S-1/A: zSpace Eyes Nasdaq Debut with $15 Million IPO to Fuel AR/VR Education Expansion

zSpace, a leading AR/VR educational technology provider, files for a $15 million IPO to scale its platform and expand its reach in the K-12 and CTE markets.

Summary

• zSpace, Inc., a Delaware corporation, is planning an initial public offering (IPO) of 3,000,000 shares of its common stock.
• The anticipated initial public offering price is between $4.50 and $5.50 per share.
• The company has applied to list its common stock on The Nasdaq Global Market under the symbol ZSPC.
• zSpace is an emerging growth company and a smaller reporting company, which allows it to comply with certain reduced public company reporting requirements.
• The company is registering for resale up to 2,219,970 shares of common stock by certain securityholders.
• These shares are issuable upon the conversion of preferred stock and SAFE Agreements immediately prior to the IPO.
• The number of shares eligible for resale depends on the initial public offering price; at $5.00 per share, 1,997,973 shares would be eligible.
• The company will not receive any proceeds from the resale of common stock by the selling stockholders.
• The underwriters have an option to purchase up to 450,000 additional shares of common stock from the company to cover over-allotments.
• zSpace expects revenue for the three months ended September 30, 2024, to be approximately $14.2 million, a 4% increase compared to $13.6 million for the same period in 2023.
• The company anticipates software and services revenues to be approximately 46% of total revenue for the three months ended September 30, 2024, compared with 36% for the same period in 2023.
• The company expects worldwide bookings for the three months ended September 30, 2024, to be approximately $12.4 million, unchanged from the same period in 2023.
• Excluding China, expected bookings for the US and rest-of-world were $12.4 million, as compared to $10.3 million for the three months ended September 30, 2023, or an increase of approximately 21%.
• The company expects backlog to be approximately $11.5 million as of September 30, 2024, compared to approximately $12.4 million as of September 30, 2023.
• As of September 30, 2024, the company expects ACV of renewable software to be approximately $11.3 million, as compared to $10.0 million as of September 30, 2023, or an increase of 13%.
• The company expects the Net Dollar Retention Rate (NDRR) for those customers who had at least $50,000 in ACV as of September 30, 2024 to be 102%, compared to 114% as of September 30, 2023.
• The company estimates its net loss for the three months ended September 30, 2024, to be approximately $0.2 million, as compared to a net loss of $1.3 million for the same period in 2023.
• Adjusted EBITDA is estimated to be approximately $0.3 million for the three months ended September 30, 2024, as compared to a loss of ($0.4) million for the same period in 2023.
• After the completion of this offering, dSpace Investments Limited, bSpace Investments Limited and Fiza Investments Limited, our controlling stockholders, will continue to control a majority of the voting power of our common stock.
• The company intends to use the net proceeds from this offering for growth initiatives, including funding product commitments, software development through acquisitions of applications and third-party software developers, sales and marketing, and for working capital and general corporate purposes.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company is experiencing revenue growth and a shift towards higher-margin software and services, it also has a history of net losses, a significant accumulated deficit, and faces various risks and challenges. The IPO is a positive step, but the company's financial stability and future success are not guaranteed.

Positives

• The company is experiencing revenue growth, with a 4% increase expected for the three months ended September 30, 2024.
• The company is shifting towards higher-margin software and services revenue.
• The company is reducing its net loss and improving its Adjusted EBITDA.
• The company has a strong presence in the K-12 education market, with deployments in over 80% of the largest 100 public school districts in the United States.
• The company has a broad patent portfolio and is a leader in the AR/VR educational market.

Negatives

• The company has a history of net losses and expects to continue to experience net losses in the future.
• The company has a significant accumulated deficit of $(286.6) million as of June 30, 2024.
• The company is dependent on federal, state, and local government funding, which can be volatile and unpredictable.
• The company was involved in a SPAC transaction that was terminated, and the outcome of the termination remains uncertain and may result in negative impact to us.
• The company has identified material weaknesses in its internal control over financial reporting.

Risks

• The company faces intense competition in the education technology market.
• The company's market opportunity estimates and growth forecasts may be inaccurate.
• The company may not be able to manage its growth effectively.
• The company may be dependent on a limited number of significant customers.
• The company may be subject to legal disputes and intellectual property claims.
• The company may be susceptible to illegal or improper uses of its educational platform.
• The company may be adversely affected by changes in available educational funding.
• The company may be unable to acquire new customers or expand sales to existing customers.
• The company may be unable to maintain or scale its hardware and software offerings and technical infrastructure.
• The company may be unable to attract and retain talented employees, including senior management.
• The company may be unable to obtain additional capital on favorable terms or at all.
• The company's existing and future levels of indebtedness could adversely affect its financial health.
• The company depends on a limited number of third-party partners to produce, resell and distribute its products.
• The company's ability to use its United States federal and state net operating losses to offset future taxable income may be subject to certain limitations which could subject its business to higher tax liability.
• The company's business is subject to complex and evolving United States and foreign laws, regulations and industry standards, many of which are subject to change and uncertain interpretation, which uncertainty could harm its business, operating results and financial condition.
• The obligations associated with operating as a public company following the offering will require significant resources and management attention and will cause the company to incur additional expenses, which will adversely affect its profitability.
• The company will be classified as a controlled company for purposes of the Nasdaq Listing Rules and therefore qualify for certain exceptions from certain corporate governance requirements.
• The price of the company's common stock may be volatile.
• Investors in this offering will experience immediate dilution upon the closing of the offering.

Future Outlook

The company expects to continue to drive growth by increasing marketing efforts, expanding use cases and introducing new applications within the United States. The company also plans to increase investments in specific sales and marketing initiatives to increase sales efficiency and increase users and growth in renewing software revenue.

Industry Context

The global education technology market was valued at $142.4 billion in 2023 and is expected to grow at a CAGR of 13.6% from 2023 to 2030. The global AR, VR and mixed reality market is expected to grow at a 37% CAGR to $252 billion by 2028 compared to $28 billion in 2021. Spending on AR and VR in the education market globally will grow to $14.2 billion by 2028 (CAGR of 30% from 2023).

Comparison to Industry Standards

• The document mentions competitors such as Chegg, Coursera, Docebo, Duolingo, Instructure, Kahoot, Powerschool, and Udemy in the education technology space.
• It also lists CTE companies like A Cloud Guru Ltd., Degreed, Inc., LinkedIn Corporation through its LinkedIn Learning services, Pluralsight, Inc. and Udacity, Inc.
• Competitors in the virtual technology market include Apple, Google, Meta Platforms, Matterport Inc and Unity Software.
• AR/VR focused companies such as ClassVR, Inception XR, Interplay Learning, Umety Solutions Ltd, Transfr VR Victory XR are also mentioned.
• The document does not provide specific comparisons of zSpace's financial results or metrics to these competitors, making it difficult to assess its performance relative to industry standards.

Legal Proceedings

• EdtechX filed a complaint in the Superior Court of the State of Delaware alleging breaches of contract and the implied covenant of good faith and fair dealing in connection with the termination of the EdtechX Merger Agreement.
• The company filed a motion to dismiss the complaint with the Superior Court of the State of Delaware.

Related Party Transactions

• bSpace Investments Limited owns 45,890 shares of our NCNV 3 preferred stock.
• Mohammed Al Hassan, the Co-CEO of Gulf Islamic Investments, LLC (GII), holds 100% of the equity interest in bSpace in his personal capacity.
• dSpace Investments Limited controls zSpace, Inc. through its ownership of 3,874,946 shares of our Series A preferred stock.
• Pankaj Gupta, one of our directors and the Co-CEO of GII, holds 100% of the equity interest in dSpace in his personal capacity.
• Fiza Investments Limited holds an aggregate of $10.0 million in principal amount of our convertible notes, plus accrued interest and an aggregate of approximately $3.9 million in principal amount of our non-convertible loans.
• Husain Zariwala, the Chief Financial Officer of GII and Imran Ladhani, the Head of Operations & Investor Relations of GII, each own 50% of the equity interests and voting control of Fiza.

Stakeholder Impact

• Shareholders will experience immediate dilution upon the closing of the offering.
• The company's future success depends on its ability to attract and retain talented employees.
• The company's performance is dependent on its relationships with third-party suppliers and resellers.
• The company's ability to comply with laws and regulations could impact its business and results of operations.

Next Steps

• The company will seek approval to list its common stock on The Nasdaq Global Market under the symbol ZSPC.
• The company will use the net proceeds from the offering for growth initiatives, including funding product commitments, software development, sales and marketing, and working capital.
• The company will continue to implement measures designed to improve its internal control over financial reporting to remediate material weaknesses.

Key Dates

Keywords

AR/VR, education technology, IPO, initial public offering, K-12, CTE, virtual reality, augmented reality, ZSPC, stock offering, EdTech