Klarna Group plc (KLAR) Q2 2026 Earnings Call Transcript

Hello everyone and welcome to Klarna's second 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 was a good quarter. We delivered above the high end of our guidance on every line for the second consecutive quarter. Revenue grew faster than volume, and transaction margin dollars, which is our most important metric, grew faster than both. Volume was up 18%, revenue up 27%, transaction margin dollars up 42%. Adjusted operating income reached $91 million, up $62 million year-on-year. And net income was positive at $9 million. Our operating cost grew just 16%. We are investing in our business whilst delivering strong operating leverage, which is what we have been building toward. As I said, we measure our progress in transaction margin dollars. That number shapes how we build products, how we price, and how we underwrite. And because upraising costs grew far slower, growth in transaction margin dollars is what, over time, turns into earnings per share. On our last call, we told you what to expect for the year. Transaction margin dollars compounding at roughly 30% ahead of revenue. That is the shape we described in May and is the shape the year is taking. I'd like to review our three business areas which cover the entire consumer wallet. everyday spend with the payment option of painful for purchases under $75 with high frequency in this business area we monetize through payment fees subscriptions and deposit interest transactions here are no balance sheet risk painful contributed 3.6 billion dollars of volume this quarter and subscriptions reach 2 million subscribers lifestyle spend or pay later is the payment option for purchases between 75 and 500 dollars a purchase this is our marquee zero interest short-term fixed installments product it is the equivalent of and has the economics of charge cards over 30 to 90 days spend centric rather than lend centric and the reason why our book turn is 10 times a year pay later grew 13 percent this quarter and big ticket spend or fair financing which is designed for purchases between 500 to 10 000 these are fixed term installments and it's our fastest growing product up 82 year over year to 4.7 billion dollars offered by 256 000 merchants now up from 151 000 when we first spoke to you in november in the us it more than doubled we're happy with the balance between these three making sure we have an attractive offer for every purchase our customers make and with the effect it has on transaction margin dollars. Worth highlighting, fair financing is now 13% of our total volume. In the early 2010s, it was roughly a fifth of Klanas' volume, and in Sweden, our most mature market, it held 16% to 20% for a decade. So fair financing today, a share of volume, is still lower than historical averages. And the average fair financing balance is $400 on a fixed term with a known payoff date against a $6,700 average American credit card balance, which again reflects the fact that our customers borrow responsibly. We believe every market we operate in follows the same path and has the potential for strong transaction margins. Volume first, then scale, then the margin follows. We have run that sequence enough time to know what it looks like. In total, transaction margin reached 43% of revenue, up 4.5 points in 12 months. The US, our fastest growing large region this quarter, went from 14 to 23% in a year. Global ex-US sits at 54%, up 4 points. And the markets where we have operated longest run at roughly 60%. This quarter, the margin expanded while volume kept growing in the US and everywhere else, both at once. We measure our progress in transaction margin dollars, and we continue to convert more of our volumes into them. Five business updates to highlight this quarter. Klana membership reached 2 million paying subscribers eight times a year ago, and subscription revenue grew over 600%. Recurring revenue like this is high margin, and worth noting, almost no GMV with it. This decouples our growth over time from GMV. It grows transaction margin dollars directly, part of how transaction margin dollars grow faster than volume. The Klana card reached 6.5 million active users across 16 countries, up from 1.3 million a year ago. On our first earnings call in November, that number was 3.2 million. it has more than doubled in nine months. Last week, we launched new membership plans built on what consumers actually want, cashback and benefits. In May, we told you JP Morgan Payments would launch later this year. It went live on August 6th, ahead of peak season. JP Morgan Payments is the largest merchant acquirer in the United States, processing $2.6 trillion of payments a year, and every merchant on their platform, from boutiques to big box, can now offer the full Klana suite, painful pay later and fixed term installments, through their existing setup with no new integration. We recently announced that Klana is the partner for Apple Upgrade, a new device leasing program available from Apple. This is a natural extension of our big ticket strategy. Consumers apply at Apple and then pay and manage with the Klana app, creating a direct relationship with new U.S. consumers that supports Klana's ability to grow engagement, RPAC, and profitability. And consumer credit keeps performing better. Delinquencies improved again this quarter, and provisions have declined the share of volume every quarter since our first report as a public company. Before I hand over, I'd like to mention two things. First, we have adjusted our annual volume outlook to reflect a softer-than-expected German consumer and changes in FX. Niklas will explain both. Second, in early 27, we will make two leadership transitions. Niklas Neglén, our CFO, after six years at Klarna and an extraordinary period of growth and transformation. He told me with plenty of runway, and I respect that. This is an early heads up, not a goodbye. Nothing changes tomorrow. Niklas remains CFO and will continue to lead the finance organization and investor engagement, supporting a transition into next year, including in his capacity as board member. The search for a New York-based CFO is underway. way. And David Sandstrom, our CMO for nine years, will also hand over during next year in the same planned way. In those nine years, David built one of the most recognized brands in global finance, and he hands it over the same way Niklas hands over the numbers, deliberately and from strength. Both Niklas and David have been great contributors, and we are grateful for all the work. Nothing about them changes what we're building or how we run the company. The best evidence is the quarter we just delivered and the transaction margin dollar outlook we are raising today. Niklas will take you through it.

Thanks, Sebastian. It's been an extraordinary six years and I'm deeply proud of what we built together. I'm very pleased we've been able to plan the transition in a way that gives Klarna plenty of continuity. Now to the numbers. Let me take you through the financial highlights of the quarter and then spend some time on our outlook. Starting with the P&L summary for the second quarter. The business executed strongly and we delivered above our guidance. Total revenue was $1,042,000,000, up 27% and ahead of volume growth of 18%, as our mix continued to shift towards higher-yielding products. Transaction costs were $596,000,000, up 17%, well below revenue growth, reflecting improved underwriting and scaling of our offloading programs. Transaction margin dollars were $446 million, up 42%, well above the $375 to $395 million we guided in May. Our transaction margin dollars was 42.8% of revenue, up approximately 450 basis points from a year ago, with both the U.S. and our global X business expanding. Non-transaction related operating expenses were $490 million, up 16%, as we invested ahead of peak season and ramped marketing around the World Cup in the U.S. Our operating expenses growth is well below our revenue and TMD growth, and we expect to continue that, so TMD conversion is high. That gap of 42% TMD growth against 16% operating expense growth is operating leverage Sebastian described. Three years ago, our transaction margin did not cover our adjusted operating cost. Today, roughly 56 cents of every additional transaction margin dollar reaches the operating line that takes us to operating income of 27 million an improvement of 73 million and an adjusted operating income of 91 million up 62 million net income was 9 million with the basic diluted eps of one cent against the negative 14 cent a year ago we are delivering real operating leverage and with volume revenue transaction margin and profit each growing faster than the last Total GMV in the second quarter was $36.6 billion, up 18% year-over-year. This was 15% on a like-for-like basis, reflecting the lapping of the Q225 fair financing launch and less of an FX tailwind than the first quarter. GMV growth was broad and we delivered growth in every geography. The U.S. delivered GMV of $7.9 billion, up 27% year-on-year, and was our fastest growing large region. Global ex-U.S. GMV was $28.8 billion, up 15%, or 12% on a like-for-like basis. During the quarter, some markets, most notably Germany, grew at a more measured pace, whilst their performance across a more mature Nordic market accelerated. I will speak in more detail of the volume outlook in a few pages. U.S. share of GMV rose 2 percentage points year-over-year to 22%, while U.S. transaction margin grew 9% points to 23% of revenue. Exactly the trajectory we want, and a structural reason why TMD growth outpaces revenue growth. Byproducts, our fair financing, our point-of-sale installment product, grew 82% year-over-year to $4.7 billion in GMV, with continued merchant and market rollout, and is now offered by 256,000 merchants. Higher engagement products like fair finance and the card generates stronger transaction margin per dollar of gmv as immature and as you have seen are a key reason for a strong profit growth in the quarter pay later our chart card equivalent grew 13 percent and painful our everyday spending product contributed 3.6 billion now to revenue more detail transaction service revenue was 707 million up 17 broadly tracking volume with continued strong growth in membership fees with subscription revenue up over 600 percent interest income was 266 million up 21 driven by new originations and continued recognition from loans originated in prior periods and the lapping of the launch of fair finance in the second quarter of last year gain on sale was 69 million driven by both the u.s forward flows and the german backbook sales U.S. revenue grew 37% to $376 million, ahead of U.S. volume growth of 27%. The higher take rate in the U.S. reflects the contribution of interest income and gain on sale of originations from previous quarters, where fair financing is most established. Global ex-U.S. revenue grew 22% to $666 million, or 18% on a like-for-like basis, ahead of volume growth of 15%, with fair financing, the card, and membership fees driving this faster growth. Transaction costs were $596 million in the second quarter, up 17%. Within that, processing and servicing was $233 million, or 0.64% of GMV, down from 0.79% in the first quarter, which carried the servicing of a higher fourth quarter originations. Provisions for credit losses were $192 million, growing slower than volume. So provisions declined as a share of GMV to 0.52%. That rate reflects continued underwriting improvements, growing forward flow arrangements, and the natural maturation of our fair financing book. The dollar growth follows the size of the book. Funding cost was $171 million, broadly flat sequentially at 0.47% of GMV. We delivered a strong transaction margin, dollar result of $446 million, up 42% or 39% on a like-for-like basis. As a percentage of G&V, that is 1.22% or 1.14% adjusted for the one-off sale. In the U.S., transaction margin dollars was $88 million, up 126% year over year, more than three times the pace of revenue growth, which was 37%. That takes the U.S. margin from 14% of revenue a year ago to 23% in the second quarter. Sequentially, it was modestly below the first quarter as we completed a back-book receivable sale in Q1 that we did not repeat. Global ex-U.S. transaction margin dollars was $358 million, up 30%, at a 54% margin, up 4 percentage points year-on-year, and sequentially higher than the first quarter as we executed a back-book sale alongside the launch of our German forward flow during the quarter. Ex-US volume grew 15%, revenue 22%, and transaction margin 30%. Our most established markets run at approximately 60% transaction margin. The 450 basis point uplift we delivered this quarter closes more of that gap. Consumer delinquency rates remain healthy across both product lines. Here are the US delinquencies. The green dots represent our newest course of origination from 1Q26. As you can see, they are lower than our 4Q cohorts, representing a sequential improvement. Comparing each vintures at the same point in life, Fair Finance and Delinquency 30-plus days past due fell approximately 20 basis points quarter-over-quarter. Pay later improved approximately 30 basis points on the same measure, in line with the same period last year. Our global ex-US book improved on the same basis, with recent cohorts down both quarter-over-quarter and year-over-year. You can find those metrics in our supplementary data pack. This is a short-duration, high-frequency credit with the portfolio turning over 10 times a year, with an average consumer balance of just $124. We underwrite every transaction individually, starting customers with small balances and scaling exposure only as we build confidence. Where we have taken a more measured view of volume, that is a conscious choice to hold our underwriting standards and stay within our credit box. We would rather protect our risk-adjusted returns than chase marginal volume. Before the outlook, the scoreboard on what we told you in May. We said provisions would keep declining as a share of GMV, they did, from 55 basis points to 52, the third consecutive quarterly decline. We said transaction margin dollars would continue to compound faster than revenue, and they are. Now let me take you through our outlook. We are guiding the GMV of $149 to $151 billion, adjusted from above the $155 billion previously. That is a growth of approximately 17% year-over-year. Of that revision, approximately $600 million is currency movement since our previous guidance. The remainder is a more measured view of European volumes concentrated in Germany, our largest market by volume, where retail sales grew less than 1% in real terms in the first half. This is consistent with what you have heard across German retail this season. Our guidance simply assumes Germany stays softer rather than recovering. We expect GMV growth in the US to be strong in the second half, as we scale five significant integrations, JP Morgan, Aden, Worldline, Worldpay, now part of Global Payments, and Fiserv's Clover. And we are excited about the launch of the Apple Upgrade program. US volume assumptions are unchanged and the US remains our fastest growing large region. On revenue, we expect $4.08 to $4.16 billion against above $4.34 billion previously guided. From the second half of 2026, we expect to manage a larger share of our US and German fair financing books with the intent to sell. That shifts substantially all new originations for these products and regions from booking provisions up front to fair value through P&L, with fair value recognized in the gain on sale line at origination, as required under IFRS 9. The effect is presentational – reported revenue and transaction costs each reduced by approximately 10 basis points of GMV, which is why the reported take rate is down to 2.74% to 2.75%, while the comparable take rate rises to 2.84% to 2.85%. And because prior periods are not restated, reported revenue in the third and fourth quarters will understate the underlying business. The revenue lines move, the margin line does not. Turning to transaction margin, we are raising our full-year outlook $1.62 to $1.65 billion, or 1.09% of GMV, up from the 1.04% we guided in May. Given the fair value presentation change, more of the economics are recognized earlier. There is a small timing benefit, equivalent to expected approximately two basis points positive impact to full year 2026 transaction margin as a share of GMV. The rest comes from our better economics. Excluding the presentation change, stronger unit economics are expected to contribute between $40 and $50 million of TMD for the year on lower volume. This change applies prospectively to new originations from the second half of 26. Prior periods are not restated and loans already on our balance sheet continue to recognize interest income and provisions as previously. A video explaining this concept is available on our Investor Relations website. We are earning more on every dollar we process, driven by fair financing volumes, our offloading programs, the card and the growing membership fees. We expect adjusted operating income of $280 to $300 million at 6.9 to 7.2% of revenue. For context, we delivered $65 million of adjusted operating income in the whole of 2025. We have delivered $159 million in the first half of this year alone, and this guide is more than four times the 2025 full year. On costs, individual quarters move with the timing of our investments. For the full year, we are guiding to roughly 15% growth in our adjusted operating expenses versus a transaction margin dollar growth of over 30%. We are investing to compound growth over the long term through the second half's launches. In dollar terms, adjusted operating income moves with a revenue base. On margin, we are guiding in line to modestly above May. The third quarter is deliberately our investment quarter. It funds the largest set of launches in our history. We are guiding to volume of $35 to $36 billion, revenue of $940 to $980 million, transaction margin dollars of 340 to 360 million and an adjusted operating income of 5 to 15 million the third quarter will be the highest level on the share-based payments in 2026 reflecting our vesting and our grant of our annual compensation review fourth quarter is where we expect that investment to show with psp and marquee merchants live ahead of peak season we expect it to be a strong transaction margin quarter with strong drop through to adjusted operating income we exit this year with a wider network, five PSPs enabling Klarna as a default on payment option, our leasing program, and a structurally higher margin mix. We measure our progress in transaction margin dollars. Every dollar of volume we process is worth more to us today than it was a year ago. With that, Sebastian and I are happy to take your questions.

Thank you, Sebastian and Nicholas. We will now move to questions from the analysts. A friendly reminder that to join the queue, participants should dial pound key five on their telephone keypad, and please limit yourself to one question. Your first question comes from Will Nance from Goldman Sachs. Please go ahead.

Hey, guys. Thank you for taking the question. I wanted to touch on some of the moving pieces in the transaction margin in the back half of the year guidance. Obviously, very strong margin result this quarter, and nice to see continued improvements in most of the credit metrics across the board. Can you talk about the expectations for transaction margin in the back half of the year? It seems like, you know, that's been quite strong for the first half of the year. And then the guidance implies, you know, an exit rate kind of considerably lower than the first half of the year. You know, I might have thought with the fair value changes, you might have seen some incremental lift there. So just maybe talk through, help us understand, you know, what seasonality, is there some element of prudence in the guide? And, you know, how are you thinking about kind of continued ransom fare financing driving the overall transaction margin over time? Thank you.

This is Nicholas here. Good question. So if you look at it, we're looking at around about 23% year-over-year growth on TMD in the second half. If you take the midpoint of our guide, that is compared to 42% in the first half of 26, right? This is quite natural for a couple of reasons. Firstly, obviously, we had the lapping of the fair financing growth that kicked off at the back end of 2Q25. We also have the FX, which we should not forget. And we had an FX devaluation in the second half of this quarter and such. So I think those are the key things that are driving it. But if you look at it, if you just break it down a little bit, what you're going to see here is overarchingly, interest income in the second quarter was around about 72 basis points or 0.72%. In the 3Q and 4Q, given the fair value presentation, we're going to see that coming in a little bit lower. Gain on sale will be obviously running around about the same percentage level as 2Q as a percentage of GMV. Processing and servicing costs will grow a little bit ahead of GMV based on the fact that we're doing card and financing mix shifts. And then we have our provisions, which we expect to see relative stability and to slight downward trends in the second half of the year. And so if you look at Empower, we're continuing to grow really strongly in the U.S. You can see the TMD rising from 14% to 23% year over year. And we expect that particularly to compound with the new pipeline that we have with default options or the default partners that are coming on board as well. So, overarchingly, the key thing here is continued strong growth, particularly in the U.S. on the volume side. That's then really turning into strong TMD performance into second half as well, with then a bit of headwinds on the FX from that.

Your next question comes from Rob Wildhack from Autonomous Research. Please go ahead.

Hi, guys. Just to unpack the volume guide, can you give us some more details? It seems like you're attributing the slowdown there to the German market. I know it's about low 20% of revenue, but given the effect that that region is having on the outlook, can you give us some color on GMV that comes from Germany, the mix between pay later and any fair financing, and then what kind of growth were you expecting for Germany earlier this year versus, you know, what's the revised growth outlook for Germany embedded in your guidance today?

Sure, great. So, if you look at it, what we saw towards the back end of 2Q was a softening in basically the consumer discretionary spend in Germany. Germany is our largest share of volume or our largest market from a volume perspective, right? And what you're seeing is primarily there you have pay later and pay in now being large portions of that business. What we saw in the beginning of the third quarter, which just sees compound the trend, is the fact that we're seeing continuously softness in that German market, particularly in the discretionary spend on the retail side. And that's what we're playing out through the rest of the year, assuming that we're not seeing a recouping of that. So that's really the baseline for it.

Thanks. And if I could follow up on that, if Germany's basically pay later and pay now, and less fair financing, so those are lower margins versus fair financing, which is higher margin, you know, and that's the reason that the volume slow, I guess, why does the transaction margin so much softer in the second half, if you're slowing region is lower margins?

Does that make sense? yeah i think but i don't think it's so much that if you look at it transaction margin dollars is still growing very very healthily at 23 again i think if you compare it to the first half of the year part of that is more a performance in in the first half of 2025 when we had slower growth and therefore slower tmd progression and so the the comp was different there right in the second half We're working against both the FX reval, but also at the same time, we had a stronger growth in the second half of the year, particularly around fair financing in the U.S. So I think this is really around the U.S. growth, more so than the softening of the German volumes with regards to TMD. Ultimately, if you look at it…

Next, we'll go to the line.

Yeah, go ahead.

Next, we'll go to the line of Harshida Rawat from Bernstein. Please go ahead.

Hi, good morning, Nicholas. We'll miss working with you. Best wishes. Sebastian, I want to follow up on the planned departures after long tenures. You said the CSO search is explicitly New York-based. Why is that? And also, should investors infer any change in approach to funding, capital allocation, brand investments, U.S. expansion on this leadership change?

I'm sorry. Can you repeat the second half of that question? I couldn't really hear, sorry.

Yeah, no worries. So, I think the second part of the question was, should investors import any change in Klarna's approach to funding, capital allocation, investor engagement, U.S. expansion from this leadership change? Thank you.

Well, look, I think that the, as we highlighted here, this is long-term forward-looking and planning. These transitions are expected to happen at the beginning of next year. Both Nicholas and David has been amazing contributors and build solid foundations within the organizations that will continue to operate. We plan to continue operating the way we have. When it comes in regards to New York in particular, it's obviously the case that Klana continues to perform extremely well in the U.S. It's our largest market by revenue. Not yet by volume, as we heard in regards to Germany, but largest by revenue. And it's where we have over 30 million consumers. So having a stronger presence in New York is important to us. At the same time, we think it's also helpful to be close to the investor relations community and the stock market and so forth.

Your next question comes from James Fawcett from Morgan Stanley. Please go ahead.

James, I don't think we can hear you.

Hello, can you hear me now?

Yes, now we can hear you, James.

Oh, apologies about that. I wanted to ask quickly on forward flow and financing, just wondering how we should think about expectations for loans sold on both pay later and fair financing and how we should think about evolution of gain-on-sale margins with the fair value change.

Yes, ultimately, the strategy for us is very clear, right? And that is that we will try to be as capital light as possible and as capital efficient as possible. We have had very good success in building out these programs. And we are very focused, particularly on the fair financing forward flows. And I think as we've ramped them up to a certain level now, we've come to the point where basically all, substantially all of our loans will be eligible to be sold in the second half of this year. And that's where we're making that fair value change. right ultimately like i said you know if you look at it in totality we are guiding to about 1.09 percent of transaction margin team d and if you think of it from that perspective about two basis points is pulled forward in that foul value view which means that the gain on sale is basically going to be slightly flatter because you're adding more of it into the second half of the year but at the same time you're actually pulling up team d so what you fundamentally are doing excluding in the fair value is improving the TMD for the volume base that we actually have. So, as I said earlier on the call, right, we have about 1.9% of TMD in the guide. And what we are, if you back out the two basis points, we have 1.07%, right, in TMD. That's an actual raise versus the 1.04. And it actually means that we're adding about $40 to $50 million more of true transaction margin dollars i we're generating more transaction margin dollars for every volume every dollar volume that we bring in great thank you very much and you may have missed it but nicholas thank you very much for all your contribution good luck thank you he will continue being with us for more earnings calls so it's friendly of you to say that but it will be more opportunities

thanks guys your next question comes from brian keen from citigroup please go ahead

hi guys thanks for taking the question i guess just to go back um making sure i have the numbers just to quantify the germany impact um how much how much is that hitting the numbers versus you know the ramp of jp morgan and some of the other psp relationships i would have thought that would have offset the weakness in Germany. Just try to run us through maybe Germany versus some of the onboarding of some of those larger contracts and how they hit the volume in particular would be helpful. Thanks.

Yeah, look, I mean, fundamentally, we're coming from lapping a very strong second half of growth last year with regards to fair financing, and we continue to see that growth. If you look to the US, we are growing extremely strongly. Fair finance, for example, grew 114%, And I think to the comments we made earlier, we have a very, very strong pipeline in the U.S. today and a lot of things that we're going to be ramping into the second half of this year. So I think there's a lot of opportunity there. Again, we fundamentally focus on the trend base here when we look at these guidances. And so, you know, the German softness and consumer sentiment that we're seeing in the discretionary spending trends are really playing out through that without an assumption that we are going to be overshooting or overperforming on some of the great pipeline that we have. So our focus is very much on execution in the second half around a lot of the things that Sebastian earlier said. Got it.

And just in particular, Germany is going to grow negative, or at least in the model. How do you model it out, the German business?

Yeah. So, again, versus expectations, Germany is going to be a bit softer. And what we expect is that what we saw in the first half of this quarter is going to kind of continue to trend. And so on that baseline, we're expecting very, very marginal increases in Germany overall. And remember that we're coming.

Thank you. Thanks so much.

Your next question comes from Connor Allen from JPMorgan. Please go ahead.

Hi, thanks for taking my question. I wanted to ask about Apple, if you don't mind, the Apple upgrade program. I realize there's only so much you can probably say about a specific partnership, but maybe you could help us understand if there's anything assumed in guidance for the second half around that program and any other details you might be able to provide about that partnership would be great to hear.

Well, we're very happy with the Apple Upgrade Program for obvious reasons, right? As we said earlier in some of the statements we made when we did the earnings release or the release of that partnership, we expect a positive AOI in 2026 and through the life of the program, right? We see this very much as a multi-year similar to what many of our other partners have where we start and we start ramping, which we will do this year. And then, you know, we continue to develop that over time, right? So, like I said, we're very trend-focused here with regards to running a larger portfolio. That Apple partnership is a fantastic partnership, and I think it can be very accretive over time. But we're focused now on the trend and what we have in the guide is where we are.

Your next question comes from Jason Kupferberg from Wells Fargo. Please go ahead.

Hi, good morning. Thank you for taking the question. So I just want to come back on the full year GMV guide. I guess if we take the midpoint of Q3, it looks like you have to grow GMV about almost 25% quarter over quarter in Q4 to get to the midpoint of the new full year outlook. Hoping you can talk about the visibility there. Obviously, you've got the favorable holiday season dynamics, but this would be a faster quarter over quarter growth rate than what we saw in last year's Q4 when you also had more tailwind. from the initial walmart ramp so um i know you've got psp ramps you've got apple but but really wanted to hone in on the visibility there you know as as we made the uh the guidance adjustment uh today yeah great thanks good question uh so if you look at it in the second half you're right we're a seasonal business we're very focused on growth i think if you think about it from a perspective of of where we're seeing a lot of that the the us is continuing to really really chug along on all engines, right?

So we have very strong growth there. As you mentioned, we have a number of pipelines as well, a number of things in the pipeline, right? We're investing into not only the Apple upgrade, but also the default partnerships. I'd also mention the fact that, you know, the card, particularly in the US, but also particularly in the Nordics, where we've launched fair financing and the card, we're seeing, you know, mid-teens growth in the Nordics, right? So there's a lot of really good things that are going on, And we haven't even started fully rolling out all of the features from the Nordics into the rest of Europe. So I think there's a lot of things to speak for the fourth quarter that builds up to the guide.

Your next question comes from Andrew Bao from BMO Capital Markets. Please go ahead.

Hi, Andrew. Hey, thanks for taking my question. I wanted to ask about subscriber monetization opportunities. You had the 2 million subs in the quarter, revenues growing triple digits again. and we saw the expansion of subscriptions in Europe last week. Longer term, what percentage of revenue or transaction margin dollars do you believe can come from recurring subscriptions? And are there any guideposts investors can monitor to gauge that progress?

I can start with the commercial aspect of the subscription ship, which we are very excited about. We, as you highlighted, have seen strong growth in it, 600% growth year in year. We've reached 2 million subscribers. We also announced, as you highlighted about a week ago, some additional updates into the benefits and perks of the membership programs. And this is combined with additional changes to the card that has also grown, and we now have 6.6 million active card holders, or 6.5, sorry, and those will obviously start merging into the same offering which becomes the core of our financial partnership with the most engaged consumers, which is also part of how we drive up the revenue per customer metric that we've seen increased and reported on today. Now, how big it can become, that is too early to tell, but we have looked at peers offering similar products where subscription is a significant larger share of their revenue than it is with klana so we believe there's more potential to grow it for the exact financial targets nicholas i'll hand over to you yeah well we won't be guiding you to a particular long-term view let's say i think it's going to be a significant portion over time and it's you know ultimately it's going to help us do what we're doing today today in the second quarter you can see that we are basically earning more tmd for every dollar volume that comes in and react

reality is that these membership programs will allow us to accelerate the TMD continuously without having to add on more and more transactions, right? Because it really means that the consumer will be with us and we can build a deeper relationship with them as an everyday spending partner with them. So as such, over time, we see this as something that's going to be significant for us. And it's a key pillar of the strategy from a monetization of giving value back to the consumer.

Great. Thank you, Nicholas.

Your next question comes from Matthew O'Neill from Bank of America. Please go ahead.

Hi, Matthew. Yeah. Hi. Thanks so much. And congrats again, Nicholas. I was hoping I could follow up on the Apple upgrade program, particularly the accounting. We've had a number of questions around precisely how the devices will sort of impact, I guess, the financial statements. So, can you just give us an idea about if If the leases will be originated on balance sheet, held at amortized cost, or will they follow the new forward flow treatment? And then on the back end of the term, you know, who will effectively hold the residual value risk on the Apple, et cetera? If you just, you know, help us understand a little bit more about how this should, you know, impact things as it grows into the book. Thanks so much.

Great, sure. So, in very simple terms, is that this is really treated as a financing receivable for us, right? And that is practically what it is. So, it's no different to how we treat the fair financing point-of-sale installment product that we have today from a perspective of accounting. We will fair value the asset when we bring it on our book. We have the optionality to offload it, and we will look at those things opportunistically based on the economics of it. And that's really the kind of extent of what I can talk about from a commercial agreement. But ultimately, the receivable is a financing receivable.

Okay, understood. And I guess we'll sort of wait to understand more as it comes, but with respect to the residual value.

Yeah, again, as I said, if it's a financing receivable, I carry the receivable of the loan in my book.

Okay, perfect. Thank you so much. I'll jump back in.

Your next question comes from Harry Bartlett from Rothschild & Co. Redburn, please go ahead.

Hi, guys. Thanks for the question. I just wanted to touch on the competitive environment. Maybe you could just give us some color on what you're seeing in Europe and the U.S. And maybe just in the German market, do you think there's any intensification of competition there that's maybe causing any of the weakness, or is it just purely macro? Thank you.

Thank you. I can take that question. This is partially why we also introduced and presented to you the three business areas because I think in order to answer general questions on the competitive environment, Klana has the aspiration and ambition to offer products and services that are relevant for consumers and all of our consumer spend, right? Whether it comes from everyday spend, debit type of purchases, or it's the short-term buy now, pay later, or the big ticket items. When we established ourselves in the US, we were particularly focused on first establishing us within the buy now, pay later lifestyle spend segment, sorry, area, because it gives us a unique opportunity to grow relationship with now over 30 million users while at the same point of time issuing very small credit where the average credit is $100. And then as we have established that relationship with those consumers and see their credit history, that's when we have more recently expanded into the big ticket spend. And there we are, you know, partially as we've described on earlier earnings calls, it was almost a surprise to us how well received that product was by merchants and the adoption rate and interest for merchants. So we've seen a strong scale in that. And if, as you know, it's this quarter growing 84%, where U.S. is contributing a lot to that. So I think from a competitor perspective, I would argue that when it comes to lifestyle spend, the traditional buying appellator or paying for, mostly known in the U.S., we are clearly dominant and the largest player in that market in the U.S. and seeing healthy growth in that segment. In big ticket spend, we are more newer in that, but have seen a fantastic adoption rate. And we previously announced Walmart, now we're announcing Apple. So we're seeing lots of great progress there. When it comes to the European competitive space, I would argue that Klana, thanks to its global presence and the fact that we're active in so many markets, is actually creating a significant competitive advantage because any local player or anyone that is in any of those markets, both we have the distribution of our partnerships, our PSPs, as previously like we announced here, JPMorgan Chase or Stripe and others before that. And we have obviously the brand awareness and the consumer awareness with millions and millions of users in those markets. So there's no real change in that regards. Rather, what we have said here about Germany is that we are seeing a softer than expected consumer sentiment in that market. Yep.

Got it. Very helpful. Thank you.

Your next question comes from Kyle Peterson from Needham. Please go ahead.

Thank you for taking the question. I just wanted to touch on the guide a little bit. So I appreciate all the color you guys gave on Germany in particular and the trends you guys are seeing there. So I guess my question would be, have you guys seen any volume curtailments in any other European or surrounding countries, you know, either in the second quarter? And I guess what does the guidance assume in terms of transaction trends in some of these other European markets that are, you know, kind of surrounding Germany?

Hi, thank you. So, generally speaking, Germany is more pronounced. We have seen some softness here and there in pockets, but we run in 26 markets. And I'd note that it is a varied picture, right? If you take the Nordics as an example I mentioned before, we're getting double teen growth rates as we've expanded the fair financing and the card rollout there. And that's off the back of a market where we've been for a very long time and have a lot of share wallet already. So I think there's a – generally speaking, there's good growth in southern Europe. There is a little bit of certain countries that might be growing a little bit slower than what we had expected. Ultimately, the larger point is here in Germany and why we're calling it out. From a consumer sentiment perspective, we're seeing that discussion is been adjust. But ultimately, you know, very good growth where we're seeing us expanding to more products and features and more partnerships.

Got it. Thank you very much.

Your next question comes from Thomas Nielsen from Nordia. Please go ahead.

Thanks for taking my question. And Q2 showed significant operating leverage with transaction margin dollars growing 42% against much slower cost growth. So looking ahead, if transaction modules can grow at 20% plus, when do you see Klarna being able to achieve a double digit or mid-teens adjusted operating margin when in time, would you say?

So if you look at it, you're right, like we're growing really strongly. If you look at it overarchingly for the full year, we're growing our transaction margin dollars at around about 32% and our adjusted operating optics by about 15%. We're seeing very strong growth in the US as we see here both on the volume side, the revenue side, but that's really translating into an accelerated growth in our transaction margin dollars as well. Transaction margin dollars as a percentage of revenue went from 14% to about 23% and we're expecting to see growth in that through the quarters as well on a sequential basis. On that basis, we don't guide to a specific date, but I think we have the right traction in transaction margin dollars, the key metric that we're really focused on, both in the US, but also in global ex-US, particularly in Europe, where you're seeing an expansion in that transaction margin dollar over time. So one should really look at a seasonal business that on a whole will fluctuate some quarters to quarters, but the overarching trend is moving in the direction that we have. And we have a long-term target of a 50% transaction margin dollars and 25% adjusted operating income. So we'll continue to move towards that direction, but we won't put a particular quarter to it.

Okay, thank you.

Your next question comes from Moshe Orenbeck from TD Callen. Please go ahead.

I agree. Thanks. I was hoping to talk just a little bit about fair financing. You mentioned the growth in merchants and wondering whether that's going to continue. And is there interaction with respect to the card? I assume the card has a higher than average kind of mix of fair financing. Could you talk about those two and its impact on the fair financing share of your total volume over time?

Sure, I will start and hand over the second part to Nicholas. What we're seeing is that part of our global Klana default distribution with our partnerships with PSPs is to make sure that every merchant that offers Klana does not only offer one of our payment products but all of them. And this has been a major focus of ours, which is partially what has It's driven the growth of number of merchants accepting. So you can still see that out of the over a million merchants that accept Klana, we are now at about 250,000 offering fair financing. So there's still additional potential there to grow to make sure all of them offer all payment products. But obviously, they may also, some of them, be in categories where there will be less spend in the size of $500 and above. So that is basically how it works. Now, with the card, we think about the card as like people love using Klarna online. They have, however, not had the opportunity to fully use Klarna offline. And so the card in a way is just a vehicle to bring these debit, the paying for opportunity, as well as the big ticket spend or fair financing products into the everyday purchases in the physical world. And so basically the same payment methods are available, but now through the utilization of a card in those stores. And this is the DebitFlex card that we've launched and seen great growth with, which we're very excited about. The rest I will hand over to you, Niklas.

Sure, thank you. Yes, I think just to add a little bit more color on the numbers there, right? It really depends on the maturity of the market right now, what we're seeing. So, you know, in Sweden, where there is, you know, deep penetration and usage of Klarna, you're seeing very much, you know, more growth in the painful pair of the product as people use it for everyday spending, right? What you're seeing in some of the less mature markets, but are also, that is growing, is really that they act exactly like with the card as they do online and with the merchant rights. So you're seeing much more of an equal split. So, you know, the card is not changing as significantly the types of payments that we're making. But we're seeing that improving, right? So you'll see, for example, the U.S. paying full, albeit on a very low base, is growing significantly faster now, which is this proof that the more we engage with consumers with this product, the more they're using more of the types of spending products that we can support them with. Great. Thank you.

Your next question comes from Giuliano Bologna from Compass Point. Please go ahead.

Good morning. Just checking up on the Apple partnership, I realize that you've already answered a handful of questions around that, but it seems like the type of program that has the potential to be relatively large over time and you have a little more duration on those assets, When you think about the funding strategy for that, do you think you'd plan on continuing to focus on trying to offload a lot of those off-balance sheets just because there's a lot of potential that could create a lot of balance sheet growth and capital consumption over time?

So, look, we plan our capital for the long term, right? And we have the optionalities of all the tools in our toolkit. We will offload if we think that the economics makes sense with regards to the Apple leasing product, right? But ultimately, we look at this as a portfolio as a whole. And as such, we don't see it as one or the other, but rather we give ourselves the optionalities and then we see what makes most sense in the market.

Yeah, that's awful. And then maybe think about just the current balance sheet composition. And I noticed there's been a takedown in your deposit funding. I'm curious if that's something that's intentional with the balance sheet composition and pulling down assets, or is that something, you know, is there a different trend or seasonality that's impacting that?

So, yes, so it's going to be seasonality, right? So our savings deposits are basically what consumers come and bring with us. We will alternate our rates depending on the needs as well. and you will always see a cycle in the first half where you have a little bit slowdown in the growth of deposits and then you see it accelerating towards the peak season. That's generally the modus operandi.

That's very helpful. I appreciate the time. I'll jump back in the queue.

And your final question comes from Lamar Clark from Freedom Capital Markets. Please go ahead.

Hey, guys. Thanks for taking the question. On the guidance revision, you pointed to a more measured view of German volumes and flags softening towards the back end of Q2. I wanted to press on the quarter-to-date picture. Can you characterize what you're seeing in Germany so far in Q3? Has the deceleration you saw exiting June stabilized, continued at that pace, or stepped on further in July and into August? Thank you.

Sure. Generally speaking, we're seeing roughly the same kind of downward trend, right, which is what we've included in the guide, right, hence why we're seeing this. So that's basically where we're at. So the guide really reflects the actuals there. I think the key thing to remember in all of this here, right, is obviously, you know, if you look at transactions and volume is one key driver for Klarna, right? But as we're expanding our feature set and as we are, you know, generating various ways to support our customers and both our consumers and partners, we're actually now starting to generate more and more transaction margin dollars on every dollar of volume, right? And I think that's the key takeaway here, that, you know, depending on fluctuations on transactions is obviously something that we will always live with. But the fact is that we're starting to monetize our consumers on a deeper basis and with a deeper engagement. And that's really what the second quarter shows.

Thank you. That was our final question for today. Thank you all for joining Klarna's second quarter 2026 earnings call. This concludes today's presentation. You may now log off and we hope you have a wonderful rest of your day.