Clear Secure, Inc.

Good morning and welcome to Clear Quarter 3 2022 Earnings Conference Call. We have with us here Ms. Karen Seidman-Becker, Co-Founder, Chairman and Chief Executive Officer, and Ken Kornick, 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 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. Reconciliation for the most directly comparable GAAP financial measures can be found in today's 8K. With that, I'll turn the call over to Karen Seidenbecker, co-founder, chairman, and chief executive officer of Clear. Karen?

Hello. Hello. Thank you and welcome to our third quarter 2022 earnings call. Our third quarter was strong. Clear's beloved frictionless experiences were more important than ever as travelers look to Clear to navigate an extraordinarily challenging travel season. Our platform expansion to enterprise partners with our Powered by Clear product suite contributed to our results this quarter. Clear Plus experienced robust enrollment and verification trends. Same-store in-airport enrollments were up 65% year-over-year, which represents a CAGR from 2019 pre-COVID levels of 26%. In addition, over half of the Clear Plus members who verified in the quarter visited multiple locations, which further demonstrates the power of the Clear Network. In recent years, we have seen an expanded total addressable market for more predictable and friction-free travel experiences. At Clear, we want to serve all travelers and are creating products for people who travel one time per year to one time per week. In addition to our 46 Clear Plus airports, as we welcome San Juan, Puerto Rico to our network today, we now operate 14 reserve lanes, including recent launches in Canada, Germany, and the Netherlands. Reserve is free to travelers where they can make a reservation for airport security, just as they do for restaurants. While always thoughtful about extrapolating recent trends, we have seen several data points indicating that there has been a structural shift in demand for travel, where the lines between business and leisure have been blurred. Between hybrid work patterns to shift to the experience economy and increased capacity created by the global shared rental market, we believe the secular demand for travel has shifted up and to the right. In this morning's earnings release, we thought it was important to share our original pitch slide from 2010, which stated Clear's vision to start and travel and grow into the preeminent identity platform obsessed with the customer experience. We believe in the power of platforms and have built a clear identity platform to be interoperable. In our view, this is an important part of being obsessed with the customer experience, as it allows consumers to enroll once and affirm their identity anywhere. Powered by Clear allows our partners to deliver friction-free experiences to their customers, driving adoption with our over 14 million members and easy enrollment for new users. This ability to connect you to all the things that make you you is a here and now moment. The friction-free future we dreamt of in 2010 is now the expectation. We remain thoughtful of the economic environment, yet we continue to believe the demand for experiences, including travel, will sustain. We also believe that identity is foundational, and our growing network in travel and beyond enables safer, easier, and more economically efficient experiences, both physically and digitally. It's early days for the deployment of these technologies. We remain focused on growing members, bookings, and free cash flow. As Clear has demonstrated historically, we have a nimble business model and can rapidly adjust to changing market conditions as necessary. I want to thank the amazing Clear team who has done incredible work to continue to bring the Clear vision to reality. With that, I'll turn the call over to Ken.

Thanks, Karen. Good morning, everyone. Our third quarter financial performance exceeded our guidance as the clear network and value proposition continues to expand. Business travel actually accelerated post Labor Day as folks returned to work and hit the road. We expect the return of business travel from deeply depressed levels to complement the strong leisure trends we've been experiencing, providing added strength to our travel business. Overall third quarter booking growth of 47% represents a 31% CAGR from 2019 pre-COVID levels. Of this 31%, approximately 80% in same-store growth. Reflecting the strength of the CLEAR experience and network, net member retention in the quarter was 92.2%. We are encouraged by the unit economics of CLEAR+, including low CPA, high incremental margins, and impressive retention across cohorts. Retention continues to remain above our long-term expectations of the upper 80s. Free cash flow for the quarter was positive $5.3 million, bringing trailing 12-month free cash flow to $92 million. The $92 million includes a complete annual cycle for our American Express Platinum contract. This quarter's free cash flow, as well as trailing 12-month free cash flow, include the approximately $65 million payment to American Express for the year one Platinum contract. We expect continued growth in free cash flow as our growth in bookings and our culture of efficient and effective spend yield significant operating leverage. In Q3, OPEX, excluding the United Warrant Expense, grew 23% year-over-year, roughly one-third of our revenue growth rate. Adjusted EBITDA more than doubled sequentially and adjusted net income is positive in the third quarter and on a year-to-date basis. In October, United Airlines vested in exercise warrants representing 2.1 million Class A shares. These warrants were issued in 2019 and have been reflected in our SEC filings as outstanding warrants. Our partnership with United continues to be focused on bringing new innovation and friction-free travel experiences to their customers. Total cash and equivalents as of September 30th was $701 million and reflects approximately $5 million invested in share purchase at an average price of $22.98, as well as cash used for net settled RSUs. Today we announce a $0.25 special cash dividend. As we noted in our IPO prospectus letter, we are fervent believers in the ANDs, growth, free cash flow, and economic capital allocation to maximize long-term returns. In addition to our opportunistic share purchase program, the special cash dividend is another tool to return capital to shareholders. We will continue investing in organic growth, pursue inorganic growth opportunities, and opportunistically return capital to shareholders. In this uncertain economic environment, we have good visibility into our business underpinned by our recurring revenue subscription model. Our fourth quarter guidance expects gap revenues of $123 to $125 million and total bookings of $142 to $146 million. With an expected Q4 soft launch of TSA PreCheck, We expect revenues from this program to build throughout 2023. We'll now go to Q&A.