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.

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Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Fool contributor Tim Beyers owned shares of Secure Computing at the time of publication. Find Tim's portfolio here and his latest blog commentary here. The Motley Fool's disclosure policy always adds up.