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QAD results hint at tech sector rebound
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Pacific Coast Business Times Staff Author
By Pacific Coast Business Times Staff Monday, December 7th, 2009
QAD, the Santa Barbara-based maker of enterprise software, has turned in a strong performance for its third quarter ended Oct. 31, signaling early signs of a turnaround for an important business segment in the region.
QAD's shares hit a 52-week high on the Nasdaq after it reported Nov. 24 that it had earned 13 cents per share on revenue of $57 million, with profits coming in far better than the 3 cents analysts had predicted. It also spoke optimistically about signing up new customers and seeing positive trends for future sales.
In a subsequent conference call, Chief Executive Officer Karl Lopker was cautious in his comments about the future, saying "we don't think we are yet out of the woods, but we are seeing some daylight."
But the surge in profits at QAD and signs that the revenue picture is brightening could be a harbinger of better times in the technology sector, particularly in the Santa Barbara area, said economist Bill Watkins of California Lutheran University.
Even though QAD, which employs about 1,400 worldwide, has cut its workforce by 17 percent in the past year and promises tight cost controls going forward, more contracts could eventually mean more jobs, he added.
"The South Coast is a small enough area that there could be an impact. Software and support take talented people," Watkins said. Indeed, the South Coast has a cluster of software companies including remote-access software leader Citrix Online and operating systems designer Green Hills, but Jason Spivak, CEO of two-year-old RingRevenue, a smaller software company, said it's a bit too early to see a turnaround.
"We're continuing to see resumes from people at the larger companies," he said, adding that his job postings are generating as many as "a couple hundred" job seekers for each opportunity.
In its conference call, QAD executives emphasized the depth of cost-cutting, with research and development expenses down to $8.7 million for the quarter, compared to $10.8 million a year earlier, and more than $1 million cut from general and administrative expenses.
"We've done a number of initiatives to reduce our cost structure around the world. We had to cut staff, but we've reduced travel expenses by 70 percent by means of video conferencing," Lender told the Business Times.
Still, QAD is benefiting from faster economic recovery in Asia and conditions in Europe that are more favorable than in the U.S. During the third quarter, Lopker said, there were clear signs that a pickup in manufacturing was underway and customers were beginning to plan for an economic recovery.
"We are really a global company; only about 40 percent of our revenue comes from the U.S.," Lender told the Busines Times. "During the past quarter, Europe was the stronger region, Asia Pacific is starting to return to prior levels, being led by Australian and Chinese economies. North America performed consistent with our expectations. It is stable, but we haven't seen yet seen signs of recovery."
QAD has cash — $43 million and growing — to throw around, and Lender said that if acquisition opportunities were to arise, the company would consider them. "International operations have been our focus over the last year, and I expect it to continue to be. We have plenty to work with right now, but that said, if an opportunity presents itself we would take a look," he said.
In its earnings release, QAD said it had received orders from 15 customers representing more than $500,000 each and that it had received license orders from giants such as Coca-Cola Enterprises, Group Danone, International Paper and Invacare France.
Lender told the Business Times that the company's new over-the-Web offering is designed to take advantage of a trend toward vertical integration in manufacturing. "We're in many cases hosting an application and providing additional services. It's becoming more of a complete solution; customers are not having to go to other vendors."
QAD is selectively hiring as well, he said. "We have about five positions open in the South Coast area. We don't want to go wild."
"In terms of talent, we still need to watch for signs of stability and further recovery over the next two to three quarters," Lender said. "Manfuacturing tends to lag the recovery, but we're watching other indicators which manufacturing should follow."
Economist Chris Thornberg of Beacon Economics and the UCSB Economic Forecast Proejct said that a turnaround in software sales presents a bit of a dilemma. Companies get productivity gains from installing new software, which means they need to hire fewer people as things turn around. "It's one of my pet worries," he said.
Watkins said he's also keeping a close watch on the Thousand Oaks area, where small changes in employment at biotechnology giant Amgen can translate into big swings in the job market for the area.
Amgen, which employs about 5,000 in Ventura County, has shed hundreds of jobs in recent years but it, too, has seen signs of a turnaround as new products have begun to reach the market.
According to a company statement, in New Orleans on Dec. 5-8 Amgen researchers will present results from an ongoing study on the long-term effectiveness and safety of a new drug called Nplate.
Nplate is a blood platelet treatment that operates within a general area where Amgen's blockbuster red and white blood cell treatments have become billion-dollar franchises.
It's not clear how big an opportunity Nplate might present. The drug is designed to treat chronic ITP, an autoimmune disorder that can lead to serious bleeding.
The papers releasing the results will be presented at the American Society for Hematology annual conference and additional results will be discussed by researchers from Massachusetts General Hospital who will be presenting at the conference.
"We are excited to present data on the safety and efficacy of Nplate in the pediatric setting for the first time," Roger M. Perlmutter, M.D., Ph.D., executive vice president of Research and Development at Amgen, said in the statement.
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