Thank you for standing by and welcome to the Inspirato First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today's program maybe recorded.

And now I'd like to introduce your host for today's program, Kyle Sourk, Investor Relations. Please go ahead..

Thank you and good morning. On today's call, we have Co-Founder and CEO, Brent Handler and CFO, Web Neighbor. Yesterday afternoon we issued a press release announcing our first quarter results which is available on the Investor Relations page of our website at investor.inspirato.com. We have also filed our Form 10-Q.

On today's call, we will reference both forward-looking statements and non-U.S. GAAP financial measures. The appropriate disclosures and reconciliations can be found in our press release. With that, I will turn the call over to our CEO, Brent Handler..

Thank you, Kyle, and good morning everyone. Before reviewing our first quarter results, I'd like to begin the call with a sincere thank you to our more than 800 Inspirato team members, whose hard work, dedication, and commitment to delivering best-in-class experiences to our subscribers are the true engine that drives the company.

In terms of the first quarter, we continue to benefit from our unique subscription-based platform for luxury travel, and robust travel demand in general, as we generated approximately $82 million in total revenue, a 67% increase year-over-year.

Our subscription revenue of $32 million for the quarter was the result of growing our active subscriptions to nearly 15,300, an 18% increase from the first quarter of last year. Further our Inspirato past subscriptions increased more than 80% between periods to approximately 3,300.

From a travel standpoint, we generated $50 million of revenue in the first quarter compared to $28 million in the first quarter of 2021. This increase of nearly 80% is primarily driven by two factors.

First, the easing of pandemic-related travel restrictions and pent-up travel demand are clearly driving a sustained increase in usage for our subscribers. Second, is our ability to proactively manage average daily rates through our portfolio.

We're able to not only capitalize on periods of high demand, but maximize occupancy and revenue in our offseason locations through our innovative and proprietary technology. In terms of supply to meet the growing demand, we successfully increased our total controlled accommodations to a record 653 as of March 31.

This not only represents an increase of more than 60% from a year ago, but remarkably, more than 20% since year-end 2021. On our last call, I highlighted our new Inspirato real estate platform, as well as our growing team and infrastructure aimed at large scale strategic acquisitions.

It's clear these initiatives have been extremely successful early on as the increase of 115 controlled accommodations in the first quarter represent more than 80% of what we accomplished all of 2021. Our accomplishments in the first quarter have us firmly on track to meet all of our 2022 goals and objectives.

While the team is extremely focused on executing our plan, we also have several opportunities ahead of us. Earlier this quarter, we announced the tremendous success of our Inspirato Only Luxury Cruise program, including record breaking bookings resulting in more than $3 million of reservations in the first 24 hours.

We've also alluded to early success of adjacent subscription offerings, such as a corporate incentive travel platform. We believe that continuing to successfully innovate around our past platform, specifically as it relates to the shareability of travel with employees could lead to significant upside to our near and long-term revenue growth.

With that, I'll turn the call over to Web to discuss our results in more detail..

Thanks, Brent. As we covered in our press release last night, the first quarter was a record setting across several key aspects of our business, namely revenue, active subscriptions; total nights delivered and controlled accommodations.

As Brent mentioned, total revenue of $82 million was comprised of $32 million of subscription revenue, and $50 million of travel revenue. Total revenue represented an increase of 67% compared to the first quarter of 2021 and is the highest level of a single quarter in the company's history.

Both subscription revenue and travel revenue were also at their highest levels in the company's history. With continued execution of our business plan, we are firmly in line to meet our full-year revenue guidance of $350 million to $360 million. Our gross margin for the quarter was $35 million, compared to $17 million in the first quarter of 2021.

As a percentage of total revenue, our gross margin was an impressive 43% compared to 38% just last quarter, and 35% for all of 2021. Obviously, these are figures we're extremely proud of.

But it's important to note that we have yet to enter the stage of optimizing our margins, and are instead focused on the rapid growth of both our subscription and controlled accommodation accounts.

Gross margin benefited from an increase in higher margin subscription revenue, as well as high utilization and significant increases in the nightly rate environment for luxury hospitality in particular.

There's typically some seasonality in our business, and gross margin in the second quarter has typically reflected lower travel demand at that time of year.

For the first quarter, we had a net loss of $24 million and an adjusted EBITDA loss of $3.5 million, compared to a $3.9 million loss and a $1.6 million loss respectively in the first quarter last year.

The change in the fair value of warrants from closing to the end of the quarter was $18 million, and coupled with investments in sales and marketing, technology and corporate infrastructure these are the primary drivers for the differences between the periods.

In terms of key operating metrics, Brent already covered the impressive growth of each of our active subscriptions and past subscriptions, which lead to an annual recurring revenue of a record $147 million.

As a reminder, annual recurring revenue is total active subscriptions multiplied by the annualized subscription rate for the applicable subscriber. We view this as a key metric in measuring our ability not only to acquire new subscriptions, but to maintain our relationship with existing subscribers.

Our ARR of $147 million as of March 31, represents an increase of 56% compared to one year ago, and is a record for the company. From a supply side, I mentioned nights delivered and controlled accommodations as also reaching record levels.

In the first quarter, we delivered approximately 43,000 nights, an increase of 45% from the first quarter of 2021. We're proud to have achieved this with total occupancy in our residences of 87%, signaling that there is an incredible demand to keep up with our truly staggering supply growth.

As Brent mentioned, total controlled accommodations of 653 at the end of the quarter represent an increase of more than 60% year-over-year, and more than 20% since year-end 2021.

It's important to note that many of these key additions are targeted acquisitions in high profile world renowned vacation destinations within driving distance of our subscribers. Perfect examples of this are the 37 luxury residences at the iconic Canoe Place Inn in the Hamptons.

Providing easily accessible destinations for our subscribers is equally as important as providing life-changing experiences, such as our South African safaris and Antarctic cruises. We anticipate that our multi-channel strategy for acquiring new inventory will continue to deliver a broad selection of luxury vacation options for our subscribers.

Shifting to the balance sheet. We exited the quarter with approximately $135 million of cash on hand. The prudent management of this liquidity enables us to opportunistically accelerate our growth, but is not needed to meet our published targets in 2022 or beyond.

Finally, before turning the call over to Q&A, I do want to echo Brent sentiments in thanking our Inspirato family. We're extremely well-positioned for an incredibly exciting ride as we work towards executing our plan and achieving the tremendous growth ahead of us..

[Operator Instructions]. Our first question comes from the line of Tom Champion from Piper Sandler..

Hi, guys, good morning. Congrats on the really nice results. Brent, maybe a question for you around nightly rates clearly up a lot and there's a ton of pent-up demand.

I'm just curious, your view of the sustainability of those rates, how the consumer is behaving and the sustainability as we look deeper into the year? And then, Web, maybe a question for you on inventory. Really nice results, there.

Seems like maybe you found a third gear in terms of adding more supply was just a sort of longer term product of a lot of work and maybe we get some moderation through the rest of the year in terms of inventory ads from here. How should we think about that going forward? Thank you guys..

Great questions, Tom. Let me just quickly clarify that we have yet to file our Q, but plan to do so shortly. And then to get right to your question on rates and sustainability, I've been doing this for 20 years, so I've been through a couple of different cycles including the Great Recession.

And one thing that I think is clear is that the affluent are going to travel, they're highly protected, they're going to travel, luxury hospitality companies typically don't discount, they'll typically offer things like free breakfast or a fortnight stay, things like that, for the brands like tour season.

So I think a lot of the kind of rate increases that we've been able to see are in fact sustainable. But the one area in our business that we do see, kind of coming back more towards a new normal, I wouldn't call it the old normal; the new normal is I don't see people willing to travel anywhere, anytime for the sake of travel.

Excuse me, last year, you would get people to visit a ski destination in the Center of Mud season and they just wanted to go somewhere, they just didn't want to be out of their house. Now we think that there's kind of a new normal that's been set where they probably won't visit a place like Vail maybe the week after the mountain closes.

But definitely we're benefiting from shorter shoulder seasons and shorter low seasons. And so we're benefiting from that as it's accretive to our RevPAR. And then very specifically on your rate sustainability, what I would say is during the peak times there's still room for rate increases, actually.

But because we're essentially a private club, we really have to balance how much we're charging on a per night basis, relative to the value that we're delivering to our subscribers. So we're still a lot less expensive on a night per night basis than alternatives that are out in the market.

And the reason we're not increasing them even more is because we need renewal subscriptions, and we need to keep our retention very high. So we've got kind of a nice balance there. Unlike, just a five-star hotel that literally during New Year's is just going to charge the maximum rate they can to get one person to say yes.

So if that answers your question on that..

Hey, Tom, it's Web. I'll take your question on inventory growth. You're right to point out that the 115 controlled accommodations that we added in the quarter was what most we've ever had in the quarter was a record.

And we see that as starting to realize on significant investments we made in the last year or 15 months around people and infrastructure dedicated to growing and diversifying our portfolio footprint, what we call our inventory. You asked a question about how sustainable that is. I'd say I believe we're just beginning to really bear the fruits of that.

But I would like to highlight and some of this, we had announced via press release throughout the quarter, some of that new ad and a material amount of it were large institutional scale deals, I highlighted in my remarks earlier the 37 residences in the Hamptons.

Our platform and building the development that pardon me the acquisition pipeline to secure inventory like that really rounds out our multichannel strategy of acquisition, the bread and butter of the company for years, building over 400 residences has been more high net worth owner users would be at the typical profile.

And by expanding that and diversifying it into real estate developers and institutional real estate owners that gives us the ability to add a significant amount of units in one shot in bulk. And I think that diversity across those channels is really important to us sustaining that.

I can't short that we're always going to sustain that level of tremendous percentage growth quarter-over-quarter. But I do think we have not yet seen the full fruits of all our labors, and all our investment in terms of delivering upon the pipeline that we've been building.

So we feel very confident about continuing to increase our inventory in total number and in breadth quality and diversity over the coming quarters..

Thank you. [Operator Instructions]. Our next question comes from the line of Mike Grondahl from Northland Securities. Your question please..

Yes, hey thanks, guys. Just curious a little bit, 1Q was really strong and the gross margin was a lot stronger than I kind of modeled.

Curious how we should think about seasonality going into 2Q, you don't have kind of the winter Colorado season and just kind of gross margin outlook?.

Sure. I'll take that Mike, it's Web. You're right to point out that our gross margin in the first quarter was very strong. I would highlight one thing that might not come across. But related to the earlier question, it was particularly strong considering the growth in the portfolio.

Remember that when we add new accommodations, there typically is a bit of a ramp up period. I wouldn't say it's protracted, I wouldn't say it's terribly significant, but it moves the number. And that serves to actually drag down gross margin a bit compared to what an ordinary sort of static run rate for pulling might be.

So I did want to highlight that. You're also right to point out that as we head in to the second quarter, and I tried to make reference to this, we have a lot of experience in this business, we believe we have the largest footprint of full P&L visibility of luxury vacation rentals for the longest period of time of anyone.

So we have a robust amount of historical data to draw from. In the second quarter, April, May and June, generally, the mountain locations are closed or beginning to close at the beginning of that quarter. And a lot of the traditional some of these locations haven't yet ramped up.

So historically, we've typically seen that demand for travel does taper off a bit. I'm sympathetic to your modeling challenges, it's tough to lay that against the overall growth trajectory of the business as a countervailing factor.

But we would expect gross margin typically, historically has come down from a first quarter high into a still robust and healthy but somewhat moderated second quarter outlook.

To your last question on sort of overall gross margin outlook, I play a point to last year, we finished the year at 87% or 88% occupancy, we did the same thing in the first quarter. There's a ton of the demand for travel and a bit of a new normal as Brent had articulated. I don't view long-term modeling at those levels.

Frankly, that that indicates there's a lot of room to move on price to moderate that. The combination of those two, we'd outline months ago in our investor deck, a lot of opportunities to significantly enhance gross margin over time, I still believe in those. And I'll say we're not focused on those as a priority as we're focused on growth..

Great, great. And then maybe a little bit more color on how you're thinking about the cruise opportunity and how successful that was within 24 hours.

And just corporate incentive, kind of the progress you're making there?.

Sure, this is Brent. On the cruises, we call that line of business Inspirato Only. And it's essentially our ability to aggregate particular experiences. And they're not just all cruise, they can be land-based as well, and have these members-only experiences that really only we can provide.

And the cruises are no exception, we take over an entire ship, we do our own programming, we create our own itineraries. And people really missed that. And so obviously, when we sort of came back, there was a lot of -- there was a lot of pent-up demand, we're contemplating and working on our 2023 and 2024 packages now in that arena.

And we anticipate just with the experience economy, and people wanting to get out and try different things and do different things and do it with a trusted source they might be doing something they've never done before or something that feels more adventurous.

But the service and certainty that Inspirato provides make that really natural for that to be a growth engine for our business. And then I'm really glad you asked about the corporate incentive market and the shareability of the Pass platform.

It's something that we're really focused on, we're investing heavily in and we think that we've really got the tiger by the tail, in terms of the technology and infrastructure that we've built with our patented technology that really drives the Pass.

And essentially what it allows for us to do is to create these lists of 100s of 1000s of trips or millions of trips, and have a shopping and merchandising experience for the consumer that's really unmatched.

Today the one product that we have is Pass platform, but in the future we think that lends itself very well for things like the individual incentive travel market.

There is so much demand for companies to want to really differentiate themselves, to really provide a mechanism where they can win in hiring war or win against the great resignation and providing a trip where historically, these trips would either be like big events, held at a high end somewhere that you just go and it's sort of like all your work people, or maybe it's you can bring your spouse.

So these are opportunities to bring your whole family or have family and friends be able to experience your hard work and have these incredible vacations. So we think that that platform that we've already invested in Pass really manifests itself well for this incentive market.

And then while I'm kind of talking about this other thing that Pass does really well, is it -- it creates a kind of natural exchange platform.

So if you think about the ability for Pass, and what we've built, to be able to be used by any kind of loyalty program or any other type of incentive program, we really are excited about the differentiation that we bring to that market. And be on the lookout this year for a lot of innovation in that area..

Thank you. Our next question comes from the line of Steven McDermott from Cantor. Your question, please..

Hi, guys. You touched on seasonality with travel revenue.

But can you just remind us of the seasonality as it pertains to active subscriptions and kind of your outlook for the year? And how you're positioning yourself for that? Then also, can you please comment on the pricing power that you have with the subscription rates, and if we could anticipate any price increase in the foreseeable future? Thank you..

Sure. As far as seasonality with respect to subscriptions, what we've seen their historically, and what we project is a much more muted impact as just opposed against travel delivered.

The element of seasonality, we've sort of demonstrated on last year and 15 months has been continued growth quarter-over-quarter, an enhanced mix of that growth bias towards the Pass products that Brent referenced.

And I would say we are a retail sales business with a data-driven, highly experienced driven digital marketing and sales and conversion machine. And as such, we do have incentives monthly and quarterly and throughout the year towards the end of the year.

So given that we do generally see increased subscription sales at the end of each month at the end of each quarter, and of course at the end of the year to align with our sales infrastructure. So not seasonality in the traditional sense. But there is some different points of acceleration throughout the year..

And then I'll go ahead and take the second question with regard to pricing power around the subscriptions themselves. We have not increased our new subscriber fees, really, since launch essentially Pass launched. What is it almost three years ago, at $2,500 a month, it's still there. Our core club subscription at $600 a month still there.

I would say we don't have any immediate plans to raise our core subscription pricing. But what I would say is, is that we are innovating and really thinking about premium add-ons to our existing subscriptions. That would involve things like sharing or other benefits.

And those types of things would be optional in ways that a subscriber would increase the fee that they're paying. But in exchange, they would be getting additional value, additional access things like that.

We believe that we have pricing power to increase subscriptions, pricing, but there's just not a real reason to do that today while we're in growth mode. As you know, this is not a similar innovative travel concept to others in the market. Other recent public companies that are burning a lot more cash than we are.

We have a very healthy cash balance sheet. We really don't burn much cash if any really on an annual basis. And so we are kind of much more focused on growth.

The other thing that I would say is that our increases to our existing subscribers as far as every year adjusting for inflation and how their existing subscriptions increase for our legacy customers is extremely nominal for our legacy subscribers that we have had for many, many years typically we increase that subscription by $100 per year.

So there is opportunity there, but it's not opportunity that we plan to take advantage of certainly not this year..

Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to Brent Handler, CEO for any further remarks..

Great, thank you. Well I just wanted to obviously thank everybody for joining the call. We are excited to share our Q1 results and we really appreciate the support and kind of stay tuned. We plan on executing against our 2022 plan and look forward to talking to everybody on the next conference call..

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..