zSpace, Inc. reported its third‑quarter 2025 results on November 13, 2025, showing revenue of $8.8 million—a 38% year‑over‑year decline but an 18% sequential improvement. Earnings per share were reported at –$0.26, missing the consensus estimate of –$0.20 by $0.06. Gross margin expanded to 51%, up 642 basis points from 45% in the same quarter a year earlier, reflecting a higher mix of software and services and lower hardware costs.
The revenue decline was largely driven by the loss of a non‑repeating large order that had been booked in 2024, combined with broader macroeconomic weakness and funding uncertainty in the education sector. The sequential gain was supported by a shift toward higher‑margin software and services, which now account for more than half of total revenue.
Margin expansion was achieved through two main levers: a reduction in hardware component costs and an increased proportion of company‑owned software content, which carries higher gross margins. The 51% margin represents a significant lift from 45% in Q3 2024, underscoring the company’s successful pivot toward software‑centric offerings.
Segment analysis shows that software and services revenue grew, while hardware revenue contracted. Bookings for the quarter were down 37% year‑over‑year, reflecting the loss of the large order and ongoing funding challenges.
CEO Paul Kellenberger emphasized that “our third‑quarter results reflect our focus on advancing our strategic priorities and controlling what we can control.” He added that “software and services revenue comprised over 50% of revenue” and that the company remains confident in delivering long‑term value for shareholders.
Management did not provide formal financial guidance for the next quarter, citing market uncertainty, particularly in the education sector. The cautious stance signals that while the company is confident in its profitability trajectory, it remains wary of short‑term demand volatility.
Cash on hand stood at $4.3 million as of September 30, 2025. Headwinds include macroeconomic pressure, funding uncertainty for schools, and delays in order delivery. Tailwinds are the strategic shift to software and services, which now drive more than half of revenue, and ongoing international expansion efforts.
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