CLEAR SECURE, INC.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

CLEAR SECURE, INC. is a secure identity platform that verifies members’ identities at venues like airports, stadiums, and theme parks through biometric authentication.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: CLEAR Secure, Inc. operates a secure identity platform, primarily in the United States. Their core offering, CLEAR Plus, is a paid membership program that allows members to expedite security screenings at airports and other venues using biometric data, mostly their fingerprints and iris scans, and is mainly for frequent travelers. This creates a more efficient and faster verification process compared to traditional methods.

Revenue Streams:

  • Subscription revenue (CLEAR Plus): The primary revenue driver is subscription fees from CLEAR Plus memberships, and its a recurring revenue,
  • Enrollment revenue: Fees charged upon successful enrollment in the CLEAR platform.

Industry Landscape: The security verification sector is highly regulated and technology-driven. Competition includes:

  • Traditional security checkpoints
  • Other emerging biometric verification companies
  • Government initiatives like TSA PreCheck.

The trends include a move towards:

  • Increased emphasis on touchless verification due to hygiene concerns
  • Heightened security protocols due to terrorist threats
  • Expansion of biometric tech and data analytics
  • Increased focus on convenience for travelers.

What Makes CLEAR Different:

  • Proprietary Technology: CLEAR’s proprietary platform integrates hardware, software, and data analytics to provide a unique, expedited, and secure verification process. This gives an edge from competitors and from traditional security services, by a greater focus on the technology and biometric authentication itself.
  • Network Effect: A key advantage is their network of physical locations that grow over time in airports and other high traffic venues. That gives them a large base for attracting members, that they are trying to leverage.
  • Brand Loyalty: CLEAR has created a strong recognizable brand due to its focus on airport lines, by creating a better customer experience, allowing them to command higher price and customer retention

Financial Analysis:

  • Revenue Growth: CLEAR has achieved rapid revenue growth since 2019, largely driven by new enrollments and partnerships. Even throughout the pandemic, growth continued, showing the resilience and the large demand for its services.
  • Margins: Despite its high gross profit margins, the company’s operating margins are negative due to high SG&A costs (mainly marketing and sales), along with other expenses associated with high growth business. It is currently not profitable, but the goal is to improve profitability through scaling and operational efficiencies.
  • Debt: The company has used very limited debt to finance its operations and growth.
  • Cash Flow: Although it is still growing, its ability to generate positive cash flow is important.

Detailed Analysis of Financials

  • Balance Sheet Health: * Current Ratio: The most recent quarterly report shows a current ratio (current assets/current liabilities) of ~2, a strong figure suggesting a good ability to meet its short-term obligations. This ratio has trended down slightly from previous periods. * Debt-to-Equity Ratio: As of the same quarter, the company’s long-term debt is zero or close to it, while their liabilities are high at 1.6 billion.

  • Income Statements: * Revenue: Is mainly driven by subscriptions and new enrollments, which are both in a strong growth path * Expenses: are high mostly on operations, marketing and sales * Net income: Is negative, with net losses being seen consistently, with a net loss of $118.9 million in the last quarter of the most recent annual report. Although the company is not yet profitable, the high revenue growth indicates that those losses are mainly due to high growth investments.
  • Cash Flows: The net cash provided by operating activities is negative, but improving over time. Most of their losses are generated by aggressive investments, not by the main operation of the business.

Recent Developments:

  • Expanding Partnerships: CLEAR has been expanding partnerships with companies in sports, travel, and entertainment, increasing member use of the platform.
  • New Products and Innovations: CLEAR is in the process of expanding their platform, using their strong brand power to grow their business. They are working on new innovative ideas to grow their revenue, like healthcare, financial services, etc.
  • Strategic Acquisitions: Acquiring other companies to add new features and enhance existing services. For instance, the acquisition of Alclear has given them access to new technologies.
  • Cost Management Efforts: The company has stated to be looking into ways to cut down costs and improve efficiency, for instance, using more AI in their internal operations.

Moat Analysis:

  • Moat Rating: 2 / 5 * Strengths:
    • Network Effect: A very crucial driver of value that gets stronger with more members and locations. The more locations, the more convenient the membership and more valuable the network becomes to its users.
    • Brand Loyalty: CLEAR’s brand has become synonymous with convenience and efficiency for frequent travelers.
    • Proprietary Tech: The core biometric technology and verification platform have a significant edge.
  • Weaknesses:
    • Low Switching Costs: Customers can switch to competitors such as TSA PreCheck with ease, lowering their customer lock-in. The benefits of CLEAR are mainly the added convenience and faster times.
    • Limited Network Effect: The network is only useful when there are enough airports or venues. The majority of the airports and other venues are based in the United States.
    • Competition Other companies are innovating and growing to close the gap with CLEAR.
  • Justification: While CLEAR has a notable network effect and strong brand, there’s nothing really stopping others from growing or a company from having the same technologies. The brand may give them an edge to capture customers initially. But the lack of other competitive advantages limit its “moat”.

Legitimate Moat Risks:

  • Competition: New entrants or existing players introducing comparable technologies or services can pose challenges, along with TSA’s own Precheck program. The risk of this is heightened especially with other tech companies having similar capabilities.
  • Technological Obsolescence: New biometric technologies or security methods can make the current technology obsolete.
  • Regulation & Compliance: Changes in government regulations or compliance mandates can affect the cost structure and operation of the business.
  • Economic Downturn: If the economy worsens and there are less travelers in total, the business may suffer from slowing revenues.

Business Resilience:

CLEAR has resilience with high customer retention and brand loyalty, but they are vulnerable to large declines in air travel and changes in governmental regulations. Diversification and scaling into other areas of the identification space, will give them greater sustainability to ensure their long term viability and resilience.

Understandability:

  • Rating: 3 / 5
    • Justification: While the core concept of biometric identity verification is relatively easy to grasp, the complexity surrounding financial statements, accounting procedures, and the implications of the technology requires more effort to fully understand. There are various sources of revenue and non recurring items that are difficult for new investors to understand.

Balance Sheet Health:

  • Rating: 4 / 5
    • Justification: Although the company’s financials are still a bit distorted by high growth, high investments, and operating inefficiencies. However, they have a strong balance sheet with strong liquidity and very little debt. Once they are able to achieve more profitability, it will be closer to a 5/5 rating.