Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the HEALWELL AI Q1 2026 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question- and- answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to [Hesson Sani] , Head of Investor Relations. Please go ahead.
Hello, and thank you, operator. Joining on the call today are James Lee, CEO of HEALWELL, Dr. Alexander Dobranowski, President of HEALWELL, and Anthony Lam, HEALWELL CFO. I trust that everyone has received a copy of the financial results press release that was issued yesterday. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion analysis that's filed on SEDAR+.
Please note portions of today's call on the historical performance include statements of forward-looking information within the meaning of applicable security laws. These statements are made under the safe harbor provisions of those laws. Please refer to yesterday's press release and to our management discussion analysis for more details on the company's risk and forward-looking statements. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future.
We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions, or circumstances on which any such statement is based, except if it is required by law. We use terms such as gross margin and adjusted EBITDA on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definition set out in our management discussion analysis. There will be a question- and- answer at the end of the call, which will be limited to analysts only. To ask a question, analysts are required to call in to the conference call using a dial-in number provided in our press release. With that, let me turn the call over HEALWELL CEO, James Lee.
Thank you, [Hesson], and thank you everyone for joining us today. Let me start by grounding this in why HEALWELL exists. HEALWELL is focused on becoming a primary enabler of preventative care by making healthcare data usable, actionable, and scalable. We now have access to over 150 million patient lives across our network, and we're putting that to scale of work. The challenge we're addressing is not a new one, but rather a structural one. Healthcare systems today are largely designed to treat illness, not prevent it. As a result, a disproportionate amount of spending is concentrated on patients with advanced disease, where interventions are more complex, more expensive, and often less effective. At the same time, many of these conditions that drive this burden are preventable and manageable if identified earlier.
The issue is not whether prevention works, it's that prevention has not been made and implemented at scale within real-world healthcare systems. That's the core problem we're methodically approaching and solving. The scale of this problem is significant, and the data makes it stark. 80% of healthcare data is unstructured and untapped, embedded in the clinical notes, reports, and disparate systems, and they were never designed to be analyzed at population scale. This is not a marginal inefficiency. It means the vast majority of available clinical intelligence is invisible to the people in the systems that could act on it. At the same time, 74% of global deaths are caused by conditions that are preventable or reversible if detected early enough.
HEALWELL addresses these key issues by connecting disparate and complex healthcare information, surfacing meaningful clinical insights, implementing those insights in real-world environments. We do this now in some of the biggest partners across the world, in both clinical healthcare systems and with life science partners. Today's a really exciting time for us, as the science exists, the tools exist, and the data exists, and we have the ability to bring this all together.
Solving this requires more than a single capability. It requires solving four interconnected problems. The first is infrastructure. Healthcare systems cannot act on data they cannot see. The foundational requirement is the ability to connect disparate data sources and service them in a way that is meaningful at population scale.
The second is clinical-grade tools. Data alone is insufficient. Clinicians need tools that can interact directly in their workflows, service the right patients at the right time without adding friction to an already stretched system. Third is scientific evidence. Prevention must be grounded in validated science, not simply assumed. That means peer-reviewed research, real-world validation, partnerships with life science organizations that set the standard for both clinical treatments and clinical evidence.
The final one is economic incentives. Even when the science is clear, healthcare systems will not change behavior without aligned incentives. Healthcare moves when incentives align. The financial case for prevention needs to be quantified and made compelling, equipping insurers and reinsurers to price the value of early intervention and build models that reward prevention, not treatment. These four problems exist independently across the healthcare system.
What has been missing is the ability to integrate those problems. Each of those problems maps directly onto what HEALWELL has built and is building. We're making tangible progress across all four. On the infrastructure side, the Orion acquisition has been the defining move that gave us global distribution scale. A year on, the integration is behind us, and the results are starting to come through. Our Amadeus platform now connects over 150 million patient lives. Unlocking longitudinal multi-source data at the foundation of every preventative model we build. Critically, it gives us the distribution layer so we can scale our entire offering globally.
On clinical tools, our strategic alliance with WELL Health allowed us to prove that AI can be embedded into real-world clinical environments at scale. DARWEN and WELL Decision Support are now live, embedding our algorithms and IP directly into clinical workflows, servicing high-risk patients and shifting care from reactive to proactive. This is no longer a theoretical capability. It is working today across our network.
On scienctifc evidence, where the foundation is genuinely difficult to replicate, with 47 peer-reviewed publications and partnerships with leading life science organizations. That trust takes years to build and increasingly recognized across the industry as being a meaningful competitive moat. In the final one, economic incentives. Translating population level insights into sustainable financial performance is the final step. The insurance industry represents our next significant opportunity, and we're actively building towards it. Each step has been deliberate. The pillars are in place, and the strategy is now fully in motion.
Let me speak to what we've delivered in Q1 2026 and what you should expect from us for the balance of the year. Q1 was another strong revenue quarter, and we maintained positive adjusted EBITDA, just demonstrating we are growing with discipline commercially and operationally. It was also a quarter of meaningful progress with new contract wins and platform milestones we'll walk through shortly. Q1 gives us confidence what lies ahead. The pipeline is building, the platform is scaling, and the commercial momentum is real. While healthcare systems are considered with long sales cycles, the foundational growth signs are exciting. We're seeing strong growth in physicians using our products, increased patients being identified, new life science partners, and the U.S. market is the most active it's been for a long time.
As we look out across second half, we will be accelerating enterprise pipeline development across the U.S., Australia, and the Middle East. We continue to deepen our life science partnerships, leveraging our validated AI models and regulatory-grade real-world data for clinical trial matching and drug discovery. We'll continue to expand DARWEN across additional EHRs and population platforms. By year-end, our targets are clear: activate our global network across life sciences, increase enterprise AI sales, and achieve approximately a 10% exit run rate for adjusted EBITDA margin. The foundation is built, the strategy is clear, and Q1 demonstrates we're executing against it.
Turning to some of our key strategic and operational highlights for the quarter. First, we successfully unified Khure and Pentavere into a single DARWEN-powered AI engine. This is an important milestone in our platform strategy as it enhances integration of our ecosystem, enables more effective cross-sell and upsell opportunities, particularly across the Orion Health and VeroSource customer bases.
Second, we launched WELLTRUST in partnership with WELL Health. This is a consent-first, AI-powered data governance and patient identification platform that enables privacy-compliant clinical mobilization at scale. Importantly, it also improves patient recruitment for clinical research, which remains a critical bottleneck in the life sciences industry. This has already demonstrated significant value to our life science partners.
Third, we can continue to build commercial momentum across all parts of the business, including AI contracts and opportunities outside of Canada, increased momentum in ANZ, and our first RFP response with a genomic partner. This reflects the growing global demand for our AI solution and reinforces our expanding international footprint. Overall, these milestones highlight the continued execution of our strategy to combine AI data and clinical validation to drive meaningful impact across healthcare systems and life science organizations. I'd now like to turn the call over to our CFO, Anthony Lam, to walk through Q1 financial results.
Thank you, James. Before I begin, I'd like to remind everyone that all of the figures I will be discussing today are in Canadian dollars, and our financial statements are presented in accordance with IFRS, International Financial Reporting Standards. Our first quarter 2026 results are as HEALWELL achieved quarterly revenues of CAD 33.2 million during Q1 2026 compared to CAD 8 million generated in Q1 2025, an increase of 316%. Revenue growth in the quarter was largely driven by the Orion Health acquisition and organic growth of the company's AI division. During Q1 2026, HEALWELL reported positive adjusted EBITDA of CAD 0.7 million compared to an adjusted EBITDA loss of CAD 2.3 million in Q1 2025, representing a year-over-year improvement of 132%.
The improvement in adjusted EBITDA is attributable to the Orion Health acquisition and improved performance HEALWELL operating segments. HEALWELL achieved gross profit of CAD 19.5 million during Q1 2026, an increase of 340% compared to CAD 4.4 million in Q1 2025. The increase is due to higher revenue performance across the business in the quarter. HEALWELL achieved gross margin percentage of 59% during Q1 2026 compared to 56% in Q1 of the prior. HEALWELL reported IFRS net loss from continued operations of CAD 6.8 million in Q1 2026. This compares to a net loss of CAD 14 million in Q1 2025. HEALWELL ended the quarter on March 31, 2026, with CAD 21.9 million in cash. An increase when you compare this to year-end, our year-end balance of CAD 18.6 million.
I'd also note that the company holds a strategic investment position in xAI, now part of the broader SpaceX ecosystem, which represents additional balance sheet value beyond our reported cash. As we evaluate the appropriate timing to monetize this position, it provides meaningful optionality to further strengthen our capital base and support the company's growth initiatives.
Now looking at our revenue segments. As of November 1, 2025, following the divestiture of the company's Clinical Research and Patient Services Division, HEALWELL now generates revenue across two core segments. 1, AI and Data Science. 2, Healthcare Software. Our AI and Data Science segment achieved revenue of CAD 2.6 million in Q1 of 2026, marking a 13% year-over-year growth compared to CAD 2.3 million in Q1, 2025. The increase was driven by contributions from the VeroSource Data- as- a- Service offering and Orion Health component with the AI segment.
This growth is partially offset by the divestiture of Mutuo, which was completed on November 1st, 2025, and contributed to revenues in the prior year comparative. Excluding impact of this divestiture, the company continues to advance its AI data science capabilities through a combination of strategic and organic initiatives. The second revenue stream is Healthcare Software, which generated CAD 30.6 million in revenue in Q1 2026, an increase of 439% from CAD 5.7 million in Q1 2025. This increase was primarily driven by significant growth in healthcare, in the Healthcare Software segment, reflecting the continued contribution of Orion Health, that acquisition happening and organic growth, expansion initiatives.
With the recent divestiture of non-core assets, HEALWELL is now fully focused on driving growth, innovation, and profitability across its two high-margin scalable segments, AI and D ata Science and Healthcare Software. This strategic focus positions the company to continue delivering strong financial performance with rapidly growing revenue streams, expanding customer adoption, and meaningful contributions to overall profitability. With that, I'd now like to turn the call over to our President, Dr. Alexander Dobranowski, who will discuss our Canadian and global public sector opportunity, HEALWELL's competitive moat, and key investment highlights underpinning our strategy.
Thank you, Anthony, and thank you, James. I wanna start today by discussing an important opportunity that is presented before us. Over the last year or so, we have seen a dramatic and positive shift in global public sector posture towards addressing key pain points in healthcare, inclusive of data interoperability challenges. Never before have we seen such exciting public sector tailwinds, with major funding commitments being announced and being made in key jurisdictions where we operate. We have seen this shift happen not just in Canada, but also in other important jurisdictions. For instance, in the U.S. with the introduction of the OBBBA, this has led to the addition of $50 billion to the Rural Health Transformation Program, a program that is directly targeting to address healthcare data access and compatibility issues.
In the U.K., we have seen revitalized commitment to healthcare investment, as echoed in their well-publicized 10-year plan to transform the NHS. Finally, in Canada, I've broken down this opportunity into two parts. Part one: At the federal level, Bill S-5, the Connected Care for Canadians Act, currently under review in the Senate of Canada, represents a meaningful shift in Canada's healthcare policy landscape. It mandates interoperability across health IT systems and explicitly prohibits data blocking practices.
From an investor standpoint, this effectively establishes a new national baseline for how healthcare technology must operate in Canada. The implications are significant. First, federal funding and procurement are expected to increasingly favor platforms that are compliant with these interoperability requirements. Second, scale becomes a key advantage, particularly for platforms capable of integrating clinics, EMRs, and AI into a single unified workflow. Third, it creates additional pressure on legacy vendors operating closed ecosystems or point solutions which may face challenges adapting to these new standards.
At the same time, provincial procurement trends are also evolving, with a clear preference emerging for Canadian-owned sovereign technology platforms. Taken together, these dynamics create a really strong structural tailwind towards vertically integrated Canadian-based healthcare technology companies. HEALWELL is fundamentally built around AI and data interoperability and has already demonstrated its ability to deploy large-scale public sector Health Information Systems, including the Health Information Exchange in Saudi Arabia, which is the world's largest implementation of its kind.
Together with WELL Health and WELLSTAR, HEALWELL is uniquely positioned to meet the requirements of the Connected Care framework. Collectively, this forms a vertically integrated end-to-end Canadian sovereign stack, spanning care delivery, data infrastructure, and clinical intelligence, fully aligned with both interoperability mandates and sovereignty-driven procurement priorities.
Now on to the second or part two of the public sector opportunity in Canada. On March 19th, 2026, the Ontario Minister of Health announced the province's plan to launch a province-wide primary care medical record initiative aimed at advancing an integrated interoperable electronic medical record system for primary care. This initiative forms part of the Ontario Primary Care Action Plan, supported by more than CAD 3.4 billion in funding, with the objective of connecting approximately 2 million additional residents to primary care by 2029. The province has indicated it will run an open competitive procurement process and is evaluating a multi-vendor approach. Our Chairman, Hamid Shahbazi, noted in yesterday's earnings call that WELL Health strongly supports this initiative and intends to actively participate in the forthcoming procurement process led by Supply Ontario.
HEALWELL already plays an active role in supporting the province through its 811 service, which provides clinical guidance to over 15 million users, as well as through the Ontario Patient Viewer, a digital care record that consolidates patient data across care settings. In addition, HEALWELL's award-winning and clinically validated DARWEN AI platform delivers intelligent search and summarization, plus clinical decision support capabilities that directly align with Ontario's requirements. The province's initiative closely aligns with HEALWELL's core strengths. HEALWELL intends to support WELL Health and WELLSTAR on their bid for this opportunity, and we are well-positioned to help deliver this vision for the province of Ontario.
I'd like to turn our attention back to HEALWELL. As the healthcare AI landscape continues to evolve, we are seeing a clear transition from very early-stage experimentation towards real-world deployment of AI solutions that are delivering measurable clinical and economic outcomes at scale. From a strategic standpoint, we believe the companies that are best positioned to lead in this environment will be those that combine advanced AI capabilities with strong distribution, access to high-quality clinical data, and solutions that are embedded directly into care delivery. At HEALWELL, our first key competitive moat is our clinical validation and scientific credibility. You heard a little bit about this from James. Our DARWEN AI platform has now been supported by 47 peer-reviewed publications and was recognized with the 2024 Prix Galien USA Award, one of the most respected honors in the life sciences industry.
Importantly, our AI platform can generate regulatory-grade real-world evidence, which we believe is a highly differentiated capability on a global scale. We continue to collaborate with leading hospital systems, cancer centers, and pharmaceutical companies. Today, we have active commercial relationships with eight of the top 10 largest global pharma companies. The second core advantage is our global distribution infrastructure through Orion Health. This provides us with enterprise access that is both broad and difficult to replicate. Through Orion, we maintain relationships with more than 70 large healthcare customers across 11 countries. This is a very unique and special customer base. We also recently secured our first major public sector AI deployment in the Middle East, marking an important step in expanding our AI products beyond Western markets.
Looking forward, we see a strong and growing pipeline across Canada, the United States, the United Kingdom, Australia, New Zealand, and the Middle East, which positions us well to scale our solutions globally. Our third competitive advantage we believe we benefit from meaningful embedded switching costs and a continuously expanding clinical data network. Our solutions are integrated directly into electronic health record systems and clinical workflows, which support strong customer retention and long-term partnerships. On top of this, we currently have approximately 35 master service agreements with pharmaceutical companies, including, as mentioned, many of the largest global players. Each additional deployment enhances our proprietary datasets and contributes to ongoing improvements in model performance.
Finally, our proprietary DARWEN AI platform serves as the technological foundation of our business. Over the past year, we've successfully unified the capabilities of Khure Health and Pentavere into a single integrated platform powered by DARWEN. This includes now our product set of SMART Identify, SMART Search, and SMART Summary artificial intelligence solutions, which are designed to automate complex clinical data analysis and patient identification across large-scale datasets. Taking together, we believe these factors of scientific validation, global distribution, a unified AI platform, and deep workflow integration form a strong competitive moat and position HEALWELL to capture significant opportunities as healthcare AI adoption continues to accelerate.
Now turning some attention to our investment highlights. At a high level, HEALWELL is a healthcare AI company that is mission-driven to move the needle in preventative care. How we do this is through our focus on early disease detection. To add a little bit of color to this, over the last six months, our team and incredible technology has helped identify over 160,000 patients that are at high risk for rare, ultra-rare, chronic, and complex conditions. We believe we are uniquely positioned at this intersection of clinical data and AI to deliver outsized results and value for our shareholders.
Starting in the top left of this slide, as mentioned, we are already generating revenue from eight of the top 10 largest global pharma companies. This is a real strong validation of both our technology and our commercial model, and it reflects the trust that large pharma organizations are placing in our platform. Next, we are operating what we believe is a multi-billion dollar market opportunity. As healthcare systems increasingly adopt AI to improve outcomes and reduce costs, we see significant long-term demand for solutions like ours that can operate at scale.
Infact, we believe that those companies that are best positioned to unlock true value in preventative care have a shot at being one of the first trillion-dollar businesses in healthcare. The addressable market opportunity is that immense. Importantly, through our platform and partnerships, we now have access to over 150 million patient lives. This scale of data access is a key competitive advantage, enabling us to deliver more accurate insights and continuously improve our AI models. From a growth perspective to date, we have completed six material acquisitions, and we continue to see a strong pipeline of opportunities, and we believe we are well-positioned to deploy capital strategically to drive further expansion.
We are also supported by an experienced board and a talented management team with deep expertise across healthcare, technology, and capital markets. Finally, our relationship with WELL Health remains a key strategic advantage. It continues to accelerate our growth, expand our multinational footprint, and provide us with direct access to clinical environments where our AI solutions are being deployed and scaled. Taken together, these elements reinforce our position as a differentiated healthcare AI platform with strong momentum and a clear path for continued growth and profitability. With that, I'd like to thank everyone for attending this call. I'd like to thank our Board of Directors, our management team, all our hardworking staff. With that, I will hand it back to the operator and move to the Q&A portion. Thank you.
As a reminder, if you would like to ask a question at this time, press star followed by the one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Kevin Krishnaratne with Scotiabank.
Hey, good morning. James, you had mentioned that the U.S. market's the most active it's been in a while. I'm just wondering if there's any way you can size that, quantify that, whether that's, you know, maybe pipeline growth, number of conversations. Just curious to hear, you know, what you're seeing there in the U.S.
Yeah. Firstly, good morning, Kevin. Thanks for the question. As it happens, Alex and I are both in the U.S. currently. We've been here for the week, seeing clients and customers. Giving you a bit of flavor is that last year we saw, you know, some new activity. We won, you know, a new contract in the U.S., which we announced first quarter. What we're seeing here is that the new activity driven by OBBBA, but more particularly the Rural Health Funding Bill, has meant that what I would say RFPs in the market are at least two, three times more active than they were this time last year. Those are for a wide range of new HIEs in this market.
Interestingly, what we're also seeing is that that funding for rural health is now pushing into and being extracted out to AI opportunities as well. We're probably having more AI conversations now, in the U.S. than we were having certainly even three months ago. That's driven by that first round of funding is now being dished out and people wondering how they spend it. It is significant portion of money going to this part of the model.
Great, great to hear. maybe one for Anthony. The Healthcare Software line, this quarter looked good. I know there's a mix of software, but also deployments and pro service work. I'm wondering, you know, if you could dig in a little bit deeper into that number. Was there any, you know, sort of things that you call it as one-time-ish? How do we think about the segment as we move into Q2? Thanks.
Thanks, Kevin. That's a great question. We did see in Q1, I would say, a bit of a catch-up in some of our pro services side of the equation. I would say that, yes, some of it is maybe a little bit of a catch-up on some opportunities that we've been working on at the end of last year that have now caught up this year with some, with some really good, you know, revenue recognition with the completion of some key milestones.
What we saw here is that benefit our margins a little bit as we, as we, you know, got into Q1 here, because we had obviously some costs related to that that were incurred in prior periods, but revenue now being recognized. would say that, you know, there was, I would say, just a marginal amount of that happening in this quarter that created a little bit of that lift.
Great. Thanks for the color, guys. I'm gonna pass the line. Thank you.
Your next question comes from Gianluca Tucci with Haywood Securities.
Hi. Good morning, guys. I think last quarter, I think it was last quarter that you called out over 50% organic growth for AI for this year. I'm just wondering at this point of the year, how you're thinking of our organic growth for both AI and software?
Why don't I cover that? Obviously, it's early in the year. What I would say is the pipeline still gives us confidence in our, you know, previous comments about AI growth. You know, revenue recognition is always tricky to get that kind of precision this early in the year, so we're not at the stage where we can update that. What I can say is that the pipeline continues to build nicely. Software development, we'll probably give you an update in second half. What we are seeing is that there is, as I said, significant uplift in RFP activity, turning up in Q2, Q3 this year. We feel comfortable with the numbers we've given previously.
Okay. Thanks. Just following up to the prior question on software and how that impacted our gross margin in the quarter. It was up nicely, Q- on- Q gross margins. Anthony, like, is this kind of a new baseline or 'cause of the one-timers in pro services, we should see a kind of a step half down for Q2 in gross margin?
Gianluca, thanks for that. Look, definitely had a great quarter from that perspective, a little bit of a catch-up taking place. We can expect to see that our margins, you know, will be in that mid 50% range that we've seen historically. I think we had a nice little benefit in this quarter, but I think we'll be in that, you know, mid-50%s range, you know, for the year as we get as we look ahead.
Okay. Thanks, guys.
Yep.
Your next question comes from Derek Greenberg with Maxim Group.
Hey, guys. Thanks for taking my question. I wanted to just ask, I think on the previous call, you'd also mentioned, you had expected 10% year-over-year growth in the subscription support and maintenance segment for Healthcare Software. I was wondering if there was just any updates on that as well.
Anthony, do you wanna cover that?
Yeah. Absolutely. We see, like, continued, you know, on that line, we see the continued similar performance. I think we will. That's a really steady part of our business. I would say it continues to progress at the same level that we've seen historically.
Yeah. Got it. I was wondering if you could maybe just give some color in terms of, in the Middle East when you're engaging with, government sovereign health entities, just what that process looks like in terms of how the sales cycle progresses. Once live, how long it takes to go from signing a contract to scaling revenue.
Yeah. That, it's a really good question. I don't think there's a clean answer. I think what we can say is that every part of the region is different. You know, so what we're seeing there are some parts where activity can happen quite quickly, where it's an established market, there's no need for an RFP, we're already embedded, and we can go from a initial discussion to, what I would say, revenue within six months. Now obviously what we're seeing with the, I'm trying to think, well, I'd say the global conflict in the region. We are seeing some slowdown in, sort of initial conversations progressing into secondary conversations. That conflict has gone longer than we had expected.
Equally, we have nothing baked in this year, just to be clear, with our numbers and thought processes for the Middle East, for new contracts than the numbers we've given previously. There are as we extend slightly beyond the regions that we're currently active in, we are still seeing activity and RFPs come to market.
They're probably more, I would say, a nine-month process from beginning to revenue recognition and with a ramp-up. You've gotta remember the implementation phase for us from winning an RFP begins with contracting, which can take anywhere between three to six months from the time we would announce a contract win. Then, 'cause obviously we have to contract with a bunch of secondary parties, including the likes of AWS. You know, the recurring revenue might be a year after that 'cause new regions can take up to a year of implementation. Does that answer your question?
Yeah, definitely. That's very helpful.
Perfect.
Okay. Thank you. I'll pass it along.
Your next question is from Brian Kinstlinger with Alliance Global Partners.
Great. Thanks so much. In the first quarter, subscription revenue for AI and Data Sciences declined sequentially. It was the first time that's ever happened. Was there a churn or lower usage or maybe what explains the dip, particularly in that subscriptions piece sequentially?
Anthony, do you wanna cover it? Do you want me to?
No, I've got it. No, it's a great question. We did see a bit of a change there. I would say that as we recalibrate all of our AI business here, we did see that a small move in it, but I would say it's, you know, it continues to be an area where we're focusing our efforts to grow. As you know, the subscription portion of our AI business is a very small portion, it's less than 10%. The larger component continues to be the elements that we have more episodic revenue.
As we build out capabilities and we start seeing the cross-sell opportunities, through our carriage network with Orion, we can expect to see that subscription element become a much more important portion. You know, healthcare systems are relatively slower moving in decision-making. And I would say that, you know, at this early stage, you know, we're very pleased with the performance, and we continue to see incredible interest, as James and Alex have highlighted earlier in the call. They're in the U.S. now, having very fruitful conversations with a lot of the opportunities there, all of which have an element of these, the AI component in it.
Okay, great. My second question relates to the major your statement on a contract, a major government health system in the Middle East and continued expanding enterprise deployments across North America. What's the potential size of some of these opportunities on a run- rate basis? What would be considered small when you move to production? What might be considered a large contract? Help us understand so we can see how this might scale.
Some clarity on that. Are you talking about when we're fully in production or what a first stage would look like?
Well, maybe the life cycle-
Yeah.
...for the Middle East.
Yeah. Perfect.
What the order set might look like, and then how we get to production and how long that might take.
No, that, I think that's a nice way to frame it. What I would say is that within the It's not linear, you know, I'll just give you a range. For a small healthcare system, a first stage implementation might be, call it $250,000 of revenue, for implementation and something similar for ongoing. Then at scale and fully implemented, it might be $500,000 a year of ongoing. For a large system, it's probably four times that. What we're seeing is that the potential for these to come in as platforms, into healthcare systems, they're probably more like, more like an HIE sort of contract, $1 million-$2 million type contract, depending on the scale and size of the opportunity.
Again, as the product matures and the number of use cases becomes more apparent, I think the way we're considering the platform in the later years is a deeper embedded platform. You could see an area here, and we're already having conversations of having embedded resource, which would probably lift that number again. If I'm thinking about that in the most broad sense, the reality is that the AI deployments are not gonna be CAD 100,000 a pop type deployments. What we are seeing is that the interest is a not on point solution, but fully embedded platforms. They will take more time, but the margins are materially higher and far more exciting. You know, you'll see our language shift and talk about that in terms of this coming.
I think Anthony made the comment of going from being episodic to being embedded. Those embedded platform conversations are really what's leading through here. What's very clear in this market is that the time and energy to deploy a point solution or a proof of concept is pretty much the same as going fully for enterprise grade. What we've seen has been a real change in the U.S. market from very nascent, almost immature approach to governance, to now very strict thought processes on procurement, governance, connectivity, being embedded, scientific validation, all of which plays very, very clearly into our hands. If we have a little bit of bounce in our voices, it's because we're here at the moment hearing it firsthand from every single party of the realistic answer of where our platform sits in the universe.
Great. Thanks for that. I'm gonna slip one more in. There was a significant step up in R&D. Can you highlight what these R&D investments are, where they're focused on, and directionally, how we should think about R&D expenses for the next few quarters?
Look, R&D, there's two key areas, right? We're obviously spending on integrating the platforms and bringing it to new markets. You know, bringing integrating the new VeroSource- Orion platform into the U.S. is a first-time process, so there will be R&D spend on that. We're also at the final stages of delivering a digital front door in Ontario. Again, that means it's heavy in the R&D cycle and then a lot of new product development within the AI division. What I would suggest is that we're at the tail end of that growth. You know, with the platform coming live here in the U.S. in the last quarter, we're at the end of that, you know, I would say the initial deployment phase and moving now into the more steady state.
There's obviously a bit of what I would say the integration spend on getting these businesses aligned. The final thing there is that there is a period of what I would say is removing significant tech debt across the organization. We have approved a few projects which will be multi-year projects, so call it a couple of years. Very, very significant ROI projects in terms of reducing costs. While there is an upfront, in the current year, and, you know, we saw a bit of that the end of last year, that'll start to tail off.
I think what we're seeing and thinking is that we're seeing significant improvement from deploying AI internally within R&D. Once we've completed the tech debt and completed some of the current projects, we would expect our R&D as a percentage of revenue to decline and to be fair, probably R&D to flatline decline in an absolute sense as well.
Great. Thanks for all your responses.
Your next question comes from Max Czmielewski with Stifel.
Hi, guys. Just a few questions. Maybe, Anthony, you could help me out on this first. This is Max, by the way, on for Justin Keywood at Stifel.
Yeah.
Maybe besides some of the margin improvement lift in Q1, could you help us understand the cadence of invoicing and revenue recognition in Q1? Should we expect that there is sort of this bolus of collections in this quarter on a seasonal basis from contract work through the year?
Max, thanks for the question. The cadence of invoicing hasn't really changed. I will say, though, that, you know, one of the dynamics that we see with we've seen a full cycle with Orion in the mix is that they do have a customer base. We have a customer base that where we do have a handful that we will build, you know, annual revenues up front. You know, again, close to 2/3 of our revenue there is, you know, recurring. We will see some benefit from a balance sheet perspective, where we have some cash, 12 months build up front.
As we get into, right now, into Q2, we'll start seeing a bit of a bulge in our cash collections on those annual build relationships. It'll be drawn down as partially throughout the rest of the year. Yeah, I would say it's a smaller portion of our recurring revenue, but definitely a nice little benefit for us from a balance sheet perspective. Other than that, the rest of our business is billing on a, you know, on a regular basis, contracts, milestones, you know, they build as and recorded, you know, similar to how we've seen them in the last few quarters. Not a lot of movement there in that. We just had just a small benefit this quarter that was a bit of a catch-up, that's all.
Perfect. Great. Thank you. Maybe, more of a broader question, if you could help us understand maybe which types of customers are most amenable to these cross-sell, upsell opportunities? Is there a bigger opportunity with, say, HIE, or maybe in other enterprise contexts? If there's a meaningful difference between geographies on bringing additional products into a project, given the sophistication or how well those systems are resourced or funded?
I'll take that. Short answer is there is no meaningful difference by geography. I think there's a meaningful difference in timing. Our customer bases, whether HIEs or digital front doors, realistically, they're still government platforms. While we are always part of the solution, we're never ever gonna be a 100% of the technical stack they have. The conversations we're having, doesn't really matter which part of the stack we're in, we're still having those conversations. It's their readiness that's the driving force, and generally, it's the funding cycle. We're having conversations in all of our major regions. Active conversations in the U.K., active conversations in ANZ, U.S., Canada, Middle East. We're trying to be really methodical at where we apply our time.
What I would say is there's probably more conversations demand than we are capable of delivering right now. We need to scale with that. As we said, these are long-dated cycles. You know, they're not things that will switch on tomorrow. These are conversations that can take three to six months, and then they can take six months to implement. What we're seeing from, and I think Alex mentioned this presentation, we're seeing governmental support now in, you know, coming through in Canada, the U.S., the U.K., ANZ, actually behind supporting AI being deployed. There's really common language, which is the exciting piece of, you know, the U.K. talks about getting people out of hospitals into the community. Well, that requires a shared care record. That requires an HIE.
There's, you know, conversations about treating people, treating wellness, not sickness. Again, that's the same language they have within the CMS. In fact, the CMS has extended the period of what they wanna see people looking after their customers, so in terms of accountable care. The language, the financing, is actually quite global right now, which is exciting, and it matches our footprint nicely. I think what will be an interesting component in 2027 will be as we broaden from regions we're not in. Our capabilities work in any healthcare system.
What we're seeing with the preventative healthcare is that as we begin to show use cases and proof points in what I would say tangential or adjacent revenue streams, you know, what we're finding is there's no real, well, I'll say it a silly way, that there's no real opportunity that we can't participate in. I think I mentioned before, we put in our first RFP with a genomics partner, which was an exciting change of just the range of the things we can apply our AI and platforms to.
That's great. Thank you so much.
Your next question comes from David Kwan with TD Cowen.
Yeah. Yeah, good morning. I was wondering, could you talk about some of the conversations that you guys are having with life sciences companies as, I guess, you're in a much stronger position now to help them with their clinical trials, given your AI capabilities and the integration there? You've got WELLTRUST and now I guess, WELL Health was talking about WELL Research on their call yesterday. Just curious to see, you know, are you having more inbound interest, and also how you're planning to work with Well in terms of going after these opportunities?
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David, hey, thanks very much for your question. Look, I think our credibility and our relationships with, you know, life sciences companies, which includes, of course, you know, big pharma, you know, med device and biotech. Yeah, I think it's all been really maturing in an exciting direction. Just to give you a quick snapshot, David, of what we're able to do, right? We started really with this capability of being able to risk stratify patients, right? Identify at-risk patients of all sorts of different conditions, including, you know, rare, ultra-rare, chronic, and complex conditions. On top of that, we've been able to offer our life sciences partners a capability of being able to generate regulatory grade real-world evidence, which could then inform and help generate clinical studies.
That's really key. Then, you know, 1/3 kind of, you know, value proposition is being able to not just screen and identify at-risk patients, but identify patients that are also of strong eligibility for clinical trials. This work is really meaningful, and I think that's what you're touching on with, you know, partnerships and strategic alliance with WELL Health and their initiative around WELLTRUST and WELL Research, right? We're able to identify patients, you know, years in advance that then get access to, you know, in some ways is life-saving, you know, clinical trials. That's a really exciting, you know, partnership opportunity. We encourage you guys to watch that closely. I'm sure Hamid will share more news on that front in coming quarters.
The only thing I'd add there.
Do you think-
I'll say the only thing I'd add there is that that's already in market. You know, it's not, it's not an idea. We're already seeing use cases and RFPs coming in. I think the scale of WELLTRUST at the speed at which it's grown surprised us. You know, we're seeing really good consent up from people going through the clinics. It's an area that we're actually looking at accelerating our spend and growth to accelerate the size of the scale of consented patients we have access to.
No, that's great. Do you guys actually have an updated number in terms of how many of WELL's patients have given their consent through WELLTRUST?
I don't have it in front of me. It's changing rapidly week- by- week. We're in the early phases of deploying it across all of the WELL ecosystem. Like, it'll be, it'll be a more meaningful number for me to give you next quarter. What I can say so far is that it's a week-by-week growth that has surprised us. Let's be clear from a, you know, small start early, now we're getting to the point where it's enough to be meaningful. Like, we're now using what we have to identify patients for clinical trials and at a commercial grade. Not just not theoretical. We're actually doing it.
That's great. That's it for me. Thanks.
Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. At this time, there are no further questions. I'll turn the call back over to Mr. James Lee for any closing remarks.
Actually, I'll take it. In closing, I wanna thank everyone once again for joining our call today. Thank you to the analysts for their questions. Everyone, please stay safe and healthy, and we look forward to providing more updates in the future. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.