Earnings Call Transcript - YOU Q2 2021

Operator, Operator

Good morning. Welcome to the Clear Second 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 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 filings. 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?

Caryn Seidman-Becker, CEO

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 mobile app for frictionless experiences with our sports entertainment and Health Pass products. The dual growth engines that we talked about on our road show, 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 ClearPlus business and there is significant traction on the platform side. We are pleased with our second quarter and the strength we are seeing going into the third quarter. That strength is reflected in our third quarter bookings guidance of $90 million to $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 two million uses. We were recently recognized by the Washington Post as the most flexible and useful service, 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 want to highlight our partnership with the State of Hawaii where travelers can link their Clear Health Pass to the travel safe program to avoid quarantine requirements. Roughly 700,000 monthly passengers from all airlines are eligible to use the Clear solution and 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 solutions 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 touchless, frictionless experiences. With that, let's turn it over to Q&A.

Charlotte Bedick, Analyst

Hi. This is Charlotte Bedick on for Brian. Thanks for taking the questions. So, I was wondering, how do you envision the market for the vaccine apps to unfold? Do you think the healthcare IT vendors like Athena, Health and Epic, maybe better positioned to offer a federated app or are you guys also in consideration of that?

Caryn Seidman-Becker, CEO

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 goes far beyond that. And that partners are looking for trusted partners and a secure turnkey solution. And so what we are seeing is that Health Pass, which has proven ready and scalable, is seeing a lot of new partner interest and businesses are focused on coming back better. So building a nationwide interoperable solution for private industry and state and local governments is crucial, and doing it in an all-in-one way. This isn't just about your vaccine status, but going into your office, where you as an employee have your building access card and your vaccine status. This is about the power of the secure identity platform and creating all-in-one solutions. I think there are a lot of different apps out there, and our focus is creating trusted scalable all-in-one solutions that drive the customer experience and the partner experience.

Charlotte Bedick, Analyst

Great. And I guess as a follow-up, could you help us better understand how much Health Pass basically accounted for this quarter?

Ken Cornick, CFO

So, we are not breaking out specific lines of business within revenue. But as noted, we are gaining significant traction on that line of business.

Caryn Seidman-Becker, CEO

I would also just point out what you saw today as we announced seven million members, which we crossed that number yesterday. Obviously, the accelerated member growth is being driven from both the travel side as well as the platform side.

Michael Turrin, Analyst

Hey. Thanks. Good morning. Congrats on the first earnings report here. You mentioned enrollment growth improved 26% on the quarter you reached seven million it 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?

Ken Cornick, CFO

Yes, so in general, we are not going to 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.

Caryn Seidman-Becker, CEO

It's great to have everyone on the call this morning. This is a critical time for secure identity platforms. In the travel sector, we're noticing strong demand for touchless and frictionless experiences, and people are turning to Clear for that. Traveling has become increasingly challenging, so having a consistent and reliable experience is essential. Additionally, as more partners join our platform, it creates more opportunities for our members to utilize our services, which fosters growth.

Michael Turrin, Analyst

Helpful. And then, maybe Ken just on the Q3 guidance you are 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 touch point here with investors? Thank you.

Ken Cornick, CFO

Sure. Yes. So 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. And 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. So we do have the visibility of the people that have already joined that are expected to convert into paying customers this quarter. So I would say we have fairly good visibility. I would also point out that the American Express partnership which launched on July 1, it launched quite strong and continues to have a nice tail of membership growth as well. And so we expect that to continue as well.

Michael Turrin, Analyst

That's great. Thank you.

Dana Telsey, Analyst

Good morning and congratulations on the nice results and 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 in all different areas. What are you seeing in the rebound? Any way to see leisure versus business travel? And what you just mentioned on American Express, Ken, any of the other partnerships anything to note, particularly regarding Health Pass and potentially new business sign-ups for it given its essential need? Thank you.

Caryn Seidman-Becker, CEO

So Dana, I'll start and then turn it over to Ken. From what we are observing in the airports, it's crucial that we highlight in our release the importance of our dedicated staff, particularly our ambassadors who are committed to providing a seamless experience. This has been vital for both enrollments and the verification process, leading to a strong net promoter score for our members. They are also available to demonstrate the Clear capabilities, whether it's the Home to Gate app, Clear Lane, or other services to potential travelers or members. It all begins with our team and our brand. We have seen numbers rise recently, with up to 2.2 million travelers passing through airports this summer, compared to a peak of 2.7 million in 2019. This reflects a significant recovery that's mainly driven by leisure travel, although we can’t distinguish between business and leisure travelers, we just recognize them as travelers. Currently, the trend appears to be skewing towards leisure. There is also a growing demand for touchless, frictionless, and predictable experiences. We have been gaining market share in airports consistently every month regarding Clear volume. Additionally, over the past year, our technology has improved and our offerings have expanded, which is quite significant for travelers. We are witnessing a robust recovery and an increasing need for what Clear provides, supported by our dedicated team of Clear ambassadors who are bringing our technology and services to life.

Ken Cornick, CFO

Yeah. And just a little qualitative color, I mean, we are definitely hopping into a more diverse customer base from an age perspective, from an airline perspective, from a geographic perspective. So it is not the traditional hardcore business traveler necessarily only. We are definitely seeing a more diverse membership base today than we did in 2019.

Caryn Seidman-Becker, CEO

And then, Dana, you asked something on the Health Pass piece. Would you mind just repeating that? Sorry.

Dana Telsey, Analyst

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?

Ken Cornick, CFO

We are really seeing fairly widespread demand coming in, in terms of needing our solution, in order to get back to work safely, in order to open venues, in order to open restaurants. It is really diverse from small to large enterprises, to businesses, to venues. And so we are seeing fairly strong incoming demand for our solution.

Caryn Seidman-Becker, CEO

I would like to add two points regarding our initial expectations. Having strong partners and assisting them in reopening safely is crucial. The capability to upload and digitize your vaccine card is independent of our partners, which means our business has become more two-sided, resulting in accelerated enrollment. You might not need it right now at our partnered venues like the Brooklyn Nets, Yankees, or Mets, but you may want to have your vaccine card accessible whenever needed, as it relates to having control over your healthcare information. We're witnessing both individuals and enterprises showing interest, and our ability to create seamless integrations through APIs is also essential.

Ken Cornick, CFO

We do think that is a positive variance: the direct-to-consumer organic upload of your vaccine cards to the Clear app is not something, I think that we expected early on.

Dana Telsey, Analyst

Thank you.

Ananda Baruah, Analyst

Hi. Good morning guys. Thanks for taking the questions. Congrats on the very solid execution out of the gate. I guess a couple from me. The first is on ClearPlus. Did you guys see any surprises as you moved through the quarter either positive or negative or otherwise? And what might be for ClearPlus some of the key initiatives or action signposts for the remainder of the year? And then, I have a follow-up? Thanks.

Ken Cornick, CFO

I think in general ClearPlus was very, very strong and was really broad-based, so 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. To the extent that the geographies that are still lagging start to catch up to the other markets, there's potential for future acceleration from here.

Caryn Seidman-Becker, CEO

I would add to that sort of the tale of two cities, or I'd call it two regions. There are parts of the country that were quite strong and then, there are parts that were still down more coastal than 2019. I think that was probably a little surprising although, maybe shouldn't be when you see what's going on. I also think win backs. So you hope that anybody who left in 2019 or 2020 would miss you and want to come back. But 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 people love Clear and those who left last year have been coming back.

Ananda Baruah, Analyst

That's really helpful. And then just on platform bookings, really nice kickoff with you guys – sort of called platform uses in the shareholder letter, the biggest in a while. 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? Any context you could give there would be helpful. Thanks.

Ken Cornick, CFO

Sure. On the platform utilization, it is fairly broad-based. What I would say though is from a travel perspective many of our existing members clearly are traveling less frequently than they did at the peak in 2019. So although it 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 ClearPlus throughout the quarter. 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, the range of use cases, if you're loading your vaccine card up into the Clear app, may mean that you don't use it at all in the quarter but you've enrolled. Many use cases are more recurring. So going back into the office you might do it every day. Then there are some one-time events that we did like the Ubbi Dubbi concert for example, where it was a one-time use. You're enrolling and using it once. That's part of our strategy, which is to bring on events, bring on new members, which drives new partners, which drives new use cases — it's that flywheel that Caryn talked about earlier.

Caryn Seidman-Becker, CEO

I do think it goes back to what we talked about in the roadshow, 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 Clear Lane, obviously that started coming back so 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 Ubi Dubi I'm not sure which, and Walmart. The power of broad-based partnerships – Hawaii safe travels both with United and Delta and then 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.

Ananda Baruah, Analyst

That's really helpful context. I appreciate it. Thanks.

Ken Cornick, CFO

Thank you.

Operator, Operator

The next question is from Paul Chung with JPMorgan. Please proceed with your question.

Paul Chung, Analyst

Hi, thanks for taking my question and welcome to the public markets. So first up, pretty strong acceleration in subs in Q2 and bookings guide points to a very nice pace, particularly in travel. So how should we think about that pace if Delta continues to linger? I know that's tough to quantify. Separately, as we hit fiscal year 2022, comps get tougher given the nice pace today in Q2 and 3Q. How are you guys thinking about sub add pace in 2022 and factoring possibly some pent-up demand here in the summer? I have a follow-up.

Caryn Seidman-Becker, CEO

Yes, I'll start and then turn it over to Ken, which is bigger network, more products, more partners are the big drivers for the Clear Plus business over the next year and change. 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 the rest of 2021 and 2022.

Ken Cornick, CFO

Yes, and right now we are giving guidance for Q3, which you saw. We also made the comment that we are not seeing any impact from the Delta variant today but we are thoughtful of it and we’ve seen Southwest in particular had bookings commentary last week. We are thoughtful and looking at it, but we are not seeing anything today.

Paul Chung, Analyst

Got you. Thanks for that. And then on the airport side, are you still on pace to hit 44 by the end of the year? Given the IPO and some nice media coverage here on the Health Pass, are those discussions with other airports accelerating? Thank you.

Ken Cornick, CFO

So we're not giving guidance on specific numbers of what we will hit this year versus next. We do have a pipeline of airports and our practice will be to announce those airports after we sign the contracts.

Operator, Operator

Our next question comes from the line of Brian Essex of Goldman Sachs. please proceed with your question.

Charlotte Bedick, Analyst

Hi. Again this is Charlotte Bedick on for Brian Essex. A quick question on TSA pre-check. I know during the roadshow you mentioned that it was going to launch in the second half of 2021 and now you announced that it's expected to launch in Q4. Have you experienced any delays, any hiccups? Can you give us any color around the anticipated rollout?

Ken Cornick, CFO

No specific delays. It's a process, and we mentioned the second half because we honestly didn't know the exact launch date. It is still on track. We are working hard and partnering with TSA to launch the program as quickly as possible.

Charlotte Bedick, Analyst

Great. Thank you.

Operator, Operator

Thank you. There are no more questions on the line. I will turn the call back to Caryn Seidman-Becker for closing remarks.

Caryn Seidman-Becker, CEO

Thank you and 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, represents an enormous opportunity for us. So thank you all.

Operator, Operator

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.