Secure Computing Stumbles: Fool by Numbers

Yesterday, Motley Fool Rule Breakers pick Secure Computing (Nasdaq: SCUR) released earnings for the third quarter ended Sept. 30, 2007.

• Secure's conservative accounting understates its true earnings power. On a non-GAAP basis, which includes acquired deferred revenue and excludes intangibles, stock-based compensation, and other non-cash charges, Secure Computing earned $0.09 a share from $65.2 million in revenue.
• Investors didn't take kindly to those numbers, though. Secure's total revenue all but scraped the bottom end of management's guidance and was well under what analysts had expected.
• And while I remain a long-term bull, my inner bear can appreciate the sell-off. Sort of. Secure has lost several key executives in recent months, including its former head of sales. With peers Blue Coat (Nasdaq: BCSI), CheckPoint (NYSE: CKP), and Cisco (Nasdaq: CSCO) all vying with Secure for business, the battle for revenue growth will continue to be hard fought.
• Nevertheless, CAPS investors like what they see. They give the stock five out of five stars. What's your take? Click here and let us know.

(Figures in thousands, except per-share data)

Income Statement Highlights

	Q3 2007	Q3 2006	Change
Sales	$60,018	$43,748	37.2%
Net Profit	($10,052)	($7,291)	N/A
EPS	($0.17)	($0.14)	N/A
Diluted Shares	66,268	57,378	15.5%

Get back to basics with a look at the income statement.

Margin Checkup

	Q3 2007	Q3 2006	Change*
Gross Margin	71.74%	73.06%	(1.32)
Operating Margin	(8.10%)	(14.51%)	6.41
Net Margin	(16.75%)	(16.67%)	(0.08)

*Expressed in percentage points

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q3 2007	Q3 2006	Change
Cash + ST Invest.	$10,666	$8,370	27.4%
Accounts Rec.	$60,029	$51,733	16.0%
Inventory	$5,369	$4,533	18.4%

Liabilities	Q3 2007	Q3 2006	Change
Accounts Payable	$12,295	$13,628	(9.8%)
Long-Term Debt	$53,371	$86,005	(37.9%)

The balance sheet reflects the company's health.

Cash Flow Highlights

	Nine Mos. 2007	Nine Mos. 2006	Change
Cash From Ops.	$37,436	$26,008	43.9%
Capital Expenditures	$8,896	$8,368	6.3%
Free Cash Flow	$28,540	$17,640	61.8%

Free cash flow is a Fool's best friend.

Related Foolishness:

• Secure was a hot stock under $10 last month.
• As with the last quarter, it's best these numbers not deceive you.
• These are the numbers I'm talking about.