Shaw Announces Third Quarter and Year-to-Date Fiscal 2020 Results
July 10, 2020
- Solid third quarter financial performance amidst the COVID-19 pandemic showcases critical nature of robust connectivity infrastructure and overall business resiliency during period of significant economic uncertainty
- Consolidated adjusted EBITDA1 improved 15.3% year-over-year, including the impact of IFRS 16 in fiscal 2020; strong year-to-date Free Cash Flow1 of approximately $595 million represents 20.2% growth over fiscal 2019
- Strong Wireless financial performance with service revenue growth of 17.0% and adjusted EBITDA growth of 90.6%, including the impact of IFRS 16, demonstrates considerable operating leverage as the pandemic, store closures and social distancing restrictions resulted in temporary pause in subscriber growth trajectory
- Stable Wireline adjusted EBITDA growth of 6.9% year-over-year, including the impact of IFRS 16, and continued focus on execution with the introduction of Fibre+ Gig Internet service
Calgary, Alberta (July 10, 2020) – Shaw Communications Inc. (“Shaw” or the “Company”) announces consolidated financial and operating results for the quarter ended May 31, 2020, including the impact of adopting IFRS 16, Leases (IFRS 16). Consolidated revenue decreased by 0.8% to $1.31 billion and adjusted EBITDA increased 15.3% year-over-year to $609 million. Removing the $38 million impact from IFRS 16, adjusted EBITDA increased approximately 8.1% over the prior year.
“While we continue to navigate through a period of widespread uncertainty, the solid performance of our business underscores the resilient and critical nature of the services we provide to our customers. Although subscriber activity was subdued during the quarter, primarily due to Canadians staying home to restrict the spread of COVID-19, the financial performance of the Company was excellent. Throughout this challenging and unprecedented time, 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. We have invested billions on building and improving our network and services and the benefits of these investments have never been more critical for Canadians during this crisis. We have compassionate employees who continue to go above and beyond to help each other and our customers and we remain dedicated to maintaining the safety of our employees and customers as well as supporting the communities and businesses in which we operate. As the economy begins to re-open, we are confident that our robust broadband and wireless infrastructure will continue to play a vital role and drive our economic recovery,” said Brad Shaw, Executive Chair and Chief Executive Officer.
As a result of the temporary retail store closures combined with social distancing requirements related to COVID-19 that persisted throughout the quarter, wireless and wireline subscriber acquisition activity was muted. Wireless postpaid net additions increased by approximately 2,200 in the third quarter and postpaid churn2 was a record low 0.96%, due primarily to reduced customer activity. While wireless subscriber activity was significantly lower, the Company continued to grow ABPU2 and ARPU2 by 5.7% and 2.6%, respectively, year-over-year.
In the Wireline segment, new customer activity was also substantially lower compared to pre-COVID activity. Consumer Internet experienced a marginal net loss of approximately 5,100 and video losses were approximately 22,000 in the quarter, a slight improvement compared to the prior year. Although subscriber activity was reduced, the Company continues to see an acceleration in the number of customers that elect to self-install, which increased dramatically to approximately 72% in the quarter. Through significant investments and a strong technology roadmap, the Company is well positioned to meet the increasing expectations of its customers as they continue to embrace digital adoption and faster Internet speeds. On May 27, 2020, the Company launched its Fibre+ Gig Internet service, available to more than 99% of its residential customers. By offering faster speeds and unlimited data, millions of Western Canadians can continue to rely on their home technology for work, education, entertainment, and connection to the world around them.
In the third quarter, Shaw Business revenue of approximately $140 million was in line with the prior year and decreased approximately 2.8% compared to the second quarter of fiscal 2020 as impacted customers temporarily suspended or cancelled their accounts due to the challenging economic environment facing businesses from COVID-19.
“During a rapidly evolving situation, filled with significant uncertainty, our third quarter performance was remarkable. Our team flawlessly led us through enormous change and disruption while ensuring that we continue to serve our customers - with no exceptions. While uncertainty continues to lie ahead, I am confident in our ability to execute, to continue providing the critical services that our customers need, and to build upon our agile approach to customer service, providing long term benefits to all stakeholders,” said Brad Shaw.
Selected Financial Highlights
Fiscal 2020 results include the impact of adopting IFRS 16 using the modified retrospective approach. Under the modified retrospective approach, fiscal 2019 results have not been restated and are not comparable to fiscal 2020 results. Supplementary information is provided in the accompanying Management’s Discussion and Analysis (“MD&A”), under the heading “Accounting Standards,” which discusses our previous accounting policies and the changes on adoption of the new standard.
In the quarter, the Company lost approximately 5,500 net Wireless RGUs2, consisting of 2,200 postpaid additions and 7,700 prepaid losses. The lower net additions reflects the closure of approximately 90% of its corporate locations during the period and management’s focus on serving its existing base of customers. As retail locations are able to resume operations, substantially all of Freedom Mobile’s retail stores are now open for business as of June 30, 2020.
Wireless service revenue for the three-month period increased 17.0% to $206 million over the comparable period in fiscal 2019 due to the increased subscriber base and growing penetration of Big Gig data plans. Third quarter ABPU grew by approximately 5.7% year-over-year to $44.27 and ARPU increased 2.6% to $38.94 reflecting the increased number of wireless customers subscribing to higher service plans, partially offset by lower roaming revenue in the quarter due to less travel and roaming outside of the Freedom network.
Wireless equipment revenue for the three-month period decreased 37.0% year-over-year to approximately $46 million, reflecting lower subscriber sales and activity in the quarter as a result of the temporary retail store closures. Third quarter Wireless adjusted EBITDA of $101 million increased 90.6% year-over-year, or approximately 56.6% when removing the $18 million impact resulting from the adoption of IFRS 16. The accelerated growth in Wireless adjusted EBITDA in the quarter was primarily due to lower subscriber activations and therefore lower acquisition related costs. While the financial performance of the Wireless segment was strong in the third quarter, showcasing the operating leverage in the business, the Company’s strategy remains to scale the wireless business and continue to grow the subscriber base. Therefore, as retail locations continue to re-open, and Canadians begin to revisit their wireless needs, the Company will continue to make the appropriate investments to balance subscriber growth and profitability.
Wireline RGUs declined by approximately 55,300 in the quarter compared to a loss of approximately 35,200 in the third quarter of fiscal 2019. The current quarter includes a Consumer Internet RGU loss of approximately 5,100 due to lower new customer activity and promotions primarily related to COVID-19. The mature products within the Consumer division, including Video, Satellite and Phone declined in the aggregate by 42,300 RGUs. On May 27, 2020, the Company launched several new Internet products for all needs and budgets, including the introduction of Fibre+ Gig Internet, the largest deployment of gigabit speeds for residential customers in Western Canada. Fibre+ Gig is available to more than 99% of Shaw’s residential customers because of the strategic and ongoing investments the Company has made to its Fibre+ network. In addition to rolling out the fastest speeds ever available to its customers, Shaw launched a new entry-level Internet plan and a new lineup of Internet tiers, providing customers a full range of choices depending on their connectivity needs.
Third quarter Wireline revenue of approximately $1.06 billion decreased 1.1% year-over-year, while adjusted EBITDA of approximately $508 million increased 6.9%. When removing the $20 million impact resulting from the adoption of IFRS 16, adjusted EBITDA increased 2.7% compared to the prior year and excluding the $15 million payment related to certain IP licensing matters in the third quarter of fiscal 2019, adjusted EBITDA was comparable to the prior year. Third quarter adjusted EBITDA includes an increase in the bad debt provision of approximately $5 million, reflecting the uncertainty associated with elevated unemployment levels and Business customer impacts. Consumer revenue of $923 million decreased 1.3% compared to the prior year as growth in Internet revenue was offset by declines in Video, Satellite and Phone revenue. Business revenue of $140 million was comparable to the prior year as pandemic related impacts included temporary customer suspensions, cancellations or reductions in services.
Capital expenditures in the third quarter of $268 million was approximately $12 million lower than the prior year. Wireline capital spend of $195 million was in line with the prior year. Wireless spending decreased by approximately $14 million due to additional costs associated with the deployment of 700 MHz spectrum and expansion of the wireless network in the third quarter of fiscal 2019. The Company expects the deployment of 700 MHz spectrum to be substantially complete in Ontario by the end of fiscal 2020.
Free cash flow for the quarter of approximately $221 million compared to $174 million in the prior year. The increase was largely due to higher adjusted EBITDA and lower capital expenditures and interest.
Net income for the third quarter of fiscal 2020 of $184 million compared to $227 million in the third quarter of fiscal 2019. The decrease of $43 million was primarily due to a $11 million increase in current income tax expense and a $99 million increase in deferred income tax expense, while the adoption of IFRS 16 did not have a significant impact on net income.
As at the end of May 31, 2020, net debt leverage1 stood at 2.4x compared to its target leverage range of 2.5x to 3.0x, which was updated to reflect the impact of the Company’s adoption and the application of IFRS 16 in fiscal 2020 on its balance sheet. On April 22, 2020, the Company successfully issued $500 million principal amount of 2.90% senior notes due on December 9, 2030. The net proceeds of the offering are being used for working capital and general corporate purposes, which include the repayment of outstanding indebtedness of the Corporation. The Company continues to have ample liquidity, including approximately $650 million of cash on its balance sheet, and remains comfortably in compliance with the covenants of its fully committed and substantially undrawn $1.5 billion credit facility. In April, Shaw announced the suspension of share buybacks under its normal course issuer bid (“NCIB”) program to preserve liquidity considering the COVID-19 environment. In the third quarter and year-to-date period, the Company purchased 1,649,942 and 5,614,672 Class B Non-Voting Participating Shares for cancellation for a total cost of approximately $35 million and $140 million, respectively.
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, the Company experienced a reduction in overall wireline and wireless subscriber activity, reduced wireless equipment sales, an improvement in wireless postpaid churn, an increase of approximately 50% in wireline network usage as well as extended peak hours, increased demand for wireless voice services by approximately 25%, a decrease in wireless roaming and overage revenue, a $5 million increase in bad debt expense and the suspension, cancellation, or reduction of Business customer accounts, impacting Business revenue. While the financial impacts from COVID-19 in the third quarter were not material, the situation is still uncertain in terms of its magnitude, outcome and duration. Consumer behaviors 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 commodity price challenges and COVID-19, including mandated closures or further social distancing restrictions.
We continue to believe our business and facilities-based networks provide critical and essential services to Canadians and will remain 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. The Company confirms that it expects to deliver adjusted EBITDA growth (pre and post IFRS 16) in fiscal 2020 and free cash flow is expected to be substantially in line with previous guidance, which continues to be supportive of the current dividend levels.
Considering the ongoing presence of COVID-19, the speed at which it develops and/or changes, and the continued uncertainty of the magnitude, outcome and duration of the pandemic, compounded by the commodity price challenges, the current estimates of our operational and financial results which underlie our outlook for fiscal 2020 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.
“While the ongoing pandemic has affected certain areas of our business, our team is working hard to mitigate the impacts, while continuing to position Shaw for long-term growth and success. Customers rely on our network and we know that additional investments will be required in the future to keep ahead of usage trends and help preserve Canada as one of the best-connected countries in the world. I remain confident in the strength, resiliency and outlook for our business and believe we are well positioned to capitalize on growth opportunities in a post-COVID environment. I am hopeful that the recent positive steps to re-open will lead to a stronger, more robust economy,” 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.