MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

February 09, 2010 09:01 ET

Acquisitions and New Deployments Drive MDU Communications' Subscriber Growth During First Fiscal Quarter; 5,678 Net Subscriber Additions

TOTOWA, NEW JERSEY--(Marketwire - Feb. 9, 2010) - MDU Communications International, Inc. (OTCBB:MDTV) -

  • Subscriber growth up 20% over the same quarter in fiscal 2008; up 9% over the quarter ended September 30, 2009.
  • ATTVS to transition DIRECTV services and subscribers to Company in 213 multi-family properties; 19 properties complete.
  • Company signed 24 new properties with 4,769 residences to access agreements; 12 properties with 3,463 residences signed to proposals.
  • Recurring revenue up 10% over the same quarter in fiscal 2008.

MDU Communications International, Inc. continued the execution of its subscriber growth plan during its first fiscal quarter ended December 31, 2009, which was positively impacted by both acquisitions and a concentrated effort on organic growth. The Company ended the first fiscal quarter with 70,940 subscribers to its services in 671 properties with 127,239 residences, a 9% increase in subscribers over the 65,262 subscribers the Company reported on September 30, 2009 and a 20% increase over the 59,242 subscribers reported one year ago.

On December 2, 2009, the Company entered into an agreement with ATTVS for the transfer of 213 of its multi-family properties and mostly DIRECTV® video subscribers, as more fully disclosed in the Company's Current Report on Form 8-K filed on December 8, 2009. The agreement provides for an extended timeline with multiple closings in order to effect a smooth transition and allow for required property consents to assignment and notice periods. The Company recently began the transfer of 19 of these properties containing 828 subscribers in 6,381 residences, which are not reflected in the Company's subscriber base as of December 31, 2009. The Company intends to upgrade many of these properties to the new DIRECTV high definition ("HD") upgrade platform during the current fiscal year, much as it upgraded 367 of its DIRECTV properties containing 72,263 residences over the past 18 months. These ATTVS subscribers are mainly clustered around the Company's already established Texas market with a secondary cluster in California.

On December 30, 2009, the Company closed on the final five properties acquired from a subsidiary of DirecPath, LLC, which included 2,627 subscribers to DIRECTV, private cable and Internet services in the Company's Southeast Region. The Company's first closing with this entity occurred on September 30, 2009. The Company firmly believes that acquisitions are an important part of its growth plan for fiscal 2010, and although one-time acquisition expenses may be incurred for the due diligence, closing and transition of these subscribers (which the Company experienced during the first fiscal quarter due to the number of acquisitions), revenue is derived immediately and the acquisitions are accretive to the Company's EBITDA (as adjusted), whereby organic growth may see a lag between capital expenditure and revenue.

Despite this lag time, which it attempts to minimize, the Company is clearly focusing on organic growth through new property deployments. During the quarter ended December 31, 2009, the Company signed 24 new properties containing 4,769 residences to long-term access agreements and another 12 properties with 3,463 residences have accepted proposals. The anticipated deployment of these 36 properties over the next few quarters, along with others in the Company's quantified pipeline, should escalate the organic subscriber growth plan throughout fiscal 2010. The Company's breakdown of total subscribers by type and kind is outlined in the following chart:

Service Type Subscribers as of Subscribers as of Subscribers as of Subscribers as of Subscribers as of
Dec. 31, 2008 Mar. 31, 2009 June 30, 2009 Sept. 30, 2009 Dec. 31, 2009
Bulk DTH-DIRECTV   12,478   12,925   13,058   13,646   15,273
Bulk BCA-DIRECTV   9,505   9,549   9,925   10,255   10,128
DTH-DIRECTV Choice/Exclusive   11,037   11,802   11,920   12,259   14,086
Bulk Private Cable   14,586   13,609   13,986   14,567   15,503
Private Cable Choice/Exclusive   2,446   2,548   3,400   3,479   4,077
Bulk ISP   5,215   5,215   5,315   5,719   5,785
ISP Choice or Exclusive   3,952   4,083   4,302   5,275   6,047
Voice   23   27   32   62   41
Total Subscribers   59,242   59,758   61,938   65,262   70,940

The Company continues to produce positive financial results, including EBITDA (as adjusted) of $461,328, for the quarter ended December 31, 2009. The completion of the Company's DIRECTV HD upgrade program and the resulting reduction in one-time HD upgrade subsidies reduced slightly the total revenue during the quarter as compared to the same period in the prior fiscal year. Revenue for the quarter ended December 31, 2009 decreased 3% over the same period in fiscal 2008 from $6,616,635 to $6,413,866, due to the reduction of approximately $736,000 in one-time HD upgrade subsidies between the quarters, offset by a significant increase in recurring revenue. Adjusted for this difference in upgrade subsidy, the Company actually realized 10% growth in recurring revenue when comparing the periods. Recurring revenue for the quarter ended December 31, 2009 would have increased to a greater degree except that the 2,627 subscribers acquired on December 30, 2009 contributed no corresponding revenue during the quarter. DIRECTV recently committed a certain level of continued financial support for the HD upgrade program for properties acquired from ATTVS. The continued, but limited, HD upgrade subsidy revenue, the growth of the Company's installation revenue, and the continued growth of the Company's recurring revenue base from subscriber growth, are expected to result in both increased total revenues and recurring revenue during the remainder of fiscal 2010.

The Company's average revenue per unit or subscriber ("ARPU") at December 31, 2009 was $31.39, a 5% decrease over the year ended September 30, 2009 of $33.08, again, due to the difference in HD upgrade subsidy between the periods and the addition of subscribers late in the quarter with no corresponding revenue during the quarter. ARPU is calculated by dividing average monthly revenues for the period (total revenues during the period divided by the number of months in the period) by average subscribers for the period. The average subscribers for the period is calculated by adding the number of subscribers as of the beginning of the period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one. The Company believes that its ARPU will be positively impacted by the continued launch and advertising campaign for the new DIRECTV HD programming and associated services, including over 130 national HD programming channels (moving to over 200) and HD local programming in 92% of all U.S. household markets. Due mainly to new HD and DVR service fees and recent price increases, DIRECTV recently reported in public filings an ARPU increase of 2.1% in its third fiscal '09 quarter to $85.32 per subscriber.

Comparative financials for the three months ended December 31, 2009 and 2008, expressed in dollars and as a percent of revenue, are as follows:

  Three Months Ended December 31, 2009   Three Months Ended December 31, 2008
REVENUE $ 6,413,866   100%   $ 6,616,635   100%
Direct costs   2,889,859   45%     2,596,698   39%
Sales expenses   525,941   8%     278,060   4%
Customer service and operating expenses   1,480,089   23%     1,556,873   24%
General and administrative expenses   1,180,581   19%     862,436   13%
Depreciation and amortization   1,680,270   26%     1,626,635   25%
Gain on sale of customers and related property and equipment   0%     (5,038,839)   -76%
OPERATING INCOME (LOSS)   (1,342,874)   -21%     4,734,772   71%
Total other expense, net   (544,180)   -9%     (529,763)   -8%
NET INCOME (LOSS) $ (1,887,054)   -30%   $ 4,205,009   63%
Net income (loss) per share $ (0.04)     $ 0.08  
EBITDA $ 461,328   7%   $ 6,418,080   97%

To implement the Company's future growth plans and to provide services to the 20% increase in subscribers, certain expenses increased during the quarter. In particular, direct costs increased 11% from the period ended December 31, 2008 due to the 20% increase in subscribers. In addition, certain one-time direct costs were incurred due to the recent acquisitions. Sales and marketing expenses increased over the period ended December 31, 2008 due to (i) the reclassification of certain regional employees previously performing operations functions now performing sales functions, representing 30% of the increase, (ii) a significant increase in one-time sales commissions, marketing tactics and materials associated with the transition of recent acquisitions, and (iii) added personnel to manage the planned ATTVS acquisition and transition, as well as to drive new organic growth across all Company regions. General and administrative expenses increased from the period ended December 31, 2008 primarily the result of (i) one-time and noncash charges of $168,421, (ii) $45,756 for one-time and recurring expenses related to the Company's Subscriber Management System, and (iii) expenses associated with the Company's acquisition initiatives. The Company believes operating expenses to be in line with its growth plans and should generally decline as percentages of revenue during the remainder of fiscal 2010.

The Company intends to continue its aggressive subscriber growth program in fiscal 2010, which includes (i) acquisition of system operators constrained by the economic and credit crisis, (ii) organic subscriber growth through new property access agreements, and (iii) increased penetration rates from within properties recently upgraded to the new DIRECTV HD platform. The Company has placed into motion all aspects of this plan. With sales personnel established, the Company has built up an organic sales pipeline of properties under proposal that should result in a number of new access agreements in the next few quarters. In addition, the Company is currently engaged in active negotiations and/or due diligence with several companies that it deems strategic acquisition prospects. The Company makes no representations that any of these acquisition/merger negotiations will result in closed transactions.

The Company expects to file its quarterly report on Form 10-Q for the period ended December 31, 2009 with the Securities and Exchange Commission on or before February 15, 2010. The Company will be hosting a conference call on February 9, 2010 at 10:00 EST. Specific information will be provided via the Company's web site at

The following table reconciles the comparative EBITDA (as adjusted) of the Company to its consolidated net income (loss) as computed under accounting principles generally accepted in the United States of America:

  For the Three Months Ended December 31,
  2009   2008
EBITDA $ 461,328   $ 6,418,080
Interest expense (472,520)   (458,370)
Deferred finance costs and debt discount amortization (interest expense) (71,815)   (71,816)
Provision for doubtful accounts (99,265)   (25,192)
Depreciation and amortization (1,680,270)   (1,626,635)
Share-based compensation expense - employees (12,512)   (20,221)
Compensation expense for issuance of common stock through employee stock purchase plan   (963)
Compensation expense for issuance of common stock for employee bonuses   (985)
Compensation expense for issuance of common stock for employee wages   (3,600)
Compensation expense accrued to be settled through the issuance of common stock   2,545
Compensation expense through the issuance of restricted common stock for services rendered (12,000)   (7,834)
Net income (loss) $ (1,887,054)   $ 4,205,009

Condensed Consolidated Balance Sheets
December 31, 2009 (Unaudited) and September 30, 2009 (See Note 1)

    December 31, 2009   September 30, 2009
Cash and cash equivalents   $ 311,436   $ 688,335
Accounts receivable - trade, net of an allowance of $691,540 and $592,275   1,706,428   2,071,331
Prepaid expenses and deposits   510,605   645,802
TOTAL CURRENT ASSETS   2,528,469   3,405,468
Telecommunications equipment inventory   790,974   781,916
Property and equipment, net of accumulated depreciation of $23,517,242 and $22,071,379   22,282,657   22,139,769
Intangible assets, net of accumulated amortization of $6,679,610 and $6,445,203   2,922,776   2,638,683
Deposits, net of current portion   64,927   65,489
Deferred finance costs, net of accumulated amortization of $718,888 and $658,146   404,561   415,303
TOTAL ASSETS   $ 28,994,364   $ 29,446,628
Accounts payable   $ 1,640,064   $ 2,079,925
Other accrued liabilities   930,000   1,718,170
Current portion of deferred revenue   1,039,253   816,418
TOTAL CURRENT LIABILITIES   3,609,317   4,614,513
Deferred revenue, net of current portion   260,492   284,218
Credit line borrowing, net of debt discount   18,408,581   15,957,381
TOTAL LIABILITIES   22,278,390   20,856,112
Preferred stock, par value $0.001; 5,000,000 shares authorized, none issued    
Common stock, par value $0.001; 70,000,000 shares authorized, 53,497,307 shares issued and 53,322,884 outstanding   53,497   53,497
Additional paid-in capital   61,202,231   61,189,719
Accumulated deficit   (54,471,430)   (52,584,376)
Less: Treasury stock, 174,423 shares, at cost   (68,324)   (68,324)
TOTAL STOCKHOLDERS' EQUITY   6,715,974   8,590,516

See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended December 31, 2009

Condensed Consolidated Statements of Operations
Three Months Ended December 31, 2009 and 2008

  Three Months Ended December 31,
  2009   2008
REVENUE $ 6,413,866   $ 6,616,635
Direct costs 2,889,859   2,596,698
Sales expenses 525,941   278,060
Customer service and operating expenses 1,480,089   1,556,873
General and administrative expenses 1,180,581   862,436
Depreciation and amortization 1,680,270   1,626,635
Gain on sale of customers and plant and equipment   (5,038,839)
TOTALS 7,756,740   1,881,863
OPERATING INCOME (LOSS) (1,342,874)   4,734,772
Other income (expense)      
Interest income 155   423
Interest expense (544,335)   (530,186)
NET INCOME (LOSS) $ (1,887,054)   $ 4,205,009

See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended December 31, 2009

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 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, acquisitions, 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 close on acquisitions, properties and subscribers, obtaining property consents, integrating acquired assets, 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 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 year ended September 30, 2009 filed on December 29, 2009, and incorporated herein by reference.

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