Clear Secure, Inc. (NYSE:YOU) Q4 2022 Earnings Call Transcript
Clear Secure, Inc. (NYSE:YOU) Q4 2022 Earnings Call Transcript March 1, 2023
Operator: Good morning and welcome to CLEAR's Fiscal Fourth Quarter and Full Year 2022 Conference Call. We have with us today Ms. Caryn 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 risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in the company's reports on file 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 10-K. These items can be found on the Investor Relations section of CLEAR's website. With that, I'll turn the call over to Caryn.
Caryn Seidman-Becker: Hello. Thank you and welcome to our fourth quarter 2022 earnings call. Fourth quarter earnings capped off a strong year of growth at CLEAR. People's desire to travel last year surpassed even our most bullish expectations. Domestic checkpoint volumes were up 30% in 2022. At the same time, travel infrastructure proved to be far more fragile than anyone could have imagined. Travel is hard and getting harder. CLEAR's mission, platform, and products are a critical part of the solution to make travel safer and easier. It was important we were staffed and ready to help travelers as they return to the sky and CLEAR's reputation as a great place to build a career attracts top talent to serve these travelers. On a sequential basis, we added 8.5% to our Ambassador Workforce across airports nationwide as we saw opportunities to enhance service and grow our member base.
As our members know the CLEAR Ambassador is a bright spot in what can be a stressful time. They are ready and waiting to welcome you at 4:30 in the morning on a busy travel day or 10 P.M. ahead of your red eye. That's why we shared in our letter some great stories about our airport team who bring CLEAR's technology to life. The team has been busy preparing for launches of new airports as we continue to expand the CLEAR network nationwide. We also received our authority to operate TSA pre-check enrollment provided by CLEAR in late December after a rigorous review and we look forward to rolling it out to the American public in early 2023. The pace and strength of our launches materially accelerated during 2022. We have built a strong operations team and the muscle to quickly and efficiently grow into new geographies.
In the past eight months alone we have launched 15 new markets for CLEAR Plus and Reserves both domestically and internationally including our 51st airport in Kansas City this week. Strong travel demand coupled with last year's travel challenges further our sense of urgency for innovation and collaboration on behalf of the American traveler. There is a new saying in travel, Every day is now the Wednesday before Thanksgiving. And as an industry we have to work together to prepare for that. An outstanding example of terrific collaboration with Super Bowl weekend in Phoenix. The Phoenix Airport, local TSA, and the Phoenix CLEAR team worked together seamlessly to process a record 84,000 passengers on the Monday following the big game. 17% of these passengers use the CLEAR lanes and our NPS score of over 70 shows our members' delight.
When we think about how we will securely scale friction-free travel experiences, we are excited about our alignment with our airline partners. In January, we renewed our multiyear partnership with United Airlines exemplifying the power of collaborative innovation. Together, we are focused on bringing new technology to enable friction-free travel experiences to United travelers. You have heard us say many times that identity is foundational in travel and beyond and you see that coming to life across so many industries today. For example, the consumerization of healthcare is quickly becoming a reality with the implementation of the Cures Act empowering people to access and control their healthcare data. With our vertically integrated identity platform and over 15 million Instant-on members healthcare partners are looking to CLEAR to enable more friction-free experiences for both their patients and employees.
We have built an at-scale nationwide network in a regulated environment, which positions us well to play an important role in healthcare. Our new partnership with UHealth and WellStar are just the first two examples of what we believe to be a large opportunity for CLEAR. As always, we remain focused on growing members, bookings and free cash flow. I want to thank the CLEAR team who has done incredible work in 2022 continuing to make the CLEAR vision a reality. With that, I will turn the call over to Ken.
Ken Cornick: Thanks, Caryn. Our fourth quarter bookings and revenue were better than we expected driven by CLEAR Plus trends including renewal rates and new joins. Overall fourth quarter bookings growth of 37% and represents a 32% CAGR from 2019 pre-COVID levels. Of this 32% approximately two-thirds is same-store. We're also encouraged by the traction we're seeing in our powered by CLEAR business and continue to believe there is a large addressable market for our networked member-centric identity platform. Retention of 92% remains above our long-term expectations of the upper 80s although down slightly retention remains strong as our network expands and our value proposition grows. We remain encouraged by the overall unit economics of CLEAR Plus.
Free cash flow in the fourth quarter was $71 million and is up 177% over Q4 2021. Full year free cash flow of $137 million is up 220% year-over-year. I think it's really important for me to call out as owner-operators we view stock comp as a real expense as we know our shareholders do. When evaluating new opportunities, we look at holistic comp including non-cash comp in our return on investment analysis. In 2022, we issued 1.47 million net new RSUs to employees representing less than 1% of beginning common shares outstanding. The vast majority of RSUs vest over three years. Free cash flow after considering employee and founder stock comp was $82 million for the full year 2022. In 2023, we expect to grow free cash flow before and after employee and founder stock comp.
We are laser focused on efficient growth and capital allocation. While it is now in vogue to talk about rightsizing headcount, we have always been methodical about our cost structure and want to highlight CLEAR strong incremental margins. In Q4, OpEx excluding United warrant expense and other unusual items grew 23% year-over-year roughly 40% of our revenue growth rate. For the fiscal year and grew 33% less than half our revenue growth rate. The United partnership renewal unlocked 534,000 warrants which vested and converted to Class A common stock in 2023. These warrants were issued in 2019 and have been reflected in our SEC filings. This quarter we recognized a total of $18.1 million in non-cash warrant expense of which $14.5 million related to this tranche and $3.5 million carried over from Q3.
We expect to recognize the final $1 million of warrant expense in Q1. In Q4, we also recognized $6.1 million of non-cash equity expense related to 617,000 performance RSUs issued to employees prior to our IPO, now deemed probable to vest in 2024. The Q4 amount includes a catch-up expense. The ongoing 2023 quarterly amount will be approximately $1.7 million. These RSUs have also been reflected in our historical SEC filings. Total cash and equivalents as of December 31 was $735 million and reflect the $38 million special dividend paid in December, as well as $5.4 million used for net settled RSUs. As we look to 2023, we are well positioned to grow members, bookings and revenue, while delivering operating leverage and free cash flow growth. Like last year, our bookings guidance implies a sequential decline from Q4 to Q1, consistent with pre-pandemic patterns.
Because CLEAR Plus builds annually, our quarterly bookings trends are dependent on the renewal backlog entering the year. As of 12/31 less than 25% of the annual renewal backlog fell in Q1. We'll now go to Q&A.
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