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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 September 30, 2024 |
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 November 4, 2024:
| | | | | |
Class A Common Stock par value $0.00001 per share (the “Class A Common Stock”) | 94,015,104 | |
Class B Common Stock par value $0.00001 per share (the “Class B Common Stock”) | 877,234 | |
Class C Common Stock par value $0.00001 per share (the “Class C Common Stock”) | 19,615,578 | |
Class D Common Stock par value $0.00001 per share (the “Class D Common Stock”) | 24,896,690 | |
Table of Contents
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands, except share and per share data)
| | | | | | | | | | | |
| September 30,
2024 | | December 31,
2023 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 32,885 | | | $ | 57,900 | |
| Marketable securities | 511,812 | | | 665,197 | |
| Accounts receivable | 639 | | | 526 | |
| Prepaid revenue share fee | 25,179 | | | 24,402 | |
| Prepaid expenses and other current assets | 25,222 | | | 22,009 | |
| Total current assets | 595,737 | | | 770,034 | |
| Property and equipment, net | 57,760 | | | 62,611 | |
| Right of use asset, net | 111,046 | | | 115,874 | |
| Intangible assets, net | 16,875 | | | 20,825 | |
| Goodwill | 62,757 | | | 62,757 | |
| Restricted cash | 3,410 | | | 4,501 | |
| Other assets | 10,992 | | | 8,407 | |
| Total assets | $ | 858,577 | | | $ | 1,045,009 | |
| Liabilities and stockholders' equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 10,876 | | | $ | 11,781 | |
| Accrued liabilities | 129,731 | | | 164,015 | |
| Deferred revenue | 417,078 | | | 376,253 | |
| Total current liabilities | 557,685 | | | 552,049 | |
| Other long term liabilities | 119,854 | | | 123,736 | |
| Total liabilities | 677,539 | | | 675,785 | |
Commitments and contingencies (Note 18) | | | |
Class A Common Stock, $0.00001 par value - 1,000,000,000 shares authorized; 93,679,673 and 91,786,941 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 1 | | | 1 | |
Class B Common Stock, $0.00001 par value - 100,000,000 shares authorized; 877,234 and 907,234 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Class C Common Stock, $0.00001 par value - 200,000,000 shares authorized; 19,750,578 and 32,234,914 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Class D Common Stock, $0.00001 par value - 100,000,000 shares authorized; 25,046,690 and 25,796,690 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | — | | | — | |
| Accumulated other comprehensive income | 1,472 | | | 2,050 | |
Treasury stock at cost, 0 shares as of September 30, 2024 and December 31, 2023 | — | | | — | |
| Accumulated deficit | (7,324) | | | (73,714) | |
| Additional paid-in capital | 134,821 | | | 304,992 | |
| Total stockholders’ equity attributable to Clear Secure, Inc. | 128,970 | | | 233,329 | |
| Non-controlling interest | 52,068 | | | 135,895 | |
| Total stockholders’ equity | 181,038 | | | 369,224 | |
| Total liabilities and stockholders’ equity | $ | 858,577 | | | $ | 1,045,009 | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Revenue | $ | 198,424 | | | $ | 160,387 | | | $ | 564,218 | | | $ | 442,614 | |
| | | | | | | |
| Operating expenses: | | | | | | | |
| Cost of revenue share fee | 28,592 | | | 22,885 | | | 79,049 | | | 63,674 | |
| Cost of direct salaries and benefits | 44,825 | | | 35,337 | | | 125,198 | | | 102,687 | |
| Research and development | 17,424 | | | 11,790 | | | 54,939 | | | 56,044 | |
| Sales and marketing | 11,607 | | | 9,735 | | | 34,236 | | | 30,032 | |
| General and administrative | 53,919 | | | 56,101 | | | 162,180 | | | 170,323 | |
| Depreciation and amortization | 6,970 | | | 5,260 | | | 19,503 | | | 15,416 | |
| Operating income | 35,087 | | | 19,279 | | | 89,113 | | | 4,438 | |
| | | | | | | |
| Other income (expense): | | | | | | | |
| Interest income, net | 7,252 | | | 7,677 | | | 25,424 | | | 21,463 | |
| Other income, net | 436 | | | 661 | | | 1,291 | | | 1,569 | |
| Income before tax | 42,775 | | | 27,617 | | | 115,828 | | | 27,470 | |
| Income tax expense | (4,751) | | | (754) | | | (7,125) | | | (846) | |
| Net income | 38,024 | | | 26,863 | | | 108,703 | | | 26,624 | |
| Less: net income attributable to non-controlling interests | 14,559 | | | 11,517 | | | 42,313 | | | 12,491 | |
| Net income attributable to Clear Secure, Inc. | $ | 23,465 | | | $ | 15,346 | | | $ | 66,390 | | | $ | 14,133 | |
| | | | | | | |
Net income per share of Class A Common Stock and Class B Common Stock (Note 16) | | | | | | | |
| Net income per common share basic, Class A | $ | 0.25 | | | $ | 0.17 | | | $ | 0.71 | | | $ | 0.16 | |
| Net income per common share basic, Class B | $ | 0.25 | | | $ | 0.17 | | | $ | 0.71 | | | $ | 0.16 | |
| Net income per common share diluted, Class A | $ | 0.25 | | | $ | 0.17 | | | $ | 0.71 | | | $ | 0.15 | |
| Net income per common share diluted, Class B | $ | 0.25 | | | $ | 0.17 | | | $ | 0.71 | | | $ | 0.15 | |
| Weighted-average shares of Class A Common Stock outstanding, basic | 92,702,778 | | | 89,189,192 | | | 92,174,755 | | | 89,436,795 | |
| Weighted-average shares of Class B Common Stock outstanding, basic | 891,582 | | | 907,234 | | | 901,979 | | | 907,234 | |
| Weighted-average shares of Class A Common Stock outstanding, diluted | 94,279,071 | | | 89,968,555 | | | 93,263,943 | | | 90,503,162 | |
| Weighted-average shares of Class B Common Stock outstanding, diluted | 891,582 | | | 907,234 | | | 901,979 | | | 907,234 | |
See notes to condensed consolidated financial statements
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Net income | $ | 38,024 | | | $ | 26,863 | | | $ | 108,703 | | | $ | 26,624 | |
| Other comprehensive income (loss) | | | | | | | |
| Currency translation | 14 | | | 8 | | | 14 | | | 16 | |
| Unrealized gain (loss) on fair value of marketable securities | 3,046 | | | 1,390 | | | (1,164) | | | 1,738 | |
| Total other comprehensive income (loss) | 3,060 | | | 1,398 | | | (1,150) | | | 1,754 | |
| Comprehensive income | 41,084 | | | 28,261 | | | 107,553 | | | 28,378 | |
| Less: comprehensive income attributable to non-controlling interests | 15,586 | | | 12,082 | | | 41,741 | | | 13,210 | |
| Comprehensive income attributable to Clear Secure, Inc. | $ | 25,498 | | | $ | 16,179 | | | $ | 65,812 | | | $ | 15,168 | |
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 income (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, 2024 | 91,786,941 | | $ | 1 | | 907,234 | | $ | — | | 32,234,914 | | $ | — | | 25,796,690 | | $ | — | | $ | 304,992 | | $ | 2,050 | | — | | $ | — | | $ | (73,714) | | $ | 233,329 | | $ | 135,895 | | $ | 369,224 | |
| Net income | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 18,806 | | 18,806 | | 13,282 | | 32,088 | |
| Other comprehensive loss | — | | — | | — | | — | | — | | — | | — | | — | | — | | (1,835) | | — | | — | | — | | (1,835) | | (1,148) | | (2,983) | |
| Equity-based compensation expense, net of forfeitures | — | | — | | — | | — | | — | | — | | — | | — | | 6,684 | | — | | — | | — | | — | | 6,684 | | 4,185 | | 10,869 | |
| Net share settlements of stock-based awards | 183,167 | | — | | — | | — | | — | | — | | — | | — | | (1,298) | | — | | — | | — | | — | | (1,298) | | (812) | | (2,110) | |
| Distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (10,564) | | (10,564) | |
| Tax distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (4,558) | | (4,558) | |
| Exchange of shares | 1,625,803 | | — | | — | | — | | (1,625,803) | | — | | — | | — | | 3 | | — | | — | | — | | — | | 3 | | (3) | | — | |
| Dividends | — | | — | | — | | — | | — | | — | | — | | — | | (8,481) | | — | | — | | — | | — | | (8,481) | | — | | (8,481) | |
| Special dividend | — | | — | | — | | — | | — | | — | | — | | — | | (28,828) | | — | | — | | — | | — | | (28,828) | | | (28,828) | |
| Repurchase and retirement of Class A Common Stock | (4,416,759) | | — | | — | | — | | — | | — | | — | | — | | (52,514) | | — | | — | | — | | — | | (52,514) | | (32,868) | | (85,382) | |
| Balance, March 31, 2024 | 89,179,152 | | $ | 1 | | 907,234 | | $ | — | | 30,609,111 | | $ | — | | 25,796,690 | | $ | — | | $ | 220,558 | | $ | 215 | | — | | $ | — | | $ | (54,908) | | $ | 165,866 | | $ | 103,409 | | $ | 269,275 | |
| Net income | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 24,119 | | 24,119 | | 14,472 | | 38,591 | |
| Other comprehensive loss | — | | — | | — | | — | | — | | — | | — | | — | | — | | (776) | | — | | — | | — | | (776) | | (451) | | (1,227) | |
| Equity-based compensation expense, net of forfeitures | — | | — | | — | | — | | — | | — | | — | | — | | 6,624 | | — | | — | | — | | — | | 6,624 | | 3,847 | | 10,471 | |
| Net share settlements of stock-based awards | 287,541 | | — | | — | | — | | — | | — | | — | | — | | (685) | | — | | — | | — | | — | | (685) | | (1,819) | | (2,504) | |
| Distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (5,018) | | (5,018) | |
| Tax distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (7,367) | | (7,367) | |
| Exchange of shares | 6,316,858 | | — | | — | | — | | (6,316,858) | | — | | — | | — | | 19,763 | | — | | — | | — | | — | | 19,763 | | (19,763) | | — | |
| Dividends | — | | — | | — | | — | | — | | — | | — | | — | | (9,339) | | — | | — | | — | | — | | (9,339) | | — | | (9,339) | |
| Repurchase and retirement of Class A Common Stock | (3,566,853) | | — | | — | | — | | | — | | — | | — | | (52,036) | | — | | — | | — | | — | | (52,036) | | (12,582) | | (64,618) | |
| Balance, June 30, 2024 | 92,216,698 | | $ | 1 | | 907,234 | | $ | — | | 24,292,253 | | $ | — | | 25,796,690 | | $ | — | | $ | 184,885 | | $ | (561) | | — | | $ | — | | $ | (30,789) | | $ | 153,536 | | $ | 74,728 | | $ | 228,264 | |
| Net income | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 23,465 | | 23,465 | | 14,559 | | 38,024 | |
| Other comprehensive income | — | | — | | — | | — | | — | | — | | — | | — | | — | | 2,033 | | — | | — | | — | | 2,033 | | 1,027 | | 3,060 | |
| Equity-based compensation expense, net of forfeitures | — | | — | | — | | — | | — | | — | | — | | — | | 4,218 | | — | | — | | — | | — | | 4,218 | | 2,130 | | 6,348 | |
| Net share settlements of stock-based awards | 141,300 | | — | | — | | — | | — | | — | | — | | — | | (782) | | — | | — | | — | | — | | (782) | | (1,333) | | (2,115) | |
| Distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (4,532) | | (4,532) | |
| Tax distribution to members | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (3,453) | | (3,453) | |
| Exchange of shares | 5,321,675 | | — | | (30,000) | | — | | (4,541,675) | | — | | (750,000) | | — | | 23,489 | | — | | — | | — | | — | | 23,489 | | (23,489) | | — | |
| Dividends | — | | — | | — | | — | | — | | — | | — | | — | | (9,398) | | — | | — | | — | | — | | (9,398) | | — | | (9,398) | |
| Repurchase and retirement of Class A Common Stock | (4,000,000) | | — | | — | | — | | | — | | — | | — | | (67,591) | | — | | — | | — | | — | | (67,591) | | (7,569) | | (75,160) | |
| Balance, September 30, 2024 | 93,679,673 | | $ | 1 | | 877,234 | | $ | — | | 19,750,578 | | $ | — | | 25,046,690 | | $ | — | | $ | 134,821 | | $ | 1,472 | | — | | $ | — | | $ | (7,324) | | $ | 128,970 | | $ | 52,068 | | $ | 181,038 | |
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, 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 | |
| Net income | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 15,346 | | 15,346 | | 11,517 | | 26,863 | |
| Other comprehensive income | — | | — | | — | | — | | — | | — | | — | | — | | — | | 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
CLEAR SECURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
(UNAUDITED)
(dollars in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| Cash flows provided by (used in) operating activities: | | | |
| Net income | $ | 108,703 | | | $ | 26,624 | |
| Adjustments to reconcile net income to net cash provided from operating activities: | | | |
| Depreciation of property and equipment | 16,347 | | | 12,933 | |
| Amortization of intangible assets | 3,156 | | | 2,483 | |
| Noncash lease expense | 4,804 | | | 4,896 | |
| Impairment of assets | — | | | 3,707 | |
| Equity-based compensation | 27,038 | | | 35,102 | |
| Deferred income tax | 701 | | | (549) | |
| Amortization of revolver loan costs | 169 | | | 252 | |
| Premium amortization and (discount accretion), net on marketable securities | (6,330) | | | (9,835) | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (113) | | | 433 | |
| Prepaid expenses and other assets | (4,379) | | | (4,098) | |
| Prepaid revenue share fee | (777) | | | (2,954) | |
| Accounts payable | (475) | | | 5,899 | |
| Accrued and other long term liabilities | (26,304) | | | (10,990) | |
| Deferred revenue | 40,825 | | | 68,439 | |
| Operating lease liabilities | (4,300) | | | (1,440) | |
| Net cash provided by operating activities | $ | 159,065 | | | $ | 130,902 | |
| | | |
| Cash flows provided by (used in) investing activities: | | | |
| Purchases of marketable securities | (703,132) | | | (634,751) | |
| Sales of marketable securities | 861,683 | | | 639,090 | |
| Business combinations | — | | | (3,750) | |
| Purchase of strategic investment | (1,000) | | | (6,000) | |
| Purchases of property and equipment | (9,259) | | | (21,825) | |
| Purchases of intangible assets | (318) | | | (129) | |
| Net cash provided by (used in) investing activities | $ | 147,974 | | | $ | (27,365) | |
| | | |
| Cash flows used in financing activities: | | | |
| Repurchase of Class A Common Stock | (225,160) | | | (56,124) | |
| Payment of dividend | (27,218) | | | (6,320) | |
| Payment of special dividend | (28,828) | | | (18,129) | |
| Distributions to members | (20,114) | | | (4,322) | |
| Tax distribution to members | (24,979) | | | (13,929) | |
| Debt issuance costs | — | | | (396) | |
| Payment of taxes on net settled stock-based awards | (6,729) | | | (4,694) | |
| Other financing activities | (154) | | | — | |
| Net cash used in financing activities | $ | (333,182) | | | $ | (103,914) | |
| | | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | (26,143) | | | (377) | |
| Cash, cash equivalents, and restricted cash, beginning of period | 62,401 | | | 68,884 | |
| Exchange rate effect on cash and cash equivalents, and restricted cash | 37 | | | 80 | |
| Cash, cash equivalents, and restricted cash, end of period | $ | 36,295 | | | $ | 68,587 | |
| | | | | | | | | | | |
| September 30,
2024 | | September 30,
2023 |
| Cash and cash equivalents | $ | 32,885 | | | $ | 63,522 | |
| Restricted cash | 3,410 | | | 5,065 | |
| Total cash, cash equivalents, and restricted cash | $ | 36,295 | | | $ | 68,587 | |
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”). In connection with the Company’s reorganization (the “Reorganization”) completed prior to the completion of its initial public offering (“IPO”), 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 58 airports (as of the date of this filing); TSA PreCheck® Enrollment Provided by CLEAR at 52 airports and 10 Staples locations (as of the date of this filing), which offers consumers increased choice in how and where to sign up for this popular trusted traveler program; CLEAR Mobile at 3 airports (as of the date of this filing), which delivers predictable airport security for travelers by accessing a dedicated lane at airport security, simply by showing a QR code, that is free to CLEAR Plus Members and available to all travelers by purchasing a day pass—valid for 24 hours; CLEAR Verified, our B2B offering, which enables our partners to leverage our digital identity technology and reusable member network to facilitate secure and frictionless experiences digitally and physically via our software development kits and application programming interfaces; and our free flagship CLEAR app, which offers consumer products like Home-to-Gate and includes RESERVE Powered by CLEAR, our virtual queuing technology that enables customers to prebook a spot in airport security line so they don’t have to wait.
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, 2024.
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, 2023 (the “2023 Form 10-K”).
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, 2023, within these condensed consolidated financial statements. There was no material impact as a result. There are no newly issued standards since December 31, 2023 that are applicable to the Company.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
3. Business Combinations
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 was 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 was subject to adjustments for up to one year after the closing date of the acquisition to reflect final valuations. This was finalized in the third quarter of 2024.
The Company also entered into an agreement to provide $4,000 of retention bonuses and $9,000 of post-combination remuneration in cash payments and RSUs upon satisfaction of certain post-closing financial metrics and continuing service requirements.
The retention bonuses of $4,000 consisted of (i) cash payments which were 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. As of September 30, 2024, $813 of the retention bonuses remain unvested. For the post-combination remuneration, the amount of $9,000 consists 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. As of September 30, 2024, $3,000 of the post-combination remuneration remained unvested. The Company has recorded $296 in compensation expense related to the post-combination remuneration for the nine months ended September 30, 2024. The remaining compensation expenses will be recognized within general and administrative expenses.
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, 2024 and 2023, no individual airport accounted for more than 10% of membership revenue.
Revenue by Geography
For the three and nine months ended September 30, 2024 and 2023, 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, 2024.
CLEAR SECURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, except for share and per share data, unless otherwise noted)
| | | | | |
| 2024 |
| Balance as of January 1 | $ | 376,253 | |
| Deferral of revenue | 596,774 | |
| Recognition of deferred revenue | (555,949) | |
Balance as of September 30 | $ | 417,078 | |
The Company has obligations for refunds and other similar items of $3,772 as of September 30, 2024 recorded within accrued liabilities.
During the nine months ended September 30, 2024 and 2023, the Company recognized $350,175 and $257,669, respectively, of revenue which was included in the opening deferred revenue balances.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of September 30, 2024 and December 31, 2023 consist of the following:
| | | | | | | | | | | |
| September 30,
2024 | | December 31,
2023 |
| Prepaid software licenses | $ | 12,334 | | | $ | 10,306 | |
| Coronavirus aid, relief, and economic security act retention credit | — | | | 1,002 | |
| Prepaid insurance costs | 2,891 | | | 1,946 | |
| Other current assets | 9,997 | | | 8,755 | |
| Total | $ | 25,222 | | | $ | 22,009 | |
The Coronavirus Aid, Relief, and Economic Security Act is intended to provide economic relief resulting from the COVID-19 pandemic which includes, but is not limited to, employment related costs. As of March 31, 2024, the Company no longer expects to receive the remainder of the balance in the next twelve months. As such, the Company recorded a reclass of this balance to Other assets. Refer to Note 11 for the reclassed balance. 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.
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 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,
2024 | | December 31,
2023 |
| Due within 1 year | $ | 323,513 | | | $ | 439,155 | |
| Due after 1 year through 2 years | 188,299 | | | 226,042 | |
Total marketable securities | $ | 511,812 | | | $ | 665,197 | |
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 September 30, 2024 and December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2024 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Level |
| Commercial paper | $ | 12,534 | | | $ | 14 | | | $ | — | | | $ | 12,548 | | | 2 | |
| U.S. Treasuries | 182,070 | | | 314 | | | (51) | | | 182,333 | | | 1 | |
| Corporate bonds | 297,144 | | | 1,670 | | | (77) | | | 298,737 | | | 2 | |
| Money market funds measured at NAV (a) | 18,194 | | | — | | | — | | | 18,194 | | | N/A |
| Total marketable securities | $ | 509,942 | | | $ | 1,998 | | | $ | (128) | | | $ | 511,812 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Level |
| Commercial paper | $ | 42,903 | | | $ | 16 | | | $ | (24) | | | $ | 42,895 | | | 2 | |
| U.S. Treasuries | 324,274 | | | 2,896 | | | (257) | | | 326,913 | | | 1 | |
| Corporate bonds | 294,540 | | | 969 | | | (564) | | | 294,945 | | | 2 | |
| Money market funds measured at NAV (a) | 444 | | | — | | | — | | | 444 | | | N/A |
| Total marketable securities | $ | 662,161 | | | $ | 3,881 | | | $ | (845) | | | $ | 665,197 | | | |
(a)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 share and per share data, unless otherwise noted)
Of the total marketable securities held at fair value as of September 30, 2024, $86,168 was in a continuous unrealized loss position for 12 months or longer. The Company had no continuous unrealized loss positions in relation to marketable securities as of September 30, 2024 or December 31, 2023 that were 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.
7. Property and Equipment, net
Property and equipment as of September 30, 2024 and December 31, 2023 consist of the following:
| | | | | | | | | | | | | | | | | |
| Depreciation Period in Years | | September 30,
2024 | | December 31,
2023 |
| Internally developed software | 3 - 5 | | $ | 68,553 | | | $ | 62,306 | |
| Acquired software | 3 | | 6,441 | | | 6,539 | |
| Equipment | 5 | | 36,863 | | | 33,624 | |
| Leasehold improvements | 1 - 15 | | 9,085 | | | 9,113 | |
| Furniture and fixtures | 5 | | 14,100 | | | 12,709 | |
| Construction in progress | | | 9,200 | | | 8,672 | |
| Total property and equipment, cost | | | 144,242 | | | 132,963 | |
| Less: accumulated depreciation | | | (86,482) | | | (70,352) | |
| Total property and equipment, net | | | $ | 57,760 | | | $ | 62,611 | |
Depreciation and amortization expense related to property and equipment for the three months ended September 30, 2024 and 2023 was $5,619 and $4,417, respectively, and $16,347 and $12,933 for the nine months ended September 30, 2024 and 2023, respectively.
During the three and nine months ended September 30, 2024, $1,659 and $5,241 were capitalized in connection with internally developed software inclusive of $205 and $650 of equity-based compensation, respectively. Amortization expense on internally developed software was $3,496 and $2,612 for the three months ended September 30, 2024 and 2023, respectively, and $9,912 and $6,764 for the nine months ended September 30, 2024 and 2023, respectively.
During the three months ended September 30, 2024 and 2023, the Company recognized impairment charges of