Inspirato Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Insprado First Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer to ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker, Kyle Sork, Investor Relations. Kyle, the floor is yours.

Speaker 1

Thank you, and good morning.

Speaker 2

On today's call, we have Co Founder and CEO, Brent Handler and CFO, Robert Kaden. Yesterday afternoon, we issued our press release announcing our Q1 2023 results, which is available on the Investor Relations page of our website I'll be happy to take your questions at investor. Inspirado.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, we are confident that we will

Speaker 1

be able to execute on our financial results and our

Speaker 2

financial results 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.

Speaker 2

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.

Speaker 3

Thank you, Kyle, and good morning, everyone. Before beginning, I'd like to officially welcome Robert as our Chief Financial Officer to the Inspirado team. Robert was most recently the Chief Accounting Officer at Twitter and brings decades of public company accounting experience to Inspirado. He has made an immediate impact since joining in March, and I'm extremely excited to continue working closely with him moving forward. Shifting to our Q1 results, we saw continued strong travel demand as evidenced by our 50,700 total nights delivered.

Speaker 3

This is not only a year over year increase of 18%, but a sequential increase of 7% compared to the Q4 of 2022 and marks the 2nd highest level in the company's history. Further, our total occupancy rebounded from 73% last quarter to 77% in the Q1. This compares to 87% in the Q1 of 2022. We generated $92,000,000 of total revenue, a 12% year over year increase compared to $82,000,000 in the Q1 of last year. Our net loss of $5,900,000 compared to a loss of $24,000,000 in the Q1 of 2022, we generated an adjusted EBITDA loss of approximately $3,100,000 compared to $3,700,000 in the Q1 of last year.

Speaker 3

Our gross margin of 35% is below our high watermark of 42% in the Q1 of last year, the leaseholdings and leased hotel inventory over the past 2 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. We expect reduced supply growth, lease renegotiations and inventory allocation to not only expand our margins over time, we are confident that position us to achieve positive adjusted EBITDA. Along those lines, we spent much of the time on our last call focused on our path 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.

Speaker 3

We aim to achieve this through renewed focus we are focused on incremental bookings via our newly created member success team and our new member acquisition strategies, including Inspirato for Good, Inspirado for Business and our Saks partnership. We're very excited about the early success of both Inspirado for Good and Inspirado for Business. In the Q1, Inspirado For Good sold trip and membership packages for $2,300,000 compared to $1,200,000 we are pleased to report that we

Speaker 4

are in the Q4 of 2022.

Speaker 3

We are still learning about the seasonality of the non profit space. However, we have seen strong forward momentum early in the quarter and expect Q2 to deliver increased sales compared to the Q1. Inspirato for business also had solid results in Q1 with approximately $4,000,000 of sales compared to our just over we are currently evaluating $2,000,000 in the Q4 of 2022. Similar to Inspirado for Good, we are learning about the we 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 Q1 of 202216,100 at we

Speaker 4

are pleased with the year end 2022.

Speaker 3

Much of the subscription trends we're seeing can be attributed to a slowdown of new pass subscription sales, whereas resignations actually slowed slightly on a sequential basis. Historically, a high percentage of Pass sales have come as upgrades from our existing subscribers. Our newly created member success team will have a high priority we are focused on educating club subscribers to the many benefits of past. As part of our continued focus on improving retention, we built a strategy around multi year commitment. In the Q1 of 2023, more than 80% of our new club sales were multi year contracts compared to approximately 15% in the Q1 of 2022.

Speaker 3

Further, as an offset to the decrease in active subscriptions, we sold approximately 850 Inspirado for good packages in the quarter, which include a bundled Inspirado trip and a 6 month or 1 year trial membership. Through Q1 2023, we have sold over 1300 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 toward full membership. I am also extremely excited to announce the Saks partnership soft launched on May 1st And we have begun to train their 3,000 stylists on how to sell Inspirado luxury travel subscription offering to their discerning clients. As this partnership progresses, we look forward to providing updates on future calls.

Speaker 3

Lastly, we continue to explore exciting partnership opportunities we are in a variety of

Speaker 4

vertical markets.

Speaker 3

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 we are confident 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.

Speaker 3

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.

Speaker 1

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 7 26 controlled accommodations, a combination of our leased residence we are pleased to report that we are in the position of our customers and leased hotel partnerships.

Speaker 1

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 on boarded 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 we don't believe the property is delivering the right experience and value to our members and to our shareholders.

Speaker 4

As

Speaker 1

part of our ongoing portfolio optimization work, our efforts year to date are expected to lead to more than $5,000,000 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 we are pleased to report that we are in the range of $1,000,000

Speaker 4

from a revenue and margin standpoint.

Speaker 1

In the Q1, we saw a continuation of recent travel trends as compared to the Q1 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 Inspirado. There is a tremendous opportunity to unlock incremental shareholder value through revenue and travel management we are aiming at improving residence performance relative to hotels. Moving on to our financial results, we generated total revenue of $92,000,000 in the Q1 compared to $82,000,000 in the Q1 of 2022. Subscription revenue increased 14% year over year to $37,000,000 from $32,000,000 While we expect headwinds in subscription revenue due to the past sales trend Brent described, the promising early performance of Inspirado for Good and Inspirado for Business should offset some of the expected declines.

Speaker 1

Travel revenue increased 11% to $55,000,000 for the quarter compared to $50,000,000 in the Q1 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. 2nd, hotel revenue increased 49% year over year, primarily driven by a strong increase in hotel paid nights delivered.

Speaker 1

Again, it's important to recognize that the majority of our hotel nights our earnings delivered are through net rate agreements rather than through leased inventory, 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 $60,000,000 which increased 27 percent or $13,000,000 compared to a revenue increase of $9,600,000 or 12% over the same period. Gross margin as a percent of revenue was 35% in the Q1 of 2023 compared to 42% in the Q1 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, reduced cannibalization and even encouraged minor shifts in travel behavior.

Speaker 1

Operating expenses for the quarter were 36,000,000 we are pleased to report that we are in the Q1 of last year or 40% of total revenue compared to $40,000,000 or 49% of revenue in the Q1 last year. Total operating expenses improved 10% year over year, driven by a 34% reduction to our sales and marketing expense we expect to be approximately $1,000,000 and a 15% reduction in operations expense. These were partially offset by an increase of 5% from our combined G and A and tech and development expense. All of this equates to an adjusted EBITDA loss of $3,100,000 compared to $3,700,000 a year ago. Given what we know today, we have confidence in reaffirming our prior fiscal year 2023 revenue guidance of $350,000,000 to $370,000,000 and adjusted EBITDA guidance of a loss between $10,000,000 $20,000,000 before turning the call over to the operator, I want to quickly touch on the balance sheet.

Speaker 1

We exited the quarter with approximately 62,000,000 we expect to be a quarterly dividend of cash on hand compared to $82,000,000 at year end. We continue to have no bank debt. While our Q1 had a number of one time corporate expenses, the 2nd quarter has historically served as one of the peak paid booking quarters of our calendar, partially due to booking ahead of summer travel I'm partially due to our semi annual sale, which occurs in May. Should that continue, we expect to end the Q2 with a relatively flat cash balance compared to the first we anticipate exiting the year with a cash balance between $40,000,000 $50,000,000 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.

Speaker 1

With that, I'll turn the call over to the moderator for Q and A.

Operator

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask please standby while we compile the Q and A roster. Our first question comes from Chweta Kuchira with Evercore ISI. Chweta, go ahead with your question.

Speaker 5

Okay. Thank you for taking my question. Could you please talk about what you we believe drove the strength in demand trends that you saw in the Q1 and early indications of summer travel as you think about 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 4 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?

Speaker 5

Thank you.

Speaker 3

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 we had a pretty good booking calendar, ahead of Q1.

Speaker 3

We did start to see, I would say, 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 we are seeing that as well. As Robert had mentioned, we have a mix opportunity in our portfolio. This summer would be no different, 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 we have a very strong demand for our own supply in places like Hawaii or Vail or Kiawah, South Carolina, and we've seen more demand

Speaker 6

we are very pleased with

Speaker 3

our expectations for hotel bookings. We 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 we are confident in the value of the Inspirado 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 we are pleased to announce that we are pleased to announce that we are pleased we are 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 3 day period, Everybody is sort of on the same schedule with the large dining opportunities, etcetera.

Speaker 3

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 Inspirado for Business and the ability for them we are very pleased to be able to travel individually and in a lot of cases bring their family and friends who are supporting their work life 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 to that market. You asked another question about how those sales turn into revenue and roughly it's about a fifty-fifty split between subscription revenue and which typically is over the course of about a year if it's a year long contract and 50% is Recognize 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.

Speaker 5

Okay. Thank you, Brent.

Operator

Please standby for our next question. Our next question is coming from Jed Kelly with Oppenheimer and Company. Jed, go ahead with your question.

Speaker 7

Great, great. Thanks for taking my questions. Just 2, 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 mentioned how more people are returning to urban cities.

Speaker 7

Can you just talk about your overall supply strategy? Is it going to be more through partnering with hotels where You probably might not have the margin upside, but you can ramp supply faster. Just can you talk about where we are in the overall supply strategy? Thank you.

Speaker 3

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 we 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 I just reported that last year about 15% of our subscriptions that we sold were more than 1 year, 2 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 we have 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.

Speaker 3

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 we have miscalculated how long the post pandemic revenge travel would last And we also kind of overestimated our ability to have an LTV to CAC long term that could really drive the kind of growth that would support doubling your portfolio over 2 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 rightsizing or canceling some leases that don't make sense for us, we're not renewing other leases.

Speaker 3

We're doubling down on the leases that really are great for Inspirado 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 agreement, in exchange for driving more volume, particularly through an opaque channel, we're actually going to be partnering with fewer 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.

Speaker 1

Thank you.

Operator

Our next question comes from Tom Champion with Piper Sandler. Tom, go ahead with your question.

Speaker 8

Hi. Good morning, guys. Ben, maybe to begin with you and just piggybacking on the last question, it looks like portfolio optimization decrease net 7%. 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, maybe just walk us through your thoughts on timing there and how long it will take to cycle through and when accommodations might return to growth. And then if I could sneak in one more for Robert.

Speaker 8

Welcome. It's great to hear from you today. And just curious if you could talk a little bit about kind of your background and what attracted you to the opportunity at Inspirato. Look forward to working with you.

Speaker 3

Great. Thank you so much. 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 2 vectors. 1 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.

Speaker 3

So even yesterday, we announced new homes in Beavercreek 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 we are very pleased with our results and our outlook for 2019. We are very pleased with our results and our outlook for 2019. We are very pleased with our results and our outlook for 2019.

Speaker 3

We are very pleased with our results with Robert's help, we're having the discipline 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, 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. I started in this industry in 2,002, is that right? Yes, 2,002.

Speaker 3

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 we're very focused 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 Infraado 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, if you think about Inspirado for business and you think about Inspirado for good and you think about our Saks partnership, which will be launching here throughout the Q2. In all of those instances, we're using third party demand we are committed to our platform.

Speaker 3

And as I think about Inspirado, I think about the platform, I really think there's kind of 3 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.

Speaker 3

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 That exclusive supply is extremely valuable. And the last thing that we have is technology. We've built the technology.

Speaker 3

It's the technology That is the underpinning of PaaS that allows us to partner with SaaS. It allows us to have dozens and dozens of nonprofits using our 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 Inspirado as a platform, partner with other organizations who are in the market we are confident that we are confident that

Speaker 4

we are confident that we are confident that we are confident that

Speaker 3

we are confident that we are confident that that should leverage what we are the best at delivering these incredible vacations for family and friends with service uncertainty. 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, 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.

Speaker 1

Hey, Tom. Thanks for your questions. I actually want to go back to one thing that Fred 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.

Speaker 1

Most of our leases have terms of 6 to 12 months. So we may be taking actions today, but they won't show up in our financial statements for another 6 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 6 months or more before we see them go out. On your second question was just about how I see the opportunity in Inspirado.

Speaker 1

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 Inspirado, it can certainly be a little bit of hit or miss. So the certainty and the value that we have here It's just great. I'm really excited to be helping Inspirato on their path to profitability.

Speaker 1

We're making some great headway there. And then as Brent alluded to, the future as we leverage Inspirado 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.

Speaker 8

Thank you both.

Operator

Standby for our next question. Our next question comes from Mike Grondahl with Northland Securities. Mike, go ahead with your question.

Speaker 6

Early on, you talked about getting incremental bookings. And I think you did a good job of describing for new subscribers to Inspirato with IFG, 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 to hear about.

Speaker 3

Thanks for asking that question. It's very timely and very exciting. 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, rightsizing 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 we're in our semi annual sale right now. I think it's over at the end of the we're in our semi annual sale right now.

Speaker 3

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 Inspirada. 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. We're 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 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.

Speaker 3

One of the things, for example, that we never do is if there's 3 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 discount. Instead, historically, those 3 nights probably just burn and nobody uses them. Things like that really understanding more regionalized travel patterns and then managing our revenue management we are 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.

Speaker 3

We I said this on the last call, I firmly believe that the luxury providers reached a 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.

Speaker 3

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 3rd area is through our platform, the continued growth of Inspirado for Business, the growth of Inspirado 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 Inspirado 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.

Speaker 6

Got it. And then I know the Saks relationship is brand new, but when do you think you will have their sales force like fully trained up?

Speaker 3

I would say by the end of Q2, we'll have their sales force 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 3,000 Stylus, it also includes leveraging their tremendous depth and expertise as the largest luxury e commerce platform and us being integrated into Sac.

Speaker 3

And I just saw the creative yesterday. It really is amazing when you we're very excited about that. That will take some time. We're very excited about that. That will take some time to get moving.

Speaker 3

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.

Speaker 3

And we haven't really talked that much about how Inspirado for good, Inspirado for business, Saks 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

Speaker 4

platform and bringing on

Speaker 3

other partners onto the and bringing on other partners onto the platform and eventually the highest level of upgrade to just join clubs so you get exactly what you want when you want it.

Speaker 6

Got it. And then maybe just lastly, I think operating expenses at $37,000,000 in the quarter. 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 $37,000,000 what's a good run rate going forward for OpEx?

Speaker 1

Hey, Mike, it's Robert here. You're right. OpEx for the quarter was $36,000,000 There we've come to a point where OpEx overall, we describe it as fairly stabilized, but there were So a few one time items in Q1, as we continue to improve our processes in our systems. We'll probably see a few more of those as we move throughout the year. But directionally, our OpEx is it's going to be consistent to slightly down.

Speaker 1

I think we gave guidance of $135,000,000 to $140,000,000 for the year last quarter and we're reaffirming that guidance. That's probably the best way to think about it.

Speaker 6

Got it. Hey, thank you.

Operator

Our next question comes from Brent Klobuch of Cantor Fitzgerald. Brett, go ahead with your question.

Speaker 4

Close to my name is pronounced, but how are you guys A couple of questions on my end. First, can you just, I guess, just parse through your kind of revenue outlook for the year and talk about the mix between subscription and travel with kind of passed out down, I guess, quite meaningful over the last two quarters, I think, $15,000,000 hit on an annualized basis with subscription revenues. But can you just walk us through the mix and growth rates that you're that's implied in your guidance and how that might have changed from When you first issued the outlook last quarter?

Speaker 3

Yes. 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 details and color with the exact numbers. Look, obviously, Pass was an amazing growth engine for Inspirato coming out of the pandemic, it's a business today that has over $90,000,000 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.

Speaker 3

This is a group of travelers that says, I wasn't really thinking about going to Tuscany next week, but I can on my path and it's only going to cost a couple of $1,000 and the trip is worth $10,000 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 be a drag on subscription revenue. When we think about subscription revenue in exchange, they're getting access to the portfolio and their booking.

Speaker 3

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 Pass is through Inspirado for Good and Inspirado for Business because in both of those instances, they're picking trips that are off of a list, just like somebody picks a pass trip off of a list. But it's more of a one to 1, 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 we typically be booking 7 or 8 trips. We're not really losing subscription revenue with Club.

Speaker 3

Really the subscription revenue for the most part is all from Pass. Partially, we are going to get that member success team we are 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 Pass earlier, but we do think that there is a stabilization that is coming, the retention rate on pass hasn't really changed. It's really more than new sales of pass we're seeing some of the key drivers that are driving that differential. So that's kind of a high level sort of what's going on with subscription there, I think I'll pass over to Robert for some numbers.

Speaker 1

Yes. Hey, Brett. Just to give you a little bit more context, when we talk about the first of all subscription revenue, we landed at 37,000,000 Year over year that's compared to $32,000,000 but when we compare it to the Q4, maybe more relevant, it was $39,000,000 in the Q4. So we are down $2,000,000 And I think Brent has described, 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.

Speaker 1

And so when we look at that from a year over year basis, we're up from $50,000,000 to $55,000,000 or 11% and it's directionally 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 growing as well.

Speaker 4

Perfect. I guess, if past sales, it sounds like are going to continue to be pressured For the next several quarters, as you kind of 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, 2 years? Or at what point do you expect maybe Inspirato for good or for business or the Saks partnership to Eventually offset the lost revenue from those tax drivers?

Speaker 3

I think we'll see some pressure definitely over the next 2 quarters for sure. It's a great question. We categorize 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.

Speaker 3

Club subscription revenue does not come with any travel. Club subscription revenue is the fees that we are paid in exchange for being able to offer the service and the access we are pleased to announce that 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 2 different ways. It can be made up by more subscription revenue that's directly related to travel Inspirada for Business, Inspirada for Good and Pass. It can also be made up by more Paid and stayed travel by more delivered travel because if there is a currently a week available the 10th June in Kiowa, South Carolina, there is a pass holder today who could book that.

Speaker 3

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 then to make up for some degradation in past bookings, which is partially being offset by Inspirato for good, Inspirato for business and eventually at scale, Saks. So I hope that kind of answers that question, but there's really 2 types of subscription revenue. And it's important to note that the high margin subscription revenue that is club, that is the access fee has been very stable.

Speaker 4

And maybe if I can just ask one more. As you guys are going through maybe the portfolio optimization process And reducing that the number of controlled accommodations,

Speaker 1

how does

Speaker 4

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 So I guess, can you parse how those two dynamics are kind

Speaker 3

of at odds with each other? Yes, absolutely. So when we have inventory that our members are not using, the structure of Inspirado 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 am tee time on a Saturday morning or who gets that great reservation over Presidents' Week Because essentially the members have prepaid for it.

Speaker 3

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 Inspirado. 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, can you please bring that back?

Speaker 3

Now obviously, we have churn that we don't want. We have homes that pull out of our portfolio, their lease is up and they choose not to renew. In those cases, obviously, there is a there is an effect on our members, right? They love going to this particular house. That particular house is no longer available.

Speaker 3

But what I would say, Brett, is we've added so many houses, including a bunch tomorrow we have. When I got the email from Inspirado 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 Sac 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?

Speaker 3

Is that one of our houses if we're going to be sending that out in the marketing materials? And they said, yes, that's a brand new Tuscany house. It's like our best we just launched it a couple of 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 Inspirado.

Speaker 3

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.

Speaker 4

Perfect. And if I could squeeze in just a modeling question, can you just talk about or I guess outline what AR was ending at the quarter. I'm not sure if you guys said it. And then maybe the new club subscription, what's that total was?

Speaker 3

Sorry, can you ask that question again? What was ARR at the end of the quarter?

Speaker 4

Correct. And then how many the Instrado Club subscriptions do you have now? You guys gave the past

Speaker 3

One moment, we're working on those right now.

Speaker 1

Yes. 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 we have the total number that we've disclosed And then you have the obviously the past subscription, so you can kind of back into some of that as well. We can all forget to that.

Speaker 4

Perfect. Much appreciated. Thanks guys.

Operator

Turn it back over to Brent Handler for closing remarks.

Speaker 3

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.

Operator

Thank you for participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Inspirato Q1 2023
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