xReality Group Limited (ASX:XRG) (xReality) has announced its Quarterly Activities Report and Appendix 4C for the quarter ending 31st March 2026, together with an Operational Update.
Key Highlights
- Cash Receipts of $5.6m (up 62% on PcP)
- $17.0m YTD (up 31% on PcP)
- Positive Net Operating Cashflow of $1.3m (up $1.64m on PcP)
- $3.6m YTD up 103% on PcP
- Total customers grown to 104 worldwide (95 in the USA)
- Annual Recurring Revenue (ARR) increased to $7.0m (up 67% PcP)
- Total Contract Value (TCV) of $10.1m YTD (up 24% QoQ)
- Sales Pipeline of $74.4m (up 15% QoQ)
- 11 new hires for Operator XR including a new satellite office in Melbourne to accelerate product delivery
- Texas Department of Public Safety – additional upsell secured (~US$90k)
- Continued debt reduction – ~$0.6m repaid, reducing total facility to $4.7m
Operational Cashflow
Net Operational Cashflow in Q3 FY26 was $1.3m. The result was driven by continued momentum from Operator XR system deployments and recurring software revenue, alongside a strong collection cycle on existing customer contracts.
Contractual cash receipts expected in Q4 excluding business as usual receipts
- US DOD Project final payments totalling $1.56m
- Industry Growth Grant payment $450k
Operating Performance Metrics
Business momentum remains strong across both divisions:
- Operator XR (Enterprise)
- Total Contract Value $10.1m YTD (up 24% QoQ)
- Annual Recurring Revenue increased to $7.0m (up 13% QoQ)
- 15 new customers during Q3, bringing total to 104 worldwide (95 in the USA)
- First Mixed Reality (MR) product sale secured with the United States Department of Defense, expanding market opportunity with MR capability complementing existing VR solutions on the Operator XR platform
- iFLY and FREAK Entertainment
- Cash receipts from Entertainment consistent with prior quarters through iFLY operations
- Continued wind-down of legacy FREAK VR entertainment venues on track
Operational Update by Business Sector:
Operator XR – Defence and Law Enforcement Software and Technology
Operator XR continued to scale across the USA and internationally during Q3, with 15 new customers onboarded during the quarter. The Company now serves 104 unique customers worldwide (up from 39 at this time last year), with 95 in the United States. The US Law Enforcement market remains the highest-growth segment, with further traction emerging in the military and defence sector.
Texas Department of Public Safety
During Q3, the Company secured an additional upsell to Texas DPS valued at approximately US$0.1m, further expanding the existing engagement. This demonstrates the land-and-expand dynamic within the Operator XR customer base and demonstration of the ongoing value customers derive from the platform.
US DOD Project Update
The 20-month project with the US Department of Defence valued at $5.6m continues to progress in line with expectations. The Company is concurrently developing export compliance and market launch strategies to support future commercialisation pathways for this capability.
First Mixed Reality Product Sale
This milestone represents a significant evolution in the Operator XR product suite, with the successful delivery of its first Mixed Reality (MR) solution to a new customer within the United States Department of Defense. The introduction of MR mode extends the capability of the existing Operator XR platform, enabling access to additional markets and use cases while leveraging the same core products, infrastructure and deployment model. Importantly, MR and VR serve different operational requirements depending on a customer’s existing training infrastructure, environment and objectives—VR remains highly effective for fully immersive, controlled simulations, while MR enables blended, real-world integration for more context-driven training scenarios. This complementary approach allows Operator XR to tailor solutions to customer needs without requiring a separate product ecosystem, strengthening scalability, improving unit economics, and supporting broader adoption across diverse defence and law enforcement segments.
Counter Drone (C-UAS) System
Following its launch at I/ITSEC in the United States in December 2025, the Counter-UAS simulation capability has continued to generate strong market interest. The system was further showcased at ITEC in London in April, one of Europe’s leading defence technology conferences, where it attracted significant attention from military and security stakeholders. Engineering investment during Q3 remained focused on advancing the platform toward full commercial readiness, supported by inbound enquiries from multiple NATO-aligned organisations and domestic defence agencies.
The capability has resonated strongly with end users due to its unique ability to train squad-level tactics and techniques, developed through close consultation with operators currently engaged in counter-UAS operations in active conflict zones. This direct operational input underpins the system’s realism and relevance, positioning Operator XR at the forefront of emerging training requirements in this rapidly evolving threat domain.
AI Integration
The Company continued to advance AI integration across the Operator XR product portfolio, enabling personalised training scenarios, de-escalation training, instructor augmentation, and adaptive learning. This remains a key differentiator and product development priority.
International Expansion
Following the first commercial sale into Japan via an APAC distribution partner in H1, the Company has continued to build its international pipeline. Engagement with European defence and security markets, including NATO-aligned stakeholders, continues to grow, supported by a series of targeted market activations and demonstrations. Operator XR was showcased at Enforce Tac in Nuremberg, Germany (held 23–25 February 2026), a leading European platform for defence and law enforcement engagement, as well as at ITEC in London in April. These engagements have driven strong inbound interest and progressed a number of near-term opportunities into European markets.
The global partner network continues to support scalable international deployment without material fixed cost additions, enabling the Company to convert pipeline opportunities efficiently while maintaining a disciplined cost base.
Organisational Scaling
During Q3, the Company expanded the Operator XR team with approximately 11 new hires, predominantly in engineering roles to accelerate product delivery across the Counter-UAS system, the Sentinel fixed-facility product, and AI integration initiatives. This investment strengthens the Company’s ability to meet increasing demand and deliver at scale.
In parallel, the Company has enhanced its customer success capability in established markets, including the United States, with the addition of two dedicated Customer Success Managers to support growing deployment activity and ensure strong end-user outcomes.
To further support this growth, a new satellite office has been established in Melbourne, expanding access to key engineering talent and complementing the Brookvale headquarters in Sydney.
Australian Headquarters and Production Capacity
The Company continues to operate from its ~740m² headquarters in Brookvale, NSW, which provides approximately double the prior production capacity and dedicated space for software engineering, supporting near-term delivery requirements and medium-term scaling.
Product Development
Operator XR continues to invest in the expansion and enhancement of its integrated ecosystem, with all product development initiatives designed to operate seamlessly across the existing platform and product suite. This unified approach ensures interoperability, scalability and consistent user experience across all deployments. Mixed Reality (MR) capability is also being incorporated across the full product range, complementing existing Virtual Reality (VR) modes to support a broader set of customer requirements and training environments.
Key areas of investment include:
- Advanced AI integration across the Operator XR ecosystem, enabling personalised training scenarios, de-escalation training, and instructor augmentation
- Sentinel – a larger fixed facility product within the ecosystem, focused on military and federal agency customers
- Counter-drone (C-UAS) simulation capability for defence and national security applications
- Cloud-based content subscription and customer analytics platform, supporting ongoing engagement and data-driven insights
- XR streaming architecture, enabling higher-fidelity simulation and scalable deployment across multiple environments
Operator XR Annual Recurring Revenue (ARR) at the end of the quarter was $7.0m (up 13% QoQ, up ~45% YTD)
Operator XR Growth in Sales – Total Contract Value for FY26 YTD is $10.2m.
Entertainment Sector iFLY
The iFLY indoor skydiving facilities performance during Q3 remained consistent with prior periods, despite an unplanned interruption to tunnel operations in January which temporarily impacted throughput. The associated downtime was covered by the Company’s insurance policy. The mechanical fault has since been rectified, and the Penrith facility is fully operational.
FREAK Entertainment
The strategy to exit the Entertainment Virtual Reality businesses continues to progress. FREAK Bondi Junction was closed on 13th October 2025, and the closure of FREAK Macquarie is expected to be completed during Q4 FY26. All IT hardware and equipment from the sites is being repurposed for testing and R&D for future Operator XR product development.
The review of strategic options for iFLY is ongoing with corporate advisors. Portfolio simplification is expected to improve operational focus, profitability, and capital efficiency.
Corporate Activity
XRG continued its investment in resourcing the Operator XR global expansion. Approximately 11 new positions were filled in Australia during Q3, predominantly engineering hires to accelerate product delivery across the C-UAS system, the Sentinel fixed facility, and AI integration.
A new satellite office was established in Melbourne to support the expanded engineering team. Staff costs grew for the quarter as the Company uplifted capacity to execute against its significant opportunity sets.
Operator XR enterprise receipts continued to represent approximately 70% of total Company receipts for the quarter, reinforcing the Company’s transition toward a scalable, higher-margin software business.
The Company repaid $575k of its Causeway Financial debt facility during the quarter, reducing the total facility balance to $4.7m. The facility matures on 1 April 2027.
Cash Flow Analysis
Cash receipts for the quarter totalled $5.6m. Net cash from operating activities was $1.3m for the quarter. The Company invested $1.7m into XR product development and projects. Closing cash position was $2.7m.
Related parties’ expenses of $0.2m comprise salaries and superannuation paid to executive directors and fees paid to non-executive directors.
