MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

August 13, 2008 08:30 ET

DIRECTV® High Definition Services Help Drive MDU Communications' Third Fiscal Quarter '08 Results

- DIRECTV's 130 channels of HD programming, advanced services and focus on the multi-family market help propel Company's third fiscal quarter results - Third quarter revenue up 58% over same period in prior year, surpassing $2 million per month - Third quarter EBITDA exceeds $1 million; cash flow from operations exceeds $500,000 - Subscribers up 26% from one year ago - Property upgrades to new DIRECTV HD platform on track for 20,000 units by fiscal year end

TOTOWA, NEW JERSEY--(Marketwire - Aug. 13, 2008) - MDU Communications International, Inc. (OTCBB:MDTV) turned in impressive results for its third fiscal quarter ended June 30, 2008. The launch and advertising campaign for the new DIRECTV national and local High Definition ("HD") services provided incremental revenue and improved penetration rates within Company properties, and, combined with the continued upgrade of the Company's properties to the new DIRECTV HD platform, have generated a significant increase in revenue for the quarter ended June 30, 2008. Revenue for the quarter was $6,257,780, a 58% increase over the same period in the prior fiscal year and for the first time exceeding the $2 million per month threshold. The Company's average revenue per unit ("ARPU") across all billable subscriber types was $28.42 at June 30, 2008, a 9% increase over the ARPU of $26.17 realized during fiscal 2007.

The Company experienced greater efficiencies in its operations due to economies of scale with all expenses decreasing as a percent of revenue during the quarter. Highlights of the Company's earnings (and expenses as a percent of those earnings) for the three and nine month periods ended June 30, 2008 and 2007 are as follows:



Three Months Ended June 30,
--------------------------
2008 % 2007 %
---- - ---- -
Revenue $6,257,780 100% $3,956,978 100%
Operating Expenses (5,285,689) -84% (4,174,700) -106%
Depreciation (1,673,136) -27% (1,272,056) -32%
---------- ---- ---------- ----
Operating Loss (701,045) -11% (1,489,778) -38%
Other Income/(Expense) (562,136) -9% (236,189) -6%
--------- ---- ---------- ----
Net Loss ($1,263,181) -20% ($1,725,967) -44%
Net Loss per Share ($0.02) ($0.03)
EBITDA $1,099,831 18% $55,503 1%

Nine Months Ended June 30,
-------------------------
2008 % 2007 %
---- - ---- -
Revenue $17,138,127 100% $11,872,813 100%
Operating Expenses (15,919,254) -93% (12,590,823) -106%
Depreciation (4,851,530) -28% (3,775,221) -32%
---------- ---- ---------- ----
Operating Loss (3,632,657) -21% (4,493,231) -38%
Other Income/(Expense) (1,581,431) -9% (619,916) -5%
---------- ---- ---------- ----
Net Loss ($5,214,088) -30% ($5,113,147) -43%
Net Loss per Share ($0.10) ($0.10)
EBITDA $1,722,851 10% $364,343 3%


Operating expenses for the third fiscal quarter, inclusive of non-cash charges, decreased 22% as a percent of revenue when compared to the same period in the prior fiscal year. Within these operating expenses, as a percent of revenue, sales expenses decreased from 7% to 5%, customer service and operating expenses decreased from 29% to 23% and general and administrative expenses decreased from 25% to 15%, respectively, from June 30, 2007 to June 30, 2008. Direct costs declined by 4% as a percentage of revenue in the third quarter when compared to the same period in the prior fiscal year.

The Company realized positive EBITDA (as adjusted) of $1,099,831 in the third fiscal quarter which greatly exceeded expectations for the quarter and was a significant improvement from EBITDA (as adjusted) of $55,503 for the same period in the prior fiscal year. The Company generated positive EBITDA (as adjusted) of $1,722,851 for the first nine months of this fiscal year as compared to $250,234 for the entire prior fiscal year. The Company realized positive cash flow from operations in the third fiscal quarter of $580,365.

The significant improvement in operating cash flow and EBITDA (as adjusted), combined with lower capital expenditures, reduced the Company's reliance on its $20 million non-amortizing long-term credit facility ("Credit Facility") to fund subscriber growth during the quarter and for the nine month period ended June 30, 2008. The Company invested $1,537,268 in capital expenditures in the third fiscal quarter, which were in large part funded by positive cash flow from operations of $580,365 and by utilizing $997,469 of the Company's Credit Facility. Despite the decline in capital expenditures and general reliance on the Credit Facility, the Company elected to increase the size of the Credit Facility and announced the closing of an amended $30 million (additional $10 million to original) Credit Facility on June 30, 2008. The Credit Facility has a new five year term and provides the Company with added flexibility to finance growth without shareholder dilution.

Because the Company's primary focus in the third fiscal quarter was the continued and accelerated upgrade of its existing properties and DIRECTV subscribers to the new DIRECTV HD platform, the Company's subscriber growth slowed as it added 649 organic subscribers in the third quarter. However, these gains were offset by the temporary deactivation of 1,025 seasonal private cable subscribers in certain recently acquired properties. The Company expects these subscribers to reactivate their services in the first fiscal quarter of 2009. The Company reports 68,142 billable subscribers as of June 30, 2008. In addition, as of June 30, 2008, the Company had 9,892 units in work-in-progress ("WIP") for which the Company expects a minimum of 2,531 of these units (under contract subscribers) to become billable subscribers in the next few quarters. A breakdown of the Company's subscriber base as of June 30, 2008 is as follows:



Sub- Sub- Sub- Sub- Sub-
scribers scribers scribers scribers scribers
as of as of as of as of as of
June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
Service Type 2007 2007 2007 2008 2008
-------------------------------------------------------------------------
Bulk DTH -DIRECTV 10,655 14,196 14,808 15,016 15,249
DTH -DIRECTV
Choice/Exclusive 8,161 10,034 10,650 11,269 11,547
Bulk Private Cable 17,870 20,912 20,564 20,084 20,179
Private Cable Choice
or Exclusive 1,376 2,684 3,211 3,369 2,270
Bulk BCA -DIRECTV 8,001 7,573 7,921 8,527 8,687
Bulk ISP 4,759 5,403 5,863 6,173 6,394
ISP Choice or Exclusive 3,225 3,541 3,875 4,041 3,784
Voice - - 73 39 32
-------- -------- -------- -------- --------
Total Subscribers 54,047 64,343 66,965 68,518 68,142
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------


As mentioned, the Company has developed and is implementing a comprehensive plan to upgrade its properties and current DIRECTV HD subscribers to the newly launched and expanding line-up of DIRECTV HD services. HD customers across the United States have doubled over the past year and this growth is expected to continue. During the third fiscal quarter, the Company upgraded 7,317 units in 39 properties to the new DIRECTV HD platform and had 6,201 units in 27 properties that were work-in-progress at June 30, 2008 that it expects will be completed in the fourth fiscal quarter. The Company anticipates it will have upgraded approximately 20,000 units in 110 properties by September 30, 2008. Property upgrades to the new DIRECTV HD platform 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 will positively impact the future of the Company as was evidenced in the second and third fiscal quarters.

The Company continues to develop its plan to launch a Voice over Internet ("VoIP") service to certain of its properties later this fiscal year. The Company will initially focus on deploying VoIP services to its portfolio of DIRECTV DTH Bulk and BCA properties serving 23,936 subscribers. 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 had an excellent quarter and fiscal 2008 should be a very good and important year for the Company. Going forward, we'll be in a better position to realize the subscriber growth we envision and produce solid financial results while doing so."

The Company expects to file its quarterly report on Form 10-Q for the period ended June 30, 2008 with the Securities and Exchange Commission on or before August 14, 2008. The Company will be hosting a third quarter earnings conference call on August 13, 2008 at 10:00 am EST. Call information is available on the Company's website at www.mduc.com.

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 Nine Months For The Three Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
2008 2007 2008 2007
------------ ------------ ------------ -------------
EBITDA $ 1,722,851 $ 343,364 $ 1,099,831 $ 55,503
Interest Expense (1,331,673) (530,652) (475,788) (201,624)
Deferred finance
costs and debt
discount
amortization
(interest expense) (251,154) (130,127) (86,496) (49,245)
Provision for
doubtful accounts (107,056) (176,094) (34,419) -
Depreciation and
Amortization (4,851,530) (3,775,221) (1,673,136) (1,272,056)
Share-based
Compensation
expense -
employees (264,522) (631,581) (53,696) (194,741)
Compensation
expense for
issuance of
common stock
through
employee stock
purchase plan (17,085) (18,526) (2,649) (1,496)
Compensation
expense for
issuance of
common stock
for employee
bonuses (37,141) (37,240) - (2,308)
Compensation
expense for
issuance of
common stock
for employee
wages (4,560) (33,945) (4,560) -
Compensation
expense accrued
to be settled
through the
issuance of
common stock (6,296) - (6,296) -
Compensation
expense through
the issuance of
restricted
common stock
for services
rendered (60,522) (60,000) (20,572) (60,000)
Share-based
compensation
expense -
nonemployees (5,400) (63,125) (5,400) -
------------ ------------ ------------ -------------
Net Loss $ (5,214,088) $ (5,113,147) $ (1,263,181) $ (1,725,967)
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------


MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
June 30, 2008 (Unaudited) and September 30, 2007 (Audited)

June 30, September 30,
2008 2007
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 165,617 $ 767,296
Accounts receivable- trade, net of an
allowance of $299,004 and $167,674 2,041,794 2,381,234
Prepaid expenses and deposits 583,296 582,319
------------ ------------
TOTAL CURRENT ASSETS 2,790,707 3,730,849

Telecommunications equipment inventory 837,962 970,456
Property and equipment, net of
accumulated depreciation of
$16,682,317 and $12,784,932 22,308,478 22,046,390
Intangible assets, net of accumulated
amortization of $5,094,512 and $4,153,493 3,442,682 4,186,809
Deferred finance costs, net of accumulated
amortization of $354,704 and $144,979 519,015 513,740
------------ ------------
TOTAL ASSETS $ 29,898,844 $ 31,448,244
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,676,851 $ 1,818,594
Other accrued liabilities 740,249 1,301,307
Current portion of deferred revenue 579,071 704,618
Current portion of note payable 54,153 51,723
Current portion of capital lease
obligations 33,691 81,291
------------ ------------
TOTAL CURRENT LIABILITIES 3,084,015 3,957,533

Deferred revenue, net of current portion 401,837 408,640
Credit line borrowing, net of debt
discount 17,318,527 13,224,561
Note payable, net of current portion 9,365 50,286
Capital lease obligations, net of current
portion - 12,179
------------ ------------
TOTAL LIABILITIES 20,813,744 17,653,199
------------ ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock, par value
$0.001; 5,000,000 shares authorized,
0 issued - -
Common stock, par value $0.001;
70,000,000 shares authorized,
51,976,489 and 51,556,989 shares
issued and outstanding 51,976 51,556
Additional paid-in capital 60,712,224 60,208,501
Accumulated deficit (51,679,100) (46,465,012)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,085,100 13,795,045
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 29,898,844 $ 31,448,244
------------ ------------
------------ ------------

See notes to the unaudited condensed consolidated financial statements
contained in the Company's Report on Form 10-Q for the period ended
June 30, 2008.


MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Nine and Three Months Ended June 30, 2008 and 2007
(Unaudited)

Nine Months Ended June 30, Three Months Ended June 30,
--------------------------- --------------------------
2008 2007 2008 2007
------------ ------------ ----------- ------------
REVENUE $ 17,138,127 $ 11,872,813 $ 6,257,780 $ 3,956,978
------------ ------------ ----------- ------------

OPERATING EXPENSES
Direct costs 7,468,119 5,044,104 2,542,022 1,765,646
Sales expenses 955,890 955,966 303,895 292,198
Customer service
and operating
expenses 4,386,747 3,443,035 1,504,127 1,133,237
General and
administrative
expenses 3,108,498 3,147,718 935,645 983,619
Depreciation and
amortization 4,851,530 3,775,221 1,673,136 1,272,056
-------------------------------------------------------
TOTALS 20,770,784 16,366,044 6,958,825 5,446,756
------------ ------------ ----------- ------------

OPERATING LOSS (3,632,657) (4,493,231) (701,045) (1,489,778)

Other income
(expense)
Gain on sale of
customers - 14,245 - 14,245
Interest income 1,396 26,618 148 435
Interest expense (1,582,827) (660,779) (562,284) (250,869)
------------ ------------ ----------- ------------
NET LOSS $ (5,214,088) $ (5,113,147) $(1,263,181) $ (1,725,967)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
BASIC AND
DILUTED LOSS
PER COMMON SHARE $ (0.10) $ (0.10) $ (0.02) $ (0.03)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 51,769,295 51,223,580 51,920,237 51,346,257
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------

See accompanying notes to the unaudited condensed consolidated financial
statements contained in the Company's Report on Form 10-Q for the period
ended June 30, 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 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 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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