Clear Secure, Inc.

Good morning and welcome to the clear second quarter 2022 earnings conference call. We have us here with us today, Ms. Karen Seidman-Becker, co-founder, chairman and chief executive officer, 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 Taryn Seidman-Becker, co-founder, chairman, and chief executive officer. Taryn?

Hello and welcome to our second quarter 2022 earnings call. We were certainly expecting a very busy summer travel season, which we at Clear had termed Travelpalooza. Needless to say, the global secular demand for travel, combined with the significant industry challenges, have exceeded our already high expectations. This travel environment has highlighted the imperative for future facing innovation and collaboration amongst all stakeholders to ensure travelers have the frictionless experience they rightfully deserve and enjoy in so many other settings. We are laser-focused and deeply committed to accelerating our network expansion, partnerships, and innovation around new products to help travelers navigate an increasingly difficult global travel environment. We at Clear spend each day envisioning and creating safer and easier travel experiences. When we say transforming the journey from home to gate, we mean it. From stepping out of your front door to reaching your final destination, it is just too hard today. Clear is on the side of the traveler and obsessed with making the journey better. Our results continue to be fueled by our strong network and our evidence of the power of the network aspect we spoke about in our shareholder letter. As we've continued to add new nodes, the value proposition increases exponentially. In the second quarter, we experienced strong bookings growth of over 75%. Some of our earliest markets opened over a decade ago are amongst the fastest growing in our network. We were able to fuel our growth in a highly capital-efficient manner, reflecting not only the network effect but the obsession with customer experience, yielding both strong word of mouth and a high NPS. New products and innovation will further our network expansion and and the continued increase in our total addressable market. We have just launched our new Powered by Clear Verification SDK, available for mobile web experiences or native mobile applications. This low-code integration creates a single app solution for our partners, enabling frictionless experiences for their customers in both digital and physical environments. We are excited to welcome new partners to our network, creating new nodes for our over 13 million existing Clear members, and ensuring rapid adoption for our partners. Since our IPO, I am pleased with the continued obsession and improvement of our member experience, the growth of our network, new product introductions, and our solid financial performance and free cash flow generation. What has propelled us at Clear and will continue to fuel our innovation, growth, and culture is the strong leadership team we have built. Just this month, we are excited to welcome Nick Petty as our new Chief Technology Officer. Nick joins us most recently from J.P. Morgan, where he was the CTO of payments for consumer and community banking. And before that, Nick was part of strong engineering cultures at Uber, Capital One, PayPal, and Amazon. Before I turn it over to Ken, a quick comment on the economic climate. These are still early days at Clear. And while there is plenty of discussion in the market about a recession, our business has not experienced any evidence of a travel or economic slowdown. We have an appropriately aggressive plan in front of us as identity, holistically speaking, and frictionless experiences have never been more important and we are well positioned to lead. We are also well equipped to manage through various economic environments as evidenced by clear financial performance during the pandemic when travel declined by almost 100%. Our bookings declined by about 10% while our margins and free cash flow expanded. I'm excited about the opportunities in front of us our strong free cash flow and balance sheet, which positions us incredibly well in this environment. With that, I will turn the call over to Ken.

Thanks, Karen. Good morning, everyone. Our financial performance in Q2 was better than we expected, with revenue up 86% and bookings up 76%, driven by growth in ClearPlus as well as new platform deals and renewals. As Karen alluded to, this level of growth is not just about the return to travel post-COVID. It's a reflection of Clear's significant growth opportunity. Our bookings CAGR versus pre-COVID 2019 levels is approximately 30%, with same-store bookings accounting for roughly 80% of this growth. As we discussed on the last two earnings calls, our focus remains on growing members, bookings, and free cash flow. We generated $41 million of free cash flow this quarter, bringing year-to-date free cash flow to $61 million and last 12 months free cash flow to $114 million. We expect to remit the approximately $65 million payable to American Express in the third quarter related to the very successful first year of our platinum partnership. Even with this outflow, we expect to generate positive free cash flow in the second half of 2022. Excluding the working capital benefit from American Express over the last 12 months, we generated approximately $50 million of free cash flow, which is up over four times the prior year LTM amount of $11.6 million. Next quarter, once we anniversary the payable to American Express, we'll be speaking more about LTM free cash flow. We're also focused on operating leverage. Since inception, we have been methodical about expense growth, and we embody a scrapping at scale culture. As previewed in our Q421 earnings letter, year-over-year operating expense growth will continue to moderate as we progress through 2022. In the quarter, total op-ex grew less than 25%, roughly a third our revenue growth rate. driving significant margin expansion. Adjusted EBITDA turned positive in Q2 and is now positive on a year-to-date basis. In addition, adjusted net income turned slightly positive in the quarter. We reported 94.3% net member retention in the quarter, which was higher than our expectations and remains above our long-term expectations of the upper 80s. In our quarterly letter, we included some additional detail on underlying drivers of our net retention metrics, specifically, As utilization has grown with our network, retention levels for newer cohorts of members continue to improve. We see that in our retention curves, which have shifted up and to the right. This should provide a healthy tailwind to retention over time, which we now expect to settle above pre-COVID levels. Our cash and equivalence balance as of June 30th was $703 million. As mentioned, we expect to generate additional free cash flow in the back half. Our Q3 guidance expects GAAP revenue of $111 to $113 million and total bookings of $128 to $132 million, excluding any contribution from TSA PreCheck. We're making good progress on our launch timeline, and we do expect a Q4 launch. We will now go to Q&A.