Inspirato Inc. (ISPO) reported its earnings for the fourth quarter and full-year 2023, aligning with market expectations despite a challenging period. The luxury travel company announced a revenue of $71 million in Q4, an 18% decrease from the previous year, attributed mainly to a decline in subscription and travel revenue. Inspirato ended the year with 13,800 active subscriptions, a notable drop from 16,100 in 2022.
Looking ahead, the company anticipates a total revenue ranging from $275 million to $305 million for 2024 and expects adjusted EBITDA to approach breakeven. Streamlining costs, improving member engagement, and a partnership with Capital One are among the strategic moves Inspirato is banking on for future stability and growth.
Key Takeaways
- Inspirato's Q4 revenue stood at $71 million with a gross margin of $13 million.
- The company experienced an 18% year-over-year decrease in revenue.
- Active subscriptions declined to 13,800 from 16,100 the previous year.
- Inspirato Pass subscriptions dropped significantly, contributing to the revenue decline.
- The company expects a 2024 revenue between $275 million and $305 million and aims for an adjusted EBITDA close to breakeven.
- Cost reduction strategies have led to over $50 million in savings for 2024.
- Inspirato is excited about its upcoming partnership with Capital One, expected to launch in Q3.
Company Outlook
- Inspirato plans to simplify offerings and improve the profitability of its Inspirato Pass.
- Focus will be on customer acquisition and enhancing member engagement and advocacy.
- The company anticipates operating as a travel club with a streamlined business model.
- A partnership with Capital One is projected to be a significant growth opportunity.
Bearish Highlights
- February 2024 saw a decrease in reservations and nights booked per member.
- The company expects a loss of $15 million to an income of $5 million for the year.
- Inspirato Pass subscriptions are projected to decrease to around 1,400 units in 2024.
Bullish Highlights
- Inspirato has reduced expenses by $20 million and launched a loyalty program to improve member satisfaction.
- The company has retooled its Pass membership program to include more last-minute travel options.
- Significant cost savings are anticipated, with operational expense reductions from $155 million in 2022 to an estimated $115-125 million in 2024.
Misses
- The company reported gross margin impairments related to leases amounting to $6 million in Q4 and $40 million for the full year.
- Inspirato's subscription revenue is expected to decline due to fewer Pass subscriptions.
Q&A Highlights
- Inspirato addressed the decline in leases and operating expenses during the call.
- The company outlined its cost-saving measures, including a reduction in workforce and optimized software spending.
- The next earnings call is scheduled for May, where further updates will be provided.
Inspirato is navigating through a period of recalibration, with a keen focus on cost management and member experience. The company's efforts to streamline operations and the anticipated Capital One partnership are strategic steps towards achieving long-term financial stability and growth. As the travel industry continues to evolve, Inspirato's adjustments to its business model will be critical in maintaining its position in the luxury travel market. Investors and industry watchers will be looking forward to the Q1 earnings call in May for updates on the company's progress.
InvestingPro Insights
Inspirato Inc. (ISPO) faces significant financial challenges as it navigates through a turbulent period. According to InvestingPro data, the company's market cap stands at a modest $13.99 million, reflecting investor concerns over its future. With a negative P/E ratio of -0.82 for the last twelve months as of Q3 2023, the financial health of the company appears strained. This is further exacerbated by a negative price/book ratio of -1.12, suggesting that the market values the company less than its net asset value.
InvestingPro Tips reveal that Inspirato operates with a significant debt burden and may have trouble making interest payments, which is concerning given the company's recent earnings report. The tip that Inspirato is quickly burning through cash is particularly relevant, aligning with the reported decrease in revenue and subscriptions. Furthermore, the company's stock price has taken a big hit over the last week, declining by -13.4%, and analysts do not anticipate the company will be profitable this year.
For readers looking to delve deeper into Inspirato's financial situation and gain additional insights, InvestingPro offers a comprehensive array of tips. There are 13 additional InvestingPro Tips available, which can provide further clarity on the company's performance and outlook. To access these valuable insights, visit https://www.investing.com/pro/ISPO and consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
In summary, while Inspirato Inc. has strategic plans in place for 2024, the InvestingPro data and tips underscore the immediate financial challenges the company faces, which are crucial for investors to consider amidst the company's efforts to recalibrate and grow in the competitive luxury travel market.
Full transcript - Thayer Ventures Acquisition (ISPO) Q4 2023:
Operator: Good day, and thank you for standing by. Welcome to the Inspirato Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference call is being recorded. I would now like to hand the conference, over to your speaker today, Kyle Sourk. Please go ahead.
Kyle Sourk: Thank you, and good morning. On today's call we have CEO, Eric Grosse; and CFO Robert Kaiden. Yesterday afternoon, we issued our press release announcing our fourth quarter and full year 2023 results, which is available on the Investor Relations page of our website at investor.inspirato.com. Before we begin our formal remarks, we remind everyone that some of today's comments are forward-looking statements, including, but not limited to our expectations of future operating results and financial position, guidance and growth prospects, business strategy and plans and market position and potential market opportunities. These statements are based on assumptions, and we assume no obligation to update them. Actual results could differ materially. We refer you to our SEC filings for a more detailed discussion of additional risks. In addition, during the call, management will discuss non-GAAP measures, which are useful in evaluating the company's operating performance. These measures should not be considered in isolation, or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of these measures, to the most directly comparable GAAP measures are included in our earnings release. With that, I'll turn the call over to our CEO, Eric Grosse.
Eric Grosse: Thanks, Kyle, and good morning, everyone. On our last call, we spent much of the time reinforcing the pillars of Inspirato's value proposition, a world-class portfolio of luxury residences, and the first-class service we provide, to ensure each trip is remarkable, and memorable. Today, I'll review some of our successes from 2023, as well as our strategic priorities, and plans for 2024, before turning it over to Robert to cover our 2023 results, and 2024 guidance in more detail. Before jumping in, I do want to highlight that we are reporting fourth quarter results in line, with our internal expectations, and within our 2023 full year revenue guidance range. For adjusted EBITDA, we are slightly favorable, to our guidance range. Inspirato has always been a name you can trust. When you travel with us, you trust you'll get first-class service at a world-class property. In 2024, it is amongst our highest priorities, to earn that same level of trust, and credibility with our shareholders. Q4 marks the second consecutive quarter, of delivering results in line with our plan, and we're excited for the opportunity, to build a real track record of execution in 2024, through clear and transparent communication. We believe that doing so, will unlock significant value, for both our members and our shareholders. Looking back, the second half of 2023, was largely defined by a heightened focus on execution, and operating efficiencies. We took meaningful steps, to streamline our cost structure, and improve member engagement, each aimed at accelerating our path to profitability, and positioning us, for sustainable future growth. From an expense standpoint, the largest item in our P&L is our leases. The team has done a tremendous job, aligning our portfolio with our member base, and the new post-pandemic normal, of leisure travel. This included a detailed property level analysis of our portfolio, with an emphasis on unit economics, regional scale, and member satisfaction. We were also successful, in reducing our cash operating expenses. For the full year, we stripped out more than $20 million of expenses, a year-over-year reduction of approximately 15%. As you'll hear in a moment, we expect to continue to realize incremental savings in 2024, based on the actions we took in 2023, and most importantly, feel we have the right people in the right processes, to handle future growth, when the time comes. Next, I want to discuss the steps we've taken to improve our member experience. Although we pride ourselves in our member satisfaction, as documented and highlighted by our best-in-class NPS scores of approximately 70, we've recently placed more emphasis, on increasing member engagement, and re-energizing our member base. During periods of rapid growth in the past, we would monitor positive trends in total nights booked and total nights delivered, with less focus on who was booking, and where they were going. So to address this midway through 2023, we took three decisive actions. First, we reorganized a round of member success teams, dedicated to serving members and helping them book travel. Next, we lowered the asking prices for our nightly rates. And most recently, we launched a loyalty program. Each of these were aimed, not only at increasing our nights per member, but our paid nights per member, at our managed and controlled properties. These nights are the most accretive in our portfolio. This approach has led to a series of small wins, and has a few recent trends that we have our eye on. First, Inspirato Rewards has been a hit. Since its launch in August, nearly half our members have gained reward status, based on their 2023 spend. As a reminder, our lowest status tier starts at $20,000 of annual spend. This is proof, of our loyal and engaged member base. Second, we're raising the bar to entry and exit from Inspirato, by focusing on selling multi-year memberships and renewals. This aligns with our desire to make Inspirato more of a club, and less of a product. It has resulted in fewer, but better sales and should continue to improve our member retention and engagement. For reference, in 2023, over 90% of our new club sales, were for at least one-year and more than 75% were for two years or more. Finally, we saw an uptick in the number of reservations, and nights booked per member, to end 2023 and to begin 2024. However, and this is a small data set, in February, those trends have normalized, reverting to, or even slightly below 2023 levels. Our team has a sharp eye on this, very recent information, and we analyze both our engagement strategy, as well as our travel trends at large. Look for updates on this throughout the year. As it pertains to our expected results in 2024, this has caused a slightly wider range of potential outcomes, although we are once again prioritizing our path to profitability. I'm confident that the progress we have made as an organization, over the last six to nine months has led to a significant improvement in our ability to recognize, analyze, and react in real time, and I'm - excited about our 2024 plans ahead of us. For the full year, we remain focused on reaching breakeven, of adjusted EBITDA and are expecting between a loss of $15 million, and income of $5 million. Meanwhile, we expect total revenue, between $275 million and $305 million, a decrease, compared to 2023, due primarily to headwinds, related to continued decreases in our Pass subscription. I'll let Robert cover some of the details of the plan in a few moments, but would first like to highlight our 2024 strategic initiatives that, position us to be a true turnaround story. After right-sizing our cost structure, and improving our operating efficiencies in 2023, we are shifting our focus in 2024 to our product offerings and customer acquisition strategy. Are we offering the right products? Are they complementary to each other? Are they priced appropriately? And are we targeting the right traveler? Inspirato has a deeply rooted brand that resonates with a large core audience. Over the last few years, we've grown our member base and our portfolio substantially. We've launched several new products with varying degrees of success. Our goal in 2024, is to simplify Inspirato, for both current members and prospective members as well. We want to return to our roots, and operate as a true travel club, while re-instilling a sense of community amongst our members, and importantly, continuing to deliver exceptional vacations. Inspirato Pass is a great example, of an area we can refund. Over the past year, we've seen meaningful churn for many reasons, including life changes, the macro environment, and perhaps a past focus on the quantity, of new member sales, as opposed to ensuring the proper fit, of a prospective member. At the same time, in 2023, while approximately 20% of our members were Pass holders, nearly 40% of our nights delivered were Pass nights. The math simply won't work, and as a result, Pass has not been profitable. Ultimately, it's apparent that we need to improve Pass's positioning. What is it designed to do? What is it targeted towards? And how does it coexist with Club? Just last month, we announced changes to our Inspirato Pass. Today, it will function as the luxury travel offering, for the frequent and flexible traveler. That means great value, for an amazing number of trip options, equitable rates, to that of our Club members, for smaller numbers of premium trips, and unparalleled access and value for last-minute bookings. We've embraced Pass's functionality, by improving flexibility and access, to short-term bookings. Since implementing these changes in mid-February, we have booked approximately 300 flex trips and 1,200 nights at properties that, may have otherwise spoiled. Importantly, 60% of these reservations were for stays within 30 days at the time of booking. We've also removed non-core features of Pass that were costly to Inspirato, and infrequently used by members. And finally, we're planning to manage the number of Pass memberships in conjunction with overall inventory, and market placement. These changes will simplify Pass, improve the engagement and experience for our members, and ultimately make Pass, more profitable for Inspirato. Next, the team will take a fresh look at our other offerings, to make sure they align with our strategic priorities, while also providing tremendous value, to our current and future members. Like any good brand that delivers value, to its consumers and creates value, for its shareholders, Inspirato's success will be driven, by our ability to drive member engagement, and advocacy. In order to do what we do best, deliver exceptional service and value, we need to do so from a position of operational strength with a solid foundation. At the end of the day, our mission is to inspire lasting memories and relationships by enriching the way our members experience the world. I'm fully confident that, by staying true to our core values care, collaboration, courage, curiosity, we will achieve just that in 2024. Before turning the call over to Robert, I'd like to thank our employees for their incredible work in 2023. With continued focus on execution, I believe we are set up for a much improved 2024. And with that, I'll turn the call over to Robert.
Robert Kaiden: Thanks, Eric. Before giving more color on our 2024 plan, I'd like to quickly cover our fourth quarter and full year 2023 results. In the fourth quarter, we generated a total revenue of $71 million, a gross margin of $13 million, and a gross margin of $19 million, excluding the impact of asset impairments. Although fourth quarter revenue decreased 18% year-over-year, it's important to note that it was in line with our internal expectations. The year-over-year decrease in revenue, is due to a decrease in both subscription, and travel revenue. From a subscription revenue standpoint, we've seen a decline in both the number of Pass and Club subscriptions. However, due to the higher price point of our Pass subscription, Pass has been the primary driver of the decrease in subscription revenue. At year end, we had 13,800 active subscriptions consisting of approximately 2,500 Pass and 11,300 Club subscriptions. This compares to 16,100 active subscriptions, consisting of 3,600 Pass and 12,500 Club subscriptions at year end 2022. Keep in mind, we've invested significant sales resources in our Inspirato for Good and Inspirato for Business platforms, which combined generated approximately $25 million of contracted sales in 2023. Further, Inspirato for Good sold, more than 3,000 travel memberships last year that are not included in our subscription counts. While there is no recurring revenue from these sales, we feel they are a strong pre-qualified prospect that we're excited, to introduce to the Inspirato experience and hope to convert to a full membership over time. As far as travel revenue, the year-over-year decrease, is primarily due to a decrease in the number of total nights delivered, specifically our paid nights delivered in large part, due to a decline in the number of Club subscriptions, as well as the time of our experiences and the deferral of some revenue, due to the accounting treatment for rewards programs. In the fourth quarter, we delivered approximately 41,000 total nights with a residence occupancy of 65%, compared to 47,000 total nights with 73% residence occupancy in the fourth quarter of 2022. ADRs were approximately $1,700 in the fourth quarter of 2023, compared to approximately $1,900 in the fourth quarter of 2022, with the year-over-year decrease, due to us lowering our ADRs midway through 2023. Meanwhile, when comparing full year performance, residence ADRs were relatively flat year-over-year, at approximately $1,800, and we delivered a similar number of total nights in each of 2022 and 2023. At the same time, our residence occupancy decreased in 2023, to 72% from 81% in 2022, primarily due to increased availability. As a reminder, increased availability was due to new leases committed to in 2022, or before that were added in 2023. While our portfolio optimization efforts in 2023, will start to have a more significant impact moving forward. In 2024, we believe the combination of lower nightly rates, and fewer nights available, will help us find the proper supply and demand balance, to improve our operating efficiencies. For the full year, we generated $329 million of revenue, which is around the midpoint of our guidance range of $320 million to $340 million. The year-over-year decrease in total revenue, of approximately $15 million, or 5%, was due to decreases in each of subscription and travel revenue. The majority of the subscription revenue decrease, was due to fewer Pass subscriptions, while travel revenue was mostly impacted by a reduced number of paid nights delivered in our residences, a product of both fewer club subscriptions and more hotel travel. Moving down the P&L, our fourth quarter gross margin was $13 million, or 18% of revenue, compared to $25 million, or 29% of revenue, in the fourth quarter of 2022. Absent the impact of asset impairments, fourth quarter 2023 gross margin, would have been $19 million, or 27% of revenue. For the full year, our gross margin was $54 million, or 17% of revenue, compared to $116 million, or 34% of revenue in 2022. Absent the impact of asset impairments of approximately $41 million for the full year, our gross margin would have been $95 million, or 29% of revenue. Of note, these impairments were associated, with leases predominantly in one geographic location. Cutting one level deeper, our fourth quarter cost of revenue was approximately $51 million, a 15% decrease, compared to costs of revenue in the fourth quarter of 2022. This is consistent with our efforts, to better manage our booking fees, and it also includes a small amount of lease expense savings. As I'll touch on in a minute, we expect to continue this positive trend in 2024. Total cash operating expenses, were approximately $27 million in the fourth quarter of 2023, compared to approximately $36 million in the fourth quarter of 2022. While the fourth quarter of 2023, did include a favorable entry year period adjustment, of $1.8 million related to operations, I'm proud of the progress we've made, and I'm confident that we can reach a sustainable run rate, for 2024. For the full year, our cash operating expenses totaled, with approximately $131 million, compared to $153 million in 2022. As a reminder, our guidance range for 2023 of $125 million to $130 million, did not include our third quarter reduction in force, executive management changes, and associated severance payments. Finally, as Eric mentioned, I'm proud to report that our adjusted EBITDA loss of $29 million, for 2023 ended the year slightly favorable, compared to our previous guided range of a loss, between $30 million and $45 million. This compares to a 2022 adjusted EBITDA loss of $32 million, with fourth quarter adjusted EBITDA losses in 2023, and 2022 of $5.4 million and $9.5 million, respectively. Equally important, we ended the year with a cash balance of approximately $42 million, which was slightly ahead of our internal expectation, and represents a slowdown in our quarterly cash burn, compared to the rest of 2023. Overall, I'm incredibly proud of how the team performed in the past year, specifically these past six months, where I feel our results, such as improved adjusted EBITDA, are beginning to reflect, the changes and efforts we've made. Turning to 2024, I expect continued improvement. For the full year, we expect adjusted EBITDA approaching breakeven, more specifically between a loss of $15 million and income of $5 million, and total revenue between $275 million and $305 million. Our number one financial priority in 2024 is reaching breakeven on an adjusted EBITDA basis. While total revenue is obviously important, it is merely an output of what we believe is a very achievable plan grounded on reasonable assumptions. As I'll cover in a minute, we expect a decrease in Pass subscription revenue, lower ADRs in our residents, and fewer total members, to be the main drivers of our decreased revenue. From a member standpoint, we're assuming Club subscriptions, to be relatively flat year-over-year, while Pass subscriptions are expected to decrease, by a similar absolute number in 2024 as they did in 2023. As Eric mentioned, we're confident that recent changes to Pass, will improve the member experience and overall functionality of Pass. However, we also expect most of our sales focus to be on Club, as it's the true foundation of Inspirato, and increasing our Club membership ultimately enables increased Pass memberships in the future. For club itself, we plan to continue targeting longer-term, stickier sales. We expect this to result, in an increase in our Club member base, which will be offset by the natural attrition of our legacy members. The net result in 2024, is once again expected to be a declining member base, with a decrease in Pass alone expected, to create a subscription revenue headwind, of nearly $30 million. From a travel standpoint, fewer members equate to fewer total nights delivered. However, we're expecting improvements in terms of total occupancy, and the mix between paid nights and Pass nights, as well as residence nights and hotel nights. As Eric mentioned, we have seen mixed results from a booking perspective, despite lower pricing, Inspirato Rewards, and a member success team. As a result, our current range assumes similar paid travel behavior per member in 2023, plus, or minus 5%. For residences, we're currently assuming, rates slightly below $1,750 per night on average for the year, which compares to slightly above $1,800 per night received in 2023. On the hotel side, we expect a decrease in our total nights delivered in 2024, compared to 2023, though much of this is expected to be attributable to fewer Pass nights. Overall, we currently expect travel revenue to account for approximately 65% of total revenue, whereas in 2023, it accounted for less than 60%. In terms of our cost structure, I've spent much of the past few quarters outlining our portfolio optimization plans, and I'm excited to begin realizing the benefits. In 2024, we expect approximately $30 million, of lease expense savings, compared to 2023. Coupled with our emphasis on reducing our booking fees, we expect to realize meaningful gross margin expansion, beginning in the first quarter. Finally, I alluded to our fourth quarter 2023 operating expenses, serving as a good run rate moving forward. Our full year range of cash operating expenses in 2024, is between $115 million and $125 million, which represents an improvement of 5% to 12%, compared to 2023. All in, we expect to drive a meaningful year-over-year improvement in our adjusted EBITDA, driven by a focus on improved efficiencies. We expect cost efficiencies in our leases, fixed and variable costs, booking expenses, and operating expenses, and we expect operating efficiencies in our travel mix and more focused sales efforts. Overall, I'm pleased with the plan we've put together. Time and again on this call, we've referenced hitting our guidance range, and our intention is to continue building a track record, of execution in 2024. Though we don't provide quarterly guidance, we believe this plan, will deliver periods of positive adjusted EBITDA, and ultimately improve our financial strength for the long-term. With that, let me turn it over to the operator for Q&A.
Operator: Thank you. [Operator Instructions] Our first question comes from Mike Grondahl with Northland Securities. Your line is now open.
Mike Grondahl: Hi, guys. Thanks. It sounds like you retooled, the Pass membership quite a bit. And if I heard you right, it fell from like 3,600 to 2,500, and it sounds like it's going to fall, by a like amount in 2024, to about 1,400 units or subscriptions. What does the new path look like? And do you think, you've gotten that to breakeven, or making a profit for you - if you could answer that, that would be great?
Eric Grosse: Terrific. Thanks, Mike, for your question. This is Eric. What I can do is talk a little bit about what Pass looks like and the changes we've made to it. And then I can pass it over to Robert to walk through the implications of - what that means from a 2024 perspective. In terms of what Pass looks like and the changes, really, what we wanted to do, is to provide a big benefit to our Pass holders. And - to enable last-minute travel much more so with Pass going forward with the concept that we're calling Flex (NASDAQ:FLEX) trips, which really opens up significantly more high-value inventory that, likely would otherwise go unsold. And as we noted, since we've made this change, about 60% of the Flex trips that we've sold, are under 30 days of departure, which is a really good sign for us, because it shows that we can really drive demand towards that close-in piece that, otherwise might spoil. And what we're also doing in addition, to providing this benefit, the significant benefit to Pass holders, is also to streamline the product, and to make it simpler. So that's why we sunsetted capabilities within Pass that were pretty unpopular with Pass holders, and we're frankly pretty inefficient and expensive for us to operate, like an example of this, would be beyond travel as well as Pass cruises. So in net, what we've got is, I think, a much simpler service and a much simpler, to communicate product that has really, really strong value proposition to the right kind of Pass holder, the one that is spontaneous, the one that is flexible. The one that is open for last-minute travel, and also provides a very, very valuable niche in our overall product portfolio. So that it's a profitable product, and can really contribute to Inspirato's success as a whole.
Robert Kaiden: Great. Mike, yes, I'll just - this is Robert. I'll take it a little bit further on the financial side of the house there. Pass was, just to be very clear, unprofitable for us in 2023, and before that. As Eric said before, 40% of our nights, with only 20% of our members, was going towards Pass. And moreover, a lot of the Pass members were booking, a lot of third-party hotels, which had a lot of booking costs associated, with them as well. So a combination of between, taking out some of those non-profitable areas - non-core non-profitable areas of Pass, getting our members, who are Pass members, to give them a great opportunity for inventory that's really last minute and would otherwise foil. It's a win-win. They're able to get inventory that's at a great price, great inventory at a great price, and we're able to use some of that inventory. Those are some of the benefits that we see and so Pass is in a much better, financial position in 2024 and forward.
Mike Grondahl: Got it. Got it. And then a second question, just on the gross margin impairments related to the leases, I think you said it was $6 million in 4Q, and about $40 million in '23. Would you say that's cleaned up now? Do we have to worry about those 1Q, 2Q?
Robert Kaiden: Yes. Thanks for the question, Mike, absolutely. We feel like we're in a good place now. We've known about these impairments for some time now. And the reason they've been rolling in quarter-over-quarter, is because under again, this group of arrangements we have for a certain number of properties we've been rolling them in over time. And so, every time we've rolled them in, from an accounting perspective, is the first time we could take an impairment charge on them. So, those are all now rolled into our portfolio. Those are all at fair value, like any company, it could be a small one-off impairment here, or there, but we're not expecting, any sort of large impairments, on a go-forward basis.
Mike Grondahl: Got it. Got it. And then maybe lastly, any update on Capital One? I think that partnership sounds like it starts in the second half, and they kind of have to roll it out. How would you bake that into '24? And what can that look like over '25 maybe?
Eric Grosse: Sure. Thanks, Mike. Look, we're - I think we've been very clear that we're tremendously excited about our Capital One partnership, mainly because our respective strengths are so well suited for one another. I mean what we're very good at is finding and managing a pretty world-class portfolio of high-end residences, and giving our members a pretty first-class experience, when they travel with us. And Capital One, amongst other things, is a pretty world-class demand aggregator. And they're really focused on becoming, a very major player in travel. So that dynamic, I think, creates a win-win situation for both of us, which is why Capital One was so excited about our partnership, and why they invested in us last fall. And so, what we're doing right now, is working very hard on all the technical integration work, between ourselves and Capital One, and their technology partner Hopper. And we really expect to be operational in the first phase of our partnership in the second half of this year. In terms of forecast, it's always difficult to predict what a large new partnership will bring. And so in the near term, I'd say we've been always probably a little bit more cautious in how that how that, partnership will perform, and grow out of the blocks. But when you take a look at Capital One's size, commitment to travel and breadth. And then, you look at it relative to our size, I think it's pretty clear definitely over the medium to longer term, this can be a game changer for us.
Mike Grondahl: Sure. It looks like they may get discovered, too, which would maybe even make them bigger?
Eric Grosse: Good Point.
Mike Grondahl: Do you think it's June, or July before you have a better feel? Is it September? Like when do you think you'll get, I don't know, a better sense of what it looks like roughly, when during the year?
Eric Grosse: Well, I would say that - I mean, Q3 is when we're launching it. So, we'll have sort of initial data points then - going into the fourth quarter, which typically tends to be a stronger seasonal period for us, we should have a better idea. So, I think it's fair to say that, our confidence will increase, over the course of the year.
Mike Grondahl: Got it. Got it. Okay. Hi, thank you.
Eric Grosse: Sure, thanks.
Operator: Thank you. One moment for our next question. Our next question comes from Shweta Khajuria with Evercore ISI. Your line is now open.
Unidentified Analyst: Hi. This is [Luke] on for Shweta. Just two questions, if I could. Could you just go over any low-hanging fruit on the operating expense side, where you can drive efficiencies? And then how should we think about the seasonality, of your revenue and EBITDA, throughout '24? Could you just help us kind of think, about how to model that? Thanks.
Eric Grosse: Sure. With respect to expense efficiency, this is one where I want to give credit to the team on what we've done. Over the course of the last six to nine months, we have done a lot of work to basically streamline our business, to make us more operationally efficient so that we can be successful and get to profitability on a wider range of outcomes. So that really starts, with our portfolio, our real estate portfolio. Robert's led a tremendous effort to right-size that part of our business. And also, as a result of shipping demand, really towards our risk property, we'll be able to - we're able to make meaningful improvements on our COGS line as well. And when you combine that with the OpEx improvements, we've made just in terms of becoming more operationally efficient, both in terms of personnel as well as process. You're looking at a year-over-year swing in excess of $50 million. So that is really important to us, being able to say that, we have a shot, and we have line of sight, to get to breakeven. Maybe I'll hand it over to Robert, to handle - to answer your question around seasonality.
Robert Kaiden: Yes. And maybe, Luke, thanks. Just to contextualize just a bit more on some of the things that Eric talked about. When it comes to our overall costs, and we think about 2024, like we've been talking about in these last few calls, there are things that we've done already, and that's much of the savings that we'll have in 2024, are things that are done and dusted. So for instance, we've talked a lot about our portfolio optimization, which will have savings - year-over-year savings of approximately $30 million. Those are agreements that we terminated in 2023, where there was just a period of time that needed to pass before we were fully out of those leases. A lot of those were six months and some of them were 12 months. So, we're starting to see, really in Q1, the impact of the ones that we're rolling off in six months coming off the books. And then there'll be - that will be our biggest quarterly decline in terms of the number of leases, or the dollar of leases. And then we'll see an additional gradual decline, throughout the rest of the year. When it comes to the operating expenses, we've taken a lot of actions already. So as you know, we had a reduction in force first in January of last year and then in July of last year. And we'll get the full year benefit of that second reduction in force when we move into 2024. Moreover, as we were going through our planning cycle back in the fall. There was a lot of other things, we looked at in operating expenses, how could we be more efficient in our software spend. Lots of little areas that in total piled up and amounted to the savings that we're talking about. You'll see this is part of like a three-year trend. We went from $100 million and - approximately $155 million in 2022, to approximately $135 million in 2023 and now we're coming down to $115 million to $125 million. So I think we've kind of optimized on what we can do from an operating expense savings perspective. As it relates to your question on seasonality on revenue and EBITDA, we've had somewhat fairly consistent seasonality over time, and it really starts with the revenue, because most of our costs are fairly straight line across the year. And so as our revenue goes, for a particular quarter, so goes our EBITDA as well. When I look at our revenue, you break it down into two pieces, the subscription revenue and then there's travel revenue. As it relates to subscription revenue, that is generally a fairly straight line as well, although as we talked about before, we'll see a decline in our past number of subscriptions, as we go through the year. So there will be a decline over time in subscription revenue. You could think of that fairly straight line across the year. When it comes to travel, we have our periods where we have folks traveling more, and we have periods where people actually book travel more. And so typically, Q1, Q3 and Q4, are heavier travel periods relative to Q2. Q2, is you just don't see as much in that April to June time frame, but it's also a time where there's more bookings generally to prepare for either the summer season, or even to prepare to start getting ready for year-end travel again. So expect that revenues, we will follow for travel, something along those paths, between Q1, Q3 and Q4, there's a little bit of seasonality even within those. But overall, we'd say that's when we'll see the higher revenue, because it's when people take the trips that we recognize the revenue.
Unidentified Analyst: Thank you.
Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to CEO, Eric Grosse, for closing remarks.
Eric Grosse: Terrific. Well, thanks, everyone, for listening and participating in our fourth quarter call. Look, we're committed to keeping our lines of communication open and look forward to our next earnings call for the first quarter, which will be in May. In the meantime, thanks very much and talk soon.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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