VANCOUVER, British Columbia--Feb. 3, 2004-- Creo announced its financial results for the 2004 fiscal first quarter ended December 31, 2003, reported in U.S. dollars. For the 2004 first quarter, revenue was $154.9 million, an increase of 9 percent from $142.8 million in the first quarter a year ago and an increase of 3 percent from $150.3 million in the prior quarter. Creo recorded net earnings of $12.3 million or 24 cents per diluted share. This compares to net earnings of $1.5 million or 3 cents per diluted share in the first quarter a year ago and $2.4 million or 5 cents per diluted share in the prior quarter. Net earnings for the 2004 first quarter include a one-time gain from the sale of an investment in Printcafe Software, Inc. of 17 cents per diluted share. "Creo has delivered our best earnings performance in 14 quarters, even before the one-time gain this quarter," said Amos Michelson, chief executive officer of Creo. "This is also the highest quarterly revenue in nine quarters. Compared to last year, revenues were particularly strong in our Asia-Pacific region and in the digital printing business with Xerox. Revenue in Europe, Middle East and Africa (EMEA) increased, largely on the strength of the euro, while revenue in the Americas was down in the first quarter as anticipated." "We remain focused on growth and in particular on the execution of our digital media strategy," continued Mr. Michelson. "This quarter we introduced Creo's first digital plate and completed the acquisition of a plate manufacturing facility. In addition, we released the Veris(TM) inkjet proofer into production, giving us an important new source of both equipment and consumables growth. In fiscal 2004, we expect to increase consumables revenue from digital plates and proofing materials by over 50 percent from $47.3 million in fiscal 2003. In early January, Creo added digital presses to our product offering in the U.S. and Canada, under the reseller agreement signed with Xerox. This will allow us to increase our participation in one of the fastest growing markets in our industry." Highlights for the quarter Cash and cash equivalents at quarter-end were $69.9 million similar to the same period in the prior year and up from $59.0 million in the prior quarter. Net proceeds of $22.1 million received from the sale of the equity interest in and loan receivable repayment from Printcafe in the 2004 first quarter were offset by cash outflows of approximately $18.1 million for the acquisition of a plate manufacturing facility from First Graphics (Pty) Limited, purchase of software intellectual property from HiT Internet Technologies SpA and the remaining payment relating to the ScenicSoft Inc. acquisition. Creo generated $8.1 million in cash flow from operations. Free cash flow, or cash from operations less capital expenditures, was $4.4 million. Gross margin was 43.8 percent this quarter compared to 44.2 percent in the first quarter a year ago and 44.1 percent in the prior quarter. Operating expenses were $63.3 million this quarter, including $1.6 million in restructuring and severance costs, or 2 cents per diluted share (after tax). This compares to operating expenses of $60.7 million in the first quarter a year ago and $63.0 million in the prior quarter. Weighted shares outstanding (diluted) were 51,318,514 for the three months ended December 31, 2003. Outlook "We are investing in the growth areas of our business," said Mark Dance, chief financial officer and chief operating officer of Creo. "We intend to increase revenue by more than 10 percent this fiscal year while controlling expenses and maximizing operating leverage. To deliver on this commitment, we have allocated resources for new product introductions at the Drupa trade show in Dusseldorf, Germany in May and increased sales capacity for the new digital press business. At the same time we have continued to scale down lower priority activities and consolidated operations where possible. As a result of cost reduction and prioritization activities, we expect restructuring and severance charges of approximately 3 cents per diluted share (after tax) in our fiscal second quarter, in addition to the 2 cents per diluted share (after tax) recorded in the first quarter." Mr. Dance continued, "We expect improved product and consumables sales in our regions to offset the seasonal reduction in our OEM business in the next quarter. Through the balance of the year we expect sequential quarterly revenue growth. We are confident in our strategy, and believe the investments we are making will allow us to meet our growth targets." Creo offers the following outlook for the fiscal second quarter ending March 31, 2004: Revenue between $155 million and $160 million; and Net earnings per diluted share between 2 and 6 cents per share, after approximately 4 cents per diluted share (after tax) of severance, restructuring costs and intangible asset amortization. The guidance is based on foreign exchange rates on January 14, 2004. Beginning in the 2004 fiscal second quarter, Creo will adopt the policy of expensing stock options using the fair value method of accounting for stock-based compensation. Starting in fiscal 2004 this will apply prospectively for all stock options granted to Creo employees. While the new CICA accounting standards do not come into effect for Creo until the next fiscal year, the company has chosen to adopt this policy early.