Vignette's Recovery Heats UpVignette's Recovery Heats Up

Vignette Corp.'s recovery accelerated during the just-completed second quarter, setting up the portal and content-management software maker to make good on its promise of a return to profitability in the third quarter. But based on the company's guidance for the coming quarter, it will take some unforeseen growth in licensing revenue to make that happen.

Despite the company's cautious expectations for the third quarter--flat license revenue and a slight drop in service revenue, leading to a loss of 1 or 2 cents a share--it was clear during a conference call with analysts Tuesday that Vignette execs are pleased with the vendor's improving performance. CEO Thomas Hogan said that if the company can generate even modest growth in licensing revenue, profitability for the current quarter is within reach. "We've made great progress," Hogan said. "We've got the right product strategy, and we're in the right market." Vignette has transitioned over the past couple of years from a focus on Web-content-management applications to a specialist in software for building portals designed to expose applications over the Web.

The biggest obstacle to Vignette's reaching profitability seems to be the dearth of big deals being signed by software buyers. Hogan said the company has seen more customer scrutiny of seven-figure deals than at any time in the past two years. "The environment for large deals is tough," he said. "I don't expect that environment to loosen up in the next quarter or two."

In the meantime, Vignette's results provided a welcome surprise. For the quarter ended June 30, Vignette reported a loss of $867,000 on revenue of $40.3 million, compared with a loss of $19.9 million on revenue of $35.6 million a year earlier. The numbers were also a sharp improvement from the first quarter, when Vignette lost $7.5 million on revenue of $40.8 million. Licensing and service revenue both rose during the second quarter, with licensing up to $15.0 million from $12.6 million last year, while service revenue rose to $25.4 million from $23.0 million.