Clear Secure, Inc.

Good morning and welcome to the CLEAR fourth quarter 2021 earnings conference call. We have with us Ms. Karen Seidman-Becker, co-founder, chairman and chief executive officer, and Ken Cornick, co-founder, president and chief financial officer. Please be advised that today's conference is being recorded. I would also like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections in our most recent SEC filings. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's 8K. With that, I'll turn the call over to Karen Seidman-Becker, co-founder, chairman, and chief executive officer of CLEAR. Karen?

Thank you. Good morning, and thank you for joining us. Earlier today, we released a shareholder letter along with our 2021 fourth quarter and year-end financials on our website. I hope you all have had an opportunity to review them. I will make some brief comments and then turn it over to Ken for some details on the financials. Clear's mission has always been to make experiences safer and easier. For over a decade, we have powered frictionless and trusted journeys in the travel space, by connecting you to all the things that make you, you. Pent-up demand and a return to normalcy in the wake of the Omicron variant is leading to a surge in travel. We have been bullish on the rebound of the Clear Plus business as the passion for travel and exploration was a global secular trend before COVID, and after months of lockdown, consumers are more eager than ever to experience the world. We saw this during the holiday travel season when we recorded our highest Clear Plus enrollment and usage numbers for any quarter ever. The World Travel and Tourism Council projects the sector will outpace pre-pandemic levels in 2022, up more than 6% since 2019. With our obsession for frictionless experiences, Clear is well-positioned to make the return to the skies more seamless than ever. New products to extend the home-to-gate journey and drive enhanced predictability, traveler control, and consumer choice are prized at Clear. Our mobile home-to-gate feature, expanding Clear Plus lanes, new reserve lanes, and the upcoming launch of our pre-check enrollment services are great examples of the innovation and consistent enhancements travelers should expect to see from Clear. Additionally, adding Y-Line to our portfolio and their virtual queuing technology extends our capabilities and helps enable our expansion both domestically and internationally. Our secure identity platform extends the Clear frictionless journey beyond travel, enabling safer and easier experiences, both physically and digitally, and turning clear into a daily habit. The new convenience economy, where so much can be done at the push of a button, has now expanded to physical settings. Whether it's age verification at a Raiders game, virtually queuing at Banco Macro in Argentina, or confirming professional licenses and certifications, this omni-channel demand from both consumers and partners is accelerating the clear flywheel. From day one, Clear has always been committed to privacy done right, and never has this been more important. It is embedded in the culture, processes, and business model of our company. Privacy, protecting member data, and security are at the center of everything we do, and we have never wavered from that commitment. Clear is opt-in, and members are always in control of their information. None of this would be possible without our world-class team. Together, as owner-operators, we are building for the long term. We are proud of what we have accomplished in 2021 and off to a strong start this year. I would now like to turn the call over to Ken.

Thanks, Karen. Good morning, everyone. Our financial performance was better than we expected, driven by the growth in Clear Plus as well as on the platform side. Omicron had little impact on our Clear Plus performance in the quarter. In fact, we had a very strong finish to the year despite the case surge. As we've continued to communicate, our gap metrics tend to be a lagging indicator of the underlying strength of our business when we are growing. In 2021, while our bookings reaccelerated, our revenues lagged behind, depressing our gap metrics. This is evident as the positive free cash flow reported for the quarter and fiscal year far exceeds the negative reported adjusted EBITDA by a wide margin. We generated significant free cash flow of $26 million in the fourth quarter and $42 million on a full year basis. 2021 marks the fourth consecutive year we have generated positive free cash flow, and we fully expect 2022 to be the fifth. We have a powerful economic model, which was masked in 2021 as we normalized airport staffing towards pre-pandemic levels. The largest component of Airport OPEX is cost of direct salaries and benefits. Direct salaries grew 140% in Q4 versus a depressed 2020 comparison. This does not reflect the true operating leverage inherent in the Clear Plus business. When compared to more normalized pre-COVID levels, we realized significant operating leverage. The 33 airports that were open for the entire fourth quarter of 2019 grew same-store bookings in excess of 50% in Q4 21 versus Q4 19, while total airport operating expenses grew around 15% in that same period, despite wage inflation in 2020 and 2021. Verifications in those markets were down low single digits while enrollments were up over 50%. While timing of new airport launches will affect the quarterly cadence, we expect growth in direct salaries to moderate in 2022, particularly in the back half when we anniversary the beginning of 2021's travel recovery. I also want to touch on G&A. As a newly public company, year-over-year growth in G&A was elevated in the back half of 2021. Sequentially, on a cash basis, excluding stock comp and acquisition-related expenses of $1.4 million, G&A grew 16%. Two of the drivers of this growth are credit card fees and upfront enrollment expenses, which are directly attributable to booking strength and member growth. In the non-variable portion of G&A, we had a number of elevated expenses in the quarter, including professional fees, which we expect to either decline or not recur. We expect Q1 2022 G&A to be flat to down sequentially from Q4 levels. Our cash and equivalence balance at 1231 was $644 million. This reflects positive free cash flow generation and includes the all-cash acquisitions of Yline and Atlas for a combined approximately $76 million. Yline and Atlas will contribute to bookings and revenue on the platform side in 2022, and you should think about them as roughly break-even on a cash basis. Before we go to Q&A, I'll briefly touch on Q1 guidance. We expect GAAP revenues of $88 to $89 million and total bookings of $103.5 to $104.5 million, excluding any contribution from TSA PreCheck. We expect our operationally ready system to be reviewed in the coming weeks, which would then initiate the launch timeline, setting us up for a launch in the next several months. Consistent with historical patterns, we expect Q1 revenue to represent the lowest revenue quarter of fiscal 22. As stated in the financial discussion in our release, we expect a moderating growth rate in expenses in 2022 and therefore expect margin expansion as well as meaningful free cash flow generation. Now we'll go to Q&A.