zSpace, Inc. (ZSPC) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals negative trends: a decline in ACV, NDRR, bookings, and Q3 revenues, despite improved gross margins. The Q&A highlights risks from government shutdowns affecting purchasing and funding, and significant customer renewals not materializing. While there are international expansion efforts, uncertainties in education funding and supply chain challenges persist. Management's avoidance of guidance on Q4 revenues further adds to negative sentiment. Overall, the negative aspects outweigh the positives, suggesting a likely negative stock price movement.
Key Financial Performance
Software and Services Revenue Composed over 50% of total revenue, contributing to gross margin expansion of over 640 basis points. This was driven by strong customer renewals and continued adoption of software offerings.
Revenue Growth Grew 18% sequentially, showcasing disciplined focus on delivering value despite macroeconomic and funding uncertainties.
Year-to-Date Revenues $23 million, down 22% year-over-year. Decline attributed to external headwinds like tariff policy and education funding uncertainty.
Annualized Contract Value (ACV) of Renewable Software $10.2 million, down 10% year-over-year. Decline due to two large customers not fully renewing their expanded commitments due to macro factors.
Net Dollar Revenue Retention (NDRR) 77% for customers with at least $50,000 of ACV, down from the previous year. Decline attributed to the same two large customers. Normalized NDRR would have been 94%.
Bookings $22.7 million for the 9-month period, down 35% year-over-year. Decline due to unpredictable purchasing patterns and delays in school districts.
Gross Profit $10.9 million, down 10% year-over-year. Affected by a one-time charge for discontinued software license inventory and tariff-related margin compression.
Gross Margins 47.3% for the 9-month period, up 6.4 percentage points year-over-year. Improvements driven by favorable revenue mix, new hardware products, and increased zSpace-owned software content.
Q3 Revenues $8.8 million, down 38% year-over-year. Decline due to an unusually large customer order in the prior year that did not repeat.
Q3 Gross Margins 51.2%, up 6.4 percentage points year-over-year. Improvements driven by revenue mix shift and rate-based factors.
Operating Expenses $6.6 million for Q3, up 4% year-over-year. People-related costs were up 5% year-over-year.
Cash Position $4.3 million as of September 30, 2025, compared to $3.0 million as of September 30, 2024. Increase attributed to tight expense management and revenue growth.
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Operating Highlights
Integration of Second Avenue Learning: Completed integration leading to the launch of a career exploration application.
AI-powered education products: Developed innovative AI-powered education products for speed and impact.
Language translation using AI: Enabled platform to support over 50 languages, broadening accessibility and global reach.
Global expansion: Deployed solutions with GEMS Education in Dubai and expanded to Italy, Bulgaria, Poland, and the Middle East.
U.S. market wins: Secured investments from Dixie County Schools in Florida and Challenger Learning Center in Alabama for STEM and robotics applications.
European Union funding: Union Interactive in Bulgaria expanded zSpace usage as part of the National STEM project funded by the EU.
Revenue growth: Software and services revenue comprised over 50% of total revenue, contributing to a gross margin expansion of 640 basis points.
Sequential revenue growth: Achieved an 18% sequential revenue increase despite macroeconomic uncertainties.
Gross margin improvement: Gross margins for the 9-month period were 47.3%, up 6.4 percentage points year-over-year.
Shift to software revenue: Increased software and services revenue to 57% of total revenue in Q3, driving profitability.
Exit from China: Exited the Chinese market to focus on internal development and acquisition of software titles.
Cautious investment approach: Maintained tight control over operating expenses and focused on profitability.
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Risk or Challenges
Macroeconomic and Funding Uncertainties: Ongoing macroeconomic and funding uncertainties are impacting customer purchasing decisions, particularly in the U.S. education sector. This has led to unpredictable purchasing patterns and delays in school district orders.
Tariff Impacts: Tariffs and duties have caused margin compression, even though they are treated as pass-through costs. This continues to be a headwind for profitability.
Decline in Annualized Contract Value (ACV): The annualized contract value of renewable software decreased by 10% year-over-year, primarily due to two large customers not fully renewing their commitments due to macroeconomic factors.
Revenue Decline: Year-to-date revenues were down 22% year-over-year, and Q3 revenues were down 38% year-over-year, reflecting challenges in securing large customer orders and the impact of external headwinds.
U.S. K-12 Market Turbulence: The U.S. K-12 market is experiencing turbulence, resulting in delays and unpredictability in purchasing patterns, which has negatively affected bookings and revenue.
Customer Retention Challenges: Net dollar revenue retention for customers with at least $50,000 of ACV was 77%, down from the previous year, indicating challenges in retaining and expanding customer commitments.
Government Shutdown: The government shutdown over the first six weeks of Q4 has added to the uncertainty and challenges in the U.S. education sector, further complicating business projections.
Cash Flow Constraints: The company has limited cash reserves, with $4.3 million in cash and equivalents as of September 30, 2025, which may constrain its ability to navigate ongoing challenges.
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Guidance & Outlook
Revenue and Market Conditions: The company approaches the fourth quarter with cautious optimism due to ongoing uncertainty related to tariff impacts and the U.S. education funding environment. Despite these challenges, customer demand remains strong, with recent wins and ongoing engagement indicating interest in expanding usage of zSpace solutions. The company believes that as federal education policy stabilizes and funding mechanisms become more predictable, the longer-term outlook will strengthen.
Revenue Mix and Profitability: The company continues to focus on improving the quality of revenues by increasing the proportion of software and services in its revenue mix. This shift has contributed to gross margin expansion and is expected to further enhance profitability. Additional hardware innovations, yet to be announced, are anticipated to improve performance.
Market Expansion and Product Deployment: zSpace is expanding its global reach through partnerships and deployments in international markets, including Dubai, Italy, Bulgaria, Poland, and the Middle East. These initiatives aim to broaden the adoption of AR/VR learning solutions and enhance accessibility through AI-powered language translation tools.
Challenges in U.S. K-12 Market: The U.S. K-12 market continues to face turbulence, resulting in unpredictable purchasing patterns and delays. This has impacted the company's ability to project business volume accurately. The company has refrained from issuing formal financial guidance due to these uncertainties.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How does the government shutdown impact zSpace directly?
A:The government shutdown creates obstacles for end users in making purchasing and funding decisions, delaying access to funds from federal departments like the Department of Labor or Education. This results in delays in accepting shipments and concluding purchase orders.
Q:What buckets of federal money do schools access to purchase zSpace products?
A:For the CTE business, funding primarily comes from Perkins, which is flowing but varies by state. For K-12 STEM, 10% of funding is federal, including Title I and other title programs, but the majority of funding is state and local. Federal funding is now flowing directly to states without being tied to specific title acts.
Q:What is the deployment status of zSpace in Danbury schools?
A:Currently, zSpace is deployed in one high school and three middle schools in Danbury. There is potential for expansion across the district. The deployment includes Career Explorer software, and the district has about 12,000 students.
Q:What is the status of zSpace's deployment with GEMS Education?
A:GEMS Education, the largest private school network globally, has installed a zSpace classroom lab in a new facility in Dubai. Discussions are ongoing to expand this deployment across the UAE, Saudi Arabia, the UK, and India.
Q:What caused the net dollar revenue retention to be 77%?
A:Two large customers, including one with a deployment of 700-800 devices across six schools, reduced their software renewals due to budget constraints. However, they maintained the devices and some software, preserving the footprint for potential future upsell opportunities.
Q:Will the seasonal revenue increase from Q3 to Q4 persist this year?
A:The seasonal increase is uncertain due to the government shutdown, which affects the timing of shipments and fulfillment of orders. Typically, Q4 sees strong revenues, but this year remains unpredictable.
Q:What are the recent developments in the Workforce and CTE segment?
A:The Career Explorer application, launched with AI integration, has been well-received. It was developed quickly after the acquisition of Second Avenue Learning and has already generated low six-figure bookings. The CTE market shows strong demand, particularly for tools that guide students into suitable programs.
Q:How is the international segment contributing to zSpace's business?
A:zSpace has seen strong demand internationally, with recent partnerships in Italy, Bulgaria, and Poland. The company is focusing more on international expansion, including efforts with GEMS Education in Dubai.
Q:Are there any remaining tariff or supply chain challenges?
A:Tariffs have a modest impact, reducing gross margins by about 1 percentage point. Supply chain issues are less significant compared to uncertainties in education funding. Manufacturing shifts from China to Thailand are expected to improve margins.
Q:What new hardware developments are expected from zSpace?
A:A new stylus, described as game-changing, will simplify user interaction and reduce hardware complexity. This is expected to improve user experience, logistics, and gross margins.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the seasonal revenue increase from Q3 to Q4, citing the government shutdown as a wildcard and leaving the question unanswered.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI education
AI translation
Alabama Challenger
Bulgaria Poland
Bulgaria use
CEO Kellenberger
Center zSpace
Challenger Learning
County Schools
Dixie County
Dubai AR
Dubai deployment
East momentum
Education flagship
European Union
Florida Dixie
GEMS Education
Greg afternoon
Interactive partner
Italy Bulgaria
Kellenberger CEO
Kellenberger CFO
Kellenberger afternoon
Learning Center
Learning launch
Middle East
Mr harbor
addition
language
reach
website
win
ZSPC Transcript
zSpace, Inc. (ZSPC) Q1 2026 Earnings Call Prepared Remarks Transcript
Positive5-14
The earnings call reveals a positive financial performance with increased revenue, improved gross margin, and a swing to net income from a loss. Despite challenges from uncertain federal education policies, the company shows signs of stabilization and operational efficiency. Cost-cutting measures have been effective, and cash flow has improved. These factors suggest a positive outlook for the stock price, likely within the 2% to 8% range over the next two weeks.
zSpace, Inc. (ZSPC) Q4 2025 Earnings Call Transcript
Unknown3-30
The earnings call reveals declining financial metrics, including revenue, bookings, and cash reserves, indicating operational challenges. Despite improved gross margins, the reduced revenue and macroeconomic issues overshadow potential positives. The Q&A section highlights cautious optimism but acknowledges funding disruptions and geopolitical risks. While there are some positive signs, such as potential breakeven EBITDA in 2026, the immediate outlook is negative due to significant revenue declines, funding uncertainties, and limited concrete guidance on international expansion.
zSpace, Inc. (ZSPC) Q3 2025 Earnings Call Transcript
Unknown11-13
The earnings call reveals negative trends: a decline in ACV, NDRR, bookings, and Q3 revenues, despite improved gross margins. The Q&A highlights risks from government shutdowns affecting purchasing and funding, and significant customer renewals not materializing. While there are international expansion efforts, uncertainties in education funding and supply chain challenges persist. Management's avoidance of guidance on Q4 revenues further adds to negative sentiment. Overall, the negative aspects outweigh the positives, suggesting a likely negative stock price movement.
Earnings call transcript: zSpace Q1 2025 sees revenue dip, stock rises
Unknown5-14
The earnings call highlights several negative factors: a 14% revenue decline, funding uncertainties, extended sales cycles, and significant international market volatility. Despite some positive aspects like increased gross profit and software revenue, the overall sentiment is negative due to operational challenges, backlog issues, and tariff impacts. The Q&A session revealed continued uncertainty and management's reluctance to provide clear guidance, further contributing to a negative outlook. Given these factors, the stock price is likely to experience a negative reaction in the short term.
ZSPC Report
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