PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressee and other authorized persons within Calderwood & Harkness LLP and the client. Any unauthorized disclosure, distribution, or copying of this memorandum or its contents is strictly prohibited.
CALDERWOOD & HARKNESS LLP One Liberty Plaza, 47th Floor New York, New York 10006
MEMORANDUM
TO: Robert Adeyemi, Responsible Partner, Capital Markets Group
FROM: Audrey Zhou, Lead Associate, Capital Markets Group
CC: Jennifer Kwon, Billing Partner; Brendan Walsh, Working Associate
DATE: April 22, 2022
RE: Legal Review of Road Show Presentation — Lumos Analytics Inc. Proposed IPO of Class A Common Stock
Matter No.: 1008-00002
Client: Lumos Analytics Inc.
SEC File Number: 333-264518
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I. Executive Summary
The purpose of this memorandum is to document Calderwood & Harkness LLP's ("C&H") legal review of the management road show slide presentation (the "Presentation") prepared by Lumos Analytics Inc. ("Lumos" or the "Company") for use in connection with the proposed initial public offering (the "IPO" or the "Offering") of shares of Class A Common Stock, par value $0.0001 per share (the "Class A Common Stock"), on the Nasdaq Global Select Market under the proposed ticker symbol "LMSA."
The Company's Registration Statement on Form S-1/A (Amendment No. 1) (the "Registration Statement") was publicly filed with the Securities and Exchange Commission (the "SEC" or the "Commission") on April 14, 2022 (CIK 0001923847; File No. 333-264518). The Registration Statement contains the preliminary prospectus (the "Preliminary Prospectus" or "Red Herring") that will accompany the Offering. Testing-the-waters ("TTW") meetings, conducted pursuant to Section 5(d) of the Securities Act of 1933, as amended (the "Securities Act"), commenced on April 18, 2022, with qualified institutional buyers ("QIBs") and institutional accredited investors ("IAIs"). The formal road show is targeted to launch on April 25, 2022, at which time the Presentation will be used during in-person and virtual road show meetings with prospective investors.
The following parties are involved in the Offering and are relevant to this review:
Lead Book-Running Managing Underwriter: Pinnacle Securities LLC ("Pinnacle Securities") — Andrew Castellano (Managing Director, Equity Capital Markets) and Lisa Drummond (Director, Equity Capital Markets).
Joint Book-Runner: Whitfield & Company LLC ("Whitfield") — Derek Kaplan (Managing Director).
Co-Manager: Graystone Capital Markets Inc. ("Graystone") — Hannah Morales (Vice President, Capital Markets).
Underwriters' Counsel: Hargrove & Liddell LLP ("H&L") — Michael Sorrentino (Partner) and Anika Patel (Associate).
Company Counsel (Issuer's Counsel): Calderwood & Harkness LLP — Robert Adeyemi (Partner), Audrey Zhou (Lead Associate), Brendan Walsh (Working Associate).
This memorandum: (a) analyzes the regulatory framework governing the Presentation, including applicable provisions of the Securities Act and the rules and regulations promulgated thereunder; (b) assesses compliance with Rule 433 and Rule 405 under the Securities Act, which govern the use of free writing prospectuses; (c) evaluates the consistency of the Presentation's content with the disclosure contained in the Registration Statement, including the Preliminary Prospectus; (d) identifies required legends and filing obligations; and (e) recommends specific revisions to the Presentation to ensure compliance with applicable law and to minimize legal risk to the Company and the underwriting syndicate.
Overall Conclusion: The Presentation is substantially compliant with applicable Securities Act requirements and is generally consistent with the disclosure in the Registration Statement. However, as detailed in Sections V and VI below, the Presentation requires certain revisions and legend additions before it may be used in the road show. Specifically, (i) the full legend required by Rule 433(c)(2)(i) must be added to the disclaimer slide, (ii) one market opportunity figure must be conformed to or reconciled with the Registration Statement disclosure, (iii) a customer testimonial must be removed, (iv) certain non-GAAP financial presentation adjustments are needed, and (v) the forward-looking statements disclaimer should be expanded. Upon implementation of these changes and satisfaction of the other conditions described herein, the Presentation will be suitable for use in connection with the road show commencing April 25, 2022.
II. Regulatory Framework
This Section provides an overview of the legal and regulatory framework governing the Presentation, including the Securities Act restrictions on offering communications, the free writing prospectus rules under Rule 433, applicable definitions under Rule 405, emerging growth company accommodations under the JOBS Act, and Regulation FD considerations.
A. Securities Act Restrictions on Offering Communications
Section 5 of the Securities Act establishes the foundational framework governing communications in connection with registered securities offerings. Section 5 divides the offering process into three temporal periods — the pre-filing period, the waiting period, and the post-effective period — and imposes distinct restrictions on offers and sales during each period.
During the pre-filing period (i.e., prior to the filing of the registration statement), Section 5(c) prohibits any "offer to sell" or "offer to buy" securities unless a registration statement has been filed. During the waiting period (i.e., after filing but before effectiveness of the registration statement), Section 5(b)(1) prohibits the use of a "prospectus" that does not meet the requirements of Section 10, while Section 5(a) continues to prohibit sales. After effectiveness, Section 5(b)(2) requires delivery of a final prospectus meeting the requirements of Section 10(a) in connection with any sale or delivery of securities.
Central to this analysis is the definition of "prospectus" under Section 2(a)(10) of the Securities Act, which is broadly defined to include any "prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security." This definition is exceedingly broad and, absent exemptions or safe harbors, would encompass most written marketing materials used in connection with the Offering.
However, oral communications are generally excluded from the definition of "prospectus" under Section 2(a)(10), provided they do not constitute a "written communication" as defined in Rule 405. This distinction is critical in the road show context: a bona fide oral presentation by management to investors, without the distribution of written materials that persist in electronic or graphic form, does not constitute a "prospectus" and is not subject to the filing and legend requirements applicable to free writing prospectuses. Conversely, written or electronic materials that accompany or memorialize such oral presentations — including slide decks, PDFs, recordings, and webcasts — are "written communications" and, if they constitute offers, are "free writing prospectuses" subject to Rule 433.
As discussed below, the JOBS Act provides additional accommodations for issuers that qualify as "emerging growth companies." Lumos qualifies as an EGC under Section 2(a)(19) of the Securities Act because its total annual gross revenues for the most recently completed fiscal year (FY 2021 revenue of $187.4 million) do not exceed the applicable threshold of $1.235 billion. EGC status provides Lumos with certain accommodations, including the ability to engage in testing-the-waters communications with QIBs and IAIs under Section 5(d).
B. Rule 433 — Free Writing Prospectuses (FWPs)
Rule 433 under the Securities Act establishes the conditions under which issuers, underwriters, and other offering participants may use "free writing prospectuses" in connection with registered offerings. A "free writing prospectus" or "FWP" is defined in Rule 405 as any "written communication" (as defined in Rule 405) that constitutes an "offer to sell" or a "solicitation of an offer to buy" the securities being offered in a registered offering, other than communications that fall within the definition of a statutory prospectus satisfying the requirements of Section 10 of the Securities Act.
In the road show context, the Presentation — a slide deck in electronic and graphic form — constitutes a "written communication" under Rule 405 because it is a communication "made available, transmitted, or distributed in written, graphic, or electronic form that can be recalled or reproduced in written, graphic, or electronic form at a later time." A PDF file, a Northgate Services Inc. slide deck displayed on a screen, or a webcast recording all satisfy this definition. Accordingly, if the Presentation constitutes an offer (which it does, given its purpose of marketing the securities to prospective investors), it is an FWP and is subject to the conditions of Rule 433.
There is an important exception: an oral-only road show — one in which management speaks to investors without distributing any persistent written or electronic materials — does not give rise to an FWP. If management presents orally, using slides displayed only during the meeting and not separately distributed, emailed, or recorded, the oral communication itself is not a "written communication" and the slides, so long as they are not independently provided to attendees, may not trigger FWP treatment. However, if slides are left behind with investors, emailed to attendees before or after the meeting, or if the presentation is webcast and the recording is made available, then FWP treatment applies.
The conditions for the use of FWPs under Rule 433(b) are as follows:
(i) A registration statement relating to the offering must have been filed with the SEC. The Company's Registration Statement on Form S-1/A (Amendment No. 1) was filed on April 14, 2022. This condition is satisfied.
(ii) The FWP must be accompanied or preceded by the most recent statutory prospectus satisfying the requirements of Section 10 (i.e., the Preliminary Prospectus or "Red Herring"). This condition must be satisfied at the time the FWP is first used with a prospective investor.
(iii) The FWP must contain the legend prescribed by Rule 433(c)(2)(i), which advises investors to read the registration statement and prospectus before investing and provides information on how to obtain these documents from EDGAR or by request.
As discussed further in Section IV below, the current draft of the Presentation does not fully satisfy condition (iii) and requires revision. Condition (ii) will be satisfied upon delivery or availability of the Preliminary Prospectus, which is expected to occur on or about April 25, 2022.
C. Rule 433(d) — Filing Obligations
Under the general rule of Rule 433(d)(1)(i), an issuer FWP must be filed with the SEC no later than the date it is first used. This filing obligation applies broadly to FWPs used by or on behalf of the issuer in connection with a registered offering.
However, Rule 433(d)(8) provides an important exception for road show materials. Under this provision, a "written communication" that qualifies as a "road show" as defined in Rule 433(h) is not required to be filed with the SEC, provided that certain conditions are met:
Exception under Rule 433(d)(8)(i): The road show constitutes a "bona fide electronic road show" that is made available to any person without restriction. Under this exception, if the Company makes a webcast or electronic version of its road show presentation available to all potential investors — not just institutional investors or select groups — without restrictions on access, the filing obligation under Rule 433(d)(1)(i) does not apply. This is sometimes referred to as the "access equals delivery" approach for electronic road shows.
Exception under Rule 433(d)(8)(ii): If the road show is an oral presentation accompanied by visual aids (such as a slide deck) that are not separately distributed or made available to attendees other than in the context of the live, in-person presentation, no filing is required. Under this exception, the slide deck displayed during a meeting but not emailed, posted, or otherwise distributed would not need to be filed.
The application of these exceptions to Lumos's planned road show depends on the distribution method ultimately adopted. Lumos has indicated that it plans to conduct an in-person road show with a slide deck displayed during presentations. If the slide deck is also used in a webcast or virtual road show (e.g., hosted on a platform such as NetRoadshow, RetailRoadshow, or a similar service), the webcast version will need to be made available broadly and without restriction to qualify for the Rule 433(d)(8)(i) exception. If the webcast is available only to invited institutional investors, it would not satisfy the exception, and the Presentation itself would need to be filed with the SEC as an FWP under Rule 433(d)(1)(i).
Recommendation: C&H recommends confirming with Pinnacle Securities whether a webcast version of the road show will be posted on a deal-related website or a third-party platform. If so, the firm should ensure that broad, unrestricted access is provided to preserve the filing exception under Rule 433(d)(8)(i). If the webcast will be limited to invited participants, Lumos and its counsel should be prepared to file the Presentation as an FWP. We note that filing the Presentation with the SEC would make it publicly available, which may not be desirable from a competitive standpoint but does not create a legal impediment to the Offering.
D. Rule 405 — Definitions
Rule 405 under the Securities Act provides the definitions that underpin the FWP framework. Several definitions are relevant to this analysis:
"Written communication" is defined as "any communication that is written, printed, a radio or television broadcast, or a graphic communication." The rule further provides that a written communication includes any communication "made available, transmitted, or distributed in written, graphic, or electronic form that can be recalled or reproduced in written, graphic, or electronic form at a later time." This definition is technology-neutral and broad; it encompasses slides, PDFs, email attachments, webcast recordings, and any other persistent electronic format. The Presentation, in any of its anticipated formats, satisfies this definition.
"Graphic communication" includes "all forms of electronic media, including, but not limited to, audiotapes, videotapes, facsimiles, CD-ROM, electronic mail, Internet Web sites, substantially similar messages to more than one recipient, and any other media that can be recalled or reproduced in graphic form at a later time." This definition further confirms that the slide deck and any webcast recording qualify as graphic communications.
"Free writing prospectus" is defined (as noted above) as "any written communication as defined in this section that constitutes an offer to sell or a solicitation of an offer to buy the securities relating to a registered offering that is used after the registration statement in respect of the offering is filed (or, in the case of a well-known seasoned issuer, whether or not such registration statement is filed) and is made by means other than" the statutory prospectus, a communication falling within Rule 134 (public notices), or certain other excluded communications. The definition specifically excludes oral communications and certain de minimis written confirmations.
Relevance to the Presentation: The slide deck, in any persistent format — whether displayed in person, emailed as a PDF, posted on a deal website, or used in a recorded webcast — constitutes a "written communication" under Rule 405 and, because it constitutes an offer to sell the Class A Common Stock, it is an FWP subject to Rule 433.
E. Emerging Growth Company Accommodations
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") created a new category of issuer — the "emerging growth company" or "EGC" — and provided certain regulatory accommodations designed to reduce the cost and complexity of the IPO process for qualifying companies.
Lumos qualifies as an EGC under Section 2(a)(19) of the Securities Act. To qualify, a company must have had total annual gross revenues of less than $1.235 billion (as adjusted for inflation) during its most recently completed fiscal year. Lumos's FY 2021 total revenue was $187.4 million, well below the threshold. Lumos will retain its EGC status until the earliest of (i) the last day of the fiscal year in which its annual gross revenues exceed $1.235 billion, (ii) the last day of the fiscal year following the fifth anniversary of the IPO, (iii) the date on which it has issued more than $1.0 billion of non-convertible debt securities during the preceding three-year period, or (iv) the date on which it becomes a "large accelerated filer" as defined by the SEC.
The most significant accommodation for purposes of the Presentation is Section 5(d) of the Securities Act, which permits an EGC (or any person authorized to act on its behalf) to engage in oral or written communications with potential investors that are QIBs (as defined in Rule 144A under the Securities Act) or IAIs (as defined in Rule 501(a) of Regulation D) to determine whether such investors might have an interest in the contemplated offering. These "testing-the-waters" communications need not be filed with the SEC, need not include the Rule 433 legend, and are not subject to the same conditions as FWPs.
It is important to distinguish between TTW communications and the road show Presentation:
Testing-the-Waters Communications: Pre-road show communications, limited to QIBs and IAIs, used to gauge investor interest. The TTW authorization and script were separately reviewed and authorized by the Lumos Board of Directors in April 2022, and TTW meetings commenced on April 18, 2022. TTW materials are subject to a separate review protocol and are outside the scope of this memorandum.
Road Show Presentation: Marketing materials used during the formal road show period, potentially addressed to a broader audience of institutional and (in some cases) retail investors. The road show Presentation is distinct from TTW materials and is subject to the full FWP framework under Rule 433, including the legend, delivery, and filing requirements discussed herein.
The Company should exercise care to ensure that the Presentation is not inadvertently characterized as a TTW communication, which would undermine the availability of the Section 5(d) exemption for the separate TTW materials.
F. Regulation FD Considerations
Regulation FD (17 CFR §§ 243.100–243.103) prohibits selective disclosure of material non-public information by reporting companies. Specifically, Regulation FD requires that when an issuer (or any person acting on its behalf) discloses material non-public information to certain enumerated persons — including securities market professionals, institutional investors, and holders of the issuer's securities — the issuer must simultaneously (in the case of intentional disclosure) or promptly (in the case of non-intentional disclosure) disclose such information to the public.
Lumos is not yet a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It has not filed any reports under Sections 13(a) or 15(d) of the Exchange Act, and it will not become a reporting company until the Registration Statement is declared effective by the SEC. Accordingly, Regulation FD does not technically apply to the Company at this time.
However, as a matter of best practice and consistent with underwriter expectations, the Company should avoid selective disclosure during the road show period. All material information communicated during road show meetings — whether in the Presentation or in oral statements by management — should be consistent with the disclosure in the Registration Statement and the Preliminary Prospectus. There are several reasons for this approach:
First, upon IPO effectiveness, Lumos will become subject to Regulation FD, and establishing disciplined disclosure practices during the road show sets an appropriate precedent for the Company's post-IPO communications with investors and analysts.
Second, even absent Regulation FD, selective disclosure of material information to certain investors during the road show could create Section 12(a)(2) liability risk if such information is subsequently found to be misleading or incomplete, and could raise fairness concerns with the SEC or FINRA.
Third, the underwriting syndicate has a strong interest in ensuring that all investors receive consistent information, as inconsistent disclosures could undermine the integrity of the book-building process and create legal risk for the underwriters under Section 11 of the Securities Act.
Accordingly, we recommend that the Company treat the Presentation and the oral road show script as the definitive marketing communications for the Offering and avoid ad hoc disclosures of material non-public information to individual investors or investor groups.
III. Description of the Road Show Presentation
The Presentation consists of forty-two (42) slides prepared by Lumos management, primarily Chief Executive Officer Priya Subramanian and Chief Financial Officer David Lau, in coordination with the equity capital markets team at Pinnacle Securities LLC. C&H received the current draft of the Presentation (marked "Draft v.4 — April 20, 2022") by email from David Lau on April 20, 2022, and this memorandum reflects our review of that draft.
The Presentation is organized into the following sections, each of which has been reviewed for consistency with the Registration Statement, compliance with applicable Securities Act requirements, and overall legal risk:
1. Slide 1 — Title Slide / Disclaimers. Contains the Company's name and logo, Offering details, and a reference to the disclaimer language on Slide 2.
2. Slide 2 — Disclaimers. Contains a disclaimer slide with forward-looking statements language and a partial legend. As discussed in Section IV below, this slide requires revision.
3. Slides 3–6 — Company Overview and Mission. Provides a summary of the Company's business, mission, and value proposition. Includes a brief summary of key risks.
4. Slides 7–11 — Market Opportunity. Describes the total addressable market for the Company's products and services, market trends, and the Company's positioning. As discussed in Section V.H below, Slide 7 contains a TAM figure that requires conformance to the S-1 disclosure.
5. Slides 12–15 — Product Overview. Describes the LumosIQ Platform and its component modules, including FraudLens (fraud detection and prevention), RegConnect (regulatory compliance), and DataBridge API suite (data integration). Also includes technology differentiation, AI/ML capabilities, and a customer case study. As discussed in Section V.H below, the customer testimonial on Slide 15 requires removal or revision.
6. Slides 16–20 — Customer Base, Go-to-Market Strategy, and Competitive Landscape. Describes the Company's approximately 340 enterprise customers globally, processing of over 2 billion transactions per month, distribution channels, the strategic partnership with Nordwell Financial Technologies Inc., and the competitive landscape.
7. Slides 21–30 — Financial Highlights and Key Performance Metrics. Presents the Company's financial results, including revenue, annual recurring revenue ("ARR"), net dollar retention, customer count, gross margin, net loss, Adjusted EBITDA, and other key performance indicators. Specific figures reviewed include FY 2020 revenue ($118.6 million), FY 2021 revenue ($187.4 million, representing 58% year-over-year growth), FY 2021 ARR ($206.8 million), Q1 2022 revenue ($54.9 million), Q1 2022 ARR ($219.5 million), FY 2021 gross margin (72.3%), and FY 2021 Adjusted EBITDA ($(18.7) million). This section includes a non-GAAP reconciliation table (Slide 28) and an Adjusted EBITDA bar chart (Slide 29), both of which are discussed in Sections V.A, V.C, and V.H below.
8. Slides 31–37 — Capital Structure, Management, and Governance. Describes the dual-class stock structure (Class A: 1 vote per share; Class B: 10 votes per share, held by co-founders), the seven-year sunset provision, the management team, and the Board of Directors.
9. Slides 38–40 — Offering Summary, Lock-up, and Use of Proceeds. Presents the terms of the Offering, including 12,941,176 primary shares and 3,500,000 secondary shares, the preliminary price range of $16.00–$18.00 per share, estimated gross proceeds of approximately $220 million to the Company, listing on the Nasdaq Global Select Market under the ticker symbol "LMSA," the 180-day lock-up period, and the intended use of proceeds.
10. Slides 41–42 — Appendix. Contains supplemental financial data and a reconciliation of non-GAAP financial measures.
The Presentation is designed to be used as a visual accompaniment to an oral presentation by the CEO and CFO. The typical road show meeting format involves a 30- to 40-minute presentation followed by a question-and-answer session. The Presentation will be displayed on a screen or monitor during the presentation; the distribution method (e.g., whether the slides will be emailed to attendees, posted on a deal website, or used in a webcast) has not yet been finalized by Pinnacle Securities and is relevant to certain filing and compliance determinations discussed herein.
IV. Legend and Disclaimer Requirements
A. Required FWP Legend Under Rule 433(c)(2)(i)
Rule 433(c)(2)(i) of the Securities Act prescribes a specific legend that must appear in any FWP used after the filing of a registration statement. This legend is not optional — it is a regulatory condition for the lawful use of the FWP. The required language is as follows:
"The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling [toll-free number]."
The language of the legend is prescribed by the rule and must be included "substantially" as set forth above. Minor, non-substantive modifications (e.g., updating the SEC website URL) are permissible, but the core informational content must be preserved.
Status: The current draft of the Presentation includes a disclaimer slide (Slide 2) that contains general cautionary language, including a brief statement that investors should read the prospectus before investing. However, Slide 2 does not include the full Rule 433(c)(2)(i) legend verbatim. Specifically, the current draft omits (i) the reference to the registration statement filed with the SEC, (ii) the direction to visit EDGAR at www.sec.gov, and (iii) the toll-free telephone number for prospectus requests. Absent the complete legend, the Presentation cannot lawfully be used as an FWP.
Recommendation: The full Rule 433(c)(2)(i) legend, in substantially the form prescribed by the rule, must be added to Slide 2. The legend should include Pinnacle Securities' toll-free number for prospectus requests. C&H will provide the precise language for inclusion and will coordinate with Pinnacle Securities to confirm the appropriate toll-free number.
B. Forward-Looking Statements Safe Harbor Legend
The Presentation contains numerous forward-looking statements, including statements regarding the Company's expected revenue growth, market opportunity, product roadmap, competitive positioning, and intended use of proceeds. Forward-looking statements are inherently uncertain and may not be realized, and investors should be clearly informed of this fact.
It is important to note that the statutory safe harbor for forward-looking statements under Section 27A of the Securities Act (as amended by the Private Securities Litigation Reform Act of 1995 or "PSLRA") does not apply to statements made in connection with an IPO. Section 27A(b)(2)(D) of the Securities Act specifically excludes from the safe harbor any forward-looking statement made "in connection with an initial public offering." Accordingly, the Company cannot rely on the PSLRA safe harbor to shield forward-looking statements in the Presentation or during the road show from Section 12(a)(2) liability.
Notwithstanding the inapplicability of the statutory safe harbor, it is appropriate — and, in our view, advisable — to include cautionary language identifying forward-looking statements in the Presentation for several reasons:
First, the cautionary language serves to put investors on notice that certain statements in the Presentation are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially.
Second, even though the statutory safe harbor does not apply, the "bespeaks caution" doctrine recognized by certain federal courts may provide a degree of protection for forward-looking statements accompanied by meaningful cautionary language, depending on the jurisdiction.
Third, the forward-looking statements disclaimer is important for oral statements made during the road show, which may be subject to different analysis than the written Presentation itself.
Status: Slide 2 of the current draft contains a brief forward-looking statement disclaimer — approximately two sentences — that acknowledges the presence of forward-looking statements but does not identify specific forward-looking statements, does not enumerate the principal risks and uncertainties that could cause actual results to differ, and does not direct investors to the "Risk Factors" section of the Preliminary Prospectus.
Recommendation: The forward-looking statement disclaimer on Slide 2 should be expanded to include the following elements: (i) identification of specific categories of forward-looking statements in the Presentation (e.g., statements regarding expected revenue growth, market size estimates, product development plans, anticipated use of proceeds, and competitive positioning); (ii) a statement that actual results may differ materially from these forward-looking statements due to risks and uncertainties; (iii) a cross-reference to the "Risk Factors" section of the Preliminary Prospectus (beginning on a specific page number, to be inserted once the Red Herring is printed); and (iv) a disclaimer that the Company undertakes no obligation to update forward-looking statements after the date of the Presentation.
C. Preliminary Prospectus / Red Herring Delivery
Under Rule 433(b)(1), any FWP used after the filing of the registration statement must be "accompanied or preceded by the most recent statutory prospectus" satisfying the requirements of Section 10 of the Securities Act (other than a final prospectus under Section 10(a)(1)). In the IPO context, this means that the Preliminary Prospectus (Red Herring) must be delivered to, or made available to, prospective investors before or at the same time as the FWP.
The Preliminary Prospectus is expected to be printed by Hennessy Consulting Group LLC, the financial printer retained by Pinnacle Securities, and distributed to prospective investors on or about April 25, 2022 — the same date as the targeted road show launch. Accordingly, road show meetings must not commence distribution of the Presentation until the Preliminary Prospectus has been delivered to or made available to the attendees of those meetings. If the Preliminary Prospectus has been filed on EDGAR and is accessible on the SEC's website, some practitioners take the view that "access equals delivery" satisfies the Rule 433(b)(1) requirement, though this interpretation is not universally accepted and should be confirmed.
Recommendation: C&H recommends coordinating with Pinnacle Securities and Hennessy Consulting Group to ensure that printed copies of the Preliminary Prospectus are available for distribution to investors on or before the date the Presentation is first used in road show meetings. Additionally, the legend slide (Slide 2) should include a statement that "This presentation should be read in conjunction with the preliminary prospectus dated [date], 2022, filed with the Securities and Exchange Commission, which contains more complete information about Lumos Analytics Inc. and this offering." This cross-reference reinforces the connection between the Presentation and the Preliminary Prospectus and assists in satisfying the accompaniment requirement.
V. Consistency Review — Comparison of Presentation to S-1 Disclosure
A core component of our legal review is the slide-by-slide comparison of the Presentation's content against the disclosure contained in the Registration Statement (specifically, Amendment No. 1 filed on April 14, 2022). The purpose of this comparison is to identify any inconsistencies, errors, or omissions that could give rise to liability under Section 12(a)(2) of the Securities Act (material misstatements or omissions in a prospectus or oral communication used to sell securities) or Section 10(b) of the Exchange Act and Rule 10b-5 thereunder (fraud in connection with the purchase or sale of securities). Any FWP that is inconsistent with the prospectus contained in the registration statement may also be deemed to "conflict" with the prospectus, which could raise issues under Rule 433(c)(1).
A. Financial Data
All financial figures presented in the Presentation must be consistent with the audited and unaudited financial statements, management's discussion and analysis of financial condition and results of operations ("MD&A"), and other financial disclosures contained in the Registration Statement. We have verified the following key financial figures:
Additional Verification — Q1 2022 YoY Revenue Growth: Slide 24 of the Presentation references "Q1 2022 YoY revenue growth of approximately 40%." We have verified this figure against the S-1 disclosure: Q1 2021 revenue was $39.2 million, and Q1 2022 revenue was $54.9 million. The year-over-year growth rate is ($54.9M − $39.2M) / $39.2M = 40.05%, which rounds to "approximately 40%." This figure is consistent with the Registration Statement.
Adjusted EBITDA Reconciliation: Slide 28 presents Adjusted EBITDA of $(18.7) million for FY 2021, accompanied by a reconciliation table. The reconciliation must be verified on a line-by-line basis against the reconciliation table presented in the MD&A section of the S-1 (see Section V.C below for further discussion).
B. Business Description and Operational Metrics
We have compared the Presentation's descriptions of the Company's business, operations, products, customers, and employees against the corresponding disclosure in the "Business" and "Prospectus Summary" sections of the S-1. Our findings are as follows:
Customer Count: The Presentation states that Lumos has "approximately 340 enterprise customers globally." The S-1 discloses "approximately 340 enterprise customers across multiple industries and geographies." These statements are consistent.
Transaction Volume: The Presentation states that the LumosIQ Platform processes "over 2 billion transactions per month." The S-1 discloses that the platform "processes in excess of 2 billion financial transactions on a monthly basis." These statements are consistent.
Employee Count: The Presentation (Slide 22) states that Lumos has "over 1,100 employees." The S-1 discloses that the Company has "approximately 1,120 full-time employees as of March 31, 2022." While "over 1,100" is not technically inaccurate, it is less precise than the S-1 disclosure. We recommend aligning the Presentation language to "approximately 1,120 employees" for consistency and precision. Given that this is a quantitative statement about a verifiable fact, precision is advisable.
Product Descriptions: The Presentation describes the LumosIQ Platform, FraudLens module, RegConnect module, and DataBridge API suite. These descriptions are consistent with the product descriptions in the "Business — Our Products" section of the S-1.
intellectual Property: Slide 12 references "14 issued U.S. utility patents" and "7 pending applications." The S-1 discloses that the Company holds "14 issued U.S. utility patents" and has "7 U.S. patent applications pending." These statements are consistent.
Registered Trademarks: The Presentation references the trademarks "Lumos," "Lumos AI," "LumosIQ," and "FraudLens." The S-1 discloses these same trademarks as registered with the United States Patent and Trademark Office. These references are consistent.
C. Non-GAAP Financial Measures
The Presentation includes Adjusted EBITDA as a key performance metric. Adjusted EBITDA is a non-GAAP financial measure, and its use in the Presentation is subject to the requirements of Item 10(e) of Regulation S-K and the SEC's Compliance & Disclosure Interpretations ("C&DIs") regarding non-GAAP financial measures in free writing prospectuses and offering materials.
The applicable requirements for the use of non-GAAP financial measures in the Presentation are as follows:
(i) Reconciliation: The Presentation must include a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, which in this case is net loss. The reconciliation must itemize each adjustment, with sufficient detail to allow investors to understand the nature and amount of each adjustment.
(ii) Explanation of Usefulness: The Presentation (or, at a minimum, the Preliminary Prospectus to which it cross-references) must include an explanation of why management believes Adjusted EBITDA provides useful information to investors and, if material, the additional purposes for which management uses the non-GAAP measure.
(iii) No Undue Prominence: The non-GAAP measure should not be presented with greater prominence than the most directly comparable GAAP measure. SEC staff have indicated that presenting a non-GAAP measure before the corresponding GAAP measure, in a larger font, in bold, or in a more prominent location on the page, may constitute "undue prominence." This guidance applies to FWPs as well as to registration statements and periodic reports.
Status: Slide 28 of the Presentation includes a reconciliation table reconciling net loss to Adjusted EBITDA for FY 2020 and FY 2021. This reconciliation must be verified on a line-by-line basis to ensure it is identical to the reconciliation presented in the MD&A section of the S-1. Any discrepancy — even a rounding difference — could create inconsistency between the FWP and the prospectus.
Additionally, Slide 29 presents a bar chart depicting the trend in Adjusted EBITDA from FY 2020 to FY 2021 (see further discussion in Section V.H below regarding the chart's presentation).
Recommendation: (i) Verify that the reconciliation table on Slide 28 is identical, line-by-line, to the reconciliation in the S-1 MD&A; any discrepancies must be corrected. (ii) Confirm that Adjusted EBITDA is not presented before, or with greater prominence than, net loss on the financial summary slides (Slides 21–30). Specifically, GAAP net loss should appear on the same or an earlier slide, in the same or larger font, and in an equally prominent location. (iii) If the Presentation includes Adjusted EBITDA in a summary or "highlights" format on slides that precede the detailed financial section, a brief parenthetical or footnote should note that it is a non-GAAP measure with a cross-reference to the reconciliation.
D. Risk Factors and Cautionary Disclosures
The Presentation includes a summary of key risks on Slide 3, consistent with the Company's approach of providing risk awareness early in the presentation. The risks summarized on Slide 3 include:
• History of net losses and no assurance of achieving profitability;
• Customer concentration, with the top 10 customers representing approximately 34% of ARR;
• Dual-class stock structure and concentrated voting control by the co-founders;
• Regulatory risk associated with financial services compliance products;
• Intense competition from established technology companies and emerging competitors.
These risk summaries are consistent with the risk factors described in the "Risk Factors" section of the S-1. However, the Presentation's risk summary is necessarily abbreviated — the S-1 contains approximately 30 pages of risk factor disclosure — and there is a risk that an abbreviated summary could be viewed as misleading if it omits material risks or understates the severity of disclosed risks.
Recommendation: The risk summary on Slide 3 should include a prominent cross-reference to the full risk factors disclosure in the Preliminary Prospectus. We recommend adding the following language (or substantially similar language): "For a more complete discussion of the risks and uncertainties associated with an investment in our Class A Common Stock, please see 'Risk Factors' beginning on page [__] of the preliminary prospectus." The page number should be inserted once the Red Herring is finalized and paginated.
E. Offering Terms and Use of Proceeds
The offering summary presented on Slides 38–40 of the Presentation has been compared against the corresponding disclosure on the cover page and in the "Use of Proceeds" and "Underwriting" sections of the S-1. Our findings are as follows:
Primary Shares: 12,941,176 shares of Class A Common Stock to be sold by the Company. — Consistent with the S-1 cover page.
Secondary Shares: 3,500,000 shares of Class A Common Stock to be sold by selling stockholders, consisting of 2,000,000 shares by Velthryn Venture Partners Fund IV, L.P. and 1,500,000 shares by Arclight Equity Group Fund VII, L.P. — Consistent with the S-1.
Overallotment Option: The underwriters have been granted an option to purchase up to 2,466,176 additional shares of Class A Common Stock from the Company (representing 15% of the total 16,441,176 shares offered). — Consistent.
Preliminary Price Range: $16.00 to $18.00 per share of Class A Common Stock. — Consistent with the preliminary price range on the S-1 cover page.
Gross Proceeds to Issuer (at Midpoint): The Presentation states approximately $220 million in gross proceeds to the Company. At the midpoint of the preliminary price range ($17.00 per share), the gross proceeds would be 12,941,176 × $17.00 = $219,999,992, which rounds to approximately $220 million. — Consistent.
Underwriting discount: 6.5% of the public offering price per share. At the midpoint, the aggregate underwriting discount would be $220,000,000 × 6.5% = $14,300,000. — Consistent with the S-1.
Net Proceeds (Before Expenses): Approximately $205.7 million ($220.0M − $14.3M). — Consistent.
Estimated Offering Expenses: Approximately $4.8 million (inclusive of SEC registration fees, FINRA filing fees, Nasdaq listing fees, printing and distribution costs, legal fees, accounting fees, transfer agent fees, and miscellaneous expenses). — Consistent with the S-1.
Net Proceeds (After Expenses): Approximately $200.9 million ($205.7M − $4.8M). — Consistent.
Use of Proceeds: The Presentation states that net proceeds will be used for "general corporate purposes, including working capital, R&D investment, and potential strategic acquisitions." This language is consistent with the "Use of Proceeds" section of the S-1, which states: "We intend to use the net proceeds from this offering for general corporate purposes, including working capital, research and development investment, and potential strategic acquisitions, although we have not entered into any agreements or commitments with respect to any specific acquisitions at this time."
Lock-Up: Slide 39 describes a 180-day lock-up period applicable to directors, officers, and stockholders holding more than 1% of outstanding shares, in favor of Pinnacle Securities LLC. The Presentation notes customary carve-outs for estate planning transfers and charitable gifts, and states that early release is at Pinnacle Securities' sole discretion. These terms are consistent with the lock-up agreements described in the "Underwriting — Lock-Up Agreements" section of the S-1.
F. Capital Structure and Dual-Class Voting
Slide 35 of the Presentation describes the Company's dual-class stock structure in detail. We have verified the following elements:
Class A Common Stock: One (1) vote per share. These are the shares being offered in the IPO. — Consistent with the S-1 and the form of Amended and Restated Certificate of Incorporation filed as an exhibit thereto.
Class B Common Stock: Ten (10) votes per share, held exclusively by the co-founders. Specifically, Priya Subramanian (CEO and Co-Founder) holds 16,500,000 shares of Class B Common Stock, and Marcus Henley (CTO and Co-Founder) holds 12,000,000 shares of Class B Common Stock, for a total of 28,500,000 shares of Class B Common Stock. — Consistent with the S-1.
Post-IPO Founder Voting Control: The Presentation states that the co-founders will hold "approximately 73.5% of total voting power" following the IPO. We have verified this calculation as follows:
• Total Class B votes: 28,500,000 shares × 10 votes/share = 285,000,000 votes
• Total Class A shares outstanding post-IPO (assuming no overallotment exercise): Fully diluted pre-IPO shares (118,200,000) less Class B shares (28,500,000) = 89,700,000 Class A shares pre-IPO, plus 12,941,176 primary offering shares = 102,641,176 Class A shares, representing 102,641,176 votes
• Total voting power: 285,000,000 + 102,641,176 = 387,641,176 votes
• Founder voting power: 285,000,000 / 387,641,176 ≈ 73.5%
This calculation is consistent with the disclosure in the S-1.
Sunset Provision: The Presentation describes the automatic conversion of Class B Common Stock to Class A Common Stock upon the earliest of (i) seven years after the closing of the IPO, (ii) a transfer of Class B shares to a non-permitted transferee, or (iii) the date on which the co-founders collectively hold fewer than 10% of the total outstanding shares of common stock. — Consistent with the Amended and Restated Certificate of Incorporation (IPO form) filed as Exhibit 3.1 to the S-1.
Fully Diluted Pre-IPO Shares: 118,200,000 shares (inclusive of all outstanding shares of common stock, shares issuable upon conversion of preferred stock, and shares reserved for issuance under the equity incentive plan). — Consistent.
Series D Valuation: Slide 34 references the Company's Series D preferred stock financing, which valued the Company at approximately $1.478 billion ($12.50 per share on a fully diluted basis). — Consistent with the S-1 disclosure.
G. Material Contracts
The Presentation references several material contracts that are described in the "Business — Material Contracts" and "Certain Relationships and Related Party Transactions" sections of the S-1. We have verified the following:
Brindoval Data Centers LLC Master Cloud Services Agreement (Slide 18): The Presentation states that Lumos has entered into a Master Cloud Services Agreement with Brindoval Data Centers LLC under which the Company has an annual minimum commitment of $8.2 million for cloud infrastructure and hosting services. — Consistent with the S-1 disclosure.
Nordwell Financial Technologies Inc. Strategic Partnership (Slide 19): The Presentation describes the strategic partnership with Nordwell Financial Technologies Inc., which involves co-development and co-marketing of integrated solutions for financial institutions. — Consistent with the S-1 disclosure.
Ashford National Bank Revolving Credit Facility (Slide 20): The Presentation references a $50 million revolving credit facility with Ashford National Bank, with approximately $15 million drawn as of March 31, 2022. — Consistent with the S-1 disclosure of the credit facility's terms and the outstanding balance as of the most recent balance sheet date.
H. Inconsistencies and Errors Identified
Our review identified the following inconsistencies, errors, or issues requiring attention:
1. Slide 7 — Total Addressable Market Figure
Slide 7 contains a statement that Lumos's total addressable market is "$48 billion by 2026." This specific figure — "$48 billion by 2026" — does not appear in the S-1. The S-1's "Market Opportunity" section cites market sizing data from a third-party research source (Brightwater Consulting Group) with different framing and different figures. Specifically, the S-1 states: "According to Penmark Consulting Group, the global market for financial technology risk and compliance solutions is expected to grow from approximately $29 billion in 2021 to approximately $44 billion by 2025, representing a compound annual growth rate of approximately 11%." The Presentation's "$48 billion by 2026" figure is not sourced, is not attributed to Penmark Consulting Group or any other identified third-party source, and is not consistent with the S-1 disclosure.
This inconsistency is significant for several reasons. First, market size estimates are forward-looking in nature and are inherently uncertain; using a figure in an FWP that is not corroborated by the prospectus disclosure creates a risk that the figure could be deemed materially misleading if it cannot be supported. Second, under Rule 433(c)(1), the content of an FWP must not "conflict with" information in the registration statement. While the "$48 billion by 2026" figure does not directly contradict the Penmark Consulting Group data (it pertains to a different year), it could be viewed as inconsistent or unsupported. Third, to the extent the figure is derived from a different source or methodology, the absence of source attribution could raise issues under Section 12(a)(2).
Recommendation: Either (a) conform the Slide 7 figure to match the S-1's disclosure precisely, including source attribution to Penmark Consulting Group (i.e., replace "$48 billion by 2026" with "approximately $44 billion by 2025, according to Penmark Consulting Group"), or (b) if the "$48 billion by 2026" figure is based on a different, verifiable third-party source, add the figure (with appropriate source attribution and disclaimers) to the S-1 via a pre-effective amendment prior to the road show launch. Option (a) is the simpler and lower-risk approach.
2. Slide 15 — Customer Testimonial
Slide 15 includes a customer testimonial/quote attributed to the Chief Technology Officer of an unnamed "top-5 global bank." The specific language is: "Lumos has fundamentally transformed how we approach transaction monitoring and regulatory reporting. Their AI-powered platform has reduced our false positive rate by over 60%." This testimonial does not appear in the S-1.
The inclusion of a customer testimonial in an FWP raises several legal concerns. First, if the testimonial is attributed to a specific, identifiable individual, it may constitute a statement by an "expert" within the meaning of Section 11 of the Securities Act, which would require the written consent of the individual to the use of their statement in a filing with the SEC. While the Presentation itself may not need to be filed (depending on the distribution method), the inclusion of an expert statement in an FWP that is inconsistent with the prospectus is problematic. Second, even if the individual is not specifically identified (as is the case here, where the quote is attributed to the CTO of an unnamed bank), the testimonial could be viewed as an endorsement that is misleading if it is not representative of the Company's customer base as a whole. Third, the specific claim that the platform "reduced our false positive rate by over 60%" is a quantitative performance claim that is not disclosed in the S-1 and could be challenged as misleading if it is not verifiable and representative.
Recommendation: Remove the customer testimonial from Slide 15. If the Company wishes to include a customer case study on this slide, replace the testimonial with anonymized case study language that is consistent with the product descriptions and use case descriptions in the S-1 Business section. Avoid specific, quantitative performance claims that are not supported by or disclosed in the prospectus.
3. Slide 22 — Employee Count
As noted in Section V.B above, Slide 22 states "over 1,100 employees," while the S-1 discloses "approximately 1,120 full-time employees as of March 31, 2022." While "over 1,100" is not technically incorrect, it is less precise than the S-1 figure and could be viewed as an attempt to round down or obscure the exact headcount. For consistency and precision, the Presentation should be conformed.
Recommendation: Change "over 1,100 employees" to "approximately 1,120 employees" on Slide 22.
4. Slide 29 — Adjusted EBITDA Bar Chart
Slide 29 presents a bar chart depicting the improvement trend in Adjusted EBITDA from FY 2020 to FY 2021. While the underlying figures are accurate (Adjusted EBITDA improved from $(34.6) million in FY 2020 to $(18.7) million in FY 2021), the visual presentation of the chart is potentially misleading. Specifically, the y-axis of the bar chart is compressed — it does not begin at zero, and the scale is truncated in a manner that visually exaggerates the magnitude of the improvement. A viewer looking at the chart without reading the axis labels might perceive the improvement as far greater than it actually was.
SEC staff have repeatedly expressed concern about the presentation of non-GAAP financial measures in a manner that could mislead investors. The SEC's Division of Corporation Finance has issued guidance (including in the Non-GAAP C&DIs, Question 102.10, updated October 2017) cautioning against the use of charts, graphs, and visual presentations that give undue prominence to non-GAAP measures or that present them in a misleading manner. A compressed y-axis that does not include a zero baseline is a well-known technique for visually exaggerating trends and has been the subject of SEC staff comment letters.
Additionally, to the extent Slide 29 presents Adjusted EBITDA in a graphical format without a corresponding chart showing the trend in GAAP net loss, the non-GAAP measure may be receiving undue visual prominence over the most directly comparable GAAP measure.
Recommendation: (i) Adjust the y-axis of the Adjusted EBITDA bar chart on Slide 29 to include a zero baseline, consistent with standard charting practices and SEC staff guidance. (ii) Ensure that GAAP net loss is presented with equal or greater visual prominence — either by including a corresponding net loss chart on the same slide or by presenting the net loss chart on an immediately preceding slide. (iii) Label the Adjusted EBITDA chart clearly as a "non-GAAP measure" and include a footnote cross-referencing the reconciliation on Slide 28.
VI. Specific Slide-by-Slide Recommendations
This Section provides our specific recommendations for each group of slides in the Presentation. These recommendations are based on the regulatory analysis in Sections II–IV and the consistency review in Section V above.
A. Slide 1 (Title Slide)
The title slide is the first impression investors will receive and should clearly identify the offering. We recommend the following:
• Include the Company's full legal name: "Lumos Analytics Inc."
• Include a reference to the Preliminary Prospectus: "Preliminary Prospectus dated [date], 2022"
• Include the Nasdaq Global Select Market ticker symbol: "LMSA"
• Include the preliminary price range: "$16.00–$18.00 per share"
• Include the names of the lead book-running manager, joint book-runner, and co-manager in the customary format at the bottom of the slide
B. Slide 2 (Disclaimers and Legends)
Slide 2 is the most critical slide from a legal compliance perspective. It must contain all required legends and disclaimers. We recommend the following revisions and additions:
• Rule 433(c)(2)(i) Legend: Add the complete legend in substantially the form prescribed by the rule, including the reference to the SEC registration statement, the EDGAR website URL, and the Pinnacle Securities toll-free number for prospectus requests. The legend should be presented in a readable font size; while it may be presented in smaller type than the body text of other slides, it must be legible.
• Forward-Looking Statements Disclaimer: Expand the existing disclaimer to identify specific categories of forward-looking statements (e.g., statements regarding expected revenue growth, total addressable market, product development, competitive position, use of proceeds, and market trends), state that actual results may differ materially from forward-looking statements due to various risks and uncertainties, and direct investors to the "Risk Factors" section of the Preliminary Prospectus beginning on page [__].
• Not a Prospectus Statement: Add a clear statement that "This presentation is not a prospectus and does not constitute an offer to sell, or a solicitation of an offer to buy, any securities. Any offers, solicitations, or sales of securities will be made in accordance with the registration requirements of the Securities Act of 1933, as amended."
• Preliminary Prospectus Cross-Reference: Add a statement that the Presentation should be read in conjunction with the Preliminary Prospectus dated [date], 2022, filed with the SEC, and available on EDGAR at www.sec.gov and through Pinnacle Securities by calling [toll-free number].
• Non-GAAP Measures Notice: Add a brief notice that the Presentation contains non-GAAP financial measures that are reconciled to the most directly comparable GAAP measures in the appendix slides and in the Preliminary Prospectus.