you-20210630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended June 30, 2021


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission file number 001-40568

CLEAR SECURE, INC.

(Exact name of registrant as specified in its charter)


Delaware									86-2643981
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

65 East 55th Street, 17th Floor, New York, NY 10022
(Address of Principal Executive Offices); (Zip Code)

(646) 723-1404

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.00001 per share	YOU	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The registrant had the following outstanding shares of common stock as of August 16, 2021:


Class A common stock par value $0.00001 per share						74,420,306
Class B common stock par value $0.00001 per share						1,042,234
Class C common stock par value $0.00001 per share						44,598,167
Class D common stock par value $0.00001 per share						26,709,821

Table of Contents


		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income/(Loss)	5
	Condensed Consolidated Statements of Changes in Redeemable Capital Units and Stockholders' Equity	6
	Condensed Consolidated Statements of Changes in Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		74

CLEAR SECURE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(dollars in thousands, except per share data)


	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	168,302	$	116,226
Accounts receivable	1,440		912
Marketable debt securities	37,826		37,813
Prepaid revenue share fee	6,918		5,475
Prepaid expenses and other current assets	19,073		11,210
Total current assets	233,559		171,636

Property and equipment, net	43,570		35,241
Intangible assets, net	1,817		1,564
Restricted cash	22,932		22,856
Other assets	1,917		971
Total assets	$	303,795	$	232,268

Liabilities, redeemable capital units and stockholders' equity
Current liabilities:
Accounts payable	$	7,024	$	8,518
Accrued liabilities	28,510		18,304
Warrant liabilities	—		17,740
Deferred revenue	127,847		101,542
Total current liabilities	163,381		146,104

Deferred rent	3,548		3,809
Total liabilities	166,929		149,913

Commitments and contingencies (Note 17)

Redeemable capital units (Note 12)	—		569,251

Class A common stock, $0.00001 par value- 1,000,000,000 shares authorized; 59,240,306 shares issued and outstanding as of June 30, 2021	1		—
Class B common stock, $0.00001 par value—100,000,000 shares authorized; 1,042,234 shares issued and outstanding as of June 30, 2021	—		—
Class C common stock, $0.00001 par value—200,000,000 shares authorized; 44,598,167 shares issued and outstanding as of June 30, 2021	—		—
Class D common stock, $0.00001 par value—100,000,000 shares authorized; 26,709,821 shares issued and outstanding as of June 30, 2021	—		—
Profit Units	—		7,846
Accumulated other comprehensive income	—		27
Accumulated deficit	(2,004)		(494,769)
Additional paid-in capital	64,644		—
Total stockholders’ equity attributable to Clear Secure, Inc.	62,641		—
Non-controlling interest	74,225		—
Total stockholders’ equity	136,866		(486,896)
Total liabilities, redeemable capital units and stockholders’ equity	$	303,795	$	232,268

See notes to condensed consolidated financial statements

Table of Contents

CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(dollars in thousands, except per share data)



	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020

Revenue	$	55,178	$	59,978	$	105,736	$	121,266

Operating expenses:
Cost of revenue share fee	8,300		7,273		16,069		17,409
Cost of direct salaries and benefits	15,836		6,234		27,985		23,753
Research and development	10,941		5,445		19,946		17,061
Sales and marketing	10,901		1,492		15,857		8,188
General and administrative	44,282		14,928		71,474		79,798
Depreciation and amortization	2,664		2,329		5,202		4,623
Operating income (loss)	(37,746)		22,277		(50,797)		(29,566)

Other income (expense)
Interest income, net	(142)		79		(213)		669
Income (loss) before tax	(37,888)		22,356		(51,010)		(28,897)
Income tax expense	(211)		(10)		(217)		(10)
Net income (loss)	(38,099)		22,346		(51,227)		(28,907)
Less: net loss attributable to non-controlling interests	(36,095)				(49,223)
Net loss attributable to Clear Secure, Inc.	$	(2,004)			$	(2,004)

Net loss per common share of Class A and B common stock (Note 15)
Basic and Diluted	$	(0.03)			$	(0.03)
Weighted-average shares of Common A stock outstanding	57,371,788				57,371,788
Weighted-average shares of Common B stock outstanding	1,042,234				1,042,234

See notes to condensed consolidated financial statements

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CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

(dollars in thousands)


	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net income (loss)	$	(38,099)	$	22,346	$	(51,227)	$	(28,907)
Other comprehensive income
Currency translation	3		—		3		—
Unrealized gain on fair value of marketable debt securities	3		128		28		64
Total other comprehensive income	6		128		31		64
Comprehensive income (loss)	(38,093)		22,474		(51,196)		(28,843)
Less: comprehensive loss attributable to non-controlling interests	(36,089)				(49,192)
Comprehensive loss attributable to Clear Secure, Inc.	$	(2,004)			$	(2,004)

See notes to condensed consolidated financial statements

Table of Contents

CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CAPITAL UNITS AND MEMBERS’ DEFICIT

(UNAUDITED)

(dollars in thousands, except per share data)


	Redeemable Capital Units						Members’ Deficit
	Class A Units			Class B Units			Class C Units			Profit Units			Accumulated other comprehensive income (loss)		Accumulated deficit		Members' deficit total
	Number of Units	Amount		Number of Units	Amount		Number of Units	Amount		Number of Profit Units	Amount
Balance, January 1, 2020	316,785	$	3,168	4,759,569	$	432,062	—	$	—	2,113,008	$	8,022	$	3	$	(291,354)	$	(283,329)
Net loss	—	—		—	—		—	—		—	—		—		(51,253)		(51,253)
Other comprehensive loss	—	—		—	—		—	—		—	—		(64)		—		(64)
Issuance of member units, net of costs	—	—		422,039	113,944		—	—		37,700	—		—		—		—
Repurchase and retirement of capital units	(54,843)	(548)		(677,387)	(14,053)		—	—		—	—		—		(183,102)		(183,102)
Repurchase, forfeitures and retirement of profit units	—	—		—	—		—	—		(328,834)	(1,630)		—		(10,829)		(12,459)
Warrant expense	—	—		—	1,441		—	—		—	—		—		—		—
Equity-based compensation expense	—	—		—	—		—	—		—	351		—		—		351
Balance, March 31, 2020	261,942	$	2,620	4,504,221	$	533,394	—	$	—	1,821,874	$	6,743	$	(61)	$	(536,538)	$	(529,856)
Net income	—	—		—	—		—	—		—	—		—		22,346		22,346
Other comprehensive income	—	—		—	—		—	—		—	—		128		—		128
Issuance of member units, net of costs	—	—		—	—		—	—		—	—		—		—		—
Repurchase and retirement of capital units	—	—		—	—		—	—		—	—		—		—		—
Repurchase, forfeitures and retirement of profit units	—	—		—	—		—	—		(57,050)	(3)		—		(123)		(126)
Warrant expense	—	—		—	141		—	—		—	—		—		—		—
Equity-based compensation expense	—	—		—	—		—	—		—	328		—		—		328
Balance, June 30, 2020	261,942	$	2,620	4,504,221	$	533,535	—	$	—	1,764,824	$	7,068	$	67	$	(514,315)	$	(507,180)

See notes to condensed consolidated financial statements

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CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CAPITAL UNITS AND STOCKHOLDERS’ EQUITY

(UNAUDITED)

(dollars in thousands, except per share data)


			Class A			Class B			Class C			Class D					Profit Units			Accumulated other comprehensive income		Accumulated deficit		Total stockholders’ equity attributable to Clear Secure, Inc.		Non-Controlling Interest		Total stockholders’ equity
	Total redeemable capital units		Number of shares	Amount		Number of Shares	Amount		Number of Shares	Amount		Number of Shares	Amount		Additional paid in capital		Number of Units	Amount
Balance, January 1, 2021	$	569,251	—	$	—	—	$	—	—	$	—	—	$	—	—		1,868,322	$	7,846	$	27	$	(494,769)	$	(486,896)	—		$	(486,896)
Net loss	—		—	—		—	—		—	—		—	—		—		—	—		—		(13,128)		(13,128)		—		(13,128)
Other comprehensive loss	—		—	—		—	—		—	—		—	—		—		—	—		25		—		25		—		25
Issuance of member units, net of costs	81,567		—	—		—	—		—	—		—	—		—		—	—		—		—		—		—		—
Repurchase and retirement of capital units	(439)		—	—		—	—		—	—		—	—		—		—	—		—		(3,005)		(3,005)		—		(3,005)
Repurchase, forfeitures and retirement of profit units	—		—	—		—	—		—	—		—	—		—		(71,247)	(56)		—		(8,246)		(8,302)		—		(8,302)
Warrant expense	281		—	—		—	—		—	—		—	—		—		—	—		—		—		—		—		—
Equity-based compensation expense, net of forfeitures	—		—	—		—	—		—	—		—	—		—		—	327		—		—		327		—		327
Balance, March 31, 2021	$	650,660	—	$	—	—	$	—	—	$	—	—	$	—	$	—	1,797,075	$	8,117	$	52	$	(519,148)	$	(510,979)	$	—	$	(510,979)
Net loss prior to reorganization transaction	—		—	—		—	—		—	—		—	—		—			—		—		(33,720)		(33,720)		—		(33,720)
Other comprehensive income	—		—	—		—	—		—	—		—	—		—		—	—		—		—		—		6		6
Equity-based compensation expense, net of forfeitures	—		—	—		—	—		—	—		—	—		1,786		(26,925)	353		—		—		2,139		2,114		4,253
Warrant expense	819		—	—		—	—		—	—		—	—		—		—	—		—		—		—		—		—
Exercise of warrants prior to the reorganization transaction	34,224		—	—		—	—		—	—		—	—		—		—	—		—		—		—		—		—
Tax distribution to members	—		—	—		—	—		—	—		—	—		—		—	—		—		(4,018)		(4,018)		—		(4,018)
Effect of reorganization transaction	(685,703)		59,240,306	1		1,042,234	—		—	—		—	—		62,858		(1,770,150)	(8,470)		(52)		556,886		611,223		74,480		685,703
Issuance of common stock upon reorganization	—		—	—		—	—		44,598,167	—		26,709,821	—		—		—	—		—		—		—		—		—
Net loss post reorganization transaction	—		—	—		—	—		—	—		—	—		—		—	—		—		(2,004)		(2,004)		(2,375)		(4,379)
Balance, June 30, 2021	—		59,240,306	$	1	1,042,234	$	—	44,598,167	$	—	26,709,821	$	—	$	64,644	—	$	—	$	—	$	(2,004)	$	62,641	$	74,225	$	136,866

See notes to condensed consolidated financial statements

Table of Contents

CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS

(UNAUDITED)

(dollars in thousands)


	Six Months Ended
	June 30, 2021		June 30, 2020
Cash flows provided by (used in) operating activities:
Net loss	$	(51,227)	$	(28,907)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	5,202		4,623
Equity-based compensation	6,504		2,261
Warrant liabilities	12,796		—
Changes in operating assets and liabilities:
Accounts receivable	(528)		2
Prepaid expenses and other current assets	2,313		3,191
Prepaid revenue share fee	(1,443)		1,844
Accounts payable	(1,296)		(3,124)
Accrued liabilities	4,719		(7,938)
Deferred revenue	26,305		(17,731)
Deferred rent	(261)		501
Net cash used provided by (used in) operating activities	3,084		(45,278)

Cash flows used in investing activities:
Purchases of marketable debt securities	(63,973)		(52,471)
Sales of marketable debt securities	63,988		48,162
Issuance of loan	—		(250)
Purchases of property and equipment	(15,210)		(6,438)
Capitalized intangible assets	(263)		(267)
Net cash used in investing activities	(15,458)		(11,264)

Cash flows provided by (used in) financing activities:
Repurchase of members’ equity	(11,744)		(210,288)
Proceeds from issuance of members’ equity, net of cost	80,277		113,944
Distribution to members	(4,018)		—
Issuance of warrants	289		—
Proceeds from the exercise of warrants	2,575		—
Payment of deferred issuance costs	(2,135)		—
Payment of revolver loan costs	(718)		(652)
Net cash provided by (used in) financing activities	64,526		(96,996)

Net increase (decrease) in cash, cash equivalents, and restricted cash	52,152		(153,538)
Cash, cash equivalents, and restricted cash, beginning of period	139,082		236,051
Cash, cash equivalents, and restricted cash, end of period	$	191,234	$	82,513



	June 30, 2021		June 30, 2020
Cash and cash equivalents	$	168,302	$	60,294
Restricted cash	22,932		22,219
Total cash, cash equivalents, and restricted cash	$	191,234	$	82,513

Supplemental Noncash Investing and Financing Activities

Purchases of property and equipment with unpaid costs in accounts payable and accrued liabilities as of June 30, 2021 were $1,596 and $559, respectively and $887 and $409 as of June 30, 2020, respectively. Issuance costs in other current assets as of June 30, 2021 was $8,722. Issuance costs in accounts payable and accrued liabilities as of June 30, 2021 was $6,586. Issuance of member units upon exercise and derecognition of certain warrant liabilities during the six months ended June 30, 2021 of $30,825.

See notes to condensed consolidated financial statements

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except for per share data, unless otherwise noted)

1. Description of Business and Recent Accounting Developments

Description and Organization

Clear Secure, Inc. (“the Company”) was incorporated as a Delaware corporation on March 2, 2021 for the purpose of facilitating an initial public offering (“IPO”) and other related transactions in order to carry on the business of Alclear Holdings, LLC and its wholly owned subsidiaries (collectively referred to as ”Alclear”).

The Company (together with its consolidated subsidiaries, ”CLEAR”, “we”, “us”, “our”) is a holding company and its principal asset is the controlling equity interest in Alclear. Alclear was formed as a Delaware limited liability company on January 21, 2010 and operates under the terms of the Amended and Restated Operating Agreement dated June 29, 2021 (the “Operating Agreement”). As the sole managing member of Alclear, the Company will operate and control all of the business and affairs of Alclear, and through Alclear and its subsidiaries, conducts the Company’s business.

The Company operates a secure identity platform operating under the brand name CLEAR in the United States. CLEAR’s current offerings include: CLEAR Plus, a consumer aviation subscription service which enables access to predictable and fast experiences through dedicated entry lanes in airport security checkpoints nationwide, the flagship CLEAR App and CLEAR Pass for U.S. Customs and Border Protection ("CBP") Mobile Passport Control, a free to use mobile app that streamlines entry into the United States.

Reorganization and Initial Public Offering

On June 29, 2021, prior to the completion of the offering of the Company’s shares of Class A common stock, $0.00001 par value per share (the “Class A common stock”), the Company, Alclear and its subsidiaries consummated an internal reorganization (the “Reorganization”) which resulted in the following:

•Clear Secure, Inc. became the sole managing member of Alclear.

•The certificate of incorporation of Clear Secure, Inc. was amended and restated to authorize the Company to issue four classes of common stock: Class A common stock, Class B common stock, Class C common stock and Class D common stock. The Class A common stock and Class C common stock provide holders with one vote per share on all matters submitted to a vote of stockholders, and the Class B common stock and Class D common stock provide holders with twenty votes per share on all matters submitted to a vote of stockholders. The holders of Class C common stock and Class D common stock do not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of Class A common stock and Class B common stock.

•The Company converted all issued units in Alclear to Alclear Units (“Alclear Units”) having a value equal to the amount that would have been distributed in a hypothetical liquidation and certain members exchanged their Alclear Units for an equal number of Class A common stock.

•Alclear Investments, LLC, an entity controlled by Ms. Caryn Seidman-Becker, our Chief Executive Officer and co-founder, and Alclear Investments II, LLC, an entity controlled by Mr. Kenneth Cornick, our President, Chief Financial Officer and co-founder, each made a capital contribution of Alclear Units in exchange for the issuance of Class B common stock.

•The members of Alclear, including Alclear Investments, LLC and Alclear Investments II, LLC, subscribed for and purchased shares of the Company’s Class C common stock and Class D common stock at a purchase price of $0.00001 per share and in an amount equal to the number of Alclear Units held by such members.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

• The Company entered into a Tax Receivable Agreement (“TRA”) which generally provides for payment by the Company to the remaining members of Alclear, the “TRA Holders”, of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. The Company will retain the benefit of the remaining 15% of these net cash savings.

•Alclear is treated as a partnership for U.S. federal income tax purposes and, as such, is itself generally not subject to U.S. federal income tax under current U.S. tax laws. Clear Secure, Inc, as a member of Alclear, will be required to take into account for U.S. federal income tax purposes its distributive share of the items of income, gain, loss and deduction of Alclear.

As the Reorganization is considered a transaction between entities under common control, the condensed consolidated financial statements for periods prior to the IPO and Reorganization have been adjusted to combine the previously separate entities for presentation purposes. Prior to the Reorganization, Clear Secure, Inc. had not engaged in any business or other activities, except in connection with its formation.

On July 2, 2021, the Company completed the IPO of its Class A common stock. In the IPO, the Company sold an aggregate of 15,180,000 shares of Class A common stock, $0.00001 par value per share, at an offering price of $31 per share including as a result of the underwriters exercising their option to purchase up to 1,980,000 shares of Class A common stock. As a result, Clear Secure, Inc. received net proceeds from the IPO of approximately $444,698 after deducting underwriting discounts and commissions. Refer to Notes 4 and 21 for further details.

Recently Adopted Accounting Pronouncements

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies, until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Intangibles Assets

In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The Company adopted this guidance as of January 1, 2021 and in accordance with the new guidance, applied it prospectively to implementation costs incurred after the adoption as allowed by the standard. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.

Simplifying the Accounting for Income Taxes

In December 2019, FASB issued updated guidance simplifying the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to intra-period tax allocations and the methodology for calculating income taxes in an interim period. The guidance also simplifies aspects of the accounting for franchise taxes as well as enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this guidance as of January 1, 2021. The adoption of this accounting pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Related Party Guidance for Variable Interest Entities

In October 2018, the FASB issued updated guidance that requires consideration of indirect interest held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The amendments are required to be applied retrospectively with a cumulative-effect adjustment. The Company adopted the new guidance as of January 1, 2021 and its application did not have a material impact to the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), and issued subsequent amendments to the initial guidance and transitional guidance between January 2018 and June 2020 within ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01, ASU 2019-10 and ASU 2020-05, which will require lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its consolidated balance sheets for operating leases. This update also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. Public companies were required to adopt ASU 2016-02 for reporting periods after December 15, 2018. In 2020, ASU 2016-02 was amended to extend the adoption date for nonpublic entities and EGCs. Accordingly, the effective date of ASU 2016-02 as amended, is fiscal periods beginning after December 15, 2021, with early adoption permitted beginning December 15, 2018. The Company plans to adopt this guidance as of January 1, 2022 and is currently evaluating the potential impact of adopting this new accounting guidance.

Current Expected Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), to replace the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. Public companies were required to adopt ASU 2016-13 for reporting periods after December 15, 2019. In 2019, ASU 2016-13 was amended to extend the adoption date for nonpublic entities and EGCs. Accordingly, the effective date of ASU 2016-13, as amended, is fiscal periods beginning after December 15, 2022, with early adoption permitted beginning December 15, 2018. The Company plans to adopt this guidance as of January 1, 2023 and is currently evaluating the potential impact of adopting this new accounting guidance.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the final prospectus (the “Prospectus”) dated June 29, 2021 and filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”).

Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures, including the vesting of share-based and other deferred compensation plan awards. Although these estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future, actual results may differ materially from the estimates. These condensed consolidated financial statements are presented in U.S. Dollars.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

The Company’s policy is to consolidate entities in which it has a controlling financial interest. The Company consolidates:

• Voting interest entities (“VOEs”) where the Company holds a majority of the voting interest in such VOEs; and

• Variable interest entities (“VIEs”) where the Company is the primary beneficiary.

The Company’s policy is to consolidate entities in which it has a controlling financial interest. The Company consolidates all VOEs and VIEs. Since the Company is the sole managing member of Alclear, it consolidates the financial results of Alclear. Therefore, the Company reports a non-controlling interest based on Alclear Units held by the members of Alclear on the condensed consolidated balance sheets. Income or loss is attributed to the non-controlling interests based on the weighted average common units outstanding during the period and is presented on the condensed consolidated statements of operations and comprehensive income/(loss). Refer to Note 13 for more information.

Intercompany transactions and balances are eliminated upon consolidation.

Significant Accounting Policies

The Company’s significant accounting policies are discussed in “Notes to Consolidated Financial Statements–Note 2. Summary of Significant Accounting Policies” in its Registration Statement on Form S-1 (File No. 333-256851) and the Prospectus included therein. With the exception of the accounting policies described below, there have been no significant changes to the accounting policies during the six months ended June 30, 2021.

Basic and Diluted Earnings (Loss) Per Share

The Company applies the two-class method for calculating and presenting earnings (loss) per share by presenting earnings (loss) per share for Class A common stock and Class B common stock. In applying the two-class method, the Company allocates undistributed earnings equally on a per share basis between Class A common stock and Class B common stock. According to the Company’s certificate of incorporation, the holders of the Class A common stock and Class B common stock are entitled to participate in earnings equally on a per-share basis, as if all shares of common stock were of a single class. Holders of the Class A common stock and Class B common stock also have equal priority in liquidation and dividend distributions. Shares of Class C common stock and Class D common stock do not participate in earnings of the Company. As a result, the shares of Class C common stock and Class D common stock are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of earnings (loss) per share.

Basic loss per share of Class A common stock and Class B common stock is computed by dividing net loss available to Clear Secure, Inc. by the respective weighted-average number of shares of common stock outstanding during the period. The Company applies the two-class method to calculate earnings per share for Class A and Class B shares. Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net income and losses. Diluted earnings per share of common stock is computed by dividing net income attributable to Clear Secure, Inc., adjusted for the assumed exchange of all potentially dilutive instruments for common stock, by the weighted-average number of shares of common stock outstanding, adjusted to give effect to potentially dilutive securities. Refer to Note 15 for more information.

3. Revenue

The Company derives substantially all of its revenue from subscriptions to its consumer aviation service, CLEAR Plus. For the three months ended June 30, 2021 and 2020, approximately 14% and 13%, respectively, of membership revenue was derived from fees associated with members in the geographic region of two airports. For the six months ended June 30, 2021 and 2020, approximately 14% and 14%, respectively, of membership revenue was derived from fees associated with members in the geographic region of two airports.

The Company elected the practical expedient permitted to not adjust the transaction price of contracts with a duration of one year or less for the effects of a significant financing component at contract inception.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Revenue by Geography

For the three and six months ended June 30, 2021 and 2020, all of the Company’s revenue was generated in the United States.

Contract liabilities and assets

The Company’s deferred revenue balance primarily relates to amounts received from customers for subscriptions paid in advance of the services being provided that will be earned within the next twelve months. The following table presents changes in the deferred revenue balance as of June 30:


	2021		2020
Balance as of January 1	$	101,542	$	121,339
Deferral of revenue	131,895		103,542
Recognition of deferred revenue	(105,590)		(121,273)
Balance as of June 30	$	127,847	$	103,608

The Company has obligations for refunds and other similar items of $2,258 as of June 30, 2021. The Company does not have any material variable consideration.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of June 30, 2021 and December 31, 2020 consist of the following:


	June 30, 2021		December 31, 2020
Prepaid software licenses	$	5,027	$	5,504
Coronavirus aid, relief, and economic security act retention credit	2,036		2,036
Deferred issuance costs	8,722		—
Other current assets	3,288		3,670
Total	$	19,073	$	11,210

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is intended to provide economic relief resulting from the COVID-19 pandemic which includes, but is not limited to, employment related costs. For the year ended December 31, 2020, the Company recorded a receivable of $2,036 related to submissions made under the CARES Act. The Company expects to receive payment by or before December 31, 2021.

5. Fair Value Measurements

The Company values its available-for-sale debt securities and certain liabilities based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fair value into three broad levels, which are described below:

Level 1 – Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except for per share data, unless otherwise noted)

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in inactive markets or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.

Level 3 – Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs to the extent possible. In addition, the Company considers counterparty credit risk in its assessment of fair value.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

Corporate bonds – Valued at the closing price reported on the active market on which the individual securities, all of which have counterparts with high credit ratings, are traded.

Commercial paper – Value is based on yields currently available on comparable securities of issuers with similar credit ratings.

Money market funds – Valued at the net asset value (“NAV”) of units of a collective fund. The NAV is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.

Warrant liabilities – Valued based on significant inputs not observed in the market and, thus, represents a Level 3 measurement. The Company estimated the fair value of the liability using the Black-Scholes option pricing model and the change in fair value was recognized in general and administrative expenses. Refer to Note 11 for further information.

The contractual maturities of investments classified as marketable debt securities are as follows as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
Due within 1 year	$	37,826	$	37,813
Total marketable debt securities	$	37,826	$	37,813


	Fair Value as of June 30, 2021
	Level 1		Level 2		Level 3		Total
Commercial paper	$	—	$	16,691	$	—	$	16,691
U.S. Treasuries	15,969		—		—		15,969
Corporate bonds	—		1,752		—		1,752
Total assets in the fair value hierarchy	15,969		18,443		—		34,412
Money market funds measured at NAV(a)	—		—		—		3,414
Total investments at fair value	$	15,969	$	18,443	$	—	$	37,826

Warrant liabilities	—		—		—		—
Total warrant liabilities at fair value	$	—	$	—	$	—	$	—

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(dollars in thousands, except for per share data, unless otherwise noted)


	Fair Value as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Commercial paper	$	—	$	11,932	$	—	$	11,932
U.S. Treasuries	5,380		—		—		5,380
Corporate bonds	—		20,444		—		20,444
Total assets in the fair value hierarchy	5,380		32,376		—		37,756
Money market funds measured at NAV(a)	—		—		—		57
Total investments at fair value	$	5,380	$	32,376	$	—	$	37,813

Warrant liabilities	$	—	$	—	$	(17,740)	$	(17,740)
Total warrant liabilities at fair value	$	—	$	—	$	(17,740)	$	(17,740)

____________________________

(a)Certain money market funds that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the consolidated balance sheets.

The following table provides a summary of changes in fair value of the Company’s Level 3 warrant liabilities for the six months ended June 30, 2021 and 2020:


	2021	2020
Balance as of January 1	$