Clear Secure, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Clear Secure operates the CLEAR identity platform, led by CLEAR Plus airport-security subscriptions. The company completed its IPO on July 2, 2021 and reorganized its ownership structure in connection with the offering. Unless stated otherwise, amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $67.6 | $56.4 | $173.3 | $177.6 |
| Operating income (loss) | $(32.6) | $10.7 | $(83.4) | $(18.9) |
| Net income (loss), consolidated | $(32.8) | $11.1 | $(84.0) | $(17.8) |
| Adjusted EBITDA (non-GAAP) | $(14.5) | $14.0 | $(40.1) | $41.8 |
| Operating cash flow | $34.9 | $16.8 | $38.0 | $(28.5) |
| Free cash flow (non-GAAP) | $28.1 | $14.1 | $16.6 | $12.8 |
- Q3 revenue grew 20%, while nine-month revenue declined 2%. Q3 average monthly CLEAR Plus members rose 20.4%; average revenue per member declined 0.5%. For the nine-month period, average monthly members increased 0.4%, while average revenue per member fell 2.9%.
- Q3 operating and consolidated net margins were approximately negative 48% each, compared with positive 19% and 20%, respectively, in Q3 2020. Nine-month operating and net margins were approximately negative 48%, versus negative 11% and 10%, respectively, in the prior-year period.
- Q3 net loss attributable to Clear Secure, Inc. was $16.9 million; reported basic and diluted loss per Class A and B share was $0.23. Consolidated results include losses attributable to non-controlling interests.
- At September 30, cash and cash equivalents were $337.8 million, marketable debt securities were $335.5 million, and restricted cash was $22.8 million. Current assets were $700.6 million and current liabilities $214.8 million. Deferred revenue was $159.6 million.
- There were no borrowings under the $100 million revolving credit facility; the company reported covenant compliance. Total liabilities were $218.2 million. IPO proceeds were approximately $445.9 million after underwriting discounts and commissions; the filing reports $437.5 million of IPO proceeds net of underwriter fees and issuance costs in financing cash flows.
- Nine-month investing cash outflow was $320.5 million, mainly reflecting net purchases of marketable securities and capital spending. Financing cash inflow was $504.0 million, primarily reflecting the IPO.
Material changes and operating indicators
- Q3 Total Bookings rose 89% to $99.3 million; nine-month bookings increased 48% to $231.4 million. Management attributed growth to recovering air travel and a credit-card partnership launched July 1, 2021. Bookings include revenue plus the change in deferred revenue and are a company-defined indicator, not GAAP revenue.
- Cumulative enrollments reached 8.076 million, up 58% year over year; the company reported 1.755 million new enrollments in Q3. Cumulative platform uses increased 27% to 72.184 million.
- Annual CLEAR Plus net member retention was 87.4%, up from 81.2% a year earlier and above pre-pandemic levels, according to management.
- Operating expenses rose substantially in Q3: direct salaries and benefits increased 132%, research and development 111%, sales and marketing 203%, and general and administrative 153%. Management cited increased staffing with travel recovery, growth investments, public-company costs, and higher equity-based compensation. Equity-based compensation was $14.1 million in Q3 versus $0.6 million in Q3 2020.
- Nine-month operating cash flow improved from an outflow to an inflow, principally due to working-capital changes, including deferred revenue and accrued liabilities, and non-cash adjustments; this was partly offset by a larger net loss.
Outlook, risks and unusual items
- The filing gives no specific revenue, earnings, or cash-flow guidance. Management said existing cash, operating cash flow, marketable securities, and facility availability should cover working capital and capital needs for at least the next 12 months.
- Management expects expenses to rise as travel demand recovers, including staffing, sales and marketing, research and development, public-company costs, and equity compensation. Revenue recognition for subscriptions generally extends over the subscription term, so reported revenue may lag bookings. The company cautioned that it may incur net losses and negative Adjusted EBITDA.
- COVID-19 remains a source of uncertainty and may continue to affect results. The business is substantially dependent on CLEAR Plus subscriptions and travel activity; risks also include member acquisition and retention, partner relationships and launch timing, consumer spending, and the possibility of rising acquisition costs or weaker engagement.
- Q3 results included $12.6 million of equity-based compensation and $1.5 million of warrant expense. Nine-month results included $12.8 million of warrant-liability expense; the warrant liability was zero at September 30 after exercises, settlements, and fair-value changes.
- The company has $78.0 million of future minimum payments under lease and airport agreements and $5.5 million of sports-stadium marketing commitments. It disclosed no off-balance-sheet arrangements and said current litigation was not expected to have a material adverse effect.
- The Tax Receivable Agreement provides for payment to certain members of 85% of qualifying tax savings; no TRA liability was recorded at September 30. A November 4, 2021 headquarters lease for approximately 120,000 square feet has a 15-year term once rent obligations begin. The company anticipated that adoption of lease accounting in 2022 would materially increase balance-sheet assets and liabilities.
- Management concluded disclosure controls were effective and reported no material changes to internal control over financial reporting. The filing disclosed no material changes to previously reported risk factors.
Important facts for investors to verify
- Whether bookings and enrollment growth convert into paid CLEAR Plus members and sustained GAAP revenue, particularly as revenue recognition lags bookings.
- Whether the improved retention rate persists and how membership growth, family plans, and the new credit-card partnership affect revenue per member and unit economics.
- How quickly operating expenses and equity-based compensation grow relative to revenue, and whether the company can return to positive operating results and Adjusted EBITDA.
- The sustainability and composition of positive operating cash flow, including the contribution from deferred revenue and other working-capital movements.
- Future effects of Alclear member exchanges, the multi-class share structure, non-controlling interests, and potential TRA payments on ownership, earnings attribution, and cash available to Clear Secure.