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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, 2023 |
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.) |
85 10th Avenue, 9th Floor, New York, NY | | | 10011 |
(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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
| | Emerging growth company | o |
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 4, 2023:
| | | | | |
Class A Common Stock par value $0.00001 per share | 90,263,612 | |
Class B Common Stock par value $0.00001 per share | 907,234 | |
Class C Common Stock par value $0.00001 per share | 36,242,191 | |
Class D Common Stock par value $0.00001 per share | 25,796,690 | |
Table of Contents
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands, except share and per share data)
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 39,089 | | | $ | 38,939 | |
Marketable securities | 708,919 | | | 665,810 | |
Accounts receivable | 962 | | | 1,169 | |
Prepaid revenue share fee | 17,774 | | | 17,585 | |
Prepaid expenses and other current assets | 17,855 | | | 18,097 | |
Total current assets | 784,599 | | | 741,600 | |
| | | |
Property and equipment, net | 68,039 | | | 57,924 | |
Right of use asset, net | 120,592 | | | 123,880 | |
Intangible assets, net | 21,485 | | | 22,292 | |
Goodwill | 58,807 | | | 58,807 | |
Restricted cash | 30,882 | | | 29,945 | |
Other assets | 9,189 | | | 3,069 | |
Total assets | $ | 1,093,593 | | | $ | 1,037,517 | |
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 11,172 | | | $ | 7,951 | |
Accrued liabilities | 155,603 | | | 106,070 | |
Deferred revenue | 297,823 | | | 283,452 | |
Total current liabilities | 464,598 | | | 397,473 | |
Other long term liabilities | 130,483 | | | 129,123 | |
Total liabilities | 595,081 | | | 526,596 | |
Commitments and contingencies (Note 19) | | | |
Class A Common Stock, $0.00001 par value - 1,000,000,000 shares authorized; 90,214,391 shares issued and outstanding as of March 31, 2023 and 87,841,336 shares issued and 87,760,831 shares outstanding as of December 31, 2022 | 1 | | | 1 | |
Class B Common Stock, $0.00001 par value - 100,000,000 shares authorized; 907,234 shares issued and outstanding as of March 31, 2023 and 907,234 shares issued and outstanding as of December 31, 2022 | — | | | — | |
Class C Common Stock, $0.00001 par value - 200,000,000 shares authorized; 36,242,191 shares issued and outstanding as of March 31, 2023 and 38,290,964 shares issued and outstanding as of December 31, 2022 | — | | | — | |
Class D Common Stock, $0.00001 par value - 100,000,000 shares authorized; 25,796,690 shares issued and outstanding as of March 31, 2023 and 25,796,690 shares issued and outstanding as of December 31, 2022 | — | | | — | |
Accumulated other comprehensive loss | (591) | | | (1,529) | |
Treasury stock at cost, 0 shares as of March 31, 2023 and 80,505 shares as of December 31, 2022 | — | | | — | |
Accumulated deficit | (107,021) | | | (101,797) | |
Additional paid-in capital | 404,385 | | | 394,390 | |
Total stockholders’ equity attributable to Clear Secure, Inc. | 296,774 | | | 291,065 | |
Non-controlling interest | 201,738 | | | 219,856 | |
Total stockholders’ equity | 498,512 | | | 510,921 | |
Total liabilities and stockholders’ equity | $ | 1,093,593 | | | $ | 1,037,517 | |
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, 2023 | | March 31, 2022 |
| | | |
Revenue | $ | 132,356 | | | $ | 90,539 | |
| | | |
Operating expenses: | | | |
Cost of revenue share fee | 19,570 | | | $ | 12,142 | |
Cost of direct salaries and benefits | 33,146 | | | $ | 22,980 | |
Research and development | 21,944 | | | $ | 15,512 | |
Sales and marketing | 9,509 | | | $ | 7,826 | |
General and administrative | 58,078 | | | $ | 45,926 | |
Depreciation and amortization | 5,167 | | | $ | 4,384 | |
Operating loss | (15,058) | | | (18,231) | |
| | | |
Other income (expense): | | | |
Interest income (expense), net | 6,392 | | | $ | 7 | |
Other income (expense), net | 274 | | | $ | (268) | |
Loss before tax | (8,392) | | | (18,492) | |
Income tax benefit (expense) | 119 | | | $ | (302) | |
Net loss | (8,273) | | | (18,794) | |
Less: net loss attributable to non-controlling interests | (3,049) | | | (8,467) | |
Net loss attributable to Clear Secure, Inc. | $ | (5,224) | | | $ | (10,327) | |
| | | |
Net loss per share of Class A Common Stock and Class B Common Stock (Note 16) | | | |
Net loss per common share basic and diluted, Class A | $ | (0.06) | | | $ | (0.13) | |
Net loss per common share basic and diluted, Class B | $ | (0.06) | | | $ | (0.13) | |
Weighted-average shares of Class A Common Stock outstanding | 89,614,791 | | | 76,672,530 | |
Weighted-average shares of Class B Common Stock outstanding | 907,234 | | | 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, 2023 | | March 31, 2022 |
Net loss | $ | (8,273) | | | $ | (18,794) | |
Other comprehensive income (loss) | | | |
Foreign currency translation | 8 | | | (50) | |
Unrealized gain (loss) on fair value of marketable securities | 1,588 | | | (1,041) | |
Total other comprehensive income (loss) | 1,596 | | | (1,091) | |
Comprehensive loss | (6,677) | | | (19,885) | |
Less: comprehensive loss attributable to non-controlling interests | (2,391) | | | (8,988) | |
Comprehensive loss attributable to Clear Secure, Inc. | $ | (4,286) | | | $ | (10,897) | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(dollars in thousands, except share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | Class B | Class C | Class D | Additional paid in capital | Accumulated other comprehensive loss | Treasury Stock | Accumulated deficit | Total stockholders’ equity attributable to Clear Secure, Inc. | Non-controlling Interest | Total stockholders’ equity |
| Number of shares | Amount | Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount |
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 | |
Exchange of shares | 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 | |
Balance, January 1, 2023 | 87,760,831 | | $ | 1 | | 907,234 | | $ | — | | 38,290,964 | | $ | — | | 25,796,690 | | $ | — | | $ | 394,390 | | $ | (1,529) | | 80,505 | | $ | — | | $ | (101,797) | | $ | 291,065 | | $ | 219,856 | | $ | 510,921 | |
Net loss | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (5,224) | | (5,224) | | (3,049) | | (8,273) | |
Other comprehensive income | — | | — | | — | | — | | — | | — | | — | | — | | — | | 938 | | — | | — | | — | | 938 | | 658 | | 1,596 | |
Equity-based compensation expense, net of forfeitures | (3,079) | | — | | — | | — | | — | | — | | — | | — | | 10,151 | | — | | 3,079 | | — | | — | | 10,151 | | 6,257 | | 16,408 | |
Net share settlements of stock-based awards | 155,049 | | — | | — | | — | | — | | — | | — | | — | | (946) | | — | | (83,584) | | — | | — | | (946) | | (1,462) | | (2,408) | |
Warrant expense | — | | — | | — | | — | | — | | — | | — | | — | | 366 | | — | | — | | — | | — | | 366 | | 257 | | 623 | |
Exercise of warrants | 534,655 | | — | | — | | — | | — | | — | | — | | — | | 1,615 | | — | | — | | — | | — | | 1,615 | | (1,615) | | — | |
Tax distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (13,886) | | (13,886) | |
Exchange of shares | 2,048,773 | | — | | — | | — | | (2,048,773) | | — | | — | | — | | 6,189 | | — | | — | | — | | — | | 6,189 | | (6,189) | | — | |
Repurchase and retirement of Class A Common Stock | (281,838) | | — | | — | | — | | — | | — | | — | | — | | (7,380) | | — | | — | | — | | — | | (7,380) | | 911 | | (6,469) | |
Balance, March 31, 2023 | 90,214,391 | | $ | 1 | | 907,234 | | $ | — | | 36,242,191 | | $ | — | | 25,796,690 | | $ | — | | $ | 404,385 | | $ | (591) | | — | | $ | — | | $ | (107,021) | | $ | 296,774 | | $ | 201,738 | | $ | 498,512 | |
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, 2023 | | March 31, 2022 |
Cash flows from operating activities: | | | |
Net loss | $ | (8,273) | | | $ | (18,794) | |
Adjustments to reconcile net loss to net cash provided from operating activities: | | | |
Depreciation of property and equipment | 4,345 | | | 3,489 | |
Amortization of intangible assets | 822 | | | 895 | |
Noncash lease expense | 1,748 | | | 721 | |
Impairment of assets | 3,633 | | | 313 | |
Equity-based compensation | 16,649 | | | 13,129 | |
Deferred income tax | 84 | | | 206 | |
Amortization of revolver loan costs | 110 | | | 198 | |
Premium amortization and (discount accretion), net on marketable securities | (4,074) | | | 287 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 207 | | | (2,194) | |
Prepaid expenses and other assets | (2,255) | | | 6,472 | |
Prepaid revenue share fee | (189) | | | (1,300) | |
Accounts payable | 2,548 | | | (2,137) | |
Accrued and other long term liabilities | 29,702 | | | 7,261 | |
Deferred revenue | 14,371 | | | 17,232 | |
Operating lease liabilities | 1,329 | | | (846) | |
Net cash provided by operating activities | $ | 60,757 | | | $ | 24,932 | |
Cash flows from investing activities: | | | |
Purchases of marketable securities | (258,230) | | | (149,066) | |
Sales of marketable securities | 223,049 | | | 149,066 | |
Purchase of strategic investment | (6,000) | | | — | |
Purchases of property and equipment | (9,410) | | | (5,533) | |
Purchase of intangible assets | (14) | | | (100) | |
Net cash used in investing activities | $ | (50,605) | | | $ | (5,633) | |
Cash flows from financing activities: | | | |
Repurchase of Class A Common Stock | (6,471) | | | — | |
Payment of special dividend | (34) | | | — | |
Tax distribution to members | (187) | | | — | |
Payment of taxes on net settled stock-based awards | (2,408) | | | — | |
Net cash used in financing activities | $ | (9,100) | | | $ | — | |
Net increase in cash, cash equivalents, and restricted cash | 1,052 | | | 19,299 | |
Cash, cash equivalents, and restricted cash, beginning of period | 68,884 | | | 309,126 | |
Exchange rate effect on cash and cash equivalents, and restricted cash | 35 | | | (50) | |
Cash, cash equivalents, and restricted cash, end of period | $ | 69,971 | | | $ | 328,375 | |
| | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 |
Cash and cash equivalents | $ | 39,089 | | | $ | 299,134 | |
Restricted cash | 30,882 | | | 29,241 | |
Total cash, cash equivalents, and restricted cash | $ | 69,971 | | | $ | 328,375 | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except for share and 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 within our nationwide network of 52 airports (as of the date of this filing); Powered by CLEAR, our business to business offering that extends our identity platform to partners so they can deliver the same friction-free experiences to their customers leveraging software development kits (“SDKs”) and application programming interfaces (“APIs”); and our flagship CLEAR app, which offers free to consumer products like Home-to-Gate and Health Pass, and in the future will also include 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 of 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 of directors (“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.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
•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.
• 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.
2. Basis of Presentation and Summary of Significant Accounting Policies
These condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023.
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the condensed consolidated financial statement financial statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.
These condensed consolidated financial statements and notes thereto 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 for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”). Other than the item below, there have been no changes to the accounting policies disclosed within the 2022 Form 10-K:
Investments in Equity Securities
In accordance with ASC 321 "Investments—Equity Securities" ("ASC 321"), investments in equity securities in which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. All gains, losses and impairments on investments in equity securities are recognized within other income (expense), net within the condensed consolidated statements of operations. The Company regularly reviews its investments in equity securities not accounted for using the equity method or at fair value for impairment based on a qualitative assessment of a variety of factors. If an equity security is impaired, an impairment loss is recognized in the condensed consolidated statements of operations equal to the difference between the fair value of the investment and its carrying amount. Refer to Note 11 for further details on the Company’s strategic investment.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
The condensed consolidated financial statements are presented in US Dollars, which is the Company’s reporting currency.
Recently Adopted Accounting Pronouncements
The Company adopted all applicable standards effective as of December 31, 2022, within these condensed consolidated financial statements. There was no material impact as a result. There are no newly issued standards since December 31, 2022 that are applicable to the Company.
3. Business Combinations
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.
In conjunction with the acquisition, the Company entered into an agreement to issue Class A Shares of Common Stock upon satisfaction of terms related to the contingent consideration. The remaining tranche of contingent consideration 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 $3,333, which is not subject to the satisfaction of service-based criteria. The contingent consideration was immaterial as of March 31, 2023 and December 31, 2022. During the three months ended March 31, 2023 and 2022, the Company did not record adjustments on its contingent consideration.
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, 2023 and 2022, no individual airport accounted for more than 10% of membership revenue.
Revenue by Geography
For the three months ended March 31, 2023 and 2022, 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 for the three months ended March 31, 2023.
| | | | | |
| 2023 |
Balance as of January 1 | $ | 283,452 | |
Deferral of revenue | 144,795 | |
Recognition of deferred revenue | (130,424) | |
Balance as of March 31 | $ | 297,823 | |
During the three months ended March 31, 2022, the Company recognized revenue from its existing deferred revenue for the amount of $88,592.
The Company has obligations for refunds and other similar items of $3,204 as of March 31, 2023 recorded within accrued liabilities.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of March 31, 2023 and December 31, 2022 consist of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Prepaid software licenses | $ | 8,940 | | | $ | 9,362 | |
Coronavirus aid, relief, and economic security act retention credit | 1,002 | | | 1,002 | |
Prepaid insurance costs | 1,435 | | | 2,613 | |
Other current assets | 6,478 | | | 5,120 | |
Total | $ | 17,855 | | | $ | 18,097 | |
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 received partial payment on this receivable during the year ended December 31, 2022. The Company expects to receive the remainder of the balance in the next 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 certain 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.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The contractual maturities of investments classified as marketable securities are as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Due within 1 year | $ | 582,907 | | | $ | 549,213 | |
Due after 1 year through 2 years | 126,012 | | | 116,597 | |
Total marketable securities | $ | 708,919 | | | $ | 665,810 | |
The following table represents the amortized cost, gross unrealized gains and losses, and fair market value of the Company’s marketable securities by significant investment category in addition to their fair value level at March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2023 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Level |
Commercial paper | $ | 91,875 | | | $ | 1 | | | $ | (199) | | | $ | 91,677 | | | 2 | |
U.S. Treasures | 383,070 | | | 961 | | | (870) | | | 383,161 | | | 1 | |
Corporate bonds | 223,416 | | | 63 | | | (1,294) | | | 222,185 | | | 2 | |
Money market funds measured at NAV (a) | 11,896 | | | — | | | — | | | 11,896 | | | N/A |
Total marketable securities | $ | 710,257 | | | $ | 1,025 | | | $ | (2,363) | | | $ | 708,919 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Level |
Commercial paper | $ | 69,762 | | | $ | 4 | | | $ | (352) | | | $ | 69,414 | | | 2 | |
U.S. Treasures | 365,424 | | | 511 | | | (1,448) | | | 364,487 | | | 1 | |
Corporate bonds | 218,980 | | | 9 | | | (1,310) | | | 217,679 | | | 2 | |
Money market funds measured at NAV (a) | 14,230 | | | — | | | — | | | 14,230 | | | N/A |
Total marketable securities | $ | 668,396 | | | $ | 524 | | | $ | (3,110) | | | $ | 665,810 | | | |
(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.
Of the total marketable securities held at fair value as of March 31, 2023, $33,319 was in a continuous unrealized loss for 12 months or longer. The Company had no continuous unrealized loss position in relation to marketable securities as of March 31, 2023 or December 31, 2022 that was as a result of credit deterioration. For the periods presented the Company does not intend to nor will it be required to sell any securities before recovery of their amortized cost bases.
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.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
7. Property and Equipment, net
Property and equipment as of March 31, 2023 and December 31, 2022 consist of the following:
| | | | | | | | | | | | | | | | | |
| Depreciation period in years | | March 31, 2023 | | December 31, 2022 |
Internally developed software | 3 - 5 | | $ | 56,942 | | | $ | 53,788 | |
Acquired software | 3 | | 6,544 | | | 6,536 | |
Equipment | 5 | | 29,176 | | | 29,651 | |
Leasehold improvements | 1 - 15 | | 11,355 | | | 7,731 | |
Furniture and fixtures | 5 | | 12,058 | | | 1,608 | |
Construction in progress | | | 9,703 | | | 14,102 | |
Total property and equipment, cost | | | 125,778 | | | 113,416 | |
Less: accumulated depreciation | | | (57,739) | | | (55,492) | |
Total property and equipment, net | | | $ | 68,039 | | | $ | 57,924 | |
Depreciation and amortization expense related to property and equipment for the three months ended March 31, 2023 and 2022 was $4,345 and $3,489, respectively.
During the three months ended March 31, 2023, $3,154 was capitalized in connection with internally developed software inclusive of $382 of equity-based compensation. Amortization expense on internally developed software was $1,751 and $1,737 for the three months ended March 31, 2023 and 2022, respectively.
During the three months ended March 31, 2023 and 2022, the Company recognized impairment charges of $2,127 and $313, respectively, on certain long-lived assets.
Purchases of property and equipment with unpaid costs in accounts payable and accrued liabilities as of March 31, 2023 were $2,101 and $6,122, respectively, and $1,261 and $427 as of March 31, 2022, respectively.
8. Leases
Cash paid for amounts included in the measurement of operating lease liabilities for the three months ended March 31, 2023 and March 31, 2022 was $1,082 and $1,155 respectively.
During the three months ended March 31, 2023, the Company entered into a sublease agreement whereby the Company will continue to be a lessee under the original operating lease but will act as a sublessor. The Company recorded $1,506 of impairment to its right of use asset within general and administrative in the condensed consolidated statements of operations and will record sublease income in other income (expense), net within the condensed consolidated statements of operations.
9. Intangible Assets, net
See below for Intangible assets, net as of March 31, 2023 and December 31, 2022:
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
| | | | | | | | | | | | | | | | | |
| Amortization Period in Years | | March 31, 2023 | | December 31, 2022 |
Patents | 20 | | $ | 2,658 | | | $ | 2,643 | |
Acquired intangibles - technology | 3 | | 4,300 | | | 4,300 | |
Acquired intangibles - customer relationships | 11 | | 17,900 | | | 17,900 | |
Acquired intangibles - brand names | 5 | | 500 | | | 500 | |
Indefinite lived intangible assets | | | 310 | | | 310 | |
Total intangible assets, cost | | | 25,668 | | | 25,653 | |
Less: accumulated amortization | | | (4,183) | | | (3,361) | |
Intangible assets, net | | | $ | 21,485 | | | $ | 22,292 | |
Amortization expense on intangible assets for the three months ended March 31, 2023 and 2022 was $822 and $895, respectively. The Company did not recognize any impairment charges on intangible assets, net for any periods presented.
10. Restricted Cash
As of March 31, 2023 and December 31, 2022, the Company maintained bank deposits of $8,542 and $7,708, respectively, which were primarily pledged as collateral for long-term letters of credit issued in favor of airports, in connection with the Company’s obligations under revenue share agreements. As of March 31, 2023 and December 31, 2022, the Company also had a letter of credit in place for the amount of $6,153 and $6,099, respectively, in relation to the new corporate headquarters lease agreement entered into in December 2021 that commenced in November 2022.
In addition, the Company also has a $16,187 and $16,138 restricted cash account against a letter of credit with a credit card company as a reserve against potential future refunds and chargebacks as of March 31, 2023 and December 31, 2022.
11. Other Assets
Other assets consist of the following of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Security deposits | $ | 271 | | | $ | 251 | |
Loan fees | 15 | | | 70 | |
Certificates of deposit | 459 | | | 459 | |
Strategic investment | 6,000 | | | — |
Other long-term assets | 2,444 | | | 2,289 | |
Total | $ | 9,189 | | | $ | 3,069 | |
During the three months ended March 31, 2023, the Company made a strategic investment in equity securities in a privately held company. As the investment does not have a readily determinable fair value, the Company elected the measurement alternative to record the investment at initial cost less impairments, if any, adjusted for observable changes in fair value for identical or similar investments of the same issuer. Adjustments resulting from these fluctuations are recorded within other income (expense) on the Company’s condensed consolidated statements of operations.
During the three months ended March 31, 2023, there were no adjustments recorded by the Company in relation to its strategic investment.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
12. Accrued Liabilities and Other Long Term Liabilities
Accrued liabilities consist of the following as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Accrued compensation and benefits | $ | 10,230 | | | $ | 17,362 | |
| | | |
Accrued partnership liabilities | 103,638 | | | 71,195 | |
Lease liability | 5,487 | | | 4,963 | |
Other accrued liabilities | 36,248 | | | 12,550 | |
Total | $ | 155,603 | | | $ | 106,070 | |
The Company has estimated accrued partnership liabilities related to a portion of merchant credit card benefits that it expects to settle in the second half of the current year.
Other long term liabilities consist of the following as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Deferred tax liability | $ | 2,520 | | | $ | 2,435 | |
Lease liability | 125,935 | | | 125,146 | |
Other accrued liabilities | 2,028 | | | 1,542 | |
Total | $ | 130,483 | | | $ | 129,123 | |
13. Warrants
In January 2023, the Company recognized $1,038 of the remaining expense related to the 534,655 fully vested United Airlines warrants. These warrants were exercised for Class A Common Stock in a cashless exercise with an intrinsic value of $16,136. The existing warrant agreement with United Airlines expired in the first quarter of 2023.
Based on the probability of vesting, the Company recorded net $623 and $70 for the three months ended March 31, 2023 and March 31 2022, respectively within general and administrative expense in the condensed consolidated statements of operations.
The following warrants remained outstanding as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
| | Number of Warrants | | Weighted-Average Exercise Price | | Weighted average Remaining Contractual Term (years) |
Exercisable for Class A Common Stock | | 99,939 | | $ | 0.01 | | 0.67 |
Exercisable for Alclear Units | | 773,934 | | $ | 0.01 | | 1.46 |
All outstanding warrants are subject to certain performance-based vesting criteria which the Company evaluates at each reporting period to determine the likelihood of achievement.
14. Stockholders’ Equity
Common Stock
The Company has and will issue shares of its Common Stock as a result of transactions in relation to warrant exercises, exchanges, and vesting of restricted stock units (“RSUs”).
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
Treasury Stock
The Company's treasury stock consists of forfeited Restricted Stock Awards (“RSAs”) that are legally issued shares held by the Company, and is recorded at par value, as well as any shares repurchased under the Company’s share repurchase program that are not retired by the Company’s Board. The Company’s treasury stock can be utilized to settle equity-based compensation awards issued by the Company and is excluded from the calculation of the non-controlling interest ownership percentage.
Share Repurchases
During the three months ended March 31, 2023, the Company repurchased and retired 281,838 shares of its Class A Common Stock for $6,471 at an average price of $22.96. As of March 31, 2023, $88,627 remains available under the repurchase authorization.
The Inflation Reduction Act created an excise tax of 1% on the fair market value of net stock repurchases made after December 31, 2022. During the three months ended March 31, 2023, the Company did not have an impact related to this within its condensed consolidated financial statements. Refer to Note 17 for further information regarding the Inflation Reduction Act.
Non-Controlling Interest
The non-controlling interest balance represents the economic interest in Alclear held by the founders and members of Alclear. The following table summarizes the ownership of Alclear Units as of March 31, 2023:
| | | | | | | | | | | |
| Alclear Units | | Ownership Percentage |
Alclear Units held by post-reorganization members | 36,242,191 | | | 23.66 | % |
Alclear Units held by the Alclear members | 25,796,690 | | | 16.84 | % |
Total | 62,038,881 | | | 40.50 | % |
The non-controlling interest holders have the right to exchange Alclear Units, together with a corresponding number of shares of Class C Common Stock for Class A Common Stock or Class D Common Stock for Class B Common Stock. As such, exchanges by non-controlling interest holders will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase Class A Common Stock or B Common Stock and additional paid-in-capital for the Company. Upon the issuance of shares Class A Common Stock or B Common Stock, the Company issues a proportionate number of Alclear Units in conjunction with the terms of the Reorganization.
During the three months ended March 31, 2023, certain non-controlling interest holders exchanged their Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock for shares of the Company's Class A Common Stock or Class B Common Stock, as applicable. As a result, the Company issued 2,048,773 shares of Class A Common Stock.
The non-controlling interest ownership percentage declined from 42.02% as of December 31, 2022 to 40.50% as of March 31, 2023. The primary driver of this decrease was attributable to the issuance of shares of Class A Common Stock, due to the exercise of certain warrants and exchanges described above.
15. Incentive Plans
2021 Omnibus Incentive Plan
The Clear Secure, Inc 2021 Omnibus Incentive Plan (“2021 Omnibus Incentive Plan”) became effective on June 29, 2021 to provide grants of equity-based awards to the employees, consultants, and directors of the Company and its affiliates.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
The 2021 Omnibus Incentive Plan authorized the issuance of up to 20,000,000 shares of Class A Common Stock as of the date of the Reorganization. The 2021 Omnibus Incentive Plan authorized the issuance of shares pursuant to the grant, settlement or exercise of RSUs, RSAs, stock options and other share-based awards. Beginning with the first business day of each calendar year beginning in 2022 through 2031, the number of shares available will increase in an amount up to 5% of the total number of common shares outstanding (assuming exchange and/or conversion of all classes of common shares into Class A Common Stock) as of the last day of the immediately preceding year or a lesser amount approved by the Board or its compensation committee, so long as the total share reserve available for future awards at the time is not more than 12% of common shares outstanding (assuming exchange and/or conversion of all classes of common shares into Class A common stock). For fiscal year 2023, the Compensation Committee of the Board approved no increase in the 2021 Omnibus Incentive Plan, which such increase would have been effective on the first business day of 2023.
Alclear Holdings, LLC Equity Incentive Plan
Prior to the Reorganization, Alclear granted profit unit awards and RSUs to various employees of the Company. In connection with the Company’s Reorganization described in Note 1, these awards were substituted as follows:
•The Company substituted Alclear’s RSUs with RSUs under the 2021 Omnibus Incentive Plan.
•The Company substituted Alclear’s performance vesting profit units with performance vesting RSUs under the 2021 Omnibus Incentive Plan.
•The Company substituted Alclear’s other profit units with only a service vesting condition to RSAs under the 2021 Omnibus Incentive Plan.
In all cases of the respective substitutions, the new awards retained the same terms and conditions (including applicable vesting requirements). Each award was converted to reflect the $31.00 share price contemplated in the Company’s IPO while retaining the same fair value. The RSUs originally granted by Alclear were subject to both service and liquidity event vesting conditions. The Company concluded that the Reorganization represented a qualifying liquidity event that would cause the RSUs’ liquidity event vesting conditions to be met.
Restricted Stock Awards
In accordance with the Reorganization, the Company substituted Alclear Holdings’ profit units with service vesting conditions with RSAs, which are subject to the same vesting terms as applied to Alclear’s profit units; each also maintained the same fair value immediately before and after the exchange of the award. As such, there was no additional compensation expense that was recorded as a result of the substitution of the awards.
The RSAs are subject to service-based vesting conditions and will vest on a specified date, provided the applicable service, generally three years, has been satisfied.
The Company determines the fair value of each RSA based on the grant date and records the expense over the vesting period or requisite service period.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
The following is a summary of activity related to the RSAs associated with compensation arrangements during the three months ended March 31, 2023.
| | | | | | | | | | | |
| RSA - Class A Common Stock | | Weighted- Average Grant-Date Fair Value |
Unvested balance as of January 1, 2023 | 236,279 | | | $ | 0.87 | |
Granted | — | | | — | |
Vested | (173,156) | | | (0.87) | |
Forfeited | (3,079) | | | (0.87) | |
Unvested balance as of March 31, 2023 | 60,044 | | | $ | 0.87 | |
Below is the compensation expense related to the RSAs:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 |
Cost of direct salaries and benefits | | $ | — | | | $ | 2 | |
Research and development | | 2 | | | 44 | |
Sales and marketing | | — | | | 1 | |
General and administrative | | 5 | | | 63 | |
Total | | $ | 7 | | | $ | 110 | |
As of March 31, 2023, estimated unrecognized expense for RSAs that are probable of vesting was $3 with such expense to be recognized over a weighted-average period of approximately 0.21 years.
Restricted Stock Units
RSUs are subject to both service-based and, in some cases, performance-based vesting conditions. RSUs will vest on a specified date, provided the applicable service (generally three years) and, if applicable, when certain performance conditions are probable of satisfaction. The RSUs with performance-based vesting conditions are subject to long-term revenue and cash-basis earnings performance hurdles. The Company determines the fair value of each RSU based on the grant date and records the expense over the vesting period or requisite service period on a straight-line basis and for performance-based vesting awards, whether they are probable or not.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
The following is a summary of activity related to the RSUs associated with compensation arrangements during the three months ended March 31, 2023:
| | | | | | | | | | | |
| RSU’s | | Weighted- Average Grant-Date Fair Value |
Unvested balance as of January 1, 2023 | 4,125,596 | | | $ | 27.88 | |
Granted | 446,253 | | | 30.01 | |
Vested | (245,174) | | | (20.54) | |
Forfeited | (232,551) | | | (26.88) | |
Unvested balance as of March 31, 2023 | 4,094,124 | | | $ | 28.61 | |
Below is the compensation expense recognized related to the RSUs:
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2023 | | March 31, 2022 |
Cost of direct salaries and benefits | | $ | 73 | | | $ | 91 | |
Research and development | | 4,950 | | | 3,697 | |
Sales and marketing | | (101) | | | 48 | |
General and administrative | | 4,612 | | | 2,628 | |
Total | | $ | 9,534 | | | $ | |