updates or evidence 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 definitions set out in our management discussion analysis. There will be a question-and-answer session 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 the dial-in number provided in our press release. With that, let me turn the call over to HEALWELL CEO, James Lee.
Thank you, Ethan. Thank you, everyone, for joining us today. Before we go through the quarter in detail, I just want to step back and put some context about what you're going to hear today as we go through the business building quarter- by- quarter. As we've talked about before, our ambition is to make preventative care possible at scale. Doing that means connecting four groups: healthcare systems, clinicians, life sciences, and insurers. As you know, we believe we are uniquely placed to bring that all together. Firstly, we've got unique IP that solves a global problem. We continue to hear from global healthcare systems that they are trying to move from reactive care to proactive care. Our DARWEN AI platform identifies at-risk patients and fits directly into their clinical workflows. It's backed by more than 57 peer-reviewed publications, so its value is proven. Second, our distribution.
We work with over 70 healthcare systems, and our Amadeus AI platform connects more than 150 patient lives. That's the layer through which we scale. Third, we have the cross-sell opportunity that few companies have. We serve both healthcare systems and life sciences, and we'll talk about both today. Each side strengthens the other, bringing together in what makes a transformation to healthcare. Now, we'll talk about today the significant shifts we've got happening in the markets, moving from episodic Canadian-centric revenue through to global enterprise contracts, and we'll explain how that shift and how we're delivering that. As we talked about last quarter, we set out deliberately this year to diversify away from episodic life science revenue that was concentrated in Canada towards higher-margin global enterprise contracts. That strategy was before MFN.
Most Favored Nation drug pricing, or MFN, has been a catalyst that's accelerated that shift. MFN links what Americans pay for prescription drugs to the lowest prices paid to other developed markets. According to the U.S. administration, 26 drug companies, covering about 90% of the market, have now signed MFN pricing agreements. The effect on Canada has been significant. As a smaller, lower-priced market, Canada is getting new medications later or not at all. An industry survey earlier this year found that at least 16 new medicines had not been launched in Canada in 2026, and more than 30 have been delayed. For us, the effect is a delay, not a loss. Life science demand hasn't disappeared, but it's moving, and so we've already been making that shift. We're positioned to capture that globally, and we're starting to see those results sitting up in two key areas.
First, we'll talk about today our revenue mix is shifting from episodic life sciences towards recurring enterprise contracts, and we're seeing that coming through in the quarter. We've signed about CAD 1.5 million in new business in recent weeks, including our first global pharma procurement agreement. Our first WELLTRUST agreement with a U.S. partner has also been signed. These are a clear path to higher-margin multi-year contracts that build value over time instead of the traditional resetting every quarter. More importantly, though, our shift towards healthcare systems that we started in 2025 is showing promise. In 2025, the quarterly revenue was less than CAD 200,000, and we've been transitioning towards that AI focus in healthcare systems. We've signed and been awarded contracts from the Middle East, U.S., and Canada.
While this year we've only been able to recognize part of this revenue, as delivery milestones are still being met, these values are contracted, and they will come in as we deliver. Once implemented, they begin to compound, and we will start to see that compounding occur over the next few quarters. Importantly, reaching our 10% Adjusted EBITDA margin depends on revenue recognition, and encouragingly, we're seeing further opportunities to more deeply integrate across the business and continue to support margin expansion. The area I want to talk about today is one that gives us the most excitement and we're moving into, which is the HIE Unlock. This area we call Global HIE Unlock is bringing our life sciences and healthcare system businesses together into a single global offering. As you know, health information exchanges connect a region's healthcare data.
When you add AI and life science relationships, that becomes infrastructure, becomes far more valuable to healthcare systems. If we continue to link our business this way, we believe we can change how healthcare is delivered globally. Pleasingly, we've already had early proof. We've signed our first two global agreements, including one position to leverage an HIE in the Middle East, and numerous other parties have evaluated the model. Excitingly, the pipeline for HEALWELL is the strongest it's ever been. In the U.S., we've seen a significant increase in HIE activity year- on- year. This time last year, we had two main pursuits. Currently, we have seven substantial opportunities progressing today. Part of that is being funded by U.S. federal policy.
The One Big Beautiful Bill Act created the $50 billion Rural Health Transformation Program, with funding now flowing to every state, and states are beginning to invest that in the infrastructure we provide, connecting providers to health information exchanges and adopting AI clinical decision support. Across our U.S. customer base, we've already submitted our first proposal under that program. Importantly, globally, we have 19 named near-term opportunities across the U.S., the U.K., Canada, New Zealand, and the Middle East. In the U.K., we're pursuing major shared care record opportunities, and in the Middle East, we're working with a national-scale infrastructure. We expect procurement feedback and decisions through first quarter of 2027, so by March, we'll have good visibility on these outcomes, and we'll give 2027 guidance then. To sum it up, our shift to global high-margin growth is well underway.
The early results are coming through, and our pipeline's never been stronger. With that context, let me talk through our business highlights for the quarter. First, our subsidiary, Orion Health, secured a multi-million, multi-year agreement with Converge Health Iowa to deploy SMART Search and SMART Summary solutions across Iowa's state HIE, which receives data from about 115 different hospitals. This agreement demonstrates our first cross-sell opportunity through the Orion network existing customer base and represents an important step of showing commercial adoption of the SMART Suite. In Canada, our subsidiary, Intrahealth, deployed SMART Summary within its Profile EMR platform in New Brunswick, making the solution available to more than 400 clinicians. This marks a further Canadian deployment of the SMART Suite and demonstrates further AI capabilities. We also achieved an important milestone with WELLTRUST, our clinical trial matching initiative with WELL Health.
We surpassed 100,000 patient consents, all powered by the DARWEN AI platform. WELLTRUST enables the identification of eligible patients for clinical trials, creating opportunities to support pharmaceutical companies, biotechs, and contract research organizations. An important part of our business is research and development, and we continue to strengthen the clinical evidence supporting DARWEN. Our latest peer-reviewed research demonstrated strong performance in AI-powered clinical summarization, exceeding published benchmarks by leading foundational models. We've highlighted a study published in the Canadian Journal of Cardiology that identified more than 4,100 heart failure patients who are not receiving guideline-directed medical therapies and reported a 17% improvement in treatment optimization within six months. Finally, subsequent to quarter end, HEALWELL was recognized by TIME as one of the world's top healthcare tech companies 2026 in the AI and data analytics category.
This fall, we and our collaborations presented 12 scientific abstracts and presentations across eight international conferences, including eight real-world evidence studies with seven life science partners. DARWEN is now supported by more than 57 peer-reviewed publications, which continues to reinforce our clinical credibility and growing scientific validation. Overall, these milestones reflect the continued progress in commercializing our AI capabilities, expanding deployments across existing healthcare customers, and strengthening our position as an AI-powered healthcare solution. With that, I want to hand the call over to our CFO, Anthony Lam, to run you through the Q3 financial results.
Thank you, James. Before I begin, I'd like to remind everyone that all the figures that I will be discussing today in our call are in Canadian dollars, and our financial statements are presented in accordance with IFRS, International Financial Reporting Standards. Our third quarter 2026 results, as compared to Q3 2025, are as follows. HEALWELL achieved quarterly revenue from continuing operations of CAD 32.6 million in Q3 2026, an increase of 7% compared to CAD 30.4 million generated in Q3 2025. Our recurring subscription, support, and maintenance revenue grew 9% to CAD 22.8 million and represented 70% of total revenue in the quarter, reflecting the continued growth of our recurring revenue base. HEALWELL reported positive Adjusted EBITDA of CAD 1.6 million in Q3 2026, an increase of 144% compared to Adjusted EBITDA of CAD 0.7 million in Q3 2025.
The improvement in Adjusted EBITDA margin reflects improved performance across HEALWELL's operating segments and a 7% reduction in total operating expenses. HEALWELL achieved gross profit of CAD 17.1 million during Q3 2026, an increase of 3% compared to CAD 16.5 million in Q3 2025. HEALWELL achieved gross margin of 52% during Q3 2026. This compares to 54% in Q3 2025. Looking at our results for the first nine months of 2026, HEALWELL achieved revenue from continuing operations of CAD 98.7 million for the nine months ended September 30th, 2026, an increase of 38% compared to CAD 71.6 million in the prior year period. The increase was driven primarily by the Orion Health acquisition. HEALWELL reported positive Adjusted EBITDA of CAD 3.5 million for the nine months ended September 30, 2026, compared to CAD 0.9 million in the prior year period, an increase of approximately 294%.
HEALWELL achieved gross profit of CAD 54.5 million in the nine months ended September 30th, 2026, an increase of 37% compared to CAD 39.6 million in the prior year period. HEALWELL achieved gross margin of 55% for the nine months ended September 2026, and this is consistent with the 55% in the prior year period. A key highlight this quarter is the continued positive trajectory of our operating cash flow. We generated CAD 5.9 million of cash flow from operating activities in the first nine months of 2026, compared to cash used of CAD 20.1 million in the prior year period, a CAD 26 million improvement, reflecting the Orion Health acquisition and realized operating efficiencies across the organization. We remained in compliance with all of our covenants under our credit facilities as of September 30th, 2026. As of September 30th, 2026, we had CAD 14.9 million in cash and cash equivalents.
Compared to CAD 18.6 million as of December 31st, 2025, along with a CAD 17.7 million short-term investment representing our indirect interest in SpaceX, which is subject to customary lockup restrictions and expected to expire at some time in February 2027. Turning to our revenue segments for the nine months ended September 30th, 2026, Data Science & AI revenue was CAD 6.1 million, a decrease of 13% compared to CAD 7.1 million in the prior year period. The prior year period did include CAD 1.1 million or 15% of segment revenue from Mutuo, which was divested on November 1st, 2025. Excluding Mutuo, Data Science & AI revenue increased approximately 2% compared to the CAD 6 million in the prior year period. Healthcare Software revenue was CAD 92.6 million, an increase of 44% compared to CAD 64.5 million in the prior year period, driven primarily by the Orion Health acquisition.
Within the segment, subscription support and maintenance revenue increased 47% to CAD 64.8 million. In 2026, we began deploying our AI capabilities across our software carriage network, including Orion Health installed base. While these deployments have not yet generated material revenue, they represent an important milestone in the commercialization of our AI offerings, and we believe broader customer adoption across our software carriage network will support future growth in this segment. We continue to prioritize disciplined capital allocation as we build on cash flow momentum and work towards sustained profitability. With that, I'd like to turn the call over now to our President, Dr. Alex Dobranowski.
Thank you, Anthony, and thank you, James. I'd like to spend a few minutes on how we plan to execute as we continue toward the end of fiscal year 2026. Our priorities fall within five key pillars of focus. Our first pillar is the continued commercial evolution of our AI business, and our focus is on making that evolution durable. In practical terms, this means turning initial deployments into broader, longer-term relationships. Our first global pharma agreement is a good example of the type of relationship we are working to build, one with a clear path to higher margin recurring revenue. Each successful implementation also gives us a strong reference point for the next customer conversation. Our second pillar of focus is to continue important integration work.
We have spent a large part of this year integrating our AI division assets and preparing those technologies to better serve our enterprise customers, particularly through our SMART Suite of products powered by our DARWEN AI engine. Our AI should be available inside the platforms and clinical workflows our customers already use, rather than as a separate system they need to adopt. Our deployment of SMART Summary within Intrahealth's Profile EMR in New Brunswick shows how that works in practice. Our software carriage network gives us a natural path to repeat that approach, and we are still in the early days of that rollout, but we have made exciting progress. In parallel, we are continuing to integrate other parts of our ecosystem, and we'll provide an update on this front in the coming quarters.
Our third key pillar of focus is to continue to optimize the business from both a cost and operations efficiency perspective. With the dynamic adoption of AI tools, finding efficiencies has never been more readily possible. We are applying the same kind of thinking we bring to our customers to how we run our own operations. We've made meaningful progress on this front. As our integration work continues, we see further opportunity to simplify how we operate across the group. Importantly, our fourth pillar is to continue to strengthen our balance sheet, and we have several ways in which we intend to do so. Monetizing our SpaceX holdings is one of these ways. Our improving operating cash flow also supports this objective. Alongside that, we remain committed to disciplined capital allocation. That means prioritizing investments that support recurring revenue and our path to sustained profitability.
Our fifth key pillar of focus is to continue to drive organic growth and harness the opportunity we see from public sector tailwinds. As James mentioned, globally, we have 19 named near-term opportunities across the U.S., the U.K., Canada, New Zealand, and the Middle East. Taken together, these five pillars keep the organization focused on execution. We are converting our AI capabilities into lasting customer relationships, integrating our platform, operating efficiently, strengthening our financial foundation, and positioning HEALWELL to capture the opportunities ahead and build shareholder value. With that, I'd like to turn the call over to the operator for the Q&A portion. Thank you.
Ladies and gentlemen, we will now begin the question- and- answer session. First question comes from Kevin Krishnaratne from Scotiabank. Please go ahead.
Hey there. Good morning, gentlemen. Thanks for taking the question. Just maybe a question on Converge Health Iowa. Maybe we can use this as an illustrative example. You noted it is a multi-year, multi-million contract, but how do we sort of quantify this on, say, an annualized basis? Like, how much ARR uplift would this represent to the base business? Is it something like 10% or 20% uplift? I am just throwing out numbers there. Just curious how we think about what the uplift could be from a program like this.
Anthony, do you want to give some context to the exact numbers? Kevin, I think there are two components to obviously, and this is what, as we think about our business, is important, is that Iowa is a good example of where the platform is coming together. So, at one side of the ledger, we have got our HIE expansion within Iowa, and then on the second piece of the puzzle is therefore deployment of AI within that. Do you want to give context to the numbers, Anthony? Because I know we have not talked about TCV.
Yeah, so the Converge Health Iowa will have an impact on our numbers on an annual basis of north of CAD 1 million. So, it is an impact for us that we will see benefit on the AI front as well as on the software front.
I think, Kevin, there's three components to where you'll see that revenue turn up this year. You'd have seen this year our professional services revenue from implementation. We've just delivered our first quarter of messaging with Converge Health Iowa, so you'll see in Q4 an uptick because that means we can now start seeing SaaS fees for the HIE. Then in next year, you'll see the SMART deployment. While we've contracted, this is one of the things I just talked about earlier on, is that we won't be able to recognize revenue from our AI deployment within Converge Health Iowa until early next year. While we've contracted this year of over CAD 1 million, that won't be in this year's numbers.
Oh, okay. No, no, thank you for all that context. Maybe just sticking on the U.S. and the HIE, you mentioned your opportunities are up year-over-year, I think two opportunities last year, seven currently. Just to be clear, are these RFPs that are open in the market, or are these actual seven discussions that you're involved in? How do you think about sort of the competition and your position and right to win on these deals? Just some color on those data points that you gave us.
Yep, no problems at all. Think of it as a mix. Some are in areas which are RFPs to two or three parties. Others are where we're down to final two or three. Others are what I would say uncontested expansions or things that have come directly through to us. So it's a real mix in terms of the opportunity set as you'd expect in any given market. Sorry, Kevin, what was the second part to your question?
Yeah, how do you think about any competition?
Right to win. Sorry, right to win. Yeah, yeah. Sorry. Excuse me. Yeah. Where we are seeing differentiation is in two key areas. One is speed to deployment. We got Iowa from start to go up and running just over 90 days. Some of our competitors will take between one year and two years to get deployment up and running. More importantly, the key differentiation is the integration of SMART Suite. What we are giving our customers is a clear path for, A, their own commercial deployment, so there are commercial opportunities for them to deploy on our platform. Secondly, we are future-proofing their systems. As we look across the competitive landscape, what we are hearing uniformly is that our offering is completely different in terms of the future-proofing of the platforms.
If anyone is looking at how rural care is looked after, how you are providing future solutions, how you are thinking about removing cost in the system, we are taking quite a different angle to our competitive landscape, which is why we have got such a wide range of opportunities in the U.S.
Thanks very much, James. I will pass the line. Thank you.
Your next question comes from Michael Freeman from Raymond James. Please go ahead.
Hey, good morning, James, Alex, Anthony. Thanks very much for taking the call. My first question is, in the past, there's been discussion from management or mention of exit EBITDA margin targets in the 10% range. Given how you described some slowdown given MFN in the life science customer set, I wonder if you feel like that target needs some adjustment or if you're feeling confident in that exit rate.
No, look, it's a good question. The reality is our Adjusted EBITDA target of 10% will largely be now hit depending on how we can recognize revenue from the work we've got. While life sciences had a weak Q3, we've signed obviously some meaningful changes that we talked about earlier, like CAD 1.5 million in the last few weeks, which, given a context of CAD 1.5 million-CAD 2 million a quarter of revenue, gives us confidence that that was a slowdown rather than a complete change in the market. But at this time of the year, Michael, the reality is we've worn most of the cost, so how we get to recognize that revenue by hitting key milestones in this quarter will be whether or not we can hit 10%.
All right. Thank you, James. That's fair. You've done well to describe your pipeline. You described 19 near-term opportunities that are in discussion or in the pipeline. I guess seven of these are HIE opportunities. I wonder if you could break down, I guess, the balance of the product offerings and perhaps the contract scales across these opportunities.
Yeah, look, it's a much longer conversation. What I think you should ponder here is that we see those opportunities as a combination now. We're no longer going in one solution or the other. It's a combined offering of what we call Amadeus AI, so both the SMART Suite and HIE as a combined entity offering. As what we saw with Iowa, is there might be different times of when they upgrade to the next phase of it, but our approach with customers is to sell it as a combined entity. As we think about healthcare systems and HIEs, we think about that now as a combination of all our capability, including our data platform.
In terms of scale, Michael, the reality is that there are TCVs north of CAD 40 million in that mix, but everything we would think of scale would mean it has to have a 10 handle. For a scale contract, TCV would have to be north of CAD 10 million.
Got you. Thank you very much. If I could just throw in one more. On the AI revenue reclassification, you mentioned in the press release and on the call, will you be pursuing the reclassification of AI and Data Science segment revenues from prior quarters, or is this just a go-forward strategy?
Look, Anthony can cover off IFRS 18, as we think about those implications for us into 2027, about whether or not we have to reclassify historics. Do you want to cover that, Anthony?
Yeah, look, one of the things we're looking into is the AI&DS as a separate segment for reporting purposes in future, just given we're going to be needing to make changes to our financials with IFRS 18 kicking in in January. We're still working through that right now, but I would say that given our focus is on enterprise sales and software sales, and we have a lot more of our activity now is of the nature of a combined basket of products being offered across our opportunity set, we are leaning towards a one-segment view of our business as the time goes on. But for the moment, we're going to continue with our current disclosure, but expect us to update you as we progress to that thinking.
Okay. Thanks for the color. I'll pass it on.
Your next question comes from Rob Goff from Ventum. Please go ahead.
Good morning, and thank you for taking my question. I'm encouraged to see the momentum behind WELLTRUST. Can you talk a bit more about the pacing you might see of that being adopted across WELL? Are you seeing that with other clinics? Because I think, obviously, there would be gains for you where other clinics have more data for you to work with.
Sorry, what was the first part of your question? It was a bit muffled.
Oh, sorry to mumble.
No, no, sorry. It may have been the phone.
Well, then the phone. Thank you.
Yeah, thank you.
I like the WELLTRUST initiative. I like that expanding. I was curious about your thoughts of how that might continue to expand. Are you seeing other chains of clinics putting in something quasi-equivalent to that?
Yeah, so they are two really good questions. I think we are really pleased at the early adoption of WELLTRUST. I think what we have seen is that across the network, somewhere between the mid-40% of patients as they come through the clinic are consenting to that data. As we look across that platform, we can see that over the next year, it will be meaningfully higher number. Our goal would be that to be extended by multiples of hundreds of thousands across the WELL platform. Obviously, excitingly for us, with WELL being a key partner, is that WELL continues to grow. I am sure you have all read the WELL result, but their focus on the Canadian clinics is a real driver for us in terms of confidence of that number coming a much larger number over the coming years.
We think what we are seeing is that that is very much a global example. I will give you an example. I was talking to a U.S. customer about it, is that they went out to 500 patients asking if they wanted to be informed of drug trials, and they had a run rate of 90% of people that were willing to share their data on that same consented basis. We do not think that is a one-off. What we are trying to do, though, Rob, is prove the point. We have signed our first WELLTRUST pharmaceutical relationship in the last couple weeks. Delivering that could be a very meaningful part of revenue for WELLTRUST and Well Research. Once we have done that is when we will talk to further clinics, when we talk about how we can add revenue and new opportunities and better patient outcomes.
With a proof point. Our learnings from life sciences and our shift to healthcare systems this year, which is why we are encouraged and conscious that the people on this call were not concerned or probably in the same point we are, that life sciences is not what we wanted to be in Q3. We are very encouraged in that shift of focusing on what the customer wanted and going towards healthcare systems. By taking examples, showing how it is working for an alternate rather than being theoretical, we have had a lot more success in the last three or four months of showing how SMART Suite works. We can apply the same logic to WELLTRUST and demonstrate it within the WELL environment, show them how the commercials work, and then go talk to other clinical networks, probably outside of Canada to begin with.
Fantastic. No, thank you very much, and good luck with that.
Your next question comes from Tania Armstrong-Whitworth from Canaccord Genuity. Please go ahead.
Good morning, guys. First, just following on Rob's question, I was also encouraged by the WELLTRUST growth that we saw. Could you remind me the commercial model there and how revenue is split between yourselves and WELL?
Yeah, so we contract with the pharmaceutical company. What will happen there is that we get paid on delivering patients, and the Well Research get paid on connecting with them. So they're two different commercial models. But effectively, the larger the contract base, i.e., the more patients we identify, the more that we'll get paid.
Okay, excellent. Most of my questions have actually been asked, so just one more from me. With your cash balance at CAD 50 million against roughly CAD 10 million or so of contingent consideration and that CAD 7 million related party loan due in the next 12 months, how do you plan on bridging the gap? Can you settle contingent consideration in shares? How much covenant headroom do you have on the Scotia facility?
I will let Anthony cover the second piece. The first piece there, Tania, and good questions, is that the first related party loan, yes, it is within 12 months. We will obviously be seeking to extend that as the business grows into second half of next year. The contingent liability we can settle with equity, and as a combination, if it is needed.
Excellent. Anthony Lam, just tell me about the headroom.
On our debt facility, we are close to the high end of where our current thresholds are in terms of our debt facility, but well within all of our covenant requirements. We are looking at, as we did indicate, as we come out of the February period in 2027, we will have the ability to liquidate some or most of our holdings in SpaceX, which will provide short-term liquidity for our balance sheet. We also see ourselves, as we continue to grow the business, generating cash flow to support the business moving ahead. So, we feel comfortable with our balance sheet as it stands today, and our current outlook as well.
Perfect. Sorry, if I could just sneak one more in, and I apologize if this was in the prepared remarks, but I think you already answered some questions around that 10% Adjusted EBITDA margin target exiting 2026. Just in line with that, could you let me know how much of the Orion Health cost synergies have been realized to date? I think you mentioned roughly a third at Q2.
Yeah, that is a really good question, and so we alluded to that earlier, is that we can see a lot more synergies as we roll into our final year of the earnout, which is from next year. I would say that our goal is to get another third next year, and then get the balance into 2028. So we can see both from capital investment to improve gross margin and through integration benefits, margin expansion from two or three more years to come. We have still got a long way to go in terms of runway, but we are encouraged every day by how well the businesses are integrating together at the front line. What that means is the more that we integrate the front line as a single offering, the more that we can improve efficiencies at the back end, if that makes sense.
Excellent. That is very helpful. Thank you, James. Thank you, team.
Your next question comes from Daniel Rosenberg from Paradigm Capital. Please go ahead.
Hi. Good morning, James, Alex, Anthony. My first question is just around some of your pricing. I know you guys have been experimenting somewhat, and now you are speaking to a more integrated go-to-market offering. I was just wondering how you think about the pricing model, if you could provide some context of how you are going to market and pricing these solutions, and any thoughts about how that might change as you see the value you are delivering.
That is a really good question. There are two components that obviously as we think about pricing, we think about the cost of implementation, and every customer is different. To give you context, some people would rather have more cost in-year because they have budget, and other customers are more concerned about the ongoing cost. We very much take into consideration, Daniel Rosenberg, the customer requirement and the convention for each market. The U.K., for instance, has yearly budgets, and so for us, it makes more sense to have more on the implementation side, whereas in the U.S. the reality is that they are multi-year contracts where they are more focused on the recurring SaaS fee. We think about it, though, as a blended gross margin as our focus point as we go into pricing.
We are more interested in the value of the long-term tail, so the SaaS margins being higher. As we think about pricing, we are more likely to lower the front-end implementation gross margin, and therefore put out wider margins on the software component. Which is why in the short term, you see gross margins not expanding as we grow. But as the mix changes from, you know, realistic Q4 onwards, we are going to see the gross margins gradually expand as we transition away from the episodic life sciences into a growing AI and Amadeus SaaS revenue.
Okay, thanks for that.
Sorry, was there a second part to that question? Sorry. I waffled a bit, so I forgot.
No, it was just going forward, if I guess you're saying the longer term's on the SaaS, but it doesn't sound like you're looking to make any changes in pricing.
Oh, I think No, no, I think longer term, the reality is that as we extend further capability of AI, so from SMART Search and SMART Summary and some of our newer product models, which have You know, there's no implementation cost for us, we would expect those margins to expand through expanded features. And expanded features for us won't necessarily, in a normal SaaS model, be given away for free. I think most of these things require some implementation, and they are quite meaningful to healthcare systems. So, we look across the market saying it's a land and expand. The first thing for us is getting in SMART Search and SMART Summary, but patient identification and connecting that to life sciences is, you know, for lack of a better word, the holy grail of what we're trying to achieve.
And so we know that takes time, and so as we think about 2027 and beyond, we're really pleased we've got some of this Global HIE Unlock occurring today, but that's early stages. But as we think about margin, there should be materially higher margins going forward because there's materially higher value being provided in the patient ID.
Okay, great. Lastly for me, just on the go-to-market, specifically in the U.S., I know you had mentioned a bit of a mix between RFPs, partners, and the like. Do you see your go-to-market motion as mature, or are you looking to invest in increasing sales force or new partnership channels? How do you view the state of your go-to-market process?
Yeah, so realistically, go-to-market today is a hot button topic. I think the real-time question we're having is, we've had some wonderful early success in terms of opportunities. If those opportunities transpire into revenue, then I think we'll be looking to expand and go faster, because realistically, we're working within the constraints currently of a small team in certain segments. What we are seeing is the capability of the AI and of the ability to connect that data, having use cases right across the U.S. But we want to be careful with that expanding. There's no point us throwing more money at the sales team until we've got proof points that it's working. We've had some early discussions with partners. We can see how we might have some more partner channels.
We're agnostic as if we're deploying an integrated solution, a SMART Suite solution on top of a partner, or an HIE solution with somebody else's population analytics. The platform is capable of doing that either way around. What I would say is that we will be taking When we come talk to you about Q1 and how that sales pipeline's converted, I think that's when we'll be talking about whether or not we should be going faster or just focusing on completing what we have in front of us. Because the world in front of us is, if we can get If we've got enough of it, I think we've got more than enough pipe to get us through the next couple of years without needing to go faster.
Conscious that there's an opportunity, and if the opportunity is to go faster, and we should spend some of that margin we're expanding into next year on future growth, that'll be a good debate the board and management team will have. But to be clear, we're open to both, and I know that's an average answer to your question.
All right. I appreciate all the context. I will pass the line.
Your next question comes from Justin Keywood from Stifel. Please go ahead.
Hi. Good morning. Thanks for taking my call. First, just on the growth, the 7% in the quarter, is that mostly organic? What should we expect for organic growth rate in Q4 and early next year? I understand that there are several opportunities, but some of these opportunities could take a little longer to mature.
Anthony, do you want to have a crack?
Yeah. Justin, great question. James alluded to timing of opportunities and when they land, so that timing will obviously impact the impact from a quarter-to-quarter basis. We target a 10% growth rate on an annual basis as a business. I think the way to think about it is we're looking at opportunities that will continue to drive business forward. As we look ahead, a 10% growth rate is a reasonable expectation for us from how we think about the business. Hopefully that helps. The specific timing of certain deals will actually impact in-quarter performance. Just something to note.
Justin, it's all organic. We haven't had any M&A.
Understood. Given the quarterly organic growth was slightly below the target range, should we expect a bit of a catch-up in Q4, which I believe is typically seasonally strong for HEALWELL?
Look, the way I think about it, Justin, is that what we saw so far this year is as we move away from episodic life sciences into recurring healthcare system, what we're seeing is a real mix. The healthcare system revenue is growing in AI substantially, and while life sciences we're pulling back on. The reality is just by mathematically, once they cross over, you're going to see that growth in the AI division grow faster again. That's kind of our key focus is to get through that piece. Because if you think about the way we look at internal value creation is that the healthcare AI sales are higher margin, sustainable, potentially to grow. We don't need to reset them quarter- by- quarter once they're implemented.
Our customers grow with them, so those numbers should grow in terms of capability, and they are sticky, and they are recurring. In terms of, on the contrast, the life sciences revenue that we have been shifting away from is quarter- by- quarter, it is we have got to go out and get it again. Yes, there is a reoccurring nature to it, but it is a high-touch manual human component to it, and we want to see that on top of our customers. As we look across revenue mix, it will just depend on revenue recognition in Q4. Otherwise, we have got contracts, we are implementing, we need to hit key milestones in Q4. Whether we get to recognize that in Q4 or Q1 is kind of the They go together with the margin concept too, really.
If we get Obviously, if we land them, or we get to recognize them, then both margin and growth will be better in Q4.
Understood. That is helpful. On the SpaceX position, not sure if I missed this, but we understood or understand that there is a lockup period until February of next year. Just wondering the updated strategy, if there is any use of options to potentially lock in value, and what is the plan when that lockup period does expire?
Yeah. It is not really our role to hedge and use the balance sheet for that, I think, and it is not really in the spirit. While people may use options to hedge, I think given we are a public company, it would be difficult for us to overtly say that we are avoiding the escrow period, and let down. I am confident that would be a breach of the escrow period for us to do so publicly. I realize it is a few months away, but our view really clearly is that we are not a VC investor for the long term. The money is better used within the HEALWELL operational asset. So we will be looking to, as soon as practical, and that does not mean the very next day, but within, as escrow rolls off, for us to be liquidating that asset to pay down debt.
Thank you very much.
Your next question comes from David Kwan from TD Cowen. Please go ahead.
Morning. Getting back to the questions on WELLTRUST, could you provide some color as to how much revenue you expect to generate from that U.S. pharma customer and when we should expect to see it hit the P&L?
Good question. The reality is it's going to be a very long pipe of business line in front of us depending on success. The way we think about it is that we start now. Whether we can recognize revenue in Q4 or Q1 will depend on hitting milestones. We're reluctant to give guidance on those milestones given they're some are within our control and some are outside of our control. You should see that in the coming quarters, you'll start seeing revenue turn up from that segment. We're really excited about the potential of it because the reality is it's just a data pool. If one works, two works, 100 works, if that makes sense. Some of these people have got a long list of programs they want to run, it's just the proof points.
Our first focus is showing that it works, but I think the exciting thing for us in WELLTRUST is that two things will happen. One, the consent database will continue to rapidly grow, and then two, once we have demonstrated that we can identify these patients and have outreach to them, what we will find is we can do multiple at the same time. This is not a linear growth path as it is within the white glove service that we have within life sciences. It is a really different business model.
When you talked about signing up this customer, this was not specifically, like I know you have the kind of episodic revenue on the AI side, but is this something that is kind of like an ongoing as they look to do more clinical trials? Like, you will get pulled into that and you will recognize revenue as you do these pulling in these patients?
Yeah. Look, I do not want to talk about this exact customer, but if I talk more broadly, a customer walks in to WELLTRUST, they have 100 clinical trials over the next year in front of them, say, that they are planning, I believe. And they say, "Right, using the WELLTRUST database, we need to find 50 patients that have this disease, and 40 have this, and 90 have that, and 100 look like this." There is no reason that if we cannot do the 40, or we cannot do the 90, we cannot do the 100. The reality is that it is a, "Here is our entire program of work. We are going to start with this one." And then very swiftly, if that works, we will go to the next one, and the next one, and the next one.
With this customer in particular, they have shown us their pipeline, and it is a, "Okay, let us get started with this one first." And so it is a matter of timing their trials with our finding, identifying those patients. And so, what we are really pleased with is the way those contracts look like working, is that there is a very steep potential in terms of their overall pipeline, as opposed to they come to us with one project, tell us what that is going to look like, we complete it, nine months later we go back, and then we go find out what the next project is. With this one, there is no reason we cannot be concurrent and work with them.
Right. It sounds like it's a similar type revenue model, kind of that reoccurring revenue. Would you be open to, and is a customer interested in signing kind of maybe an all-you-can-eat type contract where you have a lot more predictable recurring revenue?
Look, there have been what we would say program development offers in. What I would say for now is the identification of the high, of finding the right patients has a lot more value to us in terms of targeting the high, let's say, the high-value treatments. So I hear what you're saying, but as we think about it, a one-year all-you-can-eat fee as opposed to running 20 concurrent studies for them with actually accessing the same database, the second model's going to have much higher margin for us and a lot more value, because there's very minimal cost for us in that platform.
Right. That makes sense. Okay. Just one last question. When you mentioned in the outlook section, and I think some of the commentary on the call about deferred onboarding of healthcare enterprise software, were you primarily talking about existing customers or was it also kind of for new customers, or maybe both?
Look, I think the reality is what we're talking about predominantly is contracts we've signed and then meeting milestones, being able to recognize from meeting milestones. So it's not that contract new customers have taken longer. It is just for us to be able to recognize revenue, like the work's occurring, but we can't recognize that revenue in quarter until we've hit a particular milestone. Those milestones for this quarter was getting messaging out, for instance, on the Amadeus platform. And that's a trigger for us in terms of being able to recognize revenue for one of our HIE customers. So it's predominantly actually what I would say is milestone recognition as opposed to onboarding.
That's great. Thank you.
Your next question comes from Gianluca Tucci from Haywood Securities. Please go ahead.
Good morning, guys. If I could ask just follow-up on Converge. How is that particular contract priced? Is it driven per hospital query? Any color there would be appreciated.
No, it's not done. Implementations are, if they're new hospitals, they get added on year- on- year. But no, the reality is that it's a SaaS model that was done for looking at the total number of patients or hospitals we were connecting to at the start.
Okay. Thanks, James. And perhaps one for Anthony. Your SG&A has come down quite considerably this Q. Any more room to go, or is kind of this a new baseline for the company going forward?
Gianluca, great question. Yes, we've been working towards finding efficiencies as we've been calling out. I would say that this particular period, we actually had some benefit that I think we're happy about. But we may see a couple more quarters similar or just slightly higher levels before we actually see bigger savings ahead.
Okay. Thanks, guys.
Yeah.
There are no further questions. I'll turn the call back over to James.
All right. Well, thanks everyone for joining. Look, it's an exciting time for us ahead. I think as we look across from Q4 to 2027, it's been two years of hard work, and we're looking for the evidence of converting the pipeline we've had in front of us. We appreciate everyone's patience. What we're excited about the future is going on through, and we can see how this is now going to have real impact on healthcare systems. We're getting wonderful feedback and a lot more now engagement as we go around the world. So we are excited for the year ahead, but thank you for joining.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.