Continuing to feel the effects of the recession, which has been slamming its manufacturing customers, enterprise application vendor QAD Inc. on Tuesday reported significant drops in total revenue and license sales during its recent third fiscal quarter.

But QAD officials said business conditions seem to be improving, noting that most of the company’s financial results improved over the previous quarter.

“We don’t think we are yet out of the woods, but we are seeing some daylight,” said QAD CEO Karl Lopker yesterday in remarks to financial analysts.

For the three-month period ended Oct. 31, QAD reported total revenue of $56.2 million, a 17% decline from the $67.8 million the company reported in the prior third quarter. QAD’s software license revenue, at $8.4 million, was down almost 36% year over year. And its revenue from services, at $14.1 million, fell 36%. Only QAD’s maintenance sales were up, rising 3% to $33.8 million.

Significant cost cutting allowed QAD to report a $4.8 million net profit for the quarter. That reversed a loss of $1.8 million a year earlier.

During the quarter, QAD reduced its spending on research and development by nearly 20% and on sales and marketing by 32%. At the same time, Lopker said, the company cut employee headcount by 17% compared with year-ago levels, while significantly reducing capital spending. Through three quarters of this year, he said, QAD has spent $645,000 on capital expenditures, significantly down from $4.8 million during the same period last year.

Lopker blamed QAD’s falling license and service revenues on the recession, which has caused customers to reduce software spending. QAD was able to grow its maintenance revenue, he said, by focusing on customer satisfaction and timely renewals. QAD also “saw the benefit of some increases in maintenance pricing,” he said.

However, Lopker also pointed to signs that some customers are seeking to renegotiate maintenance prices lower. He said there have been delays in maintenance deals “involving extended negotiations.” For the quarter, $500,000 of QAD’s $33.8 million in maintenance revenue was deferred from earlier quarters.

Despite the poor third-quarter results, Lopker said, QAD’s business was healthier than it was in the preceding quarter. Revenue grew 9.5% compared with second-quarter levels, and license revenue was up 25% sequentially.

Lopker said he expects similar incremental improvements through the rest of this year. The company predicted fourth-quarter revenue of $57 million, which would represent of drop of almost 4% compared with its 2008 fourth quarter. And QAD predicted fourth-quarter net profit of $0.13 per share, compared with a loss of $0.57 per share a year earlier.