Earnings Call: Q2 2021

Aug 16, 2021

Good morning. Welcome to the CLEAR 2nd quarter 2021 earnings conference call. We have with us here Ms. Caryn Seidman-Becker, Co-Founder, Chairman, and Chief Executive Officer. Ken Cornick, Co-Founder, President, and Chief Financial Officer. Please be advised that today's conference is being recorded. I would also like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections in our most recent SEC filing. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's 8-K. With that, I'll turn it over to Caryn Seidman-Becker, Co-Founder, Chairman, and Chief Executive Officer of CLEAR. Caryn. Thank you. Good morning, everyone. Thank you for joining us today for CLEAR's first earnings call as a public company. This morning, we released a shareholder letter along with our earnings on our website. I hope you've all had a chance to review them. This was a quarter of firsts, including record enrollments and a record number of members engaging with the CLEAR App for frictionless experiences with our sports, entertainment, and Health Pass. The dual growth engines that we talked about on our roadshow, our B2C subscription-based travel business and our B2B enterprise platform business, are both seeing strong growth. Travel is re-accelerating, as seen in our subscription CLEAR Plus business, and there is significant traction on the platform side. We are pleased with our second quarter and the strength we are seeing into the third quarter. That strength is reflected in our third quarter bookings guidance of $90 million-$95 million, which represents a record quarter for CLEAR. Our Health Pass product has quickly become a leading solution in the testing vaccination space with over 2 million uses. We were recently recognized by The Washington Post as the most flexible and useful app, a testament to our obsession with safe and frictionless experiences. We are seeing a number of new partnerships around vaccination validation from both enterprises as well as venues. I wanna highlight our partnership with the state of Hawaii, where travelers can link their CLEAR Health Pass to the state's Travel Safe program to avoid quarantine requirements. Roughly 700,000 monthly passengers from all airlines are eligible to use the CLEAR solution. We are seeing strong uptake. CLEAR is a trusted brand, bringing a vertically integrated solution to our partners. Our growing member base and acceptance network built on our secure identity platform is bringing frictionless all-in-one experiences to millions. It is why on Friday, the city of San Francisco announced they are trusting CLEAR's solution to validate vaccination status for local businesses and residents. San Francisco joins New York City and New York State and others in leveraging CLEAR. While one can't predict the ebbs and flows of the virus, we are closely monitoring the Delta variant and its potential impact on travel trends. We are aware of some of the airline commentary around bookings but have not seen any impact to date on our travel business. I would also point out that we are in the very early days in our penetration of our total addressable market. Additionally, what we have seen over the past few months is that more and more businesses and institutions are focused on remaining open in a safe and efficient way and are looking to CLEAR for solutions while travelers are more dependent than ever on CLEAR's touchless, frictionless experience. With that, let's turn it over to Q&A. Thank you. Thank you. Our first question is from the line of Brian Essex with Goldman Sachs. Please proceed with your questions. Hi, this is Charlotte for Brian. Thanks for taking the question. I was wondering, how do you envision the market for the vaccine apps to unfold? Do you think the healthcare IT vendors, like athenahealth and Epic Systems, may be better positioned to offer a federated app? Are you guys also in consideration of that? Thank you, and hi. Look, we believe that people having access to and control of their healthcare information is a global secular trend, and it is vaccine status today but does go far beyond that, and that partners are looking for trusted partners and a secure turnkey solution. What we're seeing is that Health Pass, which is proven, ready, scalable, is seeing a lot of new partner interest and that, you know, businesses are focused on coming back better. You know, building a nationwide interoperable solution for private industry and state and local government is crucial, and doing it in an all-in-one way. This isn't just about your vaccine status, but going into your office, you are you are an employee, you are your building access card and your vaccine status. This is about, again, the power of the secure identity platform and creating all-in-one solutions. I think there's a lot of different apps out there. Our focus is creating trusted, scalable, all-in-one solutions that drives the customer experience and the partner experience. Great. I guess as a follow-up, could you help us better understand how much Health Pass basically accounted for this quarter? We're not breaking out specific lines of business within revenue, but as noted, we are gaining significant traction on that line of business. I would also just point out what you saw today as we announced 7 million members, that we crossed that number yesterday. Obviously the accelerated member growth is being driven from both the travel side as well as the platform side. Great. Thank you so much. I will reenter the queue. Our next question is from the line of Michael Turrin with Wells Fargo Securities. Please proceed with your questions. Hey there. Thanks. Good morning. Congrats on the first earnings report here. You mentioned enrollments growth improved 26% in the quarter. You reached 7 million, looks like just yesterday. Can you just add more commentary around how you'd expect that enrollment growth to trend? Are you finding conversion rates are maybe higher just given more sensitivity around travel experience of late? Yeah. In general, we're not gonna give specific guidance on the members. We gave top line guidance as you saw in the release, but we have seen an acceleration throughout Q2 and into Q3 and are seeing fairly widespread strength in all of the metrics, including conversion. You know, just to add to that and, and hi, glad to have you on the call this morning. You know, we said it in the note, but it is with intent. It has never been a more important time to be a secure identity platform. What you're seeing in travel on both the, you know, growth add side, conversion, retention, win back, is that people want touchless and frictionless experiences and are looking to CLEAR for that, and predictable, right? It is harder to travel than ever. Wanting that predictable experience is really important. On the platform side of the business, more partners bring on more members and more places for our members to use it, right? It really does drive that flywheel. Helpful. Maybe, Ken, just on the Q3 guidance that you're providing, is there anything you can provide just to help level set in terms of just the degree of visibility you have into the model, what's assumed from a macro perspective, and just any additional color you can add just around the overall guidance philosophy, I think is useful given your first touchpoint here with investors. Thank you. Sure. In general, it's a continuation of the trends that we're seeing today. It's our best estimate based on what's visible today. As you know, we have a backlog for retention, so we have good visibility into renewals from prior year backlog, as well as we have quite a number of free trials that convert into paid. We do have the visibility of the people that have already joined that are expected to convert into paying customers this quarter. I would say we have fairly good visibility. I would also point out that, you know, the American Express partnership, which launched on July first, it launched quite strong and continues to have a nice tail of membership growth as well. We expect that to continue as well. That's great. Thank you. Our next question is from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question. Good morning, and congratulations on the nice results and rebound. Can you talk a little bit about the travel rebound? Can you talk a little bit about what you're seeing there? I've been in airports lately, and the service has been terrific, you know, on all different areas. What are you seeing in the rebound, any way to see leisure versus business travel? What you just mentioned on American Express, Ken, any of the other partnerships, anything to note, particularly regarding Health Pass and potentially new business signups for it, given its essential need? Thank you. Dana, I'll start, and then I'll turn it over to Ken. From what we're seeing in the airport, really important that, we talked about in the release, right, our great people. Really being well-staffed with ambassadors who care deeply about bringing that frictionless experience has been massively important in both enrollments and the verification experience, right? Driving a great NPS for our members, as well as being available to share the Clear capabilities, whether it be the Home to Gate app or the Clear Lane, or other assets with potential travelers or potential members. It really does start with our people and the brand. We are seeing, you know, you've seen numbers. They've come back a little bit of late, up to 2.2 million travelers coming through airports this summer. I think that's off a peak of $2.7 million from 2019. That is a hefty rebound, which I think in the near term is driven by leisure, although we don't really know the difference between a business traveler and a leisure traveler. We just know that they're a traveler. So we can't really break that down. From looking at what you're seeing, I think it's disproportionately leisure right now. We are seeing a deeper appreciation for touchless, frictionless, predictable, and so we have been gaining share in the airports, and that has continued every month from a CLEAR, you know, volume perspective. Also, you know, through the past year and change, the technology's gotten better, the offering has become more robust, and that's really meaningful to travelers. We are seeing a very strong rebound and a bigger need for what CLEAR is offering and a great team out there from the CLEAR ambassador's perspective, bringing the technology and the experience to life. Yeah. Just a little qualitative color. I mean, we definitely are tapping into a more diverse from an age perspective, from an airline perspective, from a geographic perspective, customer base or new member base than we have before. It is not the traditional hardcore business traveler necessarily only. We are definitely seeing more, a diverse membership base today than we did in 2019. Dana, you asked something on the Health Pass piece. Would you mind just repeating that? Yeah. Sorry. Sure. On Health Pass, how are you seeing the customer base for that expand? Any different traction in terms of what you expect for Health Pass from when you started CLEAR? How do you see that developing and evolving? We're really seeing a fairly widespread demand, coming in terms of, you know, needing our solution in order to get back to work safely, in order to open venues, in order to open restaurants. It really is fairly diverse from small to large enterprises to, businesses to venues. We're seeing a fairly strong incoming demand for our solution. I would just add to that, I think two pieces relative to what we started from an expectation. Having great partners and being able to help those partners reopen safely is really important. The ability to upload your and digitize your vaccine card is separate and apart from partners. I think it's become more of a two-sided business, hence the acceleration in enrollment, because you may not be using it tonight at the, you know, we partnered with the Brooklyn Nets or the Yankees or the Mets, but you might just want to have your vaccine card available for whenever you do need it, going back to that access to, you know, having access to and control of your healthcare information. You're seeing both individuals, you know, driving towards it as well as enterprise and partners, and our ability to create these seamless integrations through APIs is also really important. I do think that is a positive variance, the direct-to-consumer- Right Organic upload of your vaccine card with the CLEAR App is not something I think that we expected early on. Thank you. The next question is from the line of Ananda Baruah with Loup Capital. Please proceed with your questions. Hi, good morning, guys. Thanks for taking the question. Congrats on the very solid execution out of the gate. I guess a couple for me. The first is on CLEAR Plus. Did you guys see any surprises as you moved through the quarter, either positive or negative or otherwise? What might be for CLEAR Plus, some of the key initiations or action signposts for the remainder of the year? Then I have a follow-up. Thanks. I think in general, CLEAR Plus was very, very strong and it was really broad-based. You know, everything from the American Express partnership launching extremely strong and continuing to drive nice growth. Geographically, fairly diverse representation. We had a number of markets that were actually up versus 2019. We achieved these results with some markets that are up versus 2019, but many that were actually still down versus 2019. you know, to the extent that the geographies that are still lagging, start to catch up to the other markets, you know, there's potential for future acceleration from here. I would add to that sort of the tale of two cities, or I'd call it two regions, right? There's parts of the country that were quite strong and then parts that were still down, more coastal, than 2019. I think that, you know, was probably a little surprising, although maybe shouldn't be when you see what's going on. I also think winbacks, so you hope that anybody who left in 2019 or 2020 would miss you and wanna come back. In fact, they did. They did it online. They did it in the airport. I really think that talks to the strength of the brand and the experience that, you know, people love CLEAR, and those who left last year, have been coming back. That's really helpful. Then just on platform bookings, really nice tick up in what you guys, you know, sort of called platform uses in the shareholder letter. You know, the biggest in a while. I guess the question is, how broad-based was that? Sounds like Health Pass is doing really well. Are you seeing that also nicely occur beyond Health Pass? I guess just any context that you could give there would be helpful. Thanks. Sure. On the platform utilization, it is fairly broad based. What I would say, though, is, you know, from a travel perspective, many of our existing members clearly are traveling less frequently than they did, you know, in the peak in 2019. Although it is up and has been trending positively really sequentially every quarter for the past several quarters into this recovery, there's still a long ways to go from a utilization perspective from existing members. We also saw an acceleration in CLEAR Plus throughout the quarter, and so many new members came on towards the end of the quarter, and therefore, they didn't have an opportunity to use CLEAR more than a handful of times, just given the timing in the quarter. On the platform side, you know, it's a range of use cases. If you're loading your vaccine card up into the CLEAR App, it may be that you don't use it at all in the quarter, but you've enrolled. Then there's many use cases that are more recurring, so going back into the office, you might do that every day. Then there's some one-time events that we did, like the Ubbi Dubbi concert, for example, where it's a one-time use, so you're enrolling and using it once. Then that's obviously part of our strategy, which is, you know, bring on events, bring on new members, which drive new partners, which drive new use cases, which is that flywheel that Caryn talked about earlier. I do think it goes back to what we talked about in the roadshow, which is really wanting CLEAR to become part of your daily habit and go from 12 times a year, which is what people were using it on average in airports, to 12 times a day. If you're going and using it to get into your office, that is in fact a daily habit. If you're going to a sporting event through, you know, CLEAR Lane, obviously that started coming back, that was a driver that obviously wasn't happening over the past year. The power of partnership, we launched a lot of partnerships, both one-time partnerships like the Ubbi Dubbi or Ubbi Dubbi, not sure which, and Walmart, right? The power of broad-based partnerships, Hawaii, Safe Travels, both with United and Delta and with the state of Hawaii. These are obviously enormous partnerships with big opportunities. You have a lot of big drivers as well as little drivers. That's really helpful context. I appreciate it. Thanks. Thank you. Thank you. The next question is from Paul Chung with JP Morgan. Please proceed with your question. Hi, thanks for taking my questions and, you know, welcome to the public markets. First up, you know, pretty strong acceleration in subs in 2Q, you know, and bookings guide kind of points to, you know, very nice pace, particularly in travel. You know, how should we think about that pace if, you know, Delta continues to linger? I know that's tough to quantify. Separately, as we hit fiscal year 2022, comps get tougher from kind of the nice pace today in 2Q and 3Q. How are you guys thinking about sub-add pace in 2022, kind of factoring possibly some pent-up demand here in the summer? I have a follow-up. Yes. I'll start and then turn it over to Ken, which is, you know, bigger network, more products, more partners are the big drivers for the CLEAR Plus business over the next year and change. I think that on top of still big opportunities to penetrate the total addressable market, these are still early days in travel. We map all of those out as we look at you know, the rest of 2021 and 2022. Yeah. And right now we're giving guidance for Q3, which you saw. We also made the comment that we're not seeing any impact from the Delta variant today, but we're thoughtful of it. We've seen, you know, Southwest in particular had bookings commentary last week. We are thoughtful and looking at it, but we are not seeing it anything today. Gotcha. Thanks for that. On the airport side, you know, are you still on pace to hit 44 by the end of the year? You know, given the IPO and some nice media coverage here on the Health Pass, are, you know, those discussions with other airports accelerating? Thank you. Yeah. We're not giving guidance on specific numbers of what we're gonna hit this year versus next. We do have a pipeline of airports, and our practice will be to announce those airports, you know, after we sign the contracts. Thank you. Our next question is from the line of Brian Essex with Goldman Sachs. Please proceed with your questions. Hi. Again, this is Charlotte Beatik on for Brian Essex. Quick question on TSA PreCheck. I know during the roadshow you mentioned that it was gonna launch in the second half of 2021. Now you announced that it's expected to launch in Q4. Have you experienced any delays, any hiccups, or just, can you give us any color around the anticipated rollout? No specific delays. It's a process. You know, we said back half because we didn't honestly know the exact date it's gonna launch. It's still on track. We're working hard, we're partnering with TSA to get the program launched as quickly as possible. Great. Thank you. Thank you. There are no more questions on the line. I'll turn the call back to Caryn Seidman-Becker for closing remarks. Thank you. Thank you everybody for joining us today. We appreciated the welcome to the public markets, and we're excited to be here. We are pleased with our second quarter results and excited about our future. Today, the CLEAR vision of delivering touchless, safe and frictionless experiences is more important than ever. The demand for these experiences, as we talked about today, is an enormous opportunity for us. Thank you all. Thank you for joining us today. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.