ZSpace reports flat Q2 revenue amid education funding uncertainty; net dollar retention jumps to 131% as strategic initiatives gain traction.

OPERATOR - (00:01:35)

Good afternoon everyone and thank you for participating in today's conference call to discuss ZSpace financial results for the second quarter ended June 30, 2025. Joining us today are ZSpace CEO Paul Kellenberger, CFO Eric D' Oliveira and Greg Robles from Investor Relations. Following their remarks, we'll open the call for analyst questions. Before we go any further, I would like to turn the call over to Mr. Robles as he reads the company's Safe harbor statement. Greg Please go ahead sir.

Greg Robles - Investor Relations - (00:02:14)

Thanks.

OPERATOR - (00:02:15)

Operator Good afternoon and thank you for joining our conference call to discuss our second quarter 2025 financial results. Before we begin, I'd like to remind everyone that certain statements made on this call may be considered forward looking statements. These statements are based on our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially. Additionally, we may discuss certain key business metrics which are non GAAP financial measures. A description of these non GAAP measures and any comparison to the most directly comparable GAAP measures can be found in our earnings release on the Investor Relations section of our website. Now I would like to turn the call over to the CEO of ZSpace, Paul Kellenberger.

Paul Kellenberger - Chief Executive Officer - (00:02:58)

Paul thank you and good afternoon everyone. Thank you for joining us for our second quarter earnings call. I am Paul Kellenberger, CEO of ZSPACE and with me is Eric D' Oliveira, our chief financial Officer. We're both excited to be here with you to discuss zSpace, our Q2 performance and our plan to drive growth. To begin, we're operating in a challenging and evolving macroeconomic environment. Global trade dynamics remain unpredictable and ongoing changes in U.S. education policy continues to cause funding uncertainty and delays for our school district customers, a trend that began in Q1. Despite these headwinds, ZSPACE remains well positioned to navigate and capitalize on the shifting landscape. We're particularly focused on four key policy trends that directly impact our business. Number one decentralization of federal funding. The continued redirection of education dollars from the federal to state level is creating a more localized decision making environment, opening doors for ZSPACE to align with state specific priorities and build deeper partnerships. Number two expansion of school choice. The increased emphasis on charter schools and voucher programs is accelerating demand for flexible, high impact instructional solutions across a growing diversity of educational models. Number three focus on flexibility and innovation. States now have greater autonomy to invest in emerging technologies and instructional approaches. ZSPACE's immersive learning platform is well suited to meet this call for innovation and the fourth item, implementation of block grants a central feature of the Department of Education's current approach. Block grants consolidate categorical programs into broader funding pools, giving states greater freedom to allocate resources. We believe this shift will become a significant growth catalyst for ZSPACE, particularly as funding becomes more predictable and is directed towards workforce development, CTE and STEM education. While we continue to closely monitor these external policy developments, we've also made meaningful internal progress across product integration and innovation. Most notably, this past quarter we successfully completed the integration of our Second Avenue acquisition, culminating in the launch of our Career Explorer application which is now in the market. We believe this product will drive meaningful growth in our software business and strengthen our leadership in career exploration and CTE. In parallel, we've accelerated investment in the ZSPACE AI assistance which is central to our long term vision of improving student outcomes through intelligent personalized learning. This strategic focus positions zspace at the forefront of AI driven education, delivering real time support and guidance to learners while empowering educators with actionable insights to enhance. Instruction. In the areas of industry recognition and customer momentum. I would like to illustrate our momentum and success with a few examples. In June, ZSPACE was honored with the Tech and Learning Award at ISTE the largest annual K12 education conference in the U.S. further validating our innovation and impact. We also achieved several key strategic customer wins across both new and existing markets, reinforcing our value proposition in the competitive and rapidly evolving education sector. The first example is Northwell School of Health Sciences, which is a collaboration with New York City Public School District funded by the Bloomberg Philanthropies Organization. As part of a flagship health sciences campus launch in New York City, Northwell School of Health Sciences selected ZSPACE as a cornerstone technology in its state of the art simulation labs. This deployment included ZSPACE Inspire systems across multiple labs with a broad spectrum of healthcare applications. The second example I would like to highlight is the Mendota Unified School District here in California. They implemented ZSPACE Imagine systems at three elementary schools as part of an early STEM and career exploration initiative, marking a major investment in immersive learning at the K5 level. Overall, we remain confident in the long term potential growth of ZSPACE and our ability to deliver on our vision. That said, we are approaching the second half of the year with measured caution given the continued uncertainty in the broader macroeconomic and education funding environment. Importantly, this caution is not a reflection of customer demand. In fact, as evidenced by recent wins in ongoing engagement, both existing customers and prospects continue to express interest in our solutions and and a desire to expand usage. The challenge lies not in demand, but in the persistent delays and constraints around funding. We believe that as the federal education policy continues to take shape and funding mechanisms become more predictable, the longer term outlook for ZSPACE will strengthen. With that, I will turn the call over to Eric to walk through our financial results in more detail.

Eric D' Oliveira - Chief Financial Officer - (00:09:08)

Eric thank you Paul. As you consider our results, a reminder that our revenues are substantially recognized upon shipment of laptop units or fulfillment of software license keys. This includes recognizing the full value of multi year software licenses in the period in which they are fulfilled. Only a small portion of our revenue is periodically recognized as a result of this revenue recognition treatment. Our financial results can exhibit quarter to quarter variability that exaggerates the underlying seasonality of the business and now diving into our first half performance, first half revenues were $14.2 million, down 7% year on year. As noted in our Q1 results, we have been enjoying outperformance in software and services which were up 2% versus the comparable six month period of the prior year. Hardware revenues for the same six month period were down 13%. This dynamic continues to be an important driver of gross margin expansion. As previously discussed, our P and L reflects multi year software license revenue in period. To help better characterize the run rate health of the business, we offer 2 non GAAP software operating metrics. As of June 30, 2025, the annualized contract value of renewable software was $10.9 million, up 11% compared with 12 months ago. Also, as of June 30, 2025, the net dollar revenue retention of customers with at least $50,000 of ACV was 131% for those customers present as of June 30, 2024. We're very pleased that our efforts to focus on the importance of our software content in driving student outcomes has generated continued growth in the ACV metric and high retention rates amid such a challenging environment for our end user. Bookings for the six month period ending June 30 were $15.5 million, down 34% year on year. Excluding the unusual $5 million deal closed in the prior period, bookings performance would have been down 1six% year on year. This normalized performance reflects a 21% decline in the US and rest of world markets outside of China and an 88% increase in bookings from China. K12 customers accounted for six8% of bookings value down from 70% in the prior year. Comparable period CTE customers drove 32% of value, up from 30% in the prior year. Gross profit was $six.4 million, up 11% year on year against the same period last year. This includes a one-time charge in the second quarter for discontinued software license inventory which is related to our continued efforts to bring previously resold third party titles in house through both acquisition of applications and internal development. Gross profit was also affected by applicable tariffs and duties. Although we have largely treated these as pass through on a dollar basis, we incur some margin compression from doing so. Gross margins for the six month period were 44.9% up 7.5 points versus the prior year period. Improvements in profitability continue to be driven by the same three factors identified earlier in the year. Favorable revenue mix of hardware versus software and services, new hardware products with better pricing, performance profiles and an increased amount of ZSpace owned software content. Operating expenses excluding stock based compensation were up 11% for the first half. People related costs which make up the bulk of our expenses were up 2% year on year for the same comparable period. And now for the second quarter. Q2 revenues of $7.5 million were flat year on year with hardware performance of 3% growth versus the prior year Q2 slightly ahead of software and services which declined 5%. This difference in performance is attributable to turbulence in the educational market created by the combination of tariff policies and uncertainty in educational funding which has resulted in unpredictable purchasing patterns in school districts across the country. Bookings for the three month period ending June 30 were $7.1 million down 54% year on year. Excluding the unusual $5 million deal closed in the prior year period, bookings performance would have been down 31% year on year. This normalized performance reflects a 31% decline in the US and rest of world markets outside China and a 100% decrease in bookings from China. K12 bookings accounted for six5% of bookings value in the quarter down from 72% in the prior year. Comparable period DTE customers drove 35% of bookings value up from 28% in the prior year. Gross profit was $3.2 million up 5% year on year against the same period last year and extending the margin expansion trend which began in the second half of last year. This includes the one-time write off for retired third party software licenses of $174,000 as we replaced third party content with our own. Gross margins for the quarter were 42.six% up 2.1 percentage points versus the prior year period. Normalizing for the impact of software license write offs and the impact of tariffs, gross margin would have been 4six% or six% of expansion compared with Q2 of 2024. Operating expenses for the quarter excluding stock based compensation were up 10% year on year. People related costs, excluding stock based compensation, which make up the bulk of costs, were up 7% year on year for the same comparable period. Our reported results include $1.9 million in stock based compensation expense attributable to restricted stock units granted in Q1 as part of our Employee Equity Incentive Program. Relative. To the 22.8 million shares issued and outstanding at the start of the year. We continue to manage the issuance of RSUs as part of the Employee Equity Incentive Program to a target burn rate of less than 7% for the full year. Now, moving on to our outlook for the rest of the year, we expect the uncertainty and turbulence present through the first six months of 2025 to persist, particularly in the K-12 segment in the U.S. education customers continue to take longer to identify funding sources for ZSPACE's K-12 Arkansan VR classroom solutions, even as some accelerate their purchases to lock in pricing and availability for the remainder of the year. The Overall impact for ZSpace remains unclear at this time. As discussed in the past two quarters, we remain comfortable in our ability to improve the quality of both our hardware and software revenues and renew business across the K-12 and CTE content segments, but cannot credibly project business volume under current circumstances. Given this landscape, we are going to refrain from formal financial guidance. Regarding our. Capital allocation and management of operating expenses. In particular, we continue to control spending strictly on an ongoing basis. We will evaluate levels of spend in order to maintain business flexibility as well as to position the company for sustained profitability in the quarters to come. Now I will turn the time back to the operator for Q and A.

OPERATOR - (00:18:16)

Thank you, ladies and gentlemen. To ask the question, please press Star one one on your telephone, then wait for your name to be announced. To withdraw your question, please please press Star one moment. Again, please stand by while we compile the Q and A roster. Our first question comes from the line of Rohit Kulkarni with Roth Capital Partners. Your line is open.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:18:41)

Great. Thank you. I guess the first question is just any 3Q trends that you can highlight. Specifically since we have seen headlines around the funding federal funding $6 billion or so being released at the federal level. Perhaps maybe talk about how or if you're seeing any changes in behavior and how that has impacted some of the early 3Q trends.

Paul Kellenberger - Chief Executive Officer - (00:19:14)

I'll take that one, Rohit. Thanks. This is Paul. As I discussed in my opening comments, I would say we're cautiously optimistic. Clearly, the release, if you will, or the completion of the review in July that the administration put on the 6.8 billion release. It certainly helps and I think because it factors into the decision making that our customers make, I think it's still a little bit early to say. And I'd say we're cautiously optimistic. We'll certainly have more to say in the next earnings release. And that's really it.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:19:56)

Okay. Okay, I guess. And then a couple questions kind of related to the CTE (Career and Technical Education) and the AI-driven education product offerings that you've had recently. Maybe talk through how you're incorporating AI in these new offerings and maybe what is the value prop in the Career Explorer application for CTE (Career and Technical Education) now that it's. Out in the market?

Paul Kellenberger - Chief Executive Officer - (00:20:23)

Yeah, that's a great question, Rohit. We announced our Career Explorer at ISTE last month. Let me talk a little bit about. AI and by the way, we will have another announcement forthcoming. But let me talk about it generally. We are using machine learning or machine learning in our next generation stylus offering and that is something that will improve the user experience and enhance our cost profile. That's more on the stylus and next generation that is coming. On the software side of it, our ZSpace AI assistant, which again there will be something in the public domain in the next week or so here on this along with and within our Career Explorer application are really unique in that they combine ZSpace's immersive technology with our AI driven personalization. And this is something we've been working on for quite a while that ultimately deliver educational experiences that are impossible via traditional methods or 2D platforms. And again, you'll be seeing more about that in the coming months. Our vision is really to empower learners, whether it's young students or adults in the CT world with immersive AR and AI experiences to unlock their potential and prepare them for future careers. So stay tuned. You will be seeing more and more about that on that in the coming weeks and coming months.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:22:12)

Okay, and maybe one last quick one for Eric in terms of the gross margins and I guess the question there is to what extent is the maybe you can peel out the mix shift from hardware to software and within hardware as well as you do more of the shift towards new products products like Inspire 2 and Imagine a more direct way to ask is what part of this gross margin uplift you're seeing is more or less permanent as you go through more software sales versus just the hardware cycle that we are seeing right now?

Eric D' Oliveira - Chief Financial Officer - (00:22:59)

Yeah, absolutely Rohit I think I heard both a retrospective question and then sort of a prospective question there. So let me take the retrospective and give you some color on the year to date gross margin improvement for the first half we saw 7.5 percentage points of margin expansion from 37.4 to 44.9 in our reported figures for the first. Six months of this year. Compared to the comparable period last year. The composition of that improvement of the. 7.5 points was approximately 1.4 percentage points of favorability from revenue. Mix Shift software and services collectively made up 4 percentage points more of the revenue portfolio than in the comparable period last year. The rate factors so this is more structural and internal execution drove the remaining six six.1 percentage points of margin expansion and that six.1 points of margin expansion is in approximately equal measures driven by gains from the new hardware product launches so Inspire 2 replacing its flagship predecessor Inspire and the new imagine based 14 inch form factor on the software side. The contributions there are being driven by improvements in adding more of our own content to software portfolio as opposed to third party sellers where we incur a rev share that we record as cogs. What I would add to that is. In the quarter just closed, those reported. Results include almost 2 percentage points of idiosyncratic adversity, about 1.2 percentage points tied to a one time write-off of software licenses that's related to us no longer offering those third party titles in our library and approximately another half percentage point of unfavorable impact from tariffs and duties paid now. Those last those factors combining for 6. Percentage points of margin improvement are structural. It's the new hardware recently launched that replaces three year old hardware in our software catalogs and the software that we are currently offering first party that is. Going to continue to be the case. So we see both of those as structural factors. As we look to future expansion. We anticipate continued improvements in the hardware ecosystem that will again structurally and permanently improve the hardware margins once those are rolled out. And we also continue to evaluate opportunities to bring more first party content to market that ZSpace owns and will not require us to pay rev share on those revenues. Is that helpful?

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:26:16)

Yeah, yeah, very helpful. Thanks. Thanks Eric. I'll go back in the queue. Thank you both.

Paul Kellenberger - Chief Executive Officer - (00:26:21)

Okay, thanks Rohit.

OPERATOR - (00:26:23)

Please stand by for our next question. Our next question comes from the line of Alex Puris with Barrington Research. Your line is open.

Alex Puris - Analyst at Barrington Research - (00:26:33)

Hi guys, thanks for taking my questions. I have a couple of questions here. First one just off the top of my head since you kind of finished on it the tariff impact was certainly less than I would have expected in the second quarter. And there was virtually no impact during the first quarter. About $100,000 or so you mentioned in the second quarter. What are your thoughts regarding tariffs on the second half?

Eric D' Oliveira - Chief Financial Officer - (00:26:58)

So the tariff picture continues to be volatile, and our intention is, for the most part to pass-through the cost of tariffs on a dollar basis. Now, it's both volatile and unpredictable in terms of the customer mix of shipments that we'll be shipping to. And obviously tariffs have a significant geographic impact or geographic component to. To their magnitudes going forward. Our intention is to continue to pass-through the cost of tariffs on a dollar basis. To the extent that the market continues to support that, when we do that on a dollar basis, we nonetheless see some percentage base compression of margins because we're not marking up tariff costs with a profit margin on top of that to our customers.

Paul Kellenberger - Chief Executive Officer - (00:27:57)

Alex, this is Paul. Maybe just to add to what you said. It certainly wasn't as impactful as we worried about back in, say, March, but. Again, I think it's 20% we're roughly running right now. And there's threats, quote, unquote, to go up to 30. And that assumes that it's coming out of China. But as you well know, things are a bit of a moving target when it comes to tariffs.

Alex Puris - Analyst at Barrington Research - (00:28:24)

No doubt about it. But didn't you say on the first quarter call that your OEM supplier was looking to move some of their production out of China to another lower tariff market?

Paul Kellenberger - Chief Executive Officer - (00:28:36)

Yeah, in fact, we actually talked to them this week about it. The core product within ZSPACE Inspire is actually now being manufactured in Thailand,, and that actually manages our way through the tariff component of it. We'll see that benefit probably later this. Quarter and next quarter.

Alex Puris - Analyst at Barrington Research - (00:29:05)

Okay. And then just a couple of others. You talked about bookings being down 54% year over year, macroeconomic uncertainty in the US for sure. Elongated sales cycles, that sort of thing. I didn't hear you mention anything about the backlog, which I think stood at 9.7 million at the end of the first quarter.

Eric D' Oliveira - Chief Financial Officer - (00:29:27)

Correct. So backlog at the end of Q2 was $7.3 million for confirmed orders, but not yet fulfilled.

Alex Puris - Analyst at Barrington Research - (00:29:38)

Gotcha. All these things kind of come together for us to try to make some estimates for the second half in the absence of formal guidance. And then I thought I'd ask you for some more. And then you said those bookings were split between K12 and CTE. I forget what you said. 70, 30, something like that. Maybe you can refresh my memory. There. And then. While we're on the topic, I just wanted to talk a little bit more about cte. I realize the new product, the new product from Second Avenue Career Explorer is in that CTE space, but that's really grades five to eight, I think you had said. But CTE is a much bigger potential market for you. Largely community colleges today, I assume, but also potentially adult learning and worker retraining. Just a little color there.

Eric D' Oliveira - Chief Financial Officer - (00:30:39)

Correct. And I think I'll speak to your quantitative questions and then I think Paul has some call commentary on CTE. But the tailwind from CTE can be seen in the mix. So in the three months ended 6:30, we delivered $7.2 million in bookings. You'll recall the prior year comparable period had one anomalously large deal in there that drove the 54% year on year decline. If you're looking at the mix though, the CTE content of bookings for the three months ended this past June was 35%. That is actually up 7 percentage points. Over the prior year quarter. And the reason for that is the prior year quarter did include that very large deal that had a preponderance of K12.

Alex Puris - Analyst at Barrington Research - (00:31:35)

Gotcha. Okay.

Eric D' Oliveira - Chief Financial Officer - (00:31:39)

Seeing an acceleration in the CTE content year over year.

Paul Kellenberger - Chief Executive Officer - (00:31:45)

Let me give you a little more color on CTE. So our CTE sales are both in the K12 environment, predominantly high schools as well as community colleges. The Career Explorer application, which by the way, we traditionally sold, you know, hardware, software as a solution applications, we've got a pretty Strong focus on four different areas with complete learning solutions, including our AI ZSPACE AI assistant that you'll hear more about in the coming weeks. The areas of focus are career exploration, which by the way starts as early as grades five and six. We originally thought it was going to be kind of more high school, but the demand has really started in grades five and six. So career exploration is one area. The other three are health care. And that's the largest pathway, as you well know, manufacturing and automotive. And we have solutions in those areas today. And I mean complete packaged solutions with our AI assistant that goes along with it. We traditionally have worked with outside third parties on the certifications groups like Nocti. And more and more we're working with. Others to go even further in the certifications area.

Alex Puris - Analyst at Barrington Research - (00:33:23)

And then community colleges. In terms of revenue or bookings today, is that a majority of CTE or not?

Paul Kellenberger - Chief Executive Officer - (00:33:33)

You know, I'm going to give you this objective answer off the top of Paul's head and Eric may come up with some other data that we can. Share with you. At the right time. I would say today the bulk of our CTE business is in K12, as. In within those high schools. I think we're in something like 1000 of the community colleges, which is a relatively low number. And a lot of that just has to do with scale and focus. But more and more we are looking at continuing to expand in those community colleges.

Alex Puris - Analyst at Barrington Research - (00:34:12)

Great. That will do me for now. I'll get back into the queue. Appreciate it. Okay, thanks. Alex.

OPERATOR - (00:34:20)

Please stand by for our next question. Our next question comes from the line of Nihal Chokshi with Northland Capital Markets. Your line is open.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:34:31)

Yep. Thank you. A few questions. First One is your net dollar revenue retention rate for the quarter was 131%. That's a big jump up from the March quarter of 97%. And I guess in general it's been kind of volatile. So a couple of questions with respect to NDRR. A: given the volatility of this metric, is it really a relevant metric? And then B, provided that it is, what's the driver of the significant improvement here?

Eric D' Oliveira - Chief Financial Officer - (00:35:04)

Hi Nehal. So excellent questions. The way I'd characterize this is you'll recall that our net dollar revenue retention firstly requires that we have fulfilled the underlying renewable software in a given period. And because of that, it does carry many of the attributes of our recognized P&L revenue, which can exhibit a lot of variability quarter to quarter. Put another way, in a period in which we ship a significant volume of licenses, you'll see that impact show up in both the annual contract value (ACV) and the NDRR metrics at a particular point in time. So there's some. There can be some artifacts where if a large order is completed right after or right before or right after a quarter end break point, you'll see that discontinuity show up in the metric. Now for ndrr, we absolutely believe that this is an important measure of our ability to retain customers and expand their footprint. The driver in this case is a customer that had been with us prior to the prior year endpoint here. So prior to 6, 30, 20, 24 placed significant orders in the subsequent period. You're now seeing that show up in this current year end. Current quarter end measurement point. So. So we had a couple of significant customers that were with us prior to 6, 30, 24 in the last 12 months. Now showing up in this quarter's comparison, you're seeing the jump between their summer purchases from a year ago and purchases made between that period and this current Summer.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:36:55)

Okay, so if I may summarize, the driver of it was that a customer that hadn't renewed on time eventually renewed, and that basically drove that retention rate up.

Eric D' Oliveira - Chief Financial Officer - (00:37:11)

That is one dynamic. In this case, it was a customer that had relatively actually a handful of customers that had relatively modest ACV footprint, still in excess of $50,000 of annual contract value, made significant subsequent investments to expand their footprint. So the NDRR metric starts with all of the software licenses that were active a year prior. And for that subset of customers, it's looking at the net impact of any churn or attrition there, but also expansion in the footprint of those prior existing customers. So on a net basis, you're seeing the decision of a number of customers to double, triple, quintuple down on their ZSPACE content and footprint, and that's creating the significant step up in the net dollar revenue retention.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:38:07)

Okay, and then you mentioned that excluding the large order from the year ago period, bookings were down 16% year over year. On that basis, can you divvy up the year over year bookings performance between CTE and K through 12 this effective normalized basis?

Eric D' Oliveira - Chief Financial Officer - (00:38:28)

Yes. So on a. If we're looking at the six month period ending 6:30 bookings, normalized for that $5 million deal last year in total were down 16% year on year. The US on that same normalized basis, we saw us down 17% for the first six months of the year. Rest of the world excluding China down 75. And China for the first six months of the year actually up 88% year on year.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:39:08)

And within that US down 17%. Can you split that up between the CTE and the K212 performance?

Eric D' Oliveira - Chief Financial Officer - (00:39:15)

Yes. I don't have that for just us, but us and rest of world together. K12, six percentage points of expansion from six2% last year to six8% this year, CTE from 38% for six months of last year to 32% or six months of this year.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:39:48)

K12 exposure up and CTE exposure down, Is that right? On the first six months? Yes, on the first six months. Okay. And do you find that surprising given what appears to be shift and spend towards cte?

Eric D' Oliveira - Chief Financial Officer - (00:40:06)

Not so much, because again, we see a certain amount of volatility in the makeup customers in any of the particular periods. And the question you're asking really gets at that. If you look at the business inclusive of that large deal from last year, that was precisely the kind of deal that skews things heavily towards K-12 in the prior year period. And so when you pull that out, particularly on the three month period where that deal sat, you then see the acceleration in CTE for the past three months.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:40:45)

Okay. And I think you've done multiple different types of capital raises since the March quarter close. Can you recap those capital raises and. The impact on shares outstanding?

Eric D' Oliveira - Chief Financial Officer - (00:41:01)

So the the main capital raise that we concluded was in the second quarter we closed on a convertible offering that was a $20 million facility of which we drew down $13 million. And those proceeds, approximately half of those proceeds went to retire costlier venture debt that was retired in full and balance is about $6.5 million. We subsequently aim paid an announcement to close on an equity line of credit that will be part of third quarter reported results when we conclude the current quarter.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:41:49)

What's the capacity of equity line of credit?

Eric D' Oliveira - Chief Financial Officer - (00:41:54)

The ELOC has a contemplated maximum capacity of $30 million.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:42:00)

Okay. Yeah.

Eric D' Oliveira - Chief Financial Officer - (00:42:08)

So there were six and a half million shares registered as part of that offering.

Nihal Chokshi - Analyst at Northland Capital Markets - (00:42:14)

Great. Thank you for taking my questions. Thank you Nehal.

OPERATOR - (00:42:22)

Please stand by for our next question. We have a follow up question from the line of Rohit Kulkarni with Ross Capital. The line is open.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:42:34)

Hey guys, just on this discussion on NDRR, maybe the why behind this jump in terms of are existing customers buying more units or are they buying that's leading to more software or is that existing units, existing classrooms and they're going in new kind of categories of content. That's first. And then just maybe the why on China, what is going on over there? Would love to understand if there is something proactive change in go to market or new sales people or anything in China and just rest of the world. Thanks.

Eric D' Oliveira - Chief Financial Officer - (00:43:19)

So yeah on NDRR we can see the expansion. They're happening either because an individual customer elects to add new software licenses to their existing footprint. When that customer decides to expand their actual table footprint, seat footprint, how many laptops they have, we only count the addition of renewable software licenses on their expanded footprint. So if they decide to kit out a secondary third classroom, the impact of renewable software in those extra classrooms rolls into NDRR through the the annualized contract value that that customer has expanded. Does that math make sense?

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:44:09)

Yeah. So just to clarify that Eric, so if I had just one classroom with 20 laptops and instead of adding a module of biology, I go and add one more module of another category of content, would that show up in NDRR or would that not?

Eric D' Oliveira - Chief Financial Officer - (00:44:27)

Yes, only if and this only applies for customers who have at least $50,000 in CV in the prior period. Yes.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:44:40)

Okay. And then just the overall go to market and sales hiring and specifically like resellers in China. Rest of the world. Yeah.

Paul Kellenberger - Chief Executive Officer - (00:44:50)

Let me answer your China question first, Rohit. You know, I think your question came. About because we have been previously communicating. And quite frankly in all of our filings that we were not investing in China. That case, that remains the situation. What has happened and the reason for the uptick is more because some of the business, which again it's government business, has long sales cycles with request for proposal (RFP) that have to be responded to. Our partner over there has quite frankly. Been winning some business. So we haven't been investing as in ZSpace, but our partner has. So that's the reason for the China uptick, if you will.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:45:39)

I think there's a second part to.

Paul Kellenberger - Chief Executive Officer - (00:45:41)

Your go to market question. Relative to the US we have made and did make in the latter part of last year significant investments in the US Both in terms of additional salespeople, focus products and as you know, both of the BlockCAD and Second Avenue acquisitions. Like every company in the kind of April, May, June timeframe, we made a few tweaks here and there but we have that team intact and that team is continuing to build our pipeline. And as I said at the outset, you know, we're cautiously optimistic here, particularly with funds starting to flow to kind of go back to whatever the new normal is, to use that phrase.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:46:31)

Okay, one last thing. Any color on how many quota carrying greps you had in 24 and how many do you have today? Like if you are willing to disclose.

Paul Kellenberger - Chief Executive Officer - (00:46:43)

That I think it was. It'S 11 today and it was eight last year.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:46:54)

Okay, cool.

Paul Kellenberger - Chief Executive Officer - (00:46:56)

That doesn't include anybody who's supporting any of our reseller partners. That is literally quota carrying salespeople.

Rohit Kulkarni - Equity Analyst at Roth Capital Partners - (00:47:05)

Okay, awesome. Thanks Paul. Okay, thank you, Rohit.

OPERATOR - (00:47:10)

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Paul for closing remarks.

Paul Kellenberger - Chief Executive Officer - (00:47:19)

Thanks Tawanda. I'd like to thank everybody again for listening in today and for the folks. That asked the questions. Much appreciated. Look forward to doing this again in a few months and we'll go from there. Have a great evening.

OPERATOR - (00:47:36)

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.