Growing numbers of customers

growing order book

growing pipeline

cashflow positive

paying down debt

expanding geographic penetration

im not sure they could have done much more in the reported quarter- the market doesnt seem to like it. An excellent opportunity to top up and i did so today in RL

disc- held in DL 6%

Q3 4C Update (30/4/26)

This is a packed 4C, as expected receipts are lower than last quarter but above any other and on top of that XReality has shared strong business growth and expansion. Adding 15 new Operator XR customers for the quarter is above the running average, breaking ground with the first sales of their Mixed Reality product to the DoD, expanded product dev and sales, Counter Drone and ROW opportunities approach commercialisation.

I expect we will see continued investment back into the business via capex and opex growth for some time given the large opportunity in current and new markets. In addition, it looks like debt will gradually be addressed for balance sheet strengthening which should underpin the companies valuation.

Full breakdown:

Financial / cash flow

• Quarterly cash receipts $5.6m, up 62% pcp; YTD receipts $17.0m, up 31%. Enterprice receipts more than doubled Entertainment, but this includes $1.9m of the Texas DPS receipts and $0.5m of the DoD receipts slipping from last quarter.
• Net operating cash inflow $1.3m for Q3, up $1.64m on pcp; FCF was only $0.1m ($2.1m in Q2) due to $1.7m in capex and IP development. Operating cash flow was down QoQ due to lower customer and grant receipts, product costs almost halved and other costs steady.
• Closing cash $2.7m at 31 March 2026 (down from $3.7m prior quarter). However this included paying down debt by $575k to $4.7m; facility matures 1 April 2027 at 14.5% interest
• Contractual cash receipts expected in Q4 (above BAU): US DoD project final payments $1.56m plus $450k Industry Growth Grant.

Revenue drivers and pipeline

• Operator XR ARR increased to $7.0m, up 13% QoQ from $6.2m and ~45% YTD; 67% up on pcp. Total customers increased to 104 globally (95 in the USA), up from 39 a year ago.15 new Operator XR customers added in Q3, with US law enforcement still the fastest‑growing segment and increasing momentum in defence.
• FY26 YTD Operator XR Total Contract Value ~$10.1m, up 24% QoQ. Sales pipeline expanded to $74.4m, up 15% QoQ from $63.0m, indicating solid forward opportunity.
• Additional US$90k sale to Texas DPS, proof of concept for land and expanded options/
• Contractual cash receipts expected in Q4 (above BAU): US DoD project final payments $1.56m plus $450k Industry Growth Grant.

Customer and product traction

• Total customers increased to 104 globally (95 in the USA), up from 39 a year ago. 15 new Operator XR customers added in Q3, with US law enforcement still the fastest‑growing segment and increasing momentum in defence.
• First Mixed Reality product sale completed with the US DoD, broadening the addressable market and leveraging the existing VR platform and deployment model.
• Counter‑drone (C‑UAS) simulation capability gaining strong interest; showcased at ITEC London and resonating with NATO‑aligned and domestic defence users focused on live counter‑UAS operations (aka Ukraine).
• AI integration continues as a key differentiator, supporting personalised scenarios, de‑escalation training, instructor augmentation, and adaptive learning across the platform.

International expansion and go‑to‑market

• First commercial sale into Japan completed earlier in H1 via an APAC distribution partner, with ongoing pipeline build in APAC.
• European expansion progressing via presence at Enforce Tac (Nuremberg) and ITEC (London), had strong inbound interest and advancing near‑term European opportunities.

Cost base, staffing, and organisation

• ~11 new hires in Q3, predominantly engineering for Counter‑UAS, Sentinel fixed‑facility product, and AI integration; two new Customer Success Managers added in the US.
• New Melbourne satellite office established to access engineering talent, adding to the expanded Brookvale HQ which roughly doubled production capacity.

Entertainment portfolio and strategic simplification

• iFLY cash receipts stable versus prior periods; January tunnel interruption at Penrith was insured and now rectified. Strategic review of iFLY continues with corporate advisers
• FREAK Bondi closed in October 2025; FREAK Macquarie closure expected in Q4 FY26, with hardware repurposed for Operator XR R&D.

I am very happy with this update, they are progressing rapidly on multiple fronts and remain lazar focused on customer needs, addressing these via an increasingly versatile platform.

Disc: I own RL+SM

4C Q2 FY26 (30/1/26)

XRG 4C out today with it’s highest ever Operating cash flow by a factor of 2, but a stronger cash result due to the Texas DPS order, DoD and grant receipts was expected. $1.9m of the Texas DPS receipts and $0.5m of the DoD receipts have slipped into next quarter. Hence we are talking about a timing issue on this, but it’s the operational update that has real impact.

Operational Update

·        Global Individual Agencies (customers) increased to 89, up from 80 in the prior quarter. It also says 11 new customers in the US, suggesting 2 customers lost but this is not mentioned.

·        ARR reached $6.2m up from $6.0m last quarter but the Texas DPS contract was the big jump last quarter with ARR starting the year at $4.7m. 

·        TCV of $1.8m was added in the quarter, bringing YTD TCV to $7.8m. I am not a fan of this way of tracking TCV by resetting it each year, I would like to see total TCV.

·        QoQ Sales pipeline up 24% in value to $63.0m but flat in number at 346 opportunities.

·        They have moved HQ and warehouse to double production capacity, my understanding was that this was not an issue due to using mostly third party equipment so will need to understand this more, but on the face of it a positive indication for future growth.

·        New CCO (Ben Smith) started Dec25 and Head of AI started 12 Jan26, team and capacity is growing, cashflows seem supportive.

·        Entertainment had a solid quarter associated with the holidays, but next quarter is going to be down due to an equipment issue with insurance claim pending.

·        Counter Drone training applications of Operator XR are getting interest following attendance at the worlds largest military simulation conference (I/ITSEC) in Dec25.

A solid quarter, we still have no distributor sales, but there are two trade shows in Germany and UK over the coming months that hold promise. Product development is expanding across a range of new application/products (AI integration, large fixed facility, counter drone, cloud).

We will hear more on what is happening going forward with the DoD by April. This, another large customer announcement and distributor sales starting are the key news items I look forward to for the value to re-rate. Holding on for the ride in the mean time.

Disc: I own RL+SM

4C Q1 FY26 (28/10/25)

XRG had it’s 4C out today and an investor presentation, receipts down 724k from last quarter and Operating Cashflow negative -$835k comparted to +$1,341k last quarter, which doesn’t look great, but this is not a worry because it has solid reasons and next quarter will be a knockout.

The Texas DPS deal and Industry Growth Program grant were the big events for the quarter, with the new information being customers are now at 80 up from 67 last month. This is slightly lower growth than the 15 added last quarter, but there has been a massive increase in Pipeline Opportunities, with the number increasing to 347 but value increasing 40% QoQ to $51m.

Due to the Texas DPS contract the ARR and TCV are up by large % as expected, but the issue is the impact on cash flows. The cost of goods for the order of $0.8m fell into this quarter while the receipts of $4.3m will fall into next quarter along with $1.4m from the DoD contract and $0.5m from the Industry Growth Grant.

So Q2 cash receipts will be $6.2m, +55% higher than Q1 before adding new Operator XR customer receipts and receipts from the Entertainment business. Hence, we are looking at around $10m+ in receipts for Q2.

Due to cash flow timing the company flagged they drew down $0.5m on their loan facility in October but this will be paid back by December and I would guess the company will be at or close to Net Cash positive. I expect the loan to remain in place to support liquidity and investment until the 2027 maturity.

Other updates in the presentation and 4C of note:

·        FREAK is now closed down, iFLY open to offers but no rush because it is running well as a cash cow in the meantime.

·        Distributor activity in ROW is solid particularly in APAC with Europe continuing to expand from UK and Swedish bases. No sales as yet – something to probe Wayne on if we get a SM meeting.

·        DoD contract has 6 months to go, with $3.2m in receipts over that time, with the project generating new training capabilities not currently in the market that will be proprietary.

·        Product Development has mentioned “Operator XR Sentinel” for the first time, A larger fixed facility product focused on military and federal agency customers.

A great quarter, but the cashflow wont reflect it until next quarter. There was a fair bit of trade today but price was relatively stable, which is reasonable because there wasn’t much in the way of new information. 

Besides the announcement of new high value Operator XR contracts the catalyst for value uplifts remain the DoD contract flow on opportunities and Distributor sales channels in the near term. Long term we will see what comes out of the product development and if they can get a good sale for iFLY.

ARR and TCV are below, I think Q1FY24 should be gray for the top 4.1m of the TCV, other than that I like the new format.

Keen as always if anyone else has more to add, especially you @Wini

Disc: I own RL+SM