Q4 2023 Inspirato Incorporated Earnings Call

March 6, 2024

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I would now like to hand, the conference over to your Speaker today call sort. Please go ahead.

Yeah.

Thank you and good morning.

Today's call, we have CEO, Eric Rosa and CFO Robert Kate.

Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2023 results, which is available on the Investor Relations page of our website at Investor <unk> Dot com.

Good day, and thank you for standing by.

Turning to the Inspiron, Inc. Fourth quarter 2023 earnings conference call.

At this time all participants are in a listen only mode.

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.

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 one one on your telephone.

You will then hear an automated message advising your hand is raised.

To withdraw your question. Please press star one one again.

Please be advised that today's conference is being recorded.

To update them.

Actual results could differ materially.

I would now like to hand, the conference over to your speaker today.

We refer you to our SEC filings for a more detailed discussion of additional risks.

Please go ahead.

In addition, during the call management will discuss non-GAAP measures, which are useful in evaluating the company's operating performance.

Yeah.

Thank you and good morning on today's call, we have CEO, Eric Rosa and CFO Robert cadence.

These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2023 results, which is available on the Investor Relations page of our website at Investor day in Toronto Dot Com.

Reconciliations of these measures to the most directly comparable GAAP measure are included in our earnings release.

With that I'll turn the call over to our CEO Eric grocer.

Thanks, Kyle and good morning, everyone.

On our last call. We spent much of the time reinforcing the pillars, Vince bravos value proposition, our world class portfolio of luxury residences and the first class service, we provide to ensure each trip is remarkable and memorable today I'll review some of our successes from 2023 as well as our strategic priorities and plans for 2024.

Update them.

Actual results could differ materially.

We refer you to our SEC filings for a more detailed discussion of additional risks.

Before turning it over to Robert to cover our 2023 results and 2024 guidance in more detail.

In addition, during the call management will discuss non-GAAP measures, which are useful in evaluating the company's operating performance.

Before jumping in I do want to highlight that we are reporting fourth quarter results in line with our internal expectations and within our 2023 full year revenue guidance range for adjusted EBITDA, We are slightly favorable to our guidance range.

These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

Reconciliations of these measures to the most directly comparable GAAP measure are included in our earnings release.

With that I'll turn the call over to our CEO Eric process.

<unk> has always been a name you can trust when you travel with US you Trust Youll get first class service at a world class property in 2024. It is amongst our highest priority is to earn that same level of trust and credibility with our shareholders Q.

Thanks, Kyle and good morning, everyone.

On our last call. We spent much of the time reinforcing the pillars, Vince for autos value proposition, our world class portfolio of luxury residences and the first class service, we provide to ensure each trip is remarkable and memorable today I'll review some of our successes from 2023 as well as our strategic priorities and plans for 2024.

Q4 marks the second consecutive quarter of delivering results in line with our plan and we're excited for the opportunity to build a real track record of execution in 2024 through clear and transparent communication.

Before turning it over to Robert to cover our 2023 results and 2024 guidance in more detail.

We believe that doing so will unlock significant value for both our members and our shareholders.

Before jumping in I do want.

To highlight that we are reporting fourth quarter results in line with our internal expectations and within our 2023 full year revenue guidance range for adjusted EBITDA, We are slightly favorable to our guidance range.

Looking back the second half of 2023 was largely defined by a heightened focus on execution and operating efficiencies, we took meaningful steps to streamline our cost structure and improve member engagement each aimed at accelerating our path to profitability and positioning us for sustainable future growth.

From an expense standpoint, the largest item in our P&L as our leases. The team has done a tremendous job aligning our portfolio with our member base and the new post pandemic normal of leisure travel. This included a detailed property level analysis of our portfolio with an emphasis on unit economics regional scale and member satisfaction.

We were also successful in reducing our cash operating expenses for the full year, we stripped out more than $20 million of expenses a year over year reduction of approximately 15% as.

We believe that doing so will unlock significant value for both our members and our shareholders.

Looking back the second half of 2023 was largely defined by a heightened focus on execution and operating efficiencies, we took meaningful steps to streamline our cost structure and improved member engagement each aimed at accelerating our path to profitability and positioning us for sustainable future growth.

As Youll hear in a moment, we expect to continue to realize incremental savings in 2024 based on the actions. We took in 2023 and most importantly feel we have the right people and the right processes to handle future growth when the time comes.

Next I want to discuss the steps we've taken to improve our member experience, although we pride ourselves in our member satisfaction as documented in highlighted by our best in class NPS scores of approximately 70, we've recently placed more emphasis on increasing member engagement and re energizing our member base.

We were also successful in reducing our cash operating expenses for the full year, we stripped out more than $20 million of expenses a year over year reduction of approximately 15% as.

During periods of rapid growth in the past, we would monitor are positive trends and total nights booked and total nights delivered with less focus on who was booking and where they were going.

As Youll hear in a moment, we expect to continue to realize incremental savings in 2024 based on the actions. We took in 2023 and most importantly, the right people and the right processes to handle future growth when the time comes.

So to address this midway through 2023, we took three decisive actions first we reorganized around a member success team dedicated to serving members and helping them book travel.

Next we lowered the asking prices for our nightly rates and most recently, we launched our loyalty program.

Each of these were aimed not only in increasing our nights per member, but are paid nights per member at our managed and controlled properties. These nights are the most accretive in our portfolio.

This approach has led to a series of small wins and as a few recent trends that we have are idle.

During periods of rapid growth in the past, we would monitor are positive trends and total nights booked and total nights delivered with less focus on who was booking and where they were going.

First is broader rewards has been a hit since its launch in August nearly half of our members have gained rewards status based on their 2023 spent as a reminder, our lowest status tier starts at $20000 of annual spend this is proof of our loyal and engaged.

So to address this midway through 2023, we took three decisive actions first we reorganized around a member success team dedicated to serving members and helping them book travel next we lowered the asking prices for our nightly rates and most recently, we launched our loyalty program.

<unk> please.

Second we're raising the bar to entry and exit from <unk> by focusing on selling multi year memberships and renewals. This aligns with our desire to make <unk> more of a club and less of a product.

Each of these were not only in increasing our nights per member, but are paid nights per member at our managed and controlled properties. These nights are the most accretive in our portfolio.

It has resulted in fewer but better sales and should continue to improve our member retention and engagement.

This approach has led to a series of small wins and a few recent trends that we have are idle.

For reference in 2023 over 90% of our New club sales were for at least one year and more than 75% were for two years or more.

First it's broader rewards has been a hit since its launch in August nearly half. Our members have gained rewards status based on their 2023 spent as a reminder, our lowest status tier starts at $20000 of annual spend this is proof of our loyal and engaged.

Finally, we saw an uptick in the number of reservations and nights booked per member to end 2023 and to begin 2024.

However, and this is a small dataset in February those trends of normalized reverting to or even slightly below 2023 levels. Our team has a sharp eye on this very recent information and we analyze both our engagement strategy as well as our travel trends at large.

<unk> base.

Second we're raising the bar to entry and exit from <unk> by focusing on selling multi year memberships and renewals. This aligns with our desire to make <unk> more of a club and less of a product.

Look for updates on this throughout the year.

It has resulted in fewer but better sales and should continue to improve our member retention engagement.

As it pertains to our expected results in 2024. This has caused a slightly wider range of potential outcomes. Although we are once again prioritizing our path to profitability.

For reference in 2023 over 90% of our New club sales were for at least one year and more than 75% were for two years or more.

I am confident that the progress we have made as an organization over the last six to nine months has led to a significant improvement in our ability to recognize analyze and react in real time and I'm exactly I am excited about our 2024 plans ahead of us.

Finally, we saw an uptick in the number of reservations and nights booked per member to end 2023 and to begin 2024.

For the full year, we remain focused on reaching breakeven of adjusted EBITDA and are expecting between a loss of $15 million and income of $5 million.

Meanwhile, we expect total revenue between 275 and $305 million a decrease compared to 2023 due primarily to headwinds related to continued decreases in our past subscriptions I'll, let Robert covered some of the details of the plan in a few moments, but would first like to highlight our 22024 strategic initiatives.

Look for updates on this throughout the year.

As it pertains to our expected results in 2024. This has caused a slightly wider range of potential outcomes. Although we are once again prioritizing our path to profitability.

That position us to be a true turnaround story.

I'm confident that the progress we have made as an organization over the last six to nine months has led to a significant improvement in our ability to recognize analyze and react in real time and I'm exactly I'm excited about our 2024 plans ahead of us.

After right sizing our cost structure and improving our operating efficiencies in 2023, we're shifting our focus in 2024 to our product offerings and customer acquisition strategy are we offering the right products are they are complementary to each other or they priced appropriately and are we targeting the right traveler.

For the full year, we remain focused on reaching breakeven of adjusted EBITDA and are expecting between a loss of $15 million and income of $5 million.

<unk> has a deeply rooted brand that resonates with a large core audience over the last few years, we've grown our member base and our portfolio substantially we've launched several new products with varying degrees of success.

Our goal in 2024 is to simplify and Bravo for both current members and prospective members as well.

To return to our roots and operate as a true travel club, while re instilling a sense of community amongst our members and importantly, continuing to deliver exceptional vacations.

That position us to be a true turnaround story.

After right sizing our cost structure and improving our operating efficiencies in 2023, we're shifting our focus in 2024 to our product offerings and customer acquisition strategy RV offering the right products are they complementary to each other or they priced appropriately and are we targeting the right traveler.

This brought our path is a great example of an area. We can refine over the past year, we've seen meaningful churn for many reasons, including life changes the macro environment and perhaps the past focus on the quantity of new member sales as opposed to ensuring the proper fit other perspective remember.

Our goal in 2024 is to simplify its brought up for both current members and prospective members as well we want to return to our roots and operate as a true travel club, while re instilling a sense of community amongst our members and importantly, continuing to deliver exceptional vacations.

Ultimately, it's apparent that we need to improve <unk> positioning what is it designed to do what is the targeted towards and how does it coexists with club.

Just last month, we announced changes to our Ens Prato passed today it will function as the luxury travel offering for their frequent and flexible traveler that means great value for an amazing number of trip options equitable rates to that of our club members for smaller numbers of premium trips and unparalleled access.

This brought our path is a great example of an area we can refine over.

Over the past year, we've seen meaningful churn for many reasons, including life changes the macro environment and perhaps the past focus on the quantity of new member sales as opposed to ensuring the proper fit other prospective member.

And value for last minute bookings.

At the same time in 2023, while approximately 20% of our members were pass holders nearly 40% of our nice delivered we're past nights the math simply won't work and as a result past has not been profitable ultimately it's apparent that we need to improve passes positioning what is it designed to do what are the targeted <unk>.

We've embraced passive functionality by improving flexibility in and access to short term bookings.

Since implementing these changes in mid February we have booked approximately 300 reflect trips and 200 nights at properties that may have otherwise spoiled importantly, 60% of these reservations were for stage within 30 days at the time of booking.

And how does it coexists with club.

Just last month, we announced changes to our <unk> product passed today, it will function as the luxury travel offering for their frequent and flexible traveler that means great value for an amazing number of trip options equitable rates to that of our club members for smaller numbers of premium trips and unparalleled access.

We've also removed non core features of paths that were costly dense bravo and infrequently used by members and finally, we're planning to manage the number of pass memberships in conjunction with overall inventory and market placement.

These changes will simplify past improve the engagement and experience for our members and ultimately make past more profitable French product.

And value for last minute bookings.

We've embraced passive functionality by improving flexibility and access to short term bookings.

Next the team will take a fresh look at our other offerings to make sure they align with our strategic priorities, while also providing tremendous value to our current and future members.

Since implementing these changes in mid February we have booked approximately 300 reflect chips and 1200 nights at property that may have otherwise spoiled.

Any good brand that delivers value to its consumers and creates value for its shareholders in Toronto success will be driven by our ability to drive member engagement and advocacy.

Importantly, 60% of these reservations were for stage within 30 days at the time with booking.

In order to do what we do best deliver exceptional service and value we need to do so from a position of operational strength with a solid foundation.

We've also removed noncore features a path that were costly dense bravo and infrequently used by members and finally, we're planning to manage the number of past memberships in conjunction with overall inventory and market placement.

At the end of the day, our mission is to inspire lasting memories and relationships by enriching the way our members experience the world.

These changes will simplify past improve the engagement and experience for our members and ultimately make past more profitable French product.

I am fully confident that by staying true to our core values care collaboration courage curiosity, we will achieve just that in 2024.

Next the team will take a fresh look at our other offerings to make sure they align with our strategic priorities, while also providing tremendous value to our current and future members like any good brand that delivers value to its consumers and creates value for its shareholders in Toronto success will be driven by our ability to drive member.

Before turning the call over to Robert I'd like to thank our employees for their incredible work in 2023 with.

With continued focus on execution I believe we are set up for a much improved 2024.

And with that I'll turn the call over to Robert.

Thanks, Eric before giving more color on our 2024 plan I'd like to quickly cover our fourth quarter and full year 2023 results in the fourth quarter, we generated total revenue of $71 million at gross.

And advocacy.

In order to do what we do best deliver exceptional service and value we need to do so from a position of operational strength with a solid foundation.

At the end of the day, our mission is to inspire lasting memories and relationships by enriching the way our members experience the world.

Margin of $13 million and a gross margin of $19 million, excluding the impact of asset impairments, although fourth quarter revenue decreased 18% year over year. It is important to note that it was in line with our internal expectations. The year over year decrease in revenue is due to decreases in both subscription and travel revenue.

Fully confident that by staying true to our core values care collaboration courage curiosity, we will achieve just that in 2024.

Before turning the call over to Robert I'd like to thank our employees for their incredible work in 2023 with.

From a subscription revenue standpoint, we've seen a decline in both the number of passing clubs subscriptions. However, due to the higher price point of our past subscription passed has been the primary driver of the decrease in subscription revenue at year end, we had 13800 active subscriptions consisting of approximately 2500 past 11.

With continued focus on execution I believe we are set up for a much improved 2024.

And with that I'll turn the call over to Robert.

Thanks, Eric before giving more color on our 2024 plan I'd like to quickly cover our fourth quarter and full year 2023 results.

300 clubs subscriptions. This compares to 16100 active subscriptions consisting of 3600 past and 12500 clubs subscriptions at year end 2022 keep in mind, we've invested significant sales resources in our <unk> for good and is beougher business platforms, which combined generated approximately.

$25 million of contracted sales in 2023.

Further is brighter for goods sold more than 3000 travel memberships last year that are not included in our subscription counts. While there is no recurring revenue from the sales we feel they are a strong pre qualified prospects that we're excited to introduce these broader experience and hoped to convert to a full membership over time.

As far as travel revenue the year over year decrease was primarily due to a decrease in the number of total nights delivered specifically our paid nice delivered in large part due to a decline in the number of clubs prescriptions as well as the timing of our experiences and the deferral of some revenue due to the accounting treatment for our rewards programs.

In the fourth quarter, we delivered approximately 41000 total nights with the residents occupancy of 65% compared to 47000 total nights was 73% residents occupancy in the fourth quarter of 2022.

ADR for approximately $700 in the fourth quarter of 2023 compared to approximately 19 $800 in the fourth quarter of 2022 with a year over year decrease due to us lowering our ADR is midway through 2023.

Meanwhile, when comparing full year performance residents adr's were relatively flat year over year at approximately $800 and we delivered a similar number of total nights in each of 2022 and 2023.

At the same time, our resins occupancy decrease in 2023% to 72% from 81% in 2022, primarily due to increased availability. As a reminder, increased availability was due to new leases committed to in 2022 or before that were added in 2023, while our portfolio.

<unk> efforts in 2023, we will start to have a more significant impact moving forward.

In 2024, we believe the combination of lower nightly rates and fewer nights available who will help us find the proper supply and demand balance to improve our operating efficiencies for.

For the full year, we generated $329 million of revenue, which is around the midpoint of our guidance range of $320 million to $340 million.

The year over year decrease in total revenue of approximately $15 million or 5% was due to decreases in each of subscription and travel revenue. The majority of the subscription revenue decrease was due to fewer pass subscriptions, while traveling revenue was mostly impacted by a reduced number of paid nights delivered in our residences are proud of it.

Fewer clubs subscriptions and more hotel travel.

Moving down the P&L, our fourth quarter gross margin was $30 million or 18% of revenue compared to $25 million or 29% of revenue in the fourth quarter of 2022 absent the impact of asset impairments fourth quarter 2023, gross margin would have been $19 million or 27% of revenue.

For the full year, our gross margin was $54 million or 17% of revenue compared to $116 million or 34% of revenue in 2022.

Absent the impact of asset impairments of approximately $41 million for the full year, our gross margin would have been $95 million or 29% of revenue.

Of note. These impairments were associated with leases predominantly in one geographic location.

Cutting one level deeper our fourth quarter cost of revenue was approximately $51 million, a 15% decrease compared to cost of revenue in the fourth quarter of 2022. This is consistent with our efforts to better manage our booking fees and it also includes a small amount of lease expense savings as I'll touch on in a minute we expect to continue this.

Positive trends in 2024.

Total cash operating expenses were approximately $27 million in the fourth quarter of 2023 compared to approximately $36 million in the fourth quarter of 2022, while the fourth quarter of 2023 did include a favorable intra year period adjustment of $1 8 million related to operations I'm proud of.

The progress we've made and I'm confident that we can reach a sustainable run rate for 2024.

The full year, our cash operating expenses totaled approximately $131 million compared to $153 million in 2022 as a reminder, our guidance range for 2023 of $125 million to $130 million.

One level deeper our fourth quarter cost of revenue was approximately $51 million, a 15% decrease compared to cost of revenue in the fourth quarter of 2022. This is consistent with our efforts to better manage our booking fees and it also includes a small amount of lease expense savings as I'll touch on in a minute. We expect to continue this positive trend in 2020.

Not include our third quarter reduction in force executive management changes and associated severance payments.

Sure.

Finally, as Eric mentioned I'm proud to report that our adjusted EBITDA loss of $29 million for 2023 ended the year slightly favorable compared to our previous guided range of a loss between 30 million and $45 million. This compares to a 2022 adjusted EBIT was a loss.

Loss of $32 million with fourth quarter, adjusted EBITDA losses in 2023, and 2022 of $5 4 million and $9 $5 million respectively.

The progress we've made and I'm confident that we can reach a sustainable run rate for 2024.

For the full year, our cash operating expenses totaled approximately $131 million compared to $153 million in 2022 as a reminder, our guidance range for 2023 of $125 million to $130 million did not include our third quarter reduction in force executive management changes and associated <unk>.

Really important we ended the year with a cash balance of approximately $42 million, which was slightly ahead of our internal expectation and represents a slowdown in our quarterly cash burn compared to the rest of 2023.

Overall I'm incredibly proud of how the team performed in the past year, specifically these past six months, whereas our results such as improved adjusted EBITDA are beginning to reflect the changes in efforts we've made.

Severance payments.

Finally, as Eric mentioned I'm proud to report that our adjusted EBITDA loss of $29 million for 2023 ended the year slightly favorable compared to our previous guidance range of a loss between 30 million and $45 million. This compares to a 2022 adjusted EBIT was a loss.

Turning to 2024 I expect continued improvement for the full year, we expect adjusted EBITDA approaching breakeven more specifically between the loss of $15 million and income of $5 million and total revenue between 275 billion and $305 million.

Loss of $32 million with fourth quarter, adjusted EBITDA losses in 2023, and 2022 of $5 4 million and $9 5 million respectively.

Our number one financial priority in 2024 is reaching breakeven on an adjusted EBITDA basis. While total revenue is obviously important it is merely an output of what we believe is very achievable plan grounded on reasonable assumptions.

As I'll cover in a minute, we expect a decrease in pass subscription revenue.

Lower ADR and our residents and fewer total members to be the main drivers of our decreased revenue.

From a member standpoint, we're assuming clubs subscriptions to be relatively flat year over year, while past subscriptions are expected to decrease by a similar absolute number in 2024 as they did in 2023.

Turning to 2024 I expect continued improvement for the full year, we expect adjusted EBITDA approaching breakeven more specifically between the loss of $15 million and income of $5 million in total revenue between $275 million and $305 million.

As Eric mentioned, we are confident that recent changes to past will improve the member experience and overall functionality of pass. However, we also expect most of our sales focus to be on club.

Our number one financial priority in 2024 is reaching breakeven on an adjusted EBITDA basis. While total revenue was obviously important it is merely an output of what we believe is very achievable plan grounded on reasonable assumptions.

It's the true foundation of Vince Bravo, and increasing our club membership ultimately enables increased pass memberships in the future for.

As I'll cover in a minute, we expect a decrease in pass subscription revenue.

Lower ADR and our residents and fewer total members to be the main drivers of our decreased revenue.

Net result in 2024 is once again expected to be a declining member base with a decrease in pass alone expected to create a subscription revenue headwind of nearly $30 million.

From a travel standpoint fewer members equate to fewer total nights delivered however, we are expecting improvements in terms of total occupancy and the mix between paid nights in past sites as well as residents nights and hotel nights as Eric mentioned, we have seen mixed results from a booking perspective, despite lower pricing is broader rewards.

As Eric mentioned, we are confident that recent changes to past will improve the member experience and overall functionality of pass. However, we also expect most of our sales focus to be on club.

It's the true Foundation, Vince Bravo and increasing our club membership ultimately enables increased pass memberships in the future for.

And then remember success team as a result, our current range assume similar pay travel behavior per members 2023, plus or minus 5%.

For club itself, we plan to continue targeting longer term stickier sales. We expect this to result in an increase in our club member base, which will be offset by the natural attrition of our legacy members. The net result in 2024 is once again expected to be a declining member base with a decrease in pass alone expected to create a.

For residences, we're currently assuming.

Rates slightly below $750 per night on average for the year, which compares to slightly above $800 per night received in 2023.

Ascription revenue headwind of nearly $30 million.

On the hotel side, we expect a decrease in our total nice delivered in 2024 compared to 2023. The much of this is expected to be attributable to fewer past nights. Overall, we currently expect travel revenue to account for approximately 65% of total revenue, whereas in 2023 account for less than 60%.

From a travel standpoint fewer members equate to fewer total nights delivered however, we're expecting improvements in terms of total occupancy and the mix between <unk> and Paas sites as well as residents nights and hotel nights as Eric mentioned, we have seen mixed results from a booking perspective, despite lower pricing is broader rewards.

In terms of our cost structure I've spent much of the past few quarters outlining our portfolio optimization plans and I'm excited to begin realizing the benefits in 2024, we expect approximately $30 million of lease expense savings compared to 2023, coupled with our emphasis on reducing our booking fees, we expect to realize meaningful gross margin.

And then remember success team as a result, our current range assume similar pay travel behavior per members 2023, plus or minus 5%.

For residences, we're currently assuming.

Rate slightly below $750 per night on average for the year, which compares to slightly above $800 per night received in 2023.

Expansion beginning in the first quarter finally, I alluded to our fourth quarter 2023 operating expenses, serving as a good run rate moving forward our full year range of cash operating expenses. In 2024 is between 115 at $125 million, which represents an improvement of 5% to 12% compared to <unk>.

2023, all in we expect to drive a meaningful year over year improvement in our adjusted EBITDA driven by a focus on improved efficiencies, we expect cost efficiencies in our leases fixed and variable cost booking expenses and operating expenses and we expect operating efficiencies in our travel mix and more focused sales.

Efforts overall I'm pleased with the plan, we put together time and again on this call we've referenced hitting our guidance range and our intention is to continue building a track record of execution in 2024, though we don't provide quarterly guidance. We believe this plan will deliver periods of positive adjusted EBITDA and ultimately improve our final.

Expansion beginning in the first quarter finally, I alluded to our fourth quarter 2023 operating expenses, serving as a good run rate moving forward our full year range of cash operating expenses in 2024 is between 115 and $125 million, which represents an improvement of 5% to 12% compared to <unk>.

<unk> strength for the long term.

With that let me turn it over to the operator for Q&A.

Thank you.

2023, all in we expect to drive a meaningful year over year improvement in our adjusted EBITDA driven by a focus on improved efficiencies, we expect cost efficiencies in our leases fixed and variable costs booking expenses and operating expenses and we expect operating efficiencies in our travel mix and more focused sales.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Efforts overall I'm pleased with the plan, we've put together time and again on this call we've referenced hitting our guidance range and our intention is to continue building a track record of execution in 2024, though we don't provide quarterly guidance. We believe this plan will deliver periods of positive adjusted EBITDA and ultimately improve our final.

Our first question comes from Mike Grondahl with Northland Securities. Your line is now open.

Hey, guys. Thanks.

It sounded like you retooled.

Pass.

The membership quite a bit and if.

<unk> strength for the long term.

If I heard you right itself from like 3600.

With that let me turn it over to the operator for Q&A.

220 500.

Thank you.

And it sounds like it's going to fall by a like amount in 2024 to about 1400 units.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Our subscriptions.

To withdraw your question. Please press star one again.

What does the new path look like.

Please standby, while we compile the Q&A roster.

And do you think you've gotten that to breakeven or making a profit for you.

You could answer that that would be great.

Terrific. Thanks, Mike for your question this is Eric.

Our first question comes from Mike Grondahl with Northland Securities. Your line is now open.

What I can do is talk a little bit about what path looks like and the changes we've made to it and then I can pass it over to Robert to walk through the implications of what that means from a 'twenty 'twenty 'twenty four perspective.

Hey, guys. Thanks.

It sounded like you retooled.

Pass membership quite a bit.

In terms of.

If I heard you right itself from like 3600.

What path looks like and the changes really what we wanted to do is to.

220 500.

Provide a big benefit to our pass holders.

And it sounds like it's going to fall by a like amount in 2024 to about 1400 units.

Enable.

Last minute travel much more so with past going forward with the concept that we're calling flex trips, which really opens up significantly more high value inventory that likely would otherwise gold's go unsold and.

Or subscriptions.

What does the new path look like.

And do you think you've gotten that to breakeven or making a profit for you.

And as we noted since we've made this change about 60%.

You could answer that that would be great.

Terrific. Thanks, Mike for your question this is Eric.

<unk> chips that we've sold are under 30 days of departure, which is a really good sign for us because it shows that we can really drive demand towards that close in piece that that otherwise might spoil.

And what we're also doing in addition to providing this benefit the significant benefit to pass holders.

In terms of.

What path looks like and the changes really what we want to do is to.

Also to streamline the product and to make it simpler.

So thats why we sunset it.

Provide a big benefit to our pass holders.

Capabilities within past that were pretty unpopular with pass holders and were frankly pretty inefficient and expensive for us to operate.

<unk> enable.

Last minute travel much more so with pass going forward with the concept of a client flex trips, which really opens up significantly more high value inventory that likely would otherwise gold's go unsold and.

Sure.

An example of this would be beyond travel as well as past cruises.

So in net what we've got is I think a much simpler.

And as we noted since we've made this change about 60%.

Service at a much simpler to communicate product that has really really strong value proposition to the right kind of pass holder. The one that is spontaneous to one that is flexible the one that is open for last minute travel.

<unk> chips that we've sold are under 30 days of departure, which is a really good sign for us because it shows that we can really drive demand towards that I'm close in piece that that otherwise might spoil.

And also provides a very very valuable niche in our overall product portfolio.

And what we're also doing in addition to providing this this benefit the significant benefit to pass holders.

So that is.

Our profitable product and can really contribute to <unk> success as a whole.

Also to streamline the product and to make it simpler.

Great Mike I'll, just this is Robert I'll take it a little bit further on the financial side of the house. There pass was just to be very clear our unprofitable for us in 2023 and before that.

So thats why we sunset it.

Capabilities within past that were pretty unpopular with pass holders and were frankly pretty inefficient and expensive for us to operate.

As Eric said before 40% of our nights with only 20% of our members is going towards path and Moreover, a lot of the past members, we're booking a lot of.

An example of this would be beyond travel as well as past cruises.

So in net what we've got is I think a much simpler.

A third party hotels, which which had a lot of booking costs associated with them as well so a combination of between.

Service at a much simpler to communicate product that has really really strong value proposition to the right kind of pass holders. The one that is spontaneous the one that is flexible the one that is open for last minute travel.

<unk>.

Taking out some of those non profitable areas noncore non profitable areas of path of getting our members who are pass members to give them a great opportunity for inventory, that's really last minute would otherwise spoil. It's a win win they are able to get.

And also provides a very very valuable niche in our overall product portfolio.

So that is.

Our profitable product and can really contribute to <unk> success as a whole.

Great Mike Yao I'll, just this is Robert I'll take it a little bit further on the financial side of the house. There pass was just to be very clear our unprofitable for us in 2023 and before that.

Inventory thats at a great price great inventory at a great price and we're able to use some of that inventory.

Those are some of the benefits.

That we see and so passengers in a much better financial position.

As Eric said before 40% of our nights with only 20% of our members is going towards path and Moreover, a lot of the past members, we're booking a lot of.

In 2024 and forward.

Got it got it and then.

Second question just on the.

A third party hotels, which which had a lot of booking costs associated with them as well so a combination of between.

The gross margin impairments related to the leases I think you said it was $6 million in four Q and.

Taking out some of those non profitable areas noncore nonprofits ball areas of path of getting our members who are past members to give them a great opportunity for inventory, that's really last minute would otherwise spoil it's a win win they're able to get.

And about $40 million in 'twenty three.

Would you say that's cleaned up now do we have to worry about those one Q to Q.

Yes, thanks for the question Mike.

Absolutely we feel like we're in a good place now we've known about these impairments for some time now and the reason they have been rolling in quarter over quarter is because under <unk>.

Inventory thats at a great price great inventory at a great price and we are able to use some of that inventory.

Some of the benefits.

Again. These this group of arrangements, we have for a certain number of properties, we have been rolling them in over time, and so every time, we've rolled them and from an accounting perspective is the first time, we could take an impairment charge on them. So those are all now rolled into our portfolio. Those are all at fair value.

That we see and so passengers in a much better financial position.

In 2024 and forward.

Got it got it and then.

Second question just on the.

The gross margin impairments related to the leases I think you said it was $6 million in four Q and.

Like any company it could be a small one off impairment here or there, but we're not expecting any sort of large impairments on a go forward basis.

And about $40 million in 'twenty three.

Would you say that's cleaned up now do we have to worry about those one Q to Q.

Got it got it and then maybe lastly.

Any update on capital one I think it I think.

Yes, thanks for the question Mike.

That partnership sounds like it starts in the second half and they kind of have to roll it out.

Absolutely we feel like we're in a good place now we've known about these impairments for some time now and the reason they are enrolling in quarter over quarter is because under.

How have you baked that into 'twenty four.

What can that look like over over 25, maybe.

Again. These this group of arrangements, we have for a certain number of properties, we've been rolling them in over time, and so every time, we've rolled them and from an accounting perspective is the first time, we could take an impairment charge on them. So those are all now rolled into our portfolio. Those are all at fair value.

Sure. Thanks, Mike.

I think we've been very clear that we're tremendously excited about our capital one partnership mainly because our respective strengths are so well suited for one another I mean, what we're very good at is finding and managing a pretty world class portfolio of high end residences and giving our members are pretty first class experience when they when they travel.

Like any company it could be a small one off impairment here or there, but we're not expecting any sort of large impairments on a go forward basis.

With us.

Cap one amongst other things there is a pretty world class demand aggregator.

Got it got it and then maybe lastly.

And they are really focused on becoming a very major.

Any update on capital one I think it I think.

Player in travel so that dynamic I think creates a win win situation for both of US which is why capital. One was so excited about our partnership and why they invested in us last fall.

That partnership sounded like it starts in the second half and they kind of have to roll it out.

How have you baked that into 'twenty four.

What can that look like over over 25, maybe.

So what we're doing right now is working very hard on all the technical integration work between ourselves and capital one and their technology partner Hopper.

Sure. Thanks, Mike.

And we really expect to be operational in the first phase of our partnership in the second half of this year.

In terms of.

Forecast, it's always difficult.

Predict.

What a large new partnership will bring.

When they travel with us in Caf one amongst other things there is a pretty world class demand aggregator.

And then so in the near term I would say, we've been always probably a little bit more cautious and how that.

And they are really focused on becoming a very major.

How that partnership will perform and grow out of the blocks, but when you take a look at capital one's size commitment to travel.

Player in travel so that dynamic I think creates a win win situation for both of US which is why capital. One was so excited about our partnership and why they invested in us last fall.

And breadth.

And then you look at it relative to our size.

So what we're doing right now is working very hard on all the technical integration work between ourselves and capital one and their technology partner Hopper.

I think it's pretty clear we're definitely over the medium to longer term. This can be a game changer for us.

Sure it looks like they may get discover two which would maybe even make them bigger.

And we really expect to be operational in the first phase of our partnership in the second half of this year.

Good point.

You think it's June or July before you have a better feel as at September like when do you think you'll get.

In terms of.

Forecast, it's always difficult to predict what a large new partnership will bring.

No.

A better sense of what it looks like roughly when and when during the year.

And then so in the near term I would say, we've been always probably a little bit more cautious in how that.

Well I would say that I mean Q3 is when we're launching it. So we will have sort of an initial data points than.

How that partnership will perform and grow out of the blocks, but when you take a look at capital one's size commitment to travel.

Going into the fourth quarter.

Which typically tends to be a stronger seasonal period for us we should have.

And breadth.

A better idea. So I think it's fair to say that our confidence will increase over the course of the year.

And then you look at it relative to our size.

I think it's pretty clear we're definitely over the medium to longer term. This can be a game changer for us.

Got it got it okay. Thank you.

Sure it looks like they may get discovered two which would maybe even make them bigger.

Sure. Thanks.

Thank you one moment for our next question.

Good point do you think it's June or July before you have a better feel September like when do you think you'll get.

Our next question comes from <unk> <unk> with Evercore ISI. Your line is now open.

No.

A better sense of what it looks like.

Hey, this is Luke on for <unk>, just two questions if I could.

When when when during the year.

Yes.

Can you just go over any low hanging fruit on the operating expense side, where you can drive efficiencies and then how should we think about the seasonality of your revenue and EBITDA. Throughout 24 can you just help us kind of think about how to model that.

Well I would say that I mean Q3 is one we're launching it so we'll have sort of an initial data points then.

Going into the fourth quarter.

Which typically tends to be a <unk>.

Longer seasonal period for us we should have.

Sure with.

A better idea. So I think it's fair to say that our confidence will increase over the course of the year.

With respect to.

The expense efficiencies. This is one where I want to give credit to the team on what we've done.

Got it got it okay. Thank you.

Over the course of the last six to nine months, we have done a lot of work to basically streamline our business to make us more operationally efficient. So that we can be successful and get to profitability on a wider range of outcomes.

Sure. Thanks.

Thank you one moment for our next question.

Our next question comes from Sean <unk> with Evercore ISI. Your line is now open.

So that really starts with our portfolio, our real estate portfolio Robert's letter tremendous effort.

Hey, this is Luke on for <unk>, just two questions if I could.

Two.

To rightsize that part of our business.

And also as a result of shifting demand really towards.

Our risk property who'll be able to we're able to make meaningful improvements on our on our Cogs line as well and when you combine that with the Opex improvements. We've made just in terms of becoming more operationally efficient both in terms of personnel as well as process Youre looking at a year over year swing in excess of 50 million Bucks.

Sure.

With respect to <unk>.

Expense efficiencies. This is one where I want to give credit to the team on what we've done.

So that is really important to us being able to say.

That we have a shot and we have line of sight to get to break to breakeven.

Maybe I'll hand, it over to Robert to handle to answer your question around seasonality.

So that really starts with our portfolio, our real estate portfolio Robert's letter tremendous effort.

Yeah, and maybe Luke Thanks, just to contextualize this a bit more on some of the things that Eric talked about.

Two.

To rightsize that part of our business.

And also as a result of shifting demand really towards.

When it comes to our overall costs.

And we think about 2020 for like we've been talking about in these last few calls there are things that we've done already and thats much of the savings that we'll have in 2024 are things that are done industrials. So for instance, we've talked a lot about our portfolio optimization, which will.

Our risk property, who would be able to we're able to make meaningful improvements on our on our Cogs line as well and when you combine that with the Opex improvements. We've made just in terms of becoming more operationally efficient both in terms of personnel as well as process Youre looking at a year over year swing in excess of 50 million Bucks.

Savings year over year savings of approximately $30 million those are agreements that we terminated in 2023, where there was just a period of time that needed to pass before we were fully out of those leases a lot of those were six months in some of the more 12 months. So we're starting to see in really in <unk>.

So that is really important to us being able to say.

That we have a shot and we have line of sight to get to break to break even.

Maybe I'll hand, it over to Robert to handle to answer to your question around seasonality.

Yeah, and maybe loop. Thanks, just to contextualize this a bit more on some of the things that Eric talked about.

Q1, the impact of the ones that were rolling off in six months.

Coming off the books, and then there'll be a great and that'll be our biggest.

When it comes to our overall costs.

Quarterly decline in terms of the number of leases with a dollar of releases and then we will see an additional gradual decline throughout the rest of the year.

And we think about 2020 for like we've been talking about in these last few calls there are things that we've done already and thats much of the savings that we'll have in 2024 are things that are done and dusted. So for instance, we've talked a lot about our portfolio optimization, which will.

When it comes to the.

The operating expenses, we've taken a lot of actions already so as you know we had a reduction in force.

First in January of last year, and then in July of last year, and we will get the full year benefit of that.

Reduction in force.

We move into 2024. Moreover, as we were going through our planning cycle back in the fall there was a lot of other things we looked at.

In operating expenses, how could we be more efficient in our software spend.

Q1, the impact of the ones that were rolling off in six months.

Lots of lots of little areas that in total piled up and amounted to the savings that we're talking about you'll.

Coming off the books, and then there'll be a great and that'll be our biggest.

Quarterly decline in terms of the number of leases with a dollar of releases and then we will see an additional gradual decline throughout the rest of the year.

You will see this as part of a like a three year trend. We went from 100 and approximately $155 million in 2022 to approximately $135 million in 2023, and now we're coming down to 115 to 125 million. So I think we've kind of optimized on what we can do from a.

When it comes to the.

The operating expenses, we've taken a lot of actions already so as you know we had a reduction in force.

In January of last year, and then in July of last year, and we will get the full year benefit of that.

Expense savings perspective.

As it relates to your question on seasonality on revenue and EBITDA.

Reduction in force.

We move into 2024. Moreover, as we were going through our planning cycle back in the fall there was a lot of other things we looked at.

We've had somewhat fairly consistent seasonality over time and it really starts with the revenue because most of our costs are fairly straight line across the year and so as our revenue goes for a particular quarter. So goes our EBITDA as well.

In operating expenses, how can we be more efficient in our software spend.

Lots of lots of little areas that in total piled up and amounted to the savings that we're talking about you'll.

When I look at our revenue you break it down into two pieces. The subscription revenue and then there's travel revenue as it relates to subscription revenue that is generally fairly straight line as well, although as we talked about before we will see a decline in our past number of subscriptions as we go through the year. So there will be a decline over time in.

Youll see this as part of a like a three year trend. We went from 100 and approximately $155 million in 2022 to approximately $135 million in 2023, and now we're coming down to 115 to 125 million. So I think we've kind of optimized on what we can do from a.

<unk> revenue you could think of that fairly straight line across the year. When it comes to travel we have are periods, where we have folks traveling more and we have periods, where people actually book travel more and so.

Expense savings perspective.

As it relates to your question on seasonality on revenue and EBITDA.

We've had somewhat fairly consistent seasonality over time and it really starts with the revenue because most of our costs are fairly straight lined across the year and so as our revenue goes for a particular quarter. So goes our EBITDA as well.

Typically Q1, Q3, and Q4 are heavier travel periods relative to Q2 Q2 is.

You just don't see as much in that April to June timeframe, but it's also a time, where there's more bookings generally to prepare for either the summer season or EBIT to prepare to start getting ready for.

When I look at our revenue you break it down into two pieces. The subscription revenue and then there is travel revenue as it relates to subscription revenue that is generally fairly straight line as well, although as we talked about before we will see a decline in our past number of subscriptions as we go through the year. So there will be a decline over time in.

Year end travel again, so expect that revenues will fall for travel something along those path.

Between Q1, <unk>, three and four there's a little bit of.

Seasonality, even within those but overall.

That's when we'll see the <unk>.

Higher revenue because it's when people take the trips that we recognize the revenue.

Thank you.

Typically Q1, Q3, and Q4 are heavier travel periods relative to Q2 Q2 is.

Thank you.

I'm showing no further questions at this time I would now like to turn it back to CEO, Eric Ross for closing remarks.

You just don't see as much in that April to June timeframe, but it's also a time, where theres more bookings generally to prepare for either the summer season or EBIT to prepare to start getting ready for.

Terrific.

Thanks, everyone for listening and participating in our fourth quarter call look we're committed to keeping our lines of communication open and look forward to our next earning call for the first quarter, which will be in may in the meantime, thanks, very much and toxin.

Year end travel again, so expect that revenues will fall for travel something along those path.

Between Q1, and one three and four there is a little bit of.

This concludes today's conference call.

Seasonality, even within those but overall, we'd say that's when we'll see the higher revenue because it's when people take the trips that we recognize the revenue.

Thank you for participating you may now disconnect.

Thank you.

I'm showing no further questions at this time I would now like to turn it back to CEO, Eric Ross for closing remarks.

Terrific well.

Everyone for listening and participating in our fourth quarter call look we're committed to keeping our lines of communication open and look forward to our next earning call for the first quarter, which will be in may in the meantime, thanks very much.

Toxin.

This concludes today's conference call.

You for participating you may now disconnect.

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Q4 2023 Inspirato Incorporated Earnings Call

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