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CREO PRODUCTS INC. ANNOUNCES 2000 SECOND QUARTER
RESULTS; REVENUE GROWTH OF 52.5% AND NET EARNINGS INCREASE OF 67.3%
VANCOUVER -- April 25, 2000: Creo Products Inc. reported net income for the three months ended March 31, 2000 of $7.1 million or $0.20 per share (diluted -- US GAAP) compared to $4.3 million or $0.15 per share for the three months ended March 31, 1999.
Total revenue for the three months ended March 31, 2000 increased 52.5% to $63.3 million from $41.5 million for the three months ended March 31, 1999. Total revenue for the six months ended March 31, 2000 increased 50.4% to $117.4 million from $78.1 million for the six months ended March 31, 1999.
"The second quarter of fiscal 2000 was a landmark quarter with the highest quarterly profits in the history of Creo," states Tom Kordyback, Chief Financial Officer. "Creo penetrated new markets and experienced tremendous growth. We finalized our $35 million investment in printCafe, a business-to-business Internet-based solution for the graphic arts industry, and we expect notable growth in this market."
On April 4, 2000, Creo acquired certain assets of Scitex Graphic Business and shares of related subsidiaries for 13,250,000 shares of Creo. The aggregate value of these shares is estimated at $540 million under US GAAP, which will be allocated to the assets and liabilities acquired along with the related goodwill from the acquisition. The acquisition will be accounted for under the purchase method, with the results from the operations of the Business acquired being included in the consolidated financial statements of Creo commencing April 4, 2000.
"CreoScitex, the principal operating division of Creo Products,
signals solid leadership in worldwide digital prepress solutions, "Kordyback
continues, "We anticipate continued growth for Creo in the coming
quarters as strong synergies in innovation and technology are realized
from this merger."
Product revenue from our joint venture with Heidelberg increased 75.5%
to $26.0 million for the three months ended March 31, 2000 from $14.8
million for the three months ended March 31, 1999. This increase was primarily
due to increased sales activity on the part of Heidelberg. Product revenue
from our joint venture with Heidelberg increased 77.9% to $48.2 million
for the six months ended March 31, 2000 from $27.1 million for the six
months ended March 31, 1999.
On April 5, 2000, subsequent to the close of the Creo-Scitex merger, Creo gave notice to Heidelberger Druckmaschinen AG (`Heidelberg') of our election to terminate the Heidelberg/Creo joint venture. The joint venture agreement provides that upon termination Creo will enter into an original equipment manufacture (OEM) arrangement with Heidelberg. Creo expects that the current Heidelberg/Creo joint-venture products such as the Trendsetter(R) family of thermal platesetters and the Prinergy(TM) workflow management system will be sold through both CreoScitex and Heidelberg distribution channels. The parties are currently engaged in discussions about OEM terms and about certain objections raised by Heidelberg concerning Creo's termination of the joint venture. Agreement has not been reached on all outstanding issues but discussions are continuing with a view to their resolution.
Service revenue increased 37.8% to $10.6 million for the three months ended March 31, 2000 from $7.7 million for the three months ended March 31, 1999. This increase in service revenue was due to fees generated from additional customer support agreements entered into in connection with new product sales. Service revenue increased 50.7% to $19.8 million for the six months ended March 31, 2000 from $13.2 million for the six months ended March 31, 1999.
Cost of sales increased 59.0% to $33.7 million for the three months ended March 31, 2000 from $21.2 million for the three months ended March 31, 1999. This increase was primarily due to the increase in our product sales and our installed customer base. Cost of sales increased as a percentage of total revenue to 53.3% for the three months ended March 31, 2000 from 51.1% for the three months ended March 31, 1999. Cost of sales increased 52.5% to $62.0 million for the six months ended March 31, 2000 from $40.7 million for the six months ended March 31, 1999. Cost of sales increased as a percentage of total revenue to 52.8% for the six months ended March 31, 2000 from 52.1% for the six months ended March 31, 1999.
Gross research and development expenses increased 57.3% to $11.4 million for the three months ended March 31, 2000 from $7.2 million for the three months ended March 31, 1999. This increase was due to a 25.3% increase in the number of research and development personnel and the increase in the amount of materials used for prototyping and developing new products. Gross research and development expenses increased 63.8% to $21.7 million for the six months ended March 31, 2000 from $13.3 million for the six months ended March 31, 1999.
Outside funding of our research and development activities increased 24.4% to $5.0 million for the three months ended March 31, 2000 from $4.0 million for the three months ended March 31, 1999. Outside funding of our research and development activities increased 17.3% to $9.4 million for the six months ended March 31, 2000 from $8.0 million for the six months ended March 31, 1999.
As a result of these factors affecting gross research and development expenses and research and development funding, net research and development expenses, which represent gross research and development expenses less outside funding, increased 98.1% to $6.4 million for the three months ended March 31, 2000 from $3.2 million for the three months ended March 31, 1999. Net research and development expenses increased 134.3% to $12.4 million for the six months ended March 31, 2000 from $5.3 million for the six months ended March 31, 1999.
Sales and marketing expenses increased 20.2% to $9.1 million, or 14.5% of total revenue, for the three months ended March 31, 2000 from $7.6 million, or 18.3% of total revenue, for the three months ended March 31, 1999. This increase was primarily due to the increase in sales activity. Sales and marketing expenses increased 27.0% to $18.3 million, or 15.6% of total revenue, for the six months ended March 31, 2000 from $14.4 million, or 18.4% of total revenue, for the six months ended March 31, 1999.
General and administration expenses increased 79.4% to $3.5 million, or 5.5% of total revenue, for the three months ended March 31, 2000 from $1.9 million, or 4.7% of total revenue, for the three months ended March 31, 1999. This increase was primarily due to the growth of our business. General and administration expenses increased 60.4% to $6.4 million, or 5.4% of total revenue, for the six months ended March 31, 2000 from $4.0 million, or 5.1% of total revenue, for the six months ended March 31, 1999.
Income tax expense increased to $4.7 million, or 39.6% of pre-tax income, for the three months ended March 31, 2000 from $3.0 million, or 41.1% of pre-tax income, for the three months ended March 31, 1999. This increase was primarily due to the increase in our profitability. Income tax expense increased to $8.1 million, or 39.6% of pre-tax income, for the six months ended March 31, 2000 from $5.5 million, or 41.8% of pre-tax income, for the six months ended March 31, 1999.
In February 2000, Creo invested $25 million in printCafe, Inc. and acquired in return 31,186,312 Class B common shares representing 17.24 per cent of printCafe's voting rights. As part of the investment, Creo will have a seat on the board of directors of printCafe, an Internet-based, business-to-business communication solution tailored specifically for the printing and graphic arts industries. In a subsequent round of financing, Creo invested an additional $10 million and acquired 1,132,502 Class C common shares that currently grant no additional voting rights but are convertible to stock with full voting rights at our discretion. We may, at our option, increase our ownership and voting rights to approximately 53 per cent by giving notice to printCafe and by paying an exercise/conversion premium.
On March 14, 2000, printCafe announced in a press release that it had filed a registration statement with the Securities and Exchange Commission for an initial public offering of its Class A common stock.
In February 2000, Creo invested $2.0 million and acquired 750,000 common shares in Creo Ltd. of Israel, representing approximately 10 per cent of Creo Ltd.'s total outstanding shares.
Contact: CreoScitex (Headquarters), Kim Lawrence. T: 604-451-2700. F: 604-437-9891. E: kim_lawrence@creoscitex.com. Or: CreoScitex (America), Mark Sullivan. T: 1-781-280-7585. F: 1-781-275-5649. E: mark_sullivan@creoscitex.com