🧾 What This Document Is

This is zSpace's Q4 and Full Year 2025 earnings announcement. It's a press release sharing their financial results and recent business updates. It tells us how much money they made or lost and gives a snapshot of the company's health and strategy.

🏢 What The Company Does

👉 In simple terms, zSpace makes augmented and virtual reality (AR/VR) technology for schools. They sell hardware (like headsets and styluses) and software to help students learn STEM, career training, and other subjects through immersive, hands-on experiences.

They're like the tech supplier for the classroom of the future, turning textbook diagrams into 3D models students can interact with. Their customers are mostly K-12 schools, technical colleges, and universities.

💰 Financial Highlights

This was a tough year financially, with clear signs of both struggle and strategic progress.

The Big Picture: Sales Fell, Losses Grew

• Full Year Revenue: $27.9 million in 2025, down from $38.1 million in 2024.
• Full Year Net Loss: ($25.4) million in 2025, worse than the ($20.8) million loss in 2024.
• The Cause: They blame a U.S. Federal Government shutdown that froze customer orders and shipments, severely hurting their sales.

The Silver Lining: Margins Improved Significantly

• Gross Margin (Profit on products): Jumped to 48% for the full year (up from 41%).
• Why it matters: This means they're making more profit on each dollar of sales. The improvement came from selling less hardware and more high-margin software and services, which made up 49% of revenue (up from 42% in 2024). It shows their strategy to become more of a software company is working.

Key Health Metrics Show Pressure

• Annual Contract Value (ACV): The annual value of their renewable software contracts was $9.9 million, down 12% from a year ago.
• Net Dollar Revenue Retention (NDRR): A critical metric showing if they keep and grow existing customers. For their big clients (over $50k ACV), it was only 71%. This means, on average, these customers spent 29% less this year than last. This is a major red flag for customer health.
• Cash on Hand: Only $1.0 million in cash as of Dec 31, 2025, down from $4.9 million a year earlier.

🚀 Key Moves & Recent Actions

Despite the tough results, zSpace has been very active to stabilize the business.

• 💸 Seeking New Capital: They secured two key funding rounds:
  • A $3 million strategic investment from Planet One Education (Jan 29, 2026).
  • An additional $4.3 million from a convertible note (Mar 17, 2026).
  • Why it matters: This new cash is a lifeline to fund operations and pay down old debt, addressing the dangerously low cash position.
• ✂️ Major Cost Cutting: They completed a strategic restructuring on Dec 11, 2025, cutting their ongoing operating expenses by over 30%. They had to right-size the company for the lower revenue environment.
• 🆕 Product Launch: They launched the zStylus One, a next-gen AI-powered stylus, to enhance their tech offering.
• 🌍 International Push: They highlighted growth in Italy, with new school deployments and a high-profile demo for the Italian President.

📦 Financial Position & Challenges

The company is in a turnaround phase. The balance sheet is weak with very low cash, but they are taking aggressive steps. The refinancing of debt and new capital are aimed at preventing a cash crisis. The massive cost cuts are designed to reduce the "burn rate" of cash while they try to grow revenue again.

📈 What This Signals & The Road Ahead

Management is sending a mixed but clear message: "Things are hard right now, but we're fixing what we can control."

• 👍 Positive Signals: The shift to higher-margin software is real and improving profitability per sale. Cost cuts and new funding buy them time. New products and international interest show potential.
• ⚠️ Major Risks & Headwinds: Revenue is shrinking, and big customers are spending less (low NDRR). They are highly dependent on government education funding, which is currently unstable. The path to profitability is still unclear, as losses remain large.

🧠 The Analogy

Think of zSpace like a talented student who had a terrible semester. Their grades (revenue) dropped because of a big distraction (the government shutdown). But they're meeting with tutors (cost cuts), applying for scholarships (new funding), and studying harder on their best subjects (software). They're showing improvement in those key areas, but they need to prove they can get their overall grades back up to pass the class (achieve sustainable growth).

📇 Key Contacts & People

Company Leadership:

• Paul Kellenberger, Chief Executive Officer
• Erick DeOliveira, Chief Financial Officer

Media & Investor Inquiries:

• Press Contact: Amanda Austin, [email protected], 408-498-4050
• Investor Relations: Gateway Group (Cody Slach, Greg Robles), 949.574.3860, [email protected]

🧩 Final Takeaway

zSpace is a company in transition, fighting through a severe revenue drop caused by external factors. Their strategy is working on a per-sale basis (better margins), but they urgently need to stabilize their customer base and secure enough cash to fund a comeback. Watch their cash levels and customer retention metrics closely in the next report.