Core Viewpoint - zSpace plans to release its financial results for the first quarter ended March 31, 2025, on May 14, 2025, after market close [1] Group 1: Financial Results Announcement - zSpace will host a conference call on the same day at 5:00 p.m. ET / 2:00 p.m. PT, featuring the CEO and CFO [2] - A live webcast of the call will be available on the investor relations website, and a replay will be accessible for a limited time [2] Group 2: Company Overview - zSpace, Inc. provides AR/VR solutions aimed at enhancing STEM, CTE, and career readiness programs, serving over 3,500 educational institutions [3] - The company is headquartered in San Jose, California, holds over 70 patents, and its solutions have been shown to improve learning outcomes [3]

Core Insights - zSpace, Inc. has acquired Second Avenue Learning, enhancing its position in the EdTech sector by combining AR/VR technology with interactive learning solutions [1][3][4] Company Overview - zSpace, founded in 2007, specializes in AR/VR solutions for education, focusing on immersive learning experiences without the need for head-mounted displays [2][9] - Second Avenue Learning, based in Rochester, NY, is known for its custom educational software and interactive learning experiences, founded by Tory Van Voorhis [2][7] Strategic Benefits of Acquisition - The acquisition is expected to enhance zSpace's content offerings by integrating Second Avenue Learning's expertise in creating interactive, standards-aligned learning modules [4] - The collaboration aims to accelerate innovation in AR/VR and blended learning applications, providing comprehensive experiential learning solutions [4][5] - The combined strengths of both companies will create tools that inspire student engagement and improve academic success [4][5] Leadership Perspectives - Paul Kellenberger, CEO of zSpace, emphasized the transformative potential of the acquisition for education, aiming to inspire a lifelong passion for discovery among students [5] - Tory Van Voorhis, Founder & CEO of Second Avenue Learning, expressed excitement about the partnership, highlighting the opportunity to blend technology with education for enhanced learning experiences [5] Market Position and Future Outlook - This acquisition marks a significant milestone for zSpace following its public listing on Nasdaq in December 2024, indicating a strong growth trajectory [6] - Financial terms of the deal were not disclosed, but both companies are committed to a smooth integration focused on innovation and customer success [6]

Financial Data and Key Metrics Changes - For the full year 2024, revenues were $38 million, down 13% year-on-year due to capital constraints prior to the IPO, which limited the ability to fulfill orders from backlog [28] - Gross margins for the year improved to 40.9% from 38.5% in the prior year, an increase of 240 basis points, primarily due to a shift in revenue mix from hardware to software and services [31] - Fourth quarter revenues were $8.5 million, down 29% year-on-year, attributed to similar capital constraints and backlog fulfillment issues [33] Business Line Data and Key Metrics Changes - The annualized contract value (ACV) of renewable software revenue was $11.3 million, up 6% compared to the previous year [29] - Bookings for the year were $41.5 million, up 1% year-on-year, with U.S. and rest of world bookings (excluding China) at $39.9 million, up 7% year-on-year [30] - In the fourth quarter, bookings were $5.3 million, down 3% year-on-year, but U.S. bookings were up 21% while international bookings (excluding China) saw a decline of 92% [34][30] Market Data and Key Metrics Changes - The K-12 education and career and technical education (CTE) markets exceed $69 billion globally, with the global ed tech market valued at over $142 billion in 2023, projected to grow at a CAGR of 13.6% through 2030 [11] - The AR VR education segment is expected to reach $14.2 billion by 2028, growing at a 30% CAGR [12] - The company is currently implemented in over 3,500 of the approximately 13,000 public school districts in the U.S., including over 80% of the largest 100 school districts [12] Company Strategy and Development Direction - The company aims to increase penetration within existing K-12 STEM and CTE markets, expand international presence through a network of over 25 resellers, and invest in R&D to enhance its platform [17][19] - The recent acquisition of BlocksCAD is intended to strengthen immersive learning solutions with a 3D design platform for STEM education [21] - The company plans to focus on acquiring complementary software solutions to accelerate software revenue growth [20] Management's Comments on Operating Environment and Future Outlook - Management noted uncertainty in the education market affecting decision-making among customers, leading to potential lengthening of sales cycles [38] - Despite the uncertainty, there is confidence in capturing demand for CTE solutions due to significant state-level funding announcements [39] - The company anticipates Q1 2025 revenues slightly above $5 million, with expectations of continued growth in the full year [39][40] Other Important Information - The company has over 80 issued patents, reinforcing its position in the education technology space [17] - Operating expenses for the year were $33.2 million, an increase of 30% year-on-year, but flat when normalized for stock-based compensation [32] Q&A Session Summary Question: Impact of IPO timing on bookings - Management explained that the timing of the IPO affected the availability of new products for sales launches, which in turn impacted bookings [44][46] Question: Inventory availability for sales demos - Inventory for the Inspire 2 product became available late in Q4, while the Imagine product inventory is available in Q1 [48] Question: Lengthening of sales cycles in K-12 - Management indicated that the average sales cycle has increased from 60-75 days to 75-90 days due to uncertainty in funding sources [82][83] Question: Gross margin trends - Management highlighted that gross margin improvements are expected from the new hardware mix and increased software content [66][70] Question: Recent debt instrument - The company took on a $2 million debt line to maintain liquidity amid market turbulence [118]

Market Overview - The total addressable market (TAM) for the K-12 market in the United States is approximately $21.4 billion, with a global TAM exceeding $68 billion[32]. - The global education technology market was valued at $142.4 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 13.6% from 2023 to 2030[33]. - The global AR, VR, and mixed reality market is expected to grow at a 37% CAGR to $252 billion by 2028[33]. Revenue and Financial Performance - For the year ended December 31, 2023, revenue in the United States was $38.7 million, representing 88% of total revenue, while revenue outside the United States was $5.2 million, representing 12%[34]. - Consolidated revenue for the year ended December 31, 2023 increased over 22% compared to the year ended December 31, 2022, but decreased 13% for the year ended December 31, 2024 compared to 2023[75]. - The company reported a net loss of approximately $(20.8) million for the year ended December 31, 2024, and $(13.0) million for the year ended December 31, 2023, with an accumulated deficit of $(290.4) million as of December 31, 2024[92]. - A significant portion of the company's revenue is derived from K-12 schools, which are heavily dependent on federal, state, and local government funding, making them vulnerable to budget cuts and funding difficulties[125]. Product Development and Innovation - The Inspire 2 laptop, launched in late 2024, features a 20-22% boost in processing and graphics performance compared to its predecessor[42]. - The Imagine laptop, launched in early 2025, is 41% smaller and 30% lighter than the Inspire, designed specifically for young learners[42]. - The company has developed a scalable go-to-market strategy utilizing a multi-channel sales approach, combining direct sales and channel partners to reach potential customers effectively[54]. - The company has a large content library and pioneering AR/VR capabilities, which it intends to expand to meet the needs of current and future customers[54]. Customer Base and Market Strategy - The company has implemented its platform in over 3,500 of the approximately 13,000 public school districts in the United States, with K-12 solutions deployed in over 80% of the largest 100 districts[27]. - The CTE solutions have been deployed in approximately 73% of the public school districts served, and in about 2% of community and technical colleges in the United States[27]. - The company has partnered with over 25 resellers and expanded its customer network into over 50 countries, indicating significant international growth potential[27]. - The company expects to continue to drive growth by increasing marketing efforts and expanding use cases within the United States education market, particularly focusing on K-12 and CTE users[54]. Competition and Market Risks - The company faces significant competition in the education technology market, with potential buyers often evaluating funding for various educational products[55]. - The company faces increased competition from new entrants and established companies, which may pressure pricing and market share[82]. - The company relies on a limited number of significant customers, which poses a risk to revenue stability[93]. - The company may not achieve market acceptance for new products, which could adversely affect business and financial condition[100]. Operational Challenges - The company has experienced interruptions in platform performance, which could damage reputation and result in customer loss[88]. - The company relies on third-party suppliers for hardware production, including agreements with major PC OEMs for laptop manufacturing[53]. - The company relies on limited source suppliers for product components, and any disruptions in the supply chain could materially affect manufacturing and financial results[106]. - The company faces intense competition for qualified personnel, and failure to attract and retain skilled employees could adversely affect business operations[117]. Financial and Tax Considerations - The company has an accumulated deficit of approximately $(290.4) million as of December 31, 2024, raising substantial doubt about its ability to continue as a going concern[144]. - The company reported United States federal net operating loss (NOL) carryforwards of approximately $200.8 million and state NOL carryforwards of approximately $167.4 million as of December 31, 2024[150]. - The company has recorded a full valuation allowance related to its U.S. federal and state NOL carryforwards due to uncertainty in realizing future benefits[152]. - Changes in tax rates or new tax legislation could result in higher effective tax rates and reduced cash flows[153]. Legal and Compliance Issues - The company identified five material weaknesses in its internal control over financial reporting, which could lead to material misstatements in financial statements[140]. - The company is involved in litigation to protect its intellectual property rights, which may divert resources and management attention[174]. - The company is facing potential legal challenges regarding intellectual property claims, which could significantly increase operating expenses and harm business operations[178]. - The company is subject to various U.S. and international laws and regulations that could change and impact its business operations[169]. Cybersecurity and Data Privacy - Cybersecurity risks, including potential breaches and disruptions, could materially impact the company's reputation and financial condition[212]. - The company has experienced attempted cyber-attacks in the past, which could lead to operational disruptions and damage to its brand[215]. - Compliance with data privacy and security regulations is critical, and any failure could result in significant liabilities or penalties[172]. Stock Performance and Governance - The price of the company's common stock may be volatile due to fluctuations in user growth, revenue, and market conditions[219]. - dSpace Investments Limited currently controls a majority of the voting power of the company's outstanding common stock, classifying it as a "controlled company" under Nasdaq Listing Rules[222]. - The board of directors is not required to have a majority of independent directors due to its controlled company status[224]. - Key factors influencing stock performance include additional shares sold into the market, changes in capital structure, and user engagement levels[223].

Financial Performance - Fourth quarter 2024 revenue was $8.5 million, down 29.8% from $12.1 million in Q4 2023[5] - Full year 2024 revenue totaled $38.1 million, a decrease of 13.2% compared to $43.9 million in 2023[5] - The net loss for Q4 2024 was $(3.6) million, an improvement from $(4.1) million in Q4 2023; full year net loss was $(20.8) million compared to $(13.0) million in 2023[10] - Bookings in Q4 2024 were $5.3 million, down 3% from $5.5 million in Q4 2023; full year bookings reached $41.5 million, up 1% from $41.1 million in 2023[8] Gross Margin - Gross margin improved to 40.7% in Q4 2024 from 34.7% in Q4 2023, and for the full year, it increased to 40.9% from 38.5%[5][8] Contract Value - Annualized Contract Value (ACV) of renewable software increased by 6% to $11.3 million as of December 31, 2024, from $10.6 million a year ago[7] Customer Acquisition - zSpace secured a $5 million deal with St. Louis Public Schools, marking its largest customer win to date[5] Product Development - The company launched the Career Readiness Solution featuring an AI Career Coach, which has been well-received and addresses the demand for education-to-workforce solutions[5] Cash Position - As of December 31, 2024, zSpace had approximately $4.9 million in cash and cash equivalents, up from $3.1 million a year earlier[11] Growth Strategy - The company aims to drive growth through deeper penetration in K-12 STEM and CTE markets, international expansion, and strategic investments in R&D and software acquisitions[3]