Clear Secure, Inc.

Good morning. Welcome to CLEAR's fiscal second quarter 2025 conference call. We have with us today Karen Seidman-Becker, co-founder, chair, and chief executive officer, Michael Barkin, president, and Jen Hsu, 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 risks 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 forwarding statements that may be discussed during this call. During this call, unless otherwise stated, all comparisons, will be against the comparable period of fiscal year 2024. Additionally, 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 press release and most recently filed quarterly report on Form 10-Q. These items can be found in the investor relations section of Clear's website. With that, I'll turn the call over to Karen.

Clear, secure identity platform is the trusted identity layer for travel and enterprise. 2025 continues to be a year of innovation, execution, and momentum, as the need for trust, security, and frictionless experiences in today's world is paramount. The threat environment continues to evolve, and AI is only accelerating the need for secure identity in Clear. Traditional forms of identity, such as the driver's license, have become analog, outdated, and insufficient. CLEAR's smart network, which is physical and digital, enables us to secure identity with depth, delivering total identity integrity. CLEAR is making experiences safer and easier for our members and our enterprise partners across travel, workforce, healthcare, and consumer applications. We delivered a strong second quarter, driven by the continued strength of our travel business. Against a broadly flat travel environment, Clear Plus had a record travel volume quarter. The member experience continues to elevate. Our face-first NV verification pods are 100% live across our network, enhancing security and accelerating throughput. Clear members are through the Clear Lane in under three minutes on average, and our member experience scores continue to rise. We are delivering the consistent and predictable airport experience that travelers prize. We continue to roll out NV enrollment pods, enabling features such as Apple Pay, which creates more intuitive and fully digitized onboarding. We have developed a great and consistent enrollment experience, whether you choose to enroll at the airport or on your phone. Digitally, our e-passport capability has created a one-step enrollment. enabling new members to simply scan their passport directly within the Clear app, completely skipping the airport enrollment process. Now, travelers can enroll at home or stuck in traffic on their way to the airport and just head straight to our verification lanes. Additionally, it is time for highly vetted international travelers to have access to a better airport experience in the U.S. Starting this week, Clear Plus will be available to travelers from the U.K., Canada, Australia, and New Zealand. This will unlock an attractive new TAM and can increase our overall member base. We expect to add additional countries heading into 2026. We believe in public-private partnerships and are actively partnering with the TSA and the aviation community to modernize and enhance the travel experience at no cost to taxpayers. At Clear, we're on a mission to help travelers win the day of travel, delivering a true frictionless home-to-gate experience. That's why we're introducing Clear Concierge, a premium on-demand service that connects members with a dedicated ambassador at the touch of a button from the Clear app. Whether you're running late, juggling bags, or just want a little extra help, Clear Concierge meets you curbside, guides you through the Clear lane, and can also stay with you all the way to your gate. It's personal, seamless, and powered by the awesome ambassadors who make Clear clear. Our innovation and progress in realizing our home-to-gate vision has been in service of improving our member experience, growing our total addressable market, and yielding greater operating leverage in our business. The Real ID mandate reflects the importance of a digital identity. Clear ID can now be your Real ID. We are digitizing your passport on your phone. As a certified Real ID issuer by the Department of Homeland Security, CLEAR can now help travelers meet the federal identification standard required for air travel. U.S. travelers can simply upload their passport via the CLEAR app. This creates a free digital real ID that travelers can use at any TSA-enabled checkpoint nationwide. Initially available only to members, we expect that CLEAR ID will be enabled for all U.S. travelers this month, successfully introducing even more travelers to CLEAR services. Over time, this work paves the way for a ClearID to be recognized as a mobile-first identity credential, not only in travel, but for our ClearOne platform and beyond. Clear's brand and high level of trust and safety is resonating with current and potential ClearOne enterprise partners across workforce, healthcare, and consumer verticals. Global industries are grappling with the challenge of a digitally connected world, which is elevating the risk and the cost of fraud. According to Gartner, by 2028, one in four job applicants will be fraudulent, and over 80% of breaches will start with compromised credentials. ClearOne is solving critical problems for enterprises and their need to secure their employees, customers, and assets. Our ClearOne solution for workforce applications is gaining strength and penetration, with notable adoption from partners like Greenhouse, the recruiting software provider, wanting to secure the entire candidate journey from applicant to employee. The healthcare industry is enhancing security practices to safeguard sensitive health information. This has become an industry imperative. In fact, we were at the White House this past week as a trusted partner in the new Centers for Medicare and Medicaid Services Health Tech Ecosystem Initiative. CLEAR-1 will aid in the CMS initiative to help streamline the patient experience by eliminating the clipboard and enabling secure, seamless access to personal health information. Our Epic Toolbox integration, which we plan to have live by the end of the year, will allow Epic's 325 million patients to create and recover accounts to access their electronic health records. This partnership is a great example of ClearOne's opportunity to land and expand our healthcare partner relationships with both patients and providers. Finally, I'm thrilled to announce that our partnership with DocuSign is now live. ClearOne will enhance trust by verifying identities for critical agreements and contracts, setting a new standard for high-stakes digital workflows. Clear is executing from a position of strength with a powerful brand, strong balance sheet, and a platform purpose-built for scale and trust. Our leadership team is focused on maximizing the moment. We are aligning around technology, efficiency, and organizational structure, that will deliver the best experience for our members and optimize for members, bookings, and free cash flow. With that, I will turn it over to Jen.

Thank you, Karen. We delivered a strong second quarter of financial results with $219.5 million of revenue representing 17.5% growth, $222.9 million of total bookings representing 13.1% growth, and $117.9 million of free cash flow. Our focus on product innovation and experience continues to attract new members to the Clear Plus service. Active Clear Plus members grew to 7.6 million, up 7.5% on a year-over-year basis. Bringing Clear Plus to international travelers is further growing our TAM and represents an additional opportunity to expand our member base over time. From a pricing perspective in Q2, we brought standard pricing from $199 to $209 and family pricing from $119 to $125. Q2 gross dollar retention was 87.3%, up 20 basis points sequentially. As a reminder, gross dollar retention is an output of member retention and pricing action. Any pricing action that we take influences gross dollar retention over a 24-month time period from the date we implement a pricing change. Our TSA PreCheck business continues to ramp. As of Q2 quarter end, we operated 231 enrollment locations, nearly two times our location count ending Q1. Our TSA PreCheck presence represents a portfolio across airports, retail partners, and flagship locations. We continue to gain outsized market share relative to our location share, a testament to our differentiated go-to-market and convenience, including our pre-enrollment capabilities. In addition, we are successfully bundling TSA PreCheck with Clear Plus as two highly complementary service offerings. As Karen mentioned, Clear Concierge is live in 14 airports, with the $99 express service expediting travelers through security and the $179 gate service guiding members from the curb to their lounge or gate. Concierge is one example of our continued opportunity to drive increasing revenue per member over time. The risk and security environment is driving meaningful interest towards Clear One. We ended Q2 with 33.5 million total members up 38.2% year-over-year, and demonstrative of the growth we are seeing on the Clear platform. We signed over 25 Clear 1 deals in Q2 across workforce, healthcare, and consumer verticals. Both the number of deals signed and the aggregate contract value of these deals were a record quarter for Clear 1. Moving to profitability, we continued our consistent track record of growing both profit dollars and margins. We generated 42.6 million of operating income representing a 19.4% operating margin and just north of 300 basis points of margin expansion. We generated $60.1 million of adjusted EBITDA, representing a 27.4% adjusted EBITDA margin and approximately 200 basis points of margin expansion. Cost of direct salaries and benefits represented 21.7% of revenue, up 20 basis points year over year. 110 basis points was due to changes to our compensation structure, which shifted away from commissions and into base salaries. Direct salaries and benefits demonstrated a 90 basis points year-over-year improvement when factoring in this change. The operating leverage that we have been able to drive has been a result of efficiencies from our MV verification pods, which verify members five times faster than our legacy pods. We believe there is further cost leverage and ambassador optionality we can drive over time as we further roll out MV pods for new enrollments, deliver product innovation, and policy advancements. G&A represented 26.7% of revenue, an improvement of approximately 300 basis points year-over-year, reflecting our continued discipline around corporate resource allocation and expense management. Our leadership team remains highly focused and committed to strategic prioritization, streamlining, and driving operational efficiency. In Q2, we generated $123 million of net cash provided by operating activities and $117.9 million of free cash flow. up 7.3% and 7.1% year-over-year, respectively. As a reminder, the majority of CapEx requirements for the MVPOD rollout is behind us, and we have higher cash taxes this year after having utilized the majority of our NOL balance in 2024, which impacts year-over-year free cash flow growth. We ended the quarter with $609 million of cash in marketable securities after returning $42.7 million of capital to shareholders, including approximately $24.6 million under our Share or Purchase Program and approximately $18.1 million in dividends and distributions. Turning to guidance for Q3, we expect a revenue of $223 to $226 million and total bookings of $253 to $258 million, representing 13.1 and 12.3% growth at the midpoint respectively. As a reminder, because we are an annual biller, the number of members up for renewal has a meaningful impact on net ads within a specific quarter. This dynamic coupled with seasonal travel demand drives our expectation for Q3 to be the smallest net ads contributor in 2025. For the full year, we continue to expect expanding adjusted EBITDA margins on a year-over-year basis, and we are reaffirming our free cash flow guidance of at least $310 million. With that, we will open the call for Q&A.