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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 March 31, 2022 |
OR
| | | | | |
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 x No o
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 May 12, 2022:
| | | | | |
Class A Common Stock par value $0.00001 per share | 78,579,207 | |
Class B Common Stock par value $0.00001 per share | 1,042,234 | |
Class C Common Stock par value $0.00001 per share | 43,527,355 | |
Class D Common Stock par value $0.00001 per share | 26,705,315 | |
Table of Contents
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands, except per share data)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 299,134 | | | $ | 280,107 | |
Accounts receivable | 7,525 | | | 5,331 | |
Marketable securities | 334,353 | | | 335,228 | |
Prepaid revenue share fee | 11,573 | | | 10,272 | |
Prepaid expenses and other current assets | 15,760 | | | 22,140 | |
Total current assets | 668,345 | | | 653,078 | |
| | | |
Property and equipment, net | 46,123 | | | 44,522 | |
Right of use asset, net | 24,625 | | | — | |
Intangible assets, net | 24,238 | | | 22,933 | |
Goodwill | 58,381 | | | 59,792 | |
Restricted cash | 29,241 | | | 29,019 | |
Other assets | 3,102 | | | 3,406 | |
Total assets | $ | 854,055 | | | $ | 812,750 | |
| | | |
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 6,701 | | | $ | 8,808 | |
Accrued liabilities | 77,909 | | | 67,220 | |
Deferred revenue | 205,795 | | | 188,563 | |
Total current liabilities | 290,405 | | | 264,591 | |
Other long term liabilities | 31,234 | | | 8,691 | |
Total liabilities | 321,639 | | | 273,282 | |
| | | |
Commitments and contingencies (Note 19) | | | |
| | | |
Class A common stock, $0.00001 par value- 1,000,000,000 shares authorized; 78,849,574 shares issued and 78,566,156 shares outstanding as of March 31, 2022 | 1 | | | 1 | |
Class B common stock, $0.00001 par value—100,000,000 shares authorized; 1,042,234 shares issued and outstanding as of March 31, 2022 | — | | | — | |
Class C common stock, $0.00001 par value—200,000,000 shares authorized; 43,577,355 shares issued and outstanding as of March 31, 2022 | — | | | — | |
Class D common stock, $0.00001 par value—100,000,000 shares authorized; 26,705,315 shares issued and outstanding as of March 31, 2022 | — | | | — | |
Accumulated other comprehensive loss | (673) | | | (103) | |
Treasury stock at cost, 283,418 shares as of March 31, 2022 | — | | | — | |
Accumulated deficit | (46,457) | | | (36,130) | |
Additional paid-in capital | 326,767 | | | 313,845 | |
Total stockholders’ equity attributable to Clear Secure, Inc. | 279,638 | | | 277,613 | |
Non-controlling interest | 252,778 | | | 261,855 | |
Total stockholders’ equity | 532,416 | | | 539,468 | |
Total liabilities and stockholders’ equity | $ | 854,055 | | | $ | 812,750 | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share data)
| | | | | | | | | | | |
| | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 |
| | | |
Revenue | $ | 90,539 | | | $ | 50,558 | |
| | | |
Operating expenses: | | | |
Cost of revenue share fee | 12,142 | | | 7,769 | |
Cost of direct salaries and benefits | 22,980 | | | 12,149 | |
Research and development | 15,512 | | | 9,005 | |
Sales and marketing | 7,826 | | | 4,956 | |
General and administrative | 45,926 | | | 27,192 | |
Depreciation and amortization | 4,384 | | | 2,538 | |
Operating loss | (18,231) | | | (13,051) | |
| | | |
Other income (expense) | | | |
Interest income (expense), net | 7 | | | (71) | |
Other income (expense), net | (268) | | | — | |
Loss before tax | (18,492) | | | (13,122) | |
Income tax expense | (302) | | | (6) | |
Net loss | (18,794) | | | (13,128) | |
Less: net loss attributable to non-controlling interests | (8,467) | | | |
Net loss attributable to Clear Secure, Inc. | $ | (10,327) | | | |
| | | |
Net loss per share of Class A Common Stock and Class B Common Stock (Note 17) | | | |
Basic and Diluted | $ | (0.13) | | | |
Weighted-average shares of Class A Common Stock outstanding | 76,672,530 | | | |
Weighted-average shares of Class B Common Stock outstanding | 1,042,234 | | | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(dollars in thousands)
| | | | | | | | | | | | | | |
| Three Months Ended | |
| March 31, 2022 | | March 31, 2021 | |
Net loss | $ | (18,794) | | | $ | (13,128) | | |
Other comprehensive loss | | | | |
Foreign currency translation | (50) | | | — | | |
Unrealized loss on fair value of marketable securities | (1,041) | | | 25 | | |
Total other comprehensive loss | (1,091) | | | 25 | | |
Comprehensive loss | (19,885) | | | (13,103) | | |
Less: comprehensive loss attributable to non-controlling interests | (8,988) | | | | |
Comprehensive loss attributable to Clear Secure, Inc. | $ | (10,897) | | | | |
See notes to condensed consolidated financial statements
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 | | Treasury Stock | 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 | | | Number of Shares | 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) | |
Balance, January 1, 2022 | — | | 76,393,256 | | | $ | 1 | | | 1,042,234 | | | $ | — | | | 44,598,167 | | | $ | — | | | 26,709,821 | | | $ | — | | | $ | 313,845 | | | — | | | $ | — | | | $ | (103) | | | 223,069 | | $ | — | | $ | (36,130) | | | $ | 277,613 | | $ | 261,855 | | $ | 539,468 | |
Net loss | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | — | | (10,327) | | | (10,327) | | (8,467) | | (18,794) | |
Other comprehensive loss | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (570) | | | — | | — | | — | | | (570) | | (521) | | (1,091) | |
Equity-based compensation expense, net of forfeitures | — | | (60,349) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 7,365 | | | — | | | — | | | — | | | 60,349 | | — | | — | | | 7,365 | | 5,694 | | 13,059 | |
Warrant expense | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 37 | | | — | | | — | | | — | | | — | | — | | — | | | 37 | | 34 | | 70 | |
Redemption of Alclear units | — | | 1,025,318 | | | — | | | — | | | — | | | (1,020,812) | | | — | | | (4,506) | | | — | | | 2,606 | | | — | | | — | | — | | — | | — | | — | | — | | — | | | 2,606 | | (2,606) | | — | |
Exercise of warrants | — | | 1,207,931 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,070 | | | — | | | — | | | — | | | — | | — | | — | | | 3,070 | | (3,070) | | — | |
IPO expenses | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (156) | | | — | | | — | | | — | | | — | | — | | — | | | (156) | | (141) | | (297) | |
Balance, March 31, 2022 | — | | 78,566,156 | | | $ | 1 | | | 1,042,234 | | | $ | — | | | 43,577,355 | | | $ | — | | | 26,705,315 | | | $ | — | | | $ | 326,767 | | | — | | | $ | — | | | $ | (673) | | | 283,418 | | $ | — | | $ | (46,457) | | | $ | 279,638 | | $ | 252,778 | | $ | 532,416 | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
(UNAUDITED)
(dollars in thousands)
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 |
Cash flows provided by (used in) operating activities: | | | |
Net loss | $ | (18,794) | | | $ | (13,128) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
Depreciation on property and equipment | 3,489 | | | 2,534 | |
Amortization on intangible assets | 895 | | | 4 | |
Noncash lease expense | 721 | | | — | |
Impairment of long-lived assets | 313 | | | — | |
Equity-based compensation | 13,129 | | | 608 | |
Warrant liabilities | — | | | 1,893 | |
Deferred income tax expense | 206 | | | — | |
Amortization of revolver loan costs | 198 | | | — | |
Amortization, net on marketable securities | 287 | | | — | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (2,194) | | | (165) | |
Prepaid expenses and other assets | 6,472 | | | (2,885) | |
Prepaid revenue share fee | (1,300) | | | (798) | |
Accounts payable | (2,137) | | | (1,150) | |
Accrued liabilities | 7,261 | | | 1,366 | |
Deferred revenue | 17,232 | | | 11,528 | |
Operating lease liabilities | (846) | | | — | |
Deferred rent | — | | | (142) | |
Net cash used provided by (used in) operating activities | 24,932 | | | (335) | |
| | | |
Cash flows used in investing activities: | | | |
Purchases of marketable securities | (149,066) | | | (47,002) | |
Sales of marketable securities | 149,066 | | | 47,090 | |
Purchases of property and equipment | (5,533) | | | (8,794) | |
Capitalized intangible assets | (100) | | | (204) | |
Net cash used in investing activities | (5,633) | | | (8,910) | |
| | | |
Cash flows provided by financing activities: | | | |
Repurchase of members’ equity | — | | | (11,744) | |
Proceeds from issuance of members’ equity, net of cost | — | | | 80,277 | |
Issuance of warrants | — | | | 289 | |
Net cash provided by financing activities | — | | | 68,822 | |
| | | |
Net increase in cash, cash equivalents, and restricted cash | 19,299 | | | 59,577 | |
Cash, cash equivalents, and restricted cash, beginning of period | 309,126 | | | 139,082 | |
Exchange rate effect on cash and cash equivalents, and restricted cash | (50) | | | — | |
Cash, cash equivalents, and restricted cash, end of period | $ | 328,375 | | | $ | 198,659 | |
| | | | | | | | | | | |
| March 31, 2022 | | March 31, 2021 |
Cash and cash equivalents | $ | 299,134 | | | $ | 175,730 | |
Restricted cash | 29,241 | | | 22,929 | |
Total cash, cash equivalents, and restricted cash | $ | 328,375 | | | $ | 198,659 | |
See notes to condensed consolidated financial statements
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” and together with its consolidated subsidiaries, “CLEAR,” “we,” “us,” “our”) is a holding company and its principal asset is the controlling equity interest in Alclear Holdings, LLC (“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 operates and controls 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 under the brand name CLEAR primarily 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 including Home to Gate and Health Pass; and Reserve powered by CLEAR, our virtual queuing technology that enables customers to manage lines.
Reorganization and Initial Public Offering
On June 29, 2021, prior to the completion of the initial public offering (“IPO”) 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, $0.00001 par value per share (the “Class B Common Stock”), Class C common stock, $0.00001 par value per share (the “Class C Common Stock”) and Class D common stock, $0.00001 par value per share (the “Class D Common Stock” and, together with the Class A Common Stock, Class B Common Stock and Class C Common Stock, collectively, “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.
•All Alclear’s outstanding equity interests (including Class A units, Class B units and profit units) were reclassified into Alclear non-voting common units (“Alclear Units”). The number of Alclear Units issued to each member of Alclear was determined based on a hypothetical liquidation of Alclear and the initial public offering price per share of the Company’s Class A Common Stock in the IPO. Certain members exchanged their Alclear Units for an equal number of Class A Common Stock.
•Alclear Investments, LLC, an entity controlled by Caryn Seidman-Becker, the Chair of our Board, our Co-Founder and our Chief Executive Officer, and Alclear Investments II, LLC, an entity controlled by Kenneth Cornick, our Co-Founder, President and Chief Financial Officer, contributed a portion of their Alclear Units to us in exchange for Class B Common Stock.
•The remaining members of Alclear, including Alclear Investments, LLC and Alclear Investments II, LLC (“Alclear members”) 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.
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 $445,875 after deducting underwriting discounts and commissions. As a result of the IPO, the Company contributed the net IPO Proceeds to Alclear in exchange for 15,180,000 Alclear Units. For the three months ended March 31, 2022, and the year ended December 31, 2021, the Company incurred $297 and $9,038 of issuance related costs as a result of the IPO, respectively, that were recorded within additional paid in capital within the condensed consolidated balance sheets.
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 EGC 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.
Leases
As of January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) on a modified retrospective basis with respect to all lease arrangements that existed as of the adoption date. Refer to Note 8 for further details.
Current Expected Credit Losses
As of January 1, 2022, the Company adopted, ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). There was no significant impact within the condensed consolidated financial statements as a result of adoption.
Business Combinations
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 addresses inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. ASU
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
2021-08 requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination as if it had originated the contracts, in accordance with Topic 606, Revenue from Contracts with Customers. The guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption of the amendments is permitted and an entity that early adopts should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company continues to evaluate the impact of this standard on its consolidated financial statements.
Other Recent Accounting Pronouncements Adopted and New Standards and Interpretations Not Yet Effective
Other than the items discussed above, there are no standards issued by the FASB and adopted by the Company effective as of January 1, 2022 that had a material impact on the Company’s condensed consolidated financial statements. Additionally, there are no standards that are not yet effective that are expected to have a material impact on the Company’s condensed consolidated financial statements.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The 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 Company’s Annual Report on Form 10-K (the “Form 10-K).
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.
Intercompany transactions and balances are eliminated upon consolidation.
The Company has one operating and reportable segment, which includes the operations of the businesses acquired during the year ended December 31, 2021.
Items included in the financial statements of each of the Company’s consolidated entities are measured using the currency of the primary economic environment in which the entity operates. The condensed consolidated financial statements are presented in US Dollars, which is the Company’s reporting currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period-end exchange rates are recognized in other income (expense), net within the condensed consolidated statement of operations.
The results and financial position of all the Company entities that have a functional currency different from the Company's reporting currency are translated into US Dollars as follows:
•Assets and liabilities are translated at the closing rate at the reporting date;
•Income and expenses for each statement of operation are translated at average exchange rates; and
•All resulting exchange differences are recognized in other comprehensive loss.
3. Business Combinations
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
During the year ended December 31, 2021, the Company completed two acquisitions, which are described further below. Both acquisitions were accounted for as business combinations. The goodwill for both acquisitions represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including expected future synergies and technical expertise of the acquired workforce
For both acquisitions, the intangible assets acquired primarily relate to existing technology, customer relationships and brand names. The useful life of these intangible assets range from 3-11 years. The Company valued the intangible assets using the relief from royalty method and the multi-period excess earnings method, both under the income approach.
For both acquisitions, the Company’s allocation of purchase price was based upon valuations performed to determine the fair value of the net assets as of the acquisition date and is therefore subject to adjustments for up to one year after the closing date of the acquisition to reflect final valuations.
As a result of the acquisitions, the Company recognized $1,391 of acquisition-related costs during the year ended December 31, 2021, which are recorded in general and administrative within the condensed consolidated statement of operations. Revenues and operating loss related to these acquisitions for the three months ended March 31, 2022 were not material to the condensed consolidated financial statements. Refer below for additional details on the acquisitions.
Whyline, Inc.
On December 29, 2021, Alclear acquired 100% of Whyline, Inc., a provider of virtual queuing and appointment technology that the Company operates under the product name, Reserve powered by CLEAR.
The cash consideration of $67,500 was transferred upon closing, and there was an estimated contingent consideration of $100. The acquisition was accounted for as a business combination. In the Company’s preliminary allocation of the purchase consideration, $54,792 was initially recorded as goodwill, $16,601 as acquired intangible assets, $3,792 as net deferred tax liabilities and $99 as net operating assets on the condensed consolidated balance sheets. None of the goodwill recognized is expected to be deductible for tax purposes. During the three months ended March 31, 2022, and in accordance with the election described above, the Company recorded a $1,411 decrease to goodwill, a $2,100 increase to acquired intangible assets and a $689 increase to deferred tax liabilities. The accounting for the acquisition is not complete as the valuation for certain acquired assets and liabilities have not been finalized. These final valuations of the assets and liabilities could have a material impact on the preliminary purchase price allocation disclosed above.
In conjunction with the acquisition, the Company entered into an agreement to issue shares of Class A Common Stock upon satisfaction of terms related to the contingent consideration and remuneration for post-combination services (collectively referred to as the “Earn-Out”). The first tranche will be settled upon the achievement of specified operating metrics during the twelve month period ended December 31, 2022. The second tranche will be settled upon the achievement of specified operating metrics during the twelve month period ended December 31, 2023.
The maximum settlement of the contingent consideration is $6,666, which is not subject to the satisfaction of service based criteria. For remuneration for post-combination services, there is a maximum settlement of $13,334 that is based on performance and service based criteria being met; portions of these amounts will automatically be forfeited if the employment of specified individuals terminates prior to the end of the Earn-Out period. To the extent probable, the post-combination remuneration amount is allocated evenly to the 2022 operating metrics and 2023 operating metrics targets. The Company has not recorded any compensation expense for three months ended March 31, 2022 as the performance criteria is not probable.
The estimated fair value of the contingent consideration is determined using an option pricing model and is based upon available information and certain assumptions, known as of the reporting date, which management believes are reasonable. Any differences in the actual contingent consideration liability compared to the fair value as of the previous reporting date will be recorded within general and administrative within the condensed consolidated statements of operations. The Company has not recorded any fair value adjustments on its contingent consideration for three months ended March 31, 2022 as there was no change in assumptions.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
The final number of shares to be issued upon satisfaction of the Earn-Out will be based on the average of the volume-weighted average trading price on the New York Stock Exchange for one share of Class A Common Stock for each of the 30 full trading days ending on and including the full trading day immediately prior to the applicable Earn-Out payment date.
Atlas Certified, LLC.
On December 30, 2021, Alclear acquired certain assets of Atlas Certified, LLC, which provides an automated solution to verify professional licenses and certification data across industries by communicating with certifying organizations for on demand, current and trusted data.
The fair value of the purchase consideration was $9,000. The acquisition was accounted for as a business combination. In the Company’s preliminary allocation of the purchase consideration $5,000 was recorded as goodwill and $4,000 as acquired intangible assets on the condensed consolidated balance sheets. The goodwill recognized is expected to be deductible for tax purposes. During the three months ended March 31, 2022, there were no adjustments to the preliminary allocation. The accounting for the acquisition is not complete as the valuation for certain acquired assets and liabilities have not been finalized. These final valuations of the assets and liabilities could have a material impact on the preliminary purchase price allocation disclosed above.
4. Revenue
The Company derives substantially all of its revenue from subscriptions to its consumer aviation service, CLEAR Plus. For the three months ended March 31, 2022 and 2021, no individual airport accounted for more than 10% of membership revenue.
Revenue by Geography
For the three months ended March 31, 2022 and 2021, substantially 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 March 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
Balance as of January 1 | $ | 188,563 | | | $ | 101,542 | |
Deferral of revenue | 105,824 | | | 62,057 | |
Recognition of deferred revenue | (88,592) | | | (50,529) | |
Balance as of March 31 | $ | 205,795 | | | $ | 113,070 | |
The Company has obligations for refunds and other similar items of $2,633 as of March 31, 2022. The Company does not have any material variable consideration.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of March 31, 2022 and December 31, 2021 consist of the following:
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Prepaid software licenses | $ | 6,799 | | | $ | 4,347 | |
Coronavirus aid, relief, and economic security act retention credit | 2,036 | | | 2,036 | |
Prepaid insurance costs | 1,514 | | | 2,845 | |
Other current assets | 5,411 | | | 12,912 | |
Total | $ | 15,760 | | | $ | 22,140 | |
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 within twelve months.
6. Fair Value Measurements
The Company values its available-for-sale 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.
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.
Contingent consideration – Valued at fair value using a simulation of targeted outcomes.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
Warrant liabilities – The Company had certain outstanding warrant liabilities prior to the Reorganization. These were valued based on significant inputs not observed in the market and, thus, represented 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 13 for further information.
The contractual maturities of investments classified as marketable securities are as follows:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Due within 1 year | $ | 301,021 | | | $ | 288,036 | |
Total marketable securities | $ | 301,021 | | | $ | 288,036 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of March 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Commercial paper | $ | — | | | $ | 117,501 | | | $ | — | | | $ | 117,501 | |
U.S. Treasuries | 89,952 | | | — | | | — | | | 89,952 | |
Corporate bonds | — | | | 124,092 | | | — | | | 124,092 | |
Total assets in the fair value hierarchy | 89,952 | | | 241,593 | | | — | | | 331,545 | |
Money market funds measured at NAV(a) | — | | | — | | | — | | | 2,808 | |
Total assets at fair value | $ | 89,952 | | | $ | 241,593 | | | $ | — | | | $ | 334,353 | |
| | | | | | | |
Contingent consideration | — | | | — | | | (100) | | | (100) | |
Total liabilities at fair value | $ | — | | | $ | — | | | $ | (100) | | | $ | (100) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value as of December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Commercial paper | $ | — | | | $ | 128,867 | | | $ | — | | | $ | 128,867 | |
U.S. Treasuries | 82,472 | | | — | | | — | | | 82,472 | |
Corporate bonds | — | | | 114,965 | | | — | | | 114,965 | |
Total assets in the fair value hierarchy | 82,472 | | | 243,832 | | | — | | | 326,304 | |
Money market funds measured at NAV(a) | — | | | — | | | — | | | 8,924 | |
Total assets at fair value | $ | 82,472 | | | $ | 243,832 | | | $ | — | | | $ | 335,228 | |
| | | | | | | |
Contingent consideration | — | | | — | | | $ | (100) | | | (100) | |
Total liabilities at fair value | $ | — | | | $ | — | | | $ | (100) | | | $ | (100) | |
____________________________
(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 condensed consolidated balance sheets.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
The Company had no continuous unrealized loss position from marketable securities as of March 31, 2022 that was a result of a credit deterioration.
The following table provides a summary of changes in fair value of the Company’s Level 3 warrant liabilities prior to the Reorganization. The Company has no outstanding warrant liabilities as of March 31, 2022.
| | | | | |
Balance as of January 1, 2021 | $ | (17,740) | |
Warrants issued | (289) | |
Issuance of equity upon exercise of certain warrants | 30,206 | |
Reclassification of certain warrant liabilities to equity | 619 | |
Fair value adjustments | (12,796) | |
Balance prior to Reorganization | $ | — | |
See Note 13 for further information regarding warrants.
Contingent consideration
The following table provides a summary of changes in fair value of the Company’s Level 3 contingent consideration, issued in conjunction with the acquisition of Whyline, Inc.
| | | | | |
Balance as of January 1, 2022 | $ | (100) | |
Fair value adjustments | — | |
Balance as of March 31, 2022 | $ | (100) | |
For certain other financial instruments, including accounts receivable, accounts payable, accrued liabilities, as well as other current liabilities, the carrying amounts approximate the fair value of such instruments due to the short maturity of these balances.
7. Property and Equipment, net
Property and equipment as of March 31, 2022 and December 31, 2021 consist of the following:
| | | | | | | | | | | | | | | | | |
| Depreciation period in years | | March 31, 2022 | | December 31, 2021 |
Internally developed software | 3 - 5 | | $ | 44,338 | | | $ | 40,788 | |
Acquired software | 3 | | 6,396 | | | 6,396 | |
Equipment | 5 | | 26,715 | | | 26,322 | |
Leasehold improvements | 1-10 | | 7,706 | | | 7,671 | |
Furniture and fixtures | 5 | | 2,292 | | | 2,281 | |
Construction in progress | | | 3,340 | | | 2,239 | |
Total property and equipment, cost | | | 90,787 | | | 85,697 | |
Less: accumulated depreciation | | | (44,664) | | | (41,175) | |
Total property and equipment, net | | | $ | 46,123 | | | $ | 44,522 | |
Depreciation and amortization expense related to property and equipment for three months ended March 31, 2022 and 2021 was $3,489 and $2,534, respectively.
During the three months ended March 31, 2022, $3,552 was capitalized in connection with internally developed software. Amortization expense was $1,737 and $1,131 for the three months ended March 31, 2022 and 2021, respectively.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
During the three months ended March 31, 2022 and 2021, the Company recognized impairment charges of $313 and $0, respectively, on certain long-lived assets within other income (expense), net in the condensed consolidated statements of operations.
Purchases of property and equipment with unpaid costs in accounts payable and accrued liabilities as of March 31, 2022 were $1,261 and $427, respectively, and $134 and $1,438 as of March 31, 2021, respectively.
8. Leases
As discussed in Note 2, on January 1, 2022, the Company adopted the new accounting standard ASC 842, Leases, using the modified retrospective method. As a result, and as permitted by the standard, the Company has not updated financial information or related disclosures under ASC 842 for, periods prior to January 1, 2022. Upon adoption, the Company recognized $25,346 of right of use (“ROU”) assets, $29,139 of lease liabilities and derecognized $3,793 of deferred rent on the condensed consolidated balance sheets. The short term portion of the operating lease liabilities is included within accrued liabilities and the long term portion is included within other long term liabilities on the condensed consolidated balance sheets.
The Company has entered into agreements to lease certain office spaces. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional three years. Additionally, certain of these leases contain termination options. These optional periods have not been considered in the determination of the ROU assets or lease liabilities as the Company did not consider it reasonably certain it would exercise the options. The Company performed evaluations of its contracts and determined it only has operating leases. The lease terms are between 1 and 12 years.
Most of the Company’s lease agreements require payment of certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs. As allowed under ASC 842, the Company considers these as non-lease components and has elected to exclude these components from the measurement of its lease liabilities. The Company has also elected to apply the recognition requirement of ASC 842 to leases with a term of 12 months or less for all classes of assets.
The Company has elected to utilize the following practical expedients available under the transition guidance in ASC 842:
•The Company did not reassess whether any expired or existing contracts are or contain leases;
•The Company did not reassess the lease classification for any expired or existing leases; and
•The Company did not reassess initial direct costs for any existing leases.
The Company did not elect the practical expedient available under the transition guidance in ASC 842 to use hindsight in determining the lease term and in assessing impairment of the Company’s ROU assets
The Company determines if an arrangement is a lease at inception and recognizes ROU assets and lease liabilities upon commencement. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The classification of the Company's leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. Rent expense for the Company's operating leases is recognized on a straight-line basis over the lease term.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
The Company has an additional operating lease for real estate space to house the Company’s corporate headquarters. The lease agreement provides for a commencement on the later of October 1, 2022 or the date on which the landlord delivers possession of the premises with certain agreed upon completed improvements to be made by the landlord. The term of the lease is fifteen years after the date the rent obligations begin, with an option to renew for one 5-year period or 10-year period at Fair Market Value (as defined in the lease agreement) by providing the Landlord with eighteen months’ notice and meeting certain other requirements. The aggregate undiscounted future minimum lease payments are approximately $177,400 beginning on April 1, 2023 and ending on April 1, 2038. The lease has not been recognized on the Company's condensed consolidated balance sheets. This operating lease is expected to commence in 2022.
Below is a reconciliation of the amounts reported on the condensed consolidated balance sheets with respect to the Company’s operating leases:
| | | | | |
| March 31, 2022 |
2022 | $ | 3,453 | |
2023 | 3,729 | |
2024 | 4,402 | |
2025 | 4,478 | |
2026 | 4,478 | |
Thereafter | 12,868 | |
Total future operating lease payments | 33,408 | |
Less: imputed interest | (5,115) | |
Lease liabilities, current | 3,338 | |
Lease liabilities, non-current | 24,955 | |
Total lease liabilities | $ | 28,293 | |
As of March 31, 2022, the weighted-average incremental borrowing rate applied to lease liabilities at the date of adoption was 4.3%. Additionally, the weighted-average remaining lease term was 7.7 years.
Total operating lease expense recognized on the condensed consolidated statements of operations for the three months ended March 31, 2022 was $1,035. Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2022 was $1,155.
9. Intangible Assets, net and Goodwill
See below for Intangible assets, net and Goodwill as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | |
| Amortization Period in Years | | March 31, 2022 | | December 31, 2021 |
Patents | 20 | | $ | 2,216 | | | $ | 2,115 | |
Acquired intangibles | 1-10 | | 22,700 | | | 20,601 | |
Other indefinite lived intangible assets | | | 310 | | | 310 | |
Total intangible assets, cost | | | 25,226 | | | 23,026 | |
Less: accumulated amortization | | | (988) | | | (93) | |
Intangible assets, net | | | $ | 24,238 | | | $ | 22,933 | |
Goodwill | | | $ | 58,381 | | | $ | 59,792 | |
Acquired intangibles, net as of March 31, 2022 and December 31, 2021 is comprised of the following:
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for per share data, unless otherwise noted)
| | | | | | | | | | | | | | | | | |
| Amortization Period in Years | | March 31, 2022 | | December 31, 2021 |
Technology | 3 | | $ | 4,300 | | | $ | 5,600 | |
Customer relationships | 11 | | $ | 17,900 | | | $ | 14,501 | |
Brand names | 5 | | $ | 500 | | | $ | 500 | |
Total intangible assets, cost | | | $ | 22,700 | | | $ | 20,601 | |
Less: accumulated amortization | | | $ | (869) | | | $ | — | |
Total acquired intangibles | | | $ | 21,831 | | | $ | 20,601 | |