VANCOUVER, British Columbia--May 4, 2004-- Creo Inc. today announced its financial results for the 2004 fiscal second quarter ended March 31, 2004, reported in U.S. dollars. Second quarter revenue was $157.6 million, an increase of 11.4 percent from the second quarter of 2003. Net earnings were $2.0 million for the quarter, an increase of $3.2 million from the second quarter of 2003. Diluted earnings per share were 4 cents per share, up 6 cents per share from a loss of 2 cents per share in the second quarter of last year. Net earnings this quarter include restructuring expenses of $1.0 million and severance charges of $1.0 million related to the completion of restructuring activities announced last quarter and a non-cash charge of $1.0 million for intangible asset amortization. Consumables revenue reached $17.5 million this quarter, an increase of 57.2 percent compared to the second quarter last year and 30.5 percent compared to the prior quarter. This growth is due to the addition of revenue from acquisitions and growth in revenue from the Creo Positive Thermal Plate. "This quarter we achieved our financial goals and reported continued revenue growth," said Amos Michelson, chief executive officer of Creo. "We remain focused on the implementation of our digital media strategy and the increased consumables revenue this quarter is confirmation of our progress. In just six months, we have rolled out a broad, high-performance digital plate offering to customers in the Americas, Europe, the Middle East and Africa (EMEA) and Asia-Pacific. We expect this will be the basis for continued growth for many years." Revenue by segment this quarter was 37.5 percent in the Americas; 38.7 percent in Europe, Middle East and Africa; 14.3 percent in Asia-Pacific (including Japan); and 9.5 percent in OEM and Other. Compared to last year, all economic segments reported improved results in the second quarter. Results were particularly strong in Asia-Pacific, including Japan. As expected, the Americas region improved this quarter following a sequential decline in the 2004 first quarter. EMEA improved largely on the strength of the euro while the OEM and Other segment reported year-on-year gains due to the continued strength of the digital printing business with Xerox and increased sales of Leaf(TM) Valeo digital camera backs. For the year-to-date, all segments showed gains over the prior year except the Americas which was slightly below last year's run rate. Mr. Michelson continued, "Later this week at Drupa, the largest trade show in our industry, Creo and other vendors are bringing out a huge range of new products. In anticipation of Drupa we have seen some customers defer purchase decisions, but we expect the net effect of the show will be to increase both product and consumable commitments and drive revenue in the fourth quarter. We remain confident in our ability to achieve our growth objectives for this fiscal year." Gross margin in the 2004 second quarter was 42.7 percent, compared to 45.0 percent for the 2003 second quarter. Gross margin was influenced this quarter by the relatively 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 pressure, particularly in EMEA compared to last year's second quarter. The strength of the euro offset some of the unfavorable impact on gross margin from these factors. Total operating expenses were $64.7 million, including $1.0 million in restructuring costs, $1.0 in severances, and $0.8 million in intangible asset amortization. Year-over-year, total operating expenses increased 2.7 percent but were reduced operationally by approximately 5 percent before the impact of foreign currency. Creo used $9.2 million in cash flow from operations reflecting seasonal cash outflows and an increase in consumables inventories. Cash on hand at quarter end was $83.9 million. Weighted shares outstanding (diluted) were 51,861,638. Highlights of the Quarter In January Creo and Xerox Corporation signed a reseller agreement for mid-range and entry-level production color digital presses in Canada and the United States. The companies also agreed to cooperate in the development of digital printing workflow software with the first examples of this collaboration to be shown at the Drupa trade show. In February Creo acquired a printing plate manufacturing facility in West Virginia from Spectratech International, Inc. for an aggregate of $19.7 million for assets and working capital. Creo gained plate technology from the acquisition allowing it to launch two new plates - Fortis(TM) PM for the newspaper market and Mirus(TM) PN for the commercial and packaging market. In March Creo raised net proceeds of $48.5 million in an offering of 5 million Creo common shares. In March Creo partnered with a leading Chinese plate manufacturer to supply thermal printing plates in China. Outlook Creo offers the following outlook for the fiscal third quarter ending June 30, 2004: Revenue between $153 million and $158 million; and Net earnings per diluted share between 1 and 5 cents per share, after approximately 1 cent per share of intangible asset amortization. "The recent change in the exchange rate for the euro compared to its average rate for the last quarter has reduced our expected third quarter revenue by over $2 million. We are also seeing the impact of the Drupa trade show reflected in our third quarter forecast," said Mark Dance, chief financial officer and chief operating officer of Creo. "However we expect continued growth in the consumables business and new product introductions will accelerate sales activity in the fourth quarter and we continue to target 10 percent overall revenue growth for the full fiscal year, and a 50 percent increase in consumables revenue." The guidance is based on foreign exchange rates on April 28, 2004.