Shaw Announces Third Quarter and Year-to-Date Fiscal 2021 Results
June 30, 2021
- - Shaw delivers third quarter financial and subscriber performance in line with expectations and confirms the Company remains on track to achieve its current fiscal 2021 guidance
- - Shaw shareholders overwhelmingly voted in favour of the proposed business combination with Rogers Communications at special meeting of shareholders held on May 20, 2021
- - The Company redeemed all its issued and outstanding preferred shares on June 30, 2021 for an aggregate redemption price of $300 million
Calgary, Alberta (June 30, 2021) – Shaw Communications Inc. (“Shaw” or the “Company”) announces consolidated financial and operating results for the quarter ended May 31, 2021. Consolidated revenue increased by 4.8% to $1.38 billion, adjusted EBITDA1 increased 5.4% year-over-year to $642 million and net income increased 92.4% to $354 million. Third quarter results include incremental Wireline Consumer revenue of approximately $20 million related to the release of a provision following the Canadian Radio-television and Telecommunications Commission (CRTC) decision on final aggregated Third Party Internet Access (TPIA) rates, substantially offset by approximately $25 million higher employee related costs primarily driven by equity-based compensation due to the significant increase in Shaw’s share price and adjustments to employee benefit provisions. Excluding the aforementioned items, consolidated revenue and adjusted EBITDA increased approximately 3.3% and 6.2%, respectively.
“Following nearly two years of regulatory uncertainty impacting our industry, the recent decisions by the CRTC have restored confidence in the regulatory framework and provided the necessary certainty to make the generational facilities–based investments that are required and critical in support of the latest technologies, strong competition and choice for more Canadians. By Shaw and Rogers coming together, the combined entity will have the scale, assets and capabilities to confidently invest billions of dollars that will serve future generations, help to close the digital divide and deliver coast-to-coast 5G service throughout Canada,” said Brad Shaw, Executive Chair & Chief Executive Officer.
Shaw and Rogers Transaction
On March 15, 2021, Shaw announced that it entered into an arrangement agreement (the “Arrangement Agreement”) with Rogers Communications Inc. (“Rogers”), under which Rogers will acquire all of Shaw’s issued and outstanding Class A Participating Shares (“Class A Shares”) and Class B Non-Voting Participating Shares (“Class B Shares”) in a transaction valued at approximately $26 billion, inclusive of approximately $6 billion of Shaw debt (the “Transaction”). Holders of Class A Shares and Class B Shares (other than the Shaw Family Living Trust, the controlling shareholder of Shaw, and related persons (collectively, the “Shaw Family Shareholders”)) will receive $40.50 per share in cash. The Shaw Family Shareholders will receive 60% of the consideration for their shares in the form of Class B Non-Voting Shares of Rogers (“Rogers Shares”) on the basis of the volume-weighted average trading price for the Rogers Shares for the 10 trading days ending March 12, 2021, and the balance in cash. As at March 13, 2021, when the Arrangement Agreement was signed, the value of the consideration attributable to the Class A Shares and Class B Shares held by the Shaw Family Shareholders (calculated using the volume-weighted average trading price for the Rogers Shares for the 10 trading days ending March 12, 2021) was equivalent to $40.50 per share.
The Transaction is being implemented by way of a court-approved plan of arrangement under the Business Corporations Act (Alberta). At the special meeting of Shaw shareholders held on May 20, 2021, the Company obtained approval of the plan of arrangement by the holders of Shaw’s Class A Shares and Class B Shares in the manner required by the interim order granted by the Court of Queen’s Bench of Alberta on April 19, 2021. On May 25, 2021, the Court of Queen’s Bench of Alberta issued a final order approving the plan of arrangement.
The Transaction remains subject to other customary closing conditions including approvals from certain Canadian regulators. Shaw and Rogers are working cooperatively and constructively with the Competition Bureau, Innovation, Science and Economic Development Canada (ISED) and the CRTC in order to secure the requisite approvals. Subject to receipt of all required approvals and satisfaction of all closing conditions, closing of the Transaction is expected to occur in the first half of 2022.
On May 28, 2021, the Company announced the redemption of all of its issued and outstanding Cumulative Redeemable Rate Reset Class 2 Preferred Shares, Series A (the “Series A Shares”) and Cumulative Redeemable Floating Rate Class 2 Preferred Shares, Series B (the “Series B Shares” and, together with the Series A Shares, the “Preferred Shares”) in accordance with their terms (as set out in the Company’s articles) on June 30, 2021 (the “Redemption Date”) at a price equal to $25.00 per Preferred Share (the “Redemption Price”), less any tax required to be deducted or withheld.
On the Redemption Date, there were 10,012,393 Series A Shares and 1,987,607 Series B Shares issued and outstanding. Accordingly, the aggregate Redemption Price paid by Shaw on the Redemption Date to redeem the Preferred Shares was $300 million.
On April 14, 2021, the Company’s Board of Directors declared a dividend of $0.17444 per Series A Share and $0.12956 per Series B Share, each payable on June 30, 2021 to holders of record on June 15, 2021. These were the final dividends on the Preferred Shares, which were paid separately from the aggregate Redemption Price and in the usual manner. Following payment of the June 30, 2021 dividends, there were no accrued and unpaid dividends on the Preferred Shares.
Further information regarding the Transaction is contained in the management information circular filed April 23, 2021 on Shaw’s SEDAR profile at www.sedar.com and EDGAR profile at www.sec.gov/edgar.shtml.
Third Quarter Fiscal 2021
In the third quarter, the Company added approximately 51,000 new Wireless customers. Postpaid net additions of approximately 46,600 in the quarter were driven by the continued momentum of Shaw Mobile. Wireless service revenue growth of 9.2% is due to subscriber growth, partially offset by lower ARPU2. As the Company continues to scale its lower revenue Shaw Mobile customer base, third quarter Wireless ARPU decreased 5.1% from the prior year period to $36.94; however, an increase in customers signing up for our bundled offerings and Internet migration to faster speed tiers continues to accelerate which led to Internet revenue growth. Wireless postpaid churn3 of 1.07% improved approximately 18-basis points from the second quarter of fiscal 2021 and marginally increased from the record low churn of 0.96% in the third quarter of fiscal 2020.
In the quarter, Consumer RGU4 losses of approximately 36,300 continued its improving trend, led by Internet RGU additions of approximately 1,300 as customers continue to bundle their Internet and Wireless service together. Third quarter Wireline revenue increased 1.6% year-over-year to $1.08 billion and adjusted EBITDA increased 3.7% to $527 million. Third quarter Wireline financial results include approximately $20 million of incremental revenue due to the release of a provision following the CRTC decision on final aggregated TPIA rates, substantially offset by approximately $25 million higher employee related costs primarily driven by equity-based compensation due to the significant increase in Shaw’s share price and adjustments to employee benefit provisions. Excluding the aforementioned items, Wireline revenue decreased 0.3% and adjusted EBITDA increased 4.7%, resulting in adjusted EBITDA margin5 of 50.2% compared to 47.8% in the prior year period.
In the quarter, the Company added approximately 51,000 net Wireless RGUs, consisting of approximately 46,600 postpaid additions and 4,400 prepaid additions. Wireless service revenue for the three-month period increased 9.2% to $225 million over the comparable period in fiscal 2020 due to the increased subscriber base, including significant Shaw Mobile additions in the quarter. Third quarter ARPU decreased 5.1% year-over-year to $36.94. Wireless equipment revenue for the three-month period increased 58.7% to $73 million mainly due to increased device sales. Third quarter Wireless adjusted EBITDA of $115 million grew 13.9% year-over-year, primarily due to continued service revenue growth and improved equipment margins partially offset by higher IT, network and advertising costs relative to the prior year. Wireless adjusted EBITDA margin of 38.6% compared to 40.1% in the prior year primarily due to equipment sales being a higher proportion of wireless revenues in the current period.
Consumer RGUs declined by approximately 36,300 in the quarter compared to a loss of approximately 47,500 in the third quarter of fiscal 2020. The current quarter includes an improvement in Internet RGUs with a gain of approximately 1,300 compared to a loss of 5,100 in the same period last year. The mature products within the Consumer division, including Video, Satellite and Phone declined in the aggregate by 37,600 RGUs. During the quarter, the Company introduced Shaw Gig WiFi, leveraging the best in-home technology to give customers the faster speeds, lower latency and more consistent WiFi signal they need to connect all their devices. Through continued broadband product enhancements and Shaw Mobile bundling initiatives, the Company is focused on profitable subscriber growth and reducing household churn.
Third quarter Wireline revenue of $1.08 billion increased 1.6% and adjusted EBITDA of $527 million increased 3.7% year-over-year. Consumer revenue of $935 million increased 1.3% compared to the prior year period due to the incremental $20 million in revenue related to the final aggregated TPIA rates that date back to August 2019. Excluding the TPIA adjustment, Consumer revenue decreased 0.9% as growth in Internet revenue was offset by declines in Video, Satellite and Phone subscribers and revenue. Business revenue increased 3.6% to $145 million with Internet revenue growth and continued demand for the Smart suite of products, partially offset by lower Video revenue primarily related to the impacts of COVID-19 on the hospitality sector. Third quarter Wireline adjusted EBITDA increased 3.7% year-over-year due to higher Wireline revenue, including the TPIA adjustment, proactive base management, and lower bad debt expense, partially offset by increased employee related costs primarily driven by equity-based compensation due to the significant increase in Shaw’s share price and adjustments to employee benefit provisions, as well as increased advertising and customer care expenses in the quarter. Excluding the $20 million TPIA adjustment and the higher employee related costs of approximately $25 million, Wireline adjusted EBITDA increased 4.7% compared to the prior year period.
Capital expenditures in the third quarter of $233 million were $35 million, or 13.1%, lower than the prior year period. Wireline capital spending decreased $32 million compared to the third quarter of fiscal 2020 primarily due to a decrease in success-based capital while Wireless spending was relatively flat compared to the prior year period.
Free cash flow for the quarter of $307 million compared to $221 million in the prior year period. The increase was primarily due to higher adjusted EBITDA, lower capital spending, and a $35 million reduction of tax related interest expense.
Net income for the third quarter of fiscal 2021 of $354 million compared to $184 million in the third quarter of fiscal 2020. The increase of $170 million was due mainly to an increase in adjusted EBITDA of $33 million and a revision to liabilities for uncertain tax positions that became statute barred in the period, which reduced income tax expense by $125 million and interest expense by $35 million. These increases in net income were offset by $18 million of non-operating costs related to the Transaction.
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. In light of the Company’s performance to date, the Company now expects free cash flow will exceed $800 million in fiscal 2021.
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 third quarter of fiscal 2021, the Company continued to experience a reduction in overall Wireline subscriber activity, an increase in wireline network usage as well as extended peak hours, increased demand for Wireless voice services, a decrease in Wireless roaming revenue, customer payments substantially in-line with historical trends, and an increase in credits provided for, as well as the reduction or cancellation of Shaw Business customer accounts.
While the financial impacts from COVID-19 in the third quarter of fiscal 2021 were not material, the situation is still uncertain in terms of its magnitude, outcome, duration, resurgence, emergence of variants, 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 of certain customers to pay their bills. Shaw Business primarily serves the small and medium sized market, which is also particularly vulnerable to COVID-19 related restrictions, including mandated closures, capacity restrictions, self-quarantines or further social distancing requirements.
The Company believes its business and facilities-based networks provide critical and essential services to Canadians which remained resilient throughout the pandemic 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, emergence of variants, and/or subsequent waves of the pandemic or the potential efficacy and continued availability and distribution of any COVID-19 vaccines, 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.
The Transaction could cause the attention of management of the Company to be diverted from the day-to-day operations of the Company. These disruptions could be exacerbated by a delay in the completion of the Transaction and could have an adverse effect on the current and future business, operations, results of operations, financial condition and prospects of the Company. Because the completion of the Transaction is subject to significant uncertainty, officers and employees of the Company may experience uncertainty about their future roles with the Company, which may adversely affect the Company’s ability to attract or retain key management and personnel in the period until the completion or termination of the Arrangement Agreement.
In addition, third parties with which the Company currently has business relationships or may have business relationships in the future, including industry partners, regulators, customers and suppliers, may experience uncertainty associated with the Transaction, including with respect to current or future relationships with the Company or Rogers. Such uncertainty could have a material and adverse effect on the current and future business, operations, results of operations, financial condition and prospects of the Company.
As at the end of May 31, 2021, the Company’s net debt leverage ratio6 of 2.4x was below its target leverage range of 2.5x to 3.0x. In the third quarter, Shaw repurchased 1,559,202 Class B Shares for approximately $36 million. For the nine months ended May 31, 2021, the Company purchased 14,783,974 Class B Shares for cancellation for a total cost of approximately $336 million. In connection with the announcement of the proposed Transaction on March 15, 2021, the Company suspended share buybacks under its normal course issuer bid (NCIB) program.
Mr. Shaw concluded, “Our third quarter and year-to-date results reflect our balanced approach to profitable subscriber growth, improved customer experience, and solid execution throughout the organization. While we continue to navigate the COVID-19 pandemic, I am optimistic that returning to our normal routine is imminent and that connectivity will remain just as important to Canadians. As significant network investments we have made in the past enabled us to provide critical connectivity during their time of need through COVID, our combination with Rogers will serve future generations with a robust 5G service and by reaching deeper into rural, remote and Indigenous communities. With a successful shareholder vote completed and court approval obtained, we turn our focus to working closely with Rogers to obtain the required regulatory approvals to close the Transaction.”
1 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 IFRS and does not have a standardized meaning, and therefore may not be a reliable way to compare us to other companies. Additional information about this measure, including a quantitative reconciliation to the most directly comparable financial measure in the Company’s Consolidated Financial Statements, is incorporated by reference to “Non-GAAP and additional financial measures” in the management’s discussion and analysis (MD&A) dated June 30, 2021 for the three-month period ending May 31, 2021, available on SEDAR at www.sedar.com.
2 ARPU is a supplementary financial measure which may not be comparable to similar measures presented by other issuers. Additional information about this supplementary financial measure is incorporated by reference to “Key Performance Drivers” in the MD&A dated June 30, 2021 for the three-month period ending May 31, 2021, available on SEDAR at www.sedar.com.
3 Wireless postpaid churn is a metric used to measure the Company’s success in retaining Wireless subscribers. Additional information about this metric is incorporated by reference to “Key Performance Drivers” in the MD&A dated June 30, 2021 for the three-month period ending May 31, 2021, available on SEDAR at www.sedar.com.
4 RGUs is a metric used to measure the count of subscribers in the Company’s Wireline and Wireless segments. Additional information about this metric is incorporated by reference to “Key Performance Drivers” in the MD&A dated June 30, 2021 for the three-month period ending May 31, 2021, available on SEDAR at www.sedar.com.
5 Adjusted EBITDA margin is a non-GAAP ratio. Adjusted EBITDA margin is not a standardized measure under IFRS and may not be a reliable way to compare us to other companies. Additional information about this measure is incorporated by reference to “Non-GAAP and additional financial measures” in the MD&A dated June 30, 2021 for the three-month period ending May 31, 2021, available on SEDAR at www.sedar.com.
6 Net debt leverage ratio is a non-GAAP ratio and net debt, which is a component of net debt leverage ratio, is a non-GAAP financial measure. Net debt leverage ratio and net debt are not standardized measures under IFRS and may not be a reliable way to compare us to other companies. Additional information about these measures is incorporated by reference to “Non-GAAP and additional financial measures” in the MD&A dated June 30, 2021 for the three-month period ending May 31, 2021, available on SEDAR at www.sedar.com.
Shaw 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.
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, 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.