Klarna Group plc Ordinary Shares

2025 earnings call. My name is Filippa Boltz, head of communications at Klana, and I'm joined today by Sebastian Szymionkowski and Niklas Niglian. Our Q4 results were released at around 7.30 a.m. Eastern time, and they are available on our investor relations website. During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website, as well as filed with the SEC. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period in 2024. During the Q&A portion of today's call, please limit yourself to one question. To join the queue, participants should dial pound key five on their telephone keypad. Before we move to Q&A, we will begin with a short presentation. Sebastian, please go ahead.

Thank you for joining Klana's Q4 earnings call. Klana is accelerating its growth of our banking relationships and our revenue per customer. Millions of consumers are adopting more of our services, the Klana card, Klana's deposit accounts, Klana's fair financing products, and of course, our well-known Buy Now, Pay Later services. Now, this is exactly what we had planned for and wanted to achieve. And in Q4 2025, the adoption of these products accelerated beyond our expectations. As we scale this business, delivering on profitability is a key priority. In Q4, we delivered. Active consumers reached 118 million, up 28% year-over-year. Merchants grew to 966,000, up 42% year-over-year. GMV came in at $38.7 billion above the top end of our guidance, and revenue grew 38% to over $1 billion, also beating guidance. Now, let's put these numbers in perspective. We are a bank with an exceptional network that is growing at 38% revenue year over year. In 2025, we did over $127 billion worth of volume across 26 markets and across three continents. And we're growing exceptionally well on every top line metric, cementing our U.S. as well as our global leadership position. Transaction margin dollars before provisions grew 31 percent to 622 million, an acceleration of 107 versus prior quarter. And after provisions, transaction margin dollar was 372 million, up 17 percent year over year and up 28 percent sequentially from Q3. Now, the fact that transaction margin accelerated quarter over quarter points to the compounding nature of our model as more of our cohorts mature revenue and it's compounding at a faster rate. Now, I want to be direct and transparent. This quarter's transaction margin dollar result did not land where we guided. We take that seriously. The acceleration in lending growth is the primary driver of that outcome. Now, let's look at an insertive example of that to understand the impact I'm speaking about. In this example, we have about a billion dollars of loans originated. The lifetime profit of these loans you can see on the left-hand side is $100 million in revenue, while your provision would be about $40 million and you would have other costs of $25 million, resulting in a net profit of $35 million. Like all banks, we recognize these loan cohort over a period of time. In the first quarter, as you can see on the right hand side, we would recognize a fraction of the revenue, but we would recognize all of the expected provisioning upfront. This results in a first quarter transaction margin dollar drag of $25 million, as you can see on the red there. During the remaining quarters, we recognize the remaining revenue as well as the other costs. So the resulting lifetime net profit remains the same $35 million, it is simply spread over time, and we see a $60 million positive impact on the P&L for the remaining quarters. This effect in the first quarter happens even when the underlying economics are strong and credit quality is stable. This is value creation that is deferred. For every provision we book today, we gain a future profit stream. Now, let's take a Klan example. For $2.5 billion of U.S. fair financing portfolio originated this quarter, Q4-25, we booked $80 million in provisions up front, and we recognized $40 million in revenue. So, yes, this quarter, that's a $40 million headwind. But there's an additional $180 million of interest income still to come, while the cost, the expected credit losses, have been provisioned for already – Just to repeat, faster growth, faster adoption means lower upfront transaction margins and operating profit. So when you look at our Q4 transaction margin dollars of 372 million, this primarily reflects the fact that the adoption of our expanding set of banking services are growing faster than we expected, including fair financing, GMV, currently growing at 165% annually. At the same time, to support our accelerating growth in a capital-efficient manner, we've ramped up our loan sales. And in Q4 25, we initiated our first fair financing forward flow with $73 million of gain on sales recognized in Q4 25. Continuing this strategy will further accelerate our profitability improvement in 26. Now, let me speak to exactly what that growth looks like and why we're so confident in our strategy. Our partnership strategy, as described in our previous earnings call, continues to compound and support our long-term strategy of being ubiquitous everywhere as our payments network expands its acceptance points. Over the year, we added 285,000 merchants, up 42% year-over-year. We continue to scale our default relationship with Stripe. We began the default on rollout with Nexi through Paytrail, and we expanded Apple Pay and Google Pay into additional markets. We also launched new partnerships with Emirates, Lego, Vinted, and StockX, while further deepening our relationship with large global merchants such as Walmart, Lufthansa, and Etsy. At the same time, we're accelerating our product ubiquity, ensuring that we have relevant payment options wherever the consumer shops. We double the amount of merchants where fair financing is available and continue to expand our paying-for product to almost half of our total merchant base. The benefit of building that network, close to one million merchants globally across 26 markets, online and offline, is that we've already captured the hardest thing to win, the consumers' everyday spend. The checkout moments where trust is built and that is the foundation. And now we're leveraging it. Once you have the everyday spending relationship, once the consumer is using Klarna 10, 15, 20 times a year at checkout, the step into a banking relationship is natural, low friction and extraordinarily cost effective. There is no cold start. We already know these customers and they already trust us. And in Q4, this played out at an accelerating pace. Active card users grew to 4.2 million, up 288% year-over-year. Consumer deposits reached $13 billion, up 37%. And our most engaged consumers, the Klana banking customers, reached 15.8 million, growing at 101% year-over-year. This growth is not linear. It is compounding as we build deeper relationships with our consumers. Let's deep dive into a comparison of that total consumer base versus the banking consumers that have adopted more of those banking products. Our base of 180 million Klana consumers is growing at 28% year over year and transact about 10 times a year with us. They have an average revenue per user of about $30. But now look at what happens when that relationship expands into a deeper banking relationship. Those 15.8 million consumers transact nearly three times as often. 28.5 times a year with an ARPU of $107. The average deposits jumps from $64 for our paying customers to $475 for our banking customers. And credit balances remain modest. Compare that to any credit card bank that would usually be at about $6,500 or 10 times as much. And the charge-off rate moves from 0.6% to just 1.1%, a fraction of the 4% to 5% you would see at normal standard credit card banks. So more engagement, more revenue, disciplined risk. That's the conversion we're driving, and it's why we're leaning into this growth despite the near-term provisioning drag. Now, this expansion of our banking product is built on our transaction relationship with our consumers and the knowledge we have built around risk management for the past 20 years. Our proprietary underwriting systems that we've developed underwrite every single transaction. We don't issue revolving credit and we leverage our deep understanding of our consumer spending habits as well as external data. The result is consistent and stable charge of profiles as evidenced by the stable three to four percent charge of rates for a U.S. fair financing product. And we are delivering all of this with a fundamentally different operating model. Leading into technology allows Klarna to deliver a range of services with a headcount that is a fraction of the size of a traditional bank. Klana's success is built on talent density and relentless focus on efficiency. And we believe this is a lasting competitive advantage. Now, look at this. Revenue per employee now reached $1.24 million in 25, a 3.6 times increase since 22. And critically, we've reinvested some of these savings back into our talent. That's the operating leverage that compounds alongside the banking growth I've just described. Since 2022, we have accelerated our revenue, growing 104%, while at the same time managing our adjusted operating expenses effectively, as it has declined by 8%. In 2026, we expect to continue to expand revenues faster than our operating costs as we focus on building the consumer bank of the future. As we provide 2026 guidance for the first time, we are incorporating this growth trajectory and the associated timing effects while being disciplined and realistic in how we frame expectations. The underlying trajectory, revenue compounding, cohorts maturing, a lean cost base, give us confidence in the path ahead. Thank you.

Thank you for that presentation. We'll start with three investor questions from Say Technologies. The first question is from Shubayan. When are you planning to become profitable? Klana's share price has declined since the IPO and investors aren't happy. What changes do you think may be needed in the organization or the products?