Q2 2020 Earnings Call
[music].
Thank you for standing by welcome to the Shaw Communications second quarter, 2020 conference call and webcast.
Today's call will be hosted by Mr. Bradshaw C O and executive chair of Shaw Communications.
At this time all participants are in listen only mode and the conference is being recorded.
Following the presentation, there will be a question and answer session.
To join the question Q simply press Star and one on your Touchtone phone at anytime during the call.
Should anyone need assistance during the conference call. They may signal to operator by pressing star and zero on their telephone.
Well, we begin management would like to remind listeners that comments made on todays call will include forward looking statements.
Information and there will be risks the actual results could differ materially. Please refer to the company's publicly filed documents for more details on assumptions Unrisked. Mr. Shaw I'll now turn the call over to you.
Thank you all bring and good afternoon, everyone and thank you for taking the time to join us.
They are just want to let you know for logistics point of view or.
Myself and to see a floor in Calgary inland President of Shaw's in Toronto, and I think that's the day. These days we have to do it that way. So I just wanted to give you a little logistics update but as I mentioned with me today are true, but Paul Mcaleese President of Shaw Communications.
And our Chief financial Corporate Development Officer, Trevor English.
Before we begin.
Behalf of all that said shop, we want to send her well wishes to everyone. During this these challenging and turbulent times and we truly hope that each and every one of you and your families are healthy and safe.
Today, we'll be discussing our response to the cold and 19 pandemic, including our numerous employee customer and community initiatives. We will also touch upon our second quarter results, which were solid inline with expectations.
[laughter] to say that the events over the last several weeks have been extremely challenging would be an understatement, both professionally and personally.
Due to cope with 19 in the significant uncertainty that surrounded.
Many factors followed side of our control such as the duration the magnitude of the impacts on our business the sector and the overall economy.
Economic challenges from this pandemic are further amplified was extremely low commodity prices, which will impact many that live and work in Alberta.
We are still in a relatively early stages of this pandemic, making a challenging to know the degree to which we couldn't be affected.
Our management team is closely monitoring the situation and we are ex U.S exercising agility and being disciplined with our actions. We are focused on the safety of our employees the integrity of our networks and the delivery of our products and services through our operational focus in on maintaining a strong.
On financial position, including our balance sheet flexibility and ample liquidity.
I believe that our business is resilient and that we will emerge from this crisis in the <unk>, even stronger position and I want to spend some time highlighting the key actions, we have taken to support our employees customers and our communities.
First.
It is incumbent on all of us to do our part to help prevent the rapid spread of this virus and we want to send our deepest gratitude to those that are standing at the front lines doing their very best day in day out.
This includes those at work in emergency response in health care grocery stores public transit and many other essential functions.
It also includes our Sean freedom employees that are serving our customers and maintaining our strong and critical networks when Canadians needed. Most your efforts do not go unnoticed and we sincerely. Thank you.
From the early days of Cowen 19, we were ready to respond the safety our employees continues to be our priority one and upon initiation of our business continuity plan, we're able to transition approximately 5000 employees to work from home within days, we implemented.
Additional technology and tools that enable more staff to work remotely, including our call centers and we now have almost 80% of our total employee base safely and efficiently working from home.
We still have a relatively small number of employees that are not at home as they perform a central functions for our customers. This includes retail staff at 20 of our corporate old wireless retail locations that continue to provide urgent customer service network support teams were managing our critical infrastructure and then.
Limited number of technicians, providing customers with assistance during these challenging surface circumstances.
All operations are running smoothly and we have frequent communication with all team members to ensure their supported and they we keep everyone abreast of the situation as it unfolds.
With the majority of Canadians now working from home relying on video and voice interaction is to remain connected shareholder and students accessing a education in a virtual manner and of course, our customers now utilizing our services as their primary form of entertainment.
We have seen significant increase in traffic on our networks.
On our wireline network traffic has increased by as much as 50% and what it used to be a peak period that lasted for three to four hours in the evenings has now become over 12 hours a peak usage seven days a week.
On our wireless network, we have seen a decrease in data trafficking offloading the whole home Wi Fi networks, as more and more Canadians follow the isolation and social distance distancing preventive measures being rolled out by governments. However, we have experienced a 25% in.
Greece in voice traffic as more calls are being placed to friends family and colleagues on a daily basis.
Our customers are relying on us now more than ever and I'm proud to confirmed that our facilities based network performance has been exceptional it isn't trying times like these when Canadians deeply appreciate the value.
The strong and reliable services that not only keep them conducted an entertained but also provide them with the medium to carry on with your daily lives under social distancing measures.
Facilities based networks are no longer just the backbone of a digital economy, they have become the economic backbone of our country.
While several important regulatory matters are still in front of us facilities based operators have showcase for strength during the difficult time, and we urge regulators to be mindful of Ken is relative strength on this front as well as well as the timing of their decisions as we navigate this period ovens.
Certainly.
Not only have we built network capacity that exceeds the significant increase in demand. We also have innovative products that can be self conducted without any need for truck roll. This represents a competitive advantage as well as a way in which we can help further protect the health of our employees and customers bike.
Greatly minimizing the occasions, where the technician needs to enter the customers premise.
Well customer activity across all our divisions is down our customer self connect metric has reached 100% in the past weeks. This accomplishment along with our ability to pivot our call center stuff to work from home environment. Our concrete examples of this significant organizational effort.
It's undertaken over recent years to shift our operating model to one that embraces agility and a digital first bias. This fore sight is proving to be extremely valuable.
In addition to providing critical and essential connectivity services as an industry. We have collaborated collaborative and innovative ways and moved quickly to support all Canadians as we navigate these uncertain times together, whether it's through additional video channels more wireless data opening or Shaw.
Our goal I find network to the public providing free digital educational models for all Canadians students through our new partnership with ever five.
Or donations to community initiatives to help those and most need.
We are putting Canadians first.
To our Shaw employees.
Thank you for the passion you bring each and every day and your dedication to serving our customers throughout this crisis.
We know that rapid change and uncertainty can be difficult, which makes me even prouder of how we continue to support one another.
And optimistic of what we can accomplish during this unprecedented time.
We do not yet know what lies around the quarter or the full impact of co bid on businesses and consumers across the country.
In the short term, we expected some areas of Shaw will be impacted more than others, such as our business Division, which provides many small business with credo connectivity services throughout our footprint.
These challenges are further amplified here in Alberta, which is also being impacted by the rapid collapse in commodity prices.
However, I feel confident that we are resilient, we provide critical and essential services to our customers in our communities and show emerge as an even stronger organization as we continuously adapt and evolve our operations to meet and surpassed the demands of Canadians.
During these challenging times.
I'll now turn it over to travel to provide some more details on specific areas of our business that we're monitoring closely some of the early impacts we are experiencing and our updated thoughts on our previously issued F 20 guidance.
Do you also brief briefly review the highlights of our second quarter results Trevor.
Thank you Brad and good afternoon, everyone and I hope that you your families and friends are all well see being safe. During these difficult times, let me briefly let me comment briefly on our second quarter results before I address are preliminary views regarding the cobot 19 impacts on our business.
Our consolidated level Q2 performance was solid and aligned with our plan resulted in revenue growth of Threed up 7%.
An adjusted EBITDA growth of 9.5% or 2% year over year, when removing the impact of buyer for 16 in the quarter.
Wireless subscriber and financial momentum remained strong throughout the second quarter, which included competitive holiday promotions for much of December in early January.
We grew wireless postpaid subscribers by 54000, an increase to Abu in ARPU by approximately 7% and 3% respectively.
Plus adjusted EBITDA grew by approximately 18% compared to the prior year, where the removing the impact of buyer for 16.
And our wireline division, we continue to focus on execution and deliver is stable and consistent results.
Consumer revenue declined by 1.5% year over year, well business revenue increased approximately 5% when removing the impact of are covered one data center disposition in the Q2 EPS 19 period.
Excluding the 20 million dollar impact from higher for 16, adjusted EBITDA was comparable to the prior year.
And year to date, we've generated free cash flow of $375 million.
Our second quarter results were not impacted by the Covance 19 events for the challenging commodity price environment. However, in only a month's time, we find ourselves in a period of significant.
Precedented uncertainty.
We are monitoring or key operational metrics and performance indicators across our organization daily while they're generally feel very comfortable that we can manage through this crisis. It is difficult if not impossible to accurately precisely predict the impacts on shop.
Brad spoke earlier about the strength and capacity their networks deliver and I'll provide some additional data and qualitative insights regarding some of the early impacts to our operations that were experiencing.
Not surprising subscriber activity across the board is down significantly for example, the temporary closure of the vast majority of retail stores has met the wireless sales have slowed maturity in the last few weeks.
Customers are simply not making decisions to switch or alter their services. During this time. However, this also results in significantly fewer disconnects.
We will not achieve or wireless subscriber loading targets. This year. However, we do not expect that the lower net adds will have a material near term impact on our wireless financial performance in F 20.
Due to lower acquisition related investments.
Although of course this is not a preferred strategy as we've been successfully scaling and growing our wireless market share over recent years, which was also our ambition for this year.
We also expected subscriber activity in our wireline division will be considerably muted for a period of tart.
Is likely that some consumer and business behaviors will shift due to economic challenges.
Including possible downward package or for migration.
Accelerated cord cutting and likely increase difficulty for some customers to pay their bills.
While we do expect revenue to be impacted to some degree we have significant operating and capital letters and flexibility to help protect EBITDA and free cash flow.
Considerably lower customer activity will also means that investments in promotions subsidies and advertising will be lower than expected, which have helped to partially offset a topline pressure.
We've already news costs in some areas such as travel in discretionary spending and we will continue to thoughtfully optimize our cost structure as required.
Capital expenditures will likely moderate in the near term as growth in activity flows in some projects our deferred.
In addition to the impacts from the pandemic the pressure on commodity prices also represents a risk to our business.
We generate approximately one third of our consumer wireline revenues from Alberta, Our business Division generated approximately 35% of its revenue from Alberta ever greater clarity, we generate approximately $140 million in annual revenue that is directly related to oil and gas and hospitality sectors, both of which we expect.
We'll continue to face an uphill battle for an unknown period.
However, through our close relationships with our business customers. We are proactively working with those that have experienced significant an immediate economic challenges.
Well, we've seen an increase in pricing concessions in our business Division in March in early April we do not consider the impact to date to be material, we're providing essential increased critical connectivity services to our business customers as well however, with limited visibility is difficult to estimate the impact to our business customers across our foot.
Right.
We hope it challenges facing businesses are temporary and we continue to monitor this division closely as we believe is there potentially more immediate near term financial risk relative to our consumer wireless business.
However, when we reach a period of stabilization. We believe that we have an opportunity for business division to be more disruptive and gain incremental market share as weve, a strong portfolio of essential products.
He is also important to keep in mind the business accounts for approximately 10% of our consolidated revenues. Thus, we believe the overall near term impact to our organization to be manageable.
It's still early days and we do feel comfortable with the daily trends. We are experiencing however, considering the significant uncertainty exists we're not able to predict the magnitude of the impacts over longer time period, you environment continues to rapidly evolve.
We believe a cautious and prudent view of our business and for men financial performance going forward is necessary and we now expect to deliver adjusted EBITDA growth in fiscal 2020, and free cash flow is expected to be substantially in line with our previous guidance, which continues to support our current dividend levels.
I believe it is worth reiterating the strength of our balance sheet, which has always been a strategic asset for us leverage remains a two and a half times, which represents the low end of our target leverage range of two and a half to three times post IPO for a 16, we have no debt maturing until November 2023, we're also in an interview.
Well positioned from a liquidity to perspective, we have a fully committed and substantially undrawn. One I have billion dollar credit facility, which was also recently renewed until December 2024.
In this environment investors have become increasingly focused on bank covenants and I'm pleased to confirm that were comfortably in compliance our debt covenant limit is five times and we're currently under two times, while their fixed charges coverage ratio covenant requires a minimum two times and we're currently at approximately 10 times. This information.
Is included in our Q2 Mdna.
In our press release, we also announced that we intend to suspend additional share repurchases under our NC IB program.
This reflects the uncertainty embark the uncertain environment, we're all operating in and we believe investors are focused and placing more value on preserving liquidity and maintaining a strong balance sheet at this juncture as a reminder, we repurchased and canceled approximately 5 million class B shares as of the end of March at a total cost of approximately $130 million.
Before turning the call back to Brad I want to remind investors that while there are some near term headwinds. We believe we're in a strong an enviable position compared to other industries or sectors as a management team. We are focused on ensuring the safety and health of all of our stakeholders, including our employees customers.
And shareholders.
Our networks.
Our performing extremely well and we're providing critical an essential services to all of our customers. We continue to believe that we'll be able to effectively mitigate operational.
And financial risks and we'll continue to deliver strong free cash flow that supports our dividends and liquidity this uncertain and challenging environment, Brad talked to you.
Thank you Trevor.
I want to close by acknowledging the profound impact of my Dad Jr.
Add on this industry.
Our company.
And employees.
And of course on myself and my family.
Many of you reached out with your condolences upon receiving the news.
I want to thank you for having our family and your thoughts and for your kind words.
Jerre was a pioneer.
His vision 50 years ago was to provide choice and connect people to the things around them and you always care deeply for our employees and of course our customers.
He was still very much involved and engage in everything we're doing in our business I will miss his guidance in the conversations dearly.
However, I know he would be proud.
You would be proud of each and every show employee for once again rising to the challenge.
He will be proud that our networks are providing critical services that keep customers families and businesses connected.
He would be proud that our facilities based investments have proven invaluable in our daily lives. During this time crisis and above anything else. He would be particularly proud of how we are all taking care of one another.
His legacy will carry on and we will be a beacon of confidence and perseverance for myself and each of our employees during these challenging times.
While we paid tribute and more in the passing of iconic and exceptional leader.
Father.
A husband in a friend.
I want to remind listeners that our company has a bright future.
The Shaw family management team remains committed to our role as a leading provider of critical and essential products and services for Canadians.
Geron built this company to exceed the demands of our customers and through the passion and hard work of our employees. We will continue to carry on his legacy for years to come.
Thank you operator, we will now take questions.
Thank you.
We will now begin the question and answer session.
Joining the question.
Please press Star then one on your touched on telephone.
We'll hear a tone acknowledging your request.
If you are using a speaker phone. Please I'm sure you lift the handset before pressing entities. If you wish to remove yourself from the question Q You May Press Star then too.
Anyone who has a question May press Star then one at this time.
Our first question comes from Vince Valentini TD Securities. Please go ahead.
Yes, thanks, very much and first.
Just condolences Brad to you and your family in all Sharpeners Asian, Obviously, Jerre was not just a great business leader and builder, but to put an absolutely wonderful man we missed by everybody.
Thank you.
I'll try to do that.
Have you alone and direct my questions to your non President Paul Mcaleese.
Following up on.
On the appointment.
I have two questions. If you want to wireless one on on the wireline and cable business on wireless first I know you your warned us on the Q oncology in order that there could be a bit of an increase in churn.
Was going on in December.
Obviously came through that way can you talk a little bit about how the quarter progress.
February calmed down a little bit versus.
Elevated levels in earlier on in the quarter and then also what are your thoughts on what happens to both churn and equipment costs now that we.
Entered the social distancing period.
Thats the one on wireless all throughout the wireline one two or just.
Both.
You have received that newer to a cable and consumer business and just wondering if you have any early perspectives on on that business that you can share with with us today.
Hi, Ben Thank you very much for those yes, I mean im very happy to report that well churn was certainly at a level that was elevated during the last quarter. We saw really market improvement in the period between December and February so you'll recall that we have a rolling off the original iPhone cohort.
The late December 2017 period and.
As I said I think our team did a great job managing that really for the first time that program about scale.
But just for contrast, the churn rates February versus December was about 100 bit slower. So we saw really sort of a significant reduction in that.
Rolling forward of course with the level of activity or the lack of activity you're seeing in the marketplace today, we'd expect to see insurance fall.
To record low levels I suspect across all operators, you'll see that and.
I will be we'll be reporting more of that obviously in July but.
We've definitely seen improvements on that front.
On the equipment side of things.
With the limited activity, we're seeing in retail we will expect to see elevated levels of EBITDA relative to expectations of course because of the dilutive effect.
Gross.
This quarter in some respects is going to be essentially a last quarter for growth for wireless it's just simply not enough activity at the top of the top of the bucket.
So expect to see a relatively neutral performance narrow worse and equipment well.
One part of the equation I suspect will be.
We'll have a very solid EBITDA performance to report driven by the lack of equipment activity.
So to answer this question sorry.
Yes, Sir.
First impressions of consumer.
It's it's early days, it's funny I.
I guess I actually start today. So thank you for the kind words, it's been interesting getting to spend more time with team and get under the Hood and.
We have this fantastic franchise that we built over the years here and that management have nurtured to a bright spot.
A number observations I'd make it and I think these really represent opportunities across across the western footprint.
My first observation is that there's the striking and probably frankly inexplicably to me difference between internet pricing in eastern Canada versus Western Canada.
Something I think I've always knowing that never really appreciated the depth of which.
And our U.S, maybe as example, Vince.
Again pricing.
If you visited the Rogers undeveloped websites day you'd find that.
Gigabit pricing in west or other in eastern markets is kind of harmonized of $115.
Clearly the market is judge that to be the appropriate price point for that kind of premium tier service.
If you move westward.
Tell us has launched gig at $85, which is this sort of these for me. This perplexing Western Canada discount and that just got really continues right down the rate card. It's just a lot.
So expensive in Western Canada.
While we have yet to launch our gig service.
And frankly, I would say China has an essay than any more disciplined on this front, but.
It seems like both competitors that are very focused on volume versus quality.
That's evident when you look at the lower wireline margins of ourselves and tell us relative to our eastern Canadian peers.
And we know moving forward, we're going to want to make sure that we have.
We have adequate fuel to to manage the significant demands are just that we've seen.
Across our footprint in recent weeks I suspect goes longer length anytime soon.
Second observation on consumer is.
[music].
What I would really describe as I sort of jarring level of competitive intensity in the west relative to the Easton, Despite the near maturity of the Internet category.
It's odd that in an industry that is approaching 100% penetration.
Value all the stocking for between ourselves and our competitor trading customers, it's not clear to me.
Sort of the value of that so it kind of brings.
When you look at recent weeks. It brings these strategies under either greater scrutiny for me I think our utility of our Internet product is at an all time high it's being consumed record levels, it's performing at spectacular.
Thresholds, if we're going to continue to support the massive been structural surge that we've seen in usage, we need to ensure that our pricing supports the investment and the yield that's required. So it's early days.
I would say, though that we are we're looking very carefully at the rate card and.
I would just they continue to watch this space.
Thank you.
[music].
Our next question comes from Jeff Fan of Scotia Bank. Please go ahead.
Thanks, Good afternoon, and let me express my condolences to ride in the family and the team as well and.
Oh, you guys are doing well.
I've got a couple of questions I'll start on the Internet.
The self install more than 60% in the quarter.
Clearly in process, and especially going 100%, perhaps that's.
Because of the situation we're in.
Are you seeing a bit of a pick up.
Activation because of your ability to self install just because I think the telcos hubs tend to have a tougher time to do self install just because of the way the network is architected.
And then the second part of that that question is whether.
Whether there's any switching happening in the early weeks.
From places, where there isn't fiber deployed by your competitors as more people from all probably not as robust the broadband network as you need.
And then the second question is on wireless.
No pause you mentioned Q threes, probably over the last quarter and depending on how long does goes as it goes through the summer Q4 might be at the last quarter as well in terms of Activations, but if we look across the valley.
Post cobot 19.
How do you think about.
The landscape because by then well they have more pent up demand for upgrades. We I may have people with all the phones that are looking to upgrade.
Do you have any early thoughts.
Across the Valley I know this is still early.
And how how how that landscape may look.
Hi, Jeff Yes. Thank you excuse me on self install yet.
Im so pleased that we made the investments in recent years that we did and the team a weather and little bit did a good planning at a bit of good luck I suppose that we were able to take such such advantage of a right now and it's been the customer experience has been fantastic. So that we're getting great reviews on this I I'd say, it's maybe a little earlier.
Tell whether it is really any competitive pickup there there hasn't been a lot of activity on switching to answer the second part of your question directly.
And while you're right there is the advantage of.
Our self install relative to a fiber install for our competitor.
I think as an industry frankly, we've all done a good job of accommodating the.
Kind of demand for customers to be able to do some of this on their own. So I wouldn't anticipate a significant pickup there honestly across the board I think all the major players have done a good job of making sure that customers feels safe in their homes and supported so as an industry I would give us a brought amount of credit and not not suggest that it's going to create out.
Surgeon and opportunity for us.
We on the wireless question post post cobot <unk>, Yeah, I mean, I think we are in a great place really well positioned competitively both both during the pandemic I think post pandemic, so I'll pull that in part into two pieces Jeff.
During we have of course, as you know lower ARPU and probably fair to say more overall value than the incumbents. So I think that makes us a less vulnerable household expense and some of our peers I've had a number specific instances where people that are on fairly expensive competitor plans have reached action.
In recent days and.
Made to cut over to to freedom simply because they're starting to spend more time looking at their bills than maybe they would have been a in a in a pre cobot world. So.
Unlike what that signals from for me. It is early days and its small sample, but those things usually come true as you exit the pandemic and we emerged from this crisis the value positioning that we've established for freedom in the last two to three years is going to resonate even more with Canadians and it happens to coincide with.
Essentially the completion of our 700 build we've done such a strong job with our retail distribution with all that opens back up in the market sort of.
You know starts to seek.
And it starts to open up again.
I think your indicate your your Surmising this correctly youre going to see a lot of wear and tear on phones over this kind of close down period.
We're seeing certainly a quiet period for upgrades quiet period for new sales, there's going to be a definite surge hard to say, where apple is with their new product introduction in September we won't know that until the rest of the market, but if they were to come back at with that you can only imagined that emerging that sort of some point in the summer seeing that.
New product introduction and then all the other things factoring in I really like where we where we sit as an opportunity where.
We've worked hard to establish ourselves as a high value player for consumers and.
You've seen the same numbers that I have when you see some of the top the employment figures deezer all households that are going to be looking for better value, but they're not going to be coming out of the wireless category. So I like where we sit.
Okay. Thanks, Paul.
Thank you Jeff.
Our next question comes from Tim Casey of BMO. Please go ahead.
Our next question comes from Tim Casey of BMO. Please go ahead.
Hi, I'm sorry.
I too would like to express my simple these two to Brad specifically into to everyone at shop.
Or Paul a couple of questions for you just it might be too early but.
How are you.
Is there any indication on any implications for.
Supply chain disruption with respect to.
The the expected surge in demand for all the pent up.
Demand for phones, and whatnot and any indications on that.
And just in the bid you are up pardon me on the wireline side can you talk a little bit about what you're seeing or what you expect to see in terms of.
Video mix and.
Specifically how are you treating your your sports channels now in terms of.
You know credits to customers or whatnot because.
Obviously sports has been.
So important to keeping the traditional bundle and I acknowledge that that's not your focus but.
Well a profitable part of the bundle if you could just address how you're looking at that thanks.
I'd be happy to Tim and thanks for your kind words on the off the top there on supply chain. We've been really fortunate there was a there isn't a few days of darkness, where we didn't really have a lot of communication with the major Oems on referring to wireless to start with and they simply Didnt know how their their.
Pipeline, there's going to read but we.
Thanks to the strength of the balance sheet, we've always got a reasonably good.
Inventory position and we entered this depend on equipment with their sort of decent sized holding.
It's been very clear that in recent days, that's sort of pipeline looks to be back up and running so we don't anticipate any issues of course diminished volumes help us there Tim as well right. So we're not we're not seeing a huge surge in demand, but we seem to be getting really good signals from the major Oems and that seems quite comfortable so no.
Real issues there on the wireline side answer question you Didnt ask we likewise have great continuity of supply for all of our major a residential TV as well so I think across the board were in good shape, there so nice to see.
The supply chain kind of opening up a little bit again, rather than a you know where it was a few weeks ago.
On wireline I in the video mixed in sports. It's a it's a very dynamic situation as you can imagine a little color on this.
[music].
The sports leagues, the almost to a one of course had not formally cancelled their seasons.
I know that all of them are looking at options on how they might be able to recover particularly the ones that are kind of heading toward the playoffs. So they're all looking at options in that for in that regard I'll, let them comment on that specifically, but it does put the people that on the sports rights into a tricky position.
We've been fortunate we haven't seen a great deal of customer inquiry around that so it hasn't been a pressure point for us.
When we get formal notification if in fact, the seasons or canceled that may affect the economics and if that does then we'll look at how that might affect it can be a customer billing at this point, it's actually been sort of fairly static customers are asking networks, rather a major major the sports.
These are not canceling I suspect all of that will change over the course of the next couple of weeks as we hear more about specifically basketball hockey.
But there'll be there'll be more to follow there, but right now it's it's actually been a fairly.
Flat conversation and.
No no nothing really to report on that front.
Have you seen a noticeable uptick yet on the other side on the more general entertainment.
Movie packages.
Yeah, we've seen a nice uplift in video on demand whether people are just reaching the end of Netflix or whats happening, but it's it's been a nice short term lift there I'm a little more entertainment at home compensating again for the lack of sports programming I suspect him as well.
So that's been.
Decent course, those are relatively small numerators on our on our video denominator, but it is good to see this good good signs of good signs of life there.
The long term trend for video hasn't abated, but certainly the the.
The moment, where you are turning your home into your primary entertainment and sort of almost a cinema you've seen some of the studios move up releases and do things right right past theatrical and into into the so we've had and they sort of lift from that but I suspected that long term trend on did you will remain where where.
Was after this.
Thank you.
Thanks to.
Our next question comes from Maher Yaghi of danger, Dan. Please go ahead.
Thank you for taking my question and I.
Also like to upper my condolences to Brad and to the shop primary team.
[noise] skewed maybe just a question on wireless.
With no how [noise] trying to.
Understand a little bit better the.
[laughter] Quanta has a lower turned.
Yeah, the upcoming quarters on your operation can you share with us how much are pure net additions.
During a typical Q3 or Q4.
Our due to churn customers from incumbents so.
Pat customers, who are taking a new plan.
Now turning from somebody else.
Ah, Yes, you just slipped a little bit there I think I picked up that the majority of at del Mar.
The.
Significant majority of our of our existing customers.
Our our from other carriers that are putting in a number so that lack of market activity is a is one of the reason that you're seeing us with relatively.
Kinda relatively flat to down performance expectations for this quarter. So we we operate best in thrive most in an active environment, where people are at shopping and comparing value and we've always thrived in that scenario. So.
We are very measured in our expectations for the next 60, United States 90 days.
Right exactly so so when I look at the end of period, where turn is likely to be significantly down.
You're going to be.
Saving quite a bit of cost on your closures of stores and on handset subsidies youre going to be also like the saving a lot the.
Among on that.
I'm trying to.
Get a sense on.
When you talk about that that are continuing to grow for the year.
We break it down from in wireless versus wire line.
Would it be fair to say that are on the wireless side, you actually could end up with the year up on versus Europe.
Prior expectations, while wireline would be lower than your prior expectations.
Yeah, well hards Trevor that that's a fair conclusion, that's exactly right.
Yep.
In the near term in the near term the financial performance over wireless businesses, it's probably frankly, either on plan or slightly ahead of our original guidance, but clearly there is some more risk in our wireline business than what we're striving to achieve which is very consistent and $490 million to $500 million accordingly.
EBITDA and of course, I'm quoting pre our for US 16 numbers, but you're exactly right.
Right. So so if I take one step further and I look at 2020 2021.
So the.
Yeah, I guess like a uploading that you're doing in wireless and as there's pent up demand.
What kind of strategy can you implement to make up for the loss I'm not clothing customers youre going to be facing probably a refresh cycle from your existing customer base, which who took heights homes.
A couple of years ago, you also have a bunch of from your customers that will churn at the same time and I'm trying to figure out the impact on your working cap on your cash flow requirements at the same time as we have fiveg coming up probably next year would the spectrum.
Action and that investment them so.
I would like how how do you how do you view free cash flow in that context and 2021.
Well, let me pull apart or a couple of pits parts of that question. So first off I don't know that we make up for lost ground here I think the subscribers ultimately that when the market installed this way.
I don't know that we all have a sudden see yeah on extra hundred thousand subscribers and show up in September October. So it will just have a natural rhythm to it but I would say it's fair to say this probably puts a temporary hold on growth and that.
Sort of over over multiple years will catch up, but it's not going to happen within a quarter.
In terms of how this rolls into.
Free cash flow expectations, and Fiveg investments I think those are all this is a relatively modest bump in the road for US. If you think about the impact of adding 50 or 60 or 70000, new subscribers on a subscriber base of 1.8 billion you can do the math, it's just simply not going to be that meaningful in terms of its contribution.
You know in there in the next six to 12 months. So I don't think it really puts any of our planning for fiveg investments or or network into into jeopardy here.
Yeah, no her is probably premature to talk about 21, and a lot of granularity considering we're out with the environment, but I would say.
I sort of go back to the strength of the balance sheet strength of liquidity.
Regarding spectrum acquisition costs around a 3500 and capital required to build out her business as we still have to probably slow some things down we've got lots of levers here in lots of financial strength to to operate in that environment enough 21, whether it's through this.
That's fair that's fair. Thank you for that then my last question, a and I agree with you it's tough to put new guidance <unk> guidelines no not knowing when to spend I think it's going to be over.
You mentioned about the free cash flow. My last question is on Capex, how much Capex reduction do you expect at this point in time that you'll see because of that spend then they are happening is that the significant or material reduction in capex, that's you're now looking at or.
In 2020 or not material, yet again, it's difficult to to answer that we get a frankly, we hope it's not a material reduction in capital expenditures, if we can get the back to business.
As normal quick, but if you look out for example, so year to date capital within housing development and the success based capital that was about $200 million in the first half a year.
Larry that category is not going to be is high in Q3 in Q4.
In the context of the environment, but it's very difficult to get more hard to precisely predict how much.
Let us help but how much sort of capex relief and I really think of it more as a deferral of capital in F 20, because of the environment and I think Thats why we did.
We pulled or withdrew our previous guidance, but we tried to give you some comfort around EBITDA growth still this year.
And free cash flow substantially in line, we just need a little bit more flexibility considering the uncertain environment.
Definitely okay. Thank you very much thank you.
Our next question comes from drew Mcreynolds of RBC. Please go ahead.
Yeah. Thanks, Thanks, very much and condolences to you Brad.
The shop family in the organization.
Are you Paul Congrats on a position.
A couple of follow ups on my end, maybe starting with you Paul on.
The just on the government pricing objective on the two to six gig plan can you.
Talk to.
Your Big picture view on how your position relative to that.
You know, we certainly did see a little bit of jockeying before the crisis hit from the incumbents a love your perspective on that and then second maybe for you Trevor just some housekeeping.
Arms of the cash restructuring costs. They are below what you originally provision.
For in the.
The TV team.
Program seems to be substantially complete or you expected to kind of meet the full 437 million in cash restructuring.
And just second question on the pension funding status just remind us.
Frankly, where where that sits I don't I think you've talked a lot of that exposure down a few years ago, but an update there would be great. Thank you.
Sure I did.
Hi, John I'll take it for cover there wasn't anything.
Yes, thanks to further kind words or you know we are.
We're big believers in driving greater wireless value for Canadians and that's really beneath us we've been running this company since we acquired it some years ago and I think the regional carriers have demonstrated that they had been the the drivers of change in the drivers of value in the market really.
Specific over the last off two or three years, but it without us I think you'd still see the incumbents in a very different place on pricing. So you know the availability of affordable wireless is widespread.
It may not necessary exist on the incumbents that it certainly available with ourselves in our regional peers and that quality product. As you know has increased substantially over the last two years, specifically, so I I'd start by saying that some of this to me still it looks like a solution to a problem that isn't obvious.
To me so with specific reference to the government's 25% sort of directive on two to six gig plans.
We're seeing a natural growth of of data usage, it's going to push a lot of customers that might be in that bucket today up into a post six or a larger than six good plan two years from now regardless you will recall drew this isn't a staged a reduction it's simply a moment in time, so it's kind of a balance sheet snaps.
Shot of that two years from now.
The government will take a read and I want to see that that decline.
You know <unk>, it's it's fine, it's it's not really going to affect us I suspect [noise].
A great percentage of the market, so probably not in over a overwhelming [noise].
Measure in the market by the time, it's done.
Look we applaud that the government initiatives to try and dry change when we think the market does that bass than we've been demonstrating that really for the last number of years. So.
Its Ah that's really how we have to Seattle and over the trouble.
Yeah, Thanks, Paul and things through for the question just on the the restructuring costs. So.
You were about $390 million into the BDP payments and we've got to below 200 folks left or so that are leaving post Q2 drew but just want to remind everyone that we did offer employees the auction to defer the payments over to tax years. So there will be some payment residual payments.
Left that gets paid out in January 2021 at that $50 million. That's why it looks like a relatively large number for a relatively few number of employees to lead the company on the pension status as of February 28 or be ended the quarter pardon me. If I were 29, we're at about 85% from a funded perspective.
And you'll post quarter end, clearly theres been a lot of.
Movements.
Specifically also with Litt executive changes, but also which will reduce the liability, but also with volatility in the equity markets, which will obviously have an impact on the asset side of things. So.
Net net though we don't expect a material change from the funding status, but I guess, we'll have to wait to see where the interest rate environment in corporate spreads go on a quarter and about May 30 Onest.
Okay got it thank you both.
Thank you.
Our next question comes from David Barden of Bank of America. Please go ahead.
Okay. Thank you it's actually a knock you out on for David and you know allow me to extend my condolences as well for the passing of Jr.
So my first question is I just wanted to clarify I I'm pretty sure that you are indicating that the EBITDA growth that you're expecting it its pre I FRS, if I'm not mistaken it's not post IRS I just want you to clarify that and then on the wireless side I'm assuming that this current situation could potentially last.
Unknown length of time I was curious about what percentage of wireless sales or gross adds that you can generate have been generating in a normal environment from the online channel and if you see a capacity for that to potentially increase.
Also it sounds like the consumer behavior hasn't really changed as of yet given the dramatic change in circumstances or you've already spoken to kind of the video packages. It sounds like you haven't seen much movement aside from.
Be odie, but.
In a typical slowdown or recession.
How long does it typically taken the wireline business to start to have customers, reaching out to make changes I. It's instead on the call that a lot of these services are kind of indispensable and I don't suspect lots of people will drop them, but just in terms of you know generating called intimately my.
Any saving kinda optimization changes when when would that you expect to see that behavior.
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Basis, it's also positive even better so, yes and yes.
Paul and Matt.
Right and that through its Paul on your question about online sales, we have as an industry really been challenged by this model it's difficult in Canada, given what unfortunately is a very high.
Degree of fraud with a window when we open this up we have had some success and we'll continue to our success in shipping telling your upgrading zones that people with whom we already have an existing relationship.
So that's obviously something that we can we can progress I know we've had a bit of an up tick in recent weeks with the sale of prepay Sims online, which of course carries a much lower attendance risk because we're not shipping phone so I.
I wouldn't.
But by the way our online sales of like less than 1% of our total gross it's it's almost diminimus and I don't expect that it will move significantly from that so the unfortunately, the wider you open the Apis you're about to more risky you assume and the more fried you seem to find so don't expect at least with our view of the risk don't expect.
Just to.
To look to widen that channel anytime soon.
On your question about consumer behavior, how long, it's it's funny it will come in stages. It it would probably took about a minute [laughter] when they'll they sit for the first customer to call and look to change their behavior, but it's again been a relatively small numerator people, who have called them, but to effect to their their pricing with US you know turban ever chatting earlier today.
Okay and during the last recession I.
Admittedly a different time and different circumstances, but we didnt see significant declines in consumer demand for for our product and I would I would say that internet now is materially more critical for the management of a home, particularly with things like in home education stuff now, so having having that turned down.
You know relative to all the other discretionary expenses and household.
Just not something that's going to come and dig waves. It's certainly we're definitely going to see individuals are gonna have to cut back and we're going to definitely see some cancellations like I outlined but in the main we ever really high degree of confidence in where this is going to settle out you know wireless has its own unique.
Retention capability, but internet is just and you're all experiencing it is just reaching a level of of utility in household that it's simply never experienced before so when you look at that kind of the cost per day of this and what you get out of it.
We're just not seeing that many that much pressure on on the top line here. So we're encouraged by that we'll continue to see changes in those performance in that performance as we see more and more people.
Unfortunately, getting the unemployment figures, but for now we're really a we're really pleased with their performance.
Great. Thank you.
Thank you.
This concludes the question and answer session I would like to hand, the conference call back over to Mr. Shah for closing remarks.
First of all thank you everyone for your comments, we really appreciate the sport new thinking of the family and we want to wish you all.
No safety in this world, we live in and.
All the best you and I would just make a point that we look forward to talking to you in early July and Ah stay safe. Thank you. Thank you operator [noise].
Thank you.
That concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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