A Valentine for Secure Computing

Call me sentimental. Call me a sap. Call me crazy. But I love Secure Computing (Nasdaq: SCUR  ) . Here's why.

1. It's easily misunderstood. Briefing.com reported that Secure missed estimates for fourth-quarter revenue. Not true. This maker of data-security products reports non-GAAP numbers to accurately portray the performance of its acquired businesses. On that basis, Secure's $69.9 million in revenue easily beat the average estimate of $68 million.
2. Businesses can't compromise on security. And they aren't compromising. Secure Computing's chief financial officer, Tim Steinkopf, told analysts in the conference call that his company booked seven seven-digit deals -- two of which required some short-term price cuts that affected gross margin -- and 131 six-figure deals in Q4. Both were new records, set in a time of massive economic uncertainty, and in spite of top competitors such as Cisco (Nasdaq: CSCO  ) , Websense (Nasdaq: WBSN  ) , and EMC's (NYSE: EMC  ) RSA business unit.
3. Cash flow, cash flow, cash flow. Thanks to excellent free cash flow, Secure paid off $44 million in debt during 2007, including more than $12 million in the final quarter of the year.

Growth, too, is going gangbusters. Secure expects per-share earnings to rise by 45% to 50% over each of the next two years. Revenue, on a normalized, non-GAAP basis, is expected to improve by 13.7% to $295 million.

Why the discrepancy? Margins. With each passing year, Secure is becoming better at squeezing cash from its operations. Behold:

Metrics	2007	2006	2005	2004
Non-GAAP revenue	$259.4	$193.2	$109.2	$93.4
Free cash flow	$41.1	$24.3	$25.0	$12.2
FCF margin	15.8%	12.6%	22.9%	13.1%

Source: Secure Computing earnings reports. Numbers in millions.

A rich market opportunity. Excellent and growing free cash flow. Rapidly rising margins. Warms the heart, doesn't it?

Get your clicks with related Foolishness:

• Secure should be one of your top stocks under $10.
• The Q3 numbers weren't up to par for some.
• But that's just silly.