Thank you very much for joining us here at the Morgan Stanley TMT Conference. 2026 obviously has been a great event. Continuing with that, we're very pleased this morning to have Klarna and their senior management joining us. Before we get started with Sebastian and Niclas, CEO and CFO of the company respectively, I do have an important disclosure to read. Please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For those of you that don't know me, I'm James Faucette, Senior Fintech Analyst here at Morgan Stanley. Sebastian, Niclas, thank you very much. It's a long ways to come, but I'm sure all the investors are very excited to see you. Welcome. Happy to be here. Thank you. Thank you. Maybe Sebastian, we'll start with you. You've been running this business for a couple of decades, right? While it may have only come on people's radar, at least here in the U.S. recently, it's been a business that's been developing for quite a while. You've seen many cycles, you know the cost characteristics of entering and scaling new markets. What are some of the early learnings that you're having within the U.S. market, and how is your focus changing, if at all, with what you're learning from both during and after the IPO, kind of bridge the developments over the last year or so for us? Sure. Thank you. It's great to see everyone. Thank you for coming. I think that, you know, as you said, rightfully, I've been building this company for 20 years now, and it's taught me there's the one very consistent pattern, and that is whenever we enter a new market, the first years look expensive and the following years you look smart. I think if you look at it, we have about $500 billion worth of credit that we've underwritten in the history of the company, and we've done that at less than 70 basis points. The difference in the U.S., more, is actually the adoption rate. It's been quite tremendous to see the U.S. consumer adopt Klarna at a faster rate than we've seen any of the European markets. We're almost close to 30 million users here in the U.S. Wow. We're outgrowing competition. That is very exciting. Obviously, though, if you see those growth rates, it does come with you have to provision a little bit more upfront. That comes with some consequences from a P&L perspective. Generally speaking, according to plan and very excited about what we've seen here. I guess that's maybe one of the benefits of bringing a product like Klarna to the U.S., is that the U.S. consumer is already well apprised of credit, how to use credit, engage with credit, et c. Let's dig in a little bit as you kind of suggested, you know, very strong takeoff here in the U.S. and obviously I'll have you, Niclas, chime in where you see appropriate. Let's talk about the trade-off between near and long term. You know, I think this is probably the most topical investor focus area, which is your U.S. Fair Financing expansion. How would you describe that trade-off between near term profitability, and you alluded to it just a moment ago, given the upfront provisioning and cohort seasoning versus the long-term profitability as Fair Financing scales? First, I think it's important to understand that the business that we're building is spend centric more than lend centric. Okay To borrow a term that some people may be familiar with. What that means is that if you look at our book ratio, we turn around the book almost 12 times a year. Like, I think Amex is at seven, eight. Most of the kind of traditional credit card issuers are maybe at two or three. It's a very different business model. It's very focused on the charge card equivalent product of buy now, pay later, which is very similar to a charge card because it's a short-term fixed installment. You turn around the money. That's also very visible in our revenue composition, where more than about 56% of our revenue is coming from merchant fees and only slightly more than 20% is coming from net interest income. That ratio is actually even stronger than Amex. We are actually slightly higher on the merchant fee than they are as a revenue composition. Even though we're now, and I'll let you, Niclas, talk to the shorter-term implications, but I think that like the key thing is, even though we're seeing an acceleration in Fair Financing, which we're very happy about, and we have expanded that part of our business, it is still going to be a spend-centric business where the lending is a smaller piece and the merchant part of the business is a bigger piece. Great. No, I think that's a really good point. I think from your specific question there, James, I think there's three things that one has to be aware of. Number one is that this is a very deliberate approach that we're taking- Right? With regards to the expansion of Fair Financing. It's a very important part of it, because if you wanna be part of an everyday spending for your consumers, right? You must have a relevant payment product for every type of spending that they are looking to do, whether that be pay in full, the buy now pay later product, or the Fair Financing. We have very deliberately scaled the Fair Financing, both in Europe, but particularly in the U.S., over the last few quarters, right? Now, secondly, that comes with that upfront provisioning, and it's important to recognize that, yes, that's upfront provisioning, and as we continue to expand that growth, we then see profitability compounding over time. I think here it's really key. If you look at it, the transaction margin dollars for a Fair Financing product is about three times higher than that of a of a general portfolio, right? It is accretive to the portfolio over time, and it's an important element of what we're doing as we become an everyday spending partner, right? Finally, I'd say is that we have, you know, consistently been adopting more alternatives with regards to our balance sheet here. Obviously we are a bank. We leverage primarily our funding, deposit-based funding, but we are also now expanding into forward flows and such, and we did a number of those in the fourth quarter. To kind of support that deliberate growth that we have. Got it. Let's talk a little bit. I think, you know, and we can circle back to this, but, you know, I think once people start to get their heads around a little bit of what you're describing in terms of front-end loading versus deferred value creation, what operational levers can you pull, and maybe should you pull to reduce the near-term drag without sacrificing long-term value? For example, I'm thinking about underwriting mix, bearing duration, pricing, even the forward flow agreements. What are the key indicators you monitor to determine whether growth is too fast and, in particular, are you sensitive to the P&L impact? Especially from a quarter-to-quarter basis. Of course we are, right? I think the reality of this is that there's a couple of concepts I would point to, right? Number one is what is this type of asset? It is short-tenored, and it's low order value. That is a critical part of how we think about underwriting. Now, we've been doing, as Sebastian said, underwriting for the last 20 years, right? Our focus is very much on constantly assessing and evaluating through our underwriting process on a weekly basis, on a daily basis, how these cohorts are performing. If we see that there are things that need to be adjusted, then we make those adjustments real-time. That's something we've been doing for the last 20 years, and we continue to do with the Fair Financing product as well. The second piece, right? That's the first thing. We change our mix, our lengths, our tenors, et c, based on that underwriting that we continuously do. The second piece is the offloading, the securitization. You know, we have forward flows. We do back book sales, where we sell portions of the portfolio. But we also do things like synthetic securitizations in Europe, et c. We have what I call a full toolkit for us to be able to ensure that we can always optimize our funding to manage and balance that, with ensuring that we get good returns in the long term. Let's talk about comps and delinquencies, et c. Then I wanna circle back to the environment, particularly- As it relates to the consumer and funding. On comps versus delinquencies, for sure, one of the recurring questions we've gotten from investors is how to think about what you communicated in terms of a deceleration in revenue growth of Fair Financing in the back half of the year, and how much of that is really a change in the environment versus just what's tough comps and is there any impact from the early delinquency data you're seeing with the product. I guess what investors are concerned about, and maybe you can reassure us or at least provide clarity, is that there are some concerns that when concerns on credit when the delinquency curves of the U.S. Fair Financing in 2025, at least initially, looks steeper than they were in 2023, 2024. Talk us through, like, how the credit performance is and how that may be impacting the way you think about growth. Okay. On number one, let's be very clear, this is a math question rather than. Right. There is a concern or change in our credit view, right? The reality is that we have been growing our Fair Financing significantly to 2025. On an absolute basis. We will still continue to return over that period, over 2026 as well. It's just a question of the comps year-over-year from a percentage perspective. Not an absolute perspective. Then on your second point, I think that is an important point. When you look at it, our 60 days past due and our 30-day past due, on the 30 days past due, you can see that over time, our cohorts are normalizing for 2025 down towards that 2024 level, right? Okay. If you look at it, you know, further out, you can see that the charge-off ratios are very stable. Got it. If we pull back our focus a little bit just on that point, how would you summarize the consumer health, consumer strength, whether it be in the U.S. or in your other European markets right now? I think the consumer is holding up really well. We also see that repayment rates are stable. We see that spending patterns are consistent. All that looks very stable. It's also, again, important to recognize that who is using Klarna in the U.S. I always refer to this study of McKinsey in 2015 that identifying that there's a target group of self-aware avoiders. These are people who actually have slightly higher income levels than your low income levels. These are people who have tried a credit card. They didn't like the product. They felt that it was, you know, unfair. They found themselves with a revolving balance. They paid it all off. They prefer to use debit, but they like the ability to occasionally use a fixed -term installment. This audience is actually very financially conscious. They really care about it. I once listened to a customer of ours talking to her mom, and she was like, "Hey, do you use this buy now, pay later thing?" And the daughter said like, "But yes, mom, but you have a credit card, right? What's your outstanding balance? $5,000. What are you paying for it? 25% or 27%." You know, the daughter says, "Well, look, I'm using fixed term installments at 0% interest, and I'm paying my average outstanding balance with Klarna is $80. It's a huge difference. That's the audience that we're using, and that's an audience that's fared very well across macroeconomic cycles as well. Good. If that's kind of the credit. Look, I think it's probably worth saying this upfront, is that you know, others that you know, as they grow and especially change their portfolio mix and go to longer duration, you always see this, like the provisioning upfront versus the interest income or other income later. I think you know, what you're messaging around consumer is fairly consistent with what we've heard. Another concern that investors seem to have right now for sure is availability of capital or funding capital. Niclas, you mentioned the forward flow agreement, et cetera. What are you seeing in terms of those conversations and how are you feeling about your funding mix right now? We feel very good about it. Look, we have as a bank, we obviously have our deposit base, right? At the same time, we have over the last five years built out a very consistent set of tools, right? We have an investment-grade credit rating. We issue bonds, and we also do synthetic securitizations as well as these forward flows that we build out. We work with very strong, solid partners. That is really the optionality that we have, and which is very broad-based. I think that's an important point, especially on the deposits and other sources that you have. I know that within the market right now, there is some concern about like, are new agreements around portfolio gonna drive? I don't know. Doesn't seem like it. Doesn't look like that. You know, you have other sources of funding, including your own deposit base and you know- I mean, deposit is the big thing for us, and it's always been. We like it. It's stable. It's predictable. We also do primarily fixed-term deposits, so it's actually sticky 'cause it sits for 12 months. It's very, very long durations. We like to have fast duration on the loans. Average duration is 40-50 days. I say we turn around our balance sheet 12 times, and then we like long-term deposits. However, we've been exploring now faster, you know, doing these forward flows and so forth. Compared to some of our competitors, we have sold very little of our book historically. That is also why from accounting perspective, we book more upfront because when you sell it off, you can then also book all the revenue immediately, right? But we think this is a continuous balance between those two, but we're very happy that we're based in the bank license in Europe. The deposit base that we have because we know through the macroeconomic cycles that has been a strength. Got it. Let's talk about another big theme and Jensen Huang was alluding to this a little bit in his keynote presentation just before this, and that is agentic commerce. Where does BNPL fit within agentic commerce? I guess I'm wondering as shopping becomes more agentic-driven and the idea being agents and assistants comparing options, optimizing checkout, steering payment choice, where do you see BNPL fitting? Does it become a default financing layer or a merchant-funded conversion lever, you know, that drives agent behavior? Just help us think through where you think BNPL can fit in that new world. We have soon 1 million merchants at Klarna, right? The amazing thing is those merchants are trusted brands, whether it's a Sephora, Etsy, and eBay. That in itself creates almost a $0 CAC opportunity for us because consumers see there, they get presented with Klarna, they're, "Let's try it out. I like it. It looks interesting." We engage with those consumers. We grow, we increase their purchase frequency, and a lot of those consumers start seeing a lot of value in using Klarna, which grows preference. They wanna use us. They demand of the merchants that Klarna is available as a payment method. That feeds more merchants. It creates a nice flywheel effect. That has been core to this. In addition to that, what we realized, however, is if we wanna reach parity with Visa and Mastercard, we can't sign every merchant ourselves. Okay. What we've moved is from being an add-on with partners like Stripe into becoming a default standard. This is why we added in 2025 almost as many merchants as we had in total in 2021. Almost 300,000. That in itself again comes from the fact that, like, we have signed such standard default distribution deals with JPMorgan Chase, with Adyen, with Worldpay, with a number of these partners. The key thing for us is parity to be available at every checkout. The benefit you then have is it doesn't matter if an agentic commerce like OpenAI signs with Stripe or this and that. Klarna is out of the box. It's there. It's present just like Visa and Mastercard. In addition to that, obviously, we are talking directly. We made an announcement yesterday with Stripe for agentic commerce. We think about it in many layers. We have Apple Pay distributing us, Google Pay distributing us. That gives us availability. I don't know. If some of you may have noticed when you open Apple Pay today, you will see the Pay with Klarna button here, down here as well. Like, there's many layers in which we're present. Then in addition to that, the people who pick up our card also can use us everywhere. I think, it's obviously going to be interesting to see how this plays out. For us, it's just making sure that we're present everywhere where Visa and Mastercard is, and then make sure that the consumer has that preference for Klarna. Because buy now, pay later isn't more affordable credit. It's a better affordable credit than the traditional credit card. Go to any AI and ask, "Should you use Buy Now, Pay Later or credit cards for specific purchases?" It will tell you it's a healthier form of credit. Interesting. On this agreement or announcement with Stripe and enabling agentic commerce, how should we think about what the unit economics for agentic commerce may look like? Like, I know there's still a lot of room for that to move around, but how do you think about those? Are they similar to the existing structures? Are they better or worse? What do you think will drive that? You have to ask those companies that do that, and I think the answer is I still feel coming from a European background where Klarna competes in an interchange regulated environment....where debit costs 20 basis points and credit costs 40 basis points, and then looking at the U.S. where the average cost of payments is 200 basis points-250 basis points. I find this as a very lucrative and margin-rich market to operate within. You know, we see mostly opportunity from that perspective. Got it. I wanna move to kind of where I like to spend a lot of my time, and that's on strategy, growth, and product mix, right? I think, you know, addressing kinda these near-term investor questions is obviously really important, but it's really most important once we then start to look into the future, right? If we think about the next three to five years and imagining us in that timeframe, would you define Klarna at that point primarily as a payments network, a consumer bank, a commerce media platform, or something else altogether? What are the strategic choices that you're making today that will determine where we end up? Well, I think, you know, we are a global payments network, a financial services company. We let people pay the way they like, whether it's pay the full amount, the buy now, pay later sort of credit charge card equivalent or the longer-term financing. We protect consumers from fraud, hidden fees, the debt traps of traditional credit, and occasionally we help them shop smarter, find the right price, et c. That's kinda what we do. When we evaluate what we want to offer to those consumers, we think about it primarily from, well, two questions needs to be answered. Like, one, is it adding value to our merchants or our consumers in the sense of like, is this services that they will enjoy and help them in their day-to-day lives?. That is associated with what we do? The second thing is we wanna rely on the network. I mean, a tremendous, fantastic thing about Klarna is how we've been able to acquire 120 million users at almost $0 CAC. Any services that we additionally want to provide should not require a separate go-to-market strategy, but should rely on the network effects. If those two criteria are met, we're happy to pursue them. I think that I understand sometimes people wonder like, which box should we put you in? I think. You know, people say the same about Amex, right? Is it a lifestyle company? Is it a payments company? It's a bank. It's actually has a bank license. You see kind of. Some companies gets a little bit harder to define. We wanna be spend centric. We don't wanna be a lend- centric company. That's not our primary. We want to rely on merchant fees, and we want to provide value on both consumers and merchants. I guess that takes me into my second question, and I think you largely have addressed it, but for sake of clarity, let's specifically address like what do you want then the long run profit engine to be? Is it, you know, is it a little bit of net interest plus credit, but really focused on merchant take rate and services with some subscription and banking with advertising and commerce media being additive to that? If it works out optimally for you, how would you split up the drivers of profitability? I think actually we're in a very healthy mix where we are. Okay. The membership is growing at a very, very healthy rate and looks very, very exciting. The merchant fee structure and the fact that that's more than 50% is where we would like to continue to be. The engine is always gonna be merchant- fees, and then that's just an add-on, similar to what it has been for Amex and some other companies as well. I think the mix we have today is very healthy. Got it. With the things that you've done, let's talk a little bit about product portfolio discipline and as you said, you know, you can be kind of a mix of all things and sometimes maybe hard to put in a box. Talk to us, Sebastian, about what the criteria is that you use to determine whether newer initiatives should be really gone after or disbanded or just ignored. I guess one of the questions that we often get is like, how does the team avoid spreading itself too thin? 'Cause there's always temptations to go do something else, particularly given the flexibility you guys have shown historically. I said the criteria we already mentioned is part of that. I would add maybe to that. Again, it's like does it add merchant value? Does it add consumer value? Can it be distributed on the same network and the same customers that we have? In addition to that, what has since 2022 become a very clear focus for us is to grow revenue per user. I think people may sometimes look at us and other companies and have a lot of focus on take rate. I don't think take rate is that relevant for Klarna. I think revenue per user. What I'm very proud to see is that the cohort of users that we used to earn $12 in revenue per user back in 2022, from the same cohort, we're now making over $50. Wow. Right? Yeah. In addition to that, when we bring new consumer cohorts on today, they used to start at around $12, now they start around $20. Why is that? It is because we have a payment method that is relevant for every type of purchase, not just high ticket purchasing, financing. We have something that's relevant for a DoorDash or for an Uber. We have debit payments. We have the charge card equivalent of buy now, pay later. In addition to that, we're in every vertical. People are not aware of that. We are huge in subscriptions. We're huge in other verticals that people don't necessarily today in the U.S. just yet associate it with us. If you look at our European business, that's the case. In addition to that, we have additional revenue lines from things like membership tiers, et cetera, that we're adding to the mix. That's the key thing for me. Some people ask us, well, but why isn't your average revenue per user gone up more? The truth is just because we've been accelerating our addition of new users that come in at slightly lower revenue per cohort still as they start off at that $20. That depresses it a little bit. We also integrated a company called Stocard that added 50 million users to our base. Where the revenue per user was very, very small. Now we're starting to add that. That's kind of depressed, you know, hasn't allowed the $30 to grow as much. If you look beneath it, you see very healthy trends, and that's very exciting. I wanna go back to one of the things, once again, in the interest of kind of trying to look over the horizon, go back to one of the things you said at the outset, Sebastian, and that is and talked about is the BNPL as sound financial decision-making tool for consumers, right? One of the things that we've seen pretty persistently, really since the beginning, but definitely that has become obvious over the last few years is the share gains. BNPL keeps gaining share, particularly within e-commerce, but increasingly within consumer credit and payment more broadly. What are the main structural drivers of that shift, and what how do you keep that growing rather than plateauing at some point in the near future? I think it's the recognition that consumers realize that when they use this product, they don't overextend themselves with $5,000 outstanding limits at 27% interest. The more consumers that try this and realize that they have healthier financial lives as a consequence of using that charge card equivalent that Buy Now, Pay Later is, the more of them tell their friends, and they share that story, and they find it superior to the traditional credit cards. I don't think it's harder than that, actually. Got it. Let's talk about TAM expansion. Once again, looking in the past or as we became aware of BNPL, it tended to be framed around purchases of retail goods. But you're pushing into higher ticket, more services-oriented categories. What has changed such that these categories are really now addressable, and what constraints, whether that be the risks, unit economics, trust, et c, are still most important to solve to really expand BNPL's availability? It came back to that idea. If we wanted to really reach parity with something like Visa and Mastercard in the long term. You wanna sign these deals with somebody, whether it's a JPMorgan Chase or a Stripe, to be the default and standard, you have to be relevant in many markets. People forget that, like, we have almost 10 million customers in Italy. We have 7, 8 million- Wow in France. You know, we have over 20 million in Germany. We have over 10 million in the U.K., and then U.S., our largest market now, almost 30 million. If you wanna be relevant for somebody like Stripe to be default, you have to be able to tell them, "Look, I have consumers across the world." You can onboard a merchant that sells to many markets, and it's relevant for them. That's number one, right? Number two is you have to have a payment method that's relevant to your point for a subscription. Like, not everything that, for example, goes on Stripe is retail, physical products, purchases, and most definitely not high ticket retail purchases. A lot of it is, you know, microservices, so gaming, subscriptions. You have to have payment methods that are relevant for the whole spectrum of things. Then you have to have a recognized brand with strong consumer preference, where these merchants are saying, "Look, I wanna have this thing," right? I think one of my most proudest wins of the last quarter was Lego, right? Like, if you have, like, Lego with their brand. If you can win Lego, and Lego wants to add Klarna to their website, that is, you know, a tremendous recognition. Now all you need is, like, the Klarna-branded Lego bricks to put in there, right? That's your next step. Let's talk about competition. How would you characterize the competitive environment today? Are you seeing more pressure on merchant pricing? That's always a big question that we get from investors. What about consumer incentives or even distribution access? Just help us understand how you're viewing the competitive environment today, especially vis-a-vis other alternatives, but I'm sure people are always keen to hear about vis-a-vis other BNPL providers. I think distribution is a very important moat. What I just said again about the being default and standard-... on these large platforms is definitely important. We also continue to win the largest merchants. We've seen eBay, Walmart, Lego, again, as I said. I think what merchants really want is they don't really stay loyal to a brand, they stay loyal to outcomes. I have some nice examples like H&M seeing 11% increase in conversion rate, eBay seeing three times the average order value that they're used to. SHEIN seeing a 25% reduction in customer acquisition costs. That has continued to be the case, and we continue to win these large contracts because of this. I think we're gonna just continue seeing that again as well because a lot of these large merchants are multinational brands with very many different categories. That was actually a big part of our whole Walmart discussion as well, was that we showcased to Walmart, like, how can you adopt like the way we do payments for, opticians for glasses may be different than what you should offer for your TV that you sell different from groceries. The ability to kind of adjust and have different variants of the product that are very relevant for a consumer shopping that thing is important. Got it. Let's talk a little bit about merchants on themselves and their decision-making. Have you seen changes in the way that merchants are deciding which BNPL offers to make available, how to position, et c? Especially since, you know, how much push do you see for multi-provider setups, changes in economics? Just trying to get a handle on what the merchants are doing, especially as BNPL continues to grow. Sometimes we're alone in the checkout. Okay. Sometimes we are side- by- side. What's most important to me is when we're side- by- side. I even know big brands in the U.S. that have three side- by- side. I know our share of checkout is the greatest. That's what matters to me because it's about consumer preference. Visa has been next to Mastercard, next to Amex forever. Like, these things, there will sometimes be more options. You go to Asia, you will see 40 payment methods. At the checkout. The point is the preference. If you can grow that preference, then you know, that's the most important thing. Got it. Less than 2 minutes left here. When we come back a year from now, what are the two metrics that you most want to have surprised the market? What are really the two internal or however many it is, internal initiatives to get there? What are the two things you want us most to be surprised about a year from now? If I look back at what we accomplished in 2019, people doubted whether we were gonna be big in the U.S. We are now the largest and growing the fastest. In 2021, we managed to turn around the company to plus when people doubted that. More recently, people asked about our growth, and we took it from 8% growth in Q1 towards 18%, 26%, and now 38%. Revenue, 38%. In Q4. Obviously, I think right now the main focus for now is profit. That's gonna be the main focus. Got it. Any last things that you think investors should keep in mind or where you feel like investors have misconceptions that need redirecting or even correcting? I don't think investors have misconceptions. There's always things that we can improve. Telling the story of the business and how amazing it is. I'm a big shareholder myself. I'm a big believer in the long-term opportunities. Love it so much. Sebastian, Niclas, thank you very much for joining us today. It's been really a real pleasure to have you here. Thank you so much.