MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

May 12, 2005 09:01 ET

MDU Communications Announces Second Quarter 2005 Results

TOTOWA, NEW JERSEY--(CCNMatthews - May 12, 2005) - MDU Communications International, Inc. (OTCBB:MDTV), 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 ("MDU") market, today reports its second fiscal quarter results for the period ended March 31, 2005.

For the quarter ended March 31, 2005, the Company reports a total of 30,152 "billable" subscribers in 394 properties, as compared to 26,097 subscribers in 343 properties as of December 31, 2004. The Company added 4,055 "billable" subscribers to its services in the second quarter, as compared to adding 1,359 subscribers in the previous quarter, an increase of 200% in the Company's quarterly growth rate.

Additionally, the Company had 11,550 units "under contract" currently in work-in-progress ("WIP") that the Company expects will become "billable" subscribers by the end of this year as phase-in and move-in schedules mature. Of these "under contract" units, 6,971 are in properties signed to bulk or exclusive access agreements. The Company expects its existing properties no longer in WIP will also produce additional "billable" subscribers during the balance of this fiscal year.

The Company continues to add "billable" and "under contract" subscribers at an accelerated pace in the current fiscal quarter. In April alone, the Company added approximately 50% of the total number of "billable" subscribers as it had added during the entire previous quarter.

The Company reports a continued increase in the size of its backlog during the quarter. As of March 31, 2005, the Company's backlog was 152,409 units in over 400 properties, as compared to 129,000 units on December 31, 2004. The significant growth in backlog is indicative of the Company's expanding customer base in its three regional markets of the Northeast, Southeast and Midwest. Approximately 51% of the Company's backlog was in properties representing bulk or exclusive property access agreements and 49% were in properties representing competitive access agreements.

The Company's WIP for the quarter continued to expand with 34,261 units at some stage in the construction process, compared to 26,819 units in construction as of December 31, 2004. The number of units that were added to WIP during the quarter ended March 31, 2005 was 12,188 and the number of units that became fully constructed and moved out of WIP during the quarter was 4,746. The Company is increasing the resources devoted to moving more units quickly through the construction phase and expects its WIP to continue to increase in the current quarter.

The Company reports an increase in revenue for the quarter ended March 31, 2005 to $2,075,552 as compared to revenue of $1,899,071 in the previous quarter. Revenue for the six month period ending March 31, 2005 was $3,974,623, an increase of 119% when compared to revenue for the same six month period ending March 31, 2004 of $1,811,819. The Company expects revenue to continue to increase quarterly as its "billable" subscriber base grows.

The Company reports a strong balance sheet as of March 31, 2005 with $14,373,645 in cash and cash equivalents and total assets of $29,485,455. As of March 31, 2005, the Company reports total liabilities of $1,984,936, of which $570,514 is deferred revenue from activation fees received by the Company but are not yet recognized as revenue. The Company has no long-term debt obligations.

Direct costs for the quarter were $828,854 compared to $751,248 incurred during the previous fiscal quarter. The Company's direct costs as a percentage of revenue are consistent with expectations, given the Company's current subscriber mix. However, the Company expects that its direct costs will decrease as a percentage of revenue in future periods as a result of the conversion of many of its private cable subscribers to DIRECTV services and because of an expected increase in revenue derived from DIRECTV subscribers in new exclusive and choice access agreement type properties. Additionally, an increasing number of properties are committing to both the Company's DIRECTV and broadband services, which should further improve the Company's gross profit margin.

Customer service and operations expenses for the quarter were $656,335 compared to the previous quarter of $530,375. Customer service expenses increased as a result of an increase in the subscriber base and as a result of the expected increase in the subscriber base in future periods. As a percentage of revenue, the Company expects customer service expenses to decrease during 2005. The Company incurred sales and marketing expenses of $453,286 during the quarter, as compared to $489,399 in the previous quarter. Sales expenses decreased despite an increase in its subscriber and backlog growth rates. The Company expects is sales expenses to decline as a percentage of revenue in 2005.

General and administrative expenses (net of $385,806 in non-cash charges associated with the issuance of, and variable accounting for, options and warrants) were $726,652 for the quarter, as compared to the previous quarter (net of non-cash charges) of $454,349. General and administrative expenses increased during the quarter primarily as a result of one-time charges including costs incurred with the opening of additional offices and increased professional fees relating to regulatory filings and Sarbanes-Oxley compliance. Depreciation expense for the quarter was $712,020, as compared to the previous quarter of $609,228.

The Company reports negative cash flow from operations in the quarter of $1,020,608 primarily as a result of an increase in accounts receivable, a decrease in accounts payable and an increase in customer service and general and administrative expenses. Due primarily to one time expenses, the Company experienced negative EBITDA of $520,783 for the quarter ended March 31, 2005 (excluding non-cash charges associated with options and warrants).

The Company's business strategy is to focus on providing an end-to-end solution for the delivery of DIRECTV® programming, private cable video and high-speed Internet services to the residential multi-dwelling unit market. The Company continues to expand with an emphasis on adding resources in the areas of direct sales and customer installations.

During the second fiscal quarter, the Company achieved several important goals. First, it increased its rate of subscriber growth by approximately 200% in the quarter. Moreover, the Company is continuing to demonstrate its ability to grow its subscriber base across all of its markets. Second, the Company made significant progress and signed new access agreements with a number of important existing and potential clients, including the military segment of the multi-dwelling unit market, to ensure the Company's future subscriber growth in its major markets. This is a very positive sign for the Company as the sales cycle for signing access agreements with new clients can take up to one year, however, once the first agreement is executed, and a commitment to enhance the property has been made by the addition of DIRECTV services, more access agreements from these new clients generally follow. Third, the Company is becoming more efficient at the processes surrounding the conversion of its backlog into "billable" subscribers. Fourth, the Company's testing of new technology in select "beta" trial properties is continuing and this new technology appears promising. The Company believes that this new technology could result in reduced subscriber acquisition costs going forward and a significant reduction in the time required to move a property through the due diligence and backlog phase to final customer activation.

The Company expects to file its quarterly report on Form 10-QSB for the quarter ended March 31, 2005 with the Securities and Exchange Commission today, May 12, 2005.

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 http://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 subscriber growth, success rate of new technology 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, efforts on behalf of the Company to finalize and deploy such programs and technology, bring to fruition strategic alliances, fluctuations in operating results and operating plans, deployment of new subscribers, closing of certain acquisitions, 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, 2004, filed on or about December 24, 2004.

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

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