What: After its first-quarter earnings were released on Thursday morning, shares of quick-turn manufacturer Proto Labs (NYSE:PRLB) were down sharply. Near the close of the market, Proto Labs was down about 22%.

Image source: Proto Labs.

So what: First-quarter revenue increased 24% year over year to $72.6 million, which increased earnings 2% to $10.7 million, or $0.40 per share. Excluding Alphaform AG, a German 3D printing service provider it acquired during the fourth quarter, Proto Labs' first-quarter revenue increased 16% to $67.7 million.

Although Proto Labs missed Wall Street expectations calling for $74.3 million in sales and earning $0.46 per share, the results fell in line with its own guidance of generating between $72 million and $76 million in revenue. In total, Proto Labs served 13,249 unique product developers in the first quarter, an increase of 20% annually and 6.7% sequentially. This suggests that its 3D printing and manufacturing services continued growing in acceptance.

Additionally, spending per product developer increased by about 3% year over year to $5,477, an encouraging sign that customers are becoming increasingly loyal to Proto Labs' services.

Despite these positives, investors may have been spooked by CEO Vicki Holt's comment that "... we foresee challenges with the industrial economy over the next few quarters." This solidified the fact that Proto Labs isn't immune to major slowdowns, despite previously seeming to have successfully avoided the widespread slowdown affecting the majority of industrial businesses.

Now what: Because Proto Labs' rapid manufacturing model is transactional in nature, a slowdown in industrial activity could negatively impact its business. The severity of the impact depends on whether Proto Labs can offset any macro weakness by continuing to grow the number of product developers it serves. Ultimately, whether today's sell-off is justified depends on management's ability to mitigate these risks in the coming quarters.

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