Business context and reporting period
Clear Secure, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. CLEAR operates a secure identity platform, with most revenue from annual CLEAR Plus aviation subscriptions. Its offerings also include the CLEAR App, Reserve virtual queuing, and identity-verification tools for partners. CLEAR Plus operated in 46 airports. Unless otherwise stated, financial amounts below are in millions of dollars.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $115.9 | $67.6 | $309.2 | $173.3 |
| Operating loss | $(65.7) | $(32.6) | $(97.1) | $(83.4) |
| Net loss | $(65.6) | $(32.8) | $(96.7) | $(84.0) |
| Net loss attributable to Clear Secure, Inc. | $(36.8) | $(16.9) | $(54.2) | $(18.9) |
| Adjusted EBITDA (non-GAAP) | $11.9 | $(14.5) | $14.7 | $(40.1) |
| Operating cash flow | $13.2 | $34.9 | $89.0 | $38.0 |
| Free cash flow (non-GAAP) | $5.3 | $28.1 | $66.0 | $16.6 |
Revenue rose 71% in Q3 and 78% year to date. Growth reflected more average CLEAR Plus members and modestly higher average revenue per member. Reported GAAP losses widened, while adjusted EBITDA improved to positive in both 2022 periods. The company reported adjusted net income of $8.1 million for Q3 and $3.6 million for the first nine months; these are non-GAAP measures.
Q3 operating expenses included a $58.8 million warrant-related equity-compensation charge in general and administrative expense. Equity-based compensation totaled $73.1 million for the quarter and $98.5 million for the nine months. These charges materially affect comparisons between GAAP results and adjusted measures.
At September 30, 2022, cash and cash equivalents were $329.1 million, marketable securities $342.3 million, and restricted cash $29.3 million. Current assets were $706.5 million against current liabilities of $340.6 million; deferred revenue was $255.7 million, versus $188.6 million at year-end 2021. Total liabilities were $364.5 million and stockholders’ equity $530.3 million. The company had no borrowings under its $100 million revolving credit facility and was in covenant compliance. The facility was scheduled to mature March 31, 2023.
Changes, outlook, risks and unusual items
- Management attributed growth in revenue and bookings to the continuing recovery in air travel, partner-channel strength, higher enrollments and improved retention. Total Bookings increased 47% in Q3 and 63% for the nine months.
- Total cumulative enrollments reached 14.2 million, up 76% year over year; cumulative platform uses reached 117.6 million, up 63%. Annual CLEAR Plus net member retention improved to 92.2% from 87.4%.
- Management said existing cash, securities, operating cash flow and available credit should meet working-capital and capital needs for at least the next 12 months, including known commitments and the announced special dividend. No specific revenue or earnings guidance was provided.
- Post-quarter, the board declared a special cash dividend of $0.25 per Class A and Class B share, payable December 7, 2022. The company expects to fund it through distributions from Alclear, whose members include holders of non-controlling interests.
- The company reported $38.1 million of future minimum airport fees, $8.6 million of minimum service-spend commitments over two years, and $3.8 million of future stadium marketing commitments. Its new headquarters lease carries approximately $195.8 million of undiscounted minimum payments; commencement was expected in November 2022, with an estimated $107 million increase in lease assets and liabilities.
- Risks include dependence on travel volumes, member acquisition and retention, airport and other partner relationships, discretionary spending, timing of launches, and potentially rising operating expenses. The company also cited uncertainty from COVID-19 impacts. Its 85% tax receivable agreement obligation is not recorded as a liability because payment was not considered probable.
- The company repurchased 213,100 shares for $4.9 million during Q3, with $95.1 million remaining under its authorization. It noted that a 1% federal excise tax on net stock repurchases applies after December 31, 2022.
- Subsequent events also included an expected approximately $1.5 million impairment tied to a lease modification and sublease, and United Airlines’ October exercise of warrants, for which approximately $3.5 million of remaining compensation expense was expected in Q4.
Important facts for investors to verify
- How much of revenue and bookings growth is recurring subscription growth, and how do member conversion, retention and average revenue per member trend?
- How much of adjusted EBITDA and free cash flow improvement reflects noncash compensation and subscription cash collected in advance, versus durable operating profitability?
- What is the future dilution and compensation impact of United Airlines warrants, other warrants and equity awards?
- What are the cash and ownership effects of the special dividend, non-controlling interests, repurchases and the headquarters lease commitments?
- What are the current status and terms of the revolving credit facility, including its stated March 2023 maturity?