MDU Communications International, Inc.
OTCBB : MDTV

MDU Communications International, Inc.

August 14, 2012 09:00 ET

Higher Quality Subscriber Base Produces Increased Revenues and Lower Expenses in MDU Communications' Third Fiscal Quarter 2012

TOTOWA, NEW JERSEY--(Marketwire - Aug. 14, 2012) - MDU Communications International, Inc. (OTCBB:MDTV), one of the nation's largest providers to the multi-family market of DIRECTV® bulk services bundled with its own broadband offering, today reports recent events and financial results for the period ended June 30, 2012.

The Company's focus during fiscal 2012 has been to (i) increase its customer care experience to its existing 790 property base encompassing 170,000 residences, (ii) expand its wired and wireless broadband services within its regional markets, (iii) launch and promote new revenue generating services to its subscriber base, such as new digital voice and monitored security products, (iv) launch new business segments that leverage existing infrastructure and investment, such as commercial property deployments, all in furtherance of balancing and guaranteeing long-term recurring revenue streams. These areas of concentration will provide the Company with a higher quality and more diversified long-term business. The demand for Company services remains high and the multi-family market is growing and has emerged as one of the strongest real estate sectors in the wake of the recession with housing starts up 50% over last year.

Although the Company has consistently achieved EBITDA (as adjusted), it has not achieved the scale needed to reach profitability. In evaluating its strategic options, the Company believes that merger is the most advantageous, and to that end, the Company disclosed the signing of a definitive merger agreement with Multiband Corporation on July 10, 2012, whereby the Company would continue to operate as essentially a wholly-owned subsidiary post-merger. The merged entity would provide the necessary scale to capitalize on the opportunity for profitability and growth in the multi-family space. Additionally, the Company is pursuing an asset sale which would result in the Company having operational and growth capital for an increased period of time.

Total revenue for the quarter ended June 30, 2012 increased slightly over the same period in fiscal 2011 from $6,815,207 to $6,834,792. Total revenue for the nine months ended June 30, 2012 increased 3% over the same period in the prior fiscal year from $20,254,067 to $20,802,991. EBITDA (as adjusted) increased for the quarter ended June 30, 2012 to $987,652, compared to EBITDA (as adjusted) for the prior quarter ended March 31, 2012 of $791,650, and increased compared to the previous fiscal quarter ended June 30, 2011 of $888,016. The quarterly improvements in EBITDA are primarily due to the elimination of costs associated with (i) the transition of customer care initiatives, (ii) the planned transfer of properties to the discontinued DIRECTV Connected Properties program, and (iii) the Company's preparation and participation in the discontinued Connected Properties dealer network.

The Company's sales expense, general and administrative expense and customer service and operating expense all decreased for the quarter ended June 30, 2012 compared to the quarter ended June 30, 2011 due mainly to elimination of the above-mentioned costs as well as other cost reductions. Direct costs increased in dollars, and 3% as a percent of revenue, for the quarter ended June 30, 2012 compared to the quarter ended June 30, 2011 due mainly to the acquisition of subscribers between the periods for which the Company bears the entire programming cost. Depreciation and amortization expense decreased 4%, as a percent of revenue, between the periods.

The following table provides supplemental financial information for the three months ended June 30, 2012, as compared to the three months ended June 30, 2011:

Three Months Ended
June 30, 2012
Three Months Ended
June 30, 2011
Revenue $ 6,834,792 100% $ 6,815,207 100%
Direct costs 3,322,766 49% 3,130,141 46%
Gross margin 3,512,026 51% 3,685,066 54%
Expenses (sales, operations, G&A) 2,776,546 41% 3,053,500 45%
Operating profit, before depreciation $ 735,480 10% $ 631,566 9%

The Company's average revenue per unit ("ARPU") at June 30, 2012 was $30.37, a 2% increase from the year ended September 30, 2011 ARPU of $29.88. 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 recurring revenue and ARPU will continue to be positively impacted by (i) an increasing DIRECTV ARPU (the average revenue generated by a DIRECTV subscriber was up 3.6% in DIRECTV's fiscal quarter ending March 31, 2012 to $91.99, as disclosed in DIRECTV's public filings), (ii) an increasing ARPU generated from the sale of incremental high-speed Internet services to the Company's subscribers, and (iii) a general increase in recurring revenue realized from the upgrade of properties to the new DIRECTV HD platform and the associated advanced services.

The Company reports 73,590 subscribers to its services as of June 30, 2012, a slight reduction in total subscribers when compared to the previous fiscal quarter ended March 31, 2012, due mainly to (i) approximately 1,000 seasonal disconnects, and (ii) the sale of two properties and subscribers. On February 6, 2012 and April 6, 2012, the Company entered into agreements to sell three properties to certain divisions of Charter Communications, two of which closed during the quarter. The Company has work in progress ongoing in 18 properties comprising 4,262 residences, however, due to capital constraints, the Company is in a holding pattern with respect to new growth and is only deploying into properties willing to pay for systems and installation services.

To assist the Company in assessing its strategic plans, the Company previously retained the investment advisory firm of Berkery, Noyes & Co. ("BN"). BN is representing the Company in the merger with Multiband and continues to pursue interest generated from a distributed executive overview of larger asset clusters that the Company would entertain purchase offers. The Company makes no representations that the above-mentioned merger or asset sales will result in any closed transactions.

The Company expects to file its quarterly report on Form 10-Q for the three months ended June 30, 2012 with the Securities and Exchange Commission on August 14, 2012. 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 Nine Months
Ended June 30,
For The Three Months
Ended June 30,
2012 2011 2012 2011
EBITDA $ 2,362,314 $ 2,919,334 $ 987,652 $ 888,016
Interest expense (2,390,848 ) (1,942,432 ) (814,101 ) (669,568 )
Deferred finance costs and debt discount amortization (interest expense) (290,446 ) (261,279 ) (96,815 ) (92,649 )
Provision for doubtful accounts (222,874 ) (349,934 ) - (140,975 )
Depreciation and amortization (4,895,143 ) (5,665,545 ) (1,670,757 ) (1,923,371 )
Share-based compensation expense - employees (36,260 ) (38,784 ) (9,543 ) (16,097 )
Compensation expense for issuance of common stock through Employee Stock Purchase Plan - (28,930 ) - (10,608 )
Compensation expense for issuance of common stock for employee bonuses (10,625 ) (31,767 ) - (31,767 )
Compensation expense for issuance of common stock for employee services - (59,790 ) - (28,970 )
Compensation expense accrued to be settled through the issuance of common stock (73,652 ) - (73,652 ) 60,737
Compensation expense through the issuance of restricted common stock for services rendered (56,225 ) (88,770 ) (9,180 ) (88,770 )
Net loss $ (5,613,759 ) $ (5,547,897 ) $ (1,686,396 ) $ (2,054,022 )
MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
June 30, 2012 (Unaudited) and September 30, 2011
June 30, September 30,
2012 2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 104,096 $ 84,747
Accounts and other receivables, net of an allowance of $1,609,786 and $1,390,686 1,181,755 1,780,362
Prepaid expenses and deposits 122,209 613,314
TOTAL CURRENT ASSETS 1,408,060 2,478,423
Telecommunications equipment inventory 657,424 554,515
Property and equipment, net of accumulated depreciation of $36,809,366 and $32,941,454 17,474,580 19,867,246
Intangible assets, net of accumulated amortization of $8,863,762 and $8,212,000 1,327,205 2,024,451
Deposits, net of current portion 69,313 67,214
Deferred finance costs, net of accumulated amortization of $1,505,479 and $1,248,252 217,969 275,197
TOTAL ASSETS $ 21,154,551 $ 25,267,046
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 2,319,463 $ 2,511,776
Other accrued liabilities 690,947 1,240,756
Credit line borrowing, net of debt discount 29,537,965 -
Current portion of deferred revenue 604,963 815,514
TOTAL CURRENT LIABILITIES 33,153,338 4,568,046
Deferred revenue, net of current portion 33,707 87,788
Credit line borrowing, net of debt discount - 27,138,457
TOTAL LIABILITIES 33,187,045 31,794,291
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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, 5,542,958 and 5,503,111 shares issued and 5,525,516 and 5,485,669 outstanding 5,544 5,504
Additional paid-in capital 61,952,159 61,843,689
Accumulated deficit (73,921,873 ) (68,308,114 )
Less: Treasury stock; 17,442 shares (68,324 ) (68,324 )
TOTAL STOCKHOLDERS' DEFICIENCY (12,032,494 ) (6,527,245 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 21,154,551 $ 25,267,046
See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2012.
MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Nine and Three Months Ended June 30, 2012 and 2011
(Unaudited)
Nine Months Ended June 30, Three Months Ended June 30,
2012 2011 2012 2011
REVENUE $ 20,802,991 $ 20,254,067 $ 6,834,792 $ 6,815,207
OPERATING EXPENSES
Direct costs 10,136,900 9,099,461 3,322,766 3,130,141
Sales expenses 1,101,715 1,084,501 341,417 363,603
Customer service and operating expenses 4,660,344 4,432,407 1,441,597 1,479,022
General and administrative expenses 3,191,920 3,376,774 993,532 1,210,875
Depreciation and amortization 4,895,143 5,665,545 1,670,757 1,923,371
Gain on sale of customers and property and equipment (250,566 ) (60,416 ) (159,797 ) -
TOTALS 23,735,456 23,598,272 7,610,272 8,107,012
OPERATING LOSS (2,932,465 ) (3,344,205 ) (775,480 ) (1,291,805 )
Other income (expense)
Interest income - 19 - -
Interest expense (2,681,294 ) (2,203,711 ) (910,916 ) (762,217 )
NET LOSS $ (5,613,759 ) $ (5,547,897 ) $ (1,686,396 ) $ (2,054,022 )
BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.02 ) $ (1.02 ) $ (0.31 ) $ (0.37 )
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,513,857 5,420,287 5,525,516 5,480,359
See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2012.

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, strategic partner relationships, subscriber sales, mergers, divestitures, 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, available capital, efforts on behalf of the Company to finalize and deploy certain programs and close certain sales or mergers, fluctuations in operating results and operating plans, deployment and funding of growth plans, market forces, supplier negotiations, implementation of cost-saving plans, Credit Facility availability 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, 2011, filed on or about December 23, 2011.

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