MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

May 11, 2011 09:00 ET

Growth in EBITDA and Revenue Continue During MDU Communications' Second Fiscal Quarter 2011; Results Improve as Scale is Achieved

TOTOWA, NEW JERSEY--(Marketwire - May 11, 2011) - MDU Communications International, Inc. (OTCBB:MDTV) -

Highlights:

  • Second fiscal quarter 2011 revenue up 8% over the quarter ended March 31, 2010
  • Second fiscal quarter 2011 EBITDA (as adjusted) of $1,002,596 up significantly over the quarter ended March 31, 2010 of $181,776
  • Direct costs, sales and marketing, customer service and general and administrative expenses down in dollars and as a percent of revenue during the second fiscal quarter 2011 over the quarter ended March 31, 2010

MDU Communications International, Inc. today reports results for the period ended March 31, 2011. Total revenue for the six months ended March 31, 2011 increased 7% over the same period in the prior fiscal year from $12,609,698 to $13,438,860. "Recurring" revenue between the six month periods increased by 11% taking into account $458,000 in non-recurring HD upgrade subsidy included in the six months ended March 31, 2010 revenue, with $0 in the six months ended March 31, 2011. Revenue for the three month period ended March 31, 2011 was up 8%, compared to the same period in fiscal 2010.

The increase in revenue contributed to EBITDA (as adjusted) of $2,031,318 for the six month period ended March 31, 2011, compared to EBITDA (as adjusted) of $643,104 for the six month period ended March 31, 2010, an increase of over 200%. EBITDA, as adjusted, for the three month period ended March 31, 2011 was up over 450% from the three month period ended March 31, 2010. The Company expects EBITDA (as adjusted) to continue to improve during the remainder of fiscal 2011 as (i) it adds subscribers through organic growth and in recently acquired properties, (ii) direct costs from recent acquisitions continue to normalize, and (iii) previous revenue generating and cost-reduction measures continue to take hold.

The Company's continued emphasis on controlling expenses resulted in lower, as a percent of revenue, direct costs, sales expenses, customer service expenses, and general and administrative expense for the six months ended March 31, 2011, compared to the six months ended March 31, 2010. Total operating expenses (in dollars) for both the six and three month periods ended March 31, 2011 were lower than the same periods in the prior fiscal year. The fact that the Company's expenses were collectively lower in dollars and as a percent of revenue, while serving an increased subscriber base, is evidence of the incremental financial benefit realized from new subscriber growth and scale. The following table provides supplemental financial information that excludes the financial impact of the non-recurring HD upgrade subsidy on revenue, direct costs and operating expenses for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010:

Six Months Ended March 31, 2011Six Months Ended March 31, 2010
Revenue$13,438,860$12,609,698
Upgrade subsidy0458,000
Revenue, net of upgrade subsidy13,438,860100%12,151,698100%
Direct costs5,969,32044%5,921,93349%
Gross margin, net of upgrade subsidy7,469,54056%6,229,76551%
Expenses (sales, operations, G&A)5,840,18244%6,266,17551%
Operating profit (loss), before depreciation$1,629,35812%$(36,410)0%

The Company provides services to over 760 multi-family properties passing 160,000 residences and reports 76,914 subscribers to its services as of March 31, 2011. This represents an increase in its subscriber base from March 31, 2010, but a reduction from the previous quarter due primarily to two bulk private cable properties that the Company chose not to digitally upgrade for economic reasons and that did not renew their services at the end of their contractual terms. As of March 31, 2011, the Company had 22 properties and 6,853 units in work-in-process, which will contribute to organic growth in the upcoming quarters. The Company's breakdown of total subscribers by type and kind is outlined below:

Service TypeSubscribers as of Mar. 31, 2010Subscribers as of June 30, 2010Subscribers as of Sept. 30, 2010Subscribers as of Dec. 31, 2010Subscribers as of Mar. 31, 2011
Bulk DTH –DIRECTV15,54515,78416,14316,48916,943
Bulk BCA -DIRECTV10,28910,31910,33910,41810,621
DTH -DIRECTV Choice/Exclusive15,60117,03217,47721,32321,246
Bulk Private Cable17,81317,82416,11215,16613,174
Private Cable Choice/ Exclusive4,2683,1413,0104,0813,665
Bulk ISP5,8786,1026,1215,5085,887
ISP Choice or Exclusive6,1425,6895,4845,5345,356
Voice2725262622
Total Subscribers75,56375,91674,71278,54576,914

The Company's average revenue per unit ("ARPU") at March 31, 2011 was $29.19, a 2% decrease over the year ended September 30, 2010 of $29.82, due mainly to the difference in non-recurring HD upgrade subsidy included in the September 30, 2010 ARPU. The Company believes that its recurring revenue and ARPU will be positively impacted by (i) an increasing DIRECTV ARPU (the average revenue generated by a DIRECTV subscriber was up 4.9% for DIRECTV's full fiscal year to $89.71 (as disclosed in DIRECTV's public filings), (ii) increasing revenue generated from the sale of incremental high-speed Internet services to the Company's subscribers, (iii) a general increase in recurring revenue realized from price increases and the upgrade of properties to the new DIRECTV HD platform and the associated advanced services, and (iv) an increase in the total number of DIRECTV Choice and Exclusive subscribers that produce a higher ARPU relative to certain other types of subscribers, namely bulk private cable subscribers.

The Company continued with a number of previously announced initiatives that began at the end of fiscal 2010 designed to improve EBITDA (as adjusted) and reduce reliance on debt financing. In particular, the Company (i) concluded the transition of the remaining ATTVS properties, (ii) initiated additional price increases and introduced new pricing bundles for video and broadband services, (iii) rolled out additional premium priced broadband services and tiers to several other of its high-speed Internet properties, (iv) negotiated direct cost reductions for broadband circuits, and (v) continued to market its "Customer Protection Plan" fee requiring annual pre-payment or monthly auto-payment (eliminating costs and reducing bad debt exposure).

To reduce capital spending, but still concentrate on growth, the Company is utilizing the previously executed and announced DIRECTV CapEx Agreement, which allows the Company to leverage its existing infrastructure to provide services to DIRECTV for the deployment of services to certain multi-family properties identified by the Company, but where DIRECTV (instead of the Company) becomes the party to the right of entry agreement. Once a property is identified by the Company, is under contract with DIRECTV and the satellite system constructed and activated, the Company earns fees from DIRECTV by providing certain services, including (i) activation fees generated from new subscription sales to residents in the property, and (ii) an ongoing percentage of the revenue generated by that subscriber as a management fee. The CapEx Agreement reduces the Company's capital costs for certain subscriber growth areas – a pivotal option when capital, or the cost of capital, is prohibitive. The Company's current DIRECTV System Operator Agreement and the new CapEx Agreement are mutually exclusive of each other. Prior to offering a property to DIRECTV, the Company retains sole discretion as to whether it decides to build out and maintain ownership of a property or simply provide ongoing management, sales, service and maintenance for DIRECTV. The Company currently has a number of properties pending under this program and will begin deploying services to these properties and residents in the third fiscal quarter.

On April 6, 2011, the Company entered into a new agreement with AT&T Video Services, Inc. to acquire up to 49 additional properties containing 11,779 units and 5,785 digital video subscribers. The transition of these subscribers will be in two accelerated closings occurring in the current quarter ending June 30, 2011. In addition, the Company is still continuing negotiations with two companies that it deems significant strategic acquisition/merger prospects. Both companies have a significant presence in the multi-family space and collectively have in excess of 70,000 subscribers as well as strong broadband capabilities. The Company previously executed a term sheet for a combined debt and equity financing of up to $10.25 million with the net proceeds to be used for one of the above-mentioned acquisitions should terms be reached. Additionally, the Company has been in discussions with its existing lenders regarding an increase to its existing credit facility to accommodate asset acquisitions, should terms be reached. The Company makes no representations that these acquisition/merger and financing negotiations will result in any closed transactions.

The Company continues to assess its core and non-core service areas and has identified certain assets in non-core markets that are being considered for sale. To that end, the Company is engaged with several parties regarding interest for the sale of these assets at prices similar to what the Company has previously received. The Company makes no representations that these sale negotiations will result in any closed transactions.

The Company expects to file its quarterly report on Form 10-Q for the six months ended March 31, 2011 with the Securities and Exchange Commission on or before May 13, 2011. The Company will be hosting a conference call today at 10:00 am EST to discuss these results. Specific information will be provided via the Company's web site at www.mduc.com.

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

For The Six Months Ended March 31,For The Three Months Ended March 31,
2011201020112010
EBITDA$2,031,318$643,104$1,002,596$181,776
Interest expense(1,272,864)(988,758)(634,606)(516,238)
Deferred finance costs and debt discount amortization (interest expense)(168,630)(151,963)(84,315)(80,148)
Provision for doubtful accounts(208,959)(146,483)(73,782)(47,218)
Depreciation and amortization(3,742,174)(3,439,387)(1,876,902)(1,759,117)
Share-based compensation expense - employees(22,687)(26,969)(10,498)(14,457)
Compensation expense for issuance of common stock through employee stock purchase plan(18,322)(23,857)(17,576)(23,857)
Compensation expense for issuance of common stock for employee wages(30,820)(30,820)
Compensation expense accrued to be settled through the issuance of common stock(60,737)(60,737)
Compensation expense through the issuance of restricted common stock for services rendered(24,000)(12,000)
Net loss$(3,493,875)$(4,158,313)$(1,786,640)$(2,271,259)

MDU COMMUNICATIONS INTERNATIONAL, INC.

Condensed Consolidated Balance Sheets

March 31, 2011 (Unaudited) and September 30, 2010 (See Note 1)

March 31,September 30,
20112010
ASSETS
CURRENT ASSETS
Cash and cash equivalents$72,343$324,524
Accounts and other receivables, net of an allowance of $1,150,823 and $913,7861,489,6041,470,401
Prepaid expenses and deposits398,526645,719
TOTAL CURRENT ASSETS1,960,4732,440,644
Telecommunications equipment inventory501,299843,082
Property and equipment, net of accumulated depreciation of $30,579,363 and $28,240,88621,411,58022,696,096
Intangible assets, net of accumulated amortization of $7,854,305 and $7,417,5682,257,5702,470,875
Deposits, net of current portion66,42864,450
Deferred finance costs, net of accumulated amortization of $1,080,934 and $934,449342,515339,000
TOTAL ASSETS$26,539,865$28,854,147
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable$2,654,096$2,698,920
Other accrued liabilities926,6801,793,951
Current portion of deferred revenue1,120,068661,903
TOTAL CURRENT LIABILITIES4,700,8445,154,774
Deferred revenue, net of current portion137,309186,021
Credit line borrowing, net of debt discount24,558,43523,060,026
TOTAL LIABILITIES29,396,58828,400,821
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, par value $0.001; 5,000,000 shares authorized, none issued
Common stock, par value $0.001; 35,000,000 shares authorized, 5,443,421 and 5,395,717 shares issued and 5,425,979 and 5,378,275 outstanding5,4445,396
Additional paid-in capital61,651,23661,467,458
Accumulated deficit(64,445,079)(60,951,204)
Less: Treasury stock; 17,442 shares at cost(68,324)(68,324)
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)(2,856,723)453,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)$26,539,865$28,854,147

See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2011

MDU COMMUNICATIONS INTERNATIONAL, INC.

Condensed Consolidated Statements of Operations

Six and Three Months Ended March 31, 2011 and 2010

(Unaudited)

Six Months Ended March 31,Three Months Ended March 31,
2011201020112010
REVENUE$13,438,860$12,609,698$6,714,132$6,195,832
OPERATING EXPENSES
Direct costs5,969,3205,921,9332,996,0353,032,074
Sales expenses720,8981,046,317376,675520,376
Customer service and operating expenses2,953,3852,978,7441,474,0131,498,655
General and administrative expenses2,165,8992,241,1141,102,2261,060,533
Depreciation and amortization3,742,1743,439,3871,876,9021,759,117
Gain on sale of customers and plant and equipment(60,416)(44,000)
TOTALS15,491,26015,627,4957,781,8517,870,755
OPERATING LOSS(2,052,400)(3,017,797)(1,067,719)(1,674,923)
Other income (expense)
Interest income1920550
Interest expense(1,441,494)(1,140,721)(718,921)(596,386)
NET LOSS$(3,493,875)$(4,158,313)$(1,786,640)$(2,271,259)
BASIC AND DILUTED LOSS PER COMMON SHARE$(0.65)$(0.78)$(0.33)$(0.42)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING5,390,2505,351,6265,400,8335,371,392

See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2011

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, acquisitions, subscriber and revenue growth, implementation of new programs and other 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 and close certain acquisitions or sales, fluctuations in operating results and operating plans, deployment of new subscriber growth plans and conversion of existing subscribers, market forces, supplier negotiations, implementation of cost-saving plans 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, 2010, filed on or about December 21, 2010.

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