Inspirato Incorporated

Q1 2023 Earnings Conference Call

5/9/2023

spk05: Good day and thank you for standing by. Welcome to the Inspirato first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand your conference over to our first speaker, Kyle Thorpe, Investor Relations. Kyle, the floor is yours.
spk09: Thank you, and good morning. On today's call, we have co-founder and CEO Brent Handler and CFO Robert Caden. Yesterday afternoon, we issued our press release announcing our first quarter 2023 results, which is available on the Investor Relations page of our website at investor.investor.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, business strategy and plans, and 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, of 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.
spk03: Thank you, Kyle, and good morning, everyone. Before beginning, I'd like to officially welcome Robert as our Chief Financial Officer to the Inspirato team. Robert was most recently the Chief Accounting Officer at Twitter and brings decades of public company accounting experience to Inspirato. He's made an immediate impact since joining in March, and I'm extremely excited to continue working closely with him moving forward. Shifting to our first quarter results, we saw continued strong travel demand as evidenced by our 50,700 total nights delivered. This is not only a year-over-year increase of 18%, but a sequential increase of 7% compared to the fourth quarter of 2022, and marks the second highest level in the company's history. Further, our total occupancy rebounded from 73% last quarter to 77% in the first quarter. This compares to 87% in the first quarter of 2022. We generated 92 million of total revenue, a 12% year-over-year increase compared to 82 million in the first quarter of last year. Our net loss of 5.9 million compared to a loss of 24 million in the first quarter of 2022. And we generated an adjusted EBITDA loss of approximately 3.1 million compared to 3.7 million in the first quarter of last year. Meanwhile, our gross margin of 35% is below our high watermark of 42% in the first quarter of last year, but more consistent with our performance of the past two years. As we messaged on our last call, the significant increase of our controlled accommodations and leased hotel inventory over the past two years has led to increased lease expenses, which is impacting our gross margins as we both grow into this new capacity and optimize the portfolio. I'll let Robert cover the portfolio optimization in more detail, but we expect reduced supply growth, lease renegotiations, and inventory allocation to not only expand our margins over time, but position us to achieve positive adjusted EBITDA. Along those lines, we spent much of the time on our last call focused on our path to profitability on an adjusted EBITDA basis. while highlighting several areas of focus that would help us achieve this goal. The first area of focus was monetizing our available capacity. We aim to achieve this through renewed focus on incremental bookings via our newly created member success team and our new member acquisition strategies, including Inspirato for Good, Inspirato for Business, and our SACS partnership. We're very excited about the early success of both Inspirato for Good and Inspirato for Business. In the first quarter, Inspirato for Good sold trip and membership packages for 2.3 million compared to 1.2 million in the fourth quarter of 2022. We're still learning about the seasonality of the nonprofit space. However, we have seen strong forward momentum early in the quarter and expect Q2 to deliver increased sales compared to the first quarter. Inspirato for Business also had solid results in Q1 with approximately 4 million of sales compared to our just over 2 million in the fourth quarter of 2022. Similar to Inspirato for Good, we are learning about the natural seasonality that exists in this business and expect to see strong growth over the year, especially in Q4, which is the typical buying season for reward travel. We ended the quarter with 15,700 active subscriptions compared to 15,300 at the end of the first quarter of 2022, and 16,100 at the year end 2022. Much of the subscription trends we're seeing can be attributed to a slowdown of new PATH subscription sales, whereas resignations actually slowed slightly on a sequential basis. Historically, a high percentage of PATH sales have come as upgrades from our existing subscribers. Our newly created member success team will have a high priority on educating club subscribers to the many benefits of PATH. As part of our continued focus on improving retention, we built a strategy around multi-year commitment. In the first quarter of 2023, more than 80% of our new club sales were multi-year contracts compared to approximately 15% in the first quarter of 2022. Further, as an offset to the decrease in active subscriptions, we sold approximately 850 Inspirato for Good packages in the quarter, which include a bundled Inspirato trip and a six-month or one-year trial membership. Through Q1 2023, we have sold over 1,300 Inspirato for Good packages since we launched this platform last fall. These members are not included in our reported subscription counts, and we are excited about getting them traveling in the portfolio with an upgrade path towards full membership. I am also extremely excited to announce the SACS partnership soft launch on May 1st, and we have begun to train their 3,000 stylists on how to sell Inspirato luxury travel subscription offerings to their discerning clients. As this partnership progresses, we look forward to providing updates on future calls. Lastly, we continue to explore exciting partnership opportunities in a variety of vertical markets. Finally, this morning we announced an exclusive member investor benefit for our loyal subscribers. Consistent with our relationship-driven approach, It has long been a vision to offer and reward our members with ownership opportunities in Inspirato. Now, to thank our members for their loyalty and advocacy, we are offering one complimentary vacation for every 50,000 shares owned and held for six months. We have conviction and confidence in our long-term vision and are excited to share this opportunity with our members. In summary, I'm very pleased with our start to the year. We continue to make strides on our path to profitability on an adjusted EBITDA basis, all while continuing to deliver on our promise of providing unique and curated luxury travel and experiences for our members. We have a number of growth initiatives that are now well underway and beginning to make an impact on both our top and bottom line. With that said, I'll turn the call over to Robert to provide a bit more detail on our quarterly results.
spk10: Thanks, Brent. I want to express a quick thank you to the team for welcoming me the past few weeks. Inspirato is clearly an exciting company with a tremendous brand, business outlook, and opportunity ahead of it that I'm very happy to be a part of. I'd like to start by providing an overview of the supply and demand characteristics of the quarter as each of these contributed to the year-over-year changes of our financials. From a supply standpoint, we ended the quarter with 726 controlled accommodations, a combination of our lease residents and leased hotel partnerships. This reflects an 11% year-over-year increase, but a 1% decrease compared to year-end. It's important to note that while our controlled accommodations increased by 11%, our controlled availability increased more than 30% as we not only grew our absolute supply, but onboarded previously contracted but not yet available controlled accommodations. As such, our operated lease expense increased more than 20% year over year. As we mentioned on our last call, we have a high degree of flexibility built into the structure of the vast majority of our lease agreements. This has allowed us to renegotiate or terminate leases where we don't believe the property is delivering the right experience and value to our members and to our shareholders. As part of our ongoing portfolio optimization work, Our efforts year-to-date are expected to lead to more than $5 million in lease and property expense savings in 2023. However, we'd expect the annualized savings to be significantly higher and have a number of additional renegotiations and process that are not included in those figures. On our last call, we also outlined inventory allocation or differences in travel mix between paid and passed, residences and hotels, and leased versus non-leased inventory. Essentially, the fact that not all nights are created equal from a revenue and margin standpoint. In the first quarter, we saw a continuation of recent travel trends as compared to the first quarter of last year, the percentage of nights delivered in hotels increased compared to that of our residences. Our residence portfolio has always been the flagship and true value-enhancing offering to our subscribers while also providing the highest margin to Inspirato. there is a tremendous opportunity to unlock incremental shareholder value through revenue and travel management aimed at improving residents' performance relative to hotels. Moving on to our financial results, we generated total revenue of $92 million in the first quarter compared to $82 million in the first quarter of 2022. Subscription revenue increased 14% year over year to $37 million from $32 million. While we expect headwinds in subscription revenue due to the past sales trend Brent described, the promising early performance of Inspirata for Good and Inspirata for Business should offset some of the expected declines. Travel revenue increased 11% to $55 million for the quarter compared to $50 million in the first quarter of 2022. The increase in travel revenue was primarily due to two factors. First, The ADR in our residents increased 14% year over year to approximately $2,150 per night. This was partially offset by a decrease in paid residence nights delivered. Second, hotel revenue increased 49% year over year, primarily driven by a strong increase in hotel paid nights delivered. Again, it's important to recognize that the majority of our hotel nights delivered are through net rate agreements rather than through leased inventories. meaning from a margin standpoint, a large amount of the increased hotel revenue between periods was partially offset by increased booking costs. Conversely, the vast majority of residence nights delivered are through leased accommodations, meaning incremental revenue is typically highly accretive to gross margin and only partially offset by variable costs. This can be seen in our cost of revenue for the quarter of $60 million, which increased 27% or $13 million compared to a revenue increase of $9.6 million, or 12% over the same period. Gross margin as a percent of revenue is 35% in the first quarter of 2023 compared to 42% in the first quarter of 2022. The primary drivers of reduced gross margin between periods were the increase in lease expense I covered a moment ago and a significant increase in hotel booking fees between periods. There are incredible opportunities here as we aim to improve our cost structure, reduce cannibalization, and even encourage minor shifts in travel behavior. Operating expenses for the quarter were $36 million, or 40% of total revenue, compared to $40 million, or 49% of revenue, in the first quarter last year. Total operating expenses improved 10% year over year, driven by a 34% reduction to our sales and marketing expense and a 15% reduction in operations expense. These were partially offset by an increase of 5% from our combined G&A and tech and development expense. All of this equates to an adjusted EBITDA loss of 3.1 million compared to 3.7 million a year ago. Given what we know today, we have confidence in reaffirming our prior fiscal year 2023 revenue guidance of 350 million to 370 million, and adjusted EBITDA guidance of a loss between 10 and 20 million. Before turning the call over to the operator, I want to quickly touch on the balance sheet. We exited the quarter with approximately 62 million of cash on hand, compared to 82 million at year end. We continue to have no bank debt. While our first quarter had a number of one-time corporate expenses, the second quarter has historically served as one of the peak paid booking quarters of our calendar. partially due to booking ahead of summer travel and partially due to our semiannual sale, which occurs in May. Should that continue, we expect to end the second quarter with a relatively flat cash balance compared to the first and anticipate exiting the year with a cash balance between 40 and 50 million. In summary, I want to echo Brent's sentiment. The underlying business is strong and we have begun to execute on a number of goals that align with our top priorities of achieving long-term, and sustainable profit. With that, I'll turn the call over to the moderator for Q&A.
spk06: Thank you.
spk05: At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Shweta Kajira with Evercore ISI. Shweta, go ahead with your question.
spk01: Okay, thank you for taking my question. Could you please talk about what you believe drove the strength in demand trends that you saw in the first quarter and early indications of summer travel as you think about second and the third quarter given There are mixed industry checks that we are hearing in terms of consumer discretionary spend. So what you are hearing in particular and seeing and what you expect in terms of overall demand trends, anything in particular to call out. And then the second is Inspirato for business. At a high level, what is your strategic goal for that for this year and then mid to long term and how you expect that to hit your financials? Thank you.
spk03: Great. Thank you, Shweta. Great questions. So, in terms of demand, for 2022, we had a lot of pre-bookings kind of post-COVID from 2021 that set the table for 2022 pretty well. We did see some increase in occupancy of rate of about 14%, and we had a pretty good booking calendar ahead of Q1. We did start to see, I would say, you know, Q4 last year and this trend is continuing and I believe you're starting to see some reports come out about this where there seems to be a shift in demand from what I would call traditional vacation rental properties to more urban city locations. We're seeing that as well. As Robert had mentioned, we have a mixed opportunity in our portfolio. This summer would be no different, where we're seeing a lot more demand for people wanting to go to cities, particularly European cities. But our model does require us to manage and control the experience. We take on fixed costs with our inventory. So we've had a little bit too much of our own supply in places like Hawaii or Vail or Kiowa, South Carolina, And we've seen more demand for hotel bookings. We, you know, I've been doing this for 20 years. This is a fairly cyclical kind of industry. We expect that to somewhat regulate, but we're seeing a little bit shorter stay. We're seeing a more preference towards hotels, particularly urban hotels, European hotels relative to vacation homes. And we have stood up a team internally, a member success team that will really educate our members in the value of the Inspirato portfolio and how these managed and controlled accommodations can provide these unbelievable vacation experiences for their families. And we think that we have an opportunity to kind of push against that trend to the benefit of increased profitability. In terms of your second question around Inspirato for business, we're extremely pleased and very bullish on the future of reward travel. If you think of it from a really high level, historically, it was about a president's club. You and your spouse are able to go to Hawaii and hang out with all the people that you work with over a three-day period, and everybody's sort of on the same schedule with the large dining opportunities, etc. We believe that As a sign of the times, we couldn't be in a better position for companies to motivate, reward, retain their key employees or their partners through the real advent of Inspirato for Business and the ability for them to be able to travel individually and, in a lot of cases, bring their family and friends who are supporting their work life. And we have great demand there and have really started from nothing last fall to building a pipeline, bringing on some great customers. It takes a little bit of time, but we've been surprised at the level of engagement that we've been able to get for that market. You asked another question about how those sales turn into revenue and roughly It's about a 50-50 split between subscription revenue, which typically is over the course of about a year if it's a year-long contract, and 50% is recognized when the trip is delivered. So it takes a little while, like all subscription businesses, for that to hit the income statement. But in terms of pre-bookings and momentum and pipeline building, we're very enthusiastic about where that is headed.
spk01: Okay, thank you, Brent.
spk07: Please stand by for our next question.
spk05: Our next question is coming from Jed Kelly with Oppenheimer and Company. Jed, go ahead with your question.
spk08: Great, great. Thanks for taking my questions. Just to following up on your multi-year comment, how you're getting more club members into the multi-year? Can you sort of touch on what's driving that? And then just looking out at your supply ramp, you know, you mentioned how more people are returning to, you know, urban cities. Can you just talk about your overall supply strategy? Is it going to be more through partnering with hotels where, you know, you might not have the margin upside, but you can ramp supply faster? Just can you talk about, you know, where we are in the overall supply strategy? Thank you.
spk03: Absolutely. So in terms of multi-year subscriptions, last year in particular, we had a thesis that driving more subscriptions and lowering the barrier to entry would drive long-term profitability. So last year, we did a lot of month-to-month promotions and we did a lot of annual promotions. And I believe that we just reported that last year, about 15% of our subscriptions that we sold were more than one year, two years or longer. This year, we made the decision that it's much better for our industry and for our company and for our long-term vision to have members and subscribers who have a little bit more skin in the game, who take a little bit more of a long-term focus, and we're able to provide them the type of service and the type of experience that we want by having more time. With a month-to-month kind of phonetic type of subscription when people don't typically travel every month, we found that to be a little bit harder. So we're extremely pleased about how that is playing out. It takes a little longer for that to show up in the income statement and to have improvements in things like retention. But we really believe that the future for the business is longer-term subscriptions rather than shorter-term subscriptions. And that trend we see not only continuing through 2023, but we think that that's going to be a long-term strategic component of the business going forward. In terms of supply, as I mentioned on the last call and as Robert had mentioned, we miscalculated how long the post-pandemic revenge travel would last and we also kind of overestimated our ability to have an ltv to cax long term that could really drive the kind of growth that would support doubling your portfolio over two years so as we think about supply strategy going forward Firstly, we are really partnering with our landlords and really working on our portfolio and going through the process of just right-sizing or canceling some leases that don't make sense for us. We're not renewing other leases. We're doubling down on the leases that really are great for Inspirato and great for our members that are doing really well. And we're also really trying to think through how we best work with hotel partners as well. Some ways that we work with hotel partners are through leasing individual hotel rooms, and we've had mixed success there. We have opportunities to optimize those. And then in terms of our net rate agreements, in exchange for driving more volume, particularly through an opaque channel, we're actually going to be partnering with fewer hotel but better partners to be able to give our demand to. And that should improve both profitability and the value that we're able to provide our subscribers.
spk06: Thank you.
spk05: Our next question comes from Tom Champion with Piper Sandler. Tom, go ahead with your question.
spk11: Hi. Good morning, guys. Brent, maybe to begin with you and just piggybacking on the last question, looks like portfolio optimization decreased net seven. Just curious what maybe the gross and maybe terminations look like within that mix. And as we think about this ongoing process, is this like a multi-quarter process? process maybe just you know walk us through your your thoughts on on on timing there and how long it'll take to to cycle through um and um and and when accommodations might return to growth and then if i could sneak in um one more for for robert welcome it's great to um to hear from you today and just curious if you could talk a little bit about um kind of your your your background and what attracted you to the opportunity at Inspirato. Look forward to working with you.
spk03: Great. Thank you so much. You know, in terms of numbers, we don't give them out sort of mid-quarter of exactly how many leases that we have canceled or terminated. As Robert mentioned, you have to think about our controlled accommodations in two vectors. One is inventory that we have under contract, whether it has been released or not, versus inventory that has been released and is coming into our system. So even yesterday, we announced new homes in Beaver Creek and several other markets that are actually going to be released to our members starting tomorrow. So it's a pretty fluid system where there's homes coming in and there's homes coming out. In terms of your question about is this a multi-quarter thing, I would say it's a forever thing, that optimization has not been top of mind as we were in growth mode, growing nearly 50% a year for two years. And on a go-forward basis, with Robert's help, we're having the discipline to to constantly be optimizing. And even in the best of times, we will continue to prune and change and upgrade and downgrade the portfolio. I would like to talk about one aspect though that's pretty interesting is, you know, right now we've been very transparent that we're in the market for more demand. I'm going to talk about that in just a second. But as we think about that demand, We're probably in a once in a decade opportunity to go get supply. You know, I started in this industry in 2002. Is that right? Yeah, 2002. And there's been a couple of time periods where there has been too much supply and not enough demand. And so many people went out and bought vacation homes during the pandemic and thought that they would be able to monetize better than is reality on the distribution platforms. So we're actually working very, very hard to get back into a mode where we can be even more selective and have more supply. But I want to talk about Inspirato as a platform for a minute, because I think it's really important to kind of set the table of what you're seeing with the strategy that we're employing. You think about Inspirato for business, and you think about Inspirato for good, and you think about our SACS partnership, which will be launching here throughout the second quarter. In all of those instances, we're using third party demand from fantastic brands and fantastic businesses that bring their own travelers to our platform. And as I think about Inspirato, I think about the platform. I really think there's kind of three ingredients that we've built over the last 10 plus years. The first is we have a luxury brand that's in hospitality. Those are very, very difficult to come by. They take a long time to build. Inspirato definitely has that. We definitely have loyal members. And we've built a brand that stands for service and certainty. We also have, and this is really important, accommodations that are exclusive. Most all luxury vacation homes are in a non-exclusive environment through distribution. That exclusive supply is extremely valuable. And the last thing that we have is technology. We've built the technology. It's the technology that is the underpinning of path. that allows us to partner with SACS. It allows us to have dozens and dozens of nonprofits using our platform every weekend. It allows us to offer our Inspirato for Business solution to companies. We expect over the future that we're going to be able to leverage Inspirato as a platform, partner with other organizations who are in the market for service and certainty and luxury accommodations. That should dramatically lower our LTV to cash. That should leverage what we're the best at, delivering these incredible vacations for family and friends with service and certainty. And when that starts to hit and all of these investments start to pay off, we should be back in the market for more supply, but we'll always be pruning the supply where necessary. So I hope that answered that question. And then I'm going to pass over to Robert.
spk10: Hey, Tom. Thanks for your questions. I actually want to go back to one thing that Brent was talking about before with the leases. So when we, for context, what's helpful to understand is that when we go and terminate a lease, it may be that the lease has just lapsed and so it's an opportunity for us to assess whether we want to continue with that lease or not. Or we may, because of the profitability of the lease decide to take action. When we do that though, it's not like we can terminate a lease today. Most of our leases have terms of six to 12 months. So we may be taking actions today, but they won't show up in our financial statements for another six months or so. So this is the long tail that Brent talked about of properties coming in and there's still properties that we signed up in 2022 that will still hit the market. We also have the properties going out, and there's a long tail on those as well because oftentimes, as I said, it may be six months or more before we see them go out. On your second question, which was just about how I see the opportunity in Esprato, I'm obviously very excited to be here. It starts with the incredible vacation opportunities. I know that I personally have in the past taken lots of vacations with the family and Outside of Inspirato, it can certainly be a little bit of hit or miss. So the certainty and the value that we have here is just great. I'm really excited to be helping Inspirato on their path to profitability. We're making some great headway there. And then as Brent alluded to, the future as we leverage Inspirato as a platform and all the other exciting things that we're doing here, are other great opportunities for us to grow and be successful. So lots of great reasons to be here. Thanks.
spk06: Thank you both.
spk07: Stand by for our next question.
spk05: Our next question comes from Mike Grondahl with Northland Securities. Mike, go ahead with your question.
spk02: Hey, early on you talked about, you know, getting incremental bookings. And I think you did a good job of describing for new subscribers to Inspirato with IFG, IFB, and whatnot what you're doing. Could you talk a little bit about what you're doing to incentivize existing subscribers to book that extra day at the end of their trip or book an incremental trip? Some of the things you're doing there would be interesting to hear about.
spk03: Thanks for asking that question. It's very timely and very exciting. You know, in our 10 plus years history, we've not really had a proactive member success team, a team of people that proactively tried to get our existing subscribers to travel more. Frankly, we lived in a supply constraint for so much of our history. that it was more about preserving availability, right size and price. And our team, in fact, they've been referred to historically as our care team, has been more reactive. Amazing vacations, amazing service, but frankly just hasn't had to fight for those extra nights. That is all changing actually as we speak, that transition. We're in our semi-annual sale right now. I think it's over at the end of the week. And starting next week, we're standing up a success team that is going to be laser focused on having our members really understand the value of being able to travel with Inspirato. When you have over 700 accommodations and there's so many unique ways to be able to save money or provide such awesome experiences for your family, it's hard for us to be able to communicate everything. taking all of our innovation and creativity and energy around making sure that we're able to provide a better educational experience for our subscribers and making sure that they not only understand all of the types of places that they could go where there's where there's more availability than historically but also we're going to be working with a variety of reward types of platforms to be able to make sure that we're providing members with the best possible price at the best possible time. You mentioned something about an extra night. One of the things, for example, that we never do is if there's three nights available in Hawaii between reservations, we never proactively call a member that's either going to check in early or would be able to check in late and offer those nights at some incredible discounts. Instead, historically, those three nights probably just burn and nobody uses them. Things like that, really understanding more regionalized travel patterns. And then managing our revenue management is getting a reboot. We have a new person kind of responsible for revenue management now. We're going to be more creative and we're going to be more aggressive. I said this on the last call. I firmly believe that the luxury providers reach the plateau in terms of how much we're able to charge customers, especially during the non-peak times. And we have so much opportunity and so much excess availability for paid nights that we're going to become more aggressive, much more customized for our subscribers in terms of being able to offer them things that will drive that incremental demand. I've said this before. It's a very small number. I mean, if every member traveled one more day, we would be at historically high occupancy and we'd be out into the market looking for new supply. That's one area that should be able to fill in that demand. The other area Robert talked about, which is just right-sizing and being smart about how we maintain the portfolio, there's a little bit of a tail on that. And then the third area is through our platforms. the continued growth of Inspirato for Business, the growth of Inspirato for Good, the partnership with Saks that's launching, and the many, many other fantastic luxury partnerships that we can be announcing into the future where we can provide the unique and valuable Inspirato experience with our super deep competitive moat around our technology and our exclusive supply, and now making that available to other partners who bring their own demand with them. So we're very excited about the future and our ability to be a change agent in terms of our existing subscribers as well as having more demand on the system.
spk02: Got it. And then I know the SACS relationship is brand new, but when do you think you will have their sales force like fully trained up?
spk03: I would say by the end of Q2, we'll have their Salesforce fully trained. We did a soft launch with their top producers just about a week ago. The response from them internally was very high. The SaaS partnership also includes marketing. So we shouldn't just think about this as only their 3000 stylists. It also includes leveraging their tremendous depth and expertise as the largest luxury e-commerce platform and us being integrated into SAC. And I just saw the creative yesterday. It really is amazing when you attach their beautiful merchandising of fashion directly with Inspirato and our luxury vacations. We're very excited about that. That will take some time. to get moving. But I think about that as one partner in a world where now that we've built the platform, the technology and have the brand in a world where we're going to have a lot more partners that are going to be driving different demand for different segments. And I want to briefly talk about for a second, one of the ways that Inspirado can be a platform is by providing only limited trips. So certain trips off of a list that a partner is able to use, that's a great incentive for people to try out Inspirato. And then when they like it, being able to book a la carte, being able to book exactly what they want, when they want it, that requires a full membership. And we haven't really talked that much about how Inspirato for Good, Inspirato for Business, SAC Partnership, all of these things serve as excellent pipeline to be able to grow the core subscription of Inspirato Pass and Inspirato Club. I think about Inspirato Pass and Club as being the anchor tenants of the platform and bringing on other partners onto the platform and eventually the highest level of upgrade being to just join clubs so you get exactly what you want when you want it.
spk02: Got it. And then maybe just lastly, I think operating expenses at $37 million in the quarter is Did I read, do I recall, that they included a couple of one-time items? And is the benefit from some of the cost saves earlier in the year, is that fully, partially reflected in the $37 million? What's a good run rate going forward for OPEX?
spk10: Hey, Mike, it's Robert here. You're right. OPEX for the quarter was $36 million. They're... We've come to a point where OPEX overall, we describe it as fairly stabilized, but there were still a few one-time items in Q1 as we continue to improve our processes and our systems. We'll probably see a few more of those as we move throughout the year, but directionally, our OPEX is going to be consistent to slightly down. I think we gave guidance of 135 to 140 for the year last quarter, and we're reaffirming that guidance. So, that's probably the best way to think about it. Got it. Hey, thank you.
spk05: At this time, if you would like to ask a question, you will need to press star 11 on your telephone. Our next question comes from Brent Klobop of Cantor Fitzgerald. Brett, go ahead with your question.
spk04: How are you guys doing? A couple questions on my end. First, can you, I guess, just parse through your kind of revenue outlook for the year and talk about the mix between subscription and travel, you know, with kind of past sales down? I guess quite meaningfully, the last two quarters, that's like a $16 million hit on an annualized basis in description revenue. So can you just walk us through the mix in growth rates that's implied in your guidance and how that might have changed from when you first issued the outlook last quarter?
spk03: Yeah, I think what we'll do is we'll split this question. I'll kind of talk more high level without giving exact numbers, and I'll pass it along to Robert, who I think can provide the the details and color with the exact numbers. Look, obviously, PaaS was an amazing growth engine for Inspirato coming out of the pandemic. It's a business today that has over $90 million of subscription revenue, an incredible accomplishment for any subscription. It is a business that really appeals to a passionate group of travelers that are highly flexible and who are willing to exchange value for flexibility they this is a group of travelers that says i wasn't really thinking about going to tuscany next week but i can on my pass and it's only going to cost a couple thousand dollars and the trip is worth ten thousand dollars that group of travelers has shrunk as the world has gotten back to a more normalized cycle with regard to day-to-day school schedules for kids, things like that. It's still a very good business, but it is no longer in growth mode. It has decreased, as you have mentioned, I think for really the last two quarters. We do expect that will continue to to be a drag on subscription revenue. When we think about subscription revenue for PATH, it's really they're paying a flat fee. They're paying roughly $30,000 a year. In exchange, they're getting access to the portfolio in their bookings. One area that we're extremely focused on, and they're paying less as a rate. So when they travel in our own portfolio, their attributed nightly rate is actually less than somebody who would have paid for that trip on their own. The way in which that we're kind of replacing a lot of the travel that's coming from past is through Inspirato for Good and Inspirato for Business, because in both of those instances, they're picking trips that are off of a list, just like somebody picks a past trip off of a list. but it's more of a one-to-one. One winner of a trip at a company books a trip. One winner who bid on an auction item books a trip versus that pass holder who, if they stayed over the course of the year, would typically be booking seven or eight trips. We're not really losing subscription revenue with club. Really, the subscription revenue is for the most part is all from PATH. Partially we're going to get that member success team more focused on PATH and describing the many benefits to our existing members. But part of it is we probably and definitely are not going to reach the high watermark of ARR that we had with PATH earlier. But we do think that there's a stabilization that is coming. The retention rate on PATH hasn't really changed. It's really more than new sales of path that are driving that, um, that are driving that differential. Um, so, so that's kind of a high level sort of what's going on with subscription. Uh, there, I think I'll pass over to Robert for some numbers.
spk10: Yeah. Hey, Brett. Um, just to give you a little bit more context, um, the, when we, when we talk about the, first of all, subscription revenue, uh, we landed at 37 million. You know, year over year, that's compared to 32 million. But when we compare it to the fourth quarter, maybe more relevant, it was 39 million in the fourth quarter. So we are down 2 million. And I think Brent has described, you know, we expect to see some additional erosion, but stabilizing over time as well in that regard. When you look at travel revenue, you really need to look at that on a year over year basis because of seasonality from a quarter over quarter basis. It's not going to be apples to apples. And so when we look at that from a year-over-year basis, we're up from $50 million to $55 million, or 11%. And it's directly in line with what our expectations were going into the quarter. So we feel it was a very solid quarter as it relates to the travel revenue, and we're pleased with where we came out. And, again, it's not only consistent with where we were, but on a year-over-year basis, it's certainly grown as well.
spk04: I guess, you know, if past sales, it sounds like, are going to continue to be pressured for the next several quarters as you guys maybe try to shift focus on newer initiatives. Does that mean that, like, we should expect subscription revenue to decline sequentially pretty much every quarter over the next year, two years? Or at what point do you expect maybe Inspirato for good or for business or the tax partnership to eventually offset the lost revenue from those past subscribers?
spk03: I think we'll see some pressure definitely over the next two quarters for sure. It's a great question. We categorize past as subscription revenue because of the accounting treatment of somebody committing to pay for their travel and that travel is kind of on a use it or lose it basis through the past structure. But at the end of the day, it's really revenue in exchange for travel and the travel that they're going to consume. I want to make sure that we separate that from club revenue, subscription revenue. Club subscription revenue does not come with any travel. Club subscription revenue is the fees that we're paid in exchange for being able to offer the service and the access to our subscribers. Club revenue, when it decreases, the only way to bring it back is to bring in more club revenue. And that club margin on subscription club revenue is obviously extremely high. because it doesn't come with any fixed cost of delivering travel. Subscription revenue for PASS can actually be made up in two different ways. It can be made up by more subscription revenue that's directly related to travel in Sprouted for Business, in Sprouted for Good and PASS. It can also be made up by more paid and stayed travel, by more delivered travel. Because if there is currently a week available the 10th of June in Kiowa, South Carolina, there is a pass holder today who could book that. There is also a club member today who could book that. Either way, we want that to get booked. We're going to have to have more club bookings to make up for some degradation in pass bookings. which is partially being offset by Inspirato for Good, Inspirato for Business, and eventually at scale, SACS. So I hope that kind of answers that question. But there's really two types of subscription revenue. And it's important to note that the high margin subscription revenue that is clubbed, that is the access fee, has been very stable.
spk04: And maybe if I can just ask one more. As you guys are going through maybe the portfolio optimization process and reducing the number of controlled accommodations, how does that impact the value of the platform? I guess if you're a subscriber, you want more choice, and now you're effectively saying we're giving you less choice. So I guess, can you parse how those two dynamics are at odds with each other?
spk03: Yeah, absolutely. So when we have inventory that our members are not using, the structure of Inspirato versus the structure of other vacation club concepts, like this is not true with exclusive resorts. This is not true with Timbers and other fractional. This is not true with your country club that you belong to back home, where most clubs you're paying for access and it's kind of a availability contest. between you and your fellow members who gets the 9 a.m. tea time on a Saturday morning or who gets that great reservation over President's Week because essentially the members have prepaid for it. With Inspirato, we sing for our supper for every single reservation. All of our members are choosing whether to travel with us or not travel with us. When we optimize the portfolio on our doing, We're going after the properties that members are not choosing to travel to. They're either not willing to pay the rate or they're not willing to have the occupancy that makes it a good fit for Inspirato. When we've been working on this project with the portfolio, to my knowledge, of course, I'm sure there's been communication to other people within the company, but we have not heard of, hey, wait a second, that house that you don't have anymore that I wasn't booking anyway is Can you please bring that back now? Obviously we have, um, we have, you know, uh, churn that we don't want. We have homes that pull out of our portfolio, their leases up and they choose not to renew in those cases. Obviously there is a, um, you know, there is an effect on our members, right? They love going to this particular house. That particular house is no longer available. But what I would say, Brett, is we've added so many houses, including a bunch tomorrow, that our members don't even, I don't even know all of the houses that we actually have. When I got the email from Inspirato yesterday, I was like, oh, wow, that looks like a cool house in Beaver Creek. I was reviewing yesterday some of the marketing material for SACS. And we have a house in Tuscany that has a really interesting name. I'm not going to try to say what it is. And I said, Hey, wait a second. What is that house? Is that one of our houses? If we're going to be sending that out in the marketing materials? And they said, yeah, that's a brand new Tuscany house. It's like our best one. Um, you know, we just launched it a couple months ago, so I don't believe we have, I think we're a very, very long way away from members feeling like there's not ample availability. That's not really been issue with Inspirato. It's been issues with other concepts, but availability has never been a challenge with us. And it's super easy for us to bring in new supply if and when we're ready to do that, which is hopefully soon.
spk04: Perfect. And if I could squeeze in just a model question, can you just talk about or I guess outline what ARR was ending at the quarter? I'm not sure if you guys said it. And then maybe the new club subscription, what that total was.
spk03: All right. Can you ask that question again? What was ARR at the end of the quarter? Correct.
spk04: And then how many the Enstrado Club subscriptions do you have now? You guys gave the past subscriptions, but if you have any color on the other kind of cohorts in there.
spk10: One moment. We're working on those right now. Yeah. Hey, Brett, on the first question, our ARR was 158 at the end of Q1. And in terms of Inspirato Club membership, I don't think we've necessarily given that number specifically in the past. But, you know, we have the total number that we've disclosed, and then you have, obviously, the past subscriptions, so you can kind of back into some of that as well. But we can also get to that.
spk04: Perfect. Much appreciated. Thanks, guys.
spk05: This does conclude our question and answer period. I'd now like to turn it back over to Brent Handler for closing remarks.
spk03: Thank you so much. As always, appreciate the thoughtful questions, and thank you to our members and our investors. We look forward to our next call in August, and everybody have a great summer until then. Thank you.
spk05: Thank you for participation in today's conference. This does conclude the program. You may now disconnect.
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