Clear Secure, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Clear operates the CLEAR identity platform, with substantially all revenue from CLEAR Plus consumer aviation subscriptions. Amounts below are in millions of dollars unless otherwise noted.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $149.9 | $102.7 | $282.2 | $193.3 |
| Operating income (loss) | $0.2 | $(13.1) | $(14.8) | $(31.4) |
| Net income (loss), consolidated | $8.0 | $(12.3) | $(0.2) | $(31.1) |
| Net income (loss) attributable to Clear Secure, Inc. | $4.0 | $(7.2) | $(1.2) | $(17.5) |
| Adjusted EBITDA (non-GAAP) | $20.0 | $3.5 | $30.6 | $2.8 |
| Operating cash flow | $75.0 | $50.9 | $135.8 | $75.9 |
| Free cash flow (non-GAAP) | $66.6 | $41.2 | $118.0 | $60.6 |
Q2 operating margin was approximately 0.1%, compared with approximately negative 12.8% a year earlier; six-month operating margin was approximately negative 5.3%, versus negative 16.2%. These margins are calculated from reported revenue and operating income or loss.
- Liquidity: At June 30, cash and cash equivalents were $57.2 and marketable securities were $707.8. Current assets were $806.5 and current liabilities $496.8. Cash, cash equivalents and restricted cash totaled $65.3.
- Debt: No revolving credit facility borrowings were outstanding. Remaining borrowing capacity, net of standby letters of credit, was $77.1. The facility maturity was extended to June 28, 2026; the company reported compliance with covenants.
- Deferred revenue: $320.6 at quarter-end, up from $283.5 at December 31, 2022, reflecting advance subscription receipts.
Material changes and operating metrics
- Revenue grew 46% year over year in both Q2 and the first half, primarily from growth in CLEAR Plus members. Q2 Total Bookings, a non-GAAP operating metric defined as revenue plus the change in deferred revenue, rose 42% to $175.1; first-half bookings rose 41% to $324.8.
- Active CLEAR Plus members increased 41% year over year to 6.183 million; cumulative enrollments rose 33% to 17.385 million and cumulative platform uses increased 45% to 154.317 million.
- Annual CLEAR Plus net member retention declined to 90.7% from 94.3%, which management attributed to normalization of winback activity from pandemic levels. Annual member usage increased to 8.7x from 8.4x.
- Operating expenses increased alongside growth and investment. For the first half, revenue-share fees rose 67%, direct salaries and benefits 40%, research and development 48%, and general and administrative expense 21%. Management cited airport expansion, higher travel volumes, staffing, compensation, overhead and technology costs.
- Net interest income rose to $7.4 in Q2 and $13.8 for the first half, primarily reflecting interest earned on cash and marketable securities. The company reported first-half net income close to breakeven on a consolidated basis, but a small loss attributable to Clear Secure, Inc.
Outlook, commentary, risks and unusual items
- No numeric revenue, earnings or cash-flow guidance is provided. Management said existing cash, securities, operating cash flow and available credit should fund working capital and capital needs for at least the next 12 months.
- CLEAR said it was working with TSA toward a soft launch and public launch of TSA PreCheck enrollment services at select locations, which it expected in 2023, subject to meeting TSA requirements and completing a trial. The filing cautions that timing and approval are not assured.
- Key business risks include retention and conversion of members, the cost and effectiveness of member acquisition, travel and consumer-spending conditions, airport and partner relationships, and competition from government, airline and private identity-verification technologies. Changes to TSA requirements—including random reverification and technical integration standards—could affect customer experience, costs and operations.
- First-half cash outflows included $45.1 of share repurchases, $18.1 of special dividends and $13.9 of tax distributions to Alclear members. The company had $50.0 remaining under its repurchase authorization at June 30. Subsequent to quarter-end, it adopted a quarterly dividend policy and declared an initial $0.07-per-share dividend.
- Unusual or notable items included $3.7 of first-half asset impairment, including a $1.5 right-of-use asset impairment tied to a sublease; $30.9 of equity-based compensation for the first half; and a $6.0 strategic investment in a private company. A potential tax receivable agreement liability of approximately $68.5 was not recorded because management determined it was not probable.
- The company reported no legal proceedings expected to have a material adverse effect. It disclosed the resignation of its Chief Product Officer, effective August 20, 2023, and said an internal candidate was selected to fill the role.
Important facts for investors to verify
- Whether member growth and bookings can continue while retention remains below the prior-year level.
- How airport revenue-share costs, staffing, research and development, and equity compensation affect operating profitability as revenue scales.
- Progress and timing of TSA PreCheck enrollment approval, and any operational impact from evolving TSA requirements or competing identity solutions.
- Composition and liquidity of the securities portfolio, including sensitivity to interest-rate movements; the filing estimates a 100-basis-point rate change could move available-for-sale fair value by about $3.7.
- Future cash uses, including repurchases, dividends, capital investment, airport minimum fees, lease commitments and potential tax receivable agreement payments.
- Non-GAAP measures such as Adjusted EBITDA, Free Cash Flow and Total Bookings are company-defined and should be assessed alongside GAAP results.