CLEAR SECURE, INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help readers understand our
results of operations, financial condition and cash flows and should be read in
conjunction with the audited consolidated financial statements and the related
notes included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021 ("Annual Report on Form 10-K"). This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those discussed below.
For purposes of this MD&A, the term "we" and other forms thereof refer to Clear
Secure, Inc. and its subsidiaries (collectively, the "Company"), which includes
Alclear Holdings, LLC ("Alclear").
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or management's intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate," or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading "Risk Factors" in our Annual Report on Form 10-K. Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading "Risk Factors" in our Annual Report on Form 10-K, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.
Overview
We are a member-centric secure identity platform operating under the brand name CLEAR. At CLEAR we know that you are always you-your biometric identity is foundational to helping enable frictionless everyday experiences, connecting you to all the things that make you, YOU, and transforming the way you live, work and travel. Members enroll in CLEAR to create an unbreakable link between their identity and biometrics (e.g., eyes, face and fingerprints). CLEAR's current offerings include: CLEAR Plus, a consumer aviation subscription service, which enables access to predictable and fast experiences through dedicated entry lanes in airport security checkpoints nationwide; the flagship CLEAR App including Home to Gate andHealth Pass ; and Reserve powered by CLEAR, our virtual queuing technology that enables customers to manage lines. CLEAR also has software development kits, ("SDK") and application programming interface ("API") capabilities to enable our partners to seamlessly integrate directly into our platform to enable better, faster and more frictionless experiences for our partners' customers. Use cases enabled by SDKs and APIs include identity validation, identity verification, attribute validation such as age validation, vaccine status and payment, among others.
Key Factors Affecting Performance
We believe that our current and future financial growth are dependent upon many factors, including the key factors affecting performance described below.
Ability to Grow Total Cumulative Enrollments
We are focused on growing Total Cumulative Enrollments and the number of members
that engage with our platform. Our operating results and growth opportunities
depend, in part, on our ability to attract new members, including paying
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members (CLEAR Plus members) as well as new platform members. We rely on multiple channels to attract new CLEAR Plus members, including in-airport (our largest channel) which in turn is dependent on the ongoing ability of our ambassadors to successfully engage with the traveling public. We also rely on numerous digital channels such as paid search and partnerships. In many cases, we offer limited time free trials to new members who may convert to paying members upon the completion of their trial. Our future success is dependent on those channels continuing to drive new members and our ability to convert free trial members into paying members. We believe we will see an acceleration of Total Cumulative Platform Uses relative to Total Cumulative Enrollments over time as our members use our products across multiple locations and use cases. We believe this dynamic will grow the long-term economic value of our platform by increasing total engagement, expanding our margins and maximizing our revenue. Our future success is dependent upon maintaining and growing our partnerships as well as ensuring our platform remains compelling to members.
Although we have historically grown the number of new members over time and successfully converted some free trial members to paying members, our future success is dependent upon our ongoing ability to do so.
Ability to retain CLEAR Plus members
Our ability to execute on our growth strategy is focused, in part, on our ability to retain our existing CLEAR Plus members. Frequency and recency of usage are the leading indicators of retention, and we must continue to provide frictionless and predictable experiences that our members will use in their daily lives. The value of the CLEAR platform to our members increases as we add more use cases and partnerships, which in turn drives more frequent usage and increases retention. Historically, CLEAR Plus members who used CLEAR in both aviation and non-aviation venues renewed at rates materially above those who used CLEAR only in aviation. We cannot be sure that we will be successful in retaining our members due to any number of factors such as our inability to successfully implement a new product, adoption of our technology, harm to our brand or other factors.
Ability to add new partners, retain existing partners and generate new revenue streams
Our partners include local airport authorities, airlines and other businesses. Our future success depends on maintaining those relationships, adding new relationships and maintaining favorable business terms. In addition, our growth strategy relies on creating new revenue streams such as per partner, per member or per use transaction fees. Although we believe our service provides significant value to our partners, our success depends on creating mutually beneficial partnership agreements. We are focused on innovating both our product and our platform to improve our members' experience, improve safety and security and introduce new use cases. We intend to accelerate our pace of innovation to add more features and use cases, to ultimately deliver greater value to our members and partners. In the near term, we believe that growing our member base facilitates our ability to add new partnerships and provide additional offerings, which we expect will lead to revenue generation opportunities in the long term.
Timing of new partner, product and location launches
Our financial performance is dependent in part on new partner, product and location launches. In many cases, we cannot predict the exact timing of those launches. Delays, resulting either from internal or external factors may have a material effect on our financial results.
Timing of expenses; Discretionary investments
Although many of our expenses occur in a predictable fashion, certain expenses may fluctuate from period to period due to timing.
In addition, management may make discretionary investments when it sees an opportunity to accelerate growth, add a new partner or acquire talent, among other reasons. This may lead to volatility or unpredictability in our expense base and in our profitability.
Maintaining strong unit economics
Our business model is powered by network effects and has historically been
characterized by efficient member acquisition and high member retention rates.
This is evident by our approximately 18 times Lifetime Value relative to our
Customer Acquisition Cost for CLEAR Plus members who joined during 2021. The
Lifetime Value relative to our Customer
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Acquisition Cost for CLEAR Plus members who joined during 2021 is consistent with the average for prior periods. While we believe our unit economics will remain attractive, this is dependent on our ability to add new members efficiently and maintain our historically strong retention rates. As we grow our market penetration, the cost to acquire new members could increase and the experience we deliver to members could degrade, causing lower retention rates.
Changes to the macro environment
Our business is dependent on macroeconomic and other events outside of our control, such as decreased levels of travel or attendance at events, terrorism, civil unrest, political instability, union and other transit related strikes and other general economic conditions. We are also subject to changes in discretionary consumer spending.
Impact of Coronavirus (COVID-19) Pandemic
As the impact of the COVID-19 pandemic subsides and the demand for our services increases, we expect our expenses to increase, in some cases significantly, in comparison to the first quarter of 2021 and the 2020 fiscal year when we had lower staffing needs and proactively reduced our operating expenses. These increased expenses will include higher cost of direct salaries and benefits driven by field labor, sales and marketing, research and development costs, and general and administrative (including costs associated with being a public company and increased equity-based compensation expense). Due to the nature of our revenue recognition policy (e.g., CLEAR Plus revenues are recognized over the life of a subscription, which is typically 12 months), our reported revenues are expected to lag behind Total Bookings. We may incur net losses and negative adjusted EBITDA in the long term if we are required to increase expenses to support our growth. See "Risk Factors-Risks Related to Our Financial Performance" in our Annual Report on Form-10K.
The Reorganization Transactions
Prior to the completion of our initial public offering ("IPO"), we undertook
certain reorganization transactions (the "Reorganization Transactions") such
that Clear Secure, Inc. is now a holding company, and its sole material asset is
a controlling equity interest in Alclear . As the general partner of Alclear ,
Clear Secure, Inc. operates and controls all of the business and affairs of
Alclear , has the obligation to absorb losses and receive benefits from Alclear
and, through Alclear and its subsidiaries, conducts our business.
The Reorganization Transactions were accounted for as a reorganization of
entities under common control. As a result, the consolidated financial
statements of the Company recognized the assets and liabilities received in the
Reorganization Transactions at their historical carrying amounts, as reflected
in the historical financial statements of Alclear . The Company consolidates
Alclear on its consolidated financial statements and records a non-controlling
interest, related to the Alclear non-voting common units ("Alclear Units") held
by our Founders and pre-IPO members, on its consolidated balance sheets and
statement of operations. See Note 1 in our condensed consolidated financial
statements for a more detailed discussion of the Reorganization Transactions.
Taxation and Expenses
After the consummation of our IPO, we became subject toU.S. federal, state and local income taxes with respect to our allocable share of any taxable income ofAlclear and will be taxed at the prevailing corporate tax rates.Alclear , is treated as flow-through entities forU.S. federal income tax purposes, and as such, has generally not been subject toU.S. federal income tax at the entity level. Accordingly, the historical results of operations and other financial information set forth in the Annual Report on Form 10-K do not include any material provisions forU.S. federal income tax for the periods prior to our IPO. In addition to tax expense, we incur expenses related to our operations, plus payments under the tax receivable agreement ("TRA") described below, which we expect to be significant. We intend to causeAlclear to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments under the TRA. Following our IPO, we have and we expect to continue to incur increased amounts of compensation expense, including related to equity awards granted under the 2021 Omnibus Incentive Plan to both existing employees and newly-hired employees, and grants in connection with new hires could be significant. In addition, as a new public company, we are implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional expenses related to these steps and, among other things, additional directors' 30
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and officers' liability insurance, director fees, reporting requirements of theSEC , transfer agent fees, hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses.
Tax Receivable Agreement
In connection with the IPO we entered into the TRA with the Alclear Members that provides for the payment by us to the Alclear Members of 85% of the amount of cash savings, if any, inU.S. federal, state and local income tax or franchise tax that we actually realize (computed using simplifying assumptions to address the impact of state and local taxes) as a result of (i) any increase in tax basis inAlclear's assets resulting from (a) exchanges by the Alclear Members (or their transferees or other assignees) of Alclear Units (along with the corresponding shares of our ClassC Common Stock or Class D Common Stock, as applicable) for shares of our Class A Common Stock,$0.00001 par value per share ("Class A Common Stock") or Class B Common Stock,$0.00001 par value per share ("Class B Common Stock") as applicable, and purchases of Alclear Units and corresponding shares of ClassC Common stock, par value$0.00001 per share ("ClassC Common Stock") or Class D Common Stock,$0.00001 par value per share ("Class D Common Stock" and, together with the Class A Common Stock, Class B Common Stock and ClassC Common Stock, collectively, "Common Stock"), as the case may be, from Alclear Members (or their transferees or other assignees) or (b) payments under the TRA, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA. The actual increase in tax basis, as well as the amount and timing of any payments under these agreements, varies depending upon a number of factors, including the timing of exchanges by or purchases from the Alclear Members, the price of our Class A Common Stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable and the portion of our payments under the TRA constituting imputed interest. During the three months endedMarch 31, 2022 , the Company recognized certain exchanges. As ofMarch 31, 2022 , the Company did not record a TRA liability as a result of these exchanges.
Acquisitions
During the year endedDecember 31, 2021 , the Company made strategic acquisitions ofWhyline, Inc. , our virtual queuing technology that enables customers to manage lines and certain assets ofAtlas Certified, LLC ., our automated solution to verify professional licenses and certification data across industries. Revenues and operating loss related to these acquisitions were insignificant to the condensed consolidated financial statements.
Key Performance Indicators
To evaluate performance of the business, we utilize a variety of other non-GAAP financial reporting and performance measures. These key measures include Total Bookings, Total Cumulative Enrollments, Total Cumulative Platform Uses, and Annual CLEAR Plus Net Member Retention.
Total Bookings
Total Bookings represent our total revenue plus the change in deferred revenue
during the period. Total Bookings in any particular period reflect sales to new
and renewing CLEAR Plus subscribers plus any accrued billings to partners.
Management believes that Total Bookings is an important measure of the current
health and growth of the business and views it as a leading indicator.
Three months ended March 31,
2022 2021 $ Change % Change
Total Bookings (in millions) $ 107.8 $ 62.1 $ 45.7 74 %
Total Bookings increased by $45.7 million , or 74%, for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021 . The increase
was primarily driven by the continued rebound in air travel and the launch of a
new credit card partnership on July 1, 2021 , resulting in higher new member
enrollments and higher member retention rates.
Total Cumulative Enrollments
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We define Total Cumulative Enrollments as the number of enrollments since
inception as of the end of the period. An Enrollment is defined as any member
who has registered for the CLEAR platform since inception and has a profile
(including limited time free trials regardless of conversion to paid membership)
net of duplicate and/or purged accounts. This includes CLEAR Plus members who
have completed enrollment with CLEAR and have ever activated a payment method,
plus associated family accounts. Management views this metric as an important
tool to analyze the efficacy of our growth and marketing initiatives as new
members are potentially a current and leading indicator of revenues.
As of
March 31, March 31,
2022 2021 Change % Change
Total Cumulative Enrollments
(in thousands) 11,819 5,562 6,257 112%
Total Cumulative Enrollments were 11,819 as of March 31, 2022 and 5,562 as of
March 31, 2021 , which represented a 112% increase. The year over year growth was
driven by continued strength in air travel and platform (mobile) enrollments.
Total Cumulative Platform Uses
We define Total Cumulative Platform Uses as the number of individual engagements across CLEAR use cases, including in-airport verifications, since inception as of the end of the period. We also include airport lounge access verifications, sports and entertainment venue verifications andHealth Pass surveys since inception as of the end of the period. Management views this metric as an important tool to analyze the level of engagement of our member base which can be a leading indicator of future growth, retention and revenue. As of March 31, March 31, 2022 2021 Change % Change Total Cumulative Platform Uses (in thousands) 95,283 60,792 34,491 57% Total Cumulative Platform Uses was 95,283 as ofMarch 31, 2022 and 60,792 as ofMarch 31, 2021 , which represented a 57% increase, driven by CLEAR Plus verifications in connection with a rebound in air travel, and continuing use ofHealth Pass andDigital Vaccine Pass at large events and return to work for enterprise partners.
Annual CLEAR Plus Net Member Retention
We define Annual CLEAR Plus Net Member Retention as one minus the CLEAR Plus net
member churn on a rolling 12 month basis. We define "CLEAR Plus net member
churn" as total cancellations net of winbacks in the trailing 12 month period
divided by the average active CLEAR Plus members as of the beginning of each
month within the same 12 month period. Winbacks are defined as reactivated
members who have been cancelled for at least 60 days. Active CLEAR Plus members
are defined as members who have completed enrollment with CLEAR and have ever
activated a payment method for our in-airport CLEAR Plus service, including
their registered family plan members. Active CLEAR Plus members also include
those in a grace period of up to 45 days after a billing failure during which
time we attempt to collect updated payment information. Management views this
metric as an important tool to analyze the level of engagement of our member
base, which can be a leading indicator of future growth and revenue, as well as
an indicator of customer satisfaction and long term business economics.
As of
March 31 , March 31,
2022 2021 Change
Annual CLEAR Plus Net Member Retention 95.3% 77.2%
18.1%
Annual CLEAR Plus Net Member Retention was 95.3% as ofMarch 31, 2022 and 77.2% as ofMarch 31, 2021 , a year-over year increase of 1,810 basis points. The performance was driven by strength in gross renewals and winbacks of previously cancelled members. Non-GAAP Financial Measures 32
-------------------------------------------------------------------------------- Table of Contents In addition to our results as determined in accordance with GAAP, we disclose Adjusted EBITDA, Free Cash Flow, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Common Share, Diluted as non-GAAP financial measures that management believes provide useful information to investors. These measures are not financial measures calculated in accordance with GAAP and should not be considered as a substitute for net income (loss), or any other operating performance measure calculated in accordance with GAAP, and may not be comparable to a similarly titled measure reported by other companies. Our Non-GAAP financial measures are expressed in thousands.
Adjusted EBITDA
We define Adjusted EBITDA (Loss) as net income (loss) adjusted for income taxes, interest (income) expense net, depreciation and amortization, losses on asset disposals, equity-based compensation expense, mark to market of warrant liabilities, other income (expense), net, acquisition-related costs and changes in fair value of contingent consideration. Adjusted EBITDA (Loss) is an important financial measure used by management and our board of directors in determining performance-based compensation for our management and key employees.
Adjusted Net Income (Loss)
We define Adjusted Net Income (Loss) as Net income (loss) attributable toClear Secure, Inc. adjusted for the net income (loss) attributable to non-controlling interests, equity-based compensation expense, amortization of acquired intangible assets, acquisition-related costs, changes in fair value of contingent consideration and the income tax effect of these adjustments. Adjusted Net Income (Loss) is used in the calculation of Adjusted Net Income (Loss) per Common Share as defined below.
Adjusted Net Income (Loss) Per Common Share
We compute Adjusted Net Income (Loss) Per Common Share, Basic as Adjusted Net Income (Loss) divided by Adjusted Weighted-Average Shares Outstanding for our Class A Common Stock, Class B Common Stock, ClassC Common Stock and Class D Common Stock assuming the exchange of all vested and outstanding common units inAlclear at the end of each period presented. We do not present Adjusted Net Income (Loss) per Common Share for shares of our Class B Common Stock although they are participating securities based on the assumed conversion of those shares to our Class A Common Stock. We do not present Adjusted Net Income (Loss) per Common Share on a dilutive basis for periods where we have Adjusted Net Loss since we do not assume the conversion of any potentially dilutive equity instruments as the result would be antidilutive. In periods where we have Adjusted Net Income, the Company also calculates Adjusted Net Income (Loss) Per Common Share, Diluted based on the effect of potentially dilutive equity instruments for the periods presented using the treasury stock/if-converted method, as applicable. Adjusted Net Income (Loss) per Common Share is only applicable for periods afterJune 29, 2021 , post the Reorganization Transactions and IPO. Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Common Share exclude, to the extent applicable, the tax effected impact of non-cash expenses and other items that are not directly related to our core operations. These items are excluded because they are connected to the Company's long term growth plan and not intended to increase short term revenue in a specific period. Further, to the extent that other companies use similar methods in calculating non-GAAP measures, the provision of supplemental non-GAAP information can allow for a comparison of the company's relative performance against other companies that also report non-GAAP operating results.
Free Cash Flow
We define Free Cash Flow as net cash provided by (used in) operating activities adjusted for purchases of property and equipment plus the value of share repurchases over fair value. With regards to our CLEAR Plus subscription service, we generally collect cash from our members upfront for annual subscriptions. As a result, when the business is growing Free Cash Flow can be a real time indicator of the current trajectory of the business.
See below for reconciliations of these non-GAAP financial measures to their most comparable GAAP measures.
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Reconciliation of Net income (loss) to Adjusted EBITDA (Loss):
Three Months Ended
March 31, March 31,
(In thousands) 2022 2021
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 Income (Loss) to Adjusted Net Income (Loss)
Three Months Ended
March 31, March 31,
(In thousands) 2022 2021
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) As stated above, due to the Company incurring a net loss for the periods presented, the Company has not calculated Adjusted Weighted-Average Shares Outstanding, Dilutive.
Calculation of Adjusted Weighted-Average Shares Outstanding
As of March 31, 2022 As of March 31, 2021 Weighted-average number of shares outstanding, basic for Class A Common Stock
76,672,530 -
Adjustments
Assumed weighted-average conversion of issued and outstanding Class B Common Stock
1,042,234 -
Assumed weighted-average conversion of issued and outstanding Class
44,000,927 -
Assumed weighted-average conversion of issued and outstanding Class D Common Stock
26,705,415 -
Assumed weighted-average conversion of vested and outstanding warrants
162,957 -
Adjusted Weighted-Average Number of Shares Outstanding, Basic 148,584,063 -
Calculation of Adjusted Net Income (Loss) Per Common Share, Basic
Three Months Ended March
31, 2022
Adjusted net loss (4,999)
Adjusted weighted-average number of shares outstanding, basic 148,584,063
Adjusted net loss per common share, basic $ (0.03)
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Reconciliation of Net cash provided by (used in) operating activities to Free
Cash Flow:
Three Months Ended
March 31, March 31,
(In thousands) 2022 2021
Net cash provided by (used in) operating activities
(5,533) (8,794)
Share repurchases over fair value - 712 Free Cash Flow$ 19,399 $ (8,417)
Components of Results of Operations
Revenue
The Company derives substantially all of its revenue from subscriptions to its consumer aviation service, CLEAR Plus. The Company offers certain limited-time free trials, family pricing, and other beneficial pricing through several channels, including airline and credit card partnerships. Membership subscription revenue is presented net of taxes, refunds, credit card chargebacks, and estimated amounts due to a credit card partner. The Company also generates revenue in relation to sports stadiums andHealth Pass which are and historically have been immaterial to our results. Sports stadium revenues consist of fees for use of the Company's pods for security entry at various venues as well as access for members to dedicated entry lanes at various sports stadiums across the country. Additionally, the Company generates revenue from transaction fees charged either per use or per user over a predefined time period, which may include one-time implementation fees, platform licensing fees, hardware-leasing fees or incremental transaction fees.
Operating Expenses
The Company's expenses consist of cost of revenue share fees, cost of direct salaries and benefits, research and development, sales and marketing, general and administrative expenses and depreciation and amortization expenses.
Cost of Revenue Share Fee
The Company operates as a concessionaire in airports and shares a portion of the
gross receipts generated from the Company's members with the host airports and
airlines ("Revenue Share"). The Revenue Share fee is generally prepaid to the
host airport in the period collected from the member. The Revenue Share fee is
capitalized and subsequently amortized to operating expense over each member's
subscription period, as the payments are refundable on a pro rata basis. Such
prepayments are recorded in "Prepaid Revenue Share fee" in the Company's
condensed consolidated balance sheets. Cost of Revenue Share also includes a
fixed fee component which is expensed in the period incurred and certain
overhead related expenses paid to the airports in relation to our Revenue Share
arrangements.
Cost of Direct Salaries and Benefits
Cost of direct salaries and benefits includes employee-related expenses and allocated overhead associated with our field ambassadors directly assisting members and their corresponding travel related costs. Employee-related costs recorded in direct salaries and benefits consist of salaries, taxes, benefits and equity-based compensation. Such amounts are direct costs of services and are recorded in "Cost of direct salaries and benefits" in the Company's condensed consolidated statement of operations.
Research and Development
Research and development expenses consist primarily of employee related
expenses, allocated overhead costs and costs for contractors related to the
Company's development of new products and services and improving existing
products and services. Research and development costs are generally expensed as
incurred, except for costs incurred in connection with the development of
internal-use software that qualify for capitalization as described in our
internal-use software policy. Employee-related expenses consist of salaries,
taxes, benefits and equity-based compensation.
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Sales and Marketing
Sales and marketing expenses consist primarily of costs of general marketing and promotional activities, advertising fees used to drive subscriber acquisition, commissions, the production costs to create our advertisements, expenses related to employees who manage our marketing and brand and allocated overhead costs.
General and Administrative
General and administrative expenses consist primarily of employee-related expenses for the executive, finance, accounting, legal, and human resources functions. Employee-related expenses consist of salaries, taxes, benefits and equity-based compensation. General and administrative costs also include the Company's warrant expense and changes in the fair value of contingent consideration. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting and other professional fees, variable credit card fees and variable mobile enrollment costs, and and all other supporting corporate expenses not allocated to other departments.
Interest Income, Net
Interest Income, net consists of interest income from our investment holdings partially offset by interest expense, which primarily includes amortization of discounts on our marketable securities and issuance costs on our revolving credit facility.
Other Income (Expense), Net
Other Income (Expense), Net consists of certain non-recurring non-operating items including income recognized in relation to a minimum annual guarantee paid to us by a marketing partner and impairment on long-lived assets.
Provision for Income Taxes
As a result of the IPO and Reorganization, the Company became the sole managing member ofAlclear , which is treated as a partnership forU.S. federal and most applicable state and local income tax purposes. As a partnership,Alclear is not subject toU.S. federal and most state and local income taxes. Any taxable income or loss generated byAlclear is passed through to and included in the taxable income or loss of its members, including the Company, based on ownership interest. The Company is subject toU.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss ofAlclear , as well as any stand-alone income or loss generated by the Company. The Company is also subject to income taxes inIsrael ,Argentina , andMexico . 36
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Comparison of the three months ended
Three Months Ended
March 31, March 31,
2022 2021 $ Change % Change
Revenue $ 90.5 $ 50.6 $ 39.9 79 %
Operating expenses:
Cost of revenue share fee $ 12.1 $ 7.8 $ 4.3 55 %
Cost of direct salaries and benefits
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 % Other income (expense) Interest income (expense), net $ -$ (0.1) $ 0.1 N/A Other income (expense), net$ (0.3) $ -$ (0.3) N/A Income (loss) before tax$ (18.5) $ (13.1) $ (5.4) 41 % Income tax benefit (expense)$ (0.3) $ -$ (0.3) N/A Net income (loss)$ (18.8) $ (13.1) $ (5.7) 44 %
Information about our operating expenses for the three and three months ended
Revenue
Three Months ended March 31,
2022 2021 $ Change % Change
Revenue $ 90.5 $ 50.6 $ 39.9 79 %
Revenue increased by $39.9 million , or 79%, for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 . The increase was
primarily due to a 73% increase in the number of average CLEAR Plus members, a
3% increase in average revenue per CLEAR Plus member, and a 1,810 bps increase
in Annual CLEAR Plus Net Member Retention in the three months ended March 31,
2022 as compared to the three months ended March 31, 2021 . Approximately 30% and
27% of paying CLEAR Plus members in the three months ended March 31, 2022 and
2021, respectively, were on a family plan.
Cost of revenue share fee
Three Months ended March 31,
2022 2021 $ Change % Change
Cost of Revenue Share Fee $ 12.1 $ 7.8 $ 4.3 55 %
Cost of revenue share fee increased by $4.3 million , or 55%, for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021 .
The change was driven by an increase of $.8 million due to a 37% increase in
fixed airport fees, and $3.5 million due to a 64% increase in per member fees.
Cost of direct salaries and benefits
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Three Months ended March 31,
2022 2021 $ Change % Change
Cost of direct salaries and benefits $ 23.0 $ 12.1 $ 10.9 90 %
Cost of direct salaries and benefits expenses increased by
Research and development
Three Months ended March 31,
2022 2021 $ Change % Change
Research and development $ 15.5 $ 9.0 $ 6.5 72 %
Research and development expenses increased by $6.5 million , or 72%, for the
three months ended March 31, 2022 compared to the three months ended March 31,
2021 . The change was primarily due to an increase of $6.9 million of
employee-related expenses, including equity-based compensation, including recent
acquisitions and partially offset by a decrease of $0.7 million for professional
fees.
Sales and marketing
Three Months ended March 31,
2022 2021 $ Change % Change
Sales and marketing $ 7.8 $ 5.0 $ 2.8 56 %
Sales and marketing expenses increased by $2.8 million , or 56%, for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021 .
The change was driven by an increase ambassador commission expense due to higher
new member enrollments and a $0.7 million increase largely driven by
employee-related expenses, including equity based compensation, partially offset
by a $1.0 million decrease in discretionary marketing expense
General and administrative
Three Months ended March 31,
2022 2021 $ Change % Change
General and administrative $ 45.9 $ 27.2 $ 18.7 69 %
General and administrative expenses increased by $18.7 million , or 69%, for the
three months ended March 31, 2022 compared to the three months ended March 31,
2021 . The increase was primarily driven by a net increase in equity-based
compensation costs of $7.9 million , which was offset by a reduction in the mark
to market of warrant liabilities of $1.9 million . Additionally, salaries and
benefits increased by $5.2 million and public company expenses as a result of
the IPO increased by $1.4 million .
Non-operating income (expense)
Three Months ended March 31,
2022 2021 $ Change % Change
Interest Income (expense), net $ - $ (0.1) $ 0.1 N/A
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Interest income, net increased by$0.1 million , for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was driven by higher interest income, partially offset by higher amortization of discounts on our marketable securities. Three Months ended March 31, 2022 2021 $ Change % Change Other income $ - $ - $ - N/A Other expense$ (0.3) $ -$ (0.3) N/A Other income (expense), net$ (0.3) $ -$ (0.3) N/A Other income (expense), net increased by$0.3 million , for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was primarily due to the impairment of long-lived assets during the current year. Income tax expense Three Months ended March 31, 2022 2021 $ Change % Change Income tax expense$ (0.3) $ -$ (0.3) N/A Income tax expense increased by$0.3 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase was primarily due to the impact ofAlclear being a partnership and allocating its taxable results to its non-controlling members, the movement in the valuation allowance and state and foreign taxes.
Liquidity and Capital Resources
Our operations have been financed primarily through equity financing and cash
flow from operating activities. As of
Historically, our principal uses of cash have included funding our operations, capital expenditures, repurchases of members' equity and more recently, business combinations that enhance our strategic positioning. We plan to finance our operations and capital expenses largely through cash generated from the proceeds of our IPO and operations. We believe our existing cash and cash equivalents, marketable securities, cash provided by operations and the availability of additional funds under our Credit Agreement (as defined below) will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, including known commitments and contingencies as discussed below. Future capital expenditure will generally relate to building enhancements to the functionality of our current platform, equipment, leasehold improvements and furniture and fixtures related to office expansion and relocation, and general corporate infrastructure. We have planned capital expenditures related to the build out of our new office space of approximately$16.5 million in the next 12 to 24 months. We are still early in this process and engaging vendors for the project, and as is the case with any large-scale construction project, the timing and amounts of these expenditures are therefore subject to uncertainty. As a result of the COVID-19 pandemic, our operations have been, and we expect they will continue to be, adversely impacted by government mandated regulations, and the social distancing practices and health concerns of our guests and employees. In light of the evolving nature of COVID-19 and the uncertainty it has produced around the world, we do not believe it is possible to predict the cumulative and ultimate impact of the COVID-19 pandemic on our future business, results of operations and financial condition. See "Risk Factors-Risk Related to Our Business, Brand and Operations-The COVID-19 pandemic has impacted, and may continue to impact, our business, results of operations and financial condition" in our Annual Report on Form 10-K.
Credit Agreement
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OnMarch 31, 2020 , we entered into a credit agreement (the "Credit Agreement") for a three-year$50 million revolving credit facility that expires onMarch 31, 2023 . Borrowings under the Credit Agreement generally will bear interest between 1.5% and 2.5% per year and will also include interest based on the greater of the prime rate, LIBOR orNew York Federal Reserve Bank ("NYFRB") rate, plus an applicable margin for specific interest periods. InApril 2021 , the Company increased the size of the revolving credit facility to$100 million . As ofMarch 31, 2022 , we had not drawn on the revolving credit facility and did not have outstanding borrowings under the Credit Agreement. We have the option to repay any borrowings under the Credit Agreement without premium or penalty prior to maturity. In addition, the Credit Agreement contains certain other covenants (none of which relate to financial condition), events of default and other customary provisions, and also contains customary LIBOR replacement mechanics. The Credit Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates, as well as customary covenants that restrict our ability to, among other things, incur additional indebtedness, sell certain assets, guarantee obligations of third parties, declare dividends or make certain distributions, and undergo a merger or consolidation or certain other transactions.
At
Cash Flow
The following summarizes our cash flows for the three months ended
Three Months Ended
2022 2021 $ Change
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 )
Cash, cash equivalents, and restricted cash,
beginning of year $309.1 $139.1 $170.0 Cash, cash equivalents, and restricted cash, end of period
$328.4 $198.7 $129.7
Cash flows from operating activities
For the three months endedMarch 31, 2022 , net cash provided by operating activities was$24.9 million compared to net cash used in operating activities of$0.3 million for the three months endedMarch 31, 2021 , an increase of$25.2 million due to favorable changes in working capital of$16.7 million primarily related to prepaid and other current assets, accrued liabilities and deferred revenue. Additionally, there was an increase in non-cash adjustments to net loss of$14.2 million . These increases were offset by an increase in net loss of$5.7 million .
Cash flows from investing activities
For the three months endedMarch 31, 2022 , net cash used in investing activities was$5.6 million compared to$8.9 million for the three months endedMarch 31, 2021 , a decrease of$3.3 million primarily due to a a decrease of$3.3 million relating to the purchase of property and equipment.
Cash flows from financing activities
For the three months endedMarch 31, 2022 , net cash used in financing activities was $- million compared to net cash provided by financing activities of$68.8 million for the three months endedMarch 31, 2021 , a decrease of$68.8 million . The decrease was primarily due to a decrease of$80.3 million in the proceeds from the issuance of members' units offset by a decrease in amounts used to repurchase member's deficit of$11.7 million .
Commitments and Contingencies
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We have non-cancelable operating lease arrangements for office space. As of
OnNovember 4, 2021 , the Company entered into a lease of an office building to house the Company's corporate headquarters. The Lease Agreement provides for a commencement on the later ofOctober 1, 2022 or the date on which the Landlord delivers possession of the premises with certain agreed upon improvements to be made by the Landlord completed. The term of the Lease Agreement is fifteen years after the date that rent obligations begin, with an option to renew for one 5-year or 10-year period at Fair Market Value (as defined in the Lease Agreement) by providing the Landlord with 18 months' notice and certain other requirements. The aggregate undiscounted future minimum lease payments are approximately$177.5 million . We enter into agreements with airports for access to floor and office space. As ofMarch 31, 2022 , we had future minimum payments of$39.8 million , with$13.0 million due in 2022. See Note 19 within the condensed consolidated financial statements.
The Company has commitments for future marketing expenditures to sports stadiums
of
The Company is subject to certain minimum spend commitments of approximately
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods.The Securities and Exchange Commission ("SEC") has defined a company's critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. Tax Receivable Agreement The Company entered into a Tax Receivable Agreement ("TRA") which generally provides for payment by the Company to the remaining members ofAlclear , the "TRA Holders," of 85% of the net cash savings, if any, inU.S. federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. The Company will retain the benefit of the remaining 15% of these net cash savings. As ofMarch 31, 2022 , the Company did not record a liability from the TRA.
Business Combinations
Accounting for business combinations requires us to make significant estimates and assumptions with respect to the the fair value of identifiable assets and liabilities acquired in a business combination, especially with respect to intangible assets. The initial fair values recorded are subject to adjustments for up to one year after the closing date of the acquisition to reflect final valuations.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies within the condensed consolidated financial statements, for recently issued accounting pronouncements and their expected impact.
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