Inspirato - Earnings Call - Q4 2024

Executive Summary

• Q4 delivered profitability and positive cash flow: Adjusted EBITDA of $1.94M, gross margin of 35%, and operating cash flow of $6.94M; net loss narrowed to $2.28M from $15.86M YoY.
• Revenue declined 11% YoY to $63.11M on planned reductions in Pass subscriptions; travel revenue mix and ADRs improved, supporting gross margin expansion.
• 2025 guidance targets full-year profitability: Adjusted EBITDA $0–$5M, revenue $235–$255M, cash OpEx $80–$90M, and ~300bps gross margin improvement, aligned with Q4 annualized revenue run-rate.
• Management emphasized brand elevation, technology/digital marketing rebuild, and salesforce expansion as drivers of sustained profitable growth; Q1 and Q3 expected to be the strongest seasonal quarters.
• Wall Street consensus estimates (S&P Global) for Q4 2024 were unavailable; beat/miss vs estimates cannot be assessed.

What Went Well and What Went Wrong

What Went Well

• Achieved Q4 profitability and positive free cash flow as margin optimization took hold: “we delivered profitability and positive free cash flow in Q4” and plan for full-year profitability in 2025.
• Gross margin expanded sharply YoY to 35% in Q4 (from 18%), driven by portfolio optimization and lower lease/fixed costs; adjusted gross margin dollars and percentage increased per CFO.
• Strong operational cash generation: Q4 net cash from operating activities was $6.94M, with free cash flow of $5.77M; year-end cash, cash equivalents and restricted cash at $35.01M.
• Strategic focus: rebrand, technology rebuild, digital marketing platform, and doubling the salesforce to reaccelerate member growth with a healthier Club/Pass mix.

What Went Wrong

• Top-line pressure: total revenue fell 11% YoY to $63.11M on subscription declines tied to deliberate Pass reductions; subscription revenue down 22% YoY in Q4.
• Active subscriptions continue to trend lower: Q4 ended with ~1,500 Pass and ~10,600 Club (down from Q2’s ~1,900 Pass and ~10,800 Club); management expects modest further declines in 2025 before health improves.
• Seasonality and mix effects: Q4 revenue lower sequentially vs Q3; while ADRs were healthy, total occupancy was 67% in Q4 (flat YoY), reflecting fewer total nights delivered.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Inspirato Fourth Quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press Star 11 on your telephone. You will then hear an automated message advising your hand is raised. To ask your question, please press Star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Kyle Sourk, Investor Relations. Please go ahead.

Kyle Sourk (Head of Investor Relations)

Good morning. On today's call, we have Chairman and CEO Payam Zamani; CFO Michael Arthur; and other members of management, including Chief Accounting Officer Jessica Chang; and Chief Experience Officer Ashley Collins. Yesterday afternoon, we issued our press release announcing our fourth quarter and full year 2024 results, as well as our 2025 guidance. As a reminder, some of today's comments are forward-looking statements. These statements are based on assumptions, and actual results could differ materially. In addition, during the call, we 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'd like to turn the call over to our Chairman and CEO, Payam Zamani.

Payam Zamani (Chairman and CEO)

Thank you, Kyle. Good morning, everyone. I'm really excited for today's call for a number of reasons. First, we get to share with you our results for Q4 and how our efforts over the past six months have been strengthening our foundation, evidenced by what may be the strongest Q4 results in Inspirato's history as a public company. Second, our refined long-term vision for the company, including key goals for 2025 that will set us up for lasting success. In a moment, you will hear about how we delivered profitability and positive free cash flow in Q4, along with our plans to achieve full-year profitability in 2025. These are important milestones that indicate our efforts at producing the desired results. We're just getting started. We are at the beginning of a multi-year journey.

While we have made great progress, the real opportunity lies ahead, driving sustainable, profitable growth and elevating Inspirato into an even more sought-after brand. The great news is that we are in a good position to make this happen. We're operating in a large market with incredible potential backed by a strong, well-recognized brand, a portfolio of world-class homes, and a loyal and engaged member base. We serve over 11,000 members, but the opportunity is far greater. By our estimate, there are millions of households around the globe that fit our potential member profile, including a substantial and untapped domestic market. Our mission is clear: find them, engage them, and show them the undeniable value of Inspirato. It is not just about short-term growth; it is about attracting and retaining the right members who will drive long-term success. To make this happen, we're making bold investments.

We're elevating our brand to be synonymous with true luxury. We're enhancing our platform to create a seamless, intelligent, and highly personalized experience. We've strengthened our leadership team with recent hires of an SVP Marketing and Chief Technology Officer. We have launched a sophisticated rebrand, modernizing our look and feel, and we are revamping our website and user interface to be more intuitive and predictive based on our members' travel habits. At the same time, we are focused on improving our operating efficiencies. We now have the right people in the right seats, and we're investing our time and dollars into initiatives that will have the biggest impact. As Michael will discuss shortly, this focus is expected to drive further improvements in gross margin, cost structure, and profitability.

Of course, while many of our homes are iconic and much of our service is world-class, we know there's always room to improve. There's an opportunity we embrace. In 2025, we're investing in refreshing our home decor in more than half of our portfolio and standardizing concierge training to ensure every member enjoys the same high-quality experience every time they travel with us. That brings me to one of our greatest strengths and why I'm so optimistic about our future, and that's our members. At the end of the day, everything we do is about exceeding their expectations. When we consistently deliver, we are not only reinforcing their decision to stay with Inspirato but also deepen their connection to the incredible community we're building. That is what excites me the most about the future of this business.

On that note, I want to highlight some of the 2024 financial results, which are the first signs that our strategy is working and will continue to play out over the next 12 to 24 months. We finished the year with total revenue of $280 million and adjusted EBITDA loss of $6.5 million, both within our original guidance ranges. While revenue was down nearly $50 million year-over-year, EBITDA improved by $20 million. We ended 2024 with a profitable fourth quarter. Even more exciting, we generated $6.9 million in net cash from operating activities in Q4, a first for Inspirato as a public company. Michael will dive deeper into these numbers in a moment. Looking ahead to 2025, our focus remains on achieving full-year profitability in a way that strengthens our ability to serve our members.

We expect to be profitable in 2025 and deliver between $235 million and $255 million in revenue, which is consistent with our fourth-quarter annualized revenue. Beyond the numbers, here's how I see the future. The luxury travel and experiences market is vast, and it is growing, and it's ripe for true leadership. No company has firmly established itself as the brand that defines this category. There's no reason why that shouldn't be Inspirato. We have the foundation, the vision, and the expertise to lead the way, setting the standard for what luxury hospitality should be and the ability to reach a target audience as effectively as possible. That's what brought me to Inspirato, and that's what drives me every day as we build something truly extraordinary. In my initial six months at Inspirato, we did the necessary work to course-correct.

Now, the multi-year effort to build a leading luxury travel and experiences company begins. To achieve our goals, we have a three-pronged approach. A, we will tirelessly focus on operational efficiencies. This will be a never-ending endeavor. B, we will double our focus on the luxury aspect of our services and experiences. C, we will turn Inspirato into a luxury travel and experiences company built on scalable technology and a highly effective and world-class digital marketing platform, vastly reshaping our reach. This is what I know well. This is what I've done for decades as one of the pioneers in performance-based marketing on the internet. We're excited about the road ahead and believe we have the right talent and the right strategy to deliver what we have set out to achieve. I will be sharing more with you as we make progress in 2025.

Before I turn it over to Michael, I want to thank our team for their incredible dedication and hard work, and our members for their continued trust and support. I'm thrilled about what is ahead, and I look forward to connecting again soon to share our first-quarter results. Thank you.

Michael Arthur (CFO)

Thanks, Payam. I'd like to echo your comments, and I'm also really pleased with the progress we've made in the last quarter. I'm especially pleased to see the team's efforts reflected in our financial performance, which I'd like to highlight. We delivered approximately $2 million in positive EBITDA in Q4, a $7 million year-over-year improvement in our best fourth-quarter performance since going public. This marks our fourth consecutive quarter of year-over-year EBITDA improvement, reinforcing the impact of our strategic decisions. For the full year, our adjusted EBITDA loss of $6.5 million represents a $23 million, or 78% year-over-year improvement in EBITDA. In addition, we generated a positive free cash flow of approximately $6 million in the fourth quarter, a $13 million improvement compared to last year. As a reminder, this includes $3 million of one-time non-recurring payments related to lease terminations of underperforming leases.

Excluding these payments, free cash flow on an adjusted normalized basis would be roughly $9 million for the quarter. We reduced our cash burn by 66% for the full year, and our cash position increased by $11 million quarter over quarter, ending the year with $35 million. Lastly, we ended 2024 beating or within the previously provided guidance ranges of revenue, EBITDA, and cash operating expenses. Now, let me provide additional context on the fourth quarter and full-year results before sharing our outlook for 2025. First, our EBITDA improvement on both a quarterly and annual basis was driven by improved gross margin and a rebalanced, more efficient cost structure. For the fourth quarter, we grew adjusted gross margin dollars, which excludes asset impairment and lease termination, by 14% to $22 million, or 35% of revenue, compared to $19 million, or 27% of revenue in Q4 of 2023.

For the full year, we also expanded gross margin to 32% of revenue, or $89 million, compared to 29% of revenue in 2023. The significant improvement in gross margin expansion in the fourth quarter and the full year was driven by a lower cost of revenue as we continue to benefit from our portfolio optimization efforts. Fourth quarter cost of revenue was approximately $41 million, which is a 20% improvement compared to Q4 of 2023 of $51 million, driven primarily by lower lease and fixed costs within cost of revenue. In Q4, we achieved a 23% reduction in operating expenses, reflecting a more efficient cost structure aligned with revenue growth. For the full year, cash operating expenses came in at $104 million, well below our initial guidance, and a substantial improvement from 2023 levels of $130 million, a 20% reduction.

We have made significant progress in aligning expenses with our current revenue levels, including payroll reductions and a rationalization of non-payroll spend. We expect to see further improvements in the coming quarters, helping us move towards a more sustainable run rate in 2025. As Payam mentioned, we have been very focused on margins and profits, and we believe growth should come once sustained profitability is achieved. In Q4, total revenue was $63 million. This represents an 11% decrease year-over-year. For the year, we reported total revenue of $280 million, similar to the Q4 trend's full-year revenue decrease by 15% year-over-year. Each of the quarterly and annual revenue declines were a result of deliberate strategic decisions to reduce our Pass member base. While Pass remains a strategic product with a defined role in our business model, its previous structure was not well aligned with our long-term objectives.

In response, we refined the product to better fit our overall business strategy and prioritized a more balanced mix of Club and Pass members. This included a strategic shift away from emphasizing new Pass sales in 2024. As of the end of Q4, we had approximately 1,500 active Pass subscriptions and 10,600 active Club subscriptions. From a travel perspective, we have seen relatively consistent travel patterns from our members. Total occupancy for the year of 72% was flat compared to 2023. However, with our focus on optimizing our lease portfolio, we have experienced an improved mix in occupancy to paid delivered nights as opposed to Pass. Paid occupancy increased to 65% in 2024 compared to 56% in 2023, driving improved gross margins as previously mentioned. In total, we ended the quarter with approximately $35 million in cash, up $11 million from Q3.

This includes $6 million in positive free cash flow and $5.5 million raised in capital. In 2024, our cash balance decreased by $7 million compared to a $40 million decrease in 2023. Excluding financing activities in both years, our true operating cash burn for the year improved $42 million despite a $50 million decrease in revenue. It's clear that the strategic decisions made over the past year have put us on a stronger footing with a better trajectory towards sustainable and profitable growth. We have driven improved performance in 2024 by focusing on our strategy and by operating with expense disciplines across the business. We have seen constraints breed creativity and drive continuous improvement in how we serve our members. We intend to build upon our execution in 2024 and are excited about the momentum headed into 2025.

Our goal in the year ahead is to make sure we are balancing investments for future profitable growth with increased efficiency across our organization, with our key focus areas on elevating the Inspirato brand and the experience our members have when traveling with us. With this, we expect to take the next step forward in our path to profitability, as evidenced by our full-year adjusted EBITDA range of $0 million-$5 million. From a cash operating expense standpoint, we expect to invest between $80 million-$90 million, an improvement of approximately 15% compared to 2024. Meanwhile, total revenue is expected to be between $235 million-$255 million, consistent with our fourth quarter annualized revenue. Similar to 2024, the revenue decrease is primarily associated with the decreased Pass subscription revenue. We are excited about our progress and we look forward to updating further throughout the year.

We're happy to take any questions.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You'll hear an automated message advising your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we wait for the first question. The first question for today will be coming from the line of Mike Grondahl of Northland Capital. Your line is open.

Mike Grondahl (Head of Equity Sales in Trading and Research Senior Research Analyst)

Hey, thanks, guys. Kind of a two-part question. One, what do you think it's going to take kind of in terms of type of investment, changes to current member programs, and maybe sales and marketing dollars to get to an inflection in kind of member count? How should we think about that?

Payam Zamani (Chairman and CEO)

Mike, thank you. Thank you for the question. This is Payam. You know, I think that this is more of a U-shaped expectation I would set, meaning that as our number of Pass members deliberately have gone down and we have focused more on our Club members, we have, of course, dealt with that headwind. Now, as we are growing our sales force, and to just give you an idea, we have almost doubled the size of our sales force, or they will be actually doubled by the end of March. We are rebuilding our ability to be able to reach the wider audience that is interested in our offering as we attempt to grow the Club. I think that that inflection point that you're talking about is not that far away. It's probably a couple of quarters away, maybe two, three, four quarters away.

It is something that we expect will happen fairly soon. The other thing that we should keep in mind is that going after growing the member base is one thing, but ensuring that we are signing up the right members so the growth in our membership base will result in growth in revenue is something that we are very much focused on. We do not end up in a situation that we have been in the last, you know, year, year and a half as we had with the Pass membership situation.

Mike Grondahl (Head of Equity Sales in Trading and Research Senior Research Analyst)

Got it. Did I hear it right? 1,500 Pass members and 10,600 Club?

Michael Arthur (CFO)

Yeah, this is Michael. Yeah, you have that right. We'll still see a little bit of decline in both in 2025, as we alluded. We're getting to the healthier mix that we expect going forward in terms of Pass to Club.

Mike Grondahl (Head of Equity Sales in Trading and Research Senior Research Analyst)

Got it. Great. The next question is just, you know, Payam, what are one or two areas that are going to be, you know, a key focus for you in 2025?

Payam Zamani (Chairman and CEO)

Sure. Those are the three items that I mentioned towards the end of my remarks. That, you know, as you know, when I arrived here, we cut our expenses, our overhead, by over $40 million. That was necessary in order for us to course-correct. Now, as we think about operational efficiencies, we're focused on building a highly efficient machine, an organization that is as efficient as any organization can be as we prepare for growth. We want to make sure that that foundation is highly efficient. This is the difficult part of, in a sense, ensuring that we have built the right infrastructure. This will take time. We are highly focused on operational efficiencies as an area of core competency. The second thing is our members come to us because we represent a luxury service.

Delivering on that luxury promise is something that we are very focused on. Whether it comes to the decor of our homes or the kinds of homes that we bring to our portfolio and the homes that we choose to remove from our portfolio, all of that will result in, hopefully, a brand that has more of a commitment to the luxury aspect of the service. The third, and frankly, the one that, I mean, I'm excited about all of these, but the third one is one that I think can have a significant long-term impact, is the idea of revamping our technology, making it more scalable, and building the right infrastructure so we, as a company, become digital marketing-enabled. Today, as a company, we don't spend enough on marketing. I mean, frankly, we spend very little on marketing. We spend very little in digital marketing.

I come from a school of thought that, you know, when 20-some-odd years ago, we learned how to spend marketing dollars in a way that you could measure every dollar spent, it opened up a massive opportunity for organizations to be able to take advantage of that and grow. That is something I pioneered back in the 1990s. Still, a company I own does that very well. We are going to bring that core competency to this company so we are able to spend in a highly profitable way marketing dollars, digital marketing dollars, to be able to vastly grow the audience and the reach of Inspirato as we get ready for growth.

Mike Grondahl (Head of Equity Sales in Trading and Research Senior Research Analyst)

Got it. And then any quarterly revenue or EBITDA to maybe call out as we work through 2025? Are we going to see the seasonality we've seen in prior years?

Michael Arthur (CFO)

Mike, this is Michael. Yeah, I would expect, look, the same seasonality as in prior years. Q1 is a really big quarter for us as we have key destinations like ski that's always heavy for us, but also spring break in March is a big time. Q1, a really big quarter, both on revenue and EBITDA. Q3 in the summer period is also a really big quarter for us from a total travel perspective. Where there's revenue that's a little bit more episodic as around experiences, those can fall into different quarters depending on when we put on those experiences. Sometimes there can be timing variances year-over-year. We do expect some of that this year, primarily some experiences more falling into Q2 versus Q1. Aside from that, expect the same level of seasonality versus prior years.

Mike Grondahl (Head of Equity Sales in Trading and Research Senior Research Analyst)

Got it. Okay. Hey, thank you.

Michael Arthur (CFO)

Yeah, thank you.

Operator (participant)

Thank you. One moment for the next question. Our next question will be coming from the line of Rommel Dionisio of Aegis Capital. Your line is open.

Rommel Dionisio (Head of Research)

Thanks for taking my question. Good morning. You know, in the prior presentation, you guys talked about targeting, I think it was back in August, $40 million in annualized cost savings from a cost reduction program, $15 million from leases, $15 million from payroll, $10 million from operations. Could you just maybe update us in terms of the progress you've made there? Are you guys kind of tracking in line with that plan? You know, also some plans going forward, especially with regards to on the leases side? Thanks very much.

Michael Arthur (CFO)

Hey, Rommel. Thank you for the question. Yeah, as we laid out back in August, our goal originally was to identify and execute on $25 million of cost savings. We identified $40 million, and we primarily have already actions on all $40 million. As in our guidance, that all is all reflected. There's not incremental work or cost savings that we have to get after to get to the $40 million. You kind of named it. We had, one, the termination of a large underperforming lease contract we got out of. That was a significant improvement or part of the $40 million. Again, on an annualized basis, that alone contributed about $8 million of EBITDA loss. In addition to that, we're continuing to optimize the portfolio.

We're not in a mode of continuing to reduce, but there's still opportunity to drive efficiencies in that portfolio that would drive, you know, somewhere between $4 million-$5 million of continued lease savings in that bucket. We continue to just be really diligent on driving operational efficiencies, both in personnel costs and in corporate overhead costs, things like software and professional services fees, things like that. Again, reiterate that $40 million has already been identified and actioned on and in our guidance. We actually, as you've heard in our prepared remarks, still think there's quite a bit of opportunity for us to continue to get efficient across the organization.

Rommel Dionisio (Head of Research)

Great. That's very helpful, and congratulations on the progress of the quarter. Thanks.

Michael Arthur (CFO)

Yeah, thank you.

Operator (participant)

Thank you. That does conclude today's Q&A session. I would like to go ahead and turn the call back over to CEO Payam Zamani. Go ahead, please.

Payam Zamani (Chairman and CEO)

Thank you so much. Appreciate it. Thank you to all those who joined this call today. I really appreciate your time. As you know, you've heard from us. We're really excited about the progress that has been made, and we have a long road ahead of us. We are really excited to meet with you again in just about a month and a half or two months and share with you our results for Q1. Take care. Thank you.

Operator (participant)

This does conclude today's program. Thank you for joining today's conference call. You may all disconnect.