zSpace (ZSPC) Q4 2025 earnings summary

Executive summary

• Software and services revenue exceeded 50% of total revenue in Q4 2025, driving gross margin expansion of nearly 850 basis points year-over-year.

• Fourth quarter revenue declined to $4.8 million from $8.5 million year-over-year, with full-year revenue at $27.9 million versus $38.1 million, primarily due to a U.S. Federal Government shutdown impacting orders and shipments.

• Structural changes and cost reductions were implemented in late Q4 2025 to align with macroeconomic headwinds and improve profitability, reducing operating expenses by over 30%.

• New product launches, such as the AI-enabled zStylus One, and notable customer wins in K-12 and CTE segments supported platform adoption.

• International expansion efforts were impacted by geopolitical events, particularly in the Middle East, but expanded presence in Italy and other markets.

Financial highlights

• Full-year 2025 revenues were $27.9 million, down 27% year-over-year; software and services revenues declined only 15% and grew to 49% of the portfolio.

• Annualized contract value of renewable software was $9.9 million, down 12% year-over-year; net dollar revenue retention for large customers was 71%.

• Bookings for 2025 were $26.1 million, down 34% year-over-year; Q4 bookings were $3.4 million, down 21%.

• Gross profit for 2025 was $13.3 million, down 15%, with gross margin at 47.6% (up 6.7 percentage points); Q4 gross margin was 49.1%, up 8.4 percentage points.

• Q4 net loss widened to ($7.3) million from ($3.6) million; full-year net loss was ($25.4) million versus ($20.8) million.

Outlook and guidance

• Management expects that with 2025-level revenues and recent cost reductions, adjusted EBITDA breakeven is achievable in 2026.

• No formal guidance reinstated due to ongoing macroeconomic volatility and forecasting challenges.

• Cautious optimism for 2026 as funding and market conditions begin to stabilize, but international opportunities remain delayed.

• Management remains confident in long-term growth potential, citing improved balance sheet, new capital commitments, and ongoing innovation.

• Anticipates normalization of federal education funding and international opportunities to support future growth.