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Significant Accounting Policies
12 Months Ended
Dec. 31, 2023
Significant Accounting Policies  
Significant Accounting Policies

(2) Significant Accounting Policies

(a) Basis of Presentation

The Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Consolidated Financial Statements include the accounts of the Company, its wholly-owned or majority-owned subsidiaries and entities in which the Company is deemed to have a direct or indirect controlling financial interest based on either a variable interest model or voting interest model. All intercompany balances and transactions have been eliminated in consolidation.

For the year ended December 31, 2021, the Consolidated Financial Statements present the consolidated results of operations, comprehensive loss, cash flows and changes in equity of Inspirato LLC.

(b) Reclassification of Prior Year Presentation

Reclassifications of previously reported amounts have been made to conform to the current year’s presentation where accounts payable and accrued liabilities, which had been previously reported separately, have been combined within the Consolidated Balance Sheets and Consolidated Statements of Cash Flows. This reclassification did not impact previously reported amounts on the Company’s audited Consolidated Statements of Operations or Consolidated Statements of Equity.

To conform with the current year’s presentation where equity-based compensation reported is allocated between the applicable financial statement line items within the Consolidated Statements of Operations, the Company reclassified $0.7 million and $2.6 million of equity-based compensation expense for the years ended December 31, 2021 and 2022, respectively, out of general and administrative and into cost of revenue, sales and marketing, operations, and technology and development. This adjustment did not impact the Company’s gross margin or net loss presented within the Consolidated Statements of Operations for the year ended December 31, 2021. This adjustment impacted gross margin presented within the Consolidated Statements of Operations for the year ended December 31, 2022. This adjustment did not impact previously reported amounts on the Company’s audited Consolidated Balance Sheets, Consolidated Statements of Equity or Consolidated Statements of Cash Flows. See the table below for a reconciliation of previously reported balances to the adjusted balances for this year’s presentation within the Consolidated Statements of Operations (in thousands):

Previously Reported

Adjustment

Adjusted Presentation

For the year ended December 31, 

For the year ended December 31, 

For the year ended December 31, 

2021

2022

2021

2022

2021

2022

Cost of revenue

$

152,747

$

228,362

$

$

39

$

152,747

$

228,401

General and administrative

$

50,477

$

68,383

$

(691)

$

(2,576)

$

49,786

$

65,807

Sales and marketing

$

27,821

$

38,540

$

190

$

828

$

28,011

$

39,368

Operations

$

26,814

$

41,267

$

489

$

1,105

$

27,303

$

42,372

Technology and development

$

4,914

$

13,615

$

12

$

604

$

4,926

$

14,219

To conform with the current year’s presentation where asset impairments are separately stated from cost of revenue within the Consolidated Statements of Operations, the Company reclassified the $0.9 million asset impairment out of cost of revenue during the year ended December 31, 2022, resulting in a change in cost of revenue from $229.3 million to $228.4 million, and into asset impairment. No adjustment was necessary for the year ended December 31, 2021 as there were no asset impairments. This adjustment did not impact the Company’s gross margin or net loss presented for the year ended December 31, 2022 nor did it impact previously reported amounts on the Company’s audited Consolidated Balance Sheets, Consolidated Statements of Equity or Consolidated Statements of Cash Flows.

(c) Use of Estimates

The preparation of 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 accompanying notes. Changes in facts and circumstances or discovery of new information may result in revised estimates, and actual results could differ from those estimates.

(d) Cash and Cash Equivalents

Cash and cash equivalents include cash and investments in highly liquid investments purchased with an original maturity of three months or less. Cash balances held in banks exceed the federal depository insurance limit. The Company’s cash is only insured up to the federal depository insurance limit. A significant portion of the Company’s cash balances are held at a single banking institution.

Amounts in transit from credit card processors are also considered cash equivalents as they generally settle to cash within two to five days of the sales transaction.

(e) Restricted Cash

The Company classifies deposits as required to be maintained by its credit card and ACH processors as restricted cash.

(f) Accounts Receivable

Accounts receivables are recorded at the original invoiced amounts, net of a reserve for credit losses. The reserve for credit losses is estimated based on historical collectivity, aging of receivables, macroeconomic trends and other factors that may impact the Company’s ability to collect against those receivables. As of both December 31, 2022 and 2023, the Company’s reserve for credit losses was $0.8 million.

(g) Property and Equipment

Property and equipment are recorded at cost. The straight-line method is used for computing depreciation and amortization. Assets are depreciated over their estimated useful lives ranging from three to five years to depreciation and amortization within the Consolidated Statements of Operations. The cost of leasehold improvements is depreciated over the lesser of the remaining term of the associated leases or the estimated useful lives of the assets to cost of revenue within the Consolidated Statements of Operations. Capitalized purchased software costs are depreciated over three years to general and administrative within the Company’s Consolidated Statements of Operations. Costs of maintenance and repairs are charged to their respective expense line item within the Consolidated Statements of Operations when incurred.

Direct costs incurred in the development of internal-use software are capitalized once the preliminary project stage is completed, management has committed to funding the project, and completion and use of the software for its intended purpose is probable. The Company ceases capitalization of development costs once the software has been substantially completed and is ready for its intended use. Software development costs are amortized over their estimated useful lives of three years within depreciation and amortization on the Consolidated Statements of Operations.

The Company's cloud computing arrangements include software licenses purchased from external vendors. Implementation costs incurred during the application development stage and other costs meeting certain criteria are capitalized. These assets are included in other noncurrent assets on the Company’s Consolidated Balance Sheets and amortized on a straight-line basis over their assessed useful lives.

The carrying amounts of the Company’s long-lived assets, including lease right-of-use assets, are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful life is shorter than the Company had originally estimated. The recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over their remaining lives. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, the remaining carrying value is amortized over the new shorter useful life.

There were no property and equipment impairments during the years ended December 31, 2021 and 2022 and there were $0.3 million in property and equipment impairments during the year ended December 31, 2023, which were recorded to asset impairments within the Company’s Consolidated Statements of Operations.

(h) Leases

The Company is party to operating lease agreements for its vacation homes, certain hotels and corporate offices. Operating lease assets are included within right-of-use (“ROU”) assets and the corresponding operating lease liabilities are included within lease liabilities and lease liabilities, noncurrent on the Company’s Consolidated Balance Sheets. The Company has elected not to present short-term leases on the Consolidated Balance Sheets 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 none of the Company’s leases 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. The Company also elected the practical expedient to not separate lease and non-lease components for all of the Company’s current classes of leases.

During the years ended December 31, 2021, 2022 and 2023, the Company recognized $0.0 million, $0.9 million and $40.5 million of impairment expense within the Company’s Consolidated Statements of Operations related to ROU assets with carrying values in excess of their recoverable values. The recoverability of these ROU assets is assessed by comparing the carrying amount of each asset to the future net undiscounted cash flows the asset is expected to generate over its remaining life.

(i) Goodwill

Goodwill arose from the acquisition of certain assets of Portico Club, LLC (“Portico”) on December 16, 2013. Goodwill was recorded based on management’s best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition. Goodwill is not amortized, but rather is assessed annually for impairment on December 1 and when events and circumstances indicate that the fair value of a reporting unit with goodwill has been reduced below its carrying value. The Company has determined that the Company has one reporting unit. The test for impairment requires that the Company first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, the Company then performs a quantitative impairment test. Otherwise, the quantitative impairment test is not required. The Company performed its annual 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, and as such, determined that no goodwill impairment charges were necessary. No goodwill impairment charges were recognized during the years ended December 31, 2021, 2022 or 2023.

(j) Revenue

The Company’s revenue is reported net of discounts and incentives as a reduction of the transaction price. Some of the Company’s contracts with members contain multiple performance obligations. For member contracts that include multiple performance obligations, the Company accounts for individual performance obligations as if they are distinct. The transaction price is then allocated to each performance obligation based on its standalone selling price. The Company generally determines the standalone selling price based on the prices charged to members.

Subscription Revenue

The Company’s contracts with members grant access to book the Company’s residences and other privileges that vary based on the type of active paid member subscription (“Subscription”). The Company’s predominant subscription offerings include Inspirato Club and Inspirato Pass Subscriptions. Inspirato Club Subscriptions grant access to the Company’s portfolio. In addition to Inspirato Club Subscription benefits, Inspirato Pass Subscriptions include the ability to book certain stays without paying additional nightly rates, taxes or fees. Subscriptions generally include an enrollment fee and monthly, semi-annual, annual, or multi-year fees, which are generally paid upfront and are recorded as deferred revenue on the Consolidated Balance Sheets. The Company has an unconditional right to these fees in its contracts with members for a Subscription as the Company provides the right to book to its members. Thus, the Company recognizes Subscription fee revenue over the respective contract period.

New Legacy subscriptions are no longer sold, however, members who purchased a legacy subscription paid a substantial upfront payment to join the club and, on an ongoing basis, are charged dues which allow members continued access to the Company’s portfolio, similar to Inspirato Club members. Legacy dues are recognized to revenue within the Company’s Consolidated Statements of Operations. The initial upfront Legacy payments made were deferred and are recognized to revenue over 5 years, the expected Legacy customer’s time within the club, within the Company’s Consolidated Statements of Operations. From those payments, $4.2 million and $1.0 million remain within deferred revenue on the Consolidated Balance Sheets as of December 31, 2022 and 2023, respectively. 

Additional Subscription revenue is generated from Inspirato for Good (“IFG”) and Inspirato for Business (“IFB”). IFG is a platform where the Company works with nonprofit organizations to auction travel packages during the nonprofit’s events. IFB represents the Company’s business-to-business channel which caters towards the incentive travel market for other companies with a ready-to-use travel solution to reward and retain their employees and business partners. IFG and IFB contracts include both subscription and travel performance obligations which are allocated to each performance obligation based on their standalone selling prices and are recognized to revenue within the Company’s Consolidated Statements of Operations as each performance obligation is satisfied.

Contracts are cancellable at the end of their contract term. The Company has determined that enrollment fees for Subscriptions do not provide a material right to a member and thus, these enrollment fees are recognized upon receipt. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined the Company’s contracts do not include a significant financing component.

Travel Revenue

When a trip is purchased, the Company records the cash received as deferred revenue on the Consolidated Balance Sheets. Travel revenue is recognized to revenue within the Company’s Consolidated Statements of Operations as performance obligations are met over the period of the stay. Revenue related to cancellation fees and other fees is recognized to revenue within the Company’s Consolidated Statements of Operations as the associated obligations to members are satisfied or extinguished.

The Company is required to collect certain taxes from customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis. These taxes are not recognized as revenue. Rather, the Company records a liability within accounts payable and accrued liabilities on the Consolidated Balance Sheets upon collection from the customer and reduces the liability when payments are remitted to the applicable governmental agency.

Loyalty Program

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

The Company defers a portion of member spend, which represents the value of the program’s separate performance obligation, to Rewards within deferred revenue on the Company’s Consolidated Balance Sheets. 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 are updated on a regular basis to incorporate recent member 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). As Rewards revenue is recognized, the deferred revenue related to Rewards is reduced and is recognized to revenue within in the Consolidated Statements of Operations.

Deferred Revenue

As a result of the timing difference from when a member purchases a product, the Company records any unrecognized portion of travel revenue, prepaid enrollment and Subscription dues, and travel credits to be delivered as deferred revenue on the Company’s Consolidated Balance Sheets until applicable performance obligations are met.

Additionally, members may purchase travel credits or obtain them upon cancelling a trip in certain situations. Travel credits can be applied towards future services, including Subscription and travel. Travel credits are recorded as deferred revenue on the Company’s Consolidated Balance Sheets until either the satisfaction of the purchased performance obligations for or the expiration of the credits occurs which is generally 3 years.

(k) Cost of revenue

Cost of revenue includes costs directly related to delivering travel to the Company’s members as well as depreciation and amortization related to leasehold improvements and equipment at residences. These direct costs include payments for properties the Company leases, operating and maintenance costs of those properties, including on-site service personnel costs, costs paid to the Company’s hotel partners for member stays, and booking costs from Inspirato Only experiences and Bespoke trips.

(l) Advertising Costs

The Company incurs advertising expenses to promote the Company’s brand. The Company expenses the production costs associated with advertisements in the period in which the advertisement first takes place and expenses the costs of placing the advertisement as incurred each time the advertisement is shown. Advertising expenses are included in sales and marketing expense within the Company’s Consolidated Statements of Operations and totaled $8.5 million, $8.0 million and $7.1 million for the years ended December 31, 2021, 2022, and 2023, respectively.

(m) Equity-Based Compensation

The Company accounts for equity-based compensation for all transactions in which an entity exchanges its equity instruments for goods or services, which generally require the Company to measure the cost of employee services received in exchange for an award of equity instruments in earnings based on the fair value and vesting provisions of the award on the date of grant. Compensation cost is recognized on a straight-line basis over the requisite service period, with forfeitures accounted for as they occur.

(n) 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 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. The Company accounts for income taxes 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 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 see Note 10 – Income Taxes.

(o) 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 ownership interest to 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, any dividends or distributions paid to the noncontrolling interests and any changes to Inspirato Incorporated’s ownership of Inspirato LLC.

As of December 31, 2023, Inspirato Incorporated directly owned 54.9% of the interest in Inspirato LLC and the noncontrolling interest was 45.1%. The noncontrolling interest relates to the economic interests in Inspirato LLC held directly by owners of the Company’s Inspirato Incorporated Class V common stock (“Class V Common Stock”) in the form of New Common Units (as defined below) as a result of the Business Combination. See Note 3 - Reverse Recapitalization.

(p) Derivative Instruments

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. 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.

The Company’s outstanding warrants are recognized as derivative liabilities. Accordingly, the Company recognizes the warrants as liabilities at fair value subject to re-measurement at each balance sheet date until exercised and any change in fair value is recognized in (gain) loss on fair value instruments within the Company’s Consolidated Statements of Operations.

(q) Segment Information

The Company provides hospitality services in both the U.S. as well as other foreign jurisdictions and has both members and assets around the world. The Company is managed by a U.S. based management team and measures and evaluates financial and operational performance as a single enterprise. Services are sold from the U.S. and not differentiated based upon purchase location and information is reported to the chief operating decision maker and the executive team on an aggregated world-wide basis. The Company operates as a single segment.

(r) Recently Adopted Accounting Pronouncements

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 method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded increases to both accumulated deficit and non-controlling interests of $0.1 million as of January 1, 2023 for the cumulative effect of adopting ASU 2016-13.

In August of 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). This guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity, and will instead account for the convertible debt wholly as debt. The guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment. For smaller reporting companies, as defined by the SEC, the guidance is effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. In connection with the issuance of the Note (see Note 8), the Company adopted ASU 2020-06 and elected to follow the fair value option under the modified retrospective approach. There was no other impact of the adoption for the Company.

(s) Recently Issued Accounting Pronouncements Not Yet Adopted

In December of 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). This guidance requires disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a specified quantitative threshold. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.

In November of 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This guidance provides new segment disclosure requirements for entities with a single reportable segment and modifies certain reportable segment disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.