Clear Secure, Inc.

Good morning and welcome to Clear's Fiscal Year 3rd Quarter 2024 Conference Call. We have with us today Karen Seidman-Becker, Co-Founder, Chair, 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 or are subject to recent 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. And 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. Karen?

Good morning, and thank you for joining us. At CLEAR, identity is foundational. Whether you're getting on a plane or logging into your bank account, people expect frictionless, trusted, and secure experiences now more than ever. This year, we have focused on three core areas, improving the member experience, scaling TSA PreCheck, and scaling ClearVerified. We are making strong progress across the board, and I am excited for the foundational partnerships announced this quarter, laying the groundwork for future growth and opportunities. Our expanding nationwide network offers more products helping travelers win the day of travel from home to gate and back again. Improving the member experience in travel starts with the Lane of the Future, and we have begun rolling out our new FACE First NV, which stands for Enrollment and Verification Hardware, with strong early results. Verification is three times faster, with significantly less steps for members and ambassadors. Moving to FACE in the Lane brings us standardization across all of our platforms and improves the member experience, always privacy first. As travel volumes continue to rise, We anticipate another million travelers crowding airports every day by 2030. Innovation is table stakes, and travelers rightfully expect predictable and frictionless experiences. Ambassador Assist is now live in three airports, with Orlando launching today. As one of the most popular airports for first-time travelers, who doesn't want help from a beloved clear ambassador navigating a busy airport on family vacation? we introduced four new CLEAR perks since the second quarter with strong early engagement. TSA PreCheck enrollment provided by CLEAR is scaling, and we are now live in 62 locations. Today, that is 52 airports and 10 staples locations. We are meeting travelers where they are, whether at the airport or a convenient retail location. At just $1.30 a month, we think the value of TSA PreCheck is a no-brainer. For the 90 million people that travel at least two times a year, there are no more appointments, no hassle, just seamless access to TSA PreCheck. Today, we have over 27 million members on the Clear platform, and enterprise partners are relying on Clear's secure identity products for both their customers and their employees. Our embedded Instant On member base is driving adoption and conversion for our partners. Some partners experience a third of day one verifications coming from existing Clear members, Direct integrations with companies like Home Depot and LinkedIn prevent fraud, build trust, and maximize efficiency. We're also expanding our channel partnership, such as Okta, as companies are eager to implement full end-to-end identity solutions that are easy to integrate and deploy. With cybersecurity threats on the rise, securing employee access and identity is as crucial as securing consumer identities. With Okta, we offer a turnkey biometric factor authentication solution. The lines between physical and digital interactions continue to blur. A verified identity isn't just a checkmark. It's the foundation for everything we do in a high-stakes digital world. Sensitive information is transiting across global networks, and there is increased risk of fraud, account takeovers, and synthetic identities. Authenticating and credentialing the person is paramount, and clear, secure identity is critical. These are exciting times, and we remain focused on innovation and growth, driving members, bookings, and free cash flow. Now, over to Ken.

Thanks, Karen. Third quarter bookings growth accelerated, driven by improvements in the airport channel, pricing, strong retention, as well as increased contribution from pre-check and clear verifying. We demonstrated significant operating leverage with incremental operating income margins of 63% and incremental EBITDA margins of 50%. Total cumulative enrollments are now over 27 million, up 2.2 million in the quarter. We expect to end this year with around 30 million members, and as we add new partners, we can expect continued growth into next year. Active Clear Plus members grew by 55,000 in the quarter. As is typical in Q3, net ads were down sequentially versus Q2. The August price increase had a modest impact on family gross additions and family member retention rates, while positively impacting dollar retention rates. we see continued opportunity to grow ClearPlus members and expect Q4 net ads to be up sequentially from Q3. Retention is an important driver and we continue to optimize for dollar retention as we focus on increasing ARPU through various pricing initiatives. In Q3, gross dollar retention was 89%, up 100 basis points year-over-year. We are encouraged by the performance of our recent price increases which has been better than expected and reflects the increased value we are delivering through our expanded network, value adds such as perks, and our improving member experience. Our emerging businesses, PreCheck and ClearVerified, are contributing to our bookings and gross profit dollar growth. Over the coming year, we expect to ramp PreCheck's in-airport, out-of-airport, and online footprint, which will provide further growth tailwinds. We see out-of-airport locations driving incremental enrollments, expanding the market with strong margins. Our ambassadors, and especially our tenured ambassadors, make a huge difference in the member experience and our metrics. We want Clear to be the employer of choice, attracting and retaining the highest quality talent. So we recently implemented a new ambassador compensation structure. The new structure increases base wages while reducing commissions, which will shift dollars out of sales and marketing into direct salaries over the next few quarters. We expect this to be fairly dollar neutral, but outcome accretive. Early data is encouraging with improved employee retention and increased sales per labor hour. We expect 2024 free cash flow of at least $280 million, up 40% year-over-year, including this quarter's outflow of $182 million for the annual payment to our credit card partner. Given our cash position and strong free cash flow profile, we have increased our regular quarterly dividend by 25% to 12.5 cents. We remain opportunistic with respect to capital allocation with the goal of maximizing long-term shareholder value. In Q4, we expect revenue of $202 to $204 million and total bookings of $224 to $226 million. With that, let's go to Q&A.