Nu Holdings Ltd. Q2 2022 Financial Summary
Business Context and Reporting Period
This Form 6-K filing reports the unaudited financial and operating results for Nu Holdings Ltd. for the quarter ended June 30, 2022 (Q2'22). Nu is a leading digital banking platform operating primarily in Brazil, with expanding operations in Mexico and Colombia. Financial results are presented in U.S. dollars in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
- Revenue: $1.16 billion, representing a 244% year-over-year (YoY) increase (230% on an FX-neutral basis).
- Profitability: Reported a Net Loss of $29.9 million. Adjusted Net Income was $17.0 million.
- Gross Profit: $363.5 million with a gross margin of 31% (down from 50% in Q2'21 due to credit provisioning and interest rate impacts).
- Deposits: Total deposits reached $13.3 billion, an 87% increase YoY on an FX-neutral basis.
- Interest-Earning Portfolio (IEP): $3.2 billion, up 220% YoY FX-neutral, driven by personal loans and credit card financing.
- Liquidity: Cash and cash equivalents totaled $3.7 billion. The loan-to-deposit ratio remained at 24%.
- Operating Expenses: $388.1 million, representing 34% of revenue (down from 51% in Q2'21).
- Customer Metrics: Total customers reached 65.3 million (57% YoY growth). Monthly Average Revenue per Active Customer (ARPAC) was $7.8.
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 361% YoY increase in interest income (due to higher Brazilian interest rates and portfolio expansion) and a 101% YoY increase in fee and commission income.
- Cost Structure: Cost of financial and transactional services rose to 69% of revenue from 50% in Q2'21, primarily due to higher interest expenses on deposits and increased credit loss allowance expenses ($338.5 million vs. $82.7 million YoY).
- Asset Quality: Non-Performing Loans (NPL) 15-90 days remained stable at 3.7%. NPL 90+ days increased to 4.1% from 3.5%, consistent with post-pandemic normalization.
- Accounting Change: Nu adopted a new write-off methodology for personal loans in Q2'22, moving the write-off threshold from 360+ days to 120+ days to better align with IFRS guidelines. This change reduced the 90+ NPL ratio denominator but did not impact the P&L as provisions were already made under IFRS 9.
Outlook, Risks, and Management Commentary
- Strategic Focus: Management emphasized the maturation of customer cohorts and the rollout of new products (NuInvest, Nucripto, insurance) as key drivers for ARPAC expansion.
- Margin Outlook: Management expects gross margins to converge to historical levels as the loan portfolio matures and interest rates stabilize, noting that current margins are impacted by the short-term effects of rising rates and ECL provisioning.
- Capital Position: Nu maintains a strong capital position with NuFin's adjusted capital at $3.9 billion, 79% of which is cash.
- Risks: The filing highlights risks related to foreign exchange volatility, the uncertain short-term outlook for the Brazilian economy, and the sensitivity of credit provisions to delinquency trends.
Investor Verification Checklist
- Verify the impact of the new personal loan write-off methodology (120+ days) on future NPL reporting trends.
- Monitor the trajectory of gross profit margins as interest rates stabilize and the loan portfolio matures.
- Assess the sustainability of the 24% loan-to-deposit ratio given the significant excess liquidity ($13.3B deposits vs. $3.2B IEP).
- Review the reconciliation of Adjusted Net Income to Net Income to understand the magnitude of share-based compensation impacts ($59.8 million in Q2'22).
- Track the growth of the Interest-Earning Portfolio in Mexico and Colombia to validate international expansion strategies.