MDU Communications International, Inc.
OTC Bulletin Board : MDTV

MDU Communications International, Inc.

February 10, 2011 09:02 ET

Subscriber Base, Recurring Revenue and EBITDA All Show Double Digit Growth During MDU Communications' First Fiscal Quarter 2011

TOTOWA, NEW JERSEY--(Marketwire - Feb. 10, 2011) - MDU Communications International, Inc. (OTCBB:MDTV) -

  • Preliminary first fiscal quarter recurring revenue up 13% over the quarter ended December 31, 2009
  • Preliminary first fiscal quarter EBITDA (as adjusted) of $1.03M up 123% over the quarter ended December 31, 2009
  • Preliminary cash from operations of $1.28M during the first fiscal quarter funded capital expenditures, interest payments and reduced Credit Facility
  • Total subscriber base up 11% over the quarter ended December 31, 2009; 3,833 net subscribers added during the first fiscal quarter

MDU Communications International, Inc. today reports preliminary results for its first fiscal quarter ended December 31, 2010. Total preliminary revenue for the quarter ended December 31, 2010 increased 5% over the same period in fiscal 2009 from $6,413,866 to $6,724,728. Preliminary "recurring" revenue between the quarters increased by 13%, taking into account $458,000 in non-recurring HD upgrade subsidy being included in the quarter ended December 31, 2009 revenue and $0 in the quarter ended December 31, 2010. The increase in revenue contributed to preliminary EBITDA (as adjusted) of $1,028,722 for the quarter ended December 31, 2010, compared to EBITDA (as adjusted) of $461,328 for the quarter ended December 31, 2009, an increase of 123%. The Company expects EBITDA (as adjusted) to continue to improve during fiscal 2011 as (i) it adds subscribers through organic growth and in recently acquired properties, (ii) direct costs from recent acquisitions continue to normalize, and (iii) previous revenue generating and cost-reduction measures continue to take hold.

The Company also experienced a reduction, preliminarily, as a percent of revenue, in direct costs, sales expenses, customer service and operating expenses, and general and administrative expense for the quarter ended December 31, 2010 compared to the quarter ended December 31, 2009. In terms of dollars during that same period, direct costs increased 3%, sales and marketing expenses decreased 35%, customer service and operating expenses decreased less than 1%, and general and administrative expenses decreased 10%. The fact that the Company's expenses were collectively lower in dollars and as a percent of revenue, while servicing a substantially increased subscriber base, is evidence of the incremental financial benefit realized from new subscriber growth and scale. The following table provides preliminary supplemental financial information that excludes the financial impact of the non-recurring HD upgrade subsidy on revenue, direct costs and operating expenses for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009:

  Three Months Ended December 31, 2010 Three Months Ended December 31, 2009
Revenue $ 6,724,728   $ 6,413,866  
Upgrade subsidy 0   458,000  
Revenue, net of upgrade subsidy 6,724,728 100% 5,955,866 100%
Direct costs 2,973,285 44% 2,889,859 49%
Gross margin, net of upgrade subsidy 3,751,443 56% 3,066,077 52%
Expenses (sales, operations, G&A) 2,887,268 43% 3,186,611 54%
Net operating profit (loss), before depreciation $ 864,175 13% $ (120,604) -2%

Due to increasing revenues and decreasing expenses, the Company preliminarily recognized cash from operations for the three months ended December 31, 2010 of $1,277,422, which was used to fund capital projects, interest expense and $107,875 was used to reduce the Company's outstanding Credit Facility.

The Company reports 78,545 subscribers to its services as of December 31, 2010, an 11% increase in its subscriber base from December 31, 2009 and 5% from the previous quarter ended September 30, 2010. During the quarter ended December 31, 2010, the Company concluded the multi-closing acquisition of subscribers under the December 2, 2009 agreement with AT&T Video Services, Inc. ("ATTVS"), with 618 remaining subscribers transitioned to the Company on January 26, 2011. Additionally, during the quarter ended December 31, 2010, the Company had 33 properties and 8,721 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 12/31/09 Subscribers as of 3/31/10 Subscribers as of 6/30/10 Subscribers as of 9/30/10 Subscribers as of 12/31/10
Bulk DTH –DIRECTV 15,273 15,545 15,784 16,143 16,489
Bulk BCA -DIRECTV 10,128 10,289 10,319 10,339 10,418
DTH -DIRECTV Choice/Exclusive 14,086 15,601 17,032 17,477 21,323
Bulk Private Cable 15,503 17,813 17,824 16,112 15,166
Private Cable Choice/ Exclusive 4,077 4,268 3,141 3,010 4,081
Bulk ISP 5,785 5,878 6,102 6,121 5,508
ISP Choice or Exclusive 6,047 6,142 5,689 5,484 5,534
Voice 41 27 25 26 26
Total Subscribers 70,940 75,563 75,916 74,712 78,545

The Company's preliminary average revenue per unit ("ARPU") at December 31, 2010 was $29.25, a 2% decrease over the year ended September 30, 2010 of $29.82, due mainly to the difference in non-recurring HD upgrade subsidy between the periods. The Company believes that its recurring revenue and ARPU will be positively impacted by (i) an increasing DIRECTV ARPU (the average revenue generated by a DIRECTV subscriber was up 4.3% in DIRECTV's third fiscal quarter to $88.98 (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, (iii) a general increase in recurring revenue realized from 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.

The Company implemented a number of initiatives that began to take hold during the first fiscal quarter ended December 31, 2010 designed to improve EBITDA (as adjusted) and reduce reliance on debt financing. In particular, the Company (i) accelerated the closing and transition of the remaining ATTVS properties, (ii) signed and launched the DIRECTV CapEx program (described below), (iii) initiated price increases and introduced new pricing bundles for video and broadband services across multiple properties, (iv) developed and launched its new online web portal for subscribers to manage and pay their accounts online thereby eliminating the costs associated with mailings and collections, (v) developed and launched robust premium priced broadband services and tiers to several of its high-speed Internet properties, (vi) negotiated direct cost reductions for video and broadband services thereby improving gross margins derived from existing properties and subscribers, (vii) re-packaged its monthly video subscriber access fee into a "Customer Protection Plan" fee requiring annual pre-payment or monthly auto-payment (eliminating time and costs and reducing bad debt exposure), (viii) implemented a $0.99 monthly mailed statement fee to increase revenues from approximately 35,000 current subscribers, (ix) developed an independent contractor national rate card for subcontracted construction and installation services at a significant cost savings, and (x) instituted cost-saving changes (and service level increases) to its call center structure and technology to provide more efficient and cost-effective call routing solutions. 

To reduce capital spending, but still concentrate on growth, on November 10, 2010 the Company executed the DIRECTV CapEx Agreement, which allows the Company to leverage its existing infrastructure to provide services to DIRECTV for the deployment of services to certain multi-family properties identified by the Company, but where DIRECTV (instead of the Company) becomes the 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, including (i) activation fees generated from new subscription sales to residents in the property, and (ii) an ongoing percentage of the revenue generated by that subscriber as a management fee. The CapEx Agreement reduces the Company's capital costs for certain subscriber growth areas – a pivotal option when capital, or the cost of capital, is prohibitive. The Company's current DIRECTV System Operator Agreement and the new CapEx Agreement are mutually exclusive of each other. Prior to offering a property to DIRECTV, the Company retains sole discretion as to whether it decides to build out and maintain ownership of a property or simply provide ongoing management, sales, service and maintenance for DIRECTV. The Company currently has 10 properties pending under this program.

In addition to improving financial results, the Company is continuing negotiations and due diligence with two companies that it deems significant strategic acquisition/merger prospects. Both companies have a significant presence in the multi-family space and collectively have in excess of 70,000 subscribers as well as strong broadband capabilities. To assist with strategic planning and the potential financing associated with any acquisition or merger, the Company has retained and sought the advice of New York investment bank Morgan Joseph & Co. Through the efforts of Morgan Joseph & Co., the Company has 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. Similarly, the Company continues to assess its core and non-core service areas and has identified certain assets in non-core markets that may be considered for sale. To that end, the Company is preliminarily engaged with several parties regarding interest for the sale of these assets at prices similar to what the Company has previously received. The Company makes no representations that these acquisition/merger, financing or sale negotiations will result in any closed transactions. 

At the Company's 2010 Annual General Meeting, the stockholders authorized the Board of Directors to effect a reverse stock split, at a ratio to be determined by the Board of Directors, within a range from 1-for-5 to 1-for-10, and to reduce the current authorized number of shares of common stock from 70 million shares to 35 million shares. The Board of Directors proceeded with this authorization effective December 9, 2010 and the Company's stock began trading on a 1-for-10 basis on December 14, 2010.

The Company expects to file its quarterly report on Form 10-Q for the three months ended December 31, 2010 with the Securities and Exchange Commission on or before February 14, 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 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 Three Months Ended December 31,
  2010 2009
EBITDA $ 1,028,722 $ 461,328
Interest expense (638,258) (472,520)
Deferred finance costs and debt discount amortization (interest expense) (84,315) (71,815)
Provision for doubtful accounts (135,177) (99,265)
Depreciation and amortization (1,865,272) (1,680,270)
Share-based compensation expense - employees (12,189) (12,512)
Compensation expense for issuance of common stock through Employee Stock Purchase Plan (746)
Compensation expense through the issuance of restricted common stock for services rendered (12,000)
Net Loss $ (1,707,235) $ (1,887,054)

MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
December 31, 2010 (Unaudited) and September 30, 2010 (See Note 1)

  December 31, September 30,
2010 2010
ASSETS    
CURRENT ASSETS    
Cash and cash equivalents $ 106,458 $ 324,524
Accounts and other receivables, net of an allowance of $1,032,338 and $913,786 1,609,834 1,470,401
Prepaid expenses and deposits 532,015 645,719
TOTAL CURRENT ASSETS 2,248,307 2,440,644
     
Telecommunications equipment inventory 748,432 843,082
Property and equipment, net of accumulated depreciation of $29,343,399 and $28,240,886 22,244,399 22,696,096
Intangible assets, net of accumulated amortization of $7,706,039 and $7,417,568 2,503,534 2,470,875
Deposits, net of current portion 64,500 64,450
Deferred finance costs, net of accumulated amortization of $1,007,692 and $934,449 315,757 339,000
TOTAL ASSETS $ 28,124,929 $ 28,854,147
     
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)    
CURRENT LIABILITIES    
Accounts payable $ 3,313,405 $ 2,698,920
Other accrued liabilities 1,704,023 1,793,951
Current portion of deferred revenue 1,219,036 661,903
TOTAL CURRENT LIABILITIES 6,236,464 5,154,774
     
Deferred revenue, net of current portion 161,741 186,021
Credit line borrowing, net of debt discount 22,963,223 23,060,026
TOTAL LIABILITIES 29,361,428 28,400,821
     
COMMITMENTS AND CONTINGENCIES    
     
STOCKHOLDERS' EQUITY (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, 5,397,582 and 5,395,717 shares issued and 5,380,140 and 5,378,275 outstanding 5,398 5,396
Additional paid-in capital 61,484,866 61,467,458
Accumulated deficit   (62,658,439)    (60,951,204)
Less: Treasury stock; 17,442 shares          (68,324)           (68,324)
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)     (1,236,499) 453,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 28,124,929 $ 28,854,147

See notes to the unaudited condensed consolidated financial statements contained in the Company's
 Quarterly Report on Form 10-Q for the period ended December 31, 2010

MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Three Months Ended December 31, 2010 and 2009
(Unaudited)

  Three Months Ended December 31,
  2010 2009
REVENUE $ 6,724,728 $ 6,413,866
     
OPERATING EXPENSES    
Direct costs 2,973,285 2,889,859
Sales expenses 344,223 525,941
Customer service and operating expenses 1,479,372 1,480,089
General and administrative expenses 1,063,673 1,180,581
Depreciation and amortization 1,865,272 1,680,270
Gain on sale of customers and plant and equipment (16,416)
TOTALS 7,709,409 7,756,740
     
OPERATING LOSS (984,681) (1,342,874)
     
Other income (expense)    
Interest income 19 155
Interest expense (722,573) (544,335)
NET LOSS $ (1,707,235) $ (1,887,054)
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.32) $ (0.35)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,379,897 5,332,288

See notes to the unaudited condensed consolidated financial statements contained in the Company's Quarterly Report on Form 10-Q for the period ended December 31, 2010

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, acquisitions, 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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