Nu Holdings Ltd. (NU) Q2 2023 Earnings Call Aug. 15, 2023

Here is a summary of NU’s earnings call.

David Vélez - Founder, CEO and Chairman

Challenges:
The Latin American financial sector faced challenges, but Nu exhibited resilience.

Q2 ‘23 Performance:

• Exemplified growth and profitability.

• Client base increased to 83.7 million.

• Robust net additions in Brazil, approximating 1.5 million/month.

• Growth resumed in Mexico with anticipation of further acceleration due to Cuenta Nu expansion.

• Cuenta Nu primarily grew via credit card cross-selling.

• Financials:

  • Revenues of $1.9 billion, a 60% YoY growth.

  • Gross profit stood at $782 million, marking a 113% YoY increase.

  • Gross margin grew to 42%.

  • Net income reached $224.9 million, a 53% QoQ growth.

  • Adjusted net income was $262.7 million, a 39% QoQ increase.

• Historical Performance:

  • Customer numbers doubled from 42 million (mid-2021) to 84 million by end of Q2 2023.

  • Brazil recorded over 80 million customers in July, ranking Nu as the fourth largest financial institution in Brazil.

  • Quarterly revenues saw a growth of over 5x in two years.

  • Gross profit multiplied almost by 5x, even with rising credit delinquency.

  • Noteworthy net income growth observed in the last three quarters.

• Business Strategy:

  • Founded in 2013 with the aim to unbundle financial services.

  • Current focus is on rebundling services for a diversified, multi-product portfolio.

  • Adjacent businesses acquired 1 million customers, showcasing impressive cross-selling capabilities.

• Future Endeavors:

  • Aim to solidify Nu’s position as a primary banking provider for a growing customer base.

• Profitability Insight:

  • Emphasis will be on the holding company's numbers.

  • Nu Holdings reported an adjusted net income of $263 million in Q2, equivalent to an annualized ROE of 19%.

  • Matches the profitability levels of many traditional banks in Latin America.

  • Regulatory capital ratios: 20.2% in Brazil and 42.2% in Mexico, surpassing the 10.5% minimum in both countries.

  • Holding level excess cash: $2.4 billion, ensuring capability for future growth.

  • Achieved strong profitability and a 60% YoY revenue growth, despite substantial investments in new products and regions.

Guilherme Lago - CFO

Nu Holdings: Quarterly Summary

Strong operating and financial KPIs observed.

• Value generation through:

  • Growth in customer base across three geographies and rapid conversion to active ones.

  • Boost in average revenue per active customer (ARPAC) via cross-selling and upselling.

  • Sustainable growth with low operating costs in the industry.

Second Quarter Highlights:

• Customer base:

  • Growth of 28% YoY, with 4.6 million new additions, totalling 83.7 million customers.

  • Brazilian growth: 1.5 million customers monthly, primarily via organic channels.

  • In Brazil, fourth largest financial institution by customer count as per the Brazilian Central Bank.

  • Mexico’s digital savings account, Cuenta Nu, achieved 1 million customers within a month of its May launch.

  • Colombia customer count at 700,000; anticipating growth post-savings account launch later in the year.

  • Active customers up by 32% YoY; activity rate at 82.2%.

• Revenue Expansion:

  • 60% active customers maintain primary banking relationship.

  • Increased cross-sell of new products to existing customer base.

  • Monthly ARPAC reached a high of $9.3; mature cohorts at $24 ARPAC.

  • Monthly ARPAC growth: 18% YoY; revenue increase of 60% YoY, amounting to $1.9 billion.

• Cards Business:

  • Purchase volumes: $26.3 billion (30% YoY growth).

  • Market share: 13.9%; with debit cards at 14.5% and credit cards at 13.6%.

• Consumer Finance Portfolio:

  • Credit cards and personal loans: $14.8 billion (48% YoY growth).

  • Credit card loans: $12 billion (54% YoY growth).

  • Lending portfolio: $2.8 billion (33% YoY growth).

• Credit Card Portfolio:

  • Interest earning instalments: 19% of total credit card loan book.

  • Revolving receivables: 7% of total for four consecutive quarters.

• Lending Portfolio:

  • Loan origination: 53% YoY growth to BRL 7.3 billion.

• Funding:

  • Deposits: $18 billion (23% YoY growth).

  • Loan-to-deposit ratio: 35%.

  • Cost of funding in Brazil: 80% of the country's interbank deposit rate.

  • Cuenta Nu in Mexico: 1.3 million customers; deposits of 1.5 billion Mexican pesos or $90 million.

• Net Interest Margins:

  • Net Interest Income: $1 billion (133% YoY growth).

  • Net interest margin increase: 260 basis points QoQ.

• Operational Costs:

  • Cost to serve per active customer: $0.80.

  • Gross profit: $782 million (113% YoY growth); margin at 41.8%.

  • Efficiency ratio: 35.4% or 29.2% excluding share-based compensation.

• Profitability:

  • Adjusted net income: $263 million.

  • Net income: $225 million.

Sustainable Advantages:

1. Cost to Acquire:
   Added 5 million customers, keeping acquisition costs low.

2. Cost to Serve:
   Remained below $1, an estimated 85% lower than industry counterparts.

3. Cost of Risk:
   Outperformed competitors in risk management of the finance portfolio.

4. Cost of Funding:
   80% of CDI, tapping into the potential of retail deposits franchise.

Overall:
The achievements noted in the quarter highlight the company's capability to scale products, expand globally, and maintain cost efficiencies.

Further comments and Q&A followed.