Inspirato Incorporated

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Inspirado fourth quarter and year-end 2021 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, March 10, 2022. I will now turn the call over to James Knott, General Counsel.

Thank you, operator, and hello, everyone. By now, everyone should have access to our fourth quarter and year-end 2021 earnings release, which is available on the investor section of the investor website at www.inspirato.com. Before we begin our formal remarks, we need to remind everyone that some of the management's comments today will be forward-looking statements within the meeting of federal securities law, including but not limited to those regarding our expectations relating to future operating results and financial position, guidance and growth prospects, our anticipated future expenses and investments, our business strategy and plans, and our market growth, market position, and potential market opportunities. These statements are based on assumptions and beliefs, and we assume no obligation to update them. Actual results could differ materially from those indicated by these forward-looking statements. We refer you to our SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. In addition, during the call, management will also discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of these measures to the most directly comparable gap measures are included in our earnings release, which is available on the investor relations section of our website, and which was furnished with our Form 8K today with the SEC. Hosting the call today, we have our co-founder and CEO, Brent Handler, and Chief Financial Officer, Webb Naber. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Brent. Brent.

Thank you, James, and good afternoon, everyone. Welcome to the Inspirato fourth quarter and year-end 2021 earnings call, the first after closing our business combination. I'd like to start by welcoming our newest shareholders and thanking our entire Inspirato team for their efforts over the past year to help us get to this point. This is an important milestone in the history of Inspirato, and it positions us for future growth in the years ahead. I also would like to take this opportunity to thank our nearly 14,000 loyal subscribers who entrust us with their most valuable resource, quality experiences with family and friends. Before we go into our financial results, I would like to quickly talk about the history of our brand and where we stand today. My brother Brad and I originally entered into the luxury travel market back in 2002 with a capital-intensive model that required a significant upfront fee and used the money to purchase real estate. We evolved that model in 2011 when we launched Inspirato, a scalable asset-light subscription travel platform. We have been serving affluent travelers now for 20 years and are constantly innovating to provide the best value and experience to the luxury consumer. Today, the Inspirato platform is comprised of two core subscription products. The first is Inspirato Club, the initial product we launched in 2011. Currently, new club subscribers pay $600 per month for access to an exclusive portfolio of branded luxury vacation homes, five-star hotels and resort partners, and custom travel experiences in hundreds of destinations around the world. In addition to their monthly subscription, subscribers pay nightly rates to book the trips of their choice. Our club subscribers travel with Inspirato because of the luxury, service, certainty, and value that we provide. Our second product is Inspirato Pass, which we launched in the summer of 2019. Inspirato Pass is the first ever luxury travel subscription inclusive of nightly rates, taxes, and fees. With Pass, subscribers pay $2,500 per month and choose from a list of typically more than 1.5 million trips. ranging from luxury homes and hotels to unique travel experiences around the world. A proprietary patented algorithm determines how subscribers use their pass to book and enjoy travel. Our subscribers realize substantial value from this product, and we believe it represents a significant opportunity that we can continue to grow as consumers further appreciate its many benefits. One of the differentiating aspects of our model versus traditional hospitality is that we have greater loyalty within our customer base. In fact, while hotel companies pay millions of dollars to incentivize their customers to travel with them, the reverse is true with Inspirato. Our subscribers pay us for the ability of being able to travel within our exclusive platform. Additionally, the Inspirato demographic is highly coveted, consisting of affluent travelers who want to spend more and better time with family and friends. Moving on to the current state of our business, let's start with some recent highlights. Specifically, on February 11th, 2022, we closed our business combination. And on February 14th, 2022, Inspirato's Class A common stock and warrants commenced trading on NASDAQ under the ticker symbol ISPO and ISPOW, respectively. Pro forma, following the closing of the transaction, Inspirato had approximately $140 million of cash on its balance sheet, including approximately $88 million in gross proceeds from a pipe led by Janice Henderson. In 2021, we expanded our business on both the supply side and the demand side. On the supply side, in response to luxury consumer preferences, For curated private accommodations, we increased total controlled accommodations to 538, a 36% year-over-year increase. On the demand side, we grew active subscriptions to 14,875, an 18% year-over-year increase, and past subscriptions to 2,987, a 67% year-over-year increase. As a result, in 2021, we delivered record revenue of $235 million, $13 million ahead of our initial forecast. In September 2021, we launched Inspirato Real Estate, our owner-leaseback platform that greatly enhances our supply pipeline and expands the selection of residences offered to our subscribers. In October of 2021, we released an updated 2.0 version of our innovative PASS product, which allows for greater trip planning flexibility and value for our subscribers. With this release, our PASS trip list grew from around 150,000 trips to over 1.5 million trips. As we look ahead, we believe there is a lot of room to grow and further improve the luxury travel experience for our subscribers. With that as context, let me touch on our recent financial performance, key business metrics, and other operating metrics. We ended the year with a record fourth quarter, with revenues of $68 million, up 71% year over year, a gap net loss of $9 million, and adjusted EBITDA loss of $6 million. For the full year, 2021, revenues were $235 million, up 42% year over year, Net loss was $22 million, and adjusted EBITDA was a loss of $16 million. Annual recurring revenue from our subscriptions grew to $135 million, an increase of 48% year over year, and it's very encouraging to see that our innovative subscription model is scaling as we expected. In a year with varying degrees of travel restrictions in different parts of the U.S. and the world, Our unique offering was compelling enough to both retain our subscriber base and attract new affluent travelers. In fact, the travel restrictions elevated the importance of avoiding vacation roulette that high net worth travelers often face with online vacation rental sites. The service and certainty our subscribers get with Inspirato gives them the comfort they need to experience the world with family and friends. even during otherwise challenging and uncertain times. On the supply side, during 2021, we added 141 controlled accommodations, including new residences, hotel penthouses, suites and rooms, up 36% year over year. An important and growing component of our supply acquisition strategy is working directly with premium hospitality brands, national resort developers, and institutional owners of high-quality vacation rental product. We have made significant investments over the past year in building our team and infrastructure to execute on these larger, more complex transactions. We now have an active pipeline of large strategic lease acquisition opportunities that will give us additional operating scale in some of our core markets and will expand our footprint into new markets that include some of the most iconic vacation destinations in the world. If consummated, these transactions represent large components of the overall supply growth we have previously forecasted. We look forward to updating you as we execute these transactions and have more details to share. As we look ahead, we continue to focus on growth and innovation. First and foremost, we are committed to delivering best-in-class service and certainty to our subscribers. we are accelerating our investment into the expansion of our portfolio. Third, we continue to innovate and evolve the past product, which could include offerings such as sports and entertainment events, and perhaps in the future, further segmentation such as new price points. And lastly, we see opportunity within adjacent subscription offerings such as corporate incentive travel, bespoke and adventure travel, private clubs, and air travels. Corporate incentive travel in particular represents an attractive growth avenue for us. In 2021, we received an unsolicited inquiry from a large global software company about providing reward travel for their sales force. This ultimately manifest into a multi-million dollar bespoke program, fully paid upfront by our client. Our early success in this area catalyzed our innovation and product development teams who are now actively exploring how to capitalize on the large and growing corporate incentive travel market. I'll now turn the call over to Webb to provide more specifics on the financials.

Thank you, Brent. As Brent mentioned, we reported a record $68 million of revenue during the fourth quarter of 2021, up 71% from the same quarter last year. For the full year in December 31st, 2021, revenue was $235 million, versus 166 million in the prior year. Annual recurring revenue at year end was 135 million, up 49% compared to year end 2020, and up 25% compared to the prior high water mark in early 2020. For the fourth quarter, we had a net loss of 9 million and an adjusted EBITDA loss of 6 million. For the full year, we recorded a net loss of 22 million and an adjusted EBITDA loss of 16 million, which compares to a net loss of $1 million and adjusted EBITDA of $8 million during the prior year. We made and are continuing to make significant investments in sales and marketing, operations, corporate infrastructure, and our real estate footprint as the pandemic eases and as we respond to strengthened demand trends and resume our growth trajectory. Looking at the fourth quarter's key operating metrics, on the subscription side, we ended the year with 13,802 active subscribers, 14,875 active subscriptions. This represents year-over-year increases of 18% for both subscribers and subscriptions. As a reminder, the difference between these two numbers is that there is a subset of our active subscribers who have more than one active subscription. Selling multiple subscriptions and upgrading existing members to higher revenue subscriptions is an active part of our full customer lifecycle approach to subscriber sales. Strong travel demand resulted in a record 95,994 nights delivered in 2021. One driver of this increase was increased occupancy, with our occupancy rate for the fourth quarter of 84% compared to 78% in the year-ago period and an average of 88% for the full year 2021 compared to 71% in 2020. This clearly demonstrates the demand we have within our subscriber base and is one of the reasons we are aggressively building out our supply. We ended the year with 538 total controlled accommodations, up 36% from 2020. As we continue to grow our inventory through both our traditional retail and newer institutional channels, we're committed to developing and maintaining a balance of beneficial lease economics, structural flexibility and optionality, and strategic commitments and markets where we can amass significant scale and operating leverage. Turning to the balance sheet, our liquidity picture has never been stronger. Our resilient subscription revenue and flexible cost structure are two of the reasons that we have accrued significant amounts of cash over the past two fiscal years. At the end of 2019, we had approximately $40 million of cash on our balance sheet. At the end of 2020, that had increased to almost $70 million. And at the end of 2021, we had approximately $80 million. I'd remind everyone that we have a capital-like business model and are focused on preserving capital and maintaining judicious spend and investment criteria, as evidenced by our year-end cash balance as compared to the approximately $85 million of total equity we had raised as a private company over more than 10 years of operations before our recent transaction. After the closing of the business combination, we have approximately $140 million of cash on a pro forma basis. As mentioned throughout the D-SPAC process, these net proceeds will enable us to accelerate growth that are not required for us to hit our previous growth targets for 2022 and beyond. Turning to guidance. With this being our first earnings call post-business combination, we're establishing our guidance approach. We plan to provide a range of expected annual revenue and adjusted EBITDA and update each quarter. We expect to initiate guidance for any given year when we report the fourth quarter and year-end results of the prior year. We currently expect 2022 full-year revenue to range between $350 and $360 million, representing year-over-year growth of 49% and 53% respectively. We expect adjusted EBITDA to be in the range of negative $15 to $25 million. Our guidance reflects the strong demand trends driving both subscription acquisition and travel spend, continued rapid growth of our inventory, and near-term investments targeted at harnessing and amplifying these growth drivers. With that, I'll pass it back to Brent for some closing remarks.

Thank you, Webb. Before we close our prepared remarks and open the call for questions, I'd like to reiterate some key points. First, we are excited to have completed our business combination and trade under the NASDAQ ticker ISPO. Second, We feel great about our positioning within the luxury travel market and specifically the opportunity to capitalize on the trends around consumer subscriptions. Third, we have a number of exciting avenues for growth, both within our existing offerings and through expansion into adjacent subscription categories. Lastly, I want to thank our over 800 dedicated Inspirato team members for their relentless commitment to delivering best-in-class experiences to our nearly 14,000 subscribers. Again, welcome to our newest shareholders, and thank you all for joining today. Operator, please open the line for questions.

As a reminder, to ask a question, you need to press star 1 on your telephone, and to withdraw your question, just press the pound key. Once again, that's star 1 for questions and 1 moment for questions. Our first question will come from Mike Rundle from Northland Securities. You may begin.

Hey, Brett and Webb. Congrats on all the progress in 2021. First question is just your active subscribers were nicely ahead of your guidance, about 500 incremental subscribers. What would you kind of attribute that outperformance to?

Mike, it's Webb. I'll take that. We were really pleased in that performance, and I think as you saw the quarters that we disclosed throughout the year, that trend accelerating. So at the beginning of the year, one year ago, the environment in various parts of the country and the world was still challenged due to the effects of the pandemic, and that eased as the year went on. We frankly, had a significant amount of inbound demand for those subscriptions. And we ramped up fairly aggressively sales and marketing spend to meet that demand. And you saw that grow and accumulate throughout the year, ultimately resulting in, like you said, approximately 500 more subs than we had previously forecast for the year.

Got it. Got it. And then just in your controlled accommodations, primarily the residences. How does sort of the, you know, you talked about growing that aggressively. It grew 36% in 2021. What does that backlog look like, that pipeline, and maybe any comments on Inspirato Real Estate, that channel too?

Sure. You know, we've been really pleased at our ability to grow and deliver on the pipeline to date. I would say that is still a nascent operation. It's just been within the last year that we have started to invest in and build a whole new level of infrastructure around the people, the process, and the systems to grow that inventory. So we've seen great returns. As you point out, we were very happy with more than 35% growth for the year. We are building a robust pipeline behind that. Brent referred to in his comments a few larger institutional opportunities that we have actively been working on. So we don't have anything to announce yet on that front, but we have reason to believe that growth in the pipeline you have seen will continue to accelerate.

Yes, got it. Brent, one quick thought on that. To our members today, to all of our subscribers, we launched the most requested – destination that I can remember in the 20 years of being in this business. We launched the Hamptons today with releasing 14 new residences, and that's an example of a large developer, a strategic relationship. It's an opportunity to be part of a five-star luxury hotel that is going to be able to service and partner with us. for really the largest demographic that we serve, the tri-state area. So that's kind of the first of what Webb was talking about, which are these larger, more strategic, very important deals as they go from pipeline to reality with one of those happening today.

Great. I got that email early this morning. It was nice to see. And then maybe lastly... Anything to call out on some of the other growth avenues, sort of tickets and suites or beyond travel? You mentioned sort of the bespoke stuff. Anything else to call out there?

I think the one that is the most obvious to call out that we referenced a little bit earlier was around this corporate incentive travel market issue. I think if you really look at hospitality overall, one of the reasons Inspirato has been able to do so well during the pandemic is we have the good fortune of tailwinds for both private accommodations with service and certainty, so that was a big winner during the pandemic, and also really it being focused on the transient user, the non-corporate user. But most most businesses that are in hospitality have some reliance on corporate in some way or another and some reliance on, you know, the more vacation-oriented. And so what we're looking at is an opportunity to take our portfolio and get better utilization and yield out of it by really focusing on this incentive approach and kind of corporate reward market that we think is very big. We think we have a really differentiated opportunity in that space. So I think from a growth perspective, it would not be unrealistic to think that we had some very good success with this large software company that we mentioned earlier and just thinking that we might be putting some investment there and thinking through how we would be able to attack that market in the coming quarters.

Great. Thanks a lot, guys.

Once again, as a reminder, that's star one for questions, star one. Our next question will come from the line of Tom Champion from Piper Sandler. You may begin.

Good afternoon, guys. Thanks for taking the questions. Webb, maybe to begin with you, the 22 guidance, 350 to 360, that looks just a little below the prior expectation expressed in in the deck and the materials. Just curious if you could walk us through the change there. And then, Bren, maybe two quick ones for you. Can you elaborate on PASS 2.0? What was the change that increased the number of trips enabled so dramatically? And then, you know, just finally, what are you seeing on the demand side from consumers and customer behavior today? Are you seeing any different trends coming out of the pandemic on this side of it, or would you characterize it as more a return to what you observed from the customer in 2019 and years prior? Thank you.

Hey, Tom, it's Webb. I'll start with the first on guidance. We put out a guidance of $350 million to $360 million for the coming year, as you noted, And as we look back at the end of the year, we do see strengthening demand patterns and continued success across a number of the areas of the business. That said, we are cognizant of the world that we live in. There have been some global disruptions that haven't affected us in any notable way at all. We also are all feeling the easing of this latest round of the pandemic variants. So we put that guidance out there, feeling really good at delivering 50% or more growth in that range for the coming year, and hoping that we have reason to really outperform that and deliver even higher than those numbers.

Great, thanks, Webb. Just to talk about the innovation that took place last fall with PASS. When we launched PASS, the trips that were available for your subscription were only trips that when you took that trip, the day you checked out, you could book your next trip. So for example, it's March right now, that would make it unfeasible, it wouldn't make it feasible using your pass, for example, if you wanted to next September to go to Napa for a weekend, because you'd be holding up your pass for too long. You couldn't book your next trip until you checked out that wouldn't make sense for a weekend next September. We changed the algorithm and we updated our systems and product to be able to now allow all trips are priced in a number of past days. And a past day is defined as how long you have to wait to book your next trip. So if you wanted to book a trip, that was, you would check out 15 days from today, wherever that might be, let's say it was in New York at one of our penthouses, that would cost 15 days. But you also now, using PASS, are able to go to the wine country, use 15 days of your PASS, and book a trip when you next September. The result of that means you can't make your next reservation for 15 days from today, but then you get to keep your reservation that you made in September. And just because of the way that the trips would lay out and the number of new opportunities and experiences that that was able to provide our subscribers, it resulted in roughly a 10x increase and obviously made the product much more mainstream, much more valuable for people who are looking to get out and travel and experience the world with family and friends. On your second question, which is around the demand side, I have been doing this for a little bit, I guess roughly 20 years. We've not really seen demand like this in the past, and it feels like there is a demographic shift that's taking place in how people think about where they're going to work from. This work from anywhere is a real thing. People staying longer in accommodations is a real thing. Extended stay, particularly in our residential accommodations, is a real thing. And all of that really, those are some really big tailwinds that we have going for us. You combine that with the service and certainty that we offer, that there really isn't an issue of vacation roulette with Inspirato. What am I gonna get? Who's gonna take care of me? How am I gonna get my key? Is the place gonna be nice? How am I gonna get housekeeping? I've never heard of this company. The combination of all of those things really bode well for Inspirato and our platform, and really I think we see that with the type of demand that we're seeing for folks that want to be using our subscriptions.

Thanks, Brent. Thanks, Webb.

Thank you. I'm not showing any further questions in the queue. I'll turn it back over to Webb Naber, CFO, for any closing remarks.

Thank you, and thanks to everyone for joining our call today. This will conclude this session. please do reach out to our investor relations website if you didn't get questions answered or would like any more information. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.