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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.