By Ann Levine November 18, 2003 – Creo Inc. (Nasdaq: CREO) announced fourth quarter revenue of $150.3 million, a 9% increase over the $138.4 million reported for the same quarter last year. GAAP earnings were $2.4 million or $0.05 per diluted share. Earnings for the same period last year were $0.6 million or $0.01 per diluted share. For the company's fiscal year ending September 30, 2003, revenue was $578 million up 7% from 2002. GAAP earnings for the year were $5.5 million or $0.11 per diluted share this is up from a GAAP loss of $0.49. Editor's Note: Now that Creo's full year 2003 results are in, it is clear that the sale of Printcafe helped and not hurt their financial results. In addition, we see a company that is clearly getting focused around its product offerings across the entire value chain from digital asset management software products through to the manufacturing and channel control of consumables, such as plates. We expect to see not only better growth for Creo in 2004 but also increased bottom line performance as their OEM and global channel strategies take hold. Definitely a company to watch in the upcoming year as they have openly stated their intentions to be a $1 billion company by 2007. Topics of this summary: * Company Performance * 2004 Outlook * Q & A Company Performance Creo reached the highest quarterly revenues and earnings in two years. Company strategies are focused on growth markets, growing share in the small to mid-size markets, and driving digital adoption in core markets. These strategies resulted in positive gains in 2003. Execution and cost controls were also some of the main reasons for increased performance. In the digital playing field, Creo has market share of over 50% with the DocuColor 6060. Xerox has announced 2 new devices with Creo products, DocuColor 5252, and the DocuColor 3535. The 3535 will provide a new sales and market channel for Creo. Even though this market has lower unit prices, the volumes are higher. In the small to mid-size commercial printing market, business has increased over 2002 levels. Creo now has dedicated a sales team in the U.S. working with printers with 10-30 employees. Regionally, in Europe, Middle East and Africa (EMEA) revenue was strong, up 21% to $221.1 million from improved equipment sales and the appreciation of the Euro. CTP sales have been particularly strong. In the Asia/Pacific region, CTP sales in Japan alone increased from 10 to 20%. Revenue was up 15% to $72.7 million. Improved sales execution and market penetration and strengthening of the yen contributed to the increase. In the Americas, revenues also improved 3%. External indicators that indicate a potential economic turn-around include the printer's confidence index, an increase in paper shipments to small commercial printers and some printers are seeing a small up tick in business. The company announced their entry into the digital thermal plate market. In September, the company announced a new plate and the acquisition of a plant in South Africa . Both are expected to substantially add to revenues. Priorities for 2004 include: * Continued pursuit of a media strategy * Focus on growth markets and growth products * Increase in differentiation to customers * Continue to control cost and operational efficiencies With continued growth and business focus, Creo's target is to reach $1 billion in revenue by 2007. 2004 Outlook Creo's financial outlook for the first quarter is for revenue in the range of $148- $153 million with GAAP earnings per diluted share of $0.19-$0.25. The sale of Printcafe will have an impact of $0.17 per share. Q & A 1. The impact of foreign exchange on company revenues was zero in the fourth quarter and a gain of about $7 million operationally for the year. The foreign currency impact on operating expenses was $1 million in the fourth quarter and full year impact was about 50% of $30 million dollar gain over 2002. 2. During the call, mention was made of a delay in revenues during the first quarter. A delay in revenue is due to printers delaying installation of Creo products until the end of the year. 3. Gross margin guidance for the first quarter is 44% or slightly below depending upon a ramp up of consumables and a stabilization and improvement on product gross margin. 4. Operating expenses are targeted at $60 million. The number is aggressive because of Canadian dollar and Euro increases. 5. The company's expectation into 2004 is for increased sales of Staccato in the packaging industry. The company is working on releasing this solution into production and expects many printers to adopt it due to associated cost savings. 6. As far as competitors with the Staccato product, Creo does not expect a competitive product any time soon. Reasons include competitors needing a screening algorithm and the need for a sharp imaging product which only Creo has. 7. Gross margin decline in the fourth quarter was due to the Canadian dollar appreciation. The appreciation had a ½% impact on GM, the balance was due to severance costs and company product sales in lower margin territories. 8. There is no way to avoid discounts in pricing. Prices continue to go down slowly as expected. Creo is reducing the company's manufacturing costs and service and installation costs in addition to adding increased productivity features to their current operations to offset prices. 9. About $1.2 million in severance costs in EMEA are shown operating expenses, mostly in sales and G & A, and they do not appear in the reconciliation. 10. Since the Graph Expo in Chicago, Creo has seen increased interest in CTP products. The company has also observed a worldwide movement into Staccato printing. 11. Creo does not expect a huge volume increase with the smaller printers as a result of the Graph Expo, but officials see increased interest. 12. Consumables are not included in Q4 revenues but will appear in the first quarter revenues. 13. G & A expenses have come down from previous rates. The company has reduced IT spending and reduced bad debt. Business integration expenses may cause an increase in G & A in the next quarters. 14. Sales strategies in various regions were not disclosed, however, compensation strategies were stated as market competitive by region and include a small base and commission. 15. The North American distribution center is currently in place, Creo is using a third party at the distribution center. 16. Creo's goal is to reach $1 billion in revenues in 2007. Specific strategies to reach the goal include, keeping operating expenses under control, product and service revenue growth in the low double-digits and consumable revenues of 50%. 17. Creo has substantially ramped down its software business over the past year. There was no mention of selling this side of the business. 18. The tax rate for 2004 is expected at a rate of 25% or below.