MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

November 14, 2006 09:01 ET

MDU Communications Announces Preliminary Fourth Quarter and Fiscal 2006 Year End Results

TOTOWA, NEW JERSEY--(CCNMatthews - Nov. 14, 2006) - MDU Communications International, Inc. (OTCBB:MDTV) -

- Company exceeds EBITDA expectations; swings from negative $557,000 to positive $160,000 EBITDA (preliminary) in fourth quarter

- Increase in fourth quarter subscriber growth exceeds expectations

- Company closes $20M long term non-dilutive revolving debt financing

- Fiscal 2006 revenue up 46% over prior fiscal year to $13.4M (preliminary)

- Fiscal 2006 subscriber base up 26% over prior fiscal year to 46,653 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 preliminary fourth quarter and year end results for the quarter and fiscal year ended September 30, 2006.

The Company reports preliminary revenue for the year ended September 30, 2006 of $13,377,944, an increase of 46% over the prior fiscal year, and $3,683,995 for the quarter ended September 30, 2006, an increase of 34% over the fiscal quarter ended September 30, 2005. The Company's quarterly revenue increased 7% from the previous quarter ended June 30, 2006. Highlights of the Company's preliminary earnings are as follows:



-----------------------------------------------------------------------
Three Months Ended Year Ended
September 30, September 30,
-----------------------------------------------------------------------
2006 2005 2006 2005
(prelim.) (prelim.)
-----------------------------------------------------------------------
Revenue $3,683,995 $2,753,039 $13,377,944 $ 9,142,228
-----------------------------------------------------------------------
Operating
Expenses ($3,527,093) ($3,263,664) ($14,943,039) ($10,873,848)
-----------------------------------------------------------------------
Depreciation and
Noncash Chgs. ($1,883,538) ($1,051,019) ($ 6,525,402) ($ 3,904,720)
-----------------------------------------------------------------------
Operating Loss ($1,726,636) ($1,561,644) ($ 8,090,497) ($ 5,636,340)
-----------------------------------------------------------------------
Net Loss ($1,731,256) ($1,473,009) ($ 7,987,144) ($ 4,680,438)
-----------------------------------------------------------------------
Net Income/Loss
per Share ($ 0.03) ($ 0.03) ($ 0.16) ($ 0.10)
-----------------------------------------------------------------------
EBITDA $ 160,893 ($ 419,637) ($ 1,436,185) ($ 767,947)(i)
-----------------------------------------------------------------------
(i) includes a one time gain on sale of assets of $715,696
-----------------------------------------------------------------------


Highlights of the Company's quarterly earnings are as follows:



------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2006 June 30, 2006
(prelim.)
------------------------------------------------------------------------
Revenue $3,683,995 $3,449,752
------------------------------------------------------------------------
Operating Expenses ($3,527,093) ($4,029,762)
------------------------------------------------------------------------
Depreciation and Noncash Chgs. ($1,883,538) ($1,630,262)
------------------------------------------------------------------------
Operating Loss ($1,726,636) ($2,210,272)
------------------------------------------------------------------------
Net Loss ($1,731,256) ($2,194,519)
------------------------------------------------------------------------
Net Loss per Share ($ 0.03) ($ 0.04)
------------------------------------------------------------------------
EBITDA $ 160,893 ($ 557,084)
------------------------------------------------------------------------


The Company realized, on a preliminary basis, positive EBITDA of $160,893 in the fourth fiscal quarter ended September 30, 2006, a significant improvement on negative EBITDA over $557,084 realized in the previous fiscal quarter ended June 30, 2006 (both exclusive of noncash charges). The Company implemented several revenue producing and cost reducing initiatives designed to improve financial and subscriber growth results in the fourth quarter. The Company believes these initiatives will continue to positively impact subscriber growth and financial results throughout fiscal 2007.

The Company added 1,569 billable subscribers during the fourth quarter, an increase over the 358 net subscribers added in the third quarter. The Company's ARPU across all billable subscriber types was, preliminarily, $26.80 at September 30, 2006, a 3% increase over the previous fiscal quarter. The Company's ARPU is expected to increase in fiscal 2007 as the conversion of private cable systems to bulk or BCA DIRECTV® services continues and as bulk rates increase per the terms of the Company's access agreements. DIRECTV has been providing certain equipment and marketing assistance to the Company's effort of converting properties from traditional private cable to DIRECTV programming. These incentives will continue through December 31, 2006. A breakdown of the Company's subscriber base as of September 30, 2006 is as follows:



Subscribers Subscribers Subscribers Subscribers Subscribers
as of as of as of as of as of
Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
Service Type 2005 2005 2005 2006 2006
-------------- ----------- ----------- ----------- ----------- -----------
Bulk DTH 5,470 6,213 7,226 7,830 8,475
DTH Choice /
Exclusive 6,860 7,498 7,857 7,703 8,095
Bulk PC 16,587 16,894 18,011 17,778 17,596
PC Choice /
Exclusive 1,399 1,318 1,303 1,230 1,240
Bulk Choice
Advantage 2,941 3,689 4,627 4,818 5,334
Bulk ISP 1,823 2,267 3,116 3,100 3,118
ISP Choice /
Exclusive 2,044 2,392 2,586 2,625 2,795
----------- ----------- ----------- ----------- -----------
Total
Subscribers 37,124 40,271 44,726 45,084 46,653
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------


As of September 30, 2006, the Company had 9,105 "under contract" subscribers currently in work-in-progress ("WIP") that the Company expects will become "billable" subscribers in the next few quarters. A preliminary breakdown of these "under contract" subscribers (already reduced to reflect appropriate property type and penetration rate) is as set forth in the table below:



Bulk Exclusive Competitive Total
Subscribers Subscribers Subscribers Subscribers
----------- ----------- ----------- -----------
New construction
"under contract"
subscribers as of
September 30, 2006: 3,249 843 2,148 6,240
Existing conversion
"under contract"
subscribers as of
September 30, 2006: 666 598 1,601 2,865
----------- ----------- ----------- -----------
Total "under contract"
subscribers: 3,915 1,441 3,749 9,105
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


The Company continues to concentrate its efforts on bulk and exclusive type service deployments. Bulk contracts (both video, Internet or an increasingly popular bundle of the two services) provide guaranteed long term revenue streams that support regional operations, which in turn, drive future subscriber growth. The Company's emphasis on developing this market segment has resulted in a 64% increase in bulk DIRECTV DTH and BCA subscriber growth and a 53% increase in broadband subscriber growth over the past fiscal year. The Company will continue to focus on bulk deployments in fiscal 2007; however, its growing presence in the Southeast and Mid-Atlantic is also expected to generate a significant number of exclusive type access agreements. Property owners seeking choice or non-exclusive competitive services are generally being provided proposals that include the owner paying for all or part of the system installation. The Company believes that this strategy serves two important purposes, first, it funds certain capital costs, and second, it provides owners with an incentive to support the Company's marketing efforts in the properties as the owners may receive a share of the earned revenue. Collectively, this emphasis on service types should positively impact ARPU, EBITDA, subscriber growth and the Company's subscriber penetration rates, while maintaining or reducing its subscriber acquisition capital costs.

The Company reports a strong balance sheet as of September 30, 2006 with total assets preliminarily valued at $26,913,364 and total liabilities of $7,261,348. Included in the total liabilities is $3,879,569 relating to the debt financing facility described below. The Company has cash and cash equivalents of $3,238,939 in addition to the credit available from the remaining unused portion of debt financing facility. The Company preliminarily used cash from operation of $481,550 during the quarter, mainly attributable to the reduction of accounts payable, and invested, preliminarily, $955,099 in capital expenditures.

The Company closed a long term non-dilutive $20M revolving financing on September 11, 2006 which was specifically designed to provide a permanent funding solution to the Company's subscriber growth capital requirements. The $20M debt financing is a non-amortizing five year term facility. The size of the financing facility is ultimately determined by factors relating to the present value of the Company's future revenue as determined by its access agreements. Therefore, as the Company's subscriber base increases through the signing of new access agreements and renewal of existing access agreements, the Company's borrowing base potential increases concurrently. Given the Company's focus on both EBITDA and subscriber growth, an increasing percentage of future subscriber acquisition costs should be funded from earnings in fiscal 2007, despite the availability of more capital through an increasing borrowing base.

During the past few quarters the Company has been exploring certain non-core asset sales and continues to believe that geographic consolidation results in significant service efficiencies and cost savings. The Company is currently in discussions with a few groups interested in acquiring non-core assets and it is reviewing such proposals carefully.

The Company reached its goals set for the fourth quarter and exceeded its expectations in certain areas. First, the Company achieved positive EBITDA and established an operating plan designed to ensure the Company continues to operate at positive EBITDA in fiscal 2007. Each of the Company's market territories are now contributing to positive earnings due to the economies of scale and subscriber level achieved in each market region. Therefore, the Company is in a very good position to not only remain positive EBITDA, but to improve its earnings in fiscal 2007. Second, the Company sought to increase its regional market presence and enhance its future growth capabilities in these markets. The Company has accomplished this through its developing relationship with BellSouth in the Southeast and with its new relationship with Verizon in the Northeast. These relationships are and will assist in the generation of more bundled access agreements for exclusive and bulk deployments. Finally, it put in place the $20M financing facility mentioned above to fund its expected increase in subscriber growth, which was not only specifically tailored to the Company's subscriber growth needs, but is non-dilutive to the shareholders.

The Company expects to file its annual report on Form 10-K for the year ended September 30, 2006 with the Securities and Exchange Commission on or before December 31, 2006. The Company will be hosting a preliminary fourth quarter earnings conference call on November 15, 2006 at 11:00 am EST. Call information is available on the Company's website at www.mduc.com.

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



For The Year Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
EBITDA $ (1,436,185) $ (767,947) $ 160,893 $ (419,637)
Interest Expense (25,556) (7,771) (8,611) (2,353)
Provision for
doubtful accounts (107,044) (63,658) - (62,235)
Provision for
inventory reserve (57,977) (69,821) - (69,821)
Depreciation and
Amortization (4,379,468) (3,055,287) (1,164,351) (926,041)
Effect of shares and
warrants issued for
termination of
professional
service agreement - (270,200) - -
Effect of
cancellation of
shares and warrants
issued for
termination of
professional
service agreement - 426,041 - -
Effect of Variable
Accounting for
Option Plans - (271,885) - 152,114
Share-based
compensation
expense - employees (1,048,856) - (217,634) -
Compensation expense
for issuance of
common stock
through employee
stock purchase plan (50,290) - (45,548) -
Compensation expense
for issuance of
common stock for
employee bonuses (99,833) - (21,000) -
Compensation expense
for issuance of
common stock for
employee wages (83,634) - (83,634) -
Compensation expense
accrued to be
settled through
the issuance of
common stock (299,907) - (299,907) -
Share-based
compensation
expense -
nonemployees (398,394) (599,910) (51,464) (145,036)
------------ ------------ ------------ ------------

Net Loss $ (7,987,144) $ (4,680,438) $(1,731,256) $ (1,473,009)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------


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 and preliminary financial information, subscriber 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 information due to the audit conducted by the Company's independent auditors, efforts on behalf of the Company to finalize and deploy certain programs, bringing to fruition strategic alliances, fluctuations in operating results and operating plans, deployment of new 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-KSB for year ended September 30, 2005, filed on or about December 24, 2005.

The Company's filings, including current financial reports, can be accessed through the EDGAR database at www.sec.gov.

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