Published: February 14, 2012
Revenue Growth Continues in MDU Communications' First Fiscal Quarter 2012 Results; Renewed Focus on Customer Care and Broadband Initiatives
MDU Communications International, Inc. (OTCBB:MDTV) -
-- First fiscal quarter 2012 revenue up 3% over first fiscal quarter 2011
to almost $7.0 million
-- Certain customer care and direct sales functions transitioned to a
national provider to enhance customer care experience, add functionality
and initiate outbound direct sales and bundling programs
-- Planned introduction of new services including enhanced broadband,
digital voice and web-based home monitoring and security services
-- Roll out of tiered bandwidth services, with up to 100 mbps, continues to
additional properties
MDU Communications International, Inc. today reports results for the period ended December 31, 2011, as well as recent events.
The Company's focus during 2012 will be to position itself more competitively within its existing 790 property base encompassing 170,000 residences, as well as within the multi-family marketplace as a whole. The Company has historically placed a higher emphasis on its lead video offerings than on certain other aspects of its business. To bring these other revenue generating opportunities into balance, the Company's focus during 2012 will be on (i) an improved and expanded customer care experience for existing and future products, and (ii) increased and tiered bandwidth along with new digital voice and monitored security products. The results of these initiatives will be measured not only in greater customer satisfaction, but in new subscribers and multi-revenue stream existing subscribers, as well as lower ongoing operating costs.
To initiate this process, the Company recently partnered with and is transitioning certain customer care functions to an award winning and experienced national provider of call center and advanced customer support services in order to improve and expand customer service capabilities. In addition to higher call center service levels, customers will now have the option to communicate with representatives via email, online chat and will have self-service portal access. Outbound sales and email will alert customers to new products and bundle pricing, as well as to survey the customer experience.
Total revenue for the quarter ended December 31, 2011 increased 3% over the same period in fiscal 2010 from $6,724,728 to $6,948,297. EBITDA (as adjusted) declined for the quarter ended December 31, 2011 to $583,011, compared to EBITDA (as adjusted) for the quarter ended December 31, 2010 of $1,028,722. Approximately one-half of the EBITDA disparity ($190,000) is due to significantly higher one-time installation and wiring service revenue generated in the quarter ended December 31, 2010, which was contributed to in part by the higher equipment subsidy DIRECTV offered in that quarter compared to the quarter ended December 31, 2011. EBITDA (as adjusted) was also negatively impacted by the above-mentioned one-time costs incurred for the customer care initiatives, costs associated with the planned transfer of properties to the DIRECTV® Connected Properties program and other costs associated with the Company's preparation and participation in the Connected Properties dealer network.
The Company's sales expense and general and administrative expense remained constant, as a percent of revenue, for the quarter ended December 31, 2011, compared to the quarter ended December 31, 2010. Direct costs increased 5% as a percent of revenue for the quarter ended December 31, 2011, compared to the quarter ended December 31, 2010, due mainly to the recent acquisition of certain DTH subscribers for which the Company bears the entire programming cost. Customer service and operating expenses, for the reasons mentioned above, increased 2% as a percent of revenue for the quarter ended December 31, 2011 compared to the quarter ended December 31, 2010. Depreciation and amortization expense decreased 6%, as a percent of revenue, between the periods. The following table provides supplemental financial information for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010:
Three Months Ended Three Months Ended
December 31, 2011 December 31, 2010
--------------------------------------------------
REVENUE $ 6,948,297 100% $ 6,724,728 100%
Direct costs 3,436,801 49% 2,973,285 44%
------------------------ ----------------------
Gross margin 3,511,496 51% 3,751,443 56%
------------------------ ----------------------
Sales expenses 391,658 5% 344,223 5%
Customer service and
operating expenses 1,638,639 24% 1,479,372 22%
General and administrative
expenses 1,099,090 16% 1,063,673 16%
------------------------ ----------------------
Operating profit, before
depreciation and one-time
gains 382,109 6% 864,175 13%
The Company continued in the first quarter of 2012 a number of previously announced initiatives designed to improve EBITDA (as adjusted) on a recurring basis. In particular, the Company (i) initiated additional price increases and introduced new pricing bundles for video and broadband services, (ii) continued to roll out additional premium priced broadband services and tiers to several other of its high-speed Internet properties, (iii) negotiated further reductions/replacements for broadband circuits and forged new business relationships, and (iv) 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). These initiatives, in addition to (i) elimination of the one-time charges related to the call center transition, and (ii) actions to increase the margins in the recently acquired properties, should return the Company to higher EBITDA (as adjusted) levels.
The Company's average revenue per unit ("ARPU") at December 31, 2011 was $29.87, almost identical to the year ended September 30, 2011 ARPU of $29.88. ARPU is calculated by dividing average monthly revenues for the period (total revenues during the period divided by the number of months in the period) by average subscribers for the period. The average subscribers for the period is calculated by adding the number of subscribers as of the beginning of the period and for each quarter end in the current year or period and dividing by the sum of the number of quarters in the period plus one. 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 tiered bandwidth to the Company's broadband subscribers, and (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 programming. The continued advertising campaign by DIRECTV for new HD programming and associated services continue to provide visibility, incremental revenue and improved penetration rates within Company properties.
To support its growing video and broadband market in the South Central market, the Company recently launched a regional office in the Dallas / Fort Worth area. The Company has grown from only a handful of properties in this regional market three years ago to 147 properties with 9,370 subscribers in 34,263 residences at present. The Company now has regional offices in the greater metropolitan New York, Washington, DC, Chicago, Miami and Dallas markets.
The Company reports 76,284 subscribers to its services as of December 31, 2011, a 3% decrease in its subscriber base from December 31, 2010 and 3% decrease from the previous quarter ended September 30, 2011. A significant portion of the decrease is due to the Company making a recent one-time adjustment to its subscriber base by approximately 1,350 to reflect DIRECTV's re-categorization of certain delinquent and inactive pay DTH subscribers. Although some of these subscribers will return as subscribers when fully paid, the Company has taken a conservative approach by completely eliminating them from its subscriber base. In addition, the subscriber base decreased slightly due to a decision by the Company to not renew several low margin private cable bulk properties because of the uneconomical cost to upgrade to digital services. The Company has been focused on the conversion of properties to digital bulk DTH services and plans to convert as many as five properties, encompassing approximately 1,000 subscribers, to this service type in the current quarter. During the quarter ended December 31, 2011, the Company had 24 properties and 7,016 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 as of December 31, 2011 is outlined below:
Subscribers Subscribers Subscribers Subscribers Subscribers
as of Dec. as of Mar. as of June as of Sept. as of Dec.
Service Type 31, 2010 31, 2011 30, 2011 30, 2011 31, 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bulk DTH 16,489 16,943 20,328 20,272 20,491
Bulk BCA 10,418 10,621 10,403 9,880 9,880
DTH
-Choice/Exclusive 21,323 21,246 22,577 22,541 20,527
Bulk Private
Cable 15,166 13,174 13,125 13,125 12,188
Private Cable
Choice/
Exclusive 4,081 3,665 2,669 2,351 2,782
Bulk ISP 5,508 5,887 5,887 5,576 5,363
ISP Choice or
Exclusive 5,534 5,356 4,818 4,966 5,034
Voice 26 22 18 14 19
----------------------------------------------------------------------------
Total
Subscribers 78,545 76,914 79,825 78,725 76,284
------------------------------------------------------------
------------------------------------------------------------
The Company experienced a reduction in new subscriber activations in certain types of its DIRECTV choice and exclusive DTH properties due to the recent credit policy instituted by DIRECTV. This credit policy change only affects DTH choice/exclusive type business and does not affect the Company's bulk DTH, BCA, private cable or ISP service type business. The Company is currently monitoring the effect, but it appears some potential DIRECTV customers in Company-serviced DTH choice/exclusive multi-family properties that contact the Company for service are not qualifying for DIRECTV national offers and discounts because of the heightened DIRECTV credit policy. The Company is working with these potential subscribers to provide an economical installation without the DIRECTV national offer, however, in some instances the increased upfront costs are prohibitive to some who would otherwise become subscribers. The Company's decision to expand its customer care and direct sales capabilities will also enable it to better manage lengthened sales calls due to the new credit policies and more effectively sell the benefits of the service absent the national offer, while at the same time proactively soliciting potential customers for incremental services.
On January 12, 2012, the Company received notice that DIRECTV was terminating the previously disclosed October 11, 2011 MDU Referral and Right of Entry ("ROE") Acquisition Agreement associated with the DIRECTV Connected Properties program. The Company planned to participate in this program as a dealer obtaining new DTH choice ROE agreements on behalf of DIRECTV, and in reliance, the Company incurred one-time costs. The Company will continue to solicit DTH choice ROE agreements on its own, and, as has been the case for some time now, the Company will continue to charge property owners for installation services to offset the capital costs associated with these types of deployments. The Company is in active discussions and negotiations with several new properties regarding DIRECTV bulk and exclusive property deployments.
As previously announced, the Company had anticipated transferring or selling a potentially significant portion of its DTH choice subscriber business to the Connected Properties program. So far, in the quarter ending March 31, 2012, the Company will be transferring four of its DTH choice properties, encompassing approximately 1,400 units and 100 choice subscribers, for anticipated total proceeds of approximately $250,000. At this point, it is uncertain as to whether future DTH choice property transfers to the Connected Properties program will take place, although the parties remain in discussions.
The Company continues negotiations with several companies that it deems significant strategic acquisition/merger prospects. To assist the Company in assessing its strategic plans, the Company has retained the investment advisory firm of Berkery, Noyes & Co. The Company makes no representations that these acquisition/merger and/or any financing negotiations will result in any closed transactions. The Company continues to assess its core and non-core service areas and has identified certain assets in non-core markets that are being considered for sale. To that end, the Company is 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 sale negotiations will result in any closed transactions.
The Company expects to file its quarterly report on Form 10-Q for the three months ended December 31, 2011 with the Securities and Exchange Commission on February 14, 2012. 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,
----------------------------------
2011 2010
----------------------------------
EBITDA (as adjusted) $ 583,011 $ 1,028,722
Interest expense (777,646) (638,258)
Deferred finance costs and debt discount
amortization (interest expense) (96,816) (84,315)
Provision for doubtful accounts (145,006) (135,177)
Depreciation and amortization (1,550,772) (1,865,272)
Share-based compensation expense -
employees (15,347) (12,189)
Compensation expense for issuance of
common stock through Employee Stock
Purchase Plan - (746)
Compensation expense for issuance of
restricted common stock for services
rendered (34,864) -
----------------------------------
Net Loss $ (2,037,440) $ (1,707,235)
----------------------------------
----------------------------------
MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
December 31, 2011 (Unaudited) and September 30, 2011
December 31, September 30,
2011 2011
--------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 327,442 $ 84,747
Accounts and other receivables, net of
an allowance of $1,535,282 and
$1,390,686 1,549,213 1,780,362
Prepaid expenses and deposits 250,164 613,314
--------------------------------------
TOTAL CURRENT ASSETS 2,126,819 2,478,423
Telecommunications equipment inventory 575,510 554,515
Property and equipment, net of
accumulated depreciation of
$34,238,213 and $32,941,454 19,039,231 19,867,246
Intangible assets, net of accumulated
amortization of $8,356,989 and
$8,212,000 1,863,063 2,024,451
Deposits, net of current portion 69,559 67,214
Deferred finance costs, net of
accumulated amortization of
$1,333,994 and $1,248,252 239,454 275,197
--------------------------------------
TOTAL ASSETS $ 23,913,636 $ 25,267,046
--------------------------------------
--------------------------------------
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 2,389,061 $ 2,511,776
Other accrued liabilities 816,695 1,240,756
Current portion of deferred revenue 821,913 815,514
--------------------------------------
TOTAL CURRENT LIABILITIES 4,027,669 4,568,046
Deferred revenue, net of current
portion 62,265 87,788
Credit line borrowing, net of debt
discount 28,319,816 27,138,457
--------------------------------------
TOTAL LIABILITIES 32,409,750 31,794,291
--------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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,
5,529,201 and 5,503,111 shares issued
and 5,511,759 and 5,485,669
outstanding 5,530 5,504
Additional paid-in capital 61,912,234 61,843,689
Accumulated deficit (70,345,554) (68,308,114)
Less: Treasury stock; 17,442 shares (68,324) (68,324)
--------------------------------------
TOTAL STOCKHOLDERS' DEFICIENCY (8,496,114) (6,527,245)
--------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 23,913,636 $ 25,267,046
--------------------------------------
--------------------------------------
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, 2011
MDU COMMUNICATIONS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations
Three Months Ended December 31, 2011 and 2010
(Unaudited)
Three Months Ended December 31,
--------------------------------------
2011 2010
--------------------------------------
REVENUE $ 6,948,297 $ 6,724,728
--------------------------------------
OPERATING EXPENSES
Direct costs 3,436,801 2,973,285
Sales expenses 391,658 344,223
Customer service and operating
expenses 1,638,639 1,479,372
General and administrative expenses 1,099,090 1,063,673
Depreciation and amortization 1,550,772 1,865,272
Gain on sale of customers and plant
and equipment (5,685) (16,416)
--------------------------------------
TOTALS 8,111,275 7,709,409
--------------------------------------
OPERATING LOSS (1,162,978) (984,681)
Other income (expense)
Interest income - 19
Interest expense (874,462) (722,573)
--------------------------------------
NET LOSS $ (2,037,440) $ (1,707,235)
--------------------------------------
--------------------------------------
BASIC AND DILUTED LOSS PER COMMON
SHARE $ (0.37) $ (0.32)
--------------------------------------
--------------------------------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,500,291 5,379,897
--------------------------------------
--------------------------------------
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, 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 DIRECTVa 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, 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, 2011, filed on or about December 23, 2011.
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