Q4 2022 Clear Secure Inc Earnings Call
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Good morning, and welcome to <unk> fiscal fourth quarter and full year 2022 conference calls.
With us today, Mr. Cameron, it's vitamin Becker co founder Chairman and Chief Executive Officer.
Ken.
We'll founder President and 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.
Actors that could cause actual results to differ materially from these statements are included in the company's reports on file with the SEC, including today's shareholder letter.
The company disclaims any obligation to update any forward looking statements that may be discussed during this call.
During this call the company will discuss both GAAP and non-GAAP financial measures.
Reconciliation of GAAP non-GAAP financial measures is provided in today's shareholder letter and the <unk>.
Most recently filed annual report on Form 10-K.
These items can be found on the Investor relations section of careers website.
With that I'll turn the call over to Karen.
Yeah.
Hello, Thank you and welcome to our fourth quarter 2022 earnings calls fourth quarter earnings capped off a strong year of growth at clear.
People's desire to travel last year surpassed even our most bullish expectations domestic checkpoint volumes were up 30% in 2022 at the same time travel infrastructure proved to be far more fragile than anyone could have imagined travel is hard and getting harder clears mission platform.
And products are a critical part of the solution to make travel safer and easier.
It was important we were staffed and ready to help travelers as they return to the sky and clears reputation as a great place to build a career attract top talent to serve these travelers.
On a sequential basis, we added 8.5% to our ambassador workforce across airports nationwide as we saw opportunities to enhance service and grow our member base as our members know the clear ambassador is a bright spot and what can be a stressful time.
We're ready and waiting to welcome you at 430 in the morning on a busy travel day or 10 P. M. Ahead of you read I. That's why we shared in our letter some great stories about our airport team, who bring clears technology to life.
<unk> has been busy preparing for launches of new airports as we continue to expand the clear network nationwide. We also received our authority to operate TSA pre check enrollment provided by clear in late December after a rigorous review and we look forward to rolling it out to the American public in early 'twenty two 'twenty three.
The pace and strength of our launches materially accelerated during 'twenty 'twenty. Two we adult has strong operations team and the muscle to quickly and efficiently grow into new geographies in the past eight months alone. We have launched 15, new markets for clear plus and reserve both domestically and internationally.
Including our first airport in Kansas City This week.
Strong travel demand coupled with last year's travel challenges further our sense of urgency for innovation and collaboration on behalf of the American traveler, There's a new thing in travel everyday is now the Wednesday before Thanksgiving and as an industry, we have to work together to prepare for that.
Outstanding example, a terrific collaboration with Super Bowl weekend in Phoenix, The Phoenix Airport local TSA and the Phoenix clear team works together seamlessly to process a record 84000 passengers on the Monday following the big game, 17% of these passengers used the clear lane and our.
N P S score of over 70 shows our members alike.
When we think about how we will securely scale friction free travel experiences. We're excited about our alignment with our airline partners in January we renewed our multi year partnership with United Airlines Exemplifying the power of collaborative innovation together, we are focused on bringing new technology to enable friction free travel experience.
G. United Travelers you have heard US say many times that identity is foundational in travel and beyond and you see that coming to life across so many industries. Today for example, the consumer relation of health care is quickly becoming a reality with the implementation of the cures Act empowering people to access them.
Control of their health care data with our vertically integrated identity platform and over 15 million instant on members' health care partners are looking to clear to enable more friction free experiences for both their patients and employees we.
We have built an at scale nationwide network in a regulated environment, which positions us well to play an important role in health care, our new partnership with New Health and welfare are just the first two examples of what we believe to be a large opportunity for clear.
As always we remain focused on growing members bookings and free cash flow I want to thank the clear team who has done incredible work in 2022, continuing to make the clear vision a reality with that I will turn the call over to Ken.
Thanks, Karen our fourth quarter bookings and revenue were better than we expected driven by clear plus trends, including renewal rates and new joins.
Overall fourth quarter bookings growth of 37% represents a 32% CAGR from 2019 pre COVID-19 levels.
Of this 32% approximately two thirds of the same store.
We're also encouraged by the traction we're seeing in our powered by clear business.
Continue to believe there is a large addressable market for our network member centric identity platform.
Retention of 92% remains above our long term expectations of the operators.
Though down slightly retention remains strong as our network expands and our value proposition grows.
We remain encouraged by the overall unit economics of clear path.
Free cash flow in the fourth quarter was $71 million and is up 177% over Q4 'twenty one.
Full year free cash flow of $137 million is up 220% year over year.
I think it's really important for me to call out as the owner operators, we view stock comp as a real expense as we know our shareholders do.
When evaluating new opportunities, we look at holistic comp, including noncash comp and a return on investment analysis.
In 2022, we issued 1.4 dollars 7 million net new Rs used to employees, representing less than 1% of beginning common shares outstanding.
The vast majority of our Skus vest over three years.
Free cash flow after considering employee and founder stock comp was $82 million for the full year 2022.
In 2023, we expect to grow free cash flow before and after employee and founder stock comp.
We are laser focused on efficient growth and capital allocation all it does now and Bob to talk about right sizing head count.
Always been methodical about our cost structure, and where to highlight <unk> strong incremental margins.
In Q4, Opex, excluding United warrant expense and other unusual items grew 23% year over year, roughly 40% of our revenue growth rate for.
For the fiscal year, it grew 33% less than half our revenue growth rate.
You know it did partnership renewal on the arc, 534000, warrants, which vested and converted to class a common stock in 2023.
These warrants were issued in 2019 and that reflected in our SEC filings.
This quarter, we recognized a total of $18 $1 million and noncash warrant expense of which $14 5 million related to this tranche and three and a half million carried over from Q3.
We expect to recognize the final $1 million of warrant expense in Q1.
In Q4, we also recognized $6 $1 million of noncash equity expense related to 617000 performance RFP is issued to employees prior to our IPO now deemed probable to vast in 2024.
Our Q4 amount includes a catch up expense.
Ongoing 2023 quarterly amount will be approximately $1 $7 million.
These are issues have also been reflected in our historical SEC filings.
Total cash and equivalents as of December 31 was $735 million and reflects the $38 million special dividend paid in December as well as $5 $4 million used for net settled our issues.
As we look to 2023, we are well positioned to grow members bookings and revenue, while delivering operating leverage and free cash flow growth.
Like last year, our bookings guidance implies a sequential decline from Q4 to Q1 consistent with pre pandemic patterns.
Cause clear plus billed annually or quarterly bookings trends are dependent on the renewal backlog entering the year as of 12 31 less than 25% of the annual renewal backlog fell in Q1.
We will now go to Q&A.
At this time, we'll be conducting a question and answer session.
If you would 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 would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before a person just darkies.
One moment, please while we poll for questions.
Our first question comes from the line of Dana Telsey Telsey Advisory group.
Proceed with your question.
Good morning, and congratulations on the nice progress in the <unk> and the result, when you look at all the metrics the metrics are impressive and compelling when you think about the enrollments, which came in I believe it's up 48% to $15 $4 million. How are you thinking about enrollments going forward and is there any oh.
Additional expenses that we should be mindful of to drive enrollments in this upcoming fiscal year and then I liked the entry into health care, how do you see the progress of penetrating the health care market as compared to the travel market, whether it's in time cost margin sales and margin opportunity. Thank you.
Thanks, Dana a few questions. There so I'll take a few and then Ken will chime in as well.
In terms of enrollments I think it's a reflection of not only the clear experience, but travel being strong right. It was up 30% in 2022 and our growth significantly outpaced that and Ken talked about the same store growth as well as new stores and I think that you will see those trends continue a lot of our airports are still relative.
<unk> early in their life right. If you look at coming out we launched eight new airports last year and since Covid or since we went public I think we went public at 33 airports at the end of June 2021, So that's a 50% growth in the network. So you'll see a growth in our airports that had been opened quite a lot.
Time, as we've talked about historically growth in new airports, and then new airport growth as well and and so we expect those trends to continue but I also think that youll be seeing growth coming out of the platform side and remember so you have to come to an airport to enroll on the platform side you can do it either.
To clear up or what you're seeing is in our partners' apps and so I think you'll see both of those trends continue in 2023 in terms of costs associated with that I'll, let Ted can talk about that and then I'll talk a little bit about the health care total addressable market sure in terms of the unit economics of the business actually you'll see it in the K when we file that later today.
Our unit economics improved on a year over year basis. So we talk about LTV to CAC and Youll see that that has actually improved in 'twenty two versus 21, partly a function of cost of acquisition going down year over year and.
Aaron mentioned as we have added to our network both on the airport side on the platform side.
The network effect really drives unit economics, and so we don't see anything specifically on the horizon that would.
Would change the dynamics of the business.
In terms of health care, Dana both Westar and you help our leading health systems in their regions. So you health, a leading south Florida health system, while stars are leading Georgia health system and when you look at the Tam of systems, just like that we think that there is over 6000. Similarly, situated health systems in the U S.
And you know I think you're seeing many signals in the market place that the consumers of health care, which has been long talked about is taking hold and when you look at the Cures Act, which was passed several years ago, but only being implemented now identity is foundational in order to make health information acceptable to patients and so really.
Hating that proverbial clipboard for both patients and providers. So we think that these are very early days and if you just look at you help then well start Ah theres, an enormous total addressable market out there we sized that at over 6000, just in the U S.
Thank you.
Yeah.
Our next question comes from the line of Joshua Reilly with Needham <unk> Company. Please proceed with your question.
Alright, thanks, guys. Congrats on the very impressive results here.
So 2023 is likely the first year to exceed 2019 in terms of aborted passengers and the year over year growth comps and boarded passengers become more difficult.
As the year progresses would you guys increase marketing spend or make any adjustments if demand were to be impacted and how do you think about demand correlation over all the boarded passengers.
So in terms of investment.
We are opportunistic when it comes to capital allocation and that includes marketing spend.
We our largest channel as an airport channel, which is a very efficient channel and so the way we think about it is we will be opportunistic around the earth.
Around the opportunity to grow our member base like we were in this past quarter we.
We don't necessarily see any dramatic changes to our unit economics.
As a function of tough comps, but to answer your question more specifically I think theres a lot of exciting things happening in 2023, and we've never been quote standard marketers right. So the launch of pre check, which we expect in 2023 and was not included in first quarter guidance is an opportunity to interim.
<unk> people to a different ways to experience airport security and both on a standalone on a bundled basis, we think theres opportunities there and the power of the network effect has shown itself over the past 13 years and our incredible ambassadors on the floor, which we wrote about our.
Also a different form of what people think of as historical marketing spend as we add more partners to the platform. It adds more members and there is an opportunity right to upgrade our people who have joined the clear platform to write from B to b over to B to C and we saw success in that in <unk>.
So like when we partnered with Hawaii, Unhealth Paas, whereas you see what we're doing with either in the rental car space and so theres. Many on ramps that we get excited about.
And it and it is not your quote historical marketing spend which really gives our our platform and our team opportunities to flex creatively to drive growth in an economically efficient way.
Got it and then just a follow up on the net member retention. It was even stronger than you know what I would've expected here.
You still talk about a moderate into the upper 80% range.
What are you seeing here in Q1.
Net member retention for the first couple months of the year and how do you think about the trajectory of that movement back to the upper eighties.
Yeah, I mean, it's definitely happening slower than we would have expected I think that speaks to the power of the network as we add more nodes, including airports and other use cases that increases the utility.
And I think that's what's driving the better than expected gross retention and so.
We think we think it settles in the opportunities, but it is absolutely happening slower than we would have anticipated.
Great and maybe I'll just sneak one more in but the current expense run rate versus your long term model. It seems like G&A is you know one of the you know still well above where the long term model is how should we think about opportunity for leverage here in G&A. This year and can you just remind us what is.
These are included in that line item. Thanks, guys.
Sure. So G&A is we think we're going to get operating leverage really across the board I would say without the with the exception of cost of revenue share fee that should remain.
More stable than the other line items, but G&A certainly being the most leverages <unk> line item and.
Beyond the typical things that you would expect in there such as rent and sort of the regular overhead there are credit card fees, which are variable.
Now obviously as platform becomes a larger percentage of the mix.
Card fees don't apply to the <unk> business.
So and then mobile enrollment costs are awesome and their valuable mobile and on the call. So there are a few things that are.
Variable but.
Largely.
More overhead type of things and if you just look this quarter on a clean basis, if you strip out some of the unusual.
You had probably around 2000 basis points of operating leverage Q4 last year to Q4. This year just on the G&A line item. So we see a lot of opportunity there.
Great that's what I expected thanks, guys.
Our next question comes from the line of Paul Chung with Jpmorgan. Please proceed with your question.
Hi, Thanks for taking my question and very nice quarter to finish the year very strong cash flow.
First up now the firms at 51 airports.
The long term goal.
Kind of mid fifties revised higher.
Which she airports are kind of still in the pipeline in your view.
What's the average lane for airport today, and kind of opportunity there to expand also any progress on international as well.
You mentioned, the reserve offering which kind of opens up a nice cross selling channel can we see it.
Plus lanes expands our meaningfully overseas this year.
And I have a follow up.
Thanks, Paul So yes.
Yes, we are at 51 airports today with the launch of Kansas City yesterday, and I think it's 140 lanes with those 51 airports I do expect us to open you know close to the same or slightly more airports. This year than we did last year, we are already.
Three airports in for the first two months of 2023, and so I do think you know if you look at and it's public information sort of the top hundred airports in the U S. We think that there is high applicability in the 70 ish range of those.
<unk>, but I also think that there's different products. When you look at reserve and pre check enrollment.
Where where we could also be bringing products that we now think of clear more broadly, but we're talking specifically in this case about clear plus airports.
And then internationally, we do think that it's very exciting to be building the relationships the dialogue and the experience leading with the reserve product and we're seeing success. There and then that is opening conversations about other products and so whether or not that hits. This year you know.
It is too soon to tell but we do think when you bought the surge in travel and the challenges travel hard and getting harder. It is not just a U S phenomenon, but a global phenomenon.
Just on the unit economics of the smaller airports in terms of number of lanes.
Completely depends on the configuration of the airport generally speaking a smaller airport will have fewer lanes and the unit economics work for the small airports.
On a standalone basis, and because they add to the network. So we're able to basically get to breakeven in well under a year on those airports.
Great. Thanks for that and then just on <unk>.
So as we lap the initial initial kind of platinum platinum enrollments, how should we think about kind of the pace of bookings growth this year.
And what is your sense of penetration rates at at Amex platinum.
Renewal rates as well are they overall higher Ed.
If you could expand on other kind of key target.
Airlines credit card companies travel vendors, you're engaging with.
I've noticed other channels like curb taxi taxi app for sign ups how successful have.
Those channels and then also on the partner side.
It would be helpful. Thank you.
Sure lots of questions in there.
Starting off with renewal rate, which is easy yes. The renewal rates are quite high for Amex platinum as you would expect.
Above 95% in terms of the penetration of platinum we again, we don't have the denominator, but if you look at the Amex fourth quarter, They announced 3 million net new.
Cards added there those are not all platinum, but they are continuing to have success growing their member base and obviously, we benefit from that.
So we're continuing to grow with them.
It's.
That channel will grow and it's growing.
We have other channels that are growing faster. The one that you specifically asked about is on the curve that is just the marketing.
It doesn't marketing channel for us, which is successful but it's not.
<unk> for us.
And then in terms of your other questions in terms of new partnerships.
We are talking to additional airlines.
Do you think the partner channel.
Our our best Avenue for growth in the most efficient how many for growth has been very successful for us and so more to come on that.
Great. Thank you.
Our next question comes from the line, Michael Chairman with Wells Fargo. She placebo.
Hi, Greg This is David on for Mike.
Alright.
Most of my questions have been asked so I'm talking about from a volumes being up 30% and 22.
As we look to the 2023 planning process can you talk about what you're seeing thus far and once you work for two months.
And how that compares to pre pandemic traffic.
And then just bigger picture what longer term historical annual traffic volume.
Right.
Talk a little bit about what we're seeing in the first two months, which is strength.
January always slows down a little bit, but getting them versus December from a sequential basis, but I would say that you just see continued strength.
Record days.
And our.
People out there traveling and wanting better experiences as they travel. So there has been no slowdown and you know I think we started talking about being thoughtful of the economic environment, probably in our third quarter earnings and I will say and you can see this across the industry.
You know one thing people want to travel people love travel and business travel has been coming back and so I would say that that is probably the the new addition over the past few months, but you just see continued strength.
Yes, as far as trends versus pre COVID-19 levels, we talked about a 32% CAGR for Q4.
Our guidance, which excludes pre check implies I think around a 30% CAGR from 2019 pre COVID-19 levels. So if you look at the midpoint. So we see continued strength as Kevin mentioned.
Great. Thank you.
And our next question comes from the line of.
No.
Burrell capital. Please proceed with your question.
Hey, good morning, guys I appreciate it and thanks for taking the question.
I guess, Kevin going back to the conversation about.
You know sort of what.
The airports that you're in what you've been adding and then and the new lanes that you that it is there is there any useful way.
You can describe to US where you guys think you are I guess like heat map why relative.
Relative to what you would consider to be optimal penetration in the U S. Even if it's anecdotal.
Does that make sense.
Not exactly when you say heat map wise do you mean, msas and where people live or where they're going or what are hot new areas in the U S. Tell me what you mean by that all of that all of that like you have a thought process yeah exactly exactly.
Yeah, I mean, I'd say, we look at and placements. We also right. That's the ultimate piece of it and again when you look at the top hundred after the top 60, you see a deep decrease in employment all of that being said the smaller airports for us because we're in airports that looked like.
That.
Have been great for clear right and so the economics not only of those smaller airports, but of the network or are accretive and and strong. So it it's not an exact science, it's the partner to want to bring clear to their travelers who are focused on innovation.
<unk> and passenger experience, we're building products for people for all travelers, whether you travel once a year with reserve free for the consumer or once a week with clear plus and so and we're trying to build more products in between.
And so I don't have an exact answer except to say, we build strong partnerships, Kansas City opened a new airport, a new terminal yesterday and they wanted to bring innovation and great passenger experiences to their travelers and so we have a lot of runway.
That's it.
And unappealing answer I'm sure, but that's you know that's the truth. It's just travel is so strong and there are so many opportunities to transform the passenger experience from the parking and the rental car piece too.
Two bags to security to concessions and then all the way back on the other side. So these are very early days.
Got it no that actually is very helpful.
A lot of run rate a lot of runway.
[noise] perspective, a lot of engineering.
And does that include sort of some of these new airports say like Kansas City yesterday, as well as a meaningful opportunity to add new lane okay.
And then he's got a top 100 airports airports you may already be in.
Yes that is accurate we have a great footprint today, and then we add more lanes to that footprint you saw that with new work and we're focused on that with other airports as well.
Okay, that's great Super helpful context, I appreciate it thanks.
Yes.
And we have reached the end of the question and answer session and I will now turn the call, which is Karen cited Becker for closing remarks.
Thank you for joining our fourth quarter 'twenty two earnings call. We are excited by the robust growth and clears network I, just said and welcome Kansas City, Firstly, 51st Airport and the clear plus network, which launched yesterday on the <unk> side. We continue to believe powered by clear is a significant opportunity for growth Avis you health and Wildstar are just the first of what we expected.
Continued new partner announcements, we remain absolutely bullish on the surge in growth of the travel industry and estimate another 1 million travelers and U S. Airports by 2030 at clear we're focused on innovation to ensure a scalable and friction free passenger experience for all travelers, whether you travel once a year or once a week I wanted to.
Thank the clear team again for the great work. They did in 2022 and look forward to all that will accomplish together in 2023.
And this concludes today's conference and you may disconnect your lines at this time thank.
Thank you for your participation.
Mhm.
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