Clear Secure(YOU) - 2022 Q1 - Quarterly Report

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) This section presents Clear Secure, Inc.'s unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets 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 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 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 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 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 This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Description of Business and Recent Accounting Developments 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] - 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][33] - 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][36] 2. Basis of Presentation and Summary of Significant Accounting Policies 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][42] - The Company operates as one operating and reportable segment and presents its financial statements in US Dollars[43][44] - Foreign currency transactions are translated at prevailing exchange rates, with resulting differences recognized in other comprehensive loss[45][46] 3. Business Combinations 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][52][59] - 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][60] - 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][60] 4. Revenue 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][62] 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 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 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][73] 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][82] 7. Property and Equipment, net 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] - The Company recognized impairment charges of $313 thousand on certain long-lived assets during the three months ended March 31, 2022[86] 8. Leases 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] 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] 9. Intangible Assets, net and Goodwill 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] 10. Restricted Cash 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] - 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][101] 11. Other Assets 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 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 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] - Unrecognized warrant expense was estimated at $322 thousand as of March 31, 2022, based on the likelihood of achieving performance-based vesting criteria[117] 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 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] - Upon the Reorganization, these units were converted to Alclear Units, which were subsequently exchanged for Class A or Class B Common Stock[124] - 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] 15. Stockholders' Equity 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] - 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] - 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] 16. Incentive Plans 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] - 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][143][145] 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 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] - 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][164] 18. Income Taxes 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] - 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] - 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] 19. Commitments and Contingencies 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] - Future marketing expenditures to sports stadiums total $3,054 thousand through 2026[175] 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 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] - 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] 21. Employee Benefit Plan 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] 22. Debt 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] - As of March 31, 2022, the Company was in compliance with all financial and non-financial covenants of the Credit Agreement[183] 23. Subsequent Events 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, results of operations, and cash flows, highlighting revenue growth, operating expenses, and key performance indicators 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] - 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] - The platform also offers SDK and API capabilities for partners to integrate identity validation, verification, attribute validation, and payment services[191] Key Factors Affecting Performance 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][197] - 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] - 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] - 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][200][203] Impact of Coronavirus (COVID-19) Pandemic 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] - Reported revenues are expected to lag behind Total Bookings due to the 12-month subscription revenue recognition policy[204] - 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] The Reorganization Transactions 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] - 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] - 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] Taxation and Expenses 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] - 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][210] - Significant payments are also expected under the Tax Receivable Agreement (TRA)[208] Tax Receivable Agreement 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] - 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] - 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] 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] - Revenues and operating loss related to these acquisitions were insignificant to the condensed consolidated financial statements for the periods presented[213] Key Performance Indicators 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] - 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] Non-GAAP Financial Measures 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] Components of Results of Operations 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][239] - 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][241][242][243][245][246] - Non-operating items consist of interest income/expense (from investments and credit facility) and other income/expense (non-recurring items, asset impairment)[247][248] - Income tax provision reflects Clear Secure, Inc.'s allocable share of Alclear's taxable income, as Alclear is a pass-through entity[249] Comparison of the three months ended March 31, 2022 and 2021 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] - 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][256][257][258][259] Liquidity and Capital Resources 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] - 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][269] - Planned capital expenditures include approximately $16.5 million for new office space build-out in the next 12 to 24 months[266] Cash Flow 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] - 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] Commitments and Contingencies 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][279] - Future minimum payments under airport agreements totaled $39.8 million as of March 31, 2022[280] - 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] Off Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements - The Company has no off-balance sheet arrangements[282] Critical Accounting Policies and Estimates 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][284][285] - 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] - Business combinations involve significant estimates for fair value of identifiable assets and liabilities, subject to adjustments for up to one year after acquisition[285] Recent Accounting Pronouncements 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including interest rate and foreign currency translation risks Interest Rate Risk 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] 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] 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] - 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] Foreign Currency Translation Risk 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] Item 4. Controls and Procedures 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 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] - The report acknowledges that control systems provide reasonable, not absolute, assurance and can be subject to errors, fraud, collusion, or management override[295][296] Management's Report on Internal Control over Financial Reporting 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] Changes in Internal Control 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] 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 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] - Management believes that the ultimate outcome of these legal matters will not have a material adverse effect on the condensed consolidated financial statements[301] Item 1A. Risk Factors 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] - There have been no material changes from the risk factors previously disclosed[302] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered equity sales and the application of IPO proceeds Unregistered Sales of Equity Securities 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] Use of IPO Proceeds 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][306] - Net offering proceeds, after deducting underwriting discounts and commissions, were approximately $445.9 million[306] - 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] Issuer Purchases of Equity Securities 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] - Forfeited unvested restricted stock awards are classified as treasury stock within the condensed consolidated balance sheets[307] Item 3. Defaults Upon Senior Securities This section confirms no defaults on senior securities - There are no defaults upon senior securities[309] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the Company[309] Item 5. Other Information This section confirms no additional information to report - No other information is reported under this item[309] Item 6. Exhibits 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] - 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] - A Cover Page Interactive Data File (formatted as inline XBRL) is also included as Exhibit 104[312] Signatures This section provides the official signatures for the report, including names and titles - The report was signed on May 16, 2022[314][315] - Signatories include Caryn Seidman-Becker, Chief Executive Officer, and Kenneth Cornick, President and Chief Financial Officer[315]