2023-11-17 11:59:53 ET
Summary
- Clear Secure, Inc. reported strong Q3 2023 financial results, beating revenue and earnings estimates.
- The company provides identity management security technologies to venues and organizations in North America and other regions.
- While Clear Secure continues to grow, the post-pandemic travel slowdown may impact its results. My outlook for the near term is Neutral [Hold].
A Quick Take On Clear Secure
Clear Secure, Inc. ( YOU ) reported its Q3 2023 financial results on November 8, 2021, beating both revenue and consensus earnings estimates.
The firm provides identity management security technologies to organizations responsible for venues throughout North America and other regions.
I previously wrote about YOU with a Hold outlook on the prospects for upside in the second half of 2023.
While Clear Secure, Inc. continues to grow, operating income is now positive, and the Board is returning cash to shareholders, the waning of the post-pandemic travel boom may be a drag on results.
For the near term, I reiterate my Neutral [Hold] outlook for Clear Secure.
Clear Secure Overview And Market
New York-based Clear Secure has developed a security platform enabling subscribers to demonstrate their identity and receive faster or more convenient access to venues and transportation systems in the U.S. and the broader Americas region.
The firm is led by Chair and CEO Caryn Seidman-Becker, who has been with the company since 2010 and was previously the founder of Arience Capital and managing director at Iridian Asset Management.
The company’s primary offerings include:
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CLEAR Business - venue access subscription service
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CLEAR Verified - customer verification
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CLEAR Plus - CLEAR plus aviation system access subscription service
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RESERVE - Airport reservations
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CLEAR Healthcare - health identity connected to digital health credential
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Atlas Certified - professional license verification
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KYC - know your customer.
The company has focused its direct sales & marketing efforts on U.S. airports, stadiums, major venues and enterprises.
According to a 2018 market research report by Fortune Business Insights, the global stadium security market was an estimated $6.2 billion in 2017 and is forecast to reach $16 billion by 2025.
This represents a forecast CAGR of 12.8% from 2018 to 2025.
The primary reasons for this expected growth are growing terrorist threat scenarios and the need to handle large crowds safely.
Also, stadium and venue owners are seeking advanced security measures as more options become available.
Below is a chart showing the stadium security market's historical and forecast growth trajectory:
Fortune Business Insights
The software & services segment was expected to grow at the fastest rate through 2025.
Major competitive or other industry participants include:
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Telos Identity
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Idemia Identity & Security
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Avigilon
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AxxonSoft
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BOSCH Security Systems
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Honeywell International.
The company also conducts business in other markets, including professional license and certification verification.
Clear Secure’s Recent Financial Trends
Total revenue by quarter (blue columns) has continued to rise; Operating income by quarter (red line) has turned materially positive in the most recent quarter:
Seeking Alpha
Gross profit margin by quarter (green line) has trended slightly higher more recently; Selling and G&A expenses as a percentage of total revenue by quarter (amber line) have dropped substantially in recent quarters:
Seeking Alpha
Earnings per share (Diluted) have produced strong growth results in recent quarters:
Seeking Alpha
(All data in the above charts is GAAP.)
In the past 12 months, YOU’s stock price has fallen 33.6% vs. that of the iShares Expanded Technology-Software ETF’s ( IGV ) rise of 41.61%:
For balance sheet results, the firm ended the quarter with $736.6 million in cash, equivalents and short-term investments and no debt.
Over the trailing twelve months, free cash flow was an impressive $180.1 million, during which capital expenditures were $30.1 million. The company paid $75.1 million in stock-based compensation in the last four quarters, a sharp drop in this figure.
Valuation And Other Metrics For Clear Secure
Below is a table of relevant capitalization and valuation figures for the company:
Measure (Trailing Twelve Months) | Amount |
Enterprise Value / Sales | 2.4 |
Enterprise Value / EBITDA | NM |
Price / Sales | 3.1 |
Revenue Growth Rate | 46.4% |
Net Income Margin | 0.5% |
EBITDA % | -2.2% |
Market Capitalization | $3,020,000,000 |
Enterprise Value | $1,380,000,000 |
Operating Cash Flow | $210,180,000 |
Earnings Per Share (Fully Diluted) | $0.02 |
Forward EPS Estimate | $0.57 |
Free Cash Flow Per Share | $2.01 |
SA Quant Score | Hold - 3.06 |
(Source - Seeking Alpha.)
Below is an estimated DCF (Discounted Cash Flow) analysis of the firm’s projected growth and earnings:
Based on the DCF, the firm’s shares would be valued at approximately $19.92 versus the current price of $19.85, indicating they are potentially currently fully valued.
Commentary On Clear Secure
In its last earnings call (Source - Seeking Alpha ), covering Q3 2023’s results, management’s prepared remarks highlighted growth in the firm’s bookings by 32% (YoY?) despite seasonal travel patterns returning to pre-pandemic levels after a robust travel boom.
The company also acquired Sora ID, which will give it important KYC (Know Your Customer) capabilities as it seeks to expand its offerings in that segment.
Management also said it will be launching its NextGen Identity service, which it believes "will be the first and only company to operationalize an at-scale standardized digital identity."
It is also designing its CLEAR Lane airport experience, which enables subscribers to use their face as identity, and they "will not have to break stride" as they proceed through the identification point.
The firm is also seeing "momentum" with its LinkedIn identity verification partnership and is expanding from the U.S. to Canada and Mexico in short order.
Analysts asked management about the status of the TSA PreCheck rollout, international opportunities and returning capital to shareholders.
Leadership responded that the TSA PreCheck is slated to begin rollout this year.
The firm has seen success with its RESERVE function in various countries and the opportunities with digital marketplaces worldwide.
The Board has recently increased its share repurchase authorization to $138 million and increased its quarterly dividend in addition to announcing a special dividend of $0.55.
Total revenue for Q3 2023 rose by 38.4% year-over-year, but gross profit margin dipped by 0.4%.
The firm’s net member retention rate was 88.5%, in line with management’s previous expectations.
Selling and G&A expenses as a percentage of revenue fell by 61.8%, indicating sharply increased efficiencies and operating income turned positive to $19.7 million for the quarter.
The company's financial position is strong, with substantial liquidity, no debt and strong free cash flow.
Looking ahead, full-year 2023 revenue growth is expected to be 39.3%.
If achieved, this would represent a decline in revenue growth rate versus 2022’s growth rate of 72.14% over 2021, although this growth rate was likely unsustainable and due to the pent-up travel demand after the waning of the pandemic.
A potential upside catalyst to the stock could include greater growth from its digital identity initiatives.
However, even with a high growth assumption, my discounted cash flow calculation suggests the stock may be fully valued at its current level.
So, my outlook for the near term on Clear Secure, Inc. is Neutral [Hold].
For further details see:
Clear Secure Grows Profits As Travel Spending Slows