I asked chatGPT to summarise today's interview with Wayne Jones.
Overall, my initial impression is that they are doing interesting things and are right to focus on the OTS segment which is clearly the growth engine. They have ~1% of the target market in terms of law enforcement alone, and seem to be getting a bit of traction there. And really good to see them focused on sustainable, self-funded growth. I was surprised to see them generating free cash flow.
It strikes me as a tough market which will be hard to sustain an edge, but if we see ongoing sales momentum the company is likely very cheap. Not a buyer for now (i haven't done nearly enough research) but interested to keep an eye on it.
Summary of the Interview with Wayne Jones, CEO of xReality Group
Wayne Jones, CEO of xReality Group (ASX: XRG), provided an in-depth discussion on the company's operations, strategic direction, and financial performance. xReality Group operates in two core divisions: Operator Tactical Solutions (OTS), which delivers simulation-based training solutions for military and law enforcement, and Virtual Reality (VR) Entertainment, which includes brands like iFLY indoor skydiving and FREAK VR. However, the company has shifted its primary focus toward Operator XR, its enterprise-level training and mission rehearsal software, which has seen rapid adoption, particularly in the U.S. law enforcement market.
Company Focus and Strategy
Jones emphasized that xReality is a software company, not a hardware manufacturer. The team develops proprietary training software that integrates with commercially available VR and AR hardware. This allows flexibility as new headsets and hardware solutions enter the market. While the company initially started with physical simulators like wind tunnels for military free-fall training, it quickly recognized the broader potential of VR-based training and pivoted towards simulation training for military and law enforcement.
Operator XR has evolved beyond just training and now includes real-time mission planning and execution, making it highly valuable for defense and law enforcement agencies. The company has also begun integrating AI-driven scenario creation and real-time environmental customization, enabling agencies to build their own training simulations rather than relying on xReality to develop them.
Breaking into the U.S. Law Enforcement and Defense Market
While xReality initially pursued contracts with the Australian Defense Force (ADF), Jones explained that Australian military procurement cycles are slow and bureaucratic, making it challenging for small companies to rely solely on domestic defense contracts. Instead, xReality identified U.S. law enforcement as a faster, more scalable entry point.
The U.S. law enforcement sector is highly fragmented, with 18,000 separate agencies at various levels—federal, state, and local. xReality originally targeted Tier 3 agencies (departments with 40-200 officers), but quickly realized that smaller agencies (Tier 4) also had access to federal and county budgets for training solutions. This expanded the company’s total addressable market (TAM) to 17,500 agencies.
Jones described xReality’s breakthrough moment in May 2024, when after six months of groundwork and marketing efforts, the company secured 22 U.S. agency contracts in a single month. This came after hiring a team of five experienced U.S. sales representatives, some of whom came from competitors, giving xReality an edge in navigating the U.S. law enforcement sales process. Since then, adoption has accelerated, with xReality reaching its 50th U.S. customer in early 2025.
Competitive Advantage and Differentiation
Jones highlighted several key differentiators that set xReality apart from competitors in the simulation training space:
- Hardware Agnostic Software – xReality does not manufacture its own hardware, ensuring that its software is compatible with any VR/AR headset or commercial off-the-shelf device.
- Offline Capabilities – Unlike many competitors that require cloud connectivity, Operator XR runs fully offline, making it suitable for field use in remote or sensitive operations.
- Real Weapons Integration – xReality’s system allows users to train with their actual firearms, retrofitted with a tetherless gas system that simulates real recoil, rather than using toy guns or simulated weapons.
- Custom Scenario Creation – Agencies can build their own training environments, tailoring scenarios to specific geographic locations, operational needs, and real-world threats.
- Rapid Deployment & Portability – The entire system fits in a rifle case, allowing quick transport and deployment, unlike legacy systems that require fixed installations.
These features have allowed xReality to quickly disrupt an industry dominated by legacy screen-based training solutions, which are less immersive and require dedicated training facilities.
Financial Performance and Revenue Model
xReality reported record cash receipts of $5.2 million in the last quarter, up 87% year-on-year. Its Annual Recurring Revenue (ARR) for Operator XR has grown significantly, with a total contract value (TCV) of $7.4 million, an 80% increase on FY24.
The company’s revenue model is based on a mix of:
- Three-year upfront contracts (the preferred model for most customers)
- Annual subscription renewals after the initial three-year term
- Potential cloud-based SaaS offerings in the future, allowing agencies to store training data and access new scenarios on demand
Jones emphasized that xReality is cash-flow positive, covering both operational expenses and capital expenditures (CapEx) from existing revenue, which reduces reliance on capital raises. The company is now focused on scaling sustainably without overextending itself.
Challenges and Growth Constraints
Jones acknowledged the challenge of balancing growth with financial discipline. Many small-cap ASX companies pursue aggressive expansion, only to burn cash too quickly. xReality has taken a measured approach, scaling sales and support teams only once key revenue milestones are hit.
The company does not carry large hardware inventories, instead sourcing HTC Vive headsets and other equipment on demand through major suppliers. This helps avoid supply chain issues while ensuring fast fulfillment for new orders.
One of the biggest risks, according to Jones, is ensuring high-quality customer service and support, as word-of-mouth referrals are critical in the law enforcement and defense sectors. Poor customer experiences could damage xReality’s reputation and slow adoption.
Future Plans and Expansion
xReality is working on several initiatives to expand its software offering and revenue streams, including:
- Cloud-based subscription services to support remote training and scenario sharing.
- Live-streaming capabilities, allowing larger groups to train simultaneously.
- New training scenarios being developed as part of its U.S. Department of Defense contract, which is progressing well and does not require additional capital.
The company is also evaluating the future of its VR entertainment businesses, iFLY and FREAK, which have provided valuable R&D insights but are not expected to deliver the same long-term returns as Operator XR. xReality is considering a strategic exit from these businesses to focus entirely on the defense and law enforcement sector.
Competitive Risks and Long-Term Moat
When asked about competition, Jones stated that many existing players suffer from “legacy technology” constraints—they built their systems on outdated hardware and software, making it difficult to pivot quickly. xReality, being a late entrant, benefited from launching with modern, flexible, and mobile-first technology.
Jones also emphasized that xReality’s team composition provides a significant competitive edge. With a strong background in military and law enforcement, the company deeply understands its customers’ needs. Unlike larger defense contractors that require external consultants to guide product development, xReality can iterate quickly based on direct user feedback.
Final Thoughts
xReality Group is executing well on its strategy, gaining rapid traction in the U.S., while maintaining financial discipline and positive cash flow. Its hardware-agnostic, customizable, and portable training platform gives it an edge over legacy competitors, and its recurring revenue model provides strong visibility on future cash flows.
While the company is still in the early stages of its global expansion, Jones remains confident in scaling sustainably, ensuring customer satisfaction, and continuously improving Operator XR to remain ahead of the competition.
With a growing U.S. footprint, a strong sales pipeline, and a clear focus on the high-margin enterprise market, xReality Group is well-positioned for continued growth.
