Nu Holdings Ltd. - Form 6-K Summary (Period Ended September 30, 2022)
Business Context and Reporting Period
This Form 6-K reports the unaudited interim condensed consolidated financial statements for Nu Holdings Ltd. for the three and nine-month periods ended September 30, 2022. Nu is a digital financial services provider operating primarily in Brazil, with expanding operations in Mexico and Colombia. The company operates as a single reportable segment. The financial statements were reviewed by KPMG Auditores Independentes Ltda. and prepared in accordance with IAS 34.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended 9/30/2022 | 9 Months Ended 9/30/2021 | 3 Months Ended 9/30/2022 | 3 Months Ended 9/30/2021 |
|---|---|---|---|---|
| Total Revenue | 3,341,695 | 1,062,058 | 1,306,867 | 480,907 |
| Gross Profit | 1,084,656 | 506,028 | 427,029 | 223,949 |
| Profit (Loss) Before Tax | (87,156) | (81,662) | 5,107 | (21,757) |
| Net Profit (Loss) | (67,021) | (99,060) | 7,833 | (34,357) |
| EPS (Diluted) | (0.0143) | (0.0717) | 0.0016 | (0.0240) |
| Cash and Cash Equivalents (End of Period) | 3,692,793 | 1,996,725 | - | - |
| Total Assets | 26,006,988 | 19,858,681 | - | - |
| Total Liabilities | 21,254,306 | 15,416,140 | - | - |
| Shareholders' Equity | 4,752,682 | 4,442,541 | - | - |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue for the nine months ended September 30, 2022, increased significantly to $3.34 billion from $1.06 billion in the prior year period. This was driven by a 305% increase in interest income and gains on financial instruments and a 94% increase in fee and commission income.
- Profitability: The company reported a net loss of $67 million for the nine-month period, an improvement from the $99 million loss in the same period in 2021. For the third quarter specifically, the company returned to profitability with a net profit of $7.8 million, compared to a loss of $34.4 million in Q3 2021.
- Expense Increases: Operating expenses rose to $1.17 billion for the nine-month period (from $588 million in 2021), primarily due to increased customer support, general and administrative costs, and marketing expenses associated with rapid growth. Credit loss allowance expenses also increased to $990 million (from $281 million) as the portfolio expanded and risk normalized post-pandemic.
- Balance Sheet Expansion: Total assets grew by approximately 31% to $26.0 billion. Credit card receivables increased to $6.99 billion and loans to customers rose to $1.60 billion. Deposits from customers grew to $14.04 billion.
Outlook, Risks, and Unusual Items
- Acquisition of Olivia: Nu completed the acquisition of Olivia AI in January 2022 for a total consideration of $47.2 million. Olivia contributed $0.78 million in revenue and a loss of $21.5 million for the nine-month period following acquisition.
- Credit Risk Normalization: Management notes that as pandemic effects dimmed in 2022, the risk profile of the portfolio moved toward pre-COVID levels ("risk normalization"), leading to higher delinquency and credit loss provisions compared to the suppressed levels of 2021.
- Regulatory Changes: The Brazilian Central Bank issued Resolution No. 246, capping interchange fees on prepaid cards at 0.70% effective April 1, 2023. Additionally, new prudential rules for payment institutions (Resolution No. 200) require phased increases in capital requirements.
- Capital Adequacy: The Financial Conglomerate in Brazil maintained a Basel Ratio of 17.7% as of September 30, 2022, well above the minimum requirement. Nu Mexico Financiera reported a capital ratio of 495%.
- Subsequent Events: In August 2022, the Colombian regulator approved the incorporation of "Nu Colombia Compañía de Financiamiento S.A.", pending an operational license to offer deposit products.
Key Facts for Investor Verification
- Credit Loss Trajectory: Verify the sustainability of credit loss allowances as the portfolio continues to normalize post-pandemic, noting the increase in Stage 3 exposures.
- Regulatory Impact: Assess the potential impact of the upcoming 0.70% interchange fee cap in Brazil on future fee and commission income.
- Capital Requirements: Monitor the phased implementation of new capital requirements for payment institutions in Brazil and the company's ability to maintain capital ratios above regulatory minimums.
- Expansion Costs: Evaluate the efficiency of operating expense growth relative to revenue growth as the company expands in Mexico and Colombia.
- Derivative Hedging: Review the effectiveness of the company's hedging strategies for interest rate and foreign exchange risks, particularly given the volatility in Brazilian interest rates.