Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $6.8 million, down 14% year-over-year, primarily due to a 26% decline in hardware revenues as K-12 customers faced funding challenges [4][10] - Software and services revenue increased by 11% year-over-year, contributing to improved gross profit and margins [4][10] - Gross profit for the quarter was $3.2 million, up 19% year-over-year, with gross margins improving to 47.4%, up 13 percentage points from the prior year [11][12] Business Line Data and Key Metrics Changes - Hardware revenues decreased significantly, while software and services revenues showed growth, indicating a strategic shift towards higher-margin offerings [10][12] - Bookings for the quarter were $8.3 million, down 6% year-over-year, with a notable 78% decline in international bookings excluding China [11] Market Data and Key Metrics Changes - The U.S. market saw a 4% growth in bookings, while international markets (excluding China) experienced a significant decline [11] - The company ended the quarter with $9.7 million in unfulfilled orders, reflecting the impact of funding source changes on customer behavior [11] Company Strategy and Development Direction - The company is focusing on enhancing its digital platform through strategic acquisitions, including BlocksCAD and Second Avenue Learning, to expand software capabilities and content offerings [5][6][7] - The transition to the Inspire II laptop is aimed at driving cost efficiencies and protecting gross margins [5] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about future opportunities despite ongoing volatility in the education market and uncertainty around funding sources [8][19] - The company refrained from providing formal financial guidance for the year due to the unpredictable operating environment [19] Other Important Information - The company closed a $20 million convertible financing facility, with $13 million funded, to support acquisitions and general corporate purposes [17] - Operating expenses for the quarter were $7.6 million, an increase of 11% year-over-year, reflecting ongoing investments in growth [15] Q&A Session Summary Question: Update on sales cycle and funding uncertainty - Management confirmed that the sales cycle for K-12 has increased to 75-90 days, with ongoing high uncertainty in funding sources [22][24][28] Question: Impact of tariffs on BOM costs - The company expects a 20% tariff impact in Q2, with no significant impact felt in Q1, and plans to pass these costs onto customers [33][35][38] Question: Integration of recent acquisitions - The integration of BlocksCAD is complete, while Second Avenue Learning is in progress, with positive feedback on both [41][44] Question: Feedback on the Imagine product and CTE adoption - Initial feedback on the Imagine product has been positive, with strong adoption in advanced application areas within CTE [45][47] Question: Bookings patterns and backlog - Management noted a non-linear bookings pattern, with strong demand in the U.S. market, and confirmed that the software backlog remains healthy [49][58]

Financial Performance - For the three months ended March 31, 2025, zSpace, Inc. reported revenue of $6.759 million, a decrease of 13.8% compared to $7.841 million in the same period of 2024[13]. - The cost of goods sold for the same period was $3.553 million, resulting in a gross profit of $3.206 million, which is an increase of 18.6% from $2.702 million in 2024[13]. - Total operating expenses decreased to $8.590 million in Q1 2025 from $14.091 million in Q1 2024, reflecting a reduction of 38.8%[13]. - The net loss for Q1 2025 was $5.832 million, significantly improved from a net loss of $12.247 million in Q1 2024, representing a reduction of 52.4%[13]. - Total revenues for the three months ended March 31, 2025, were $6,759 million, a decrease of 13.8% from $7,841 million in the same period of 2024[138]. - Gross profit increased to $3,206 million in Q1 2025, compared to $2,702 million in Q1 2024, reflecting a gross margin improvement[138]. - Total operating expenses decreased to $8,590 million in Q1 2025, down 38.8% from $14,091 million in Q1 2024[138]. - The segment net loss for Q1 2025 was $5,832 million, significantly improved from a net loss of $12,247 million in Q1 2024[138]. Cash Flow and Financial Position - Cash, cash equivalents, and restricted cash decreased to $1.129 million as of March 31, 2025, down from $4.864 million at the end of 2024[19]. - The company incurred negative cash flows from operations of $4.641 million in Q1 2025, compared to $5.414 million in Q1 2024, indicating a slight improvement[19]. - zSpace's accumulated deficit increased to $296.232 million as of March 31, 2025, from $290.400 million at the end of 2024[16]. - The Company completed its IPO on December 6, 2024, selling 2.2 million shares at $5.00 per share, resulting in net proceeds of $7.5 million after expenses[31]. - As of March 31, 2025, the Company reported total cash, cash equivalents, and restricted cash of $1.129 million, a decrease from $4.864 million as of December 31, 2024[35]. - The company is exploring additional financing options to address ongoing working capital shortfalls and improve its financial position[26]. Revenue Breakdown - Hardware revenue decreased to $3.829 million in Q1 2025 from $5.195 million in Q1 2024, reflecting a decline of 26.3%[55]. - Product revenue accounted for 57% of total revenue for the three months ended March 31, 2025, down from 66% in the same period of 2024[176]. - Software applications revenue increased to 29% of total revenue for the three months ended March 31, 2025, compared to 25% in the same period of 2024[178]. - Services revenue accounted for 14% of total revenue for the three months ended March 31, 2025, up from 9% in the same period of 2024[180]. - International sales accounted for $960,000 in Q1 2025, down from $1.172 million in Q1 2024, with China contributing $1.0 million in Q1 2025[55]. Debt and Financing - The Company entered into a senior secured convertible note financing agreement for $13,978,495, which closed on April 11, 2025[140]. - The gross proceeds from the convertible note financing were $13,000,000, intended for debt repayment and working capital[141]. - The note issued has an interest rate of 6.0% per annum and matures on April 11, 2027[143]. - The company fully repaid all outstanding loans totaling approximately $10.18 million using proceeds from the convertible note financing[154]. - The outstanding balance of other term loans as of March 31, 2025, was $5.8 million, with effective interest rates ranging from 14.2% to 25.0%[89]. Stock and Equity - The Company completed an IPO on December 6, 2024, issuing 2.2 million shares at $5.00 per share, resulting in net proceeds of $7.5 million after expenses[92]. - The IPO led to the conversion of 4.0 million shares of preferred stock into 18.7 million shares of common stock[92]. - As of March 31, 2025, the Company had 77,150,622 shares reserved for future issuance of common stock[91]. - The Company granted 724,646 Restricted Stock Units (RSUs) valued at $12.9 million to executives and directors in February 2025, with vesting periods of one to three years[110]. - The Company has authorized 5,000,000 shares of preferred stock, with no shares designated or outstanding as of March 31, 2025[93]. Operational Highlights - The company shipped approximately 19,400 units of its proprietary laptop product, Inspire, under a partnership with a major PC OEM as of March 31, 2025[199]. - The average term length of renewable software license agreements is increasing, indicating long-term adoption of products by customers[193]. - The company plans to focus on acquiring key software companies and intellectual property to drive future growth in the education market[201]. Market and Industry Outlook - The total addressable market (TAM) for the K-12 market is estimated at approximately $21.4 billion in the United States, $29.0 billion in EMEA, and $5.6 billion in APAC, with a global TAM exceeding $68 billion[165][166]. - Management's discussion indicates that historical results may not be indicative of future performance, highlighting the importance of assessing industry outlook and risk factors[160]. - The company is facing uncertainties due to new U.S. tariffs on imports, which could adversely impact its supply chain and financial condition[202]. Employee and Customer Metrics - The company emphasizes the importance of retaining key employees, as their departure could negatively affect operations and business performance[198]. - The net dollar revenue retention rate (NDRR) for customers with at least $50,000 of ACV was 97% for the trailing twelve-month period ended March 31, 2025, down from 112% in the previous year[192].

Financial Performance - Revenue for Q1 2025 was $6.8 million, down from $7.8 million in Q1 2024, reflecting a decline of approximately 12.8%[5] - Gross margin improved to 47.4% in Q1 2025, up from 34.5% in Q1 2024, an increase of about 13 percentage points[7] - Net loss narrowed to ($5.8) million in Q1 2025 compared to ($12.2) million in Q1 2024, representing a reduction of approximately 52.4%[10] - Bookings in Q1 2025 were $8.3 million, down 6% year-over-year, with a 78% decline in international geographies excluding China[9] - Operating expenses in Q1 2025 were $7.6 million, compared to $7.0 million in Q1 2024, reflecting a year-over-year increase[9] Contract Value and Acquisitions - Annualized Contract Value (ACV) of renewable software increased by 10% to $11.6 million as of March 31, 2025, compared to $10.6 million a year ago[8] - The company completed the acquisition of Second Avenue Learning on April 15, 2025, enhancing its educational technology offerings[5] Strategic Initiatives - zSpace transitioned fully to the Inspire 2 laptop, which aims to improve cost efficiencies while maintaining the immersive experience[5] - The company closed a $20 million convertible debt financing facility post-quarter, with $13 million funded at closing[3] - zSpace was included in the Russell 2000® and Russell 3000® Indexes effective March 24, 2025, marking a significant milestone[5]

Core Viewpoint - zSpace reported a revenue decline in Q1 2025 but highlighted growth in its higher-margin software and services business, which increased by 11% year-over-year. The company is optimistic about its strategic initiatives and long-term growth potential despite a challenging macro environment [2][3]. Financial Performance - Revenue for Q1 2025 was $6.8 million, down from $7.8 million in Q1 2024, primarily due to funding uncertainty and order delivery delays [5]. - Gross margin improved to 47.4% from 34.5% in the same period last year, attributed to a shift in revenue from hardware to software and services, and better hardware profitability from the Inspire 2 platform [6]. - Net loss for Q1 2025 was ($5.8) million, an improvement from a net loss of ($12.2) million in Q1 2024 [10]. Business Highlights - The company successfully transitioned to the next-generation Inspire 2 laptop and expanded its software capabilities through acquisitions of BlocksCAD and Second Avenue Learning [2]. - zSpace was included in the Russell 2000 and Russell 3000 Indexes, marking a significant milestone [8]. - The Annualized Contract Value (ACV) of renewable software increased to $11.6 million, a 10% rise from $10.6 million a year ago [7]. Operational Metrics - Bookings in Q1 2025 were $8.3 million, down 6% year-over-year, with a notable 78% decline in international bookings excluding China [9]. - Operating expenses, excluding stock-based compensation, were $7.6 million compared to $7.0 million in Q1 2024 [9]. Capital Structure - zSpace closed a $20 million convertible debt financing facility, with $13 million funded at closing, which will enhance its capital structure [3][8].

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]

Core Points - zSpace has announced a change in the date for its fourth quarter and full year 2024 earnings conference call, now scheduled for March 28, 2025, at 8:00 a.m. ET [1] - A live webcast of the earnings call will be available on zSpace's investor relations website, and participants are encouraged to join 15 minutes early to avoid delays [2] - zSpace is a leader in augmented and virtual reality solutions for education, serving over 3,500 educational institutions and holding over 70 patents [3] Company Overview - zSpace, Inc. specializes in AR/VR experiences that enhance learning in STEM, CTE, and career readiness programs [3] - The company's solutions have been shown to improve student test scores, as evidenced by a study published in the Journal of Computer Assisted Learning in 2021 [3]