Good afternoon, and welcome to the ARC Group Worldwide conference call. Today's conference is being recorded. With me on the call is Alan Quasha, ARC's Chairman and CEO; and Brian Knaley, ARC's CFO. Before we begin the formal discussion, I would like to turn the call over to Mr. Quasha to make the statement regarding forward-looking information.
Thanks, Katherine. Good afternoon, everyone, and thank you for taking the time to join our call. As most are aware, this call will contain forward-looking statements as defined by federal securities laws. Forward-looking statements are indicated by the words such as expect, anticipate, plan, believe and similar words concerning future events. All future events are inherently uncertain, and actual outcomes may differ materially. We do not guarantee future performance, and past performance is not necessarily indicative of future results. Further, we undertake no obligation to update our forward-looking statements. We encourage you to review the risks that we face and other information about our company in our filings with the SEC, including our annual report on Form 10-K and quarterly report on Form 10-Q, and our current reports on Form 8-K, all of which can be found on our website. Please note that during the call, all financial measures presented will be non-GAAP unless otherwise indicated.
Thanks, Alan. The company earlier today announced results for our third quarter ended April 1, 2018. Revenue from continuing operations was $21.5 million, an increase of -- from $18.4 million in the prior sequential quarter period. The increase in revenue was driven primarily from higher sales across all of our precision components group. Our Colorado metal injection molding, or MIM and plastic operations in particular experienced a significant increase in revenue in the third quarter as compared to the second quarter.
The revenue improvement in Colorado was driven by increases in aerospace, firearm and defense segments. As we stated in our earnings release earlier today, our international operations in Hungary continued to improve as revenues increased by 4.6% on a sequential basis to $2.3 million.
Overall, we have seen the plastic and MIM markets, which we serve, stabilized and modestly improved in the third quarter, with select key customers returning towards more traditional normalized revenue levels.
Revenue at our stamping facility was $4.8 million, an increase of $0.4 million relative to prior sequential quarter. The increase was principally driven by the awarding of new platforms in the automotive sector. Stamping continues to be well positioned for improved financial performance in the final quarter of fiscal 2018 and into fiscal 2019, with recently awarded new product launches and a robust sales pipeline.
Turning to our metal 3D operations. We had sales of more than $400,000 in the quarter, which was a 55% decrease over the prior sequential quarter. The lower revenue in the quarter was driven by lower firearm, defense and aerospace volumes.
Turning back to overall consolidated results for the quarter. We returned to positive gross profit in the third quarter. Gross profit was $1.1 million in the quarter, an increase from a negative gross profit of $370,000 in the prior sequential quarter. The improvement in gross profit was driven by increased revenues, increased production levels and ongoing cost savings initiatives. During the third quarter, we drew to a close the company's plan to reduce inventory levels to improve cash flow and to more fully match current market conditions.
The company reduced selected inventory by $1.3 million within certain business units comprising the precision components group. This reduction in inventory resulted in a corresponding similar increase in expense recognition, negatively impacting gross profit by $1.3 million in the quarter.
Selling, general and administrative expenses for the fiscal third quarter 2018 declined to $3.3 million, a decrease from our $3.5 million in the prior sequential quarter. Expense reductions were primarily attributable to the company's ongoing cost review and elimination initiatives.
EBITDA from continuing operations for the fiscal third quarter 2018 was a profit of more than $300,000, which was improved from an EBITDA loss from continuing operations in the second quarter of 2018 of a negative $1.2 million. This decline slightly -- this improve -- improvement, sorry, was primarily driven by the increases in revenue above, that we've previously discussed and production levels along with lower SG&A.
Finally, overall, our fiscal third quarter net loss was $3.1 million loss compared to a net loss of $4.3 million in the fiscal second quarter of 2018.
Finally, we did complete our previously announced and discussed Rights Offering. On February 28, 2018, we received the full $10 million offered. The net proceeds were approximately $9.8 million and were used primarily to pay down our revolving line of credit.
I will now turn it back over to Alan for his comments.
Yes. Thanks, Brian. Third quarter is a marked improvement of our second quarter results, which, hopefully, represent a trough quarter. We spoke previously of the difficult operational changes and cost savings programs that are ongoing and we are beginning to see the fruits of that hard work.
Additionally, we are seeing higher volumes with key defense and firearm customers related to new MIM and plastic-driven solutions. Additionally, we have seen a steady improvement in our stamping operations from both an operational perspective and a customer perspective.
Overall, management remains keenly focused on our objectives of returning the company to profitability and on improving cash flow by driving existing product revenue, increasing operational efficiency and improving the balance sheet.
Further, our forward focus will be on providing unrivaled value and quality to our customers.
To summarize some of the progress made during the quarter. First, we refocused our sales efforts and approach and realigned our sales resources accordingly. While we expect the company's top line outlook to stabilize, and begin to improve during the balance of our fiscal year and into fiscal year 2019, these changes were designed to better align our engineering and technical sales capabilities in order to drive incremental revenue from existing customers, and on existing production parts.
Again, let me reiterate and emphasize our strategy to drive incremental revenue from existing customers and on existing parts.
While we're encouraged by the improved revenue in the third quarter and the outlook going forward for many of our customers in the firearm sector, we must improve our customer diversification. As such, we have reallocated our sales resources to drive growth in other key markets, specifically the medical and aerospace industries, 2 important areas of growth for both our 3D and MIM businesses.
Overall, while these initiatives are still in the early stages, we are already receiving positive responses from customers.
Finally, I would like to briefly follow up on the inventory reduction initiatives underway at the company. As Brian mentioned earlier, throughout the first 9 months of the fiscal year, we have undergone a targeted reduction in inventory levels at certain facilities, generally associated with firearm parts. The targeted reduction serve to right size our balance sheet, but it also serve to generate cash for the company. Obviously, the plan had a direct unfavorable impact to our gross profit and EBITDA in the third quarter. But we believe the decision to be a correct one for the company.
We believe we are largely complete with a targeted inventory reduction plans and will be finalized by year-end.
I appreciate everyone's time on the call today, and will now open for questions.
(Operator Instructions) And we have a question from Ralph Weil with R. Weil Investment Management.
Mr. Quasha, this is Ralph Weil. I am a shareholder of the company and I met with a lot of people at the company, and I look forward to meeting you one day. I guess I'm asking a question because no one else did. In terms of the 3D printing, which obviously is an area, which could be interesting going forward, you did purchase a lot of machines and you put -- you opened up a new plant for 3D printing separated from the other facility. What are your plans at this point to better utilize the capacity of these printers and the new facility in Dayton? What is being done to enhance the operation and utilize what appears to be a lot of excess capacity? And what new areas of 3D printing might ARC become involved in?
Yes, okay. Obviously, our timing was perfect. And as I always tell people if I could have 3 perfect things, it would be timing, timing and timing. But -- listen, we -- to put it in perspective, I'm glad you asked the question, because it's the one area that was disappointing. Everything else is really pointing in the right direction. And this was an unfortunate situation, which when you have a startup operation, as we have and we're building, we had -- it's particularly disappointing in that. We've gone -- it's an operation, which has gone from the prototype to production and which is a big step. And we were in production with a customer who for reasons, obviously, having nothing to do with us, they just were unable to sell through their product in the market. They thought it was going to be a big success, and sadly it wasn't. So they had to pull rather suddenly their production, because they have excess inventory of a significant amount. So that's -- but -- so we just had unfortunate things. Our focus is, of course on -- in this facility is on medical and aerospace and defense. We have a lot of things in the pipeline. Importantly, for us, we're trying to get the security clearance for the new facility, and we're trying to get FDA approval not only on the facility but some -- from specific orthopedic parts, which would -- both of which would be a big step, but that takes time. We would expect that to happen hopefully in this calendar year, hopefully sooner in this calendar year than later. But that's not timing that we control. And as with any kind of startup with an operation that is as new and as promising as 3D printing, there are lots of fits and starts, and there's a lot of time-in that is spent on qualifying prototypes for production. I suppose if there is any good news and what happened is we got to experience what is like to ramp-up to production scale, and we know we can do it. And so we feel confident. Obviously, the new facility looks terrific, and we're disappointed, obviously, that the facility is being underutilized at this time.
Could you comment on what aerospace programs and what type of medical programs you may be involved in or trying to get into, or doing prototypes or -- if any comments on that?
Well, we can't really -- sadly talk about the defense and aerospace, because of confidentiality agreements. Almost all of our clients require confidentiality agreement. So we can talk a little bit about it, but I don't -- I think -- I don't think I can talk too much about the specifics of, certainly about the aerospace products. And we, I mean we can talk a little bit about, sort of the kinds of things that we get -- we get a fair amount of transom business, just people coming through, which is the vast bulk of the revenues this quarter and frankly, it will be the vast bulk of revenues next quarter, which is -- which are people just really exploring things. And generally speaking, when we do have excess capacity, we will take parts from people. But a number of the parts that we take from our -- they kind of fall in 2 major categories. One is very large businesses. They tend to be a lot longer lead time. And the other is entrepreneurial businesses, which take -- which is shorter lead time. Obviously, the aerospace defense areas is longer lead time. But the medical can be shorter lead time, but we have to deal now one more so with the FDA. So I think once we get that done, we'll see a pretty quick rise in the medical side.
Does -- the fact that you are in metal injection molding and 3D printing. Is that any advantage for companies dealing with you? Or what is there a better selling point in having the 2 capabilities? And have there been any areas where it's really shown to you that it has helped?
Yes, I mean there is no question. So I think when people visit our facility and they do reasonably often, they are very impressed with what we're able to do, largely because we have such experience in powder materials because effectively, 3D printing is taking the same kind of things, except instead of injection molding at they're printing it. But it -- the expertise that we have in powders is extremely important, and I think people are drawn to us because of the expertise and then when they see what we can do because we can do a lot of things that a lot of other people can't do. I think they understand how important that is. And actually, it's all part of this additive manufacturing, advanced manufacturing versus subtractive. But -- and the 2 go hand in hand. So there's no question that 1 and 1 equals 3 here.
But it hasn't been so far, but you're hoping that is the case or will become the case.
No, it is. I mean, obviously, there are lot of -- lot of big players can do things themselves. So you have -- I mean the first big player that obviously got big into this field was GE. They made this a big area. They moved to do 2 things as far as I can tell. One is they've moved to produce machines so they can sell them and that business has become much more competitive. And that's fine. I mean we can, next time, maybe I'll ask our fellow who runs our 3D operation to be on the call, because some of this can be technical. And they are making parts for themselves. And there are manufacturers who are trying to gain experience themselves in 3D printing. Some with great success and some not. I mean, we happen to know a company that's got a lot of 3D printers and they're not doing much with them. But I won't mention who that is. But people are -- understand that this is a very important area. It will become increasingly important. It's still noncompetitive when you deal with very, very high volume items. It's becoming more and more critical on particularly large parts, and valuable parts. It has a lot of advantages in terms of weight and integrity in a time when weight and integrity is very important in all industries. And materials are critical.
Alan, if I can inject. Ralph, one thing I will share with you on 3D is. To Alan's point, we can't share the customer's name, but they are in the aerospace area. And the entrées that is allowing us into the 3D space for them was coming out of our MIM operation here in Colorado. So to your point, there's one rely on the other one, absolutely. And that's one of the things that Alan was talking about is kind of going more fully into a lot of these customers and letting them know what our full product capability is. But we have a very -- one if not multiple examples of where either MIM has led the way or 3D has lead the way to MIM.
We'll continue on to [Chris Zochowski] with -- who is a private investor.
I have a very simple question. I cannot find your press release for the quarterly results. Looking at your website, the newswires, I cannot find it. Where can I get it?
[Chris], it will be posted later today on our website. And it should be part of an 8-K that was released a little bit earlier today. So give us a little bit of time to kind of post it up there. It can kind of takes little bit time, but it will be there later this afternoon, Colorado time.
And with no additional questions in the queue, I'll turn things back over to our speakers for any additional or closing remarks.
Thank you. Thank you all very much. Have a great day.
Thank you, ladies and gentlemen. That does conclude today's conference. Thank you all again for your participation. You may now disconnect.