Spruce Point Capital Management Announces Investment Opinion: Releases Report and Strong Sell Research Opinion on Clear Secure, Inc. (NYSE: YOU)

NEW YORK--(BUSINESS WIRE)--Spruce Point Capital Management, LLC (“Spruce Point” or “we” or “us”), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled, “What Are YOU Hiding?”, that outlines why we believe and estimate that shares of Clear Secure, Inc. (NYSE: YOU) ("CLEAR" or the "Company") face up to 30% – 50% potential intermediate downside risk, or $12.65 – $17.70 per share. Download and view the report and its Full Legal Disclaimer by visiting www.SprucePointCap.com for additional information and exclusive updates.

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Spruce Point Report Overview

Based in New York City, CLEAR is an identity security company that focuses primarily on the aviation market. CLEAR Plus membership is an annual subscription program that provides, in certain cases, expedited access through airport security in the United States. As of December 31, 2024, its network of partners and use cases provides members with access to 165 CLEAR Plus Lanes across 58 airports nationwide, five airports with Mobile Lanes, 52 airports and 24 retail locations with TSA PreCheck Enrollment Provided by CLEAR, 17 sports and entertainment venues with priority lanes, and an assortment of B2B CLEAR1 partners. As of the last 12 months ended December 31, 2024, the Company reported approximately $770 million and $187 million of revenues and Adjusted EBITDA, respectively.

The concerns we outline in our report include:

• CLEAR has a declining value proposition and is experiencing challenges, which are likely to intensify.
  • CLEAR’s business is in large part dependent on consistent domestic travel within the U.S. and a customer demand to expedite travel and limit unnecessary time spent at the airport. At present, domestic travelers navigating airport security in the U.S. have three basic options: 1) Do nothing and pay nothing to go through the general security line, 2) Enroll in the Transportation Security Administration (“TSA”) PreCheck program and pay the $78 enrollment fee for five years, and/or 3) Enroll in a CLEAR Plus membership at $199 per year. For frequent travelers prioritizing speed and optionality, there is nothing preventing travelers from having both TSA PreCheck and CLEAR Plus. When wait times through security checkpoints are low, there is a low value proposition to these services. However, when wait times are high, there is a greater value proposition. The challenge facing both TSA and CLEAR services is that as membership and usage increases, the wait times also increase. There are a fixed number of lanes for members to pass through, thereby increasing the potential for bottlenecks. Therefore, we argue that CLEAR has a declining value proposition to both new and existing members because as membership grows, so does the potential for bottlenecks and delays through its channels.
  • Given CLEAR is required to abide by certain unique TSA directives, we believe these often exacerbate the bottleneck its customers face. These directives include requirements such as: 1) CLEAR brand ambassadors must escort the CLEAR member to the TSA officer for a final security check, 2) TSA is instructed to take one TSA PreCheck passenger, then one CLEAR member and alternate (though this varies by airport), and 3) Randomized security checks of CLEAR members must still occur as a result of the Company’s security lapses in 2023.

• CLEAR is struggling to attract new members and retain existing ones, and the current macroeconomic environment adds another near-term headwind to airport traffic.
  • CLEAR is experiencing a sharp year-over-year deceleration in net new memberships and net new member retention which is a metric it plans to cease providing. CLEAR’s Customer Lifetime Value to Customer Acquisition Cost ratio has also declined sharply between 2022 and 2024 from 22x to 10x.
  • CLEAR says it has strong network effects, growth opportunities, and operating leverage which are claims we challenge. We believe that expansion into sporting and entertainment events and healthcare have largely fallen short and do not make money. We take issue with the quality of CLEAR’s network effect claim. For example, CLEAR stopped reporting its Net Promoter Score, a measure of customer satisfaction and experience, after 2022 and we find numerous websites that detail customer dissatisfaction. Moreover, to implement its network expansion, CLEAR increasingly relies on human labor which we believe dents its operating leverage. For example, in 2021 the ratio of full and part-time ambassadors and field managers to full time total employees was 0.80x but in 2024 the ratio increased to 1.04x.
  • We believe CLEAR’s deferred revenue accounts are a harbinger of potential disappointment. Deferred revenue primarily relates to amounts received from customers for subscriptions paid in advance of the services being provided, that will be earned within the next 12 months. Looking carefully at the accounts, we see that in 2024, the amounts added to deferred revenue dropped below amounts recognized for the first time since they were reported in 2021. We view this as a strong indication of troubles ahead with meeting revenue expectations.
  • The current macroeconomic environment also presents a near-term headwind that is likely to impact CLEAR because it receives 64% of member sign-ups from in-airport traffic. Recession fears from newly implemented tariffs and trade war rhetoric are making travel demand highly uncertain. As a result, major airlines are retracting financial guidance and cutting capacity.

• Partnerships with companies like Delta Air Lines and United Airlines that enabled CLEAR’s growth appear to be maturing.
  • CLEAR had early partnerships with Delta Air Lines (“Delta”) and United Airlines (“United”), which offered reduced pricing for their members to enroll in CLEAR. These pricing discounts, some which reached 40% based on member class, have since been reduced to as little as 5%. In addition, as of May 1, 2025, United Premier 1K members will no longer receive free CLEAR membership. CLEAR argues that these reduced incentives will ultimately benefit its financial performance, but that ultimately depends on members willing to renew at a higher price point.
  • We also believe Delta and United have less incentive to promote CLEAR. For example, Delta owned 6.3% of CLEAR’s equity pre-IPO but sold all its shares as of year-end 2024. United also owned CLEAR warrants, but it also no longer reports any investment in CLEAR at year-end 2024.
  • Another avenue CLEAR uses to build its membership is through a partnership with American Express. However, we are concerned by the fact that CLEAR’s press release in early April 2025 about the partnership renewal omitted a previously included enthusiastic endorsement of the relationship by CLEAR management. In fact, a former CLEAR employee we interviewed also agreed that the press release was not a reassurance about the certainty of the relationship.

• The TSA controls the future direction of airport security, clouding CLEAR’s long-term future with uncertainty as TSA’s Touchless ID program gains traction.
  • CLEAR’s long-time partners, such as Delta and United, are now partnering with the TSA to offer a competing service, which is the Touchless ID program. American Airlines has followed. We believe the goal of the TSA is to get the ~40 million PreCheck and Global Entry members to sign-up for Touchless ID which is very simple and quick. We find that the Digital ID solution solves a problem that CLEAR does not which is integration with baggage check-in.
  • Another growing risk for CLEAR centers around the TSA’s intention to require all travelers to be processed through CAT machines in the future. IDEMIA, a French security firm, signed a $128m contract with the TSA in 2023 to develop and install CAT-2 facial recognition technology. Today, CAT-2 machines are located in 84 airports nationwide and will expand to more than 400 airports over the coming years.
  • CLEAR touts its new EnVe Pod for facial recognition, but also says it is massively important to be connected to eGates. However, it is not obvious what CLEAR’s eGate solution is, if any. IDEMIA already has functioning eGates in other countries and, if they were to be deployed in the U.S., it is not obvious they need CLEAR’s facial recognition EnVe Pod.
  • We observe that in 2024 CLEAR reduced its total research and development (R&D) expenses for the first time. Even more concerning, CLEAR reduced its technology team members from 275 to 220, or by 20%, but said nothing of this being a factor which reduced R&D expenses.

• We have grave concerns about CLEAR’s accounting policies and financial reporting practices.
  • CLEAR’s Chief Accounting Officer was the Corporate Controller at Ubiquiti, Inc. (NYSE: UI) during a period in which it was under investor and SEC scrutiny. One of the key allegations was that it inflated its Ubiquiti Community members. Ubiquiti later reported a massive “error” in registered users and revised the claim from 4 million to 609,000. Ubiquiti settled a shareholder lawsuit over the allegations without admitting guilt.
  • We also believe that there are indicators that CLEAR may be potentially inflating active member counts by stretching the number of grace period days after billing failure. The grace period expanded from 45 to 51 days in mid-2024, and as of the year-end 2024 annual report, CLEAR no longer discloses the exact period.
  • Given our concerns about CLEAR’s member retention and ability to sustain revenue growth momentum, we also observe a few noteworthy changes to its Revenue Recognition disclosure. The biggest recent change is that revenue is no longer reduced by estimated amounts due to its credit card partner. This could be a lever used to inflate current revenue.
  • CLEAR also gives inconsistent descriptions of the factors driving the revenue increase. For example, the management, discussion, and analysis say nothing about retention or churn and made multiple changes to its description of members (initially citing “average monthly” and now “active”). Lastly, despite the CFO claiming CLEAR had pricing power in 2023 and raised prices, it has since stopped reporting the effect on revenue from average revenue per member.
  • CLEAR bills members upfront for an annual membership and payments are typically made via credit or debit transactions. CLEAR reports very little accounts receivable and does not assume any allowance for bad debts. The accounts receivable balance has been declining year-over-year for eight of the last nine quarters. In contrast, revenue has been increasing year-over-year in every quarter, but at a declining growth rate.
  • Management frequently talks about gross profit dollar growth. However, the Company has never defined exactly how it calculates gross profit. The analyst community and financial data providers claim gross profit is 85.8% which puts CLEAR in a rarefied world of leading technology software and subscription companies. However, we believe these calculations ignore the cost of human labor integral to providing the service and transaction processing fees to acquire and renew members. By adjusting CLEAR’s gross profit for these costs, we estimate its gross margin to be approximately 61.5%, or 24.3% lower than its promoted figure, and 8% lower than peers.
  • CLEAR also has a history of aggressively promoted Free Cash Flow. For example, it used to add back the value of share repurchases over fair value, which is a highly unusual adjustment that we have not seen before. CLEAR struck this adjustment without explanation in mid-2024. We believe that public shareholders of CLEAR’s Class A stock should focus on Free Cash Flow that is available after distributions and tax payments to non-controlling interests. By making these adjustments, we estimate that Free Cash Flow to public Class A holders is approximately $60 million lower.

• We have identified numerous leadership and shareholder governance concerns at CLEAR, ranging from multiple share classes to related-party distributions.
  • We do not favor investing in companies with multiple share classes that provide the opportunity for management and insiders to treat public shareholders in an unfriendly manner. CLEAR has a Tax Receivable Agreement (“TRA”) which provides payment to its co-founders of 85% of the cash savings created under various circumstances, including share exchanges among classes. Insiders have been exchanging Class B, C, and D shares for public Class A shares and a TRA liability in the amount of $196.8 million was recently established.
  • We find that in the past three years, related-party distributions have exceeded the total investment made in the Company through capital expenditures, research and development, and acquisitions by approximately $44 million. We believe this is a huge red flag and highly indicative of where management’s priorities lie with respect to capital allocation.
  • There is significant turnover within CLEAR’s management team. In fact, the CEO is the only remaining executive from the 2021 IPO. Furthermore, Co-Founder and CFO Kenneth Cornick recently departed in March 2025. We also observe a recent increase in insiders enacting 10b5-1 stock sale programs. Notably the former CFO and Chief Accounting Officer have both enacted two programs that overlapped which we view as a more aggressive manner to sell shares. Chairman and CEO Caryn Seidman Becker also recently enacted a program.

• We believe the market miscalculates CLEAR’s valuation, and we see significant downside risks.
  • Sell-side analysts are mixed on CLEAR with more than two thirds having a Hold or Sell rating. The bull case rests on robust travel demand and price increases, which we believe should be in doubt following evolving trade wars and customer retention challenges. The bear case assumes a 10x EBITDA multiple is reasonable for a consumer facing subscription business. However, our forensic research suggests CLEAR to be a uniquely challenged business trading well above 10x when its enterprise value is adjusted for all share classes, a tax receivable agreement liability, and leases.
  • We do not believe that CLEAR is worthy of valuation commensurate with a technology-centric company. In fact, the median wage of a CLEAR employee is just $37,293 vs. the median wage of $138,673 for a peer group of other technology subscription services, which we believe reflects the human capital-intensive nature of CLEAR’s product.
  • If we applied a 1.5x – 2.5x and 3.0x – 4.0x multiple to a range of CLEAR’s 2025E sales and adjusted gross profit, we estimate 30% - 50% intermediate-term downside risk. However, longer term we believe CLEAR’s equity could become impaired and could succumb to the TSA’s continued roll-out of Digital ID lanes and/or a competitive implementation of eGates or other technologies. We expect CLEAR’s share price to underperform the technology and transportation industries along with the broader equity market.

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Please note that the items summarized in this press release are expanded upon and supported with data, public filings and records, and images in Spruce Point’s full report. As a reminder, our full report, along with its investment disclaimers, can be downloaded and viewed at www.SprucePointCap.com.

As disclosed, Spruce Point and/or its clients have a short position in Clear Secure, Inc. (NYSE: YOU) and owns derivative securities that stand to net benefit if its share price falls. Following publication of the report, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial opinion. For additional important information, please review the “Full Legal Disclaimer” contained in the report.

About Spruce Point

Spruce Point Capital Management, LLC is a forensic fundamentally-oriented investment manager that focuses on short-selling, value, and special situation investment opportunities.