Q3 2021 Clear Secure Inc Earnings Call

Good morning, and welcome to the clear Q3, 2021 earnings conference call, we have with US here miscarriage Seidman Becker co founder Chairman and Chief Executive Officer, Ken Cornick, Co founder President and Chief Financial Officer. Please be advised that today's conference is being recorded.

Also like to remind you that today's discussion will contain forward looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections and our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion reconciliations to the most direct.

Comparable GAAP financial measures can be found in today's 8-K with that I'll turn the call over to Karen segment Becker co founder Chairman and Chief Executive Officer of clear Gary.

Good morning, and thank you for joining us. This morning, we released the shareholder letter along with our third quarter earnings on our website I hope you've all had the chance to review them, we'll make some brief comments and then we'll get right into Q&A. During this quarter, we've seen the emergence of new and important trends as businesses and much of the world.

Can you to reopen consumers have a new set of expectations post lockdown, they're demanding faster and easier experiences or what we had clear call friction less people are now used to having almost everything available at the push of a button whether it is the seamless and safe airport experiences are helping people return to their office with health Paas.

Our products and services help partners not only meet the expectations of the new convenience economy, but provide a better and safer experience for their customers.

The clear secure identity platform has been creating frictionless experiences for over a decade, and we are well positioned.

It is the dawning of a new era in travel as we said all year, we are bullish on People's desire to travel and we saw this manifest just last Monday, when our borders reopened to a flood of international travelers. While some are still waiting for the return of business travel and argue business travel is undergoing fundamental evolution.

Away from the old standard business trip towards something more flexible today, we have seen the rise of the digital nomad people untether to any specific work location, which is now they'll come in at the term is officially included in Webster's Dictionary, while the traditional version of business travel Road Warriors has not yet fully returned digital.

Nomads are leveraging their newfound flexibility and taking to the skies.

Health Paas and our digital vaccine cards have helped empower users with greater access to and control of their health information and help businesses of all sizes to keep their doors open and come back better from packed stadiums at Raiders games to traveling to Hawaii without quarantine to local restaurants, with Rosie and open table millions of people have used.

Health path to securely and easily connect identity and proof of vaccination not only our consumers and partners choosing our trusted brand and product, but cities such as L. A Seattle, San Francisco and New York have all recognized clear as an accepted solution for vaccine validation from digital no math to the convenience economy in there.

Rapid return to travel clear is delivering safer frictionless and predictable experiences that people want and need now more than ever now over to Kent.

Aaron Good morning, everyone, our revenue and bookings exceeded our guidance driven by strong growth in clear plus and over 100, New BTB partners signed in the quarter as Karen noted, we're seeing a strong return to travel approximately 40% of our markets have verification levels above 2019 levels and 60% of our markets have higher.

<unk> compared to 2019, we.

We expect travel to continue ramping as we head into the holiday season, starting this coming week with Thanksgiving Triple H 2021 Thanksgiving travel forecast noted that $53 4 million people plan to travel this Thanksgiving up 13% versus 2020 and within 5% of 2019.

During the IPO Roadshow, Karen and I highlighted our focus on bookings and cash flow metrics, which is how we've always run the business in Q3, we generated strong free cash flow of $28 $1 million highlighting that we can show both strong top line growth and cash flow generation. This was due to our strong bookings performance high Incrementals.

Margins in the successful launch of the American Express partnership, which has positive cash flow dynamics. As a reminder, when we were growing our GAAP metrics tend to understate the underlying strength in our business. This quarter is a great example of this.

Before we go to Q&A I want to comment on Q4 guidance. We're seeing continued strength in both clear plus and the platform sides of the business. We expect GAAP revenues in the range of <unk> 77, and a half to $78 5 million and total bookings of $98 million to $102 million.

This guidance excludes any contribution from TSA pre check, which we now believe will launch in the first several months of 2022 will now go to Q&A.

Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset.

Before pressing star one one moment, please while we poll for questions.

Our first question today is coming from Paul Chung from Jpmorgan. Your line is now live.

Hi, Thanks for taking my questions and nice momentum in the business here. So first off can you expand on the Amex contribution you know what percent of bookings enrollments are kind of in the quarter and if you can remind us of the Tam of members and where we sit today on.

Penetration.

Where do you expect that number to go to in the near term and longer term.

Sure so.

So I'll answer a couple of ways. One is that we had a really strong launch starting on July one with the Amex partnership has exceeded our expectations.

And continues to remain strong.

The new growth and renewals of existing members that have the platinum card youll see in the Q. There is about a $17 million accrual. So as a reminder of how this partnership works is someone who joined clear or pay for clear with their platinum card and it's a statement credit so that gets <unk>.

<unk> to the to our member we collect the cash upfront and then we would accrue for what we owe back to American Express at the end of each contract here, which is June 30th.

So.

Best way I can answer is youll see a $17 million accrual, which was netted against our gross bookings.

Yeah.

Great.

And I'll take Okay, sorry go ahead.

No go ahead.

I was going to say I'll take the Tam part of the question. So what we talked about on the road show from a clear plus perspective, with 35 million travelers, who take five plus trips a year and then looking at pre check expanding to $90 million for two plus on the platform side of the business considering there's such a broad distribution network.

From people, who are going to restaurants, the sports stadiums. The offices, obviously, we think that's a disproportionate amount of the country and so when you look at the clear members that we had at the end of the quarter of $8 1 million members and that's the platform and clear plus we think these are very early days from a penetration perspective still left.

Then you know 5% penetrated.

Gotcha.

I think maybe you were asking specifically Paul on the under penetration of Amex.

We think we're somewhere between 10 and 15% penetrated.

Gotcha, and then as we think about the help paas enrollments and kind of upsell to clear paths.

What strategies are you doing to kind of convert those members.

Can you quantify kind of the actual number of conversions and.

No. If you could confirm the split between held passing and kind of clear pass in the quarter would be great.

So we're not going to break those out as we do look at it as a platform business I will say that the platform side of the business is that <unk> SaaS model, where enterprises are paying clear you are seeing some people naturally migrate over.

The brand is really resonating with them and they understand the experience and they are already on the platform.

So right now it's inorganic strategy, we're not actually <unk>.

Are suing marketing strategies to upgrade.

Gotcha and then last question just on free cash flow very nice you know record quarterly cash.

How should we be thinking about kind of seasonal dynamics there or is this more of a function of the star Wars amex contract or how should we be thinking about free cash as we exit the year move into fiscal year 'twenty, two and now with the IPO proceeds in pretty favorable free cash flow trends, what investments will kind of take priority over the next year.

Thank you.

Sure a lot of questions in there.

So from a cash flow perspective, I think important to note that we generated strong growth and free cash flow and certainly the American Express partnership contributed at the free cash flow, but it wasn't all of it. So we still would have generated free cash flow, even without the free cash flow dynamics of the Amex partnership.

So we should it's less about seasonality and more about.

Our gross bookings as we talk about there's a disconnect sometimes when we're in growth mode are GAAP metrics would understate the strong underlying dynamics of the business and so we do believe that we can generate growth and free cash flow on a go forward basis.

And as I mentioned, the American Express partnership will continue to have positive free cash flow dynamics in Q3 of next year, we would expect that to reverse for a quarter, but the underlying build will continue.

In terms of your question on investments and investments on the product on the mobile side of the product and there is that as you know as we talked about on the roadshow organic and inorganic opportunities to continue to accelerate the growth.

Great. Thank you so much.

Thank you. Our next question today is coming from Dana Telsey from Telsey Advisory Group. Your line is now live.

However, you want congratulations on the progress.

<unk> hundred new partnerships that occurred this quarter can you expand a little bit on those and what you see the runway for Bose what that translates into maybe what type going forward and then separately is there a regional trend in airport usage.

Which markets are now above 2019, how you're looking at the market progress.

Yeah.

So I'll start with your second question first.

We do see regional variability.

It's going to break out specific markets.

But as I mentioned, we have about 40% of the markets that are now above from a verification standpoint, but interestingly enough. We're outperforming on enrollment so even if our specific market is down versus 2019 from a volume perspective, we are executing well from a growth perspective and are able to convert.

A higher percentage of those travelers into clear members Dana I think it's safe to assume that those markets that might have higher percentage of international travel or historic business travel would be the ones that I have yet to come back fully and so we see that opportunity in front of us.

In terms of health path Youre seeing partnerships across a broad spectrum of industries. So partnerships like open table and ready as sort of a point to multi point right there.

Tens of thousands if not hundreds of thousands of restaurants on those platforms and so the adoption there has a long tail youre seeing it in music festivals and sporting events and a great customer experience in those customers our partners and their customers bring on other customers right and so again, we think these are.

Very early days as we go from epidemic to endemic to ensuring that businesses stay open.

And stay safe.

And then really look at the platform for long term frictionless experiences and once you have consumers fans customers on the platform. It really does create long term opportunities our optionality with these partners.

These are very early days and still domestic we obviously think that these are global issues.

And then just one follow up TSA pre check any any reason for the shift in timing.

Look we're seeing really encouraging trends in the business.

We're expecting a strong Q4, even without preacher, we're actively working in partnership with TSA to bring clears brand to the TSA pre check product as soon as possible I think everyones involved is motivated to bring this to the traveling public.

And in the meantime, we're preparing internally the launch with strength.

Thank you.

Thank you. Our next question today is coming from Michael <unk> from Wells Fargo. Your line is now live.

Good morning. This is David on drawn from Michael time, just one question for me can you guys talk about the progress you're seeing in terms of member acquisition metrics as it relates to the dynamics of the airport ambassador efficiency rate that we would say versus mobile sign up for this quarter. Thank you.

Sure I think if you look at our sales and marketing line Youll see some.

Really strong efficiency from a from a customer acquisition I remember acquisition standpoint. So we are extremely pleased with the performance of our field team, we talk about our over 500 ambassadors and our physical footprint, which really drives economic efficiency from a from a member acquisition standpoint, I think you saw that this <unk>.

<unk>.

You get a little more granular as people are returning to the airport I think the brand and our expanded footprint is resonating. So not only are you seeing ambassador efficiencies strength. You are also seeing training programs that we've put in place over the last year bear fruit youre seeing attach rates on the family side and Youre seeing.

Marketing channels that either people joined through our partner channels or learn more about clear and so it's really hard to separate all I think it works all together as a system, but it's a really economically efficient system.

Excellent detail. Thank you.

Thank you as a reminder, that star one to be placed in the question queue. Our next question today is coming from Brian Essex from Goldman Sachs. Your line is now live.

Hi, good morning, and thank you for taking the question.

Maybe Kevin if we could touch on the platform business as you see all these different partnership agreements come across and we know that theres been kind of a mixed shift last year from event management to help Paas I would imagine you're starting to see a greater mix of event management and then there was a potential with obviously the new integration.

As Rudy.

Enterprise access platforms, how do you view this platform business evolving given where the mix was historically given all the new initiatives. What do you think some of the primary drivers of growth are you going to be is it going to be primarily.

This management recovery or is it going to be enterprise assets I'm. Just wondering how you view the business and then a follow up after that.

Yeah, I wish I could give you a specific answer I think here's my foundational answer which is identity is foundational right and not digital I D, but secure identity and our platform not only comes with an embedded base of members. So what you saw at the end of the quarter was $8 1 million members.

Trust, our brand and could be automatically opted in.

If they choose to opt in but it very easy on boarding process to our partner, who use cases, and so youre seeing you know.

We've really talked about the flywheel in the IPO and Thats. What you are seeing come to life, which is an embedded base of members and use cases and functionality so whether it be.

Identity in the cloud identity on the handset space fingerprint is QR codes, we saw partners problem to make experiences safer and easier both online and in the physical world and so it is a unique moment because never has been need for secure identity.

Platform been greater identity drive trust identity dry our trusted identity drive better experiences and so it's hard to disaggregate. Because these are such early days and you're seeing as you pointed out right open table two laser like these are very different things to the raiders and it.

Really become foundational we're walking into restaurants here in New York City, and having to show who we are.

That did not happened two years ago. So.

Too early to say what will be the lead.

That.

This is a long term secular trend.

Got it that's helpful. Maybe tend to follow up on that how do you think about the unit economics for these deals as you're as you're developing all of these partnerships.

Is there a range of kind of unit economics or price per attendee or price per seat and if it were an enterprise agreement.

We can kind of wrap our heads around.

Maybe I'll just kind of leave it open ended in terms of.

How can we kind of understand.

What the unit economics to the model or as you signing agreements and disclose how many kind of incremental users are on the platform.

Yes, I mean like anything there is a range based on volume and type of agreement generally speaking.

These are.

Yes.

Annual agreements that are either upfront based on the number of members or based on variable usage from a unit economic standpoint, there is an upfront enrollment cost, which we which we've talked about and that upfront enrollment cost as one and done you enroll once and use everywhere and that's our philosophy.

Latam business and so the incremental margins are very very high once you onboard a member onto the platform. Because then they can use it in a lot of different places.

And that that member has good anywhere so.

We think that it's high incremental margin unit economics based on sitting on a platform that's already built.

Got it maybe just real quick you mentioned I think during the IPO. We saw maybe like a 15 times LTV to CAC as you become more enterprise platform focus to that mix increases do you imagine that that would change materially or is there a level that you kind of look towards to maintain.

Like a model efficiency level above that as you develop the platform.

Yes, I mean that LTV to CAC is really referring to the <unk> business.

I think the unit economics will be very strong on the platform side I can't really speak yet to what the what that ratio will be based on it being a developing business.

But I think that would be very fair enough.

Got it thank you very much.

Thanks.

Thank you. Our next question is coming from Ananda Baruah from loop capital. Your line is now live.

Hey, yes. Thanks, good morning, guys. Thanks for taking the question.

Yes.

I think yes, a few if I could.

Karen you may have touched on this a couple of questions to go but you mentioned a bit earlier you guys are converting at higher rates.

And sort of how that's even in the airports not back to 2019 levels offsetting some of that volume just just in general what do you say what are the things that are occurring to allow you to convert the higher rates and letting some of the things that should get it do they have a couple of a couple of quick follow ups. Thanks.

So great question I think as people are returning to travel the experience that they've had sitting on their couch ordering tacos at the push of a button and the rest of their life with a push of a button really what we're calling the convenience economy the expectation for frictionless experiences.

It is making the clear platform more valuable I also think that.

Word of mouth or seeing the brand in more places and using it in more places breeds familiarity and.

It's more affordable than ever can be a part up whether you look at our partnerships with United and Delta or American Express student discounts in rate. So I think it's a very accessible platform that is transformational from an experience perspective, and an experience that people have now come to expect over the past year and a half.

So I think that that's a big driver I also think that from a technology perspective, we're <unk>.

Much less and so about 80% of our members use there is first the technology and the platform keeps getting more powerful faster better. So there's also mobile products. So the home to gate feature on the App, which tells you went to leave your house to get to your gate with 35 minutes to go connecting traffic.

Plus we're the clear lane is and where your data is and timing the walk to that right to really driving predictable frictionless experiences is massively important so we keep adding products to drive the experience and to me that would be.

The ultimate reason why people join and people convert.

Yeah, that's super helpful. Thanks, and.

Second question is philosophically, if a jan for it that key mandate goes into place.

Would you consider that to be sort of net positive to the business model in a way that would show up.

You know I can't comment on that except to say that health path has been really important to our partners and what we're offering our tools to help people reopen stay open and make the experiences safer.

When there is different things that our partners need to comply with clear is a very important partner to ensure that compliance but too.

Too early to tell TBD.

TBD, but philosophically it does and yes, it's not it's not on the line it sounds like yeah got it I mean D D.

Yeah, our mission is to make experiences safer and easier and safety. It meant one thing after 911, it means something different today and so the platform is leverages both for all of that.

Cool and then just one last quick one.

Are you guys able to track it track at all.

The impact from the digital nomad digitally than that.

<unk>.

To travel or to your to your platform.

And then any way to track sort of the business impact a.

A bit of a stretch yeah, but what well. It's an interesting question. We are seeing different patterns right. So different days. It used to be really busy are slow now and days that were slow are really busy and so hours of the day rate. So you are seeing different patterns Holistically you are.

Thank you.

<unk> numbers up and strong and.

But the only thing I couldn't connect it to different days and hours.

No. That's helpful interesting, Okay cool I'll cede the floor. Thanks a lot.

Yes.

Thank you we reached end of our question and answer session I would like to turn the floor back over for any further or closing comments.

Thank you all for joining us and not much.

Yeah.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.