Clear Secure, Inc.

Good morning and welcome to Clear's Fiscal Second Quarter 2024 Conference Call. We have with us today Karen Seidman-Becker, Co-Founder, Chairman and Chief Executive Officer, and Ken Cornick, Co-Founder, President and 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. These are based on management's current expectations and are subject to risk and uncertainties. Factors that could cause actual results to differ materially from these statements are included in the documents the company has filed and furnished with the SEC, including today's shareholder letter. 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 is provided in today's shareholder letter and the most recently filed annual report on Form 10Q. These items can be found on the Investor Relations section of Clear's website. With that, I'll turn the call over to Karen.

Good morning, and thank you for joining our second quarter 2024 earnings call. It's been three years since our IPO, and Clear remains focused on growing members, bookings, and free cash flow. In the second quarter, we added a record 2.3 million members, reflecting growth across both Clear Travel and Clear Verified. In Clear Travel, we continue to build products that help our members win the day of travel from home to gate and back again. The Lane of the Future rollout is well underway, improving the Clear Plus member experience with new technology enhancements that make verifications up to 30% faster, reducing friction for our members and our ambassadors. This quarter, we will begin rolling out the next phase of our Lane of the Future, our face-first technology. Members will verify with their face a seamless experience that will keep them moving. Travel is hard and getting harder. In addition to improvements in the airport, we are furthering the home-to-gate journey with the introduction of Clear Perks, exclusive benefits curated for Clear Plus members. From expedited passports to bag delivery and my favorite, Clear Scout, which is our lost item rescue service. Who hasn't lost something in the airport? To be able to have a Clear Ambassador go find it for you, priceless. Clear perks are designed to increase the predictable end-to-end seamless travel experience and deliver additional value to our members. By 2030, one million more passengers are expected to crowd America's terminals every day, putting even more strain on a system that is already over capacity. Aging infrastructure and technology compound these challenges, especially at screening checkpoints. Since 2010, Clear has partnered with airports, driving innovation to improve the passenger experience while sharing over $325 million of revenue with our local airport partners. Next month, Clear plans to announce a formal airport innovation campaign to accelerate our work around public-private partnerships and help bring the latest technology and infrastructure to American airports. As we said, we are seeing accelerated member growth this year. And our goal is to grow towards 50 million members in 2025. ClearVerified is fueled by this member flywheel. As we add more members, our platform becomes even more attractive to existing and new partners. With our increased scale, the percentage of members who are instant on already enrolled and can verify with one click goes way up. This frictionless experience along with our trusted brand create product magic for our partners. In a recent nationwide brand study of current, former, and non-Clear members, roughly 80% of respondents agree or strongly agree that they trust and feel more secure with companies or brands that partner with Clear. A similar percentage also said they would find it preferable to sign into online accounts using Clear. Identity has never been more important, and Clear is the market leader. I will now turn it over to Ken.

Thanks, Karen. Second quarter results demonstrate our continued focus on profitable growth. Revenues increased 25% and adjusted EBITDA grew 137%. We achieved incremental operating income and EBITDA margins of 80% and 74% respectively. Margin drivers that we have been discussing, including the ramp of recently launched airports, high incremental margins for TSA PreCheck and Verified, as well as continued cost discipline, continue to play out. B&L strength is translating into significant cash generation. Cash flow from operations was $114.6 million, and free cash flow was $110.1 million, up 65% year-over-year. After deducting normalized stock comp, free cash flow grew 90%. Active Clear Plus members grew by 297,000 in the quarter, up from 78,000 in Q1, as the next-gen upgrade process is largely behind us. and the in-airport sales channel improved sequentially. We continue to see member growth opportunities, particularly in our lower penetration markets, where as a percent of MSA population, we are in the low single digits versus high single digits in our more penetrated markets. The experience economy and booming travel market have helped expand CLEAR's addressable market. A broader demographic of travelers are now appreciating the value of being a CLEAR member in our frictionless home-to-gate journey. As of August 1st, standard and airline pricing increased by $10, only the second time we've increased standard pricing in 14 years. Standard is now $199 with airline tiers at $159 and $189. Family pricing increased $20 to $119 per year. We remain focused on driving ARPU through absolute pricing and reducing historical discounting. Last quarter, we introduced ClearPlus gross dollar retention as a new KPI to reflect this focus. We introduced Clear Perks, which add significant value to our membership. Rush My Passport and Bagship have already gotten significant traction. As Karen mentioned, Clear Scout delivers a truly priceless service. If a member forgets anything in the airport, they can call us and we will dispatch one of our ambassadors to try and find it. So far, we've recovered everything from a laptop to a passport to an iPhone to a garment bag full of clothing in a United Lounge. Our airport innovation campaign that we plan to formally announce next month is an opportunity to partner with airports to drive overall customer experience in an ROI-positive way. Our North Star is to identify projects that help our airport partners achieve their goals while also enhancing CLEAR member experience, which can lead to growth in members and increased retention. TSA PreCheck enrollment provided by CLEAR is off to a strong start, and it's live in 46 airports, up from three at the end of Q1. several thousand pre-enrollments daily, and this pipeline will convert to completed enrollments and realized revenues as travelers visit our expanding base of locations. We plan to expand locations inside and outside the airport to grow the market and drive share. We expect PreCheck to contribute incremental gross profit dollars in the near term, while driving revenue and gross profit growth into next year. We repurchased 3.6 million shares in Q2 and an additional 4 million shares from Delta in July, continuing our opportunistic approach to capital allocation. Our partnership with Delta remains a true win-win. They invested in Clear in 2016 and continue to own 4.3 million shares. We look forward to continued innovation together to enhance the passenger experience. On a year-to-date basis, we've retired 8% of our beginning shares outstanding, And since initiating our repurchase program in 2022, we've bought back all 15 million shares issued in our IPO and then some. In Q3, we expect revenue of $193 to $195 million and total bookings of $220 to $222 million, representing 21% and 15% growth respectively. In Q3, we will make our annual repayment to our credit card partner approximately $181 million. As a result, we will have negative free cash flow in Q3 consistent with last year. That said, we are raising our fiscal year free cash flow growth guidance to at least 40% year over year or $280 million. With that, let's go to Q&A.