MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

November 19, 2008 14:40 ET

MDU Communications' Preliminary Fiscal '08 Year End Results Boast Record Revenue, Record EBITDA and Gain on Sale of Subscribers

- Preliminary fiscal year end '08 revenue up 42% over fiscal '07 to $23.6M - Preliminary fiscal year end '08 EBITDA (as adjusted) exceeds $4.3M compared to $250,234 in fiscal '07 - Company upgraded over 17,700 units to new DIRECTV HD platform with 14,000 more units work in progress at fiscal year end - Gain on sale of video subscribers to reduce Credit Facility outstanding

TOTOWA, NEW JERSEY--(Marketwire - Nov. 19, 2008) - MDU Communications International, Inc. (OTCBB:MDTV) turned in impressive preliminary results for its fourth fiscal quarter and fiscal year ended September 30, 2008. Preliminary revenue for the quarter was $6,512,598, a 36% increase over the same period in the prior fiscal year and preliminary revenue for the fiscal year ended September 30, 2008 was $23,650,725, a 42% increase over the prior fiscal year. The Company's preliminary average revenue per unit ("ARPU") across all billable subscriber types was $29.55 at fiscal year end, a 13% increase over the ARPU of $26.17 realized at the end of fiscal '07.

The Company realized positive EBITDA (as adjusted) preliminarily of $2,612,076 in the fourth fiscal quarter which greatly exceeded expectations for the quarter and was a significant improvement from negative EBITDA (as adjusted) of ($93,128) for the same period in the prior fiscal year. The Company generated positive EBITDA (as adjusted) of $4,334,927 for the full fiscal year ended September 30, 2008 as compared to $250,234 for the prior fiscal year ended September 30, 2007 and negative EBITDA of $(1,447,923) in fiscal 2006. Adjusted for the gain on sale of subscribers during the fourth quarter (mentioned below), the Company would still have reported preliminary EBITDA (as adjusted) of $2,474,334 for the fiscal year ending September 30, 2008.

The Company's focus on improving its fiscal '08 financial results directly resulted in increased revenue and EBITDA, but on a preliminary basis, also resulted in lower operating expenses, specifically lower customer service, sales and marketing and general and administrative expenses, as a percentage of revenue in fiscal '08 when compared to fiscal '07. These operating expenses declined by 11% as a percentage of revenue from 61% in fiscal '07 to 50% in fiscal '08.

For the past three quarters, the Company developed and has been implementing a comprehensive plan to upgrade its properties and current DIRECTV® High Definition ("HD") subscribers to the newly launched MFH-2 platform and expanded line-up of DIRECTV HD services. HD customers across the United States have more than doubled over the past year and this growth is expected to continue. During the fiscal year ended September 30, 2008, the Company upgraded 17,702 units in 88 properties to the new DIRECTV HD platform and had 14,284 units in 77 properties that were work in progress at September 30, 2008, which have now been completed. The Company preliminarily estimates its capital expenditures for these property upgrades completed in fiscal '08 were $1.7 million. The Company anticipates this capital investment generated approximately $1.5 million in additional revenue in fiscal 2008 and will result in approximately $8.2 million in additional revenue over the next three to five years, not including revenue from anticipated increases in penetration rates.

During the fourth fiscal quarter the Company completed negotiations with DIRECTV for a second round of financial support for property and subscriber HD upgrades. Under the terms of this new agreement, DIRECTV will provide assistance for the upgrade of an additional 55,000 units within the Company's portfolio of properties. The Company is attempting to take full advantage of this time-sensitive subsidy. By the end of the first fiscal quarter of '09 the Company expects that it will have an additional 30,000 units in approximately 140 properties upgraded or in process. Once completed, the Company will implement the second phase of its second round property upgrade program targeting an additional 25,500 units in approximately 180 properties to be completed during the second and third fiscal quarters of '09. These upgrades are resulting in access agreement extensions and renewals, increased penetration rates within these properties, increased sale of advanced services and an increase in the Company's DIRECTV subscriber residual, all of which positively impact the Company's financial results.

These property upgrades to the new DIRECTV HD platform are essential as subscribers and property owners demand state-of-the-art technology and want access to DIRECTV's unparalleled comprehensive offering of HD programming and services. DIRECTV currently offers over 130 (moving to 150) HD national programming channels and has HD local programming in more than 94% of all U.S. markets. The continued launch and advertising campaign for this new DIRECTV HD programming and associated services will continue to provide incremental revenue and improved penetration rates within Company properties. Due mainly to the new HD platform and recent price increases, DIRECTV reported an ARPU increase of 6.31% during its third quarter to $83.59 per subscriber.

During fiscal '08 the Company invested approximately $5.6 million in capital expenditures (inclusive of the estimated $1.7 million in capital for completed upgrades during the year). Net of this upgrade capital, the Company invested $3.9 million during the fiscal year, a 65% reduction compared to capital expenditures of $11.3 million invested in fiscal '07. In addition, the Company reduced its subscriber acquisition capital costs during the year and significantly improved its ability to fund subscriber growth from cash flow, thus becoming less reliant on its Credit Facility. The Company expects this trend to continue in fiscal '09.

The Company planned for, and expected, slower subscriber growth in fiscal '08 due to (i) its focus on the upgrade of existing properties and subscribers to the new DIRECTV HD platform, (ii) its plan to convert properties from low margin private cable services to higher ARPU DIRECTV bulk services, and (iii) a focus on improving its financial returns from previous capital investment in its portfolio of properties. Net of the sale of subscribers and subscribers deactivated in certain under-performing low margin Internet and bulk private cable properties, the Company added 1,209 net new subscribers during fiscal '08 to end the fiscal year with 65,552 subscribers. As of September 30, 2008, the Company also had 6,981 units in work-in-progress for which the Company expects a minimum of 1,243 of these units (under contract subscribers) to become billable subscribers in the next few quarters. The Company expects to increase its rate of subscriber growth later in fiscal '09 as its property upgrade program approaches completion.

At the end of the fourth quarter the Company entered into an asset purchase agreement with CSC Holdings, Inc. The number of subscribers sold was/is dependent on a number of conditions. On September 30, 2008, 1,686 subscribers were sold for $2.5 million and on November 5, 2008, 1,803 subscribers were sold for $2.7 million. Additional closings may take place, however, the Company makes no representation as to the likelihood that such closings will occur, when or in what amounts. The Company did provide Internet services to a few of these properties, however, it elected to exclude this equipment from the asset sale and will redeploy it to other properties in fiscal '09.

The gain on sale of subscribers in the fourth quarter and the significant improvements in operating cash flow and EBITDA (as adjusted), combined with lower capital expenditures, reduced the Company's Credit Facility borrowing in the quarter. As of September 30, 2008, the Company had utilized $15,840,367 (net of proceeds held in escrow from the September 30, 2008 asset sale closing) of its Credit Facility, as compared to $17,539,980 on June 30, 2008. The Company expects that the outstanding amount on its $30 million long-term and non-amortizing Credit Facility will reduce to approximately $10 million following the full receipt of proceeds from these asset sales.

The Company plans to seek out and review synergistic asset acquisitions that would expand its subscriber base in fiscal '09 and believes that many small private cable and other operators will continue to struggle during this economic downturn, if they are not properly capitalized, and will seek an exit strategy. Several opportunities are being evaluated by Company management.

Regarding its Voice over Internet ("VoIP") service, the Company recently deployed this service to certain of its properties in a 'soft' launch, with a more expanded launch in the latter part of the first and second fiscal quarters of '09. To facilitate the bundling of its video, broadband and VoIP services, the Company is developing plans to 'bundle' its services onto a single billing platform. The Company is in discussions with DIRECTV for such billing integration.

Mr. Sheldon Nelson, President of MDU Communications, commented, "We deployed the right business strategy in fiscal '08 and our results exceeded many of our expectations. We are very well positioned heading into fiscal '09 and expect our results to continue to improve as we solidify our position as a leader in this market segment. As for the impact of this economic downturn on the Company, we echo the sentiments of DIRECTV in that we do not believe that we will be dramatically affected by any recession. During these times, we generally see people, more than ever, turn to their television and the Internet as economical sources of entertainment."

The Company expects to file its annual report on Form 10-K for the year ended September 30, 2008 with the Securities and Exchange Commission on or before December 31, 2008.

About MDU: MDU Communications International, Inc. (OTCBB:MDTV) is a leading provider of premium communication/information services, including digital satellite television and high-speed (broadband) Internet services, exclusively to the United States multi-dwelling unit (MDU) marketplace - estimated to include 26 million residences. Through its wholly owned subsidiary, MDU Communications (USA) Inc., MDU Communications delivers DIRECTV( digital satellite television services and high-speed (broadband) Internet systems and is committed to delivering the next generation of interactive communication services to MDU residents. For additional information, please see www.mduc.com or contact Investor Relations.

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements relating to financial information, property upgrades, strategic partner relationships, subscriber sales, subscriber and revenue growth and implementation of new programs and developments of the Company. Such statements involve risks and uncertainties which may cause results to differ materially from those set forth in these statements, including, but not limited to, changes in financial condition, efforts on behalf of the Company to finalize and deploy certain programs, bringing to fruition strategic alliances and upgrade programs, fluctuations in operating results and operating plans, deployment of new subscribers and conversion of existing subscribers, market forces, supplier negotiations, the closing of asset sales and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Company's 10-K for the year ended September 30, 2007, filed on or about December 21, 2007.

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