Nu Holdings Ltd. Q1 2023 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, 2023. Nu is a digital financial services provider operating primarily in Brazil, with expanding operations in Mexico and Colombia. The company offers credit cards, personal loans, investment platforms, and payment services through a fully digital mobile application. The financial statements were reviewed by KPMG Auditores Independentes Ltda. and prepared in accordance with IAS 34.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2023 | Q1 2022 |
|---|---|---|
| Total Revenue | 1,618,667 | 877,267 |
| Gross Profit | 650,882 | 294,094 |
| Profit Before Income Taxes | 243,629 | (67,651) |
| Net Profit (Attributable to Parent) | 141,751 | (45,101) |
| Earnings Per Share (Diluted) | $0.0294 | $(0.0097) |
| Cash and Cash Equivalents | 4,310,496 | 2,968,622 |
| Total Assets | 29,489,391 | 29,916,559 |
| Total Liabilities | 24,280,870 | 25,025,776 |
| Total Equity | 5,208,521 | 4,890,783 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by approximately 84.5% year-over-year, driven by a 102.7% increase in interest income and a 40.9% increase in fee and commission income.
- Profitability Turnaround: The company reported a net profit of $141.8 million, a significant improvement from a net loss of $45.1 million in Q1 2022. Profit before tax turned positive ($243.6 million) from a loss of $67.7 million.
- Credit Losses: Credit loss allowance expenses rose to $474.8 million from $275.7 million, reflecting portfolio growth and macroeconomic factors. The credit card ECL allowance coverage ratio increased to 12.6% from 11.3%.
- Operating Expenses: Total operating expenses increased to $407.3 million from $361.7 million. Notably, share-based compensation expenses decreased to $59.5 million from $77.7 million.
- Cash Flow: Net cash provided by operating activities was $94.3 million, compared to $78.3 million in the prior year. Cash and cash equivalents grew by $67.7 million during the quarter.
Outlook, Risks, and Contingencies
- Regulatory Changes: The Brazilian Central Bank (BACEN) Resolution No. 246, effective April 1, 2023, caps interchange fees on prepaid card transactions at 0.70%, which may impact future fee income.
- BDR Program: The Board approved a plan to voluntarily discontinue the Level III BDR Program on the Brazilian stock exchange (B3), offering holders options to convert to NYSE-listed shares or receive cash.
- Credit Risk: The proportion of credit card receivables in Stage 3 (defaulted) increased to 6.9% from 6.5% at year-end 2022. Management attributes this to past credit expansions maturing and seasonal delinquency.
- Cryptocurrency: The company launched NuCrypto in June 2022. While the filing notes potential safeguarding obligations under SAB 121, the assets and liabilities were not recognized in these specific statements prepared for CVM requirements. The fair value of crypto assets held for customers was $30.5 million as of March 31, 2023.
- Capital Adequacy: The Financial Conglomerate in Brazil maintained a Basel Ratio of 18.7%, well above the minimum requirement. Nu Pagamentos maintained a capital ratio of 33.2%.
Key Facts for Investor Verification
- Revenue Composition: Verify the sustainability of the 102% growth in interest income against the backdrop of rising credit loss provisions.
- Interchange Fee Cap: Assess the potential impact of the new 0.70% interchange fee cap in Brazil on future fee and commission income.
- Credit Quality Trends: Monitor the Stage 3 delinquency rate (currently 6.9%) and the effectiveness of collection strategies in a high-interest-rate environment.
- Capital Structure: Review the details of the BDR discontinuation plan and its impact on shareholder composition and liquidity.
- Geographic Expansion: Evaluate the contribution of Mexico and Colombia to total revenue ($80.5M and $13.2M respectively) and their path to profitability.