xReality Group FY26 Annual Report | Operator XR Delivers Record Growth
Sydney, Australia – 31 Aug 2026 – xReality Group Limited (ASX:XRG) is pleased that XRG delivered a strong performance in FY26, with Operator XR driving the Group’s growth and momentum.
We are pleased that XRG delivered a strong performance in FY26, with Operator XR driving the Group’s growth and momentum. Total income grew 43% to $20.0 million (FY25: $14.0 million), narrowing the net loss to $0.1 million from FY25’s net loss of $3.1 million. This reflects the operating leverage emerging as Operator XR scales and validates the Group’s strategic focus on high-growth, high-margin opportunities.
Operator XR’s global customer base grew 76% to 118 customers (FY25: 67), while Annual Recurring Revenue increased to $8.0 million, representing approximately 70% growth. Entering FY26 with a qualified sales pipeline of approximately $30.4 million, Operator XR secured $13.0 million in Total Contract Value during the year, reflecting continued commercial traction across its global defence and law enforcement customer base.
The qualified sales pipeline continued to expand strongly throughout the year, reaching $80.4 million at 30 June 2026 being an increase of approximately 165% from the FY25 closing position. This substantial opportunity base, combined with the Group’s demonstrated ability to convert opportunities into contracted TCV and recurring revenue, provides a strong foundation for continued growth in FY27 and beyond.
Importantly, this pipeline is complemented by a growing base of already-contracted revenue. Deferred revenue increased to $15.5 million at 30 June 2026 (FY25: $7.4 million), representing a substantial pool of contracted revenue yet to be recognised.
The combination of a growing global customer base, increasing recurring revenue, expanding contracted TCV and a significant qualified pipeline positions Operator XR for continued scale as XRG completes its transition towards a focused defence and enterprise technology business.
Operator XR Growth
Operator XR’s growth engine remains the US law enforcement market, comprising more than 18,000 agencies across local, county, state and federal levels. The Company continues to build a strong position across this market, with its portable and highly deployable training solutions differentiating through ease of setup, scenario planning and the ability to deliver high-value training at scale.
Each agency that adopts Operator XR becomes an important reference customer within a closely networked law enforcement community. The Company’s growing base of US law enforcement customers now act as key opinion leaders, validating the platform’s operational value and supporting further adoption and expansion across the broader market, an important driver of potential revenue growth in the years ahead.
In August 2025, Operator XR secured a contract of up to $5.7 million with the Texas Department of Public Safety, comprising a $4.3 million initial order and a further $1.4 million in optional support services (exercisable in FY28). It was the largest order for OP-2 systems secured by Operator XR at that time and established a high-credibility reference customer for further expansion of the platform across the US law enforcement market. With 31 separate state Departments of Public Safety operating across the United States, the Texas win provides a high-visibility reference point that opens the door to broader adoption among comparable state-level agencies.
Across FY26, Operator XR was selected ahead of established competitors on numerous occasions through competitive tender and evaluation processes, reflecting the differentiated capability, deployability and training outcomes of its platform and reinforcing its competitive advantage.
International expansion also reached an important milestone with Operator XR securing its first European contract with the Swedish Armed Forces, representing the Company’s first deployment with a NATO member’s armed forces. In June 2026, Operator XR further strengthened its market position through a strategic MOU with Thales Australia to jointly pursue defence, security and law enforcement training and simulation opportunities.
Together, these milestones demonstrate the increasing maturity of Operator XR’s technology, customer base and commercial capability, while establishing strong foundations for further expansion across the US and international defence and security markets.
US Department of Defense Project Delivered in Full, On Time and On Budget
In May 2026, Operator XR successfully completed its US Department of Defence subcontract, first announced in FY24, delivering the project on time and on budget over its 20-month program. The intellectual property developed through the project is wholly owned by xReality Group.
Successfully securing a project of this nature was an important milestone; delivering it in full, to specification, on schedule and within budget provides further evidence of Operator XR’s technology capability, delivery discipline and organisational capacity to execute complex defence programs.
The successful completion of the project also accelerated the commercialisation of the technology developed through the program. During FY26, XRG completed its first independent commercial sale of the resulting MR-1 mixed reality platform to a separate US Department of Defence customer.
The transition from a complex defence R&D program to a commercial product sale within the same financial year provides early market validation for MR-1 and demonstrates XRG’s ability to convert advanced technology development into deployable products and commercial opportunities across the defence market.
Early Wins in Europe and Asia
FY26 marked an important step in Operator XR’s international expansion, with the Group securing its first contracts in new international markets. An OP-2 system was sold to the Swedish Armed Forces through distribution partner PROMOTEQ for approximately $450,000, representing Operator XR’s first deployment with a NATO member’s armed forces. The Group also secured its first sale into Japan, expanding its presence in the Asia-Pacific region beyond Australia.
While modest in value individually, these contracts represent important international reference wins and demonstrate the portability and applicability of Operator XR’s technology across different defence and security markets. The focus for FY27 is to build on these initial deployments and convert them into a broader international customer base, recognising the longer sales cycles and product maturity requirements typically associated with larger military programs.
MOU with Thales Australia
In June 2026, Operator XR entered into a Memorandum of Understanding with Thales Australia to jointly pursue training and simulation opportunities across the defence, security and law enforcement sectors. The reciprocal arrangement provides a framework for the parties to collaborate on future programs, with either party able to lead or support an opportunity depending on the requirements.
The relationship provides Operator XR with a potential pathway into larger and more complex defence programs that may be difficult to access independently at its current scale. Participation in these programs could materially expand the addressable market for Operator XR and provide opportunities to compete for contracts significantly larger than those historically secured by the Group.
While the MOU does not guarantee future contracts or revenue, developing opportunities under the agreement is a priority for FY27 and represents an important potential pathway for Operator XR to scale.
"This is a genuine two-way collaboration with a global defence prime. It opens a path to programs of a scale that would be difficult to reach on our own and equally allows us to bring Thales’s capability into opportunities we lead. It is a strong endorsement of our technology, and we look forward to pursuing these opportunities together."
Continued Product and Technology Investment
XRG continues to invest in Operator XR’s technology platform to maintain and strengthen its competitive position while developing new products and enhancing existing capabilities.
During FY26, the Group established a satellite office in Melbourne and expanded its Operator XR team, with a particular focus on engineering and product development.
The Group continues to invest in OP-2, its current sales-leading product, while expanding the Operator XR platform across new products and capabilities.
FY26 product development has strengthened the Group’s portfolio across multiple stages of maturity. In FY27, the focus will be on converting new customers and expanding existing relationships, while further maturing products including Interceptor C-UAS and MR-1 for larger-scale defence applications.
Accelerated AI Development
Artificial intelligence is central to the next phase of the Operator XR platform. In August 2025, Operator XR was awarded a $2.1 million grant under the Australian Government’s Industry Growth Program, supporting accelerated AI and cloud development alongside increased manufacturing capacity and the security and quality certifications required to pursue larger defence and government opportunities.
The Group is applying these capabilities to build longer-term differentiation through AI-enabled adaptive learning, automated scenario generation and automated instructor workflows — designed to improve training outcomes, increase the volume and realism of training that can be delivered, and reduce delivery costs. By automating tasks that would otherwise require significant instructor time, these capabilities allow customers to train more people, more often, and position Operator XR to scale its platform efficiently as demand grows.
Counter-Drone (C-UAS) Training
The rapid proliferation of low-cost drones across modern conflict, border security and critical-infrastructure protection has created significant and growing demand for counter-unmanned aerial system (C-UAS) capability — and for the training that underpins it. Defence and security forces increasingly require realistic, repeatable and cost-effective ways to prepare personnel to detect, assess and respond to drone threats.
Operator XR is maturing its Interceptor C-UAS training product to address this demand, extending its immersive training platform into one of the fastest-growing areas of defence and security. The product has already attracted strong interest from larger military programs, underlining both the scale of the emerging opportunity and the competitiveness of Operator XR’s approach.
Strengthening the Leadership Team
The executive team was strengthened during FY26, with Kim Hopwood promoted to Chief Operating Officer and Ben Smith appointed as Chief Commercial Officer to lead the Group’s global commercial function.
The Group also continued to build the scale and quality of its United States team, which brings Operator XR closer to its largest market and deepens its defence and law enforcement relationships. As global military activity intensifies and demand for advanced training grows, the Group intends to further expand its engineering and technical workforce, including specialists working with AI, to accelerate the product roadmap and capture the substantial revenue opportunities emerging across defence and security markets.
These appointments and investments strengthen the Group’s operational and commercial leadership as Operator XR scales internationally. The Group also continued to develop internal talent, with a number of team members progressing into increasingly senior roles, supporting the development of the organisational capability required for the next phase of growth.
Entertainment Segment
The iFLY wind tunnel businesses delivered another solid year, generating combined revenue of $7.1 million (iFLY Downunder: $4.3 million; iFLY Gold Coast: $2.8 million) and operating profit of $1.3 million.
The exit from FREAK Entertainment is substantially complete, with FREAK Penrith, which is co-located within the iFLY Downunder lease, being retained while the Group, together with its advisors, assesses the optimal strategy for the wind tunnel assets.
The entertainment segment remains cash generative and contributed positively to Group performance during FY26. The businesses continue to be actively managed in a more challenging consumer environment, while the Group remains focused on disciplined capital allocation and its broader transition towards Operator XR.
FY26 Financial Performance
Total income for FY26 increased 43% to $20.0 million (FY25: $14.0 million). The Group recorded a net loss of $0.1 million compared with a net loss of $3.1 million in FY25. EBITDA increased to $3.8 million, from $0.6 million in FY25, reflecting the growing contribution and operating leverage of Operator XR.
FY2027 Outlook
The Board’s optimism entering FY26 has been rewarded by the progress achieved across the Group. The breadth of execution across product development, operations, cost management and sales is particularly pleasing. Closing FY26 with an Operator XR qualified pipeline of $80.4 million, an expanding global customer base and demonstrated capability across demanding defence and law enforcement programs provides a materially stronger platform for FY27.
The continued growth of Operator XR, conversion of early reference wins in Europe and Asia, and development of opportunities arising from the MOU with Thales Australia provide a number of avenues for further growth. The Group remains focused on accelerating these opportunities while continuing to strengthen its products, customer relationships and international reach.
Global defence and law enforcement spending remains supportive of the markets in which Operator XR operates. The Board looks forward to building on a year in which Operator XR demonstrated its capability with highly demanding customers and helped accelerate the Group’s growth and momentum.
With a stronger platform, broader international reach and a substantial opportunity pipeline entering FY27, the Board and management remain confident in the Group’s ability to capture the significant opportunities ahead.
About xReality Group Limited (ASX:XRG)
xReality Group Limited are leaders in enterprise software development for mission-critical simulations for military and law enforcement. The company develops and operates physical and digital simulation facilities, specifically tailored to the markets of defence, law enforcement, and emergency services.
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