OneSpaWorld Holdings Ltd (OSW) Q4 2019 Earnings Call Transcript

OneSpaWorld Holdings Ltd (OSW 0.08%)
Q4 2019 Earnings Call
Feb 26, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the OneSpaWorld fourth-quarter and fiscal-year 2019 earnings conference call. [Operator instructions] I would now like to turn the conference over to Jessica Schmidt with ICR.

Please, go ahead.

Jessica Schmidt -- ICR, Investor Relations

Thank you. Good morning, and welcome to OneSpaWorld's fourth-quarter fiscal 2019 earnings call and webcast. Before we begin, I'd like to remind you that certain statements and information made available on today's call and webcast may be deemed to constitute forward-looking statements. These forward-looking statements reflect our judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting our business.

Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that are included in our fourth-quarter 2019 earnings release, which was furnished to the SEC today on Form 8-K. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the company may refer to certain adjusted non-GAAP metrics on this call.

Explanation of these metrics can be found in the earnings release filed earlier today. Joining me today are Leonard Fluxman, executive chairman; Glenn Fusfield, chief executive officer and president; and Stephen Lazarus, chief financial officer and chief operating officer. Leonard will begin with his highlights of our fourth quarter and fiscal year and then discuss the key priorities we are focused on in fiscal 2020. Then Glenn will discuss our service offering innovation, followed by Stephen, who will provide more details on the financials and share our outlook, as well as the impact on our business from the coronavirus.

And I'd now like to turn the call over to Leonard.

Leonard Fluxman -- Executive Chairman

Thank you, Jessica. Good morning, and welcome to OneSpaWorld's fourth-quarter fiscal 2019 earnings conference call. The year was a milestone for the company. We successfully entered the public markets.

We grew sales and after-tax free cash flow conversion. We initiated our first-ever quarterly dividend. And importantly, we increased training our staff by 20% to prepare for a record number of new vessels in 2020. Indeed, the year saw several accomplishments toward our strategy to leverage our robust operating platform to grow our market share at sea.

We are pleased to deliver financial results in line with our updated guidance despite absorbing increased public company costs and an unprecedented number of ships temporarily taken out of service. In total, for the fiscal year, net revenues increased 4% to $562.2 million; adjusted net income grew by 4% to $32.5 million; adjusted EBITDA of $58.2 million increased from 4% from 2018 adjusted EBITDA of $55.8 million, inclusive of comparable public company costs; and unlevered after-tax free cash flow increased 2% to $54.1 million, compared to $52.9 million in the prior year. Highlighting some of our accomplishments made during the year. We commenced cruise ship contracts and extended existing agreements for health and wellness at sea, including extending agreements with Norwegian Cruise Line, P&O Cruises, Saga Cruises, Windstar Cruises and Crystal Cruises; commencing services on Costa Venezia, Spectrum of the Seas, Sky Princess, Norwegian Encore, Carnival Panorama, and Costa Smeralda; being named Oceania Cruises and Regent Seven Seas Cruises' official partners to operate spa and wellness centers on their entire fleet; being named Virgin Voyages' official partner to operate health and wellness centers on their first-ever cruise offering; and being named Celebrity Cruises' official partner to operate health and wellness centers on their entire fleet, increasing the Celebrity vessels operated on in 2020 by nine.

We introduced new services in medi-spa and fitness while making it easier and more efficient to schedule spa visits with expanded online and pre-booking options. This field increases in average weekly revenue per ship and an average weekly revenue per shipboard staff per day for the fourth quarter and fiscal year. I would like to thank our entire team and attentive staff for the dedication, commitment, and contributions to the year. We are entering fiscal 2020 with the highest market share, highest vessel count and largest vessel additions in our history.

This, along with strong free cash flow and a robust operating platform, will continue to drive the company's successful expansion in the years ahead. For fiscal 2020, we are focused on the following priorities for the business. First, to efficiently and effectively introduce our health and wellness programs across 27 new vessels have already begun service on four Oceania and one Regent vessels in late December 2019. At the same time, we remain focused on maintaining excellent service levels across our entire fleet.

Second, to expand our treatment, products, and services to our customers as we seek to grow onboard revenue. Glenn will discuss this activity in greater detail, but let me share some of the highlights. We are introducing new recovery treatments beyond acupuncture and exclusive fitness programs while adding medi-spa services to new vessels. This year, we will introduce medi-spa on 14 new ships, as well as enhance our product offering on new and existing vessels with additional body contouring and the advanced Thermage FLX among other new services.

Overall, we will continue to build on our capabilities to reinforce our market position as the preeminent health and wellness provider by redefining these experiences. Let me now turn to a discussion of the coronavirus and its impact on our business. The outbreak of the coronavirus continues to dominate headlines, and we are closely monitoring the situation to, first and foremost, ensure the safety of our employees, as well as plan for business continuity. Currently, we can confirm there are no suspected or confirmed coronavirus cases for any of OneSpaWorld employees.

Our guidance includes only the known impact from this health crisis to our first-quarter performance as the situation remains fluid and continues to evolve. Therefore, we are unable to determine the full impact on guidance to fiscal 2020 beyond the first quarter. The coronavirus has also negatively impacted and increased the volatility of our stock price, and as such, the underlying trading value of our warrants. Our significant progress had been made on our warrant retirement plan.

The board of directors determined it was prudent to put this program temporarily on hold. And now I'll turn the call over to Glenn to provide details regarding other operational highlights, including an update on our medi-spa initiatives, fee book, and dynamic pricing initiatives. Glenn?

Glenn Fusfield -- Chief Executive Officer and President

Thank you, Leonard. As Leonard mentioned, we remain committed to enhancing and expanding our services and product offerings that deliver superior experiences and choices to our guests. We are increasing investment in our medi-spa business this year to accelerate growth by expanding medi-spa to new vessels, as well as offering a whole new breadth of treatment options. We will also continue to experience prepaid and prebook initiatives, which drive incremental sales to OneSpaWorld, as well as our cruise partners.

I would like to provide a few operational highlights to demonstrate the progress we are achieving. In medi-spa, we have seen an average spend increase to $1,400, helping to drive year-over-year growth in our business. On average, prebooked and prepaid guests' average spend within the OneSpaWorld platform is over 30% more than a walk-in guest. Across cruise ships with prebooking platform, 16% to 24% of service revenue is prebooked, and over 80% of our fleet continues to offer pre-booking, of which 65% is through the dynamic OneSpaWorld platform.

I would also like to highlight a few financial metrics that demonstrate the success we are delivering with our service enhancements. Average weekly revenue per ship count increased 4% in Q4 compared to the prior year, and the average revenue per shipboard staff per day increased 2% in Q4 compared to the prior year. We continue to roll out the following initiatives across the majority of our fleet, as well as accelerate our investments to expand our offering to new products, services, and vessels. In 2020, we will launch our medi-spa on 14 new ships and body-contouring capabilities to 13 new vessels; expand our Thermage by 20 vessels.

We will test IV therapy with a new cruise line partner. We will add micro-needling to our menu of medi-spa services. We will test an expansion of our detoxifying and recovery capabilities with a state-of-the-art specialty treatment table and add stable in-cabin wellness programs to one of our cruise lines; selectively enhance our fitness offering with the world-renowned F45 training program that provides an exclusive fitness experience. We're going to launch our CBD product line in the first half of 2020, which will initially be limited to selected patients in the United States, as well as an e-commerce platform.

And we are excited to update you on our Celebrity Cruises and ambassador-led women and wellness program, leveraging industry-leading influencers to highlight key areas of wellness and fitness. We are also beginning to test a number of other exciting initiatives and programs within health and wellness, which we will update you on tripping future quarters. This year, we will launch an unprecedented number of new ships for OneSpaWorld, and we will remain acutely focused on appropriately training our staff by leveraging our robust platform to ensure we deliver exceptional services to cruise line guests. With that, I will turn the call over to Stephen, who will provide additional information on our fourth-quarter financials and guidance.

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

Thank you, Glenn. Good morning, ladies and gentlemen. I'll begin with a review of the fourth quarter and full year and then update you on our 2020 guidance. Total revenue for the quarter was $139 million, which was right at the midpoint of our Q4 guidance, and a 4% increase compared to the fourth quarter last year.

The increase from last year was driven primarily by seven incremental net new shipboard health and wellness centers added to the fleet of cruise line partners, a continued trend toward larger and enhanced shipboard health and wellness centers and increasing collaboration with cruise line partners. The split of revenue growth between service and product revenue was as follows. Service revenue increased 5% to $107 million and product revenue expanded 1% to $32 million compared to the fourth quarter of fiscal 2018. The average weekly revenue per ship was $60,965, up 4% from $58,636 in the fourth quarter of the prior year.

The average revenue per shipboard staff per day increased 2% year over year to $461. Average weekly revenue per land-based resort decreased 11%, which was expected due to the larger number of managed supplies in our mix during the quarter, which generate less revenue per location. Cost of service increased $5.2 million or 6% compared to the fourth quarter of fiscal 2018. The increase was primarily attributable to the increase in service revenue and the noncash impact of purchase accounting adjustments related to the fair value step-up of fixed assets in connection with the business combination.

Cost of products increased $2.1 million or 8% compared to the fourth quarter of fiscal 2018. The increase was primarily attributable to the noncash impact of purchase accounting adjustments related to the inventory step-up in connection with the business combination. Administrative expenses increased $1.6 million to $4 million compared to the fourth quarter of fiscal 2018, driven primarily by expenses incurred in connection with the business combination and costs associated to support our operations as a new publicly traded, stand-alone company. Salary and payroll taxes decreased $200,000 to $3.9 million compared to the fourth quarter of fiscal 2018 as lower incentive compensation expense was offset by increased headcount to support our operations as a new publicly traded, stand-alone company.

Adjusted net income was $6.3 million, and adjusted EBITDA was $12.5 million in the fourth quarter, slightly below the midpoint of our guidance due to higher training costs incurred in preparation for the large number of vessels that we will serve in 2020. Adjusted net income per diluted share totaled $0.08 on 75.1 million diluted shares. Cash at December 31 was $14 million, and total debt net of deferred financing costs at the end of the quarter was $221 million. We had repaid $5 million of debt during the fourth quarter.

Unlevered after-tax free cash flow for Q4 was $54.1 million. Turning briefly to the full year, total revenue for the year was $562 million, a 4% increase compared to the prior year. The increase from last year was primarily driven by seven incremental net new shipboard health and wellness centers added to the fleet of cruise line partners, the continued trend toward larger and enhanced shipboard health and wellness centers and ongoing collaboration and improvement with cruise line partners. The growth was partially offset by the negative impact of an unprecedented number of ships temporarily taken out of service in 2019.

The split of revenue growth between service and product revenue was as follows. Service revenue increased 5% to $431 million and product revenue expanded 1% to $131 million compared to fiscal 2018. Adjusted net income increased 2% to $32 million, and adjusted EBITDA rose 4% to $58.2 million when including public company costs in fiscal 2018. Adjusted net income per diluted share totaled $0.44 and 74 million diluted shares for the year.

Moving then on to the guidance, as it is related to guidance, Leonard mentioned, we have included the known impact of the coronavirus in our first quarter fiscal 2020 guidance. However, given that there are still too many variables and uncertainties to reasonably forecast the full fiscal year for 2020, we are not yet able to determine the impact on guidance for the first full fiscal year beyond the first quarter. For the Q1 we have experienced thus far, the known impact related to the coronavirus, including 141 canceled and modified itineraries, lower resort revenue associated with our land-based destination resorts for us across Asia and associated expenses. Combined, these measures have an estimated impact on Q1 revenue of approximately $5 million and adjusted EBITDA of approximately $2 million.

This known impact is included for our full-year 2020 guidance, which is as follows. We expect revenue for the full year in the range of 100 -- sorry, for the first quarter, I apologize. For Q1 of 2020, we expect revenue of $142 million to $147 million. Adjusted EBITDA is expected between $11 million and $13 million.

This obviously includes the negative impact of the aforementioned $2 million from the coronavirus and compares to last year's first-quarter adjusted EBITDA of $15.3 million, which did not include expenses associated with being a stand-alone and public company. As you recall, we went public in the latter part of March. Adjusted net income is expected between $5 million and $7 million or between $0.07 and $0.10 per diluted share based on 75.1 million shares outstanding as of December 31, 2019. CAPEX is expected in the range of $1 million to $3 million, and our forecast assumes 176 ships at the end of the period with an average ship count of 163.

The average ship count reflects the ships that are expected to be in and out of service during the quarter. It also assumes 68 resorts at the end of the quarter with an average resort count for the period of 68. For fiscal 2020, we expect revenue between $620 million and $630 million, with adjusted EBITDA expected between $58 million and $64 million. This compares to 2019 adjusted EBITDA of $58.2 million or $53.8 million, including comparable public company costs and excluding the $2.8 million reversal of incentive compensation expense in 2019.

Adjusted net income is expected between $31 million and $36 million, and adjusted net income per share is expected between $0.43 and $0.48 per diluted share based on 75.1 million diluted shares outstanding as of December 31, 2019. For the full year, we expect CAPEX to be between $5 million and $10 million. Our forecast assumes 191 ships and 69 resorts at the end of the year, with an average ship count of 175 and an average resort count of 68. Excluding the impact of coronavirus on our 2020 guidance, it is in line with the guidance that we previously indicated for 2020.

And finally and importantly, as we noted in our press release this morning, the board of directors declared a quarterly cash dividend of $0.04 per share payable to shareholders of record as of the close of business on April 10, 2020, which is payable on May 29, 2020. And with that, we'll open up the call to questions. Claudia, if you could take the questions and pass them on, please.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Sharon Zackfia with William Blair. Please, go ahead.

Sharon Zackfia -- William Blair and Company -- Analyst

Hi. Good morning. I was hoping to get some more clarity on the kind of current trends in your business outside of the voyage cancellations. I guess, first, could you remind us for the contractual minimums that you have to pay the cruise lines, how that might work? I assume you would not be on the hook for voyages that are canceled, but if you could kind of clarify that.

And then secondarily, are you sensing or seeing any reluctance of passengers to utilize the spa? Are you having to do any kind of incremental discounting and the sourcing of staff? Any kind of issue at this point?

Leonard Fluxman -- Executive Chairman

Sharon, it's Leonard. I'm trying to remember all your questions here. Firstly, from the perspective of have we seen any impact with regard to spending in the spa, the U.S. consumer still remains very robust.

And globally, there might be some weak pockets. Obviously, Asia has dropped off relatively to the coronavirus and the fact that most cruises and activities have been canceled in that region. We have not seen a reluctance to come into spa in any of the ships that are cruising here in the United States, Caribbean, etc. And quite frankly, it's too soon to even tell that, and I don't think we're presently under a threat.

And we don't have the visibility to determine what, if any, impact is happening with the cruise lines. Only to the extent that they've reported perhaps any softness in bookings, which some of them have come out and said there is some of that already. But remember, the most important thing about the way OneSpaWorld platform and our ability to penetrate, we don't need full ships. We just need great passengers.

And as long as we can still continue to penetrate at 11%, we're still going to continue to generate decent weekly revenues. From a staffing perspective, which I think was the last part of your question, clearly, staff in Asia, we're sending home if the ships are out of service. That obviously, if ships are canceled for voyages for longer than three weeks, we'll send them home, and we'll get them back as soon as we can reactivate and the threat of the coronavirus has passed. With respect to sourcing from any other parts of the world, obviously, we're focused on areas where there may be potential risks not to hire from that region.

But we have sufficient capacity and bandwidth to hire in other regions, such that it will not put imminent pressure on our ability to staff the number of ships that we're taking on this year.

Sharon Zackfia -- William Blair and Company -- Analyst

I think the other part of the question that maybe wasn't addressed was on your contractual minimums with the cruise companies, and how the market --

Leonard Fluxman -- Executive Chairman

Yes. That really should not be a factor because our minimums are not on a weekly basis or a quarterly basis. They're based on the prior year's actual, and we went into a whole new construct after the financial crisis in 2007, 2009. And I do not expect any of those guarantees to be an issue for us, even with lower passenger count potentially through the year.

Sharon Zackfia -- William Blair and Company -- Analyst

Thank you.

Operator

Our next question is from Steve Wieczynski with Stifel. Please, go ahead.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Hey, guys. Good morning. You've obviously quantified the impact around COVID for the first quarter. But hypothetically, let's say things don't get better.

We see more cancellations. I mean we just saw that last night at Royal Caribbean. I guess the question is, how should we think about the impact moving forward? I guess what I'm getting at here is most of the cancellations I think you've seen so far for the first quarter have been mostly Asian-based sailings, which there really should probably have less of an impact on your business. And I guess if we start to see more European or North American cancellations, wouldn't the impact be more than what's embedded in your first quarter guidance? I guess I just don't want people to take that number and kind of just push it through the entire year.

I assume there might be more of an impact.

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

Yes, Steve. It's Stephen here. So that's exactly right. Remember, our guidance only includes cancellations through March 31.

So as you mentioned, even as recently as last night, there were additional cancellations. Because of the fluidity of the situation, we don't know yet. Obviously, nobody knows how many cruises could be canceled before the end of the year. So there will be an additional downside to our 2020 numbers as cruises continue to be canceled.

And obviously, we'll do whatever we can in terms of driving revenue elsewhere. But our numbers so far are through March. And cruises canceled subsequent to that will have an additional downside to our 2020 number.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Gotcha. And then, I don't know, this might be for Glenn. But wanted to ask about the prebook, prepaid options.

And maybe some of the conversations or lack of conversations you've had with other ship partners that don't have that capability, maybe why has that been so slow to adapt? And I guess when you showed on the stats that you mentioned earlier in the call, what's the response to that?

Glenn Fusfield -- Chief Executive Officer and President

Yes. We're not the guys here, Steve. We continually are working very hard in collaborating with our partners weekly, if not on a daily basis. We've been doing as far as working to develop our own platform as a bridge, what we call a widget right now, to offer a stop-gap measure.

65% -- well, let me digress for one moment. Over 80% of all of our vessels have a prebook platform to some degree. 65% are with the OneSpaWorld platform, which is a prebook, prepay, and it's really a dynamic delivery system for our guests. And we're working toward it.

It's simply a resource issue on the cruise line side to integrate the platform. And they have priorities, and they're working all tremendous digital platforms and modern technology on their side, and it's on the list. It's just not the top of the list. So we're making headway.

We added two cruise lines in the latter half of 2019. We're working toward some of the larger cruise lines. There's only one large cruise line that remains that we're working with and then some of their sister companies. And then we have to start hitting the midsized guys.

The big guys, we certainly have. So it is important they see it. They understand it. It's a resource issue we're trying to work alongside them.

It's a big, big priority for us, Steve. And they understand it, again, but we can't drive their resources.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Gotcha. And real quick, Stephen, can you just help us think about when, I guess, from a modeling perspective when Celebrity would be kind of fully ramped this year?

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

So it will only be fully ramped right toward the end of the year, Steve. As you know, generally, about 1/4 of our revenue occurs each quarter with a little bit more in Q3 because of North American school holidays, et cetera. In 2020, though, we do expect that Q3 would be higher than that. Probably somewhere around 27-or-so percent of our revenue, and Q4, also a little bit higher than one quarter.

So you'll see a gradual tick-up Q1, Q2. A little bit more in Q3 and then a little bit more in Q4.

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

OK. Great. Thanks, guys. Appreciate it.

Operator

Our next question is from Harry Curtis with Instinet. Please, go ahead.

Harry Curtis -- Nomura Instinet -- Analyst

Good morning, everyone. One is more of a technical question around free cash flow. Now that the warrant settlement is on hold, you still will be generating or accumulating cash. And so what strategies have you talked about for deploying that free cash or is it just wise in your view to accumulate it for a while until the storm passes?

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

So with regards to the cash generation, Harry, obviously, we have the dividend program, which is perhaps nominal, but it is some cash that we're returning to shareholders. But we still remain focused on reducing our debt levels to at least $175 million by the end of '21 and $140 million by the end of '22, obviously, as you say, to the extent something happens with the warrants. And that does get resolved, and it will at some point, that will change that equation. But simplistically speaking right now, I think the focus would just be remaining on paying the dividend and reducing debt.

Harry Curtis -- Nomura Instinet -- Analyst

And my second question is related to maybe looking beyond this current crisis, and thinking about the mix of kind of full medi-spa opportunities there are yet to be had on your 176 ships. Can you talk about the amount of greenfield or semi-greenfield opportunity there is still remaining to roll out medi-spa on 176 ships?

Glenn Fusfield -- Chief Executive Officer and President

Harry, this is Glenn, if I may. First of all, we have to look at it on an annual basis as itineraries change. First and foremost, it's a vessel/geography-driven strategy, so it has to work. It has to work in the proper itinerary, in the proper geographies with the proper demographics.

So I don't ever feel, I feel it will never be aboard an entire fleet of 176 or 191 vessels just because the mix and dimensions won't all align. We certainly have medi-spas where it worked today. And as I mentioned and Leonard mentioned, we're adding 14 new vessels that are anticipated to have all of the stars aligned accordingly. So we put it where we know the program will work, where it will flourish, where the doctors have the ability to drive and enhance the guest experience onboard and really keep the medi-spa services just as a great offering and vacation enhancement to the vacation experience.

So again, it will never be on a full fleet. If we have opportunities to increase those numbers, we certainly will. What we are doing, however, is increasing our investment within the medi-spa to enhance and broaden the breadth of offerings within the medi-spa, which, a, drives that average spend up; increases the options guests will have from that modality, in particular, and we're really reaping the benefits of that. And the average spends now over $1,400, we'll start to see that will really be solidified on more and more vessels as we ramp up.

And these 14 new ships in 2020, I think, will be a very nice addition for us, and we're adding Thermage heavily. We're doing body contouring heavily. So we're just putting the efforts where we can as we can.

Harry Curtis -- Nomura Instinet -- Analyst

And just a housekeeping question on salary and payroll. Given the increased training cost, what's a reasonable level of same-store increases in salary and payroll? And what I mean by the same-store is adjusted for the ships or the cruises that have to be taken out of service. How much cost inflation is reasonable to expect this year and maybe in the next year?

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

Yes. So Harry, as you know, as it relates to onboard salary, so to speak, the vast majority of what the folks earn onboard is variable based in terms of commission and service charge that they earn. And therefore, from a pure just inflationary standpoint, there's no increase. It really just becomes a function of a percentage of the revenue generally.

And so as the revenue goes up and therefore, we are making more and the stock is earning greater commission and service charge, the number goes up. But there is no sort of annual increase, so to speak, in the base amount.

Leonard Fluxman -- Executive Chairman

Yes. I think, Harry, I mean, the most important thing is that we've made the initial investment by the pretraining that we did in 2019. As I mentioned, we increased that training and recruiting on a global basis to be prepared for this year. But once they're on board, it becomes part of the operating model, and it doesn't move toward inflation at all.

It just becomes part of the operating costs onboard.

Harry Curtis -- Nomura Instinet -- Analyst

So the training costs should pretty much level off in 2020 and '21? That was really where I was going with this.

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

Yes.

Leonard Fluxman -- Executive Chairman

Yeah. Yeah. Yeah. Exactly.

Harry Curtis -- Nomura Instinet -- Analyst

Very good. Thanks, everyone.

Operator

Our next question is from Stephanie Wissink with Jefferies. Please, go ahead.

Seb Barbero -- Jefferies -- Analyst

Hi. It's Seb Barbero for Steph. Just the first question, if we were surprised to the difference between the product sales growth and the product cost of sales, why it's such a drag? Has anything changed or anything that we're missing here?

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

No. The change really is related to the true-up for the purchase price accounting adjustment. And remember, the purchase price accounting adjustments will fall away at the Q1 of next year. So it's just a noncash impact of the final balance sheet purchase accounting true-ups that are accounting for the majority of that.

It's noncash. There will be an amount again in Q1, and then by Q2, the purchase accounting will have been completely cleared in that regard.

Seb Barbero -- Jefferies -- Analyst

Got it. And just a follow-up, as you think about cruise operators looking to fill capacity, are they offering any onboard or any spa credits to offset, perhaps, lower ticket bookings and how should we think this as a catalyst for higher spend or higher utilization?

Leonard Fluxman -- Executive Chairman

Yes. So we've seen them do that before. Certainly, they deployed those kinds of incentives back in 2008, 2009. But to the extent that bookings declined more substantially over the next sort of month or two, it is certainly the discounts that would probably be offered by the cruise lines could be augmented by spa credits like they have done before.

But I think it's just too early to see because we're already starting to see how they're dealing with some of the decline in bookings. But we certainly saw them deploy incentives elsewhere for onboard spend along with ticket price reductions. So that's possible it could happen, and if there's anything, that's a good thing for us.

Glenn Fusfield -- Chief Executive Officer and President

And it typically would be in the form of ship forward credits, not specifically one area, one department. That will be up to the guests on how they would like to deploy it. Right?

Seb Barbero -- Jefferies -- Analyst

Right. Got it.

Operator

Our next question is from Assia Georgieva with Infinity Research. Please, go ahead.

Assia Georgieva -- Infinity Research -- Analyst

Good morning, guys. A couple of quick questions. One is on the medi-spa expansion. I think, Glenn, you did address this in great detail.

Is there a holdup that is preventing you from rolling those out even faster? Is it space? Is it the availability of doctors? Because that seems to be probably the highest growth business for you right now.

Glenn Fusfield -- Chief Executive Officer and President

No. We have a great bunch of doctors. We have a fabulous program at sea. It really is, as I mentioned to Harry, we just have to have the stars aligned.

It has to be on the right itinerary, which means the right length of the voyage with the right demographics onboard sailing in the right geography, which gives us the right time to really sell the program. So it doesn't work in certain markets, and it doesn't work on certain itineraries. So we just have to have the entire strategy. We've been doing this now for a decade so we know where it works and where it doesn't work.

And the last thing we like to do is put a doctor on a program to try and force the medi-spa offerings we have already had reasonable experience to say it just won't work here. It becomes expensive, and then you've implemented something that you have to retreat. And we try not to do that. We really try to go in knowing it will be a winning program.

So again, based on our decade of experience doing this, we have a formula, and we'll wait for those variables to align. And that's where we implement our new additional medi-spa. So where we can add new businesses, then we go wide and we add to the breadth of our offering.

Assia Georgieva -- Infinity Research -- Analyst

Great. And a quick question. Maybe, Stephen, you can help me out. In the impact that you're factoring into Q1, is there a significant cost related to repatriating staff? Or not so much at this point, given that we only have a couple of ships where the cancellations have been really extended?

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

So there is not that significant to date. Although, obviously, it can get larger, part of the incremental cost becomes, obviously, having to pay staff on some of these cruises when there is no revenue being generated. And so that does account for some of the incremental costs related to the shutdown.

Assia Georgieva -- Infinity Research -- Analyst

OK. Great. Thank you so much.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Leonard Fluxman for any closing remarks.

Leonard Fluxman -- Executive Chairman

Great. Thanks everybody for joining us today. We look forward to speaking with you all when we report Q1 results. Thanks again for joining our call today again.

Bye.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Jessica Schmidt -- ICR, Investor Relations

Leonard Fluxman -- Executive Chairman

Glenn Fusfield -- Chief Executive Officer and President

Stephen Lazarus -- Chief Financial Officer and Chief Operating Officer

Sharon Zackfia -- William Blair and Company -- Analyst

Steve Wieczynski -- Stifel Financial Corp. -- Analyst

Harry Curtis -- Nomura Instinet -- Analyst

Seb Barbero -- Jefferies -- Analyst

Assia Georgieva -- Infinity Research -- Analyst

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