Shaw Communications Inc.
Q1 2021 Earnings Call Transcript

Published: 13 Jan 2021

[Operator:]

Welcome to Shaw Communications’ first quarter 2021 conference call and webcast. Today’s call will be hosted by Mr. Brad Shaw, Executive Chair and Chief Executive Officer of Shaw Communications. At this time, all participants are in a listen-only mode and the conference is being recorded. Following the presentation, there will be a question-and-answer session. To join the question queue, simply press star and one on your touchtone phone at any time during the call. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone.

[Brad Shaw:]

Thank you, Operator. Good morning everyone. Happy new year and thanks for joining us to discuss our Q1 results. With me today are members of our senior management team, including our President, Paul McAleese, and our Chief Financial and Corporate Development Officer, Trevor English. Considering the environment and ongoing impacts from COVID-19, we continue to have most of our employees work from the safety of their homes. Our networks continue to deliver exceptional service for our customers as data usage and voice traffic on our wire line and wireless networks remain significantly above pre-COVID levels. Our retail locations have remained open, albeit at a reduced capacity, and we have ensured that we meet or exceed the safety requirements in the various provinces that we operate in. To better serve our customers, we have also made significant progress with respect to our wireless digital fulfillment capabilities, and we continue to encourage and support self-install and self-help service options for our wire line customers. Despite the ongoing impacts from the pandemic, fiscal 2021 is off to a great start as our strategy to scale our wireless business and deliver profitable wire line results set new records this quarter. Consumers are embracing the launch of Shaw Mobile and the value proposition of our offerings. Demand for our bundled wireless service has significantly exceeded our expectations, resulting in over 100,000 new wireless customers in the quarter; and our broadband service just keeps getting better. In November, we launched our fastest internet tier yet with Fibre+ Gig, 1.5 gigabits more than doubling the top available speed less than a year ago. Our focus with Shaw Mobile is to bundle affordable wireless services with our high quality, high lifetime value Fibre+ internet relationships. In this environment, existing internet customers realize tremendous value by adding Shaw Mobile to their connectivity services, often with multiple lines in the household. While the Q1 net loss of 15,000 internet customers is not yet where we need to be, new customers are increasingly choosing faster internet tiers, and base migrations to our Fibre+ Gig internet plans are accelerating as customers embrace our connectivity bundle, which of course includes Shaw Mobile. This activity reinforces our status as the leader in Gig Suite internet across our footprint and is driving overall improved customer profitability, including higher internet ARPU and reduced churn.

[Trevor English:]

Thank you Brad, and happy new year everyone and good morning. Our consolidated financial performance in the quarter includes adjusted EBITDA growth of 3.2% over the prior year and reflects our strategy and focus on profitable customer interactions. Touching briefly on segmented results, wire line revenue declined approximately 1%; however, adjusted EBITDA increased almost 3%, resulting in a strong operating margin that exceeded 50% for the quarter. As we continue to enhance our internet products, whether that is through the introduction of faster speeds or broader distribution, and focus on bundling internet with Shaw Mobile, customer profitability has improved. In addition to this positive momentum, we continue to closely manage our costs. Reduction in OPEX is primarily due to lower volume related and employee costs as we’re benefiting from the full run rate savings from BDP and reduced headcount and overall sales activity remains muted within our wire line division. The quarter also includes less advertising and sponsorship costs as events such as the Shaw Charity Classic were unfortunately canceled this year, as well as lower travel and other discretionary costs. In wireless, service revenue grew approximately 10% to $215 million and adjusted EBITDA increased approximately 6% over the prior year as we continue to scale and make the appropriate growth orientated investments within our wireless business. Q1 included additional investments to support our record wireless growth such as expanded retail, improved digital capabilities including direct fulfillment for new customers, and other volume-related costs.

[Brad Shaw:]

Thank Trevor. Since our entry into the wireless business, 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. 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 western Canadians. Thank you. Operator, we’ll now take your questions.

[Operator:]

Our first question comes from Jeff Fan of Scotiabank. Please go ahead.

[Jeff Fan:]

Thanks. Good morning everybody and happy new year. I’ll start with a couple of questions for Paul and then a more strategic question for Brad.

[Paul McAleese:]

Sorry Jeff, we lost you. Operator, are you there?

[Operator:]

I am. Jeff has disconnected. Our next question comes from Vince Valentini of TD Securities.

[Vince Valentini:]

Hey guys, did you want to--Jeff had asked one and a half questions, do you want to answer those first before I go?

[Paul McAleese:]

Sure, yes. We’ll take Jeff’s first question. So, just a reminder, the question is about the profile of Shaw Mobile customers. We’re seeing very, very positive metrics, as it was clear in our reporting this morning, on Shaw Mobile’s overall performance, and the composition of those customers has changed over the course of the last number of months since launch. Early on, we were seeing a higher bias toward the zero-dollar unlimited talk and text plan. I think we had probably a lot of customers testing our network and making sure that it was right for them. A reminder for everybody that all Shaw Mobile customers need to be Shaw Internet customers, and then in late October we launched the $25 unlimited plan which was tied directly to our $115 Gig, so we were very pleased that over the course of the last number of months, we’ve seen a considerable shift away from that zero dollar plan and towards the $25 and $45 unlimited plans as content on our network has improved and perhaps a better understanding of the overall value makes its way through the market. From a mix standpoint, most of these customers are ports from other carriers. There is a degree of organic growth in the market, so I think consistent with some of the speculation early this morning in the reporting, there is a degree of market expansion here, but well more than half of what we’re seeing is coming in from other carriers. I’ll let him finish the other part of that question when Jeff comes back in. Vince, do you want to go ahead with yours?

[Vince Valentini:]

I do, thanks Paul. I have a couple for you, but one for Trevor first. Working capital looked like almost $190 million of outflow. Is there anything unusual there, or just timing issues, if you can help us with that?

[Trevor English:]

Thanks Vince. I’ll start with the working capital question. It’s mainly timing, Vince where we’ve got some lumpiness with some of our interest payments, just when we make those, and then of course some of our cash tax payments around installments, and then the other big factor this quarter from a working capital perspective, not surprising in the quarter was about $75 million related to the NCIB, so that really sort of helps you bridge and explain the movement of working capital. You can see from our contract asset balances on our balance sheet, those haven’t moved in a significant way, so that really hasn’t impacted working capital in a material amount in the quarter.

[Vince Valentini:]

Thank you.

[Paul McAleese:]

Great, and Brad, I’m going to give you a slightly longer answer to a short question--or excuse me, Vince, I’m going to give you a slightly longer answer to your short question, so if you’ll indulge me for a minute. I think it’s just worth revisiting the strategy for our internet business. As Brad said in his opening remarks, that business is very much a work in progress and, without even a hint of defensiveness, I want to be clear that our team, led by me, needs to deliver a more appropriate share of what modest subscriber gains I think remain available in the markets that we have facilities. When we’re analyzing what that appropriate share will be, a number of things go into establishing a baseline. First is, as we discussed in the last call, we need to strip away some of the noise associated with fixed wireless, which is as you all know, a largely rural product that we know comprises a sizeable portion of Telus’ network, and I’ve disclosed it, but we through third party sources have a good sense of the contribution that makes there. As you know, Shaw doesn’t currently offer fixed wireless due to the urban focus of our wireless coverage, so this is a structural advantage really of Telus’ decades-long development of their wireless footprint and also their long-held spectrum advantages, so not something that we’re competing on today. Also, while a small component of their growth, we also should remove the $10 NAF for good subscribers, an admirable initiative but one that doesn’t really generate any lifetime value and that we don’t have a comparable product for.

[Trevor English:]

Yes, we’re 5% up year-over-year.

[Paul McAleese:]

Right, so when you dig more deeply into these numbers, and I’d encourage the analysts on this call to consider this, not all customers are created equally, so we have made great strides in the last year to pursue higher value customer relationships and perhaps forego some of the lower value, lower margin stuff that is out there in the marketplace. I want to give you a little bit of color around how well we’ve done on that front and some of the things that are underpinning our numbers. First, and this is kind of perhaps a new level of disclosure for us so bear with me for a moment, first off, we are on-boarding new internet customers at a much higher revenue rate than we ever have in the company’s history. Right now, fully more than 20% of our customers are activating--they’re coming onboard and activating on 1 and 1.5 gig plans, so the run rate of that, which has been improving over the last number of months, continues to demonstrate the great work that our technical teams have done to deliver these new speed tiers is being really embraced by customers. Base migrations, the second point I’ll raise, which for years were a relatively dilutive event, so when customers talked to us about changing their rate plan, they usually went backwards, are now consistently positive. Thirty percent of our total migrations, 30% of the time someone calls us to change their rate card, they’re similarly going to gig, or gig and a half speed tiers. The combination of those factors now means that we now have nearly 100,000 customers on the high quality, high speed tiers that didn’t exist this time last year, so that be 750 gig and gig and a half. That customer embrace of our higher speed tiers is clearly creating financial benefit for our shareholders. Like I said, you saw that in our EBITDA performance we published this morning. We’ve made it clear in the past that our focus is going higher value household relationships, including broadband complemented by wireless through Shaw Mobile bundle, and the success of that you’ll of course have seen in our high net growth today. Let me put a bow around this. We have become--rapidly become the preferred provider for higher value internet customers in western Canada. We see it in the key metrics, we see it in our research, and our customers are seeing it reinforced in our products, our advertising, our retail stores, our service delivery. Across the board, we are getting the higher value customers that are currently choosing internet in the western marketplace. Our balance scorecard, as Brad indicated at the onset, is always going to be high quality products delivered for the appropriate financial return. I don’t want to confuse or conflate some of the low value, lower revenue and lower lifetime subscribers that are being on-boarded by our competitors with that that we are on-boarding - I think they’re chalk and cheese. That’s really something we’re going to continue to focus on. Now that I’ve answered the question you didn’t ask, when is that going to bring on new internet growth? Slowly. It’s a slow-moving target, principally because I think internet--overall internet growth activity is off considerably year-on-year. It’s difficult to get customers to change their internet provider during the pandemic with everybody home doing the things they’re doing. Our churn is down considerably year-on-year, our gross is down considerably year-on-year, and our economic return is up considerably year-on-year, so for now that’s a trade that we’re comfortable with. You are not going to see us doing anything other than using the bundle to chase more market share on internet growth, and we think we have the right strategy, we’re confident in it. I’ve said before, it’s something that’s going to take time for that numerator to shift the denominator, but I would encourage everyone on this call to look past just the internet losses and think about the quality of what we’re gaining relative to the quality of what we’re losing. We are comfortable with that trade today, and while I’d certainly love that number to be in the black, understand that we’re happy to make the trade for higher quality and higher return.

[Vince Valentini:]

Paul, that was comprehensive and excellent. Let me just follow up with one thing, maybe more for Trevor. If this is the case, in terms of transparency--I mean, anecdotal disclosure of ARPU growth is nice, but if this is such a key focus for you, is there any chance we can start to get internet ARPU or internet revenue, whichever one you want to disclose on a consistent quarterly basis? Given what you said about 5% up year-over-year, just to level-set everybody, does that mean somewhere in the $75 range is what your internet ARPU would be in Q1 of ’21?

[Trevor English:]

Yes, it’s just over $73 in terms of our ARPU for internet, Vince, and I will say our broadband business from a revenue perspective now contributes about 45% of our consumer wire line revenue amount. I think those are two numbers to help bridge it, and frankly that mix, also what Paul’s talking about, just leads into our wire line EBITDA performance. It’s just a difference mix of customers at a higher margin, and like Paul said, it’s a very deliberate strategy. We’ll continue to look at our disclosure, Vince, and provide data points that help investors in the street bridge the financial results married with and partnered with our strategy.

[Vince Valentini:]

Excellent, thank you.

[Trevor English:]

Thanks Vince.

[Operator:]

Our next question comes from Jeff Fan of Scotiabank. Please go ahead.

[Jeff Fan:]

Thank you, and sorry for cutting off earlier. My question was actually for Brad - again, a more strategic question. You talked about the focus on scaling wireless and providing great services for the customers. I’m wondering if you can talk about your level of confidence and the ability to do that as an independent company in light of the scale and investments that industry is talking about related to 5G, etc., and I guess balance that with your growth opportunity - again, your confidence in delivering all of that as an independent company. Thank you.

[Brad Shaw:]

Thanks Jeff. I was surprised to get that question, but--. You know, as I look back when we got rid of media and data centers and made the pivot to wireless, and we’ve done a lot of work that I think is just reflective of Q1 performance, I really feel we’re on--you know, it’s early days when you look at where we are from a bundling point of view, what we’re looking at from a management point of view, because I would say when I look at this, I don’t think we’ve ever had a better focus and a better execution from a management level at all levels. As you know, I’ve been here a few years and have seen a lot of different things, but I really think with the team, we’re on the right trajectory. I think it’s early days when I see things and see the opportunities. I get excited when I see Paul talk here and talk about where we’re at in the cycle, and I think we’re on the right path. We have--you know, the family is very comfortable with the trajectory, with the strategy, with the execution, and we’re going to continue to pursue the opportunities we see in front of us. I think there’s more to come, and I think we’re on the right path. But that being said, I think you always want to make sure we’re delivering, as we said, and we wish--as Paul said, we wish the internet number was higher and there’s a few other things, but we have to be patient and we have to keep delivering on those key things that we said we want to do. I think it’s all going to be very beneficial for shareholders, and time will tell. We continue to make sure we focus day to day, hour to hour, and that’s what it’s going to take from our team to be successful. We’re very committed to that, and we want to play that story out.

[Jeff Fan:]

Thanks Brad.

[Operator:]

Our next question comes from Drew McReynolds of RBC. Please go ahead.

[Drew McReynolds:]

Yes, thanks very much. Happy new year and good morning. A couple of follow-up for you, Paul. Thanks for the detail on the internet questions. A comment, if you can, on again competing against fiber to the home versus the non-fiber footprints, the dynamics there, and also on the higher value customers, we hear that everyone is going after higher value customers. If you look at your base, how far are you away with gaining a degree of comfort that these promotional hoppers or perhaps subscribers that are less worth to you have been flushed out? I’ve got a couple more, but why don’t I just stop there first.

[Paul McAleese:]

Okay. Hey Drew, good to speak to you. We’re starting to see the pace of fiber to the home slow after three or four years of pretty frenetic growth from Telus, as they, I think, have now reached about 80% of their footprint. We’ve talked in past calls about our use, relatively new use of data. We’ve built a much more sophisticated data team over the course of the last nine months or so, and they have started to provide real insights into where our opportunities lie. We’ve spent the last three or four years, been on the receiving end of Telus being able to use their data to better deploy, more thoughtfully deploy fiber to the home, and then quickly follow that on with door-to-door marketing and better targeted activity against our base, where we had perhaps speeds that didn’t equal theirs. I’m so grateful to Zoran and the technical teams for launching really in rapid succession 750 gig and then gig and a half, and then vastly improving our upload speeds over the course of the last six to nine months, so we’ve got frankly a much better product offering now than we have ever had. Now we’re able to use the data that our teams have put together to go into those hundreds of thousands of DSL households that remain through Telus and provide them not only with a product offer that is unavailable to them - reminder for everyone that we made the decision some years ago to provide gig-level service to all of our covered homes, whereas Telus of course had their own strategy to only provide gig-level speed to a percentage of their covered footprint, so our opportunity now is to be more sophisticated in the pursuit of those higher value customers, a better sense of where to go get them and where those opportunities lie against DSL, and then where we can use wireless, taking advantage of that asymmetry that I spoke about on the prior call to really drive that point home. You know, a customer choosing gig speed today that perhaps is converting from Telus, and we’re seeing a number of those, also has the ability to add $25 unlimited lines to their proposition, and I can tell you that that’s happening in decent quantities right now. When you’re adding new revenue of $115 for internet, and then typically when people buy Shaw Mobile, they buy them in pairs, two at a time, so we’re adding another $50 in wireless revenue service all of a sudden, you’ve got a $165-plus household. Add some video and you get up around a couple hundred dollars of ARPU - that’s all-new money to us, Drew, so that is a strategy that you’re just starting to see employed. Reminder for everyone, we didn’t launch our $25 unlimited plan until the end of October, so we’re only a couple months into that, but the results so far, as you would expect, have been very, very strong. In terms of the promotional customers, as Brad said, I’d love to keep every customer that we have, but if you’re going to choose to lose some, lose the ones that have the high operating cost. You won’t be surprised to know that when people have that profile of running between carriers, they also tend to incur higher operating costs associated with things like customer care and retail interactions. They’re I guess what you’d call high maintenance customers, and while we embrace all customers, losing those in favor of gaining higher value subs coming from other places is certainly something we’re comfortable with right now. I don’t know just how big that bucket is, Drew, but I would suggest there’s always going to be an element of that running back and forth. It certainly exists in the wireless business, which I’m a little more familiar with. We see people that still carry multiple SIMs and will go back and forth, depending on what their rate card is. That’s been something that’s been in existence for 30 years. We’re comfortable now that we have a better understanding of who they are and what their profile is, and in a sense, we’re looking to acquire less of them, and we’ll be more thoughtful about keeping them. One of the things I talked about, I think on the last call, was making sure that our better customers get higher quality treatment, better access to things like customer care, so we now have priority queues that we didn’t have before. If you’re a high revenue household, you’ll get your phone call answered much more quickly than if you’re a low revenue or low margin household. We’re starting to align our investments better there than we ever have before, so that is always going to be a feature. It’s going to be one that we watch very closely over the coming quarters.

[Drew McReynolds:]

Okay, super. Two quick ones here. Maybe Paul, just describe the wireless competitive dynamics, if you can, through the quarter, and maybe what you saw through December, just put some context around that. Then not to get into great detail here, but I think we’re all still trying to figure out what 5G means for everyone, but particularly the regional players and integrated players like Shaw relative to the national players. Any initial thoughts on that? Thank you.

[Paul McAleese:]

Yes, thank you. Well, I’m pleased to report that I’m way less animated about the competitive dynamic in wireless than I was last time we all got together. It remained fairly chippy really through Christmas, including some kind of silly one-off bounty things and stuff, and you know how I feel about those. You’ll see this in our Freedom churn number, our overall wireless churn number, which is largely reflective of the Freedom churn, tipping up in the quarter. Again, disappointed in that, but I know recognizing that, there are simply less available subscribers right now for all of us to pursue. Again, with limited organic growth, same dynamic that affects internet growth, limited migration, things like that, we are seeing very little organic growth on the wireless side as well. That means people get more aggressive and chase things, particularly towards the end of the big three’s fiscal quarter, which of course was December, but we saw--we started to see a moderation really around Boxing Day, Drew, and that has continued through in to the first part of January. I was encouraged by some of the recent announcements from Bell around changes in their price structure. I made comments, unintendedly controversial comments on the last call around monetization of 5G, point being, being able to secure a return on those investments, those sizeable investments on network and spectrum were something that I was expressing caution on. What we’re seeing, at least from Bell in the early days, is some of the rate changes they’re looking to make in March probably are their path to monetizing 5G, and I would encourage everyone to look closely at that. We certainly will be in terms of our pricing over that period of time. So encouraged by competitive calm, I would say in January so far, and hope to be able to see that continue through the rest of the year. It sets up, I think nicely, what many of you are reporting on calendar ’21 for the big three and perhaps a return to some ARPU growth. As I said last time, you don’t get out of an ARPU deficit by cutting price generally, so nice to see some movement there. 5G, I’ve said previously we’re so excited about the opportunity this is going to bring, and it is really a long-term thing. I think our peers have signalled as well that they see most of the gains really beyond F21 as we start to bring on IoT and other similar applications. For the regional players--I’ll try and get to the subtext of your question, for the regional players, I’ll go back to the use case for consumers. I’ve been speaking on this extensively within the business. Our aspiration on 5G is to bring it to market as quickly as we can and to quickly be able to put that badge on our phones, in our stores, in our merchandising, on our website, and make sure customers know that we have a very high quality 5G network available to them where they work and where they play. Our LTE network, frankly, was never as fast or as wide as the big three, and as you all know, we’ve been more than capable of generating significant market share gains despite what I’ll call deficits, but in practical terms for consumers really aren’t that much of a deficit. There’s not a whole lot you can do on 250 megabits a second that you can’t do on 150, or frankly on 80, so the 5G speed and latency benefits that we’re going to see have practically speaking little benefit in the short term for consumer applications. There certainly are enterprise-level that will require some of those benefits over time, but we’re very comfortable that being in the 5G business prominently and proudly is very similar to our being in the LTE or the iPhone business prominently and proudly, even if there may be some speed differences related to some of our deficiencies in historical spectrum holdings. Those are all things that we’ll work to remedy over time, but we are confident that our 5G product is going to deliver exactly what customers are looking for, and we’re still on track to start delivering that in the calendar--later in this calendar quarter. I don’t think we’ve missed much of the party, and we’re looking to join it later in March.

[Drew McReynolds:]

Thanks for all that, appreciate it. Thank you.

[Paul McAleese:]

Thank you.

[Operator:]

Our next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

[Aravinda Galappatthige:]

Good morning, thanks for taking my question, and happy new year. A few from me. I’ll just switch gears a little bit to the B2B side. Maybe Paul or Trevor, do you want to sort of maybe discuss how that area has trended in terms of--not just in terms of subs, but also in terms of receivables and bad debts. I don’t see anything meaningful there, but I just wanted to get your thoughts there. Secondly, perhaps for Paul, with respect to the distribution side in wireless, during the lockdown periods obviously the digital channels become more relevant, and you’re up against sort of incumbents in a different way. How satisfied are you with the development of your digital channels in terms of distribution? Lastly for Trevor, very active on the NCIB, as you’ve indicated. I know that on the other side, on the dividend front you’re obviously--you know, the payout continues to improve as well, based on the guidance you’ve given. How do you think about balancing those two elements as you look ahead? Thanks.

[Trevor English:]

Thanks, Aravinda. Maybe I’ll start with number one, just on B2B. Just generally on bad debt, I would say it’s something that we’re watching closely across the entire business, all of our segments whether it’s consumer, wireless, or wire line and business. Frankly, our collections have been extremely strong throughout the entire pandemic, including Q1. We did take an incremental charge in Q1 related to business bad debt, but it was very, very small and immaterial, so we’re very happy with the collections history. Aravinda, you would see in the quarter from a revenue perspective, we were quite happy with the way things bounced back. We were actually up almost 4% Q1 versus Q4, and 1.4% growth this quarter versus a year ago. That being said, we’re cautious. Clearly some of the restrictions, the additional restrictions that have been put in place across some of the provinces post Q1 into December, into January, it’s going to have some--cause some volatility within our B2B operations, so it’s something that we’re really managing closely. We’re happy with the performance - it’s quite stable, but there clearly are some headwinds coming, specifically within the hospitality sector. Our internet business within B2B has been strong, but within the video segment and the hospitality segment, it’s been a bit weak there, and it’s something that we’ll watch. But again, so far, so good, and our teams are working very, very closely with all of our business customers, making sure that we’re there for them during these uncertain and volatile times. I think it’s going to serve us well over the long term.

[Paul McAleese:]

Perfect. Hi Aravinda, it’s Paul, and thanks for the question on wireless distribution and digital capability. When we last met, I characterized our digital capabilities on acquisition as a gap for us relative to our peers, and I couldn’t be happier than to tell you that we have materially closed that gap over the last 90 days and just made enormous progress. Our technical and delivery teams and our sales teams have worked incredibly closely together, and we have made enormous strides on behalf of our customers’ flexibility. Without getting too deep into Q2 disclosure, I’ll tell you that in December, more than 20% of our gross wireless adds came through a digital channel. That number was close to zero in the prior quarter, so it gives you a sense of how quickly we were able to bring on board the not inconsiderable number of wireless gross adds that we did in the last quarter and change that mix, so we’re encouraged by that. A reminder that even when 20% of it comes from digital, it means that 80% of it is still coming from retail, so I’m still happy with the investments we’ve made over the last number of years and still believe that retail has a long and important life with us in the wireless space - you’ve heard us talk about that before. But just enormous credit to the teams for so quickly remedying and closing the gap between us and our peers.

[Trevor English:]

Just on return of capital to shareholders, Aravinda, I think we talked a little bit about this in Q4. Certainly, we’re very happy with the free cash flow growth last year and this year, that we’re forecasting our dividend payout ratio is roughly 75%, and we certainly have the ability to look at our dividend on a go-forward basis. But I think this year, we really felt like a more flexible method and, frankly, considering where our share price was in terms of valuation, a more appropriate return of additional capital to shareholders was through an NCIB program, and you’ve seen us be active in the first two months. Considering the performance of the business and, again, our conviction in the free cash flow growth rate of our company, our balance sheet, a whole bunch of factors, you can count on us to continue to be active, I think, with our NCIB in the coming months and quarters, considering the performance of the business. The dividend is something that we obviously constantly look at with our board. We just felt like for this year and at this moment in time, the more appropriate return of capital was through an NCIB, as opposed to additional dividend--adjustments to our dividend rate.

[Aravinda Galappatthige:]

Great, thank you.

[Trevor English:]

Thanks, Aravinda.

[Operator:]

Our next question comes from Tim Casey of BMO. Please go ahead.

[Tim Casey:]

Thanks, and good morning. Two from me, one for Paul, one for Trevor. Trevor, can you talk a little bit about the EBITDA margin performance on the wire line side? You in your comments said internet value-add subs are contributing to that. I’m just wondering, given all the pluses and minuses with COVID extra costs and COVID costs you’re not incurring, just wondering if you could help us understand the sustainability of a 50% margin, or anything to think that will flow through the year in terms of timing. For Paul, just a little more on your digital on-boarding for wireless. It seems like there is a permanent shift in terms of distribution and that the industry is going to pursue more of an omnichannel strategy for distribution. Just wondering if you think what you’ve done so far prepares you for that, or if you’re going to have to double down on those efforts over the next few years. Related to that, are you still planning to expand your retail footprint in light of that? Just maybe a little more color on that, thanks.

[Trevor English:]

Good morning Tim, thanks for the question. Just on the EBITDA margin and the performance and sustainability, clearly the business mix that Paul talked about and I talked about earlier in terms of higher value broadband customers bundled with mobile product that, frankly from a churn perspective, is very attractive. It’s early days - we only have clearly four months of that bundling initiative, but it’s very strong from a profitability standpoint and you’re starting to see that in the numbers and just the overall business mix. On some of the costs that you mentioned, it’s a bit lumpy, obviously, with COVID. There’s some pluses and minuses, like you say. Overall, I would say we’ve been able to take out more discretionary costs in this COVID environment versus some of the additional costs that we’re incurring because of COVID, whether it’s PPE, investments into our retail stores across wireless and wire line to ensure that they’re safe. But there is a little bit of lumpiness in our quarterly cost structure, Tim, and of course this quarter versus a year ago, we did benefit from roughly $5 million of lower spend, and that’s related to some of our sponsorship initiatives with Shaw Charity Classic, which unfortunately we had to cancel, and of course our CFL partnership that ended last year, so we didn’t incur some of those costs. So, a little bit of lumpiness, but I would say we have strong conviction in the profitability of our wire line business and continue to post extremely strong margins going forward. There will be, though, some variability quarter over quarter because of the lumpiness of some of the costs, so hopefully that gives you a little bit of color to think about in future quarters.

[Paul McAleese:]

Hey Tim, it’s Paul. Thanks for the question on digital versus traditional retail. I think you’re right - there is going to be a degree of permanent shift here. It’s hard to tell where that settles over time, but we are certainly seeing that and hearing that from customers as well, and the comfort from them taking these digital capabilities is something we think is a nice addition for the business, certainly from a cost standpoint. Just a few things to fill in some gaps. First, back in March we reorganized all of our consumer sales teams under one leadership team reporting into me, so we do have a holistic view of how we go to market on these things, so we’re able to use channels kind of interchangeably. The leadership in that group under Pat Button is fantastic, and we have just a really thoughtful approach to go to market now with that in mind. A reminder as well that a very significant portion of Shaw Mobile acquisitions, so I’ll focus on the west for a minute, is BYOD, and we’re seeing ever-larger quantities of that shift, which means that we can satisfy a customer, frankly, just by shipping them a SIM card, and that’s a very, very efficient, low-cost acquisition for us. You’ll start to see that come through more in time, but we expect that to be a permanent capability of the business going forward. We have avoided much of that kind of SIM-related activity, Tim, because we needed a larger ecosystem of phones that had Band 66 in them, so while we could have done this operationally a couple of years ago, we chose to hold off until we were confident that the phones that customers were bringing to us were able to operate on our highest VLTE band, so they had the right and optimal customer experience. Again, an area where we really didn’t pursue digital direct capability because we wanted to make sure we could curate the device in a way that we were comfortable with, and that typically required a store visit. We still love retail on a bunch of fronts, not the least of which is helping with the bundle, which typically is a conversation. We’re doing that either in our call centers today or in our retail stores. Obviously, the pandemic is restricting some of that traffic, but we’re still open for business as an essential service, and right across Ontario and into the west, our stores remain open along with the other carriers under agreed rules. We have a small working consortium with the other operators to make sure that we have a harmonized approach to how we go at that, and I think we’ve been a very good corporate citizen on managing through that. So long term, definitely a structural change. I don’t know that digital gets to 50% of our volume anytime soon, Tim, but certainly if it remains in the 20s, there’s a role for continuing to invest in that. I would say a lot of that lift is behind us financially, so if a subtext here is do, we have a lot of additional expense ahead of us, most of that already is consumed in the prior quarter and the one before that, so there’s no big lift to be able to do this beyond what we’ve already accomplished. And then, we’ll just leave it in the hands of the consumer, and they’ll have the ability to choose what’s best for them, and we’ll be able to meet it in a need that we never have before, so again credit to the team for having done that so quickly.

[Tim Casey:]

Thank you.

[Paul McAleese:]

Thank you.

[Operator:]

Our next question comes from David McFadgen of Cormark Securities. Please go ahead.

[David McFadgen:]

Great, thank you. A couple questions on Shaw Mobile. As you noted in your release, the majority of your Shaw Mobile customers, new customers are existing Shaw internet customers. I’m just wondering how important you think it is to have third party distribution of Shaw internet, because obviously if you’re a new customer to Shaw and you want to come for Shaw Mobile, you have to get Shaw internet as well, so obviously retail points of presence matter for wireless. I’m just wondering what your thoughts are on that, and can you give us an update on exactly how many retail points of presence exist for Shaw internet, including any third-party distribution? Secondly on Freedom, on the churn, I’m just wondering is it driven more by what’s happening in Ontario in the competitive environment there, or is it BC and Alberta and Shaw Mobile are having a bit of a negative impact on Freedom causing higher churn? Thank you.

[Paul McAleese:]

Okay, thanks very much, David. In order, on the Shaw Mobile and relationship to Shaw internet, we’re really fortunate that if a customer chooses to come to us net new, net new on both internet and wireless, we actually have a really good solve that doesn’t require retail for both of those things. As we’ve disclosed previously, well more than half of our internet connections are done via self-connect - that number has been in the 70s of late, and that may moderate up and down over time as we better curate some of those interactions, but certainly the vast majority of our new activations for internet come with a self-connect. Thanks to the great work of our operations and logistics teams, we can do some of that self-connect as quickly as same day, and certainly within next day for the vast majority of our geography, so a customer wanting to get that pre-qualifying event of I need to be a Shaw internet customer can do it very quickly now, much more quickly than it could have been done six to nine months ago. Then recognizing that, again, the vast majority of those customers coming onto Shaw Mobile are BYOD, that can be accomplished with the delivery of the SIM card right to their home, again in a similar timing, kind of next day. Net new net new typically wouldn’t have to wait more than a day or two to make the whole thing happen and wouldn’t require a truck roll or a retail store visit, so I think we’ve got a good solution there. We are great partners with people like Loblaws here in western Canada for internet. We love having that distribution available, but we are not reliant on third party distribution for either internet or wireless in that context. Did that answer the first part of that okay for you?

[David McFadgen:]

Yes, thank you.

[Paul McAleese:]

Okay, great. Then on the Freedom side, it’s a tough quarter on churn, higher than we’ve been in quite some time, but I think I characterized some of the reasons for that earlier on the call. There is not really a specific geographic element, a bias one way or the other on where that incremental churn is coming from. If you put this all in the mix, it’s not hard to understand why the Freedom brand came under a little more salt than it has historically done. When you’re reporting over 100,000 net adds and you’re seeing the kind of porting activity come into Shaw Mobile that we’ve seen in the last 90 days, it has probably stirred the pot up a little bit on the other side, and Freedom unfortunately is a target of some of that. We’re okay with that mix. We obviously are working hard to try and bring that number down, but for the first and most part of this last quarter, Freedom was under pretty heavy attack in response to Shaw Mobile as people were looking to keep their numbers up.

[David McFadgen:]

Okay, all right. Thank you.

[Paul McAleese:]

Thanks David.

[Operator:]

Our next question comes from Simon Flannery of Morgan Stanley. Please go ahead.

[Simon Flannery:]

Thank you very much. Just following up on Shaw Mobile, I know it’s early days, but can you talk a little bit about the demographics of the customer versus the Freedom Mobile in terms of credit quality and how that might flow through to churn over time? Then of new customers on the broadband product, what percentage of those are taking Shaw Mobile? Thanks.

[Paul McAleese:]

Hey Simon, it’s Paul. The demographics, we’re very pleased with the demographics on Shaw Mobile so far. On credit quality, one of the things we have been able to do over the last 90 days that didn’t exist previous to that was be able to better curate existing Shaw relationships and existing Shaw longstanding credit histories with acquisition. I think I characterized it last time as a gap. Our finance team, Trevor and Linda Thomas and the team have done a great job of bringing that customer, that longstanding, I’ve been a Shaw customer for 10 years, why do I need to go through all this just to get a wireless line, we’ve now got much more of that history loaded into our systems. As you know, we kind of brought Shaw Mobile to market very, very quickly, and this is one of the follow-up areas, so we now have very good insight into people that are applying to get Shaw Mobile service. I think I’d characterize this as probably a premium or a higher value customer than Freedom would typically pursue or acquire. I won’t go much broader than that, other than to say that the early days of Shaw Mobile’s success have been largely against our existing base. I know for many of you, that’s probably a little frustrating that we haven’t been able to grow more new relationships than we have. I’ll just say that things like the $25 unlimited plan are certainly changing that dynamic, but certainly the history since the July launch has been largely against our existing base but know that we are also skimming the better parts of our base in doing so, and certainly being able to have that credit qualifying now is a big improvement there. Not to disappoint you, Simon, but we’re not going to disclose at this time the number of Shaw Mobile customers that are also Shaw internet customers, or vice versa, but that will become more clear over the coming quarters as we start to give a little bit more disclosure on that front.

[Simon Flannery:]

Great, thank you.

[Paul McAleese:]

Thank you.

[Operator:]

Our next question comes from Kannan Venkateshwar of Barclays. Please go ahead.

[Kannan Venkateshwar:]

Thank you. Just one broad question, if I could. right now you seem to be optimizing your profitability in wire line, and it makes sense; but in the midst of a highly competitive environment, doesn’t this also increase the cost in the future of potentially higher SAC and also retention over the entire cycle of customers’ lifetime? Also, when you lose these subs on the wire line side, it indirectly likely also increases the cost of your wireless entry, so how do you balance this math between the lifetime value and subscriber acquisition cost? Thanks.

[Paul McAleese:]

We were having just a little trouble hearing you on some of that, so my apologies - it’s Paul. I’ll take a stab at this. The pursuit of higher value, higher speed tier internet customers really doesn’t come at any incremental cost to acquire anybody on lower speed tiers with lower value, so we’re encouraged by the fact that that’s a relatively flat acquisition expense. Of course, they’re all on existing facilities, so there’s a considerable margin gain on that next dollar of service revenue that we’re able to pull through, and that’s you’re seeing drive through to EBITDA. I don’t think likewise it’s driving any further challenge or incremental challenges on being able to convert those customers to a wireless customer, certainly no indication we have on that front so far, so we think the strategy is sound and it hasn’t had any evident challenges as we kind of go up into those speed tiers. We’re not seeing different characteristics from someone on gig with Shaw Mobile than we are with someone on a lower speed tier on Shaw Mobile. It’s pretty uniform.

[Trevor English:]

Yes. I would just say we don’t feel like we’re starving the business for investment into scaling our business appropriately. I think Paul mentioned it, but just a little bit more color, our overall gross sales activity volume on wire line is down about 40% year-over-year, and that’s not because we’re not investing in our initiatives, it’s just that customers are less likely to change their wire line provider in this environment. I don’t think we’re holding back investments with the goal of maximizing near term profitability, and that we’re going to have significant investments go forward. I think we’ve got the right balance in place and the strategy--you know, we’re very comfortable with the strategy, and you can see it in our consolidated numbers. That’s where I would encourage investors to continue to focus on, as opposed to just segmented results, but we’re really looking at consolidated EBITDA growth. Some of the things we’re doing with wireless in Shaw Mobile are benefiting wire line and vice versa, so consolidated EBITDA growth to 3.2% and again free cash flow growth of 23% this quarter, we’re really pleased with the strategy and the financial results that we’re delivering.

[Kannan Venkateshwar:]

Got it, thank you so much.

[Trevor English:]

Thank you.

[Operator:]

This concludes the question-and-answer session. I would like to hand the call back over to Mr. Shaw for any closing remarks.

[Brad Shaw:]

Thank you, Operator. Again, happy new year everyone and stay safe, and we’ll talk to you next quarter. Thank you.

[Operator:]

This concludes the time allocate for today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.