Filed Pursuant to Rule 424(b)(3)

Registration No. 333-264598

PROSPECTUS SUPPLEMENT NO. 8

(To the Prospectus dated May 9, 2022)

 

Primary Offering of

69,780,665 Shares of Class A Common Stock Issuable Upon the Exchange of New Common
Units and Class V Common Stock

 

Secondary Offering of

94,278,420 Shares of Class A Common Stock

 

 

 

This prospectus supplement supplements the prospectus, dated May 9, 2022 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-264598). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on December 19, 2022 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.

 

The Prospectus and this prospectus supplement relate to the issuance by us of up to 69,780,665 shares of Inspirato Class A common stock, par value $0.0001 per share (“Class A Common Stock”) issuable upon the exchange of an equal number of New Common Units (as defined in the Prospectus) and Inspirato Class V common stock, par value $0.0001 per share (“Class V Common Stock”) held by Continuing Inspirato Members (as defined in the Prospectus). In addition, the Prospectus and this prospectus supplement relate to the resale by the selling securityholders named in the Prospectus (or their permitted transferees) of up to 94,278,420 shares of Class A Common Stock (including (i) 30,393,285 shares issued to the Blocker Shareholders (as defined in the Prospectus) in connection with the Business Combination (as defined in the Prospectus), (ii) 2,747,500 Founder Shares (as defined in the Prospectus), (iii) 60,647,438 shares issuable upon the exchange of New Common Units and Class V Common Stock held by certain Continuing Inspirato Members, and (iv) 490,197 shares held by the Sponsor (as defined in the Prospectus)).

 

Our Class A Common Stock is currently listed on The Nasdaq Global Market (“Nasdaq”) under the symbol “ISPO.” On December 16, 2022, the last reported sales price of our Class A Common stock was $1.41 per share.

 

This prospectus supplement should be read in conjunction with the Prospectus and is not complete without, and may not be delivered or utilized except in connection with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement is qualified by reference to the Prospectus, including any amendments or supplements thereto, except to the extent that the information in this prospectus supplement updates and supersedes the information contained therein. If there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our securities in “Risk Factors” beginning on page 6 of the Prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Prospectus Supplement dated December 19, 2022.

 

 

 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission File Number: 001-39791


INSPIRATO INCORPORATED

(Exact Name of Registrant as Specified in its Charter)


Delaware

85-2426959

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1544 Wazee Street

Denver, CO

80202

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (303) 586-7771


Not applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading

Symbol(s)

     

Name of each exchange on which registered

Class A Common Stock, $0.0001 par value per share

Warrants, each whole warrant exercisable for one share of Class

A Common Stock at an exercise price of $11.50 per share

ISPO

ISPOW

The Nasdaq Global Market

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

As of December 12, 2022, the registrant had 58,873,840 shares of Class A Common Stock, 65,196,419 shares of Class V Common Stock, and 8,624,792 Warrants outstanding.


Table of Contents

    

    

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

4

Consolidated Balance Sheets

4

Consolidated Statements of Operations and Comprehensive Loss

5

Consolidated Statements of Equity

6

Consolidated Statements of Cash Flows

7

Notes to Unaudited Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

78

Item 4.

Mine Safety Disclosures

78

Item 5.

Other Information

78

Item 6.

Exhibits

78

SIGNATURES

80

i


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Our forward-looking statements include, but are not limited to, statements regarding our and our management team’s hopes, beliefs, intentions or strategies regarding the future or our future events or our future financial or operating performance. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:

Changes in our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects and plans;
The implementation, market acceptance and success of our business model and growth strategy;
Our expectations and forecasts with respect to the size and growth of the travel and hospitality industry;
The ability of our services to meet customers’ needs;
Our ability to compete with others in the luxury travel and hospitality industry;
Our ability to attract and retain qualified employees and management;
Our ability to adapt to changes in consumer preferences, perception and spending habits and develop and expand our destination offerings and gain market acceptance of our services, including in new geographies;
Our ability to develop and maintain our brand and reputation;
Developments and projections relating to our competitors and industry;
The impact of health epidemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;
The impact of the COVID-19 pandemic on customer demands for travel and hospitality services;
Expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”);
Our future capital requirements and sources and uses of cash;
The impact of market conditions on our financial condition and operations, including fluctuations in interest rates and inflation;
Our ability to obtain funding for our operations and future growth;
Our business, expansion plans and opportunities; and
Other factors detailed under the section entitled “Risk Factors.”

We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

2


Table of Contents

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, operating results, financial condition and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. You should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

3


Table of Contents

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements.

INSPIRATO INCORPORATED

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except par value)

December 31, 

September 30, 

   

2021

   

2022

Assets

  

 

  

Current assets

  

 

  

Cash and cash equivalents

$

80,233

$

82,081

Restricted cash

 

2,720

 

1,661

Accounts receivable, net

 

2,389

 

2,460

Accounts receivable, net – related parties

 

386

 

226

Prepaid subscriber travel

 

17,183

 

18,905

Prepaid expenses

 

11,101

 

9,248

Other current assets

 

762

 

502

Total current assets

 

114,774

 

115,083

Property & equipment, net

 

8,695

 

15,001

Goodwill

 

21,233

 

21,233

Right-of-use assets

255,166

Other noncurrent assets

 

1,068

 

1,199

Total assets

$

145,770

$

407,682

Liabilities

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

33,140

$

31,011

Accrued liabilities

 

6,035

 

5,408

Deferred revenue

 

176,813

 

159,146

Deferred rent, current

 

457

 

Debt

 

13,267

 

Lease liabilities, current

 

 

70,566

Total current liabilities

 

229,712

 

266,131

Deferred revenue

 

14,450

 

12,582

Deferred rent, noncurrent

 

7,468

 

Lease liabilities, noncurrent

 

 

190,665

Warrants

 

547

 

2,088

Total liabilities

252,177

471,466

Commitments and contingencies (Note 12)

 

  

 

  

Temporary equity (Note 3)

 

  

 

  

Series A-1; 222 authorized and 217 issued and outstanding at December 31, 2021; none at September 30, 2022

 

12,809

 

Series A-2; 130 authorized, issued, and outstanding at December 31, 2021; none at September 30, 2022

 

5,489

 

Series B; 193 authorized, issued, and outstanding at December 31, 2021; none at September 30, 2022

 

19,860

 

Series B-1; 128 authorized and 124 issued and outstanding at December 31, 2021; none at September 30, 2022

 

15,282

 

Series D; 158 authorized, issued, and outstanding at December 31, 2021; none at September 30, 2022

 

20,125

 

Series E; 132 authorized and 96 issued and outstanding at December 31, 2021; none at September 30, 2022

 

9,719

 

Total temporary equity

 

83,284

 

Equity

Series C; 491 authorized, issued, and outstanding at December 31, 2021; none at September 30, 2022 (Note 3)

21,477

Common units 4,470 authorized; 1,149 issued and outstanding at December 31, 2021; none at September 30, 2022 (Note 3)

Class A common stock, par value $0.0001 per share, 1,000,000 shares authorized, 58,741 shares issued and outstanding as of September 30, 2022

6

Class V common stock, $0.0001 par value, 500,000 shares authorized, 65,267 shares issued and outstanding as of September 30, 2022

7

Additional paid-in capital

248,701

Accumulated deficit

 

(211,168)

(231,294)

Total equity excluding noncontrolling interest

(189,691)

17,420

Noncontrolling interests (Note 16)

 

(81,204)

Total equity

(189,691)

(63,784)

Total liabilities, temporary equity, and equity

$

145,770

$

407,682

4


Table of Contents

INSPIRATO INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2022

    

2021

    

2022

Revenue

$

64,824

$

93,132

$

166,390

$

258,903

Cost of revenue (including depreciation of $402 and $1,283 in 2021, and $520 and $1,390 in 2022, respectively)

 

42,394

 

62,959

 

110,106

 

167,669

Gross margin

 

22,430

 

30,173

 

56,284

 

91,234

General and administrative (including equity-based compensation of $1,872 and $2,847 in 2021, and $2,596 and $5,429 in 2022, respectively)

 

15,530

 

16,934

 

37,188

 

50,878

Sales and marketing

 

7,856

 

9,438

 

19,105

 

30,641

Operations

6,457

10,351

17,336

31,204

Technology and development

1,177

3,778

2,957

9,462

Depreciation and amortization

593

812

1,876

2,165

Interest, net

(64)

(125)

483

207

Warrant fair value (gains) losses

(3,518)

456

3,026

Gain on forgiveness of debt

(9,518)

Other income, net

(447)

(447)

Loss and comprehensive loss before income taxes

(9,119)

(7,050)

(13,599)

(35,902)

Income tax expense

202

589

Net loss and comprehensive loss

(9,119)

(7,252)

(13,599)

(36,491)

Net loss and comprehensive loss attributable to noncontrolling interests (Note 16)

 

 

4,147

 

 

19,017

Net loss and comprehensive loss attributable to Inspirato Incorporated

$

(9,119)

$

(3,105)

$

(13,599)

$

(17,474)

 

Basic and diluted weighted average common units and Class A shares outstanding

105,503

55,192

105,503

50,015

Basic and diluted net loss attributable to Inspirato Incorporated per common unit and Class A share, respectively

$

(0.09)

$

(0.06)

$

(0.13)

$

(0.35)

5


Table of Contents

INSPIRATO INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)

(in thousands)

Additional

Common Units

Series C

Class A Common Stock

Class V Common Stock

Paid-in

Accumulated

Noncontrolling

    

Units

    

Value

    

Units

    

Value

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Deficit

    

Interests

    

Total

Balance at January 1, 2021 (as previously reported)

 

1,166

$

 

491

$

21,477

$

$

$

$

(184,682)

$

$

(163,205)

Reverse recapitalization, net (Note 3)

 

104,377

 

(491)

(21,477)

21,477

Balance at January 1, 2021, after effect of reverse recapitalization

 

105,543

 

21,477

(184,682)

(163,205)

Consolidated net loss

 

 

(3,910)

(3,910)

Equity-based compensation

 

509

509

Distributions

 

 

 

 

(81)

(81)

Balance at March 31, 2021

105,543

$

 

$

$

$

$

21,986

$

(188,673)

$

$

(166,687)

Consolidated net loss

(568)

(568)

Equity-based compensation

466

466

Balance at June 30, 2021

105,543

22,452

(189,241)

(166,789)

Consolidated net loss

(9,119)

(9,119)

Equity-based compensation

1,872

1,872

Balance at September 30, 2021

 

105,543

$

 

$

$

$

$

24,324

$

(198,360)

$

$

(174,036)

Balance at January 1, 2022 (as previously reported)

 

1,149

$

 

491

$

21,477

$

$

$

$

(211,168)

$

$

(189,691)

Reverse recapitalization, net (Note 3)

 

103,709

 

(491)

(21,477)

21,477

Balance at January 1, 2022, after effect of reverse recapitalization

 

104,858

 

21,477

(211,168)

(189,691)

Consolidated net loss

 

 

 

 

(12,302)

(11,901)

(24,203)

Equity-based compensation

 

 

402

402

Issuance of common stock and common stock warrants upon the reverse recapitalization, net of issuance costs

 

(104,858)

 

 

46,832

4

69,781

7

206,253

(64,656)

141,608

Issuance of common stock upon exercise of warrants

 

 

 

5,079

1

9,330

9,331

Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes

25

(29)

(29)

Distributions

(183)

(183)

Balance at March 31, 2022

$

$

51,936

$

5

69,781

$

7

$

237,433

$

(223,653)

$

(76,557)

$

(62,765)

Consolidated net loss

(2,067)

(2,969)

(5,036)

Equity-based compensation

2,431

2,431

Issuance of common stock

490

5,000

5,000

Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes

22

(65)

(65)

Balance at June 30, 2022

52,448

5

69,781

7

244,799

(225,720)

(79,526)

(60,435)

Consolidated net loss

(3,105)

(4,147)

(7,252)

Equity-based compensation

2,596

2,596

Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes

1,779

1,306

1,306

Issuance of Class A shares upon conversion of Class V shares

4,514

1

(4,514)

(2,469)

2,469

1

Balance at September 30, 2022

$

$

58,741

$

6

65,267

$

7

$

248,701

$

(231,294)

$

(81,204)

$

(63,784)

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Table of Contents

INSPIRATO INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

    

Nine months ended September 30, 

    

  

2021

  

2022

  

Cash flows from operating activities:

 

  

 

  

 

Consolidated net loss

$

(13,599)

$

(36,491)

Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities

 

  

 

Depreciation and amortization

 

3,159

 

3,555

Loss on disposal of fixed assets

214

Warrant fair value losses

 

456

 

3,026

Equity‑based compensation

 

2,847

 

5,429

Gain on forgiveness of debt

(9,518)

Non-cash lease loss (gain)

 

433

 

(554)

Changes in operating assets and liabilities, net of reverse recapitalization:

 

Accounts receivable, net

 

(162)

 

(71)

Accounts receivable, net – related parties

 

(258)

 

160

Prepaid member travel

 

(3,856)

 

1,940

Prepaid expenses

 

(224)

 

(2,903)

Right-of-use assets

 

 

(212)

Other assets

 

118

 

129

Accounts payable

 

12,335

 

(2,339)

Accrued liabilities

 

2,252

 

(627)

Deferred revenue

 

24,372

 

(19,535)

Net cash provided by (used in) operating activities

 

18,355

 

(48,279)

 

  

 

Cash flows from investing activities:

 

Development of internal-use software

 

(919)

 

(2,747)

Purchase of property and equipment

 

(1,776)

 

(7,118)

Net cash used in investing activities

 

(2,695)

 

(9,865)

 

 

Cash flows from financing activities:

 

 

Repayments of debt

 

(765)

 

(27,267)

Proceeds from debt

 

 

14,000

Proceeds from reverse recapitalization (Note 3)

 

 

90,070

Payments of reverse recapitalization costs (Note 3)

 

 

(23,899)

Proceeds from issuance of Class A common stock

5,000

Payments of employee taxes for unit option exercises

(117)

Proceeds from unit option exercises

1,329

Distributions

(81)

(183)

Net cash (used in) provided by financing activities

(846)

58,933

Net increase in cash, cash equivalents, and restricted cash

14,814

789

Cash, cash equivalents, and restricted cash – beginning of period

67,001

82,953

Cash, cash equivalents, and restricted cash – end of period

$

81,815

$

83,742

Supplemental cash flow information – cash paid for interest

$

466

$

288

Significant noncash transactions:

 

 

Conversion of preferred stock in connection with reverse recapitalization

104,761

Warrants acquired at fair value

9,874

Warrants exercised

8,390

Fixed assets purchased but unpaid, included in accounts payable at period end

211

Operating lease right-of-use assets exchanged for lease obligations

324,450

Conversion of deferred rent and prepaid rent to right-of-use assets

6,831

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INSPIRATO INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Nature of Business

Inspirato Incorporated and its subsidiaries (the “Company”) is a subscription-based luxury travel company that provides unique solutions for (i) affluent travelers seeking superior service and certainty across a wide variety of accommodations and experiences and (ii) hospitality suppliers who want to solve pain points that include monetizing excess inventory and efficiently outsourcing the hassle involved in managing rental properties.

Inspirato Incorporated was incorporated in Delaware on July 31, 2020 as Thayer Ventures Acquisition Corporation (“Thayer”); a special purpose acquisition company (“SPAC”) for the purpose of effecting a merger with one or more operating businesses. On February 11, 2022 (the “Closing Date”), Thayer and Inspirato LLC consummated the transaction contemplated in the Business Combination Agreement dated June 30, 2021 and as amended September 15, 2021 (the “Business Combination Agreement”) whereby amongst other transactions, a subsidiary of Thayer merged within and into Inspirato LLC with Inspirato LLC as the surviving company (the “Business Combination”), resulting in Inspirato LLC becoming a subsidiary of Thayer. Thayer changed its name to “Inspirato Incorporated” upon closing of the Business Combination (the “Closing”).

The Business Combination was accounted for as a reverse recapitalization whereby Inspirato LLC acquired Thayer for accounting purposes. As such, the condensed consolidated financial statements presented herein represent the operating results, assets and liabilities of Inspirato LLC before and after the Business Combination. See Note 3 – Reverse Recapitalization for more information.

As of September 30, 2022, the Company had 44 subsidiaries and one branch, of which 32 are wholly owned domestic limited liability companies. The remaining 12 and the branch, which are owned through direct domestic subsidiaries, are as follows: (i) a wholly owned Mexican company with a foreign designation equivalent to a limited liability company (S.R.L.); (ii) a wholly owned Turks and Caicos Islands limited company; (iii) a wholly owned Cayman Islands exempted company; (iv) a wholly owned Costa Rican limited liability company; (v) a wholly owned Italian S.R.L.; (vi) a wholly owned Canadian unlimited liability company; (vii) a wholly owned Dominican Republic branch of a wholly owned domestic liability company; (viii) a wholly owned U.S. Virgin Islands limited liability company; (ix) a wholly owned Puerto Rican limited liability company; (x) a wholly owned Grenadian limited liability company; (xi) a wholly owned British Virgin Islands designated company; (xii) a wholly owned Anguillan non-public company; and (xiii) a second wholly owned Mexican company with a foreign designation equivalent to a limited liability company (S.R.L). These entities typically lease local properties.

Since early 2020, the COVID-19 pandemic has severely restricted the level of economic activity around the world and is continuing to have an unprecedented effect on the global hospitality and travel industries. The global spread of COVID-19 has been and continues to be a complex and evolving situation. The COVID-19 pandemic had and continues to have a materially adverse impact on the Company’s results of operations and financial condition. Revenues declined as a result of reduced travel and management undertook cost reduction methods in response. No impairments were recorded during the periods presented. Through September 30, 2022 as restrictions were lifted across travel destinations, revenues began to recover to pre-pandemic levels. However, due to the significant uncertainty surrounding the pandemic, including the potential adverse impact of the spread of COVID-19 variants, management’s judgment regarding this could change in the future. Management cannot estimate the length or impacts of the COVID-19 outbreak on the Company’s future operations, financial position and cash flows, particularly if there are significant impacts that continue in the future.

(2) Significant Accounting Policies

(a) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read together with the Company’s audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2021 and for the period from

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July 31, 2020 (inception) through December 31, 2020 and Inspirato LLC’s audited consolidated financial statements and accompanying notes for the years ended December 31, 2020 and 2021 included in the final prospectus statement dated March 10, 2022 filed with the SEC pursuant to Rule 424(b)(3) under the Securities Act.

In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and reflect all adjustments, which include normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and the results of operations for the three and nine months ended September 30, 2022. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or any other future interim or annual period.

For the three and nine months ended September 30, 2021, these unaudited condensed consolidated financial statements present the consolidated results of operations, comprehensive income (loss), cash flows and changes in equity of Inspirato LLC. The condensed consolidated balance sheet as of December 31, 2021 presents the financial condition of Inspirato LLC and its wholly owned subsidiaries. All intercompany balances and transactions of Inspirato LLC have been eliminated.

The Business Combination was accounted for as a reverse recapitalization and the condensed consolidated financial statements presented herein are for Inspirato Incorporated and its subsidiaries, including Inspirato LLC. Inspirato LLC was the accounting acquirer of Thayer and the financial statements for all periods prior to February 11, 2022 are those of Inspirato LLC. See Note 3 – Reverse Recapitalization for more information.

In accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” the historical equity of Inspirato LLC has been recast in all periods up to the Closing Date, to reflect the number of shares of Inspirato Incorporated’s Class A Common Stock (as defined below) and Class V Common Stock (as defined below) issued to Inspirato LLC Holders in connection with the Business Combination. The Company recast the units outstanding related to the historical Inspirato LLC preferred units and common units (the “Historical Inspirato LLC Equity”) prior to the Business Combination, reflecting the exchange ratio of 1-for-37.2275, pursuant to the Business Combination Agreement. The condensed consolidated financial statements and related notes thereto give effect to the conversion for all periods presented. The condensed consolidated financial statements do not necessarily represent the capital structure of Inspirato Incorporated had the Business Combination occurred in prior periods.

(b) Principles of Consolidation

For the period of February 11, 2022 through September 30, 2022, the condensed consolidated financial statements comprise the accounts of the Company and its consolidated subsidiaries, including Inspirato LLC. In determining the accounting of Inspirato Incorporated’s interest in Inspirato LLC after the Business Combination, management concluded Inspirato LLC was not a variable interest entity as defined by ASC Topic 810, “Consolidation,” and as such, Inspirato LLC was evaluated under the voting interest model. As Inspirato Incorporated has the right to appoint a majority (four of the seven) managers of Inspirato LLC, Inspirato Incorporated controls Inspirato LLC, and therefore, the financial results of Inspirato LLC and its subsidiaries, after the Closing on February 11, 2022, are consolidated with and into Inspirato Incorporated’s financial statements. All intercompany accounts and transactions among the Company and its consolidated subsidiaries have been eliminated.

For the days and periods prior to Business Combination, the consolidated financial statements of the Company comprise the accounts of Inspirato LLC and its wholly owned subsidiaries. All intercompany accounts and transactions among Inspirato LLC and its consolidated subsidiaries were eliminated.

(c) Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Changes in facts and circumstances or discovery of new information may result in revised estimates, and actual results could differ from those estimates.

The condensed consolidated financial statements include amounts that are based on management’s best estimates and judgments. The most significant estimates relate to valuation and estimated economic lives of capitalized software and long-lived assets,

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contingencies, allowance accounts, expected length of certain subscription types, and fair value measurements related to stock-based compensation.

(d) Leases

The Company is party to operating lease agreements for its vacation homes, hotels and corporate offices. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02 (“ASC 842”), Leases, to require lessees to recognize all leases, with certain exceptions, on the balance sheet, while recognition on the statement of operations remains similar to legacy lease accounting. Subsequently, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements, ASU No. 2018-20, Narrow-Scope Improvements for Lessors, and ASU 2019-01, Codification Improvements, to clarify and amend the guidance in ASU No. 2016-02. ASC 842 eliminates real estate-specific provisions and modifies certain aspects of lessor accounting.

The Company adopted ASC 842 as of January 1, 2022 using the modified retrospective approach (“adoption of the new lease standard”). This approach allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the consolidated financial statements in the period of adoption without restating prior periods. The Company has elected to apply the new guidance at the date of adoption without restating prior periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the historical determination of contracts as leases and lease classification and not reassess initial direct costs for historical lease arrangements. The Company also elected the practical expedient to not separate lease and non-lease components for all of our current classes of leases.

Operating lease assets are included within right-of-use (“ROU”) assets and the corresponding operating lease liabilities are included within current liabilities and other noncurrent liabilities on the Company’s condensed consolidated balance sheet as of September 30, 2022.

The Company has elected not to present short-term leases on the consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at the later of ASC 842 adoption date or lease commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used the Company’s incremental borrowing rate based on the information available at adoption date or lease commencement date in determining the present value of lease payments.

Adoption of the new lease standard on January 1, 2022 had a material impact on the Company’s interim condensed consolidated financial statements. The most significant impacts related to the (i) recording ROU assets of $193 million and (ii) recording lease liabilities of $200 million, as of January 1, 2022 on the consolidated balance sheets. The Company also reclassified prepaid expenses of $1.1 million and deferred rent balances (including tenant improvement allowances and other liability balances) of $7.9 million relating to the Company’s existing lease arrangements as of December 31, 2021, into the ROU asset balance as of January 1, 2022. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The adoption of the new lease standard did not materially impact the Company’s consolidated statement of operations and consolidated statement of cash flows and has had no impact on our debt covenants.

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The cumulative effect of the changes made to the Company’s consolidated balance sheet as of January 1, 2022 for the adoption of the new lease standard was as follows:

    

Balances at December 31, 

Adjustments from Adoption of New Lease

Balances at January 1,

2021

   

Standard

   

2022

Assets

    

(in thousands)

Prepaid expenses

$

11,101

$

(1,094)

$

10,007

Operating lease ROU assets

201,728

201,728

Liabilities

Current lease liabilities

$

$

63,415

$

63,415

Other current liabilities

457

(457)

Noncurrent lease liabilities

145,144

145,144

Other noncurrent liabilities

7,468

(7,468)

(e) Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net earnings or loss attributable to Inspirato Incorporated Class A common stock (“Class A Common Stock”), as applicable, by the weighted average number of shares of Class A Common Stock outstanding during the period. Diluted EPS is computed after adjusting the basic EPS computation for the effect of potentially dilutive securities outstanding during the period. The effect of non-vested equity-based compensation awards, if dilutive, is computed using the treasury stock method.

(f) Noncontrolling Interests

Noncontrolling interests represent the economic interest of Inspirato LLC not owned by Inspirato Incorporated. These noncontrolling interests arose from the Business Combination. Noncontrolling interests were initially recorded as the relative proportion of the net assets of Inspirato LLC at the time of the Business Combination. This amount is subsequently adjusted for the proportionate share of earnings or losses attributable to the noncontrolling interests and any dividends or distributions paid to the noncontrolling interests.

As of September 30, 2022, Inspirato Incorporated directly owned 44% of the interest in Inspirato LLC and the noncontrolling interest was 56%. The noncontrolling interest relates to the economic interests in Inspirato LLC held directly by owners of our Inspirato Incorporated Class V common stock (“Class V Common Stock”) in the form of New Common Units (as defined below) as a result of Business Combination. See Note 3 - Reverse Recapitalization.

(g) Income Taxes

For periods prior to the Business Combination, Inspirato LLC was treated as a partnership for U.S. federal income tax purposes. As a partnership, Inspirato LLC is itself generally not subject to U.S. federal income tax under current U.S. tax laws, and any taxable income or loss is passed through and included in the taxable income or loss of its members, including Inspirato Incorporated. Inspirato Incorporated is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its distributive share of the items of the net taxable income or loss and any related tax credits of Inspirato LLC.

Subsequent to the Business Combination, Inspirato Incorporated holds an interest in Inspirato LLC, which continues to be treated as a partnership for U.S. federal income tax purposes. Inspirato LLC is also subject to taxes in foreign jurisdictions in which it operates.

Inspirato Incorporated is subject to income taxes predominately in the U.S. The Company provides for income taxes and the related accounts under the asset and liability method. Income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The relevant tax laws are often complex and may be subject to different interpretations.

Deferred income taxes arise from temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities and are measured using the enacted tax rates expected to be in effect during the year in which the basis difference reverses. In evaluating the ability to recover its deferred tax assets within the jurisdiction from which they arise, the Company

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considers all available positive and negative evidence. If based upon all available positive and negative evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is established. The valuation allowance may be reversed in a subsequent reporting period if the Company determines that it is more likely than not that all or part of the deferred tax asset will become realizable.

The Company’s interpretations of tax laws are subject to review and examination by various taxing authorities and jurisdictions where the Company operates, and disputes may occur regarding its view on a tax position. These disputes over interpretations with the various tax authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which the Company operates. The Company regularly reviews whether it may be assessed additional income taxes as a result of the resolution of these matters, and the Company records additional reserves as appropriate. In addition, the Company may revise its estimate of income taxes due to changes in income tax laws, legal interpretations and business strategies. The Company recognizes the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Company records interest and penalties related to uncertain income tax positions in income tax expense. For additional information regarding income taxes, see Note 7.

(h) Warrant Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. In accordance with ASC Topic 825-10 “Financial Instruments,” offering costs attributable to the issuance of the derivative warrant liabilities have been allocated based on their relative fair value of total proceeds and are recognized in the consolidated statement of operations as incurred.

The warrants to purchase Class A Common Stock issued in connection with the IPO of Thayer (the “Public Warrants”) and the private placement warrants to purchase Class A Common Stock held by Thayer Ventures Acquisition Holdings LLC (the “Sponsor,” and such warrants the “Private Warrants” and the Public Warrants and Private Warrants collectively, the “Warrants”) are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the Warrants as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statement of operations. The fair value of the Warrants as of September 30, 2022 is based on observable listed prices for such Warrants. As the transfer of Private Warrants to anyone who is a permitted transferee would result in the Private Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Warrant is equivalent to that of each Public Warrant. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. On March 14, 2022, all 7.2 million Private Warrants were exercised on a cashless basis into 5.1 million shares of Class A Common Stock.

(3) Reverse Recapitalization

On February 11, 2022, Inspirato LLC and Thayer consummated the Business Combination, resulting in Inspirato LLC becoming a subsidiary of Thayer. The resulting Company organizational structure is commonly referred to as an umbrella partnership corporation (or “UP-C”) structure. This organizational structure allows certain Continuing Inspirato Members (as defined below), to retain their equity ownership directly in Inspirato LLC.

The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP; management determined Inspirato LLC was not a variable interest entity (see Note 2), and as result, identified Inspirato LLC as the accounting acquirer of the Business Combination in accordance ASC Topic 805. Thayer was treated as the “acquired” company for accounting purposes. This determination is primarily based on the fact that subsequent to the Business Combination, the Continuing Inspirato Members have a majority of the voting power of the Company, and Inspirato LLC’s operations comprise all of the ongoing operations of the Company. Following the Business Combination, Inspirato LLC is managed by a seven-person board of managers designated by Inspirato Incorporated and the holders of the noncontrolling interests in Inspirato LLC, who also hold noneconomic voting interests in Inspirato Incorporated through their ownership of Class V Common Stock of Inspirato Incorporated (“Continuing Inspirato Members”).

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In connection with the Business Combination, among other things, (i) Thayer changed its name to “Inspirato Incorporated”, (ii) each of the then issued and outstanding Class A and Class B common stock of Thayer, converted automatically, on a one-for-one basis, into a share of Class A Common Stock of Inspirato Incorporated, (iii) each of the then issued and outstanding warrants of Thayer converted automatically into a redeemable warrant to purchase one share of Class A Common Stock, and (iv) each of the then issued and outstanding units of Thayer that had not been previously separated into the underlying Thayer Class A Common Stock and Thayer public warrant upon the request of the holder thereof, were cancelled and entitled the holder thereof to one share of Inspirato Class A Common Stock and one-half of one Inspirato Public Warrant.

As a result of the Business Combination, each outstanding unit of Inspirato LLC was cancelled and each unitholder received either (i) a number of shares of Class A Common Stock equal to 37.2275 (the “Exchange Ratio”) for each unit of Inspirato LLC owned and certain rights under a tax receivable agreement (the “Tax Receivable Agreement”) or (ii) a number of new common units of Inspirato LLC (“New Common Units”) equal to the Exchange Ratio, an equal number of shares of Class V Common Stock, which have no economic value, but entitles the holder thereof to one vote per share, and certain rights under the Tax Receivable Agreement. This exchange resulted in Inspirato Incorporated owning 41.2% of the issued and outstanding units of Inspirato LLC at the Closing and the Continuing Inspirato Members owning a noncontrolling interest of Inspirato LLC. In addition, options to purchase Inspirato LLC units were converted into options to purchase shares of Class A Common Stock at the Exchange Ratio.

Accordingly, the financial statements reflect the continuation of the financial statements of Inspirato LLC with the Business Combination being treated as the equivalent of Inspirato LLC issuing stock for the net assets of Thayer, accompanied by a recapitalization. The net assets of Thayer were recognized as of the Business Combination at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are presented as those of Inspirato LLC and the accumulated deficit of Inspirato LLC has been carried forward after the Closing.

In accordance with ASC Topic 805, all periods prior to the Business Combination have been retrospectively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Business Combination to give effect to the reverse recapitalization. After giving effect to the Business Combination and the redemption of Inspirato LLC units as described above, the number of common stock issued and outstanding immediately following the consummation of the Business Combination was 47 million of Class A Common Stock and 70 million of Class V Common Stock.

In connection with the Closing, the Company raised $90 million of gross proceeds including $88 million from the issuance of 8.8 million shares of Class A Common Stock to a number of accredited investors pursuant to a separate subscription agreement entered into on June 30, 2021 and as amended. The Company incurred $25 million in transaction costs during the nine months ended September 30, 2022, consisting of banking, legal and other professional fees, of which $24 million was recorded as a reduction to additional paid-in capital and the remaining $1.1 million was expensed in the condensed consolidated statement of operations and comprehensive loss. The total net cash proceeds to the Company as a result of the Business Combination was $66 million.

On April 7, 2022, the Company issued 490,197 shares of Class A Common Stock to the Sponsor for net proceeds of $5.0 million.

During the three and nine months ended September 30, 2022, the Company issued 4,513,864 shares of Class A Common Stock in exchange for the same number of New Common Units, resulting also in the cancellation of the same number of shares of Class V Common Stock.

(4) Revenue

Revenues are as follows:

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

   

2021

  

2022

    

2021

    

2022

   

(in thousands)

Travel

$

39,509

$

54,508

$

95,799

$

152,417

Subscription

 

25,178

 

38,587

 

70,305

 

106,315

Other

 

137

 

37

 

286

 

171

Total

$

64,824

$

93,132

$

166,390

$

258,903

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The Company recognized assets and liabilities related to contracts with customers as follows:

    

December 31, 

September 30, 

    

    

2021

    

2022

    

(in thousands)

Assets:

 

  

 

  

 

Accounts receivable, net

$

2,389

$

2,460

Liabilities:

 

  

 

  

Deferred revenue, current and noncurrent

$

191,263

$

171,728

(5)

Prepaid Expenses and Prepaid Subscriber Travel

Prepaid expenses

Prepaid expenses are as follows:

    

December 31, 

September 30, 

    

2021

   

2022

(in thousands)

Property operations

$

5,136

$

3,768

Software

 

2,979

 

1,716

Rent

 

1,094

 

Operating supplies

 

1,372

 

1,473

Insurance

 

520

 

2,291

Total

$

11,101

$

9,248

Prepaid Subscriber Travel

Prepaid subscriber travel of $17 million and $19 million at December 31, 2021 and September 30, 2022, respectively, include deposits for future member travel.

(6) Property and Equipment

Property and equipment are as follows:

Useful life

    

December 31, 

September 30, 

    

(years)

2021

    

2022

    

    

(in thousands)

    

Residence leasehold improvements

3

$

8,322

$

13,391

Internal-use software

3

 

7,947

 

10,808

Corporate office leasehold improvements

3

 

5,156

 

5,156

Computer equipment

3

 

1,265

 

1,436

Furniture, fixtures, and equipment

5

1,354

1,208

Residence vehicles

5

 

315

 

660

Total cost

 

24,359

 

32,659

Accumulated depreciation and amortization

 

15,664

 

17,658

Property & equipment, net

$

8,695

$

15,001

(7) Income Taxes

At September 30, 2022, Inspirato Incorporated holds 44% of the economic interest in Inspirato LLC (see Note 3 and 16), which is treated as a partnership for U.S. federal income tax purposes. As a partnership, Inspirato LLC is itself generally not subject to U.S. federal income tax under current U.S. tax laws as its net taxable income or loss is passed through to its members and included in their tax returns, even though such net taxable income may not have actually been distributed. Inspirato Incorporated is subject to U.S.

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federal income taxes, in addition to state and local income taxes, with respect to its 44% distributive share of the net taxable income of Inspirato LLC. Inspirato Incorporated is also subject to taxes in foreign jurisdictions.

The effective income tax rate was negative 6.5% and negative 3.4% for the three and nine months ended September 30, 2022, respectively. The effective income tax rate for the three and nine months ended September 30, 2022 differed significantly from the statutory rate in the respective periods, primarily due to the losses allocated to noncontrolling interests and the recognition of a valuation allowance as a result of the Company’s new tax structure following the Business Combination. Income tax expense recorded in the three and nine months ended September 30, 2022 represents amounts owed to foreign taxing authorities.

The Company has assessed the realizability of the net deferred tax assets and in that analysis has considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The Company has recorded a full valuation allowance against the deferred tax assets at Inspirato Incorporated as of the Closing and as of September 30, 2022, which will be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances.

The Company’s income tax filings are subject to audit by various taxing jurisdictions. The Company will monitor the status of U.S. federal, state and local income tax returns that may be subject to audit in future periods. No U.S. federal, state and local income tax returns are currently under examination by the respective taxing authorities.

(8) Debt

Loan Facility

In October 2020, the Company obtained a revolving line of credit (“Revolver”) that matures October 2023. This Revolver has a limit of $14 million. Interest rates associated with the Revolver adjust based on the prime rate and outstanding balance. The interest rate was 4.25% and 7.25% as of December 31, 2021 and September 30, 2022, respectively. Interest expense related to the Revolver totaled $0.1 million and $3 thousand, respectively, for the three months ended September 30, 2021 and 2022. Interest expense for the nine months ended September 30, 2021 and 2022 was $0.5 million and $0.3 million, respectively.

To obtain the Revolver, the Company was required to pledge collateral in the form of the Company’s deposit accounts and intangible assets and maintain a cash deposit with the lender of $7.0 million. The Company was not in compliance with the covenants on the Revolver at September 30, 2022. The Company repaid the Revolver in full in July 2022 and has not subsequently drawn on the Revolver. The Company is working with its lender to modify the covenants.

Paycheck Protection Program

During the year ended December 31, 2020, the Company received a Paycheck Protection Program (“PPP”) loan in the amount of $9.4 million with a maturity date of April 2022. The loan was an interest only loan with the full balance due upon maturity. The PPP program was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was administered by the Small Business Administration (SBA). The Company submitted a request for forgiveness of the entire loan balance in September 2020, and in June 2021, the Company received notice from the SBA that the loan has been forgiven and the SBA repaid the lender on the Company’s behalf. The Company recorded a gain on forgiveness of debt of $9.5 million in June 2021, representing the principal amount of the loan and accrued interest through the forgiveness date.

The SBA has the ability to review the Company’s loan file in a period subsequent to the date the loan was forgiven and repaid in full. The results of any review could result in the SBA requesting additional documentation to support the Company’s initial eligibility for the loan and request for loan forgiveness, with the potential for the SBA to pursue legal remedies at its discretion.

(9) Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the “exit price” that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between independent market participants on the measurement date. The Company measures financial assets and liabilities at fair value at each reporting

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period using a fair value hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Factors used to develop the estimated fair value are unobservable inputs that are not supported by market activity. The sensitivity of the fair value measurement to changes in unobservable inputs may result in a significantly higher or lower measurement.

Level 1 investments consist of valuation of its Warrants as discussed above. The carrying values on the condensed consolidated balance sheets of the Company’s cash and cash equivalents, restricted cash, accounts receivable, prepaids, other current assets, accounts payable, accrued liabilities, deferred rent, lease liabilities, deferred revenue, other liabilities, and debt approximate fair values due to their short-term maturities. The Company utilizes Level 3 inputs in performing its annual goodwill impairment test and in determining the value of the Inspirato LLC Warrants for the nine months ended September 30, 2021.

(10) Loss per share

The following table sets forth the computation of basic and diluted net loss per share of Class A Common Stock. Class V Common Stock does not have economic rights in Inspirato Incorporated, including rights to dividends or distributions upon liquidation, and as a result, is not considered a participating security for basic and diluted loss per share. As such, basic and diluted loss per share is computed using the two-class method. EPS for the three and nine months ended September 30, 2021 was adjusted as a result of the recapitalization, see Notes 2 and 3 for additional information.

Basic loss per share is based on the weighted average number of Class A Common Stock outstanding during the period. Diluted loss per share is based on the weighted average number of Class A Common Stock used for the basic earnings per share calculation, adjusted for the dilutive effect of restricted stock units, nonqualified stock options, warrants, and profits interests, if any, using the “treasury stock” method and for the combined interests that convert into potential shares of Class A Common Stock, if any, using the “if converted” method. “Basic and diluted net loss attributable to Inspirato Incorporated per common unit and Class A share, respectively” is adjusted for the Company’s share of Inspirato LLC’s consolidated net loss, net of Inspirato Incorporated taxes, after giving effect to Inspirato LLC combined interests that convert into potential Class A Common Stock, to the extent it is dilutive. In addition, “Net loss attributable to Inspirato Incorporated per common unit and Class A share, respectively” is adjusted for the after-tax impact of changes to the fair value of derivative liabilities, to the extent the Company’s Warrants are dilutive.

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

  

2021

  

2022

    

2021

    

2022

  

(in thousands except per share amounts)

Numerator

 

  

 

  

  

 

  

 

Net loss attributable to Inspirato Incorporated

$

(9,119)

$

(3,105)

$

(13,599)

$

(17,474)

Denominator

 

 

  

 

  

 

  

Basic and diluted weighted average common units and Class A shares outstanding

 

105,503

 

55,192

 

105,503

 

50,015

Basic and diluted net loss attributable to Inspirato Incorporated per common unit and Class A share

$

(0.09)

$

(0.06)

$

(0.13)

$

(0.35)

16


Table of Contents

The following securities were anti-dilutive for the three and nine months ended September 30, 2021 and 2022:

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

  

2021

  

2022

    

2021

    

2022

(in thousands)

Restricted stock units

 

 

5,366

 

3,688

Stock options

7,873

6,748

8,057

7,241

Preferred warrants

509

509

78

Common stock warrants

8,625

8,113

Profit interests

9,280

9,280

1,428

Anti-dilutive securities

17,662

20,739

17,846

20,548

The Company’s Class V Common Stock is neither dilutive nor anti-dilutive for the period presented as their assumed conversion under the “if-converted” method to “Weighted-average shares for diluted loss per share” would cause a proportionate increase to “Net loss attributable to Inspirato Incorporated” for diluted loss per share.

(11)Leases

The Company enters into operating leases primarily for standalone homes, luxury condos and hotel rooms. The Company determines if an arrangement is a lease, or contains a lease, including embedded leases, at inception and records the leases in the Company’s financial statements upon later of ASC 842 adoption date of January 1, 2022, or lease commencement, which is the date when the underlying asset is made available for use by the lessor. Active leases have initial terms ranging from 3 to 15 years, and generally contain extension options at the approval of both parties. We have generally not included these renewal periods in the lease term as it is not reasonably certain that we will exercise the renewal option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Variable lease expense includes expenses incurred as a result of the lease agreement which are not considered known expenses at lease inception and are recognized as incurred. Variable expenses can include, but are not limited to, revenue shares, owner buyback adjustments and usage-based agreements. Operating lease expense and variable lease expense are included in cost of revenue on the condensed consolidated statement of operations.

The following table details the composition of operating lease expense for the three and nine months ended September 30, 2022

Three Months Ended

Nine Months Ended

    

September 30, 2022

September 30, 2022

 

  (in thousands)

Operating lease expense

$

22,240

$

60,035

Variable lease expense

 

218

 

1,411

As of September 30, 2022, the maturities of the Company’s operating lease liabilities (excluding short-term leases) were as follows:

    

Operating leases

(in thousands)

Remainder of 2022

$

21,483