Q4 2023 Clear Secure Inc Earnings Call

Operator: Good morning and welcome to CLEAR's fiscal fourth quarter 2023. We have with us today Karen Seidman Becker, Co-Founder, Chairman and Chief Executive Officer, and Ken Cornyn, Co-Founder, President and Chief Financial Officer. As a reminder, before we begin, today's discussion contains four forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risk and uncertainty. Factors that could cause actual results that differ materially from these statements are included in the company's reports on file with the FEC, including today's shareholder, the company disclaims any obligation to update any forward-looking statements that may be A reconciliation of GAAP to Non-GAAP Financial Measures is provided in today's shareholder letter and in the most recently filed annual report on Form 10. These items can be found in the congratulations section of Clear Secure. With that, I'll turn the call over to you.

Good morning, and welcome to clear its fiscal fourth quarter 2023 conference call.

We have with the city and inciting Becker co founder Chairman and Chief Executive Officer, and Ken Corny Co founder President and Chief Financial Officer as a reminder, before we begin today's discussion contains forward looking statements.

The company's future business and financial performance. These are based on management's current expectations and ours.

Subject to risk and uncertainties factors that could cause actual results to differ materially from these statements are included in the company's reports on file with the green.

During today's shareholder that.

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 a reconciliation of GAAP to non-GAAP financial measures.

And today's shareholder letter and our most recently filed annual report on Form 10-K.

These items can be found on the congratulations section news website with that I'll turn the call over to Ken.

Karen Seidman Becker: Good morning. Clear's fourth quarter and full year 2023 financial results reflect our continued focus on growth in members bookings and free cash flow. This quarter, we exceeded 20 million members on the platform, an important milestone. More members joining the Clear platform means more value for our partners, who are focused on creating friction-free experiences for their customers. In 2023, revenues grew 40%, and operating margins expanded by over 1,300 basis points. We generated $200 million of free cash flow.

Good morning clear its fourth quarter and full year 2023 financial results reflect our continued focus on growth in members bookings and free cash flow.

This quarter, we exceeded 20 million members on the platform and important milestone more members joining the clear platform means more value for our partners, who are focused on creating friction free experiences for their customers.

In 2023 revenues grew 40% and operating margins expanded by over 1300 basis points, we generated 200 million of free cash flow.

Karen Seidman Becker: At Clear, we are obsessed with our members' experience, and in 2023, we did not consistently deliver the in-lane experience that our members have come to expect. As you read in our letter, we are fixing this, delivering to our members the Clear experience they know, love, and rely on. In December, we launched NextGen Identity, and with that, Clear is operationalizing the first and only at-scale standardized digital identity, the absolute key to the lane of the future. The Clear team is doing an amazing job with our NextGen Identity upgrades and is in it to win it. Clear leaders fanned out across the country, working side-by-side with our ambassadors, and saw firsthand the passion our members have for both Clear and our ambassadors, as well as the excitement they have for the lane of the future.

Not clear we are obsessed with our members' experience and in 2023 we did not consistently deliver the inland experience that our members have come to expect as you read in our letter we are fixing that delivering our members the clear experienced they know loved and rely on in December we launched Nextgen Ida.

Entity and when that clears operationalize them, the first and only at scale standardized digital identity. The absolute unlocked for the lane of the future. The clear team is doing an amazing job with our nextgen identity upgrades and it's in it to win it.

Clear leaders stand out across the country working side by side with our ambassadors and saw firsthand the passion our members have for both clear and our ambassadors as well as the excitement they have for the lane of the future travel continues to be strong and travelers are craving predictable journeys and innovation.

Karen Seidman Becker: Travel continues to be strong, and travelers are craving predictable journeys and innovation, exactly what Clear is known for. NextGen Identity enables the Clear lane of the future, a series of new technologies rolling out this year to deliver the great experience that our members have come to expect from Clear. Bringing TSA PreCheck enrollment, provided by Clear2Life, has been an incredible labor of love. We think every traveler should have it. It is such a great program.

<unk>, what's clear is known for Nexgen identity enables the clearer laying of the future a series of new technologies Rolling out this year to deliver the great experience that our members have come to expect from clear.

Bringing TSA pre check enrollment provided by clear to life has been an incredible labor of love. We think every traveler should habit is such a great program and at $1 30 per month, which is less than a cup of coffee, who doesn't want to keep their coat and shoes on and their laptop and the bad.

Karen Seidman Becker: And at $1.30 per month, which is less than a cup of coffee, who doesn't want to keep their coat and shoes on and their laptop in their bag? The key here is making enrollment easy and accessible to all travelers. We are working hand-in-hand with our partners to make this happen. Today, consumer experiences are one touch, and that is the customer expectation. We are focused on delivering friction-free enrollment, no appointment necessary.

The key here is making enrollment easy unacceptable to all travelers. We are working hand in hand, with our partners to make this happen today consumer experiences our one touch and that is the customer expectation. We are focused on delivering friction free enrollment no appointment necessary last week in Newark, We open.

Karen Seidman Becker: Last week in Newark, we opened before sunrise, and less than two minutes later, our first enrollee walked right up. The team was excited to serve them, and they were thrilled to enroll on the spot. As I often say, travel is hard and getting harder, and our job is to make it safer and easier for all travelers. I am proud of the work that our team has done, and we cannot wait to bring this nationwide. Clear Verified continues to gain momentum. You cannot pick up the paper today or go online without reading about challenges that trusted identity can solve. Whether it's the need for age verification on social media, the problems caused by online anonymity, entire systems going down because of fraud, or marketplaces where stolen goods are sold, a universal digital identity is the solution.

Before sunrise and less than two minutes later, our first enrollee walked right up the team was excited to serve them and they were thrilled to enroll on the spot.

I, often say travel is hard and getting harder and our job is to make it safer and easier for all travelers I am proud of the work that our team has done and we cannot wait to bring this nationwide clear.

Clear verified continues to gain momentum you cannot pick up the paper today or go online without reading about challenges that trusted identity can solve whether it's the need for age verification on social media. The problems caused by online anonymity entire systems going down because of fraud or marketplaces were stolen goods are.

Sold a universal digital identity is the solution and health care Hospital systems are finding significant value in our identity platform, our password reset account creation and checking product reduce operating costs increase conversion and delight customers.

Karen Seidman Becker: In healthcare, hospital systems are finding significant value in our identity platform. Our password reset, account creation, and check-in products reduce operating costs, increase conversion, and delight customers. Clear is uniquely positioned to become the trusted identity layer of the Internet.

<unk> is uniquely positioned to become the trusted identity layer of the internet.

Ken Cornyn: This year our continued focus will be on member experience, bookings growth, margin expansion, and free cash flow. I will now turn it over to Ken for a discussion of the financials. Thanks, Karen.

This year, our continued focus will be on member experience bookings growth margin expansion and free cash flow I will now turn it over to Ken for a discussion of financials.

Thanks, Karen and Q4 revenue grew 33% and we maintained a long term, 30% bookings CAGR, while generating strong incremental margins.

Ken Cornyn: In Q4, revenue grew 33%, and we maintained a long-term 30% bookings CAGR while generating strong incremental margins. Cash flow from operations was $94.1 million, and free cash flow was $90.4 million, up 27% year over year. For the full year, we generated $225 million of operating cash flow and $200 million of free cash flow, up 46%.

Cash flow from operations was $94 1 million and free cash flow was $90 4 million up 27% year over year.

For the full year, we generated $225 million of operating cash flow and $200 million of free cash flow up 46%.

Ken Cornyn: Pro forma after deducting normalized stock comp, free cash flow grew 42% in the quarter and 80% for the full year. We returned $110 million of capital to shareholders in Q4 and $210 million in the full year while shrinking our share count. Active ClearPlus members were 6.7 million, up 23 percent. We've seen continued ARPU growth sequentially and year-over-year as the impact of pricing rolls into revenue. Annualized ClearPlus member usage was 8.1 times in a year, down 0.5 versus last year.

Pro forma after deducting normalized stock comp free cash flow grew 42% in the quarter and 80% for the full year, we returned $110 million of capital to shareholders in Q4, and $210 million and the full year, while shrinking our share count.

Active clear plus members were $6 7 million up 23%, we've seen continued ARPA growth sequentially and year over year as the impact of pricing rolls into revenue annualized clear plus member usage was $8 one times down <unk> five versus last year.

Ken Cornyn: Mixed matters, and as we've expanded our non-airline partner channels, there is a utilization difference which is driving the decline. Airline channel members have about two times the usage of non-airline numbers, and in Q4, our results include some items I want to highlight. In Q4, we incurred a cash severance expense of $2.9 million related to the streamlining actions we announced last quarter.

Mix matters and as are we.

We've expanded our non airline partner channels. There is a utilization difference which is driving the decline.

Airline channel members have about two times the usage of non airline numbers.

In Q4, our results include some items I want to highlight.

We incurred a cash severance expense of $2 9 million related to the streamlining actions, we announced last quarter that impacted R&D by $1 5 million G&A by $1 1 million in sales and marketing by 200000, we expect to incur additional severance expense of 900000 in Q1, primarily hitting R&D as we completed some additional <unk>.

Ken Cornyn: That impacted R&D by $1.5 million, G&A by $1.1 million, and sales and marketing by $200,000. We expect to incur additional severance expenses of $900,000 in Q1, primarily hitting R&D, as we complete some additional streamlining this month. We also incurred $2.9 million of expenses related to the Next Gen Identity Upgrade, consisting of $2 million of search ambassador hours and $900,000 of enrollment expenses. In Q1, we expect a similar amount of next-gen expenses, which will normalize by April. To put NextGen in perspective, we have already upgraded millions of members, representing around 85% of our verification volume, consuming 100,000 incremental labor hours since December. We should see strong operating leverage on the direct salaries line as we progress through this year. In the quarter, we also benefited from a reversal of $9.6 million of previously expensed stock comp relating to departed team members and the expiration of the pre-IPO performance award unit. Normalize.com revenue was $11.8 million, down 25% year-over-year.

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We also incurred $2 9 million of expenses related to the Nextgen identity upgrade consisting of $2 million of search ambassador hours and 900000 of enrollment expenses in Q1, we expect a similar amount of Nextgen expense, which will normalize by April two.

To put Nextgen in perspective, we have already upgraded millions of members representing around 85% of our verification volume consuming 100000 incremental labor hours since December.

We should see strong operating leverage on the direct salaries line as we progress through this year.

In the quarter. We also benefited from a reversal of $9 6 million of previously expense stock comp relating to the part of the team members and the exploration of the pre IPO performance Award unit.

Normalized stock comp was $11 8 million down 25% year over year.

Ken Cornyn: Excluding these items, our OPEX was down around 1,300 basis points as a percentage of revenue, and we achieved 46% incremental operating margin. Annual Clear Plus net member retention was 86.3% in the quarter. We look at both member retention and dollar retention. This is particularly important in 2023 when, after taking almost no pricing for the first 12 years, we take significant pricing for airline, family, and standard members. For the airline channel specifically, where we reduced the discounts available to frequent flyers, prices were up between 35% and 50%.

Excluding these items, our opex was down around 300 basis points as a percentage of revenue, we achieved 46% incremental operating margins.

Annual clear plus net member retention was 86, 3% in the quarter. We look at both member retention and dollar retention. This is particularly important in 2023 went after taking almost no pricing for the first 12 years, we took significant pricing for airlines family under standard members for.

For the airline channel, specifically, where we reduced the discounts available to frequent fliers pricing was up between 35% and 50%.

Ken Cornyn: And we are pleased that given these increases, we experienced only a modest impact on member retention, and our dollar retention was up mid-single digits year-over-year to around 90%. Our net member retention metric is impacted by reactivations or win-back activity. Typically, around two-thirds of our reactivations happen organically in the lane.

We are pleased that given these increases we experienced only a modest impact on member retention and our dollar retention was up mid single digits year over year to around 90%.

Our net member retention metric is impacted by reactivation or win back activity typically around two thirds of our reactivation has happened organically in the lane with all the focus and prioritization on next Gen upgrade the Activations and a lean are temporarily below trend.

Ken Cornyn: With all the focus and prioritization on next-gen upgrades, reactivations in the lane are temporarily below trend. Net member retention settling in the upper 80s remains our expectation. Over the next several quarters, we expect the cumulative impact of pricing, member mix, and next-gen will bring us below those levels before rebounding. On average, Clear members are paying less than $10 per month, which is an incredibly compelling value.

Net member retention settling in the upgrades remains our expectation.

The next several quarters, we expect the cumulative impact of pricing member mix and Nextgen will bring us below those levels before rebounding.

On average for your members are paying less than $10 per month, which is an incredibly compelling value. We will continue to focus on member retention and dollar retention as we drive bookings and free cash flow growth.

Ken Cornyn: We will continue to focus on member retention and dollar retention as we drive bookings and free cash flow growth. In Q1, we expect revenue of $172 to $174 million, which at the midpoint represents 31% year-over-year growth. We also expect total bookings of $178 to $183 million, which at the midpoint represents 21% year-over-year growth and a 29% long-term CAGR.

In Q1, we expect revenue of $172 million to $174 million, which at the midpoint represents 31% year over year growth.

We also expect total bookings of $178 million to $183 million, which at the midpoint represents 21% year over year growth and a 29% long term CAGR.

Operator: Consistent with prior years, Q1 bookings are down sequentially versus Q4, reflecting a larger renewal pool in Q4 versus Q1, and this year, a lower sequential pricing benefit. While guidance includes incremental pre-check revenue, keep in mind we just began online renewals in January, and our first in-person enrollment location opened just last week in Newark. As new businesses like PreCheck and Clear Verified continue to ramp, we are widening our guidance range as they are early stage relative to Clear Plus, and small timing differences can move bookings from one quarter to another. For the full year 2024, we expect to deliver strong revenue and total bookings growth, expanding margins, and free cash flow growth of at least 30%. With that, let's go to the Q&A.

<unk> with prior years Q1 bookings are down sequentially versus Q4, reflecting a larger renewal pool in Q4 versus Q1, and this year, a lower sequential pricing benefit.

While guidance includes incremental pre check revenue keep in mind, we just began online renewals in January and our first in person enrollment location opened just last week at Newark.

New businesses like pre check in clear verified continue to ramp we are widening our guidance range as they are early stage relative to clear plus and small timing differences can move bookings from one quarter to another.

For the full year 2024, we expect to deliver strong revenue and total bookings growth expanding margins and free cash flow growth of at least 30%.

With that let's go to Q&A.

Thank you at this time, we will 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.

Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing restart.

You May press star, two and see what that you're moving your question Keith.

All participants using speaker equipment, it may be necessary to get your handset before pressing the star keys, we do ask that each analyst in the queue to please limit themselves to only two questions.

Our first question comes from the line of Joshua Reilly with Needham <unk> Company. Please proceed with your question.

Alright, Thanks for taking my questions nice job, finishing up the year here, maybe just starting on that member retention can you just discuss maybe in some more detail some of the nuances in terms of the calculation since it's based on people versus adult dollars and how the normalization of travel trends are impacting this figure persons.

Joshua Riley: We do ask that each analyst in the queue please limit themselves to only two questions. Our first question comes from the line of Joshua Riley with Needon and Company. Please proceed with your question. All right, thanks for taking my questions. Nice job finishing up the year here.

The.

Nextgen I D upgrade that you mentioned also impacting it maybe just give me a sense of the magnitude of each of those items.

Ken Cornyn: Maybe just starting on net member retention, can you just discuss, maybe in some more detail, some of the nuances in terms of the calculations since it's based on people versus dollars and how the normalization of travel trends is impacting this figure versus the next-gen ID upgrade that you mentioned also impacting it? Maybe just give a sense of the magnitude of each of those items. Thanks, Josh. Good morning.

Sure. Thanks, Josh.

Good morning, So a couple of things going on one is I would just highlight that we're focused both on the public retention metric is based on members' right. We're also focused on dollars as I mentioned.

In the opening our dollar retention was up mid single digits year over year at around 90%. So we're really pleased with the performance there.

Ken Cornyn: So, there are a couple things going on. One is, I would just highlight that we're focused both on, you know, the public retention metric is based on members, right? We're also focused on dollars, as I mentioned in the opening. Our dollar retention was up mid single digits year over year to around 90%. So we're really pleased with the performance there. The public metric, as you mentioned, is a trailing 12-month metric. And so the trend of growth matters there. And there are also two components.

The public metric as you mentioned is a trailing 12 months.

<unk> and so the trend of growth matters, there and there is also two components, there's a gross and net so the gross retention.

The year over year performance of how many members are retained and then the difference between gross and net would be the win back activity or.

Ken Cornyn: There's growth and net. So the gross retention is the year over year performance of how many members are retained. And then the difference between gross and net would be the win back activity or reactivations. About two-thirds of our reactivations happen in the lane, and we are definitely running below trend due to the next-gen upgrade process on the reactivation piece. And so, you know, as we cycle through the next few quarters, as we lap pricing, and as we lap mix, mix is also a factor. We had a much larger percentage of year-one renewals in 2023 versus 2022, and just like every subscription business, those tend to carry lower retention rates than the more mature cohort. So as we cycle through those, it'll be a more normalized rate. We expect it to be in the upper 80s over the next few quarters. And so, you know, net-net, very happy with the performance there. You know, that's probably what I would do.

Reactivation about two thirds of our reactivation as happened in the lane and we are definitely running below trend due to the nextgen upgrade process on the reactivation piece and so you know as we cycle through the next few quarters as we lap pricing as.

And as we lap mix mix is also a factor we had a much larger percentage of year, one renewals in 2023 versus 2022, and let's just like every subscription business those tend to carry lower retention rates than the more mature cohorts. So as we cycle through those it will be at more normalized rate, we expect it to be in the upper <unk>.

Over the next few quarters and.

So net net very happy with that.

Your performance there and.

Yes, that's probably what I would say there.

Got it and then we've all seen the press articles on the changing competitive landscape within the security land, how do you see that changing landscape playing out here with airlines and the TSA working to develop their own more efficient in our processes based on biometric data as well.

Karen Seidman Becker: Got it. And then, you know, we've all seen the press articles on the changing competitive landscape within the security lane. How do you see the changing landscape playing out here with airlines and the TSA working to develop their own more efficient processes based on biometric data as well? Yeah. Hi Josh. It's Karen.

Yeah, Hi, Josh its Karen.

Look with a million more travelers coming through airports by 2030 <unk> technology is the most important solution for airports for airlines for the TSA to do the and to the safer and the easier and it's consistently been brought to the checkpoint since we started in 'twenty talent right. There was pre check AI T C T scanners, and we always be.

Karen Seidman Becker: Look, with a million more travelers coming through airports by 2030, technology is the most important solution for airports, for airlines, for the TSA, to make it safer and easier. And it's consistently been brought to the checkpoint since we started in 2010, right? There was PreCheck, AIT, and CT scanners.

Please the biometrics, we're going mainstream because they make it safer and easier. So you know biometric coming to the checkpoint has been expected and I think it's a good thing for American travelers and for security.

Karen Seidman Becker: And we always believed that biometrics were going mainstream because they make it safer and easier. So, biometrics coming to the checkpoint has been expected. And I think it's a good thing for American travelers and for security. At Clear, biometrics aren't the product, right? They are a feature.

Clear biometrics aren't the product they are a feature and so what we're really focused on is about delivering an experience that is frictionless and predictable from home to gate meeting travelers, where they are whether they travel once a year or once a week and you're going to continue to see more product from.

From us to make sure that we can deliver to all travelers. It's also the reason that we've been talking about Nextgen identity. We started talking about it publicly last quarter, but as you guys know we've been working on it since 2020 would have loved to have rolled it out last year, but it's going to have a great impact on the travel experience. This year. So what we're focused on is interoperable.

Karen Seidman Becker: And so, what we're really focused on is delivering an experience that is frictionless and predictable from home to gate, meeting travelers where they are, whether they travel once a year or once a week. And you're going to continue to see more products from us to make sure that we can deliver on all travelers' needs. It's also the reason that we've been talking about next-gen identity. We started talking about it publicly last quarter.

Universal digital identity, because travelers, who use multiple airports and airlines. So no matter, what your airport and you show up to which airline you're flying on or your status using clears nextgen identity to get through quickly unpredictably and then adding services on other either side of the checkpoint is the unbelievable customer experience, but we.

Karen Seidman Becker: But as you guys know, we've been working on it since 2020. We would have loved to have rolled it out last year, but it's going to have a great impact on the travel experience this year. So, what we're focused on is interoperable, universal digital identity because travelers use multiple airports and airlines. So, no matter which airport you show up at, which airline you're flying on, or your status, using Clear's next-gen identity to get through quickly and predictably and then adding services on either side of the checkpoint is an unbelievable customer experience. But we expect over the next few years that the entire checkpoint should be biometrics, right? It's safer and it's easier.

Expect over the next few years.

The entire checkpoints should be biometric right, it's safer and it's easier, but again, it's the experience that you're delivering off that holistically.

Okay.

Thank you.

Our next question comes from the line of Cory Carpenter with Jpmorgan.

Proceed with your question.

Hi, Good morning wanted to ask what Youre seeing with travel demand. This year, we've heard some mixed messages from some of the travel companies. So curious what you are seeing and how that is impacting your once your bookings outlook. Thank you.

We continue to be very bullish on travel no I sound like a broken record since we went public but travel and experience has continued to be a bright spot of consumer spend airports have been putting out there volume data for last year and it is records across the board pretty much and then there is growth.

Corey Carpenter: But again, it's the experience that you're delivering that is holistic. Thank you. Our next question comes from the line of Corey Carpenter with JPMorgan. Please proceed with your question. Hi, good morning.

The city is like in Austin that are just off the charts with with the kind of growth over the past few years that you really have never seen in airports business travel is rebounding if I look at our business mix of verification that was up 300 basis points year over year I would say there is a normalization of leisure premium remains strong.

Karen Seidman Becker: I wanted to ask what you're seeing with travel demand this year. We've heard some mixed messages from some of the travel companies, so I'm curious what you all are seeing and then how that is impacting your 1Q bookings outlook. Thank you. We continue to be very bullish on travel. I know I sound like a broken record since we went public, but travel and experiences continue to be a bright spot of consumer spend. Airports have been putting out their volume data for last year, and it is records across the board pretty much.

But what we really focus on our number of people coming through airports. So you know whether it be pricing in airlines or hotels.

Unless it's extreme we really don't see that impacting the volume that we see travel has really become part of the zeitgeist and there's so many drivers of it. So we continue to be very bullish on travel and specifically for the clear plus business people coming through airport security checks.

Karen Seidman Becker: And then there are growth cities like Austin that are just off the charts with the kind of growth over the past few years that you really haven't seen in airports. Business travel is rebounding. If I look at our business mix of verifications, it was up 300 basis points year over year. I would say there's a normalization of leisure travel.

I also think again going back to what I said to Josh of biometrics going mainstream that travelers are showing up at airports with higher expectations and I think you see a lot of new builds of new launches Denver have launched a new land, you're seeing new concessions, you're seeing technology that is really meeting the current customer expectations.

Karen Seidman Becker: Premium remains strong. But what we really focus on are the number of people coming through airports. So, you know, whether it be pricing in airlines or hotels, unless it's extreme, we really don't see that impacting the volume that we see. Travel has really become part of the zeitgeist, and there are so many drivers of it.

What they have outside of airports and I do think that the easier the more friction free we can make the experience that airlines and airports can make the experience the more you'll continue to see people travel.

Karen Seidman Becker: So we continue to be very bullish on travel, and specifically for the Clear Plus business, people coming through airport security checkpoints. I also think, again, going back to what I said to Josh about biometrics going mainstream, that travelers are showing up at airports with higher expectations. And I think you see a lot of new builds and new launches. Denver launched a new lane. You're seeing new concessions. You're seeing technology.

Yeah.

Thank you and just a quick follow up.

Color, you're able to provide on what the TSA enrollment in person cross rollout could look like from here now that you're in your work and you have renewals online. Thank you.

Oh, you mean pre check.

Yes, <unk> sorry, okay.

Do you want it.

Karen Seidman Becker: That is really meeting the current customer expectations of what they have outside of airports. And I do think that the easier, the more friction-free we can make the experience, that airlines and airports can make the experience, the more you'll continue to see people travel. And just a quick follow-up, any color you're able to provide on what the TSA enrollment in-person rollout could look like from here now that you're in Newark and you have renewals online. Thank you. Oh, so do you mean pre-check? Yes, recheck. Sorry.

So the the rollout plan from here is that we are going to add we expect to add a.

A few airports over the next coming weeks and then.

Rollout to the rest of the country throughout the year, all subject to TSA approval.

I would say on Newark, it's incredibly exciting we've obviously been talking about our excitement around TSA pre check the enrollment provided by clear for several years. If you go to New York, you'll see that we're open seven days a week 14 hours a day with multiple pods staff by friendly clear ambassadors. So when you think of the capacity and the no.

Karen Seidman Becker: Okay. Yes, so the rollout plan from here is that we are going to add, we expect to add, a few airports over the next coming weeks and then roll out to the rest of the country throughout the year, all subject to TSA. I would say about Newark, it's incredibly exciting.

[noise] appointment required and how this is really increasing enrollment accessibility for American travelers the opportunity overtime pending TSA approval to roll this out across the country is incredibly exciting and we are very encouraged by the early results both online and at Newark.

Karen Seidman Becker: We've obviously been talking about our excitement around TSA pre-checked enrollment provided by CLEAR for several years. If you go to Newark, you'll see that we're open seven days a week, 14 hours a day with multiple pods staffed by friendly CLEAR ambassadors. So when you think of the capacity and the no appointment required and how this is really increasing enrollment accessibility for American travelers, the opportunity, over time pending TSA approval, to roll this out across the country is incredibly exciting. And we are very encouraged by the early results both online and at Newark. Thank you. Our next question comes from the line of Ben Miller with Goldman Sachs. Please proceed with your question. Thanks for taking the questions, maybe two if I can.

Thank you. Our next question comes from the line have been mother with Goldman Sachs. Please proceed with your question.

Thanks for taking the questions maybe two if I can first just on the retention being a little lower it implies maybe the gross adds were better. So any color you can share just on particular channel strength to call out either.

Either airport or partner and then just.

Just on the guide any color or quantify the impact from Easter shift on travel patterns and or the beer that's implied in the guide thanks.

So I'll start with the guidance. So you know generally speaking we have a much higher backlog of retention in Q4 versus Q1. So the sequential decline from Q4 to Q1 is totally typical.

Ken Cornyn: First, just on the retention, being a little lower, it implies maybe the gross ads were better. So any color you can share just on a particular channel strength to call out, either in the airport or partner. And then just on the guide, any color to quantify the impact of the Easter shift on travel patterns and or the leap year that's implied in the guide.

Last year, we had a much larger benefit from a pricing perspective sequentially. So if you look at 2023 with a very big year for pricing, we took price on basically every cohort and so when you look at Q1 'twenty three versus Q to Q4 of 'twenty. Two we had the benefit of family airline channel and standard.

Ken Cornyn: Thanks. So, I'll start with the guide. So, generally speaking, we have a much higher backlog of retention in Q4 versus Q1, so the sequential decline from Q4 to Q1 is totally typical. Last year, we had a much larger benefit from a pricing perspective sequentially. So, if you look at 2023, it was a very big year for pricing. We took prices on basically every cohort.

Renewals and so if you back out that impact do you really have a much more similar.

Sequential change from Q4 to Q1, so that's what I would say about the guide.

I think I don't have a specific comment on Easter shift there.

And then in terms of the channels.

Our teams performed extremely well in Q4, both in airport and some of the marketing channels you did see a sequential uptick in marketing spend so we took some opportunities where we saw the.

Ken Cornyn: And so, when you look at Q1, 23 versus Q2, and Q4 of 22, we had the benefit of the family airline channel and standard renewals. And so, if you back out that impact, you really have a much more similar sequential change from Q4 to Q1. So that's what I would say about the guide. I don't think, I don't have a specific comment on the Easter shift there.

The ability to accelerate the gross adds from that perspective, so no specific.

All the strength, but I would say just strong execution across the board in Q4.

Yeah.

Thank you. Our next question comes from Dana Telsey with Telsey Advisory Group. Please proceed with your question.

Ken Cornyn: And then in terms of the channels, I think our teams performed extremely well in Q4, both in the airport and some of the marketing channels. You did see a sequential uptick in marketing spend. So we took some opportunities where we saw the ability to accelerate gross ads from that perspective. So no specific channel of strength, but I would say just strong execution across the board in Q4.

Hi, Karen and Ken Nice to see the progress as you talked about the experience and the enhancements that you're making what are you doing what should we see as we go through the year, obviously speed definitely one thing, but you also mentioned the new handheld devices when will those be rolled out and how are you. How are you looking at it.

And then just for for this year overall with TSA pre check are there any expenses that we should be mindful of as we go through the year for the model. Thank you.

Ken Cornyn: Thank you. Our next question comes from Dana Telsey with the Telsey Advisory Group. Please proceed with your question. Hi Karen and Ken.

I can take the pre check Dana and then I'll talk about the technology rollout. This year. So from a free check perspective, we've talked about I think over the last probably eight quarters that we've been carrying expenses overhead for pre check and Thats why we.

Dana Lauren Telsey: It's nice to see the progress. As you talked about the experience and the enhancements that you're making, what are you doing? What should we see as we go through the year?

Karen Seidman Becker: Obviously, speed is definitely one thing, but you also mentioned the new handheld devices. When will those be rolled out, and how are you looking at them? And then, just for this year overall with TSA PreCheck, are there any expenses that we should be mindful of as we go through the year for the program?

We're so optimistic on our high.

High incremental margins one of the reasons for in 2024, we are bullish on margin expansion is because we had been carrying a lot of overhead. So the incremental expenses you'd see from pre check really are would be around staffing and we have been carrying some extra staffing as well so.

Ken Cornyn: Thank you. I can take the pre-check, Dana, and then I'll talk about the technology rollout this year. So from a pre-check perspective, we've talked about, I think, over the last probably eight quarters, that we've been carrying expenses and overhead for pre-check. And that's why, you know, we're so optimistic about our high incremental margins. One of the reasons why, in 2024, we are bullish on margin expansion is because we have been carrying a lot of overhead. So the incremental expenses you'd see from pre-check really would be around staffing. And we have been carrying some extra staffing as well. So I wouldn't say that you're going to see anything meaningful, you know, certainly be marketing the product as well.

I wouldn't I wouldn't say that youre going to see anything meaningful.

Certainly the marketing the product as well, but we do believe that pre tax should lead to fairly high incremental margins.

And in terms of the technology rollout Dana that you should see this year some of which I can talk about and some of which I can't yet talk about you will see new pods from clear that are faced first pods were calling them N V, which is a combination of enrollment and verification.

Ken Cornyn: But we do believe that, you know, pre-check should lead to fairly high incremental margins. And in terms of the technology rollout, Dana, that you should see this year, some of which I can talk about and some of which I can't yet talk about, you will see new pods from Clear that are face-first pods. We're calling them Envy, which is a combination of enrollment and verification, and they are faster, they are slimmer, so we can have more, and they are face-first pods. And so that's really important from the power of the camera, capture, things of that nature. From there, the pods transmit digital identities to these handhelds, and then it is a tap to transmit those digital identities into the TSA system.

They are faster they are slimmer. So we can have more.

And are they are faced first pods and so that's really important from the power of the camera or caps or things of that nature.

From there the pods transmit digital identity to these handheld and then it is a tap to transmit those digital identities into the TSA system and so members will be face birth barely break stride and not have to take any I D.

Karen Seidman Becker: And so members will be face-first, barely break stride, and not have to take any IDs or boarding passes out of their pockets. However, there will always be randomization from a security perspective. And so those things will really contribute to not only speed and efficiency but member experience and security. Thank you. Thank you. Our next question, from the line of Mark Kelley with Stifel. I'm pleased to see you with your questions. Great, thank you very much, and good morning.

These are boarding passes out of their pockets. There will remain you know I always randomization from a security perspective, and so those things will really contribute to not only speed and efficiency, but member experience and security.

Thank you.

Thank you. Our next question comes from the line of Mark Kelly with Stifel. Please proceed with your question.

Great. Thank you very much and good morning.

Mark Patrick Kelley: If I can just expand maybe on the last couple of points you made there, Karen, about the user experience. You know, there's a lot that's in your control, like some of the things you just outlined, and some are, you know, maybe you're more reliant on, you know, the CAT-2 machines and things like that rolling out. I guess what's more important in your mind, the things you can control or the things you, you know, cannot control directly?

Well I can just expand maybe on the on the last a couple of points you made there Karen.

On the user experience you know there's a lot of what's in your control like some of the things you just outlined and some are not.

Maybe you're more reliant on you know the cat two machines and things like that rolling out I guess whats more important in your mind.

All the things you can control and things you.

Cannot control directly.

The second one is in terms of search staffing around the next Gen. I D initiatives does that.

Ken Cornyn: And then the second one is in terms of surge staffing around the NextGen ID initiatives. Does that come out of the P&L starting this quarter? Or are we going to see a little bit of that until you get, you know, to 100% of folks upgrading? Thank you. Yeah, in terms of this, I'll answer the second question first. The surge staffing, we talked about in Q4, $2 million, and a similar amount in Q1. And I would say that that does come out.

Does that come out of the P&L, starting this quarter or are we going to see a little bit of that.

And so you get you know 200 per cent of Oh folks okay. Thank you.

Yeah in terms of this I'll answer the second question first the surge staffing we talked about in Q4 $2 million and a similar amount in Q1 and I would say that that does come out now of course, we're still growing our footprint and we still have verification growth. So.

It's not necessarily going to go down sequentially, but we do expect to see strong operating leverage from the direct salaries line throughout 2024.

Karen Seidman Becker: Now, of course, we're still growing our footprint, right? And we still have verification growth. So, it's not necessarily going to go down sequentially, but we do expect to see strong operating leverage from the direct salaries line throughout 2024. And in terms of your question, and this comes from a control freak, you know, you've got to control what you can control.

And in terms of your question and this comes from a control Freak you know you got to control what you can control and what I would say is that there is a deep alignment across all partners and stakeholders airports Airlines. The government. Most importantly passengers that they want to safer and easier.

Karen Seidman Becker: And what I would say is that there is a deep alignment across all partners and stakeholders, airports, airlines, the government, and most importantly, passengers, that they want safer and easier experiences, that technology is the solution, that bringing PreCheck to as many people as possible, which is great from a, you know, physical screening perspective, that biometrics are going mainstream, and that public-private partnerships are powerful. And so it's everybody working together and an alignment around that that I think does drive timing and that everybody wants this to happen, right? Again, I keep going back, and I think everyone sees it.

For instance that technology is the solution that bringing pre check to as many people as possible, which is great from a physical screening perspective that biometrics are going mainstream and that public private partnerships are powerful.

And so its everybody working together and and an alignment around that that I think does drive timing.

And that everybody wants that to happen again, I keep going back and I think everyone sees it theres a million more travelers coming through airports every single day by 2030 and where in 2024. So it's just not that far away you've got to be rolling out These technologies and so I think the ally.

David Underwood: There will be a million more travelers coming through airports every single day by 2030, and we're in 2024, so it's just not that far away. You've got to be rolling out these technologies, and so I think the alignment, you know, helps ensure the outcome. Thank you. Our next question comes from the line of David Underwood, Wells Fargo. Please proceed with your question. Hey, thanks for taking my questions. Guys, you talked about the ARPU increase. I shouldn't say increase, but you mentioned average members paying less than $10 per month. So let's say it's 115 degrees annually.

Mint you know helps ensure the.

The outcomes.

Thank you.

And our next question comes from the line of Andre with Wells Fargo. Please proceed with your question.

Hey, Thanks for taking my questions guys, you you talked about the Europe increase.

And to increase but.

You mentioned average members paying less than $10 per month, so, let's say, it's 115 annually.

About the pricing increases, but just wondering how we should think about <unk> price increases over the next couple of years. Thanks.

Before Ken talks about the technicals on that I will say when you think about the value for less than $10 a month for a clear plus when you think about the value for pre checklists and $1 30, a month. These are incredible values. When you think about the time, how you return as well as the challenges around <unk>.

Karen Seidman Becker: And, you know, we know about the pricing increases, but I was just wondering how we should think about our own price increases over the next couple years. Before Ken talks about the technical details of that, I will say, when you think about the value of less than $10 a month for a Clear Plus, and when you think about the value for pre-check, less than $1.30 a month, these are incredible values when you think about the time value of return as well as the challenges around travel. And I think that creates a lot of opportunity to continue to drive value for customers. And when you do that, over time, there's a pricing opportunity. Yeah, and so when we talk about the average, obviously, our retail price point is $189. We have a family plan for now at $99 airline pricing. So there's a wide variety, and our credit card partners, those members don't pay anything.

<unk> and I think that creates a lot of opportunity to continue to drive value for customers and when you do that over time, there's pricing opportunities.

Yeah. So when we talk about the average obviously, our retail price points 189, we have a family plan for $99 airline pricing. So there's a wide variety and our credit card partners of those members.

Thanks.

And so we will continue to evaluate opportunities as we see them, we think that we have.

Very modest price elasticity in this business, but we also need to deliver a great customer experience and that's what we're focused on this year and as we deliver on that we will evaluate opportunities to take price appropriately and again continue to add to either side of the of the experience from home to gate.

Ken Cornyn: And so we will continue to evaluate opportunities as we see them. We think that we have very modest price elasticity in this business, but we also need to deliver a great customer experience, and that's what we're focused on this year. And as we deliver on that, we will evaluate opportunities to take price appropriately and again, continue to add to either side of the experience from home to gate. Okay, thanks. And then, guys, just a follow-up.

Okay. Thanks, and then guys just a follow up so you can maybe this is more for you when we when we look at the full year guide and you know about the 3% comment in the shareholder letter on travel increase for 2024.

Is there a way for us to think about member growth expectations, you know exiting 2024 versus 2023. Thank you.

David Underwood: So, Ken, maybe this is more for you. When we look at the full-year guide and, you know, the 3% comment and the shareholder letter on the travel increase for 2024, is there a way for us to think about member growth expectations, you know, exiting 2024 versus 2023? Thank you. So, you know, I would say that we manage the business, you know, for members, for bookings, and for free cash flow. And so there are a lot of levers to pull here.

So I would say that we manage the business for members for bookings and for free cash flow and so theres a lot of levers to pull here and so what we're really focused on ultimately driving free cash flow and obviously, we want to grow our member base, but we want to deliver a great experience, we're going to look at pricing.

Opportunities I, just mentioned and so there is there's a lot of ways to optimize the business and we're going to we're going to look at that.

I'm not going to specifically talk about what the member growth is going to be well, we opened eight airports in 'twenty to 'twenty three we expect to launch and grow then you know the network. This year. Those airports you know I would call them very immature airports may be 'twenty, 'twenty, two and 2023 openings.

Ken Cornyn: And so what we're really focused on, ultimately, is driving free cash flow. And obviously, we want to grow our member base, but we want to deliver a great experience. We're going to look at pricing opportunities, as I just mentioned. And so there are a lot of ways to, you know, optimize the business, and we're going to look at that. And I'm not going to specifically talk about what the member group is going to be.

Still have.

Obviously incredible growth opportunities as well as new airports in our mature airports continue to comp well and again when you talk about mature you know two three years are not necessarily mature, obviously tena as more and continue to have good growth, but as Ken said, we're focused on the overall picture.

Ken Cornyn: We opened eight airports in 2023. We expect to launch and grow the, you know, network this year. Those airports, you know, I would call them very immature airports, maybe 2022 and 2023 openings, you know, still have, obviously, incredible growth opportunities, as well as new airports. And our mature airports continue to do well. And again, when you talk about maturity, you know, two, three years are not necessarily mature.

Thank you.

Thank you and we have reached the end of the question and answer session I'll now turn the call back over to Karen Bergman for closing remarks.

Thank you for joining our fourth quarter 2023 earnings call I want to say a huge thank you to our team the clear team I am proud of how we are growing our partners and products and executing on behalf of our members every day identity is foundational it is here and now you see.

Karen Seidman Becker: Obviously, 10 is more and we continue to have good growth. But as Ken said, we're focused on the overall picture. Thank you. Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to Karen Diamond-Becker for a closer. Thank you for joining our fourth quarter 2023 earnings call. I want to say a huge thank you to our team, the Clear team. I am proud of how we are growing our partners and products and executing on behalf of our members every day. Identity is foundational. It is here, and now you're seeing it in travel and beyond.

It and travel and beyond.

For joining today.

Okay.

And this concludes today's earnings call you may disconnect. Your lines at this time. Thank you for your participation.

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Karen Seidman Becker: So thank you for joining us today. And this concludes today's earnings call. You may disconnect your line at this time. Thank you for your participation. Transcribed by https://otter.ai, https://www.youtube.com, Copyright 2018 Mooji Media Ltd. All Rights Reserved, www.mytrendyphone.co.uk www.larryweaver.com and Mark Kelley. Thank you for watching. By

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