If Only a Satellite Could Keep Wall St. at Bay, IDB Would Be All Set

Jeffrey Sudikoff made his name in the satellite telecommunications business by saying yes to practically any challenge. A broadcast link from Beijing’s Forbidden City? No problem. Ditto for a remote telecast from the deck of the USS Coral Sea, or from an MTV party somewhere on the sands of Daytona Beach, Fla.

But Sudikoff, the 34-year-old CEO of IDB Communications, may now be facing his toughest challenge: Can he keep Wall Street and his bankers off his back long enough to make IDB’s phenomenal revenue growth finally return phenomenal profits?

If he pulls it off, Sudikoff may preside over a success story similar to MCI Communications. The problem is that this is a lousy time for a young growth company to be asking any favors of Wall Street, with the market in a state of shock over the Mideast and the economy. So when Culver City-based IDB this week announced a surprise second-quarter loss of $640,000, or 10 cents a share, stockholders were alarmed.

The stock, traded over-the-counter, has fallen from $9 a week ago to $7.75 now. It had traded as high as $12.50 earlier this year, and $14.50 in 1989.

Worse, IDB expects tough going for the rest of 1990, resulting in a loss of perhaps 25 cents a share for the year, after earning 36 cents in 1989.

What’s going wrong? In part, IDB is a classic model of a fast-growing young company that just got a wake-up call: Sales suddenly aren’t coming in according to plan. IDB has to adjust.

From its founding by Sudikoff in 1983--on a shoestring--IDB has made a name for itself by providing interesting solutions to the satellite transmission needs of radio and TV programmers.

“We do the things that the big telecommunications companies can’t do effectively,” Sudikoff says simply. He calls IDB “the uncommon carrier,” essentially a service utility that figures out how to get information from point A to point B.

A live MTV transmission from a resort, for example, may not be worth AT&T;’s while. Sudikoff, a Dartmouth mathematics and English graduate, grasped such needs and saw how he could get the equipment there, get the signal to a satellite, and make millions of MTV viewers instantly happy.

Those special-event broadcasts often are only marginally profitable, but they helped IDB make its mark. And from there, Sudikoff built a business now international in scope:

* From huge teleport facilities in Los Angeles and Staten Island, N.Y., IDB controls a vast satellite transmission system sending radio, TV and data/voice signals around the globe. Customers span the gamut from professional football and baseball games to the Playboy Channel to federal agencies.

* IDB is well-known in many foreign capitals. The 1988 Reagan-Gorbachev summit in Moscow was delivered to U.S. networks via IDB.

* The firm has jumped in a big way into new ventures, such as private data transmission for major companies, and a new aeronautical satellite communications network that will allow passengers on ships and planes to easily phone anywhere.

Sudikoff’s success stems largely from his willingness to keep saying “yes” to new ideas. But IDB’s expansion, from $12 million in revenue in 1987 to an estimated $85 million this year, cost money. IDB’s long-term debt mushroomed from $8.8 million in 1987 to $101 million by year-end 1989.

As long as revenue continued to come in according to plan, IDB could breeze by. But in the second quarter, the company’s $21.8 million in revenue was $2 million short of its goal. With quarterly interest expense of $2.6 million, and increased depreciation and amortization writeoffs from recent acquisitions, it doesn’t take much of a revenue shortfall to turn black ink to red.

The culprit in the latest quarter, says IDB President Edward Cheramy, was a lack of spontaneous TV special-event business--the kind of remote news broadcasts IDB now is picking up in the Mideast, with the crisis there.

But Cheramy, 46, also concedes that other factors are affecting business. The weak economy seems to be driving TV networks “to satisfy themselves with a little less” in broadcasting, he says. They may pool their resources or send tapes rather than go with remote-equipment telecasts.

Also, while IDB’s radio business remains strong, price competition from AT&T; and MCI is making private corporate data/voice transmission a tougher game. And the aeronautical network, while holding great promise, won’t deliver until well into 1991.

Perhaps most importantly, IDB has discovered that customers aren’t just walking in the door as much as they once did. So IDB is on a hiring spree to bring new salespeople aboard. “We need to beef up sales and knock on more doors. We’ve got to shake the tree,” Cheramy says.

At the same time, he says, IDB will get serious about controlling expenses. A decision on layoffs among the firm’s 280 employees hasn’t been made, Cheramy says, but he adds that “we’re going to do what’s necessary” to restore profitability.

IDB boasts two major long-term votes of confidence: Teleglobe International of Canada, that nation’s major provider of international communications, took a 20% stake in IDB early this year. And in April, Swissair agreed to buy a 5% stake. They obviously see great potential here.

Some of IDB’s institutional shareholders frankly admit that they’re more worried. Richard Ong, analyst at McCowan Associates in New York, owns 160,000 IDB shares. “I like the people at IDB,” he says. “Jeff has a vision.” But the recent revenue shortfall left Ong wondering “if the company has just misstepped, or if the nature of the business is changing. My main concern is that it sounds like the business is getting more competitive.”

That’s why IDB must quickly restore revenue growth, start earning money again and thus keep its shareholders--and bankers--happy. For now, cash flow seems more than adequate. But the cold truth these days is that investors want to see real earnings. Cash flow doesn’t sell a stock in 1990.

If this is just a bump in the road, IDB stock, at $7.75 now, may prove to be one of the great investment opportunities of the 1990s. But admittedly, there’s no hurry here: Smart investors might want to just keep this one on their watch list--as an example of the kind of Southern California growth company the region must build its future upon.

THE IDB STORY IDB Communications’ revenue has ballooned, as the company has expanded its telecommunication services worldwide. But a heavy debt. load suddenly is taking its toll on earnings.

Stock data:

52-week high/low: $12.50-$4.75 Thursday close: $7.75. down $0.25 Shares outstanding: 6.3 million