| 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 is managed and organized by major functional departments that operate on a consolidated basis. The Company has one operating and reportable segment. 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 measurement of partnership liabilities. • The estimated fair value of intangible assets acquired in conjunction with business combinations 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 Foreign currency Items included in the financial statements of each of the Company’s consolidated entities are measured using the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in US Dollars, which is the Company’s reporting currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at period-end exchange rates are recognized in other income (expense), net within the consolidated statement of operations. The results and financial position of all the Company entities that have a functional currency different from the Company's reporting currency are translated into US Dollars as follows: • Assets and liabilities are translated at the closing rate at the reporting date; • Income and expenses for each statement of operation are translated at average exchange rates; and All resulting exchange differences are recognized within currency translation within the statements of comprehensive income (loss) and within accumulated comprehensive loss within the consolidated balance sheets. 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, 2023 and 2022, 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 taxes, refunds, and credit card chargebacks. The membership subscription revenue is also reduced by the Company’s funded portion of credit card benefits issued to Members through a partnership with one credit card at the end of the contract period. The Company’s funded portion varies based on total number of Members enrolled each contract year. 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. 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 subscription customers. Overall, payments received in advance of transfer of control are recorded within deferred revenue within the consolidated balance sheets. 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. The Company has certain other revenue streams which are not significant to the Company’s operating results. 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 (“Cost of revenue share fee”). The Cost of revenue share fee is generally prepaid to the host airport in the period collected from the customer. The Cost of revenue share fee is capitalized and subsequently amortized to operating expense over each Member’s subscription period. 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 as incurred in “Cost of revenue share fee” in the consolidated statements of operations since they are direct costs of service. Cost of direct salaries and benefits Cost of direct salaries and benefits includes employee-related compensation costs 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. 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. 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. Interest income (expense), net Interest income (expense), net primarily consists of interest income from our investment holdings and discount accretion on our marketable securities partially offset by 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. For the years ended December 31, 2023, 2022 and 2021, the Company recorded a minimum annual guarantee paid of approximately none, $7,100, and $5,799, respectively. Advertising costs Advertising costs are expensed as incurred and are included in sales and marketing expenses. For the years ended December 31, 2023, 2022 and 2021, the Company recorded $12,907, $10,903, and $16,140, respectively, of advertising costs. 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. Cash and cash equivalents as of December 31, 2023 and 2022 was $57,900 and $38,939, respectively, and includes amounts due from third party institutions which generally settle within three business days, of $10,243 and $6,497 as of December 31, 2023 and 2022, respectively. Restricted cash Restricted cash is composed of cash held as collateral for letters of credit. See Note 10 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 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 (loss). The Company monitors any continuous unrealized losses on its marketable securities for indication of impairment under ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). 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, 2023 and 2022. The Company monitors and records any expected credit losses under ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) within general and administrative within the consolidated financial statements. The Company recorded no losses for the years ended December 31, 2023 and 2022. 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 15 years. 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 3 to 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 phase and minor upgrades and enhancements of software without adding additional functionality are expensed as incurred and included in “Research and development” in the consolidated statements of operations. See Note 7 for additional details on property and equipment. 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. Intangible assets, net The Company’s intangible assets primarily consists of patents and acquired intangible assets in a business combination. Intangible assets with finite lives, including the Company’s patents and those assets acquired in a business combination 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, to the extent applicable. 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. The Company performs its evaluation at the reporting unit level. 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 may not be recoverable. When such events or changes in circumstances occur, the Company first determines its asset group and then assesses the recoverability of long-lived assets within that asset group 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. During 2022, the Company entered into a sublease for a portion of its previous headquarters. Although the Company continues to account for its headlease based on the policies described in the section below as a lessee, the Company identified and evaluated for impairment of any long-lived assets associated with this lease by evaluating the recoverability of the asset group. See Note 7 and Note 8 for further impact on the Company’s consolidated financial statements. Leases The Company has entered into agreements to lease certain office spaces. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional three years or terminate. These optional periods have not been considered in the determination of the ROU assets or lease liabilities as the Company did not consider it reasonably certain it would exercise the options. The Company performed evaluations of its contracts and determined it only has operating leases. The lease terms are between 1 and 16. Most of the Company’s lease agreements require payment of certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs. As allowed under ASC 842, the Company considers these as non-lease components and has elected to exclude these components from the measurement of its lease liabilities. The Company has elected to utilize the following practical expedients available under the transition guidance in ASC 842: • The Company did not reassess whether any expired or existing contracts are or contain leases; • The Company did not reassess the lease classification for any expired or existing leases; and • The Company did not reassess initial direct costs for any existing leases. The Company did not apply the guidance for leases with a term of 12 months of less in accordance with the short-term policy lease policy election available in ASC 842. The Company determines if an arrangement is a lease at inception and recognizes ROU assets and lease liabilities upon commencement. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The classification of the Company's leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The incremental borrowing rate is based on a variety of factors to derive a rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs. As a Lessor During fiscal year 2022, the Company entered into certain transactions in the capacity of a sub-lessor. In a sublease, the original lease between the lessor and the Company (i.e., the head lease) remains in effect and the Company becomes the intermediate lessor. The Company accounts for the head lease and the sublease as separate contracts. The Company records sublease income within other income (expense), net in the consolidated statement of operations. Accrued partnership liabilities The Company has agreements to fund a portion of partner credit card benefits issued to Members at the end of the respective contract year. As the amount the Company funds during the respective contract year varies based on the total number of Members participating in the credit card partner’s programs at the end of the respective contract year, the determination of accrued partnership liabilities involves estimating enrollments during a contract year based on historical, current, and future trends and data. 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 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. 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 has and will issue shares of its Common Stock as a result of transactions in relation to warrant exercises, exchanges, and vesting of restricted stock units (“RSUs”). Historically, the Company's treasury stock consisted of forfeited restricted stock awards (“RSAs”) that are legally issued shares held by the Company, and is recorded at par value, as well as any shares repurchased under the Company’s share repurchase program that are not retired by the Board. As of December 31, 2023, there are no Restricted Stock Awards outstanding. Treasury stock can be utilized to settle equity-based compensation awards issued by the Company and is excluded from the calculation of the non-controlling interest ownership percentage. . Investments in Equity Securities In accordance with ASC 321 "Investments—Equity Securities,” investments in equity securities in which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices. Equity securities without readily determinable fair values are accounted for either at fair value or using the measurement alternative which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. All gains, losses and impairments on investments in equity securities are recognized within other income (expense), net within the consolidated statements of operations. The Company regularly reviews its investments in equity securities not accounted for using the equity method or at fair value for impairment based on a qualitative assessment of a variety of factors. If an equity security is impaired, an impairment loss is recognized in the consolidated statements of operations equal to the difference between the fair value of the investment and its carrying amount. During the years ended December 31, 2023, 2022 and 2021, the Company recognized no impairment charges on its investments in equity securities. 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 (primarily in relation to its issued and outstanding warrants) at the grant date based on the fair value of the award, typically using an option pricing model 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. 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 income (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). Recently Adopted Accounting Pronouncements Business Combinations As of January 1, 2023, the Company adopted ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). There was no significant impact within the consolidated financial statements as a result of this adoption. Other Recent Accounting Pronouncements Adopted and New Standards and Interpretations Not Yet Effective Other than the items discussed above, there are no standards issued by the FASB and adopted by the Company during 2023 that had a material impact on the Company’s consolidated financial statements. Additionally, other than disclosed below, there are no standards that are not yet effective that are applicable to the Company’s consolidated financial statements. ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) In November 2023, the FASB issued ASU 2023-07, which requires incremental disclosures about a public entity’s reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information regularly provided to) the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. The guidance is effective for calendar year-end public entities in 2024 and should be adopted retrospectively unless impracticable. Early adoption is permitted. The Company did not early adopt this standard and does not anticipate a material impact of this standard on its consolidated financial statements. ASU No 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) On December 13, 2023, the FASB issued ASU 2023-08, which provides accounting and disclosure guidance for crypto assets that meet the definition of an intangible asset and certain other criteria. In-scope assets are subsequently measured at fair value with changes recorded in the income statement. The standard requires separate presentation of (1) in-scope crypto assets from other intangible assets and (2) changes in the fair value of those crypto assets. Disclosure of significant crypto asset holdings and an annual reconciliation of the beginning and ending balances of crypto assets are also required. Companies will apply the new guidance by making a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual period the guidance is adopted. The guidance will be effective for all calendar year-end companies in 2025, including interim periods, with early adoption permitted. The Company did not early adopt this standard and does not anticipate a material impact of this standard on its consolidated financial statements. ASU No 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) On December 14, 2023, the FASB issued ASU 2023-09, which requires significant additional disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table. The new guidance will be applied prospectively (with retrospective application permitted) and is effective for calendar year-end public |
