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PTC Discloses $18M Restructuring Charge To Boost IoT, AR Business

PTC says the $18 million restructuring charge is related to a workforce realignment plan that will allow the company to invest more in Internet of Things and other initiatives.

PTC revealed an $18 million restructuring charge on Wednesday that the company said will allow it to invest more in the industrial Internet of Things, augmented reality and other growth opportunities.

The Needham, Mass.-based industrial software company said the $18 million charge set for fiscal year 2019, which began in October, is the result of a workforce realignment plan and "consists principally of termination benefits." However, the company said the restructuring would not result in significant cost savings because it is a "realignment of resources."

"With the growth opportunity in front of us in the Industrial Internet of Things and Augmented Reality, other strategic initiatives we’ve undertaken, and our continued commitment to operating margin improvement, we are realigning our workforce in the beginning of [fiscal year 2019] to shift investment to support these strategic, high growth opportunities," PTC said.

[Related: PTC Makes 3rd Augmented Reality Acquisition As AR Revenue Reaches $20M]

In response to a question from an analyst on PTC's earnings call on Wednesday, CEO Jim Heppelmann likened the restructuring plan to an accelerated share repurchase on a stock buyback plan. He said the company had already been making smaller changes in staffing to focus on growth initiatives like IoT.

"But as we went into this new year and really looked at the size of growth, the opportunity we have with IoT and AR, we said we have to move a lot of resources and we gotta do it quickly," he said, adding that he doesn't anticipate PTC taking an annual restructuring charge after 2019.

"The amazing thing is we have 6,000 employees now and we had 6,000 employees a number of years ago, and it's the reason we've been able to keep driving margins up," Heppelmann added.

Andrew Miller, PTC's CFO, elaborated and said the restructuring charge was the result of a portfolio analysis by the company's sales and marketing team that resulted in the company cutting off investments for initiatives with long tail revenue, which provided a lower return on investment.

"We looked at profitability in every single country and where the profitability didn't make sense, we basically moved resources out, accepted that maybe we'll have a little bit lower bookings in that country, but we have a lot more opportunity by putting those sales and marketing resources in an area where there's really growth for IoT and AR," Miller said.

A PTC spokesperson did not respond to a request for comment on more specifics Wednesday evening.

Earlier during the call, Heppelmann said that while the company's IoT business, which includes its AR solutions, didn't surpass its product lifecycle management business for 2018, he expects it will next year to become the company's second largest source of revenue.

That, Heppelmann said, "shows that we've built a new growth engine with scale."

PTC's stock price was down roughly 5 percent to $80 in after-hours trading Wednesday.

In the company's Q4 earnings, it posted net earnings of $53 million or 45 cents per share, compared to $40 million or 34 cents per share from the same period last year. The company's Q4 revenue was $322 million, a 4.8 percent increase over the same period last year and in line with Wall Street's expectations. The company's net earnings beat Wall Street expectations by 1 cent while revenue was in line with what analysts expected.

Meanwhile, the company's Q4 subscription annualized recurring revenue was $544 million, a 61 percent increase from the same period last year.

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