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This will be pretty cryptic ... I heartily recommend all shareholders listen to the CC. You can skip over the first 10-15 minutes to get to the future strategy and Q&A parts. I'll leave out most financial stuff, since the most important stuff is available in the PR.

CC link:

General random notes

- By fiscal 4th quarter (2nd Q next year), shipments to Japan should resume as they work off inventory.

- added $1.8M to cash holdings, now at $52M.

- $2.7M operating cash flow

- blames lagging growth in 1H on inventory, mild allergy season in Japan, and no new products

- hope to attain 10-15% annual growth in fiscal 2005 with new products, inventory elimination, new strategies, and 3rd brand platform.

- international: Canada up 18%, Europe up %13, Japan dn 10% ("lowest pollen, softest allergy season in decades") -- Mexico, 9th largest OTC market in the world

- Fiber Choice: steadily increasing advertising coverage since growth is 15% and successful.

How to grow BR brand

1. relaunch clear strips

test studies show consumers find them much easier to wear and take off,
35% more preference to clear strips (I believe)

2. TV ad demo

added 6 sec. demo in TV ads on how they work -- people need more info on how they work

3. long 1-2 minute commercial

reasons: complicated message, great increase in purchases from those who have received 1-2 minute explanation on how BRs work vs. those who receive quick explanation.

4. print ads

"I'm A Stripper, and I Don't Have Any Trouble Sleeping At Night". Celebs: Tom Arnold (People), Deuce McAllister (RB, N.O. Saints in Sports Illustrated), Tim Herron(?)(Golf)

5. Multimedia Campaign

"Get Back in the Sack" targets couples who have snoring problems

New Products

1-2 BR products for 2006 cold/flu season
1-2 FC products for upcoming spring
robust new product platform pipeline for future

"We have the management & financial capacity to make an effectively integrated acquisition". Want to acquire/license a 3rd brand platform.

Q & A note: not complete ... just the most interesting

Any impact from shortage of vaccine? Don't know how to quantify outcome of shortage yet.

Does 15% growth projection include acquisition of 3rd brand? No, organic growth only.

Why guide to lower end of range? 2Q is lower than expected, not sure about flu vaccine impact ... prudent to narrow and guide lower.

Will you target campaign to heightened sensitivity to flu vaccine situation? No, for many reasons ... main reason is "we go to great lengths to work through long term strategic direction ... and apply advertising $$ to that ..." Clear strips have long term potential. Not sure if demand is there yet ... only spend when certain that market is there ... i.e. when flu season ended abruptly, so did advertising $$ ... no need to spend $$ on reduced demand.

3 Main Focuses

1. BR brand building
2. FC growth
3. 3rd product platform

illini1990's Take

The company still seems to be taking a very cautious and deliberate approach to growing the business, as evidenced by the ad campaigns and marketing studies they do. They believe that the BR story & benefits are a little complicated, and consumers respond better when they're given more than a sound-bite. They continue to strongly blame the shortened flu season on the relatively poor last half year, and hope to offset that a bit by selling the snoring-relief aspect more. I accept that partially, but also believe that the advertising needs to smarter and more aggressive as well. They gave off strong indications of wanting to buy a 3rd brand while developing BR and FC, so I'm sure they'll be managing their cash very well to achieve that goal.

I have an overall favorable impression of the management of this company. They are a little too cautious sometimes, but I'd rather they err on that side than be reckless. I also continue to be impressed that for such a small company that wants to grow, they aren't so arrogant that they won't return some cash to shareholders. I believe that a CNXS stockholder must be patient and be a long-term owner, because I think the business will grow slowly, and the acquisition they badly want to make will reduce cash and/or dilute stock, and if some heavyweights don't like the purchase, there could be a big selloff.

This could be a mini-Lynch type classic, where it idles for 3-4 years, then takes off afterwards. It seems to me like the worst case scenario is that 5 years from now, they are still floating sideways, but you at least earned 2% dividends in the meantime. Not market-beating or exciting, obviously, but perhaps if one takes the mind-set of it being better than a money-market return, while almost as safe, with a pretty good upside, I think you're ahead of the game.

I'm pooped. Good night ... hope you found this useful. Any corrections/questions welcome.



P.S. Cryptic? Geez, Tom, shut up and go to sleep.
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Thanks very much, indeed, for the info and your thoughts. They are very much appreciated.

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Tom, great post, it made me want to re-examine CNS as to whether or not I should take them to 5% of my portfolio...if they are not already there. This company is such a "sleeper" ;) that I do not recall where they are percentage wise.

Again, great post...and get some sleep!

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Hi havenotime,

I'm glad you found the post useful. I really do recommend that you listen to the conference call yourself if you can spare 15-20 minutes (skip the first 10 min.). Your opinion might diverge from mine a bit on a couple of things, but I think I got the main points down.

One point I didn't make in the original post is that I believe CNXS is the easiest HG stock to follow. Their products are very easy to understand and form an opinion on. Their balance sheet is clean and simple, with no debt, lots of cash, and very little stock option dilution. Their conference calls are relatively simple and their strategy focus is straightforward. Along with the nice dividend, and the fact it is below the buy-in price that was originally recommended (although far above what TomG recommended in his recent update), it makes it the best stock for a new HG investor to cut his/her teeth on.

Now, all that being said, I am not claiming this stock to be the best HG as far as growth (FARO & BWLD come to mind quickly as far bigger growth stories) or margin of safety (FDP). However, a beginning investor could easily read the balance sheet, follow along with the CCs, buy the products at the store, talk to friends/family about it, gain a nice little dividend every quarter, and probably not worry too much about losing capital over the next few years. It's possible that they will, but that would be a lesson as well (and probably an easily understandable one at that). I don't believe that there is another HG that shares ALL of these specific qualities.

In my humble opinion (as always ... there's certainly no TMF in front of my name :) ), I don't think that would be such a bad thing to take CNS to 5% of your holdings (it's appx. 2% of my non-retirement holdings). Just keep in mind that the odds are it won't outperform most of the HG stocks, but there's a good chance it will outperform the market, and a good chance you won't lose capital. It's always good to read some contrarian views as well, such as Matt Richey's risk section of his original write-up (by the way, I'm a big fan of Matt's ... would like to see him back as a guest analyst), TomG's write-up in the last half-year review, and MFCatbert's opinion (

Again, I think the safest approach is to expect capital preservation and 1.5-2% dividend returns, with a decent chance at additional growth over the next five years. Not sexy, not exciting, and not outperforming of most HGs. But, an easy learning, easy to follow, capital-preserving, dividend-paying, shareholder-friendly stock that most likely won't make you regret buying it five years from now if you keep your expectations appropriate.

Best regards,

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