Investors seeking high-growth opportunities in today’s relatively overvalued market are often looking to pandemic reopening plays. Sectors such as hospitality, tourism and travel have all seen dramatic declines this past year. However, as the data indicates, we’re likely moving toward a brighter future. Companies promoting a digital revolution in these respective sectors continue to drive significant investor attention.
In this context, Inspirato appears to be an intriguing investment opportunity. The company has announced it will be going public via a reverse special-purpose acquisition company (SPAC) merger with Thayer Ventures (NASDAQ:TVAC).
This deal is expected to bring in net cash proceeds of $260 million, as well as a committed PIPE of $100 million. Indeed, this is a big deal for a big player in the luxury travel segment. Accordingly, investors have reason to get excited about this upcoming SPAC merger.
On behalf of InvestorPlace, I recently had a chance to sit down with Inspirato CEO Brent Handler to discuss the company’s plans for the future. Mr. Handler discussed his company’s vision for the future of luxury travel, and outlined the company’s unique offerings.
The InvestorPlace Q&A: Meet Brent Handler and Inspirato
Chris MacDonald, Contributor, InvestorPlace: In a few sentences, could you run us through the pitch on what Inspirato is all about and maybe provide some detail on the company’s general business model?
Brent Handler, Founder & CEO, Inspirato: Sure, Inspirato as you mentioned is a luxury subscription travel company. We have two subscriptions, one is called Club and one is called Pass, which is $2,500 per month. That gets you access to our portfolio of homes which is really the the main kind of differentiator for Inspirato. We long-term lease about 385 homes, and then we manage and control those homes, the way a Four Seasons manages and controls a hotel.
So we have a concierge at the homes. We provide all of the service, we provide the furniture, we put in all of the dishes. In addition to that we have hotel services, we have local events, we provide our subscribers with the ability to go to Safari, or any other thing that they would want travel-related. So for $600 a month you get all of that. And then you pay whatever the nightly rates are. So, if you wanted to go to Aspen during New Year’s week, it might be $5,000 a night. But if you wanted to go to Aspen in September, it might be $500 a night — it’s all revenue managed.
Pass, which is our very fast rolling true subscription — business people have referred to it as the “Netflix of travel” — that’s $2,500 a month. With Pass, you pay no nightly rates taxes or fees. You choose from a list of about 150,000 trips currently. And the day you check out of your trip, you can book your next trip.
Additionally, there’s tremendous value there for both the Inspirato subscriber, as well as the hotels, because of the opacity of that inventory. What I mean by that is hotels are willing to sell to us their inventory at rates they would never sell to anybody else, because we never show a price, no one ever sees the price, and then we’re able to pass that savings along to our subscribers.
InvestorPlace: Could you maybe provide a bit more color on the unit economics of the business. Specifically, what are your margins and customer acquisition cost right now and where would you like to get those in the future?
Inspirato: We don’t give out that information, exactly the way that you’re asking the question. On our Investor Relations page, which is on the footer of our website, we do share some economic information there.
But overall, what I can share and what we have been comfortable talking about in the past, is that there are two components of the subscription part of our business. One would be that $600 per month. Right, that’s one area of subscription. The other area is the $2,500 a month for passholders. Those businesses tend to run at very high margins. So, the Pass business in and of itself is kind of a 40-ish percent margin business, and the Club business, just on the fees that people are paying in their subscription is more like a 70% margin business.
And then the other components of our business. The other major revenue source is the fees that people pay to actually travel to the properties, and that is obviously a lower margin business. But as time goes on, subscription is taking up a larger and larger percentage of our overall business.
One other thing I can share with you on unit economics. I’ll just give you a couple of other stats that are in our investor presentation. Historically, over the 10 year operating period of Inspirato we’ve been running in the mid 80s as far as retention. So very strong retention in this business, meaning people stick around a long time once they once they join. They’re staying with us for a substantial period of time I want to say it’s around 86%-ish retention, in terms of unit economics.
We share a cost to acquire versus LTV so an LTV to CAC ratio of four. So for every dollar that we’re investing today we’re bringing $4 back out from the business because of the high margin profile of the subscription economics that I had recently shared.
InvestorPlace: Those are some pretty good stickiness numbers if you’re getting 86% retention. So, based on that, it’s safe to say that the pandemic hasn’t negatively impacted you thus far? What’s your outlook for next year coming out of the pandemic and maybe can you talk a little bit about how the pandemic has affected your business, or if it hasn’t?
Inspirato: Yeah, so to be clear, I’ll give you one other stat during the pandemic. Our retention on our club product was 80%. Still pretty amazing if you really think about all the way through the pandemic. Overall, our retention has been 86%. We don’t break out retention for Pass. Pass went from zero to $76 million of annual recurring revenue from the July, basically from two years ago today, actually, I think we launched on July 14, 2019. Pass through March 1, 2020 was $76 million. So it was like an incredibly quick uptake, very little churn. Amazing.
We don’t give out churn numbers for Pass, primarily because when we were in the pandemic, we introduced the concept of freeze, where we let Pass holders simply stop paying because they couldn’t travel, and then they started paying later on.
On your specific question about how we did this through the pandemic, I would say we did extremely well. On an adjusted EBITDA basis we were profitable during the pandemic, and we were able to be profitable because two things really happened. One, we were able to cut our expenses, which was more of the lower margin travel revenue. We were able to cut that and we kept the vast majority of our high-margin subscription revenue, combining that with a reduction in force that we were very early to do we did that in March 2020. Plus, force majeure in our leases, we get the benefit of controlling these assets through the Inspirato platform, but we also have force majeure in our leases so when we couldn’t use them, we didn’t have to pay rent.
Our goal was for the revenue of the company to be $285 million. It was instead $165 million. So we missed by $120 million. But we still were able to produce nearly $10 million of adjusted EBITDA. And that was just because of the flexibility and the defensibility of the business model subscription revenue. It still comes in, even when people couldn’t travel, combined with being able to reduce expenses. So we’re very proud of how we performed during the pandemic. On a relative basis to other travel companies, I believe we did quite well.
InvestorPlace: Maybe as a follow up, on your points about force majeure piece, were you able to ramp up all those assets that you’ve kind of shut down or frozen during the pandemic? Have you been able to ramp all of them back up?
Inspirato: As of July, most countries are allowing for travel. One notable country that just pushed back again and will not be open until Thanksgiving is Grand Cayman, where we have a fairly significant presence, and there’s still several places in Europe that are not open yet. But over time, slowly but surely we’ve been ramping back up and adding capacity back into our into our system. Our projected revenue for 2021 is to be, I think $222 million, which is essentially just over what our revenue was in 2019, and most travel companies are not expected to get back to their 2019 revenue numbers until really 2023 or 2024.
InvestorPlace: You touched on some of the markets that you’re in such as the grand Caymans and Europe — are you looking at new growth markets moving forward? What are the levers that you’re looking at, to be able to pull to accelerate growth, moving forward around the globe?
Inspirato: I mean we’re looking everywhere, we’re looking at every market. I just learned a new vacation market called Lake Norman, which is in, I think, North Carolina. We’re looking at expanding to outside of the Riviera Maya to Tulum. That’s a market that we’re not currently operating in we’re looking to expand there.
And then we’re obviously just looking to add breadth and depth across the existing portfolio. But we have tremendous demand for not only just travel but also for subscriptions in particular, and so we’re trying to grow as quickly as we can in terms of in terms of new supply. We’re really investing in and building up the resources and infrastructure to be able to add a lot more supply a lot faster.
InvestorPlace: I think the next piece that I wanted to touch on was the SPAC merger deal with Thayer Ventures. It’s noted in the press release that the proceeds will be going toward accelerating new subscriber acquisition and expanding the company’s property portfolio and its technology. What sort of progress has been made on these metrics, thus far?
Inspirato: It’s fairly similar to what I just previously mentioned about where we’re aggressively hiring — for real estate acquisitions — more people to be able to evaluate more homes, more people to underwrite homes, more people to travel to go see homes, more people to outfit and furnish the homes, all of those things are investments in terms of new subscriber growth. Just hiring more sales people, spending more on advertising, digital advertising.
And then in technology really continuing to invest in Pass and make make the subscription even better. Part of that investment is around allowing us to ingest different types of supply. We’re in beta with something called Beyond Travel. Beyond Travel allows passholders to go beyond reserving a home or a hotel. Actually, if they couldn’t travel for a period of time, they’re able to enjoy something that is beyond travel. So that might be a golf experience with Callaway, that might be a suite at a sporting event, it might be a ski pass.
So we’re going to be working on adding more inventory into the subscription. If you just use an analogy like a Netflix (NASDAQ:NFLX), you know when Netflix first launched, they were just licensing other people’s content that that now they have a massive investment and portfolio of original content. Within Inspirato, we’re trying to add as much original content as we can.
InvestorPlace: Given how aggressively you’re ramping up your inventory and your content using the Netflix kind of model, this SPAC deal should provide you with quite a bit of liquidity to do those things. Could you maybe clarify like the reasoning behind going public via SPAC merger, versus a traditional IPO or direct listing and what the process was there?
Inspirato: Sure, I mean we have long felt that having access to the public market would accelerate our growth and just be better overall for the vision of creating this exceptional experience for consumers around luxury subscription travel. And when we looked at the alternatives of going public, either through a direct listing traditional IPO or SPAC, we decided to evaluate all of them.
When we came in contact with Thayer, who has very deep domain expertise in travel (their LPs include major hotels luminaries in the travel business), it became fairly obvious that they would be excellent partners for us. Add that with all of the tailwinds that we had kind of post pandemic. Plus subscription travel which is really starting to take off, we wanted to just do something that was quick. And that will allow us to get a great syndicate of investors, and that held true with doing this partnership with Thayer.
InvestorPlace: Could you maybe provide some color on the valuation, and how this valuation came to be? It looks like the valuation post-SPAC will be around $1.1 billion. How will this jive with your revenues over time?
Inspirato: On the Investor Relations page, slide 26 highlights a lot of this information. This was the LTV to CAC that we’ve talked about. Slide 39 will give you our revenues. I shared with you 2019 was $220 million, I had shared that information previously. $366 million is the revenue number that we’re projecting for 2022.
And then you asked about the enterprise valuation. So you can see that here on a pro forma basis $1.1 billion. Which is what you said. But these are the numbers that I wanted to show you right here so this was the comp set that was used in the presentation. These were the different types of businesses that we comped out against so consumer businesses online travel. Traditional hospitality think Marriott. And then, just your basic timeshare, and we came in right at three times forward revenue.
InvestorPlace: Based on the the forward compound annual growth projections for the company, the number that I pulled up was around 41% through 2025. So, those estimates to me when I looked at them, they seemed aggressive. But with with the pandemic winding down and the surge in travel demand expected to come, it seems like those growth numbers are ones I’m guessing you feel really confident projecting out?
Inspirato: We do we feel really confident in these numbers. Particularly the churn and retention assumptions that we put into the model. We don’t share those publicly, but we feel very confident in those. And you know that’s the power of subscription businesses, right? If you have decent retention in a subscription business, as long as you keep growing, the CAGRs look really, really healthy. So interestingly, that’s also in the presentation. Our CAGR from 2012 to 2018 was roughly 40%, and we’re projecting 2125 roughly 40%.
InvestorPlace: To wrap it up, what would be one key takeaway you’d want investors to get from this interview?
Inspirato: I would say that it’s very clear that subscription travel and entertainment are here to stay. Subscribing to live events for sporting or concerts, subscribing to be able to go on vacation. What’s very evident to me is that’s going to be a many, many, many billions of dollars per year category, very soon.
And no, it has not happened yet. But because I’m in it every day, I feel the groundswell, and I can see how much consumers like it. If you think about discretionary spend, how many things are “subscriptionized” in the world. And then you have this travel and entertainment. Live travel and entertainment really isn’t subscriptionized.
And I think that the Inspirato model, the way that we’ve done it using booking days, and how we’ve built it is better for the subscriber, provides more value. Better, more simple, for the supplier who can distribute their inventory in an opaque channel, whether it’s a ticket, a hotel room a house, whatever. And I think that, you know what you’re kind of thinking about with Inspirato is really a business that is highly innovative, that has a mechanism and a methodology and a business model around how to take subscription into the very large TAM of travel and entertainment.
Our business has a history of being able to have responsible economics. So it’s not really a company that’s burning hundreds and hundreds of millions of dollars in the idea that there’s going to be something there in the future. The business, actually has been profitable.
And I’d say one other thing just kind of maybe to mention too is, it’s very much a technology company. So we’ve built a lot of proprietary patented technology, and very much think about Inspirato as much a technology company as a Four Seasons. We still are an operator of luxury travel, but at the same time, we’re building this highly innovative Extensible Software platform that allows us to grow and creates tremendous barriers for entry.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.