Clear Secure, Inc.

Good morning, and welcome to Clear's Fiscal Third Quarter 2025 Conference Call. We have with us today Karen Seidman-Becker, Co-Founder, Chair, and Chief Executive Officer, Michael Barkin, President, and Jen Su, 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 press release. The company disclaims any obligation to update any forward-looking 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. Reconciliation of gap to non-gap financial measures is provided in today's press release and the most recently filed quarterly 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.

Identity is the foundation of trust, and CLEAR is the secure identity platform. The digital connected world has been driving a paradigm shift in cybersecurity. and now layer AI on top of that, and there is an urgent focus on identity. Cyber criminals aren't breaking in, they're logging in. 80% of breaches start with compromised credentials, and 84% of security leaders have reported identity-related incidents that have disrupted their business. Identity has never been more important, and secure identity is the foundation to create safer and easier experiences. Clear is the future-facing identity infrastructure layer, that is transforming how security and customer experience come together. Global events such as the World Cup and the Olympics are on the horizon, and security is paramount. CLEAR is helping America's infrastructure rise to the occasion by combining technology, security and hospitality to make our airports sparkle. More than 35 million total CLEAR members trust and rely on CLEAR across many use cases. Our customer-centric brand, which is known for privacy and security, as well as our physical and digital network, is accelerating our momentum across both Clear members and enterprise customers as we close out the year. The premium, frictionless, and predictable end-to-end travel journey we are building for our 7.7 million Clear Plus members is the new customer expectation. Our mobile app enhancements are streamlining the enrollment experience and helping members navigate their day of travel with confidence and ease. Our beloved ambassadors enable the merging of hospitality and technology to provide an unparalleled customer-centric and personalized experience that helps members win the day of travel. And our product innovation from NV enrollment and verification pods to eGates is having a meaningful impact on speed and member experience. Our long-awaited eGate rollout has commenced, and the feedback from members is unanimous. The experience is magical. Clear eGates are vertically integrated, combining our software and hardware across our nationwide network. Members verify in approximately five seconds and move directly into physical screening in 30 seconds. We are seeing eGates drive meaningful improvements in throughput, lane experience scores, and NPS. Our nationwide rollout will continue over the next few months and we expect member experience to continue to improve. As we scale automation across our network, our ambassadors can create an even more elevated member experience with Clear Concierge. Clear Concierge is a premium, personalized, on-demand service where a dedicated ambassador meets you curbside and guides you all the way to your gate. Now live at 23 airports, Clear Concierge is giving members a truly premium and effortless travel journey. The ClearTravel experience and value is growing, and we are expanding our ClearPlus member base across all channels. Member acquisition in the airport remains strong, supported by a steady increase in total air travelers coupled with our new improved mobile one-step enrollment. International enrollment is off to a strong start, even before we have launched marketing. There is an exciting opportunity to tap this broader pool of potential ClearPlus members. Partners continue to be an important channel for us to acquire high-value, loyal members. We are pleased that Clear Plus is a highlighted, embedded benefit of the American Express Platinum Card Refresh, reflecting the value each of us bring to our partnership. We have long talked about the power of public-private partnerships, and we are grateful that this administration is moving at the speed of business. We are working together on behalf of American travelers, connecting public sector priorities with private sector innovation. Embracing technology and business is improving the everyday security and experience of all Americans. Clear One continues to scale. Modern fraud attacks are occurring with unprecedented speed and sophistication, and this is a critical and growing problem that every organization is facing. Clear One is a comprehensive enterprise identity platform that delivers strength and security with a multilayered approach, the building block of trust. Clear One delivered its strongest quarter yet with a record number of enterprise customers signed. In healthcare, Clear is a partner to the administration and the Center for Medicare and Medicaid Services Health Tech Ecosystem Initiative as their trusted identity layer. The CMS Pledge is a coalition of healthcare technology companies working to improve patient data interoperability and access, killing the clipboard, while safeguarding sensitive health information. Over 60 companies have signed the CMS Pledge, and to date, we have entered into Clear One contracts with over 20% of the participating companies. Our work with Epic is further embedding us into the healthcare ecosystem. Health providers on Epic can enable a ClearOne turnkey solution within MyChart. This partnership creates distribution and seamless integration for ClearOne into the millions of patients with Epic electronic health records. In workforce, ClearOne is protecting the full workforce identity lifecycle from pre-hiring activities such as verifying candidate profiles to post-hiring identity verification use cases such as account recovery and privileged access. We are also beginning to expand our use cases with customers, cross-selling and up-selling our various ClearOne workforce solutions. Identity security has become a mandate for all stakeholders. ClearOne's trusted brand, platform approach, and elevated security standards are enabling our enterprise customers to protect their employees, customers, and assets with confidence. I am proud of our execution and strong financial performance and want to thank our ambassadors and all of the Clear team members for how they serve travelers and customers. With that, I'll turn it over to Jen.

Thank you, Karen. Third quarter revenue grew 15.5% year-over-year to $229.2 million, and total bookings grew 14.3% year-over-year to $260.1 million, both exceeding the top end of our Q3 guidance range provided last quarter. Active Clear Plus members grew to 7.7 million, up 7.5% on a year-over-year basis. Our rapid product innovation and growing suite of services in Clear Travel is elevating customer experience and attracting new members. eGates are elevating our home-to-gate value proposition. We continue to penetrate opportunities such as bundling TSA PreCheck with Clear Plus, and we are growing our total addressable market with international travelers. We are now offering Clear Plus to over 40 international country passport holders and we are encouraged by the contribution of International to our Clear Plus member base, prior to having activated any marketing efforts to this audience. From a pricing perspective, we believe we have multiple levers to drive average revenue per member growth over time. This includes a regular cadence of price increases, closing the pricing gap with discounted members that we have acquired via our partnership channels and services such as Clear Confierge, which are add-on transactional opportunities. In aggregate, our member and pricing performance delivered sequential accelerating bookings growth in Q3, and we expect that to continue in Q4 as we close out the year. Q3 gross dollar retention was 86.9%, down 40 basis points sequentially and consistent with our expectations as the impact from the larger general airline and family price increases we took in 2023 continued to normalize. Clear 1 is scaling and delivered a record quarter of bookings, excluding one-time health pass performance in 2022. We ended Q3 with 35.8 million total members, up 35.1% year-over-year, and indicative of the momentum that we are seeing in ClearOne. Our product innovation continues to drive meaningful impact to our value proposition and also our cost structure. Ambassador efficiency and member throughput is significantly improved with our MV verification pods. As we scale eGates across our network in Q4 and into 2026, We have the opportunity to rethink and reposition our ambassadors towards the highest value hospitality driving services for our members. Cost of direct salaries and benefits represented 20.8% of revenue in Q3, an improvement of approximately 180 basis points year over year. We continue to drive operating leverage through disciplined resource allocation and corporate cost efficiencies, with G&A representing 25.7% of revenue, an improvement of approximately 150 basis points year over year. Taken together, we generated $52.6 million of operating income, representing a 23% operating margin and 5.3 percentage points of margin expansion versus Q3 2024. And we generated $70.1 million of adjusted EBITDA, representing a 30.6% adjusted EBITDA margin and 6.1 percentage points of margin expansion year on year. We delivered $47.3 million of net cash used in operating activities and negative 53.5 million of free cash flow. Both figures reflect the annual payment to our credit card partner of approximately $229 million. We ended the quarter with $533 million of cash in marketable securities after returning 16.7 million of capital to shareholders through our regular quarterly dividend of 12.5 cents per share and distribution. Turning to guidance for Q4. We expect revenue of $234 to $237 million and total bookings of $265 to $270 million, representing 14.2% and 16.8% growth at the midpoint, respectively. This would reflect another quarter of accelerating growth from a bookings perspective. We continue to expect expanding adjusted EBITDA margins for the full year 2025 versus 2024, and we are increasing our 2025 full-year free cash flow guidance from $310 million to at least $320 million. Our free cash flow guidance reflects both the impact of additional CapEx related to our eGates rollout, which was not originally anticipated at the onset of the year, as well as certain cash tax benefits related to the One Big Beautiful Bill Act, which went into effect in Q3. With that, we will open the call for Q&A.