ITEM 1A. RISK FACTORS
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations and financial results. For a more complete discussion of the material risks facing our business, please see below.
• failure to add new and retain existing Members, including Active CLEAR+ Members, or increase the utilization of our platform, and the failure to add new or retain existing partners;
• our inability to meet stakeholder expectations or maintain the value and reputation of our brand;
• failure to successfully compete against existing and future competitors, and the highly competitive market in which we operate;
• risks associated with the increased adoption of new technological solutions and services, including third-party identity verification solutions and credential authentication solutions;
• public confidence in, and acceptance of, identity platforms and biometrics generally, and our platform specifically;
• failure to implement successful strategies to increase adoption of our platform or expand into new verticals;
• risks associated with our commercial agreements and strategic alliances, as well as potential indemnification obligations, and certain of our agreements with third parties;
• portions of our business and results of operations depend upon concessionaire agreements;
• risks associated with our growth and ability to develop and introduce platform features and offerings, and the need for adequate research and development resources;
• risks associated with any decline or disruption in the travel industry or a general economic downturn;
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• we may require additional capital to support our business growth and objectives, and this capital may not be available to us on reasonable terms (or at all) and may result in shareholder dilution;
• risks associated with acquisitions and other strategic transactions;
• the need for high-quality personnel;
• risks associated with the complexity of our platform, including the negative impacts of any errors, system failures or the successful implementation of upgrades or new technology;
• our marketing efforts may not be effective;
• risks associated with changes in the Internet browsers and mobile device accessibility of Members;
• the ability to maintain our corporate culture;
• risks associated with payment processing;
• potential adverse impacts of climate change;
• our limited experience operating outside of the United States and risks associated with international operations;
• we may enter into agreements with strategic partners that include exclusivity provisions that limit our ability to enter into agreements with additional partners
• risks associated with inherent measurement limitations and any real or perceived inaccuracies in our metrics;
• risks associated with breaches of our information technology systems or those of third parties upon which we rely, protection of our intellectual property, technology and confidential information and failures by third-party technology and devices on which our business relies;
• our reliance on third-party technology and information systems to help complete critical business functions and our ability to find alternatives if such third-party technology and information systems fail;
• the potential for liability due to the infringement on third-party intellectual property by technologies that we incorporate into our products;
• our ability to meet the standards set for our airport operations by governmental stakeholders;
• we may be sued by third parties for alleged infringement, misappropriation or other violations of intellectual property and other proprietary rights;
• risks associated with the actual or perceived failure to comply with applicable biometrics, artificial intelligence, health information and data privacy laws;
• failure to comply with the constantly evolving laws and regulations that we are or may become subject to;
• the risk of potential legal proceedings, regulatory disputes and governmental inquiries;
• the coverage afforded under our insurance policies may be inadequate;
• risks associated with the use of “open source” software;
• limitations of the SAFETY Act’s liability protections;
• risks associated with our financial performance, including the risk of increased expenses and net losses in the near term and our ability to achieve or sustain profitability in the future;
• the failure of our estimates or judgments relating to our critical accounting policies to prove correct;
• our focus on delivering a safe, reliable, predictable and frictionless Member experience may not maximize short-term financial results, which may yield results that conflict with the market’s expectations and could result in our stock price being negatively affected;
• risks associated with our structure as a holding company, and our reliance on Alclear for certain distributions;
• risks associated with dividend payments and share repurchases;
• risks associated with our organizational structure, including those related to our Tax Receivable Agreement (as defined below), and tax related payments we may be required to make;
• we are controlled by the Founder Post-IPO Members, whose interests in our business may be different than yours;
• restrictions of our Credit Agreement;
• the unpredictable nature of tax attributes that will impact our tax treatment;
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• substantial future sales of shares of our Class A Common Stock could cause our stock price to fall;
• failure to maintain adequate internal controls;
• provisions in our charter documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third-party;
• the volatility of our stock price;
• risks related to the Founder PSUs; and
• we may issue preferred securities, the terms of which could adversely affect the voting power or value of our Common Stock.
Risks Related to Our Business, Brand and Operations
If we fail to add new and retain existing Members, including Active CLEAR+ Members, or increase the utilization of our platform, our business, results of operations and financial condition would be materially and adversely affected.
Our business and financial results depend significantly on adding new and retaining existing Members, increasing the number of CLEAR+ Members, including by converting non-paying Members to paying Members, and the utilization of our platform by our Members. There can be no assurances that we will be successful at accomplishing any of the foregoing. Member growth, retention and utilization of our platform is in part dependent on our ability to introduce new services to our Members, expand our airport footprint, promote and increase awareness of our offerings and satisfy or exceed the expectations of our Members with our platform and offerings. We have derived substantially all of our historical revenue from CLEAR+, our consumer aviation subscription service. To grow and diversify our revenue, we will need to increase the number of Active CLEAR+ Members and the utilization of our platform, and continue to offer services that are considered valuable to our CLEAR+ Members. Failure to do so could adversely affect our business, results of operations and financial condition.
Our success in maintaining and increasing our Member base depends in part on our ability to identify use cases that are important and valuable to our Members in a timely manner. If we are unable to introduce new or enhanced platform features in a timely manner or our features are not accepted by our Members, potential competitors may introduce similar offerings faster than us or operate in new locations, which could negatively affect our results. Moreover, our new features may not receive consumer acceptance as preferences could shift rapidly to different types of solutions or away from these types of offerings altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Even if we are successful in anticipating needs and consumer preferences, our ability to address them will depend upon our ability to develop and introduce innovative, high-quality features. Development of new or enhanced features may require significant time and investment, which could result in increased costs and a reduction in our profit margins.
If CLEAR+ Members do not perceive our aviation subscription service to be of value, including if we adjust pricing in a manner that is not favorably received by CLEAR+ Members, we may not be able to attract and retain CLEAR+ Members, and accordingly, our revenue, including revenue per paying CLEAR+ Member, and results of operations may be adversely affected. We have in the past, and may in the future, expand CLEAR+ membership to include benefits in addition to use at our partner airports, such as free access to CLEAR Mobile and CLEAR Perks. If our efforts to develop and offer more benefits are not valued by our current and future CLEAR+ Members, our ability to attract and retain CLEAR+ Members, or increase pricing, may be negatively impacted. We have and may, from time to time, adjust our CLEAR+ membership pricing, our family plans, or our pricing model itself. For example, we have increased CLEAR+ membership rates, as well as the price of a family member, in the last four years, and may continue to adjust pricing in the future. These and other adjustments may not be well-received by CLEAR+ Members, and could negatively impact our ability to attract and retain CLEAR+ Members, revenues per paying CLEAR+ Member, revenue and our results of operations.
Our ability to attract and retain Members, as well as to increase the number of Active CLEAR+ Members and the utilization of our platform by our Members, could be materially adversely affected by a number of factors discussed elsewhere in these “Risk Factors,” including:
• increased competition and use of our competitors’ platforms and services;
• our failure to attract new partners or retain existing partners who in turn drive membership;
• negative associations or perceptions with, reduced awareness of, or negative publicity about, our brand, platform or biometrics in general;
• security incidents that may involve or are alleged to involve us, such as breaches of our information technology systems; and
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• macroeconomic and other conditions and events outside of our control, such as pandemics and health concerns, decreased levels of travel or attendance at events, terrorism, war or military actions, civil unrest, political instability and general economic conditions, including an economic downturn, recession, financial instability, inflation or changes in consumer tastes and preferences.
In addition, if Members stop trusting our platform or have an unsatisfactory experience with our platform or our Ambassadors, such as during an enrollment or verification, or we are unable to offer new and relevant offerings and features, we could be unsuccessful at continuing to grow our membership or expanding the use of our platform.
Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
If we fail to add new or retain existing partners, or profit from partner relationships, our business, results of operations and financial condition could be materially and adversely affected.
The growth of our business, including our membership base, geographic footprint and financial results, also depends on adding new and retaining existing partners, as well as increasing the revenue generated from partners. Our partners help increase our opportunities to attract new Members and, in some cases, help subsidize memberships. However, we may be unsuccessful at adding new partners, retaining existing partners or monetizing our partner relationships, and our success is subject to a number of the risks that we face in expanding our membership base. See “— If we fail to add new and retain existing Members, including Active CLEAR+ Members, or increase the utilization of our platform, our business, results of operations and financial condition would be materially and adversely affected ” above.
If our partners stop trusting our platform, or if our partners or our Members have an unsatisfactory experience with our platform, we are unable to offer new and relevant offerings and features or we are unable to increase the adoption of our platform, we could be unsuccessful at continuing to grow our partner network or increase the revenue generated from existing partners, which could hamper our prospects. This could in turn have an adverse impact on our ability to grow our membership base. If certain partners that subsidize memberships do not renew their agreements with us, we could lose a portion of the affected Members, which could impact our revenue and retention rates. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.
If we are not able to meet stakeholder expectations or to maintain the value and reputation of our brand, our business and financial results may be harmed.
We believe that our brand is important to attracting and retaining Members and partners. Our business is dependent on our ability to build, maintain and expand trust in our brand and our platform from a variety of different stakeholders, which depends on our ability to provide consistent, accurate, high-quality services to our Members and partners, as well as protect the information that we gather (which may include personal information). It also requires us to understand the evolving expectations of our stakeholders, and to adjust our offerings to meet them. An inability to accurately understand or meet the expectations of, or forecast changes in, our stakeholders, could have a material adverse effect on our brand, and therefore on our business, results of operations and financial condition. Failure to meet these continuously evolving stakeholder expectations could diminish the trust in our brand and platform. While it is our mission to continue to build and expand the trust in our brand and our platform from all stakeholders, any actual or perceived failure to do so could result in a decreased number of Members, decreased use of our platform by our Members, slower growth in our platform and business than we expect, a of our partnerships and relationships, and a impact on our ability to continue in, or expand into, other sectors or industries, any of which could have a material and effect on our business, prospects, results of operations and financial condition.
Our partners expect us to build and maintain a world-class secure technology infrastructure and accurately perform the services we offer, such as correctly identifying a Member and correctly connecting a Member with their information. Aviation industry stakeholders such as our airline, airport and governmental partners expect us to continue to enhance aviation security. As the use cases for our platform expand, we expect to see increased attempts to fraudulently utilize our platform, some of which in the past have been, and may in the future be, successful. Fraudulent activity and other actual or perceived failures to maintain the integrity of our platform may lead to reputational and financial damage to our brand, negative impacts to our partner relationships, and reduced usage of our products and services, all of which could have a material adverse impact on our business.
We operate in a highly competitive market, and we may be unable to compete successfully against existing and future competitors.
Our market is intensely competitive with respect to every aspect of our business, and we expect competition to increase in the future. We anticipate that both our existing and future services and our expansion into new verticals will face competition from a variety of other companies and organizations. Other companies may strive or choose to perform
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services related to confirming an individual’s identity as a standalone task or related to a specific transaction, which would increase the competition we currently face. For example, large, well-established technology platforms, such as Alphabet/Google, Amazon, Apple, Microsoft or Meta or well-known companies in the credit card industry may have developed, may currently be developing, or in the future could acquire, develop or expand, a platform that competes directly with some or all of our solutions. Other potential competitors include providers of decentralized identity verification platforms or verification services, including know your customer services. Additionally, biometric hardware companies and platform companies that also offer hardware may develop applications that directly or indirectly compete with our platform. We face competition from two other private entities that are authorized to compete with us in enrolling Members on Transportation Security Administration’s (“TSA”)’s behalf for TSA PreCheck®.
We also face competition from solutions that were developed or could be developed in-house by our existing and future partners, and by governmental agencies, which could result in lost revenues and otherwise have a material adverse effect on our business, results of operations and financial condition. See “ Increased adoption of new technological solutions and services, including third-party identity verification and credential authentication solutions, at locations where we operate or may operate in the future could impact our business ” below .
Many of our existing and potential competitors have substantial competitive advantages, such as greater name recognition and longer operating histories, economies of scale, larger sales and marketing departments, budgets and resources, broader distribution and established relationships with channel partners and customers, greater customer support resources, greater resources to make acquisitions or to spend on research and development, lower labor and development costs, larger and more mature intellectual property portfolios and substantially greater financial, technical and other resources. Additionally, some of our larger competitors have substantially broader product offerings and could leverage their relationships based on other products they offer or incorporate functionality into, or completely repurpose, existing products or offerings to gain business or have other advantages that can allow them to develop and deploy new solutions more quickly than we do. Start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or products and technologies that compete with our solutions.
Acquisitions of our competitors by companies that have more resources than us could have a negative impact on our competitive position. Some of our competitors may enter into alliances with each other or other companies or governmental agencies, or may establish or strengthen cooperative relationships with system integrators, third-party consulting firms or other parties. Any such consolidation, acquisitions, alliances or cooperative relationships could lead to pricing pressure and loss of market share and could result in one or more competitors with greater resources, which could harm our competitive position. Furthermore, organizations may be more willing to incrementally add solutions to their existing infrastructure from our competitors than to replace their existing infrastructure with our solutions. These competitive pressures in our market or our failure to compete effectively may result in fewer Members and partners and reduced revenue and gross margins. Any failure to meet and address these factors could adversely affect our business, results of operations and financial condition.
Increased adoption of new technological solutions and services, including third-party identity verification and credential authentication solutions, at locations where we operate or may operate in the future could impact our business.
Private industry and governmental agencies continue to increase their efforts related to developing and launching identity verification and credential authentication solutions, and we expect this trend to continue. For example, certain airlines, technology providers and the TSA are developing technological solutions, in some cases including the use of identity verification technology or biometrics, that have been implemented, like TSA PreCheck® Touchless ID, and may gain widespread acceptance, in locations where we operate, such as airports, or where we may operate in the future.
In addition, the federal government has conducted a number of proof of concept demonstrations to evaluate identity verification technologies and other credential authentication technologies at airport checkpoints, intends to expand use of its own biometric credential authentication technologies (“CAT”), at additional airport checkpoints, and is continuing to explore digital identities at checkpoints generally. The TSA has publicly stated its intent to require all travelers to be processed through CAT machines in the future, either through travelers presenting physical IDs or through the transmission of digital ID credentials. Additionally, state governments are issuing driver’s licenses in digital formats, and airlines have launched their own identity and credential authentication initiatives, in some cases with other identity verification partners. In many cases these initiatives also include the use of biometrics, either via centralized or decentralized platforms, and any of these platforms or standards may become universally accepted and preferred by the industry, the TSA, airlines, and our other partners. Widespread adoption of competing identity verification solutions or credential authentication solutions or standards (including TSA’s own solutions) at airport checkpoints or other locations where we operate could adversely impact our ability to operate in the same manner as we operate today.
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Public confidence in, and acceptance of, identity platforms and biometrics generally, and our platform specifically, will be a key factor in our business’s continued growth.
Our profitability depends, in part, on public confidence in and acceptance of identity platforms and biometrics generally. Continued acceptance of identity platforms and biometric information as a secure and reliable method to identify individuals, mitigate risk and minimize fraud is an important factor in our continued growth. While both identity platforms and biometrics have become more widely adopted, they may not achieve universal acceptance. The attractiveness of our solutions to Members, partners and the locations where we operate is impacted by a number of factors, including the willingness of individuals to provide their personal information, including biometric information, to private or governmental entities, the level of confidence that such information can be stored safely and securely, and trust that such information will not be misused. Certain individuals may never accept the use of biometrics as being safe. If identity platforms and biometrics do not achieve universal acceptance, our growth could be limited, which could materially adversely affect our business, results of operations and financial condition.
Our metrics and estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics may harm our reputation and negatively affect our business.
We regularly review and may adjust our processes for calculating our metrics used to evaluate our growth, measure our performance and make strategic decisions. These metrics are calculated using internal company data and have not been evaluated by a third-party. Our metrics, such as our key performance indicators, may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology or the assumptions on which we rely. Even if the markets in which we compete meet the size estimates and growth that we expect, our business could fail to grow at similar rates, if at all. Additionally, we routinely evaluate the utility to our investors and management of our metrics and have changed, and may in the future change, the metrics we use or the ways in which such metrics are calculated. If investors or analysts do not consider our metrics to be accurate representations of our business, or if we discover material inaccuracies in our metrics, then the trading price of our Class A Common Stock and our business, financial condition and results of operations could be adversely affected.
We might not implement successful strategies to increase the adoption of our platform or expand into new verticals, which would limit our growth.
Our future profitability depends, in part, on our ability to successfully increase the adoption of our platform, expand into new verticals and develop new offerings. We cannot assure you that the market for our platform and our existing and proposed offerings will remain viable. The market for identity verification solutions is still developing. The evolution of this market may result in the development of different technologies and industry standards that are not compatible with our current solutions, products, technologies or platform. Several organizations set standards for biometric identification and standards continue to develop related to storage of biometric information or identity information. Although we believe that our technologies comply with existing standards, these standards may change and any standards adopted could prove disadvantageous to or incompatible with our business model and current or future solutions, products, services and platform.
Our growth has been accelerated by our expansion from the aviation industry into different verticals, including travel and hospitality, workforce, digital marketplaces, live events and healthcare. Our business strategies include expanding our platform and Member base within these verticals and identifying and expanding into new verticals. There can be no assurances that we will be able to expand our business within existing verticals or successfully identify and expand into new verticals, or that any new verticals will provide us with successful opportunities and relationships.
Implementing our growth strategies will require additional resources and investments. For example, we expect to invest substantial amounts to:
• drive Member and partner awareness of our platform;
• encourage new Members to sign up for and use our platform;
• encourage businesses to introduce our platform;
• enhance our information security infrastructure;
• enhance our infrastructure to handle seamless processing and maintain the effectiveness of our solutions;
• continue to develop state of the art technology; and
• diversify our partner base.
We may be required to incur significantly higher expenditures than we currently anticipate to achieve the foregoing results, which could have a negative impact on our results of operations if our revenues do not increase sufficiently. Our investments may not be successful and there can be no assurances that our growth strategies and plans will be achieved.
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Our commercial agreements and strategic alliances, as well as potential indemnification obligations, expose us to risk.
We provide our platform to our partners through commercial agreements and strategic alliances. These arrangements can be complex and require substantial personnel and other resource commitments, which may limit the number of partners we can serve. If we are unable to quickly scale our business, or if we do not effectively manage our infrastructure and personnel capacity as we grow, we may not be able to achieve our growth plans. Furthermore, there could be a negative impact on existing alliances and business relationships. Under certain of our commercial agreements, the total amount of compensation we receive is partially dependent on the level of use at the relevant location, because we receive payment for each individual who uses our platform at that site. Usage levels are due to a number of factors including many that are beyond our control, and if usage is lower than anticipated, the compensation we receive may be lower than expected. As our commercial agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all. We may in the future be required to enter into amendments or new agreements on less terms, which could affect our business, results of operations and financial condition.
Additionally, certain of our agreements with our partners, governing authorities, and other third parties include indemnification for losses suffered or incurred for a variety of reasons, such as a result of claims of intellectual property infringement, breaches of confidentiality, violations of law, security requirements, damage caused by us to property or persons, or other liabilities relating to or arising from the use of our platform or other acts or omissions. These provisions often survive termination or expiration of the applicable agreement. As we continue to grow, the possibility of infringement claims and other claims against us may increase and, as a result, we may incur significant legal expenses and may have to pay damages, settlement or license fees or stop using technology found to be in of the rights of one or more third-parties. These payments, if significant, could our business, results of operations and financial condition. We may also have to seek a license for the or technology. Such licenses may not be available on reasonable terms, if at all, and may significantly increase our operating expenses or may require us to restrict our business activities and limit our ability to deploy certain offerings. As a result, we may also be required to develop alternative non- technology, which could require significant effort and expense and/or cause us to alter our platform or solutions, which could affect our business.
Even if third-party claims against us lack merit, the expense and effort related to defending ourselves against these claims could be costly and time consuming. Assertions by a third-party, whether or not meritorious, could subject us to costly and time-consuming litigation, expensive remediation and licenses, divert management attention and financial resources, harm our relationship with customers, reduce demand for our platform and result in our brand, business, results of operations and financial condition being adversely affected.
Portions of our business and results of operations depend upon concessionaire agreements.
A significant portion of our business involves providing our services at U.S. airports through the federal government’s RT Program. These services involve entering into concessionaire agreements with the airport or airport operators where we operate. As is common with airport concessionaire agreements, our counterparties reserve the right to terminate the agreement upon the occurrence of certain events or for convenience. If our counterparties do not extend these agreements, or if they exercise an early termination, our sales, results of operations and financial condition would be negatively impacted.
In addition, in certain airport locations our contract counterparty is an airline rather than the airport or airport operator. In these locations we are dependent on the continued partnership with these airlines in supporting our physical presence at the airport. The exit of an airline partner from a certain market, or changes in our relationships with these airline partners could result in our agreements not being extended or renewed, which could have a material adverse effect on our business, results of operations and financial condition, and could affect our growth opportunities.
If we are not able to manage our growth or continue innovating, our business could be adversely affected. Our ability to introduce new solutions and features is dependent on adequate research and development resources and may also depend on our ability to successfully complete acquisitions, which, if not adequately funded, may make us unable to compete effectively and our business and results of operations may be harmed.
We have expanded rapidly since we launched our platform in 2010, and our business growth depends on the continued expansion of our membership, network of partners and services. Our expansion and growth plans may not be successful and any future expansion will likely place additional demands on our managerial, operational, technological, administrative and financial resources. If we are not able to respond effectively to new or increased demands that arise because of our growth, or, if in responding, our management is materially distracted from our current operations, our business and prospects may be adversely affected.
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In addition, while we seek to develop new offerings and expand into new markets and industries, we may have limited or no experience in these areas, and our Members may not adopt our offerings. We may incur significant expense in our attempts to innovate and create new offerings, which attempts may ultimately not be successful. New offerings, which can present new and difficult technology challenges, may subject us to claims if Members or partners experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our newer activities may not meet our expectations, and we may not recoup our investments. Failure to realize the benefits of amounts we invest in new technologies, products or services could result in the value of those investments being written down or written off.
Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet Member, partner and market demands is essential. If we elect not to or are unable to develop solutions internally, we may choose or be required to expand into a certain market or strategy via an acquisition for which we could potentially pay too much or fail to successfully integrate into our operations. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors would give an advantage to such competitors and our business, results of operations and financial condition could be adversely affected. Moreover, there is no assurance that our research and development or acquisition efforts will successfully provide the benefits we expect. If we are unable to generate an adequate return on such investments, we may not be able to compete effectively and our business and results of operations may be materially and adversely affected.
Any decline or disruption in the travel industry or general economic downturn could materially adversely affect our business, results of operations and financial condition.
We have derived substantially all of our historical revenue from Members who enroll in CLEAR+, which includes our RT Program service at U.S. airports. Accordingly, our performance is dependent on the strength of the travel industry and our revenue is susceptible to declines in or disruptions to leisure and business travel that may be caused by factors entirely out of our control, such as global pandemics. Additionally, platform usage beyond airports is driven by the operations of our partners, such as their ability to host events, provide hotel rooms, rent cars, and workplaces and medical centers being open for workers and patients. Other events or factors beyond our control can disrupt, and have in the past disrupted, travel and operations within the United States and globally or otherwise result in declines in travel demand and the demand to attend events. These events include prolonged extreme weather, natural disasters or man-made disasters, travel-related health (including pandemics and epidemics or other outbreak of contagious diseases), restrictions related to travel, stay-at-home orders, wars and military actions, terrorist attacks, sources of political uncertainty or political events, , foreign policy changes, regional hostilities, general economic conditions (such as a or inflation), changes in regulations, labor or travel-related . Because these events or , and the full impact of their effects, are largely , they can dramatically and suddenly affect travel behavior and other activities by consumers, and therefore demand for our airport and platform services, which could materially affect our business, results of operations and financial condition.
Our financial performance is also subject to global economic conditions and their impact on levels of discretionary consumer spending. Consumer preferences tend to shift to lower-cost alternatives during recessionary periods and other periods in which disposable income is adversely affected, which could lead to a decline in enrollments or renewals of CLEAR+, less interaction with our platform products related to discretionary activities such as travel (such as rental cars and hotel rooms), and thus result in decreasing platform usage and lower revenue. Downturns in worldwide or regional economic conditions, such as downturn resulting from the pandemics, inflation, and the potential for a recession, have in the past led to a general decrease in travel and travel spending, as well as discretionary spending generally, and similar downturns in the future may materially adversely impact demand for our platform and services. Such a shift in consumer behavior would materially adversely affect our business, results of operations and financial condition.
We may require additional capital to support business growth and objectives, and this capital might not be available to us on reasonable terms, if at all, and may result in stockholder dilution.
We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for the foreseeable future. However, we intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, such as the need to promote our platform, develop new platform features and offerings, enhance our existing platform, or make strategic acquisitions. Accordingly, we may need to engage in equity or debt financings to secure additional funds. There can be no assurance that such funding will be available on terms attractive to us, or at all. Our inability to obtain additional funding when needed could have an adverse effect on our business, financial condition and operating results. If additional funds are raised through the issuance of equity or convertible debt securities, holders of our Class A Common Stock could suffer significant dilution, and any new shares we issue could have rights, preferences and privileges superior to those of our Class A Common Stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more for us to obtain additional capital and to pursue business , including potential acquisitions, and could impose additional restrictions on our ability to make
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distributions or pay dividends to our stockholders, or make it less likely that our Board will declare such distributions or dividends.
Future acquisitions, strategic investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute stockholder value and harm our results of operations and financial condition.
We have in the past and may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our current platform, enhance our technical capabilities or otherwise offer growth opportunities.
We may be unable to find or achieve definitive agreements with such acquisition or investment targets, despite efforts by our management, which could be significant. Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital and/or potentially dilutive equity issuances, and may divert management’s attention and resources from our existing business. We may be unable to successfully integrate such business or assets into our operations, and such business may fail to meet our expectations or achieve the intended results. This risk is enhanced considering we have limited experience in acquiring other businesses. We have in the past acquired, and may in the future acquire, businesses that we have difficulty integrating or where we fail to achieve the anticipated benefits of the acquisition.
Our business depends on retaining and attracting high-quality personnel, including certain key personnel, and continued or future attrition, or unsuccessful succession planning could adversely affect our business.
Our success depends in large part on our ability to attract and retain high-quality management, operations, engineering and other personnel who are in high demand, as well as our Ambassadors. The loss of qualified executives, employees or Ambassadors, or an inability to attract, retain and motivate high-quality executives, employees and Ambassadors required for the planned expansion of our business, may harm our operating results and impair our ability to grow.
In addition, we depend on the continued services and performance of our key personnel, including our Chairman and Chief Executive Officer, Ms. Seidman Becker who co-founded our Company and has been instrumental in devising and implementing our strategies for growth and scaling our business. We do not have an employment agreement with Ms. Seidman Becker, and she and, other key members of our senior management team, are at-will employees. As these individuals are able to terminate their employment with us at any time, such termination could materially adversely affect our business, results of operations and financial condition, as well as our future prospects. Certain key members of our management team have a shorter employment history at our company and did not previously work within our industry. Recently hired executives may view our business differently than members of our prior management team and, over time, may make changes to our personnel and their responsibilities as well as our strategic focus, operations or business plans. We may not be able to properly manage any such shift in focus, and any changes to our business may ultimately prove unsuccessful.
In addition, our failure to put in place adequate succession plans for senior and key management roles or the failure of key employees to successfully transition into new roles could have an adverse effect on our business and operating results. The unexpected or abrupt departure of one or more of our key personnel and the failure to effectively transfer knowledge and effect smooth key personnel transitions has had and may in the future have an adverse effect on our business resulting from the loss of such person’s skills, knowledge of our business and years of industry experience. If we cannot effectively manage leadership transitions and management changes in the future, our reputation and future business prospects could be adversely affected.
To attract and retain key personnel, we use equity incentives, among other measures. These measures may not be sufficient to attract and retain the personnel we require to operate our business effectively. As we continue to mature, the equity incentives we currently use to attract, retain and motivate employees may not be as effective as in the past. Our ability to attract, retain and motivate employees may be adversely affected by declines in our stock price. If we issue significant equity to attract or retain employees, we would incur substantial additional equity-based compensation expense and the ownership of our existing stockholders would be further diluted.
Our platform is highly complex, and any errors, systems failures or our failure to successfully implement upgrades and new technology could materially adversely affect our business, results of operations and financial condition.
Our platform is a complex system composed of many interoperating components and software. Our business is dependent upon our ability to accurately confirm identities and provide the ability to connect attributes to these identities, with minimal system interruption. Our software may now or in the future contain errors, bugs or vulnerabilities. Some errors in our software code have not been and may not be discovered until after the code has been released. We have, from
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time to time, found defects or errors in our system and software limitations that have resulted in, and may discover additional issues in the future that could result in, operational, enrollment or verification errors, platform unavailability or system disruption. In addition, we may fail to detect bugs in the software of businesses we acquire in our integration process. Any real or perceived errors, bugs or vulnerabilities discovered in our code or systems released to production or found in third-party software that is incorporated into our code could result in poor system performance, an interruption in the availability of our platform, systems or websites (including our ability to sell our memberships online), data loss or breach, errors in completing enrollments or verifications, publicity, to our reputation, of existing and potential Members or partners, and of revenue, any of which could materially affect our business, results of operations and financial condition.
Moreover, the ability of our Members to use our platform could be diminished by a number of factors, including unstable or failed Internet access, the failure of our network or software systems, ineffective interoperability between our platform and our partners’ technology, security incidents or variability in Member traffic for our platform. Platform failures would be most impactful if they occurred during peak platform use periods. During these peak periods, there are a significant number of Members concurrently accessing our platform and if we are unable to provide uninterrupted access, our Members’ or partners’ perception of our platform’s reliability may be damaged, our revenue could be reduced, our reputation could be harmed, which may negatively impact our growth, and we may be required to issue credits or refunds, or risk losing Members or partners. In the event we experience significant , we may be to repair our systems in an and timely manner which could have a material effect on our business, financial condition and operating results.
In addition, we continue to implement modifications and upgrades to our systems, and these activities subject us to inherent costs and risks associated with replacing and upgrading these systems. Further, our system implementations may not result in improvements that outweigh the costs of implementation, or at all. If we fail to successfully implement modifications and upgrades or expand the functionality of our platform, we could experience increased costs associated with diminished productivity and operating inefficiencies related to the efficient delivery of our products and services.
Our business could be adversely impacted by changes in the Internet browsers and mobile device accessibility of Members.
Our business depends on Members’ access to our platform via a mobile device, an Internet browser and the Internet generally. We may operate in jurisdictions that provide limited Internet connectivity, particularly as we expand internationally. Internet access, Internet browsers and access to a mobile device are frequently provided by companies with significant market power that could take actions that degrade, disrupt or increase the cost of Members’ ability to access our platform. In addition, the Internet infrastructure that we and Members of our platform rely on in any particular location may be unable to support the demands placed upon it. Any such failure in Internet, browser or mobile device accessibility, even for a short period of time, could adversely affect our results of operations.
In particular, a significant and growing portion of our Members access our platform through the CLEAR mobile application (the “app”) and through our secure identity platform, CLEAR1. There is no guarantee that popular mobile devices and browsers will continue to support such platform, app or service. We are dependent on the interoperability of our app with popular mobile operating systems that we do not control, such as Android and iOS, and CLEAR1 with popular internet browsers. Any changes in such systems that degrade the functionality of our digital offerings or give preferential treatment to competitors could adversely affect our platform’s usage. In the event that it is difficult for our Members to access and use our platform, our competitors develop products and services that are perceived to operate more effectively, or if our Members choose not to access or use our platform or use mobile products that do not offer access to our platform, our Member growth and Member engagement could be adversely impacted.
We are subject to payment processing risk.
Our Members pay for our products and services using a variety of different payment methods, including credit and debit cards, and online wallets. We rely on third-party systems to process payments. Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are disruptions in our payment processing systems, increases in payment processing fees, material changes in the payment ecosystem, such as large re-issuances of payment cards, delays in receiving payments from payment processors, or changes to rules or regulations concerning payment processing, our revenue, operating expenses and results of operation could be adversely impacted. We leverage third-party payment processors to bill Members on our behalf. If these third parties become unwilling or unable to continue processing payments on our behalf, we would have to find alternative methods of collecting payments, which could adversely impact Member acquisition and retention. In addition, from time to time, we encounter fraudulent use of payment methods, which could impact our results of operation and if not adequately controlled and managed could create consumer perceptions of our service.
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Our business may be vulnerable to the adverse effects of climate change, which may negatively impact our operations.
Our primary locations may be vulnerable to the adverse effects of climate change. Extreme weather conditions may disrupt our business and may cause us to experience additional costs to maintain or resume operations and higher attrition. In addition, legal and regulatory requirements with respect to climate change and other aspects of environmental, social, governance and other sustainability (e.g., disclosure requirements) may result in increased compliance requirements on our business, which may increase our operating costs and cause disruptions in our operations.
We are dependent on CLEAR+ memberships for a significant portion of our revenue, and a significant reduction in CLEAR+ memberships would reduce our future revenue and harm our anticipated operating results. Given our dependence on CLEAR+ for a significant portion of our revenues, a decrease in demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources, such as air travel, could have a material negative impact on our revenues.
We have limited experience operating outside the United States and any future international expansion strategy will subject us to additional costs and risks and our plans may not be successful.
We have, and in the future we may continue to, expand our operations internationally. Operating outside of the United States requires significant management attention. As we continue to expand globally, we may incur significant additional operating expenses and may not be successful in our international expansion for a variety of reasons, including:
• compliance with privacy and data protection laws, including laws regulating the use and collection of biometric information and health information (see “Risks Related to Regulation and Litigation— Any actual or perceived failure to comply with applicable laws relating to privacy, biometrics, artificial intelligence, health information and data protection may result in significant liability, negative publicity and erosion of trust and commercial opportunities, and increased regulation could materially adversely affect our business, results of operations and financial condition ” and “Business—Government Regulation”);
• differing international norms and expectations, including but not limited to those related to the use of personal information;
• challenges in confirming identities for non-U.S. residents;
• expanded information security risk with expanded potential threat actors;
• recruiting and retaining talented and capable employees in foreign countries and maintaining our company culture across all of our offices;
• complying with varying laws and regulatory standards, including with respect to consumer protection, tax and local regulatory restrictions;
• obtaining any required government approvals, licenses or other authorizations, particularly as may be necessary for the use and collection of personal information;
• varying levels of Internet and mobile technology adoption and infrastructure;
• currency exchange restrictions, limitations on the repatriation and investment of funds or costs and exchange rate fluctuations;
• operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States; and
• potential oppositions in foreign patent and trademark offices.
Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake may not be successful. If we invest substantial time and resources to expand our operations internationally and are unable to manage these risks effectively, our business, financial condition and results of operations could be adversely affected.
Risks Related to Information Technology and Intellectual Property
There may be breaches of our information technology systems that subject us to significant reputational, financial, legal and operational consequences or materially damage Member and partner relationships.
Our business requires us to use, store, process and transmit data, including a large amount of sensitive and confidential personal information, including personally identifiable information (“PII”). This may include, for example: biographic information, such as names, addresses, phone numbers, email addresses; biometric information; government-issued identification; health information; and payment information. Although malicious attacks to gain access to personal information or PII affect many companies across various industries, we are at a relatively greater risk of being targeted because of our high profile and the types of personal information we manage. Our business depends on earning and maintaining the trust of our Members and our partners and any actual or alleged breaches of our systems could adversely
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affect our business, including by impacting the trust that we have gained. See “Risks Related to Our Business, Brand and Operations— If we are not able to meet evolving stakeholder expectations or to maintain the value and reputation of our brand, our business and financial results may be harmed .”
We devote significant resources to network security, data encryption and other security measures to protect our systems and data, and have been certified by the federal government as operating certain of our information security systems at a FISMA High Rating in accordance with the Federal Information Security Modernization Act and National Institute of Standards and Technology, but these security measures cannot provide, and we cannot guarantee, absolute security. We require user names and passwords, as well as multifactor authentication, in order to access our information technology systems. We also use encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to our data or accounts. Increasingly, companies are subject to a wide variety of attacks on their systems on an ongoing basis that are continually evolving. In addition to threats from traditional computer “hackers,” malicious code (such as malware, viruses, worms, and ransomware), employee theft, error or misuse, password spraying, phishing, social engineering (predominantly spear phishing attacks), credential stuffing, and denial-of-service attacks, we also face an increasing number of threats (including advanced persistent intrusions) to our information technology systems from a broad range of actors, including sophisticated organized , nation-state and nation-state supported actors (independently or in connection with broader international ), and we cannot you that our systems will not be compromised or by these tactics. Our solutions integrate and rely in part on products, services and technologies developed and supplied by third-party vendors and service providers. Although we make efforts to review our third-party vendors and service providers and the products, services and technologies on which our solutions rely, in our vendors’ and service providers’ products, services and technologies may make our own solutions and information technology systems to , attack and other risks. See “ We rely on third-party technology and information systems to help complete business functions. If that technology to serve our needs, and we cannot find alternatives, it may impact our business, financial condition and results of operations” below.
Breaches and attacks on us or our third-party vendors or service providers may cause interruptions to the services we provide, degrade the Member experience, cause Members or partners to lose confidence and trust in our platform and decrease or discontinue their use of our platform, impair our internal systems, or otherwise result in financial harm to us. As we grow within the United States, and expand our international presence, our heightened visibility has increased, and will continue to increase, the risk that we become a target of such attacks. Any failure to prevent or mitigate security breaches and unauthorized access to or disclosure of our data or personal information, could result in the loss, modification, disclosure, destruction or other misuse of such data, which could subject us to legal liability, our business and reputation and our competitive position, or lead to decreases in the price of our Class A Common Stock. We may incur significant costs in protecting or remediating such and as cybersecurity continue to evolve, we may be required to expend significant additional resources to continue to modify or our protective measure or to and remediate any information security . Our efforts to protect our confidential and sensitive data and the personal information we receive may also be due to software bugs, , misconfigurations or other technical ; employee, contractor, or service provider or , including , misconfigurations or in our suppliers’ or service providers’ information technology systems or offerings, including products and offerings that we integrate into our products and services; of physical security of our facilities or technical infrastructure; or other that may surface or evolve.
If we were to experience a breach of our systems and were unable to protect sensitive data, we may not be able to remedy such breach, we may be required by law to notify regulators and individuals whose personal information was used or disclosed without authorization and compensate them for any damages, we may be subject to claims against us, including government enforcement actions or investigations, fines and litigation, and we may have to expend significant capital and other resources to mitigate the impact of such events, including developing and implementing protections to prevent future events of this nature. Additionally, such a breach could curtail or otherwise adversely impact access to our services, materially partner and Member relationships, and cause us to Members or partners. Moreover, if a security affects our systems or results in the release of personal information, our reputation and brand could be materially , use of our platform and services could decrease, and we could be to a risk of or and possible liability.
We are also subject to payment card association rules and obligations under our contracts with payment card processors. Under these rules and obligations, if information is compromised, we could be liable to payment card issuers for associated expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if no customer information is compromised, we could incur significant fines or remediation costs, experience a significant increase in payment card transaction costs or be refused by credit card processors to continue to process payments on our behalf, any of which could materially adversely affect our business, financial condition and results of operations.
Additionally, we accept payment for CLEAR+ through credit card transactions, certain online payment service providers and mobile payment platforms. The ability to access credit card information on a real-time basis without having
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to proactively reach out to the Members each time we process an auto-renewal payment is critical to our success and a seamless experience for our users. However, if we or a third-party experiences a data security breach involving credit card information, affected cardholders will often cancel their credit cards. In the case of a breach experienced by a third-party, the more sizable the third-party’s customer base and the greater the number of credit card accounts impacted, the more likely it is that our users would be impacted by such a breach. To the extent our CLEAR+ Members are affected by such a breach experienced by us or a third-party, affected Members would need to be contacted to obtain new credit card information and process any pending transactions. It is likely that we would not be able to reach all affected Members, and even if we could, some Members’ new credit card information may not be obtained and some pending transactions may not be processed, which could materially affect our business, financial condition and results of operations.
We rely on third-party technology and information systems, like Amazon Web Services (“AWS”), to help complete critical business functions. If that technology is subject to a security breach or fails to adequately serve our needs, and we cannot find alternatives, it may negatively impact our business, financial condition and results of operations.
We rely on third-party technology and vendors and other service providers for certain of our critical business functions, including credit card readers, scanners, third-party software, cameras and other technology to complete Member enrollments and verifications, as well as prevent fraud, network infrastructure for hosting our website and mobile application, software libraries, development environments and tools, services to allow Members to populate their accounts with personal information, and cloud storage platforms. Our business is dependent on the integrity, security and efficient operation of these systems and technologies, and we do not necessarily control the operation or data security of the third-party providers we utilize. Our efforts to use commercially reasonable diligence in the selection and retention of such third-party providers may be insufficient or inadequate to prevent or remediate such risks. Our systems and operations or those of our third-party providers and partners could be exposed to damage, interruption, security breach and other risks from, among other things, computer viruses and other software, -of-service attacks and other , acts of terrorism, human , coding or , , , natural , telecommunications , financial , and similar events, and may be subject to financial, legal or regulatory issues, each of which may impose additional costs or requirements on us, us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived , or prevent these third parties from providing services to us or our Members on our behalf. The of these systems to perform as designed, the of these systems to security and or the to our information technology capabilities, and our to find suitable alternatives in a timely and manner and on acceptable terms, or at all, could our operations and subject us to or costs to remediate any of these . Additionally, software or in third-party technologies we use could result in significant to our information technology systems, to , data , or compromised data . There have been high-profile of third-party service providers causing widespread to their customers’ operations, such as the Windows caused by a CrowdStrike software update that occurred in July 2024 and the AWS in October 2025. We cannot guarantee the infrastructure of our third-party service providers has not been, or will not be, compromised or that by our third-party service providers will not cause similar or to our operations. In addition, we cannot be that third parties will comply with their agreements with us and applicable laws and regulations or that third parties will not increase their prices or give preferential treatment to our competitors. Any contractual protections we may have from our third-party service providers, contractors or consultants may not be sufficient to protect us from any such liabilities and , and we may be to enforce any such contractual protections. Additionally, the occurrence or perception of any of the above events could result in Members to use our platform, reputational , legal or regulatory proceedings or other consequences, which could materially affect our business, results of operations and financial condition.
Failure to adequately protect our intellectual property, technology and confidential information could harm our business, competitive position, financial condition and results of operations.
The protection of intellectual property, technology and confidential information is crucial to the success of our business. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, know-how, confidentiality provisions, non-disclosure agreements, assignment agreements, and other legal and contractual rights and restrictions to establish and protect our proprietary technology and intellectual property rights. However, the steps we take to protect our proprietary technology and intellectual property rights may be inadequate. We may not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. It may be possible for unauthorized third parties to copy our products and technology and use information that we regard as proprietary to create products and services that compete with ours. The laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. As we expand internationally, our exposure to use of our products, technology and proprietary information may increase. Accordingly, our efforts, we may be to prevent third parties from upon or our technology and intellectual property.
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We rely in part on patent protection to maintain our competitive position. Although our patents and patent applications are intended to protect our proprietary inventions relevant to our business, we cannot assure you that any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims. Further, even our issued patents may be contested, circumvented or found invalid or unenforceable, and we may not be able to prevent infringement of our patents by third parties.
We also rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with our partners and certain third parties, no assurance can be given that these agreements will be effective in controlling access to and distribution of our products, technology and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products and services.
We rely in part on trademark protection to protect our brand. Our registered and unregistered trademarks and trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition in the market. Competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity. Third parties with similar trade names and trademarks may bring trademark infringement claims against us.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation or other legal proceedings may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation or proceedings could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could expansion or the functionality of our platform, or our reputation. In addition, we may be required to license additional technology from third parties to develop and market new functionality, and we cannot you that we could license that technology on commercially reasonable terms or at all, and our to license this technology could our ability to compete.
We have granted lenders security interests in certain of our intellectual property rights which could subject such rights to sale or other actions in the event of a default.
If we are unable to effectively protect our intellectual property rights on a worldwide basis, we may not be successful in the international expansion of our business that we may pursue.
Access to worldwide markets depends in part on the strength of our intellectual property portfolio. There can be no assurance that, as our business expands into new areas, we will be able to independently develop the technology, software or know-how necessary to conduct our business or that we can do so without infringing the intellectual property rights of others. We have to rely on licensed technology from others, and accordingly, there can be no assurance that we will be able to obtain licenses at all or on terms we consider reasonable. The lack of a necessary license could expose us to claims for damages and/or injunction from third parties, as well as claims for indemnification by our customers in instances where we have a contractual or other legal obligation to indemnify them against damages resulting from . With regard to our own intellectual property, there can be no assurance that our efforts to enforce and protect our rights will be adequate to prevent the or use of our protected technology particularly in international markets, which may increase as a result of any potential international expansions we may pursue .
If our future products incorporate technologies that infringe the proprietary rights of third parties, and we do not secure licenses from them, we could be liable for substantial damages.
We continue to allocate significant resources to developing new and innovative technologies that are utilized in our products and systems. Because our continued success depends on, to a significant degree, our ability to offer products providing superior functionality and performance over those offered by our competitors, we consider the protection of our technology from unauthorized use to be fundamental to our success. We do this by incorporating processes aimed at identifying and seeking appropriate protection for newly-developed intellectual property, including patents, trade secrets, copyrights and trademarks, as well as policies aimed at identifying unauthorized use of such property.
We are not aware that our current products infringe the intellectual property rights of any third parties. We also are not aware of any third-party intellectual property rights that may hamper our ability to provide future products and services. However, we recognize that the development of our services or products may require that we acquire intellectual property
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licenses from third parties so as to avoid infringement of those parties’ intellectual property rights. These licenses may not be available at all or may only be available on terms that are not commercially reasonable.
If third parties make infringement claims against us whether or not they are upheld, such claims could consume substantial time and financial resources, divert the attention of management and disrupt product sales and shipments. If any third-party prevails in an action against us for infringement of its proprietary rights, we could be required to pay damages and either enter into costly licensing arrangements or redesign our products so as to exclude any infringing use. As a result, we would incur substantial costs, experience delays in product development, sales and shipments, and our revenues may decline substantially. Additionally, we may not be able to achieve the minimum necessary growth for our continued .
See “Risks Related to Regulation and Litigation— We may be sued by third parties for alleged infringement, misappropriation, or other violations of intellectual property and other proprietary rights .”
Risks Related to Regulation and Litigation
We must continue to meet the evolving standards set for our airport operations by governmental stakeholders.
We relaunched in 2010 at two U.S. airports as the only private company authorized by the DHS to automate the process for confirming traveler identity and validating travel documents for CLEAR+ Members, and we continue to provide airport services to our Members through the RT Program. As we have grown, our interactions with the federal government have expanded. For example, in January 2020, we were selected by the TSA as an awardee in the TSA Biometric PreCheck® Expansion Services and Vetting Program to handle subscription renewal processing and new enrollments for the TSA PreCheck® program and have entered into an up to 10-year agreement to provide such services to the traveling public. In February 2024 we launched TSA PreCheck® Enrollment Provided by CLEAR to the public, and are currently providing in-person enrollment at airport and retail locations, as well as online renewal services. These operations remain subject to ongoing approval by the TSA, and there can be no assurances that we will continue to be able to meet all of TSA’s requirements. Additionally, we have entered into numerous Cooperative Research and Development Agreements with the DHS, and the DHS has certified the biometric enrollment and verification system as a Qualified Anti-Terrorism Technology under the SAFETY Act.
We operate through the RT Program according to guidelines set forth by the federal government, which have historically been implemented through our airport and/or airline partners. As we have grown, our regulatory frameworks have evolved. For example we are subject to various audits, reviews and evaluations overseen by the TSA, an agency of the DHS, which include: annual operational audits at each airport where we operate our RT Program requiring us to demonstrate compliance with airport checkpoint security protocols; a TSA-CLEAR Quality Assurance program which includes monthly reviews of RT Program activities including a monthly report delivered to TSA, audits of certain of our information systems against a stringent FISMA High Rating designation for information security and an additional “Registered Traveler Security Overlay” framework; ongoing periodic reviews of our operational procedures and technology, such as the biometric matching technology and credential authentication systems that help power our system; ongoing special emphasis inspections of our compliance with operational and procedural obligations for RT Program providers; an evaluation by the Science and Technology Directorate of the DHS of our biometric enrollment and verification system for renewal of our SAFETY Act certification as a Qualified Anti-Terrorism Technology; and ongoing reporting requirements related to enrollments and verifications. In addition, TSA has provided us with technical and regulatory requirements, including technical integration specifications between TSA systems and CLEAR systems to transmittal of digital identity information to facilitate processing of each RT participant by TSA CAT; varying rates in the percentage of RT participants whose identities are randomly reverified at airport checkpoints, potentially up to all RT participants; enrollment standards for existing and new RT participants in line with new industry standards; and formalized audit requirements. We have no control over requirements proposed or implemented by federal agencies on us or our airport and airline partners regarding our business. New or changing requirements implemented by federal agencies, such as those set forth above, could have an impact on our business and results of operations.
The future success of programs we operate with support or authorization from governmental stakeholders depends on our continued ability to satisfy the regulatory standards they promulgate such as those set forth above and maintain their support generally, including continuing to adhere to RT Program requirements, airport security protocols and maintaining an appropriate data security platform. Failure to meet the standards set forth by governmental stakeholders, changes in the rules, requirements or operational procedures applicable to our business or the RT Program generally, and evolving frameworks could negatively impact the level of service experienced by our customers and our ability to continue adding new services in regulated locations, add new locations for our existing services, or even continue to operate the same services we operate now. Further, as regulatory frameworks evolve, they may increase our operating expenses, make
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compliance more difficult or impact our operating protocols, impact our Members’ experience, require us to add new staffing, and divert management’s attention from other growth initiatives. Failure to meet any such new standards in the future, or changes we would need to make to our operations to satisfy any new standards, may have a material adverse impact on our business, results of operations and financial condition.
We may be sued by third parties for alleged infringement, misappropriation or other violations of intellectual property and other proprietary rights.
There is considerable patent and other intellectual property development activity in the biometrics, identity and technology industries generally, and litigation, based on allegations of infringement or other violations of intellectual property, is frequent. Furthermore, it is common for individuals and groups to purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. We cannot guarantee that our internally developed or acquired technologies or third-party tools that we use do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties, including non-practicing entities, may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights. In addition, in the event that we recruit employees from other technology companies, including potential competitors, and these employees are used in the development of products which are similar to the development in which they were involved at their former employers, we may become subject to that such employees have used or trade secrets or other proprietary information. Any claim, or could cause us to incur significant expenses and, if , could require that we pay substantial , ongoing royalty payments or licensing fees, prevent us from offering our platform or services or using certain technologies, require us to develop alternative technology or obtain additional licenses, us to implement expensive workarounds, or be subject to other terms.
We expect that the occurrence of infringement claims and allegations is likely to grow as the market for biometric solutions and identity products and services grows, increasing our exposure to damages resulting from such claims. Even alleged infringement claims that lack merit may be distracting and expensive to defend and could contribute to reduced public confidence in our platform, and even if meritorious but ultimately unsuccessful, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and require us to incur significant expenditures. Further, during the course of any , we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as , the market price of our Class A Common Stock may . Any of the foregoing could prevent us from competing effectively and could have an effect on our business, results of operations and financial condition.
Any actual or perceived failure to comply with applicable laws relating to privacy, biometrics, artificial intelligence, health information and data protection may result in significant liability, negative publicity and erosion of trust and commercial opportunities, and increased regulation could materially adversely affect our business, results of operations and financial condition.
As part of our normal operations, we collect, process and retain personal information about individuals, including sensitive personal information such as biometrics data. We are subject to various international, federal, and state laws and rules regarding the collection, use, disclosure, storage, transmission, and destruction of this personal information, and as we move into new markets, we are and will be subject to international laws applicable to our data practices as well. We collect and use personal information, including sensitive personal information, when our Members enroll in our platform and use our platform after they have completed their enrollment. The laws of many states and countries require businesses that maintain such personal data to obtain consent before collecting or processing certain types of data, to implement measures to keep such information secure and otherwise restrict the ways in which such information can be collected and used.
As examples, numerous states and municipalities have enacted or are in the process of enacting state level data privacy laws and regulations governing the collection, use and processing of state residents’ personal data. For example, CCPA took effect in 2020 and was amended by the Consumer Privacy Rights Act, which went into effect in 2023. CCPA provides enhanced data privacy rights to California consumers, including the right to access and delete their information and to opt out of certain sharing and sales of personal information. The law also prohibits covered businesses from discriminating against consumers (for example, charging more for services) for exercising any of their CCPA rights. These rights are enforced by the California Attorney General and California Privacy Protection Agency. In addition, CCPA imposes severe statutory damages as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. It remains unclear how various provisions of CCPA will be interpreted and enforced. Numerous states have passed laws that provide similar privacy and security protections to their residents, including Virginia, Colorado, Texas, and Oregon, and many other states are actively developing legislation in this area.
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In addition, states such as Illinois, Texas, Colorado and Washington, have laws that specifically regulate the collection and use of biometric information, and numerous states and municipalities are considering similar legislation. Illinois’ BIPA includes both a private right of action and liquidated damages for companies that violate its provisions, and the Texas Attorney General has announced settlements with private parties under its biometric laws with penalties in excess of $1 billion. Regardless of any company’s efforts to comply with the requirements of BIPA, the private right of action available under laws like BIPA have created strong incentives for plaintiffs’ counsel to push the interpretation of BIPA in new areas and has increased the general likelihood of, and costs and risks associated with, biometrics litigation. Recent BIPA case law has increased liability exposure and the scope of damages that may be collected for alleged violations. The effects of state privacy, data protection and biometrics laws and other similar state or federal laws, are significant and may require us to modify our products, data processing practices and policies and to incur substantial costs and potential liability as we attempt to implement new requirements or guidance under such laws, which are often not well defined, or to of liability under these laws, given the significant available.
Various other governments and consumer agencies around the world have also called for new regulation and changes in industry practices and many have enacted and may in the future enact different and potentially contradictory requirements for protecting personal information, including biometric information, as well as data that is collected and maintained electronically. These regulations have become particularly relevant to us as we expand our operations beyond the United States. For example, GDPR, which became effective in 2018, includes operational requirements for companies that are established in, or process personal data of individuals located in, the EEA. These requirements govern the processing of personal data in certain contexts and include significant penalties for non-compliance. Failure to comply with GDPR may result in fines of up to 20 million euro or up to 4% of the annual global revenue of a company processing information about EEA data subjects. It may also lead to regulatory inquiries initiated by data subjects as well as civil litigation, with the risks of damages or injunctive relief, or regulatory orders adversely impacting on the ways in which our business can use personal data. Additionally, the United Kingdom has transposed GDPR into domestic law with a United Kingdom version of GDPR (combining GDPR and the Data Protection Act of 2018) that took effect in 2021, which us to two parallel regimes, each of which authorizes similar and other potentially divergent enforcement actions for certain . Other jurisdictions where we currently operate or may operate in the future like Canada, Brazil and India have implemented comprehensive data protection regulations that also may diverge from or overlap with these laws. Compliance with numerous and requirements of different jurisdictions is inherently and for any business that collects and processes personal information as well as biometrics from individuals based in different jurisdictions, particularly since the interpretation and application of these laws is . If any jurisdiction in which we currently, or in the future may, operate, or where one of the partners we service operates, adopts new laws or changes its interpretation of its laws, rules or regulations relating to data use and processing such that our compliance obligations are unclear, or we are to comply in a timely manner or at all, we could risk our rights to operate in such jurisdictions or the ability to partner with companies who do business in such jurisdictions, as well as face significant and uncertain risks of regulatory , or liability in these jurisdictions.
Various state and international governments are considering, or recently have passed or issued laws, regulations or directives governing the use of artificial intelligence or automated decisionmaking technology for certain use cases, which may be interpreted to apply to CLEAR. For example, in September 2025, the California Privacy Protection Agency approved regulations under CCPA governing the use of automated decisionmaking technology that would apply to the use of “physical or biological identification or profiling” in certain contexts, and the EU has implemented the AI Act which prohibits certain types of high risk biometric systems from being deployed. The scope and interpretation of this emerging area of regulation and legislation, and the application to CLEAR’s business or business roadmap is evolving, but these laws could be interpreted or applied in ways that would impose new costly and burdensome requirements on CLEAR or its commercial partners and could increase the risk of regulatory actions directed to CLEAR or otherwise adversely impact our business.
HIPAA imposes specified requirements relating to the privacy, security and transmission of sensitive patient health information (“PHI”). Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates.” As our business evolves, we expect to increasingly enter into agreements in which we are a “business associate” for partners in the healthcare industry that are HIPAA covered entities and service providers, and therefore we are and will increasingly be regulated under these agreements as a business associate for the purposes of HIPAA. If we are unable to comply with our obligations as a HIPAA business associate, we could face substantial civil and even criminal liability. HITECH imposes four tiers of civil monetary penalties and gives state attorneys general authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.
When we process PHI on behalf of a covered entity, we are required by HIPAA to maintain HIPAA-compliant business associate agreements with our partners that are HIPAA covered entities and service providers, as well as certain of
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our subcontractors, that access, maintain, create or transmit sensitive patient health information on our behalf for the rendering of services to our HIPAA covered entity and service provider Members. These agreements impose stringent data security and other obligations on us. If we or our subcontractors are unable to meet the requirements of any of these business associate agreements, we could face contractual liability under the applicable business associate agreement as well as possible civil and criminal liability under HIPAA, all of which can have an adverse impact on our business and generate negative publicity, which, in turn, can have an adverse impact on our ability to attract and retain Members and to maintain existing or enter into new health care partnerships.
In addition to government regulation, self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or to facilitate our customers’ compliance with such standards. We may make statements on our website, in marketing materials, or in other settings about our data practices and security measures and our compliance with, or our ability to facilitate our customers’ compliance with, these standards. Furthermore, because the interpretation and application of laws, standards, contractual obligations and other obligations relating to privacy, data protection, and information security are uncertain, these laws, standards, and contractual and other obligations may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management practices, our policies or procedures, the features of our platforms or the manner in which our partners use CLEAR services. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our platforms, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to fulfill existing commercial obligations, make , or develop new platforms and features could be limited. Furthermore, the costs of compliance with, and other imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platforms.
In addition to government regulation, self-regulatory standards and other industry standards may legally or contractually apply to us, be argued to apply to us, or we may elect to comply with such standards or to facilitate our customers’ compliance with such standards. We may make statements on our website, in marketing materials, or in other settings about our data practices and security measures and our compliance with, or our ability to facilitate our customers’ compliance with, these standards. Furthermore, because the interpretation and application of laws, standards, contractual obligations and other obligations relating to privacy, data protection, and information security are uncertain, these laws, standards, and contractual and other obligations may be interpreted and applied in a manner that is, or is alleged to be, inconsistent with our data management practices, our policies or procedures, the features of our platforms or the manner in which our partners use CLEAR services. If so, in addition to the possibility of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our platforms, which could have an adverse effect on our business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to fulfill existing commercial obligations, make , or develop new platforms and features could be limited. Furthermore, the costs of compliance with, and other imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our platforms.
While we make significant efforts to comply with all laws, regulations, standards and obligations applicable to us, we cannot guarantee that we have always been or will always be successful. Privacy, biometrics, artificial intelligence, and data protection laws, rules and regulations are complex, and their interpretation is rapidly evolving, making implementation and enforcement, and thus compliance requirements, ambiguous, uncertain and potentially inconsistent. Compliance with such laws may require changes to our operations and business practices and may thereby increase compliance costs on CLEAR, our vendors or our partners or have other material adverse effects on our business. In addition, even alleged violations of such laws could be costly to defend and divert management’s attention. Failure or perceived failure to comply with such laws and regulations could have an adverse impact on our business and results. While we have invested and continue to invest significant resources to comply with data and technology-focused laws and regulations, enforcement or under these laws and regulations could us to the possibility of material , significant legal liability, changes in how we operate or offer our products, a of commercial revenue or , and or cessation of our ability to operate for key partners or in key industries or geographies, any of which could materially affect our business, results of operations and financial condition.
Any failure or perceived failure by us (or by our vendors or commercial partners) to comply with privacy, biometrics, cybersecurity, artificial intelligence and data protection policies, notices, laws, rules and regulations could result in proceedings or actions against us by individuals, consumer rights groups, regulators, government agencies, commercial partners or others. We could incur significant costs in investigating and defending such claims and, if found liable or if resolving such claims through settlement is desirable, pay significant damages, penalties or fines and/or be required to make substantial changes to our business. Further, these proceedings and any subsequent adverse outcomes may subject us to significant negative publicity, and an erosion of trust and commercial . If any of these events were to occur, our business, results of operations and financial condition could be materially affected.
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The laws and regulations that we are subject to or may become subject to are constantly evolving.
We are subject to a wide variety of laws and regulations in the United States and other jurisdictions as well as regulations promulgated by government agencies. These laws and regulations pertain to matters, including but not limited to, the collection and use of biometric or health information, data privacy and information protection, consumer protection, labor and employment, intellectual property, consumer and commercial contracting and others, and are often complex and subject to varying interpretations. As a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state and local administrative agencies. New offerings and partnerships, or any potential international expansions we may pursue, may also subject us to laws and regulations that we have not historically been subject to. The costs of complying with, or our failure to comply with, any such laws or regulations may have an adverse impact on our business, results of operations and financial condition.
In addition, our business operations at airports involve coordination with the DHS, and we are subject to audits and reviews by the DHS and the TSA. Governmental stakeholders may promulgate additional regulatory frameworks for us or increase the difficulty in maintaining our existing certifications, which may present additional challenges for our operations, increase our expenses, reduce our opportunities and divert management’s attention. Failure to comply with these standards set for our operations by governmental stakeholders or applicable government frameworks may have an adverse impact on our business, results of operations and financial condition. See “— We must continue to meet the standards set for our airport operations by governmental stakeholders .”
As our industry evolves and we continue to expand our platform offerings, Member base and partnerships, we may become subject to additional laws and regulations, which may differ or conflict from one jurisdiction to another.
Additionally, legislation or regulation affecting the ability of service providers to periodically charge consumers for, among other things, recurring subscription payments, as well as evolving compliance requirements under state, federal and international laws governing subscriptions and negative options, may materially adversely affect our business, financial condition and results of operations. This could materially adversely affect our Membership subscription or payment authorization rate. Legislation or regulation regarding the foregoing, or changes to existing legislation or regulation governing subscription payments, have been implemented in state and federal jurisdictions (such as California’s Auto Renewal Law or the federal Restore Online Shopper’s Confidence Act (or “ROSCA”)) and additional laws or requirements are being considered in many U.S. jurisdictions. While we monitor and attempt to comply with these legal developments, we may be subject to regulatory action or litigation claims under such legislation or regulation. Federal agency activity has enabled increased frequency of labor organizing activities across the United States. Should the Company become subject to such activities we may be required to expend substantial resources, both time and financial, which could have a material adverse effect on our employee relations, reputation, financial condition and results of operations.
Additionally, actual or perceived environmental, social, governance and other sustainability matters and our response to these matters could harm our reputation and business results. Increasing governmental and societal attention to environmental, social, governance and other sustainability matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and report. These factors may alter the environment in which we do business and may increase the ongoing costs of compliance and adversely impact our results of operations and cash flows. Our action or inaction with respect to such environmental, social, governance and other sustainability matters or fail to comply with all laws, regulations, policies and related interpretations, could negatively impact our reputation and our business results.
Our practices, offerings or platform could be inconsistent with, or fail or be alleged to fail to meet all requirements of, such laws, regulations or obligations. Our failure, or the failure by our partners, to comply with applicable laws or regulations or any other obligations relating to our platform offerings, could harm our reputation and brand, discourage new and existing Members from using our platform, impact commercial opportunities, lead to refunds of membership fees or result in fines or proceedings by governmental agencies or private claims and litigation, any of which could adversely affect our business, financial condition and results of operations.
We may be subject to legal proceedings, regulatory disputes and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention and materially harm our business, financial condition and operating results.
In the ordinary course of business, from time to time, we have been involved in legal proceedings and in the future may be subject to claims, lawsuits, government investigations and other proceedings. Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict. Certain of these matters may include speculative
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claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, harm our reputation or require us to stop offering certain features, all of which could negatively affect our membership and revenue growth. Should the ultimate judgments or settlements in any future litigation or investigation significantly exceed our insurance coverage, they could adversely affect our business, results of operations and financial condition. See “Business—Legal Proceedings.”
The results of litigation, investigations, claims and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition and operating results.
The coverage afforded under our insurance policies may be inadequate for the needs of our business or our third-party insurers may be unable or unwilling to meet our coverage requirements, which could materially adversely affect our business, results of operations and financial condition.
Our insurance policies may be inadequate to compensate us for the potentially significant losses that may result from claims arising from failure to meet our contractual obligations, disruptions in our services, including those caused by cybersecurity incidents, failures or disruptions to our infrastructure, catastrophic events and disasters or otherwise. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.
Additionally, we procure insurance policies to cover various operations-related risks, including general business liability, workers’ compensation, employment practices liability, cyber liability and data breaches, and directors’ and officers’ liability insurance. Our costs for obtaining insurance policies will increase as our business grows and continues to evolve. Furthermore, as our business continues to develop and expand, we may experience difficulty in obtaining insurance coverage for new and evolving offerings, which could require us to incur greater costs and materially adversely affect our business, results of operations and financial condition. For example, the cyber insurance market continues to evolve and may be less available than in the past. Accordingly, appropriate insurance coverage may not be available to us in the future on economically reasonable terms or at all to cover all of our business exposure.
If we fail to comply with insurance regulatory requirements in the regions where we operate, or other regulations governing insurance coverage, our brand, reputation, business, results of operations and financial condition could be materially adversely affected. For example, if the DHS were to increase the insurance coverage requirements for us related to our certification as a Qualified Anti-Terrorism Technology under the SAFETY Act, such insurance coverage may significantly increase our costs or may not be available to us. See “ Liability protections provided by the SAFETY Act may be limited. ”
Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation, and may increase our vulnerability to unauthorized access and cyberattacks.
We use open source software in connection with certain of our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the use of open source software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming noncompliance with open source licensing terms. Some open source software licenses require users who distribute software containing open source software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code, which could include valuable proprietary code of the user, on unfavorable terms or at no cost. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could occur, in part because open source license terms are often ambiguous. Any requirement to our proprietary source code or pay for of contract could have a material effect on our business, financial condition and results of operations and could help our competitors develop products and services that are similar to or than ours.
In addition to risks related to license requirements, the use of open source software may increase our vulnerability to unauthorized access to our systems and other risks relating to cybersecurity. Open source software licensors generally do not provide updates, warranties, support, indemnities, assurances of title, or controls on origin of the software. Likewise, some open source projects have known security and other vulnerabilities and architectural instabilities, or are otherwise subject to cyberattacks due to their wide availability, and are provided on an “as-is” basis.
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Liability protections provided by the SAFETY Act may be limited.
Certain of our technologies and solutions are certified or designated by the DHS as Qualified Anti-Terrorism Technologies under the SAFETY Act. The SAFETY Act provides important legal liability protections for providers of qualified anti-terrorism products and services. Under the SAFETY Act, technology providers may apply to the DHS for coverage of the products and services. If granted coverage, such providers receive certain legal protections against product liability, professional liability and certain other claims that could arise following an act of terrorism. While we believe our applicable technologies and solutions will continue to meet with the approval of the DHS’s SAFETY Act office, we cannot be sure that the SAFETY Act certification and designation will be timely renewed, or at all, in the future. Additionally, we do not enjoy coverage for every service we provide. In addition, the terms of the SAFETY Act coverage decisions awarded to us by the DHS contain conditions and requirements that we may not be able to continue to satisfy in the future. If the DHS limits availability of SAFETY Act coverage or the scope of any coverage previously awarded to us, denies us coverage or suspends or our coverage for a particular service, or in making decisions about whether to grant us coverage, we may become to legal that the SAFETY Act was otherwise designed to prevent.
Risks Related to Our Financial Results
We may not be able to sustain profitability in the future and have incurred, and expect to continue to incur, increased expenses as we continue to invest in growth.
We have incurred net losses in the past and may continue to incur net losses in the future. Our operating expenses may increase in the future as we continue to optimize and grow our business. We cannot assure you that we will be able to sustain profitability on a quarterly or an annual basis. If we generate losses in the future, if our net losses increase or if we are cash flow negative, the market price of our common stock may decline.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements include, or could in the future include, those related to revenue recognition, capitalized internal-use software costs, income taxes, other non-income taxes, business combinations, valuation of goodwill, purchased intangible assets and share-based compensation. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class A Common Stock.
Our focus on delivering a safe, reliable, predictable and frictionless Member experience may not maximize short-term financial results, which may yield results that conflict with the market’s expectations and could result in our stock price being negatively affected.
We are focused on continually enhancing our Members’ experience on, and utilization of, our platform. We seek to achieve this objective by expanding our platform into our Members’ lives by entering into new verticals and airports, which may not necessarily maximize short-term financial results. We frequently make business decisions that may adversely impact our short-term financial results if we believe that the decisions are consistent with our goals to improve our Members’ experience, which we believe will improve our financial results over the long term. These decisions may not be consistent with the short-term expectations of our stockholders and may not produce the long-term benefits that we expect, in which case our membership growth and the utilization of our platform, as well as our business, financial condition, and operating results, could be materially adversely affected.
Risks Related to Our Corporate Structure
We are a holding company and our principal asset is our equity interests in Alclear, and we are accordingly dependent upon distributions from Alclear to pay dividends, if any, and taxes, make payments under any Tax Receivable Agreement and cover other expenses, including our corporate and other overhead expenses.
We are a holding company and our principal asset is our ownership of common units of Alclear (“Alclear Units”). We have no independent means of generating revenue, and our ability to pay dividends, taxes and operating expenses is
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dependent upon the financial results and cash flows of Alclear and its subsidiaries and distributions we receive from Alclear. As the sole managing member of Alclear, we intend to cause, and will rely on, Alclear to make distributions to us, entities controlled by our co-founders, Caryn Seidman Becker and Kenneth Cornick, (such entities, the “Founder Post-IPO Members”) and the other CLEAR Post-IPO Members, in amounts sufficient to cover dividends, if any, all applicable taxes payable by us, any payments we are obligated to make under the tax receivable agreement entered into between the Company and the CLEAR Post-IPO Members on June 29, 2021 in connection with the reorganization transactions (the “Tax Receivable Agreement”) and other costs or expenses. However, there can be no assurance that Alclear will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in our debt instruments, will permit such distributions. In addition, when Alclear makes certain distributions to the Company, the other members of Alclear may also be entitled to receive distributions pro rata based on their economic interests in Alclear.
To the extent that we need funds or intend to pay dividends and such distributions to us by Alclear are restricted or not possible, under applicable law or regulation, as a result of covenants in our debt agreements or otherwise, we may not be able to pay dividends or obtain such funds on terms acceptable to us or at all and as a result could suffer a material adverse effect on our liquidity and financial condition.
Under Alclear’s Operating Agreement, we expect Alclear from time to time to make pro rata distributions in cash to its unitholders, including us, the Founder Post-IPO Members and the other CLEAR Post-IPO Members, in amounts intended to cover taxes on our allocable share of the taxable income of Alclear and payments we are obligated to make under the Tax Receivable Agreement. As a result of (i) potential differences in the amount of net taxable income allocable to us and to Alclear’s other unitholders, (ii) the lower tax rate applicable to corporations than individuals and (iii) the favorable tax benefits that we anticipate from (a) the Company’s allocable share of existing tax basis acquired in its IPO, (b) increases in the Company’s allocable share of existing tax basis and adjustments to the tax basis of the tangible and intangible assets of Alclear as a result of exchanges by the CLEAR Post-IPO Members (or their transferees or other assignees) of Alclear Units (along with the corresponding shares of our Class C Common Stock or Class D Common Stock, as applicable) for shares of our Class A Common Stock or Class B Common Stock, as applicable, and purchases of Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock, as the case may be, from CLEAR Post-IPO Members (or their transferees or other assignees) and (c) certain other tax benefits we anticipate receiving under the Tax Receivable Agreement, these cash distributions have been, and we expect that they will continue to be, in amounts that exceed our tax liabilities. Our Board will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of obligations under the Tax Receivable Agreement and the payment of other expenses. We have no obligation to distribute such cash (or other available cash) to our stockholders. No adjustments to the present exchange ratio of one-to-one for Alclear Units and corresponding shares of Common Stock is made as a result of any cash distribution by us or any retention of cash by us. To the extent we do not distribute such excess cash as dividends on our Class A Common Stock or Class B Common Stock or otherwise take ameliorative actions between Alclear Units and shares of Class A Common Stock or Class B Common Stock and instead, for example, hold such cash balances, or lend them to Alclear, this may result in shares of our Class A Common Stock or Class B Common Stock increasing in value relative to the value of Alclear Units. The holders of Alclear Units may from any value attributable to such cash balances if they acquire shares of Class A Common Stock or Class B Common Stock in exchange for their Alclear Units, notwithstanding that such holders may previously have participated as holders of Alclear Units in distributions that resulted in such excess cash balances.
We have in the past, and may or may not in the future, pay quarterly and special cash dividends to our stockholders, but our ability to do so may be limited by our holding company structure, contractual restrictions and other factors.
We currently have a quarterly dividend policy in place, and have, at times, declared special cash dividends to holders of our Class A and Class B Common Stock and may in the future pay cash dividends to our stockholders. However, we are a holding company, with our principal asset being our controlling equity interest in Alclear, and we have no independent means of generating revenue. Accordingly, as the managing member of Alclear, we intend to cause, and will rely on, Alclear to make distributions to its members, including Clear Secure, Inc., to fund our dividends. When Alclear makes such distributions, the other members of Alclear will also be entitled to receive distributions pro rata based on their economic interests in Alclear.
Our Board will periodically review the cash generated from our business and the capital expenditures required to finance our growth plans and determine whether to declare dividends to our stockholders. Our Board will take into account general economic and business conditions, including our financial condition, results of operations and cash flows, capital requirements, contractual restrictions, including restrictions contained in our Credit Agreement, business prospects and other factors that our Board considers relevant. We cannot make any assurances as to the amount of future dividends or that we will declare or pay quarterly dividends, special cash dividends or any future dividends at all. In addition, our Credit Agreement limits the amount of distributions our subsidiaries, including Alclear, can make to us and the purposes for which distributions could be made. Accordingly, we may not be able to pay dividends even if our Board would otherwise
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deem it appropriate. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the CLEAR Post-IPO Members that will not benefit holders of our Class A Common Stock to the same extent that it will benefit the CLEAR Post-IPO Members.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the CLEAR Post-IPO Members that do not benefit the holders of our Class A Common Stock to the same extent that it benefits the CLEAR Post-IPO Members. In connection with the IPO, we entered into a Tax Receivable Agreement with the CLEAR Post-IPO Members that provides for the payment by us to the CLEAR Post-IPO Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize (computed using simplifying assumptions to address the impact of state and local taxes) as a result of (i) any increase in tax basis in Alclear’s assets resulting from (a) exchanges by the CLEAR Post-IPO Members (or their transferees or other assignees) of Alclear Units (along with the corresponding shares of our Class C Common Stock or Class D Common Stock, as applicable) for shares of our Class A Common Stock or Class B Common Stock, as applicable, and purchases of Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock, as the case may be, from CLEAR Post-IPO Members (or their transferees or other assignees) or (b) payments under the Tax Receivable Agreement, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the Tax Receivable Agreement. Although the Company retains 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the trading market for the Class A Common Stock.
We are controlled by Caryn Seidman Becker, our co-founder, whose interests in our business may be different than yours.
As of December 31, 2025, Caryn Seidman Becker controls approximately 77.4% of the combined voting power of our outstanding shares of Common Stock as a result of her ownership of our Class B Common Stock and our Class D Common Stock, each share of which is entitled to 20 votes per share on all matters submitted to a vote of our stockholders.
Ms. Seidman Becker has the ability to control our Company, including the ability to control any action requiring the general approval of our stockholders, including the election of our Board, the adoption of amendments to our Certificate of Incorporation and by-laws and the approval of any merger or sale of substantially all of our assets. This concentration of ownership and voting power may also delay, defer or even prevent an acquisition by a third-party or other change of control of our Company and may make some transactions more difficult or impossible without the support of Ms. Seidman Becker, even if such events are in the best interests of minority stockholders. This concentration of voting power with Ms. Seidman Becker may have a negative impact on the price of our Class A Common Stock. In addition, because shares of our Class B Common Stock and Class D Common Stock each have 20 votes per share on matters submitted to a vote of our stockholders, Ms. Seidman Becker is able to control our Company until such time that she no longer collectively beneficially owns a majority of the voting power of our outstanding shares of Common Stock. Further, even when Ms. Seidman Becker to collectively own shares of our Common Stock representing a majority of the combined voting power of our outstanding shares of Common Stock, for so long as she continues to collectively own a significant percentage of our stock, she will still be to significantly influence the composition of our Board and the approval of actions requiring stockholder approval through her voting power.
Ms. Seidman Becker’s interests may not be fully aligned with yours. Because Ms. Seidman Becker holds part of her economic interest in our business through Alclear, rather than through the public company, she may have conflicting interests with holders of shares of our Class A Common Stock. For example, Ms. Seidman Becker may have a different tax position from us, which could influence her decisions regarding whether and when we should dispose of assets or incur new or refinance existing indebtedness, especially in light of the existence of the Tax Receivable Agreement that we entered into in connection with our IPO, and whether and when we should undergo certain changes of control within the meaning of the Tax Receivable Agreement or terminate the Tax Receivable Agreement. In addition, the structuring of future transactions may take into consideration these tax or other considerations even where no similar benefit would accrue to us.
We will be required to pay the CLEAR Post-IPO Members for certain tax benefits we may claim, and the amounts we may pay could be significant.
Exchanges by the CLEAR Post-IPO Members (or their transferees or other assignees) of Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock, as the case may be, for shares of our Class A Common Stock or Class B Common Stock, respectively, and purchases of Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock, as the case may be, from CLEAR Post-IPO Members (or their transferees or other assignees) are expected to produce favorable tax attributes. These tax attributes would not be available to us in the
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absence of those transactions. Both the existing and anticipated tax basis adjustments are expected to reduce the amount of tax that we would otherwise be required to pay in the future.
The Tax Receivable Agreement provides for the payment by us to the CLEAR Post-IPO Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize (computed using simplifying assumptions to address the impact of state and local taxes) as a result of (i) any increase in tax basis in Alclear’s assets resulting from (a) exchanges by the CLEAR Post-IPO Members (or their transferees or other assignees) of Alclear Units (along with the corresponding shares of our Class C Common Stock or Class D Common Stock, as applicable) for shares of our Class A Common Stock or Class B Common Stock, as applicable, and purchases of Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock, as the case may be, from CLEAR Post-IPO Members (or their transferees or other assignees) or (b) payments under the Tax Receivable Agreement, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the Tax Receivable Agreement.
The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of exchanges by or purchases from the CLEAR Post-IPO Members, the price of our Class A Common Stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable and the portion of our payments under the Tax Receivable Agreement constituting imputed interest.
We expect that the payments we will be required to make under the Tax Receivable Agreement will be substantial. Further, assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect that the tax savings associated with all tax attributes described above would aggregate to approximately $615.1 million over 15 years from December 31, 2025, assuming all future redemptions, purchases or exchanges occur on December 31, 2025. Under this scenario, we would be required to pay the Alclear Members 85% of such amount, or approximately $522.8 million, over the 15-year period from December 31, 2025. The actual amounts we will be required to pay may materially differ from these hypothetical amounts, because potential future tax savings that we will be deemed to realize, and the tax receivable agreement payments made by us, will be calculated based in part on the market value of our Class A Common Stock at the time of each redemption or exchange of an Alclear Unit (along with the corresponding share of our Class C Common Stock or Class D Common Stock, as applicable) for cash or a share of Class A Common Stock or Class B Common Stock, as applicable and the prevailing applicable federal tax rate (plus the assumed combined state and local tax rate) applicable to us over the life of the tax receivable agreement and will depend on our generating sufficient taxable income to realize the tax benefits that are subject to the tax receivable agreement.
Payments under the Tax Receivable Agreement are based on the tax reporting positions that we determine, and the Internal Revenue Service (the “IRS”), or another tax authority may challenge all or part of the tax basis increases or other tax benefits we claim, as well as other related tax positions we take, and a court could sustain such challenge. Although we are not aware of any issue that would cause the IRS to challenge the tax basis increases or other benefits arising under the Tax Receivable Agreement, if the outcome of any such challenge would reasonably be expected to materially affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to settle such challenge without the consent (not to be unreasonably withheld or delayed) of the CLEAR Post-IPO Members. The interests of the CLEAR Post-IPO Members in any such challenge may differ from or conflict with our interests and your interests, and the CLEAR Post-IPO Members may exercise their consent rights relating to any such in a manner to our interests and your interests. We will not be reimbursed for any cash payments previously made to the CLEAR Post-IPO Members (or their transferees or assignees) under the Tax Receivable Agreement in the event that any tax benefits initially claimed by us and for which payment has been made to the CLEAR Post-IPO Members (or their transferees or assignees) are subsequently by a taxing authority and are ultimately . Instead, any excess cash payments made by us to the CLEAR Post-IPO Members (or their transferees or assignees) will be netted any future cash payments that we might otherwise be required to make to the CLEAR Post-IPO Members (or their transferees or assignees) under the terms of the Tax Receivable Agreement. However, we might not determine that we have effectively made an excess cash payment to the CLEAR Post-IPO Members (or its transferee or assignee) for a number of years following the initial time of such payment and, if any of our tax reporting positions are by a taxing authority, we will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such is finally settled or determined. Moreover, the excess cash payments we previously made under the Tax Receivable Agreement could be than the amount of future cash payments which we would otherwise be permitted to net such excess. As a result, payments could be made under the Tax Receivable Agreement significantly in excess of any tax savings that we realize in respect of the tax attributes with respect to the CLEAR Post-IPO Members (or their transferees or assignees) that are the subject of the Tax Receivable Agreement.
In addition, the Tax Receivable Agreement provides that in the case of a change in control of the Company or a material breach of our obligations under the Tax Receivable Agreement, we are required to make a payment to the CLEAR
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Post-IPO Members in an amount equal to the present value of future payments (calculated using a discount rate equal to the lesser of 6.5% or London InterBank Offered Rate (“LIBOR”) (or, in the absence of LIBOR, its successor rate) plus 100 basis points, which may differ from our, or a potential acquirer’s, then-current cost of capital) under the Tax Receivable Agreement, which payment would be based on certain assumptions, including those relating to our future taxable income. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our, or a potential acquirer’s, liquidity and could have the effect of delaying, deferring, modifying or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. These provisions of the Tax Receivable Agreement may result in situations where the CLEAR Post-IPO Members have interests that differ from or are in addition to those of our other stockholders. In addition, we could be required to make payments under the Tax Receivable Agreement that are substantial and in excess of our, or a potential acquirer’s, actual cash savings in income tax.
Decisions we make in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments made under the Tax Receivable Agreement. For example, the earlier disposition of assets following an exchange or purchase of Alclear Units may accelerate payments under the Tax Receivable Agreement and increase the present value of such payments, and the disposition of assets before an exchange or purchase of Alclear Units may increase the tax liability of CLEAR Post-IPO Members (or their transferees or assignees) without giving rise to any rights to receive payments under the Tax Receivable Agreement. Such effects may result in differences or conflicts of interest between the interests of CLEAR Post-IPO Members (or their transferees or assignees) and the interests of other stockholders.
Finally, because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement are dependent on the ability of our subsidiaries to make distributions to us. Our debt agreements could restrict the ability of our subsidiaries to make distributions to us, which could affect our ability to make payments under the Tax Receivable Agreement. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid, which could negatively impact our results of operations and could also affect our liquidity in periods in which such payments are made.
Our Credit Agreement contains restrictions that limit our flexibility.
The covenants in our Credit Agreement, dated as of March 31, 2020 (as amended by Amendment No. 1 to Credit Agreement, dated as of April 29, 2021, Amendment No. 2 to the Credit Agreement, dated June 28, 2023, and Amendment No. 3 to the Credit Agreement, dated November 18, 2024, and as may be further amended from time to time, the “Credit Agreement”), by and among Alclear, the other loan parties thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., may negatively impact our ability to finance future operations or capital needs or to engage in other business activities. Our Credit Agreement requires us to maintain a specified net leverage ratio, which may require us to take action to reduce our debt or to act in a manner contrary to our business objectives. Our Credit Agreement also restricts our ability to, among other things, incur additional debt and guarantee indebtedness; pay dividends on or make distributions in respect of, or repurchase or redeem, our capital stock, or make other restricted payments; prepay, redeem, or repurchase certain debt; make loans or certain investments; sell certain assets; create liens on certain assets; consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; enter into certain transactions with our affiliates; alter the businesses we conduct; and enter into agreements restricting our subsidiaries’ ability to pay dividends. We could incur substantial indebtedness in the future, and the agreements governing any such indebtedness may provide further restrictions on our business.
As a result of these covenants, we are limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs. These restrictive covenants may limit our ability to engage in activities that may be in our long-term best interest. The failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of a substantial amount of our indebtedness. In the event of an acceleration, we may not have or be able to obtain sufficient funds to refinance our indebtedness or to make any accelerated payments. Even if we were able to obtain new financing, we would not be able to guarantee that the new financing would be on commercially reasonable terms. If we default on our indebtedness, our business, financial condition and results of operation could suffer a material adverse effect.
The timing and amount of any repurchases under our stock repurchase program are subject to a number of uncertainties.
On May 13, 2022, our Board authorized a stock repurchase program, and in November 2023, March 2024, August 2024, and February 2025 our Board authorized an increase in such authorization, whereby we may purchase up to $600 million of the Company’s Class A Common Stock on a discretionary basis from time to time through open market repurchases, privately negotiated transactions, or other means, including through Rule 10b5-1 trading plans. As of December 31, 2025, $126.5 million remained available under the repurchase authorization. The timing and actual number of shares repurchased will be determined by management depending on a variety of factors, including stock price, trading
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volume, market conditions, and other general business considerations. The repurchase program has no expiration date and may be modified, suspended, or terminated at any time, and we have no obligation to repurchase any amount of our Class A Common Stock under the repurchase program.
The Inflation Reduction Act, enacted on August 16, 2022, imposes a 1% excise tax on net repurchases of shares by U.S. corporations whose stock is traded on an established securities market. The imposition of the excise tax on repurchases of our shares may increase the cost to us of making repurchases and may cause us to reduce the number of shares repurchased pursuant to the repurchase program.
The U.S. federal income tax treatment of distributions on our Class A Common Stock to a stockholder will depend upon our tax attributes and the stockholder’s tax basis in our stock, which are not necessarily predictable and can change over time.
Distributions of cash or other property on our Class A Common Stock, if any, will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (“E&P”), as determined under U.S. federal income tax principles, and generally be taxable to holders of our Class A Common Stock as ordinary dividend income for U.S. federal income tax purposes (to the extent of our current and accumulated E&P). E&P should not be confused with earnings or net income under GAAP. To the extent those distributions exceed our current and accumulated E&P, the distributions will be treated as a non-taxable return of capital to the extent of the holder’s tax basis in our Class A Common Stock, which will reduce a stockholder’s tax basis in the Class A Common Stock, and thereafter as capital gain from the sale or exchange of such common stock. Also, if any stockholder sells our Class A Common Stock, the stockholder will recognize a gain or loss equal to the difference between the amount realized and the stockholder’s tax basis in such Class A Common Stock. Consequently, such excess distributions will result in a corresponding increase in the amount of gain, or a corresponding decrease in the amount of , recognized by the stockholder upon the sale of the Class A Common Stock or subsequent distributions with respect to such stock. Additionally, with regard to U.S. corporate holders of our Class A Common Stock, to the extent that a distribution on our Class A Common Stock exceeds both our current and accumulated E&P and such stockholder’s tax basis in such shares, such stockholders would be to utilize the corporate dividends-received deduction (to the extent it would otherwise be applicable to such stockholder) with respect to the resulting from such excess distribution. Further, after we initially report the expected tax characterization of distributions we have paid, the actual characterization, which is not determined with finality until after the end of the tax year in which the distribution occurs, could vary from our expectation with the result that stockholders of our common stock could incur different income tax liabilities than initially expected. Investors in our Class A Common Stock are to consult their tax advisors as to the tax consequences of receiving distributions on our Class A Common Stock that are not treated as dividends for U.S. federal income tax purposes.
Risks Related to Ownership of Our Class A Common Stock
Substantial future sales of shares of our Class A Common Stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our Class A Common Stock into the public market, particularly sales by our directors, executive officers and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A Common Stock to decline and could impair our ability to raise capital through the sale of
additional equity securities.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) requires us to include a management report assessing the effectiveness of our internal control over financial reporting, and include a report issued by our independent registered public accounting firm based on its audit of the Company’s internal control over financial reporting in our Annual Report on Form 10-K. We may identify weaknesses or deficiencies that we may be unable to remedy before the requisite deadline for those reports. Our ability to comply with the annual internal control report requirements will depend on the effectiveness of our financial reporting and data systems and controls across the Company. We expect these systems and controls to involve significant expenditures and to become increasingly complex as our business grows. To effectively manage this complexity, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Any weaknesses or deficiencies or any failure to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could our operating results and cause us to to meet our financial reporting obligations or result in material in our financial statements, which could affect our business and reduce our stock price. disclosure controls and procedures and internal control over financial reporting could also cause investors to confidence in our reported financial and other information, which would likely have a effect on the market price of our stock.
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Provisions in our charter documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third-party.
Our Certificate of Incorporation and by-laws contain several provisions that make it more difficult or expensive for a third-party to acquire control of us without the approval of our Board. These provisions, which may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that stockholders may consider favorable, include the following, some of which only become effective the first date on which Ms. Seidman Becker and Mr. Cornick (the “Co-Founders”), together with the other persons in their permitted ownership groups (which include the Founder Post-IPO Members), collectively beneficially own, in aggregate, less than a majority of the combined voting power of our outstanding shares of Common Stock entitled to vote generally in the election of directors (the “Triggering Event”):
• the 20 vote per share feature of our Class B Common Stock and Class D Common Stock;
• after the Triggering Event, the sole ability of the Board to fill a vacancy on the board of directors;
• prohibiting our stockholders from calling a special meeting of stockholders; after the Triggering Event, no ability for our stockholders to take action by written consent;
• after the Triggering Event, certain amendments to our Certificate of Incorporation or amendments to our by-laws will require the approval of 66 2/3% of the combined voting power of our outstanding shares of Common Stock;
• after the Triggering Event, removal of directors will require the approval of holders of at least 66 2∕3% of the combined voting power of our outstanding shares of Common Stock; and
• authorizing “blank check” preferred stock, the terms and issuance of which can be determined by our Board without any need for action by stockholders.
Additionally, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impede or discourage a takeover attempt that our stockholders may find beneficial. For example, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, unless the business combination is approved in a prescribed manner. An interested stockholder includes a person, individually or together with any other interested stockholder, who within the last three years has owned 15% or more of our voting stock. We opted out of Section 203 of the Delaware General Corporation Law, but our Certificate of Incorporation includes a similar provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder. Such restrictions, however, do not apply to any business combination between (i) any Founder Post-IPO Member, (ii) any Co-Founder, (iii) any other person in any Co-Founder’s permitted ownership group, (iv) any affiliate, successor or Related Party of any of the foregoing or (v) any Permitted Transferee of any of the foregoing. For purposes of this discussion, a person is a “Related Party” of another person if they are an affiliate or successor of such other person or are a “group,” or member of any such group, to which such other person is a party under Rule 13d-5 of the Exchange Act. For purposes of this discussion, a person is a “Permitted Transferee” of another person if they (A) acquire (other than in connection with a registered public offering) our voting stock from such other person or any of such other person’s Related Parties and (B) are designated in writing by a Founder Post-IPO Member or its successor or assignee as a “Permitted Transferee.”
These provisions of our Certificate of Incorporation and by-laws and Delaware law could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our Class A Common Stock in the future, which could reduce the market price of our Class A Common Stock.
Our stock price has been, and may in the future be, volatile, and your investment in our Common Stock could decline in value.
The market price of our Class A Common Stock has been, and may in the future be, subject to significant fluctuations in response to a number of factors, most of which we cannot control. These factors include, among others:
• our operating and financial performance and prospects;
• quarterly variations in the rate of growth (if any) of our financial or operational indicators, such as earnings per share, net income, revenues, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Total Bookings, Total CLEAR Members, Total Cumulative Platform Uses, Annual CLEAR+ Gross Dollar Retention, Active CLEAR+ Members, and Annual CLEAR+ Member Usage;
• the public reaction to our press releases, our other public announcements and our filings with the SEC;
• strategic actions by our competitors or third parties;
• changes in operating performance and the stock market valuations of other companies;
• announcements related to litigation;
• our failure to meet revenue or earnings estimates made by research analysts or other investors;
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• changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;
• speculation in the press or investment community;
• sales of our Common Stock by us or our stockholders, or the perception that such sales may occur;
• changes in accounting principles, policies, guidance, interpretations or standards;
• additions or departures of key management personnel;
• actions by our stockholders;
• general market conditions;
• domestic and international economic, legal and regulatory factors unrelated to our performance;
• material weakness in our internal control over financial reporting; and
• the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.
Additionally, our operating and financial performance has historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control and difficult to predict. This variability and unpredictability could result in our failing to meet the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our Class A Common Stock could fall substantially.
Furthermore, in recent years the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies. The changes frequently appear to occur without regard to the operating performance of the affected companies. As such, the price of our Class A Common Stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce the price of our Class A Common Stock and materially affect the value of your investment.
We may issue preferred securities, the terms of which could adversely affect the voting power or value of our Common Stock.
Our Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred securities having such designations, preferences, limitations and relative rights, including preferences over our Common Stock respecting dividends and distributions, as our Board may determine. The terms of one or more classes or series of preferred securities could adversely impact the voting power or value of our Common Stock. For example, we might grant holders of preferred securities the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred securities could affect the residual value of the Common Stock.
