Healwell Al Inc

TSX:AIDX

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Hello. Thank you for joining Healwell AI's 2024 Fiscal Second Quarter Financial Results Conference Call. This call is being recorded. [Operator Instructions]

I would now like to turn the call over to Mr. Pardeep Sangha, Investor Relations at Healwell. You may begin.

[Pardeep Sangha, executive]

Hello, and thank you, operator. Joining me on the call today are Dr. Alexander Dobranowski, CEO of Healwell; and Anthony Lam, the company's CFO.

I trust that everyone has received a copy of our financial results press release that was issued earlier today. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion and analysis once filed on SEDAR+.

Please note portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Please refer to today's press release and to our management discussion and analysis for more details on the company's risks 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 statement is based, except if it is required by law.

We use terms such as adjusted EBITDA on this conference call, which is a non-IFRS and non-GAAP measure. For more information on how we define this term, please refer to the definition set in our management discussion and analysis.

And with that, let me turn the call over to Dr. Alexander Dobranowski, CEO.

[Alexander Dobranowski, executive]

Thank you, Pardeep. Good day, everyone. We truly [ appreciate ] everyone for joining us today. I'd like to start today by providing a little bit of background on what is Healwell AI and who we are.

Healwell AI is a health care technology company focused on AI and data science for preventative care. Our mission is to improve health care and save lives through the early identification and detection of disease.

Using our own proprietary technology, we are developing and commercializing advanced clinical decision support systems, also referred to as copilot technologies, that can help health care providers detect hundreds of diseases, including complex, chronic, rare conditions; improve efficiency of their practice; and ultimately, and most importantly, help to materially improve patient health outcomes.

Further to this, our AI technology unlock tremendous value for the life sciences industry by accelerating R&D efforts for therapeutic developments with a multitiered [ approach ] to scientific research, real-world evidence and clinical trials orchestration services.

Why is our mission an important one? The earlier the detection, the greater the likelihood of treatment being successful. This is where artificial intelligence comes in. AI can screen and structure historical patient clinical information to help inform physicians of markers and signals for potential disease in patients earlier, helping to dramatically reduce time to detection.

I'd like to now provide some key highlights from the second quarter. The second quarter marked an important continuation of our journey and embracing of our mission to revolutionize health care and improve patient outcomes through early disease detection. Healwell has now successfully launched its two-tiered business model of leveraging data science and artificial intelligence to support, one, health care providers with copilot technologies; and two, the pharmaceutical industry and their needs related to research and development and clinical trial orchestration.

During the quarter, we achieved a significant milestone with the successful completion of our $20 million equity financing sourced mainly from long-term institutional investors. This capital infusion has notably strengthened our financial position, providing us with the necessary resources to advance our strategic objectives.

This enhanced financial stability enabled us to consummate the acquisition of BioPharma and VeroSource, two pivotal moves that align seamlessly with our growth strategy. These acquisitions not only broaden our market presence but also enhance our capabilities, positioning us for robust expansion and long-term success. We are confident that these strategic initiatives will drive substantial value and create new opportunities for our stakeholders.

Last month, WELL Health announced Healwell's [ participation ] in the Health Compass II Project, the largest digital initiative to date. This project is supported by $15.3 million in federal funding over 4 years. And as part of this initiative, Healwell AI's Decision Compass module will play a pivotal role in enhancing early diagnosis and care for rare and complex diseases through advanced AI technology. This collaboration not only underscores Healwell AI's commitment to advancing health care through AI and interoperability but also demonstrates our dedication to benefiting providers and patients across Canada.

With regards to AI credibility, we shared numerous world firsts of validation with regards to our AI capability, namely with research produced from our subsidiary Pentavere receiving peer-reviewed validation from some of the most prestigious medical journals globally. [ Showcasing ] our groundbreaking work in oncology and other specialties, I'd like to congratulate the Pentavere team for this groundbreaking work in artificial intelligence.

Our acquisition pipeline remains exceptionally strong, positioning us for substantial expansion. [indiscernible] we think that our strategic acquisitions will drive us to achieve a figure that is approaching a $100 million revenue run rate by year-end, [ doubling ] our current run rate, which already exceeds $65 million. This also sets up our profitability objectives, and we are already providing guidance that we will reach profitability on an adjusted EBITDA basis by next year.

Before I hand the call over to Anthony, our CFO, I'd like to continue today's call by providing some commentary on three key topics: one is our mergers and acquisitions activity; two, the launch of our 4 AI copilots; and three, [ incorporating ] artificial intelligence across all our businesses.

I'll now expand on our first key topic, our mergers and acquisition activity. Healwell is executing a strategy centered around developing and acquiring technology and clinical sciences capabilities that complement [indiscernible]. From a corporate development perspective, Healwell is targeting AI and data science companies that expand current early disease detection capabilities and mature operating health care software, digital health and clinical research companies that provide access to additional clinical information and profitable mature recurring revenue. These latter targets are also suitable to be ameliorated with our current AI [ capabilities ]. I'll expand on this further in just a moment.

Since our debut in October 2023, we've made 4 notable acquisitions: Pentavere, Intrahealth, VeroSource and BioPharma. Having previously discussed Pentavere and Intrahealth, [ today ] I'll focus on VeroSource and BioPharma. We are thrilled to welcome these 2 companies to the Healwell family.

On July 1, Healwell acquired VeroSource, a health care technology software company, which provides us with a number of unique capabilities for the public sector, including [ digital front door and patient ] access solutions, international patient summary solutions and FHIR interoperability.

VeroSource provides a VS Platform, which is an end-to-end, customizable, cloud-based solution that enables clinicians and decision-makers to seamlessly access and work with health care data. [ It helps customers in digital transformation, integration of ] systems, adoption with right-fit cloud services, advanced analytics, enterprise resource planning and IT strategy. VeroSource is a very important addition to the Healwell Group of Companies and cements our ability [ to provide ] value for a very important key stakeholder, the public sector. CEO Mark McAllister and his team have done a tremendous job building VeroSource.

On July 1, Healwell also acquired BioPharma led by Managing Director Anna Taylor, a leading full-service [ CRO ], contract research organization, specializing in early phase clinical trials, thereby significantly enhancing our clinical [ research capabilities, harnessing ] our existing operations through our subsidiary, Canadian Phase Onward.

BioPharma is dedicated to advancing medical science to improve the lives of its patients by bringing pharmaceutical products to the market through high-quality medical research, uses state-of-the-art facilities and scientific expertise to provide customers with clinical trial services, along with a full suite of support and laboratory services. [ Now BioPharma ] is an especially strategic acquisition for us given how substantial the CRO marketplace is globally and the potential to digitize [indiscernible] and AI enable such assets. We're in the early stages of thinking of this in a manner that is autologous [indiscernible] consolidation and digitization of health care clinics. These are profitable and resilient businesses that have been around for a long time, with an [indiscernible] technology as much as one would think.

The main role of CROs is to orchestrate clinical trial activity and help pharmaceutical companies execute on their research and development goals. All the while, it is clear that most CROs are extremely under-digitized. We believe [ this acquisition of BioPharma presents an ] opportunity for us, especially given how our AI technology can help detect disease early and find patients, which is one of the most important aspects of [indiscernible]. When you combine our capabilities to find patients, coupled with our strategic partner, WELL Health's enormous clinical data, we have something here that we believe could be globally unique and valuable.

Both acquisitions are expected to be financially accretive, significantly enhancing Healwell's financial profile and core capabilities. This includes comprehensive data science offerings for large enterprise clients such as the public sector and expanded clinical research services for the pharmaceutical industry. Our revenue [ run rate exceeds ] $65 million, and we are strategically positioned to achieve a target run rate figure approaching $100 million by the end of the fiscal year. We are highly optimistic about our future trajectory driven by a combination of organic growth and opportunistic acquisitions.

Now the 4 acquisitions to date have positioned the company to unlock power, the power of health data and artificial intelligence for 3 key stakeholders of the group: one, clinicians and health care clinics with copilot offerings; two, large enterprises such as Canadian provincial health care systems [ with data ] interoperability, population health and related services; and three, the pharmaceutical industry with a multi-tiered offering that includes scientific research, real-world evidence and clinical trials orchestration services.

In addition to these recent acquisitions, we acquired the remaining 20% ownership interest in MCI Polyclinic Group, eliminating a $1.3 million put option liability, acquisition [ and positioning its Canadian Phase Onward Clinical Research Organization for ] growth. And we completed an investment of USD 2 million in xAI, an artificial intelligence company founded by Elon Musk. The investment was made indirectly through Think 1st Principles investment vehicle. And through this investment, Healwell has gained access [ to the closed xAI ] Developer Program, allowing us to leverage the world-leading technical and AI-oriented expertise and resources of xAI.

I will now expand on our second key topic, the launch of 4 AI clinical copilots. As we continue to expand our AI capabilities at Healwell, we are building a platform that can help screen and identify patients at risk for rare, complex and chronic diseases. This platform will support clinical decision-making across all clinical domains, embodying our vision of advanced clinical decision [ partner support ]. As we acquire and build out these capabilities, we'll be continuing to launch in parallel what we call physician copilot tools.

As of the end of July, Healwell has launched 4 advanced AI copilots, each targeting a specific clinical domain to improve patient care [ outcomes ]. This is an important part of our thinking of how best to build value in AI and health care.

The first copilot is focused on rare diseases. [ This ] rare disease copilot developed under Khure Health and white labeled as WELL AI Decision Support has been upgraded to its second generation. This enhanced tool aims to improve diagnosis and management of rare diseases by providing specialized clinical insights, thereby offering a more accurate [ and efficient ] care for patients.

The second copilot, chronic kidney disease, is Healwell's copilot technology integrated with [indiscernible] WELL AI Decision Support now features advanced chronic disease screening capabilities. This tool focuses on enhancing CKD [ care by ] providing actionable insights and improving patient risk stratification, which could significantly reduce the economic burden of CKD.

Our third copilot, oncology. Healwell's subsidiary, Pentavere, in collaboration with Sunnybrook Health Sciences Centre, has introduced DARWEN AI, a clinical copilot that enhances cancer staging for complex head and neck cancers. This innovation demonstrated [ in a prestigious publication ], a world first of harnessing AI to improve oncological decision-making through better automation and accuracy in cancer staging.

The fourth is cardiovascular diseases. Healwell's latest copilot for cardiologists, launched in partnership with WELL Health, is designed to enhance the early identification of patients at high risk for cardiovascular disease. Deployed across WELL diagnostic centers, this technology aims to improve early diagnosis and patient care while supporting Healwell in advancing CVD-related research and expanding business opportunities.

Looking towards the future, you can picture Healwell AI's capabilities rapidly growing through the acquisition of targets, as I mentioned, in the first category, building out the foundational platform of [ advanced clinical decision support ], and then we'll be deploying these technologies into our partner health care systems like WELL Health and also into our own [ platforms ]. We believe this is quite a compelling strategy.

Lastly, I will now expand on our third key topic, [ incorporating ] artificial intelligence technologies across all our businesses. One of the company's main strategic initiatives is to [ incorporate ] its current AI early disease detection capabilities into assets that are acquired, essentially using AI [indiscernible]. Not only does this materially enhance these assets' products and offerings but also opens up new commercial [ value-adding ] opportunities. To do this properly requires careful planning and execution.

We have already advanced the process of [ incorporating new ] technologies into our subsidiary, Intrahealth. In addition, we've also begun the process of both of our latest acquisitions, VeroSource and BioPharma. In the case of Intrahealth, our intention is to fully embed our AI tooling and capabilities right into the core of [indiscernible], building what we call the next-generation EHR. And as I mentioned, with regards to BioPharma, we see a very [ compelling ] opportunity leveling up the CRO space as AI can readily add compelling value with regards to accelerating patient discovery, improving clinical [ trial designs and ] architecture and unlocking tremendous efficiency within the multiphase clinical trial R&D process for life sciences.

Next, I'll provide additional details on the company's outlook. But first, I'd like to hand it over to our CFO, Anthony, who will review the financial results for the second quarter of 2024.

[Anthony Lam, executive]

Thank you, Alex. Before I get into our second quarter results, I want to mention that all the figures [ that are reported today ] are quoted in Canadian dollars, and our financial statements are prepared in accordance with IFRS.

As we look at Q2, it's important to note that our Q2 results do not fully reflect the company's current run rate revenues [ exceeding $65 million ]. The VeroSource and BioPharma acquisitions finalized in July and are anticipated to contribute to our increased revenues and improving profitability in the second half of the year. Looking forward, we are optimistic about [ the prospects ] for both our top and bottom line performance.

I'll now turn to our second quarter 2024 results, which are as follows. These are all from our continuing operations. Healwell achieved quarterly revenues of $5.44 million during the second quarter of 2024 compared to revenue of $1.79 million (sic) [ $1.78 million ] generated during the same quarter last year. Revenue growth was primarily driven by the acquisition of Intrahealth with additional contributions from Khure, MCI Polyclinic Group, and Pentavere.

Healwell achieved gross profit of $3.31 million in Q2 of 2024 [ compared to ] $331,000 during Q2 of 2023. The increase is mainly driven by the acquisition of Pentavere and Intrahealth.

Healwell's gross margin percentage in Q2 of 2024 was 61%, and this compares to 19% in Q2 of 2023. The increase in margin percentage was due to the acquisition of Intrahealth, Khure and Pentavere.

During Q2 of 2024, Healwell reported adjusted EBITDA loss of $3.68 million, and this compares to an adjusted EBITDA loss of $9.89 million in Q2 2023. The improvement was driven by reduced operating expenses and the elimination of loss-making clinic operations, coupled with an increase in revenues to produce improved results over the comparable periods in 2023.

Healwell reported $2.54 million in net income in the quarter as compared to a loss of $9.81 million in Q2 of 2023. This was primarily due to the successful removal and setting (sic) [ settling ] of a significant number of liabilities incurred in the previous years.

I will now provide an update on our cash and debt position. We ended the quarter on June 30, 2024, with $19.8 million in cash. Cash increased to $19.82 million from $11.34 million at the end of Q1 2024 largely due to a $20 million [ equity ] financing and the receipt of an additional $8.8 million from the exercise of in-the-money warrants. We reduced our liabilities by approximately $15.5 million in Q2 of '24 by [ the extinguishment ] of payment obligations related to legacy MCI Medical clinics business and receiving $7.9 million in loan forgiveness from The First Canadian Wellness Co.

So we've now significantly reduced the debt to $13.2 million in convertible debentures and loans, excluding earn-outs to acquisitions partners. It's important to stress that a significant portion of our convertible debt is expected [ to be ] at favorable prices, potentially extinguishing another $10.1 million in debt and resulting in approximately [ $1.6 million ] post conversion. If all of Healwell's outstanding in-the-money warrants were to be executed, our cash [ balance would grow to ] approximately $45 million. With our robust financial position and reduced liabilities, we are confident in our ability to continue executing our strategic initiatives and delivering value to our stakeholders.

I want to spend a few minutes now talking about our revenue segments. The company generates revenue in 3 distinct segments: first, AI and data science; second is we have a health care SaaS business; and third, clinical research and patient services.

Looking at AI and data science, which is anchored in the integration of cutting-edge artificial intelligence technologies within the health care landscape through technology-enabled rare and chronic disease screening from its Khure Health and Pentavere divisions. Leveraging state-of-the-art AI algorithms and advanced analytics, Healwell analyzes extensive vehicle clinical data to extract invaluable insights. These insights are then transformed into actionable recommendations. [ In conjunction ] with early disease detection capabilities, this proactive approach optimizes the patient care pathway, ensuring swift and accurate diagnosis and treatment.

The segment experienced an impressive [indiscernible] growth this quarter compared to the same period in 2023. Our AI and data science division serves a clientele of life sciences, pharmaceutical and medical device and precision medicine companies. I am proud to announce that we signed 6 MSAs, or master service agreements, with pharma and life sciences companies in Q2, bringing the total number to 22 signed MSAs, including both Khure Health and Pentavere. The recent commercial success highlights Healwell's growing [ reputation ] and compatibility with health care and life sciences industries. The number of new MSAs signed in the quarter can be lumpy as a signed MSA does not necessarily translate to immediate revenue, but rather, it is a leading indicator of the size of [ the pipeline and ] revenue generating opportunities. Most importantly, our success in signing MSAs with large pharma and life sciences companies is a good measure of our growing credibility in the industry.

Our second revenue stream is health care Software as a Service revenue provided by Intrahealth and enterprise-grade EHR platform. Healwell benefits from Intrahealth's clientele of health care providers, hospitals and clinics, and its extensive network of over 15,000 health care service providers across multiple jurisdictions, spanning Canada, Australia and New Zealand. Intrahealth's SaaS-based model has historically yielded over 80% gross margins alongside positive EBITDA and cash flows, with a significant portion of revenue deriving from high-margin recurring sources. This segment generated [ $2.6 million ] revenue in Q2, a significant increase from 0 revenue in the same quarter last year. With the addition of VeroSource, we expect this segment's revenue to grow even further in Q3.

Now turning to our third revenue segment, patient services, which consists of clinical research delivered by Canada Phase Onward, Healwell CRO providing life science research services and revenue-related consultations delivered through the company's Polyclinic Group in Ontario. Clinical research revenues are contract-based revenues. This segment operates on a per visit or project basis and has a track record of positive EBITDA. It also caters to diverse clientele, including government reimbursement, health insurance reimbursement and life science research sectors. The segment experienced 27% growth in revenue this quarter compared to the same period in 2023. With the addition of BioPharma, we expect this segment's revenue to grow even further in Q3.

Please note, [ Q3 ] does have some seasonality as the summer months do typically feature less clinical trials activity and does speed back up in Q4 [indiscernible]. In the second half of the year, we expect approximately 60% to 65% of BioPharma's revenue to come in Q4 while 30% to 35% of BioPharma's revenue to come in Q3.

In summary, I'm pleased that Healwell's outlook is bright and in a strong financial position and has capital to fund future acquisitions and execute on organic growth initiatives.

I'll now turn the call back over to Alex.

[Alexander Dobranowski, executive]

Thank you, Anthony. I'll now provide some additional detail on our strategy.

It is our view that this is a very special time in health care, especially [ as it pertains to ] artificial intelligence. These technologies are still very novel. And in health care and specific, we are at the [ beginning stages that will ] likely become one of the largest sector transformations in history.

But how do you win and build tremendous value leveraging AI and emerging technologies in health care, especially when these technologies are in the very early days of gaining commercial traction. We believe the only way to build durable and sustainable value in health care AI is by executing against a strategy of growth as we have articulated. We are building a company that not just has globally validated in-production AI but that also requires high-quality assets that are profitable, highly recurring revenues and sustainable growth opportunities. This will position Healwell exceptionally [indiscernible] as the entire artificial intelligence market in health care continues to rapidly mature and grow.

As mentioned, [ Healwell ] generates highly recurring revenue via our health care SaaS business line, and we serve over 250 pharma customers through our AI and data science [ technologies ] offerings. This is durable revenue generated from high-quality customers.

I'll now provide more details on our M&A pipeline. In terms of our future acquisition pipeline, we have a very full and active pipeline of acquisition opportunities. We are currently looking at numerous compelling acquisitions that fall into two categories.

First is our health care AI and data science companies [ that expand current ] capabilities and are focused on early disease detection across all clinical domains. These types of targets are now starting to demonstrate real revenue traction and achieve validation that their technology works safe and compliantly. This is a very exciting time to be targeting AI-oriented health care and data science. Companies with these types of capabilities simply did not exist even a few years ago. Pentavere is an excellent example of the kind of companies we are targeting.

The second category of acquisition targets are mature operating companies with strong financial profiles that would be vertically integrated with our AI technologies to drive incremental revenue and cash flow. Health care software companies such as EMRs, EHRs, clinical research companies and also digital health companies are good examples. These types of companies provide us with a vector of access to more patients, providers and clinical information but also importantly, have a very strong profile from a financial fundamentals perspective with maturing revenues, positive EBITDA and free cash flows. Intrahealth and BioPharma are excellent examples of the kinds of companies we are targeting in this second category.

Now from an outlook perspective. We are strategically positioned to achieve a target run-rate revenue that is approaching $100 million by the end of the fiscal year. As a reminder, just 10 months ago, when Healwell debuted, our [ revenue run rate ] was just over $7.5 million. This ambitious goal reflects our robust growth trajectory fueled by successful [ acquisition ] pipeline of new business opportunities. We also believe our forecasted revenue levels put us in a strong position to be profitable [ on an ] EBITDA basis next year, which is something we're very committed to.

This growth in progress is underpinned by our continued focus on [ prudent ] capital allocation as well as organic growth, especially as we ramp up physician adoption of the Healwell platform; accelerating the sales of our AI tools and technology and broadening our reach within the WELL Health ecosystem. We are seeing unprecedented opportunities in health care data science and AI and our advanced AI copilot technology is at the forefront of this evolution. Our commitment to enhancing health care [ capabilities and ] information technology, innovative technology remains unwavering, and we are poised to capitalize on these opportunities to drive substantial value for our stakeholders.

And beyond M&A activities, our key areas of focus continue to include ramping up physician adoption of our platform; deepening our integration within the WELL Health ecosystem; accelerating sales of our AI tools and technology under the Khure Health and Pentavere platforms; adding new commercialization agreements in partnership with life sciences companies, health systems and other commercial partners; broadening the reach of our Intrahealth EHR through adding AI capabilities.

We have an extremely positive outlook based on our organic growth profile and our M&A strategy. I'm excited by the immense potential for growth and innovation, particularly in the realm of AI technology. [ Healwell's strategic focus and growth ] aligns perfectly with this trend.

Now in closing, I wanted to reiterate that Healwell is a health care AI and data science company that has proven results and revenue from 6 of the top 10 largest pharma companies. The WELL Health relationship accelerate our growth with exclusive access to providers across North America. We have notably strengthened our financial position, providing us with the necessary resources to execute on our strategic objectives.

M&A will play a significant role at Healwell, and we have already completed key transactions, VeroSource and BioPharma, being two of the most recent. We are well capitalized, and we'll continue exploring [ opportunistic acquisitions ] that further Healwell's strategy.

We believe that we have the necessary building blocks in place to successfully be executing health care AI. The time is now to plant our flag as a leader in health care AI and execute against this mission.

Finally, I want to thank the entire team at Healwell whose hard work continues to elevate the company at higher levels. I'd like to thank our investment banking partners. I would like to thank Hamed and the leadership team in at WELL Health. Plus, I would like to thank my Board of Directors. Also, I'd like to thank all of you for joining us on the call today. We look forward to providing an update next quarter.

I'll now hand it back to the operator.

[Operator]

[Operator Instructions] Our first question comes from the line of Christen Sgro with Eight Capital.

[Christian Sgro, analyst]

I just wanted to start broadly on physician trends and uptake of the clinical decision support platform. What color could you provide contextually on uptake in Canada and abroad on the platform in terms of onboarding and then usage and feedback from doctors at this stage?

[Alexander Dobranowski, executive]

Chris, very nice to speak to you, and thanks so much for the question. So there's kind of two areas you can look at uptake, right? One through our most important partner, right, which is WELL Health in that ecosystem. And two is also through [indiscernible] side of WELL Health, which is namely done under our subsidiary, Pentavere, which has worked with hospitals, both in Canada and [ abroad ].

And Christian, just to highlight, part of the structure of the relationship with WELL was making sure that we actually solve for some of the important points of adoption [indiscernible]. And as we know, it can be difficult, right? I'm a physician, so I can say that, right? Physicians are busy. They're stressed. They're not always available, right, to use these new tools or new technologies. But because of the way that Hamed has built WELL Health, right, [ the culture ] at WELL Health, the willingness to resource the adoption of new technologies and the years of track record, right, [ where it had ] successfully digitized clinics, had successfully introduced new technologies, right, Healwell is able to piggyback off that success.

So at Healwell, we have a dedicated team that works directly with physicians, physicians within the WELL Health ecosystem, and [ gaining ] traction with onboarding physicians and very strong feedback including also feedback directly from the Chief Medical Officer of WELL Health. So that's a bit of color, Christian, on how that's going. But it takes time, right? We have a very ambitious plan [indiscernible].

[Christian Sgro, analyst]

Perfect. The second question I've got, Anthony referenced the 6 MSAs signed in the quarter. And it sounds like a lot in a few months' span. But just maybe so we understand the MSA as a starting point, revenue recognition will come as work is performed. But could you maybe lay out just what the typical MSA would entail? My understanding would be it opens the doors to projects for different research projects or therapeutics, so that really sets the stage, and you start working on a more fluid basis. Does that sound correct? And anything else you could share to clarify would help.

[Alexander Dobranowski, executive]

Yes, sure. And look, we called out that number because that is actually quite an accomplishment, right, to develop 6 net new relationships with life sciences companies in parallel. And to get to that position, right, you work through all of the rigmarole around compliance, right, around just the legal aspects of each of the [ vendors ], right, on these types of initiatives. And I think this is a really strong signal of credibility, number one.

Number two, you don't typically go through the work of putting together one of these master services agreements if you're not serious about [ taking the next step and market them ] together commercially. So historically, right, if we have an MSA, there's been 100% conversion [ and commercial work ] work together. So look, right now, right, we're getting these relationships in place. So then we can really focus and build on the revenue opportunity, right? So in coming quarters, we'll be highlighting, okay, well, what does that [indiscernible].

[Operator]

Our next question comes from the line of Allen Klee with Maxim Group.

[Allen Klee, analyst]

Could you just remind us, you said for copilot, there were 4 areas you were targeting? Could you just state what those 4 were? I missed one of them.

[Alexander Dobranowski, executive]

Yes, of course. And Allen, it's good to speak with you. So look, since Healwell debuted, we've successfully launched, right, in-production [indiscernible] AI clinical copilots. And all of these copilots, they support physicians in this mission of early disease detection, okay? So that's the context, like what do these [indiscernible] do. So they're able to work in the background, screen clinical information and flag patients that either have gaps in care or at high risk of certain conditions.

In the first copilot we launched, which is really a result of the IP that's been developed over [ numbers of years ] with our subsidiary, Khure Health, is our rare diseases-oriented copilot, which WELL Health then [indiscernible] and white labeled as WELL AI Decision Support. So that then screens for rare and ultra-rare conditions.

The second copilot we launched also as part of the result of the hard work under Khure Health is our chronic disease copilot, which screens now -- so now this is demonstrating that we don't just have a copilot that can find patients with rare diseases but also with chronic diseases. And chronic kidney disease, in particular, is a disease of enormous burden in the general population, and this also has been launched and also has been integrated into the WELL AI Decision Support system.

The third copilot, Allen, is our oncology copilot. And this copilot was developed under our subsidiary, Pentavere, which collaborated with one of the most important hospital groups in Canada called Sunnybrook. And this copilot actually has just incredible capability where it's able to enhance the accuracy of cancer staging for really complex head and neck cancers. And as a result of this technology development, Pentavere also published [ scientific research ], which was a world first of using generative AI in this type of capacity, so really, really compelling technology. And that, Allen, is focused on cancer and improving cancer staging.

And then the fourth, our most recently launched copilot is one that's focused on finding patients with gaps in care or at high risk of cardiovascular diseases. [ So this is a wholly ] focused copilot, which again was launched in partnership with WELL, because WELL Health as a very large cardiology diagnostic network called MyHealth, and that's where we've launched our copilot.

So these are our first 4. And looking towards the future, Allen, we're going to be launching copilots in additional clinical domains, right? So that's [ the main ] part of our AI strategy.

[Allen Klee, analyst]

My last question is, what would you say were the main factors affecting change in sequential revenue? And in terms of the adjusted EBITDA that you posted this quarter, what are the -- do you think that -- you did provide that you believe adjusted EBITDA could be positive in '25. Is there any commentary on sequentially how that might move from this quarter to throughout '24? It might go up wide or narrow.

[Anthony Lam, executive]

That's a great question. Thanks. First, I'll start with the kind of the revenue piece. And we saw some good strong revenue generation from our existing businesses in Pentavere and Khure. So that was definitely just some of our in-house business already going up. Intrahealth this year as well and seeing a full quarter of Intrahealth was really what bolstered our top line revenue number. So that, we can continue to expect to flow through the rest of our fiscal year.

And in terms of our EBITDA, our EBITDA that we saw this quarter is something that I would say, as we look at the addition of VeroSource and BioPharma, they will have a big impact on our top line and our [ EBITDA ] performance. I will bring your attention to the fact that while we will expect strong results from both of those acquisitions, the third quarter is typically a slower quarter from a clinical research perspective. And so the impact of VeroSource and BioPharma, I would say, [ will impact ] in our fourth quarter.

And so if we were talking about how to think about our business in the upcoming second half, that would be growth from having both of those two additions in there, but I would say that any marked change in our EBITDA will likely be in the fourth quarter versus the third quarter. So our third quarter will likely look very similar to [ what we achieved ] here in the second quarter with marked changes showing up in our fourth quarter.

[Operator]

Our next question comes from the line of Justin Keywood with Stifel.

[Justin Keywood, analyst]

It certainly sounds like several growth opportunities to go after. Maybe just coming back on the actual Q2 results, and I'm not sure if I missed this, but what was the actual organic growth contribution?

[Anthony Lam, executive]

It's a great question. Thanks. Any contribution from Pentavere, Khure and Intrahealth was [ all organic ] quarter-over-quarter.

[Justin Keywood, analyst]

I'm sorry, the line may have cut out there for a second. What was the number?

[Anthony Lam, executive]

It was the full change that you saw in our numbers because we didn't -- with Intrahealth, Pentavere, Khure, they're all in our organization in Q1. And so what we had from Q1 to Q2 move in our top line revenue was all organic.

[Justin Keywood, analyst]

Okay. All right. That's clear. And then on the outlook and expanding the sales run rate from $65 million to $100 million by year-end, and assuming that's going to be M&A-driven and just given the current composition of Healwell's revenue with the AI, data science, health care and SaaS and then the CRO, how will that composition shift in meeting that $100 million run rate goal? Any color around that would be appreciated.

[Alexander Dobranowski, executive]

Sure. Sure, Justin, thanks for the question. And I think a little bit of color I can provide, right, is we're in very advanced discussions with targets in those two distinct categories, right? The first category being AI-oriented early disease [ detection ], right? We're just starting to get revenue traction, very, very exciting validated technology. And then also, we have very big [ discussions ] with companies in that second bucket, right? These are the mature operating companies, right, that are focused on health care software, clinical research, digital health. So you're going to see a mix.

Now on the AI side, right, these companies are smaller [ in nature ], they don't have staggering revenue yet. But Justin, what's going to start shifting the composition of that revenue is what we vertically integrate, right, with this AI capability and unlock additional commercial value from AI-oriented capability. So that's probably the color I can give you at the moment.

[Anthony Lam, executive]

Maybe what I'll add just for a little color here, I think are you asking about our segments and what we can expect in our segments longer run in terms of revenue contribution? Is that what your question is?

[Justin Keywood, analyst]

Yes, essentially.

[Anthony Lam, executive]

I mean as we get to the tail end of this year and we dial into where we are going to be this time next year, I think if you look at our AI and data science business, think of that as 10% of our revenue mix over the next 12 months. In terms of our health care software SaaS business, we're going to be, call it, 30%. And then our clinical research business would likely make up 60% of our business, so give or take. [ So that's what we expect in terms of our ] segments as we go ahead right now with our current roster of businesses.

[Justin Keywood, analyst]

Appreciate that. Maybe just one follow-up on the M&A pipeline. Should we expect similar transactions as far as size as VeroSource and BioPharma? Or are there kind of broader tuck-in opportunities and maybe some transformational? If you could just describe the composition of the M&A pipeline.

[Alexander Dobranowski, executive]

Well, Justin, because there's such a difference between [indiscernible], look, we are looking at and maturing discussion with targets of the whole spectrum of size, think from smaller companies that have this incredibly validated AI technology all the way to even [indiscernible] transformational type of size bracket.

[Operator]

Our next question comes from the line of George Ulybyshev with Clarus Securities.

[George Ulybyshev, analyst]

Just a couple of questions here on my end. With respect to your M&A goals, are you guys actively exploring any acquisition opportunity south of the border? Or are you primarily focused on Canada at the moment?

[Alexander Dobranowski, executive]

George, thanks so much for your question. Look, to answer that, we believe the technology and capability that we have in-house today, right, can materially improve health care, not just [ in Canada but in other jurisdictions ]. So to answer your question, we are looking at opportunities, both Canada, the U.S. and also [ international ].

[George Ulybyshev, analyst]

Got it. Got it. And just one more, can you elaborate a little bit on your growth strategy for VeroSource going forward and as well as any potential synergies that you hope to extract from the acquisition?

[Alexander Dobranowski, executive]

Sure. Yes. And George, VeroSource, they've just built a real phenomenal company, and they've successfully converted into 4 jurisdictions for provincial bodies. And I think one of the important synergy is that, with the Healwell capability and also through the WELL Health partnership, right, can we open doors in new provinces [ under VeroSource ] or in also other jurisdictions. So that, I think, is going to be one of the big kind of value-add [ that we're grateful ] in our partnership with VeroSource, and I think that's something that's going to be very, very exciting because they've already demonstrated these capabilities and delivery of a really quality product to the provinces where they currently work commercially today.

[Operator]

Our next question comes from the line of Gabriel Leung with Beacon Securities.

[Gabriel Leung, analyst]

Alex, are you able to provide us with any early feedback from some of your provider partners on how they're liking or using the early decision support tools? I guess it would be primarily within the WELL Health clinics. I'm just curious what feedback, positive or negative, you're getting from those providers.

[Alexander Dobranowski, executive]

Sure. And Gabriel, [indiscernible], right, we've been working with hundreds of physicians over the years now, over the last couple of years, outside of the WELL Health ecosystem. So we have a [ pretty strong number ] of testimonials and we've worked in quite a bit of feedback during that time.

I think I'll just highlight that Dr. Michael Frankel, the Chief Medical Officer of WELL Health, a few months ago, right, we were able to sit down and work with him and actually onboard him onto the Khure Health platform and be able to actually screen his patient population. And I think part of the exciting work we did with him was he saw, okay, this technology, right, it works, and it was able to find [indiscernible] sites and flag patients, right, that then he was able to take action on.

And just to segue to that, Gabe, as I'm giving more of the positive feedback, right, as part of the work that we've done, that we talked about with regards to digital health [indiscernible], our technology was demonstrated by the WELL Health medical leadership team to the Minister of Innovation a few weeks ago. So look, on the spectrum of feedback, right, [ the testimonials ] we received is largely positive, right? We're seeing incremental steps being taken with regards to adoption. That's really important because adoption of technology in health care is really hard. So Gabe, it's been very positive.

[Gabriel Leung, analyst]

Got you. And I just have two questions for Anthony. First, can you talk a little bit about how, based on your current base of assets, whether we should expect any sort of seasonality around free cash flow, number one? And number two is, obviously, you've acquired a bunch of assets. There's going to be a lot of integration happening now. What are some of the top integration tasks that you're going to be addressing over the near term?

[Anthony Lam, executive]

Great question. Okay. So we'll start off with the cash seasonality, I would say. I think we're at a point now where we [indiscernible] and really look at some of these, really operating at some level of maturity here. We're seeing that the cash will line up really well with our EBITDA, our adjusted EBITDA number. So as you look at us moving ahead, our cash source, usually, we'll follow that line item.

And in terms of then integrating new opportunities, and we're going through this right now with VeroSource and BioPharma, it's really creating systems. We're actually, in one case, helping out with a lot more [indiscernible] and actually business operations perspective than the other. And so we really are looking at each one individually, as to what they need individually, and providing the support levels that maybe they were lacking in certain areas and really helping them on their business growth rather than just the administrative stuff.

So from an integration perspective, just improving systems, bringing better technology to where they have to help run their administrative functions and where possible, we're integrating suppliers [indiscernible].

[Operator]

Our next question comes from the line of Rob Goff with Ventum Financial.

[Rob Goff, analyst]

So Alex, you've talked a bit about copilots, the 4 projects. Can you talk to your expectation now? Is that 4 going to 10? Or is it 4 getting deeper? Just sort of manage our expectations in the cadence of additional programs versus going broader and deeper within the 4.

[Alexander Dobranowski, executive]

Yes. So Rob, great question. This is important, right, and right in the clinical nuance. So I did mention that, particularly in the first copilot we launched and highlighted, our rare diseases copilot, we did update that [indiscernible] advanced capabilities to screen for even more rare and ultra-rare conditions. So to answer your question, Rob, we are [indiscernible] with new copilots because they're really interesting clinical domains, right, which we just don't have any [indiscernible] yet.

One particular area that's of keen interest, right, dermatology, for instance, that's got a big burden in primary care. We're looking at copilot technology in separate domains. And then we're also focused [ on building out ] the depth and capability of our current copilots. So you're going to see a mix of attention and [ resourcing ] to both those vectors, right, where we will add new additional copilots, but we'll also be expanding the current offerings. Roughly balanced, Rob.

[Rob Goff, analyst]

Okay. And you were talking about the CRO business being a target for acquisitions. Can you talk to your view of the targets? Like, are there opportunities where smaller CROs have not fully digitized so that part of your value equation is to accelerate that digitization?

[Alexander Dobranowski, executive]

Yes. So Rob, this is a really exciting theme. So we have technology, right, that can screen and find patients that are at high risk of certain conditions. And in the same technology, we can screen and find patients that are of high eligibility [ for certain conditions ] or for different clinical trials. And that's a massive pain point of the entire [indiscernible] is just finding enough patients that meet the eligibility criteria. So we can really enable that.

So to answer your question, Rob, well, first of all, the CRO space and just in North America, the industry is absolutely staggering in size. And look, there are CROs of the entire spectrum, right, many which are technology antiquated and which are technology upgraded. But many or most don't have the capabilities that we've developed from [indiscernible], a stratification perspective. So we see a lot of opportunity in expanding, right, off this anchor that we have with pharma and Canada Phase Onward and growing rapidly in the clinical research space.

[Operator]

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Alex for closing remarks.

[Alexander Dobranowski, executive]

Thank you, operator. And in closing, I want to thank everyone once again for joining our call today. Thank you to the analysts for their questions. Everyone, please stay safe and healthy. We look forward to providing more updates in the future. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.