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spk30: Thank you for standing by and welcome to Inspirato's fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Mr. Kyle Sork, Investor Relations. Please go ahead.
spk27: Thank you, and good morning. On today's call, we have co-founder and CEO Brent Handler and CFO Webb Naber.
spk10: Yesterday afternoon, we issued our press release announcing our fourth quarter and full year 2022 results, as well as our 2023 guidance, which is available on the investor relations page of our website at investor.inspirato.com. Before we begin our formal remarks, we remind everyone that some of today's comments are forward-looking statements, including, but not limited to our expectations of future operating results, and financial position, guidance and growth prospects, our anticipated future expenses and investments, business strategy and plans, and market growth, market position, and potential market opportunities. These statements are based on assumptions, and we assume no obligation to update them. Actual results could differ materially. We refer you to our SEC filings for a more detailed discussion of additional risks. In addition, during the call, management will discuss non-GAAP measures which are 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 GAAP measures are included in our earnings release. With that, I'll turn the call over to our CEO, Brent Handler.
spk13: Thank you, Kyle, and good morning, everyone. To start, I would like to provide some more context around the announcement we made yesterday with regard to continuing to bolster our team and adding to the breadth and depth of our C-suite. We announced that our CFO, Webb Naber, will be taking on a new mandate as Chief Strategy Officer and that we are engaged in recruiting a candidate to backfill his role. I would like to thank Webb for his past invaluable contributions as Inspirato CFO. Webb has been a fantastic partner to me over the past couple of years and was instrumental in guiding us through the negotiation and execution of our D-SPAC process a year ago. He will continue serving as CFO until we appoint a successor. And as Chief Strategy Officer thereafter, he will have the dedicated bandwidth to double down on our focus on investor engagement, capital markets, strategic partnerships, and better communicating our story to the public markets. Before reviewing 2022 results and our plans for 2023, including our path to profitability, I would like to talk about our strategic partnership with Saks, one of the most recognized and premier brands with an incredible rich history in the luxury category. Inspirato and Saks share a mission centered around building long-term meaningful customer relationships. We are very excited to work with their nearly 3,000 Saks stylists, many of whom have close, long-term relationships with their luxury customers. SACS is the largest luxury e-commerce company in the United States, and with our comprehensive training and support, we expect to significantly expand our reach to new prospective markets. In addition, our existing subscribers will be able to apply for the SACS First Reward Program, further enriching the Inspirato value proposition. We're incredibly excited to team up with SACS as this partnership offers a natural, complementary relationship with a number of synergies that will benefit each side. Finally, as part of this partnership, SACS has the opportunity to earn commissions and incentive-based warrants to acquire Inspirato shares. These warrants have an exercise price of $2 per share, and based on SACS successfully converting their digital and in-store customers to paying Inspirato subscribers, SACS may exercise these performance warrants to acquire up to a cap of approximately 15% of Inspirato's current total shares outstanding. Next, as we reflect on 2022, Our focus was on completing our business combination and executing a plan that would deliver strong growth, especially relating to increasing our number of controlled accommodations. In 2022, we added 195 net controlled accommodations, an increase of 36% over 2021. In 2021, we added 170 net controlled accommodations, an increase of 46% from 2020. All said, in the past two years, we added a total of 365 controlled accommodations, representing a nearly 100% increase in total supply. Around mid-year, as market sentiment shifted, we began our pivot away from growth to focus on profitability and shoring up our financial reporting structure, while remaining committed to our core values, including innovation. We ended 2022 with $346 million of revenue, a 47% increase over 2021, and adjusted EBITDA loss of $32 million. Shifting to 2023, we are focused on our path to profitability on an adjusted EBITDA basis, similar to 2019 and 2020. Our moderated growth projections are a byproduct of the collective decisions made throughout the organization aimed at improving operating efficiencies and margins. Webb will give more color on some of the specific and measurable actions we're taking to accelerate our path to profitability in a minute. For 2023, we anticipate an adjusted EBITDA loss of between 10 and 20 million, which equates to an improvement of more than 15 million at the midpoint compared to 2022. We believe that continuing to optimize our portfolio, control costs and expenses, and the maturing of IFG and IFB will enable us to continually improve our EBITDA margins in 2024 and beyond. Importantly, none of our 2023 projections include any incremental revenue, margin, or expense related to the newly signed SACS partnership, which we believe could provide meaningful upside to the plan. In terms of total revenue, we expect to generate between $350 and $370 million, a much more modest growth rate of approximately 4% at the midpoint compared to the 40 plus percent growth in both 2021 and 2022. There are several drivers contributing to our reduced revenue range compared to our prior guidance of approximately 400 million that I'd like to quickly touch on. First, reduced PASS subscription. Since its inception in 2019, PASS has served as a tremendous driver for the company. reaching over 100 million of annual recurring revenue at the end of 2022. However, as we referenced on our last call, we began seeing slower than anticipated past results in Q4 2022. At year end, our 3,600 past subscriptions represented a decrease of approximately 7% compared to the end of Q3 2022. We've seen this trend continue to start 2023, though we expect it to taper in coming quarters. The second driver affecting revenue is lower projected 2023 paid occupancy in our residences. Our current plan assumes 43% paid residence occupancy compared to 48% in 2022 with a projected 7% increase in paid ADR. When combined with past residence occupancy, this would equate to approximately 70% total occupancy compared to 81% in 2022 and 88% in 2021. The combination of reduced past subscribers and lower than anticipated paid residence occupancy present us with the opportunity to capture newly found economic availability. To optimize this available capacity, we are working on a variety of strategic initiatives, including offering loyalty and reward opportunities for our existing subscribers, removing and renegotiating underperforming supply, monetizing excess supply through proven distribution channels, and leveraging new member acquisition strategies, including IFB, IFG, SACS, and more. To illustrate the operating leverage of our existing member base and residence portfolio, we project that adding only one incremental paid travel night per subscriber would consume approximately 9% of our projected availability. while still leaving us well below our 2021 total occupancy. Assuming a 30% discount to the average paid ADR of our current 12 months forward bookings and residences, our reservations currently in place for the year, this would equate to more than 20 million of incremental in-year high margin travel revenue. Finally, we have modified our sales incentive plans to encourage multi-year club memberships at the point of purchase. In our 2023 plan, This strategy will intentionally reduce annual revenue and EBITDA margin due to the discounted annualized rates in exchange for longer subscription terms. More importantly, long term, this strategy is expected to result in higher retention, increased bookings, and improved economics around customer acquisition. Before turning the call to web, I'd like to provide an update on Inspirato for Good and Inspirato for Business, two new platforms that launched in the second half of last year. Through year-end 2022, Inspirata for Good sold more than 500 packages for approximately 1.5 million, and as of last week, an incremental 400 packages sold in 2023 for more than 1 million in total sales. While we're encouraged by the 2.5 million of sales, based on the natural seasonality of nonprofit fundraisers, we expect to drive the most activity in the upcoming spring and fall gala season. Meanwhile, Inspirato for Business sold nearly 5 million of contracted revenue in the fourth quarter and year-to-date combined, which will be recognized over the life of those contracts. The 7.5 million of combined sales across these two new platforms over the past period of time is a solid start, but only part of the story considering these thousands of travelers will be introduced to Inspirato and represent a highly targeted membership conversion opportunity. In summary, I'm very proud of our team. After two consecutive years of 40 plus percent growth, we have built a plan that projects 17 million of adjusted EBITDA improvement at the midpoint of our 2023 range and sets the table for long-term and sustainable profitability. With that, I'll turn the call over to Webb.
spk29: Thanks, Brent. Before reviewing the financial and operating results, I'd like to thank our team for the tremendous work and effort throughout the course of the year. As Brent highlighted, 2022 involved incredible change and new processes that required tireless work and dedication, and our team is focused on executing our path to profitability as the core company objective for the coming year. It has been a privilege to lead Inspirato's finance and accounting teams through executing the D-SPAC process and in our transition to performing as a public company. I'm looking forward to bringing on a new partner who will add even more horsepower to our ongoing improvements to accounting controls and financial processes. and also to this new opportunity as Chief Strategy Officer, which will allow for more dedicated focus on critical public company functions that we will believe will create value for our members and shareholders. I will, of course, continue to lead our terrific accounting and finance teams as we work toward finding the right candidate to round out our C-suite. Moving on to our financial and operating results, we generated total revenue of $87 million in the fourth quarter compared to 68 million in the fourth quarter of 2021. Full year revenue for 2022 was 346 million compared to 235 million in 2021, with the 47% increase in annual revenue marking Inspirado's highest level since 2014. In a year in which growth was our objective, we very clearly succeeded. Our 2023 revenue guidance of 350 to 370 million equates to a more modest growth rate and is the product of a more streamlined and efficient operating plan focused on the path to profitability. Adjusted EBITDA in 2022 was a loss of $32 million compared to a loss of $16 million in 2021. Our 2022 loss was primarily due to a 50% increase in our cost of revenue and a 46% increase in our operating expenses as compared to 2021. Our 2023 guidance of an adjusted EBITDA loss of 10 million to 20 million includes a number of measures aimed at improving our efficiency that I'll touch on in a moment. At year end 2022, we had 14,600 active subscribers and 16,100 active subscriptions compared to 13,800 and 14,900 respectively at year end 21. In 2022, the full year retention including monthly, annual, and multi-year prepaid subscribers of the entire cohort that began the year with us was approximately 82%. There are obviously a number of ways we view and track retention internally, including daily reporting and frequent review of product level analysis, including monitoring the movement between products. Cutting through those dynamics, we feel a simple beginning of period, end of period approach across a full year is a digestible and fair representation of our subscriber retention. Travel revenue for the fourth quarter and full year 2022 was $47 million and $200 million, respectively, compared to $39 million and $135 million for the comparable 2021 periods. We generate travel revenue in a number of ways, namely, paid nights in our residence and hotels, as well as Inspirato-only experiences and bespoke custom travel services. The year-over-year increase in travel revenue was predominantly due to increased revenue associated with our residences, the flagships of our portfolio of travel offerings. Paid residence nights delivered in 2022 increased by 11% year-over-year, while our average ADR increased 17% between periods to approximately $1,825 per night compared to approximately $1,560 per night in 2021. We also delivered over 38,000 residents night through pass, an increase of 48% year over year. Shifting to gross margin, we generated 29% and 34% margins for the fourth quarter and full year 2022 respectively. compared to 38% and 35% in the comparable 2021 period. The difference in fourth quarter gross margin was due to the $18 million increase in revenue between periods being offset by a $19 million increase in our cost of revenue. This is a perfect example of the opportunity ahead of us in 2023 as the increased cost of revenue was associated with a 44% increase in lease expense and a 46% increase in booking fees between periods. Historically, this has been a common theme, whereby adding controlled accommodations rapidly has a negative short-term margin impact, which generally improves over time as the booking window stabilizes. Next, operating expenses, which were $40 million in the fourth quarter of 2022 compared to $34 million in the fourth quarter of 2021, and $162 million compared to $110 million for the full-year period. Including stock-based compensation and costs associated with becoming publicly traded, operating expenses were $152 million, or 44% of revenue in 2022, and $99 million, or 42% of revenue in 2021. Simply put, this was too high. In January 2023, we made the difficult decision to reduce our headcount by approximately 12%. We expect this to contribute approximately $10 million of savings in 2023 with approximately $500,000 of one-time severance-related payments in the first quarter. For full year 2023, we expect total operating expense, excluding stock-based comp, of $135 to $140 million, which is a year-over-year reduction of approximately $15 million. Shifting to the balance sheet, We exited the year with approximately $82 million of cash on hand. Obviously, adjusted EBITDA is not a direct proxy for cash, but given our 2023 objectives and cost-cutting measures, as well as minimal CapEx requirements relative to the significant asset base we control through flexible lease commitments, we expect this to be ample liquidity as we execute against our path to profitability. Having said that, we do have natural seasonality in our booking patterns, cash outflows can be lumpy throughout the year. As a reminder, Inspirato has zero outstanding debt, no amounts drawn on any credit line, and has a diversified cash strategy with top-tier national banks. Before turning the call over to Q&A, I'd like to spend a moment on several portfolio optimization initiatives, largely within our control, that we expect to contribute to a long-term improvement to our gross margin. Reduced portfolio growth. As Brent mentioned, our plans for 2023 contemplate very minor portfolio growth. I noted a moment ago, and we've discussed on prior calls, the embedded costs associated with adding new residences in our portfolio. There is typically a ramp-up period and a lag in fully selling the forward-looking calendar and fully integrating a residence in our platform from a revenue generation perspective, as well as upfront staffing and other costs that don't yet have the benefit of being spread over a stabilized revenue base. By consciously slowing our pace of portfolio growth, we will reduce many of the costs associated with outfitting and onboarding the large volume of homes we launched in 2022, and we believe we will have a much more predictable booking calendar to work with going forward. Second, lease expense. Our leases represent one of the largest expense categories on the corporate P&L, and are typically the largest single expense at the level of a given property. Our portfolio growth over the last two years has been marked by the addition or renewal of many leases with longer terms than what would have previously been negotiated, including some as long as 20 years. These often carry low or no rent increases over the term, affording us the benefit of embedded inflation protection that we believe will create significant value over time. In addition, we typically have favorable terms that give us the opportunity to renegotiate or even prune poor performing accommodations if needed. We will keep an eye on member satisfaction as well as on regional scale and overall availability and are confident we can make thoughtful decisions that will both improve our cost structure and also deliver remarkable travel experiences for our member. Third is inventory allocation. The mix of travel and residences versus hotels paid travel versus past travel, and travel and leased accommodations versus in-supply access through net rate and revenue share agreements. Earlier, I mentioned booking fees as a large contributor to the increased cost between periods. As a reminder, booking fees are associated with travel outside of our controlled accommodations, primarily via our experiences and bespoke offerings and with net rate agreements with our various hotel partners. There's obvious value in capturing this incremental wallet share and offering unique and custom experiences for our subscribers. But as a whole, this travel is lower margin than travel in our lease portfolio. We have the ability to not only drive new bookings towards our higher margin lease properties, but also to redirect existing bookings to an unused property, taking advantage of our fixed cost base and lower variable costs, and improving our margin as a result. We believe these changes are not only achievable, but sustainable and representative of the significant margin expansion opportunities that we aim to capture. We look forward to providing updates in the coming quarters. In summary, our team is excited and focused on the year ahead. We've set out a number of attainable and meaningful goals, all centered around our path to profitability. With that, I'll turn the call over to the moderator for Q&A.
spk30: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1. Our first question comes from the line of Shweta Jakori of Evercore ISA. Your line is open.
spk23: Okay, thank you. A quick question for Brent, please. You mentioned when you were talking about the full-year revenue guide, the trends for reduced bathtubs. So if the moderating trend continued into Q1 of this year, you also said you hope that it tapers off in the coming quarters. Could you give a little bit more color on what gives you confidence that it will taper off and what are some of the key factors? Thank you.
spk29: Hi, Shweta. This is Webb. Great question. Before I turn it over to Brent to take that, I did want to speak to some of the new disclosures that we provided this quarter. Some of it relates to your question, but Brent will respond on the past. We continue to try to provide more visibility into some of the fundamental drivers of the business. And with respect to retention, in particular, the full-year annual measure of 82% is one that we believe will improve with our emerging success in selling multi-year prepaid subscriptions. I also wanted to clarify in the context of these new disclosures that with respect to residence occupancy or total occupancy, which includes, as Brent noted, past occupancy that we've broken out for the first time, the anticipated 70% for the coming year includes in total paid occupancy, past occupancy, and other forms of occupancy like employee and comp nights. Part of the opportunity not included in our guidance is that to use the additional capacity to drive those incremental nights that Brent mentioned and the high margin residence EBITDA. So, just a couple quick clarifications on some of that new disclosure. It ties into your question about PATH and the PATH trends, which I can turn it over to Brent to respond to.
spk07: Great. Thanks, Webb.
spk13: Great question. I think the first thing that I would want to say about PATH is that I don't think we fully recognized how great a product it was in 21 and early 22, because it really applies to people who have flexibility in their travel and want to travel frequently. And we've definitely seen in the, because we read every survey when somebody leaves, typically they're staying with the club, but their travel patterns have just changed. They have school activities. They want to go to concerts. They've just kind of gotten that revenge travel out of their system and And so we just think that it's a product that does fit a certain type of traveler extremely well. And in fact, in our member surveys that we do, where we ask people about their overall satisfaction, what we have found is that there's people love PATH that love PATH. I mean, there's a really, really high NPS of the people who can take advantage of all of the benefits and value that they get from that flexibility. But we've seen that more normalized travel, people who have more normalized schedules back to work, et cetera, are less apt to continue with their path. We think because what we're seeing with the surveys and how many people have actually loved that experience, that that's going to taper off over time. And we're also selling it now more as a value in exchange for flexibility type product. And we think there'll always be a need for that. Importantly, though, When you think about our portfolio and the risk we take in our leases, really it's just a game of how do we fill all of that occupancy in an appropriate way. And so if we do end up losing past holders, that does provide an opportunity for us to be able to provide economic availability for other members, Inspirato for Good, Inspirato for Business, in order to fill that newly found economic availability.
spk11: Thank you for the question.
spk25: Okay. Thank you, Brett. Thank you, Rob.
spk30: Thank you. One moment, please. Our next question comes from the line of Jed Kelly of Oppenheimer. Your line is open.
spk06: Hey, great. Thanks for taking my question. Just circling back, you know, Brent, you just mentioned how, you know, your customers or their travel patterns are changing. Can you just talk about, you know, how you view experiences and some of the Inspirato experiences that you can plug in and how that can impact travel revenue this year. And then just can you talk to, just give us a little more clarity around like just the supply ramp and where you are on supply. I realize you're scaling some of it back, but can you talk, and then, you know, do you ever think about doing it where, you know, basically renting out your vacation rentals on a,
spk05: you know, to nod subscribers or anything like that. Thank you.
spk13: Great. Yeah. You know, great question. Just in terms of the portfolio expansion, we are very moderated in our growth this year. We do have some incredible new opportunities, like in downtown Charleston, we have an opportunity to have some one of a kind condominiums that will be coming into the platform. But I would say overall, Excuse me. Overall, we're not in a great expansion mode. As we had mentioned, we've essentially doubled the portfolio in two years. So, there's a tremendous array of availability and opportunities for our members to travel. And in actuality, a big part of the story of what's going on is we underestimated the time it would take to fill in that availability. to near capacity or capacity. And that's what's leaving us with all of this excess supply. As we had mentioned, we're going to be running, call it close to 70% at the plan that drives this negative 10 to negative 20 in EBITDA. Just getting to 80%, which is still less than the last two years, even at 30% less ADR compared to what's on the books right now, that would get us to EBITDA positive. That just kind of shows the leverage that we have that's in the portfolio. So right now, the goal is to use that capacity and grow into that capacity in an economically feasible way. The good news for our members is this just means more availability for them and better opportunities for the club to provide more value to them. Things like loyalty programs and reward programs that we've never done in the past, we're going to start to offer these to our members. We're going to start to offer incentives for them to extend their space. I think we had mentioned on the call, even one more day per subscriber would bring over $20 million of high margin in-year revenue to us. To address your last question, which is about would we ever consider taking supply out, We have done that in the past, and we do plan on doing that. Where we have excess supply, we can use proven third-party distribution channels like Averbo and Airbnb, strip out the Inspirato service, strip out Inspirato planning, strip out Inspirato housekeeping, strip out the Inspirato amenities in the home, and essentially take this hard work and all of the expense that we had to acquire those homes, put them into somewhat of a holding pattern. While we're able to monetize that excess capacity, and then bring it in when we need to and that's something proven. We've actually been able to do that before and we expect to do that somewhat as we build into this newly found capacity. We also had a lot have a lot of demand drivers that are incremental to the plan fact, being 1 of them. So what's nice about having already secured the supply is that we can be flexible, either providing more value for members with things like loyalty, things like rewards, or pulling out supply and waiting for this to catch up. Essentially what happened is we grew a little too fast. We paid the expense to bring in all of that inventory. And sometimes in a business like ours, it takes a little time to get it right. Sometimes you don't have enough supply. Sometimes you have a little excess supply. And what we've done here is we've managed to get that excess supply, and we have a great opportunity to monetize it over time and grow into it. Thank you for the question.
spk06: Got it. And then just as a follow-up, I don't know if you said this in your opening remarks. I might have missed it. Can you give us a breakdown on what we should expect for the guidance between subscription revenue and travel revenue for this year?
spk13: I'm going to give that question over to Webb, but I just realized I forgot to answer your question about experiences. My apologies. Let me quickly touch on that. Inspirato has an unbelievable experiential travel platform that we make available to our members. Some of that is done through what we call Inspirato Only. which is experiences that are time and date specific, where it's only with other Inspirato members, that business has been growing very rapidly and doing very well. The other business that we have, we call Bespoke, which is where we do customized travel itineraries for members that want to experience the world with us. And that business is doing very well also. Those are really lower margin member benefits types of businesses for us while we're focused on providing that as an amazing benefit for our members and obviously we're just obsessed with this high nps and with the member satisfaction and the high retention we've been fortunate to enjoy for the last over decade but really the focus and the story this year is optimizing our risk portfolio and making sure that we fill that capacity and make it available to members at great value so that they're getting even more out of their experience. And let me go ahead and pass it over to Webb to answer your question about occupancy and the delta between pass and pays.
spk27: Hey, Jed, this is Webb.
spk29: In terms of responding to your question on the mix of revenue embedded in our guidance derived from subscriptions and to travel, the first thing I would highlight is the emerging pipelines that Brent referenced, $7.5 million already in sales to date in our Inspirado for Good and Inspirado for Business. Those have, per GAP, a combination and a sub-allocation of revenue between subscriptions and travel. and between travel. So I want to highlight that, that as those grow, that could change our mix and change our shift. And we believe that those have a chance to be, based on early returns, very significant drivers of our business, as you've seen on the results so far. Overall, we've been running at approximately 55%, sometimes a little bit higher, up to 60% on the travel side, therefore 35% to 40% on the subscription side. We would anticipate that all in our 2023 results, as we're estimating looking forward, will continue to be reflective of approximately that mix.
spk06: Got it. And then, do you have any idea what that implies for a blended ARPU with all your subscribers?
spk28: We don't.
spk29: We don't have that and we don't project that going forward yet, but along the lines of, as I referenced at the outset, the additional disclosure we're providing, that's something that we can take into account as we continue to produce new metrics every quarter. Thank you.
spk30: Thank you. One moment, please. Our next question comes from the line of Mike Grondahl of Northland Capital Markets. Your line is open.
spk03: Hey guys, two questions. The first one is, I know the last week of the year, the last week of December, you guys have a big sales push. Any metrics you can give us how that went compared to prior Decembers? And then secondly, could you maybe describe the SACS program, which looks really interesting. How are they going to be incented or compensated, i.e., if they sell a past subscription, you know, what is their take on that? And I know you said they could get up to 15% of the company if it works really well, but what do they kind of need to hit to get to the first tier or some piece of those warrants?
spk08: Great.
spk13: Let me go ahead and take the SACS question and I'll have Webb do your question regarding December results. First of all, we're incredibly excited about the SACS relationship. It's an amazing brand. I've spent a lot of time with the team there. I've spent a lot of time with the folks at Hudson Bay who are the private equity firm that's involved in that. And we share a ton of the same values and we obviously sell to the same customers but in a non-competitive way which we have found to be somewhat difficult in the travel space to be able to find a luxury partner that could really be complementary for both of us our members being able to get access to SACS first and their millions of customers being introduced to travel a category that they're not really involved in at all And so I think there's a great meeting of the minds there, and there's tremendous opportunity. Again, none of that is put into our plan for the year, but we're both very excited about the opportunity there. We're also excited that FACTS has a great option to become a significant shareholder of Inspirato. So walking through how this works, they receive performance warrants at $2 a share, and they can get up to about 15% ownership into Inspirato based on our current capitalization by referring their customers and selling their customers. And in simplistic math, Inspirato has roughly about 15,000 paying subscribers, give or take, and they would need to sell over the term of the five years of the relationship about 15,000 club memberships to get to that 15% ownership. So they receive a commission for all of their sales. And then they also receive performance warrants for their sales. And they're heavily motivated and want to be a big partner of ours. And we think that they would make for an outstanding equity partner. And there's a lot of work now to go into training. There are nearly 3,000 salespeople. Just as a ratio, Inspirato has you know, in the neighborhood, think of about 100 salespeople. They have about 3,000 salespeople, and we think that there's just great opportunity for that relationship. Let me go ahead and turn this over to Webb now.
spk29: Thanks, Brent. Mike, in response to your question with regarding our December and particularly the sort of the New Year's Eve sales push that we have every year, we think about that in the context of our prior announcements on reallocating a meaningful portion of the sales force that Brent mentioned, approximately a third of the sales force, reallocated to our new initiatives in Inspirata for Good and Inspirata for Business. That began, I think we first announced it last August. And so, of course, that in total numbers then, one would anticipate our retail sales would increase. diminished proportionately as we ramp up those new pipelines with that reallocated sales force. So I think our year-end results, while we don't disclose sort of month-by-month or day-by-day numbers, they were reflective of that trend. You see that in the tapering of past that Brent mentioned. We still feel positive about the overall business mix and actually the diversification of these new demand channels we think are really important for the 2023 guidance and overall our paths of profitability.
spk30: Got it. Thank you. Thank you. One moment, please. Our next question comes from the line of Brett Knobloch. Cantor, your line is open.
spk18: Hi, guys. Thanks for taking that question. I guess I have two. First, on the locking in customers into longer-term subscription agreements but at lower pricing, can you just give some more color on what type of discounts... you're getting those longer term commitments and how quickly you expect to ramp up those discussions with your existing install and new customers you're trying to add onto the platform. And then secondly, could you maybe try some color on cash burns for the year? You know, I guess if past sales are going to continue to be, or continue to demand to continue to be, you know, is that going to really impact the firm revenues and the negative working capital hit through the year? I don't know.
spk13: Great. I'll go ahead and answer the first one, and then Webb can answer the question on cash. What we found last year was that while it's easier to get people to join Inspirato for, say, joining monthly or even joining for one year, the that essentially the efficacy and the productivity of that subscriber for being so short term requires us to sell them again. And also, of course, they have optionality to leave. And so a big decision that we made this year was to really increase heavily our longer term commitments at the point of sale. So most of the people who are joining now are actually joining for two years. And in joining for two years, the current rate for that is $7,800, so $3,900 per year. But there's no additional incentive that they're given. Previously, people would join for around the same price, but they would get some form of joining incentive, such as a free trip or maybe some travel credit. So while the in-year was higher last year, you know, maybe it was even call it around $1,300 or $1,400 higher, what was happening is a lot of those people weren't staying either for the entire year if they were monthly, or we had some issues with yearly churn because they would have paid for a year and then maybe they weren't re-upping. Now what we have is a cascading opportunity for members to join for between really two and five years. And by locking them in over that period of time, It obviously locks in their retention, but it also locks in, we can actuarialize how much they're going to be traveling. So we expect that in 2024, this is going to have a material impact on our retention to the positive. And obviously, you know, as we continue to drive our incentive plans for our salespeople to provide value to members who join for longer and longer terms, this is really only beneficial for Inspirato. It kind of has a little bit of a one-year hit this year, but over time, it's a much better strategy for a club like ours.
spk20: And then I'll turn over the cash question to Webb.
spk27: Hi, Brett.
spk29: On cash, the way we think about it is the midpoint of our EBITDA projection is a $15 million gap. negative EBITDA number in our projection for 2023. We run, it's a decent proxy for cash because of the capital light nature of our business. I mean, our biggest single line item expense in the field and operations is our lease expense number. Those are very flexible and capital light leases. So that's an important lever that we have. As we've mentioned, we are actively in the process and already have renegotiated, restructured, and even terminated some leases, we generally have very favorable rates in that respect. To your related point on the prepaids, historically, we've been able to accrue a lot of cash up front by selling subscriptions far in advance. We have a much longer booking window traditionally than other hospitality platforms might typically have. In addition, the subscription element in terms of prepaid subscriptions emphasizing those multi-year prepaids, we would anticipate that would have, all of us being equal, a very positive impact on cash relative to historically sometimes having a higher mix of monthly or shorter period subscriptions. So there's some really positive cash dynamic elements when you pull all that together.
spk17: I guess maybe to follow up, do you guys expect to end 2023 with
spk18: More past subscriptions versus the end of 2022?
spk13: Did you say more past subscriptions in 2023 than 2022?
spk16: Yeah, like the year-end subscriber count.
spk13: No. No, we assume it's going to be, you know, pretty close to flat is kind of what you're seeing in this projection of negative 10 to negative 20. Look, there's a lot of There's a lot of the year left and we feel like we have a really good plan and we're focused on this path of profitability. We've made some optimization to our structuring in the company, focusing executives and making sure that our incentives as a company and our company goals are really driven around EBITDA and this path to profitability. So I'm going to say that, you know, sort of our plan is it's going to be about the same but there's a lot of upside there with PATH. But I also want to reiterate what I said earlier. PATH is $30,600 for the year. PATH is one great way for flexible travelers to consume our occupancy. Another great way is for our existing members through loyalty and through rewards programs to just book an extra day or two or an extra trip. And so we're focused on all avenues of optimizing this portfolio. We worked really hard to build a moat that nobody in the world has. Nobody has a managed and controlled portfolio of residences like Inspirato. Nobody can provide the service and certainty that we have. It really is different than a marketplace business. Marketplace businesses are amazing, and we've all seen how well Airbnb has been able to scale. But that's a very different business. And for the high net worth traveler that can't afford a bad vacation, they're not willing to play vacation roulette. Inspirato is an awesome alternative. And we happen to have excess capacity. And so using that excess capacity, whether it's through PATH, whether it's through Inspirato for Good, Inspirato for Business, whether it's through loyalty programs, That's the name of the game, getting our occupancy back up to even where it was last year, which still leaves us at least two or three occupancy points where we would say kind of we're at efficiency and kind of like the low 80s, and we're talking about running at 70. So lots and lots of great opportunities for us and our team to be able to fill up that capacity past being one of them.
spk30: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11. One moment, please. Our next question comes from James Callahan of Piper Stanley. Your line is open.
spk14: Hi, thanks. This is Jim on for Tom. Thanks for taking the question. I guess the first one I had for Brent is just on the macro. Can you dig in a little in terms of what you're seeing by different customer cohorts? There are customers that are being sort of more or less impacted by the macro. And then I had one for Brent sort of just on some of the supply renegotiation or potential removal. How should we think about the financial impact there? Would this be like strictly gross margin or is there some OPEX that could see some benefit as well? Thank you.
spk13: Great. Yeah, this is Brent. I'll take the first and I'll have Webb take the supply question. You know, it is really an interesting year for all of us, unprecedented in many ways in terms of what we're dealing with around inflation. And now we have this regional bank issue kind of coming off of COVID, which was a really unique. It was a really unique time for travel companies overall where we sort of all shut down and then we had such high revenge travel. But just kind of thinking about it from the macro, our affluent base still has a lot of opportunity to travel. I would say that Inspirado, as well as our competitors in the luxury space that I would consider like a Four Seasons or an Aubert's or a Rosewood with their Villa product, I would say all of us got out ahead of our skis on nightly rates. I would just say overall macro, there was a belief. And by the way, one year ago today, that belief was completely true. Price didn't matter. There was no availability. You could charge whatever you wanted. But once we got to the Q2 of last year, I think this high net worth consumer started to rationalize and say, I'm not willing to pay year over year, in some cases, not with Inspirato, 50, 60% increases in nightly rates for these high end service luxury accommodation. So I think one thing in the macro is you're going to see that the highest end of residential vacation rental, I think you're going to see rates come down. You're definitely going to see them come down with Inspirato in aggregate because we raised prices significantly over the past two years. And now there is an opportunity for us to fill up that excess capacity. So typically pricing and flexibility are combined, right? So the more flexible you are, the better opportunity you have to be able to gain value. Because we have excess supply, we plan on providing very good value for those that will be flexible and those that can extend trips and those that can travel within our system in an incremental capacity. From an overall macro perspective, I think travel is still a very safe category. I think people are still wanting to travel. And, you know, we think that the really impacted side of our business is around path. And as it relates to that traveler that wants to travel seven, eight, nine times a year and is willing to take an exceptional discount. in exchange for flexibility. But outside of that, it feels like it's very healthy, but we probably have to meet demand with the right pricing in certain instances in order to drive up that occupancy. And I'll hand over the last question to Wes.
spk29: Hi, Jim. Your question on supply and impact on gross margin as opposed to the various corporate operating expense lines. To respond to that, we are still growing the portfolio. You'll see that in our numbers going forward. However, that growth is through a laser focus on profitability, and that manifests itself really in the gross margin line and less so in what we internally refer to as those corporate operating expense lines. That, in part, is renegotiation, as we referenced, of existing deals, in some case even pruning the portfolio while still growing on a net basis overall. In other cases, it's actually in advance, renegotiating, revisiting supply that we don't have under contract but have been in ongoing negotiations. The various capital markets disruptions and interest rate environment change just in the last six or nine months has unearthed new opportunities. And we would just emphasize that we'll be very disciplined And as we monitor some of the demand levers going forward, any additional increases in supply are really focused on the meaningful improvement in gross margin that we think is one of our biggest opportunities in the coming periods.
spk15: That's great. Thank you, Beth.
spk30: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Brent Handler for any closing remarks.
spk08: Great. Thanks so much.
spk13: I guess I'd just like to thank all of our investors and members and especially our employees for the hard work that they put in in delivering these incredible vacations every day to our members. I'm really excited about the plan that we just shared and look forward to speaking to everybody next quarter. Thank you.
spk30: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
spk23: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. you Thank you. music music
spk30: Thank you for standing by and welcome to Inspirato's fourth quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there'll be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Mr. Kyle Sork, Investor Relations. Please go ahead.
spk27: Thank you, and good morning. On today's call, we have co-founder and CEO Brent Handler and CFO Webb Naber.
spk10: Yesterday afternoon, we issued our press release announcing our fourth quarter and full year 2022 results, as well as our 2023 guidance, which is available on the investor relations page of our website at investor.inspirato.com. Before we begin our formal remarks, we remind everyone that some of today's comments are forward-looking statements, including but not limited to our expectations of future operating results, and financial position, guidance and growth prospects, our anticipated future expenses and investments, business strategy and plans, and market growth, market position, and potential market opportunities. These statements are based on assumptions, and we assume no obligation to update them. Actual results could differ materially. We refer you to our SEC filings for a more detailed discussion of additional risks. In addition, during the call, management will discuss non-GAAP measures. which are 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 GAAP measures are included in our earnings release. With that, I'll turn the call over to our CEO, Brent Handler.
spk13: Thank you, Kyle, and good morning, everyone. To start, I would like to provide some more context around the announcement we made yesterday with regard to continuing to bolster our team and adding to the breadth and depth of our C-suite. We announced that our CFO, Webb Naber, will be taking on a new mandate as Chief Strategy Officer and that we are engaged in recruiting a candidate to backfill his role. I would like to thank Webb for his past invaluable contributions as Inspirato CFO. Webb has been a fantastic partner to me over the past couple of years and was instrumental in guiding us through the negotiation and execution of our D-SPAC process a year ago. He will continue serving as CFO until we appoint a successor. And as Chief Strategy Officer thereafter, he will have the dedicated bandwidth to double down on our focus on investor engagement, capital markets, strategic partnerships, and better communicating our story to the public markets. Before reviewing 2022 results and our plans for 2023, including our path to profitability, I would like to talk about our strategic partnership with Saks, one of the most recognized and premier brands with an incredible rich history in the luxury category. Inspirato and Saks share a mission centered around building long-term meaningful customer relationships. We are very excited to work with their nearly 3,000 Saks stylists, many of whom have close long-term relationships with their luxury customers. SACS is the largest luxury e-commerce company in the United States, and with our comprehensive training and support, we expect to significantly expand our reach to new prospective markets. In addition, our existing subscribers will be able to apply for the SACS First Reward Program, further enriching the Inspirato value proposition. We're incredibly excited to team up with SACS as this partnership offers a natural, complementary relationship with a number of synergies that will benefit each side. Finally, as part of this partnership, SACS has the opportunity to earn commissions and incentive-based warrants to acquire Inspirato shares. These warrants have an exercise price of $2 per share, and based on SACS successfully converting their digital and in-store customers to paying Inspirato subscribers, SACS may exercise these performance warrants to acquire up to a cap of approximately 15% of Inspirato's current total shares outstanding. Next, as we reflect on 2022, Our focus was on completing our business combination and executing a plan that would deliver strong growth, especially relating to increasing our number of controlled accommodations. In 2022, we added 195 net controlled accommodations, an increase of 36% over 2021. In 2021, we added 170 net controlled accommodations, an increase of 46% from 2020. All said, in the past two years, we added a total of 365 controlled accommodations, representing a nearly 100% increase in total supply. Around mid-year, as market sentiment shifted, we began our pivot away from growth to focus on profitability and shoring up our financial reporting structure, while remaining committed to our core values, including innovation. We ended 2022 with $346 million of revenue, a 47% increase over 2021, and adjusted EBITDA loss of $32 million. Shifting to 2023, we are focused on our path to profitability on an adjusted EBITDA basis, similar to 2019 and 2020. Our moderated growth projections are a byproduct of the collective decisions made throughout the organization aimed at improving operating efficiencies and margins. Webb will give more color on some of the specific and measurable actions we're taking to accelerate our path to profitability in a minute. For 2023, we anticipate an adjusted EBITDA loss of between 10 and 20 million, which equates to an improvement of more than 15 million at the midpoint compared to 2022. We believe that continuing to optimize our portfolio, control costs and expenses, and the maturing of IFG and IFB will enable us to continually improve our EBITDA margins in 2024 and beyond. Importantly, none of our 2023 projections include any incremental revenue, margin, or expense related to the newly signed FACS partnership, which we believe could provide meaningful upside to the plan. In terms of total revenue, we expect to generate between $350 and $370 million, a much more modest growth rate of approximately 4% at the midpoint compared to the 40 plus percent growth in both 2021 and 2022. There are several drivers contributing to our reduced revenue range compared to our prior guidance of approximately 400 million that I'd like to quickly touch on. First, reduced PASS subscription. Since its inception in 2019, PASS has served as a tremendous driver for the company. reaching over 100 million of annual recurring revenue at the end of 2022. However, as we referenced on our last call, we began seeing slower than anticipated past results in Q4 2022. At year end, our 3,600 past subscriptions represented a decrease of approximately 7% compared to the end of Q3 2022. We've seen this trend continue to start 2023, though we expect it to taper in coming quarters. The second driver affecting revenue is lower projected 2023 paid occupancy in our residences. Our current plan assumes 43% paid residence occupancy compared to 48% in 2022 with a projected 7% increase in paid ADR. When combined with past residence occupancy, this would equate to approximately 70% total occupancy compared to 81% in 2022 and 88% in 2021. The combination of reduced past subscribers and lower than anticipated paid residence occupancy present us with the opportunity to capture newly found economic availability. To optimize this available capacity, we are working on a variety of strategic initiatives, including offering loyalty and reward opportunities for our existing subscribers, removing and renegotiating underperforming supply, monetizing excess supplies through proven distribution channels, and leveraging new member acquisition strategies, including IFB, IFG, SACS, and more. To illustrate the operating leverage of our existing member base and residence portfolio, we project that adding only one incremental paid travel night per subscriber would consume approximately 9% of our projected availability, while still leaving us well below our 2021 total occupancy. Assuming a 30% discount to the average paid ADR of our current 12-month forward bookings and residences, our reservations currently in place for the year, this would equate to more than $20 million of incremental in-year high-margin travel revenue. Finally, we have modified our sales incentive plans to encourage multi-year club memberships at the point of purchase. In our 2023 plan, this strategy will intentionally reduce annual revenue and EBITDA margin due to the discounted annualized rates in exchange for longer subscription terms. More importantly, long term, this strategy is expected to result in higher retention, increased booking, and improved economics around customer acquisition. Before turning the call to web, I'd like to provide an update on Inspirato for Good and Inspirato for Business, two new platforms that launched in the second half of last year. Through year-end 2022, Inspirata for Good sold more than 500 packages for approximately 1.5 million, and as of last week, an incremental 400 packages sold in 2023 for more than 1 million in total sales. While we're encouraged by the 2.5 million of sales, based on the natural seasonality of nonprofit fundraisers, we expect to drive the most activity in the upcoming spring and fall gala seasons. Meanwhile, Inspirato for Business sold nearly 5 million of contracted revenue in the fourth quarter and year-to-date combined, which will be recognized over the life of those contracts. The 7.5 million of combined sales across these two new platforms over the past period of time is a solid start, but only part of the story considering these thousands of travelers will be introduced to Inspirato and represent a highly targeted membership conversion opportunity. In summary, I'm very proud of our team. After two consecutive years of 40 plus percent growth, we have built a plan that projects 17 million of adjusted EBITDA improvement at the midpoint of our 2023 range and sets the table for long-term and sustainable profitability. With that, I'll turn the call over to Webb.
spk29: Thanks, Brent. Before reviewing the financial and operating results, I'd like to thank our team for the tremendous work and effort throughout the course of the year. As Brent highlighted, 2022 involved incredible change and new processes that required tireless work and dedication, and our team is focused on executing our path to profitability as the core company objective for the coming year. It has been a privilege to lead Inspirato's finance and accounting teams through executing the D-SPAC process and in our transition to performing as a public company. I'm looking forward to bringing on a new partner who will add even more horsepower to our ongoing improvements to accounting controls and financial processes. and also to this new opportunity as Chief Strategy Officer, which will allow for more dedicated focus on critical public company functions that we will believe will create value for our members and shareholders. I will of course continue to lead our terrific accounting and finance teams as we work toward finding the right candidate to round out our C-suite. Moving on to our financial and operating results, we generated total revenue of $87 million in the fourth quarter, compared to $68 million in the fourth quarter of 2021. Full year revenue for 2022 was $346 million compared to $235 million in 2021, with the 47% increase in annual revenue marking Inspirato's highest level since 2014. In a year in which growth was our objective, we very clearly succeeded. Our 2023 revenue guidance of $350 to $370 million equates to a more modest growth rate and as the product of a more streamlined and efficient operating plan focused on the path to profitability. Adjusted EBITDA in 2022 was a loss of $32 million compared to a loss of $16 million in 2021. Our 2022 loss was primarily due to a 50% increase in our cost of revenue and a 46% increase in our operating expenses as compared to 2021. Our 2023 guidance of an adjusted EBITDA loss of 10 million to 20 million includes a number of measures aimed at improving our efficiencies that I'll touch on in a moment. At year end 2022, we had 14,600 active subscribers and 16,100 active subscriptions compared to 13,800 and 14,900 respectively at year end 21. In 2022, the full year retention including monthly, annual, and multi-year prepaid subscribers of the entire cohort that began the year with us was approximately 82%. There are obviously a number of ways we view and track retention internally, including daily reporting and frequent review of product level analysis, including monitoring the movement between products. Cutting through those dynamics, We feel a simple beginning of period, end of period approach across a full year is a digestible and fair representation of our subscriber retention. Travel revenue for the fourth quarter and full year 2022 was $47 million and $200 million, respectively, compared to $39 million and $135 million for the comparable 2021 periods. We generate travel revenue in a number of ways, namely paid nights in our residence and hotels, as well as Inspirato-only experiences and bespoke custom travel services. The year-over-year increase in travel revenue was predominantly due to increased revenue associated with our residences, the flagships of our portfolio of travel offerings. Paid residence nights delivered in 2022 increased by 11% year-over-year, while our average ADR increased 17% between periods to approximately $1,825 per night compared to approximately $1,560 per night in 2021. We also delivered over 38,000 residents nights through PASS, an increase of 48% year over year. Shifting to gross margin, we generated 29% and 34% margins for the fourth quarter and full year 2022 respectively. compared to 38% and 35% in the comparable 2021 period. The difference in fourth quarter gross margin was due to the $18 million increase in revenue between periods being offset by a $19 million increase in our cost of revenue. This is a perfect example of the opportunity ahead of us in 2023 as the increased cost of revenue was associated with a 44% increase in lease expense and a 46% increase in booking fees between periods. Historically, this has been a common theme, whereby adding controlled accommodations rapidly has a negative short-term margin impact, which generally improves over time as the booking window stabilizes. Next, operating expenses, which were $40 million in the fourth quarter of 2022 compared to $34 million in the fourth quarter of 2021, and $162 million compared to $110 million for the full-year period. Including stock-based compensation and costs associated with becoming publicly traded, operating expenses were $152 million, or 44% of revenue in 2022, and $99 million, or 42% of revenue in 2021. Simply put, this was too high. In January 2023, we made the difficult decision to reduce our headcount by approximately 12%. We expect this to contribute approximately $10 million of savings in 2023 with approximately $500,000 of one-time severance-related payments in the first quarter. For full year 2023, we expect total operating expense, excluding stock-based comp, of $135 to $140 million, which is a year-over-year reduction of approximately $15 million. Shifting to the balance sheet, We exited the year with approximately 82 million of cash on hand. Obviously, adjusted EBITDA is not a direct proxy for cash, but given our 2023 objectives and cost-cutting measures, as well as minimal CapEx requirements relative to the significant asset base we control through flexible lease commitments, we expect this to be ample liquidity as we execute against our path to profitability. Having said that, we do have natural seasonality in our booking patterns, cash outflows can be lumpy throughout the year. As a reminder, Inspirato has zero outstanding debt, no amounts drawn on any credit line, and has a diversified cash strategy with top-tier national banks. Before turning the call over to Q&A, I'd like to spend a moment on several portfolio optimization initiatives, largely within our control, that we expect to contribute to a long-term improvement to our gross margin. Reduced portfolio growth. As Brent mentioned, our plans for 2023 contemplate very minor portfolio growth. I noted a moment ago, and we've discussed on prior calls, the embedded costs associated with adding new residences in our portfolio. There is typically a ramp-up period and a lag in fully selling the forward-looking calendar and fully integrating a residence in our platform from a revenue generation perspective, as well as upfront staffing and other costs that don't yet have the benefit of being spread over a stabilized revenue base. By consciously slowing our pace of portfolio growth, we will reduce many of the costs associated with outfitting and onboarding the large volume of homes we launched in 2022, and we believe we will have a much more predictable booking calendar to work with going forward. Second, lease expense. Our leases represent one of the largest expense categories on the corporate P&L and are typically the largest single expense at the level of a given property. Our portfolio growth over the last two years has been marked by the additional renewal of many leases with longer terms than what would have previously been negotiated, including some as long as 20 years. These often carry low or no rent increases over the term, affording us the benefit of embedded inflation protection that we believe will create significant value over time. In addition, we typically have favorable terms that give us the opportunity to renegotiate or even prune poor performing accommodations if needed. We will keep an eye on member satisfaction as well as on regional scale and overall availability and are confident we can make thoughtful decisions that will both improve our cost structure and also deliver remarkable travel experiences for our member. Third is inventory allocation. The mix of travel and residences versus hotels paid travel versus past travel, and travel in leased accommodations versus in-supply access through net rate and revenue share agreements. Earlier, I mentioned booking fees as a large contributor to the increased cost between periods. As a reminder, booking fees are associated with travel outside of our controlled accommodations, primarily via our experiences and bespoke offerings, and with net rate agreements with our various hotel partners. There is obvious value in capturing this incremental wallet share and offering unique and custom experiences for our subscribers, but as a whole, this travel is lower margin than travel in our lease portfolio. We have the ability to not only drive new bookings towards our higher margin lease properties, but also to redirect existing bookings to an unused property, taking advantage of our fixed cost base and lower variable costs, and improving our margin as a result. We believe these changes are not only achievable, but sustainable and representative of the significant margin expansion opportunities that we aim to capture. We look forward to providing updates in the coming quarters. In summary, our team is excited and focused on the year ahead. We've set out a number of attainable and meaningful goals, all centered around our path to profitability. With that, I'll turn the call over to the moderator for Q&A.
spk30: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1. Our first question comes from the line of Shweta Jakori of Evercore ISA. Your line is open.
spk23: Okay, thank you. A quick question for Brent, please. You mentioned when you were talking about the full-year revenue guide, the trends for reduced bathtubs. So if the moderating trend continued into Q1 of this year, you also said you hope that it tapers off in the coming quarters. Could you give a little bit more color on what gives you confidence that it will taper off and what are some of the key factors? Thank you.
spk29: Hi, Shweta. This is Webb. Great question. Before I turn it over to Brent to take that, I did want to speak to some of the new disclosures that we provided this quarter. Some of it relates to your question, but Brent will respond on the past. We continue to try to provide more visibility into some of the fundamental drivers of the business. And with respect to retention, in particular, the full-year annual measure of 82% is one that we believe will improve with our emerging success in selling multi-year prepaid subscriptions. I also wanted to clarify in the context of these new disclosures that with respect to residence occupancy or total occupancy, which includes, as Brent noted, past occupancy that we've broken out for the first time, the anticipated 70% for the coming year includes in total paid occupancy, past occupancy, and other forms of occupancy like employee and comp nights. Part of the opportunity not included in our guidance is occupancy to use the additional capacity to drive those incremental nights that Brent mentioned and the high margin residence EBITDA. So, just a couple quick clarifications on some of that new disclosure. It ties into your question about PATH and the PATH trends, which I can turn it over to Brent to respond to.
spk07: Great. Thanks, Webb.
spk13: Great question. I think the first thing that I would want to say about PATH is that I don't think we fully recognized how great a product it was in 21 and early 22, because it really applies to people who have flexibility in their travel and want to travel frequently. And we've definitely seen in the, because we read every survey when somebody leaves, typically they're staying with the club, but their travel patterns have just changed. They have school activities. They want to go to concerts. They've just kind of gotten that revenge travel out of their system. And so we just think that it's a product that does fit a certain type of traveler extremely well. And in fact, in our member surveys that we do, where we ask people about their overall satisfaction, what we have found is that there's people love PATH that love PATH. I mean, there's a really, really high NPS of the people who can take advantage of all of the benefits and value that they get from that flexibility. But we've seen that more normalized travel, people who have more normalized schedules back to work, et cetera, are less apt to continue with their path. We think because what we're seeing with the surveys and how many people have actually loved that experience, that that's going to taper off over time. And we're also selling it now more as a value in exchange for flexibility type product. And we think there'll always be a need for that. Importantly, though, When you think about our portfolio and the risk we take in our leases, really it's just a game of how do we fill all of that occupancy in an appropriate way. And so if we do end up losing past holders, that does provide an opportunity for us to be able to provide economic availability for other members, Inspirato for Good, Inspirato for Business, in order to fill that newly found economic availability.
spk11: Thank you for the question.
spk25: Okay. Thank you, Brett. Thank you, Rob.
spk30: Thank you. One moment, please. Our next question comes from the line of Jed Kelly of Oppenheimer. Your line is open.
spk06: Hey, great. Thanks for taking my question. Just circling back, you know, Brent, you just mentioned how, you know, your customers or their travel patterns are changing. Can you just talk about, you know, how you view experiences and some of the Inspirato experiences that you can plug in and how that, that can impact, um, travel or, uh, travel revenue this year. And then, um, just, can you talk to, just, just give us a little more, um, uh, clarity around like just the supply ramp and where you are on supply. I realize you're scaling some of it back, but can, can you talk and then, you know, do you ever think about doing it where, you know, basically rent, renting out your, your, your vacation rentals on a,
spk05: you know, to non-subscribers or anything like that. Thank you.
spk13: Great. Yeah. You know, great question. Just in terms of the portfolio expansion, we are very moderated in our growth this year. We do have some incredible new opportunities, like in downtown Charleston, we have an opportunity to have some one-of-a-kind condominiums that will be coming into the platform. But I would say overall, Excuse me. Overall, we're not in a great expansion mode. As we had mentioned, we've essentially doubled the portfolio in two years. So there's a tremendous array of availability and opportunities for our members to travel. And in actuality, a big part of the story of what's going on is we underestimated the time it would take to fill in that availability. to near capacity or capacity. And that's what's leaving us with all of this excess supply. As we had mentioned, we're going to be running, call it close to 70% at the plan that drives this negative 10 to negative 20 in EBITDA. Just getting to 80%, which is still less than the last two years, even at 30% less ADR compared to what's on the books right now, that would get us to EBITDA positive that just kind of shows the leverage that we have that's in the portfolio so right now the goal is to use that capacity and grow into that capacity in an economically feasible way the good news for our members is this just means more availability for them and better opportunities for the club to provide more value to them things like loyalty programs and reward programs that we've never done in the past, we're going to start to offer these to our members. We're going to start to offer incentives for them to extend their space. I think we had mentioned on the call, even one more day per subscriber would bring over $20 million of high margin in-year revenue to us. To address your last question, which is about would we ever consider taking supply out, We have done that in the past, and we do plan on doing that. Where we have excess supply, we can use proven third-party distribution channels like Averbo and Airbnb, strip out the Inspirato service, strip out Inspirato planning, strip out Inspirato housekeeping, strip out the Inspirato amenities in the home, and essentially take this hard work and all of the expense that we had to acquire those homes, put them into somewhat of a holding pattern. while we're able to monetize that excess capacity and then bring it in when we need to. And that's something proven. We've actually been able to do that before, and we expect to do that somewhat as we build into this newly found capacity. We also have a lot of demand drivers that are incremental to the plan, SAC being one of them. So what's nice about having already secured the supply is that we can be flexible, either providing more value for members with things like loyalty, things like rewards, or pulling out supply and waiting for this to catch up. Essentially what happened is we grew a little too fast, we paid the expense to bring in all of that inventory, and sometimes In a business like ours, it takes a little time to get it right. Sometimes you don't have enough supply. Sometimes you have a little excess supply. And what we've done here is we've managed to get that excess supply, and we have a great opportunity to monetize it over time and grow into it. Thank you for the question.
spk06: Got it. And then just as a follow-up, I don't know if you said this in your opening remarks. I might have missed it. Can you give us a breakdown on what we should expect for the guidance between subscription revenue and travel revenue for this year?
spk13: I'm going to give that question over to Webb, but I just realized I forgot to answer your question about experiences. My apologies. Let me quickly touch on that. Inspirato has an unbelievable experiential travel platform that we make available to our members. Some of that is done through what we call Inspirato only, which is experiences that are time and date specific, where it's only with other Inspirato members. That business has been growing very rapidly. and doing very well. The other business that we have, we call Bespoke, which is where we do customized travel itineraries for members that want to experience the world with us. And that business is doing very well also. Those are really lower margin member benefit types of businesses for us. While we're focused on providing that as an amazing benefit for our members, and obviously we're just obsessed with this high NPS and with the member satisfaction and the high retention we've been fortunate to enjoy for the last over decade. But really the focus and the story this year is optimizing our risk portfolio and making sure that we fill that capacity and make it available to members at great value so that they're getting even more out of their experience. And let me go ahead and pass it over to Webb to answer your question about occupancy and the
spk19: the delta between pass and pays.
spk27: Hey, Jed, this is Webb.
spk29: In terms of responding to your question on the mix of revenue embedded in our guidance derived from subscriptions and to travel, the first thing I would highlight is the emerging pipelines that Brent referenced, $7.5 million already in sales to date in our Inspirado for Good and Inspirado for Business Those have, per GAAP, a combination and a sub-allocation of revenue between subscriptions and between travel. So we want to highlight that, that as those grow, that could change our mix and change our shift. And we believe that those have a chance to be, based on early returns, very significant drivers of our business, as you've seen on the results so far. Overall, we've been running at approximately... 55%, sometimes a little bit higher, up to 60% on the travel side, therefore 35% to 40% on the subscription side. We would anticipate that all in our 2023 results, as we're estimating looking forward, will continue to be reflective of approximately that mix.
spk06: Got it. And then do you have any idea what that implies for a blended ARPU with all your subscribers? Yes.
spk29: We don't have that and we don't project that going forward yet, but along the lines of, as I referenced at the outset, the additional disclosure we're providing, that's something that we can take into account as we continue to produce new metrics every quarter. Thank you.
spk30: Thank you. One moment, please. Our next question comes from the line of Mike Grondahl of Northland Capital Markets. Your line is open.
spk03: Hey guys, two questions. The first one is, I know the last week of the year, the last week of December, you guys have a big sales push. Any metrics you can give us how that went compared to prior Decembers? And then secondly, could you maybe describe the SACS program, which looks really interesting. how are they going to be incented or compensated, i.e., if they sell a past subscription, you know, what is their take on that? And I know you said they could get up to 15% of the company if it works really well, but what do they kind of need to hit to get to the first tier or some piece of those warrants?
spk08: Great.
spk13: Let me go ahead and take the SACS question, and I'll have Webb do your question regarding December results. First of all, we're incredibly excited about the SACS relationship. It's an amazing brand. I've spent a lot of time with the team there. I've spent a lot of time with the folks at Hudson Bay who are the private equity firm that's involved in that. and we share a ton of the same values and we obviously sell to the same customers but in a non-competitive way which we have found to be somewhat difficult in the travel space to be able to find a luxury partner that could really be complementary for both of us our members being able to get access to sacs first and their millions of customers being introduced to travel, a category that they're not really involved in at all. And so I think there's a great meeting of the minds there and there's tremendous opportunity. Again, none of that is put into our plan for the year, but we're both very excited about the opportunity there. We're also excited that SACS has a great option to become a significant shareholder of Inspirato. So walking through how this works, they receive performance warrants at $2 a share. and they can get up to about 15% ownership into Inspirato based on our current capitalization by referring their customers and selling their customers. And in simplistic math, Inspirato has roughly about 15,000 paying subscribers, give or take, and they would need to sell over the term of the five years of the relationship about 15,000 club memberships. to get to that 15% ownership. So they receive a commission for all of their sales. And then they also receive performance warrants for their sales. And they're heavily motivated and want to be a big partner of ours. And we think that they would make for an outstanding equity partner. And there's a lot of work now to go into training. There are nearly 3,000 salespeople. Just as a ratio, Inspirato has, you know, in the neighborhood, think of about 100 salespeople. They have about 3,000 salespeople. And we think that there's just great opportunity for that relationship. Let me go ahead and turn this over to Webb now.
spk29: Thanks, Brent. Mike, in response to your question with regarding our December and particularly the sort of the New Year's Eve sales push that we have every year, We think about that in the context of our prior announcements on reallocating a meaningful portion of the sales force that Brent mentioned, approximately a third of the sales force reallocated to our new initiatives in Inspirata for Good and Inspirata for Business. That began, I think we first announced it last August. diminished proportionately as we ramp up those new pipelines with that reallocated Salesforce. So I think our year-end results, while we don't disclose sort of month-by-month or day-by-day numbers, they were reflective of that trend. You see that in the tapering of past that Brent mentioned. We still feel positive about the overall business mix and actually the diversification of these new demand channels we think are really important for the 2023 guidance and overall our path to profitability.
spk04: Got it. Thank you.
spk30: Thank you. One moment, please. Our next question comes from the line of Brett Knobloch. Cantor, your line is open.
spk18: Hi, guys. Thanks for taking that question. I guess I have two. First, on the locking in customers into longer-term subscription agreements but at lower pricing, can you just give some more color on what type of discounts... you're getting those longer-term commitments and how quickly you expect to ramp up those discussions with your existing install and new customers you're trying to add onto the platform. And then secondly, could you maybe try some color on cash burns for the year? You know, I guess if past sales are going to continue to be or continue to demand to continue to be, you know, is that going to really impact the firm revenues and the negative working capital hit through the year? I don't know.
spk13: Great. I'll go ahead and answer the first one, and then Webb can answer the question on cash. What we found last year was that while it's easier to get people to join Inspirato for, say, joining monthly or even joining for one year, the essentially the efficacy and the productivity of that subscriber for being so short term requires us to sell them again. And also, of course, they have optionality to leave. And so a big decision that we made this year was to really increase heavily our longer term commitments at the point of sale. So most of the people who are joining now are actually joining for two years. And in joining for two years, the current rate for that is $7,800, so $3,900 per year. But there's no additional incentive that they're given. Previously, people would join for around the same price, but they would get some form of joining incentive, such as a free trip or maybe some travel credit. So while the in-year was higher last year, maybe it was even call it around $1,300 or $1,400 higher, what was happening is a lot of those people weren't staying either for the entire year if they were monthly, or we had some issues with yearly churn because they would have paid for a year and then maybe they weren't re-upping. Now what we have is a cascading opportunity for members to join for between really two and five years. And by locking them in over that period of time, It obviously locks in their retention, but it also locks in, we can actuarialize how much they're going to be traveling. So we expect that in 2024, this is going to have a material impact on our retention to the positive. And obviously, you know, as we continue to drive our incentive plans for our salespeople to provide value to members who join for longer and longer terms, this is really only beneficial for Inspirato. It kind of has a little bit of a one-year hit this year, but over time, it's a much better strategy for a club like ours.
spk20: And then I'll turn over the cash question to Webb.
spk27: Hi, Brett.
spk29: On cash, the way we think about it is the midpoint of our EBITDA projection is a $15 million gap. negative EBITDA number in our projection for 2023. We run, that's a decent proxy for cash because of the capital light nature of our business. I mean, our biggest single line item expense in the field and operations is our lease expense number. Those are very flexible and capital light leases. So that's an important lever that we have. As we've mentioned, we are actively in the process and already have renegotiated, restructured, and even terminated some leases, we generally have very favorable rates in that respect. To your related point on the prepaids, historically, we've been able to accrue a lot of cash up front by selling subscriptions far in advance. We have a much longer booking window traditionally than other hospitality platforms might typically have. In addition, the subscription element in terms of prepaid subscriptions emphasizing those multi-year prepaids, we would anticipate that would have almost being equal a very positive impact on cash relative to historically sometimes having a higher mix of monthly or shorter period subscriptions. So there's some really positive cash dynamic elements when you pull all that together.
spk17: I guess maybe to follow up, do you guys expect to end 2023 with
spk18: More past subscriptions versus what you ended 2022 with?
spk13: Did you say more past subscriptions in 2023 than 2022?
spk16: Yeah, like the year-end subscriber count.
spk13: No. No, we assume it's going to be pretty close to flat is kind of what you're seeing in this projection of negative 10 to negative 20. Look, there's a lot of There's a lot of the year left and we feel like we have a really good plan and we're focused on this path of profitability. We've made some optimization to our structuring in the company, focusing executives and making sure that our incentives as a company and our company goals are really driven around EBITDA and this path to profitability. So I'm going to say that, you know, sort of our plan is it's going to be about the same but there's a lot of upside there with PATH. But I also want to reiterate what I said earlier. PATH is $30,600 for the year. PATH is one great way for flexible travelers to consume our occupancy. Another great way is for our existing members through loyalty and through rewards programs to just book an extra day or two or an extra trip. And so we're focused on all avenues of optimizing this portfolio. We worked really hard to build a moat that nobody in the world has. Nobody has a managed and controlled portfolio of residences like Inspirato. Nobody can provide the service and certainty that we have. It really is different than a marketplace business. Marketplace businesses are amazing and we've all seen how well Airbnb has been able to scale. But that's a very different business. And for the high net worth traveler that can't afford a bad vacation, they're not willing to play vacation roulette. Inspirato is an awesome alternative. And we happen to have excess capacity. And so using that excess capacity, whether it's through PATH, whether it's through Inspirato for Good, Inspirato for Business, whether it's through loyalty programs, That's the name of the game, getting our occupancy back up to even where it was last year, which still leaves us at least two or three occupancy points where we would say kind of we're at efficiency and kind of like the low 80s, and we're talking about running at 70. So lots and lots of great opportunities for us and our team to be able to fill up that capacity past being one of them.
spk30: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your telephone. Again, to ask a question, please press star 11. One moment, please. Our next question comes from James Callahan of Piper Stanley. Your line is open.
spk14: Hi, thanks. This is Jim on for Tom. Thanks for taking the question. I guess the first one I had for Brent is just on the macro. Can you dig in a little in terms of what you're seeing by different customer cohorts? There are customers that are being sort of more or less impacted by the macro. And then I had one for Brent sort of just on some of the supply renegotiation or potential removal. How should we think about the financial impact there? Would this be like strictly gross margin or is there some OPEX that could see some benefit as well? Thank you.
spk13: Great. Yeah, this is Brent. I'll take the first and I'll have Webb take the supply question. You know, it is really an interesting year for all of us, unprecedented in many ways in terms of what we're dealing with around inflation. And now we have this regional bank issue kind of coming off of COVID, which was a really unique. It was a really unique time for travel companies overall where we sort of all shut down and then we had such high revenge travel. But just kind of thinking about it from the macro, our affluent base still has a lot of opportunity to travel. I would say that Inspirado, as well as our competitors in the luxury space that I would consider like a Four Seasons or an Aubert's or a Rosewood with their Villa product, I would say all of us got out ahead of our skis on nightly rates. I would just say overall macro, there was a belief. And by the way, one year ago today, that belief was completely true. Price didn't matter. There was no availability. You could charge whatever you wanted. But once we got to the Q2 of last year, I think this high net worth consumer started to rationalize and say, I'm not willing to pay year over year, in some cases, not with Inspirato, 50, 60% increases in nightly rates for these high-end consumers. service luxury accommodation so i think one thing in the macro is you're going to see that the highest end of residential vacation rental i think you're going to see rates come down you're definitely going to see them come down with inspirato in aggregate because we raised prices you know significantly over the past two years and now there is an opportunity for us to fill up that excess capacity so typically pricing and flexibility are combined, right? So the more flexible you are, the better opportunity you have to be able to gain value. Because we have excess supply, we plan on providing very good value for those that will be flexible and those that can extend trips and those that can travel within our system in an incremental capacity. From an overall macro perspective, I think travel is still a very safe category. I think people are still wanting to travel. And, you know, we think that the really impacted side of our business is around path. And as it relates to that traveler that wants to travel seven, eight, nine times a year and is willing to take an exceptional discount. in exchange for flexibility. But outside of that, it feels like it's very healthy, but we probably have to meet demand with the right pricing in certain instances in order to drive up that occupancy. And I'll hand over the last question to Wes.
spk29: Hi, Jim. Your question on supply and impact on gross margin as opposed to the various corporate operating expense lines. To respond to that, we are still growing the portfolio. You'll see that in our numbers going forward. However, that growth is through a laser focus on profitability, and that manifests itself really in the gross margin line and less so in what we internally refer to as those corporate operating expense lines. That, in part, is renegotiation, as we referenced, of existing deals, in some cases even pruning the portfolio while still growing on a net basis overall. In other cases, it's actually in advance, renegotiating, revisiting supply that we don't have under contract but have been in ongoing negotiations. The various capital markets disruptions and interest rate environment change just in the last six or nine months has unearthed new opportunities. And we would just emphasize that we'll be very disciplined in And as we monitor some of the demand levers going forward, any additional increases in supply are really focused on the meaningful improvement in gross margin that we think is one of our biggest opportunities in the coming periods.
spk15: That's great. Thank you, Beth.
spk30: Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Brent Handler for any closing remarks.
spk08: Great. Thanks so much.
spk13: I guess I'd just like to thank all of our investors and members and especially our employees for the hard work that they put in in delivering these incredible vacations every day to our members. I'm really excited about the plan that we just shared and look forward to speaking to everybody next quarter. Thank you.
spk30: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all participating. You may now disconnect. Have a great day.
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