MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

May 15, 2008 09:01 ET

DIRECTV's New High Definition Services and Focus on Multi-Family Market Positively Impact MDU Communications' Second Fiscal Quarter '08 Results

TOTOWA, NEW JERSEY --(Marketwire - May 15, 2008) - MDU Communications International, Inc. (OTCBB:MDTV) -

- DIRECTV's launch of 95 national High Definition channels and increasing focus on the multi-family market propel Company's revenue, EBITDA and subscriber growth

- Second fiscal quarter '08 revenue up 41% over same period in prior year

- Second fiscal quarter '08 EBITDA up 785% over same period in prior year

- Billable subscribers up 33% over same period in prior year to 68,518 total subscribers

MDU Communications International, Inc., a leading end-to-end provider of DIRECTV® digital satellite television programming, high-speed Internet and other premium communication and information services to the residential multi-dwelling unit market, today reports its second fiscal quarter 2008 results for the period ended March 31, 2008.

The Company turned in very strong results for its second fiscal quarter ended March 31, 2008. The launch and advertising campaign for the new DIRECTV national and local High Definition ("HD") services have provided incremental revenue and improved penetration rates within Company properties, and, combined with the continued growth of the Company's subscriber base, have generated a significant increase in revenue for the quarter ended March 31, 2008. Revenue for the quarter was $5,611,908, a 41% increase over the same period in the prior fiscal year. The Company's average revenue per unit ("ARPU") across all billable subscriber types was $27.22 at March 31, 2008, a 4% increase over the ARPU of $26.17 realized during fiscal 2007. The Company anticipates that its ARPU will increase in upcoming quarters due to (i) the increase in the residual percent under the new DIRECTV Agreement, (ii) the fact that this higher residual percent is based on an increasing DIRECTV ARPU, (iii) the deployment of new DIRECTV HD services and continued upgrade of Company properties for subscribers to subscribe to these new and advanced services, and (iv) the continued conversion of Private Cable type subscribers to higher margin Bulk or Bulk Choice Advantage ("BCA") DIRECTV services.

In addition to the above, the Company experienced greater efficiencies in its operations due to economies of scale. Highlights of the Company's earnings (and expenses as a percent of those earnings) for the three and six month periods ended March 31, 2008 and 2007 are as follows:



Three Months Ended March 31,
---------------------------
2008 % 2007 %
---------- ---- ---------- -----
Revenue $5,611,908 100% $3,981,485 100%
Operating Expenses (5,210,110) -93% (4,250,831) -107%
Depreciation (1,623,249) -29% (1,259,521) -31%
---------- ---- ---------- -----
Operating Loss (1,221,451) -22% (1,528,867) -38%
Other Income/(Expense) (549,148) -10% (200,302) -5%
---------- ---- ---------- -----
Net Loss ($1,770,599) -32% ($1,729,169) -43%
Net Loss per Share ($0.03) ($0.03)
EBITDA $503,308 9% $56,891 1%

Six Months Ended March 31,
---------------------------
2008 % 2007 %
---------- ---- ---------- -----
Revenue $10,880,347 100% $7,915,835 100%
Operating Expenses (10,617,724) -98% (8,416,123) -106%
Depreciation (3,178,394) -29% (2,503,165) -32%
---------- ---- ---------- -----
Operating Loss (2,915,771) -27% (3,003,453) -38%
Other Income/(Expense) (1,035,136) -9% (383,727) -5%
---------- ---- ---------- -----
Net Loss ($3,950,907) -36% ($3,387,180) -43%
Net Loss per Share ($0.08) ($0.07)
EBITDA $623,020 6% $287,861 4%


Operating expenses for the second fiscal quarter, inclusive of non-cash charges, decreased 14% 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 8% to 6%, customer service and operating expenses decreased from 30% to 25% and general and administrative expenses decreased from 25% to 18%, respectively, from March 31, 2008 to March 31, 2007. The Company expects collective operating expenses to continue to decrease as a percentage of revenue during the remainder of fiscal 2008. Direct costs for the quarter remained the same, as a percent of revenue, from the same period in the prior fiscal year. The Company expects its direct costs to decrease as a percent of revenue in fiscal 2008 as the Company adds more DIRECTV subscribers relative to the number of its Private Cable type subscribers.

The Company realized positive EBITDA (as adjusted) of $503,308 in the second fiscal quarter which exceeded expectations for the quarter and was a significant improvement from EBITDA (as adjusted) of $56,891 for the same period in the prior fiscal year. The Company generated positive EBITDA (as adjusted) of $623,020 for the first six months of this fiscal year as compared to $250,234 for the entire prior fiscal year, and accordingly, the Company believes it will achieve a material improvement in its EBITDA and operating cash flow in the remainder of fiscal 2008. The significant improvement in EBITDA (as adjusted), combined with lower capital expenditures, reduced the Company's reliance on its Credit Facility to fund subscriber growth during the six month period ended March 31, 2008. In addition, the Company realized positive cash flow from operations in the second fiscal quarter of $62,280.

The Company's growth continued with the addition of 1,553 net subscribers during the quarter for total billable subscribers of 68,518 as of March 31, 2008. In addition, as of March 31, 2008, the Company had 13,517 units in work-in-progress ("WIP") for which the Company expects a minimum of 3,649 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 March 31, 2008 is as follows:



Subscribers Subscribers Subscribers Subscribers Subscribers
as of as of as of as of as of
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
Service Type 2007 2007 2007 2007 2008
-------------- ----------- ----------- ----------- ----------- -----------
Bulk DTH -
DIRECTV 9,823 10,655 14,196 14,808 15,016
DTH - DIRECTV
Choice/
Exclusive 8,225 8,161 10,034 10,650 11,269
Bulk Private
Cable 15,825 17,870 20,912 20,564 20,084
Private Cable
Choice or
Exclusive 1,397 1,376 2,684 3,211 3,369
Bulk BCA -
DIRECTV 8,164 8,001 7,573 7,921 8,527
Bulk ISP 4,857 4,759 5,403 5,863 6,173
ISP Choice or
Exclusive 3,090 3,225 3,541 3,875 4,041
Voice - - - 73 39
----------- ----------- ----------- ----------- -----------
Total
Subscribers 51,381 54,047 64,343 66,965 68,518
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------


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. DIRECTV's new HD service offering far surpasses that of any competitive video provider and both existing multi-family properties and potential properties are eager to embrace the benefits of 95 national HD channels and expanded local HD service in 76 markets representing 75% of all television households by mid-2008. HD customers across the United States have doubled over the past year and this growth is expected to continue.

Regarding the Company's upgrade program, during the second fiscal quarter the Company upgraded 2,757 units in 14 properties to the new DIRECTV HD platform and had 3,864 units in 16 properties that were work-in-progress at March 31, 2008 that it expects will be completed in the third fiscal quarter ending June 30, 2008. The Company is placing a heavy emphasis on upgrading its current properties and expects its upgrade process to gain momentum in the coming quarters. The Company plans to upgrade a majority of its priority properties, representing approximately 80% of its DIRECTV subscribers, by the end of the fiscal year. Property upgrades to the new DIRECTV HD platform will result in leverage for extensions and renewals of the Company's access agreements, 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 fiscal quarter.

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 23,543 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 a very strong quarter and expect our financial results to continue to improve in the remainder of fiscal 2008. We are seeing a significant new commitment from DIRECTV to the multi-family market. We'll continue to position the Company so that we can realize the subscriber growth that should result from this commitment."

The Company expects to file its quarterly report on Form 10-Q for the period ended March 31, 2008 with the Securities and Exchange Commission on or before May 15, 2008. The Company will be hosting a second quarter earnings conference call on May 15, 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 Six Months For The Three Months
Ended March 31, Ended March 31,
-------------------------- --------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
EBITDA $ 623,020 $ 287,861 $ 503,308 $ 56,891
Interest Expense (855,885) (329,028) (447,184) (162,755)
Deferred finance
costs and debt
discount
amortization
(interest expense) (164,658) (80,882) (86,495) (40,913)
Provision for
doubtful accounts (72,637) (176,094) (21,966) (75,587)
Depreciation and
Amortization (3,178,394) (2,503,165) (1,623,249) (1,259,521)
Share-based
compensation
expense - employees (210,826) (436,840) (66,999) (216,221)
Compensation
expense for
issuance of common
stock through
employee stock
purchase plan (14,436) (17,030) (11,307) (2,562)
Compensation
expense for
issuance of common
stock for employee
bonuses (37,141) (34,932) (37,141) (7,459)
Compensation
expense for
issuance of common
stock for employee
wages - (33,945) - -
Compensation
expense accrued to
be settled through
the issuance of
common stock - - 46,884 -
Compensation
expense through the
issuance of
restricted common
stock for services
rendered (39,950) - (26,450) -
Share-based
compensation
expense -
nonemployees - (63,125) - (21,042)
------------ ------------ ------------ ------------
Net Loss $ (3,950,907) $ (3,387,180) $ (1,770,599) $ (1,729,169)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------


MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
March 31, 2008 (Unaudited) and September 30, 2007 (Audited)

March 31, September 30,
2008 2007
------------ ------------

ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 126,051 $ 767,296
Accounts receivable - trade, net of an
allowance of $242,951 and $167,674 2,005,966 2,381,234
Prepaid expenses and deposits 522,931 582,319
------------ ------------
TOTAL CURRENT ASSETS 2,654,948 3,730,849

Telecommunications equipment inventory 855,286 970,456
Property and equipment, net of accumulated
depreciation of $15,330,672 and $12,784,932 22,306,088 22,046,390
Intangible assets, net of accumulated
amortization of $4,783,352 and $4,153,493 3,604,938 4,186,809
Deferred finance costs, net of accumulated
amortization of $282,018 and $144,979 576,701 513,740
------------ ------------
TOTAL ASSETS $ 29,997,961 $ 31,448,244
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,709,755 $ 1,818,594
Other accrued liabilities 567,897 1,301,307
Current portion of deferred revenue 667,272 704,618
Current portion of note payable 53,309 51,723
Current portion of capital lease obligations 54,271 81,291
------------ ------------
TOTAL CURRENT LIABILITIES 3,052,504 3,957,533

Deferred revenue, net of current portion 420,038 408,640
Credit line borrowing, net of debt discount 16,308,385 13,224,561
Note payable, net of current portion 23,231 50,286
Capital lease obligations, net of current
portion - 12,179
------------ ------------
TOTAL LIABILITIES 19,804,158 17,653,199
------------ ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001;
5,000,000 shares authorized, none issued - -
Common stock, par value $0.001; 70,000,000
shares authorized, 51,876,311 and 51,556,989
shares issued and outstanding 51,876 51,556
Additional paid-in capital 60,557,846 60,208,501
Accumulated deficit (50,415,919) (46,465,012)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,193,803 13,795,045
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,997,961 $ 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
March 31, 2008.


MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Six and Three Months Ended March 31, 2008 and 2007
(Unaudited)

Six Months Ended March 31, Three Months Ended March 31,
2008 2007 2008 2007
------------ ------------ ------------ ------------

REVENUE $ 10,880,347 $ 7,915,835 $ 5,611,908 $ 3,981,485
------------ ------------ ------------ ------------

OPERATING EXPENSES
Direct costs 4,926,097 3,278,458 2,496,893 1,739,477
Sales expenses 651,995 663,768 313,655 330,994
Customer service
and operating
expenses 2,866,779 2,309,798 1,423,156 1,176,995
General and
administrative
expenses 2,172,853 2,164,099 976,406 1,003,365
Depreciation and
amortization 3,178,394 2,503,165 1,623,249 1,259,521
------------ ------------ ------------ ------------
TOTALS 13,796,118 10,919,288 6,833,359 5,510,352
------------ ------------ ------------ ------------

OPERATING LOSS (2,915,771) (3,003,453) (1,221,451) (1,528,867)

Other income
(expense)
Loss on sale of
customers (15,841) - (15,841) -
Interest income 1,248 26,183 372 3,366
Interest expense (1,020,543) (409,910) (533,679) (203,668)
------------ ------------ ------------ ------------
NET LOSS $ (3,950,907) $ (3,387,180) $ (1,770,599) $ (1,729,169)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC AND DILUTED
LOSS PER COMMON
SHARE $ (0.08) $ (0.07) $ (0.03) $ (0.03)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 51,694,237 51,162,242 51,819,304 51,324,899
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

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