NU

Nu Holdings Ltd. Q1 2024 Financial Summary

Business Context and Reporting Period

This Form 6-K filing presents the unaudited interim condensed consolidated financial statements for Nu Holdings Ltd. for the three-month period ended March 31, 2024. The Company is a Cayman Islands-based holding company operating primarily through subsidiaries in Brazil (Nu Pagamentos, Nu Financeira), Mexico (Nu Financiera), and Colombia (Nu Colombia). The financial statements were reviewed by KPMG Auditores Independentes Ltda. and prepared in accordance with IAS 34.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased by 69% year-over-year (YoY), driven by a 82% increase in interest income and gains on financial instruments and a 25% increase in fee and commission income.
• Profitability: Net profit surged 167% YoY to $378.8 million. Profit before tax grew 137% to $578.5 million.
• Expense Increases: Credit loss allowance expenses rose significantly by 75% to $830.7 million, reflecting portfolio growth and macroeconomic factors. Operating expenses increased 48% to $603.0 million, with marketing expenses more than doubling to $46.8 million.
• Cash Flow: Operating cash flows were negative at $(570.6) million, compared to positive $94.3 million in Q1 2023. This was primarily due to significant increases in credit card receivables and loans to customers, partially offset by growth in deposits.
• Balance Sheet: Credit card receivables (net) grew to $12.8 billion, and loans to customers (net) increased to $3.9 billion. Total deposits grew to $24.3 billion.

Outlook, Risks, and Contingencies

• Credit Risk: The credit loss allowance coverage ratio for credit cards increased to 15.4% (from 14.5% at year-end 2023). Management utilizes a three-scenario macroeconomic model (Upside, Base, Downside) to estimate Expected Credit Losses (ECL).
• Regulatory Capital: The Nu Prudential Conglomerate in Brazil maintained a Capital Adequacy Ratio (CAR) of 13.9%, well above the minimum requirement of 8.75% under transitional rules. Nu Mexico and Nu Colombia also reported capital ratios significantly above regulatory minimums.
• Legal Contingencies: The Group has a provision for lawsuits and administrative proceedings of $13.6 million. Additional possible losses from civil and labor lawsuits are estimated at approximately $11.9 million and $14.5 million, respectively.
• Currency Translation: Other comprehensive income included a loss of $72.0 million due to currency translation on foreign entities, primarily impacting the translation reserve.
• Market Risk: The Group manages interest rate and foreign exchange risks using derivatives. As of March 31, 2024, the Group no longer held derivatives for the hedge of the portfolio's interest rate risk.

Investor Verification Checklist

• Credit Quality Trends: Verify the trajectory of the credit loss allowance coverage ratio and the migration of receivables between Stage 1, 2, and 3.
• Operating Leverage: Assess the sustainability of the 48% increase in operating expenses, particularly marketing spend, relative to revenue growth.
• Liquidity Position: Review the negative operating cash flow of $(570.6) million and its impact on the company's ability to fund loan growth without external financing.
• Regulatory Compliance: Confirm adherence to the new prudential conglomerate capital requirements in Brazil effective July 2023 and the phase-in rules through 2024.
• FX Exposure: Monitor the impact of currency fluctuations on the consolidated financial statements, given the significant operations in Brazil, Mexico, and Colombia.