Inspirato Incorporated (NASDAQ:ISPO) - Profitability Milestone Reached, But More Work Ahead

Published on September 24, 2024 | Ticker: ISPO

Inspirato Incorporated (NASDAQ:ISPO), the subscription-based luxury travel company, has reported its first quarter 2024 results, marking a significant milestone as the company achieved profitability on both an EBITDA and net income basis for the first time in over 3 years. This quarter's performance reflects the company's heightened focus on execution and driving operating efficiencies, positioning Inspirato for a stronger financial outlook.

In the first quarter of 2024, Inspirato generated total revenue of $80.2 million, a 12% decrease from the $91.7 million reported in the same period of the prior year. This decline was primarily driven by a 23% decrease in subscription revenue to $28.1 million, as well as a 10% decrease in travel revenue to $49.7 million. The subscription revenue decline was due to a 17% decrease in the number of active subscriptions during the quarter, as the company made changes to its Inspirato Pass offering to better align it with the needs of more flexible and spontaneous travelers.

Despite the revenue decline, Inspirato was able to significantly improve its profitability. The company reported net income of $2.2 million in the first quarter of 2024, compared to a net loss of $5.9 million in the same period of 2023. This turnaround was driven by a 19% decrease in cost of revenue to $48.5 million, as the company continued to optimize its leased property portfolio and realize savings from its cost-cutting initiatives. Gross margin expanded to 40% in the first quarter of 2024, up from 35% in the prior year period.

On an adjusted EBITDA basis, Inspirato generated $4.1 million in the first quarter of 2024, compared to an adjusted EBITDA loss of $3.1 million in the same period of 2023. This significant improvement was a result of the company's focus on driving operational efficiencies and aligning its product offerings with the needs of its members.

Inspirato's CEO, Eric Grosse, commented, "The Q1 results are a testament to the hard work throughout the organization, and represent the third consecutive quarter of delivering results in line with the plan. As mentioned in remarks last quarter, just as the members trust Inspirato to deliver memorable experiences for their families and loved ones, the company is also committed to building trust and credibility with shareholders and the broader investment community."

Looking ahead, Inspirato is reaffirming its full-year 2024 guidance, which calls for total revenue between $275 million and $305 million, adjusted EBITDA between a gain of $5 million and a loss of $15 million, and cash operating expenses between $115 million and $125 million.

Business Overview

Inspirato is a subscription-based luxury travel company that provides exclusive access to a managed and controlled portfolio of curated vacation options, delivered through an innovative model designed to ensure the service, certainty and value that discerning customers demand. The company's portfolio includes branded luxury vacation homes, accommodations at five-star hotel and resort partners, and custom travel experiences.

As of March 31, 2024, Inspirato's portfolio included approximately 430 private luxury vacation homes available to its customers and accommodations at over 240 luxury hotel and resort partners in more than 180 destinations around the world. The company's portfolio also includes Inspirato Only experiences, featuring one-of-a-kind luxury safaris, cruises and other experiences with Inspirato-only member lists, as well as Bespoke trips, which offer custom-designed "bucket list" itineraries.

Inspirato's Loyalty Program and Strategic Partnership

In August 2023, Inspirato launched its Inspirato Rewards ("Rewards") loyalty program, designed to incentivize repeat business by rewarding members with exclusive discounts and benefits based on their activity with the company. Since its launch, approximately 50% of Inspirato's members have already achieved some level of Rewards status, with over 25% reaching the highest tier.

Also in August 2023, Inspirato entered into a strategic partnership with Capital One Services, LLC ("Capital One"), which included a $25.0 million investment in the company through the private placement of an 8% Senior Secured Convertible Note due 2028. This partnership is expected to provide Inspirato with a long-term partner capable of delivering increased demand for its travel services, as well as highly-qualified lead generation opportunities for its subscription offerings.

Financial Performance

For the full year 2023, Inspirato reported annual revenue of $329.1 million, a decrease of 12% compared to the prior year. Net income for the year was a loss of $51.8 million, while operating cash flow was a negative $51.4 million and free cash flow was a negative $63.5 million.

In the first quarter of 2024, Inspirato's total revenue decreased 12% year-over-year to $80.2 million, driven by declines in both subscription and travel revenue. Subscription revenue fell 23% to $28.1 million, while travel revenue decreased 10% to $49.7 million. The subscription revenue decline was primarily due to a 17% decrease in the number of active subscriptions, as the company made changes to its Inspirato Pass offering.

Despite the revenue decline, Inspirato was able to significantly improve its profitability in the first quarter. The company reported net income of $2.2 million, compared to a net loss of $5.9 million in the same period of the prior year. This turnaround was driven by a 19% decrease in cost of revenue, as the company continued to optimize its leased property portfolio and realize savings from its cost-cutting initiatives. Gross margin expanded to 40% in the first quarter of 2024, up from 35% in the prior year period.

Liquidity and Capital Resources

As of March 31, 2024, Inspirato had $22.6 million in cash and cash equivalents, as well as $10.7 million in restricted cash. The company's cash balance decreased from $42.3 million at the end of 2023, primarily due to cash used in operating activities of $7.2 million during the first quarter.

Inspirato's principal sources of liquidity have historically consisted of cash flow from financing activities, as well as operating activities, primarily from revenue related to travel and subscriptions. The company's cash needs vary from period to period based on the timing of travel and sales promotions.

Looking ahead, Inspirato is focused on improving its liquidity position, with initiatives underway to further reduce cash burn and explore potential financing options. The company's guidance for 2024 includes cash operating expenses between $115 million and $125 million, which the management team believes will help position the company for stronger financial performance.

Risks and Challenges

Inspirato faces several risks and challenges that could impact its future performance. These include:

1. Subscription churn: The company has experienced several quarters of declining subscription numbers, which could continue to impact revenue and profitability if not addressed.

2. Macroeconomic conditions: Uncertain economic conditions, including potential recession, could affect consumer demand for luxury travel and Inspirato's subscription offerings.

3. Competition: Inspirato operates in a competitive luxury travel market, and its ability to maintain its market position and attract new members is critical to its success.

4. Reliance on leased properties: The company's business model is heavily dependent on its ability to secure and manage a portfolio of leased vacation properties, which exposes it to risks related to lease terms and property availability.

5. Regulatory changes: Inspirato's business could be impacted by changes in regulations related to the vacation rental industry or the travel and hospitality sector more broadly.

Outlook and Conclusion

Inspirato's first quarter 2024 results represent a significant milestone for the company, as it achieved profitability on both an EBITDA and net income basis for the first time in over 3 years. This performance reflects the company's heightened focus on execution and driving operational efficiencies, which have positioned Inspirato for a stronger financial outlook.

Looking ahead, the company is reaffirming its full-year 2024 guidance, which calls for total revenue between $275 million and $305 million, adjusted EBITDA between a gain of $5 million and a loss of $15 million, and cash operating expenses between $115 million and $125 million. Inspirato's strategic partnership with Capital One is also expected to provide the company with a long-term partner capable of delivering increased demand for its travel services and lead generation opportunities.

While Inspirato has made meaningful progress in improving its financial performance, the company still faces several risks and challenges, including subscription churn, macroeconomic conditions, competition, and its reliance on leased properties. Addressing these issues will be critical to the company's long-term success and its ability to drive sustainable, profitable growth.

Overall, Inspirato's first quarter 2024 results demonstrate the company's commitment to execution and its potential to deliver value to both its members and shareholders. As the company continues to refine its product offerings, optimize its cost structure, and leverage strategic partnerships, Inspirato appears well-positioned to capitalize on the growing demand for luxury travel experiences.