CNS, Inc. Reports Strong First-Quarter Revenue Growth.MINNEAPOLIS Minneapolis (mĭn'ēăp`əlĭs), city (1990 pop. 368,383), seat of Hennepin co., E Minn., at the head of navigation on the Mississippi River, at St. Anthony Falls; inc. 1856. -- CNS See Continuous net settlement. CNS See continuous net settlement (CNS). , Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CNXS): --Domestic Breathe Right Breathe Right™ Sports medicine A proprietary Band-Aid™-like nasal strip worn on the nasal bridge, said to improve breathing by opening the nasal passages Indications Temporary relief of breathing difficulties due to deviated nasal (R) nasal nasal /na·sal/ (na´zil) pertaining to the nose. na·sal adj. Of, in, or relating to the nose. nasal pertaining to the nose. strip sales increased 32% driven by new advertising campaign. --Q1 sales increased by 25% versus the prior year quarter. --FiberChoice(R) sales increased 45% driven by strong consumer demand and two new products. --Company increases estimates for fiscal 2007 revenue and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of . CNS, Inc. (NASDAQ:CNXS), the Breathe Right(R) company, today announced results for the first quarter of fiscal year 2007 ended June June: see month. 30, 2006. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the quarter were $29.3 million, an increase of 25 % compared to $23.5 million in the prior year period. Net income was $3.5 million, or $0.24 per fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share compared to net income of $4.0 million, or $.27 in the first quarter of fiscal 2006. After adjusting for the impact of stock-based compensation expense, proforma Proforma A financial projection based on assumptions. net income in the first quarter of fiscal 2006 was $3.8 million or $0.25 per fully diluted share (see attached reconciliation of GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). to non-GAAP disclosures). "We are very pleased with our first quarter results. We are excited to report that nasal strip sales grew 32% during the quarter in response to our new 60-second Breathe Right commercial, featuring Bruce Johnson For the American politician, see Bruce Edward Johnson. Bruce Johnson co-founded a Canadian personal income tax software company named WinTax in 1992 with fellow University of Alberta graduate Chad Frederick. , the inventor INVENTOR. One who invents or finds out something. 2. The patent laws of the United States authorize a patent to be issued to the original inventor; if the invention is suggested by another, he is not the inventor within the meaning of those laws; but in that of the Breathe Right nasal strip. Strong nasal strip sales growth drove overall Breathe Right sales up 28%," said Marti Morfitt, CNS' president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . "We are particularly pleased to report that FiberChoice sales grew 45% versus last year due to solid programming and the introduction of new FiberChoice(R) with Calcium and FiberChoice(R) Weight Management. "From a strategic standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the , first quarter results reflected planned increases in advertising spending during the quarter as we work to spread our Breathe Right brand advertising and promotional expense Noun 1. promotional expense - the cost of promoting a product business expense, trade expense - ordinary and necessary expenses incurred in a taxpayer's business or trade more evenly throughout the year. We are pleased with the results that were produced during the quarter and look forward to sales and earnings momentum in the remaining three quarters of the year." CNS will focus on a number of key initiatives to grow the Breathe Right(R) and FiberChoice(R) brands in fiscal 2007, including: --Continued expansion of Breathe Right(R) nasal strips, both domestically and in overseas markets, using tested, proven growth strategies; --Continued year round advertising of Breathe Right nasal strips as a solution for consumers' chronic nasal breathing Nasal Breathing refers to the state of inhaling and exhaling through the nose. It is considered superior to mouth breathing for several reasons. Breathing through the nose has numerous health benefits due to the fact that the air travels to and from the external environment conditions outside of the cough/cold season; --Increasing FiberChoice sales with strong support for our new fortified fortified (fôrt  ´fīd),adj containing additives more potent than the principal ingredient. fiber products; --Further development of the Breathe Right brand's leadership in the snore snore (snor) 1. rough, noisy breathing during sleep, due to vibration of the uvula and soft palate. 2. to produce such sounds during sleep. snore v. relief segment, including the launch of Breathe Right(R) Snore Relief(TM) throat rinse which began shipping in July July: see month. ; --Continuing to develop our pipeline of new products; and --Continued development and testing of new marketing tactics for both the Breathe Right and FiberChoice brands. The gross margin rate for the 2007 first quarter was 71.7%, up from the prior year period's gross margin rate of 70.4%, primarily due to lower product costs and increased pricing on FiberChoice products effective February February: see month. 2006. Advertising and promotion expense for the fiscal 2007 first quarter was $10.5 million compared to $6.0 million in the first quarter of fiscal 2006. The planned increase of 76% was primarily due to our strategy to position Breathe Right nasal strips as a year-round treatment for consumers' chronic nasal breathing conditions. CNS generated $7.4 million in cash from operations and ended the first quarter of 2007 with $59 million in cash and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has and no debt. Earlier today, CNS announced a quarterly dividend of $0.07 per share, payable on September 8, 2006 to shareholders of record as of August 25, 2006. First-Quarter Product Results Domestic Breathe Right sales in the fiscal 2007 first quarter grew 28% to $18.8 million, compared to prior year sales of $14.7 million. The growth is attributable to our successful strategy to promote year-round Breathe Right nasal strip usage with a new advertising campaign featuring Bruce Johnson, the inventor of the Breathe Right nasal strip. International sales of Breathe Right products in the fiscal 2007 first quarter totaled $3.0 million, down 18% versus year-ago sales of $3.6 million. Lower consumer demand for nasal strips in Japan, where the 2006 spring allergy allergy, hypersensitive reaction of the body tissues of certain individuals to certain substances that, in similar amounts and circumstances, are innocuous to other persons. Allergens, or allergy-causing substances, can be airborne substances (e.g. season was significantly less severe than the 2005 record-setting allergy season, resulted in a 75% decrease in Japanese sales. Consumer demand for Breathe Right(R) nasal strips fiscal year to date increased 27% in Europe and 25% in Canada. FiberChoice(R) sales grew 45% to $7.5 million in the first quarter compared to $5.2 million in the prior year period. Sales growth resulted from strong initial pipeline sales and consumer demand for our two new fortified fiber products - FiberChoice(R) plus Calcium and Fiber Choice(R) Weight Management which were launched in February 2006, as well as continued strong consumer demand for the existing chewable chew v. chewed, chew·ing, chews v.tr. 1. To bite and grind with the teeth; masticate. 2. To meditate on; ponder: chew a problem over. v. tablets. Company Increases Estimates for Fiscal 2007 With the first quarter completed, CNS is increasing its estimates for fiscal 2007 sales and diluted earnings per share. For the year ending March 31, 2007, CNS expects sales of $126 million to $132 million, up 12% to 17% versus the 2006 fiscal year. As of April 1, 2006, CNS adopted Statement of Financial Accounting Standards SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 123R, which requires the expensing of all stock-based compensation. CNS anticipates diluted earnings per share for fiscal 2007 to be in the range of $1.22 to $1.30, including the impact of adopting SFAS No. 123R. The estimated range of diluted earnings per share for fiscal 2007 represents 15% to 23% growth compared to proforma fiscal 2006 diluted earnings per share (see attached reconciliation of GAAP to Non-GAAP disclosures). Fiscal 2006 diluted earnings per share would have been reduced by $.09 per share as a result of stock based compensation expense, resulting in proforma diluted earning per share Noun 1. earning per share - the portion of a company's profit allocated to each outstanding share of common stock net income, net profit, profit, profits, earnings, lucre, net - the excess of revenues over outlays in a given period of time (including depreciation of $1.06. Ms. Morfitt concluded, "We are thrilled thrill v. thrilled, thrill·ing, thrills v.tr. 1. To cause to feel a sudden intense sensation; excite greatly. 2. To give great pleasure to; delight. See Synonyms at enrapture. with the strong revenue growth of both of our brands during the quarter. As we continue to reposition Breathe Right nasal strips to address chronic nasal breathing conditions and develop products that are intended for year-round use, we will more evenly distribute our advertising and promotion spending throughout our fiscal year. We have experienced great momentum on the Breathe Right and FiberChoice businesses in the first quarter and believe that fiscal year 2007 will be another year of strong growth." CNXS Included in the NASDAQ Global Select Market CNS has been included in the new NASDAQ Global Select Market. The NASDAQ Global Select Market has the highest initial listing standards of any exchange in the world based on financial and liquidity requirements. Prior to the change, the company had been listed on the NASDAQ National Market. Beginning on July 3, 2006, NASDAQ commenced classifying listed companies listed company n → compañía cotizable listed company n → société cotée en Bourse listed company list n → under three listing tiers -- NASDAQ Global Select Market, NASDAQ Global Market, and NASDAQ Capital Market Originally called the NASDAQ Small Cap Market, NASDAQ announced a name change to the NASDAQ Capital Market on September 27, 2005. [1] The NASDAQ Capital Market exists for securities of smaller, less-capitalized companies (small caps) that do not qualify for . NASDAQ also plans to launch indexes based on these new tiers. "CNS, Inc. is an example of an industry leader that has achieved superior listing standards, which clearly defines the essence of the NASDAQ Global Select Market," said Bruce Bruce, Scottish royal family descended from an 11th-century Norman duke, Robert de Brus. He aided William I in his conquest of England (1066) and was given lands in England. Aust, Executive Vice President of NASDAQ's Corporate Client Group. "NASDAQ is focused on leading a race to the top in terms of listing qualifications. In recognizing these companies, we are highlighting their achievement in meeting the requirements to be included in the market with the highest listing standards in the world," added Mr. Aust. Conference Call Webcast A conference call to review the first-quarter results is scheduled today, August 2 at 4 p.m. CT (5 p.m. ET). Interested participants may listen to the live conference call or replay over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the by logging onto CNS' Web site at www.cns.com. A replay of the first-quarter conference call may also be accessed by dialing (303) 590-3000 or toll-free (800) 405-2236, conference call ID 11066237. The replay will be available beginning at approximately 6 p.m. CT on Wednesday, August 2, 2006, until 6 p.m. CT on Wednesday, August 9, 2006. About CNS, Inc. CNS, based in Minneapolis, designs and markets consumer health care products, including Breathe Right(R) nasal strips and FiberChoice(R) dietary fiber dietary fiber n. Coarse, indigestible plant matter, consisting primarily of polysaccharides, that when eaten stimulates intestinal peristalsis. supplements. The company focuses on products that address important consumer needs within the aging well/self-care market, including better breathing and digestive Ulcers (Digestive) Definition In general, an ulcer is any eroded area of skin or a mucous membrane, marked by tissue disintegration. In common usage, however, ulcer usually is used to refer to disorders in the upper digestive tract. health. Its common stock is listed on the Nasdaq National Market under the ticker symbol Ticker Symbol An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors "CNXS." More information about CNS and its products is available at www.cns.com. Some of the information contained in this news release is forward-looking and subject to certain business risks as described in the company's filings with the Securities and Exchange Commission, including those referred to in its Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended March 31, 2006. This news release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , which involve risks and uncertainties.
CNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts) (unaudited)
Three Months Ended
June 30,
---------------------
2006 2005
---------- ----------
Net sales $29,346 $23,539
Cost of goods sold 8,317 6,968
---------- ----------
Gross profit 21,029 16,571
---------- ----------
Operating expenses:
Advertising and promotion 10,465 5,957
Selling, general and administrative 5,654 4,709
---------- ----------
Total operating expenses 16,119 10,666
---------- ----------
Operating income 4,910 5,905
Investment income 370 321
---------- ----------
Income before income taxes 5,280 6,226
Income tax expense 1,755 2,181
---------- ----------
Net income $3,525 $4,045
========== ==========
Diluted net income per share $.24 $.27
========== ==========
Weighted average number of common and potential
common shares outstanding 14,613 15,079
========== ==========
CNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) (unaudited)
June 30, March 31,
2006 2006
---------- ----------
Current assets:
Cash and cash equivalents $5,107 $4,152
Marketable securities 53,875 48,439
Accounts receivable, net 13,921 17,667
Inventories 5,885 5,766
Other current assets 2,890 3,277
---------- ----------
Total current assets 81,678 79,301
Long-term assets 11,041 11,173
---------- ----------
Total assets $92,719 $90,474
========== ==========
Current liabilities 14,328 15,211
Stockholders' equity 78,391 75,263
---------- ----------
Total liabilities and stockholders' equity $92,719 $90,474
========== ==========
CNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three Months Ended
June 30,
2006 2005
---------- ----------
Operating activities:
Net income $3,525 $4,045
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 375 203
Share based compensation 434 0
Deferred income taxes (95) 125
Changes in operating assets and
liabilities:
Accounts receivable 3,746 3,774
Inventories (119) (1,650)
Prepaid expenses and other current
assets 373 571
Accounts payable and accrued expenses (883) (1,332)
---------- ----------
Net cash provided by operating activities 7,356 5,736
Investing activities:
Purchases of marketable securities (31,033) (12,003)
Sales and maturities of marketable securities 25,633 11,615
Payments for purchases of property and
equipment (136) (22)
Payments for product rights (11) (109)
---------- ----------
Net cash used in investing activities (5,547) (519)
Financing activities:
Proceeds from the issuance of common stock
under stock plans 139 696
Excess income tax benefits from stock option
exercises 13 0
Purchase of treasury shares (27) (6,333)
Dividends paid (979) (858)
---------- ----------
Net cash used in financing activities (854) (6,495)
---------- ----------
Net decrease in cash and cash equivalents 955 (1,278)
Cash and cash equivalents:
Beginning of period 4,152 4,814
---------- ----------
End of period $5,107 $3,536
========== ==========
Use of Non-GAAP financial measures The non-GAAP financial measures used in this press release quantify Quantify - A performance analysis tool from Pure Software. the impact of adopting Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). (FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). ) Statement of Accounting Standards No. 123R related to the expensing of stock based compensation. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP. We view these non-GAAP financial measures to be helpful in assessing the Company's on-going operating results and allow for greater transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. related to supplemental information. Investors are encouraged to review the reconciliations of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided with the financial statements attached to this press release.
GAAP to Non-GAAP Disclosure - - Impact of Stock Based Compensation
Expense (Unaudited)
Amounts in '000's, except per share amounts
For the Quarter For the Twelve
Ended Months Ended
June 30, 2005 March 31, 2006
--------------- ---------------
Operating income, as reported $5,905 $25,600
Deduct: Total stock-based compensation
expense, pre-tax 363 1,723
--------------- ---------------
Proforma operating income 5,542 23,877
=============== ===============
Net income, as reported $4,045 $17,243
Deduct: Total stock-based compensation
expense, pre-tax 363 1,723
Income tax benefit relating to stock-
based compensation (134) (304)
--------------- ---------------
Proforma net income $3,816 $15,824
=============== ===============
Weighted average number of common and
potential common shares outstanding,
as reported 15,079 15,001
Impact of stock-based compensation on
common and potential common shares
outstanding (115) (69)
--------------- ---------------
Proforma weighted average number of
common and potential common shares
outstanding 14,964 14,932
=============== ===============
Diluted income per share, as reported $0.27 $1.15
Less: Per share impact of stock-based
compensation, net of income tax
effect 0.02 0.09
--------------- ---------------
Proforma diluted income per share $0.25 $1.06
=============== ===============
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