zSpace 2025 Q3 Earnings Sharp Net Loss Widens 2924% Amid Revenue Decline

zSpace reported third-quarter 2025 earnings that fell short of expectations, marked by a 38.2% revenue decline and a dramatic widening of net losses. While management highlighted strategic progress in software and international expansion, the company refrained from providing formal guidance due to U.S. education funding uncertainties. The results underscore persistent financial challenges despite sequential revenue growth and margin improvements.

Revenue

zSpace’s total revenue for Q3 2025 dropped 38.2% to $8.79 million, driven by a 61.8% decline in hardware sales to $3.77 million and a 30.1% dip in software revenue to $4.32 million. Services revenue, at $706,000, contributed 8.1% of total revenue. The shift toward software and services, which now comprise 57% of revenue, supported gross margin expansion of 640 basis points, reflecting improved profitability in higher-margin offerings.

Earnings/Net Income

The company swung to a net loss of $6.17 million in Q3 2025, a 2924.0% increase from a $204,000 loss in Q3 2024. Earnings per share fell to -$0.26, a 100.1% negative change from $235.81 per share a year earlier. The deteriorating performance highlights ongoing financial headwinds and unsustainable losses over three consecutive years.

Post-Earnings Price Action Review

The stock’s post-earnings reaction was mixed, with a 12.67% intraday gain followed by a 6.75% weekly decline and a 38.03% monthly drop. While the 2.63% after-hours rally on improved margins and cash reserves signaled cautious optimism, the broader trend reflects investor skepticism about the company’s ability to reverse its revenue and profit decline. Analysts noted that the stock remains near its 52-week low, underscoring the market’s bearish sentiment despite management’s confidence in long-term growth.

CEO Commentary

CEO Paul Kellenberger emphasized 18% sequential revenue growth and a software/services mix exceeding 50%, driving margin expansion. Strategic priorities include AI-powered education products, global translation initiatives, and international deployments in the UAE, Italy, and Bulgaria. Despite challenges from U.S. funding delays, Kellenberger expressed confidence in customer demand and long-term profitability, calling the business “well-positioned” despite near-term uncertainties.

Guidance

zSpace declined to issue formal Q4 guidance due to unpredictable U.S. education funding and government shutdown impacts. CFO Erick DeOliveira noted adjusted EBITDA losses narrowed below $2 million, with gross margin improvements driven by software mix and hardware innovations. The company remains focused on operating leverage, cost discipline, and margin expansion but acknowledges “unpredictable” revenue trends under current conditions.

Additional News

Within three weeks of the earnings release, zSpace announced key strategic moves:

1. M&A Activity: The acquisition of Second Avenue Learning in Q2 2025 accelerated the launch of the Career Explorer application, now generating strong customer interest.

2. International Expansion: Partnerships with GEMS Education in Dubai and Danbury Public Schools in Connecticut expanded its global footprint, with deployments in 12,000-student districts.

3. Product Launches: The company introduced AI-powered tools like zKnow™ and virtual trainers for automotive and medical education, reinforcing its leadership in immersive learning.

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