Quarterly report pursuant to Section 13 or 15(d)

Basis of Presentation and Summary of Significant Accounting Policies (Policies)

v3.21.2
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Description and Organization
Description and Organization

Clear Secure, Inc. (“the Company”) was incorporated as a Delaware corporation on March 2, 2021 for the purpose of facilitating an initial public offering (“IPO”) and other related transactions in order to carry on the business of Alclear Holdings, LLC and its wholly owned subsidiaries (collectively referred to as ”Alclear”).
The Company (together with its consolidated subsidiaries, ”CLEAR”, “we”, “us”, “our”) is a holding company and its principal asset is the controlling equity interest in Alclear. Alclear was formed as a Delaware limited liability company on January 21, 2010 and operates under the terms of the Amended and Restated Operating Agreement dated June 29, 2021 (the “Operating Agreement”). As the sole managing member of Alclear, the Company will operate and control all of the business and affairs of Alclear, and through Alclear and its subsidiaries, conducts the Company’s business.
The Company operates a secure identity platform operating under the brand name CLEAR in the United States. CLEAR’s current offerings include: CLEAR Plus, a consumer aviation subscription service which enables access to predictable and fast experiences through dedicated entry lanes in airport security checkpoints nationwide, the flagship CLEAR App and CLEAR Pass for U.S. Customs and Border Protection ("CBP") Mobile Passport Control, a free to use mobile app that streamlines entry into the United States.
The Company’s policy is to consolidate entities in which it has a controlling financial interest. The Company consolidates all VOEs and VIEs. Since the Company is the sole managing member of Alclear, it consolidates the financial results of Alclear. Therefore, the Company reports a non-controlling interest based on Alclear Units held by the members of Alclear on the condensed consolidated balance sheets. Income or loss is attributed to the non-controlling interests based on the weighted average common units outstanding during the period and is presented on the condensed consolidated statements of operations and comprehensive income/(loss). Refer to Note 13 for more information.
Intercompany transactions and balances are eliminated upon consolidation.
Recent Accounting Pronouncements
Emerging Growth Company Status
The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies, until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Intangibles Assets
In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The Company adopted this guidance as of January 1, 2021 and in accordance with the new guidance, applied it prospectively to implementation costs incurred after the adoption as allowed by the standard. The adoption did not have a material effect on the Company’s condensed consolidated financial statements.
Simplifying the Accounting for Income Taxes
In December 2019, FASB issued updated guidance simplifying the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to intra-period tax allocations and the methodology for calculating income taxes in an interim period. The guidance also simplifies aspects of the accounting for franchise taxes as well as enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this guidance as of January 1, 2021. The adoption of this accounting pronouncement did not have a material impact on the Company’s condensed consolidated financial statements.
Related Party Guidance for Variable Interest Entities
In October 2018, the FASB issued updated guidance that requires consideration of indirect interest held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The amendments are required to be applied retrospectively with a cumulative-effect adjustment. The Company adopted the new guidance as of January 1, 2021 and its application did not have a material impact to the Company’s condensed consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), and issued subsequent amendments to the initial guidance and transitional guidance between January 2018 and June 2020 within ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20, ASU 2019-01, ASU 2019-10 and ASU 2020-05, which will require lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its consolidated balance sheets for operating leases. This update also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. Public companies were required to adopt ASU 2016-02 for reporting periods after December 15, 2018. In 2020, ASU 2016-02 was amended to extend the adoption date for nonpublic entities and EGCs. Accordingly, the effective date of ASU 2016-02 as amended, is fiscal periods beginning after December 15, 2021, with early adoption permitted beginning December 15, 2018. The Company plans to adopt this guidance as of January 1, 2022 and is currently evaluating the potential impact of adopting this new accounting guidance.
Current Expected Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), to replace the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. Public companies were required to adopt ASU 2016-13 for reporting periods after December 15, 2019. In 2019, ASU 2016-13 was amended to extend the adoption date for nonpublic entities and EGCs. Accordingly, the effective date of ASU 2016-13, as amended, is fiscal periods beginning after December 15, 2022, with early adoption permitted beginning December 15, 2018. The Company plans to adopt this guidance as of January 1, 2023 and is currently evaluating the potential impact of adopting this new accounting guidance.
Basis of Accounting The accompanying condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the final prospectus (the “Prospectus”) dated June 29, 2021 and filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”).
Use of Estimates Preparing financial statements requires management to make estimates and assumptions that affect the amounts that are reported in the financial statements and the accompanying disclosures, including the vesting of share-based and other deferred compensation plan awards. Although these estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future, actual results may differ materially from the estimates. These condensed consolidated financial statements are presented in U.S. Dollars.
Basic and Diluted Earnings (Loss) Per Share
Basic and Diluted Earnings (Loss) Per Share
The Company applies the two-class method for calculating and presenting earnings (loss) per share by presenting earnings (loss) per share for Class A common stock and Class B common stock. In applying the two-class method, the Company allocates undistributed earnings equally on a per share basis between Class A common stock and Class B common stock. According to the Company’s certificate of incorporation, the holders of the Class A common stock and Class B common stock are entitled to participate in earnings equally on a per-share basis, as if all shares of common stock were of a single class. Holders of the Class A common stock and Class B common stock also have equal priority in liquidation and dividend distributions. Shares of Class C common stock and Class D common stock do not participate in earnings of the Company. As a result, the shares of Class C common stock and Class D common stock are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of earnings (loss) per share.
Basic loss per share of Class A common stock and Class B common stock is computed by dividing net loss available to Clear Secure, Inc. by the respective weighted-average number of shares of common stock outstanding during the period. The Company applies the two-class method to calculate earnings per share for Class A and Class B shares. Accordingly, the Class A common stock and Class B common stock share equally in the Company’s net income and losses. Diluted earnings per share of common stock is computed by dividing net income attributable to Clear Secure, Inc., adjusted for the assumed exchange of all potentially dilutive instruments for common stock, by the weighted-average number of shares of common stock outstanding, adjusted to give effect to potentially dilutive securities.
Fair Value Measurements Fair Value Measurements
The Company values its available-for-sale debt securities and certain liabilities based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a fair value hierarchy that prioritizes observable and unobservable inputs is used to measure fair value into three broad levels, which are described below:
Level 1 –    Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 –    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in inactive markets or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data.
Level 3 –     Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs to the extent possible. In addition, the Company considers counterparty credit risk in its assessment of fair value.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Corporate bonds – Valued at the closing price reported on the active market on which the individual securities, all of which have counterparts with high credit ratings, are traded.
Commercial paper – Value is based on yields currently available on comparable securities of issuers with similar credit ratings.
Money market funds – Valued at the net asset value (“NAV”) of units of a collective fund. The NAV is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.
Warrant liabilities – Valued based on significant inputs not observed in the market and, thus, represents a Level 3 measurement. The Company estimated the fair value of the liability using the Black-Scholes option pricing model and the change in fair value was recognized in general and administrative expenses.