Good day, ladies and gentlemen, thank you for standing by. And welcome to Inspirato Second 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] Please be advised that today’s conference may be recorded.

I would now like to turn the conference over to your speaker host today of 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. Earlier this morning we issued our press release announcing our second quarter results and posting an updated Investor Presentation both of which are available on the Investor Relations page of our website at investor.inspirato.com.

Before we begin our formal remarks, we remind everyone that some of today's comments are forward-looking statements, including but not limited to our expectations of future operating results and financial position, guidance and growth prospects, our anticipated future expenses and investments, business strategy and plans and market growth, market position and potential market opportunities.

These statements are based on assumptions and we assume no obligation to update them. Actual results could differ materially. We refer you to our SEC filings for a more detailed discussion of additional risks. In addition, during the call, management will discuss non-GAAP measures, which are useful in evaluating the company's operating performance.

These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release. With that, I'll turn the call over to our CEO, Brent Handler..

Inspirato for Business and Inspirato for Good, both of which have been soft launched. We've previously discussed the reverse inquiry for rewards travel from a global Fortune 500 software company in particular and are now building a product and business unit around the massive corporate opportunity.

Inspirato for Business is a flexible platform that caters to corporate incentive program, equally as exciting Inspirato for Good is designed as a turnkey solution that amplifies non-profits fundraising efforts. Look for updates on each of these growth initiatives in the coming quarters.

In summary, our team is incredibly focused on executing our plan, while there are obvious macroeconomic headwinds to navigate, we are confident that our resilient and predictable business model combined with the exciting untapped opportunities around expansion, position us well to grow sensibly and profitably in the near and medium term.

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

namely, revenue, active subscriptions, total nights delivered, total nights booked and controlled accommodations. Total revenue for the quarter of $84 million was comprised of $36 million of subscription revenue and $48 million of travel revenue, representing an increase of 60%, compared to the second quarter of 2021.

Total revenue is the highest level of any single quarter in the company's history, which is all the more impressive given the natural seasonality of the second quarter. With continued execution of our business plan, we are in line to meet our full-year revenue guidance of $350 million to $360 million.

Brent already touched on the high level attributes of our subscription growth, but I wanted to spend a moment on the components of our travel revenue as it plays a direct role in our gross margin, which came in at $24 million or 28% of revenue for the quarter, compared to $17 million or 32% a year ago.

The decrease in margin compared to the first quarter of this year is to be expected, as the second quarter is typically our lowest period for many of the seasonality reasons Brent outlined earlier.

Another factor is just very mechanical due to the growth of our residents portfolio, on boarding, outfitting, staffing and building booking calendars around new properties does impact margins to some degree, so during periods of hyper growth like we experienced in Q2. Those new properties will naturally bring down overall gross margins.

Two of the broad leading travel indicators we measure total nights booked and forward bookings are pointing in the right direction and indicative of healthy demand, which gives us confidence in our guidance and outlook.

As we covered on the last call, we're not yet in the margin optimizing stage of the business and are instead focused on providing incredible value to our growing subscriber base. Our value proposition and customer satisfaction are key to our measured growth strategy.

From an operating expense standpoint the past several quarters have offered opportunities to invest in categories such as sales and marketing and operations, if it positioned us for strong quarterly results.

Moving forward, we have an opportunity to continue to leverage our past investment and use these as levers to help dial in our timeline to achieve profitability. In the second quarter we had a net loss of $7 million and an adjusted EBITDA loss of $14 million, compared to losses of $6,008 million in the second quarter of 2021 respectively.

Investment in key categories, I just mentioned, such as sales and marketing and operations being partially offset by the increased gross margin were the primary drivers of the differences between periods.

Shifting to the balance sheet, We exited the quarter with approximately $125 million of cash on hand and net liquidity of approximately $110 million.

We feel this is an appropriate level of liquidity to maintain as it offers tremendous flexibility to be opportunistic from a supply growth standpoint and is more than enough to cover our working capital needs for the foreseeable future. With that I'll turn the call over to the moderator for Q&A..

Thank you. [Operator Instructions] And our first question coming from the line of Jed Kelly from Oppenheimer. Your line is open..

Hey, guys. Great for taking my questions. Just can we go back to the supply ramp obviously you added a lot of properties this quarter.

Could you kind of give us an outlook for the back half of the year, how many residents you're planning to offer? And then I guess my second question would be, as you kind of expand your property count or diversify, would you expect your quarterly revenue to sort of follow like a more -- like the OTA or something that's kind of got their lease amount of revenue in the first quarter, you know, their second most -- their second lease is in the second quarter actually ramped sequentially.

So can you talk about that as well? Thank you..

Sure. Good morning, Jed. This is Web. Great questions on supply.

Look, as we've discussed in previous sessions, we've been really focused on taking advantage of the demand opportunity and filling it not only with more supply, but diverse supply across our acquisition channels and also targeted and strategic supply in certain locations that have been sought after for a long period of time.

Last quarter, we talked about our residences in the Hamptons, which is a perfect example of that.

We've grown a lot as you know the second quarter, I think the net adds were 49, total controlled accommodations that number over time, while we haven't put out projections, it will bounce around a little bit some of the larger deals like the Hamptons as an example, those 37 residences in one shot, those will cause that number to fluctuate.

I think that takeaway I would have in terms of what we might do in the back half of the year is we continue to take advantage of market opportunities as everyone has seen the interest rate environment and, sort of, asset values actually create a huge opportunity for us.

We've had a number of owners and investors that were on the back burner that have come back to us in light of their alternative options no longer being as attractive.

But the headwind I'd like to leave you with is we'll continue to be strategic and surgical in terms of adding more supply in a way that aligns with the demand from our customer base, both geographically and in terms of product type.

Your other question about will the continued additions of supply impact what we see in terms of seasonal travel demand and kind of in sort of the quarterly travel revenues. Wouldn't force me in the near future at least that we get to more of the OTA model you highlighted the first quarter being a down quarter.

The reality for us and the complexion of our portfolio is, the concentration of iconic world class ski locations and great sort of beach and more sunny weather locations, that just naturally suits itself combined with school calendars to a really big first quarter.

First quarter and the third quarter for us have been our largest travel quarters, I think historically going back to the inception of the company, that's largely a function of those two dynamics I described, the geography and the impact of school calendars..

Got it. And then as a follow-up, can you provide what -- how we should be thinking of back half gross margins that's implied in your EBITDA guidance? Thanks..

Sure. We noted and as Brent and I both did in our outset here in the script that our second quarter margins number one are naturally seasonally down given the other side of the travel demand dynamic I just described in terms of second quarter demand. The other part of it is, the dramatic growth that impacts margins.

I would forecast that in the coming couple of quarters, our margins will accelerate and be enhanced fairly meaningfully.

I wouldn't forecast where we're in the second quarter going forward, based on number one seasonality and number two, adding -- continuing to add properties, but adding to a larger and larger base has less of a dilutive impact as we go forward..

And when you say accelerate and expand that's off the 2Q base, is that a sequential basis?.

That's correct..

All right. Thank you..

Thank you. And our next question coming from the line of Tom Champion with Piper Sander. Your line is open..

Great. Good morning, guys. Some of your peers in travel talk to disruptions from flight cancellations in June and maybe seeing a slower start to July relative to the end of the month. But just curious if you could talk a little bit about kind of recent trends and what you're seeing and the ADRs were very strong in the second quarter.

Just curious as you talk about the economy and the consumer, curious if you're seeing any pushback on ADRs at this point? Thank you..

Thanks, Tom. This is Brent. Great question, it’s interesting in the post-pandemic how quickly things are shifting and I think we're all trying to get ourselves situated here for what the new normal is. But I would think back to Q1 of this year where we could not add properties fast enough, availability was extremely tight.

And it seems like that was really the case across the landscape. And by the time we got Q2 and into looking into Q3, I would say we're starting to understand at least we believe we're understanding what the new normal is, and it's not the revenge travel will go anywhere at any cost and it just has to be a resident and we need to do there.

I think there was a little bit of capitulation of our clientele, which is this affluent family travel in the summer, particularly in July and early August and specifically as it relates to Europe.

Europe was extremely in high demand, people really wanted to get to Europe, because they weren't able to get there, let's call it, predictively over the last couple of years.

And we saw for the first time some of our destinations that would always still up far in advance and have sort of perfect consistency like a queue with South Carolina available on shorter notice. And there's some good and bad to that.

Naturally, it's better for us as a club to have some availability and let's make sure we're using our terms correctly, availability is a forward-looking metric and occupancy is a backward looking metric. And for in Toronto, we have to have good availability, but also high occupancy so that we can provide profitability.

So some of what we're seeing happen this summer and into the fall is actually helpful for a subscription business to be able to have some of that outlet valves.

But what I think is happening is we're getting back into a new normal and I think the new normal is going to be better than 2019 in terms of overall demand, but definitely not the phonetic pace that we saw in ‘21, which was unsustainable really for everybody.

You specifically brought up Airlines part of the Airline issue is cancelled flights, part of the Airline issue is for service and part of the Airline issue is lack of availability. So the Airlines, the fees -- sorry, and the fees, the revenue management and the kind of price gouging fees that we could see, so that's been a challenge for sure.

But I think they're going to hit a new normal as well for leisure travel. And I think everything is going to kind of settle out here into Q3, better than 2019, but not at the pace of 2021..

Got it. Thank you..

Thank you. One moment for next question. And our next question coming from the line of Shweta Khajuria with Evercore ISI. Your line is open..

Okay. Thank you very much. Could you please comment on your -- the impact of supply growth on gross margins going forward? So you talked about some seasonal factors that pressured gross margins in addition to supply growth.

But as you continue to have strong supply growth, would that -- how should we think about how it would impact gross margin going forward? And then the offset of gross margin expansion despite supply growth? Thank you..

Sure. Thanks, Shweta. This is Web, I'll take that. It's a great question. On the gross margin, let me back up and say there's really three factors that are among the primary drivers. One is seasonality that we hit on. The second is with respect to onboarding new properties and really got the significant volume of that relative to the stabilized base.

I'll hit on that in a moment, which is the thrust of your question. The other one I want to get into some GAAP accounting and some of the legacy nuances, just as a reminder for everyone, we've talked about this in some previous forums.

Remember that our product suite continues to be dynamic and changing over time, you saw that with Inspirato Select and other iterations we've to pass since the outset. The reason I highlight that is the legacy products before 2019, what we call legacy club in our disclosures. Those came with a significant initiation fee.

The impact of that initiation fee is still actually recognized on the income statement as those revenues are recognized over amortized over an estimated five year life.

As that firms off because we have not offered and sold those products for three years now, that actually creates a suppression of revenue growth and of gross margin, because of the continued recognition of those -- that income being amortized and the reduction in the amortization.

So over the next couple of years, that was always zero, but it's still is something we carry and it appears on the income statement in a way that appears to offset or otherwise suppressed not only revenue growth or gross margin. So I wanted to mention that as a third factor, but that is material and moves the number when we look at our gross margin.

To the heart of your question on supply growth and its impact on gross margins. Look, it's no doubt and we're very conscious that onboarding new properties, staffing them, furnishing them and getting them into our system and building a booking calendar that does create a short-term drag on gross margin.

That persists only for a relatively short period of time as compared to many other fixed asset businesses. But nonetheless, looking at quarterly periods like we've recently had and we've added dozens and dozens of new properties on a call it a 400 unit to 500 unit resident space that has a material impact.

I would anticipate broadly speaking over time that will attenuate and moderate. I wouldn't anticipate that we'll add 100s of new properties in quarter and even if we did the phase, the stabilized phase over which sort of being added will be larger and larger and therefore that impact will be less dilutive over time..

Okay. Thanks, Web.

And then if I may -- what are some of the tailwinds for gross margin expansion?.

I apologize, Shweta. Could you repeat that, you broke up for a moment there..

Sure. Could you please talk about tailwinds for gross margin expansion. So what would drive gross margin expansion for -- not on every quarter, but for full-year from ‘22 to ’23, ‘22 on a go forward basis? Like what would be some of the tailwind for gross margin expansion? Thank you..

Sure. There are a couple of macro factors at play in terms of portfolio design and the overall property strategy. And then also some real fundamental just ticks and bricks, a lot of which are out in the field. On the macro, our margins vary significantly by region and by geographic location, which we operate.

I think some of that makes sense upon reflection and would be obviously even without knowing the details of numbers, markets with very high land costs, high labor costs and high construction costs combined with short seasons tend to be lower margin markets, right? Those would be markets like Aspen, like Nantucket, some of the really tropic and iconic locations.

Other markets have very high markets. Those are markets with low land costs, low construction costs, and relatively lower labor costs and that have more full calendars, more 12-month calendars on which to monetize that cost base. Those are a lot of our Sunbelt markets, Beach markets in Mexico and in the Southeast.

I go to that detail to say over time, we are consciously and programmatically changing that mix and just changing that mix particularly in a rapidly growing portfolio is a great opportunity to add to accretive margin expansion over time. So that's sort of a big picture macro portfolio and operating strategy perspective.

Then on the other side of the coin, at the micro level, adding scale, which we're consciously doing in destinations can result in much more profitable individual locations and individual markets.

There are staffing efficiencies, procurement efficiencies, and just overall operational efficiencies that today haven't been at the heart of our focus, but really focused on customer experience and satisfaction and growth and that's where we're dedicating our time and energies..

This is Brent. One other kind of macro factor is I think it's well documented that vacation homes particularly Tier 1 destinations and vacation homes over the past 10 quarters or so have been appreciating in value at unsustainable rates.

So if you look at a market like you take Jackson Hole or you could take Kiawah, South Carolina and you're talking about asset appreciation that obviously was not able to continue for many quarters to come.

And what happened during that time period is it was combined with kind of an insatiable demand from the consumer to be able to vacation in those types of properties.

And what you saw was the property managers, the local property managers and the actual buyers of these homes themselves either convincing themselves or being told up unrealistic expectations.

And what that really caused was an increase in net supply, meaning the total number of homes that were now available where somebody bought it for the purpose of being able to monetize it at least partially, because they were buying it. It was a good deal, it was going to appreciate.

Now they have the home with Kiawah, South Carolina, their property manager told them that they would be able to earn X and it turns out they're only able to earn 40% of X or 50% of X. And that's why Inspirato now is fueling a lot more inbound activity.

We're being able to be a lot more selective in what we're adding to the platform and that will over time increase our gross margin, because one, we'll choose places that are just more profitable generally. And two, we'll be getting better deals. We'll just pay less than we would have had to have paid earlier.

And then one last point on the seasonality of certain destinations around the world, I've been doing this now for 20-years and the line that I always use is that God made the Northeast fold most of the time.

And the reality of it is that we wanted to have ample inventory in the Northeast, so we added a lot of new locations in the Northeast and a lot of places where we will not be adding significant scale, but we wanted to have basically the dot on the map that says we are in the finger lakes of New York.

But that's not some place we're going to add 30 new residences too like in South Florida. So this was kind of an investment period of being able to round out our portfolio, but you'll start to see the real scale happen in the profitable more you know, long-term season destinations..

Okay. That's super. Thanks, Web. Thanks, Brent..

[Operator Instructions] Our next question coming from the line of Mike Grondahl with Northland Capital Markets. Your line is open..

Hey, thanks guys.

Hey Brent, could you talk a little bit about your thoughts on select and sort of how you're going to market that and get the word out, will it be kind of incremental to pass and club or will you do something sort of different, if you will?.

Yes, great question, Mike. As we had talked about, we launched Select in the quarter and Select is really a platform that allows us to do all types of interesting things and really expand our overall market. So first, just talking about Select in general, Select is really the easiest way for people to be able to share Inspirato trips.

It uses the same backbone that we built for Pass. And Select currently offers, give or take, 500,000 options in over 100 destinations and all trips are priced the same. So existing subscriber, for example, if they wanted to buy four Select trips, it would cost $20,000 or $5,000 a trip.

And they're able to gift those trips, share those trips use those trips, however they want either for themselves or for others. And it's really been quite successful in terms of a third subscription auction.

You have Club, which is really meant for you pay as you go, you get exact what you want, it obviously works well for people with families or people who want to travel to specific places and specific times. And then Pass is obviously the best value, but you have to have some flexibility either in your schedule or where you're going to go.

And if you're willing to travel and then if you have great flexibility, there's nothing like Pass in terms of being able to provide a fun and valuable way to experience the world through travel. Select kind of fits in the middle and it's great for sharing and it's really simple to comprehend and simple to market.

Now the reality is that Select isn't really built just to be a retail product, it’s what powers Inspirato for business, it’s an incredible reward platform, whereby a large organization that wants to reward their employees, either their sales employees or for tenure or just as recruitment can say, I'm going to give my 200 best salespeople a trip.

And the company can select that trip and they can say I want a $3,000 trip or I want a $5,000 trip or I want a $7,000 trip. And that difference is just a list that provide more valuable inventory.

The other part of Select and the infrastructure that we built and we're very excited about is a business called Inspirato for Good, which we have soft launched and we expect to fully launch this quarter and Inspirato for Good provides non-profits an incredible opportunity for them to amplify their fundraising efforts.

And this is done through either a live auction or a silent auction or some kind of an online giving campaign, whereby the non-profit is able to completely rent free on a consignment basis, be able to offer to their donors an Inspirato essentially Select trip, but we call it Inspirato for Good trip, combined with an Inspirato membership.

And that product is available to the non-profit for $4,000 on a pass-through basis and sold at a fixed $8,000 to the user. And that market is shockingly big and really surprisingly beneficial for what we have to offer.

And so we plan on really making some headway in that market as an incremental growth avenue besides just consumer, retail, selling of subscriptions, which of course is what we do today.

You add to that Inspirato for Business, you add to that Inspirato for Good and we're talking about a considerably larger TAM, but using the same infrastructure that we've already built..

That's great. Sounds like you got a lot going on with the subscription stuff in the back half of the year. So good luck there..

Thank you..

And our next question coming from the Brett From Cantor. Your line is open..

Hi, guys. Thanks for taking my question. Just following up the Inspirato for Business [Technical Difficulty] go to market click there, you got the highest in quarter clearning reps [Technical Difficulty] go out and win new business, we're going to rely on word-of-mouth to try to [Technical Difficulty] there..

I think the question essentially is our kind of staffing plans for Inspirato for Business. I just want to make sure I got that right, you kind of, breaking up a little bit..

Yes.

Essentially, like, you're gonna have to dial in sales force to kind of, you know, try customer new business in that or is that a new product?.

Great. Thank you. The great part about our subscriber base is both for Inspirato for business and Inspirato for Good. Our base consists of these boats, so for the most part right now with Inspirato for Business as we're learning our way.

It's staffed with a very small number of salespeople exclusively working with inbound leads from our existing subscribers, who were saying, hey I might have 100 people that want a trip or I might have some -- I'm a dealer and I might want to work with my manufacturer on some opportunities for trips or recruiting firms, who are saying this is a way in which we're going to get more people into our platform.

So we do not have currently any kind of reasonable or substantial marketing costs associated with Inspirato for Business, it’s really just kind of inbound inquiries that we're getting on a pretty consistent basis.

And it's really the same with Inspirato for Good, there's a little bit more staffing there, because the leads are a lot more in terms of gross volume, but it's not something that has the same level of expense as just the retail business that we have today, where we're obviously spending a lot of money with online and we're spending money on brand, those types of things we don't have to worry about with these new business lines nearly to the same extent.

It’s really leveraging the existing platform and the brand that we've already built..

Do you hear me? Did you break up?.

Sorry, Brett.

Can you say that again?.

Just thank you for that. And then maybe just one last question on the next -- a month paid and stated usage backlog that declined 3% year-over-year.

How should we think about that as a leading indicator?.

Yes, Brett. Hey, this is Web. On that one, the paid usage backlog, I think you're referring to is actually just in residences. Our overall paid usage backlog is up and actually it is all time high. Look, that demonstrates part of what we've seen and Brent referred to this earlier with his example in terms of Europe.

We've also seen our real pent up desire for cruises and experiences. So remember when we quote the overall 12-month backlog we're really focused on the total number of in dollar terms of travel on the books for the four to 12-months.

I think, and I correct if I’m wrong, but the number you might have picked up that's down the tick is actually restricted just to residences, which we did provide that in the investor deck. So we have seen a bit of a shift in mix there in a way that is very positive and just an expression of people using all the elements that Inspirato has to offer.

Look, people think of us as a beautiful eight bedroom, each front home, on the front page of the catalog, but we do have a lot of other modes of travel and we've seen a bit of a shift and mix that people are I think a little more liberated in the emerging iteration of the COVID environment that we're in..

Perfect. Appreciate it. Thank you guys..

And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Brent Handler for any closing remarks..

Great. Thank you. Very much appreciate everybody taking time to listen. Obviously, Q2 was a great quarter for us. And as we continue to monitor the landscape and kind of get to this new normal that I was talking about, we really look forward to executing in Q3 and beyond and look forward to our next call..

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect..