zSpace, Inc. (ZSPC)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 revenue declined 29% year over year to $8.54M with gross margin expanding 597 bps to 40.7%; management attributed the revenue shortfall to late-quarter IPO proceeds that limited order fulfillment and left $9.2M of backlog exiting the year .
• Results missed Wall Street consensus: revenue $8.54M vs $9.61M consensus and EPS of -$2.97 vs -$0.09; EBITDA -$2.76M vs -$2.10M consensus (all S&P Global)*.
• Management guided Q1 2025 revenue “slightly above $5M” and reiterated a 2025 OpEx framework (growth < half the rate of revenue growth, ex-RSUs) and <7% RSU burn; they also highlighted gross margin tailwinds of +4–7 pts as new hardware rolls out .
• Strategic positives: software-led mix shift (FY GM +240 bps to 40.9%), ACV +6% to $11.3M, new products Inspire 2 and Imagine, and strong CTE momentum; near-term stock reaction catalysts include backlog conversion and hardware-driven margin lift .

What Went Well and What Went Wrong

• What Went Well

  • Gross margin expanded meaningfully (Q4 +597 bps YoY to 40.7%; FY +240 bps to 40.9%) on mix shift toward software/services and pricing/terms changes; management expects additional +4–7 pts of gross margin as the newest hardware rolls through in 2025 .
  • Software momentum and retention: ACV of renewable software rose 6% to $11.3M; NDRR for >$50k ACV cohort was 92%, demonstrating stickiness despite fulfillment headwinds .
  • Product and market progress: Launch of Inspire 2 and Imagine, Career Readiness Solution with “AI Career Coach,” and a $5M St. Louis Public Schools win; “We are thrilled to be announcing our first quarter as a public company” and confident “to build on our momentum” .

• What Went Wrong

  • Revenue missed consensus amid late IPO timing and supply fulfillment limits; backlog ended at $9.2M, delaying recognition into 2025 .
  • Q4 bookings fell 3% YoY (ex-China, +5% YoY; U.S. +21% YoY but international ex-China notably down in the quarter), reflecting seasonality and timing variability in smaller international markets .
  • K‑12 demand is intact, but decision-making hesitancy and funding-source uncertainty lengthened sales cycles from ~60–75 days to ~75–90 days; this may pressure near-term linearity even as CTE demand remains strong .

Financial Results

Actuals vs prior year and consensus

Q4 2024: Actual vs consensus detail

Additional P&L and balance sheet context (YoY unless noted):

• FY 2024 revenue $38.10M vs $43.92M; FY gross margin 40.9% vs 38.5%; FY net loss $20.82M vs $13.04M .
• Cash and equivalents at 12/31/24: $4.86M vs $3.13M at 12/31/23 .

Notes:

• Prior quarter (Q3 2024) public filings/transcripts were not available (pre-IPO). We searched Q2–Q3 2024 and found no 8-K 2.02 or earnings transcripts in that window.

KPIs and Operating Metrics

Segment breakdown: Not disclosed. Mix shift toward software/services (approx. +5 ppt of revenue mix in 2024) supported margin expansion .

Guidance Changes

Earnings Call Themes & Trends

Note: Prior two quarter transcripts (Q2–Q3 2024) were not available in public filings; trend commentary leverages Q4 2024 call and FY disclosures.

Management Commentary

• Strategy focus: “We will continue to focus on increasing our penetration within the existing K‑12 STEM and CTE markets… actively expanding our international presence… investing in R&D… [and] acquiring complementary software solutions” .
• Backlog/setup: “We concluded the year with $9.2 million of unfulfilled orders stranded in backlog” due to late IPO proceeds timing .
• Margin drivers: “Those new laptop platforms come at a favorable BOM cost… we anticipate… a tailwind of an additional 4 to 7 percentage points of gross margin as that hardware rolls out” .
• Demand tone: “We don’t see a demand problem… particularly in the K‑12 educational space,” but funding turbulence is extending sales cycles .

Q&A Highlights

• IPO timing and bookings: New product launches (Inspire 2, Imagine) required capital; delays pushed unveil into late 2024 and constrained demo/launch cycles until inventory arrived (Inspire 2 late Q4; Imagine in Q1’25) .
• Sales cycle/funding: K‑12 cycles lengthened to ~75–90 days (from ~60–75) amid funding-source uncertainty; CTE remains resilient .
• Gross margin path: FY expansion driven by software mix and pricing/terms; incremental +4–7 pts expected from new hardware cost structure and interaction device innovation .
• International dynamics: Q4 international ex-China down 92% YoY, but FY ex-China up 37%; smaller markets create quarterly volatility .
• Tariffs: Expect to pass through hardware tariffs; software renewals unaffected; 2018 experience supports playbook .
• Go-to-market and M&A: ~50% increase in U.S. quota-carrying reps and added account management/field marketing; BlocksCAD acquired to integrate and enhance bundles, with focus on accretive software content acquisitions .

Estimates Context

• Q4 2024 vs consensus: Revenue $8.54M vs $9.61M (miss), EPS -$2.97 vs -$0.09 (miss), EBITDA -$2.76M vs -$2.10M (miss)*.
• Implications: Consensus likely to recalibrate near-term (Q1 guide “slightly above $5M”) while medium-term models may reflect higher gross margin potential (+4–7 pts) and backlog conversion cadence .

Values marked with * were retrieved from S&P Global.

Key Takeaways for Investors

• Near-term set-up: Q1 revenue “slightly above $5M” and elongated K‑12 sales cycles argue for conservative 1H’25 trajectories, but backlog and seasonal strength in Q2–Q3 could support sequential recovery .
• Margin expansion credible: Mix shift plus new hardware cost curves point to structural gross margin improvement (+4–7 pts tailwind potential) layered on FY 2024’s +240 bps gain .
• Software resilience: ACV growth (+6%) and 92% NDRR in >$50k cohort underscore sticky solution value even through funding turbulence .
• Product catalysts: Inspire 2 and Imagine broaden TAM (especially elementary) and should aid bookings as inventory availability normalizes .
• Execution levers: Expanded U.S. sales capacity and accretive software/content M&A (e.g., BlocksCAD) can lift gross margin and speed software growth .
• Risk factors: K‑12 funding-source uncertainty, international volatility ex-China, and tariff administration; management plans pass-through and sees software renewals as insulated .
• What to watch: Backlog conversion pace, Q2–Q3 seasonal orders, international ex-China consistency, and realized hardware-driven margin step-up beginning early 2025 .

Sources: Q4/FY 2024 8-K and press release (incl. financial tables) ; Q4 2024 earnings call transcript ; IPO-related 8-K for Q4 context . Values marked with * were retrieved from S&P Global.