zSpace Earnings Call Balances Margin Gains and Risk

zSpace, Inc. ((ZSPC)) has held its Q4 earnings call. Read on for the main highlights of the call.

zSpace’s latest earnings call painted a cautiously optimistic picture as management balanced clear internal progress with sobering external realities. Executives highlighted improving margins, stronger software mix and promising new products, but also acknowledged steep revenue declines, weaker bookings and a strained cash position amid persistent macro and geopolitical pressures.

Software and Services Mix & Relative Outperformance

zSpace continued shifting its business toward software and services, which made up about 57% of Q4 revenue and 49% for the full year, up from 42% in 2024. That segment fell roughly 15% year over year versus a 27% drop in total revenue, helping stabilize recurring revenue quality and underpin margin expansion despite the top‑line pressure.

Gross Margin Expansion

The company delivered notable gross margin gains, with full‑year margin at 47.6%, up 6.7 percentage points from 2024, and Q4 margin at 49.1%, up 8.4 points from the prior year’s quarter. Management credited the higher software mix, refreshed product lines that lowered bill of materials costs and more first‑party software content for the improvement.

Product Innovation — zStylus One

zSpace spotlighted its zStylus One, an AI‑enabled stylus with embedded sensors that removes the need for an external sensor module, simplifying deployments. Early feedback from customers and partners has been positive, and management expects the device to drive hardware refresh cycles and broaden adoption of its next‑generation platforms.

Meaningful Customer Wins & Recognition

Despite macro headwinds, the company secured several six‑figure education wins, including a dental program deployment at Greater Altoona Career & Technology Center and a 36‑station lab at Mayfair High School. Management also highlighted long‑term traction at Atlanta Public Schools, while noting that its Career Explorer product, powered by Career Coach AI, received a 2025 industry award.

CTE Concentration and Traction

Career and Technical Education remained a key growth pillar, accounting for roughly 56% of Q4 bookings and benefiting from stable funding sources like Perkins grants. This concentration suggests that within an otherwise choppy demand environment, zSpace’s CTE offerings are gaining stickier footing and could help anchor the company’s bookings profile.

Restructuring and Cost Reduction Actions

To align expenses with lower revenue, zSpace executed a major restructuring in December 2025, cutting about half of its full‑time workforce and trimming people costs by roughly one‑third. Management now targets an operating expense run rate near $19 million excluding stock‑based compensation, positioning the company closer to adjusted EBITDA breakeven if revenue stabilizes.

Capital and Balance Sheet Actions

The company raised incremental capital, including a $3 million convertible preferred investment, and announced debt restructuring arrangements designed to ease near‑term balance sheet pressures. These steps provide added liquidity and flexibility, giving zSpace more room to pursue international opportunities when geopolitical conditions improve.

Material Revenue Declines

Against these operational improvements, revenue trends remained a clear weak spot, with full‑year sales of $27.9 million down 27% year over year. Q4 revenue of $4.8 million fell 43% from the prior‑year period as macro events and seasonality combined to depress order and shipment activity.

Significant Bookings Contraction

Bookings also declined sharply, underscoring near‑term demand softness, with 12‑month bookings at $26.1 million, down 34% from the prior year. Q4 bookings of $3.4 million were 21% lower, signaling that sales momentum has slowed and that future revenue visibility remains pressured.

Reduced Cash Position

The company’s cash, cash equivalents and restricted cash fell to about $1.0 million at year‑end 2025 from $4.9 million a year earlier, highlighting a tight liquidity position. zSpace is leaning on recent capital raises and debt restructuring to extend its runway as it executes on cost cuts and seeks to stabilize demand.

Gross Profit and One-Time Charges

Full‑year gross profit declined to $13.3 million, a 15% year‑over‑year drop, reflecting the lower revenue base despite better margins. Results were also pressured by a one‑time charge related to discontinued software license inventory tied to exiting China and internalizing third‑party titles, as well as tariffs and duties.

Renewal and Retention Weakness

Annualized contract value for renewable software slipped 12% to $9.9 million, and net dollar retention for larger customers stood at a weak 71% for the cohort with at least $50,000 of ACV. Management stressed that two large customers drove much of this, noting that on a normalized basis ACV would have been $11.1 million, down 2%, with net dollar retention at 88%.

Operating Expenses and Stock-Based Compensation

Before restructuring, operating expenses remained elevated, with 2025 OpEx excluding stock‑based compensation rising 11% to $28.3 million and Q4 OpEx up 9% year over year. Q4 also included $2 million of stock-based compensation linked to RSU grants, contributing to a 6.2% RSU burn rate for 2025 and drawing investor attention to equity dilution.

Macroeconomic and Geopolitical Headwinds

Management emphasized that external forces weighed heavily on results, citing tariffs, a prolonged U.S. federal government shutdown and volatile education funding as demand headwinds. The conflict in Iran and related geopolitical issues further delayed Middle East opportunities and led to order freezes, adding uncertainty to the near‑term outlook.

Scenario-Based Outlook and Path to Breakeven

Rather than provide formal guidance, zSpace outlined a scenario in which 2026 revenue roughly matches 2025 levels and bookings and renewals track recent trends, with ACV and net retention stabilizing near current marks. Under that backdrop, and assuming a roughly seven‑point gross margin lift plus the December cost cuts that reduce OpEx to about $19 million excluding stock comp, management believes adjusted EBITDA could approach breakeven.

zSpace’s earnings call reflected a company in transition, pairing clear strategic progress in software, margins and product innovation with tough realities in revenue, bookings and liquidity. For investors, the story now hinges on whether cost discipline, CTE strength and new solutions like zStylus One can offset macro and funding headwinds long enough for demand to recover.