zSpace, Inc.

What they do

zSpace sells autostereoscopic 3D laptops (Inspire, Imagine) with tracked styluses, plus software licenses for STEM and CTE applications and implementation/professional-development services. It sells directly to U.S. school districts and community colleges and exclusively through resellers internationally. Its platform is deployed in more than 3,500 of roughly 13,000 U.S. public school districts and in over 80% of the largest 100 K-12 districts.

Revenue drivers

• Hardware (Inspire and Imagine laptops, tracked styluses) — Built with a major PC OEM; accounted for 53% of total revenue for the six months ended June 30, 2026, down from 57% a year earlier.
• Software applications — Licenses and subscription plans priced by device or user count and contract length; 39% of revenue for the six months ended June 30, 2026 versus 31% a year earlier, with management expecting software to grow faster than hardware or services.
• Services — Installation, training and one- and two-year extended-warranty contracts; 8% of revenue for the six months ended June 30, 2026, down from 12% in the prior-year period.
• Renewable software ACV — Annualized contract value of renewable software was $9.4 million at June 30, 2026, down 13% year-over-year; NDRR for customers over $50,000 ACV was 66%, or 83% excluding two key customer losses in Q3 2025.

Recent performance

Q2 2026 revenue was $5.4 million versus $7.5 million a year earlier, which the company attributed to EMEA orders delayed and returned as a result of the Iran war. Gross margin expanded 1,380 basis points to 56% on better hardware costs and a richer software mix, and net income was $0.3 million versus a $6.1 million net loss a year ago. Adjusted EBITDA loss narrowed to $0.9 million from $4.5 million. Bookings fell 14% year-over-year to $6.0 million, and backlog was $3.8 million at June 30, 2026. Full-year 2025 revenue fell 27% to $27.9 million with a net loss of $25.4 million, hurt by federal education funding freezes that stalled district spending.

Strategy

Management says it is focused on shifting the mix toward higher-margin software and services, growing Company-owned software content, and keeping a leaner hardware cost profile. It intends to pursue acquisitions of additional software applications to accelerate software revenue. It continues to target the U.S. K-12 and CTE markets and international resellers, recently adding VR Expert as its first European master reseller. The Board is conducting a formal review of strategic alternatives, and the company eliminated over $12 million of debt by converting lender principal and interest into equity.

Risks

• Federal education funding uncertainty — The 10-K states that freezing or impounding of U.S. Department of Education funds forced district customers to freeze discretionary spending, delay payments and halt pilots, driving the 27% revenue decline in 2025.
• Going-concern doubt — The 10-K cites recurring losses, negative operating cash flow and working capital deficiency as raising substantial doubt about the ability to continue as a going concern over the next twelve months.
• Balance sheet and liquidity — At June 30, 2026, total liabilities were $21.5 million against $8.3 million of assets and $856,000 of cash, leaving shareholders' equity of negative $13.2 million.
• Customer concentration and retention — NDRR for customers over $50,000 ACV was 66% at June 30, 2026, and the company noted two key customer losses in Q3 2025 that account for most of the shortfall.

Outlook

Management said Q2 results reflect early signs that K-12 demand is beginning to normalize as customers resume purchasing decisions paused earlier in the year, and that margin gains should continue as its mix-shift efforts take fuller effect. It cautioned that the $12 million debt-to-equity conversion gain recognized in Q2 will not recur in future periods and that K-12 conditions remain uneven. The Board's formal review of strategic alternatives remains ongoing, with management stating the current valuation does not fully reflect the platform.