Q2 2025 Clear Secure Inc Earnings Call

Good morning. Welcome to Clear Secure, Inc.'s Fiscal Q2 2025 Conference Call. We have with us today Caryn Seidman-Becker, Co-founder, Chair, and Chief Executive Officer; Michael Barkun, President; and Jennifer Hsu, 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.

Press release and most recently filed, quarterly report on form 10q. These items can be found an investor relations section of clear's website with that. I'll turn the call over to Karen.

Clear. Secure identity platform is the trusted identity layer for travel and Enterprise 2025 continues to be a year of innovation, execution, and momentum, as the need for trust security. And frictionless experience is in today's world is Paramount

The threat environment continues to evolve, and AI is only accelerating the need for secure identity. Clear, traditional forms of identity, such as the driver's license, have become analog, outdated, and insufficient. Clear's smart network, which is both physical and digital, enables us to secure identity with depth, delivering total identity integrity.

Clear is making experiences safer and easier for our members and our enterprise partners across travel, workforce, healthcare, and consumer applications.

We delivered a strong second, quarter driven by the continued strength of our travel business against a broadly flat travel environment. Clear, Pluff had a record travel volume quarter, the member experience continues to elevate our face. First Envy verification pods are 100% live across our Network, enhancing security and accelerating through.

Throughput. Clear members are through the clear Lane in under 3 minutes on average, and our member experience score has continued to rise. We are delivering the consistent and predictable airport experience that Travelers prize. We continue to roll out Envy enrollment pods enabling features such as Apple pay which creates more intuitive and fully digitized onboarding, we have developed a great and consistent enrollment experience, whether you choose to enroll at the airport, or on your phone.

Digitally our e-passport capability has created a 1 new members to Simply scan their passport directly within the Clear app, completely skipping the airport enrollment process. Now Travelers can enroll at home or stuck in traffic on their way to the airport and just head straight to our verification Lanes.

Additionally, it is time for highly vetted International travelers to have access to a better airport experience in the US.

Starting this week clear plus will be available to Travelers from the UK, Canada, Australia, and New Zealand. This will unlock an attractive new Tam and can increase our overall member base. We expect to add additional countries heading into 2026.

We believe in public-private partnerships and are actively partnering with the TSA and the aviation community to modernize and enhance the travel experience at no cost to taxpayers.

At CLEAR, we're on a mission to help travelers win the day of travel, delivering a true frictionless home-to-gate experience. That's why we're introducing CLEAR Concierge, a premium, on-demand service that connects members with a dedicated ambassador at the touch of a button from the CLEAR app. Whether you're running late, juggling bags, or just want a little extra help, CLEAR Concierge meets you curbside, guides you through the CLEAR lane, and can also stay with you all the way to your gate. It's personal, seamless, and powered by the awesome ambassadors who make CLEAR CLEAR.

Our Innovation and progress in realizing our home to gate Vision has been in service of improving. Our member experience growing, our total addressable market and yielding greater operating leverage in our business.

The real ID mandate reflects the importance of a digital identity clear ID can now be your real ID. We are digitizing your passport on your phone as a certified. Real ID issuer by the Department of Homeland Security. Clear, can now help travelers meet the federal identification standard required for air travel. Us Travelers, can simply upload their passport via the Clear app. This creates a free digital real ID that Travelers can use at any TSA enabled. Checkpoint Nationwide initially available.

Only to members. We expect that clear ID will be enabled for all us. Travelers this month successfully introducing even more travelers to clear Services over time. This work paves the way for a clear ID to be recognized as a mobile first identity. Credential not only in travel but for our clear 1 platform and Beyond

Will be fraudulent and over 80% of breaches. Will start with compromised credentials. Clear, 1 is solving critical problems for Enterprises and their need to secure their employees customers and assets.

Our clear 1 solution for workforce applications is gaining strength and penetration, with notable adoption from partners like Greenhouse. The recruiting software provider wants to secure the entire candidate journey from applicant to employee. The healthcare industry is enhancing security practices to safeguard sensitive health information. This has become an industry imperative. In fact, we were at the White House this past week as a trusted partner in the new Centers for Medicare and Medicaid Services Health Tech ecosystem initiative.

Clear 1 will Aid in the CMS initiative to help streamline. The patient experience by eliminating the clipboard and enabling secure seamless access to personal health information. Our epic toolbox integration which we plan to have live. By the end of the year will allow Epix 325 million patients to create and recover accounts to access their electronic health records. This partnership is a great example of clear 1's opportunity to land and expand. Our Healthcare partner relationships with both patients and providers.

Finally, I'm thrilled to announce that our partnership with DocuSign is now live. Clear 1 will enhance trust by verifying identities for critical agreements and contracts setting a new standard for high stakes, digital workflows.

Clear is executing from a position of strength with a powerful brand, strong balance sheet, and a platform purpose-built for scale. Our leadership team is focused on maximizing this moment. We are aligning around technology, efficiency, and organizational structure that will deliver the best experience for our members, optimized for member bookings and free cash flow. With that, I will turn it over to Jen.

Thank you, Karen. We delivered a strong second, quarter of financial results with 219.5 million of Revenue. Representing 17.5% growth. 222.9 million of total, bookings representing, 13.1% growth and 117.9 million of free cash flow.

Our focus on product Innovation and experience continues to attract new members, to the clear plus service, active clear Plus members grew to 7.6 million up 7.5% on a year-over-year basis. Bringing clear, plus to International Travelers is further growing, our Tam and represents an additional opportunity to expand our member space over time.

From a pricing perspective in Q2, we brought standard pricing from $199 to $209 and family pricing from $119 to $125.

Q2 gross dollar retention was 87.3% up 20 basis points sequentially. As a reminder, gross dollar retention is an output of member retention and pricing actions. Any pricing action that we take influences. Gross dollar retention over 24 month time period from the date. We Implement a pricing change.

Our TSA PreCheck business continues to ramp as of Q2 quarter end. We operated 231 enrollment locations nearly 2 times our location count ending q1, our TSA PreCheck presence represents a portfolio across airports, Retail Partners and Flagship locations.

We continue to gain outsized market. Share relative to our location. Share a testament to our differentiated, go to market and convenience including our pre-enrollment capabilities. In addition, we are successfully bundling TSA pre-check with clear plus as 2, highly complimentary service offerings.

As Karen mentioned clear, concierge is live in 14. Airports with the 99 express service, Expediting Travelers through security and the 179 gate service guiding members from the curb to their lounger gate. Concierge is 1 example of our continued opportunity to drive increasing Revenue per member over time.

The risk and security environment is driving meaningful, interest towards clear 1, we ended Q2 with 33.5 million total members up 38.2% year-over-year and demonstrative of the growth. We are seeing on the clear platform. We signed over 25. Clear, 1 deals in Q2 across Workforce Healthcare and consumer verticals.

both the number of deals signed and the aggregate contract value of these deals were a record quarter for Clear, 1

Moving to profitability, we continue to our consistent track record of growing both profit dollars and margins. We generated 42.6 million of operating income representing a 19.4% operating margin and just north of 300 basis, points of margin expansion.

We generated 60.1 million of adjusted ibida. Representing a 27.4, adjusted ibida margin, and approximately 200 basis points of margin expansion.

Cost of direct salaries and benefits represented 21.7% of Revenue.

compensation structure, which shifted away from commissions and into base salaries, direct salaries, and benefits, demonstrated a 90 basis points year-over-year Improvement, when factoring in this change the operating leverage that we have been able to drive has been a result of efficiencies from our MV verification pods which verify members 5 times faster than our Legacy pods

We believe there's further cost leverage and Ambassador optionality. We can drive over time as we further. Roll out MVP pods for new enrollments deliver product Innovation and policy advancements.

DNA represented 26.7% of Revenue and Improvement of approximately 300 basis points year-over-year reflecting our continued discipline around corporate resource allocation and expense management. Our leadership team remains highly focused and committed to strategic prioritization streamlining and driving operational efficiency in Q2. We generated 123 million of net cash provided by operating activities and 117.9 million of free cash flow up, 7.3% and 7.1% year-over-year respectively.

As a reminder, the majority of capex requirements for the MVP pod, rollout is behind us. And we have higher cash taxes this year. After having utilized, the majority of our nol balance in 2024, which impacts year-over-year free, cash flow growth.

We ended the quarter with 609 million of cash and marketable. Securities after returning 42.7 million of capital to shareholders, including approximately 24.6 million, under our share of purchase program and approximately 18.1 million in dividends and distributions.

Turning to guidance for Q3, we expect a revenue of 223 to 226 million and total bookings of 253. To 258 million representing 13.1 and 12.3% growth at the midpoint respectively.

As a reminder, because we are an annual biller. The number of members up for Renewal has a meaningful impact on net ads within a specific quarter.

This dynamic, coupled with seasonal travel demand, drives our expectation for Q3 to be the smallest net adds contributor in 2025 for the full year. We continue to expect expanding adjusted EBITDA margins on a year-over-year basis, and we are reaffirming our free cash flow guidance of at least $310 million. With that, we will open the call for Q&A.

Thank you. We will now 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 from the queue and for a participant, choosing speaker equipment and may be necessary to pick up your handset. Before pressing the star Keys. We ask that you please limit to 1 question and 1. Follow-up question 1 moment while we pull for questions.

Questions.

Our first question is from Joshua Riley with nem and Company, please proceed.

All right, great, thanks for taking my questions. Nice job on the quarter here. Uh, as we're looking at the international opportunity, maybe we could get some more color there in terms of, you know, how does the enrollment process going to work for these people? What documents do they need and do you need to work directly with each country to make the process work and does that ultimately lead to uh clear lanes and some of these uh individual countries themselves.

Thanks Josh.

so, in terms of international the,

As our domestic 1 Step, enrollment our e-passport. Our, you know, our EIP capability on passports, really opens up the opportunity for this 1 Step enrollment. And so, you know, it starts with the countries that we talked about, it is a blanket, you know, opportunity for all of those countries, we don't need to go country by country and they can enroll on their phone. They can enroll um, at the Pod. So, first, we'll come to the Pod. The phone will come just a little bit later this year. And then they have access to clear Lanes in the US, uh, in terms of, you know, marketing, both Partners, Direct Corporate, we see opportunities to reach International Travelers, through all of those channels and today, we are still focused on growing our domestic Network which only covers about 75% of us traffic. So I

Got it. That's awesome. And then how are you thinking about the latest round of price increases that took effect? July first? This round has been uh, more coordinated in terms of the different membership categories and family had the smallest price. Increase this time, any color there in terms of what you expect around, retention through this round of price increases. Thanks, guys.

Hi Josh.

Um, you're right. I, I would say, um, these pricing actions were more coordinated. I I would say in the past, um, you know, the decisions we took were really a step function to to catch up for if you will some of the years where we had not taken price on clear plus um in an effort to catch up to our value proposition. Um, I would say, our overall approach on on pricing is really a goal to optimize bookings and we're obviously only a few weeks into the, the July 1, um, price increase, but retention thus far has been uh, as we as we expected.

And and Josh if I can just add to that you should expect a more disciplined and consistent pricing strategy out of us. It has clearly been um, more sporadic and and our focus on continuing to launch new products of which you saw several, this quarter improve the member experience, add to the value proposition and have a disciplined and consistent approach on pricing is something that we are focused on.

The the overall perspective on pricing is is that we we believe we have continued Runway and that's both through bringing our discounted members closer to standard pricing and then also opportunities like concierge which effectively brings the the revenue per member up uh over time.

Awesome. Thank you. I'll pass it along.

Our next question is from Corey Carpenter with JP Morgan, please proceed.

Uh, thanks for the question Karen, I had 1 for you, then in a follow-up for Jen. I wanted to ask Victor Administration. They've been quite vocal about their desire to improve the airport experience. Um, we've already seen changes such as shoes staying on through screening, you know, based on your conversations and time in Washington. What is the administration most focused on changing and what role do you think clearer could play in this process? Thank you.

Great question. Um I will say DC is 1 of my favorite cities of late this Administration clearly values, public private Partnerships and companies willingness to push Innovation at no cost to taxpayers and so that could not position. Clear, any better? We do not have take any money from the government. In fact, we share revenues, at the federal state and local level pre-check through our rev share, um, with the Department of Homeland Security and TSA. And then at the airport level, well, over a hundred million dollars this year alone. And so I

Think that they're focused on a few things, certainly driving security, which are um, Biometrics and our future initiatives do really, really well. They definitely want to Delight Travelers. They understand that travel is an important part of the economy. 1 out of 10 jobs, are associated with travel, many states and cities are very dependent on tourism and specifically heading into the World Cup. You know, making our airports great. You look around at Singapore at Tokyo at London um, at Doha where the World Cup was last year. These are highly digital, very personalized, seamless experiences and so partnering with the private sector, to drive the Innovation to modernize our airports to strengthen security Delight Travelers. I would also say they're very focused on privacy, which is really important and again, something that we are also focused on and finding that day. They're focused on made in America companies, which is music to our

Our ears. And so, I really think that over the next few years, you will see transformation in the travel experience—the airport experience—in a way that we really haven't seen much over the past 20 years. We are incredibly excited to partner with this Administration to do that.

Thank you and um I think for you Jen just gross dollar retention and increase sequentially for the first time in 2023. Perhaps you could talk a bit about the drivers behind that in any impact real ID had on the business in the quarter. Thank you.

As we annualize a price increase over the first 12 months. Um, so so so those are the the kind of factors that are uh influencing that metric I would say relative to last quarter. We we had a modest 20 basis points. Um, benefit last quarter q1 versus q1 of 24. We were uh, in the middle of our next Generation, Um, ID upgrades, and so that did have a small impact of of um on retention and in q1 of 24 relative to this quarter.

Great. Thank you.

Our next question is from Mark Kelly with Stifel. Please proceed.

Great. Thanks very much. Uh, good morning everyone. Um, I just 2 quick ones. Uh, Karen. I know you're you're more focused on the the domestic Market at the moment, but um, you know, really find the international roll out, um, you know, interesting, um, and would love to get a little bit more color if I could just about the, you know, roughly 2 million Travelers that you called out. I think on the last call, um, you know, I guess, what do you expect adoption to be like across those countries? Um, and we'll pricing be, um, you know, the same as in uh, the US market or will it be a bit different? Just any thoughts? There would be great. Thank you. Yeah.

Um, so again we haven't launched yet so you know, I don't want to make too many estimations before we see evidence, but let me tell you what, I can say, which is pricing will be the same, right? So whether you are you know flying in from the UK and want to enroll with your passport on the phone, it's in the clear app, it is the same experience and the same price. They can also sign up for as many concierges as they want and we welcome uh that experience as well which is something they're accustomed to I think in other airports from an adoption perspective. Certainly, I think Partners will be important, uh, through this roll out, right? So if you know, we're partnered with Delta and United and they're part of alliances. There's hotels. Uh, certainly we have a great partnership with Uber. There's lots of ways to communicate to Travelers, Not to mention through their companies um and, and other ways to drive adoption. I would say we didn't incorporate crazy things into this year. So,

You know, but we definitely think that the opportunity set is enormous and uh, you know, we're going to start with these countries and then we're going to roll out to to many more over the, you know, upcoming months. So we will keep you up. But we think the increase in Tam and again we think heading into the World Cup, having this Universal predictable frictionless experience is a huge opportunity for us. So we'll definitely have more to say on it next quarter.

Okay. All right. Perfect and then um just kind of sticking with the same theme you know the fact that you didn't have to go country by country and kind of get, you know, quote unquote, sign off. Uh from those countries is is that mostly just because it's

The product will still be, you know, those Travelers coming to the US and it's more about the TSA and, you know, all the regulatory correct. Correct, entities. Okay.

Using it outbound right through the clear Lanes. This is not about inbound and CBP that is separate, right? So this is outbound traffic today. So it would be the same experience that they're having today. But so either either travel within the US

or folks traveling from the US back to their home countries or other countries.

Okay. All right, perfect, thanks so much. Appreciate it.

Thank you.

As a reminder, it is star 1 on your telephone keypad, if you would like to ask a question. Our next question is from Michael Turan with Wells, Fargo, please proceed.

Hey, good morning. This is ronit on for Michael. Uh, just a question on the macro environment overall. Uh, a lot of airlines have reported flat to down. Uh, forecasts through the rest of the year. Uh, just wondering how you guys are, are thinking about uh the second half in terms of uh travel demand and what your uh kind of expecting on a go forward basis.

Historically about some underpenetrated cities and now we add international. So we continue to be excited about our opportunities, whether travel is up or down 1%,

Just just to clarify that. I mean in in Q2 the overall traffic volume was down about half a percentage point and we obviously grew Our member Base by 7 and a half percent. And to Karen's point from a penetration perspective, um, we still have many airports that are, uh, you know, on the lower end of the penetration curve. So, uh, ability to kind of grow same store sales from their

Great and and just to follow up on that. Uh, and kind of related is, is this at all related to your new product, Cadence it seems like uh, you're really picking it up with products like concierge and and now you have the real ID Products rolling out, um, is this what's driving? The Delta between the the uh, customer demand and uh your your new member growth uh, in terms of travel?

I'll take your your product rollout question and then I'll turn it over to Michael. Um, The increased Cadence of product Innovation and product launches that you see from us, whether it be clear, ID, International or concierge. Um, are things that we had been working on for several years. I think. As I talked about, we were not, we were not able to unleash our full product portfolio, um, that we wanted to and I think this Administration has helped as well as our great.

Team and so we're excited on both fronts about the product Innovation and product launches but that is really not. What has driven the growth that you saw in the quarter some of those are still in front of us from a product launch perspective. Yeah. And I I would just add that I think um all of the efforts that we're making relative to product and technology and service

are in concert with a overall view of how we can improve the travel experience, broadly because we think that's what we'll ultimately, um, you know, determine our, our members loyalty and, and retention, and ultimately Drive the business. And so I think when you think about

The next-gen ID upgrades, the NVS that we've rolled out. Um, now international passports, the ability to have one-step enrollment, and then things like concierge, which are really a premium and differentiated experience in the airports. What we're really trying to do is make the experience, uh, frictionless and delightful for our members throughout the travel experience at the airports. And that's what we're really focused on, on that side of the business.

Awesome. Thank you.

Our next question is from Dana telsey with telsey Advisory Group, please proceed.

Hi. Good morning everyone and nice to see the progress, Karen as you think about some of these new programs that you've put out, put out there. How do you, how are you planning member retention? How do you think about it? How are you thinking about pricing, going forward, will it given you mentioned sporadic in the past? Do you think it is once a year twice a year and do these different engagements, have different price points attached, how do you plan for that? And lastly, AI any advancements. There we should make note of thank you.

Um,

So, just in terms of retention, let me take it at a high level, and then I'll turn it over to Michael. I'll also talk to AI. Um,

it starts with a great member experience and we are massively focused on that. Not only today's experience, but adding new products that drive that home to gate experience, I'll let Michael go deeper what I will say on AI. And I think I said in the script 2 pieces, Ai and synthetic identities, and all that you're hearing about, that makes true identity and total, identity Integrity, more important than ever. And the fact that we have this physical network has become more valuable than ever, and we are expanding that physical Network. I would also say, uh, you know, from a internal perspective, we have signs around here that say Ai and every workstream every day, it can advance our business in on every line item, it can drive productivity, it can drive fast,

Always working to optimize and improve that, and I think that, um, that is what gives us confidence in our ability to, um, create that member experience that that Karen talked about. It's what gives us confidence to try and take a, a, a methodical and intentional approach to pricing because the value proposition that we intend to offer to our members, only improves and then being able to add on experiences like concierge, which were, um, you know, expanding. We have 14 airports where it's active today. We'll continue to expand that so that for folks who need a little extra Assistance, or want a more premium experience we can actually offer those kinds of products and in so, doing actually add not just to the price of any 1 product. But actually the the set of products that we can, um, that we can offer to our members and then ultimately, um, be a bigger part of their overall experience and obviously benefit from that in terms of being able to sell more products. So I think

We're trying to take a holistic, look at what that member experience is. Um, you know, it really starts with

What are those products that we can offer? What is the service that you know, every 1 of our ambassador offers to our members every day which is a critical part of making the airport experience more pleasant. We're incredibly grateful to all of them and uh yeah and then continuing to think about different ways we can make the experience better through new products.

Different Travelers, want different things, right? And so again, where does AI help is really understanding our data better? And being able to personalize, some people want to be left alone and not talk to anybody heads down and go through, we all know those Travelers. Some people are traveling with, you know, 3 kids or little kids that used to be me and you're trying to get through and if someone help you, sometimes, you just are running late and want to make sure you make your flight. Um, we've all gotten calls here for, you know, can you help me I'm in traffic on the Van Wyck and so, it really just trying to personalize and customize and serve Travelers. How they want to be served. That could be with pre-check only. That could be with a pre-check bundle that could be with a pre-check bundle with clear, plus, plus concierge. Like, there's just so much and then driving innovation in the lane. We're incredibly excited and think there's so much to do uh to you know, modernize airports and personalize, a frictionless customer experience and strengthen security.

Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to Karen for closing remarks.

Thank you for joining our second quarter earnings call the expanding use cases and growing demand for Clear secure identity platform that we talked about today is incredibly exciting. Thank you.

Please note this morning.

Introduction reference. They Cheryl their letter, which was meant to be a reference to the company's press release. Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect at this time,