zSpace (NASDAQ:ZSPC) executives pointed to a higher mix of software and services revenue, gross margin expansion, and a major cost restructuring as key themes on the company’s fourth-quarter and full-year 2025 earnings call, while also emphasizing continued macro uncertainty in U.S. education funding and new delays tied to conflict in the Middle East.
Management highlights software mix, product updates, and customer wins
Chief Executive Officer Paul Kellenberger said the fourth quarter reflected the company’s “continued focus on advancing our strategy and controlling what we can control,” noting that software and services revenue “continued to comprise over 50% of total revenue,” which he said contributed to gross margin expansion of “nearly 850 basis points” in the quarter. He attributed the performance to “strong customer renewals and the continued adoption of our software offerings.”
On the product front, Kellenberger highlighted the launch of zStylus One, described as a next-generation AI-enabled stylus intended to simplify AR deployment and improve precision across the company’s systems. He said the stylus uses embedded sensors “powered by machine learning algorithms” that eliminate the need for an external sensor module or embedded tracking in the laptop, adding that early feedback has been “very positive.” He also pointed to the use of AI for translation across the platform, saying zSpace is leveraging AI to eliminate language barriers with tools supporting “over 50 languages.”
Management cited several customer examples discussed during the call, including:
- Greater Altoona Career & Technology Center in Pennsylvania, which Kellenberger said strengthened a dental assistant program using zSpace technology and a dental application.
- Mayfair High School in California, which established a “36-station” zSpace lab to support CTE and core academic subjects.
- Atlanta Public Schools, where Kellenberger said zSpace has been used since 2015 and has been integrated across grade levels for immersive learning.
Kellenberger also noted that the company’s Career Explorer product, powered by Career Coach AI, received Tech & Learning’s Best of 2025 Award of Excellence.
Full-year 2025 results: revenue decline, margin expansion
Chief Financial Officer Erick DeOliveira reported full-year 2025 revenue of $27.9 million, down 27% year-over-year. He emphasized that software and services revenue held up better than total revenue, down 15%, and represented 49% of the revenue mix, up from 42% in 2024.
DeOliveira reminded listeners that revenue is “substantially recognized upon shipment of laptop units or fulfillment of software license keys,” including the full value of multi-year software licenses recognized when fulfilled, which can create quarter-to-quarter variability.
He cited two non-GAAP operating metrics the company uses to describe software run-rate health. As of Dec. 31, 2025, annualized contract value (ACV) of renewable software was $9.9 million, down 12%, and net dollar revenue retention (NDRR) for customers with at least $50,000 of ACV was 71%. DeOliveira said the weaker performance in these metrics was driven by two large customers that expanded in 2024 but did not fully renew expanded commitments due to macro factors. Normalizing for those two customers, he said ACV would have been $11.1 million (down 2%) and NDRR would have been 88%.
For the year, bookings were $26.1 million, down 34%. Gross profit was $13.3 million, down 15%, including a “one-time charge for discontinued software license inventory,” which DeOliveira said was tied to the company’s exit of China and efforts to bring previously resold third-party software titles in-house. Gross margin for 2025 was 47.6%, up 6.7 percentage points versus 2024. DeOliveira attributed margin improvement to higher software mix, hardware product line refreshes that reduced bill of materials, and increased first-party software content.
Q4 results impacted by government shutdown
Fourth-quarter revenue was $4.8 million, down 43% year-over-year. DeOliveira said the decline reflected “a freeze in both orders and shipments during the U.S. federal government shutdown.”
Even with the revenue decline, the company reported a continued shift toward software and services. In Q4, software and services represented 57% of total revenue, which DeOliveira called a “10 percentage point mix shift.” Q4 bookings were $3.4 million, down 21% year-over-year, and DeOliveira said CTE customers drove 56% of bookings value (down from 58% in the year-ago quarter).
Gross profit in Q4 was $2.4 million and gross margin was 49.1%, up 8.4 percentage points versus Q4 2024. DeOliveira said the revenue mix shift accounted for 2.8 percentage points of margin gain, with “rate-based factors” contributing the rest.
Restructuring, cash position, and 2026 approach
On spending, DeOliveira said full-year operating expenses were $28.3 million excluding stock-based compensation, up 11% year-over-year. He said a restructuring in December 2025 led management to believe the current OpEx run rate is closer to $19 million, still excluding stock-based compensation, assuming a stable external environment.
He described the December restructuring as “eliminating approximately half the FTE positions” and “one-third of the people costs,” along with reducing the board to five seats from seven and abolishing the executive bonus plan for 2026.
DeOliveira reported that as of Dec. 31, 2025, zSpace had approximately $1 million in cash equivalents and restricted cash, compared with $4.9 million a year earlier.
Looking to 2026, DeOliveira said the company is not restoring guidance, citing continued volatility and unresolved trade and tariff issues. Instead, he said management modeled a scenario where 2026 revenue repeats 2025 levels. Under that scenario, the company believes cost reductions and continued margin gains could bring adjusted EBITDA “at or close to breakeven.”
Q1 trends and regional uncertainty
During the Q&A, Barrington Research analyst Alex Paris asked about funding conditions entering 2026 and early-quarter trends. Kellenberger said roughly “about 10%” of zSpace’s K-12 market funding comes from federal sources and described hesitancy among buyers in both K-12 STEM and CTE during 2025 amid “stopping and starting of funding.” He also referenced a state that “sent money back to the federal government because of the uncertainty.”
DeOliveira said the company observed “encouraging year-on-year strength through January and February,” but that March became “more mixed,” in part because several significant opportunities were tied to customers in the Middle East “in the midst of the current conflict there,” leaving uncertainty about whether shipments would be accepted in time for revenue recognition.
Roth Capital Partners analyst Rohit Kulkarni asked about the size of highlighted customer wins and their potential impact. Kellenberger said the referenced deals were “in the six figures” and characterized them as “substantial,” adding that Atlanta Public Schools is a long-time customer and the company sees additional opportunities there later in the year, while cautioning he did not want to “jinx” outcomes.
Paris also asked about the company’s $3 million convertible preferred investment from Planet One announced in January and potential international expansion. Kellenberger said the company hopes it can help, but added that “the war in Iran” has pushed activity “on the back burner” for now.
About zSpace (NASDAQ:ZSPC)
zSpace, Inc is a technology company that develops augmented and virtual reality solutions designed to deliver immersive learning experiences. Headquartered in Pleasanton, California, the company focuses on integrating advanced 3D visualization hardware and interactive software to support science, technology, engineering and mathematics (STEM) education, as well as professional training applications.
The company’s flagship offering, the zSpace AR/VR system, combines a stereoscopic display, stylus-based interaction and head-tracking technology to enable users to manipulate and explore three-dimensional models.
