2023-06-09 11:23:48 ET
Summary
- Clear Secure, Inc. published its Q1 2023 financial results on May 9, 2023.
- The firm provides a range of identify verification services to venues and online.
- Clear Secure has produced strong growth and operating losses have diminished.
- But, I'm Neutral [Hold] until we see more operating results in the coming quarters.
A Quick Take On Clear Secure
Clear Secure, Inc. ( YOU ) reported its Q1 2023 financial results on May 9, 2023, beating revenue and EPS consensus estimates.
The firm provides identity management security technologies to organizations responsible for venues located in North America and other regions.
YOU is preparing to launch its TSA PreCheck product, rolling it out over time in the U.S. over the coming months and quarters.
Clear Secure, Inc.’s revenue growth outlook is strong, but I’m Neutral [Hold] until we gain visibility into its second-half 2023 operating results.
Clear Secure Overview
New York, New York-based Clear Secure was founded to create 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.
Management is headed by Chair and CEO Caryn Seidman-Becker, who has been with the firm 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 - venue access subscription service
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CLEAR Plus - CLEAR plus aviation system access subscription service
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Health Pass - health identity connected to digital health credential
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Atlas Certified - professional license verification.
The firm has focused its direct sales & marketing efforts on U.S. airports, stadiums, major venues and enterprises.
YOU counts 52 airports where its services are offered, among other venues.
Clear Secure’s Market & Competition
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 main drivers for this expected growth are a rise in terrorist threat scenarios as well as a need to handle large crowds in a safe manner.
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:
Stadium Security Market (Fortune Business Insights)
Notably, 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 operates in other markets, including professional license and certification verification.
Clear Secure’s Recent Financial Trends
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Total revenue by quarter has grown per the trajectory shown below:
Total Revenue (Seeking Alpha)
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Gross profit margin by quarter fell in the most recent quarter:
Gross Profit Margin (Seeking Alpha)
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Selling, G&A expenses as a percentage of total revenue by quarter have varied per the following chart:
Selling, G&A % Of Revenue (Seeking Alpha)
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Operating income by quarter has made a substantial move toward breakeven recently but remains materially negative:
Operating Income (Seeking Alpha)
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Operating leverage by quarter has improved in recent quarters:
Operating Leverage (Seeking Alpha)
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Earnings per share (Diluted), while still negative, has made a substantial move toward breakeven recently:
Earnings Per Share (Seeking Alpha)
(All data in the above charts is GAAP.)
In the past 12 months, YOU’s stock price has fallen 14.89% vs. that of the iShares Expanded Technology-Software ETF’s ( IGV ) rise of 10.38%, as the chart indicates below:
52-Week Stock Price Comparison (Seeking Alpha)
For the balance sheet , Clear Secure, Inc. ended the quarter with $748.0 million in cash, equivalents and short-term investments and no debt.
Over the trailing twelve months, free cash flow was an impressive $168.9 million, of which capital expenditures accounted for $35.2 million. The company paid $16.6 million in stock-based compensation in the quarter.
Valuation And Other Metrics For Clear Secure
Below is a table of relevant capitalization and valuation figures for the company:
Measure [TTM] | Amount |
Enterprise Value / Sales | 3.8 |
Enterprise Value / EBITDA | NM |
Price / Sales | 4.3 |
Revenue Growth Rate | 63.1% |
Net Income Margin | -12.6% |
EBITDA % | -23.5% |
Net Debt To Annual EBITDA | 6.6 |
Market Capitalization | $3,740,000,000 |
Enterprise Value | $1,810,000,000 |
Operating Cash Flow | $204,140,000 |
Earnings Per Share (Fully Diluted) | -$0.72 |
(Source - Seeking Alpha.)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
YOU’s most recent Rule of 40 calculation was 39.6% as of Q1 2023’s results, so the firm has performed well in this regard, per the table below:
Rule of 40 Performance | Calculation |
Recent Rev. Growth % | 63.1% |
EBITDA % | -23.5% |
Total | 39.6% |
(Source - Seeking Alpha.)
Commentary On Clear Secure
In its last earnings call ( Source - Seeking Alpha ), covering Q1 2023’s results, management highlighted its recent partnership with Microsoft’s LinkedIn property, enabling users there to verify their identities with the company's system.
YOU also announced a partnership with Health Gorilla, a health data interoperability provider to enable users in Puerto Rico to securely access their healthcare information.
Also, the company is expecting to begin launching its TSA PreCheck integration in Q2 in certain airports in the U.S., rolling out in more locations throughout the year.
The firm also announced a special cash dividend of $0.20 per share as a result of its "pro rata share of tax distributions made by its subsidiary, Alclear Holdings, LLC."
Management did not disclose company or customer retention rates but did state that "retention is definitely stronger than we anticipated."
Total revenue for Q1 2023 rose 46.3% year-over-year as a result of strong growth in travel by consumers and businesses but gross profit margin dropped 1.1 percentage points.
Selling, G&A expenses as a percentage of revenue decreased by 9.5 percentage points year-over-year and operating losses dropped by 25.3% YoY, a strong improvement.
Looking ahead, management said that its bookings guidance of $159 million at the midpoint of the range "implies year-over-year growth of approximately 30% and excludes any contribution from PreCheck. We continue to expect operating leverage and free cash flow growth on a full year basis."
The company's financial position is quite strong, with substantial liquidity, no debt and copious free cash flow generation.
From management’s most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below:
Earnings Transcript Key Terms Frequency (Seeking Alpha)
The transcript showed relatively few mentions of negative key terms, a potentially positive signal.
Regarding valuation, the market is valuing Clear Secure at an EV/Sales multiple of around 3.8x on TTM revenue.
In the past twelve months, the firm's EV/Sales valuation multiple has dropped a hefty 35.3%, as the chart from Seeking Alpha shows below:
EV/Sales Multiple History (Seeking Alpha)
A potential upside catalyst to Clear Secure stock could include growth from the widely anticipated rollout of its TSA PreCheck product, which should begin showing up in the financials in the second half of the year.
Clear Secure stock’s valuation multiple is potentially attractive after having been beaten down in the past year.
While I’m not yet ready to jump into Clear Secure, Inc. stock, it is worth putting on a watch list for future consideration.
I’m Neutral on Clear Secure for the near term.
For further details see:
Clear Secure May Have Upside In Second Half 2023