Clear Secure, Inc. Q3 FY2024 earnings call

Key Points

• Focused on improving member experience, scaling TSA PreCheck, and scaling CLEAR Verified.
• Begun rolling out face-first EnVe hardware with strong early results, making verification three times faster with fewer steps.
• Ambassador Assist live in three airports with Orlando launching today. Introduced four new CLEAR Perks since the second quarter with strong engagement.
• TSA PreCheck enrollment provided by CLEAR is live in 52 airports and 10 Staples locations, with revenue doubling quarter-over-quarter.
• Implemented a new ambassador compensation structure increasing base wages while reducing commissions, expected to be dollar neutral but outcome accretive.
• 2024 free cash flow expected at least $280 million, up 40% year-over-year, with Q4 revenue expected $202M to $204M and total bookings $224M to $226M.

Total cumulative enrollments are over 27 million, up 2.2 million in the quarter. Active CLEAR Plus members grew by 55,000 in the quarter. TSA PreCheck provided by CLEAR is scaling with 52 airports and 10 Staples locations, with revenue doubling quarter-over-quarter. CLEAR Verified partnerships like Uber are contributing to growth. Revenue contribution from different segments is not explicitly broken down by percentage, but key segments include CLEAR Plus, TSA PreCheck, and CLEAR Verified, with each showing growth in enrollments, revenue, and market expansion.

Forward-Looking Statements

• Q4 revenue expected to be between $202 million and $204 million.
• Q4 total bookings expected to be between $224 million and $226 million.
• 2024 free cash flow expected to be at least $280 million, up 40% year-over-year.
• Regular quarterly dividend increased by 25% to $0.125.
• Expect Q4 net adds to be up sequentially from Q3.

Q: How do we think about the impact of the price increases that took effect August 1st and the rolling impact of the family price increase on key metrics like net member adds and net retention?

A: Ken Cornick stated they're pleased with pricing performance, focused on dollar retention up 100 basis points year-over-year, modest impact on net adds with Q3 typically down sequentially from Q2 and Q4 expected up sequentially. Modest impact on family gross additions and retention, but see continued member growth opportunities with MSA penetration less than half in top five markets.

Q: Can you just discuss the Uber partnership, including commercial relationship and potential impact on cumulative enrollments?

A: Caryn Seidman-Becker said Uber partnership is great for trust and safety, with potential for growth, as CLEAR members verifying have great experiences and signals are positive for all stakeholders.

Q: Should investors expect a more regular way cadence of annual price increases over the next few years or will it continue to be more tactical on a tier channel basis?

A: Caryn Seidman-Becker said they started with unscientific pricing, added network and value, and think pricing is part of ongoing strategy with opportunities to stratify and create different tiers. Ken Cornick mentioned focusing on delivering incremental value through Perks and enhancing member experience first, but opportunities to tier may arise as offerings become more robust.

Q: For TSA PreCheck expansion, can you talk about priorities for increasing geography footprint and out-of-airport expansion?

A: Caryn Seidman-Becker said PreCheck is gaining momentum with metrics doubling sequentially, revenue doubling quarter-over-quarter. Plan to scale out-of-airport locations, launch Oculus in New York, end year with over 75 total locations, and expand airport footprint with TSA PreCheck, including other locations beyond Staples.

Q: How fast can you roll out the improved airport experience hardware across 58 airports?

A: Caryn Seidman-Becker said EnVe's are rolling out, three times faster than existing experiences, with handhelds 55%-60% through digital identity integration, expecting to close to 90% by end of year, and EnVe's rolling out end of this year and beginning of next year.

Q: On the tiered membership, is there a thought of tiered membership over-time rather than price increases?

A: Ken Cornick said they've thought about it, currently focused on delivering incremental value through Perks and enhancing member experience, but opportunities to tier may exist as offerings become more robust; Ambassador Assist is a paid CLEAR Perk part of the Perk platform for CLEAR Plus members.

Q: Can you remind us how pricing changes impact commercial agreements like with American Express and color on OpEx moving pieces with ambassador pay?

A: Ken Cornick said OpEx moving pieces: shift from sales and marketing commissions to base wage over next couple quarters, complete by Q2. Pricing impact on American Express doesn't impact parent pricing contract, but benefits from family pricing.

Q: On ranking potential timeline of contribution from product and partner announcements and framework for core CLEAR Plus growth vs incremental growth from newer areas?

A: Caryn Seidman-Becker said direct partnerships contributed this year, channel partnerships will contribute next year. CLEAR Plus growth has volume and pricing growth, PreCheck continuing to increase contribution, Perks and Ambassador Assist as new products within travel. Ken Cornick added they've planted seeds over past two years, seeing continued pricing benefit on CLEAR Plus, opportunities to grow CLEAR Plus members, and streamlined cost structure for growth in 2025.

Q: On active member and retention metrics, impact split between seasonality and price increase, and holiday travel season outlook?

A: Ken Cornick said Q3 typically slower than Q2 seasonally, had small modest impact on member retention from family, Q4 expected up sequentially from Q3, and sees a fairly strong supportive travel environment.