iDirect Finds Profitable Focus

A rapier-sharp focus on providing broadband networking equipment has turned Reston, Va.-based iDirect from a money-loser into a high-growth, profitable company.

John Kealey, who became iDirect’s CEO in late 2001, arrived when the company was bloated with costs it could not support. He streamlined iDirect into a more focused company with a reduced cost structure and expanded growth opportunities.

Since Kealey’s arrival, staffing has gone from 100 to 55 employees. The workforce bottomed out at 40 immediately after Kealey’s shift in corporate strategy.

Aside from job cuts, the cash-draining communications services business operated by iDirect was sold to Herndon, Va.-based network operator Segovia. That transaction left iDirect with network equipment as its sole remaining business. The company needed sales people who could explain networking equipment to prospective customers – typically chief information officers and chief technology officers who need to have their questions answered by knowledgeable people.

To address that need, iDirect established partnerships with network operators that can sell directly to customers in particular industries, such as the oil and gas industry. The result was a quadrupling of revenues in 2002 compared with 2001, followed by what is expected to be a tripling of revenues this year over 2002. The goal for next year is to double revenues yet again, Kealey said.

In addition, iDirect became cash flow positive during the second quarter of 2003. Those internally generated funds will go toward new products as well as sales and marketing expansion, Kealey said.

The growth strategy of iDirect involves entering new markets and expanding sales in those areas where it currently does business. A key part of that process is partnering with satellite network operators to provide broadband IP services to the end-customer.

iDirect set a goal of selling equipment to 50 network operator hubs globally through various partners this year. That ambitious goal will be exceeded, Kealey said.

An example of this partnering strategy was last week’s announcement by Stratos, a satellite communications services provider, that it would buy iDirect equipment to launch a new broadband IP VSAT service called StratosITek. That service will provide next generation, all-digital global connectivity.

The Stratos system uses iDirect’s broadband IP equipment to offer satellite services for enterprise users. StratosITek supports a range of communications, including voice-over- IP (VoIP) file and database server access, Internet, video conferencing, and e-mail. The service is backed by two network operations centers in the United States and the United Kingdom that offer “around the clock” customer service.

Key selling points for satellite broadband services include the capability to provide services to wide geographic regions with easy connectivity, Kealey said.

In addition, satellite services, unlike terrestrial broadband services, can be sold for consistent prices throughout the world, he said.

At the same time, Kealey backs combining satellite and terrestrial technologies into hybrid networks. “I think that hybrid networks are the future of communications services in both wired and wireless” environments, Kealey said. “Satellite will play an important role in the wireless side of hybrid networks.”

That view is shared by a number of satellite operators that increasingly are putting together hybrid networks to provide global communications connectivity. Intelsat and PanAmSat [Nasdaq: SPOT] are two operators that are expanding their hybrid operations.

“I think what is most important to the end-consumer is that they have good communications services. ” Kealey said.

“They just want service,” added Warren Brown, iDirect’s vice president of marketing. “They want connectivity.”

Regarding a possible initial public stock offering (IPO), Kealey said he has no immediate plans to hold one. But if market conditions change, he might consider it. In the short-term, internally generated growth from iDirect’s existing business opportunities will fuel the company’s plans. “We don’t have any acquisition targets today that we think we need to pursue,” Kealey added.

Satisfied Customer

One satisfied iDirect customer is Bob Fine, director of information technology for international operations at Conservation International, a Washington-based non-profit conservation organization. Conservation International uses iDirect equipment for Internet access and VoIP services.

Conservation was drawn to iDirect about three years ago when searching for broadband networking equipment that could be easily installed. Since then, the conservation group has purchased and installed additional iDirect equipment on three occasions.

That business relationship began when iDirect was a service provider and has continued since the company reshaped its mission. Other companies now provide the services but iDirect still sells Conservation International the equipment.

From the user’s perspective, iDirect sells a “simple box,” Fine said. “It is very easy to work with and you don’t have to know a lot about satellite technology.”

Conservation International operates in 25 countries with 30-plus offices worldwide. For the last few years, the conservation group has been connecting with field offices in far-flung places that range from rain forests to developing countries where there is limited communications infrastructure.

Conservation International has used iDirect equipment in places such as Guyana and Ecuador. A new site is under development in Papua, New Guinea, but it has been delayed by licensing problems.

Conservation International’s office in Lethem, Guyana, is along the border with Brazil in a community that has a population of less than 2,000. The office, which is connected via satellite using iDirect equipment, is switching its power source to solar energy from unpredictable local electricity.

“This will be a 10-person office running on solar power and connected to the Internet via satellite,” Fine said. “Those employees in Guyana enjoy the same tools and connectivity that we have in our headquarters here in Washington.”

Industry’s Image

One of the biggest hurdles that iDirect has overcome is the unfavorable image of satellite broadband services. The current perception in the marketplace is that satellites have inferior quality, higher costs and uncertain availability, Kealey said. Certain customers also mistakenly believe that satellite broadband connectivity does not exist, he added.

“As an industry, we need to raise market awareness in some cases and change the perception of the availability, the quality and the cost-effectiveness of broadband communications over satellite,” Kealey said.

“The current perception of satellites is about five years’ old. It’s not your father’s satellite,” Brown added.

–Paul Dykewicz

(John Kealey, iDirect, 703/648-8032; Warren Brown, iDirect, 703/648-8155; Bob Fine, Conservation International, 202/912-1330)