you-20230930

Table of Contents

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 September 30, 2023


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 November 3, 2023:


Class A Common Stock par value $0.00001 per share			89,971,945
Class B Common Stock par value $0.00001 per share			907,234
Class C Common Stock par value $0.00001 per share			34,129,407
Class D Common Stock par value $0.00001 per share			25,796,690

Table of Contents


		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Changes in Stockholders' Equity	4
	Condensed Consolidated Statements of Changes in Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46
Signatures		47

Table of Contents

CLEAR SECURE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(dollars in thousands, except share and per share data)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	63,522	$	38,939
Marketable securities	673,044		665,810
Accounts receivable	736		1,169
Prepaid revenue share fee	20,539		17,585
Prepaid expenses and other current assets	23,202		18,097
Total current assets	781,043		741,600
Property and equipment, net	65,801		57,924
Right of use asset, net	117,399		123,880
Intangible assets, net	21,687		22,292
Goodwill	62,757		58,807
Restricted cash	5,065		29,945
Other assets	8,206		3,069
Total assets	$	1,061,958	$	1,037,517
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	14,075	$	7,951
Accrued liabilities	112,306		106,070
Deferred revenue	351,891		283,452
Total current liabilities	478,272		397,473
Other long term liabilities	125,311		129,123
Total liabilities	603,583		526,596
Commitments and contingencies (Note 18)
Class A Common Stock, $0.00001 par value - 1,000,000,000 shares authorized; 89,854,251 shares issued and outstanding as of September 30, 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 September 30, 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; 34,776,689 shares issued and outstanding as of September 30, 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 September 30, 2023 and 25,796,690 shares issued and outstanding as of December 31, 2022	—		—
Accumulated other comprehensive loss	(494)		(1,529)
Treasury stock at cost, 0 shares as of September 30, 2023 and 80,505 shares as of December 31, 2022	—		—
Accumulated deficit	(87,690)		(101,797)
Additional paid-in capital	364,087		394,390
Total stockholders’ equity attributable to Clear Secure, Inc.	275,904		291,065
Non-controlling interest	182,471		219,856
Total stockholders’ equity	458,375		510,921
Total liabilities and stockholders’ equity	$	1,061,958	$	1,037,517

See notes to condensed consolidated financial statements

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CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(dollars in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022

Revenue	$	160,387	$	115,919	$	442,614	$	309,181

Operating expenses:
Cost of revenue share fee	22,885		14,743		63,674		39,198
Cost of direct salaries and benefits	35,337		26,918		102,687		75,211
Research and development	11,790		16,508		56,044		46,353
Sales and marketing	9,735		10,530		30,032		29,721
General and administrative	56,101		108,389		170,323		202,508
Depreciation and amortization	5,260		4,531		15,416		13,243
Operating income (loss)	19,279		(65,700)		4,438		(97,053)

Other income (expense):
Interest income (expense), net	7,677		1,636		21,463		1,830
Other income (expense), net	661		(2,031)		1,569		(1,834)
Income (loss) before tax	27,617		(66,095)		27,470		(97,057)
Income tax benefit (expense)	(754)		536		(846)		381
Net income (loss)	26,863		(65,559)		26,624		(96,676)
Less: net income (loss) attributable to non-controlling interests	11,517		(28,795)		12,491		(42,430)
Net income (loss) attributable to Clear Secure, Inc.	$	15,346	$	(36,764)	$	14,133	$	(54,246)

Net income (loss) per share of Class A Common Stock and Class B Common Stock (Note 16)
Net income (loss) per common share basic, Class A	$	0.17	$	(0.44)	$	0.16	$	(0.67)
Net income (loss) per common share basic, Class B	$	0.17	$	(0.44)	$	0.16	$	(0.67)
Net income (loss) per common share diluted, Class A	$	0.17	$	(0.44)	$	0.15	$	(0.67)
Net income (loss) per common share diluted, Class B	$	0.17	$	(0.44)	$	0.15	$	(0.67)
Weighted-average shares of Class A Common Stock outstanding, basic	89,189,192		82,426,486		89,436,795		79,527,484
Weighted-average shares of Class B Common Stock outstanding, basic	907,234		1,022,669		907,234		1,035,641
Weighted-average shares of Class A Common Stock outstanding, diluted	89,968,555		82,426,486		90,503,162		79,527,484
Weighted-average shares of Class B Common Stock outstanding, diluted	907,234		1,022,669		907,234		1,035,641

See notes to condensed consolidated financial statements

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CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Net income (loss)	$	26,863	$	(65,559)	$	26,624	$	(96,676)
Other comprehensive income (loss)
Foreign currency translation	8		23		16		(101)
Unrealized gain (loss) on fair value of marketable securities	1,390		(1,359)		1,738		(3,110)
Total other comprehensive income (loss)	1,398		(1,336)		1,754		(3,211)
Comprehensive income (loss)	28,261		(66,895)		28,378		(99,887)
Less: comprehensive income (loss) attributable to non-controlling interests	12,082		(29,390)		13,210		(43,907)
Comprehensive income (loss) attributable to Clear Secure, Inc.	$	16,179	$	(37,505)	$	15,168	$	(55,980)

See notes to condensed consolidated financial statements

Table of Contents

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, 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
Net income	—	—		—	—		—	—		—	—		—		—		—	—		4,011		4,011		4,023		8,034
Other comprehensive loss	—	—		—	—		—	—		—	—		—		(736)		—	—		—		(736)		(504)		(1,240)
Equity-based compensation expense, net of forfeitures	—	—		—	—		—	—		—	—		8,415		—		—	—		—		8,415		6,244		14,659
Net share settlements of stock-based awards	144,341	—		—	—		—	—		—	—		(655)		—		—	—		—		(655)		(740)		(1,395)
Tax distribution to members	—	—		—	—		—	—		—	—		—		—		—	—		(26)		(26)		(17)		(43)
Exchange of shares	150,000	—		—	—		(150,000)	—		—	—		165		—		—	—		—		165		(165)		—
Special dividend	—	—		—	—		—	—		—	—		(18,089)		—		—	—		—		(18,089)		—		(18,089)
Repurchase and retirement of Class A Common Stock	(1,533,357)	—		—	—			—		—	—		(22,928)		—		—	—		—		(22,928)		(15,700)		(38,628)
Balance, June 30, 2023	88,975,375	$	1	907,234	$	—	36,092,191	$	—	25,796,690	$	—	$	371,293	$	(1,327)	—	$	—	$	(103,036)	$	266,931	$	194,879	$	461,810

See notes to condensed consolidated financial statements


Net income	—	—		—	—		—	—		—	—		—		—		—	—		15,346		15,346		11,517		26,863
Other comprehensive loss	—	—		—	—		—	—		—	—		—		833		—	—		—		833		565		1,398
Equity-based compensation expense, net of forfeitures	—	—		—	—		—	—		—	—		2,721		—		—	—		—		2,721		1,845		4,566
Net share settlements of stock-based awards	73,374	—		—	—		—	—		—	—		(218)		—		—	—		—		(218)		(673)		(891)
Distribution to members	—	—		—	—		—	—		—	—		—		—		—	—		—		—		(4,322)		(4,322)
Tax distribution to members	—	—		—	—		—	—		—	—		—		—		—	—		—		—		(13,718)		(13,718)
Exchange of shares	1,315,502	—		—	—		(1,315,502)	—		—	—		5,171		—		—	—		—		5,171		(5,171)		—
Dividends	—	—		—	—		—	—		—	—		(6,304)		—		—	—		—		(6,304)		—		(6,304)
Repurchase and retirement of Class A Common Stock	(510,000)	—		—	—			—		—	—		(8,576)		—		—	—		—		(8,576)		(2,451)		(11,027)
Balance, September 30, 2023	89,854,251	$	1	907,234	$	—	34,776,689	$	—	25,796,690	$	—	$	364,087	$	(494)	—	$	—	$	(87,690)	$	275,904	$	182,471	$	458,375

See notes to condensed consolidated financial statements


	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		71
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
Net loss	—	—		—	—		—	—		—	—		—		—		—	—		(7,155)		(7,155)		(5,168)		(12,323)
Other comprehensive loss	—	—		—	—		—	—		—	—		—		(422)		—	—		—		(422)		(361)		(783)
Equity-based compensation expense, net of forfeitures	(101,610)	—		—	—		—	—		—	—		7,105		—		101,610	—		—		7,105		5,150		12,255
Issuance of restricted stock units	7,528	—		—	—		—	—		—	—		27		—		—	—		—		27		(27)		—
Tax distribution to members	—	—		—	—		—	—		—	—		—		—		—	—		(27)		(27)		(22)		(49)
Warrant expense	—	—		—	—		—	—		—	—		28		—		—	—		—		28		23		51
Exchange of shares	3,146,673	—		—	—		(3,146,673)	—		—	—		10,995		—		—	—		—		10,995		(10,995)		—
Balance, June 30, 2022	81,618,747	$	1	1,042,234	$	—	40,430,682	$	—	26,705,315	$	—	$	344,922	$	(1,095)	385,028	$	—	$	(53,638)	$	290,189	$	241,378	$	531,567
Net loss	—	—		—	—		—	—		—	—		—		—		—	—		(36,764)		(36,764)		(28,795)		(65,559)
Other comprehensive loss	—	—		—	—		—	—		—	—		—		(741)		—	—		—		(741)		(595)		(1,336)
Equity-based compensation expense, net of forfeitures	(12,317)	—		—	—		—	—		—	—		9,310		—		12,317	—		—		9,310		4,923		14,233
Net share settlements of stock-based awards	207,970	—		—	—		—	—		—	—		(838)		—		(207,970)	—		—		(838)		(1,543)		(2,381)
Tax distribution to members	—	—		—	—		—	—		—	—		—		—		—	—		(68)		(68)		(54)		(122)
Warrant expense	—	—		—	—		—	—		—	—		32,603		—		—	—		—		32,603		26,217		58,820
Repurchase and retirement of Class A Common Stock	(213,100)	—		—	—		—	—		—	—		(5,395)		—		—	—		—		(5,395)		493		(4,902)
Exercise of warrants	534,655	—		—	—		—	—		—	—		1,237		—		—	—		—		1,237		(1,237)		—
Conversion of shares	100,000	—		(100,000)	—		—	—		—	—		—		—		—	—		—		—		—		—
Exchange of shares	922,801	—		—	—		(555,000)	—		(367,801)	—		2,135		—		—	—		—		2,135		(2,135)		—
Balance, September 30, 2022	83,158,756	$	1	942,234	$	—	39,875,682	$	—	26,337,514	$	—	$	383,974	$	(1,836)	189,375	$	—	$	(90,471)	$	291,668	$	238,652	$	530,320

See notes to condensed consolidated financial statements

Table of Contents

CLEAR SECURE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS

(UNAUDITED)

(dollars in thousands)


	Nine Months Ended
	September 30, 2023		September 30, 2022
Cash flows from operating activities:
Net income (loss)	$	26,624	$	(96,676)
Adjustments to reconcile net income (loss) to net cash provided from operating activities:
Depreciation of property and equipment	12,933		10,792
Amortization of intangible assets	2,483		2,450
Noncash lease expense	4,896		2,245
Impairment of assets	3,707		1,217
Equity-based compensation	35,102		98,488
Deferred income tax	(549)		(593)
Amortization of revolver loan costs	252		598
Premium amortization and (discount accretion), net on marketable securities	(9,835)		(104)
Changes in operating assets and liabilities:
Accounts receivable	433		3,229
Prepaid expenses and other assets	(4,098)		3,138
Prepaid revenue share fee	(2,954)		(5,738)
Accounts payable	5,899		(771)
Accrued and other long term liabilities	(10,990)		6,434
Deferred revenue	68,439		67,166
Operating lease liabilities	(1,440)		(2,845)
Net cash provided by operating activities	$	130,902	$	89,030
Cash flows from investing activities:
Purchases of marketable securities	(634,751)		(581,263)
Sales of marketable securities	639,090		572,784
Business combinations	(3,750)		—
Purchase of strategic investment	(6,000)		—
Purchases of property and equipment	(21,825)		(23,073)
Purchase of intangible assets	(129)		(336)
Net cash used in investing activities	$	(27,365)	$	(31,888)
Cash flows from financing activities:
Repurchase of Class A Common Stock	(56,124)		(4,902)
Payment of dividend	(6,320)		—
Payment of special dividend	(18,129)		—
Distributions to members	(4,322)		—
Tax distribution to members	(13,929)		(171)
Debt issuance costs	(396)		(297)
Payment of taxes on net settled stock-based awards	(4,694)		(2,381)
Net cash used in financing activities	$	(103,914)	$	(7,751)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(377)		49,391
Cash, cash equivalents, and restricted cash, beginning of period	68,884		309,126
Exchange rate effect on cash and cash equivalents, and restricted cash	80		(107)
Cash, cash equivalents, and restricted cash, end of period	$	68,587	$	358,410


	September 30, 2023		September 30, 2022
Cash and cash equivalents	$	63,522	$	329,077
Restricted cash	5,065		29,333
Total cash, cash equivalents, and restricted cash	$	68,587	$	358,410

See notes to condensed consolidated financial statements

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(dollars in thousands, except for 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 Second Amended and Restated Operating Agreement dated June 7, 2023 (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 54 airports (as of the date of this filing); CLEAR Verified (formerly 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 and application programming interfaces; and our flagship CLEAR app, which offers free to consumer products like Home-to-Gate, 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, $0.00001 par value per share (the “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 (Ms. Seidman-Becker and Mr. Cornick, collectively, the “Co-Founders”), contributed a portion of their Alclear Units to us in exchange for Class B Common Stock.

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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 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.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Refer to Note 11 for further details on the Company’s strategic investment.

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

Whyline Acquisition

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 shares of Class A 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 September 30, 2023 and December 31, 2022. During the three and nine months ended September 30, 2023 and 2022, the Company did not record adjustments on its contingent consideration.

Sora ID Acquisition

On September 5, 2023, CLEAR acquired certain assets of Sora ID, Inc., a one-click know your customer (“KYC”) solution which provides technology that is KYC compliant, and is transferable across financial institutions – creating a unique, reusable verification product.

The fair value of the purchase consideration was $5,250 including deferred consideration of $1,500 payable in two tranches at 15 and 30 months after closing. The acquisition was accounted for as a business combination. Of the total purchase consideration, $3,950 was recorded as goodwill and $1,300 as acquired intangible assets on the condensed consolidated balance sheets. The intangible assets acquired relate to customer relationships and developed technology with useful lives of 3 and 5 years, respectively. The Company valued the intangible assets using the multi-period excess earnings method and the relief from royalty method, both under the income approach. The goodwill recognized is expected to be deductible for tax purposes.

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.

The Company incurred $0.5 million in acquisition related costs, which were expensed as incurred and included in general and administrative expenses in the condensed consolidated statement of operations.

The Company also entered into an agreement to provide $4,000 retention bonuses and $9,000 post-combination remuneration in cash payments and restricted stock units (“RSUs”) upon satisfaction of certain post-closing financial metrics and continuing service requirements. These compensation expenses will be recognized within research and development and general and administrative expenses.

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The retention bonuses of $4,000 consist of (i) cash payments to be made monthly for the six months following the closing date, and (ii) RSUs that vest in various tranches on June 30, 2024 and December 31, 2024, 2025 and 2026. For the post-combination remuneration, the amount of $9,000 will consist of two equal tranches of RSUs that will vest upon the achievement of specified operating metrics during the twelve month periods ended December 31, 2024 and December 31, 2025, respectively. The Company has not recorded any compensation expense for the three months ended September 30, 2023, as the performance criteria is not probable.

4. Revenue

The Company derives substantially all of its revenue from subscriptions to its consumer aviation service, CLEAR Plus. For the three and nine months ended September 30, 2023 and 2022, no individual airport accounted for more than 10% of membership revenue.

Revenue by Geography

For the three and nine months ended September 30, 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 nine months ended September 30, 2023.


	2023
Balance as of January 1	$	283,452
Deferral of revenue	504,926
Recognition of deferred revenue	(436,487)
Balance as of September 30	$	351,891

During the nine months ended September 30, 2022, the Company recognized revenue from its existing deferred revenue for the amount of $305,147.

The Company has obligations for refunds and other similar items of $4,432 as of September 30, 2023 recorded within accrued liabilities.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets as of September 30, 2023 and December 31, 2022 consist of the following:


	September 30, 2023		December 31, 2022
Prepaid software licenses	$	10,596	$	9,362
Coronavirus Aid, Relief, and Economic Security Act retention credit	1,002		1,002
Prepaid insurance costs	2,631		2,613
Other current assets	8,973		5,120
Total	$	23,202	$	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

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CLEAR SECURE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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, which are not considered Level 1 items.

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.

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:


	September 30, 2023		December 31, 2022
Due within 1 year	$	500,274	$	549,213
Due after 1 year through 2 years	172,770		116,597
Total marketable securities	$	673,044	$	665,810

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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 table represents the amortized cost, gross unrealized gains and losses, and fair market value of the Company’s marketable securities by significant investment category and their designation within the fair value hierarchy as of September 30, 2023 and December 31, 2022.


	As of September 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Level
Commercial paper	$	75,184	$	—	$	(109)	$	75,075	2
U.S. Treasuries	349,457		1,831		(890)		350,398		1
Corporate bonds	243,697		—		(2,016)		241,681		2
Money market funds measured at NAV (a)	5,890		—		—		5,890		N/A
Total marketable securities	$	674,228	$	1,831	$	(3,015)	$	673,044


	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. Treasuries	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		—		—