Earnings Review: F5 Inc., Regeneron Inc.

Bidding Farewell To F5

F5 (FFIV) reported fiscal first quarter revenues on January 25th, 2022. The report showed a 10%  to $687 million increase of revenue with net income and EPS increasing 7% to $94 million and $1.51, respectively. F5 Networks has delivered five consecutive quarters of double-digit revenue growth. First quarter revenue growth was driven by 19% product revenue growth, which accounted for 50% of total revenues. Services sales increased 2% to $343 million. 

During the quarter, F5 generated $79.8 million in free cash flow, re turning $125 million to shareholders through share repurchases. The company ended the quarter with $859 million in cash and investments, $345 million in long-term debt and $2.4 billion in shareholders’ equity on its weather-resistant balance sheet.

While demand for F5’s solutions remains robust, the company expects that its ability to meet continued strong customer demand for systems will be restricted by supply chain constraints for the remainder of fiscal year 2022. As a result, the company expects fiscal second quarter revenue in a range of $610 to $650 million.

F5 further expects fiscal year 2022 revenue growth in the range of 4.5% to 8%, down from its prior expectation of 8% to 9% growth. The company does expect fiscal year 2022 software revenue growth near the top end of its previously provided 35% to 40% guidance range and global services revenue growth of 1% to 2%.

F5’s business model has changed since our original purchase, resulting in lower profitability over the last few years.

Photo by Chris Liverani on Unsplash

Rebalancing With Regeneron

With the stock appearing fully valued, we decided to bid fare well to F5 and sell our position for a 66% gain over the last seven years.

Regeneron (REGN) reported fourth quarter sales on February 4th, 2022. The report showed that the sales doubled to $5 billion with net income and EPS each up more than 90% to $2.2 billion and $19.69, respectively. These results included $2.3 billion in revenue attributable to REGEN-COV, the company’s antibody cocktail for COVID-19. Excluding those sales, revenues increased 17% for the quarter. 

For the full year 2021, revenues increased 89% to $16.1 billion with net income and EPS each up more than 130% to $8.1 billion and $71.97, respectively. Excluding REGEN-COV sales, revenues were still up a healthy 19% for the year thanks to impressive growth from core products, EYLEA and Dupixent.

Regeneron generated a strong 43% return on shareholders’ equity in 2021. Free cash flow more than tripled to $6.5 billion during the year primarily due to the company’s collection of amounts due from the U.S. government in connection with REGEN-COV sales. 

The company repurchased $1.7 billion of its common stock during the year and authorized a new $3 billion share repurchase program during the fourth quarter. Given the lack of efficacy of REGEN-COV against the Omicron variant, RE 

GEN-COV is no longer authorized for use in the United States. Regeneron is working to develop next generation antibodies that will be active against Omicron and all other variants of concern. 

In addition, Regeneron has over 30 product candidates in clinical development. The company’s R&D engine is supported by the company’s strong balance sheet with more than $12.5 billion in cash as of year end to position the company for future long-term growth. 

In 2022, Regeneron will be lapping the strong results in 2021 which included the REGEN-COV sales. As a result, sales and earnings will drop significantly in 2022 due to the tough comparison. Regeneron will also face new competition for one of its key drugs, EYLEA, which also is facing patent expiration in 2024. With the stock appearing fully valued, we decided to sell our position and pocket the Regeneron profits of 22% earned over the last 15 months. As we reviewed other in vestment opportunities, we decided to rebalance the proceeds from Regeneron into more attractively valued investments.

Dividends

Since the last issue, the following dividends per share were received: Accenture ($.97), Apple ($.22), ADP ($1.04), Bank of Hawaii ($.70), Baxter ($.28), Brown Forman (BF-B) ($1.19), Canadian National (CNI) ($.48), Cisco (CSCO) ($.37), Cognizant (CTSH) ($.24), FactSet Research (FDS) ($.82), Fastenal (FAST)($.28), General Dynamics (GD) ($1.19), Gentex (GNTX) ($.12), Genuine Parts (GPC) ($.82), Hormel Foods (HRL) ($.26), Intel (INTC) ($.35), Johnson & Johnson (JNJ) ($1.06), Mastercard (MA) ($.49), Maximus (MMS) ($.28), Microsoft (MSFT) ($.62), 3M (MMM) ($1.48), Nike (NKE) ($.31), Oracle (ORCL) ($.32), Paychex (PAYX) ($.66), Pepsi (PEP) ($1.08), Raytheon (RTX) ($.51), Ross Stores (ROST) ($.29), SEI (SEIC) ($.40), Starbucks (SBUX) ($.49), Stryker (SYK) ($.70), TJX (TJX) ($.26), T. Rowe Price (TROW) ($1.08), Tractor Supply (TSCO) ($.52), United Parcel Services (UPS) ($1.02) and UnitedHealth (UNH) ($1.45).

Stock Split

Alphabet 20 for 1 split payable 7/15/22.