xReality Group (ASX:XRG) has announced its Quarterly Activities Report and Appendix 4C for the quarter ending 31st December 2025, together with an Operational Update.
Key Highlights:
- Highest Cash Receipts to date
- $7.4m in Q2 (up 85% QoQ)
- $11.4m YTD (up 20% PcP)
- Net Cash from Operations $3.1m
- Global Individual Agencies (customers) 89 (up 31% YTD)
- Total Contract Value as FY26H1 $7.8m (up 23% YTD)
- Annual Recurring Revenue as at FY26H1 $6.2m (up 28% YTD)
- Sales pipeline increased to $63m (up 107% YTD)
- Largest single order to date of Operator XR systems from Texas DPS fulfilled on time
- New corporate headquarters and warehouse secured doubling production capacity
- Chief Commercial Officer appointed along with other key hires
- Net Operational Cashflow in Q2 FY26 was $3.1m, driven by:
- Strong quarter of Operator XR system sales
- Partial payments from large orders in the USA including the Texas Department of Public Safety and the US DOD.
Operating Performance Metrics
Business momentum remains strong across both divisions, as evidenced by:
- Operator XR (Enterprise)
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- Total Contract Value $7.8m (up 23% QoQ)
- Increase in Annual Recurring Revenue to $6.2m (up 28% YTD)
- New Operator XR customers include:
- 11 new customers in the US
- Entertainment Cash Receipts
- Cash Receipts from Entertainment Q2 $2.15m (up 15% QoQ)
- Successful School Holidays campaigns driven by online sales and gifting.
Operational Update by Business Sector:
Operator XR – Defence and Law Enforcement Software and Technology
Operator XR has continued to make significant progress across the USA in Q2, with the strongest quarter of cash receipts to date totalling $5.2m, an increase of 146% on Q1.
Positive Sales Outlook
346 qualified and active sales opportunities with a total sales pipeline of $63m, increasing by 23% from last quarter.
Operator XR Annual Recurring Revenue (ARR) at the end of the quarter was $6.2m (up 32% YTD)
Operator XR Growth in Sales – Total Contract Value for FY26 YTD is $7.8m up 23% for last quarter.
Texas Department of Public Safety
On the 7th August 2025, the company announced a $5.7m contract with the Texas Department of Public Safety (Texas DPS) consisting of a $4.3m initial order with $1.4m option for additional support services to be delivered in years 3,4 and 5.
- A quantity of OP-2 software licenses and VR training systems
- Implementation, training, two years of support
- A further three years of optional support
- Systems and training were completed in Q2
Delivery of Texas DPS Order update:
During the quarter, Operator XR completed shipment of all Texas DPS kits across four tranches and completed associated training. Total cash received in the quarter was $2.4m AUD with the balance of $1.9m AUD received in January 2026.
US DOD Project Update
On the 11th of September 2024, the company announced a project with the US Department of Defence valued at $5.6m. The 20-month project continues to progress to plan and remains on track for overall completion by April 2026. The Company is concurrently developing export compliance and market launch strategies to support future commercialisation pathways for this capability.
Total received in the quarter was $0.8m AUD with a further $0.5m received in January 2026. The balance of $1.5m AUD is expected to be received prior to May 2026.
Counter Drone Launch
Operator XR launched its new Counter Drone training system at the world’s largest military simulation conference, I/ITSEC in December 2025. The launch generated strong market feedback, including inbound requests for follow-on work from multiple NATO-aligned stakeholders.
General Business
Operator XR has continued to scale in the US with a further 11 new law enforcement and military customers across the country during the quarter.
Total unique customers worldwide has grown to 89 (compared to 39 at this time last year). The US Law Enforcement market continues to be our highest growth market; however, momentum continues to grow with the US DOD, Europe (both Law Enforcement and Military) and the APAC region.
Operator XR will be attending two major trade shows in Germany and the UK over the coming months. The trade shows will be supported by our local partners and will feature live demonstrations of the OP- 2 System and the Counter Drone Training system launched in December 2025.
Organisational Scaling
During the quarter, the Company appointed a Chief Commercial Officer (CCO) to lead Operator XR’s commercial execution, including strategic account growth, channel development and conversion of increased international interest into contracted programs of work.
To support delivery capacity and accelerated product development, Operator XR expanded its leadership team with senior hires across software production and engineering management, and strengthened its AI capability with the appointment of a Head of AI, who commenced on 12 January 2026 and will lead the development and execution of the Operator XR AI roadmap.
Australian Headquarters and Production Capacity
Operator XR secured a new ~740m² headquarters in Brookvale, NSW. The expanded facility materially increases production throughput (approximately doubling production capacity) and provides additional dedicated space for software engineering, supporting near-term delivery requirements and medium- term scaling.
Product Development
Operator XR continues to invest in future products of which include:
- Advanced AI integration into all products, enabling personalised training scenarios, de- escalation training, and instructor augmentation.
- A larger fixed facility product focused on military and federal agency customers.
- Counter drone simulations.
- Cloud based content subscription and customer analytics.
Entertainment Sector
Entertainment – Cash Receipts ($m)
The iFLY facilities have performed well over the quarter generating strong sales in the lead up to Christmas, exceeding management expectations. The drop in receipts compared to the prior period of 2Q25 was attributed to a one-off sale of bulk wind tunnel time to the professional flyer market.
Midway through January 2026, iFLY Downunder experienced a mechanical issue which required specialist equipment to be shipped from overseas. The pause in operations and subsequent mechanical works will be covered under the businesses insurance policies. The facility is expected to be fully operational in the first week of February.
The strategy to exit the Entertainment Virtual reality businesses is almost complete with the closure of FREAK Bondi Junction on the 13th October 2025. The closure of FREAK Macquarie is expected in 2026. All IT hardware and equipment from the sites is being repurposed for testing and R & D for future Operator XR product development.
Corporate Activity
XRG has continued further investment in resourcing the Operator XR global expansion. Several new senior positions have been filled across global Marketing and Sales functions. Operator XR has also continued to increase its software engineering team to facilitate and expedite current features and future products.
On the 12th December 2025, the company announced the appointment of Mr. Benjamin Smith as Chief Commercial Officer.
This newly created executive role strengthens XRG’s commercial leadership as the Company accelerates global expansion of its Operator XR law enforcement and defence training solutions.
Mr Smith is a highly accomplished commercial executive with 17+ years’ experience driving revenue growth, enterprise transformation, and major contract wins across the defence, aerospace, infrastructure, and technology sectors in Australia, the UK, Europe and Asia.
Post reporting period, XRG has repaid the short-term drawing of $0.5m from its Causeway Debt facility that was used to fulfil the Texas DPS contract.
Cash Flow Analysis
Cash receipts for the quarter totalled $7.4m. Net cash from operating activities was $3.1m for the quarter. The Company invested $1.1m into XR product development and projects. Closing cash position was $3.7m.
Related parties’ expenses of $0.2m comprise salaries and superannuation paid to executive directors and fees paid to non-executive directors.
This announcement is authorized by the Board of Directors.
