Shaw Announces First Quarter Fiscal 2021 Results
January 13, 2021
- 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 margin1 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 EBITDA2 growth of 3.2% and free cash flow2 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 (January 13, 2021) – 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.”
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.
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.
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