Versant (NASDAQ:VSNT) develops high-end database software for Global 2000 companies like Ericsson (NASDAQ:ERICY) and Verizon (NYSE:VZ). But despite having more than 50,000 software installations, the company has been a big money-loser. While this week's earnings report brought signs of a turnaround, the question remains whether Versant can keep that momentum going.
Over the past year, Versant's management has pursued a major restructuring, with apparent success. First-quarter revenues from this small company (market cap: $23.7 million) increased 18% to $3.8 million. During this time, net income went from a loss of $1.1 million, or -$0.30 per share, to a gain of $1.2 million, or $0.32 per share. Cash flow from operations checked in at $1.4 million, and there is now about $5.9 million in the bank.
Versant is a leader in so-called object-oriented database software, which can address tough problems such as managing massive amounts of data in real time. A big chunk of Versant's business comes from the telecom industry, where its software assists with network modeling, fraud prevention, service activation, and customer billing.
A big part of management's restructuring plan has been to sell off assets, enabling Versant to focus solely on its database business. To this end, the company sold its WebSphere consulting practice in February, and spun off its Open Access .NET business last July.
In fact, there are some signs that the market for object-oriented databases is expanding. For example, the rapidly growing online gaming industry has complex database requirements.
Unfortunately, however, Versant is not the only company with high-end databases. Its competitors include the mighty Oracle (NASDAQ:ORCL) as well as Progress Software (NASDAQ:PRGS), which suggests that this small firm has its work cut out for it.
While Versant has upped its guidance -- net income is expected to be between $2.6 million to $2.9 million for fiscal 2006 -- it's still a tiny player in a pint-sized market. If the stock price improves, the company could raise money in a private placement and devote more resources to growing its business. But until then, it's hard to see Versant becoming the next hot stock.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
