Klarna Group plc Ordinary Shares

Hello everyone and welcome to Klarna's first quarter 2026 earnings call. 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 2025. During the question and answer 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 brief presentation. Sebastian, please go ahead.

Good morning, everyone, and thank you for joining. This quarter was a good quarter. We delivered above the high end of every line. Revenue $1.012 billion, up 44%. Transaction margin $389 million, up 44%. Adjusted operating profit $68 million against $3 million a year ago. And net income turned positive. Same three products, bigger network, deeper engagement. Here are the three things we did this quarter. First, our global default PSP strategy. We cover 26 markets. We carry three payment products. Debit for everyday spend. The charge card equivalent buy now pay later for mid-ticket. and point-of-sale installments, fair financing for big tickets. PSPs have been reiterating the same thing to us for years. For us to be able to be default with them and across all their merchants and reach parity with the big networks, we need relevant payment methods for every vertical of merchants they serve – subscriptions, groceries, ride-sharing, airlines, or fast fashion – Geography plus product range. We are borrowing from Amex 2000's Parity and Ubiquity playbook, and it's working. That strategy is showing up across the payment lines. Payment transactions, 27% up from 13% a year ago. Volume, 33% up from 6%. Transaction and service revenue 29% up from 7%. Stripe and Nexi are scaling and you can already see it in our merchant count. 1.07 million up 49%. JP Morgan payments and WorldPay are signed, launching later this year. Second, we are still spend-centric, not lend-centric. Our book turns more than 10 times a year. From 2020 through 24, our priority was PayLater, especially in the US. We are now live with the majority of the US top 100 online retailers. PayLater means we start small with every new customer. $100 transaction repaid in weeks. That's how we get to know each other. In 25, we shifted to fair financing. The vast majority of those borrowers are existing customers with proven repayment history. Fair financing took off faster than we forecast. We took meaningful market share in less than 12 months, especially in the U.S. We set as much in February. But let's zoom out. In our 14 profitable years before the build-out era, point-of-sale installments were 10% to 20% of volume. This quarter, fair financing is 12. Not a new business. Is the same business restored? Credit data confirms it. U.S. financing 30-plus days past due improved 36 basis points from the Q2 2025 peak. This quarter, the revenue and margin from earlier cohorts are starting to catch up. We have listened to the feedback from this audience. Starting today, we will report volume by product and U.S. versus non-U.S. separately. We will publish provisions by cohort for both pay later and fair financing. Third, the Klarna card crossed 5 million active users globally this quarter. The everyday spend account is the center of the customer relationship. Daily app usage, debit transactions, and the credit option when they want it, additional bank products for the deeply engaged. Point of self-financing on the card unlocks revenue. The debit side unlocks engagement. Both are important. All of this builds the funding base. Everyday spend feeds the deposits. Deposits fund the originations. Klana is diversified, deposits at the core. 91% consumer deposits, average duration 270 days. One of the most predictable funding profiles in banking. That base lets us price U.S. originations competitively and earn peer level returns. Our forward flow capabilities expanded this quarter as announced. They are additive, not a substitute, and allow us to manage capital more efficiently. Diversified deposits at the core is the structural advantage. We will manage the mix actively. Now, I was going to tell you three priorities for the rest of 2026. They are the same three things we just did. Default PSPs, focus on the spend-centric foundation, and everyday spend and deposit funded growth. Our biggest additional upside opportunity for transaction margin dollar growth is payment fees, which is basically the remaining gap between Europe and US pay later economics. Niklas, over to you.

Many thanks, Sebastian. Good morning, everyone. Before I cover our Q1 results and outline our Q2 and full year 2026 guidance, I want to highlight that alongside our results, we've also published an enhanced supplementary data pack. This data pack is supported by a short video walkthrough, which should enhance visibility and understanding of our business. I encourage you to take a few minutes to review it. Starting with the P&L summary, before going into the details, I would like to highlight that our business has executed strongly in 1Q, compounding nicely across all lines, and we're well on track for a full year guidance, which we have reiterated this morning. GMV came in at $33.7 billion, revenue at just over $1 billion, and transaction margin dollars at $389 million, all accelerated quarter on quarter. Adjusted operating income of $68 million was up $65 million year on year. These results underscore the operating momentum in the business. Revenue in the first quarter grew 44% year-over-year to just over $1 billion, with a like-for-like growth of 36%. Transaction costs were $623 million, up 45% year-on-year, or 37% on a like-for-like basis. Within that, processing and servicing costs grew 62%, reflecting the scaling of fair financing, our point-of-sale installment product, and our card product. Provision for credit losses was $186 million, or 55 basis points of GMV, a sequential decline from Q4. Reflecting both favorable seasonal collections and the natural maturation of our fair financing book, we're up from provisioning a new origination shrink as a share of total revenue over time. Funding costs grew 32% broadly in line with GMV. Transaction margin dollars, which is our North Star metric for the health of the business, reached $389 million, up 44% year-over-year and 34% on a like-for-like basis. You can see that progression clearly on the right-hand side of this slide, from $270 million in Q1 last year to $389 million this quarter. TMD is the cleanest signal of our model compounds because it absorbs the upfront provisioning drag of growth and shows what we earn after all variable costs. Non-transaction related operating expenses were $373 million, up just 3% year-over-year. Transaction margin dollars are growing more than 14 times faster than our cost base. This operating leverage is structural and driven by our compounding network. Adjusted operating income was $68 million, a $65 million improvement year-over-year. Operating income turned to positive $70 million from a $90 million loss a year ago, a $106 million improvement. Net income was $1 million, a $100 million year-over-year improvement, and earnings per share improved by $0.25 from a negative $0.26 to a negative $0.01, effectively breakeven. EPS remains slightly negative as a portion of the net income is attributable to capital bond interest payments. Turning to GMV, gross merchandise volume grew 33% year-over-year to $33.7 billion, or 22% on a like-for-like basis. Growth was broad-based across geographies and products. By geography, the U.S. grew 39% to $7.1 billion, representing 21% of the total GMV. Our global ex-U.S. business grew 31% to $26.6 billion. By product, PayLater, our charge card equivalent, continues to deliver strong global growth, growing 29% and representing 77% of GMV. Fair financing, our point-of-sale installment product, is scaling rapidly at $4.1 billion, up 138% year-over-year as more merchants adopt it. 225,000 merchants now offer fair financing, up from 103,000 a year ago. Pay in full, our everyday spending product, contributed to $3.5 billion. The volume mix is important because it directly drives the revenue and the TMD opportunity. Higher engagement products like fair financing and card generate stronger TMD per dollar of GMV as they mature. Now to the revenue composition and the TMD in more detail. On the left hand side you see the revenue by type. Transaction and service revenue was $671 million, up 29%, broadly tracking your volume growth. Interest income grew 56% to $284 million, driven by both new originations and the continued revenue recognition from loan originated in prior periods. Gain on sale of receivables was $57 million in Q1. We will continue our asset-light strategy and act opportunistically on receivable sales. By geography, U.S. revenue grew 67% to $399 million, significantly outpacing U.S. GMV growth of 39%. The higher take rate reflects the contribution of interest income and gain on sale. Our global ex-U.S. revenue grew 33% to $613 million, with fair financing and membership fees growth driving the acceleration. On a like-for-like basis, total revenue grew 36%. Now, on the right, the metric that matters most, transaction margin dollars, or TMD. TMD, by geography, tells the story of where a model is heading. Total TMD was $389 million at a 38.4% margin on revenue, growing 44% year over year, 34% like for like. In the U.S., TMD was $106 million with a 26.6% margin in revenue, up 58% year-over-year. Our ex-U.S. business delivered $283 million of TMD at a 46.2% margin, and within that, our most established markets are generating approximately 60% transaction margins. We expect the U.S. margins to continue converging towards mature markets over time. Turning to credit quality, consumer delinquency rates remain healthy across both product lines. The charts show 2024 and 2025 vintage performance side by side. In PayLater, our charge card equivalent product and our largest by volume, 30-day plus delinquency rates are stable and well managed. This is a short-duration, high-frequency book. It turns over approximately 10 times per year with an average consumer balance of $124. We underwrite every transaction individually, starting with small balances and scaling exposure as we build confidence. In fair financing, our point of sale installment product, delinquency rates are tracking favorably with both 30 plus and 60 plus day past dues rates declining quarter over quarter. Our ability to continuously improve underwriting driven by transaction level decisioning, short duration exposure, and the data set built on over half a trillion dollars of cumulative transactions since inception remains a key competitive advantage and a direct contributor to TMD expansion. Finally, our outlook. A full year 2026 guidance is unchanged. We continue to target GMV of greater than $155 billion, revenue of greater than 2.8% of GMV, TMD of greater than 1.04% of GMV, and adjusted operating income of greater than 6.9% of revenue. For Q2, our guidance reflects normal seasonality for a retail-driven business, as well as FX normalization following the sharp US dollar depreciation in Q1 of last year. Specifically, we're guiding to GMV of $35.5 to $36.5 billion, revenue of $960 million to $1 billion, TMD of $375 to $395 million, and adjusted operating income of $30 to $50 million. Since we provided a full year and Q1 guidance, FX has not had a material movement. To summarize, we started 2026 well. TMD grew 44% to $389 million. That is our focus and it is compounding. Our network is scaling profitably, our credit quality is healthy, and our operating leverage is clear. Accelerating TMD growth and the value it creates for shareholders remain my primary focus.