Significant Accounting Policies and Restatement of Previously Issued Financial Statements (As Restated)

6 Months Ended

Jun. 30, 2022

Significant Accounting Policies and Restatement of Previously Issued Financial Statements (As Restated)

Significant Accounting Policies and Restatement of Previously Issued Financial Statements (As Restated)

(2) Significant Accounting Policies and Restatement of Previously Issued Financial Statements (As Restated)

(a) Restatement

The Company has restated its unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2022 due to the incorrect application of ASC 842 with respect to the assessment of right-of-use assets and lease liabilities. The incorrect application of ASC 842 led to an understatement of $23 million of the right-of-use assets and total lease liabilities, respectively, an overaccrual of $0.6 million of accounts payable, and and ommission of a non-cash disclosure of operating lease right-of-use assets exchanged for lease obligations of $307 million in the unaudited condensed consolidated financial statements included in the Original Report; the Company also over accrued property-related and other expenses of $2.3 million as of June 30, 2022 and overstated cost of revenue by $2.1 million and $1.8 million for the three and six months ended June 30, 2022, respectively. The Restatement also impacted the Company’s basic and diluted net loss per common share calculations. The following tables present the Restatement on all affected line items of our previously issued Consolidated Balance Sheet as of June 30, 2022, the Condensed Consolidated Statements of Operations and Comprehensive Loss and the Condensed Consolidated Statement of Equity for the three and six months ended June 30, 2022, and the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2022. The Restatement had no effect on total net cash flows from operating, investing or financing activities in the Condensed Consolidated Statement of Cash Flows. The Restatement also impacted Note 2 Section (e). Leases, Note 4. Revenue, Note 7. Income Taxes, Note 10. Loss per Share, and Note 11. Leases, which were restated in these consolidated financial statements.

Consolidated Balance Sheet:

	June 30, 2022
	As		ASC 842			Property-related
	Previously		Lease			and Other Expense		As
	Reported		Adjustments			Adjustments		Restated
	(in thousands)
Accounts receivable, net	$	2,725	$	—	$	(949)	$	1,776
Total current assets		161,558		—		(949)		160,609
Right of use assets		236,393		23,321		—		259,714
Total assets		432,218		23,321		(949)		454,590
Accounts payable		35,319		(596)		(2,280)		32,443
Lease liability - current		65,210		9,035		—		74,245
Total current liabilities		295,492		8,439		(2,280)		301,651
Lease liability - noncurrent		177,597		14,389		—		191,986
Total liabilities		494,477		22,828		(2,280)		515,025
Accumulated deficit		(226,361)		198		443		(225,720)
Total equity excluding noncontrolling interest		18,450		198		443		19,091
Noncontrolling interests		(80,709)		295		888		(79,526)
Total equity		(62,259)		493		1,331		(60,435)
Total liabilities, temporary equity, and equity	$	432,218	$	23,321	$	(949)	$	454,590

Condensed Consolidated Statement of Operations and Comprehensive Loss:

	Three Months Ended June 30, 2022
	As		ASC 842			Property-related
	Previously		Lease			and Other Expense		As
	Reported		Adjustments			Adjustments		Restated
	(in thousands)
Cost of revenue	$	60,081	$	(538)	$	(2,141)	$	57,402
Gross margin		23,617		538		2,141		26,296
General and administrative		15,782		—		468		16,250
Loss and comprehensive loss before income taxes		(7,042)		539		1,673		(4,830)
Net loss and comprehensive loss		(7,248)		539		1,673		(5,036)
Net loss and comprehensive loss attributable to noncontrolling interests		4,274		(320)		(985)		2,969
Net loss and comprehensive loss attributable to Inspirato Incorporated		(2,974)		219		688		(2,067)
Basic and diluted net loss attributable to Inspirato Incorporated per common unit and class A share	$	(0.06)	$	—	$	0.02	$	(0.04)

Condensed Consolidated Statement of Operations and Comprehensive Loss:

	Six Months Ended June 30, 2022
	As		ASC 842			Property-related
	Previously		Lease			and Other Expense		As
	Reported		Adjustments			Adjustments		Restated
	(in thousands)
Cost of revenue	$	107,002	$	(493)	$	(1,798)	$	104,711
Gross margin		58,769		493		1,798		61,060
General and administrative		33,476		—		468		33,944
Loss and comprehensive loss before income taxes		(30,676)		493		1,331		(28,852)
Net loss and comprehensive loss		(31,063)		493		1,331		(29,239)
Net loss and comprehensive loss attributable to noncontrolling interests		16,053		(295)		(888)		14,870
Net loss and comprehensive loss attributable to Inspirato Incorporated		(15,010)		198		443		(14,369)
Basic and diluted net loss attributable to Inspirato Incorporated per common unit and class A share	$	(0.32)	$	—	$	0.02	$	(0.30)

Condensed Consolidated Statement of Cash Flows

	Six Months Ended June 30, 2022
	As		ASC 842			Property-related
	Previously		Lease			and Other Expense		As
	Reported		Adjustments			Adjustments		Restated
	(in thousands)
Consolidated net loss	$	(31,063)	$	493	$	1,331	$	(29,239)
Non-cash lease expense		76		103		—		179
Accounts receivable, net		(336)		—		949		613
Accounts payable		2,179		(596)		(2,280)		(697)
Operating lease right-of-use assets exchanged for lease obligations	$	—	$	306,912	$	—	$	306,912

Condensed Consolidated Statement of Equity

	Six Months Ended June 30, 2022
	As		ASC 842			Property-related
	Previously		Lease			and Other Expense		As
	Reported		Adjustments			Adjustments		Restated
	(in thousands)
	Accumulated deficit
Consolidated net loss	$	(12,036)	$	(31)	$	(235)	$	(12,302)
Balance at March 31, 2022		(223,387)		(31)		(235)		(223,653)
Consolidated net loss		(2,974)		219		688		(2,067)
Balance at June 30, 2022		(226,361)		198		443		(225,720)
	Noncontrolling interest
Consolidated net loss		(11,779)		(14)		(108)		(11,901)
Balance at March 31, 2022		(76,435)		(14)		(108)		(76,557)
Consolidated net loss		(4,274)		320		985		(2,969)
Balance at June 30, 2022		(80,709)		295		888		(79,526)
	Total equity
Consolidated net loss		(23,815)		(45)		(343)		(24,203)
Balance at March 31, 2022		(62,377)		(45)		(343)		(62,765)
Consolidated net loss		(7,248)		539		1,673		(5,036)
Balance at June 30, 2022	$	(62,259)	$	493	$	1,331	$	(60,435)

(b) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read together with the Company’s audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2021 and for the period from July 31, 2020 (inception) through December 31, 2020 and Inspirato LLC’s audited consolidated financial statements and accompanying notes for the years ended

December 31, 2020 and 2021 included in the final prospectus statement dated March 10, 2022 filed with the SEC pursuant to Rule 424(b)(3) under the Securities Act.

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

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

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

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

(c) Principles of Consolidation

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

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

(d) Use of Estimates

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

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

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

(e) Leases

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

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

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

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

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

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

	Balances at December 31,		Adjustments from Adoption of New Lease		Balances at January 1,
	2021		Standard		2022
	(in thousands)
Assets	(As Restated)
Prepaid expenses	$	11,101	$	(1,094)	$	10,007
Operating lease ROU assets		—		201,728		201,728
Liabilities
Current lease liabilities	$	—	$	63,415	$	63,415
Other current liabilities		457		(457)		—
Long-term lease liabilities		—		145,144		145,144
Other long-term liabilities		7,468		(7,468)		—

(f) Earnings (Loss) Per Share

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

(g) Noncontrolling Interests

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

As of June 30, 2022, Inspirato Incorporated directly owned 41.0% of the interest in Inspirato LLC and the noncontrolling interest was 59.0%. The noncontrolling interest relates to the economic interests in Inspirato LLC held directly by owners of our Inspirato Incorporated Class V common stock (“Class V Common Stock”) in the form of New Common Units (as defined below) as a result of Business Combination. See Note 3 - Reverse Recapitalization.

(h) Income Taxes

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

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

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

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

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

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

(i) Warrant Liabilities

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

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