SEC Filing | Inspirato Inc.

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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, 2023

☐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	ISPO	The Nasdaq Global Market
Warrants, each whole warrant exercisable for 0.05 shares of Class A Common Stock at an exercise price of $230.00 per share	ISPOW	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 November 2, 2023, the registrant had 3,492,810 shares of Class A Common Stock, 2,906,959 shares of Class V Common Stock, no shares of Class B Non-Voting Common Stock, no shares of Preferred Stock and 8,624,792 Warrants outstanding.

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		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 (Deficit)	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
SIGNATURES		43

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 Form 10-Q may include, for example, statements about:

●

Our partnership with Capital One Services, LLC (“Capital One”);

●

Our ability to service our outstanding indebtedness and satisfy related covenants;

●

Changes in our strategy, future operations, financial position, estimated revenue and losses, projected costs, prospects and plans;

●

The impact of changes to our executive management team;

●

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 or other product 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 natural disasters, acts of war, terrorism, widespread global pandemics or illness, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;

●

Expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012;

●

Our future capital requirements and sources and uses of cash;

●

Our ability to obtain funding for our operations and future growth;

●

The impact of our reduction in workforce on our expenses;

●

The impact of market conditions on our financial condition and operations, including fluctuations in interest rates and inflation;

●

Our ability to comply with the continued listing standards of Nasdaq or the continued listing of our securities on Nasdaq;

●

Our business, expansion plans and opportunities; and

●

Other factors detailed under the section Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 10-K and those discussed in other documents we file with the SEC.

Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.

Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

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 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.

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Part I - FINANCIAL INFORMATION

Item 1. Financial Statements.

INSPIRATO INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)


	December 31,		September 30,
	2022		2023
			(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	80,278	$	49,694
Restricted cash		1,661		1,662
Accounts receivable, net		3,140		1,269
Accounts receivable, net – related parties		663		848
Prepaid member travel		19,915		18,704
Prepaid expenses		10,922		5,975
Other current assets		302		1,776
Total current assets		116,881		79,928
Property & equipment, net		18,298		19,693
Goodwill		21,233		21,233
Right-of-use assets		271,702		226,897
Other noncurrent assets		2,253		5,578
Total assets	$	430,367	$	353,329

Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 8)	$	36,086	$	25,775
Deferred revenue (Note 4)		167,733		153,030
Lease liabilities		74,299		64,858
Total current liabilities		278,118		243,663
Deferred revenue, noncurrent (Note 4)		18,321		19,275
Lease liabilities, noncurrent		208,159		204,092
Convertible note (Note 9)		—		25,000
Warrants		759		216
Other noncurrent liabilities		—		2,647
Total liabilities		505,357		494,893

Commitments and contingencies (Note 13)

Equity (Deficit)
Class A common stock, par value $0.0001 per share, 50,000 shares authorized, 3,136 and 3,454 shares issued and outstanding as of December 31, 2022 and September 30, 2023, respectively		6		7
Class B common stock, par value $0.0001 per share, 5,000 shares authorized, no shares issued or outstanding as of September 30, 2023 (Note 9)				—
Class V common stock, $0.0001 par value, 25,000 shares authorized, 3,068 and 2,924 shares issued and outstanding as of December 31, 2022 and September 30, 2023, respectively		6		6
Preferred stock, par value $0.0001 per share, 5,000 shares authorized, no shares issued or outstanding as of December 31, 2022 and September 30, 2023, respectively		—		—
Additional paid-in capital		245,652		252,876
Accumulated deficit		(233,931)		(276,996)
Total equity (deficit) excluding noncontrolling interest		11,733		(24,107)
Noncontrolling interests (Note 17)		(86,723)		(117,457)
Total deficit		(74,990)		(141,564)
Total liabilities and deficit	$	430,367	$	353,329

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INSPIRATO INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2023		2022		2023
Revenue	$	93,132	$	82,598	$	258,903	$	258,390
Cost of revenue (including depreciation of $520 and $1,390 in 2022, and $2,323 and $4,054 in 2023, respectively)		62,959		57,704		167,669		182,442
Asset impairments (Note 12)		—		4,294		—		34,348
Gross margin		30,173		20,600		91,234		41,600
General and administrative (including equity-based compensation of $2,596 and $5,429 in 2022, and $6,686 and $11,074 in 2023, respectively)		16,934		23,487		50,878		59,482
Sales and marketing		9,438		8,600		30,641		23,201
Operations		10,351		8,623		31,204		23,247
Technology and development		3,778		2,355		9,462		8,724
Depreciation and amortization		812		998		2,165		2,992
Interest, net		(125)		1,731		207		1,204
Warrant fair value (gains) losses		(3,518)		(267)		3,026		(543)
Other (income) expense, net		(447)		3		(447)		381
Loss and comprehensive loss before income taxes		(7,050)		(24,930)		(35,902)		(77,088)
Income tax expense		202		492		589		909
Net loss and comprehensive loss		(7,252)		(25,422)		(36,491)		(77,997)
Net loss and comprehensive loss attributable to noncontrolling interests (Note 17)		4,147		8,769		19,017		35,028
Net loss and comprehensive loss attributable to Inspirato Incorporated	$	(3,105)	$	(16,653)	$	(17,474)	$	(42,969)

Basic and diluted weighted average Class A shares outstanding		2,760		3,419		2,501		3,339
Basic and diluted net loss attributable to Inspirato Incorporated per Class A share	$	(1.13)	$	(4.87)	$	(6.99)	$	(12.87)

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INSPIRATO INCORPORATED

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) (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, 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)
Net loss and comprehensive 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)		—	—		—	2,342		4	3,489		7		206,253		—		(64,656)		141,608
Issuance of common stock upon exercise of warrants	—		—	—		—	254		1	—		—		9,330		—		—		9,331
Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes	—		—	—		—	1		—	—		—		(29)		—		—		(29)
Distributions	—		—	—		—	—		—	—		—		—		(183)		—		(183)
Balance at March 31, 2022	—	$	—	—	$	—	2,597	$	5	3,489	$	7	$	237,433	$	(223,653)	$	(76,557)	$	(62,765)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(2,067)		(2,969)		(5,036)
Equity-based compensation	—		—	—		—	—		—	—		—		2,431		—		—		2,431
Issuance of common stock	—		—	—		—	25		—	—		—		5,000		—		—		5,000
Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes	—		—	—		—	1		—	—		—		(65)		—		—		(65)
Balance at June 30, 2022	—	$	—	—	$	—	2,623	$	5	3,489	$	7	$	244,799	$	(225,720)	$	(79,526)	$	(60,435)
Net loss and comprehensive 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	—		—	—		—	89		—	—		—		1,306		—		—		1,306
Issuance of Class A shares upon conversion of Class V shares	—		—	—		—	226		1	(226)		—		—		(2,469)		2,469		1
Balance at September 30, 2022	—	$	—	—	$	—	2,938	$	6	3,263	$	7	$	248,701	$	(231,294)	$	(81,204)	$	(63,784)

Balance at January 1, 2023	—	$	—	—	$	—	3,136	$	6	3,068	$	6	$	245,652	$	(233,931)	$	(86,723)	$	(74,990)
Cumulative effect of change in accounting principle	—		—	—		—	—		—	—		—		—		(96)		(108)		(204)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(2,896)		(3,007)		(5,903)
Equity-based compensation	—		—	—		—	—		—	—		—		657		—		—		657
Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes	—		—	—		—	91		—	—		—		438		—		—		438
Issuance of Class A shares upon conversion of Class V shares	—		—	—		—	108		1	(108)		—		(1,481)		—		1,480		—
Balance at March 31, 2023	—	$	—	—	$	—	3,335	$	7	2,960	$	6	$	245,266	$	(236,923)	$	(88,358)	$	(80,002)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(23,420)		(23,252)		(46,672)
Equity-based compensation	—		—	—		—	—		—	—		—		3,731		—		—		3,731
Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes	—		—	—		—	27		—	—		—		32		—		—		32
Issuance of Class A shares upon conversion of Class V shares	—		—	—		—	32		—	(32)		—		(683)		—		683		—
Balance at June 30, 2023	—	$	—	—	$	—	3,394	$	7	2,928	$	6	$	248,346	$	(260,343)	$	(110,927)	$	(122,911)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(16,653)		(8,769)		(25,422)
Equity-based compensation	—		—	—		—	—		—	—		—		6,686		—		—		6,686
Issuance of common stock upon exercise of stock option awards, net of shares withheld for income taxes	—		—	—		—	56		—	—		—		83		—		—		83
Issuance of Class A shares upon conversion of Class V shares	—		—	—		—	4		—	(4)		—		(2,239)		—		2,239		—
Balance at September 30, 2023	—	$	—	—	$	—	3,454	$	7	2,924	$	6	$	252,876	$	(276,996)	$	(117,457)	$	(141,564)

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INSPIRATO INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Nine months ended September 30,
	2022		2023
Cash flows from operating activities:
Net loss and comprehensive loss	$	(36,491)	$	(77,997)
Adjustments to reconcile net loss and comprehensive loss to net cash provided by (used in) operating activities:
Depreciation and amortization		3,555		7,047
Loss on disposal of fixed assets		214		589
Warrant fair value losses (gains)		3,026		(543)
Asset impairments		—		34,348
Equity‑based compensation		5,429		11,074
Amortization of right-of-use assets		68,479		63,408
Changes in operating assets and liabilities:
Accounts receivable, net		(71)		1,667
Accounts receivable, net – related parties		160		(185)
Prepaid member travel		1,940		2,275
Prepaid expenses		(2,903)		1,581
Other assets		129		(110)
Accounts payable and accrued liabilities		(2,966)		(3,594)
Deferred revenue		(19,535)		(18,828)
Lease liability		(69,245)		(66,137)
Net cash used in operating activities		(48,279)		(45,405)

Cash flows from investing activities:
Development of internal-use software		(2,747)		(5,924)
Purchase of property and equipment		(7,118)		(4,807)
Net cash used in investing activities		(9,865)		(10,731)

Cash flows from financing activities:
Repayments of debt		(27,267)		—
Proceeds from debt		14,000		25,000
Proceeds from reverse recapitalization		90,070		—
Payments of reverse recapitalization costs		(23,899)		—
Proceeds from issuance of Class A common stock		5,000		—
Payments of employee taxes for exercise and vesting of stock-based award exercises		(117)		(1,106)
Proceeds from option exercises		1,329		1,659
Distributions		(183)		—
Net cash provided by financing activities		58,933		25,553

Net increase (decrease) in cash, cash equivalents, and restricted cash		789		(30,583)
Cash, cash equivalents, and restricted cash – beginning of period		82,953		81,939
Cash, cash equivalents, and restricted cash – end of period	$	83,742	$	51,356

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INSPIRATO INCORPORATED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1) Nature of Business

Inspirato Incorporated and its subsidiaries (the “Company”, also referred to as “Inspirato”, “we”, “us”, and “our”) 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 Inspirato portfolio includes branded luxury vacation homes, accommodations at five-star hotel and resort partners, and custom travel experiences.

The Company was initially incorporated in Delaware on July 31, 2020 as Thayer Ventures Acquisition Corporation (“Thayer”), a special purpose acquisition company. On February 11, 2022 (the “Closing Date”), the Company 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 a subsidiary of the Company merged with and into Inspirato LLC (the “Business Combination”), resulting in Inspirato LLC becoming a subsidiary of the Company. The Company 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 consolidated financial statements presented herein represent the operating results of Inspirato LLC before and after the Business Combination.

Reverse Stock Split

On September 26, 2023, our stockholders approved a proposal to adopt a series of alternative amendments to our certificate of incorporation to effect a reverse stock split (as defined below) with the final reverse stock split ratio and timing of any reverse stock split to be determined by the Board of Directors, in its discretion. Our Board of Directors subsequently approved a final reverse stock split ratio of 1-for-20 of our Class A common stock, par value $0.0001 per share (“Class A Common Stock”), Class B Non-Voting common stock, par value $0.0001 per share (“Class B Non-Voting Common Stock”) and Class V common stock, par value $0.0001 per share (“Class V Common Stock”) (collectively, the “Reverse Stock Split”). The Reverse Stock Split became effective as of October 16, 2023 (the “Effective Time”). No fractional shares of Common Stock were issued in connection with the Reverse Stock Split, and stockholders who would otherwise have received a fractional share of Common Stock pursuant to the Reverse Stock Split received cash in lieu of the fractional share, with reference to the closing trading price of the Company’s Class A Common Stock on the trading day immediately preceding the Effective Time (as adjusted to give effect to the reverse stock split), without interest.

The reverse stock split had no effect on the par value of the Company's Common Stock. The total number of shares of Class A Common Stock that the Company is authorized to issue was reduced from 1,000,000,000 to 50,000,000, the total number of shares of Class B Non-Voting Common Stock that the Company is authorized to issue was reduced from 100,000,000 to 5,000,000, the total number of shares of Class V Common Stock that the Company is authorized to issue was reduced from 500,000,000 to 25,000,000 and the total number of shares of Preferred Stock, par value $0.0001 per share (“Preferred Stock”) that the Company is authorized to issue was reduced from 100,000,000 to 5,000,000. Immediately after the Reverse Stock Split, each stockholder's percentage ownership interest in the Company and proportional voting power remained unchanged, except for minor changes resulting from the treatment of fractional shares.

As of the Effective Time, proportional adjustments were also made to the number of shares of Class A Common Stock issuable pursuant to the Company’s outstanding warrants, Note (as defined below) and equity awards, as well as the number of shares authorized and reserved for issuance pursuant to the Company’s equity incentive and employee stock purchase plans. The exercise prices, conversion prices and stock price targets of outstanding warrants, Note and equity awards were also proportionately adjusted, as applicable. All historical share and per share amounts have been adjusted to reflect the Reverse Stock Split for all periods presented.

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(2) Significant Accounting Policies

(a) Basis of Presentation

These unaudited consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of 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 consolidated financial statements and the accompanying notes (collectively, the “Consolidated Financial Statements”) should be read together with the audited consolidated financial statements and accompanying notes included in the Company’s 2022 Form 10-K.

These 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, 2023 and the results of operations for the three and nine months ended September 30, 2022 and 2023. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or any other future interim or annual period.

All amounts presented in these Consolidated Financial Statements are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.

Refer to Note 2, Significant Accounting Policies to the consolidated financial statements in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023, for a summary and discussion of the Company’s significant accounting policies, except as updated below.

(b) Principles of Consolidation

For the periods after February 11, 2022, the Consolidated Financial Statements comprise the accounts of the Company, 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 and as such, Inspirato LLC was evaluated under the voting interest model. As Inspirato Incorporated has the right to appoint a majority of the 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 the 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.

The preparation of the 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 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 Consolidated Financial Statements include amounts that are based on management’s best estimates and judgments. The most significant estimates relate to lease revenue forecasts as they relate to right-of-use asset impairments, incremental borrowing rates as they relate to leases, valuation and estimated usage related to our member loyalty program, valuation and estimated economic lives of capitalized software and long-lived assets, contingencies, allowance accounts, and fair value measurements related to stock-based compensation.

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(d) Goodwill

The Company performs its annual impairment review of goodwill at December 1 and when a triggering event occurs between annual impairment tests. At September 30, 2023, management determined that a triggering event occurred in relation to the impairment of asset groups related to the Company’s operating leases. The Company performed a qualitative assessment and determined based on that assessment that it is not more likely than not that the fair value of the Company’s reporting unit is less than its carrying value. As such, no goodwill impairment was identified as a result of this interim test and a quantitative impairment test is not required.

(e) Revenue

Deferred Revenue

The Company records any unrecognized portion of enrollment fees, prepaid subscription dues, and travel to be delivered as deferred revenue until applicable performance obligations are met.

Loyalty Program

In August of 2023, the Company implemented a member loyalty program (“Rewards”). Rewards members accumulate rewards based on their activity with us. Members who earn one of the three Rewards statuses may enjoy, depending on their status, among other benefits, extra savings on Inspirato Club (“Club”) bookings, early access to new property releases, new Experiences, and year-end festive dates, and complimentary nights, which provide them with a material right to free or discounted goods or services in the future upon accumulation of the required Rewards status.

When members spend with Inspirato, the Company will defer a portion of the members’ total spend to Rewards, representing the value of the program’s separate performance obligation. The Company determines the standalone selling price of these performance obligations related to Rewards based on the aggregate estimated value of usage of individual benefits within the program in relation to total member spend. The Company’s estimates of usage and value of the program is updated on a regular basis to incorporate recent customer trends and projections. Revenues related to Rewards are recognized over time based upon historical travel patterns and members’ average life, which includes an estimate of Rewards benefits that will expire or will not be used during the benefit period of the Rewards material rights (up to 30 months). When Rewards revenue is recognized, deferred revenue related to Rewards is reduced, and the related revenue is recognized in the consolidated statement of operations.

(f) Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

(g) Recently Adopted Accounting Pronouncements

ASU 2016-13

On January 1, 2023, the Company adopted Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including accounts receivable.

The Company adopted ASU 2016-13 using the modified retrospective met