zSpace (ZSPC -3.79%), a leader in augmented and virtual reality (AR/VR) education hardware and software, released its second quarter fiscal 2025 results on August 14, 2025. The most critical headline from the release was that GAAP revenue was $7.46 million in Q2 2025, slightly missing analyst estimates of $7.59 million (GAAP). GAAP revenue was $7.459 million, compared to $7.503 million in the second quarter of 2024. The company reported a wider net loss compared to the prior year, while also registering improved gross margins (GAAP) and highlighting recent product launches. Despite some operational wins, the period featured declining new bookings (non-GAAP) and shrinking cash reserves, tempering the overall assessment and adding a note of caution about future demand and liquidity.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS | ($0.16) | ($0.16) | N/A | N/A |
| Revenue | N/A | $7.59 million | $7.50 million | N/A |
| Gross Margin | 42.6% | 40.4% | 2.2 pp | |
| Net Loss | ($6.10 million) | ($4.75 million) | (28.5% increase) | |
| Cash, Cash Equivalents and Restricted Cash | $1.39 million | $2.97 million | (53.2%) |
Source: Analyst estimates for the quarter provided by FactSet.
Business Overview and Strategic Focus
zSpace provides immersive AR/VR learning platforms for the education sector, combining proprietary laptops, software applications, and interactive stylus tools. Its platform is used in over 3,500 public school districts, spanning a large majority of the largest K-12 systems in the United States.
In recent quarters, zSpace has focused on three pivotal areas: deepening market penetration in U.S. education, driving technological innovation through investments in hardware and software, and building recurring revenue via expanded software offerings. It aims to capture additional opportunities through growth strategies such as targeted acquisitions and continued technological differentiation.
Quarter in Review: Financial and Operational Highlights
For the period, GAAP revenue of $7.46 million fell short of market expectations, coming in under the $7.59 million consensus estimate. GAAP revenue was $7.459 million, a slight decrease from $7.503 million in the second quarter of 2024, indicating little top-line momentum against a backdrop of stalled or delayed education-sector spending. The shortfall was more pronounced in future demand: bookings—a measure of new contracts signed during the quarter—declined to $7.2 million (non-GAAP), a drop of 54% in bookings (non-GAAP) compared to the prior year. This is a key signal that recognized revenue could face pressure in coming quarters if bookings do not rebound. Management attributed some of this softness to “funding uncertainty” and order delivery delays, but the scale of the decline—bookings were down 54% year-over-year—suggests a broader slowdown in sales activity.
On the expense side, gross margin (GAAP) improved to 42.6%, compared to 40.4% in Q2 2024. Gross margin represents the share of revenue remaining after direct costs of goods sold are deducted, and its improvement was credited to better hardware cost management and a higher proportion of company-owned software content. Excluding a $0.2 million write-off for third-party software licenses and $0.1 million in hardware shipping and tariff expenses, the adjusted gross margin would be 46%. However, this margin progress did not offset expense growth: operating expenses (excluding stock-based compensation) rose 18% to $7.7 million. Net loss (GAAP) deepened to $6.10 million from $4.75 million versus Q2 2024. Ending cash and equivalents were $1.39 million as of June 30, 2025, down from $2.97 million as of June 30, 2024.
There were also important developments in products and partnerships. During the quarter, zSpace launched its Career Explorer application, which offers skilled trades career simulation for students in grades five through eight. It also rolled out “Career Coach AI,” an artificial intelligence-driven career guidance tool. The zSpace Imagine AR/VR laptop, which enables immersive educational experiences without the need for glasses, won another Future’s Best of Show Award at a leading industry conference. These launches build on a history of product updates and reinforce zSpace’s positioning as an innovation leader within the education technology market. Additional software milestones included a rise in Annualized Contract Value (ACV) for renewable subscription software, a non-GAAP metric, which increased by 11% to $10.9 million. Large customers (with at least $50,000 contract value) achieved 131% net dollar revenue retention (non-GAAP), signaling expansion and stickiness in this user segment.
Strategically, zSpace continued to invest in its pipeline and product breadth. It also highlighted continued progress with AI-powered features and platform-level content, aiming to enhance learning outcomes and keep the product suite differentiated from other AR/VR and ed-tech competitors.
Looking Forward: Management Guidance and Investor Considerations
zSpace did not provide quantitative financial guidance for the coming quarter or the full fiscal year in its latest release. Management commented only on its intent to “drive growth and deliver long-term value,” without committing to specific targets or guidance ranges. This omission stands out, especially given recent volatility in bookings and some uncertainty around the U.S. education funding environment.
In the near term, investors may want to monitor bookings trends, software contract value, and further product launches as signals for a return to revenue growth. The low cash balance and ongoing net losses put liquidity under pressure.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
