve known and unknown risks and uncertainties, many of which may be beyond our control, which could cause actual results to differ materially from the those implied by the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof, and actual results could differ materially as a result of various factors. The following include some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
- economic and political conditions in the regions where we operate or in which we have customers;
- current and future conditions in the global financial markets, including fluctuations in interest rates and foreign currency exchange rates;
- the direct and indirect effects on our business stemming from Russia's large-scale military action against Ukraine;
- economic sanctions and countersanctions that limit movement of funds, restrict access to capital markets or curtail our ability to service existing or potential new customers;
- the impact of legal and regulatory actions, investigations and disputes;
- the policies and actions of regulatory authorities in the jurisdictions in which we have operations, as well as the degree and pace of regulatory changes and new government initiatives generally;
- our ability to manage our growth effectively;
- our ability to complete planned acquisitions or successfully integrate businesses we acquire;
- our ability to successfully execute our strategy for entry into new business areas, including among others the telecommunications and media sectors in Kazakhstan;
- the availability of funds, or funds at reasonable rates, for use in our businesses, including for executing our growth strategy;
- the impact of competition, including downward pressures on fees and commissions;
- our ability to meet regulatory capital adequacy or liquidity requirements, or prudential norms;
- our ability to protect or enforce our intellectual property rights in our brands or proprietary technology;
- our ability to retain key executives and recruit and retain personnel;
- the impact of rapid technological change;
- information technology, trading platform and other system failures, cybersecurity threats and other disruptions;
- market risks affecting the value of our proprietary investments;
- risks of non-performance by third parties with whom we have business relationships;
- the creditworthiness of our trading counterparties, and banking and brokerage customers;
- the impact of tax laws and regulations, and their changes, in any of the jurisdictions in which we operate;
- compliance with laws and regulations in each of the jurisdictions in which we operate, particularly those relating to the brokerage, banking and insurance industries;
- the impact of armed conflict in Israel and Gaza and any possible escalation of such conflict or contagion to neighboring countries or regions;
- unforeseen or catastrophic events, including the emergence of pandemics, terrorist attacks, extreme weather events or other natural disasters, political discord or armed conflict; and
- other factors discussed in this quarterly report, as well as in the 2024 Form 10-K, including those listed under Part I, Item 1A. “Risk Factors” of the 2024 Form 10-K.
Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not place undue reliance on forward-looking statements. Forward-looking statements are based on the beliefs of management as well as assumptions made by and information currently available to management and apply only as of the date of this quarterly report or the respective dates of the documents from which they incorporate by reference. Neither we nor any other person assumes any responsibility for the accuracy or completeness of forward-looking statements. Further, except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, made by us or on our behalf, are also expressly qualified by these cautionary statements.
OVERVIEW
Our Business
Freedom Holding Corp. ("FRHC"), incorporated under the laws of the State of Nevada, combines cutting-edge financial services with an array of lifestyle solutions. Through our subsidiaries, we provide a diverse range of offerings, including securities brokerage, market making, investment research, financial advisory, investment banking, retail and commercial banking, insurance products, payment solutions, and data processing services. We also own several ancillary businesses intended to complement our core financial services businesses, including telecommunications and media businesses in Kazakhstan that are in a developmental stage.
We own and operate lifestyle-focused platforms such as the e-commerce solution, the premier online travel booking service and the go-to platform for entertainment and event management. These services, alongside our core financial businesses, provide convenience and value for our clients, making FRHC more than a financial services provider but also a lifestyle enabler.
From the very beginning, our mission has been to democratize access to international capital markets for retail and institutional clients alike. Today, we are improving the financial industry by creating an integrated digital fintech ecosystem designed to meet the evolving demands of a global customer base. Our strategy centers on providing a seamless, user-friendly experience by combining innovative technologies with a comprehensive suite of services accessible through a single, unified platform. Our ambition is to set the gold standard for digital customer experiences, leveraging advanced technologies to deliver customized solutions that make managing finances and accessing global markets simpler, faster, and more intuitive. By fostering innovation and pushing boundaries, we aim to remain at the forefront of the industry.
The main market of our operations is Kazakhstan. Our operating subsidiaries are located in Kazakhstan, Cyprus, the United States, the United Kingdom, Armenia, the United Arab Emirates, Uzbekistan, Kyrgyzstan, Tajikistan, Azerbaijan, and Turkey, and we also have a presence in Austria, Belgium, Bulgaria, France, Germany, Greece, Italy, Lithuania, The Netherlands, Poland and Spain. We divested our Russian subsidiaries in February 2023. Our subsidiaries in the United States include an SEC- and FINRA-registered broker dealer. As of December 31, 2024, we had 7,761 employees and 204 offices (of which 51 offered brokerage services, 56 offered insurance services, 29 offered banking services and 68 offered other financial and non-financial services).
Products and Services
Our business is organized into four segments: Brokerage, Banking, Insurance, and Other. Additional information regarding our segments can be found in the narrative and tabular descriptions of segments and operating results under this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this quarterly report; and Note 24 "Segment Reporting" of the notes to our condensed consolidated financial statements included in Item 1 of this quarterly report.
Our Brokerage segment primarily focuses on retail brokerage and investment banking. Our Banking segment encompasses lending, deposit services, payment card services, money transfers, and correspondent accounts, supporting both individual and corporate clients with innovative digital financial solutions. Our Insurance segment offers life and general insurance services. Our Other segment includes payment processing services, e-commerce, online ticket sales, and new business areas including telecommunications and media services. We also engage in proprietary securities trading activities through each of our four segments.
The expansion of our retail clients’ activity has been a major driver of our growth, particularly in Kazakhstan, Europe and other Central Asian jurisdictions. Over recent years, we have observed a significant increase in retail clients’ activity across these key markets, which has been instrumental in scaling our business. Below is the table with number of our customer for our key segments:
| Number of clients as of December 31, 2024 | Number of clients as of March 31, 2024 | |
|---|---|---|
| Banking | 1,407,000 | 904,000 |
| Insurance | 972,000 | 534,000 |
| Brokerage | 618,000 | 530,000 |
| Other | 245,000 | 119,000 |
Brokerage Segment
As of December 31, 2024, in our Brokerage business segment we had 51 offices that provided brokerage and financial services, investment consulting and education, including offices in Kazakhstan, Cyprus, Armenia, United States, Uzbekistan, and Kyrgyzstan and representative offices in a number of other European countries. In addition, following receipt of a principal approval by the Turkey's financial regulatory and supervisory authority granted on January 9, 2025, we are in the process of obtaining a license to provide brokerage services in Turkey. We provide a comprehensive range of securities brokerage services to individuals, businesses and financial institutions. Depending on the region, our brokerage services may include securities trading and margin lending. Our investment banking business consists of investment banking professionals in Kazakhstan, Uzbekistan, and the United States who provide strategic advisory services and capital markets products.
Freedom KZ and Freedom Global are professional participants on the KASE and the AIX. Foreign Enterprise LLC Freedom Finance ("Freedom UZ") is a professional participant on the Republican Stock Exchange of Tashkent ("UZSE") and the Uzbek Republican Currency Exchange ("UZCE").
Freedom EU oversees our European region operations (including Austria, Belgium, Bulgaria, Cyprus, France, Germany, Greece, Italy, the Netherlands, Poland, Lithuania, Spain, and the United Kingdom). In Cyprus, it is licensed to receive, transmit and execute customer orders, establish custodial accounts, engage in foreign currency exchange services and margin lending, and trade our own investment portfolio. Freedom EU serves as a hub for the Group's brokerage operations, providing transaction processing and intermediary services to our regional customers and to institutional customers that may seek access to the securities markets in the United States and Europe.
PrimeEx is a registered agency-only execution broker-dealer on the floor of the New York Stock Exchange ("NYSE"). PrimeEx is a member of the NYSE, Nasdaq, FINRA and the Securities Investor Protection Corp ("SIPC"). PrimeEx conducts investment banking and equity capital markets business under the name Freedom Capital Markets ("FCM").
As of December 31, 2024, we had 1,749 employees in our Brokerage segment, including 1,478 full-time employees and 271 part-time employees.
Banking Segment
Our Banking segment consists of the operations of Freedom Bank KZ, which is a pioneer in digital retail and commercial banking services in Kazakhstan, offering a large variety of deposit, debit and credit cards allowing its customers to make purchases around the world in multiple different currencies, pay in installments or on credit, save their funds, manage their investment accounts, or get an increased cashback that may be transferred to the International Fund for the Salvation of the Aral Sea. Freedom Bank KZ provides digital mortgages, digital car loans, digital business loans, and payment acquiring services for individual entrepreneurs. On October 15, 2024, we obtained a banking license in Tajikistan.
As of December 31, 2024, Freedom Bank KZ's assets decreased by 2%, its loan portfolio increased by 5%, its deposit portfolio increased by 27%, its trading portfolio decreased by 9%, in each case in comparison with March 31, 2024. 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. During the three months ended December 31, 2024, the banking segment continued to exhibit growth. In particular, net gain on trading securities increased in comparison to the three months ended December 31, 2023, reflecting favorable market conditions and improved trading strategies.
We have 29 office locations in Kazakhstan and Tajikistan that provide banking services to our customers. As of December 31, 2024, we had 2,825 employees in our Banking segment, all of which were full-time employees.
Insurance Segment
We have two insurance companies in Kazakhstan, a life insurance company, Freedom Life, and a direct insurance carrier, excluding life, health and medical, Freedom Insurance.
Freedom Life provides a range of health and life insurance products to individuals and businesses, including life insurance, health insurance, annuity insurance, accident insurance, obligatory worker emergency insurance, travel insurance and reinsurance. As of December 31, 2024, Freedom Life had 973,827 active contracts, as compared to 616,301 active contracts as of March 31, 2024. As of December 31, 2024, Freedom Life had total assets of approximately $510.1 million and total liabilities of approximately $417.4 million, as compared to total assets of approximately $371.5 million and total liabilities of approximately $290.0 million as of March 31, 2024.
Freedom Insurance operates in the "general insurance" industry and is the leader in online insurance in Kazakhstan and offers various general insurance products in property (including automobile), casualty, civil liability, personal insurance and reinsurance. As of December 31, 2024, Freedom Insurance had 567,931 active contracts, as compared to 190,872 active contracts as of March 31, 2024. As of December 31, 2024, Freedom Insurance had total assets of approximately $154.3 million and total liabilities of approximately $95.3 million, as compared to total assets of approximately $158.0 million and total liabilities of approximately $112.8 million as of March 31, 2024.
As of December 31, 2024, we had 56 offices and 994 employees, including 955 full-time employees and 39 part-time employees, providing consumer life and general insurance services in Kazakhstan.
Other Segment
As of December 31, 2024, in our Other segment we had 68 offices and 2,679 employees, including 2,503 full-time employees and 134 part-time employees, providing a range of services including payment processing, entertainment ticketing sales, online air and railway ticket purchase aggregation and an online retail trade and e-commerce services. In addition, we have recently established subsidiaries in Kazakhstan to operate a telecommunications business and a media business, each of which is in the developmental stage. The revenue of this segment is currently mainly derived from provision of payment processing services, retail online ticket sales and online aggregation of purchasing air and railway tickets.
Digital Fintech Ecosystem and Product Expansion
Operating under the "Freedom" brand, our comprehensive suite of digital products and services enables our customers to engage in electronic trading and to monitor their accounts. Our flagship online trading platform Tradernet is designed for a wide range of investors featuring a comprehensive and user-friendly interface and secure infrastructure. The platform allows users to trade a diverse array of financial instruments, including stocks, options, and ETFs from major global exchanges such as the KASE, AIX, NYSE, Nasdaq, ATHEX, the London Stock Exchange, the Chicago Mercantile Exchange, the Hong Kong Stock Exchange and Deutsche Börse.
In addition to trading capabilities, we have expanded our digital solutions to include mortgages, auto loans, and insurance products. We also operate Ticketon Events LLP ("Ticketon"), the largest online ticket sales company in
Kazakhstan and Paybox platform, the digital payment aggregator which enables our customers to accept payments from buyers using a wide range of payment methods, including bank cards, online banking, electronic money, and more.
In April 2024, Freedom Bank KZ launched its mobile application, SuperApp, marking a significant milestone in the Kazakhstan financial technology sector. This innovative app consolidates all essential financial services into one platform, offering clients a seamless and convenient way to manage their finances. With SuperApp, clients can easily check their account balances, review transaction histories, make transfers and payments, open and manage deposits, obtain and repay loans, get access to investment, insurance, lifestyle and other products and services. The app also provides real-time portfolio monitoring, along with access to analytical reports and recommendations, empowering users to make well-informed investment decisions. SuperApp's payment services enable users to pay utility and internet bills, mobile phone charges, and other expenses effortlessly. SuperApp not only enhances the user experience but also aligns with our strategic goals. Customer satisfaction is improved through easy access to all banking and investment services in a single app, coupled with an intuitive interface and personalized recommendations.
Going forward, we are prioritizing the further development of our digital fintech ecosystem by integrating our online and mobile brokerage services, banking offerings, insurance products, payment processing systems, and online commercial ticketing services. Our strategic objective is to provide customers with a comprehensive and user-centric digital experience, offering them convenient access to a wide array of financial products and services through a single platform. When achieving our strategic objectives, we rely heavily on information technology and its continuous development and innovation to offer our users a seamless customer interaction, meet their diverse needs, and ensure stringent adherence to regulatory requirements and information security standards.
In alignment with our digital fintech ecosystem strategy, we are expanding our business by entering the telecommunications market in Kazakhstan and regional media industry in Central Asia. We are seeking to establish a new independent telecommunications operator in Kazakhstan to provide a diverse range of telecommunications and telecommunications-related services to customers which may include, among others, high-quality internet connectivity, mobile virtual network operator (MVNO) services, WiFi access, over-the-top (OTT) streaming, internet protocol television (IPTV), traffic transit for operators and cloud solutions, subject to obtaining applicable licenses, acquisitions of telecom assets or entering into partnerships where required. Our new telecommunications business is operated by Freedom Telecom, a wholly-owned subsidiary of Freedom Holding Corp. incorporated under the laws of the AIFC. Pursuing further development of our telecom business, on September 17, 2024 we completed the acquisition of a 100% interest in SilkNetCom LLP for a purchase price of approximately $23.9 million and on October 17, 2024 we completed the acquisition of a 100% interest in EliteCom LLP for a purchase price of approximately $3.0 million.SilkNetCom LLP is a company specializing in provider services, IT and construction of telecommunications networks in private and public sectors. EliteCom LLP specializes in telecommunications services, including Internet access, telephone services and cable television for individuals (B2C), provision of Internet access services for legal entities (B2B). See Note 22 "Acquisitions of subsidiaries" to the condensed consolidated financial statements included in this quarterly report on Form 10-Q. Our strategy and budget for Freedom Telecom are currently being reassessed and are subject to revisions, which may be material. During fiscal 2024, we established Freedom Media LLP ("Freedom Media") as a subsidiary of Freedom Telecom that is intended to become a national media platform in Kazakhstan offering tailored streaming services to the Kazakhstan and broader Central Asia markets. This platform is expected to provide unlimited access to a diverse collection of TV shows, movies, documentaries, and exclusive content across multiple genres.
Credit Ratings
On December 12, 2024, S&P Global Ratings affirmed the long-term credit rating of Freedom Holding Corp. at the "B-" level and upgraded the long-term credit ratings of Freedom KZ, Freedom EU, Freedom Global and Freedom Bank KZ from "B" to "B+" level. The short-term credit ratings of Freedom KZ, Freedom EU, Freedom Global and Freedom Bank KZ have been affirmed at "B" level. The ratings of Freedom KZ and Freedom Bank KZ on the national scale were increased from "kzBBВ-" to "kzBBВ". The stable outlooks on Freedom Holding Corp. and its core operating subsidiaries Freedom KZ, Freedom EU, Freedom Global and Freedom Bank KZ reflect S&P's expectations of stable business and financial profiles over the next 12 months, benefiting from reduced economic and industry risks and enhanced regulatory oversight in Kazakhstan. S&P also factor in the group's ongoing measures to strengthen its risk management and compliance, and planned moderation of growth rates, which should support capitalization.
On July 2, 2024, S&P Global Ratings revised its ratings outlook on Freedom Life to stable from negative. At the same time, S&P Global Ratings affirmed their 'BB' long-term issuer credit and financial strength ratings on Freedom Life. S&P Global Ratings also raised the Kazakhstan national scale rating on Freedom Life to 'kzAA-' from 'kzA+'. S&P Global Ratings consider that Freedom Life remains a strategically important subsidiary of the Group. This is based on Freedom Life's increasing importance to the Group's operations and track record of collaboration with other Group members. S&P
Global Ratings continue to view Freedom Life as an insulated entity due to strong regulatory oversight and its operational independence from the parent.
Key Factors Affecting Our Results of Operations
Our operations have been, and may continue to be, affected by certain key factors as well as certain historical events. For additional information on these factors and other risks that may affect our financial condition and results of operations, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II Item 7 of the 2024 Form 10-K and “Risk Factors” in Part I, Item 1A, of the 2024 Form 10-K.
FINANCIAL HIGHLIGHTS
The highlights of our consolidated results for the three months ended December 31, 2024 are as follows:
We had total revenues, net of $655.2 million for the three months ended December 31, 2024, as compared to $418.6 million for the three months ended December 31, 2023. The increase between the two quarters was primarily attributable to the following:
- Our insurance underwriting income for the three months ended December 31, 2024 was $177.5 million, an increase of $98.5 million or 125%, compared to the three months ended December 31, 2023. The increase was driven by the expansion of our insurance operations such as in the pension annuity and accident insurance between the two quarters.
- We had a net gain on trading securities of $89.6 million for the three months ended December 31, 2024, as compared to a net loss on trading securities of $5.1 million for the three months ended December 31, 2023. The majority of the net gain for the three months ended December 31, 2024 was attributable to the increase in the market prices of Kazakhstan sovereign bonds held in our proprietary portfolio during the quarter.
- Our fee and commission income for the three months ended December 31, 2024 was $143.4 million, an increase of $23.3 million, or 19%, compared to the three months ended December 31, 2023. The increase was mainly attributable to an increase in fee and commission income from brokerage services and banking services.
- We had a net gain on derivatives for the three months ended December 31, 2024 in the amount of $11.9 million, an increase of $54.5 million, or 128%, compared to the three months ended December 31, 2023. The gain for the three months ended June 30, 2024 was due to revaluation of currency swaps.
We had total expense of $556.9 million, for the three months ended December 31, 2024, as compared to $307.0 million for the three months ended December 31, 2023. The increase was mainly attributable to increases in fee and commission expense, insurance claims incurred (net of reinsurance), payroll and bonuses, general and administrative expense, advertising expense and stock based compensation expense.
We had net income of $78.1 million for the three months ended December 31, 2024, as compared to $96.1 million for the three months ended December 31, 2023. Our Brokerage, Banking, Insurance, and Other segments contributed net income of $102.3 million, net income of $34.5 million and net loss of $5.2 million and net loss of $53.4 million, respectively, to our total net income for the three months ended December 31, 2024.
Our total assets increased to $9.1 billion as of December 31, 2024 from $8.3 billion as of March 31, 2024.
We had approximately 618,000 total retail brokerage customers as of December 31, 2024 as compared to approximately 530,000 as of March 31, 2024. We had approximately 1,407,000 banking customers at our Freedom Bank KZ subsidiary as of December 31, 2024 as compared to approximately 904,000 as of March 31, 2024.
The operating results for any period are not necessarily indicative of the results that may be expected for any future period.
RESULTS OF OPERATIONS
Comparison of the Three-month Periods Ended December 31, 2024 and 2023
The following comparison of our financial results for the three-month periods ended December 31, 2024 and 2023 is not necessarily indicative of future results.
Revenue
The following table sets out information on our total revenue, net for the periods presented.
(amounts in thousands)
| Three months ended December 31, 2024 Amount | %* | Three months ended December 31, 2023 Amount | %* | Change Amount% | ||
|---|---|---|---|---|---|---|
| Fee and commission income | $143,436 | 21.9% | $120,159 | 28.7% | $23,277 | 19% |
| Net gain on trading securities | 89,564 | 13.7% | (5,089) | (1.2)% | 94,653 | (1,860)% |
| Interest income | 224,688 | 34.3% | 226,445 | 54.1% | (1,757) | (1)% |
| Insurance underwriting income | 177,472 | 27.1% | 79,017 | 18.9% | 98,455 | 125% |
| Net gain on foreign exchange operations | 3,945 | 0.6% | 38,825 | 9.3% | (34,880) | (90)% |
| Net gain/(loss) on derivatives | 11,889 | 1.8% | (42,568) | (10.2)% | 54,457 | (128)% |
| Other income | 4,196 | 0.6% | 1,845 | 0.4% | 2,351 | 127% |
| Total revenue, net | $655,190 | 100% | $418,634 | 100% | $236,556 | 57% |
* Percentage of total revenue, net.
Fee and commission income
The following table sets forth information regarding our fee and commission income for the periods presented.
(amounts in thousands)
| Three months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Brokerage services | $118,841 | $99,813 | $19,028 | 19% |
| Commission income from payment processing | 7,137 | 8,977 | (1,840) | (20)% |
| Banking services | 8,360 | 1,331 | 7,029 | 528% |
| Underwriting and market-making services | 1,549 | 3,344 | (1,795) | (54)% |
| Other fee and commission income | 7,549 | 6,694 | 855 | 13% |
| Total fee and commission income | $143,436 | $120,159 | $23,277 | 19% |
The following table sets out the components of our fee and commission income as a percentage of total fee and commission income, net for the periods presented.
| Three months ended December 31, 2024 (as a % of total fee and commission income) | 2023 | |
|---|---|---|
| Brokerage services | 83% | 83% |
| Commission income from payment processing | 5% | 7% |
| Banking services | 6% | 1% |
| Underwriting and market-making services | 1% | 3% |
| Other fee and commission income | 5% | 6% |
| Total fee and commission income | 100% | 100% |
For the three months ended December 31, 2024, total fee and commission income was $143.4 million, an increase of $23.3 million, or 19%, as compared to fee and commission income of $120.2 million for the three months ended December 31, 2023.
Fee and commission income from brokerage services for the three months ended December 31, 2024 was $118.8 million, representing a 19% increase as compared to $99.8 million for the three months ended December 31, 2023. This increase was primarily due to an increase in the number of retail brokerage customers from 458,000 as of December 31, 2023 to 618,000 as of December 31, 2024. The increase in the number of customers was attributable in part to the migration of customers from our affiliate FST Belize to brokerage companies within our Group between the two quarters. The increase was offset in part by a decrease in fee and commission income from brokerage services generated from FST Belize between the two quarters, as our omnibus brokerage account arrangement with FST Belize was wound down and customers of FST Belize closed their accounts at FST Belize and opened accounts with brokerage companies within our Group. During the three months ended December 31, 2024, we earned fee and commission income from a market maker customer at our Freedom Global subsidiary in an amount of $77.4 million, representing 54% of our total fee and commission income for that quarter.
Fee and commission income from payment processing decreased to $7.1 million for the three months ended December 31, 2024 from $9.0 million for the three months ended December 31, 2023. The decrease is attributable to a decrease in transaction volumes between the two quarters, which was in turn due to the cessation of operations of one of our counterparties, which previously contributed a substantial transaction volume.
Fee and commission income from banking services increased to $8.4 million in the three months ended December 31, 2024 from $1.3 million in the three months ended December 31, 2023. The increase in fee and commission income from banking services between the two quarters was primarily due to increase in commissions generated on transfer and payment processing, which was a result of an increase in the volume of transfer and payment processing transactions and an increase of cash operations income, by attracting new clients.
Fee and commission income from underwriting and market-making activities decreased by 54% to $1.5 million for the three months ended December 31, 2024 from $3.3 million for the three months ended December 30, 2023, driven by a lower volume of underwriting transactions for the three months ended December 31, 2024 as compared to the three months ended December 31, 2023.
Net gain on trading securities
We had a net gain on trading securities of $89.6 million for the three months ended December 31, 2024, an increase of $94.7 million as compared to a net loss of $5.1 million for the three months ended December 31, 2023. The following table sets forth information regarding our net gains on trading activities during the three months ended December 31, 2024 and 2023:
(amounts in thousands)
| Realized Net Gain | Unrealized Net Gain/(Loss) | Net Gain | |
|---|---|---|---|
| Three months ended December 31, 2024 | $15,013 | $74,551 | $89,564 |
| Three months ended December 31, 2023 | $9,353 | $(14,442) | $(5,089) |
During the three months ended December 31, 2024, we had a realized gain on trading securities of $15.0 million, which is attributable to Kazakhstan sovereign bonds sold during the three months ended December 31, 2024. Also, we recognized an unrealized net gain of $74.6 million during the same period due to an increase in the value of securities positions we held as of December 31, 2024. The majority of the unrealized net gain is attributable to Kazakhstan sovereign bonds.
During the three months ended December 31, 2023, we had a realized gain on trading securities of $9.4 million, which is mainly attributable to debt securities of the Kazakhstan Sustainability Fund JSC sold during the three months ended December 31, 2023. We had an unrealized net loss in amount of $14.4 million in the three months ended December 31, 2023 due to securities positions we continued to hold at December 31, 2023. The majority of the unrealized net loss arose from the securities of Kazakhstan Sustainability Fund JSC, primarily as a consequence of price declines.
Interest income
The following tables set forth information regarding our revenue from interest income for the periods presented.
(amounts in thousands)
| Three months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Interest income on trading securities | $95,666 | $112,860 | $(17,194) | (15)% |
| Interest income on margin loans to customers | 61,295 | 51,553 | 9,742 | 19% |
| Interest income on loans to customers | 51,089 | 49,529 | 1,560 | 3% |
| Interest income on securities available-for-sale | 11,027 | 7,478 | 3,549 | 47% |
| Interest income on reverse repurchase agreements and amounts due from banks | 5,611 | 5,025 | 586 | 12% |
| Total interest income | $224,688 | $226,445 | $(1,757) | (1)% |
| Three months ended December 31, 2024 (as a % of total interest income) | 2023 | |
|---|---|---|
| Interest income on trading securities | 43% | 50% |
| Interest income on loans to customers | 23% | 22% |
| Interest income on margin loans to customers | 27% | 23% |
| Interest income on securities available-for-sale | 5% | 3% |
| Interest income on reverse repurchase agreements and amounts due from banks | 2% | 2% |
| Total interest income | 100% | 100% |
For the three months ended December 31, 2024, we had interest income of $224.7 million, representing a decrease of $1.8 million, or 1%, compared to the three months ended December 31, 2023. The increase in interest income was primarily attributable to the increase of the income from margin loans to customers by $9.7 million, or 19% due to an increase in the usage of margin loans for trades by our clients between the two periods, partially offset by the decrease in interest income on trading securities by $17.2 million, or 15%, as a result of a decrease in the total size of our trading portfolio and a decrease in the amount of bonds we held as a percentage of our total trading portfolio between the two periods.
Additionally, the interest income on securities available-for-sale increased by $3.5 million, or 47%, compared to the three months ended December 31, 2023. Such increase was due to the increase of volume of available-for-sale securities which is attributable to the purchase of debt securities of the Ministry of Finance of the Republic of Kazakhstan.
The following table provides a summary of the monthly average balances and average interest rates for the major categories of our interest-earning assets for the three months ended December 31, 2024 and 2023.
(amounts in thousands)
| Interest-earning assets | Three months ended December 31, 2024 Average balance | 2023 |
|---|---|---|
| Trading securities | $3,331,297 | $3,468,932 |
| Loans issued | 1,363,371 | 1,314,966 |
| Margin lending, brokerage and other receivables, net | 2,485,961 | 1,084,052 |
| Available for sale securities, at fair value | 395,396 | 205,955 |
| Average yields | ||
| Trading securities | 12.0% | 13.7% |
| Loans issued | 15.9% | 15.9% |
| Margin lending, brokerage and other receivables, net | 10.2% | 11.3% |
| Available- for- sale securities, at fair value | 11.6% | 15.3% |
| Interest income | ||
| Interest income on trading securities | $95,666 | $112,860 |
| Interest income on loans to customers | 51,089 | 49,529 |
| Interest income on margin loans to customers | 61,295 | 29,483 |
| Interest income on available- for- sale securities | 11,027 | 7,478 |
| Other interest income | 5,611 | 5,025 |
| Total interest income | $224,688 | $204,375 |
Interest income on margin loans to customers includes income accrued on off-balance sheet arrangements, the monthly average balance of which is not included in the table above. These off-balance sheet arrangements mainly included repurchase agreements of our brokerage clients. As of December 31, 2024 and 2023, the monthly average balance of off-balance sheet arrangements were and $788.2 million, respectively, and the weighted average interest rate was 0.0%, and 11.7%, respectively.
The following table sets forth the effects of changing rates and volumes on interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate), The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on changes due to rate and the changes due to volume.
(amounts in thousands)
| Interest income | Three months ended December 31, 2024 vs 2023 Increase/ (decrease) due to change in Rate | Volume | Net |
|---|---|---|---|
| Interest income on trading securities | $(12,983) | $(4,211) | $(17,194) |
| Interest income on loans to customers | (269) | 1,829 | 1,560 |
| Interest income on margin loans to customers | (2,575) | 34,387 | 31,812 |
| Interest income on available-for-sale securities | (1,264) | 4,812 | 3,549 |
| Other interest income | — | — | 586 |
| Total interest income | $(17,091) | $36,817 | $20,313 |
Net gain on foreign exchange operations
For the three months ended December 31, 2024, we realized a net gain on foreign exchange operations of $3.9 million compared to a net gain of $38.8 million for the three months ended December 31, 2023. The net gain for the three months ended December 31, 2024, is primarily attributable to a $23.2 million gain from foreign currency transactions, partially offset by a $19.2 million translation loss. The decrease compared to the prior-year period was mainly driven by a 9.1% depreciation of the Kazakhstan tenge against the U.S. dollar, which led to increased foreign exchange currency losses for our subsidiaries operating in Kazakhstan.
Net gain on derivatives
For the three months ended December 31, 2024, we had net gain on derivatives of $11.9 million compared to a net loss of $42.6 million for the three months ended December 31, 2023. The increase in the amount of net gain was primarily attributable to our subsidiary, Freedom Bank KZ, which had a realized net gain of $10.6 million for the three months ended December 31, 2024, as compared to a realized net loss of $41.8 million for the three months ended December 31, 2023. Such change between the two periods was mainly due to a positive revaluation of currency swaps for the three months ended December 31, 2024. Freedom Bank KZ engages in currency swaps to diversify its funding and liquidity sources.
Insurance underwriting income
For the three months ended December 31, 2024, we had insurance underwriting income of $177.5 million, an increase of $98.5 million, or 125%, as compared to the three months ended December 31, 2023. The increase was primarily attributable to a $99.3 million, or 128%, increase in insurance underwriting income from written insurance premiums for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023, due to the expansion of our insurance operations such as in the pension annuity and accident insurance between the two quarters. This increase in income from written insurance premiums was partially offset by a $1.9 million decrease in reinsurance premiums ceded for the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The following table sets out information on our insurance underwriting income for the periods presented.
(amounts in thousands)
| Three months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Written insurance premiums | $176,784 | $77,473 | $99,311 | 128% |
| Reinsurance premiums ceded | (4,254) | (2,308) | (1,946) | 84% |
| Change in unearned premium reserve, net | 4,942 | 3,852 | 1,090 | 28% |
| Insurance underwriting income | $177,472 | $79,017 | $98,455 | 125% |
70
Expense
The following table sets out information on our total expense for the periods presented.
(amounts in thousands)
| Three months ended December 31, 2024 Amount | %* | Three months ended December 31, 2023 Amount | Change Amount% | |||
|---|---|---|---|---|---|---|
| Fee and commission expense | $93,927 | 17% | $42,818 | 14% | $51,109 | 119% |
| Interest expense | 131,136 | 24% | 131,223 | 43% | (87) | —% |
| Insurance claims incurred, net of reinsurance | 104,511 | 19% | 40,989 | 13% | 63,522 | 155% |
| Payroll and bonuses | 77,395 | 14% | 45,083 | 15% | 32,312 | 72% |
| Professional services | 10,955 | 2% | 6,217 | 2% | 4,738 | 76% |
| Stock compensation expense | 13,417 | 2% | 1,039 | —% | 12,378 | 1191% |
| Advertising expense | 21,472 | 4% | 11,066 | 4% | 10,406 | 94% |
| General and administrative expense | 73,437 | 13% | 32,106 | 10% | 41,331 | 129% |
| Provision for/(recovery of) allowance for expected credit losses | 30,612 | 5% | (3,526) | (1)% | 34,138 | (968)% |
| Total expense | $556,862 | 100% | $307,015 | 100% | $249,847 | 81% |
* Percentage of total expense.
Fee and commission expense
The following table sets forth information regarding our fee and commission expense for the periods presented.
(amounts in thousands)
| Three months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Agency fees expense | $74,684 | $29,956 | $44,728 | 149% |
| Brokerage services | 9,432 | 4,498 | 4,934 | 110% |
| Banking services | 5,409 | 5,513 | (104) | (2)% |
| Exchange services | 351 | 762 | (411) | (54)% |
| Central depository services | 152 | 126 | 26 | 21% |
| Other commission expenses | 3,899 | 1,963 | 1,936 | 99% |
| Total fee and commission expense | $93,927 | $42,818 | $51,109 | 119% |
The following table sets out the components of our fee and commission expense as a percentage of total fee and commission expense, net for the periods presented.
| Three months ended December 31, 2024 (as a % of total fee and commission expense) | 2023 | |
|---|---|---|
| Agency fees expense | 80% | 70% |
| Brokerage services | 10% | 11% |
| Banking services | 6% | 12% |
| Exchange services | —% | 2% |
| Central depository services | —% | —% |
| Other commission expenses | 4% | 5% |
| Total fee and commission expense | 100% | 100% |
71
Fee and commission expense increased by $51.1 million or 119% in the three months ended December 31, 2024, as compared to the three months ended December 31, 2023. The increase is mainly attributable to an increase of agency fees expense of $44.7 million or 149% compared to the three months ended December 31, 2023. The increase in agency fees expenses was due to an increase in insurance products sales by Freedom Life, which are outsourced to outside agents. The increase in brokerage services, from $4.5 million to $9.4 million, was primarily due to heightened client activity within our brokerage services. This growth in client transactions led to a corresponding increase in associated commission costs. Additionally, other commission expenses rose as a result of higher bank commissions, driven by increased business activity.
Interest expense
During the three months ended December 31, 2024, total interest expense remained relatively flat compared to the same period in 2023. However, its composition changed due to shifts in funding sources and interest rate dynamics.
There was a decrease in interest expense on securities repurchase agreement obligations, driven by a 15% decline in the average balance, from $2.9 billion during the three months ended December 31, 2023 to $2.4 billion during the three months ended December 31, 2024. Additionally, the average interest rate applied to these obligations decreased from 16% to 15%, further contributing to the reduction in costs. This decline reflects adjustments in our short-term funding strategy and a shift towards more stable, long-term financing sources.
At the same time, interest expense related to customer liabilities increased as the average balance of customer deposits and brokerage account liabilities grew 43% year-over-year, rising from $1.1 billion to $1.6 billion. This increase was caused by a higher average interest rate, which rose from 6% to 7%, reflecting both market-driven adjustments and an expanded customer deposit base.
Additionally, interest expense on debt securities issued increased, primarily due to a rise in the average balance, from $131.3 million to $423.6 million. The average interest rate on these instruments also increased, from 5% to 10%, reflecting a shift toward long-term financing at higher prevailing market rates. This increase in debt issuance aligns with our broader funding strategy to support business expansion and strengthen liquidity reserves.
The following table provides a summary of the monthly average balances and average interest rates for the major categories of interest-bearing liabilities for the three months ended December 31, 2024 and 2023.
(amounts in thousands)
| Interest-bearing liabilities | Three months ended December 31, 2024 Average balance | 2023 |
|---|---|---|
| Securities repurchase agreement obligations | $2,422,139 | $2,852,638 |
| Customer liabilities (1) | 1,572,554 | 1,097,977 |
| Debt securities issued | 423,565 | 131,263 |
| Average rates | ||
| Securities repurchase agreement obligations | 15.4% | 16.5% |
| Customer liabilities (1) | 7.1% | 5.8% |
| Debt securities issued | 9.8% | 4.6% |
| Interest expense | ||
| Interest expense on securities repurchase agreement obligations | $88,526 | $110,778 |
| Interest expense on customer accounts and deposits | 27,288 | 15,653 |
| Interest expense on debt securities issued | 9,974 | 1,491 |
| Other interest expense | 5,348 | 3,301 |
| Total interest expense | $131,136 | $131,223 |
(1) Average balance, average rates, and interest expense relates to interest-bearing deposits.
The following table sets forth the effects of changing rates and volumes on interest. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on changes due to rate and the changes due to volume.
(amounts in thousands)
| Interest expense | Three months ended December 31, 2024 vs 2023 (Decrease)/increase due to change in Rate | Volume | Net |
|---|---|---|---|
| Interest expense on securities repurchase agreement obligations | $(6,482) | $(15,770) | $(22,252) |
| Interest expense on customer accounts and deposits | 3,958 | 7,677 | 11,635 |
| Interest expense on debt securities issued | 2,824 | 5,659 | 8,483 |
| Other interest expense | — | — | 2,047 |
| Total | $300 | $(2,434) | $(87) |
Insurance claims incurred, net of reinsurance
For the three months ended December 31, 2024, we had a $63.5 million, or 155%, increase in insurance claims incurred, net of reinsurance, as compared to the three months ended December 31, 2023. The increase was primarily attributable to the general expansion of our insurance operations between the two quarters.
Payroll and bonuses
For the three months ended December 31, 2024, we had payroll and bonuses expense of $77.4 million, representing an increase of $32.3 million or 72% compared to payroll and bonuses expense of $45.1 million for the three months ended December 31, 2023. The increase in payroll and bonus expenses is primarily attributable to increased salary and bonus amounts between the two quarters. The increase was also due to the expansion of our workforce through acquisitions, establishment of new subsidiaries and hiring.
Professional services
For the three months ended December 31, 2024, our professional services expense was $11.0 million, representing a increase by $4.7 million, or 76%, compared to $6.2 million for the three months ended December 31, 2023. There was an increase in certain professional services expenses, including expenses for auditing services rendered by our external auditors and legal fees and consulting services, attributable to the overall growth of our company organically and through acquisitions between the two periods.
Stock compensation expense
For the three months ended December 31, 2024, our stock compensation expense was $13.4 million, representing an increase of $12.4 million compared to stock compensation expense of $1.0 million for the three months ended December 31, 2023. The increase is attributable to new stock grants awarded in October 2024 and to the partial amortization of stock grants which were awarded during fiscal 2025.
Advertising expense
Advertising expense for the three months ended December 31, 2024, was $21.5 million, representing an increase of $10.4 million, or 94%, compared to $11.1 million for the three months ended December 31, 2023. The increase is primarily attributable to an increase in advertising expenses by Freedom Europe of $7.6 million attributable to marketing campaigns that were initiated during fiscal 2024 and continued in the three months ended December 31, 2024. This increase consisted of an increase of approximately $4.1 million on advertising and an increase of $3.8 million on influencer and affiliates advertising. There was also an increase of $2.1 million attributable to Freedom Advertising, an advertising company, out of which $1.8 million was paid to advertising contractors for advertisement placement and promotion. There was also an increase of $1.4 million of advertising expenses attributable to FRHC due to its focus on brand visibility and enhanced marketing efforts.
General and administrative expense
General and administrative expense for the three months ended December 31, 2024, was $73.4 million, representing an increase of 41.3 million or 129% compared to general and administrative expense of $32.1 million for the three months ended December 31, 2023. The main factors contributing to the increase was in charity and sponsorship. Our charity and sponsorship expense increased by $31.4 million due to several charitable contributions through our subsidiaries during the three months ended December 31, 2024. The most significant contributions were made to the Kazakhstan Chess Federation, Junior Football League of Kazakhstan, Tennis Federation of the Olympic Committee, and organization of a chess tournament in the USA. Taxes, other than income tax, increased by $2.3 million, mainly due to the general growth of the Group, including the addition of new subsidiaries.
Provision for allowance for expected credit losses
We recognized provision for allowance for credit losses in the amount of $30.6 million for the three months ended December 31, 2024, as compared to recovery of provision for allowance for credit losses of $3.5 million for the three months ended December 31, 2023. The increase between the two periods is mostly attributable to increased provisions for uncollateralized bank customer loans and right of claim for purchased retail loans, driven by a change of estimate for forward-looking information as a result of currency depreciation occurred prior reporting date.
Income tax expense
We had income before income tax of $98.3 million and $111.6 million for the three months ended December 31, 2024, and December 31, 2023, respectively. Income tax expense for the three months ended December 31, 2024, and December 31, 2023 was $20.2 million and $15.5 million, respectively. While there have been a decrease in our income before income tax between the two quarters, the increase in the income tax expense was primarily due to the change in our effective tax rate. Such rate during the three months ended December 31, 2024, increased to 20.5%, from 13.9% during the three months ended December 31, 2023, as a result of changes in the composition of the revenues we realized from our operating activities, the tax treatment of those revenues in the various jurisdictions where our subsidiaries operate, and the incremental U.S. GILTI tax.
Net income
As a result of the foregoing factors, for the three months ended December 31, 2024, we had net income of $78.1 million compared to $96.1 million for the three months ended December 31, 2023, a decrease of 19%. Our Brokerage, Banking, Insurance, and Other segments contributed net income of $102.3 million, net income of $34.5 million and net loss of $5.2 million and net loss of $53.4 million, respectively, to our total net income for the three months ended December 31, 2024.
Non-controlling interest
As of December 31, 2024, FRHC held a 94.73% ownership interest in Arbuz and a 90.0% ownership interest in ReKassa. The remaining 5.27% of the ownership interest in Arbuz and 10.0% of the ownership interest in ReKassa are recognized as non-controlling interests in our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Statements of Other Comprehensive Income, Condensed Consolidated Statements of Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows.
Net loss attributable to non-controlling interest was $0.1 million and $0.3 million for the three months ended December 31, 2024 and December 31, 2023, respectively.
Foreign currency translation adjustments, net of tax
Due to a 9.1% depreciation of the Kazakhstan tenge against the U.S. dollar during the three months ended December 31, 2024, we realized a foreign currency translation loss of $101.2 million for the three months ended December 31, 2024 since most of our companies use the Kazakhstan tenge as their functional currency, as compared to a foreign currency translation gain of $28.1 million for the three months ended December 31, 2023.
Comparison of the Nine-month Periods Ended December 31, 2024 and 2023
Revenue
The following table sets out information or our total revenue, net for the periods presented.
(amounts in thousands)
| Nine months ended December 31, 2024 Amount | %* | Nine months ended December 31, 2023 Amount | %* | Change Amount% | ||
|---|---|---|---|---|---|---|
| Fee and commission income | $379,976 | 23% | $330,565 | 28% | $49,411 | 15% |
| Net gain on trading securities | 105,779 | 6% | 77,498 | 7% | 28,281 | 36% |
| Interest income | 661,016 | 39% | 588,857 | 50% | 72,159 | 12% |
| Insurance underwriting income | 467,224 | 28% | 181,882 | 15% | 285,342 | 157% |
| Net gain on foreign exchange operations | 18,513 | 1% | 54,430 | 5% | (35,917) | (66)% |
| Net gain/(loss) on derivatives | 30,691 | 2% | (71,795) | (6)% | 102,486 | (143)% |
| Other income | 23,606 | 1% | 8,988 | 1% | 14,618 | 163% |
| Total revenue, net | $1,686,805 | 100% | $1,170,425 | 100% | $516,380 | 44% |
* Percentage of total revenue, net.
Fee and commission income
The following table sets forth information regarding our fee and commission income for the periods presented.
(amounts in thousands)
| Nine months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Brokerage services | $319,386 | $239,608 | $79,778 | 33% |
| Commission income from payment processing | 21,670 | 37,318 | (15,648) | (42)% |
| Underwriting and market-making services | 7,465 | 15,085 | (7,620) | (51)% |
| Banking services | 12,748 | 23,480 | (10,732) | (46)% |
| Other fee and commission income | 18,707 | 15,074 | 3,633 | 24% |
| Total fee and commission income | $379,976 | $330,565 | $49,411 | 15% |
The following table sets out the components of our fee and commission income as a percentage of total fee and commission income, net for the periods presented.
| Nine months ended December 31, 2024 (as a % of total fee and commission income) | 2023 | |
|---|---|---|
| Brokerage services | 84% | 72% |
| Commission income from payment processing | 6% | 11% |
| Banking services | 3% | 7% |
| Underwriting and market-making services | 1% | 5% |
| Other fee and commission income | 5% | 5% |
| Total fee and commission income | 100% | 100% |
For the nine months ended December 31, 2024, total fee and commission income was $380.0 million, an increase of $49.4 million, or 15%, as compared to fee and commission income of $330.6 million for the nine months ended December 31, 2023.
Fee and commission income from brokerage services for the nine months ended December 31, 2024 was $319.4 million, representing a 33% increase as compared to $239.6 million for the nine months ended December 31, 2023. This increase was primarily due to an increase in the number of retail brokerage customers from 458,000 as of December 31, 2023 to 618,000 as of December 31, 2024. The increase in the number of customers was attributable in part to the migration of customers from FST Belize to brokerage companies within our Group between the two periods. The increase was offset in part by a decrease in fee and commission income from brokerage services generated from FST Belize between the two periods, as our omnibus brokerage arrangement with FST Belize was wound down and customers of FST Belize closed their accounts at FST Belize and opened accounts with brokerage companies within our Group. During the nine months ended December 31, 2024, we earned fee and commission income from a market maker customer at our subsidiary Freedom Global of $213.6 million, representing 56% of our total fee and commission income for that period.
Fee and commission income from payment processing decreased to $21.7 million for the nine months ended December 31, 2024 from $37.3 million for the nine months ended December 31, 2023. The $15.6 million decrease is attributable to a significant reduction in transaction volumes between the two periods, which was in turn due to the cessation of operations of one of our counterparties, which previously contributed a substantial transaction volume.
Fee and commission income from banking services decreased by $10.7 million to $12.7 million during the nine months ended December 31, 2024. The decrease in fee and commission income from banking services between the two periods was primarily due to decrease in commissions generated on transfer and payment processing, which was a result of a lower volume of transfer and payment processing transactions between two periods.
Fee and commission income from underwriting and market-making activities decreased by $7.6 million in the nine months ended December 31, 2023 or 51% to $7.5 million, driven by a lower volume of underwriting transactions for the nine months ended December 31, 2024, as compared to the nine months ended December 31, 2023.
Other fee and commission income increased by 24% to $18.7 million for the nine months ended December 31, 2024 as compared to $15.1 million for the nine months ended December 31, 2023, due to an increase in agency fees generated by our online travel ticket aggregator subsidiary between the two periods, which was in turn due to an increase in usage and demand of such services.
Net gain on trading securities
We had a net gain on trading securities of $105.8 million for the nine months ended December 31, 2024, an increase of $28.3 million as compared to a net gain of $77.5 million or the nine months ended December 31, 2023. The following table sets forth information regarding our net gains and losses on trading activities during the nine months ended December 31, 2024 and 2023:
(amounts in thousands)
| Realized Net Gain | Unrealized Net Gain | Net Gain | |
|---|---|---|---|
| Nine months ended December 31, 2024 | $30,254 | $75,525 | $105,779 |
| Nine months ended December 31, 2023 | $61,276 | $16,222 | $77,498 |
During the nine months ended December 31, 2024, we had a realized gain on trading securities of $30.3 million, which is attributable to Kazakhstan sovereign bonds sold during the nine months ended December 31, 2024. Also, we recognized an unrealized net gain of $75.5 million during the same period due to the increase in the value of securities positions we held as of December 31, 2024. The majority of the unrealized net gain is attributable to Kazakhstan sovereign bonds, as a consequence of market price increase.
During the nine months ended December 31, 2023, we had a realized gain on trading securities of $61.3 million, which is attributable to debt securities of the Ministry of Finance of the Republic of Kazakhstan sold during the nine months ended December 31, 2023. We had an unrealized net gain in the nine months ended December 31, 2023, due to securities positions we held at December 31, 2023, having appreciated by $16.2 million. The majority of the unrealized net gain was attributable to appreciated debt securities of the Ministry of Finance of the Republic of Kazakhstan, which appreciation was primarily due to a decline in the National Bank of the Republic of Kazakhstan's base interest rate during the nine months ended December 31, 2023.
Interest income
The following tables set forth information regarding our revenue from interest income for the periods presented.
(amounts in thousands)
| Nine months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Interest income on trading securities | $307,786 | $313,739 | $(5,953) | (2)% |
| Interest income on loans to customers | 152,849 | 123,730 | 29,119 | 24% |
| Interest income on margin loans to customers | 153,279 | 111,306 | 41,973 | 38% |
| Interest income on securities available-for-sale | 28,430 | 25,476 | 2,954 | 12% |
| Interest income on reverse repurchase agreements and amounts due from banks | 18,672 | 12,012 | 6,660 | 55% |
| Other interest income | — | 2,594 | (2,594) | (100)% |
| Total interest income | $661,016 | $588,857 | $72,159 | 12% |
| Nine months ended December 31, 2024 (as a % of total interest income) | 2023 | |
|---|---|---|
| Interest income on trading securities | 47% | 54% |
| Interest income on loans to customers | 23% | 21% |
| Interest income on margin loans to customers | 23% | 19% |
| Interest income on securities available-for-sale | 4% | 4% |
| Interest income on reverse repurchase agreements and amounts due from banks | 3% | 2% |
| Total interest income | 100% | 100% |
For the nine months ended December 31, 2024, we had interest income of $661.0 million, representing an increase of $72.2 million, or 12%, compared to the nine months ended December 31, 2023. The increase in interest income was primarily attributable to increases in interest income on margin loans to customers, loans to customers and securities available-for-sale. Interest income on margin loans to customers increased by $42.0 million, or 38%, due to an increase in the usage of margin loans for trades by our clients between the two periods. For the nine months ended December 31, 2024, we earned interest income from margin lending from a market maker customer at our Freedom Global subsidiary in an amount of approximately $29.5 million, representing 4% of our total interest income from margin lending for that period.
For the nine months ended December 31, 2024, interest income on loans to customers increased by $29.1 million, or 24%, compared to the nine months ending December 31, 2023 due to the growth of Freedom Bank KZ's customer loan portfolio between the two periods.
The following table provides a summary of the monthly average balances and average interest rates for the major categories of our interest-earning assets for the nine months ended December 31, 2024 and 2023.
(amounts in thousands)
| Interest-earning assets | Nine months ended December 31, 2024 Average balance | 2023 |
|---|---|---|
| Trading securities | $3,309,753 | $3,352,968 |
| Loans issued | 1,360,755 | 1,160,390 |
| Margin lending, brokerage and other receivables, net | 1,856,741 | 846,872 |
| Available for sale securities, at fair value | 310,941 | 221,269 |
| Average yields | ||
| Trading securities | 12.6% | 12.7% |
| Loans issued | 15.3% | 14.5% |
| Margin lending, brokerage and other receivables, net | 9.3% | 12.6% |
| Available- for- sale securities, at fair value | 12.4% | 15.6% |
| Interest income | ||
| Interest income on trading securities | $307,786 | $313,739 |
| Interest income on loans to customers | 152,849 | 123,730 |
| Interest income on margin loans to customers | 127,382 | 78,872 |
| Interest income on available- for- sale securities | 28,430 | 25,476 |
| Other interest income | 18,672 | 14,606 |
| Total interest income | $635,119 | $556,423 |
Interest income on margin loans to customers includes income accrued on off-balance sheet arrangements, the monthly average balance of which is not included in the table above. These off-balance sheet arrangements mainly included repurchase agreements of our brokerage clients. As of December 31, 2024 and 2023, the monthly average balance of off-balance sheet arrangements were $688.8 million and $569.0 million, respectively, and the weighted average interest rate was 8%, and 12%, respectively.
The following table sets forth the effects of changing rates and volumes on interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate), The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on changes due to rate and the changes due to volume.
(amounts in thousands)
| Interest income | Nine months ended December 31, 2024 vs 2023 (Decrease)/increase due to change in Rate | Volume | Net |
|---|---|---|---|
| Interest income on trading securities | (1,945) | (4,008) | (5,953) |
| Interest income on loans to customers | 6,974 | 22,145 | 29,119 |
| Interest income on margin loans to customers | -13,944 | 62,454 | 48,510 |
| Interest income on available-for-sale securities | (3,140) | 6,094 | 2,954 |
| Other interest income | — | — | 4,066 |
| Total interest income | $(12,055) | $86,685 | $78,696 |
Net gain on foreign exchange operations
For the nine months ended December 31, 2024, we realized a net gain on foreign exchange operations of $18.5 million compared to a net gain of $54.4 million for the nine months ended December 31, 2023. The net gain for the nine months ended December 31, 2024, is primarily attributable to a $52.7 million gain from foreign currency transactions, partially offset by a $34.2 million translation loss. The decrease compared to the prior-year period was mainly driven by an 18% depreciation of the Kazakhstan tenge against the U.S. dollar, which led to increased foreign exchange currency losses for our subsidiaries operating in Kazakhstan.
Net gain on derivatives
For the nine months ended December 31, 2024, we had net gain on derivatives of $30.7 million compared to a net loss of $71.8 million for the nine months ended December 31, 2024. The change was primarily attributable to our subsidiary Freedom Bank KZ, which had a realized net gain of $24.1 million for the nine months ended December 31, 2024, as compared to a realized net loss of $72.0 million for the nine months ended December 31, 2023. Such change between the two periods was mainly due to a positive revaluation of currency swaps for the nine months ended December 31, 2024. Freedom Bank KZ engages in currency swaps to diversify its funding and liquidity sources.
Insurance underwriting income
For the nine months ended December 31, 2024, we had insurance underwriting income of $467.2 million, an increase of $285.3 million, or 157%, as compared to the nine months ended December 31, 2023. The increase was primarily attributable to a $302.9 million, or 158%, increase in insurance underwriting income from written insurance premiums for the nine months ended December 31, 2024, as compared to the nine months ended December 31, 2023, due to the expansion of our insurance operations such as pension annuity and accident insurance classes between the two periods. This increase in income from written insurance premiums was partially offset by a $4.2 million decrease in reinsurance premiums ceded for the nine months ended December 31, 2024, as compared to the nine months ended December 31, 2023. The following table sets out information on our insurance underwriting income for the periods presented.
(amounts in thousands)
| Nine months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Written insurance premiums | 494,121 | 191,231 | 302,890 | 158% |
| Reinsurance premiums ceded | (10,124) | (5,915) | (4,209) | 71% |
| Change in unearned premium reserve, net | (16,773) | (3,434) | (13,339) | 388% |
| Insurance underwriting income | $467,224 | $181,882 | $285,342 | 157% |
79
Expense
The following table sets out information on our total expense for the periods presented.
(amounts in thousands)
| Nine months ended December 31, 2024 Amount | %* | Nine months ended December 31, 2023 Amount | Change Amount% | |||
|---|---|---|---|---|---|---|
| Fee and commission expense | $264,911 | 19% | $103,116 | 12% | $161,795 | 157% |
| Interest expense | 401,519 | 28% | 365,650 | 44% | 35,869 | 10% |
| Insurance claims incurred, net of reinsurance | 218,504 | 15% | 96,491 | 11% | 122,013 | 126% |
| Payroll and bonuses | 201,129 | 14% | 116,711 | 14% | 84,418 | 72% |
| Professional services | 26,468 | 2% | 24,793 | 3% | 1,675 | 7% |
| Stock compensation expense | 36,088 | 3% | 3,303 | 1% | 32,785 | 993% |
| Advertising expense | 58,722 | 4% | 27,805 | 3% | 30,917 | 111% |
| General and administrative expense | 171,782 | 12% | 86,211 | 10% | 85,571 | 99% |
| Provision for allowance for expected credit losses | 39,269 | 3% | 15,462 | 2% | 23,807 | 154% |
| Total expense | $1,418,392 | 100% | $839,542 | 100% | $578,850 | 69% |
* Percentage of total expense.
Fee and commission expense
The following table sets forth information regarding our fee and commission expense for the periods presented.
(amounts in thousands)
| Nine months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Agency fees expense | $213,530 | $68,489 | 145,041 | 212% |
| Brokerage services | 18,934 | 12,892 | 6,042 | 47% |
| Bank services | 13,532 | 15,194 | (1,662) | (11)% |
| Exchange services | 1,358 | 2,543 | (1,185) | (47)% |
| Central Depository services | 495 | 346 | 149 | 43% |
| Other commission expenses | 17,062 | 3,652 | 13,410 | 367% |
| Total fee and commission expense | $264,911 | $103,116 | $161,795 | 157% |
The following table sets out the components of our fee and commission expense as a percentage of total fee and commission expense, net for the periods presented.
| Nine months ended December 31, 2024 (as a % of total fee and commission expense) | 2023 | |
|---|---|---|
| Agency fees expense | 81% | 66% |
| Brokerage services | 7% | 13% |
| Bank services | 5% | 15% |
| Exchange services | 1% | 2% |
| Central Depository services | —% | —% |
| Other commission expenses | 6% | 4% |
| Total fee and commission expense | 100% | 100% |
Fee and commission expense increased by $161.8 million or 157% in the nine months ended December 31, 2024, as compared to the nine months ended December 31, 2023. The increase is mainly attributable to an increase of agency fees expense of $145.0 million, or 212%, compared to the nine months ended December 31, 2023 and other commission expenses of $13.4 million, compared to the nine months ended December 31, 2023. The increase in agency fees expenses was due to an increase in insurance products sales by Freedom Life, which are outsourced to outside agents. The increase in other commission expenses is attributable to increased commissions associated with Paybox is consistent with the growth of its business activities between the two periods, following our acquisition of Paybox in the fourth quarter of fiscal 2023.
Interest expense
During the nine months ended December 31, 2024, total interest expense remained relatively flat compared to the same period in 2023. However, its composition changed due to shifts in funding sources and interest rate dynamics.
There was a decrease in interest expense on securities repurchase agreement obligations, driven by a 2% decline in the average balance, from $2.6 billion during the nine months ended December 31, 2023 to $2.5 billion during the nine months ended December 31, 2024. Additionally, the average interest rate applied to these obligations decreased from 16% to 14%, further contributing to the reduction in costs. This decline reflects adjustments in our short-term funding strategy and a shift towards more stable, long-term financing sources.
At the same time, interest expense related to customer liabilities increased as the average balance of customer deposits and brokerage account liabilities grew 9% year-over-year, rising from $1.0 billion to $1.1 billion. This increase was caused by a higher average interest rate, which rose from 7% to 9%, reflecting both market-driven adjustments and an expanded customer deposit base.
Additionally, interest expense on debt securities issued increased, primarily due to a rise in the average balance, from $86.4 million to $318.5 million. The average interest rate on these instruments also increased, from 5% to 10%, reflecting a shift toward long-term financing at higher prevailing market rates. This increase in debt issuance expense aligns with our broader funding strategy to support business expansion and strengthen liquidity reserves.
The following table provides a summary of the monthly average balances and average interest rates for the major categories of interest-bearing liabilities for the nine months ended December 31, 2024 and 2023.
(amounts in thousands)
| Interest-bearing liabilities | Nine months ended December 31, 2024 Average balance | 2023 |
|---|---|---|
| Securities repurchase agreement obligations | $2,541,767 | $2,591,520 |
| Customer liabilities (1) | 1,107,958 | 1,015,611 |
| Debt securities issued | 318,517 | 86,423 |
| Average rates | ||
| Securities repurchase agreement obligations | 14.2% | 15.9% |
| Customer liabilities (1) | 9.0% | 6.5% |
| Debt securities issued | 10.1% | 5.3% |
| Interest expense | ||
| Interest expense on securities repurchase agreement obligations | $267,049 | $303,242 |
| Interest expense on customer accounts and deposits | 74,111 | 49,120 |
| Interest expense on debt securities issued | 23,912 | 3,387 |
| Other interest expense | 36,447 | 9,901 |
| Total interest expense | $401,519 | $365,650 |
(1) Average balance, average rates, and interest expense relates to interest-bearing deposits.
The following table sets forth the effects of changing rates and volumes on interest. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on changes due to rate and the changes due to volume.
(amounts in thousands)
| Interest expense | Nine months ended December 31, 2024 vs 2023 (Decrease)/increase due to change in Rate | Volume | Net |
|---|---|---|---|
| Interest expense on securities repurchase agreement obligations | $(30,543) | $(5,650) | $(36,193) |
| Interest expense on customer accounts and deposits | 20,238 | 4,753 | 24,991 |
| Interest expense on debt securities issued | 5,265 | 15,260 | 20,525 |
| Other interest expense | — | — | 26,546 |
| Total | $(5,040) | $14,363 | $35,869 |
Insurance claims incurred, net of reinsurance
For the nine months ended December 31, 2024, we had a $122.0 million, or 126%, increase in insurance claims incurred, net of reinsurance, as compared to the nine months ended December 31, 2023. The increase was primarily attributable to the general expansion of our insurance operations between the two periods.
Payroll and bonuses
For the nine months ended December 31, 2024, we had payroll and bonuses expense of $201.1 million, representing an increase of $84.4 million or 72% compared to payroll and bonuses expense of $116.7 million for the nine months ended December 31, 2023. The increase in payroll and bonus expenses is primarily attributable to increased salary and bonus amounts between the two periods. The increase was also due to the expansion of our workforce through acquisitions, establishment of new subsidiaries and hiring.
Professional services
For the nine months ended December 31, 2024, our professional services expense was $26.5 million, representing an increase by $1.7 million, or 7%, compared to $24.8 million for the nine months ended December 31, 2023. The increase was attributable to the overall growth of our company organically and through acquisitions between the two periods.
Stock compensation expense
For the nine months ended December 31, 2024, our stock compensation expense was $36.1 million, representing an increase of $32.8 million, or 993%, compared to stock compensation expense of $3.3 million for the nine months ended December 31, 2023. The increase is attributable to new stock grants, the majority of which vested on the date of issuance, during the nine months ended December 31, 2024 as well as the partial amortization of stock grants awarded during fiscal 2024.
Advertising expense
Advertising expense for the nine months ended December 31, 2024, was $58.7 million, representing an increase of $30.9 million, or 111%, compared to $27.8 million for the nine months ended December 31, 2023. The increase is primarily attributable to an increase in advertising expenses by Freedom EU of $23.0 million attributable to marketing campaigns that were initiated during fiscal 2024 and continued in the nine months ended December 31, 2024. This increase consisted of an increase of advertising expense, influencer and affiliates advertising expense, marketing and sponsorship expense. There was also an increase of $4.3 million attributable to Freedom Advertising, an advertising company, due to marketing expenditures to third party contractors. There was also an increase of $3.1 million from FRHC due to the company's focus on the brand visibility and enhanced marketing efforts.
General and administrative expense
General and administrative expense for the nine months ended December 31, 2024, was $171.8 million, representing an increase of $85.6 million, or 99%, compared to general and administrative expense of $86.2 million for the nine months ended December 31, 2023. The main factors contributing to the increase were increases in other operating expenses, charity and sponsorship, software support, taxes other than income tax, rent expenses. Our charity and sponsorship expense increased by $49.5 million due to several charitable contributions through our subsidiaries during the nine months ended December 31, 2024. The most significant contributions were made to the Kazakhstan Chess Federation, Junior Football League of Kazakhstan, Tennis Federation of the Olympic Committee, sponsorship of construction work in the city of Konayev and a chess tournament in the USA. Other operating expenses increased by $8.2 million, mainly due to an increase of other operating expenses at Freedom Bank KZ from banking and other overhead costs. Software support expenses increased by $4.9 million, mainly due to the support of licensed and other software systems. Taxes, other than income tax, increased by $4.0 million, mainly due to the general growth of the Group, including the addition of new subsidiaries.The expansion of our business operations resulted in higher tax liabilities, reflecting our broader market presence and increased operational scale. The increases of $1.6 million in depreciation and amortization expense and $4.5 million in rent expense were driven by the addition of new subsidiaries between the two periods and the overall growth of our operations.
Provision for allowance for expected credit losses
We recognized allowance for credit losses in the amount of $39.3 million for the nine months ended December 31, 2024, as compared to allowance for credit losses of $15.5 million for the nine months ended December 31, 2023. The increase between the two periods is primarily attributable to increased provisions for uncollateralized bank customer loans and right of claim for purchased retail loans, driven by a change of estimate for forward-looking information as a result of currency depreciation occurred prior reporting date.
Income tax expense
We had income before income tax of $268.4 million and $330.9 million for the nine months ended December 31, 2024, and December 31, 2023, respectively. Income tax expense for the nine months ended December 31, 2024, and December 31, 2023 was $41.5 million and $51.4 million, respectively. The decrease was primarily due to a decrease in our income before income tax between the two periods. In addition, our effective tax rate during the nine months ended December 31, 2024, was 15.5%, the same as during the nine months December 31, 2023. Although our effective tax rate did not change, there were changes in the composition of the revenues we realized from our operating activities, the tax treatment of those revenues in the various jurisdictions where our subsidiaries operate, and the incremental U.S. GILTI tax.
Net income
As a result of the foregoing factors, for the nine months ended December 31, 2024, we had net income of $226.9 million compared to $279.5 million for the nine months ended December 31, 2023, a decrease of 19%. Our Brokerage, Banking, Insurance and Other segments contributed net income of $257.6 million, net income of $51.6 million, net income of $23.4 million and net loss of $105.7 million to our total net income for the nine months ended December 31, 2024, respectively.
Non-controlling interest
As of December 31, 2024, FRHC held a 94.73% ownership interest in Arbuz and a 90.0% ownership interest in ReKassa. The remaining 5.27% of the ownership interest in Arbuz and 10.0% of the ownership interest in ReKassa are recognized as non-controlling interests in our Financial Statements.
Net loss attributable to non-controlling interest was $0.5 million and $0.8 million for the nine months ended December 31, 2024 and December 31, 2023, respectively.
Foreign currency translation adjustments, net of tax
Due to a 18% depreciation of the Kazakhstan tenge against the U.S. dollar during the nine months ended December 31, 2024, we realized a foreign currency translation loss of $187.0 million for the nine months ended December 31, 2024 since most of our Group's companies use the Kazakhstan tenge as their functional currency, as compared to a foreign currency translation loss of $3.6 million for the nine months ended December 31, 2023.
Segment Results of Operations
Business Segment Operations
We report our results of operations through the following four business segments: Brokerage, Banking, Insurance, and Other. These operating segments are based on how our CODM makes decisions about allocating resources and assessing performance.
Comparison of the Three-month Periods Ended December 31, 2024 and 2023
Total revenue, net associated with our segments is summarized in the following table:
(amounts in thousands)
| Three months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Brokerage | $213,331 | $165,257 | $48,074 | 29% |
| Banking | 206,370 | 140,321 | 66,049 | 47% |
| Insurance | 197,831 | 95,938 | 101,893 | 106% |
| Other | 37,658 | 17,118 | 20,540 | 120% |
| Total revenue, net | $655,190 | $418,634 | $236,556 | 57% |
For the three months ended December 31, 2024, total revenue, net increased across each of our business segments compared to the three months ended December 31, 2023.
Brokerage Segment
In the three months ended December 31, 2024, in our Brokerage segment we had an increase in total revenue, net, primarily driven by an increase in net gain on trading securities and fee and commission income. The increase in net gain on trading securities was supported by favorable market conditions during the quarter. Fee and commission income in this segment increased, primarily due to a general increase in brokerage activity between the two quarters. Additionally, the revenue increase was attributable to an increase in interest income, net gain on derivatives and a decrease in net loss on foreign currency exchange.
Banking Segment
In the three months ended December 31, 2024, total revenue, net in the Banking segment increased as compared to the three months ended December 31, 2023, mainly attributable to net gain on trading securities, net gain on derivatives and fee and commission income earned in this segment in the three months ended December 31, 2024. These increases were partially offset by net loss on foreign exchange operations compared to a net gain in prior quarter in this segment in the three months ended December 31, 2024.
Insurance Segment
In the three months ended December 31, 2024, total revenue, net in the Insurance segment increased mainly due to an increase in insurance underwriting income, net gain on trading securities and net gain on foreign exchange operations due to an appreciation of the U.S. dollar against the Kazakhstan tenge between the two periods.These increases were partially offset by the decrease of other income.
Other Segment
In the three months ended December 31, 2024, total revenue, net in the Other segment increased mostly due to an increase of $18.3 million in net gain on foreign exchange operations mainly from FRHC, which was attributable to an appreciation of the U.S. dollar against the Kazakhstan tenge between the two quarters. There were also increase in other income of newly established subsidiaries which was partially offset by the decrease of net gain on trading securities and fee and commission income.
Total expenses associated with our segments are summarized in the following table:
(amounts in thousands)
| Three months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Brokerage | $89,930 | $73,360 | $16,570 | 23% |
| Banking | 165,695 | 113,916 | 51,779 | 45% |
| Insurance | 199,662 | 82,799 | 116,863 | 141% |
| Other | 101,575 | 36,940 | 64,635 | 175% |
| Total expense, net | $556,862 | $307,015 | $249,847 | 81% |
For the three months ended December 31, 2024, total expenses, net increased across each of our business segments compared to the three months ended December 31, 2023.
Brokerage Segment
In the three months ended December 31, 2024, total expenses, net in our Brokerage segment increased due to $5.1 million increase in fee and commission expense, which was in turn mainly due to brokerage services expense. Additionally, there was $2.8 million increase in payroll and bonuses, reflecting our efforts to attract and retain top talent. Advertising expenses in this segment also increased by $7.5 million as we intensified our marketing efforts to expand our client base. Furthermore, stock compensation expenses increased by $7.6 million, attributable to new stock grants and partial amortization of old stock grants. These increases were partially offset by $3.9 million decrease in interest expense, primarily driven by lower interest costs on securities repurchase agreement obligations, as well as a decrease in general and administrative expenses and provision for allowance for expected credit loses.
Banking Segment
In the three months ended December 31, 2024, total expenses, net in our Banking segment increased primarily due to a $10.4 million increase in payroll and bonuses expense, $35.3 million increase in provision for credit losses/(recoveries) due to revision of the approach to calculating the allowance and $4.1 million increase in general and administrative expenses reflecting the general growth of Freedom Bank KZ's operations between the two quarters.
Insurance Segment
In the three months ended December 31, 2024, total expenses, net in our insurance segment increased mainly attributable to $63.5 million increase in insurance claims incurred, net of reinsurance due to the increase of insurance portfolio, $45.5 million increase in fee and commission expense from agency fees, $1.5 million increase in stock based compensation and $1.7 million increase in allowance for credit losses due to the increase of brokerage and other receivables attributable to the overall growth of our insurance operations between the two quarters.
Other Segment
In the three months ended December 31, 2024, total expenses, net in our Other segment increased by $64.6 million, driven by an increase of $34 million in general and administrative expense. The main factors contributing to the increase was an increase in charity and sponsorship. Our charity and sponsorship expense increased by $31.4 million due to several charitable contributions through our subsidiaries during the three months ended December 31, 2024. The most significant contributions were made to the Kazakhstan Chess Federation, Junior Football League of Kazakhstan, Tennis Federation of the Olympic Committee, and to the organization of a chess tournament in the USA. There were also an increase of $14.0 million in payroll and bonuses attributed to the overall growth of the Company, increase of $8.7 million in interest expense from the debt securities issued by Freedom SPC, and an increase of $3.8 million of professional services.
Comparison of the Nine-month Periods Ended December 31, 2024 and 2023
The following table presents total revenue, net by segment for the nine month periods presented:
(amounts in thousands)
| Nine months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Brokerage | $563,044 | $442,576 | $120,468 | 27% |
| Banking | 499,081 | 422,724 | 76,357 | 18% |
| Insurance | 523,269 | 246,910 | 276,359 | 112% |
| Other | 101,411 | 58,215 | 43,196 | 74% |
| Total revenue, net | $1,686,805 | $1,170,425 | $516,380 | 44% |
For the nine months ended December 31, 2024, total revenue, net increased in the Brokerage, Insurance, Banking and Other segments compared to the nine months ended December 31, 2023.
Brokerage Segment
In the nine months ended December 31, 2024, in our Brokerage segment we had a significant increase in total revenue, net, primarily driven by an increase in fee and commission income. This was largely due to a general increase in brokerage activity between the two periods. Additionally, the revenue increase was attributable by an increase in interest income, net gain on trading securities, and net gain on foreign currency exchange. The increase in interest income was driven by an increase in interest accrued on securities held in our trading portfolio and an increase in interest accrued on margin loans to customers within this segment.
Banking Segment
In the nine months ended December 31, 2024, total revenue, net in the Banking segment increased as compared to the nine months ended December 31, 2023, mainly attributable to increase in interest income, a decrease in net loss on derivatives and an increase in net gain on trading securities in this segment in the nine months ended December 31, 2024. These increases were partially offset by the effects of net loss on foreign exchange operations, and decrease of fee and commission income in this segment in the nine months ended December 31, 2024.
Insurance Segment
In the nine months ended December 31, 2024, total revenue, net in the Insurance segment increased mainly due to a significant increase in insurance underwriting income due to written insurance premiums, and $4.3 million increase in net gain on foreign exchange operations due to an appreciation of the U.S. dollar against the Kazakhstan tenge between the two periods. However, this increase was partially offset by a decrease of other income, net gain on trading securities and interest income due to changes in securities portfolio.
Other Segment
In the nine months ended December 31, 2024, total revenue, net in the Other segment increased mostly due to an increase of $41.7 million in net gain on foreign exchange operations mainly from FRHC, which was attributable to an appreciation of the U.S. dollar against the Kazakhstan tenge between the two periods. There was also an increase of $17.2 million due to the increase in other income. These increases were partially offset by a $12.3 million decrease in fee and commission income attributable to a decrease in Paybox's transaction volumes due to the cessation of operation of a counterparty that contributed significantly to its transaction volume. There was also a decrease in interest income and net gain on derivatives.
Total expenses associated with our segments are summarized in the following table:
(amounts in thousands)
| Nine months ended December 31, 2024 | 2023 | Amount Change | % Change | |
|---|---|---|---|---|
| Brokerage | $259,530 | $198,753 | $60,777 | 31% |
| Banking | 437,801 | 341,048 | 96,753 | 28% |
| Insurance | 490,323 | 204,018 | 286,305 | 140% |
| Other | 230,738 | 95,723 | 135,015 | 141% |
| Total expense, net | $1,418,392 | $839,542 | $578,850 | 69% |
86
For the nine months ended December 31, 2024, total expenses, net increased across each of our business segments compared to the nine months ended December 31, 2023.
Brokerage Segment
In the nine months ended December 31, 2024, total expenses, net in our Brokerage segment increased primarily due to an increase in payroll and bonuses, reflecting our efforts to attract and retain top talent. Additionally, there was an increase in fee and commission expense, which was in turn mainly due to agency fees expense. Advertising expenses in this segment also increased as we intensified our marketing efforts to expand our client base. Furthermore, stock compensation expense increased, attributable to new stock grants and partial amortization of old stock grants. These increases were partially offset by a decrease in general and administrative expenses and provision for allowance for expected credit loses, due to a one-off accrual of allowance in the nine months ended December 31, 2023.
Banking Segment
In the nine months ended December 31, 2024, total expenses, net in our Banking segment increased primarily due to increase in interest expense on securities repurchase agreements within this segment, an increase in general and administrative expense, an increase in payroll and bonuses expense and provision for credit losses/(recoveries), reflecting the general growth of Freedom Bank KZ's operations between the two periods.
Insurance Segment
In the nine months ended December 31, 2024, total expenses, net in our Insurance segment increased mainly due to $148.7 million increase in fee and commission expense from agency fees, $4.3 million increase in stock based compensation, $122.0 million increase of insurance claims incurred, net of reinsurance due to the increase of insurance portfolio,$13.4 million increase in general and administrative expense due to the charity and $12.8 million increase in payroll and bonuses expense due to the increase in headcount and bonuses paid. These increases are attributable to the overall growth of our insurance operations between the two periods. These increases were partially offset by the effects of decrease in interest expense.
Other Segment
In the nine months ended December 31, 2024, total expenses, net in our Other segment increase was driven by increases in general and administrative expenses, payroll and bonuses, interest expense and fee and commission expense. The increase of $59 million in general and administrative expense in the Other segment was attributable to our overall growth and the addition of new subsidiaries. There was a $36 million increase in payroll and bonuses in the Other segment which is mostly attributable to the overall growth of our operations as well as the addition of new subsidiaries. The other main factors contributing to the increase were our charity and sponsorship activities. Our charity and sponsorship expense increased by $31.4 million due to several charitable contributions through our subsidiaries during the nine months ended December 31, 2024. The most significant contributions were made to the Kazakhstan Chess Federation, Junior Football League of Kazakhstan, Tennis Federation of the Olympic Committee, and to the organization of a chess tournament in the USA. Interest expense in the Other segment increased by $19.6 million, mainly attributable to an increase in interest expense from the debt securities issued by Freedom SPC. There was an increase of $9.7 million in fee and commission expense in the Other segment, which is mostly attributable to increased bank commission expense for payment services due to an increase of payment processing operations at certain Paybox subsidiaries. There was also an increase of $8.4 million in advertising expense.
Liquidity and Capital Resources
During the periods covered in this quarterly report, our operations were primarily funded through a combination of existing cash on hand, cash generated from operations, returns generated from our proprietary trading and proceeds from the sale of bonds and other borrowings.
We regularly monitor and manage our leverage and liquidity risk through various committees and processes we have established to maintain compliance with net capital and capital adequacy requirements imposed on securities brokerages and banks in jurisdictions where we do business. We assess our leverage and liquidity risk based on considerations and assumptions of market factors, as well as other factors, including the amount of available liquid capital (i.e., the amount of cash and cash equivalents not invested in our operating business). A significant portion of our trading securities and cash and cash equivalents are subject to collateralization agreements. This significantly enhances our risk of loss in the event financial markets move against our positions. When this occurs, our liquidity, capitalization and business can be negatively impacted. Certain market conditions can impact the liquidity of our assets, potentially requiring us to hold positions longer than anticipated. Our liquidity, capitalization, projected return on investment and results of operations can be significantly impacted by market events over which we have no control, and which can result in disruptions to our investment strategy for our assets.
We maintain a majority of our tangible assets in cash and securities that are readily convertible to cash, including governmental and quasi-governmental debt and highly liquid corporate equities and debt. Our financial instruments and other asset positions are stated at fair value and should generally be readily marketable in most market conditions. The following table sets out certain information regarding our assets as of the dates presented:
(amounts in thousands)
| December 31, 2024 | March 31, 2024 | |
|---|---|---|
| Cash and cash equivalents(1) | $577,940 | $545,084 |
| Restricted cash(2) | $742,153 | $462,637 |
| Trading securities | $3,415,517 | $3,688,620 |
| Total assets | $9,135,045 | $8,301,930 |
| Net liquid assets(3) | $3,831,427 | $3,137,383 |
(1) Of the $577.9 million in cash and cash equivalents we held at December 31, 2024, $51.7 million, or approximately 9%, was subject to reverse repurchase agreements. By comparison, at March 31, 2024, we had cash and cash equivalents of $545.1 million, of which $135.0 million, or approximately 25%, was subject to reverse repurchase agreements. The amount of cash and cash equivalents we hold is subject to minimum levels set by regulatory bodies to comply with required rules and regulations, including adequate capital and liquidity levels for each entity.
(2) Principally consists of cash of our brokerage customers which are segregated in a special custody
accounts for the exclusive benefit of our brokerage customers.
(3) Consists of cash and cash equivalents, trading securities, and margin lending, brokerage and other
receivables, net of securities repurchase agreement obligations. It includes liquid assets possessed after deducting securities repurchase agreement obligations.
As of December 31, 2024, and March 31, 2024, we had total liabilities of $7.9 billion and $7.1 billion, respectively, including customer liabilities of $3.8 billion and $2.3 billion, respectively.
We finance our assets primarily from revenue-generating activities and short-term and long-term financing arrangements.
CASH FLOWS
The following table presents information from our statement of cash flows for the periods indicated. Our cash and cash equivalents include restricted cash, which principally consists of cash of our brokerage customers which are segregated in a special custody accounts for the exclusive benefit of our brokerage customers.
(amounts in thousands)
| Nine Months Ended December 31, 2024 | Nine Months Ended December 31, 2023 | |
|---|---|---|
| Net cash flows from/(used in) operating activities | $343,311 | $(1,373,355) |
| Net cash flows used in investing activities | (652,628) | (593,033) |
| Net cash flows from financing activities | 833,611 | 1,892,328 |
| Effect of changes in foreign exchange rates on cash and cash equivalents | (212,300) | (6,449) |
| Effect of expected credit losses on cash and cash equivalents and restricted cash | 378 | — |
| NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $312,372 | $(80,509) |
Net Cash Flows From Operating Activities
Net cash flow from operating activities during the nine months ended December 31, 2024, was comprised of net change in operating assets and liabilities and net income adjusted for non-cash movements (changes in deferred taxes, unrealized gain on trading securities, net change in accrued interest, change in insurance reserves, and allowance for receivables). Net cash from operating activities resulted primarily from changes in operating assets and liabilities. Such changes included those set out in the following table.
(amounts in thousands)
| Nine Months Ended December 31, 2024 | Nine Months Ended December 31, 2023 | ||
|---|---|---|---|
| Increases in trading securities (1) | $(170,899) | $(1,149,192) | |
| Increases in brokerage customer liabilities (2) | $1,187,289 | $71,982 | |
| Increases in margin lending, brokerage and other receivables | $(509,597) | (3) | $(603,701) |
| (Decrease)/increases in margin lending and trade payables (4) | $(505,097) | $30,593 |
(1) Resulted from increased purchases of securities held in our proprietary account.
(2) Resulted from increased funds in brokerage accounts from new and existing customers.
(3) Resulted primarily from increased volume of margin lending receivables.
(4) Resulted primarily from decreased volume of margin lending payables.
Net cash flows from operating activities in the nine months ended December 31, 2024, were primarily attributable to net cash inflows attributable increase in customer liabilities over that period, which resulted from the increase of customer accounts in our Freedom Global subsidiary, which were partially offset in part by an decrease in margin lending and trade payables, and increases in trading securities. In addition, during the nine months ended December 31, 2024, the Company has provided more margin lending to its customers, which lead to increase in related receivable balance.
Net Cash Flows Used In Investing Activities
During the nine months ended December 31, 2024, net cash used in investing activities was $652.6 million compared to net cash used in investing activities of $593.0 million during the nine months ended December 31, 2023. During the nine months ended December 31, 2024, cash used in investing activities was used for the issuance of loans, net of repayment by customers, in the amount of $341.8 million, and purchase of available-for-sale securities, net of proceeds, in the amount of $234.1 million. During the nine months ended December 31, 2024, cash used for the issuance of loans, net of repayment decreased by $205.9 million compared to the nine months December 31, 2023, due to the decline in the volume of loans issued during the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023. This shift is attributed to substantial growth in the Freedom Bank KZ's loan portfolio over the nine months ended December 31, 2023, driven by new banking products, partnership agreements, and effective advertising campaigns.
Net Cash Flows From Financing Activities
Net cash flows from financing activities for the nine months ended December 31, 2024 was $833.6 million compared to net cash flow from financing activities in amount of $1.9 billion during the nine months ended December 31, 2023. Cash flows from financing activities during the nine months ended December 31, 2024 consisted principally of bank customer deposits received in the amount of $765.7 million, net repayment from obligations under securities repurchase agreements in amount of $157.1 million, proceeds from the issuance, net of repurchase, of debt securities in the amount of 201.7 million, and mortgage loans sold to JSC Kazakhstan Sustainability Fund as the Program Operator, net of repurchase, under the state mortgage program "7-20-25" in the amount of $19.4 million. During the nine months ended December 31, 2024, cash flows from financing activities decreased by $1.1 billion compared to the nine months ended December 31, 2023. This decrease was primarily attributable to a $1.5 billion change in net repayment/proceeds from securities repurchase agreement obligations due to significant growth of the Company's trading portfolio during the nine months ended December 31, 2023, which is mainly financed through the securities repurchase agreements.
CAPITAL EXPENDITURES
On May 10, 2023, our subsidiary Freedom EU signed a contract for the construction of Elysium Tower, a building in Limassol, Cyprus. The building is planned to be a new office building for Freedom EU. Capital expenditures amounted to approximately $8.2 million in fiscal year 2024, with an additional amount of around $2.0 million incurred during the first nine months of fiscal year 2025. The remaining balance of approximately $3.9 million is expected to be incurred in during the 2025 calendar year. We are financing this construction project primarily using our own funds.
On November 27, 2023, our Board of Directors approved a strategic plan to expand our business by entering the telecommunications market in Kazakhstan through our Freedom Telecom subsidiary. Execution of the new plan is expected to require significant capital expenditure, the specific amount of which is currently uncertain. Total capital expenditures for the development of this business area are currently expected to be required for, among other things, construction of network infrastructure, including a backbone network, obtaining frequency licenses or other rights to provide services where required and acquisitions of smaller companies in the sector. Our strategy and budget for Freedom
Telecom are currently being reassessed and are subject to revisions, which may be material. We currently plan to finance our capital expenditures for this business area with a combination of own funds and borrowings, including vendor financing and utilizing the proceeds of a $200 million U.S. dollar domestic bond placement on the AIX that we completed on December 19, 2023. For further information, see "Indebtedness – Long-term" below.
As a further step in implementing our strategy to build a digital fintech ecosystem, on January 25, 2024, Freedom Telecom established a subsidiary, Freedom Media, in Kazakhstan for the purposes of providing media content to customers in Kazakhstan and Central Asia. Total capital expenditures required in connection with Freedom Media over the next five years are currently estimated to be approximately $54 million. We plan to finance our capital expenditures related to Freedom Media primarily using our own funds.
DIVIDENDS
Any payment of cash dividends on our common stock in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual and legal restrictions and other factors deemed relevant by our Board of Directors. We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We did not declare or pay a cash dividend on our common stock during the three months ended December 31, 2024. Any payment of cash dividends on stock will depend upon our results of operations, earnings, capital requirements, financial condition, future prospects, contractual and legal restrictions and other factors deemed relevant by our Board of Directors. We currently intend to retain any future earnings to fund the operation, development and expansion of our business, and therefore we do not anticipate paying any cash dividends on common stock in the foreseeable future.
INDEBTEDNESS
Set forth below is a discussion of our short-term and long-term debt.
Short-term
Our short-term financing is primarily obtained through securities repurchase arrangements conducted through stock exchanges. We use repurchase arrangements, among other things, to finance our liquidity positions. As of December 31, 2024, $2.2 billion, or 64%, of the trading securities held in our proprietary trading account were subject to securities repurchase obligations compared to $2.8 billion, or 75% as of March 31, 2024. The securities we pledge as collateral under repurchase agreements are liquid trading securities with market quotes and significant trading volume. For additional information regarding our securities repurchase agreement obligations see Note 9 "Securities Repurchase Agreement Obligations" to the condensed consolidated financial statements included in this quarterly report on Form 10-Q.
Long-term
On October 21, 2021, our subsidiary Freedom SPC issued U.S. dollar-denominated bonds due 2026, in an aggregate principal amount up to $66 million, which are listed on the AIX. The annual interest rate for such bonds is 5.5%. The bonds are guaranteed by FRHC.
In December 2023, Freedom SPC established a $1,000,000,000 bond program. Bonds, following issuance under the program, are listed on the AIX and guaranteed by FRHC. On December 19, 2023, Freedom SPC issued U.S. dollar-denominated bonds due 2028 under the program in an aggregate principal amount of $200 million. For the first and second years, the annual interest rate for such bonds is 12%, and for subsequent years the interest rate will be fixed and set as the sum of the effective federal funds rate as of December 10, 2025 and a margin of 6.5%. On September 16, 2024, Freedom SPC authorized a series of $200 million bonds due September 16, 2026 under the program, with a 10.5% annual interest rate payable quarterly, all of which were placed (i.e., sold) during the three months ended December 31, 2024.
As of December 31, 2024, there was $466.6 million of Freedom SPC bonds outstanding. The aggregate accrued interest as of December 31, 2024 was $2.2 million.
During the nine months ended December 31, 2024, Freedom Bank KZ established three Kazakhstan law bond programs: (i) a program of up to 100 billion Kazakhstani tenge, of which 7-year bonds for 50 billion Kazakhstani tenge which have been listed on the KASE, with a floating interest rate to be determined following the first trades, (ii) a program of up to 200 billion Kazakhstani tenge, of which 2-year bonds for 36 billion Kazakhstani tenge have been listed on the KASE with a fixed interest rate determined following the first trades, and (iii) a program of up to $300 million, of which 2- year bonds for $50 million have been listed on the KASE with a fixed interest rate determined following the first trades. None of the bonds within the Freedom Bank KZ's bond programs have been placed to investors. Going forward, Freedom Bank KZ may decide to place any or all of these the bonds as needed to support its liquidity.
NET CAPITAL AND CAPITAL ADEQUACY
A number of our subsidiaries are required to satisfy minimum net capital and capital adequacy requirements to conduct their brokerage, banking and insurance operations in the jurisdictions in which they operate. This is done in part by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries may be restricted in their ability to transfer cash between different jurisdictions and to FRHC. Additionally, transfers of cash between international jurisdictions may have adverse tax consequences that could discourage such transfers.
At December 31, 2024, these minimum net capital and capital adequacy requirements ranged from approximately $0.2 million to $180.9 million and fluctuate depending on various factors. At December 31, 2024, the aggregate net capital and capital adequacy requirements of our subsidiaries was approximately $237.4 million. Each of our subsidiaries that are subject to net capital or capital adequacy requirements exceeded the minimum required amount at December 31, 2024.
Although we operate with levels of net capital and capital adequacy substantially greater than the minimum established thresholds, in the event we fail to maintain minimum net capital or capital adequacy, we may be subject to fines and penalties, suspension of operations, revocation of licensure and disqualification of our management from working in the industry. Our subsidiaries are also subject to various other rules and regulations, including liquidity and capital adequacy ratios. Our operations that require the intensive use of capital are limited to the extent necessary to meet our regulatory requirements.
Over the past several years, we have pursued an aggressive growth strategy both through acquisitions and organic growth efforts. While our active growth strategy has led to revenue growth, it also results in increased expenses and greater need for capital resources. Additional growth and expansion may require greater capital resources than we currently possess, which could require us to pursue additional equity or debt financing from outside sources. We cannot assure that such financing will be available to us on acceptable terms, or at all, at the time it is needed.
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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following are the accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results.
Allowance for credit losses
The Company has recently adopted a new accounting standard, ASC 326 - Current Expected Credit Losses (CECL), effective April 1, 2023. This standard has introduced significant changes to how we estimate and recognize credit losses for our financial assets. Management estimates and recognizes the CECL as an allowance for lifetime expected credit losses for loans issued. This is different compared to the previous practice of recognizing allowances based on probable incurred losses.
Under CECL, the allowance for credit losses (ACL) primarily consists of two components:
Collective CECL Component: This component is used for estimating expected credit losses for pools of loans that share common risk characteristics.
Individual CECL Component: This component is applied to loans that do not share common risk characteristics and require individual assessment.
The ACL is a valuation account that is subtracted from the amortized cost of total loans and available-for-sale securities to reflect the net amount expected to be collected. Our methodology for establishing the allowance for loan losses is based on a comprehensive assessment that considers relevant and available information from internal and external sources. This assessment takes into account past events, including historical trends in loan delinquencies and charge-offs, current economic conditions, and reasonable and supportable forecasts.
Goodwill
We have accounted for our acquisitions using the acquisition method of accounting. The acquisition method requires us to make significant estimates and assumptions, especially at the acquisition date as we allocate the purchase price to the estimated fair values of acquired tangible and intangible assets and the liabilities assumed. We also use our best estimates to determine the useful lives of the tangible and definite-lived intangible assets, which impact the periods over which depreciation and amortization of those assets are recognized. These best estimates and assumptions are inherently uncertain as they pertain to forward looking views of our businesses, customer behavior, and market conditions. In our acquisitions, we have also recognized goodwill at the amount by which the purchase price paid exceeds the fair value of the net assets acquired.
Our ongoing accounting for goodwill and the tangible and intangible assets acquired requires us to make significant estimates and assumptions as we exercise judgement to evaluate these assets for impairment. Our processes and accounting policies for evaluating impairments are further described in Note 2 "Summary of Significant Accounting Policies" to the condensed consolidated financial statements included in this quarterly report on Form 10-Q. As of December 31, 2024, we had goodwill of $48.2 million.
Income taxes
We are subject to income taxes in both the United States and numerous foreign jurisdictions. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations for which the ultimate tax determination is uncertain. As a result, actual future tax consequences relating to uncertain tax positions may be materially different than our determinations or estimates.
We recognize deferred tax liabilities and assets based on the difference between the Condensed Consolidated Balance Sheet and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
Income taxes are determined in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. We account for income taxes using the asset and liability approach. Under this method, deferred income taxes are recognized for tax consequences in future years based on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at each year-end and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates applicable to the differences that are expected to affect taxable income.
We periodically evaluate and establish the likelihood of tax assessments based on current and prior years' examinations, and unrecognized tax benefits related to potential losses that may arise from tax audits in accordance with the relevant accounting guidance. Once established, unrecognized tax benefits are adjusted when there is more information available or when an event occurs requiring a change.
Legal contingencies
We review outstanding legal matters at each reporting date, in order to assess the need for provisions and disclosures in our financial statements. Among the factors considered in making decisions on provisions are the nature of the matter, the legal process and potential legal exposure in the relevant jurisdiction, the progress of the matter (including the progress after the date of the financial statements but before those statements are issued), the opinions or views of our legal advisers, experiences on similar cases and any decision of our management as to how we will respond to the matter.
Non-consolidation of FST Belize
Based on our assessment, we do not consolidate our affiliate FST Belize. See "Non-Consolidation of Freedom Securities Trading Inc." in Note 2 "Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
RECENT ACCOUNTING PRONOUNCEMENTS
For details of applicable new accounting standards, see "Recent accounting pronouncements" in Note 2 "Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
Market risk
As filed, 16,705 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Market Risk
The following information, together with information included in "Overview" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part I Item 2, describes our primary market risk exposures. Market risk is the risk of economic loss arising from the adverse impact of market changes to the market value of our trading and investment positions. We are exposed to a variety of market risks, including interest rate risk, foreign currency exchange risk and equity price risk.
Interest Rate Risk
Our exposure to changes in interest rates relates primarily to our investment portfolio and outstanding debt. While we are exposed to global interest rate fluctuations, we are most sensitive to fluctuations in Kazakhstan interest rates. Changes in Kazakhstan interest rates may have significant effect on the fair value of our securities.
Our investment policies and strategies are focused on preservation of capital and supporting our liquidity requirements. We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investment policies generally require securities to be investment grade and limit the amount of credit exposure to any one issuer (other than government and quasi-government securities). To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100 basis point parallel shift in the yield curve. Based on investment positions as of December 31, 2024, and March 31, 2024 (not including assets held for sale), a hypothetical 100 basis point increase in interest rates across all maturities would have resulted in $122.7 million and $128.9 million incremental decline in the fair market value of the portfolio, respectively. Such losses would only be realized if we sold the investments prior to maturity. A hypothetical 100 basis point decrease in interest rates across all maturities would have resulted in a $142.8 million and $138.3 million incremental rise in the fair market value of the portfolio (not including assets held for sale), respectively.
Foreign Currency Exchange Risk
We have a presence in Armenia, Austria, Azerbaijan, Belgium, Bulgaria, Cyprus, France, Germany, Greece, Italy, Kazakhstan, Kyrgyzstan, Lithuania, the Netherlands, Poland, Spain, Tajikistan, Turkey, the United Arab Emirates, the United Kingdom, the United States and Uzbekistan. The activities and accumulated earnings in our non-U.S. subsidiaries are exposed to fluctuations in foreign exchange rate between our functional currencies and our reporting currency, which is the U.S. dollar.
In accordance with our risk management policies, we manage foreign currency exchange risk on financial assets by holding or creating financial liabilities in the same currency, maturity and interest rate profile. This foreign exchange risk is calculated on a net foreign exchange basis for individual currencies. We may also enter into foreign currency forward, swap and option contracts with financial institutions to mitigate foreign currency exposures associated with certain existing assets and liabilities, firmly committed transactions and forecasted future cash flows.
The main market of our operations is Kazakhstan. Because Kazakhstan's economy is highly dependent on oil exports, any significant decrease in oil prices lead to a devaluation of local currency, which can fluctuate significantly (e.g., losing up to 17% quarterly during COVID-19 outbreak) relative to the U.S. dollar.
An analysis of our December 31, 2024, and March 31, 2024 (not including assets held for sale) balance sheets estimates that the net impact of a 10% adverse change in the value of the U.S. dollar relative to all other currencies, would have resulted in a decrease of income before income tax in the amount of $19.8 million and $121.5 million, respectively.
Equity Price Risk
Our equity investments are susceptible to market price risk arising from uncertainties about future values of such investment securities. Equity price risk results from fluctuations in price and level of the equity securities or instruments we hold. We also have equity investments in entities where the investment is denominated in a foreign currency, or where the investment is denominated in U.S. dollars but the investee primarily makes investments in foreign currencies. The fair values of these investments are subject to change at the spot foreign exchange rate between these currencies and our functional currency fluctuates. We attempt to manage the risk of loss inherent in our equity securities portfolio through diversification and by placing limits on individual and total equity instruments we hold. Reports on our equity portfolio are submitted to our management on a regular basis.
As of December 31, 2024, and March 31, 2024, our exposure to equity investments at fair value was $118.8 million and $126.1 million, respectively. Based on an analysis of the December 31, 2024, and March 31, 2024 (not including assets held for sale), balance sheets, we estimate that a decrease of 10% in the equity price would have reduced the value of the equity securities or instruments we held by approximately $11.9 million and $12.6 million, respectively.
Credit Risk
Credit risk refers to the risk of loss arising when a borrower or counterparty does not meet its financial obligations to us. We are primarily exposed to credit risk from institutions and individuals through the brokerage and banking services we offer. We incur credit risk in a number of areas, including margin lending and loans issued.
Margin lending receivables risk
We extend margin loans to our customers. Margin lending is subject to various regulatory requirements of MiFID and of the AFSA and the National Bank of the Republic of Kazakhstan. Margin loans are collateralized by cash and securities in the customers' accounts. The risks associated with margin lending increase during periods of fast market movements, or in cases where collateral is concentrated and market movements occur. During such times, customers who utilize margin loans and who have collateralized their obligations with securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of a liquidation. We are also exposed to credit risk when our customers execute transactions, such as short sales of options and equities that can expose them to risk beyond their invested capital.
We expect this kind of exposure to increase with the growth of our overall business. Because we indemnify and hold harmless our clearing houses and counterparties from certain liabilities or claims, the use of margin loans and short sales may expose us to significant off-balance-sheet risk in the event that collateral requirements are not sufficient to fully cover losses that customers may incur and those customers fail to satisfy their obligations. As of December 31, 2024, we had $2.0 billion in margin lending receivables from our customers, $1.4 billion of which was attributable to three non-related party customers. The amount of risk to which we are exposed from the margin lending we extend to our customers and from short sale transactions by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potential significant and undeterminable rise or fall in stock prices. As a matter of practice, we enforce real-time margin compliance monitoring and liquidate customers' positions if their equity falls below required margin requirements.
We have a comprehensive policy implemented in accordance with regulatory standards to assess and monitor the suitability of investors to engage in various trading activities. To mitigate our risk, we also continuously monitor customer accounts to detect excessive concentration, large orders or positions, patterns of day trading and other activities that indicate increased risk to us.
Our credit exposure is to a great extent mitigated by our policy of automatically evaluating each account throughout the trading day and closing out positions automatically for accounts that are found to be under-margined. While this methodology is effective in most situations, it may not be effective in situations where no liquid market exists for the relevant securities or commodities or where, for any reason, automatic liquidation for certain accounts has been disabled. We continually monitor and evaluate our risk management policies, including the implementation of policies and procedures to enhance the detection and prevention of potential events to mitigate margin loan losses.
Risk related to banking loans recoverability
Our loan portfolio may be impacted by global, regional and local macroeconomic and market dynamics, including prolonged weakness in GDP, reductions in consumer spending, decreases in property values or market corrections, growing levels of consumer debt, rising or high unemployment rates, changes in foreign exchange or interest rates, widespread health crises or pandemics, severe weather conditions, and the effects of climate change. Economic or market stresses generally have negative effect on the business landscape and financial markets. Decreases in property values or market adjustments may increase the likelihood of borrowers or counterparties failing to meet their obligations to us, potentially leading to an increase in credit losses.
The main share of our customer loan portfolio is represented by digital mortgage loans issued within the framework of state support programs, funded from the funds of quasi state organizations. We participate in the government mortgage program in which the Kazakhstan government provides funding in the amount of approved mortgages and buys out the mortgages after disbursement with a recourse to the bank in case of default by a borrower. We mitigate our credit risk exposure in this case by our security interest in the financed real estate property. As such, significant rate of mortgage defaults in Kazakhstan could adversely affect our banking operations and the ultimate success of our digital mortgage product.
We reserve for potential credit losses in the future by recording a provision for credit losses through our earnings. This includes the allowance for credit losses based on management’s estimates of current expected credit losses over the life of the respective credit exposures. These estimates are based on a review of past events, current conditions, and reasonable forecasts of future economic situations that might influence the recoverability of our loans. Our approach to determining these allowances involves both quantitative methods and a qualitative framework. Within this framework, management uses its judgment to evaluate internal and external risk factors. However, such judgments are inherently subject to the risk of misjudging these factors or misestimating their effects. Charge-offs related to our credit exposures may occur in the future. Market and economic changes could lead to higher default and delinquency rates, adversely affecting our loan portfolio's quality and potentially resulting in higher charge-offs. While our estimates account for current conditions and anticipated changes during the portfolio's lifetime, actual outcomes could be worse than expected, significantly impacting our financial results, condition and cash flows.
For description of credit quality of the loans and other details please see Note 7 "Loans Issued" in the notes to the condensed consolidated financial statements.
Operational Risk
Operational risk generally refers to the risk of loss, or damage to our reputation, resulting from inadequate or failed operations or external events, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes including cyber security incidents.
For a description of related risks, see the information under the heading "Risks Related to Information Technology and Cybersecurity" in "Risk Factors" in Part I Item 1A of the 2024 Form 10-K.
To mitigate and control operational risk, we have developed and continue to enhance policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments. We also have business continuity plans in place that we believe will cover critical processes on a company-wide basis, and redundancies are built into our systems as we have deemed appropriate. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits.
Legal and Compliance Risk
We operate in a number of jurisdictions, each with its own legal and regulatory structure that is unique and different from the other. Legal and regulatory risk includes the risk of non-compliance with applicable legal and regulatory requirements and damage to our reputation as a result of failure to comply with laws, regulations, rules, related self-regulatory organization standards and codes of conduct applicable to our business activities. Such non-compliance could result in the imposition of legal or regulatory sanctions, material financial loss, including fines, penalties, judgments, damages and/or settlements, or loss to reputation that we may suffer as a result of compliance failures. These risks include contractual and commercial risk, such as the risk that a counterparty's performance obligations will be unenforceable. It also includes compliance with AML, terrorist financing, anti-corruption and sanctions rules and regulations.
We have established and continue to enhance procedures designed to ensure compliance with applicable statutory and regulatory requirements, such as public company reporting obligations, regulatory net capital and capital adequacy requirements, sales and trading practices, potential conflicts of interest, anti-money laundering, privacy, sanctions and recordkeeping. The legal and regulatory focus on the financial services industry presents a continuing business challenge for us.
Our business also subjects us to the complex income tax laws of the jurisdictions in which we operate, and these tax laws may be subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes.
Geopolitical Risk
The Russia-Ukraine conflict has led to disruptions in financial markets that has negatively impacted the global economy and created significant uncertainty. The Russia-Ukraine conflict has resulted in the imposition by many countries of economic sanctions and export controls against certain Russian industries, companies and individuals. In response, Russia has implemented its own countermeasures against countries, businesses and investors deemed "unfriendly." Partly as a result of the effects of the Russia-Ukraine conflict, businesses worldwide have experienced shortages in materials and increased costs for transportation, energy and raw materials. The continuation or escalation of the Russia-Ukraine conflict or other hostilities presents heightened risks relating to cyberattacks, supply chain disruptions, higher interest rates and greater frequency and volume of failures to settle securities transactions, as well as increase financial market volatility. The extent and duration of the war, sanctions and resulting market disruptions, as well as the potential adverse consequences for our business, liquidity and results of operations, are difficult to predict.
Effects of Inflation
Because our assets are primarily short-term and liquid in nature, they are generally not significantly impacted by inflation. The rate of inflation does, however, affect our expenses, including employee compensation, communications and information processing and office leasing costs, which may not be readily recoverable from our customers. To the extent inflation results in rising interest rates and has adverse impacts upon securities markets, it may adversely affect our results of operations and financial condition.
Controls and procedures
As filed, 1,590 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2024 our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the three months ended on December 31, 2024, there was no change in internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 159 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
As of December 31, 2024, there have been no material changes from the risk factors previously disclosed in response to Item 1A to Part I of our 2024 Form 10-K.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-12-31. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-10-01 to 2024-12-31 | $655.2m | us-gaap:Revenues |
| Revenue | 9 months2024-04-01 to 2024-12-31 | $1.69bn | us-gaap:Revenues |
| Interest expense | 3 months2024-10-01 to 2024-12-31 | $131.1m | us-gaap:InterestExpense |
| Interest expense | 9 months2024-04-01 to 2024-12-31 | $401.5m | us-gaap:InterestExpense |
| Income tax | 3 months2024-10-01 to 2024-12-31 | $20.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-04-01 to 2024-12-31 | $41.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-10-01 to 2024-12-31 | $78.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months2024-04-01 to 2024-12-31 | $227.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-10-01 to 2024-12-31 | $1.29 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-04-01 to 2024-12-31 | $3.76 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-10-01 to 2024-12-31 | $1.32 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-04-01 to 2024-12-31 | $3.83 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-10-01 to 2024-12-31 | 60,548,794 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-04-01 to 2024-12-31 | 60,422,124 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-04-01 to 2024-12-31 | $343.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-04-01 to 2024-12-31 | $53.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2024-12-31 | $577.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | At period end2024-12-31 | $9.14bn | us-gaap:Assets |
| Total liabilities | At period end2024-12-31 | $7.87bn | us-gaap:Liabilities |
| Shareholders' equity | At period end2024-12-31 | $1.26bn | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0000924805-25-000002. Last ingested by Listed: Oct 29, 2026, 06:23 ET. Listed shows no prices and gives no investment advice.