Shaw Announces First Quarter Fiscal 2021 Results
01/13/2021 - 08:01 AM
Success of Shaw Mobile leads to record Wireless net additions of approximately 101,000 in the quarter, including a 31% year-over-year increase in postpaid net additions to 87,300, and continued Wireless service revenue growth of approximately 10% Strong Wireline adjusted EBITDA margin 1 of 50.4% , an increase of 190-basis points over prior year, reflects focus on profitable customer interactions and effective cost management Stable financial performance as COVID-19 pandemic and uncertainty persists with consolidated adjusted EBITDA 2 growth of 3.2% and free cash flow 2 growth of 23% compared to the prior year Repurchased approximately 6.5 million Class B Non-Voting Shares since the commencement of NCIB program in November for approximately $150 million CALGARY, Alberta, Jan. 13, 2021 (GLOBE NEWSWIRE) -- Shaw Communications Inc. (“Shaw” or the “Company”) announces consolidated financial and operating results for the quarter ended November 30, 2020. Consolidated revenue decreased by 0.9% to $1.37 billion , consolidated net income increased 0.6% to $163 million , and adjusted EBITDA increased 3.2% year-over-year to $607 million .
“Since our entry into the wireless business almost five years ago, our strategy has been focused on scaling our Wireless subscriber base and improving the overall customer experience. Throughout this period, we have made significant investments that have enabled us to be innovative and disruptive, while providing tremendous value for Canadians, particularly as we continue to face uncertainties from the ongoing COVID-19 pandemic. In this environment, we have demonstrated our flexible and nimble approach with our go-to-market strategies and strong execution. Connectivity matters more than ever, and our Shaw Mobile bundling strategy is a powerful combination of high quality, affordable wireless services with our robust Fibre+ Internet offering which is clearly resonating with our Internet customers. Our bundling initiatives, combined with a sharp focus on effective cost management across our entire organization, delivered record Wireless customers and a Wireline adjusted EBITDA margin that exceeded 50% in the quarter,” said Brad Shaw, Executive Chair & Chief Executive Officer.
The Company achieved record Wireless subscriber growth in the first quarter with approximately 101,000 new Wireless customers, including 87,300 postpaid net additions and 13,700 prepaid net additions, and continued growth in Wireless service revenue of approximately 10% year-over-year. First quarter ARPU3 decreased by approximately 1.3% as the Company executes on its bundled growth strategy through the acquisition of lower revenue Shaw Mobile customers. Continued aggressive price competition, primarily impacting the Freedom Mobile brand, caused postpaid churn3 to increase in the first quarter to 1.81% compared to 1.50% a year ago. Since the launch of Shaw Mobile on July 30, 2020, the Company continues to expand its premium retail experience to more communities and advance its digital capabilities to serve its customers safely and effectively. During the first quarter, the Company opened five additional Shaw-branded retail locations in new communities throughout British Columbia and Alberta, bringing the total number of wireless retail locations offering Shaw Mobile to approximately 150 stores.
In Wireline, the Company remained focused on profitable customer interactions, building awareness for its Shaw Mobile bundle, and implementing further broadband product and distribution enhancements. First quarter Consumer Internet RGUs3 declined by approximately 15,100 as strong early demand for Shaw Mobile was driven primarily by existing Shaw Internet subscribers, combined with continued lower Internet sales activity due to the COVID-19 environment. The competitive environment continues to be robust and the Company’s efforts are on securing the connectivity needs of the household through its bundling initiatives instead of aggressive discounts on stand-alone products.
Since May 2020, the Company has expanded its portfolio of Internet products and more than doubled the top speed Internet tier, providing more choice for its customers. Following the launch of Fibre+ Gig Internet in the spring, the Company launched Fibre+ Gig 1.5 in early November, a premium Internet tier that delivers the speed and capacity needed for data-heavy customers. Since the launch of faster Internet speeds, combined with the Shaw Mobile bundle, a greater portion of new and existing Shaw Internet customers are choosing Fibre+ Gig plans. The Company also secured approximately 50 additional Internet retail locations through its existing relationships with national third-party retailers.
During the quarter Wireline revenue remained stable with Consumer decreasing 1.4% to $911 million and Business revenue increasing 1.4% to $145 million compared to the prior year. Wireline adjusted EBITDA increased 2.9% and adjusted EBITDA margin increased 190-basis points to 50.4% due to proactive base management and strong cost discipline, partially offset by lower Consumer revenue.
Mr. Shaw continued, “We have successfully navigated the last ten months of pandemic-related challenges, including the launch of Shaw Mobile, providing a strong bundled value proposition for customers and we are proud of the strength of our facilities-based networks, which are not just the core of our digital infrastructure – they are the backbone of our social and economic well-being. While there has been positive news related to the potential efficacy and the timeframe for availability of COVID-19 vaccines in our country, we are still faced with a period of uncertainty, particularly the impacts regarding the most recent restrictions on several areas of our business. However, we continue to believe that connectivity is critical and we remain focused on growing our bundled customers and effectively managing costs in this environment.”
Selected Financial Highlights
Three months ended November 30, (millions of Canadian dollars except per share amounts) 2020 2019 Change % Revenue 1,370 1,383 (0.9 ) Adjusted EBITDA( 1) 607 588 3.2 Adjusted EBITDA margin( 1) 44.3 % 42.5 % 4.2 Free cash flow( 1) 225 183 23.0 Net income 163 162 0.6 Basic and diluted earnings per share 0.31 0.31
(1) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures or non-GAAP ratios and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under GAAP and do not have a standard meaning, and therefore may not be a reliable way to compare us to other companies. See definitions and discussion under “Non-GAAP and additional financial measures” in the accompanying MD&A.
In the quarter, the Company added approximately 101,000 net Wireless RGUs, consisting of 87,300 postpaid additions and 13,700 prepaid additions. The 31% year-over-year increase in the postpaid subscriber additions reflects strong demand for Shaw Mobile from existing Shaw Internet customers.
Wireless service revenue for the three-month period increased 9.7% to $215 million over the comparable period in fiscal 2020 due to an increased subscriber base, including significant Shaw Mobile additions in the quarter. First quarter ARPU decreased 1.3% to $38.25 compared to the prior year, reflecting the successful onboarding of bundled Shaw Mobile customers. Wireless equipment revenue for the three-month period decreased 16.4% to $102 million as Shaw Mobile benefited from the vast majority of customers bringing their own device. First quarter Wireless adjusted EBITDA of $75 million improved 5.6% year-over-year, due to service revenue growth partially offset by lower roaming revenue and investments in the Shaw Mobile launch, including the expansion of Shaw’s retail footprint.
Wireline RGUs declined by approximately 100,900 in the quarter compared to a loss of approximately 57,500 in the first quarter of fiscal 2020. The current quarter includes Consumer Internet RGU decline of approximately 15,100. The mature products within the Consumer division, including Video, Satellite and Phone declined in the aggregate by 91,800 RGUs. Through continued broadband product and distribution enhancements and Shaw Mobile bundling initiatives, the Company is focused on profitable subscriber growth and reducing household churn.
First quarter Wireline revenue of $1,056 million decreased 1.0% while adjusted EBITDA of $532 million increased 2.9% year-over-year, resulting in a strong Wireline adjusted EBITDA margin of 50.4% . Consumer revenue of $911 million decreased 1.4% compared to the prior year as growth in Internet revenue was offset by declines in Video, Satellite and Phone subscribers and revenue. Business revenue increased approximately 1.4% year-over-year to $145 million , reflecting Internet revenue growth and demand for the Smart suite of business products, partially offset by lower video revenue primarily related to the COVID-19 impacts, particularly in the hospitality sector. Wireline adjusted EBITDA growth was due to proactive base management and decreased operating expenses, including lower employee related costs, travel expenses and advertising and sponsorship costs compared to the prior year.
Capital expenditures in the first quarter of $234 million compared to $260 million a year ago. Wireline capital spending decreased by approximately $44 million compared to the previous year due to lower success-based capital, capitalized labor and new housing development. Wireless spending increased by approximately $18 million year-over-year due to continued network expansion, spectrum deployment and higher IT related spending to support Shaw Mobile launch and digital initiatives.
Free cash flow for the quarter of $225 million compared to $183 million in the prior year. The increase was due to higher adjusted EBITDA and lower capital expenditures partially offset by increased cash taxes.
Net income for the first quarter of fiscal 2021 of $163 million is compared to $162 million in the first quarter of fiscal 2020 as higher adjusted EBITDA and lower interest expense is partially offset with restructuring costs of $12 million and $10 million in higher income taxes.
Fiscal 2021 Guidance
The Company confirms that it remains on track to meet its fiscal 2021 guidance of adjusted EBITDA growth over fiscal 2020, consolidated capital investments of approximately $1.0 billion and free cash flow of approximately $800 million .
The severity and duration of impacts from the COVID-19 pandemic remain uncertain and management continues to focus on the safety of our people, most of whom continue to work from home, connectivity of our customer base, compliance with guidelines and requirements issued by various health authorities and government organizations, and continuity of other critical business operations. During the first quarter of fiscal 2021, the Company experienced a continued reduction in Wireline subscriber activity, an increase in wireline network usage as well as extended peak hours, reduced Wireless equipment sales, increased demand for Wireless voice services, a decrease in Wireless roaming and overage revenue, and an increase in the suspension, cancellation, or reduction of Business customer accounts, impacting Business revenue.
While the financial impacts from COVID-19 in the first quarter of fiscal 2021 were not material, the situation is still uncertain in terms of its magnitude, outcome, duration, resurgence and/or subsequent waves. Consumer behavior impacts remain uncertain and could still change materially, including the potential downward migration of services, acceleration of cord-cutting and reduced ability to pay their bills, all due to the challenging economic situation. Shaw Business primarily serves the small and medium sized market, who are also particularly vulnerable to the economic impacts of challenges in the energy sector and COVID-19, including mandated closures, capacity restrictions, self-quarantines or further social distancing restrictions.
The Company believes its business and facilities-based networks provide critical and essential services to Canadians which remained resilient throughout fiscal 2020 and will continue to be resilient in this dynamic and uncertain environment. Management continues to actively monitor the impacts to the business and make the appropriate adjustments to operating and capital expenditures to reflect the evolving environment. Considering the ongoing presence of COVID-19, the speed at which it develops and/or changes, and the continued uncertainty of the magnitude, outcome, duration, resurgence and/or subsequent waves of the pandemic or the potential efficacy and time frame for the availability of any COVID-19 vaccines, compounded by the continued uncertainty in the energy sector, the current estimates of our operational and financial results which underlie our outlook for fiscal 2021 are subject to a significantly higher degree of uncertainty. Any estimate of the length and severity of these developments is therefore subject to uncertainty, as are our estimates of the extent to which the COVID-19 pandemic may, directly or indirectly, materially and adversely affect our operations, financial results, and condition in future periods.
As at November 30, 2020, the Company’s net debt leverage ratio1 of 2.3x was below its target leverage range of 2.5x to 3.0x. On November 2, 2020, the Company received approval from the Toronto Stock Exchange (TSX) to renew its normal course issuer bid (NCIB) program to purchase up to 24,532,404 Class B Non-Voting Participating Shares (Class B Non-Voting Shares), representing 5% of all the issued and outstanding Class B Non-Voting Shares. As of December 31, 2020, and since renewal of the NCIB in early November, the Company repurchased approximately 6.5 million Class B Non-Voting Shares for approximately $150 million or $22.93 per Class B Non-Voting Share.
“We are pleased with our first quarter performance which clearly demonstrates our commitment to growing our wireless customer base through a strong bundled offering. While the ongoing COVID-19 pandemic will continue to have impacts to certain areas of our business, we believe that connectivity remains critical and our business is resilient. Supported by free cash flow growth, ample liquidity and a strong balance sheet, we are on track to meet our commitments for fiscal 2021, including returning substantial capital to our shareholders through our dividend payments and our NCIB program that commenced in the quarter,” said Brad Shaw.
Shaw Communications Inc. is a leading Canadian connectivity company. The Wireline division consists of Consumer and Business services. Consumer serves residential customers with broadband Internet, Shaw Go WiFi, video and digital phone. Business provides business customers with Internet, data, WiFi, digital phone and video services. The Wireless division provides wireless voice and LTE data services through an expanding and improving mobile wireless network infrastructure.
Shaw is traded on the Toronto and New York stock exchanges and is included in the S&P/TSX 60 Index (Symbol: TSX – SJR.B, SJR.PR.A, SJR.PR.B, NYSE – SJR, and TSXV – SJR.A). For more information, please visit www.shaw.ca
The accompanying MD&A forms part of this news release and the “Caution concerning forward-looking statements” applies to all the forward-looking statements made in this news release.
For more information, please contact:Investor.relations@sjrb.ca
1 Adjusted EBITDA margin and net debt leverage ratio are non-GAAP ratios that are calculated by dividing adjusted EBITDA by revenue and by dividing net debt by adjusted EBITDA, respectively. Adjusted EBITDA and net debt are non-GAAP financial measures. Adjusted EBITDA margin and net debt leverage ratio should not be considered as substitutes or alternatives for GAAP measures and may not be a reliable way to compare us to other companies. See “Non-GAAP and additional financial measures” and “Liquidity and capital resources” in the accompanying MD&A for information about these ratios, including how they are calculated. 2 Adjusted EBITDA and free cash flow are non-GAAP financial measures and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under GAAP and do not have a standard meaning, and therefore may not be a reliable way to compare us to other companies. See “Non-GAAP and additional financial measures” in the accompanying MD&A for information about these measures, including how we calculate them. 3 See definitions and discussion of ARPU, RGUs and Wireless postpaid churn under “Key Performance Drivers” in the accompanying MD&A.
MANAGEMENT’S DISCUSSION AND ANALYSIS For the three months ended November 30, 2020
January 13, 2021
Contents
Introduction 9 Selected financial and operational highlights 12 Overview 15 Outlook 17 Non-GAAP and additional financial measures 17 Discussion of operations 21 Other income and expense items 23 Supplementary quarterly financial information 25 Financial position 26 Liquidity and capital resources 27 Accounting standards 30 Related party transactions 30 Financial instruments 30 Internal controls and procedures 31 Risks and uncertainties 31 Government regulations and regulatory developments 31
Advisories
The following Management’s Discussion and Analysis (MD&A) of Shaw Communications Inc. is dated January 13, 2021 and should be read in conjunction with the condensed interim Consolidated Financial Statements and Notes thereto for the quarter ended November 30, 2020 and the 2020 Annual Consolidated Financial Statements, the Notes thereto and related MD&A included in the Company’s 2020 Annual Report. The financial information presented herein has been prepared on the basis of International Financial Reporting Standards (IFRS) for interim financial statements and is expressed in Canadian dollars unless otherwise indicated. References to “Shaw,” the “Company,” “we,” “us” or “our” mean Shaw Communications Inc. and its subsidiaries and consolidated entities, unless the context otherwise requires.
Caution concerning forward-looking statements
Statements included in this MD&A that are not historic constitute “forward-looking information” within the meaning of applicable securities laws. They can generally be identified by words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “target,” “goal” and similar expressions (although not all forward-looking statements contain such words). Forward looking statements in this MD&A may include, but are not limited to statements relating to:
future capital expenditures; proposed asset acquisitions and dispositions; expected cost efficiencies; financial guidance and expectations for future performance; business and technology strategies and measures to implement strategies; the Company’s equity investments, joint ventures, and partnership arrangements; expected growth in subscribers and the products/services to which they subscribe; competitive strengths and pressures; expected project schedules, regulatory timelines, completion/in-service dates for the Company’s capital and other projects; the expected number of retail outlets; the expected impact of new accounting standards, recently adopted or expected to be adopted in the future; the effectiveness of any changes to the design and performance of the Company’s internal controls and procedures; the expected impact of changes in laws, regulations, decisions by regulators or other actions by governments or regulators on the Company’s business, operations and/or financial performance or the markets in which the Company operates; the expected impact of any emergency measures implemented by governments or regulators; timing of new product and service launches; the deployment of: (i) network infrastructure to improve capacity and coverage and (ii) new technologies, including but not limited to next generation wireless and wireline technologies such as 5G and IPTV, respectively; the expected growth in the Company’s market share; the cost of acquiring and retaining subscribers and deployment of new services; the expansion and growth of the Company’s business and operations and other goals and plans; execution and success of the Company’s current and long term strategic initiatives; and the expected impact of the continued uncertainty in the energy sector and the COVID-19 pandemic. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements.
Forward-looking statements are based on assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances as of the current date. The Company’s management believes that its assumptions and analysis in this MD&A are reasonable and that the expectations reflected in the forward-looking statements contained herein are also reasonable based on the information available on the date such statements are made and the process used to prepare the information. Considering the ongoing uncertainty faced by the energy sector and the uncertain and changing circumstances surrounding the COVID-19 pandemic and the related response from the Company, governments (federal, provincial and municipal), regulatory authorities, businesses and customers, there continues to be inherently more uncertainty associated with the Company’s assumptions as compared to prior periods.
These assumptions, many of which are confidential, include but are not limited to management expectations with respect to:
general economic conditions, which includes the impact on the economy and financial markets of (i) uncertainty in the energy sector, and (ii) the COVID-19 pandemic and other health risks; the impact of (i) uncertainty in the energy sector, and (ii) the COVID-19 pandemic and other health risks on the Company’s business, operations, capital resources and/or financial results; future interest rates; previous performance being indicative of future performance; future income tax rates; future foreign exchange rates; technology deployment; future expectations and demands of our customers; subscriber growth; incremental costs associated with growth in wireless handset sales; pricing, usage and churn rates; availability and cost of programming, content, equipment, and devices; the completion of proposed transactions; industry structure, conditions and stability; regulation, legislation or other actions by governments or regulators (and the impact or projected impact on the Company’s business); the implementation of any emergency measures by governments or regulators (and the impact or projected impact on the Company’s business, operations, and/or financial results); access to key suppliers and third-party service providers and their goods and services required to execute on the Company’s current and long-term strategic initiatives on commercially reasonable terms; key suppliers performing their obligations within the expected timelines; retention of key employees; the Company being able to successfully deploy (i) network infrastructure required to improve capacity and coverage, and (ii) new technologies, including but not limited to next generation wireless and wireline technologies such as 5G and IPTV, respectively; the sustainability of results and objectives and cost reductions achieved through the Total Business Transformation (TBT) initiative and Voluntary Departure Program (VDP); operating expense and capital cost estimates associated with the implementation of enhanced health and safety measures for the Company’s offices, retail stores and employees to reduce the spread of COVID-19; the Company can gain access to sufficient retail distribution channels; the Company can access the spectrum resources required to execute on its current and long-term strategic initiatives; and the Company being able to execute on its current and long term strategic initiatives. You should not place undue reliance on any forward-looking statements. Many risk factors, including those not within the Company's control, may cause the Company's actual results to be materially different from the views expressed or implied by such forward-looking statements, including but not limited to:
changes in general economic, market and business conditions including the impact of (i) uncertainty in the energy sector, and (ii) the COVID-19 pandemic and other health risks, on the economy and financial markets which may have a material adverse effect on the Company’s business, operations, capital resources and/or financial results; increased operating expenses and capital costs associated with the implementation of enhanced health and safety measures for the Company’s offices, retail stores and employees in response to the COVID-19 pandemic; changes in interest rates, income taxes and exchange rates; changes in the competitive environment in the markets in which the Company operates and from the development of new markets for emerging technologies; changing industry trends, technological developments and other changing conditions in the entertainment, information and communications industries; changes in laws, regulations and decisions by regulators, or other actions by governments or regulators, that affect the Company or the markets in which it operates; any emergency measures implemented by governments or regulators; technology, privacy, cyber security and reputational risks; disruptions to service, including due to network failure or disputes with key suppliers; the Company’s ability to execute its strategic plans and complete its capital and other projects by the completion date; the Company’s ability to grow subscribers and market share; the Company’s ability to close key transactions; the Company’s ability to have and/or obtain the spectrum resources required to execute on its current and long-term strategic initiatives; the Company’s ability to gain sufficient access to retail distribution channels; the Company’s ability to access key suppliers and third-party service providers and their goods and services required to execute on its current and long-term strategic initiatives on commercially reasonable terms; the ability of key suppliers to perform their obligations within expected timelines; the Company’s ability to retain key employees; the Company’s ability to achieve cost efficiencies; the Company’s ability to sustain the results/objectives and cost reductions achieved through the TBT initiative and VDP; the Company’s ability to complete the deployment of (i) network infrastructure required to improve capacity and coverage and (ii) new technologies, including but not limited to next generation wireless and wireline technologies such as 5G and IPTV, respectively; opportunities that may be presented to and pursued by the Company; the Company’s ability to recognize and adequately respond to climate change concerns or public and governmental expectations on environmental matters; the Company’s status as a holding company with separate operating subsidiaries; and other factors described in the Company’s fiscal 2020 Annual MD&A under the heading “Known Events, Trends, Risks and Uncertainties.” The foregoing is not an exhaustive list of all possible risk factors. Should one or more of these risks materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described in the Company’s fiscal 2020 Annual MD&A and this MD&A. This MD&A provides certain future-oriented financial information or financial outlook (as such terms are defined in applicable securities laws), including the financial guidance and assumptions disclosed under “Outlook.” Shaw discloses this information because it believes that certain investors, analysts and others utilize this and other forward-looking information to assess Shaw's expected operational and financial performance, and as an indicator of its ability to service debt and pay dividends to shareholders. The Company cautions that such financial information may not be appropriate for this or other purposes.
Any forward-looking statement speaks only as of the date on which it was originally made and, except as required by law, the Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect any change in related assumptions, events, conditions or circumstances. All forward-looking statements contained in this MD&A are expressly qualified by this statement.
Additional Information
Additional information concerning the Company, including the Company’s Annual Information Form, is available through the Internet on SEDAR which may be accessed at www.sedar.com . Copies of such information may also be obtained on the Company’s website at www.shaw.ca , or on request and without charge from the Corporate Secretary of the Company, Suite 900, 630 – 3rd Avenue S.W., Calgary, Alberta, Canada T2P 4L4, telephone (403) 750-4500.
Non-GAAP and additional financial measures
Certain measures in this MD&A do not have standard meanings prescribed by GAAP and are therefore considered non-GAAP financial measures. These measures are provided to enhance the reader’s overall understanding of our financial performance or current financial condition. They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between periods. These measures are not in accordance with, or an alternative to, GAAP and do not have standardized meanings. Therefore, they are unlikely to be comparable to similar measures presented by other entities.
Please refer to “Non-GAAP and additional financial measures” in this MD&A for a discussion and reconciliation of non-GAAP financial measures, including adjusted EBITDA, free cash flow and net debt as well as net debt leverage ratio and adjusted EBITDA margin, which are non-GAAP ratios.
Introduction
At Shaw, we focus on delivering sustainable long-term growth by connecting customers to the world through a best-in-class seamless connectivity experience by leveraging our world class converged network. This includes driving operational efficiencies and executing on our strategic priorities through the delivery of an exceptional customer experience and a more agile operating model. Our strategic priorities include growing our wireless and broadband relationships, with a focus on bundling Shaw Mobile and Internet customers, identifying sustainable cost savings in our core Wireline business and making the appropriate investments to capitalize on future growth, including network related investments to support continued broadband product enhancements and deliver a 5G wireless experience.
With the onset of the global COVID-19 pandemic in 2020, connectivity rapidly became a critical lifeline for Canadians and our economy. During this unprecedented period, our network performance was exceptional, and we remain focused on supporting our employees, customers and communities. Our robust facilities-based network, the result of years of significant investment, has showcased its strength in addressing our customers’ need to stay connected to family, friends and colleagues and work from home throughout the COVID-19 pandemic. During the first quarter, the Company experienced the following key impacts related to COVID-19:
a reduction in overall wireline subscriber activity, an increase in wireline network usage as well as extended peak hours, reduced wireless equipment sales, increased demand for wireless voice services, a decrease in wireless roaming and overage revenue, customer payments substantially in-line with historical trends, and the suspension, reduction, or cancellation of, Shaw Business customer accounts While the pandemic has had an impact on our business, Shaw continues to be resilient, delivering solid financial and operating results, and we believe that we are well positioned to meet the rapidly changing and increasing demands of our customers. The financial impacts from COVID-19 in the first quarter were not material; however, the situation remains uncertain in terms of: (i) its magnitude, outcome, duration, resurgences and/or subsequent waves, and (ii) the potential efficacy and time frame for the availability of any COVID-19 vaccines. Consumer behaviors could still change materially, including the potential downward migration of services, acceleration of cord-cutting and reduced ability of customers to pay their bills, all due to the challenging economic situation. Shaw Business primarily serves the small and medium sized market, who are also particularly vulnerable to the economic impacts of the volatile energy sector and COVID-19, including mandated closures or further social distancing restrictions.
As an ongoing risk, the duration and impact of the COVID-19 pandemic is still unknown, as is the efficacy and duration of the government interventions. Any estimate of the length and severity of these developments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pandemic may materially and adversely affect the Company’s operations, financial results and condition in future periods are also subject to significant uncertainty.
Wireless
Our Wireless division currently operates in Ontario, Alberta and British Columbia, covering approximately 50% of the Canadian population, and is positioned as the leading alternative for mobile services to the three national wireless incumbent carriers.
On July 30, 2020, the Company launched Shaw Mobile, a new wireless service in western Canada that leverages Shaw’s LTE and Fibre+ networks, along with Canada’s largest WiFi service, to provide Shaw Internet customers with an innovative wireless experience. Shaw Mobile provides Shaw Internet customers with bundling opportunities to take advantage of unprecedented savings, combined with the ability to customize their mobile data requirements through two rate plans – By The Gig and Unlimited Data. Shaw Mobile is a powerful example of how facilities-based service providers can compete and innovate to deliver true wireless affordability for Canadians. Shaw Mobile capitalizes on the long-term trend that shows the vast majority of Canadians’ smart device data usage occurs on WiFi networks, a fact amplified by recent work-from-home trends.
Freedom Mobile continues to promote its Big Gig Unlimited and Absolute Zero offers. Paired with the most popular devices, and ongoing improvements in the strength and capacity of its network, the Big Gig Unlimited and Absolute Zero plans continue to disrupt the wireless market by providing Canadians with a better, more affordable option when choosing a wireless service provider.
First quarter fiscal 2021 results include record Wireless net additions of approximately 101,000, due to strong demand for Shaw Mobile from existing Internet customers, bringing the total Wireless customer base to over 1.9 million subscribers. Wireless service revenue increased 9.7% to $215 million and adjusted EBITDA increased 5.6% to $75 million compared to the first quarter of fiscal 2020 as the Company continues to scale its business, partially offset by reduced roaming revenue and Shaw Mobile investments.
Supporting its wireless growth are significant investments in its wireless network and customer service capabilities. The Company continues to modernize and expand its retail presence. Since the launch of Shaw Mobile, which included 19 locations, an additional 5 were added in the first quarter. Total wireless retail locations across its operating footprint, including corporate, dealer and national retail, have grown to approximately 720, where Shaw Mobile is available in approximately 150 locations. The Company also continues to prioritize network investments that enhance its existing LTE service and prepare for the delivery of 5G services.
The Company has completed several successful 5G trials, the most recent using the 600 MHz spectrum band. In addition, 600 MHz radio and antenna designs were implemented at new and existing sites in preparation for a 5G service and the Company has completed the migration of its core network to the CloudBased Infrastructure Software platform, the latest generation of cloud core architecture from NOKIA. As part of its converged network strategy, the Company continues to leverage the coaxial cable (which transports both power and multi-gigabit data speeds) in its Fibre+ network for the rapid and flexible deployment of small cells, which will support densification efforts in preparation for 5G.
Wireline
In our Wireline business, we have cemented our status as a technology leader and Western Canada’s leader in gig speed Internet underpinned by our Fibre+ network. Through our digital transformation, we have made it easier to interact with our customers and are leveraging insights from customer data to better understand their preferences so we can provide them with the services they want. We continue to streamline and simplify manual processes that improve the customer experience and day-to-day operations for our employees.
Despite the unprecedented impact that the COVID-19 pandemic had on the lives of our customers this past year, and the corresponding impacts to the way we serve our customers, our focus remains on the execution and delivery of stable and profitable Wireline results. This includes growth in high quality Internet subscribers and improving overall customer account profitability by attracting and retaining higher value households with our best value proposition on 2-year ValuePlans for those who want faster Internet with a better customer experience in addition to Video and Wireless services. Through our introduction of Shaw Mobile, we expect to further strengthen our relationship with existing Wireline customers with our bundled offering to Internet customers as we continue to scale our Wireless business.
The Company continues to deploy its Shaw Gateway modem, powered by Comcast, which enables faster Internet speeds, supports more devices, and provides a stronger in-home WiFi connection. For customers with harder to reach areas in their homes, the new Fibre+ Pods work as an extension of the Shaw Gateway modem to deliver WiFi to all corners of the home, including places where it is difficult to get coverage because of signal blocking building materials or home design.
Building on its network advantage, the Company continues to enhance its broadband product with a new portfolio of Internet plans, including the 750 Mbps tier and its Shaw Fibre+ Gig tier, each available to 99% of residential customers located in our western Canadian Wireline operating footprint. The Company introduced Shaw Fibre+ Gig 1.5 in November, designed to provide gamers, streamers and other heavy data users the speed and bandwidth they need for the many connected devices and data-heavy applications they use every day at home. The Company also secured approximately 50 additional Internet retail locations through its existing relationship with national third-party retailers. In the first quarter, Wireline RGUs declined by approximately 100,900 compared to a decline of 57,500 in the prior year, including Consumer Internet losses of 15,100 in the current quarter. Wireline revenue remained stable, decreasing 1.0% while our focus on profitable customer interactions and effective cost management resulted in adjusted EBITDA growth of 2.9% and a strong Wireline adjusted EBITDA margin of 50.4% .
Our Wireline Business division provides connectivity solutions to its customers by leveraging our Smart suite products which provides cost-effective enterprise grade managed IT and communications solutions that are increasingly valued by businesses of all sizes as the digital economy grows in scope and complexity. The COVID-19 pandemic, as well as continued uncertainty facing the energy sector in western Canada, impacted the Business division by causing the suspension, reduction or cancellation of a number of Business customer accounts and slowing revenue growth. In response to the changing needs of its customers during the pandemic, Shaw Business added a suite of collaboration tools and new Smart products, such as Microsoft 365, Smart Remote Office, SmartSecurity and SmartTarget. Despite the challenging environment, first quarter Business revenue increased 1.4% to $145 million over the prior year.
Selected financial and operational highlights
Financial Highlights Three months ended November 30, (millions of Canadian dollars except per share amounts) 2020 2019 Change % Operations: Revenue 1,370 1,383 (0.9 ) Adjusted EBITDA( 1) 607 588 3.2 Adjusted EBITDA margin( 1) 44.3 % 42.5 % 4.2 Funds flow from operations( 2) 488 450 8.4 Free cash flow( 1) 225 183 23.0 Net income 163 162 0.6 Per share data: Earnings per share Basic and diluted 0.31 0.31 Weighted average participating shares for basic earnings per share outstanding during period (millions) 513 518
(1) Adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures or non-GAAP ratios and should not be considered substitutes or alternatives for GAAP measures. These are not defined terms under GAAP and do not have a standard meaning, and therefore may not be a reliable way to compare us to other companies. See definitions and discussion under “Non-GAAP and additional financial measures” for information about these measures including how we calculate them. (2) Funds flow from operations is before changes in non-cash balances related to operations as presented in the condensed interim Consolidated Statements of Cash Flows.
Key Performance Drivers
The Company measures the success of its strategies using a number of key performance drivers which are defined and described under “Key Performance Drivers – Statistical Measures” in the 2020 Annual MD&A and in this MD&A below, which includes a discussion as to their relevance, definitions, calculation methods and underlying assumptions. The following key performance indicators are not measurements in accordance with GAAP, should not be considered alternatives to revenue, net income or any other measure of performance under GAAP and may not be comparable to similar measures presented by other issuers.
Subscriber (or revenue generating unit (RGU)) highlights
The Company measures the count of its subscribers in its Consumer, Business, and Wireless divisions. For further details and discussion on subscriber counts for RGUs see “Key Performance Drivers – Statistical Measures – Subscriber Counts for RGUs” in the MD&A for the year ended August 31, 2020.
Change Three months ended November 30, 2020 August 31, 2020 November 30, 2020 November 30, 2019 Wireline – Consumer Video – Cable 1,356,083 1,390,520 (34,437 ) (13,948 ) Video – Satellite 617,140 650,727 (33,587 ) (31,875 ) Internet 1,888,800 1,903,868 (15,068 ) 5,648 Phone 648,850 672,610 (23,760 ) (26,178 ) Total Consumer 4,510,873 4,617,725 (106,852 ) (66,353 ) Wireline – Business Video – Cable 37,479 37,512 (33 ) 1,622 Video – Satellite 38,367 36,002 2,365 2,333 Internet 179,461 178,270 1,191 694 Phone 390,082 387,660 2,422 4,253 Total Business 645,389 639,444 5,945 8,902 Total Wireline 5,156,262 5,257,169 (100,907 ) (57,451 ) Wireless Postpaid 1,569,471 1,482,175 87,296 66,865 Prepaid 353,072 339,339 13,733 (8,954 ) Total Wireless 1,922,543 1,821,514 101,029 57,911 Total Subscribers 7,078,805 7,078,683 122 460
In Wireless, the Company gained 101,029 net postpaid and prepaid subscribers in the quarter, consisting of 87,296 postpaid additions and 13,733 prepaid additions. The 31% year-over-year increase in the postpaid subscriber additions reflects strong demand for Shaw Mobile from existing Shaw Internet customers.
Wireline RGUs decreased by 100,907 compared to a 57,451 RGU loss in the first quarter of fiscal 2020. The current quarter includes a Consumer Internet RGU decline of 15,068, which compares to net additions of 5,648 a year ago. The mature products within the Consumer division, including Video, Satellite and Phone, declined in the aggregate by 91,784 RGUs. Through continued broadband product and distribution enhancements and Shaw Mobile bundling initiatives, the Company is focused on profitable subscriber growth and reducing household churn.
Wireless Postpaid Churn
Wireless postpaid subscriber or RGU churn (“postpaid churn”) measures success in retaining subscribers. Wireless postpaid churn is a measure of the number of postpaid subscribers that deactivated during a period as a percentage of the average postpaid subscriber base during a period, calculated on a monthly basis. It is calculated by dividing the number of Wireless postpaid subscribers that deactivated (in a month) by the average number of postpaid subscribers during the month. When used or reported for a period greater than one month, postpaid churn represents the sum of the number of subscribers deactivating for each period incurred divided by the sum of the average number of postpaid subscribers of each period incurred.
Postpaid churn of 1.81% in the first quarter of fiscal 2021 compares to 1.50% in the first quarter of fiscal 2020 due to continued aggressive price competition in the quarter, primarily impacting the Freedom Mobile brand.
Wireless average billing per subscriber unit (ABPU)
Wireless ABPU is an industry metric that is useful in assessing the operating performance of a wireless entity. We use ABPU as a measure that approximates the average amount the Company invoices an individual subscriber unit for service on a monthly basis. ABPU helps us to identify trends and measures the Company’s success in attracting and retaining higher lifetime value subscribers. Wireless ABPU is calculated as service revenue (excluding allocations to wireless service revenue under IFRS 15) divided by the average number of subscribers on the network during the period and is expressed as a rate per month.
ABPU of $42.66 in the first quarter of fiscal 2021 compares to $43.60 in the first quarter of fiscal 2020, representing a decrease of 2.2% . The decrease in ABPU year over year reflects the execution of the Company’s bundled growth strategy through the acquisition of lower revenue Shaw Mobile customers.
Wireless average revenue per subscriber unit (ARPU)
Wireless ARPU is calculated as service revenue divided by the average number of subscribers on the network during the period and is expressed as a rate per month. This measure is an industry metric that is useful in assessing the operating performance of a wireless entity. ARPU also helps to identify trends and measure the Company’s success in attracting and retaining higher-value subscribers.
ARPU of $38.25 in the first quarter of fiscal 2021 compares to $38.76 in the first quarter of fiscal 2020, representing a decrease of 1.3% . The decrease in ARPU year over year reflects the execution of the Company’s bundled growth strategy through the acquisition of lower revenue Shaw Mobile customers.
Overview
For detailed discussion of divisional performance see “Discussion of operations.” Highlights of the consolidated first quarter financial results are as follows:
Revenue
Revenue for the first quarter of fiscal 2021 of $1.37 billion decreased $13 million , or 0.9% , from $1.38 billion for the first quarter of fiscal 2020, highlighted by the following:
The year-over-year decrease in consolidated revenue included a $13 million , or 1.4% , decrease in the Consumer division as the growth in Internet revenue was offset by declines in Video, Satellite and Phone subscribers and revenue. The Wireless division contributed $317 million and included a $1 million , or 0.3% , decline over the first quarter of fiscal 2020 reflecting a $19 million increase in service revenue more than fully offset by a decrease in equipment revenue of $20 million primarily due to the impact of Shaw Mobile with the vast majority of customers bringing their own devices in the current quarter. The Business division had growth of $2 million , or 1.4% , in comparison to the first quarter of fiscal 2020 reflecting Internet revenue growth and demand for the Smart suite of business products, partially offset by lower video revenue primarily related to the COVID-19 impacts, particularly in the hospitality sector. Compared to the fourth quarter of fiscal 2020, consolidated revenue for the quarter increased 1.6% , or $21 million . The increase in revenue over the prior quarter primarily relates to a $19 million increase in equipment revenue in the Wireless division combined with a $4 million increase in service revenue in the Wireless division. Wireline revenue remained comparable quarter-over-quarter.
Adjusted EBITDA
Adjusted EBITDA for the first quarter of fiscal 2021 of $607 million increased by $19 million , or 3.2% , from $588 million for the first quarter of fiscal 2020, highlighted by the following:
The year-over-year improvement in the Wireless division of $4 million , or 5.6% , is mainly due to service revenue growth partially offset by lower roaming revenue and investments in the Shaw Mobile launch, including the expansion of Shaw’s retail footprint. The year-over-year increase in the Wireline division of $15 million , or 2.9% , was primarily due to proactive base management and decreased operating expenses, including lower employee related costs, travel expenses and advertising and sponsorship costs compared to the prior year. Consistent with the variances noted above, adjusted EBITDA margin for the first quarter of 44.3% increased 180-basis points compared to 42.5% in the first quarter of fiscal 2020.
Compared to the fourth quarter of fiscal 2020, adjusted EBITDA for the current quarter increased $13 million , or 2.2% , primarily due to a $22 million increase in the Wireline division as a result of proactive base management and decreased operating expenses, including lower employee related costs, travel expenses and advertising and sponsorship costs compared to the prior year. This was partially offset by a $9 million decrease in the Wireless division as the $23 million increase in revenue was more than fully offset by the impact of lower margins due to higher equipment sales and investments in the Shaw Mobile launch, including the expansion of Shaw’s retail footprint.
Free cash flow
Free cash flow for the first quarter of fiscal 2021 of $225 million increased $42 million from $183 million in the first quarter of fiscal 2020, mainly due to a $26 million decrease in capital expenditures, a $19 million increase in adjusted EBITDA and lower interest on debt partially offset by a $7 million increase in cash taxes.
Net income (loss)
Net income of $163 million for the three months ended November 30, 2020, compared to a net income of $162 million for the same period in fiscal 2020. The changes in net income are outlined in the following table:
November 30, 2020 net income compared to: Three months ended (millions of Canadian dollars) August 31, 2020 November 30, 2019 Increased adjusted EBITDA( 1) 13 19 Increased restructuring costs( 3) (12 ) (12 ) Decreased (increased) amortization 7 (2 ) Change in net other costs and revenue( 2) 1 6 Increased income taxes (21 ) (10 ) (12 ) 1
(1) Adjusted EBITDA is a non-GAAP financial measure and should not be considered a substitute or alternative for GAAP measures. This is not a defined term under GAAP and does not have a standard meaning, and therefore may not be a reliable way to compare us to other companies. See “Non-GAAP and additional financial measures” for information about this measure, including how we calculate it. (2) Net other costs and revenue include accretion of long-term liabilities and provisions, interest, debt retirement costs, realized and unrealized foreign exchange differences and other losses as detailed in the unaudited Consolidated Statements of Income. (3) During the first quarter of fiscal 2021, the Company made a number of changes to its organizational structure in an effort to streamline the business, consolidate certain functions, and reduce redundancies between the Wireless and Wireline segments. In connection with the restructuring, the Company recorded costs of $12 million , primarily related to severance and employee related costs.
Outlook
The Company confirms that it remains on track to meet its fiscal 2021 guidance of adjusted EBITDA growth over fiscal 2020, consolidated capital investments of approximately $1.0 billion and free cash flow of approximately $800 million .
The severity and duration of impacts from the COVID-19 pandemic remain uncertain and management continues to focus on the safety of our people, most of whom continue to work from home, connectivity of our customer base, compliance with guidelines and requirements issued by various health authorities and government organizations, and continuity of other critical business operations. During the first quarter of fiscal 2021, the Company experienced a continued reduction in Wireline subscriber activity, an increase in wireline network usage as well as extended peak hours, reduced Wireless equipment sales, increased demand for Wireless voice services, a decrease in Wireless roaming and overage revenue, and an increase in the suspension, cancellation, or reduction of Business customer accounts, impacting Business revenue.
While the financial impacts from COVID-19 in the first quarter of fiscal 2021 were not material, the situation is still uncertain in terms of its magnitude, outcome, duration, resurgence and/or subsequent waves. Consumer behavior impacts remain uncertain and could still change materially, including the potential downward migration of services, acceleration of cord-cutting and reduced ability to pay their bills, all due to the challenging economic situation. Shaw Business primarily serves the small and medium sized market, who are also particularly vulnerable to the economic impacts of challenges in the energy sector and COVID-19, including mandated closures, capacity restrictions, self-quarantines or further social distancing restrictions.
The Company believes its business and facilities-based networks provide critical and essential services to Canadians which remained resilient throughout fiscal 2020 and will continue to be resilient in this dynamic and uncertain environment. Management continues to actively monitor the impacts to the business and make the appropriate adjustments to operating and capital expenditures to reflect the evolving environment. Considering the ongoing presence of COVID-19, the speed at which it develops and/or changes, and the continued uncertainty of the magnitude, outcome, duration, resurgence and/or subsequent waves of the pandemic or the potential efficacy and time frame for the availability of any COVID-19 vaccines, compounded by the continued uncertainty in the energy sector, the current estimates of our operational and financial results which underlie our outlook for fiscal 2021 are subject to a significantly higher degree of uncertainty. Any estimate of the length and severity of these developments is therefore subject to uncertainty, as are our estimates of the extent to which the COVID-19 pandemic may, directly or indirectly, materially and adversely affect our operations, financial results, and condition in future periods.
See “Caution concerning forward-looking statements.”
Non-GAAP and additional financial measures
The Company’s continuous disclosure documents may provide discussion and analysis of non-GAAP financial measures or ratios. These financial measures do not have standard definitions prescribed by GAAP and therefore may not be comparable to similar measures disclosed by other companies. The Company’s continuous disclosure documents may also provide discussion and analysis of additional financial measures. Additional financial measures include line items, headings and sub-totals included in the financial statements.
The Company utilizes these measures in making operating decisions and assessing its performance. Certain investors, analysts and others utilize these measures in assessing the Company’s operational and financial performance and as an indicator of its ability to service debt and return cash to shareholders. The non-GAAP financial measures, ratios, and additional financial measures have not been presented as an alternative to revenue, net income or any other measure of performance required by GAAP.
Below is a discussion of the non-GAAP financial measures, ratios, and additional financial measures used by the Company and provides a reconciliation to the nearest GAAP measure or provides a reference to such reconciliation.
Adjusted EBITDA
Adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) is calculated as revenue less operating, general and administrative expenses. It is intended to indicate the Company’s ongoing ability to service and/or incur debt and is therefore calculated before items such as restructuring costs, equity income/loss of an associate or joint venture, amortization (a non-cash expense), taxes and interest. Adjusted EBITDA is one measure used by the investing community to value the business. Adjusted EBITDA has no directly comparable GAAP financial measure. Alternatively, the following table provides a reconciliation of net income to adjusted EBITDA:
Three months ended November 30, (millions of Canadian dollars) 2020 2019 Net income 163 162 Add back (deduct): Restructuring costs 12 - Amortization: Deferred equipment revenue (3 ) (4 ) Deferred equipment costs 13 18 Property, plant and equipment, intangibles and other 295 289 Amortization of financing costs – long-term debt 1 1 Interest expense 66 71 Other losses 2 3 Current income tax expense 36 36 Deferred income tax expense 22 12 Adjusted EBITDA 607 588
Adjusted EBITDA margin
Adjusted EBITDA margin is a non-GAAP ratio that is calculated by dividing adjusted EBITDA by revenue. Adjusted EBITDA margin is also one of the measures used by the investing community to value the business.
Three months ended November 30, 2020 2019 Change % Wireline 50.4 % 48.5 % 3.9 Wireless 23.7 % 22.3 % 6.3 Combined Wireline and Wireless 44.3 % 42.5 % 4.2
Net debt
The Company uses this measure to perform valuation-related analysis and make decisions about the Company’s capital structure. We believe this measure aids investors in analyzing the value of the business and assessing our leverage. Refer to “Liquidity and capital resources” for further detail.
Net debt leverage ratio
The Company uses this non-GAAP ratio to determine its optimal leverage ratio. Refer to “Liquidity and capital resources” for further detail.
Free cash flow
The Company utilizes this measure to assess the Company’s ability to repay debt and pay dividends to shareholders.
Free cash flow is comprised of adjusted EBITDA and then deducting capital expenditures (on an accrual basis and net of proceeds on capital dispositions) and equipment costs (net), interest, cash taxes paid or payable, interest on lease liabilities, lease payments relating to lease liabilities, dividends paid on the preferred shares, and recurring cash funding of pension amounts net of pension expense and adjusted to exclude share-based compensation expense or recovery.
Free cash flow has not been reported on a segmented basis. Certain components of free cash flow, including adjusted EBITDA, continue to be reported on a segmented basis. Capital expenditures and equipment costs (net) are also reported on a segmented basis. Other items, including interest and cash taxes, are not generally directly attributable to a segment, and are reported on a consolidated basis.
Free cash flow is calculated as follows: Three months ended November 30, (millions of Canadian dollars) 2020 2019 Change % Revenue Consumer 911 924 (1.4 ) Business 145 143 1.4 Wireline 1,056 1,067 (1.0 ) Service 215 196 9.7 Equipment 102 122 (16.4 ) Wireless 317 318 (0.3 ) 1,373 1,385 (0.9 )
SJR Rankings
N/A Ranked by Stock Gains
SJR Stock Data
Industry
Satellite Telecommunications
Sector
Information
Tags
Consumer Services, Cable/Satellite TV, Information, Satellite Telecommunications
Country
Canada
City
Calgary
About SJR
Shaw Communications Inc. is a leading Canadian connectivity company. The Wireline division consists of Consumer and Business services. Consumer serves residential customers with broadband Internet, Shaw Go WiFi, video and digital phone. Business provides business customers with Internet, data, WiFi, digital phone, and video services. The Wireless division provides wireless voice and LTE data services through an expanding and improving mobile wireless network infrastructure.
