xReality Group reported higher annual recurring revenue and positive operating cash flow in its latest quarterly update, with customer numbers reaching 104 worldwide.
Annual recurring revenue rose 67% from a year earlier to $7.0 million, while cash receipts increased 62% to $5.6 million. Net operating cash flow was positive at $1.3 million for the quarter, up 103% on the prior corresponding period, taking year-to-date operating cash flow to $3.6 million.
Total contract value year to date stood at $10.1 million, up 24% on the previous quarter, while the sales pipeline reached $74.4 million, up 15% quarter on quarter. The group added 15 customers during the period, lifting the total from 39 a year earlier to 104, including 95 in the United States.
Growth was driven mainly by Operator XR, the company's defence and law enforcement software unit, which continued to expand in the US market. Law enforcement remained its fastest-growing segment, with further traction in military and defence work.
The group secured an additional sale with the Texas Department of Public Safety worth about US$0.1 million, extending an existing customer relationship. A 20-month US Department of Defence project valued at $5.6 million was progressing as expected, with final contractual payments of $1.56 million due in the current quarter.
A separate Industry Growth Grant payment of $450,000 is also expected in the quarter, excluding business-as-usual receipts. The company ended the period with cash of $2.7 million after investing $1.7 million in XR product development and projects.
US focus
The US remained the centre of the group's customer base and commercial activity. Its first mixed-reality product sale was to a new customer within the US Department of Defence, expanding beyond its existing virtual-reality offering.
Mixed reality and virtual reality address different training requirements, with the newer format designed for scenarios that combine digital and real-world settings. xReality is now incorporating mixed reality across its broader product range.
At the same time, the group continued work on a counter-drone simulation system and artificial intelligence features across the Operator XR platform. Engineering investment during the quarter focused on preparing the counter-drone product for commercial release, while AI development centred on personalised training scenarios, de-escalation training, instructor support and adaptive learning.
Hiring push
To support that work, the business hired about 11 staff members in Australia during the quarter, most of whom were engineers. It also added two Customer Success Managers in the United States to support a growing deployment base.
The company opened a satellite office in Melbourne to broaden access to engineering talent, complementing its larger headquarters in Brookvale, Sydney. At about 740 square metres, the Brookvale site provides roughly double the previous production capacity.
xReality also continued to reduce debt, repaying about $575,000 of its Causeway Financial facility during the quarter. That reduced the outstanding balance to $4.7 million.
Entertainment arm
Outside the defence and law enforcement unit, the entertainment division delivered cash receipts in line with prior quarters, driven by its iFLY indoor skydiving operations. Performance was affected by an unplanned interruption at the Penrith tunnel in January, although the downtime was covered by insurance, and the facility is now fully operational.
xReality continues to wind down its legacy FREAK virtual-reality entertainment venues. The Bondi Junction site has already closed, and the Macquarie location is expected to close during the current quarter. Hardware from those venues is being repurposed for testing, research and development tied to Operator XR.
The review of strategic options for iFLY remains underway as the company simplifies its portfolio and shifts more of the business towards software and recurring revenue. Operator XR accounted for about 70% of the company's total receipts during the quarter.
Related party expenses for the period totalled $0.2 million, comprising salaries and superannuation for executive directors and fees for non-executive directors.