| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The consolidated financial statements are prepared in accordance with U.S. GAAP and presented in U.S. Dollars in thousands. Intercompany transactions and balances are eliminated upon consolidation. The Company has one operating and reportable segment, which includes the operations of the businesses acquired during the year ended December 31, 2021. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgements, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. The Company’s most significant estimates include: • The fair value of equity instruments • The estimated fair value of intangible assets in conjunction with acquisitions The Company evaluates, on an ongoing basis, its assumptions and estimates and adjusts prospectively, if necessary; however, actual results could differ from these estimates. Significant Accounting Policies Concentration of Credit Risk Financial instruments that are exposed to concentrations of credit risk consist principally of cash and cash equivalents. The Company is exposed to credit risk in the event of default by the financial institutions to the extent of the amounts held in excess of federal insurance limits. Exposure to credit risk is reduced by placing such deposits or other temporary investments with high credit quality financial institutions. As of December 31, 2021 and 2020, the Company held cash balances in excess of insured limits. Revenue Recognition The Company has derived substantially all of its historical 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 refunds, credit card chargebacks and estimated payments to a credit card partner. Other revenue consists of revenue streams relating to sports stadiums and to Health Pass and are not significant. Sports stadium revenues consist of fees for use of the Company’s pods for security entry at various sports stadiums, as well as access for members to dedicated entry lanes at various sports stadiums across the country. Other revenue also consists of transaction fees charged either per use or per user over a predefined time period, and may include one-time implementation fees, platform licensing fees, hardware-leasing fees or incremental transaction fees. Under Accounting Standards Codification (ASC) 606, Revenue Recognition, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Subscription revenue In determining how revenue should be recognized, the Company follows a five step process: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when or as the Company satisfies the performance obligations. Subscription revenues are invoiced to subscribers in annual installments for subscriptions to the platform. There are no significant financing components included in the Company’s contracts with customers. The Company primarily recognizes revenue ratably from its consumer aviation subscription service, CLEAR Plus. This performance obligation is satisfied over time as the series of daily services, which are distinct from each other and the customer simultaneously receives and consumes the benefits. The Company uses a time-based output measure and revenue is recognized over the period in which each of the performance obligations are satisfied, as services are rendered, which is generally over the arrangement term as all arrangements are for a period of less than 12 months. The Company uses the practical expedient permitted to not adjust the transaction price of contracts with a duration of one year or less for the effects of a significant financing component at contract inception. Contract costs The Company applies the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period is one year or less. This largely applies to sales commissions on partner subscriptions and renewals. 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 (Revenue Share). The Revenue Share fee is generally prepaid to the host airport in the period collected from the customer. 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 consolidated balance sheets. Certain host airports have fixed minimum monthly payments. The fixed monthly payments are expensed in “Revenue Share fee” in the consolidated statements of operations. Such amounts are direct costs of services and are recorded in “Cost of revenue share fee” in the consolidated statements of operations . Cost of Direct Salaries and Benefits 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 expenses 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 consolidated statement of operations. Research and Development Research and development expenses consist primarily of employee-related expenses and allocated overhead costs 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 recorded in research and development consist of salaries, taxes, benefits and equity-based compensation. 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, employee-related expenses and allocated overhead costs. Employee related expenses recorded in sales and marketing are related to employees who manage the brand and consist of salaries, taxes, benefits and equity-based compensation. These expenses are recorded as incurred. The Company pays commissions to employees for enrolling customers into free trial memberships. These costs, along with most costs under sales and marketing, are expensed as incurred, since the Company incurs these costs regardless of whether contracts with customers are obtained. As such, these sales commissions are not incremental costs of obtaining a contract. Employee-related expenses recorded in sales and marketing are related to employees who manage the brand and consist of salaries, taxes, benefits and equity-based compensation. 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. In addition, general and administrative expenses include non-personnel costs, such as legal, accounting and other professional fees, and all other supporting corporate expenses not allocated to other departments. Cash and Cash Equivalents The Company defines cash equivalents as all highly liquid investments purchased with original maturities of three months or less when purchased. Cash and cash equivalents consist primarily of short-term treasury bills and amounts held by third party financial institutions for credit and debit card transactions. Cash and cash equivalents as of December 31, 2021 and 2020 was $280,107 and $116,226, respectively, and includes amounts due from third party institutions which generally settle within three business days, of $2,872 and $940 as of December 31, 2021 and 2020, respectively. Restricted Cash Restricted cash is composed of cash held as collateral for letters of credit. See Note 8 for additional information. Marketable Securities The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such designation at each consolidated balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale. The investments herein are intended to be held for an indefinite period of time although they may be sold at management’s discretion, in response to needs for liquidity or in response to changes in the market conditions and as such, are not recognized at amortized cost, and reported as current assets on the consolidated balance sheets. The Company carries its available-for-sale securities at fair value and reports the unrealized gains and losses as a component of other comprehensive income. Accounts Receivable The Company records trade accounts receivable at the invoiced amount and they do not bear interest. The Company has a policy to review outstanding receivables on a periodic basis for collectability and does not maintain an allowance for doubtful accounts as of December 31, 2021 and 2020. Property and Equipment, Net Property and equipment, net is stated at cost, less depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 5 years. Leasehold improvements are amortized based on the shorter of the useful lives or the terms of the leases ranging from 1 to 10 years. See Note 6 for additional details on property and equipment. Internal-Use Software The Company capitalizes qualifying internal-use software development costs. During the application development phase, costs are capitalized and amortized on a straight-line basis over such software’s estimated useful life, which is generally 5 years. Capitalized software development costs are reflected in “Property and equipment, net” in the consolidated balance sheets. Software development costs incurred in the design or maintenance and minor upgrade and enhancement of software without adding additional functionality of software are expensed as incurred and included in “Research and development” in the consolidated statements of operations. See Note 6 for additional details on property and equipment. Intangible Assets Purchased brand names and logos that have been determined to have indefinite lives are not subject to amortization, but are tested for impairment annually or more frequently if circumstances indicate impairment may have occurred. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Acquired intangible assets other than goodwill comprise acquired developed technology, trade names, customer lists and patents. At initial recognition, intangible assets acquired in a business combination are recognized at their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and impairment losses. The amortization period and the amortization method for an intangible asset are reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization of intangible assets is recognized in the consolidated statement of operations in the expense category consistent with the function of the intangible assets. Goodwill Goodwill is the excess of the purchase price over the net identifiable assets acquired and liabilities assumed in a business combination. The Company assesses Goodwill for impairment annually on the first day of the fourth quarter of the fiscal year, or whenever there is a triggering event indicating that an impairment may exist. Impairment of Long-Lived Assets The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its long-lived assets, including property and equipment may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through their undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Leases Lease agreements are categorized at inception as either operating or capital leases. Within the provision of certain office leases, which are classified as operating, there are escalations in payments over the lease term. The effects of the escalations have been reflected in rent expense on a straight-line basis over the expected lease term. Any related lease incentives are recorded as a reduction in rent expense on a straight-line basis over the lease periods. The amount of rent expense recorded in excess of rental payments is reflected as “deferred rent” in the consolidated balance sheets. Income Taxes The Company is taxed as a corporation of U.S. federal and state income tax purposes. The Company’s consolidated subsidiary, Alclear, is taxed as a partnership for U.S. federal and state income tax purposes. The provision for income taxes primarily consists of only state and local jurisdictions where partnerships (i.e., flow through entities) are taxable. The Company accounts for income taxes in accordance with the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recorded to recognize the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The Company reduces deferred tax assets by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred income taxes are measured by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred income taxes is recognized in income in the period that includes the enactment date. Fair Value Measurements Refer to Note 6. Business Combinations The Company evaluates acquisitions to determine whether it is a business combination or an asset acquisition. Identifiable assets acquired and liabilities assumed are measured initially at their fair values at the acquisition date. The excess of the fair value of the purchase consideration transferred over the fair value of the identifiable net assets acquired is recognized as goodwill. Acquisition-related costs are charged to the consolidated statement of operations within general and administrative as they are incurred . Common and Treasury Stock The Company has four classes of issued and outstanding Common Stock, each measured at a par value of $0.00001. Amounts received by the Company in excess of the par value are recorded within additional-paid in capital. The Company does not have a share repurchase program. The Company’s treasury stock consists of forfeited Restricted Stock Awards that are legally issued shares held by the Company that can be utilized to settle any equity-based compensation awards issued by the Company and is recorded at par value. These shares are excluded from the calculation of the non-controlling interest ownership percentage and earnings (loss) per-share calculation. As of December 31, 2021, the Company had 223,069 shares in treasury stock. Equity-Based Compensation Under the fair value recognition provisions, the Company measures the equity-based compensation cost at the grant date based on the fair value of the award and recognizes the expense over the requisite service period, subject to the probable achievement of performance conditions, if any. The Company measures the fair value of non-employee equity based compensation expense at the grant date based on the fair value of the award and recognizes the expense in the same period and in the same manner the entity would have if it had paid cash for the goods or services. The Company records forfeitures as they occur and does not estimate the number of awards expected to be forfeited. Prior to the Reorganization, the fair value of the Company’s members’ equity units underlying the awards was determined by the board of managers with input from management and independent third-party valuation specialists, as there was no public market for the Company’s members’ equity units. The board of managers determined the fair value of the members’ equity units by considering a number of objective and subjective factors including: the valuation of comparable companies, the Company’s operating and financial performance, the lack of liquidity of members’ equity units, transactions in the Company’s Class A and Class B redeemable capital units, and general and industry specific economic outlook, amongst other factors. Post the Reorganization, the fair value of the Company’s Common Stock is based on the ending NYSE closing stock price of the Company’s shares of Class A Common Stock. Basic and Diluted Earnings (Loss) Per Share The Company applies the two-class method for calculating and presenting earnings (loss) per share by presenting earnings (loss) per share for Class A Common Stock and Class B Common Stock. In applying the two-class method, the Company allocates undistributed earnings equally on a per share basis between Class A Common Stock and Class B Common Stock. According to the Company’s certificate of incorporation, the holders of the Class A Common Stock and Class B Common Stock are entitled to participate in earnings equally on a per-share basis, as if all shares of Common Stock were of a single class. Holders of the Class A Common Stock and Class B Common Stock also have equal priority in liquidation and dividend distributions. Shares of Class C Common Stock and Class D Common Stock do not participate in earnings of the Company. As a result, the shares of Class C Common Stock and Class D Common Stock are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of earnings (loss) per share. Basic loss per share of Class A Common Stock and Class B Common Stock is computed by dividing net loss available to Clear Secure, Inc. by the respective weighted-average number of shares of Common Stock outstanding during the period, subject to certain adjustments in accordance to ASC 260. The Company applies the two-class method to calculate earnings per share for Class A Common Stock and Class B Common Stock. Accordingly, the Class A Common Stock and Class B Common Stock share equally in the Company’s net income and losses. Diluted earnings per share of Common Stock is computed by dividing net income attributable to Clear Secure, Inc., adjusted for the assumed exchange of all potentially dilutive instruments for Common Stock, by the weighted-average number of shares of Common Stock outstanding, adjusted to give effect to potentially dilutive securities. Refer to Note 16. Consolidation and Non-Controlling Interest The Company’s policy is to consolidate entities in which it has a controlling financial interest. The Company consolidates: • Voting interest entities (“VOEs”) where the Company holds a majority of the voting interest in such VOEs; and • Variable interest entities (“VIEs”) where the Company is the primary beneficiary. Since the Company is the sole managing member of Alclear, it consolidates the financial results of Alclear. Therefore, the Company reports a non-controlling interest based on Alclear Units held by the members of Alclear on the consolidated balance sheets. Income or loss is attributed to the non-controlling interests based on the weighted average common units outstanding during the period and is presented on the consolidated statements of operations and comprehensive income/(loss). Refer to Note 14 for more information. Recently Adopted Accounting Pronouncements Emerging Growth Company Status The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies, until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. Intangible Assets In August 2018, the Financial Accounting Standards Board (“FASB”) issued updated guidance on accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The Company adopted this guidance as of January 1, 2021 and in accordance with the new guidance, applied it prospectively to implementation costs incurred after the adoption as allowed by the standard. The adoption did not have a material effect on the Company’s consolidated financial statements. Simplifying the Accounting for Income Taxes In December 2019, FASB issued updated guidance simplifying the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to intra-period tax allocations and the methodology for calculating income taxes in an interim period. The guidance also simplifies aspects of the accounting for franchise taxes as well as enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this guidance as of January 1, 2021. The adoption of this accounting pronouncement did not have a material impact on the Company’s consolidated financial statements. Related Party Guidance for Variable Interest Entities In October 2018, the FASB issued updated guidance that requires consideration of indirect interest held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The amendments are required to be applied retrospectively with a cumulative-effect adjustment. The Company adopted the new guidance as of January 1, 2021 and its application did not have a material impact to the Company’s consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which will require lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on the balance sheets for substantially all leases. This update also requires lessees to recognize a single lease cost for operating leases, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Public companies were required to adopt ASU 2016-02 for reporting periods after December 15, 2018. In 2020, ASU 2016-02 was amended to extend the adoption date for nonpublic entities and EGCs. Accordingly, the effective date of ASU 2016-02, as amended, is fiscal periods beginning after December 15, 2021, with early adoption permitted. The Company will adopt this guidance as of January 1, 2022 using the modified-retrospective approach as of the date of adoption which will not require the restatement of comparative periods. The Company has made significant progress in its evaluation of the standard on its financial reporting, including the determination of its incremental borrowing rate. The primary effect will be the recognition of right-of-use assets and corresponding lease liabilities for substantially all of the Company’s property leases ranging from $20,000 and $40,000. The adoption is not expected to have a material impact on the Company's consolidated statements of operations or cash flows. Current Expected Credit Losses In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), to replace the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company will be required to use a forward-looking expected credit loss model for accounts receivable, loans, and other financial instruments. Public companies were required to adopt ASU 2016-13 for reporting periods after December 15, 2019. In 2019, ASU 2016-13 was amended to extend the adoption date for nonpublic entities and EGCs. The Company will adopt this guidance as of January 1, 2022 and does not expect a material impact on its consolidated financial statements as a result of adopting this standard. Other than the items discussed above, there are no standards issued by the FASB and adopted by the Company effective as of January 1, 2021 that had a material impact on the Company’s consolidated financial statements. Additionally, there are no standards that are not yet effective that are expected to have a material impact on the Company’s consolidated financial statements. ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 addresses inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. ASU 2021-08 requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination as if it had originated the contracts, in accordance with Topic 606, Revenue from Contracts with Customers. The guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption of the amendments is permitted and an entity that early adopts should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or |
