Q4 2021 Clear Secure Inc Earnings Call
Good morning, and welcome to the clear fourth quarter 2021 earnings Conference call, we have with US Ms. Karen Seidman Becker co founder Chairman and Chief Executive Officer, and Ken Cornett, Co founder President and Chief Financial Officer.
Please be advised that today's conference is being recorded.
I would 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 directly comparable GAAP financial measures can be found in today's 8-K.
With that I'll turn the call over to Karen Sammon Becker co founder Chairman and Chief Executive Officer of clear Karen.
Thank you good morning, and thank you for joining US earlier today, we released the shareholder letter along with our 2021 fourth quarter and year end financials on our website I Hope you all have had an opportunity to review them I will make some brief comments and then turn it over to Ken for some details on the financials.
Clears mission has always been to make experiences safer and easier for over a decade, we have powered frictionless and trusted journeys in the travel space by connecting you to all the things that make you you.
Pent up demand and a return to normalcy in the wake of the Omicron variant is leading to a surge in travel we have been bullish on the rebound of the clear plus business as the passion for travel in exploration with a global secular trend before COVID-19 and after months of lockdown consumers are more eager than ever to experience. The world. We saw this during <unk>.
The holiday travel season, when we recorded our highest clear plus enrollment and usage numbers for any quarter ever the world travel and tourism Council of projects. This sector will outpace pre pandemic levels in 2022 up more than 6% since 2019 with our obsession for frictionless experiences clear as well.
Positioned to make the return to the skies more seamless than ever.
New products to extend the home to gate journey and drive enhanced predictability traveler control and consumer choice are prized at clear our mobile home to gate feature expanding clear plus lanes, new reserve lanes and the upcoming launch of our pre check enrollment services are great. Examples of the innovation and consistent enhancements travel.
You should expect to see from clear Additionally, adding while adding to our portfolio and their virtual queuing technology extends our capabilities and helps enable our expansion both domestically and internationally our secure identity platform extends the clear frictionless journey beyond travel, enabling safer and easier experience is both.
Physically and digitally and turning clear into a daily habit, the new convenience economy, where so much can be done at the push of a button has now expanded to physical settings, whether it's age verification that a raiders game virtually queuing at Banco macro in Argentina are confirming professional licenses and certifications. This omnichannel.
Demand from both consumers and partners is accelerating the clear flywheel from day, one clear has always been committed to privacy done right and never has this been more important it is embedded in the culture processes and business model of our company privacy protecting member data and security are at the center of.
Everything we do and we have never wavered from that commitment clears up in and members are always in control of their information.
None of this would be possible without our world class team together as owner operators. We are building for the long term. We are proud of what we've accomplished in 2021 and off to a strong start this year I would now like to turn the call over to Ken.
Thanks, Karen Good morning, everyone. Our financial performance was better than we expected driven by the growth in clear plus as well as on the platform side Ami problem had little impact on our clear plus performance in the quarter. In fact, we had a very strong finish to the year. Despite the case surge as we've continued to communicate our GAAP metrics tend to be a lagging indicator.
The underlying strength of our business, while we are growing in 2021, while our bookings we accelerated our revenues lagged behind depressing. Our GAAP metrics. This is evident as the positive free cash flow reported for the quarter and fiscal year far exceeds the negative reported adjusted EBITDA by a wide margin, we generated significant free cash flow.
$26 million in the fourth quarter and $42 million on a full year basis 2021 marks the fourth consecutive year, we have generated positive free cash flow and we fully expect 2022 to be the fifth.
We have a powerful economic model, which was masked in 2020 , one as we normalized airports staffing towards pre pandemic level levels.
The largest component of airport opex as cost of direct salaries and benefits direct salaries grew 140% in Q4 versus the depressed 2020 comparison.
Not reflect the true operating leverage inherent in the clean plus business.
When compared to more normalized pre COVID-19 levels, we realized significant operating leverage to 33 airports that were open for the entire fourth quarter of 2019 grew same store bookings in excess of 50% in Q4, 'twenty one versus Q4 19, while total airport operating expenses grew around 15% and that same.
Period, despite wage inflation in 2020 and 2021.
Verifications in those markets were down low single digits, while enrollments were up over 50%.
While timing of new airport launches will affect the quarterly cadence, we expect growth in direct salaries to moderate in 2022, particularly in the back half when we anniversary at the beginning of 2020 one's travel recovery.
I also want to touch on G&A as a newly public company year over year growth in G&A was elevated in the back half of 2021 sequentially on a cash basis, excluding stock comp and acquisition related expenses of $1 $4 million G&A grew 16% two of the drivers of this growth our credit card fees and upfront enrollment.
<unk>, which are directly attributable to bookings strength and member growth in the non variable portion of G&A, we had a number of elevated expenses in the quarter, including professional fees, which we expect to either decline or not recur. We expect Q1 2022 G&A to be flat to down sequentially from Q4 levels.
Our cash and equivalents balance at 12 31 was $644 million. This reflects positive free cash flow generation and includes the all cash acquisition of wireline in outlets for our combined approximately $76 million.
Wireline and Atlas.
Contribute to bookings and revenue on the platform side in 2022, and you should think about them as roughly breakeven on a cash basis.
Before we go to Q&A I'll briefly touch on Q1 guidance, we expect GAAP revenues of 88 to 89 million and total bookings of $1 to three and a half to $104 $5 million, excluding any contribution from TSA pre tax we expect our operationally ready system to be reviewed in the coming weeks, which would then initiate the launch timeline.
Setting us up for a launch in the next several months consistent with historical patterns. We expect Q1 revenue to represent the lowest revenue quarter of fiscal 'twenty two.
As stated in the financial discussion in our release, we expect a moderating growth rate in expenses in 2022, and therefore expect margin expansion as well as meaningful free cash flow generation.
Now we'll go to Q&A.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. 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. It may be necessary to pick up your handset before pressing the star.
Keith and.
And he was just at the time, we ask that you each keep to one question and rejoin the queue for additional questions. Thank you.
Our first question comes from the line of Dana Telsey with Telsey Advisor Group. Please proceed with your question.
Good morning, everyone nice to see the progress just on a macro basis, the impact of rising gasoline prices and thoughts on travel anything that you're seeing there and the reactivation of existing clear members, where do you think you are on that journey to capture capturing them all back how fast.
Are they coming back and what are you seeing there and just lastly, any pricing adjustments on the membership that you anticipate this year. Thanks.
You.
Thanks, Dana so I'll take the macro travel and win back question, and then I'll turn pricing over to Ken.
We are very bullish on travel have been and see very encouraging signs of travel returning from our own data as well as the companies that we're looking at out there. So you're seeing travel agents hotel operators restaurants reporting spikes in demand online booking companies predicting that the summer 2022 will be the busiest travel season ever airlines.
Some of them, saying they are approaching 100% recovery in leisure travel and so you know we are not seeing any kind of slowdown in travel due to gas prices and things of that nature, probably also because we still have a low percentage share of total travel we think that theres enormous opportunities for.
So if people are still focused on you know.
Frictionless experiences and I think they are coming back to travel with higher expectations than they left and it's more difficult to travel in a post pandemic environment and so I think clear is more important than ever.
So inflation and rising gas prices do not temper our enthusiasm for travel.
In terms of win backs.
Retention does include went back and I do think it speaks to the passenger for the brand and the continued product market fit people, who last year during the pandemic and there is absolutely more than normal or coming back to clear in a lot of it happens at the airport. So it's a zero cost three and a half second wind back experience you know I still think that there's a ways to go not one.
For people, who left during the pandemic, but also as we grow our network and our use cases, there is no more reasons to come back to clear for people, who left pre pandemic and so I still think that we have a ways to go but but clearly had done a good job of people coming back to clear, but I can't give you.
An exact number I think its not only we have a ways to go in the pandemic number but also in those who left before as we continue to expand our network and use cases.
And just quickly on pricing Dana.
No we haven't changed our standard price since launching with two airports in 2010, we do think we have pricing opportunities we're always looking at.
Not that we did take price on family.
Starting last year, starting in July of last year.
From 50 to $60 and so we do think we have opportunities for pricing, but nothing to announce at this point.
And one follow up how is American express going any progress support on the sign ups and usage of what you're saying.
So on a macro level, we absolutely love our partnership with American Express, there's obviously, a large overlap with amex and clear customers are in terms of exact penetration numbers I think that question, maybe better asked to amex. What I can say is that the lifetime value of an amex customer is equal to if not greater than our than a customer who come through our other channels.
Certainly LTV to CAC is favorable I think you know American express is seeing their own growth and in members. So not only again do you have you know a growing member base, but then growing penetration, but but off to a very strong start there well no longer really a start for nine months and it continues to be strong [laughter]. Thank you.
[laughter].
Thank you. Our next question comes from the line of Paul Chung with Jpmorgan. Please proceed with your question.
Hi, Thanks for taking my questions. So just on a net retention number which is now above.
Kind of pre Covid levels, where do you expect retention to normalize and you know how you're driving such high levels today very nice execution there.
As Karen just mentioned, we do think that it speaks to the product market fit and the brand affinity.
So we talk about the excess the excess win back from excess churn from Covid, we do have a ways to go there.
I think you know, we're not giving specific guidance on the number but.
But we do think that the net number settled in somewhere in the high eighties, probably.
Okay.
And then as we kind of think about the platform.
Sign ups beyond the pandemic and kind of use of maybe health pass engagement comes down a bit can you expand on strategies to drive further adoption on our platform any partnerships in the pipeline with large enterprises, maybe other credit card companies and any other verticals would be helpful. You mentioned the Raiders example, which was held.
Thank you.
Yeah. So health passes an important product in our platform and it has been so important to introduce great new members to the brand and experience and as well as partners and it has definitely.
Help to make people's experience safer and easier communities come back better getting people back to what they love and businesses opening as well I think what that's really done is help us be a trusted solution to partner. So you will see help path of all of it is clearer in part with partners and add products and capabilities to continue to fuel the frictionless experience, we're not going to announce products before they.
Our readily available, but I think you can see that we are spending on innovation and so things like home to gate and the Uber integration right that is the beginning of continuing to pull that experience from a travel perspective from the time you leave your house as opposed to when you show up at the airport, you'll see more in that travel ribbon.
Sports and entertainment and events connecting you to all the things that make you you did health pass at CES. This year, but you can imagine that there's a lot of other opportunities to connect you to.
Two different things that you were waiting in line for how to show physical and digital cards for at conferences and events. So you'll continue to see that I think what's been really important right from a doubling of the member base and our continued growth and the ability to enroll in our mobile platform is that it really allows us to innovate much faster to a much broader base.
Yeah.
Great. Thank you.
Thank you. Our next question comes from the line of Michael <unk> with Wells Fargo Securities. Please proceed with your question.
Hey, there thanks good morning.
Q4 free cash flow number came in well above our estimates is there Ken is there anything you can get out on just what's driving the second half strength in appreciating there are just some moving pieces with expenses near term.
Anything else you can say just thought what kind of steady state free cash flow margin. This business is capable of delivering as you scale.
Well I think we've continued to emphasize the fact that the GAAP metrics understate the true strength of the business and I think the free operating cash flow and the free cash flow.
Certainly are more representative of the quality of the business.
And the fundamentals that we're seeing.
So.
Generally speaking, we're driving for member growth bookings and free cash flow, that's how we view the business and judge the business.
So I think.
We're not going to give specific margin guidance on free cash flow, but it is a high quality business with good free cash flow conversion low capital intensity.
So we're very pleased.
I would just add to that that I think you know part of the free cash flow is also starting to see the flywheel at work right. So we have multiple efficient channels to add members both physically and digitally. So you don't have to spend in marketing the way other companies might when again, you think of the cost per gross add and the lifetime value of a customer I think that.
Is a strong driver of free cash flow and so the more we build our brand the more use cases there are.
And the more capabilities on the platform.
There's multiple ways for people to enroll.
Okay.
Just a quick follow up if I may on the Raiders partnership is there anything you can add around around the business model is there anything there where youre able to eventually capture something on either the payment side or somewhere else that can contribute to the model.
We do believe transaction fees are an opportunity for clear.
Thank you.
Thank you. Our next question comes from the line of Brian Essex with Goldman Sachs. Please proceed with your question.
Great. Thank you very much for taking the question I was wondering maybe if I could start with cumulative enrollments is there any way to get a sense of b to b versus PTC contribution in that number at least for the incremental enrollments and how are you thinking about bookings seasonality through the rest of the year I think the release noted that Q1 was the trough.
Q1 also a trough for bookings as well just to get a sense of your expectations for the year.
Okay. So just on the first question look we operate the business as a platform and as you can see from the Gene example, in our letter of the businesses and the customer experience are very much interwoven. So we're.
We're not breaking out the specific drivers within the cumulative enrollment number.
And look were owner operators, we've been making discrete investments in the platform for several years to perpetuate that flywheel that Karen just mentioned.
And youre beginning to see the fruits of those investments in member growth and bookings on free cash flow. So we're not breaking those out.
Yeah.
Your second question.
Oh it was on booking seasonality Q1 be a trough as well and how to anticipate a cadence of seasonality through the year.
Yeah, So we're not going to we're not going to.
We're not going to comment specifically on the bookings piece, we're going to leave it with the revenue being the lowest revenue quarter of the year.
Maybe maybe a quick follow up on TSA any any.
Sense of.
What milestones are left in the level of confidence that you have that that would kind of.
Materialize in the near term.
Yeah, I would say that.
Our system is operationally ready as we mentioned in the guidance.
And the next weeks.
The review process will start which will kick off the launch process.
Next few months next several months is what we're saying I think everyone is involved yeah, everyone involved is very motivated to bring this to the traveling public and so we are working actively with TSA, we have a lot of confidence in our city an error in our system and our operational readiness.
Alright, that's very helpful. It makes a lot of sense. Thanks.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Our next question comes from the line of Ananda Baruah with loop Capital Holdings. Please proceed with your question.
Hey, good morning, guys and thanks for taking the question.
I guess just just.
Just on structural I guess, the 22 drivers for 2022 guys.
Last quarter, you talked about the key ones being structural travel growth is the obvious one it sounds like youre seeing stronger than stronger than anticipated probably there I know you talked about new airports, new customer acquisition, new products et cetera, and Karen you actually mentioned international in your prepared remarks and so.
Just would love to get a sense of how you see it during the year now on the key drivers for 'twenty, two and Kevin is there anything you know kind of incremental that we should be aware about on the international front and that's it for me. Thanks.
Yeah, So I'll start with the international piece why line really accelerates our entry it puts us squarely in Latin America, and brings clear to Brazil, Argentina, and Mexico on the enterprise side or the beta beside and so it is also creating a.
For communities to accelerate the conversations.
On the travel side and the airport side. So we are excited on both sides of our business on both the aviation and on the platform side to have good international growth. This year granted that's off a base of zero. So.
You know we're excited in international we're very excited about Latin America, not only do we have a team of engineers now a great team in Argentina.
Our boots on the ground partnerships and and brands and products that we're very excited to bring it to both sides of part what we call our dual growth engine.
In terms of this year I think you hit on a lot of it on the travel side. It is about network expansion, which you will see this year. It is about new products, which you will see this year, we do have a philosophy of not announcing products before they are live but if you haven't downloaded the clear app and use home to gate and ordered or Uber through it.
It's magical and I encourage you to do it and and you will see you know were working on new partners not only again, we think of travel more broadly not only in the airport, but beyond the airport on the platform side of the business. We have been investing for new products that will help fuel partnerships and use cases that you were.
See this year. So again a metrics that we think are important to be judged on that we're judging ourselves on our member growth bookings free cash flow and then also you know watch for product announcements and partnership announcements.
And do you feel you're on track with the key initiatives across across that that ecosystem.
Just mentioned.
We do but I also have a philosophy of whatever you did yesterday isn't good enough that why you know.
I think we can always be doing better, but we are on track I'm looking for us to exceed every target that we have.
Awesome. Thank you.
Yeah.
Thank you. This concludes our Q&A session and thus concludes our call today. We thank you for your interest and participation you may now disconnect your lines.