What happened

Shares of Inseego (NASDAQ:INSG) were moving lower today after the company posted mixed results in its third-quarter earnings report but offered underwhelming guidance for the fourth quarter. As a result, the stock was down 12.7% as of 2:53 p.m. EST.

So what

The maker of mobile hardware and Internet of Things (IoT) devices said revenue rose 23.9%, to $62.7 million, topping its own guidance of $58 million to $62 million and analyst estimates of $59.7 million.

A hand holding a smartphone with the letters 5G in purple and green circling just above it.

Image source: Getty Images.

Growth in IoT and mobile solutions was particularly strong, rising 32.6%, to $45.9 million, and 5G revenue is on track to exceed $10 million for the year. However, its cloud-computing division lagged, posting just 5% growth.

On the bottom line, the company's adjusted loss per share narrowed from negative $0.10 to negative $0.04, but that was worse than expectations of negative $0.03. According to CFO Steve Smith:

Our early 5G revenues show tremendous growth, validating our investment strategy. As part of that strategy, we're also evaluating non-dilutive options to strengthen our balance sheet. 5G will drive increased growth primarily in the second half of 2020.

The mention of non-dilutive ways to strengthen the balance sheet sparked curiosity but was vague, as management deflected a question about it during the earnings call. It could refer to an asset sale around a legacy product, rather than just a standard debt offering.

The company appears to be in need of additional working capital, as it has $71.8 million in current assets, compared to $191.8 million in current liabilities. In other words, without positive free cash flow, the company will likely have to sell assets, offer new shares, or take on debt to fill that $120 million gap. 

Now what 

For the fourth quarter, the company expects $48 million to $55 million in fourth-quarter revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative $3 million to $1 million. That revenue forecast was significantly below estimates at $64.2 million. Here, Smith explained: "A recent 4G product promotional change at our largest customer, along with seasonality, is impacting our ability to forecast near-term demand. For these reasons, we are choosing to be conservative in our fourth quarter forecast."

Inseego may hold some appeal as a play on 5G technology, but the underwhelming guidance and a balance sheet in need of support clearly indicates why the stock is down today.

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