What happened

It's not just Halloween decorations that are putting a fright into Proto Labs (PRLB 0.66%) investors today. The company's disappointing third-quarter earnings results, evidently, are also scaring shareholders, leading them to leave their positions. 

As of 10:53 a.m. EDT, shares of Proto Labs had plummeted 18.5%.

A business person holding up a thumbs-down.

Image source: Getty Images.

So what

Overshadowing the fact that it reported a company quarterly record, Proto Labs missed the consensus revenue estimate of $127.3 million, and it reported sales of $125.3 million. Investors didn't find much solace on the bottom line either. Proto Labs generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $0.35 per share, which fell short of analysts' estimate of $0.43.

Besides the company's failure to meet analysts' estimates, investors today are also likely disappointed with the contractions in the company's margins. Proto Labs reported a gross margin of 44.1% in the recently completed quarter, narrower than the 50.8% gross margin that it reported during the same period last year; in addition, the company's operating margin of 5.5% is considerably slimmer than the 16.4% operating margin that it had in Q3 2020.

Turning to the cash flow statement, investors found additional cause for concern. Proto Labs generated operating cash flow and free cash flow of $11.5 million and $7.5 million, respectively -- both of which were lower than that which it reported in the third quarter of 2020: operating cash flow of $29 million and free cash flow of $21.8 million.

Now what

The company's performance during the recently completed quarter is yet another indication how the global pandemic has crimped the company's growth. While the company forecasts fourth-quarter 2020 revenue of $112 million to $122 million, or year-over-year growth of 7% to 16%, investors should remember that it takes more than one quarter of meeting guidance to prove that the company is back on track.