Clear Secure(YOU) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements (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 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 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 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 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] - 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][54][61] - 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] - 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][157] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 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 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 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] - 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] - The company has access to a $100 million revolving credit facility, which was undrawn as of June 30, 2022[292] Quantitative and Qualitative Disclosures About Market Risk 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][311] - 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] Controls and Procedures 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] - No material changes to the internal control over financial reporting were identified during the quarter[317] PART II - OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] - The company has a $100 million share repurchase program authorized, but no shares were repurchased during the period covered by the report[326][329] Exhibits 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]