MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

May 13, 2009 08:00 ET

MDU Communications' HD Upgrade Program Approaches Completion; Revenue, EBITDA, ARPU Remain Strong During Second Fiscal Quarter '09

- Second quarter revenue up 4% over one year ago, fiscal year to date revenue up 14% over prior year - Second quarter EBITDA up 60% over one year ago to $803,000 - Over 10,000 units upgraded during quarter to new DIRECTV® HD platform, 53,786 units upgraded to date - ARPU up 14% fiscal year to date due mainly to advanced services from new DIRECTV HD platform - Credit Facility repayments, fiscal year to date, reduce outstanding borrowing by 28%

TOTOWA, NEW JERSEY--(Marketwire - May 13, 2009) - MDU Communications International, Inc. (OTCBB:MDTV), despite trying economic times, has continued to deliver solid results quarter over quarter. For its second fiscal quarter ended March 31, 2009, revenue was $5,838,312, a 4% increase over the same period in the prior fiscal year, and average revenue per unit ("ARPU") across all billable subscriber types was $33.74, a 14% increase over the ARPU of $29.55 realized during fiscal '08.

The Company also reports EBITDA (as adjusted) of $803,692 for the quarter ended March 31, 2009, as compared to EBITDA (as adjusted) of $503,308 for the same period in the prior fiscal year. Fiscal year to date EBITDA (as adjusted) was $7,221,772, compared to the six months ended March 31, 2008 of $623,020, due mainly to the gain realized on the sale of certain assets to CSC Holdings during the first fiscal quarter. Exclusive of this gain, the Company still realized $2,182,933 in EBITDA (as adjusted) for the six month period ended March 31, 2009. The transition of these transferred properties and subscribers to CSC Holdings was primarily complete by quarter's end.

The Company's continued focus on improving its financial results directly resulted in increased revenues and EBITDA, but also resulted in lower, as a percentage of revenue, operating expenses - specifically direct costs, customer service, sales and marketing, and general and administrative expenses - when compared to the same periods in the prior fiscal year. Collectively, these operating expenses declined by 4% and 15% as percentages of revenue during the three and six month periods ended March 31, 2009, as compared to the same periods in the prior fiscal year.



Three Months Ended March 31, Six Months Ended March 31,
-------------------------------- ---------------------------------
2009 % 2008 % 2009 % 2008 %
--------------------------------------------------------------------
Revenue $5,838,312 100 $5,611,908 100 $12,454,947 100 $10,880,347 100
Operating
expe-
nses ($5,166,251) -89 ($5,210,110) -93 ($10,460,318) -83 ($10,617,724) -98
Depreci-
ation ($1,707,333) -29 ($1,623,249) -29 ($3,333,968) -27 ($3,178,394) -29
Gain
(loss)
on
sale of
assets - - ($15,841) 0 $5,038,839 40 ($15,841) 0
--------------------------------------------------------------------
Operating
income
(loss)($1,035,272) -18 ($1,237,292) -22 $3,699,500 30 ($2,931,612) -27
Other
income
(expe-
nse) ($455,519) -8 ($533,307) -10 ($985,282) -8 ($1,019,295) -9
--------------------------------------------------------------------
Net
income
(loss)($1,490,791) -26 ($1,770,599) -32 $2,714,218 22 ($3,950,907) -36
Net
income
(loss)
per
share ($0.03) ($0.03) $0.05 ($0.08)
EBITDA $803,692 14 $503,308 9 $7,221,722 58 $623,020 6


Due mainly to the above mentioned sale of assets to CSC Holdings, as well as increased revenue and reduced costs (as a percent of that revenue), the Company made repayments on its long-term non-amortizing Credit Facility during the six months ended March 31, 2009 in the amount of $4,629,503, substantially lowering its total borrowings on the $30 million facility to $12,222,464.

For the past four quarters the Company has been implementing an ambitious and comprehensive plan to upgrade its properties and current DIRECTV high definition ("HD") subscribers to the newly launched DIRECTV MFH-2 Platform ("HD Platform") and expanded line-up of DIRECTV HD and International programming services. During the second fiscal quarter, the Company upgraded 10,105 units in 43 properties to the new DIRECTV HD Platform and had another 2,061 units in 10 properties that were work-in-progress at quarter's end. The Company is in the final stages of its upgrade program and expects to complete the upgrade of an additional 18,125 units in 109 properties on or before July 31, 2009. At that time, the Company expects to have upgraded approximately 72,000 units in 375 properties. DIRECTV is providing certain financial assistance for the upgrade to the new HD Platform through July 2009, however, they have recently offered the Company an additional incentive to complete certain property upgrades prior to June 30, 2009. As a result, the Company is accelerating its upgrade efforts.

Property upgrades to the new HD Platform usually involve potentially lengthy negotiations with ownership groups or condominium boards; addendums and extensions to access agreements; new property site surveys; new return on investment calculations; executive review and approval of each potential upgrade; scheduling and supervising a significant number of experienced contractors; upgrade or replacement of the building satellite reception equipment; a re-wire of the satellite distribution backbone structure; connecting individual customer unit wiring to HD distribution demarcations; scheduling and exchanging many previously installed customer set-top receivers; and, a total re-marketing of the property to advertise the new HD and International services. This detailed product life cycle has already taken place in 265 properties as of March 31, 2009 and each upgrade comes up just short of the total amount of time and effort the Company would normally invest obtaining, negotiating and wiring a net new property to DIRECTV services. As a result of this experience, the Company has significantly expanded its capabilities and will draw upon these capabilities when it begins to accelerate new subscriber growth in upcoming periods.

Property upgrades to the new DIRECTV HD platform are essential as subscribers and property owners demand state-of-the-art technology and want access to DIRECTV's unparalleled comprehensive offering of HD and International programming and services. DIRECTV currently offers over 130 (moving to 150) HD national programming channels and has HD local programming in more than 94% of all U.S. markets. The continued launch and advertising campaign for the new DIRECTV HD programming and associated services will continue to provide incremental revenue and improved penetration rates within Company properties. Additionally, these upgrades are resulting in property access agreement extensions and renewals, increased penetration rates within these properties, increased sale of advanced services and an increase in the Company's DIRECTV subscriber residual, all of which continue to positively impact the Company's financial results.

In light of the HD upgrade program, the Company again planned for, and expected, slower subscriber growth during the quarter due to (i) its significant commitment to the new DIRECTV HD Platform, (ii) its focus to convert its current properties from low margin private cable services to higher ARPU DIRECTV services, and (iii) a fiscal decision, dictated in part by economic times, to conserve capital and improve its financial returns from previous capital investment in its portfolio of properties. However, the Company did add 516 net new subscribers during the quarter, principally as a result of increasing penetration rates within Company properties. In addition to this organic growth, the Company successfully converted 468 low-margin private cable subscribers to bulk DIRECTV services during the quarter. As of March 31, 2009, the Company reports 59,758 total billable subscribers. The Company expects to increase its rate of subscriber growth beginning in its fourth fiscal quarter when the HD Platform upgrade program is substantially complete. The Company's breakdown of total subscribers by type and kind is outlined in the following chart:



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 2008 2008 2008 2008 2009
-------------- ----------- ----------- ----------- ----------- -----------
Bulk DTH -
DIRECTV 15,016 15,249 15,382 12,478 12,925
DTH - DIRECTV
Choice/Exclusive 11,269 11,547 10,790 11,037 11,802
Bulk Private
Cable 20,084 20,179 17,194 14,586 13,609
Private Cable
Choice or
Exclusive 3,369 2,270 1,952 2,446 2,548
Bulk BCA -
DIRECTV 8,527 8,687 10,337 9,505 9,549
Bulk ISP 6,173 6,394 5,911 5,215 5,215
ISP Choice or
Exclusive 4,041 3,784 3,956 3,952 4,083
Voice 39 32 30 23 27
----------- ----------- ----------- ----------- -----------
Total
Subscribers 68,518 68,142 65,552 59,242 59,758
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------


As of March 31, 2009, the Company also had 6,085 units in work-in-progress for which the Company expects a minimum of 1,447 of these units (under contract subscribers) to become billable subscribers in the next few quarters.

The Company has publicly maintained that it is significantly undervalued by the financial markets. As a result, the Company announced on December 28, 2008, that it authorized the repurchase of shares of its common stock over a twelve month period in open market transactions, up to an aggregate value of $1.0 million. Through the date of this release, the Company has repurchased 94,562 shares of its common stock in open market transactions at an average cost per share of $0.35. The specific timing and amount of any additional repurchases will vary based on market conditions and other factors and the plan may be suspended, modified, extended or terminated by the Board of Directors at any time.

Mr. Sheldon Nelson, President of MDU Communications, commented, "We believed it strategically significant, necessary, and fiscally prudent to first pursue the upgrade of our current base of subscribers prior to aggressively pursuing new subscriber growth. We believe that this demonstrable commitment to our current customers has paid off, as we continue to generate positive financial and operating results, economy notwithstanding. At this point, we believe the catalysts to significant subscriber growth are clearly in sight - an already upgraded property base providing higher ARPU from satisfied property owners, managers and residents from which we can leverage future growth, a motivated and engaged principal partner looking for new avenues of growth, defined and integrated processes facilitating scalability, attractive long-term Company financing, proven subscriber valuations and an experienced management team."

The Company expects to file its quarterly report on Form 10-Q for the quarter ended March 31, 2009 with the Securities and Exchange Commission on or before May 14, 2009. The Company will be hosting a conference call on May 13, 2009 at 10:00 am EST. Call information is available on 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 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,
-------------------------- --------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
EBITDA $ 7,221,772 $ 623,020 $ 803,692 $ 503,308
Interest expense (842,884) (855,885) (384,514) (447,184)
Deferred finance
costs and debt
discount
amortization
(interest expense) (143,631) (164,658) (71,815) (86,495)
Provision for
doubtful accounts (85,888) (72,637) (60,696) (21,966)
Depreciation and
Amortization (3,333,968) (3,178,394) (1,707,333) (1,623,249)
Share-based
compensation
expense - employees (46,078) (210,826) (25,857) (66,999)
Compensation expense
for issuance of
common stock through
employee stock
purchase plan (28,098) (14,436) (27,135) (11,307)
Compensation expense
for issuance of
common stock for
employee bonuses (2,515) (37,141) (1,530) (37,141)
Compensation expense
for issuance of
common stock for
employee wages (6,320) - (680) -
Compensation expense
accrued to be
settled through
the issuance of
common stock (2,504) - (7,089) 46,884
Compensation expense
through the
issuance of
restricted common
stock for services
rendered (15,668) (39,950) (7,834) (26,450)
------------ ------------ ------------ ------------

Net income (loss) $ 2,714,218 $ (3,950,907) $ (1,490,791) $ (1,770,599)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------


MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
March 31, 2009 (Unaudited) and September 30, 2008 (Audited)

March 31, September 30,
2009 2008
------------ ------------

ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 164,148 $ 60,634
Accounts and other receivables, net of an
allowance of $456,738 and $394,960 1,339,837 3,102,850
Prepaid expenses and deposits 392,564 541,612
------------ ------------
TOTAL CURRENT ASSETS 1,896,549 3,705,096

Telecommunications equipment inventory 675,164 682,818
Property and equipment, net of
accumulated depreciation of
$19,146,640 and $17,283,584 21,458,682 21,738,007
Intangible assets, net of
accumulated amortization of
$5,920,208 and $5,338,356 2,357,031 2,988,557
Deposits, net of current portion 64,642 63,037
Deferred finance costs, net of
accumulated amortization of
$536,931 and $415,446 486,788 508,273
------------ ------------
TOTAL ASSETS $ 26,938,856 $ 29,685,788
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,149,253 $ 1,583,352
Other accrued liabilities 606,826 1,287,091
Current portion of deferred revenue 528,089 578,841
Note payable 23,187 50,290
Capital lease obligations 2,190 12,431
------------ ------------
TOTAL CURRENT LIABILITIES 2,309,545 3,512,005

Deferred revenue, net of current portion 453,875 379,966
Credit line borrowing, net of debt discount 12,034,229 16,641,586
------------ ------------
TOTAL LIABILITIES 14,797,649 20,533,557
------------ ------------

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, 53,106,465 and
52,005,464 shares issued and 53,091,465 and
52,005,464 outstanding 53,106 52,005
Additional paid-in capital 61,042,103 60,764,621
Accumulated deficit (48,950,177) (51,664,395)
Less: Treasury stock; 15,000 shares (3,825) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,141,207 9,152,231
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,938,856 $ 29,685,788
------------ ------------
------------ ------------

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, 2009.


MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Six and Three Months Ended March 31, 2009 and 2008
(Unaudited)

Six Months Ended Three Months Ended
March 31, March 31,
-------------------------- --------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------

REVENUE $ 12,454,947 $ 10,880,347 $ 5,838,312 $ 5,611,908
------------ ------------ ------------ ------------

OPERATING EXPENSES
Direct costs 5,044,279 4,926,097 2,447,581 2,496,893
Sales expenses 570,126 651,995 292,066 313,655
Customer service and
operating expenses 3,005,380 2,866,779 1,448,507 1,423,156
General and
administrative
expenses 1,840,533 2,172,853 978,097 976,406
Depreciation and
amortization 3,333,968 3,178,394 1,707,333 1,623,249
(Gain) loss on
sale of customers
and property and
equipment (5,038,839) 15,841 - 15,841
------------ ------------ ------------ ------------
TOTALS 8,755,447 13,811,959 6,873,584 6,849,200
------------ ------------ ------------ ------------

OPERATING INCOME
(LOSS) 3,699,500 (2,931,612) (1,035,272) (1,237,292)

Other income
(expense)
Interest income 1,233 1,248 810 372
Interest expense (986,515) (1,020,543) (456,329) (533,679)
------------ ------------ ------------ ------------

NET INCOME (LOSS) $ 2,714,218 $ (3,950,907) $ (1,490,791) $ (1,770,599)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC EARNINGS
(LOSS) PER
COMMON SHARE $ 0.05 $ (0.08) $ (0.03) $ (0.03)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
DILUTED EARNINGS
(LOSS) PER
COMMON SHARE $ 0.05 $ (0.08) $ (0.03) $ (0.03)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
Basic 52,460,532 51,162,242 52,900,638 51,819,304
Diluted 52,460,532 51,162,242 52,900,638 51,819,304

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 sales, 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, 2008, filed on or about December 23, 2008.

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