Clear Secure, Inc. (NYSE:YOU) Q3 2022 Results Conference Call November 14, 2022 8:00 AM ET Company Participants Caryn Seidman-Becker - Chairman and CEO Ken Cornick - Co-Founder, President and Chief Financial Officer Conference Call Participants Dana Telsey - Tesley Group Paul Chung - JPMorgan Ananda Baruah - Loop Capital Operator Good morning, and welcome to CLEAR Quarter 3 2022 Earnings Conference Call. We have with us here, Ms. Caryn Seidman-Becker, Co-Founder, Chairman and Chief Executive Officer; and Ke ...

PART I - FINANCIAL INFORMATION [Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements present the financial position of Clear Secure, Inc. as of June 30, 2022, and its results of operations and cash flows for the three and six months then ended, reflecting significant revenue growth alongside an operating loss driven by increased operating expenses to support expansion [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, the company's total assets increased to $893.9 million from $812.8 million at year-end 2021, primarily driven by a rise in cash and cash equivalents, while total liabilities also grew to $362.3 million from $273.3 million, largely due to an increase in deferred revenue and accrued liabilities, and total stockholders' equity slightly decreased to $531.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $339,736 | $280,107 | | Total current assets | $702,585 | $653,078 | | Total assets | $893,876 | $812,750 | | **Liabilities & Stockholders' Equity** | | | | Deferred revenue | $225,986 | $188,563 | | Total current liabilities | $331,980 | $264,591 | | Total liabilities | $362,308 | $273,282 | | Total stockholders' equity | $531,568 | $539,468 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2022, revenue grew 86% year-over-year to $102.7 million, while the operating loss narrowed to $(13.1) million from $(37.7) million in the prior year period, and for the six-month period, revenue increased 83% to $193.3 million, and the operating loss improved to $(31.4) million from $(50.8) million, with net loss per share for Q2 2022 at $(0.09), compared to $(0.03) in Q2 2021 Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $102,723 | $55,178 | $193,262 | $105,736 | | Operating loss | $(13,122) | $(37,746) | $(31,353) | $(50,797) | | Net loss | $(12,323) | $(38,099) | $(31,117) | $(51,227) | | Net loss attributable to Clear Secure, Inc. | $(7,155) | $(2,004) | $(17,482) | $(2,004) | | Net loss per share (Class A) | $(0.09) | $(0.03) | $(0.23) | $(0.03) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash provided by operating activities significantly increased to $75.9 million from $3.1 million in the same period of 2021, primarily driven by higher deferred revenue and accrued liabilities, alongside improved net loss, while net cash used in investing activities remained stable at $(15.5) million, and financing activities used $(0.3) million, a sharp contrast to the $64.5 million provided in the prior year period which included proceeds from members' units issuance Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $75,855 | $3,084 | | Net cash used in investing activities | $(15,471) | $(15,458) | | Net cash (used in) provided by financing activities | $(333) | $64,526 | | **Net increase in cash, cash equivalents, and restricted cash** | **$60,051** | **$52,152** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business operations, recent accounting changes including the adoption of ASC 842 for leases, and specifics on its 2021 acquisitions of Whyline, Inc. and Atlas Certified, LLC, with revenue primarily derived from CLEAR Plus subscriptions, and also cover equity structure post-IPO, extensive details on equity-based compensation plans, calculation of EPS, tax structure, and various financial commitments - The company operates a secure identity platform, with primary offerings including CLEAR Plus for aviation, the CLEAR App with Home to Gate and Health Pass, and Reserve powered by CLEAR for virtual queuing[25](index=25&type=chunk) - In December 2021, the company acquired Whyline, Inc. for **$67.5 million** in cash plus contingent consideration, and certain assets of Atlas Certified, LLC for **$9.0 million**[53](index=53&type=chunk)[54](index=54&type=chunk)[61](index=61&type=chunk) - The company adopted ASC 842 (Leases) on January 1, 2022, recognizing **$25.3 million** of right-of-use assets and **$29.1 million** of lease liabilities upon adoption[91](index=91&type=chunk) - Total equity-based compensation expense was **$12.3 million** for Q2 2022 and **$25.3 million** for the first six months of 2022, a significant increase from the prior year[155](index=155&type=chunk)[157](index=157&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the company's performance to strong growth in member enrollments and retention, driven by the rebound in air travel, with Total Bookings for Q2 2022 growing 76% YoY to $122.9 million, reporting an operating loss but achieving positive Adjusted EBITDA of $3.5 million for the quarter, maintaining a strong liquidity position with over $670 million in cash and marketable securities [Key Performance Indicators](index=37&type=section&id=Key%20Performance%20Indicators) The company's key performance indicators showed strong growth, with Total Bookings increasing 76% YoY for the quarter, Total Cumulative Enrollments growing 107% to 13.1 million as of June 30, 2022, Total Cumulative Platform Uses rising 63% to 106.6 million, and Annual CLEAR Plus Net Member Retention improving significantly to 94.3% from 80.6% a year prior Key Performance Indicators | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Bookings (in millions) | $122.9 | $70.0 | 76% | | **As of June 30** | **2022** | **2021** | **% Change** | | Total Cumulative Enrollments (in thousands) | 13,097 | 6,322 | 107% | | Total Cumulative Platform Uses (in thousands) | 106,631 | 65,503 | 63% | | Annual CLEAR Plus Net Member Retention | 94.3% | 80.6% | +13.7 p.p. | [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) The company reported positive Adjusted EBITDA of $3.5 million for Q2 2022, a significant improvement from an Adjusted EBITDA loss of $(18.3) million in Q2 2021, with Adjusted EBITDA for the six-month period at $2.8 million, Free Cash Flow at $41.2 million for the quarter compared to $(3.0) million in the prior-year period, and Adjusted Net Income slightly positive at $0.5 million for the quarter Non-GAAP Financial Measures (in thousands) | Metric | Q2 2022 | Q2 2021 | 6 Months 2022 | 6 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA (Loss) | $3,513 | $(18,282) | $2,795 | $(25,583) | | Adjusted Net Income (Loss) | $492 | $(466) | $(4,506) | $(466) | | Free Cash Flow | $41,242 | $(2,997) | $60,641 | $(11,414) | [Comparison of Results of Operations](index=43&type=section&id=Comparison%20of%20Results%20of%20Operations) For Q2 2022, revenue increased 86% YoY to $102.7 million, driven by growth in CLEAR Plus members, while operating expenses grew at a slower pace, with Cost of Revenue Share Fee up 48%, Cost of Direct Salaries up 60%, and R&D up 31%, and General & Administrative expenses increased by 9%, reflecting higher employee-related costs and credit card fees, but were offset by a significant reduction in non-employee equity-based compensation costs compared to the prior year, leading to a narrowed operating loss of $(13.1) million Operating Results Comparison - Three Months Ended June 30 (in millions) | Account | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $102.7 | $55.2 | $47.5 | 86% | | Cost of revenue share fee | $12.3 | $8.3 | $4.0 | 48% | | Cost of direct salaries and benefits | $25.3 | $15.8 | $9.5 | 60% | | Research and development | $14.3 | $10.9 | $3.4 | 31% | | Sales and marketing | $11.4 | $10.9 | $0.5 | 5% | | General and administrative | $48.2 | $44.3 | $3.9 | 9% | | **Operating loss** | **$(13.1)** | **$(37.7)** | **$24.6** | **(65)%** | [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, the company had a strong liquidity position with $339.7 million in cash and cash equivalents and $333.9 million in marketable securities, with operations financed through equity and operating cash flow, and a $100 million revolving credit facility which remained undrawn, and in May 2022, the Board authorized a $100 million share repurchase program, under which no shares have been repurchased to date - The company holds **$339.7 million** in cash and cash equivalents and **$333.9 million** in marketable securities as of June 30, 2022[287](index=287&type=chunk) - A share repurchase program of up to **$100 million** of Class A Common Stock was authorized in May 2022, with no repurchases made as of the report date[289](index=289&type=chunk) - The company has access to a **$100 million** revolving credit facility, which was undrawn as of June 30, 2022[292](index=292&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are related to interest rates on its cash, cash equivalents, and marketable securities, where a hypothetical 100 basis point change in interest rates would result in an unrealized gain or loss of approximately $1.6 million on its investment portfolio, with no immediate interest rate risk from debt as the revolving credit facility was undrawn, and foreign currency translation risk deemed insignificant - The company's main market risk is interest rate risk on its **$339.7 million** in cash and equivalents and **$333.9 million** in marketable securities[309](index=309&type=chunk)[311](index=311&type=chunk) - A hypothetical **100 basis point (1%)** change in interest rates would impact the fair value of the investment portfolio by approximately **$1.6 million**, which would be recognized in accumulated other comprehensive loss[311](index=311&type=chunk) [Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022, with no material changes in the company's internal control over financial reporting during the quarter - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[313](index=313&type=chunk) - No material changes to the internal control over financial reporting were identified during the quarter[317](index=317&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business but does not believe the outcomes will have a material adverse effect on its financial statements - The company states that the ultimate outcome of current legal proceedings is not expected to have a material adverse effect on its condensed consolidated financial statements[320](index=320&type=chunk) [Risk Factors](index=52&type=page&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K were reported[321](index=321&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter, the company issued **3,146,673 shares** of Class A Common Stock in exchange for Alclear Units from non-controlling interest holders, confirmed the use of its IPO proceeds, which totaled approximately **$445.9 million** after underwriting discounts, for offering expenses and general corporate purposes, consistent with the registration statement, and reiterated its **$100 million** share repurchase authorization, under which no shares were purchased during the period - In Q2 2022, the company issued **3,146,673 shares** of Class A Common Stock as a result of non-controlling interest holders exchanging their Alclear Units[322](index=322&type=chunk) - Net proceeds from the July 2021 IPO were approximately **$445.9 million**, which were used for offering expenses and general corporate purposes, with no material change in the planned use of proceeds[325](index=325&type=chunk) - The company has a **$100 million** share repurchase program authorized, but no shares were repurchased during the period covered by the report[326](index=326&type=chunk)[329](index=329&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including management compensation plans and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include forms of Restricted Stock Unit Agreements, CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and Inline XBRL documents[335](index=335&type=chunk)

Clear Secure, Inc. (NYSE:YOU) Q2 2022 Earnings Conference Call August 15, 2022 8:00 AM ET Company Participants Caryn Seidman-Becker - Chairman & CEO Ken Cornick - President & CFO Conference Call Participants Dana Telsey - Telsey Advisor Group Paul Chung - JPMorgan Michael Turrin - Wells Fargo Securities Brian Essex - Goldman Sachs Ananda Baruah - Loop Capital Markets Operator Good morning and welcome to the Clear Second Quarter 2022 Earnings Conference Call. We have with us here -- with us today, Ms. Caryn ...

C L E A R ° Hello, FILAVIRTUAL Southern California SAN, PSP, ONT Summer Forecast? CLEAR Lanes Ahead Shareholder Letter Q1 2022 Shareholder Letter Q1 2022 First Quarter 2022 Financial Highlights (all figures are for First Quarter 2022 and percentage change is expressed as year-over-year, unless otherwise specified)* Revenue of $90.5 million was up 79.1% while Total Bookings of $107.8 million were up 73.5% Net cash provided by operating activities of $24.9 million; Free Cash Flow of $19.4 million Total Cumula ...

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, and market risk disclosures [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents Clear Secure, Inc.'s unaudited condensed consolidated financial statements and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $854,055 | $812,750 | | Total Liabilities | $321,639 | $273,282 | | Total Stockholders' Equity | $532,416 | $539,468 | | Cash and cash equivalents | $299,134 | $280,107 | | Deferred revenue | $205,795 | $188,563 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, presenting revenue, operating loss, and net loss over specific periods Condensed Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $90,539 | $50,558 | | Operating loss | $(18,231) | $(13,051) | | Net loss | $(18,794) | $(13,128) | | Net loss attributable to Clear Secure, Inc. | $(10,327) | — | | Net loss per share (Basic and Diluted) | $(0.13) | — | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details the company's comprehensive loss, including net loss and other comprehensive income/loss components Condensed Consolidated Statements of Comprehensive Loss | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(18,794) | $(13,128) | | Total other comprehensive loss | $(1,091) | $25 | | Comprehensive loss | $(19,885) | $(13,103) | | Comprehensive loss attributable to Clear Secure, Inc. | $(10,897) | — | [Condensed Consolidated Statements of Changes in Redeemable Capital Units and Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Redeemable%20Capital%20Units%20and%20Stockholders%27%20Equity) This section tracks changes in the company's redeemable capital units and stockholders' equity over time Changes in Stockholders' Equity | Metric | Balance, January 1, 2022 (in thousands) | Balance, March 31, 2022 (in thousands) | | :------------------------------------------ | :----------------------- | :---------------------- | | Total stockholders' equity attributable to Clear Secure, Inc. | $277,613 | $279,638 | | Non-controlling interest | $261,855 | $252,778 | | Total stockholders' equity | $539,468 | $532,416 | | Accumulated deficit | $(36,130) | $(46,457) | | Additional paid-in capital | $313,845 | $326,767 | [Condensed Consolidated Statements of Changes in Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Cash%20Flows) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Changes in Cash Flows | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $24,932 | $(335) | | Net cash used in investing activities | $(5,633) | $(8,910) | | Net cash provided by financing activities | $0 | $68,822 | | Net increase in cash, cash equivalents, and restricted cash | $19,299 | $59,577 | | Cash, cash equivalents, and restricted cash, end of period | $328,375 | $198,659 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Description of Business and Recent Accounting Developments](index=9&type=section&id=1.%20Description%20of%20Business%20and%20Recent%20Accounting%20Developments) This note describes the company's business operations, recent corporate events, and new accounting standard adoptions - Clear Secure, Inc. operates a secure identity platform under the CLEAR brand, offering CLEAR Plus (consumer aviation subscription), the CLEAR App (Home to Gate, Health Pass), and Reserve powered by CLEAR (virtual queuing technology)[24](index=24&type=chunk) - The Company completed an internal reorganization and initial public offering (IPO) on June 29, 2021, and July 2, 2021, respectively, resulting in Clear Secure, Inc. becoming the sole managing member of Alclear Holdings, LLC and receiving approximately **$445,875 thousand** in net IPO proceeds[25](index=25&type=chunk)[33](index=33&type=chunk) - As of January 1, 2022, the Company adopted new accounting standards for Leases (ASU No. 2016-02) and Current Expected Credit Losses (ASU No. 2016-13), with no significant impact from the latter[35](index=35&type=chunk)[36](index=36&type=chunk) [2. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the basis of financial statement preparation and key accounting policies applied - The condensed consolidated financial statements are unaudited, prepared in accordance with SEC regulations and U.S. GAAP, and involve management estimates[41](index=41&type=chunk)[42](index=42&type=chunk) - The Company operates as one operating and reportable segment and presents its financial statements in US Dollars[43](index=43&type=chunk)[44](index=44&type=chunk) - Foreign currency transactions are translated at prevailing exchange rates, with resulting differences recognized in other comprehensive loss[45](index=45&type=chunk)[46](index=46&type=chunk) [3. Business Combinations](index=11&type=section&id=3.%20Business%20Combinations) This note details the company's recent acquisitions and their preliminary accounting treatment - During 2021, the Company completed two acquisitions: Whyline, Inc. (virtual queuing technology) and certain assets of Atlas Certified, LLC (professional license verification), both accounted for as business combinations[49](index=49&type=chunk)[52](index=52&type=chunk)[59](index=59&type=chunk) - For Whyline, Inc., cash consideration was **$67,500 thousand**, with preliminary goodwill of **$54,792 thousand** and acquired intangible assets of **$16,601 thousand**. For Atlas Certified, LLC, purchase consideration was **$9,000 thousand**, with preliminary goodwill of **$5,000 thousand** and acquired intangible assets of **$4,000 thousand**[53](index=53&type=chunk)[60](index=60&type=chunk) - The accounting for both acquisitions is not yet complete, and final valuations of assets and liabilities could materially impact the preliminary purchase price allocation[53](index=53&type=chunk)[60](index=60&type=chunk) [4. Revenue](index=13&type=section&id=4.%20Revenue) This note explains the company's primary revenue sources and deferred revenue balances - Substantially all of the Company's revenue is derived from subscriptions to its consumer aviation service, CLEAR Plus, primarily generated in the United States[61](index=61&type=chunk)[62](index=62&type=chunk) Deferred Revenue Balance | Metric | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :-------------------------- | :------------- | :------------- | | Balance as of January 1 | $188,563 | $101,542 | | Deferral of revenue | $105,824 | $62,057 | | Recognition of deferred revenue | $(88,592) | $(50,529) | | Balance as of March 31 | $205,795 | $113,070 | [5. Prepaid Expenses and Other Current Assets](index=13&type=section&id=5.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This note itemizes the components of prepaid expenses and other current assets Prepaid Expenses and Other Current Assets | Component | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------------ | :------------- | :---------------- | | Prepaid software licenses | $6,799 | $4,347 | | Coronavirus aid, relief, and economic security act retention credit | $2,036 | $2,036 | | Prepaid insurance costs | $1,514 | $2,845 | | Other current assets | $5,411 | $12,912 | | **Total** | **$15,760** | **$22,140** | [6. Fair Value Measurements](index=14&type=section&id=6.%20Fair%20Value%20Measurements) This note describes the company's fair value measurement hierarchy and valuation of financial instruments - The Company uses a fair value hierarchy (Level 1, 2, and 3) to measure assets and liabilities, prioritizing observable inputs[67](index=67&type=chunk)[73](index=73&type=chunk) Fair Value of Marketable Securities as of March 31, 2022 | Type | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :---------------- | :------ | :------ | :------ | :------ | | Commercial paper | $— | $117,501 | $— | $117,501 | | U.S. Treasuries | $89,952 | $— | $— | $89,952 | | Corporate bonds | $— | $124,092 | $— | $124,092 | | Money market funds (at NAV) | — | — | — | $2,808 | | **Total assets at fair value** | **$89,952** | **$241,593** | **$—** | **$334,353** | Fair Value of Liabilities as of March 31, 2022 | Type | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :---------------------- | :------ | :------ | :------ | :------ | | Contingent consideration | $— | $— | $(100) | $(100) | - The Company had no outstanding warrant liabilities as of March 31, 2022, and no fair value adjustments were recorded for contingent consideration during the three months ended March 31, 2022[79](index=79&type=chunk)[82](index=82&type=chunk) [7. Property and Equipment, net](index=16&type=section&id=7.%20Property%20and%20Equipment,%20net) This note provides a breakdown of the company's property and equipment, net of accumulated depreciation Property and Equipment, net | Component | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Internally developed software | $44,338 | $40,788 | | Equipment | $26,715 | $26,322 | | Leasehold improvements | $7,706 | $7,671 | | Construction in progress | $3,340 | $2,239 | | Total property and equipment, net | $46,123 | $44,522 | | Accumulated depreciation | $(44,664) | $(41,175) | - Depreciation and amortization expense related to property and equipment was **$3,489 thousand** for the three months ended March 31, 2022, up from **$2,534 thousand** in the prior year[83](index=83&type=chunk) - The Company recognized impairment charges of **$313 thousand** on certain long-lived assets during the three months ended March 31, 2022[86](index=86&type=chunk) [8. Leases](index=17&type=section&id=8.%20Leases) This note details the company's lease accounting, including right-of-use assets and lease liabilities - The Company adopted ASC 842, Leases, on January 1, 2022, recognizing **$25,346 thousand** of right-of-use (ROU) assets and **$29,139 thousand** of lease liabilities[88](index=88&type=chunk) Operating Lease Liabilities as of March 31, 2022 | Year | Amount (in thousands) | | :--------- | :----- | | 2022 | $3,453 | | 2023 | $3,729 | | 2024 | $4,402 | | 2025 | $4,478 | | 2026 | $4,478 | | Thereafter | $12,868 | | **Total future operating lease payments** | **$33,408** | | Less: imputed interest | $(5,115) | | **Total lease liabilities** | **$28,293** | - A new operating lease for corporate headquarters, expected to commence in 2022, has aggregate undiscounted future minimum lease payments of approximately **$177,400 thousand** over fifteen years[94](index=94&type=chunk) [9. Intangible Assets, net and Goodwill](index=18&type=section&id=9.%20Intangible%20Assets,%20net%20and%20Goodwill) This note presents the company's intangible assets, net, and goodwill balances Intangible Assets, net and Goodwill | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Intangible assets, net | $24,238 | $22,933 | | Goodwill | $58,381 | $59,792 | Acquired Intangibles, net as of March 31, 2022 | Component | Amount (in thousands) | | :------------------ | :----- | | Technology | $4,300 | | Customer relationships | $17,900 | | Brand names | $500 | | **Total acquired intangibles** | **$21,831** | - Amortization expense of intangible assets was **$895 thousand** for the three months ended March 31, 2022, a significant increase from **$4 thousand** in the prior year[99](index=99&type=chunk) [10. Restricted Cash](index=19&type=section&id=10.%20Restricted%20Cash) This note explains the nature and amount of the company's restricted cash balances - As of March 31, 2022, the Company held **$29,241 thousand** in restricted cash[100](index=100&type=chunk) - This includes **$13,241 thousand** pledged as collateral for long-term letters of credit for airport revenue share agreements and **$16,000 thousand** as a reserve against potential future credit card refunds and chargebacks[100](index=100&type=chunk)[101](index=101&type=chunk) [11. Other Assets](index=19&type=section&id=11.%20Other%20Assets) This note lists the components of the company's other long-term assets Other Assets | Component | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------ | :------------- | :---------------- | | Security deposits | $247 | $242 | | Loan fees | $232 | $376 | | Certificates of deposit | $459 | $459 | | Other long-term assets | $2,164 | $2,329 | | **Total** | **$3,102** | **$3,406** | [12. Accrued Liabilities and Other Long Term Liabilities](index=19&type=section&id=12.%20Accrued%20Liabilities%20and%20Other%20Long%20Term%20Liabilities) This note details the company's accrued liabilities and other long-term obligations Accrued Liabilities | Component | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Accrued compensation and benefits | $10,472 | $18,133 | | Accrued partnership liabilities | $50,208 | $33,442 | | Lease liability | $3,338 | $— | | Other accrued liabilities | $13,891 | $15,645 | | **Total** | **$77,909** | **$67,220** | Other Long Term Liabilities | Component | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Deferred tax liability | $4,687 | $3,792 | | Lease liability | $24,955 | $— | | Other accrued liabilities | $1,592 | $4,899 | | **Total** | **$31,234** | **$8,691** | [13. Warrants](index=20&type=section&id=13.%20Warrants) This note describes the company's outstanding warrants and related expense recognition - As of March 31, 2022, **4,466,571** equity awards exercisable for Class A Common Stock and **968,043** equity awards exercisable for Alclear Units remained outstanding[116](index=116&type=chunk) - Unrecognized warrant expense was estimated at **$322 thousand** as of March 31, 2022, based on the likelihood of achieving performance-based vesting criteria[117](index=117&type=chunk) Warrant Expense | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :----------- | :-------------------------------- | :-------------------------------- | | Liability awards | $— | $1,893 | | Equity awards | $70 | $281 | | **Total** | **$70** | **$2,174** | [14. Redeemable Capital Units](index=21&type=section&id=14.%20Redeemable%20Capital%20Units) This note explains the classification and changes in the company's redeemable capital units - Prior to the Reorganization, Alclear's Class A and Class B redeemable capital units were classified as temporary equity due to redemption features[119](index=119&type=chunk) - Upon the Reorganization, these units were converted to Alclear Units, which were subsequently exchanged for Class A or Class B Common Stock[124](index=124&type=chunk) - During the three months ended March 31, 2021, Alclear issued **277,813** Class B units for **$80,566 thousand** in gross proceeds and repurchased **11,869** Class B units for **$3,442 thousand**[123](index=123&type=chunk) [15. Stockholders' Equity](index=22&type=section&id=15.%20Stockholders%27%20Equity) This note details the components of stockholders' equity and non-controlling interest changes - Post-Reorganization, the Company issued **59,240,306** shares of Class A Common Stock, **1,042,234** shares of Class B Common Stock, **44,598,167** shares of Class C Common Stock, and **26,709,821** shares of Class D Common Stock[129](index=129&type=chunk) - The non-controlling interest ownership percentage in Alclear decreased from **48.33%** as of December 31, 2021, to **47.19%** as of March 31, 2022, primarily due to the issuance of Class A Common Stock from warrant exercises and unit exchanges[136](index=136&type=chunk) - During Q1 2022, non-controlling interest holders exchanged Alclear Units for **1,025,318** shares of Class A Common Stock and **4,506** shares of Class B Common Stock[135](index=135&type=chunk) [16. Incentive Plans](index=23&type=section&id=16.%20Incentive%20Plans) This note outlines the company's equity incentive plans and associated compensation expense - The 2021 Omnibus Incentive Plan authorized the issuance of up to **20,000,000** shares of Class A Common Stock, with annual increases up to **5%** of total common shares outstanding[138](index=138&type=chunk) - Alclear's profit units and RSUs were substituted with RSAs and RSUs under the 2021 Omnibus Incentive Plan, retaining their original terms and fair value[141](index=141&type=chunk)[143](index=143&type=chunk)[145](index=145&type=chunk) Total Compensation Expense from Incentive Plans | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :-------------------- | :-------------------------------- | :-------------------------------- | | RSAs | $110 | $327 | | RSUs | $6,464 | $— | | Founder PSUs | $6,485 | $— | | **Total** | **$13,059** | **$327** | [17. Earnings (Loss) per Share](index=27&type=section&id=17.%20Earnings%20%28Loss%29%20per%20Share) This note presents the calculation of basic and diluted earnings (loss) per share - Basic and diluted net loss per share for Class A and Class B Common Stock was **$(0.13)** for the three months ended March 31, 2022[161](index=161&type=chunk) - Due to the net loss, potential dilutive shares, including exchangeable Alclear Units, dilutive RSAs, and RSUs, totaling **47,842,614** Class A equivalent shares and **26,705,315** Class B equivalent shares, were excluded from the diluted EPS calculation as they were anti-dilutive[163](index=163&type=chunk)[164](index=164&type=chunk) [18. Income Taxes](index=28&type=section&id=18.%20Income%20Taxes) This note explains the company's income tax provision and related tax positions - Post-IPO, Clear Secure, Inc. is subject to U.S. federal, state, and local income taxes on its allocable share of Alclear's taxable income, while Alclear is treated as a pass-through entity[165](index=165&type=chunk) - Income tax expense increased to **$302 thousand** for Q1 2022 (effective tax rate of **-1.63%**) from **$6 thousand** for Q1 2021, primarily due to Alclear's partnership allocation, valuation allowance movements, and state/foreign taxes[166](index=166&type=chunk) - The Company has not recognized a Tax Receivable Agreement (TRA) liability as of March 31, 2022, because it is not probable that TRA payments would be made based on the Company's historical loss position[173](index=173&type=chunk) [19. Commitments and Contingencies](index=29&type=section&id=19.%20Commitments%20and%20Contingencies) This note discloses the company's various contractual commitments and potential contingencies - The Company has minimum spend commitments of **$13,191 thousand** over the next two years under service arrangements[175](index=175&type=chunk) - Future marketing expenditures to sports stadiums total **$3,054 thousand** through 2026[175](index=175&type=chunk) Future Minimum Payments for Airport Revenue Share Agreements as of March 31, 2022 | Year | Amount (in thousands) | | :--------- | :----- | | 2022 | $13,036 | | 2023 | $14,742 | | 2024 | $8,150 | | 2025 | $3,408 | | 2026 | $457 | | Thereafter | $— | | **Total** | **$39,793** | [20. Related-Party Transactions](index=29&type=section&id=20.%20Related-Party%20Transactions) This note details transactions and balances with related parties - Total payables to certain related parties were **$2,828 thousand** as of March 31, 2022, an increase from **$1,180 thousand** as of December 31, 2021[177](index=177&type=chunk) - Cost of revenue share fee incurred with related parties was **$2,054 thousand** for Q1 2022, up from **$1,694 thousand** for Q1 2021[177](index=177&type=chunk) [21. Employee Benefit Plan](index=30&type=section&id=21.%20Employee%20Benefit%20Plan) This note describes the company's employee benefit plan and associated expenses - The Company recorded an expense of **$745 thousand** for its 401(k) retirement plan for the three months ended March 31, 2022, an increase from **$405 thousand** in the prior year[180](index=180&type=chunk) [22. Debt](index=30&type=section&id=22.%20Debt) This note provides information on the company's debt facilities and compliance with covenants - The Company has a **$100,000 thousand** revolving credit facility, increased in April 2021, which remains undrawn as of March 31, 2022[181](index=181&type=chunk) - As of March 31, 2022, the Company was in compliance with all financial and non-financial covenants of the Credit Agreement[183](index=183&type=chunk) [23. Subsequent Events](index=30&type=section&id=23.%20Subsequent%20Events) This note discloses significant events occurring after the balance sheet date - Subsequent to March 31, 2022, non-controlling interest holders exchanged Alclear Units for **50,000** shares of the Company's Class A Common Stock[184](index=184&type=chunk) - On May 13, 2022, the Board authorized a share repurchase program for up to **$100,000 thousand** of Class A Common Stock, with no expiration date[185](index=185&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, results of operations, and cash flows, highlighting revenue growth, operating expenses, and key performance indicators [Overview](index=31&type=section&id=Overview) This section provides an overview of Clear Secure, Inc.'s business model and core offerings - Clear Secure, Inc. operates a member-centric secure identity platform under the CLEAR brand, utilizing biometrics to provide frictionless experiences[191](index=191&type=chunk) - Current offerings include CLEAR Plus (consumer aviation subscription), the flagship CLEAR App (Home to Gate, Health Pass), and Reserve powered by CLEAR (virtual queuing technology)[191](index=191&type=chunk) - The platform also offers SDK and API capabilities for partners to integrate identity validation, verification, attribute validation, and payment services[191](index=191&type=chunk) [Key Factors Affecting Performance](index=31&type=section&id=Key%20Factors%20Affecting%20Performance) This section identifies the primary drivers influencing the company's financial performance and growth - Financial growth is dependent on the ability to grow Total Cumulative Enrollments (new members, free trial conversions) and retain existing CLEAR Plus members through consistent, frictionless experiences and expanded use cases[193](index=193&type=chunk)[197](index=197&type=chunk) - Success relies on adding new partners (airports, airlines, businesses), retaining existing ones, and generating new revenue streams through per partner, per member, or per use transaction fees[198](index=198&type=chunk) - The business model is characterized by efficient member acquisition and high retention rates, with approximately **18 times** Lifetime Value relative to Customer Acquisition Cost for 2021 CLEAR Plus members[201](index=201&type=chunk) - Financial performance is also influenced by the timing of new partner/product/location launches, discretionary investments, and macroeconomic events such as decreased travel or changes in consumer spending[199](index=199&type=chunk)[200](index=200&type=chunk)[203](index=203&type=chunk) [Impact of Coronavirus (COVID-19) Pandemic](index=33&type=section&id=Impact%20of%20Coronavirus%20%28COVID-19%29%20Pandemic) This section discusses the pandemic's effects on operating expenses and revenue recognition - As the COVID-19 pandemic subsides and demand for services increases, the Company expects a significant rise in operating expenses (direct salaries, sales & marketing, R&D, G&A) compared to prior periods[204](index=204&type=chunk) - Reported revenues are expected to lag behind Total Bookings due to the 12-month subscription revenue recognition policy[204](index=204&type=chunk) - The Company may incur net losses and negative adjusted EBITDA in the long term if increased expenses to support growth are not offset by revenue[204](index=204&type=chunk) [The Reorganization Transactions](index=33&type=section&id=The%20Reorganization%20Transactions) This section explains the company's pre-IPO reorganization and its accounting implications - Prior to its IPO, Clear Secure, Inc. underwent reorganization transactions to become a holding company with a controlling equity interest in Alclear Holdings, LLC[205](index=205&type=chunk) - These transactions were accounted for as a reorganization of entities under common control, leading to the consolidation of Alclear's assets and liabilities at historical carrying amounts[206](index=206&type=chunk) - A non-controlling interest is recorded on the consolidated financial statements, representing the Alclear non-voting common units held by Founders and pre-IPO members[206](index=206&type=chunk) [Taxation and Expenses](index=33&type=section&id=Taxation%20and%20Expenses) This section outlines the company's tax structure and expected increases in compensation and public company expenses - Post-IPO, the Company is subject to U.S. federal, state, and local income taxes on its allocable share of Alclear's taxable income, as Alclear is treated as a flow-through entity[207](index=207&type=chunk) - The Company expects to incur increased compensation expenses, particularly related to equity awards, and additional public company-related expenses (e.g., insurance, director fees, auditing, legal, administrative personnel)[209](index=209&type=chunk)[210](index=210&type=chunk) - Significant payments are also expected under the Tax Receivable Agreement (TRA)[208](index=208&type=chunk) [Tax Receivable Agreement](index=34&type=section&id=Tax%20Receivable%20Agreement) This section details the obligations and conditions of the Tax Receivable Agreement - The Tax Receivable Agreement (TRA) obligates the Company to pay Alclear Members **85%** of the net cash savings in U.S. federal, state, and local income tax realized from increases in tax basis and imputed interest[211](index=211&type=chunk) - The actual amount and timing of TRA payments depend on factors such as the timing of unit exchanges, Class A Common Stock price, taxability of exchanges, future taxable income, and applicable tax rates[212](index=212&type=chunk) - As of March 31, 2022, the Company did not record a TRA liability because it was not probable that payments would be made, given the Company's historical loss position[212](index=212&type=chunk) [Acquisitions](index=34&type=section&id=Acquisitions) This section summarizes recent strategic acquisitions and their financial impact - During 2021, the Company strategically acquired Whyline, Inc. (virtual queuing technology) and certain assets of Atlas Certified, LLC (automated professional license verification)[213](index=213&type=chunk) - Revenues and operating loss related to these acquisitions were insignificant to the condensed consolidated financial statements for the periods presented[213](index=213&type=chunk) [Key Performance Indicators](index=34&type=section&id=Key%20Performance%20Indicators) This section presents key metrics used to evaluate the company's operational and financial progress Key Performance Indicators (YoY Change) | Metric | March 31, 2022 | March 31, 2021 | Change | % Change | | :----------------------------- | :------------- | :------------- | :----- | :------- | | Total Bookings (in millions) | $107.8 | $62.1 | $45.7 | 74% | | Total Cumulative Enrollments (in thousands) | 11,819 | 5,562 | 6,257 | 112% | | Total Cumulative Platform Uses (in thousands) | 95,283 | 60,792 | 34,491 | 57% | | Annual CLEAR Plus Net Member Retention | 95.3% | 77.2% | 18.1% | — | - The increase in Total Bookings was primarily driven by the continued rebound in air travel and the launch of a new credit card partnership[216](index=216&type=chunk) - Annual CLEAR Plus Net Member Retention saw a significant year-over-year increase of **1,810 basis points**, driven by strong gross renewals and winbacks[223](index=223&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles non-GAAP financial measures to their most directly comparable GAAP counterparts Reconciliation of Net Loss to Adjusted EBITDA (Loss) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(18,794) | $(13,128) | | Income taxes | $302 | $6 | | Interest (income) expense, net | $(7) | $71 | | Other (income) expense, net | $268 | $— | | Depreciation and amortization | $4,384 | $2,538 | | Equity-based compensation expense | $13,129 | $1,319 | | Warrant liabilities | $— | $1,893 | | **Adjusted EBITDA (Loss)** | **$(718)** | **$(7,301)** | Reconciliation of Net Loss to Adjusted Net Income (Loss) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to Clear Secure, Inc. | $(10,327) | $— | | Reallocation of net loss attributable to non-controlling interests | $(8,467) | $— | | Net loss per above | $(18,794) | $(13,128) | | Equity-based compensation expense | $13,129 | $608 | | Amortization of acquired intangibles | $869 | $— | | Income tax (expense) benefit | $(203) | $— | | **Adjusted Net Loss** | **$(4,999)** | **$(12,520)** | Reconciliation of Net cash provided by (used in) operating activities to Free Cash Flow | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $24,932 | $(335) | | Purchases of property and equipment | $(5,533) | $(8,794) | | Share repurchases over fair value | $— | $712 | | **Free Cash Flow** | **$19,399** | **$(8,417)** | - Adjusted Net Loss Per Common Share, Basic was **$(0.03)** for the three months ended March 31, 2022[236](index=236&type=chunk) [Components of Results of Operations](index=38&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the various revenue and expense categories contributing to operating results - Revenue is primarily derived from CLEAR Plus subscriptions, with minor contributions from sports stadiums and Health Pass[238](index=238&type=chunk)[239](index=239&type=chunk) - Operating expenses include cost of revenue share fees (prepaid and amortized), cost of direct salaries and benefits (field ambassadors), research and development, sales and marketing, general and administrative (including warrant expense and credit card fees), and depreciation and amortization[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - Non-operating items consist of interest income/expense (from investments and credit facility) and other income/expense (non-recurring items, asset impairment)[247](index=247&type=chunk)[248](index=248&type=chunk) - Income tax provision reflects Clear Secure, Inc.'s allocable share of Alclear's taxable income, as Alclear is a pass-through entity[249](index=249&type=chunk) [Comparison of the three months ended March 31, 2022 and 2021](index=40&type=section&id=Comparison%20of%20the%20three%20months%20ended%20March%2031,%202022%20and%202021) This section compares the company's financial performance for the three-month periods ended March 31, 2022 and 2021 Consolidated Results of Operations | Metric | March 31, 2022 (in millions) | March 31, 2021 (in millions) | $ Change (in millions) | % Change | | :-------------------------------- | :------------- | :------------- | :------- | :------- | | Revenue | $90.5 | $50.6 | $39.9 | 79% | | Cost of revenue share fee | $12.1 | $7.8 | $4.3 | 55% | | Cost of direct salaries and benefits | $23.0 | $12.1 | $10.9 | 90% | | Research and development | $15.5 | $9.0 | $6.5 | 72% | | Sales and marketing | $7.8 | $5.0 | $2.8 | 56% | | General and administrative | $45.9 | $27.2 | $18.7 | 69% | | Depreciation and amortization | $4.4 | $2.5 | $1.9 | 76% | | Operating loss | $(18.2) | $(13.0) | $(5.2) | 40% | | Net income (loss) | $(18.8) | $(13.1) | $(5.7) | 44% | | Income tax expense | $(0.3) | $— | $(0.3) | N/A | - Revenue increased by **79%** due to a **73%** increase in average CLEAR Plus members and an **1,810 bps** increase in Annual CLEAR Plus Net Member Retention[252](index=252&type=chunk) - Operating expenses significantly increased across all categories, driven by higher fixed airport fees, increased staffing needs due to travel volumes, employee-related expenses (including equity-based compensation), and public company expenses post-IPO[253](index=253&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its short-term and long-term financial obligations - As of March 31, 2022, the Company had **$299.1 million** in cash and cash equivalents and **$334.4 million** in marketable securities[265](index=265&type=chunk) - The Company believes its existing cash, marketable securities, cash from operations, and a **$100 million** revolving credit facility (undrawn) will be sufficient to meet working capital and capital expenditure needs for at least the next 12 months[266](index=266&type=chunk)[269](index=269&type=chunk) - Planned capital expenditures include approximately **$16.5 million** for new office space build-out in the next 12 to 24 months[266](index=266&type=chunk) [Cash Flow](index=43&type=section&id=Cash%20Flow) This section analyzes the company's cash generation and usage across operating, investing, and financing activities Summary of Cash Flows | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | $ Change (in millions) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------- | | Net cash provided by (used in) operating activities | $24.9 | $(0.3) | $25.2 | | Net cash used in investing activities | $(5.6) | $(8.9) | $3.3 | | Net cash provided by (used in) financing activities | $— | $68.8 | $(68.8) | | Net increase in cash, cash equivalents, and restricted cash | $19.3 | $59.6 | $(40.3) | - The increase in net cash from operating activities was driven by favorable changes in working capital and non-cash adjustments to net loss[273](index=273&type=chunk) - The decrease in net cash from financing activities was primarily due to a reduction in proceeds from the issuance of members' units compared to the prior year[275](index=275&type=chunk) [Commitments and Contingencies](index=43&type=section&id=Commitments%20and%20Contingencies) This section details the company's contractual obligations and potential liabilities - As of March 31, 2022, the Company had **$33.4 million** in future minimum payments for non-cancelable operating lease arrangements, including a new corporate headquarters lease with approximately **$177.5 million** in undiscounted future minimum lease payments[278](index=278&type=chunk)[279](index=279&type=chunk) - Future minimum payments under airport agreements totaled **$39.8 million** as of March 31, 2022[280](index=280&type=chunk) - Other commitments include **$3.1 million** for future marketing expenditures to sports stadiums and **$13.2 million** in minimum spend commitments under service arrangements[281](index=281&type=chunk) [Off Balance Sheet Arrangements](index=44&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements - The Company has no off-balance sheet arrangements[282](index=282&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights accounting policies requiring significant management judgment and estimation - Critical accounting policies and estimates include those related to the Tax Receivable Agreement (TRA) and Business Combinations, which require significant management judgment[283](index=283&type=chunk)[284](index=284&type=chunk)[285](index=285&type=chunk) - For the TRA, the Company has not recorded a liability as of March 31, 2022, as it is not probable that payments would be made based on historical loss positions[284](index=284&type=chunk) - Business combinations involve significant estimates for fair value of identifiable assets and liabilities, subject to adjustments for up to one year after acquisition[285](index=285&type=chunk) [Recent Accounting Pronouncements](index=44&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to disclosures on recently issued accounting standards - Refer to Note 2, 'Summary of Significant Accounting Policies,' within the condensed consolidated financial statements for details on recently issued accounting pronouncements and their expected impact[286](index=286&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, including interest rate and foreign currency translation risks [Interest Rate Risk](index=45&type=section&id=Interest%20Rate%20Risk) This section assesses the impact of interest rate fluctuations on the company's financial instruments - The fair value of the Company's cash and cash equivalents (**$299.1 million** as of March 31, 2022) would not be significantly affected by a **10%** increase or decrease in interest rates due to their short-term nature[289](index=289&type=chunk) [Debt](index=45&type=section&id=Debt) This section discusses the company's debt structure and its exposure to variable interest rates - Interest payable on the Company's revolving credit facility is variable, but there were no outstanding borrowings under the facility as of December 31, 2021 (and implicitly March 31, 2022)[290](index=290&type=chunk) [Investments](index=45&type=section&id=Investments) This section describes the company's investment portfolio and its sensitivity to interest rate changes - As of March 31, 2022, marketable securities totaled **$334.4 million**, primarily invested in money market funds, commercial paper, corporate notes and bonds, and government securities for capital preservation[291](index=291&type=chunk) - A hypothetical **100 basis points** increase or decrease in overall interest rates would result in an unrealized loss or gain of approximately **$1.4 million** to the fair value of 'available for sale' investments[291](index=291&type=chunk) [Foreign Currency Translation Risk](index=45&type=section&id=Foreign%20Currency%20Translation%20Risk) This section evaluates the company's exposure to risks arising from foreign currency exchange rate movements - Foreign currency translation risk was insignificant for the three months ended March 31, 2021, as the majority of the Company's business transactions are in U.S. dollars[292](index=292&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) This section evaluates the effectiveness of disclosure controls and procedures, noting inherent limitations and the absence of a management report on internal control [Evaluation of Disclosure Controls and Procedures](index=45&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section presents management's conclusion on the effectiveness of disclosure controls and procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022, providing reasonable assurance for timely and accurate financial reporting[293](index=293&type=chunk) - The report acknowledges that control systems provide reasonable, not absolute, assurance and can be subject to errors, fraud, collusion, or management override[295](index=295&type=chunk)[296](index=296&type=chunk) [Management's Report on Internal Control over Financial Reporting](index=46&type=section&id=Management%27s%20Report%20on%20Internal%20Control%20over%20Financial%20Reporting) This section explains the absence of a management report on internal control over financial reporting - This Form 10-Q does not include a management's assessment or an attestation report on internal control over financial reporting due to a transition period established by SEC rules for newly public companies[297](index=297&type=chunk) [Changes in Internal Control](index=46&type=section&id=Changes%20in%20Internal%20Control) This section reports on any material changes in internal control over financial reporting - No changes in internal control over financial reporting were identified during the period that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[298](index=298&type=chunk) PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This section details the company's involvement in legal proceedings and their anticipated financial impact - The Company is subject to commercial litigation claims and administrative/regulatory proceedings in the ordinary course of business[301](index=301&type=chunk) - Management believes that the ultimate outcome of these legal matters will not have a material adverse effect on the condensed consolidated financial statements[301](index=301&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the comprehensive risk factors disclosed in the Annual Report on Form 10-K - Readers are directed to the 'Risk Factors' section in the Annual Report on Form 10-K for a comprehensive discussion of risks materially affecting the business[302](index=302&type=chunk) - There have been no material changes from the risk factors previously disclosed[302](index=302&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on unregistered equity sales and the application of IPO proceeds [Unregistered Sales of Equity Securities](index=47&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) This section details the exchange of Alclear Units for Class A and Class B Common Stock - During the three months ended March 31, 2022, non-controlling interest holders exchanged Alclear Units for **1,025,318** shares of Class A Common Stock and **4,506** shares of Class B Common Stock (which were subsequently converted to Class A)[303](index=303&type=chunk) [Use of IPO Proceeds](index=47&type=section&id=Use%20of%20IPO%20Proceeds) This section outlines the net proceeds from the IPO and their allocation - The Company closed its IPO on July 2, 2021, issuing **15,180,000** shares of Class A common stock at **$31.00** per share[304](index=304&type=chunk)[306](index=306&type=chunk) - Net offering proceeds, after deducting underwriting discounts and commissions, were approximately **$445.9 million**[306](index=306&type=chunk) - These proceeds were contributed to Alclear, which used them to pay approximately **$9.0 million** in offering expenses and for general corporate purposes, with no material change from the planned use[306](index=306&type=chunk) [Issuer Purchases of Equity Securities](index=47&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) This section reports on any share repurchase programs or issuer purchases of equity securities - As of March 31, 2022, the Company did not have a share repurchase program, and no shares were repurchased during that period[307](index=307&type=chunk) - Forfeited unvested restricted stock awards are classified as treasury stock within the condensed consolidated balance sheets[307](index=307&type=chunk) [Item 3. Defaults Upon Senior Securities](index=47&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms no defaults on senior securities - There are no defaults upon senior securities[309](index=309&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the Company[309](index=309&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) This section confirms no additional information to report - No other information is reported under this item[309](index=309&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the quarterly report on Form 10-Q - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2)[312](index=312&type=chunk) - The filing also includes Inline XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[312](index=312&type=chunk) - A Cover Page Interactive Data File (formatted as inline XBRL) is also included as Exhibit 104[312](index=312&type=chunk) [Signatures](index=50&type=section&id=Signatures) This section provides the official signatures for the report, including names and titles - The report was signed on May 16, 2022[314](index=314&type=chunk)[315](index=315&type=chunk) - Signatories include Caryn Seidman-Becker, Chief Executive Officer, and Kenneth Cornick, President and Chief Financial Officer[315](index=315&type=chunk)

Financial Data and Key Metrics Changes - Revenue increased by 79% and bookings rose by 74% in Q1 2022 compared to the previous year, driven by growth in Clear Plus and new platform deals [9][10] - Free cash flow generated in the quarter was approximately $20 million, marking the expectation of the fifth consecutive year of free cash flow generation [9][10] - Adjusted EBITDA was roughly breakeven, with expectations of moderating year-over-year expense growth in 2022 [10][11] Business Line Data and Key Metrics Changes - Clear Plus member base has more than doubled compared to 2019, with in-airport enrollments growing by over 300% versus Q1 2019 [4][9] - Net member retention was reported at 95.3%, exceeding long-term expectations, with gross retention in the low to mid-80s [11][12] - A planned price increase for Clear Plus subscription was announced, raising the price for new members by $10 to $189, while existing members will be grandfathered at $179 [12][14] Market Data and Key Metrics Changes - The company has opened new Clear Plus lanes at three California airports, bringing the total to over 120 lanes in 43 airports across the U.S. [5][14] - The Reserve powered by Clear product is seeing record usage for booking TSA screening time slots in various cities [6][14] Company Strategy and Development Direction - The company is focused on expanding its network and launching new products, with a strong emphasis on partnerships and platform growth [5][7] - Clear is exploring opportunities in various verticals, including healthcare and digital trust, indicating a broad-based growth strategy [22][23] - The company announced a $100 million share repurchase program to enhance long-term returns [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the resurgence in travel demand as pandemic restrictions ease, with expectations of continued growth in the travel industry [3][4] - The company is well-positioned for growth with ample liquidity and a strong cash balance of $663 million as of March 31 [14] - Management anticipates launching TSA PreCheck enrollment in the coming months, indicating a positive outlook for future growth [29][30] Other Important Information - The company is seeing strong same-store growth, although specific metrics were not disclosed for the full base [34] - Integration of recent acquisitions, including Atlas and Whyline, is progressing well, with expectations for accelerated growth [35][36] Q&A Session Summary Question: Health Pass member conversion to Clear Plus - Management noted organic upgrades from the platform to Clear Plus, indicating higher brand awareness and interest [18] Question: Airport count and lane expansion - Management confirmed growth opportunities in both new and existing airport partnerships, with a focus on the Americas and Western Europe for international expansion [24] Question: TSA PreCheck launch progress - Management reported good progress and motivation among partners to bring the PreCheck enrollment program to the public [29] Question: Impact of price increases on partners - Management clarified that while price increases are not expected to impact existing members this year, future increases could lead to higher dollar retention [39][42] Question: Membership conversion impact on revenue - Management indicated that while the impact from platform experiences is currently small, it is expected to grow as the platform develops [44] Question: Dynamics driving same-store sales growth - Management attributed strong growth to a combination of factors, including brand trust, network power, and improved technology [48][49]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ 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) (State or other jurisdiction of incorporation or orga ...

C L E A R ° YOUR ORDER CLEAR $15.00 $5.00 $32.00 $3.00 $35.00 PY NEE AG Hello, Columbus HELLO, PALM BEACH Shareholder Letter Q4 2021 Shareholder Letter Q4 2021 Fourth Quarter 2021 Financial Highlights (all figures are for Fourth Quarter 2021 and percentage change is expressed as year over year, unless otherwise specified)* Revenue of $80.7 million was up 52% while Total Bookings of $109.6 million were up 99% Net cash provided by operating activities $31.7 million; Free Cash Flow $25.6 million; Adjusted EBIT ...

Financial Data and Key Metrics Changes - The company generated significant free cash flow of $26 million in Q4 and $42 million for the full year, marking the fourth consecutive year of positive free cash flow [10][13] - GAAP metrics were noted to lag behind the underlying strength of the business, with positive free cash flow exceeding negative adjusted EBITDA [9][10] - Cash and equivalents balance at year-end was $644 million, reflecting strong cash generation despite acquisitions [13] Business Line Data and Key Metrics Changes - The CLEAR Plus business saw a strong finish to the year, with record enrollment and usage numbers during the holiday travel season [4][9] - Direct salaries grew 140% in Q4 compared to a depressed 2020, but significant operating leverage was realized when compared to pre-COVID levels [11] Market Data and Key Metrics Changes - The World Travel and Tourism Council projects the travel sector will outpace pre-pandemic levels in 2022, increasing by more than 6% since 2019 [4] - The 33 airports open for the entire fourth quarter of 2019 experienced over 50% growth in same-store bookings in Q4 2021 compared to Q4 2019 [11] Company Strategy and Development Direction - The company is focused on expanding its product offerings, including the Home to Gate feature and new reserve lanes, to enhance traveler experiences [5][6] - International expansion is a key focus, with the acquisition of WiLine facilitating entry into Latin America [49] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the travel recovery, noting that inflation and rising gas prices have not tempered enthusiasm for travel [19] - The company expects Q1 2022 to be the lowest revenue quarter of the fiscal year, with expectations for margin expansion and meaningful free cash flow generation throughout the year [14] Other Important Information - The company has not changed its standard pricing since its launch in 2010, but sees opportunities for pricing adjustments in the future [21] - The partnership with American Express is performing well, with a favorable lifetime value for AmEx customers [22] Q&A Session Summary Question: Impact of rising gasoline prices on travel and reactivation of existing members - Management remains bullish on travel demand and sees no slowdown due to rising gas prices, with many former members returning to the platform [19] Question: Expectations for net retention and driving high levels - Management indicated that net retention is expected to normalize in the high 80s, driven by strong brand affinity and product market fit [28] Question: Strategies for driving further adoption on the platform - The company is focused on evolving the Health Pass product and expanding partnerships to enhance user experience and drive adoption [30] Question: Insights on free cash flow strength in the second half - Management emphasized that GAAP metrics understate the business's strength, with free cash flow being a better indicator of performance [34] Question: Cumulative enrollments and booking seasonality - Management does not break out B2B versus B2C contributions but confirmed that Q1 is expected to be the lowest revenue quarter of the year [40][41] Question: Milestones for TSA partnership - The system is operationally ready, with a review process expected to kick off the launch timeline in the coming months [44][45] Question: Key drivers for 2022 and international growth - Management highlighted structural travel growth, new airport expansions, and product innovations as key drivers for 2022, with excitement about international opportunities [48][49]

[Company Information](index=1&type=section&id=Company%20Information) [Registrant Details](index=1&type=section&id=Registrant%20Details) CLEAR SECURE, INC., a Delaware corporation, filed its 10-Q quarterly report as a non-accelerated filer and emerging growth company as of September 30, 2021, with Class A common stock listed on the NYSE and four classes of common stock outstanding as of November 11, 2021 - CLEAR SECURE, INC. is a Delaware corporation that filed its 10-Q quarterly report as of September 30, 2021[1](index=1&type=chunk) - The company is classified as a non-accelerated filer and an emerging growth company[3](index=3&type=chunk) Shares Outstanding as of November 11, 2021 | Stock Class | Quantity | | :--- | :--- | | Class A common stock | 74,268,466 | | Class B common stock | 1,042,234 | | Class C common stock | 44,598,167 | | Class D common stock | 26,709,821 | [PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income/(loss), changes in redeemable capital units and stockholders' equity, cash flows, and detailed notes covering business description, reorganization, accounting policies, revenue, assets, liabilities, equity, and incentive plans [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Key Condensed Consolidated Balance Sheet Data ($ thousand) | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $337,791 | $116,226 | | Marketable debt securities | $335,457 | $37,813 | | Total current assets | $700,555 | $171,636 | | Total assets | $773,226 | $232,268 | | Deferred revenue | $159,589 | $101,542 | | Total current liabilities | $214,817 | $146,104 | | Total liabilities | $218,245 | $149,913 | | Total stockholders' equity attributable to Clear Secure, Inc. | $286,284 | $0 | | Non-controlling interests | $268,697 | $0 | | Total stockholders' equity | $554,981 | $(486,896) | - As of September 30, 2021, cash and cash equivalents and marketable debt securities significantly increased, with total assets rising from **$232,268 thousand** on December 31, 2020, to **$773,226 thousand**, and total stockholders' equity turning positive due to the IPO and reorganization[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Key Condensed Consolidated Statements of Operations Data ($ thousand) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $67,558 | $56,375 | $173,294 | $177,641 | | Operating income (loss) | $(32,596) | $10,682 | $(83,393) | $(18,884) | | Net income (loss) | $(32,787) | $11,143 | $(84,014) | $(17,764) | | Net loss attributable to Clear Secure, Inc. | $(16,915) | $0 | $(18,919) | $0 | | Basic and diluted net loss per share of Class A and Class B common stock | $(0.23) | $0 | $(0.26) | $0 | - The company reported net losses for both the third quarter and the first nine months of 2021, with operating and net income shifting from profit to loss compared to the same periods in 2020, primarily due to a significant increase in operating expenses[12](index=12&type=chunk) [Condensed Consolidated Statements of Comprehensive Income/(Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%2F(Loss)) Key Condensed Consolidated Statements of Comprehensive Income/(Loss) Data ($ thousand) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(32,787) | $11,143 | $(84,014) | $(17,764) | | Total other comprehensive income (loss) | $(93) | $(32) | $(62) | $32 | | Comprehensive income (loss) | $(32,880) | $11,111 | $(84,076) | $(17,732) | | Comprehensive loss attributable to Clear Secure, Inc. | $(16,963) | $0 | $(18,967) | $0 | - Comprehensive loss significantly increased in the third quarter and first nine months of 2021, reflecting expanded net losses and the impact of unrealized gains and losses on marketable debt securities[16](index=16&type=chunk) [Condensed Consolidated Statements of Changes in Redeemable Capital Units and Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Redeemable%20Capital%20Units%20and%20Stockholders'%20Equity) - In the first nine months of 2021, the company's stockholders' equity significantly increased due to **$436,968 thousand** in net IPO proceeds and reorganization, resulting in zero redeemable capital units and the introduction of four classes of common stock (Class A, B, C, D)[19](index=19&type=chunk) - As of September 30, 2021, stockholders' equity attributable to Clear Secure, Inc. was **$286,284 thousand**, with non-controlling interests at **$268,697 thousand**[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Cash%20Flows) Key Condensed Consolidated Statements of Cash Flows Data ($ thousand) | Metric | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $37,977 | $(28,471) | | Net cash used in investing activities | $(320,478) | $(14,207) | | Net cash provided by (used in) financing activities | $504,045 | $(97,018) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $221,544 | $(139,696) | | Cash, cash equivalents, and restricted cash at end of period | $360,626 | $96,355 | - In the first nine months of 2021, cash flow from operating activities turned positive, and cash flow from financing activities significantly increased due to **$437,494 thousand** in net IPO proceeds, leading to a substantial rise in cash, cash equivalents, and restricted cash at period-end[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Description of Business and Recent Accounting Developments](index=10&type=section&id=1.%20Description%20of%20Business%20and%20Recent%20Accounting%20Developments) The company operates the CLEAR secure identity platform through its subsidiary Alclear Holdings, LLC, offering CLEAR Plus airport subscription services, CLEAR App, and CLEAR Pass, and completed an internal reorganization and IPO on June 29, 2021, raising approximately $446 million in net proceeds, while electing to defer new accounting standards as an emerging growth company - Clear Secure, Inc. is a holding company operating the CLEAR secure identity platform through Alclear Holdings, LLC, offering CLEAR Plus airport subscription services, CLEAR App, and CLEAR Pass products[29](index=29&type=chunk)[30](index=30&type=chunk) - On June 29, 2021, the company completed an internal reorganization, making Clear Secure, Inc. the sole managing member of Alclear and authorizing four classes of common stock[31](index=31&type=chunk) - On July 2, 2021, the company completed its IPO, selling 15,180,000 shares of Class A common stock and receiving approximately **$445,875 thousand** in net proceeds[39](index=39&type=chunk) - As an emerging growth company, the company elected to defer the adoption of new or revised accounting standards to align with private company effective dates[40](index=40&type=chunk) [2. Basis of Presentation and Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the basis of presentation and significant accounting policies for the company's financial statements, including the preparation of condensed consolidated financial statements under SEC rules, consolidation policies for entities with controlling financial interests, and the two-class method for basic and diluted earnings per share for Class A and B common stock, clarifying that Class C and D common stock do not participate in earnings - The company's financial statements are prepared in accordance with SEC rules for interim financial reporting and U.S. Generally Accepted Accounting Principles (U.S. GAAP)[47](index=47&type=chunk) - The company consolidates entities where it holds a controlling financial interest, and as the sole managing member of Alclear, it consolidates Alclear's financial results and reports non-controlling interests[51](index=51&type=chunk) - The company uses the two-class method to calculate earnings per share for Class A and Class B common stock, while Class C and Class D common stock do not participate in the company's earnings and are therefore excluded from weighted-average shares outstanding[54](index=54&type=chunk)[55](index=55&type=chunk) [3. Revenue](index=13&type=section&id=3.%20Revenue) The vast majority of the company's revenue is derived from CLEAR Plus consumer airport subscription services, all generated within the United States, with deferred revenue increasing to $159,589 thousand as of September 30, 2021, reflecting growth in prepaid subscription fees - The vast majority of the company's revenue is derived from CLEAR Plus consumer airport subscription services, and all revenue is generated within the United States[56](index=56&type=chunk)[59](index=59&type=chunk) Changes in Deferred Revenue ($ thousand) | Metric | September 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Balance at January 1 | $101,542 | $121,339 | | Revenue deferred | $230,458 | $155,992 | | Deferred revenue recognized | $(172,411) | $(177,645) | | Balance at September 30 | $159,589 | $99,686 | [4. Prepaid Expenses and Other Current Assets](index=14&type=section&id=4.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Total prepaid expenses and other current assets amounted to $14,465 thousand as of September 30, 2021, an increase from December 31, 2020, primarily driven by higher prepaid insurance expenses Composition of Prepaid Expenses and Other Current Assets ($ thousand) | Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Prepaid software licenses | $5,701 | $5,504 | | CARES Act retention credits | $2,036 | $2,036 | | Prepaid insurance expenses | $3,970 | $772 | | Other current assets | $2,758 | $2,898 | | Total | $14,465 | $11,210 | [5. Fair Value Measurements](index=14&type=section&id=5.%20Fair%20Value%20Measurements) The company values marketable debt securities and certain liabilities using fair value hierarchy levels (Level 1, Level 2, Level 3), with total marketable debt securities at $335,457 thousand as of September 30, 2021, primarily comprising commercial paper, U.S. Treasury securities, and corporate bonds, while warrant liabilities were zero as of September 30, 2021, down from $17,740 thousand on December 31, 2020 - The company values assets and liabilities using fair value hierarchy levels (Level 1, Level 2, Level 3), with warrant liabilities valued using Level 3 unobservable inputs[62](index=62&type=chunk)[63](index=63&type=chunk)[65](index=65&type=chunk)[69](index=69&type=chunk) Fair Value of Marketable Debt Securities ($ thousand) | Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial paper | $131,466 | $11,932 | | U.S. Treasury securities | $77,804 | $5,380 | | Corporate bonds | $109,972 | $20,444 | | Money market funds (measured at NAV) | $16,215 | $57 | | Total investment fair value | $335,457 | $37,813 | Changes in Level 3 Warrant Liabilities Fair Value ($ thousand) | Metric | Nine Months Ended 2021 | Nine Months Ended 2020 | | :--- | :--- | :--- | | Balance at January 1 | $(17,740) | $(16,853) | | Warrants issued | $(289) | $0 | | Exercise of certain warrants for equity | $30,206 | $0 | | Settlement of certain warrants for equity | $619 | $0 | | Fair value adjustment | $(12,796) | $(444) | | Balance at September 30 | $0 | $(17,297) | [6. Property and Equipment, net](index=16&type=section&id=6.%20Property%20and%20Equipment%2C%20net) As of September 30, 2021, the company's net property and equipment amounted to $45,875 thousand, an increase from $35,241 thousand on December 31, 2020, primarily due to increased investments in internally developed software and equipment Composition of Property and Equipment, Net ($ thousand) | Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Internally developed software | $36,746 | $23,545 | | Equipment | $20,821 | $18,210 | | Construction in progress | $10,754 | $7,255 | | Total cost of property and equipment | $85,101 | $65,277 | | Less: Accumulated depreciation | $(39,226) | $(30,036) | | Property and equipment, net | $45,875 | $35,241 | - In the first nine months of 2021, capitalized internally developed software amounted to **$13,199 thousand**, and depreciation and amortization expense was **$9,190 thousand**[77](index=77&type=chunk) [7. Intangible Assets, net](index=17&type=section&id=7.%20Intangible%20Assets%2C%20net) As of September 30, 2021, the company's net intangible assets totaled $2,267 thousand, primarily consisting of patents and other indefinite-lived intangible assets, showing an increase from December 31, 2020 Composition of Intangible Assets, Net ($ thousand) | Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Patents | $2,007 | $1,293 | | Other indefinite-lived intangible assets | $310 | $310 | | Total cost of intangible assets | $2,317 | $1,603 | | Less: Accumulated amortization | $(50) | $(39) | | Intangible assets, net | $2,267 | $1,564 | [8. Restricted Cash](index=17&type=section&id=8.%20Restricted%20Cash) As of September 30, 2021, the company's total restricted cash was $22,835 thousand, primarily held as collateral for airport revenue share agreements and as a reserve for potential refunds and chargebacks from credit card companies - As of September 30, 2021, the company held **$6,835 thousand** in bank deposits as collateral for airport letters of credit and **$16,000 thousand** in a restricted cash account as a reserve for potential refunds and chargebacks from credit card companies[79](index=79&type=chunk)[80](index=80&type=chunk) [9. Other Assets](index=17&type=section&id=9.%20Other%20Assets) As of September 30, 2021, the company's total other assets were $1,694 thousand, an increase from December 31, 2020, primarily due to growth in loan costs and other long-term assets Composition of Other Assets ($ thousand) | Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Deposits | $242 | $171 | | Loan costs | $550 | $279 | | Certificates of deposit | $459 | $459 | | Other long-term assets | $443 | $62 | | Total | $1,694 | $971 | [10. Accrued Liabilities](index=18&type=section&id=10.%20Accrued%20Liabilities) As of September 30, 2021, the company's total accrued liabilities significantly increased to $45,194 thousand from $18,304 thousand on December 31, 2020, primarily due to new accrued partnership liabilities and growth in accrued compensation and benefits Composition of Accrued Liabilities ($ thousand) | Item | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Accrued compensation and benefits | $13,729 | $9,626 | | Accrued partnership liabilities | $17,933 | $0 | | Other accrued liabilities | $13,532 | $8,678 | | Total | $45,194 | $18,304 | [11. Warrants](index=18&type=section&id=11.%20Warrants) The company historically issued warrants, which were exercised and converted prior to the reorganization, after which remaining Alclear warrants were converted into Clear Secure, Inc. warrants representing rights to Class A common stock with identical terms and fair value, resulting in a zero warrant liability as of September 30, 2021, and a $12,796 thousand fair value adjustment expense in the first nine months of 2021 - Prior to the reorganization, Alclear issued equity and liability warrants, with some partially exercised[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[90](index=90&type=chunk) - Post-reorganization, remaining Alclear warrants were converted into Clear Secure, Inc. warrants, convertible into Class A common stock or Alclear units, retaining identical terms and fair value[90](index=90&type=chunk)[91](index=91&type=chunk) Warrant Expenses ($ thousand) | Expense Type | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Liability warrants | $0 | $444 | $12,796 | $444 | | Equity warrants | $1,509 | $1,698 | $3,431 | $1,698 | | Total | $1,509 | $2,142 | $16,227 | $2,142 | [12. Redeemable Capital Units](index=19&type=section&id=12.%20Redeemable%20Capital%20Units) Before the reorganization and IPO, Alclear's redeemable capital units included Class A and Class B units, which were subsequently converted into Alclear units and exchanged for Class A or Class B common stock, resulting in a zero balance for redeemable capital units as of September 30, 2021 - Prior to the reorganization, Alclear's Class A and Class B redeemable capital units were classified as temporary equity due to their redemption features[93](index=93&type=chunk) Redeemable Capital Units Balance ($ thousand) | Category | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Class A redeemable capital units | $0 | $2,620 | | Class B redeemable capital units | $0 | $566,631 | | Total | $0 | $569,251 | - Post-reorganization, all Class A and Class B redeemable capital units were converted into Alclear units and further exchanged for Class A or Class B common stock, resulting in a zero balance as of September 30, 2021[98](index=98&type=chunk) [13. Stockholders' Equity](index=20&type=section&id=13.%20Stockholders'%20Equity) The company's stockholders' equity structure significantly changed post-reorganization, introducing four classes of common stock (A, B, C, D), with non-controlling interests representing Alclear founders' and members' economic interests, which decreased to 48.41% as of September 30, 2021, from 54.21% on June 30, primarily due to the IPO issuance of Class A shares - Post-reorganization, the company issued **59,240,306** shares of Class A common stock and **1,042,234** shares of Class B common stock, along with **44,598,167** shares of Class C common stock and **26,709,821** shares of Class D common stock[106](index=106&type=chunk) - Following the IPO, the company additionally issued **15,180,000** shares of Class A common stock[107](index=107&type=chunk) Alclear Common Unit Ownership (as of September 30, 2021) | Holder | Alclear Units | Ownership Percentage | | :--- | :--- | :--- | | Alclear Holdings Units held by Reorganization Members | 44,407,609 | 31.08 % | | Alclear Holdings Units held by Alclear Investments, LLC and Alclear Investments II, LLC | 24,756,018 | 17.33 % | | Total | 69,163,627 | 48.41 % | - The non-controlling interest ownership percentage decreased from **54.21%** on June 30, 2021, to **48.41%** on September 30, 2021, primarily due to the IPO issuance of Class A shares[110](index=110&type=chunk) [14. Incentive Plans](index=21&type=section&id=14.%20Incentive%20Plans) The company established the 2021 Omnibus Incentive Plan, authorizing Class A common stock for equity awards, and post-reorganization, Alclear's profit units and RSUs were replaced with the company's restricted stock awards (RSA) and restricted stock units (RSU), introducing Founder Performance Stock Units (Founder PSUs), with total unrecognized RSA, RSU, and Founder PSU expense amounting to approximately $124,369 thousand as of September 30, 2021 - The 2021 Omnibus Incentive Plan became effective on June 29, 2021, authorizing the issuance of up to **20,000,000** shares of Class A common stock for equity awards[112](index=112&type=chunk)[113](index=113&type=chunk) - Post-reorganization, Alclear's profit units and RSUs were replaced with the company's RSA and RSU, and Founder Performance Stock Units (Founder PSUs) were introduced[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[124](index=124&type=chunk)[129](index=129&type=chunk) Total Incentive Plan Compensation Expense ($ thousand) | Expense Type | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | RSA | $315 | $385 | $995 | $1,062 | | RSU | $5,685 | $0 | $9,446 | $0 | | Founder PSUs | $6,629 | $0 | $6,768 | $0 | | Total | $12,629 | $385 | $17,209 | $1,062 | - As of September 30, 2021, unrecognized expenses for RSA, RSU, and Founder PSUs were **$826 thousand**, **$61,498 thousand**, and **$62,845 thousand**, respectively[123](index=123&type=chunk)[128](index=128&type=chunk)[131](index=131&type=chunk) [15. Earnings (Loss) per Share](index=25&type=section&id=15.%20Earnings%20(Loss)%20per%20Share) The company uses the two-class method to calculate basic and diluted loss per share for Class A and B common stock, with all potentially dilutive securities (warrants, exchangeable Alclear units, RSA, and RSU) deemed anti-dilutive due to net losses during the reporting period - The company uses the two-class method to calculate basic and diluted earnings (loss) per share for Class A and Class B common stock, while Class C and Class D common stock do not participate in earnings or losses[134](index=134&type=chunk)[137](index=137&type=chunk) Basic and Diluted Net Loss per Share of Class A and Class B Common Stock ($ thousand, except per share data) | Metric | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | | :--- | :--- | :--- | | Net loss attributable to Clear Secure, Inc. (Class A) | $(16,675) | $(18,650) | | Net loss attributable to Clear Secure, Inc. (Class B) | $(240) | $(269) | | Basic and diluted net loss per share (Class A) | $(0.23) | $(0.26) | | Basic and diluted net loss per share (Class B) | $(0.23) | $(0.26) | - Due to net losses during the reporting period, potentially dilutive warrants, exchangeable Alclear units, RSA, and RSU were all deemed anti-dilutive[141](index=141&type=chunk) [16. Income Taxes](index=26&type=section&id=16.%20Income%20Taxes) Post-reorganization and IPO, the company is subject to U.S. federal, state, and local income taxes on its share of Alclear's taxable income, with a tax expense of $277 thousand and an effective tax rate of (0.33)% for the first nine months of 2021, primarily influenced by Alclear's partnership tax allocation, valuation allowance changes, and state and foreign taxes, and has entered into a tax receivable agreement (TRA) to realize cash savings from tax basis increases - Post-reorganization and IPO, the company is subject to U.S. federal, state, and local income taxes on its share of Alclear's taxable income[142](index=142&type=chunk) Income Tax Expense and Effective Tax Rate | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Tax expense | $60 | $4 | $277 | $14 | | Loss (income) before taxes | $(32,727) | $11,147 | $(83,737) | $(17,750) | | Effective tax rate | (0.18)% | 0.04% | (0.33)% | (0.09)% | - The company entered into a Tax Receivable Agreement (TRA), which stipulates payments to TRA holders of **85%** of the net cash savings realized from increases in the tax basis of Alclear's assets[147](index=147&type=chunk) [17. Commitments and Contingencies](index=27&type=section&id=17.%20Commitments%20and%20Contingencies) The company faces various legal proceedings and administrative actions but currently anticipates no material adverse impact on its financial statements, while also leasing its NYC headquarters and airport locations, with future minimum lease and airport agreement payments totaling $77,998 thousand as of September 30, 2021 - The company currently does not believe that legal proceedings or administrative actions will have a material adverse effect on its business or condensed consolidated financial statements[149](index=149&type=chunk) - The company leases its New York City headquarters and airport locations, with lease terms extending to **2030** and **2026**, respectively[152](index=152&type=chunk) Future Minimum Lease and Airport Agreement Payments ($ thousand) | Year | Amount | | :--- | :--- | | 2021 | $4,093 | | 2022 | $16,104 | | 2023 | $14,941 | | 2024 | $11,284 | | 2025 | $9,773 | | Thereafter | $21,803 | | Total | $77,998 | - As of September 30, 2021, the company's future marketing expenditure commitments for stadium venues totaled **$5,517 thousand**[154](index=154&type=chunk)[250](index=250&type=chunk) [18. Related-Party Transactions](index=28&type=section&id=18.%20Related-Party%20Transactions) As of September 30, 2021, the company had $1,839 thousand in payables to certain related parties, and incurred $5,428 thousand in revenue share expenses related to these parties during the first nine months of 2021 - As of September 30, 2021, the company had **$1,839 thousand** in payables to certain related parties[156](index=156&type=chunk) - In the first nine months of 2021, revenue share expenses related to associated parties amounted to **$5,428 thousand**[157](index=157&type=chunk) [19. Employee Benefit Plan](index=28&type=section&id=19.%20Employee%20Benefit%20Plan) The company maintains a 401(k) savings and investment plan, to which it made $828 thousand in discretionary employer contributions during the first nine months of 2021 - The company maintains a 401(k) savings and investment plan, contributing **$828 thousand** in discretionary employer contributions during the first nine months of 2021, an increase from **$311 thousand** in the same period of 2020[159](index=159&type=chunk) [20. Debt](index=28&type=section&id=20.%20Debt) The company entered into a $50,000 thousand revolving credit facility in March 2020, increased to $100,000 thousand in April 2021, and had not drawn on this facility as of September 30, 2021, while remaining in compliance with all covenants - The company entered into a **$50,000 thousand** revolving credit facility in March 2020, which was increased to **$100,000 thousand** in April 2021, with a maturity date of April 2024[160](index=160&type=chunk) - As of September 30, 2021, the company had not drawn on this revolving credit facility and was in compliance with all financial and non-financial covenants[164](index=164&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk) [21. Subsequent Events](index=29&type=section&id=21.%20Subsequent%20Events) On November 4, 2021, the company signed a new 15-year lease agreement for approximately 120,000 square feet of office space in New York City to serve as its corporate headquarters, with renewal options - On November 4, 2021, the company signed a new lease agreement for approximately **120,000 square feet** of office space in New York City to serve as its corporate headquarters[165](index=165&type=chunk) - The lease agreement has a **15-year** term with one option to renew for either **5 or 10 years**[165](index=165&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial condition and operating results as of September 30, 2021, covering business overview, key performance indicators, factors affecting performance, reorganization impact, taxation and expenses, comparative operating results, and liquidity and capital resources, noting operating losses in Q3 and the first nine months of 2021 despite strong growth in total bookings and member metrics [Overview](index=30&type=section&id=Overview) The company operates the CLEAR secure identity platform, offering CLEAR Plus airport subscription services and other digital products, with management using non-GAAP financial measures like Adjusted EBITDA and Free Cash Flow to assess business performance, reporting negative Adjusted EBITDA of $14,470 thousand and Free Cash Flow of $28,061 thousand for Q3 2021 - The company operates the CLEAR secure identity platform, offering CLEAR Plus airport subscription services, CLEAR App, and CLEAR Pass products[171](index=171&type=chunk) - Management uses Adjusted EBITDA and Free Cash Flow as non-GAAP financial measures to evaluate performance[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) Adjusted EBITDA and Free Cash Flow ($ thousand) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $(14,470) | $14,045 | $(40,053) | $41,759 | | Free Cash Flow | $28,061 | $14,132 | $16,647 | $12,813 | [Key Performance Indicators](index=31&type=section&id=Key%20Performance%20Indicators) The company assesses business performance using key indicators such as total bookings, cumulative total enrollments, cumulative total platform uses, and CLEAR Plus annual net member retention rate, with Q3 2021 showing an 89% increase in total bookings, 58% in cumulative total enrollments, 27% in cumulative total platform uses, and an 87.4% CLEAR Plus annual net member retention rate, exceeding pre-pandemic levels - Total bookings, cumulative total enrollments, cumulative total platform uses, and CLEAR Plus annual net member retention rate are key metrics for evaluating the company's performance[178](index=178&type=chunk) Key Performance Indicators ($ million / thousand people / percent) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Change (3 Months) | As of September 30, 2021 | As of September 30, 2020 | Change (Annual) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Bookings | $99.3 | $52.5 | 89% | $231.4 (9 Months) | $156.1 (9 Months) | 48% (9 Months) | | Cumulative Total Enrollments | N/A | N/A | N/A | 8,076 (thousand people) | 5,118 (thousand people) | 58% | | Cumulative Total Platform Uses | N/A | N/A | N/A | 72,184 (thousand people) | 56,681 (thousand people) | 27% | | Annual CLEAR Plus Net Member Retention Rate | N/A | N/A | N/A | 87.4% | 81.2% | 6.2% | - Total bookings growth was primarily driven by a rebound in air travel and new credit card partnerships, leading to increased new member enrollments and improved member retention[181](index=181&type=chunk) - The annual CLEAR Plus net member retention rate reached **87.4%**, exceeding pre-pandemic levels, indicating strong renewal and recall performance[188](index=188&type=chunk) [Key Factors Affecting Performance](index=33&type=section&id=Key%20Factors%20Affecting%20Performance) The company's financial growth depends on increasing cumulative total enrollments, maintaining CLEAR Plus member retention, expanding new partnerships and revenue streams, the timing of new product and location launches, expense timing and discretionary investments, maintaining strong unit economics, and macroeconomic changes such as the impact of the COVID-19 pandemic - The company's growth depends on its ability to attract new members (both paid and platform members) and convert them into paying subscribers[190](index=190&type=chunk)[192](index=192&type=chunk) - Maintaining the retention rate of existing CLEAR Plus members is crucial, with usage frequency and recent usage being key indicators of retention[193](index=193&type=chunk) - Expanding new partnerships, maintaining existing relationships, and creating new revenue streams (e.g., per member or per use fees) are critical growth strategies[194](index=194&type=chunk) - Macroeconomic events such as reduced travel, terrorism, the COVID-19 pandemic, and changes in consumer discretionary spending may impact the company's performance[198](index=198&type=chunk) - As the impact of the COVID-19 pandemic subsides, the company anticipates increased operating expenses, potentially leading to long-term net losses and negative Adjusted EBITDA[199](index=199&type=chunk) [The Reorganization Transactions](index=35&type=section&id=The%20Reorganization%20Transactions) Prior to its IPO, the company underwent reorganization transactions, establishing Clear Secure, Inc. as a holding company controlling the business of Alclear Holdings, LLC, with the reorganization accounted for as a transaction between entities under common control, where Clear Secure, Inc. consolidates Alclear Holdings, LLC's financial statements and records non-controlling interests - Prior to the IPO, the company underwent reorganization transactions, making Clear Secure, Inc. a holding company whose primary asset is a controlling equity interest in Alclear Holdings, LLC[201](index=201&type=chunk) - The reorganization transactions are accounted for as a reorganization between entities under common control, with Clear Secure, Inc. consolidating Alclear Holdings, LLC's financial statements and recording non-controlling interests[202](index=202&type=chunk) [Taxation and Expenses](index=35&type=section&id=Taxation%20and%20Expenses) Post-IPO, the company is subject to U.S. federal, state, and local income taxes on its share of Alclear's taxable income and expects to incur significant expenses related to operations, tax receivable agreement (TRA) payments, and public company status, including equity awards and administrative costs - Post-IPO, the company is subject to U.S. federal, state, and local income taxes on its share of Alclear's taxable income[203](index=203&type=chunk) - The company expects to incur significant expenses related to operations, Tax Receivable Agreement (TRA) payments, and its status as a public company, including equity awards and administrative costs[204](index=204&type=chunk)[205](index=205&type=chunk) - The Tax Receivable Agreement (TRA) stipulates that the company pays Alclear members **85%** of the cash savings realized from increases in the tax basis of Alclear's assets[206](index=206&type=chunk) [Components of Results of Operations](index=36&type=section&id=Components%20of%20Results%20of%20Operations) The company's revenue primarily stems from CLEAR Plus subscription services, supplemented by minor stadium and Health Pass-related income, while operating expenses encompass revenue share fees, direct compensation and benefits, research and development, sales and marketing, general and administrative expenses, and depreciation and amortization, with income taxes becoming applicable post-IPO - The vast majority of the company's revenue is derived from CLEAR Plus consumer airport subscription services, with other revenue from stadium venues and Health Pass[209](index=209&type=chunk)[210](index=210&type=chunk) - Operating expenses include revenue share fees, direct compensation and benefits, research and development, sales and marketing, general and administrative expenses, and depreciation and amortization[211](index=211&type=chunk) - Following the IPO and reorganization, the company is subject to U.S. federal, state, and local income taxes on its share of Alclear's taxable income[219](index=219&type=chunk) [Comparison of the three and nine months ended September 30, 2021 and 2020](index=38&type=section&id=Comparison%20of%20the%20three%20and%20nine%20months%20ended%20September%2030%2C%202021%20and%202020) In Q3 2021, the company's revenue grew by 20% year-over-year, but a significant increase in operating expenses, particularly direct compensation and benefits, R&D, sales and marketing, and general and administrative costs, led to operating and net losses, while for the first nine months of 2021, revenue decreased by 2% year-over-year, and operating losses expanded significantly due to increased expenses Comparison of Operating Results ($ million) | Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Change (3 Months) | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Change (9 Months) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $67.6 | $56.4 | 20% | $173.3 | $177.6 | (2)% | | Operating income (loss) | $(32.6) | $10.7 | (405)% | $(83.4) | $(18.9) | 341% | | Net income (loss) | $(32.8) | $11.2 | (393)% | $(84.0) | $(17.7) | 375% | | Direct compensation and benefits costs | $18.1 | $7.8 | 132% | $46.1 | $31.5 | 46% | | Research and development expenses | $13.3 | $6.3 | 111% | $33.3 | $23.4 | 42% | | Sales and marketing expenses | $10.0 | $3.3 | 203% | $25.8 | $11.5 | 124% | | General and administrative expenses | $44.8 | $17.7 | 153% | $116.3 | $97.5 | 19% | - Revenue growth of **20%** in Q3 2021 was primarily driven by a **20.4%** increase in average monthly CLEAR Plus members[222](index=222&type=chunk) - Operating expenses significantly increased, particularly direct compensation and benefits (due to increased personnel needs from higher travel volume), R&D (due to increased compensation and professional services), sales and marketing (due to increased ambassador commissions and marketing activities), and general and administrative expenses (due to equity-based compensation and professional services)[227](index=227&type=chunk)[229](index=229&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2021, the company held $338 million in cash and cash equivalents and $335 million in marketable securities, believing its existing cash, operating cash flow, marketable securities portfolio, and revolving credit facility are sufficient to meet working capital and capital expenditure needs for the next 12 months, with operating cash flow turning into a net inflow of $38.0 million and financing cash flow significantly increasing to $504.0 million due to IPO net proceeds in the first nine months of 2021 - As of September 30, 2021, the company held **$338 million** in cash and cash equivalents and **$335 million** in marketable securities[239](index=239&type=chunk) - The company believes its existing liquidity is sufficient to meet working capital and capital expenditure needs for the next **12 months**[240](index=240&type=chunk) Summary of Cash Flows ($ million) | Metric | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $38.0 | $(28.5) | (233)% | | Net cash used in investing activities | $(320.5) | $(14.2) | 2157% | | Net cash provided by (used in) financing activities | $504.0 | $(97.0) | (620)% | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $221.5 | $(139.7) | (259)% | - Cash flow from financing activities significantly increased by **$601.0 million**, primarily driven by **$437.5 million** in net IPO proceeds[247](index=247&type=chunk) [Commitments and Contingencies](index=42&type=section&id=Commitments%20and%20Contingencies) As of September 30, 2021, the company's future minimum operating lease payments totaled $78.0 million, in addition to $5.5 million in marketing expenditure commitments for stadium venues Future Minimum Operating Lease Payments ($ million) | Year | Amount | | :--- | :--- | | 2021 | $4.1 | | 2022 | $16.1 | | 2023 | $14.9 | | 2024 | $11.3 | | 2025 | $9.8 | | Thereafter | $21.8 | | Total | $78.0 | - As of September 30, 2021, the company's future marketing expenditure commitments for stadium venues totaled **$5.5 million**[250](index=250&type=chunk) [Off Balance Sheet Arrangements](index=43&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company currently has no off-balance sheet arrangements - The company currently has no off-balance sheet arrangements[251](index=251&type=chunk) [Critical Accounting Policies and Estimates](index=43&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no significant changes to the critical accounting policies or their underlying assumptions and estimates reported in the company's prospectus as of December 31, 2020, other than those described in Note 2 to the financial statements - There have been no significant changes to the critical accounting policies or their underlying assumptions and estimates reported in the company's prospectus as of December 31, 2020, other than those described in Note 2 to the financial statements[252](index=252&type=chunk) [Recent Accounting Pronouncements](index=43&type=section&id=Recent%20Accounting%20Pronouncements) For detailed information regarding recently issued accounting pronouncements and their expected impact on the company's condensed consolidated financial statements, refer to Note 1 to the financial statements - For detailed information regarding recently issued accounting pronouncements and their expected impact on the company's condensed consolidated financial statements, refer to Note 1 to the financial statements[253](index=253&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk from its floating-rate revolving credit facility, which remained undrawn as of September 30, 2021, while the COVID-19 pandemic significantly impacted global and domestic travel, prompting the company to cut marketing and operating expenses, though the duration and ultimate impact of the pandemic remain uncertain - The company faces interest rate risk from its revolving credit facility, which has floating interest rates, but the facility remained undrawn as of September 30, 2021[255](index=255&type=chunk) - The COVID-19 pandemic had a significant adverse impact on global and domestic travel, leading to an approximate **60%** decline in U.S. domestic air passenger volume in 2020[256](index=256&type=chunk) - The company responded to the pandemic by reducing marketing and operating expenses, but the duration and ultimate impact of the pandemic remain uncertain[257](index=257&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) As of the end of the quarter, the company's management assessed and determined its disclosure controls and procedures to be effective, providing reasonable assurance that information is timely recorded, processed, summarized, and reported, with no significant changes in internal control over financial reporting during the quarter, though management acknowledges inherent limitations in any control system - As of the end of the quarter, the company's Chief Executive Officer and Chief Financial Officer assessed and determined its disclosure controls and procedures to be effective[259](index=259&type=chunk) - There were no significant changes in internal control over financial reporting during the quarter[260](index=260&type=chunk) - Management acknowledges that any control and procedure, no matter how well designed and operated, can only provide reasonable assurance and is subject to resource limitations[261](index=261&type=chunk) [PART II - OTHER INFORMATION](index=45&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Matters](index=45&type=section&id=Item%201.%20Legal%20Matters) The company is involved in commercial litigation claims, administrative, and regulatory proceedings but currently believes these matters will not have a material adverse effect on its condensed consolidated financial statements - The company is involved in commercial litigation claims, administrative, and regulatory proceedings but currently believes these matters will not have a material adverse effect on its condensed consolidated financial statements[264](index=264&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) The company has disclosed risk factors in its Form S-1 registration statement and prospectus that could materially affect its business, financial condition, or results of operations, and these risk factors have not significantly changed - The company has disclosed risk factors in its Form S-1 registration statement and prospectus, and these risk factors have not significantly changed[265](index=265&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not conduct any unregistered sales of equity securities during Q3 2021, and completed its IPO on July 2, 2021, raising approximately $445.9 million in net proceeds primarily for offering expenses and general corporate purposes, with no material changes to the planned use of proceeds - The company did not conduct any unregistered sales of equity securities during the third quarter of 2021[266](index=266&type=chunk) - The company completed its IPO on July 2, 2021, raising approximately **$445.9 million** in net proceeds, which were used to pay offering expenses and for general corporate purposes[269](index=269&type=chunk) - There have been no material changes to the planned use of IPO net proceeds[269](index=269&type=chunk) [Item 3. Defaults Upon Senior Securities](index=45&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company has not experienced any defaults upon senior securities - The company has not experienced any defaults upon senior securities[271](index=271&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Mine safety disclosures are not applicable[272](index=272&type=chunk) [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) No other information - No other information[272](index=272&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) The exhibits listed in this quarterly report are incorporated by reference or filed herewith, including Sarbanes-Oxley Act certifications from the CEO and CFO, and Inline XBRL documents - The exhibits listed in this quarterly report are incorporated by reference or filed herewith, including Sarbanes-Oxley Act certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents[273](index=273&type=chunk)[275](index=275&type=chunk) [Signatures](index=48&type=section&id=Signatures) This report was signed by Caryn Seidman-Becker, Chief Executive Officer, and Kenneth Cornick, President and Chief Financial Officer, on November 15, 2021 - This report was signed by Chief Executive Officer Caryn Seidman-Becker and President and Chief Financial Officer Kenneth Cornick on November 15, 2021[277](index=277&type=chunk)