VANCOUVER, British Columbia--Aug. 4, 2004-- Creo Inc. today announced its financial results for the 2004 fiscal third quarter ended June 30, 2004, reported in U.S. dollars. Third quarter revenue was $156.2 million, an increase of 8.8 percent from the third quarter of 2003. Net loss was $1.6 million for the quarter, a decrease of $4.3 million from the third quarter of 2003. Diluted loss per share was 3 cents per share, compared to 5 cents diluted earnings per share in the third quarter of last year. Net loss this quarter included approximately 6 cents per share of after-tax expenses from the combination of other expenses of approximately $1.8 million, due primarily to foreign exchange effects; a restructuring expense of approximately $0.6 million; and a non-cash intangible asset amortization charge of $0.7 million. Consumables revenue reached $21.6 million this quarter, an increase of 77.5 percent compared to the third quarter last year and 23.0 percent compared to the second quarter 2004. "This quarter we accelerated the implementation of our digital media strategy," said Amos Michelson, chief executive officer of Creo. "In just nine months, we have built a solid business that will be the basis for continued growth for many years. We continued this quarter to see strong demand for the full range of our complete systems, including computer-to-plate (CTP) hardware, software, proofing, and consumables, despite the expected and temporary leveling of sales due to customers' anticipation of the quadrennial Drupa trade show. We remain committed to driving profitable growth and will continue to take all steps necessary to increase both earnings and revenue." Revenue by segment this quarter was 37.0 percent in the Americas; 36.5 percent in Europe, Middle East and Africa (EMEA); 13.8 percent in Asia-Pacific (including Japan); and 12.7 percent in OEM and Other. Results were particularly strong in Asia-Pacific. The OEM and Other segment reported 46.6 percent year-over-year gains due to the continued strength of the digital printing business with Xerox Corporation and increased sales of Leaf(TM) digital camera backs. For the year-to-date, all segments showed gains over the prior year. Mr. Michelson continued, "At Drupa, the largest trade show in our industry, Creo customers crowded the booth and made digital plate commitments at an unprecedented level. While the anticipation of Drupa did cause some customers to defer purchase decisions, we expect bookings from the show will drive increased revenue in the fourth quarter and beyond. The revenue growth from the digital media strategy is clearly apparent. However, we operate in a very competitive market and face cost pressures from the strength of the Canadian dollar and Euro. We have concluded that we must reduce expenses in order to ensure that profitability will grow with our increased revenues. We are conducting a thorough review of our cost structure and spending priorities leading into the new fiscal year. As part of this effort, we will be consolidating operations and moving the Creo Americas subsidiary headquarters from Boston to Vancouver. This move will reduce costs, streamline management and increase efficiency." Gross margin in the 2004 third quarter was 42.7 percent, compared to 45.2 percent for the 2003 third quarter. Gross margin was influenced this quarter by low utilization of our plate manufacturing capacity as we ramp up our digital plate business; changes in sales channel distribution and product mix; and pricing pressures on CTP systems compared to last year's third quarter. Year-over-year, the strength of the Euro offset some of the impact on gross margin from these factors, but from the previous quarter the Euro had an unfavorable impact. Total operating expenses were $68.6 million, including the $3.0 million pre-tax of previously announced non-cash expenses and restructuring. Year-over-year, total operating expenses increased 12.3 percent but were substantially unchanged excluding other expenses, restructuring and the impact of foreign currency. Creo used $6.0 million in cash flow from operations, reflecting increased accounts receivable and a build-up of tax receivables. Cash on hand at quarter end was $79.4 million. Weighted shares outstanding (diluted) were 55,083,699. Highlights of the Quarter May 6th through 19th, Creo exhibited at Drupa, the largest trade show in the graphic arts industry held every four years. Introduced multiple new products including Prinergy Evo and the Magnus(TM) VLF Strengthened digital printing offering with new Spire(TM) color servers for Xerox DocuColor printers Introduced integrated workflows for digital and commercial printing Announced two new processless printing plates: Clarus(TM) WL and Clarus PL Outlook Creo offers the following outlook for the fiscal fourth quarter ending September 30, 2004: Revenue between $163 million and $168 million; Net earnings per diluted share between 0 and 4 cents per share, after approximately 1 cent per share of intangible asset amortization and approximately 5 cents per share of restructuring, retention and accelerated amortization. The guidance is based on foreign exchange rates on July 27th 2004. Mark Dance, chief financial officer and chief operating officer of Creo, stated, "In the fourth quarter, we expect to incur $3 million to $4 million in restructuring, retention and accelerated depreciation costs as we consolidate the North American head office to Vancouver. We expect those changes will allow us to reduce expenses by approximately $2 million per quarter by the middle of the 2005 fiscal year."