Inspirato rporated(US:ISPO)2023-05-09 21:00markdown [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Inspirato Incorporated's unaudited financial statements, management's discussion and analysis, and disclosures on market risks and internal controls [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Inspirato Incorporated's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed notes on business and accounting policies [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Snapshot (in millions): | Metric | Dec 31, 2022 | Mar 31, 2023 | | :-------------------------- | :----------- | :----------- | | Cash and cash equivalents | $80.28 million | $59.92 million | | Total current assets | $116.88 million | $104.71 million | | Total assets | $430.37 million | $406.28 million | | Total current liabilities | $278.12 million | $263.91 million | | Total liabilities | $505.36 million | $486.28 million | | Total deficit | $(74.99) million | $(80.00) million | - Total assets decreased by **$24.09 million**, primarily due to a reduction in cash and cash equivalents[17](index=17&type=chunk) - Total deficit widened from **$(74.99) million** to **$(80.00) million**[17](index=17&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Statements of Operations (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | | Revenue | $82.07 million | $91.70 million | | Cost of revenue | $47.31 million | $60.05 million | | Gross margin | $34.76 million | $31.65 million | | Gross margin percent | 42% | 35% | | Net loss and comprehensive loss | $(24.20) million | $(5.90) million | | Basic and diluted net loss per Class A share | $(0.29) | $(0.04) | - Net loss significantly improved by **76%** year-over-year, from **$(24.20) million** to **$(5.90) million**[19](index=19&type=chunk) - Revenue increased by **12%** to **$91.70 million**, but gross margin percentage decreased by **7 percentage points** to **35%**[19](index=19&type=chunk) [Condensed Consolidated Statements of Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity%20(Deficit)) Equity (Deficit) Changes (in millions): | Metric | Dec 31, 2022 | Mar 31, 2023 | | :-------------------------- | :----------- | :----------- | | Additional paid-in capital | $245.65 million | $245.27 million | | Accumulated deficit | $(233.93) million | $(236.92) million | | Total deficit | $(74.99) million | $(80.00) million | - Total deficit increased by **$5.01 million** to **$(80.00) million**, primarily due to the net loss incurred during the quarter[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(12.67) million | $(17.59) million | | Net cash used in investing activities | $(1.17) million | $(3.21) million | | Net cash provided by financing activities | $65.96 million | $0.44 million | | Net increase (decrease) in cash | $52.12 million | $(20.36) million | | Cash, cash equivalents, and restricted cash – end of period | $135.08 million | $61.58 million | - Net cash used in operating activities increased by **$4.92 million**, and net cash used in investing activities increased by **$2.04 million**[21](index=21&type=chunk) - Net cash provided by financing activities decreased significantly by **$65.52 million** due to the absence of reverse recapitalization proceeds in 2023[21](index=21&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [(1) Nature of Business](index=10&type=section&id=(1)%20Nature%20of%20Business) - Inspirato is a subscription-based luxury travel company providing exclusive access to curated vacation options[22](index=22&type=chunk) - The company completed a reverse recapitalization with Thayer Ventures Acquisition Corporation on February 11, 2022, with Inspirato LLC identified as the accounting acquirer[23](index=23&type=chunk) - Revenues recovered to pre-pandemic levels by March 31, 2023, despite the ongoing impact of the COVID-19 pandemic[24](index=24&type=chunk) [(2) Significant Accounting Policies](index=10&type=section&id=(2)%20Significant%20Accounting%20Policies) - Unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC interim reporting rules[25](index=25&type=chunk) - The company adopted ASU 2016-13 (CECL methodology) on January 1, 2023, leading to a **$0.2 million** net decrease in retained earnings[34](index=34&type=chunk)[35](index=35&type=chunk) - No significant changes to accounting policies were disclosed compared to the 2022 Annual Report on Form 10-K[32](index=32&type=chunk) [(3) Reverse Recapitalization](index=12&type=section&id=(3)%20Reverse%20Recapitalization) - The Business Combination on February 11, 2022, was a reverse recapitalization, with Inspirato LLC as the accounting acquirer[36](index=36&type=chunk)[37](index=37&type=chunk) - The resulting UP-C structure allows Continuing Inspirato Members to retain equity in Inspirato LLC and hold Class V Common Stock for voting[36](index=36&type=chunk)[39](index=39&type=chunk) - The company raised **$90 million** in gross proceeds from the Business Combination, with **$66 million** in net cash proceeds after **$25 million** in transaction costs[42](index=42&type=chunk) [(4) Revenue](index=14&type=section&id=(4)%20Revenue) Revenue Breakdown (in millions): | Revenue Type | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :----------- | :-------------------------- | :-------------------------- | | Travel | $49.77 million | $55.13 million | | Subscription | $32.17 million | $36.51 million | | Other | $0.13 million | $0.06 million | | **Total** | **$82.07 million** | **$91.70 million** | - Total revenue increased by **12%** to **$91.70 million** for the three months ended March 31, 2023[45](index=45&type=chunk) - Subscription revenue grew by **14%** and travel revenue by **11%** year-over-year[45](index=45&type=chunk) [(5) Prepaid Expenses and Prepaid Member Travel](index=14&type=section&id=(5)%20Prepaid%20Expenses%20and%20Prepaid%20Member%20Travel) Prepaid Expenses (in millions): | Category | Dec 31, 2022 | Mar 31, 2023 | | :--------------- | :----------- | :----------- | | Property operations | $4.30 million | $4.17 million | | Software | $3.60 million | $3.27 million | | Operating supplies | $1.44 million | $1.39 million | | Insurance | $1.58 million | $2.30 million | | **Total** | **$10.92 million** | **$11.13 million** | - Prepaid member travel increased from **$20 million** at December 31, 2022, to **$25 million** at March 31, 2023[47](index=47&type=chunk) [(6) Property and Equipment](index=15&type=section&id=(6)%20Property%20and%20Equipment) Property and Equipment, Net (in millions): | Category | Dec 31, 2022 | Mar 31, 2023 | | :-------------------------------- | :----------- | :----------- |\ | Residence leasehold improvements | $15.30 million | $16.32 million | | Internal-use software | $13.56 million | $14.30 million | | Total cost | $37.47 million | $39.24 million | | Accumulated depreciation and amortization | $19.17 million | $20.88 million | | **Property & equipment, net** | **$18.30 million** | **$18.36 million** | - Net property and equipment increased slightly to **$18.36 million** at March 31, 2023, from **$18.30 million** at December 31, 2022[49](index=49&type=chunk) [(7) Income Taxes](index=15&type=section&id=(7)%20Income%20Taxes) - Inspirato Incorporated is subject to U.S. federal, state, and local income taxes on its **49.2%** distributive share of Inspirato LLC's net taxable income[50](index=50&type=chunk) - The effective income tax rate was **negative 3.51%** for Q1 2023, differing from the statutory rate due to losses allocated to noncontrolling interests and a full valuation allowance against deferred tax assets[51](index=51&type=chunk)[52](index=52&type=chunk) [(8) Debt](index=15&type=section&id=(8)%20Debt) - The company's revolving line of credit (Revolver) with a **$14 million** limit was terminated in March 2023[54](index=54&type=chunk) - Interest expense related to the Revolver decreased from **$0.1 million** in Q1 2022 to **$0** in Q1 2023[54](index=54&type=chunk) [(9) Fair Value Measurements](index=16&type=section&id=(9)%20Fair%20Value%20Measurements) - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[55](index=55&type=chunk)[59](index=59&type=chunk) - Public Warrants are classified as Level 1 financial liabilities, and short-term/long-term borrowings are considered Level 2 liabilities[56](index=56&type=chunk) [(10) Loss per share](index=16&type=section&id=(10)%20Loss%20per%20share) Loss Per Share (in millions, except per share amounts): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to Inspirato Incorporated | $(12.30) million | $(2.90) million | | Basic and diluted weighted average Class A shares outstanding | 42,312 | 64,517 | | Basic and diluted net loss per Class A share | $(0.29) | $(0.04) | - Basic and diluted net loss per Class A share improved significantly to **$(0.04)** for Q1 2023 from **$(0.29)** in Q1 2022[63](index=63&type=chunk) - Anti-dilutive securities totaled **38.85 million** in Q1 2023, up from **19.70 million** in Q1 2022[63](index=63&type=chunk) [(11) Leases](index=17&type=section&id=(11)%20Leases) Operating Lease Expense (in millions): | Expense Type | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :-------------------- | :-------------------------- | :-------------------------- | | Operating lease expense | $18.33 million | $22.80 million | | Variable lease expense | $0.66 million | $0.39 million | - Operating lease expense increased to **$22.80 million** in Q1 2023 from **$18.33 million** in Q1 2022[65](index=65&type=chunk) - Total minimum operating lease payments as of March 31, 2023, were **$328.13 million**, with a weighted-average remaining lease term of **5.6 years** and a discount rate of **6.83%**[66](index=66&type=chunk) [(12) Commitments and Contingencies](index=18&type=section&id=(12)%20Commitments%20and%20Contingencies) - A class action lawsuit was filed on February 16, 2023, alleging misrepresentation of financial statements related to a prior restatement[68](index=68&type=chunk) - The company has future payment obligations of **$92 million** for **52** uncommenced leases as of March 31, 2023[70](index=70&type=chunk) [(13) Warrants](index=19&type=section&id=(13)%20Warrants) - **8.6 million** Public Warrants were outstanding at March 31, 2023, with a fair value of **$0.9 million**[71](index=71&type=chunk)[72](index=72&type=chunk) - Warrant fair value losses decreased significantly from **$18 million** in Q1 2022 to **$0.1 million** in Q1 2023[72](index=72&type=chunk) - A new Warrant Agreement with Saks.com LLC allows Saks to acquire up to **18 million** Class A Common Stock shares at **$2.00** per share, contingent on subscription referrals[73](index=73&type=chunk) [(14) Equity of Inspirato LLC](index=19&type=section&id=(14)%20Equity%20of%20Inspirato%20LLC) - Inspirato LLC equity units were recast using an exchange ratio of **1-for-37.2275** post-Business Combination[74](index=74&type=chunk) - Holders received Class A Common Stock or Class V Common Stock and New Common Units[74](index=74&type=chunk) [(15) Equity-Based Compensation](index=19&type=section&id=(15)%20Equity-Based%20Compensation) - The Unit Option Plan was terminated, and outstanding options were converted into Exchanged Options for Class A Common Stock[75](index=75&type=chunk)[76](index=76&type=chunk) - The 2021 Equity Incentive Plan, effective post-Business Combination, initially authorized **15.9 million** Class A shares, with an evergreen provision for annual increases[79](index=79&type=chunk) - Unrecognized compensation cost for RSUs was **$28 million** at March 31, 2023, to be recognized over a weighted average of **2.9 years**[80](index=80&type=chunk) [(16) Noncontrolling Interest](index=21&type=section&id=(16)%20Noncontrolling%20Interest) - **58.8%** of Inspirato LLC's consolidated net loss was allocated to noncontrolling interests from Feb 11, 2022, to Mar 31, 2022[81](index=81&type=chunk) - In Q1 2023, **2.16 million** Class A shares were issued in exchange for New Common Units, resulting in a decrease in noncontrolling interest ownership[81](index=81&type=chunk)[83](index=83&type=chunk) New Common Units Ownership (in thousands): | Entity | Jan 1, 2023 | Mar 31, 2023 | | :-------------------------- | :---------- | :----------- | | Inspirato Incorporated | 55,253 | 57,410 | | Continuing Inspirato Members | 59,653 | 57,714 | | Continuing Inspirato Members Subject to Vesting | 1,707 | 1,489 | | **Total** | **116,613** | **116,613** | [(17) Employee Benefit Plan](index=23&type=section&id=(17)%20Employee%20Benefit%20Plan) - Company matches **50%** of employee 401(k) contributions up to **6%** of eligible pay, with a **$1.50 thousand** annual cap[84](index=84&type=chunk) - Total company contributions to the 401(k) plan increased from **$0.5 million** in Q1 2022 to **$0.6 million** in Q1 2023[84](index=84&type=chunk) [(18) Related Party Transactions](index=23&type=section&id=(18)%20Related%20Party%20Transactions) - Balances due from related parties (Exclusive Resorts) decreased from **$0.7 million** at Dec 31, 2022, to **$0.4 million** at Mar 31, 2023[85](index=85&type=chunk) - Related party expenses for property usage agreements decreased from **$0.7 million** in Q1 2022 to **$0.4 million** in Q1 2023[86](index=86&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Inspirato's financial condition and operational results, highlighting revenue growth, improved net loss, and efforts to manage costs and internal control weaknesses [OVERVIEW](index=24&type=section&id=OVERVIEW) - Inspirato is a subscription-based luxury travel company with a portfolio of over **500** private luxury vacation homes and **300+** luxury hotel partners in over **225** destinations[90](index=90&type=chunk)[91](index=91&type=chunk) - New product offerings, Inspirato for Good (non-profit fundraising) and Inspirato for Business (B2B channel), were developed in Q3 2022 to expand the target market and accelerate growth at lower customer acquisition costs[92](index=92&type=chunk) - The company completed a reverse recapitalization on February 11, 2022, adopting an UP-C structure[93](index=93&type=chunk)[94](index=94&type=chunk) [Key Business Metrics](index=26&type=section&id=Key%20Business%20Metrics) - Active Subscribers increased from over **14,000** (Mar 31, 2022) to over **14,300** (Mar 31, 2023)[98](index=98&type=chunk) - Active Subscriptions grew from over **15,200** (Mar 31, 2022) to over **15,700** (Mar 31, 2023), with Club subscriptions increasing significantly[99](index=99&type=chunk) - Annual Recurring Revenue (ARR) increased from **$147 million** at March 31, 2022, to **$153 million** at March 31, 2023[102](index=102&type=chunk) - Subscription revenue consistently contributed approximately **40%** of total revenue for the three months ended March 31, 2023[100](index=100&type=chunk)[103](index=103&type=chunk) [Key Factors Affecting Our Performance](index=28&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) - Revenues recovered to pre-pandemic levels by March 31, 2023, as travel restrictions lifted, though recovery trends vary by region[105](index=105&type=chunk)[106](index=106&type=chunk) - The company conducted a **12%** workforce reduction in January 2023 to manage costs and optimize operations[109](index=109&type=chunk) - Macroeconomic and geopolitical conditions, such as inflation, labor shortages, and rising interest rates, continue to impact the discretionary travel industry[111](index=111&type=chunk) - Travel revenues are seasonal, with Q1, Q3, and Q4 typically having higher revenues than Q2, and holidays increasing rates and gross margins[112](index=112&type=chunk)[113](index=113&type=chunk) [Key Components of Results of Operations](index=30&type=section&id=Key%20Components%20of%20Results%20of%20Operations) - Revenue is primarily derived from subscription dues (recurring, enrollment fees) and travel operations (per trip, nightly, service fees)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) - Cost of revenue includes direct travel costs, property lease payments, operating/maintenance costs, and depreciation related to residences[117](index=117&type=chunk) - Operating expenses include General and administrative, Sales and marketing, Operations, and Technology and development, with expectations for variability as a percentage of revenue[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) - Warrant fair value losses/gains reflect periodic changes in the fair value of warrant liabilities[127](index=127&type=chunk) [Results of operations](index=33&type=section&id=Results%20of%20operations) Consolidated Results of Operations (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | Amount Change (in millions) | Percent Change | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :------------ | :------------- | | Revenue | $82.07 million | $91.70 million | $9.63 million | 12% | | Cost of revenue | $47.31 million | $60.05 million | $12.74 million | (27)% | | Gross margin | $34.76 million | $31.65 million | $(3.12) million | (9)% | | Gross margin percent | 42% | 35% | (7)pp | (19)% | | Sales and marketing | $10.14 million | $6.65 million | $(3.50) million | 34% | | Operations | $9.67 million | $8.21 million | $(1.47) million | 15% | | Technology and development | $2.81 million | $3.36 million | $0.55 million | (20)% | | Warrant fair value losses | $17.67 million | $0.10 million | $(17.57) million | 99% | | Net loss and comprehensive loss | $(24.20) million | $(5.90) million | $18.30 million | 76% | - Subscription revenue increased **14%** due to growth in Pass and Club subscriptions[130](index=130&type=chunk) - Travel revenue increased **11%** due to increased Club and Pass memberships driving paid travel, despite an **8%** decrease in total paid nights in residences, offset by a **14%** increase in average price per night[132](index=132&type=chunk) - Operations expenses decreased **15%** due to a reduction in workforce in January 2023[136](index=136&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents were **$60 million** and restricted cash was **$1.7 million** as of March 31, 2023[144](index=144&type=chunk) Cash Flow Summary (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(12.67) million | $(17.59) million | | Net cash used in investing activities | $(1.17) million | $(3.21) million | | Net cash provided by financing activities | $65.96 million | $0.44 million | | Net increase (decrease) in cash | $52.12 million | $(20.36) million | - The company believes its cash and cash equivalents are sufficient to meet working capital and capital expenditure requirements for at least the next **12 months**[147](index=147&type=chunk) [Non-GAAP Financial Metrics](index=39&type=section&id=Non-GAAP%20Financial%20Metrics) Adjusted Net Loss (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :------------------ | :-------------------------- | :-------------------------- | | Net loss | $(24.20) million | $(5.90) million | | Warrant fair value losses | $17.67 million | $0.10 million | | **Adjusted Net Loss** | **$(6.53) million** | **$(5.80) million** | Adjusted EBITDA (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(24.20) million | $(5.90) million | | Interest, net | $0.14 million | $(0.11) million | | Income taxes | $0.18 million | $0.20 million | | Depreciation and amortization | $1.03 million | $1.91 million | | Equity-based compensation | $0.40 million | $0.66 million | | Warrant fair value losses | $17.67 million | $0.10 million | | Public company readiness costs | $1.09 million | — | | **Adjusted EBITDA** | **$(3.69) million** | **$(3.15) million** | | **Adjusted EBITDA Margin** | **(4.5)%** | **(3.4)%** | Free Cash Flow (in millions): | Metric | 3 Months Ended Mar 31, 2022 | 3 Months Ended Mar 31, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(12.67) million | $(17.59) million | | Development of internal-use software | $(0.18) million | $(1.93) million | | Purchase of property and equipment | $(0.99) million | $(1.28) million | | **Free Cash Flow (deficit)** | **$(13.84) million** | **$(20.80) million** | [Critical Accounting Policies and Estimates](index=40&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Financial statements rely on management's estimates and judgments, which are continuously evaluated[164](index=164&type=chunk) - No material changes to critical accounting policies and estimates were reported compared to the 2022 Annual Report on Form 10-K[165](index=165&type=chunk) [Recently Adopted Accounting Pronouncements](index=42&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) - Refer to Note 2 for details on recently adopted accounting pronouncements[166](index=166&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are exposure to interest rate fluctuations and foreign currency risks. A hypothetical 100 basis points change in interest rates or a 10% change in the U.S. dollar's value against the Mexican Peso and Euro would not have a material impact on the financial statements for the three months ended March 31, 2023 - Principal market risks include interest rate and foreign currency risks[167](index=167&type=chunk) - A hypothetical **100 basis points** change in interest rates would not materially impact financial statements[168](index=168&type=chunk) - Foreign currency expenditures totaled **$4.0 million** in Q1 2023, primarily in Mexican Pesos and Euros; a hypothetical **10%** change in USD value would not have a material impact[169](index=169&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective as of March 31, 2023, due to material weaknesses in accounting, financial reporting, and IT controls, with remediation efforts underway - Disclosure controls and procedures were deemed not effective as of March 31, 2023, due to material weaknesses[170](index=170&type=chunk) - Material weaknesses persist in (1) accounting for ASC 842 (Leases) and controlled properties, (2) financial closing and reporting processes, and (3) IT general controls (user access, segregation of duties)[172](index=172&type=chunk) - Remediation efforts include increasing finance headcount, training, and engaging third-party consultants to design and implement an enterprise-level control framework[174](index=174&type=chunk)[176](index=176&type=chunk) [Material Weakness in Internal Control Over Financial Reporting](index=42&type=section&id=Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) - Material weaknesses in internal controls over financial reporting persist as of March 31, 2023[171](index=171&type=chunk)[172](index=172&type=chunk) - Specific areas of weakness include accounting for ASC 842 (Leases), financial closing and reporting processes, and IT general controls (user access, segregation of duties)[172](index=172&type=chunk) [Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting](index=44&type=section&id=Remediation%20Plan%20for%20Material%20Weaknesses%20in%20Internal%20Control%20Over%20Financial%20Reporting) - Remediation plan includes increasing finance headcount and training on control execution and risk assessment[174](index=174&type=chunk)[176](index=176&type=chunk) - Third-party consultants have been engaged to assist with the design and implementation of an enterprise-level control framework[174](index=174&type=chunk) [Changes in Internal Control Over Financial Reporting](index=44&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) - No material changes in internal control over financial reporting occurred during Q1 2023, apart from remediation efforts[175](index=175&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section details legal proceedings, risk factors, and other required disclosures, including exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a class action lawsuit filed on February 16, 2023, alleging violations of Section 10(b) and Rule 10b-5 due to alleged materially false and misleading public statements related to the restatement of Q1 and Q2 2022 financial statements. The complaint seeks class certification and unspecified damages - A class action lawsuit was filed on February 16, 2023, alleging violations of Section 10(b) and Rule 10b-5[179](index=179&type=chunk) - The lawsuit claims prior public statements were materially false and misleading regarding the restatement of Q1 and Q2 2022 unaudited condensed consolidated financial statements[179](index=179&type=chunk) [Class Action Complaint Relating to Restatement](index=45&type=section&id=Class%20Action%20Complaint%20Relating%20to%20Restatement) - Class action lawsuit filed Feb 16, 2023, alleging violations of Section 10(b) and Rule 10b-5[179](index=179&type=chunk) - Allegations relate to materially false and misleading public statements concerning the restatement of Q1 and Q2 2022 financial statements[179](index=179&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors, except for Nasdaq listing compliance issues, including a notice for failing the minimum bid price requirement and potential delisting consequences - No material changes to risk factors, except for Nasdaq listing compliance[180](index=180&type=chunk) - Received Nasdaq notice on May 3, 2023, for failing to meet the minimum **$1.00** bid price requirement[184](index=184&type=chunk) - The company has **180 calendar days** (until Oct 30, 2023) to regain compliance and may propose a reverse stock split[185](index=185&type=chunk)[188](index=188&type=chunk) - Potential consequences of delisting include limited market quotations, 'penny stock' designation, reduced trading, and decreased ability to issue securities or obtain financing[189](index=189&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - None[189](index=189&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - Not applicable[190](index=190&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were applicable for the period - Not applicable[191](index=191&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - Not applicable[192](index=192&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or incorporated by reference as part of this Quarterly Report on Form 10-Q, including organizational documents, warrant agreements, employment agreements, and certifications - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Warrant Agreement with Saks.com LLC, employment agreements, and certifications (31.1, 31.2, 32.1+)[195](index=195&type=chunk) [SIGNATURES](index=34&type=section&id=SIGNATURES) [SIGNATURES](index=50&type=section&id=SIGNATURES) The report is duly signed on behalf of Inspirato Incorporated by Brent Handler, Chief Executive Officer and Director, and Robert Kaiden, Chief Financial Officer, on May 9, 2023 - Report signed by Brent Handler (CEO) and Robert Kaiden (CFO) on May 9, 2023[199](index=199&type=chunk)