zSpace, Inc. reported a Revenue of $5.4 million for the second quarter of 2026, a decline driven by delayed EMEA orders amid geopolitical tensions. The firm achieved Net Income of $0.3 million, a significant turnaround from the previous year's loss of $6.1 million.

Key Highlights

  • Revenue in Q2 2026 was $5.4 million, down from $7.5 million in Q2 2025.
  • Gross margins rose to 56%, increasing by 1,380 basis points year-over-year.
  • The annualized contract value of renewable software was $9.4 million, down 13% from the previous year.

ZSpace, Inc. (NASDAQ: ZSPC) revealed its second-quarter financial results, reporting revenue of $5.4 million for the period ending June 30, 2026. This represents a notable decrease from the $7.5 million reported in the same quarter last year. The decline is attributed to delays in orders from the EMEA region, which were impacted by ongoing geopolitical events related to the war in Iran.

The improvement in profitability signals significant operational changes aimed at stabilizing the company's financial position.

Significant Gross Margin Increase

Gross margins saw a substantial increase of 1,380 basis points, bringing the total to 56% for Q2 2026. The rise in gross margins is largely credited to better hardware cost management, a shift toward a more favorable software revenue mix, and the expansion of company-owned software offerings. This improvement in margins underlines zSpace's strategic focus on enhancing its profitability and product offerings.

The current quarterly performance exemplifies the ongoing transitions within zSpace's revenue model aimed at capturing greater value from its service and software solutions.

Decline in Annualized Contract Value

As of June 30, 2026, the annualized contract value (ACV) for renewable software at zSpace was reported at $9.4 million, reflecting a 13% decrease compared to the previous year. Net dollar revenue retention (NDRR) stood at 66% for clients with over $50,000 in ACV, a drop from the retention stats observed in June 2025. Excluding the effects of losing two key clients in the third quarter of 2025, the normalized NDRR improves to 83%.

This metric sheds light on customer loyalty and Recurring Revenue potential, which zSpace must improve to bolster its financial health. The retention challenges could be an area of focus for management in the coming quarters.

Bookings and Order Backlog

Bookings in the second quarter totaled $6.0 million, representing a 14% decline year-over-year. Operating expenses, excluding stock-based compensation, amounted to $4.0 million, a significant reduction from $7.7 million in the prior year. The company’s ability to reduce overheads while managing its Backlog effectively will be important for future performance.

As zSpace navigates this transitional period, its strategies for boosting bookings and fulfilling orders could play a key role in its upcoming operational reviews.

Expectations will now center around further developments in financial recovery and operational strategy during the next quarterly report, where continued emphasis on improving revenue sustainability is anticipated.

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