Clear Secure (YOU) 8 Nov 232023 Q3 Earnings call transcript

Good morning, and welcome to CLEAR's Fiscal Third Quarter 2023 Conference Call.

We have with us today Caryn Seidman-Becker, Co-Founder, Chairman and Chief Executive Officer; and Ken Cornick, Co-Founder, President, Chief Financial Officer.

As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. letter. actual in differ file the SEC, today's cause statements from with could including included are company's shareholder that results materially to these the Factors reports on any The forward-looking during company call. obligation disclaims to this statements may be any that discussed update

this provided discuss GAAP items in recently letter the financial company today's and to non-GAAP filed will of on the of found section most on be These A shareholder can reconciliation GAAP the Form annual financial call, non-GAAP During Relations both measures. measures XX-Q. website. report is and Investor CLEAR's

With that, I'll over turn to Caryn. the call

Good morning.

by reflects The a continued CLEAR's even and quarter line capital. reflection growth, as to high strength, patterns returned seasonal our third grew drive norms. allocate strong XX% top to XX%, continued ability by pre-pandemic Revenues of margins incremental grew travel generate bookings and

important operating great and EBITDA bought Sora incremental flow cash XX% growth acquiring capabilities in strong margins margins. We yielded quarter KYC and positive the ID, team. a

In today repurchased XX% $X.XX, our from increased to special $X.XX since quarterly and shares addition, last X.X a dividend $X.XX dividend. we announced quarter, million

As we in investments end, believe, returning beginning, have the profitability, shareholders. and since cash to we and growth the said

repurchase X actually In excluding X%, our count shares is around the our years, outstanding. Importantly, program shrinks last down share our pre-IPO warrants.

CLEAR experience stride. only the have will airport. identity. Identity at and means identity which are Identity. digital both enables With NextGen at will on unified first we NextGen the standard, to primary not CLEAR's at-scale to and industry-leading we Lane the new excited set new are Identity, will airport, a only a We face, be by launching it biometric, be operationalize break standard, Not but NextGen designing a Led standardized to company the face an as you mobile

app. similar the soon expect or through addition, can and partner's in phone, a a lane whether on authentication their physically In experience members digitally,

on travel focused and the growth address in are We structural innovation volumes. to expansion

to a Travel drive mess has member experience. been and us onus is continue to on the

themes XXXX, One day. coming By more. key through will of another our million is be million travelers airports every X X there

NextGen Identity the Future enhance scale will help The and experience. and member Lane of

expanding with also are added capacity. our We footprint

quarter, and a Atlanta quarter. this to lane existing as will Minneapolis additional we the Chicago This and in lanes see expanded much-needed adding as we new in be quarters. lane well did in coming expansions like streamlining Expect

to airports, have period. we airports cost trial enrollment CLEAR provided domestically year, PreCheck continue CLEAR added the and in finally launch increases to RESERVE as X reduces year, and conversion, our partners. and for this experience, far we by this and Verified platform launch So both fraud improved customer key Plus soft TSA expect lowers X CLEAR internationally, milestones complete The we

are We outcomes, is important. Identity seeing moment, in this online Digital for which, online is both the trust economy incredibly improving how and

conversion is We for of our Sora acquired is Our profiles. LinkedIn badge this security, Growth for partnership and platform. There need badge by and and continuing the is partners. We a removing operational It alignment. lane. that digital compliant to is to to and LinkedIn In costs large innovation can economic in configurable functions. KYC financial and identity and streamlining Sora and we're connected build And in Canada an measuring important enhanced the fraud continue adding to verification on ensure ID the creating this digital in connectivity inefficient. cross We'll ensure are are we the power the a completed optimized product maximize future. world, services, expanded need and meaningful. to sometimes so both lower at focus to Not surprisingly, certain and matters easily and efficiencies for to through organizational industry are unmet functionally have to efficiency. friction outcomes teams returns fast line. agility in a we be while ensure KYC lower higher and corporate bottom October investments, significant added to and U.S., to top Recently, CLEAR, to engineering, and continues always we flow Mexico. today bottom this layers member quarter, to We across drive capabilities momentum revenue

to who to the day Ken make discuss for our every fired I it of on is our us turn in happen Before behalf want of members. it and who team, thank financials, over up to I opportunities incredibly front

We excited across top expansion. line were I'm report operating margin our we Good through while had QX, grew our everyone take numbers. Not and morning, incremental leverage the everyone. meaningful we to positive did margins successfully only operating XX%, a the generating income, strong EBITDA demonstrating In quarter, board.

X This on of million $XXX million. free With ending liability cash quarter, large representing $X XX, settled our we the credit flow for this outflow, to our June year partner cash card contract negative around outflow. was accrued

last cash outflow Excluding flow year up XXX%. free this and year, the our was net

XX-month On up generated cash $XXX we of million XX% free year-over-year. flow, basis, a trailing

year-over-year. LTM million, Excluding deducting comp $XXX partnership, real flow expense, a the free XXX%. is capital working expense, up the cash benefit economic was $XX up million LTM normalized free net flow XXX% which cash After was from stock

released bonuses terms pipeline ID. great of payment targets. The we services, in which we engineers, an September, QX. think and which XX-Q the and which with morning, was accelerate details include acquisition the in can XXXX deal of revenue in exciting Sora consists $X.XX we this are acquisition of technology adds acquired The integration retention go-to-market of a on based and platform, Further cash available million strong founder-led in of revenue paid our the $X.XX earnouts financial million, upfront robust given brand. an In team resources

CLEAR Active members of year-over-year. were September as Plus X.X XX% million up XX,

patterns a in period back the travel to this September a of pre-COVID half return year a into summer back-to-school of As end Caryn with reacceleration mentioned, and October. slower we through saw

to quarter's net standard full-price benefited adds higher from as and This shift channels members. we carried mix family from a ARPU partner

impact we of the price our our increases partner through both channels we Additionally, took and positive year-to-date family saw channel. the

remains member XXs. at retention in the XX.X%, upper long-held settle that with consistent would expectations our strong retention Net

is a metric, As this It dollar revenues. of a not price on mix a the reminder, impact member-based reflect positive retention not metric. and does

QX reorganization-related Within the savings reorganization year-over-year as R&D, revenue. million to was basis, a there's benefit is comp related clean points a our of already reflected departures. a stock On from XXX from the $X.X down basis R&D R&D percent reversal of Most employee results. in

expenses which ID Sora of Clean In as compensation QX, quarter. acquisition. down revenue will last was the down the almost $XX.X million $XXX,XXX expense equity-related up bring back of this pre-IPO stock reversals. units XXX number basis deal related Normalized G&A was a includes This bit. points excludes from million, is year-over-year. to comp Sora and $XX.X G&A a percent performance

focus expenses. continue on have compensation stock to We sharp a

Given including shifted where organizational new streamlining compensation towards equity is savings, stock $XX mix yield of compensation. for from cash hires. annual efforts approximately million equity we've trading, the will Overall, the

will fully million of $X million in $X third reflects benefit approximately be and by million $X largely R&D realized of quarter split benefit, the in first approximately and G&A. The into a The G&A. XXXX balance of quarter total fall

in $X.X into million million expect we R&D onetime $X.X million falling severance cash expense QX, G&A. $X of and In

to expect the grow we and Additionally, Sora reflecting retention near-term R&D bonuses. compensation sequentially, team

multifactor to to account happen where our back the Identity simply we the NextGen with the ID. the and CLEAR directly work picture few well add end, frontier of years team. members next upgrade The This an airport, confirm process as source. will Much of process At the as from update data exciting upgrade authentication by the need issuing will many over months. occurs their the in of is new great culmination enrollment their

$XXX to million. We million $XXX PreCheck We bookings modest in included revenue guidance. and expect of $XXX of QX from million $XXX to contribution a our million

top locations we expect begin significant QX XXXX. we contributions and As in and line ramp more marketing,

year-over-year in free growth cash expect We flow QX.

With that, Q&A. let's go to

comes of [Operator first Sarang Vora Instructions] question Your Telsey. from

transformation we your And on as then data really sources? help the Telsey for ID but thing? end question on that ID, one as is transition from Can digital the of help a will help how you This Advisory over X.X-year us happen It the the need a then I first Group. color, have Department you are you expand at big standpoint. from next on X-year can provide CLEAR Can the NextGen NextGen period with us well Telsey a well. My a Dana like us for did Vora that Security ID. Homeland relationship you making seems some this like thing, time? Sarang it is follow-up here. you Is And one? back And authentic of how

Thanks for NextGen on the start the question. ID. We'll

It and digital identity is fidelity will physical initiative. the be experiences our members. at This right. you're for So a highest unlocks scale major and digital

So has a standards on Homeland of on implications side. because the a been think Travel since example both the XXXX. collaborating with and it's CLEAR the great Department CLEAR I partnership Verified them public-private Security And with this of we've these

from so directly And it is data the pulling source.

deeply authentication authenticated multifactor important piece example, initiative. a another ability potentially, is from to of the DMV, add the to data, with process so So our majorly for

also be The part so so then airports the So process. from to in breaking then from to face-first of you'll Ken few happen the of, phased great Lane experience. about, going really sort is of talk strides as make unlock the the for important Future, which customer upgrade you're and an to not this through experience XXXX is next it's over said, a let's it months and it connecting in see there, And an

multifactor at been the the very And is connecting authenticated look for, Sora have people connecting being I have to when to again, looking whether Identity you high face-first connected fidelity think in or information and use off-line, having and to you online health it or NextGen Identity, a able identity both financial at unlock care KYC lane. that services a experience and NextGen look to

of And in very to explaining process a process on see to the it's communications you'll process. back our lot out just near that's be And timing, members in airport. light-touch terms But so happens a going in and going to the the member talking future. in very and going the end, be

in New photos and, other IDs many in cases. confirming cases,

going It's and a future, to to touch. going a compressed light happen it's So be near in frame. it's going the to time in be fairly

we a secured That's like NextGen feel wait to great. I Can't need the one. try. like ID

quick it's question So great One coming. PreCheck. on I know one. on that TSA long been

TSA Can happy of rollout it's TSA the that help walk details you this PreCheck, on fee prepared a year. can you you rollout timing up if of details had or something, internally us might like that's help some that ready coming airports, of us plan, XQ? roll across So out for you have out through a PreCheck the in plan to some walk those like or

say guidance. to going time unfortunately first the is details. included on I I'm be will that limited So we've this in the

So you idea gives in our that timing some rollout. of the of the confidence

we really year this can't a it's rollout give the event. I So any schedule, are confident that details you on but

I members at there X:XX the or can night. ready or fired And make XX:XX all do frictionless incredibly if who with were to who born that, airports to We still enrollment up are X:XX here. right, in to at ambassadors or are at just open for to consumers at amazing morning help X add to our travelers this, day, we're there be

country thousands and pods XX We the across if hundreds, not have at of more coming. today airports

have excited. incredibly in already to born program. to place is of program, we TSA were TSA excited partnership this enjoying further travelers So and are a to with we the and this, are our do we're add it, help PreCheck we infrastructure Millions and today. great

next Reilly with Your comes from question Joshua Needham.

here execution on job quarter. Nice in the

timing? investments savings. terms You CLEAR in understand making maybe of make is guided Can on on $XX been related savings us announced these give help how the on versus to million the color you've the the cuts cost that some you of spend platform? what much And us to Plus decision

Sure.

that in really inefficient, really So about streamlining to really decisions -- profitability Growth is Caryn making mentioned bottom falls can drive faster. us ensure her operators the removing owner as are this the opener. the be organization, line, but line. And as top Josh, on the layers, onus is also to

an is and So can this something out across ferreting the is out ferreting on you inefficiencies, do to us this really bureaucracy, basis. expect ongoing board

focused really are driving revenue. costs on We while

a to is this So than the across more really specific board business line.

joined the you it. visibility down net do around you few member the then you've retention to changes discussed. I Got Delta of or churn of the reassessing? with? of that type of seeing it range maybe kind retention? that that And little SkyMiles family cohorts of is Maybe to retention. What higher seen have impact understand and there. now guess you previously quick bit now those price Was what who a questions the us help And customers or are some now customers a are post-COVID dynamics

Sure. from a business really visibility a Yes. incredible is Look, this perspective.

of have data We at years cohort years and retention. looking

you point COVID. we to we've wind we been of range out, would the saying As out coming are 'XX since where up

cohort, we the by product. at so retention the levels price. that we've that based right? we trailing even look the passion pre-COVID as stable, And this the the now and has cohort question, than metric your retention It's report, for brand really sort basis base. been to gross to look we higher speaks for on a actually increased passion And of entire when on cohort by the is When

we've with retention is been. demand so has very inelastic for a really where So CLEAR, and seen and happy we're

an quarters. right? remind been X actually metric past to is I a over give This metric. the would surprise And doesn't that member-based of you It's the this upside price the increases, X benefit also

impact to the revenues the this actually from on doesn't So speak pricing.

with comes next Goldman Ben question from Your Miller Sachs.

partnership. a about around international, building with out some and think international feed markets RESERVE or these different you've LinkedIn internationally you brand relationships that regulators? like of on rolled how international and into few broader curious and opportunity offerings the now how the in offerings the airports Just potentially I'm

or phenomenon. From challenged travel perspective, a question. the the being global for thanks a aviation is So an travel

lanes on the so pay-per-use great different RESERVE and is predictability ways get And there's start. it. there's also that opportunities the think RESERVE. a And People for want we to launching many

from response Italy. for So strong We we in Germany RESERVE are countries seeing very launched a just Heathrow. to

And it so see not together ways with tie to only CLEAR Plus. that, but we

lane it both as will, your think golden on so opportunities, out your trip. potentially, if of fast and ticket, on that way you And a there's return

lot gate our may right? job it's a there's possible. biometric, that them of deliver opportunities not to or think from easier and home the way be safer and want I So may internationally, to in which People to it best experiences

countries. more and LinkedIn we those those can Verified, those serve build able ecosystems a perspective, start customers in launching But we to doing to are that and as CLEAR need so From Mexico and digital partners. Canada in global, be also means marketplaces we're to

in an privacy up infrastructure a we international, won't you So countries. set from are all for it perspective. And perspective and us see from

think And but partners, I pretty to we're or an going be Linkedin. we're be selective, airline partner our follow right? our partners could could our

then year? the behind just precheck. guess, margin know next about you. think the incremental that more are And talked given way details should investments about I lot but upfront I you limited, any through are or frame a of build, path Ken, How on to

Yes.

So X directionally, we've with in this been for several investing program years revenue.

So incremental be margins should high.

here. Upside from ] [

Yes.

be revenues net recognizing to a We are going the basis. on

while in that the fairly And we very, speaking, our airports. at think to locations we incremental enroll certain might So PreCheck, be from a have high. generally margins across will perspective, there large in some infrastructure gross staffing that XX very country be

existing will a in so there absorbed we see But for be been of place lot our although be And tech of incremental infrastructure, years. infrastructure labor several pockets in the has opportunities. will the where

JPMorgan. comes Carpenter with question from next Your Cory

Sora plans ID see I integration, you more a services? on the wanted financial expand just opportunity that broadly bit could then the if your to for ask you and in

Sure.

and up impactful. So say, the is, driven. to addressable opens that but say, most us. And I I market and Sora the acquisition would for financial small, It market identity today it's very is, services would developed largest regulatorily

will service go light will us lift, financial next in it months, platform, integrating our to Sora's allow And the pipeline we've which technology integrated have up market. were services. in We few to is to a So basically fairly now. until into already that pipeline unable

is unlock And us. big a so this really for

new onboarding friction is identity, solution KYC you is perspective, I for in and both the right? the upside real as significant conversion. reusable from And And identity remove network there's sort fraud significant a need off an well. big a financial can a your a of drop perfect increase would There's there's within to client financial services when if industry, problem but obviously, this services, say

and within with so base infrastructure brand CLEAR bringing strategy combination. existing CLEAR this financial really, services, and the go-to-market the think member And powerful network a is our having we really

I can If add just to that.

capabilities. think were Sora's partner their only dashboard we but team, I impressed by not strong

capabilities a base a powerful marrying partners. both lot with focus those economically would marrying financial efficient of it an and of creates And end, front at similarities health travel, on user back lot identity here both large from experience. there's CLEAR, then care, so identity we have And customer just environment, obsession also say, between urgency, industries, our NextGen our on importantly, a the capability also of incredibly on end plus and structural capabilities, a already and regulated focus I sense because Sora's focus our but today there's for focus makes services. which a

And PreCheck very off leveraging and new launching these a streamlined we about, talked products spots. our are cost our health so think I exciting sweet a is both structure. moment, capabilities And but care, that expanding like travel Sora, this

track driving industries, customer outcomes. in a regulated record experience and have We long

services. there so to a is connection And both natural care financial health and

Clear for kind frame just or NextGen the or steps before of much need follow-up you're of the of lanes that could speed this What out rolling have now a Lane is you And way the potentially to CLEAR Identity. Future how launching on are over check-in there time? any technologies just you And NextGen next some the process The Identity? up

capabilities rolling out. the them and we be we'll So have today,

scalable are need math to it's And we excited our to in into we're rate. know ] to today. we're first member experience when are lane, about where think which that the TSA's faster [ Travels to incredibly seamlessly very face and that materially and really forward integrating at-scale it customers think grow. when But be and stride think I from see the important might in an way. you breaking not We going new continue about. You continue you about to focused hardware some on drive volumes should hardware

integration on the seamless right? us of not deploy is face So TSA into onus hardware. this fingerprint from digital and breaking technology, So eyes kind stride, to

face and while Identity in NextGen say scalable so kind more XXXX, we I it's an well that. the going And grow the you everyday coming as second, of faster theme because what can exact is around can't from And give back for I are to unlock expect is materially X here to which million our volumes corner. as

question Stifel. from next comes Kelley Mark with Your

X have I quick ones.

have Just you're fewer running ambassadors kind NextGen get that Or right does does and I'm the be, scale fewer completely of Identity, terminal? the an assuming you about given at way to whatever need fast maybe per the the of give process up will and think to there, maybe airports? those guess, opportunity you how that? I that what's whole at folks on

highly there's ownership, then that not just will just quickly be second, when happens acquisition. it next is go of your that the process to industry in And you on months. the have But by regulated, in you or Ken, requalification maybe industry? a through saying change ID couple that a is like of And do this something given answered your integrated Sora

to anything and no system one compliant. Caryn. be No, first there's The or Sora and put issue licensing that I control nature. change would will of of with take the

is that's system as long compliant, And as all matters. that so the

they many day. airport. at terms enrollment, by job unbelievable new and an an just And adding enrollment at of But unbelievable they're let's many and job our automation, see start doing things, we capabilities, every awesome, more different are are saying doing products in ambassadors the

that more we for intend airline so our of with That could serve and members continue uses around they're members, post we that Lane they the navigate just And drive And abruptly, be enrollment. airports better our higher CLEAR automation to not That can could services we believe That be divestment. start help for ambassadors the Lane. could Future. and where airport partners. to be our helping new TDC where

So ambassadors to continue we members. see opportunities to serve for our

floor gotten experts. some about the team checkout have members retailers the on I and who rid of their think as serving really out have customers lane

and that and think have ambassadors to as there's opportunities margin the as sense? I well and Does I and make automation, So there's for from partners, us serving good use best members automation highest our would drive say hospitality.

color. I Yes, does that appreciate the

comes Your Fargo. with from Unger next question David Wells

here, you're rates as think about I not internally I'm curious travel should Ken, guidance we giving normalized just prelim know but how bookings 'XX growth normalizes?

Yes.

had if say you're ups giving out will at you not the So correct. We're our of QX because at and always we obviously, look look guidance. COVID, I guidance, 'XX CAGR downs. coming you

with been And maintaining at above TSA PreCheck is so QX and XX% will. our XX%, CAGR line little you top even that has CAGR still very that's consistently if or and contribution,

continue growth So we opportunity have Verified out gain Plus feel we going the be We're giving provided to side. well traction enrollment rolling on CLEAR continuing and but penetration. our good as by not guidance prospects. to CLEAR a we the drive of lot We're PreCheck, as to TSA about rates, to to think

growth partner right, will, modeling our think and I many public... opportunity, there's product there's we of if think went would opportunity, when as airports, vintage, there's network growth growth and network when I in and still product it partners, you opportunity

are airports under years our of One X now. actually old right

Right.

XX from to which penetration years for newer that's we've So city. an and to really Clear cities differs which is gaining of PreCheck Verified, much been before traction. in And a before Denver, L.A.

exciting. it's So

of year. dig in it position for flow cash And last I year-over-year for up then it sheet. and wanted the XQ, XQ, in share meaningful to like that, you're obviously, in Okay. you've into given Ken, stepping balance That's terms a in buyback. was potential The of growth just free kind the great. guided

flow cash So and any color you buyback shareholders? give could returned free to share there on

Yes.

That's going our So continue to to look, capital allocation be philosophy. opportunistic. we're

We've dividends. increased our do special quarterly us seen dividend. You've

shares. We already date. some We repurchased quarter this to repurchased have

we going We increased to And to million. $XX drive it increased $XXX we're obviously authorization, we still return had shareholders. continue so opportunistic million. -- to our some capital now And to

to deploy So see to various capital us to you continue methods return shareholders. will

this closing there to back remarks. over call for I'd like to no further are Caryn turn time, At questions. the any

am you of is CLEAR we're Thank team our really I quarter the the our our call. products how joining team executing, of is proud for third and how proud XXXX growing and earnings how partners. CLEAR executing

and us you've identity travel in say As heard seeing and now, here lot, It you're a is foundational. that is and beyond.

So thank you for your time today.

This call. concludes earnings today's

may your You your time. lines this disconnect at participation. you Thank for