MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

August 11, 2011 09:30 ET

MDU Communications' Third Fiscal Quarter 2011 Results Reflect Continued Revenue, EBITDA and Subscriber Growth

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

  • Third fiscal quarter 2011 recurring revenue up 6%, nine month year-to-date up 9%
  • Third fiscal quarter 2011 EBITDA up 37%, nine month year-to-date up 127%
  • Providing services to now over 800 multi-family properties with 175,000 residences and 79,825 subscribers
  • Execution of authorized contractor agreement to support DIRECTV Connected Properties™

MDU Communications International, Inc. today reports results for the period ended June 30, 2011. Total revenue for the nine months ended June 30, 2011 increased 5% over the same period in the prior fiscal year from $19,274,086 to $20,254,067. "Recurring" revenue between the nine month periods increased by 9% taking into account $708,650 in non-recurring HD upgrade subsidy included in the nine months ended June 30, 2010 revenue, with $0 in the nine months ended June 30, 2011. Revenue for the three month period ended June 30, 2011 was up 2%, compared to the same period in fiscal 2010, with "recurring" revenue up 6%.

The increase in revenue contributed to EBITDA (as adjusted) of $2,919,334 for the nine month period ended June 30, 2011, compared to EBITDA (as adjusted) of $1,288,388 for the nine month period ended June 30, 2010. EBITDA (as adjusted) for the three month period ended June 30, 2011 was up 38% from the three month period ended June 30, 2010. The Company expects EBITDA (as adjusted) to continue to improve during the remainder of fiscal 2011 as (i) subscribers acquired at the end of the third fiscal quarter begin fully contributing to revenue, (ii) subscribers are added through organic growth and in recently acquired properties, (iii) direct costs from recent acquisitions continue to normalize, and (iv) previous revenue generating and cost-reduction measures produce continued results.

The Company's continued emphasis on controlling expenses resulted in lower, as a percent of revenue, direct costs (2%), sales expenses (3%), customer service expenses (>1%), and general and administrative expenses (1%) for the nine months ended June 30, 2011, compared to the nine months ended June 30, 2010. Collectively, these operating expenses also decreased slightly in dollars for the nine month period ended June 30, 2011, compared to the nine months ended June 30, 2010. 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 nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010:

Nine Months Ended
June 30, 2011
Nine Months Ended
June 30, 2010
Revenue $ 20,254,067 - $ 19,274,086 -
Upgrade subsidy 0 - 708,650 -
Revenue, net of upgrade subsidy 20,254,067 100 % 18,565,436 100 %
Direct costs 9,099,461 45 % 8,996,252 49 %
Gross margin, net of upgrade subsidy 11,154,606 55 % 9,569,184 51 %
Expenses (sales, operations, G&A) 8,893,682 44 % 9,327,163 50 %
Operating profit, before depreciation $ 2,260,924 11 % $ 242,021 1 %

As of June 30, 2011, the Company provided services to over 800 multi-family properties passing over 175,000 residences and reports 79,825 subscribers to its services. This represents an increase in its subscriber base of 5% from June 30, 2010, however, the Company experienced approximately 1,000 seasonal disconnects during the quarter (that the Company expects will seasonally re-connect), which, exclusive of such, would have increased subscriber growth by 6.5%. As of June 30, 2011, the Company had 20 properties and 6,197 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 Type
Subscribers as of June 30, 2010 Subscribers as of Sept. 30, 2010 Subscribers as of Dec. 31, 2010 Subscribers as of Mar. 31, 2011 Subscribers as of June 30, 2011
Bulk DTH –DIRECTV 15,784 16,143 16,489 16,943 20,328
Bulk BCA -DIRECTV 10,319 10,339 10,418 10,621 10,403
DTH -DIRECTV Choice/Exclusive 17,032 17,477 21,323 21,246 22,577
Bulk Private Cable 17,824 16,112 15,166 13,174 13,125
Private Cable Choice/ Exclusive 3,141 3,010 4,081 3,665 2,669
Bulk ISP 6,102 6,121 5,508 5,887 5,887
ISP Choice or Exclusive 5,689 5,484 5,534 5,356 4,818
Voice 25 26 26 22 18
Total Subscribers 75,916 74,712 78,545 76,914 79,825

The Company's average revenue per unit ("ARPU") at June 30, 2011 was $29.04, a 3% 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) the additional subscribers acquired at the end of the fiscal quarter, (ii) an increasing DIRECTV ARPU (the average revenue generated by a DIRECTV subscriber was up 3.9% for DIRECTV's first fiscal quarter to $88.79 (as disclosed in DIRECTV's public filings), (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 in the third fiscal quarter of 2011 a number of previously announced initiatives which began in 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) continued negotiating direct cost reductions for broadband circuits, and (v) continued to push its "Customer Protection Plan" fee requiring annual pre-payment or monthly auto-payment (eliminating time and costs and reducing bad debt exposure). Due to these and prior initiatives, the Company has achieved continued significant growth in EBITDA (as adjusted).

The Company expanded its relationship with DIRECTV in fiscal 2011. As previously announced, to reduce capital spending, but still concentrate on growth, the Company executed the DIRECTV CapEx Agreement that will allow the Company to leverage its existing infrastructure to provide DIRECTV with deployment services to certain multi-family properties identified by the Company, but where DIRECTV becomes a 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. The CapEx Agreement effectively reduces the Company's capital costs for subscriber growth.

During the current fourth fiscal quarter, the Company entered into a Construction Contractor Agreement with DIRECTV for it to be an authorized contractor to provide DIRECTV with system design and construction services to support DIRECTV's multi-family Connected Properties™ program. The Company anticipates earning revenues from this new business initiative beginning in the current quarter and will utilize existing resources to fulfill project requirements. In further support of the DIRECTV Connected Properties program, the Company plans to transfer certain assets in 17 of its current "choice" properties, comprising 4,000 residences, to Connected Properties during the current fiscal quarter, with additional transfers being discussed. The extent of any future transfer initiative, to which the Company makes no representation as to its likelihood, may facilitate the Company's ability to (i) concentrate on "exclusive" and "bulk" video and broadband service offerings, (ii) reduce expenses as servicing "choice" properties is more costly to the Company than servicing its bulk and exclusive properties and subscribers, and (iii) launch a new sales, design and construction division to augment its existing business by leveraging the Company's expertise to sell and deploy "choice" properties for the DIRECTV Connected Properties program.

The Company continues negotiations with several companies that it deems significant strategic acquisition/merger prospects. Two of these companies have a significant presence in the multi-family market and collectively have in excess of 70,000 subscribers (in mostly bulk or exclusive properties) 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 and term extension to its existing Credit Facility to accommodate asset acquisitions, should terms be reached. The Company makes no representations that these acquisition/merger or financing negotiations will result in any closed transactions.

The Company expects to file its quarterly report on Form 10-Q for the nine months ended June 30, 2011 with the Securities and Exchange Commission on August 12, 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

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,
2011 2010 2011 2010
EBITDA $ 2,919,334 $ 1,288,388 $ 888,016 $ 645,284
Interest Expense (1,942,432 ) (1,567,163 ) (669,568 ) (578,405 )
Deferred finance costs and debt discount amortization (interest expense) (261,279 ) (236,280 ) (92,649 ) (84,317 )
Provision for doubtful accounts (349,934 ) (243,470 ) (140,975 ) (96,987 )
Depreciation and Amortization (5,665,545 ) (5,262,507 ) (1,923,371 ) (1,823,120 )
Share-based compensation expense - employees (38,784 ) (41,426 ) (16,097 ) (14,457 )
Compensation expense for issuance of common stock through employee stock purchase plan (28,930 ) (24,481 ) (10,608 ) (624 )
Compensation expense for issuance of common stock for employee bonuses (31,767 ) (31,767 )
Compensation expense for issuance of common stock for employee wages (59,790 ) (28,970 )
Compensation expense accrued to be settled through the issuance of common stock 60,737
Compensation expense through the issuance of restricted common stock for services rendered (88,770 ) (28,000 ) (88,770 ) (4,000 )
Net Loss $ (5,547,897 ) $ (6,114,939 ) $ (2,054,022 ) $ (1,956,626 )
Condensed Consolidated Balance Sheets
June 30, 2011 (Unaudited) and September 30, 2010 (See Note 1)
June 30, September 30,
2011 2010
Cash and cash equivalents $ 120,309 $ 324,524
Accounts and other receivables, net of an allowance of $1,286,987 and $913,786 1,751,886 1,470,401
Prepaid expenses and deposits 675,753 645,719
TOTAL CURRENT ASSETS 2,547,948 2,440,644
Telecommunications equipment inventory 632,029 843,082
Property and equipment, net of accumulated depreciation of $32,079,959 and $28,240,886 20,746,118 22,696,096
Intangible assets, net of accumulated amortization of $8,161,343 and $7,417,568 2,198,051 2,470,875
Deposits, net of current portion 67,530 64,450
Deferred finance costs, net of accumulated amortization of $1,162,510 and $934,449 310,939 339,000
TOTAL ASSETS $ 26,502,615 $ 28,854,147
Accounts payable $ 3,191,112 $ 2,698,920
Other accrued liabilities 1,074,709 1,793,951
Current portion of deferred revenue 972,709 661,903
Deferred revenue, net of current portion 112,673 186,021
Credit line borrowing, net of debt discount 25,885,945 23,060,026
TOTAL LIABILITIES 31,237,148 28,400,821
Preferred stock, par value $0.001; 5,000,000 shares authorized, none issued
Common stock, par value $0.001; 35,000,000 shares authorized, 5,503,111 and 5,395,886 shares issued and 5,485,669 and 5,378,444 outstanding 5,504 5,396
Additional paid-in capital 61,827,388 61,467,458
Accumulated deficit (66,499,101 ) (60,951,204 )
Less: Treasury stock; 17,442 shares (68,324 ) (68,324 )
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, 2011.
Condensed Consolidated Statements of Operations
Nine and Three Months Ended June 30, 2011 and 2010
Nine Months Ended June 30, Three Months Ended June 30,
2011 2010 2011 2010
REVENUE $ 20,254,067 $ 19,274,086 $ 6,815,207 $ 6,664,388
Direct costs 9,099,461 8,996,252 3,130,141 3,074,319
Sales expenses 1,084,501 1,606,660 363,603 560,343
Customer service and operating expenses 4,432,407 4,327,791 1,479,022 1,349,047
General and administrative expenses 3,376,774 3,392,712 1,210,875 1,151,598
Depreciation and amortization 5,665,545 5,262,507 1,923,371 1,823,120
Gain on sale of customers and property and equipment (60,416 )
TOTALS 23,598,272 23,585,922 8,107,012 7,958,427
OPERATING LOSS (3,344,205 ) (4,311,836 ) (1,291,805 ) (1,294,039 )
Other income (expense)
Interest income 19 340 135
Interest expense (2,203,711 ) (1,803,443 ) (762,217 ) (662,722 )
NET LOSS $ (5,547,897 ) $ (6,114,939 ) $ (2,054,022 ) $ (1,956,626 )
BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.02 ) $ (1.14 ) $ (0.37 ) $ (0.36 )
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,420,287 5,360,875 5,480,359 5,377,904
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, 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(R) 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 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, 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, 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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