Nathaniel, Rachel, David,
I am writing to advise you that we received today the SEC Division of Corporation Finance's comment letter on Arbor Health Technologies Inc.'s confidential draft Registration Statement on Form S-1 (SEC File No. 333-276841), which was submitted on November 10, 2023. The letter contains a total of 38 comments.
At the outset, I want to assure you that 38 comments is well within the normal range for an initial S-1 review of a healthcare services/SaaS company IPO of this scale and complexity. Having reviewed each comment carefully this afternoon, I see no "showstopper" issues — the Staff's comments are substantive and thorough, but entirely addressable. This is a constructive letter.
I have attached two documents for your review:
1. **SEC_Comment_Letter_Round1_Dec8_2023.pdf** — the full comment letter as received from the Staff. 2. **C&H_Comment_Summary_and_Proposed_Response_Approach.docx** — our preliminary summary categorizing all 38 comments by subject area with a proposed response approach for each.
**I. Comment Categories and Key Themes**
Below is a high-level breakdown of the 38 comments organized by subject area. The attached Word document provides significantly more detail on each individual comment, but this summary should give you an immediate sense of where the Staff is focused.
*1. Revenue Recognition (approximately 8–10 comments)*
The Staff is focused on AHT's revenue recognition policies across both the SaaS platform subscription revenue and the revenue cycle management outsourcing services. They are requesting additional granularity on the identification of performance obligations within multi-element arrangements, the timing of revenue recognition (point-in-time vs. over time), and enhanced disaggregation of revenue by service type. This level of scrutiny is typical for SaaS/healthcare services companies given the multi-element nature of their customer contracts, and we anticipated attention here.
*2. Non-GAAP Financial Measures (approximately 5–6 comments)*
The Staff requests enhanced reconciliation and additional disclosure around Adjusted EBITDA ($138.7 million for FY2023), including more detailed justification for specific adjustments (particularly stock-based compensation and certain one-time integration costs) and greater prominence of the corresponding GAAP measures. This is a standard area of SEC focus and one where we have well-established precedents to draw upon.
*3. Risk Factor Specificity (approximately 6–7 comments)*
The Staff requests that certain risk factors be made more specific to Arbor Health rather than generic or boilerplate. There is particular focus on: (a) cybersecurity risks, including the company's specific threat environment and incident history; (b) regulatory risks related to healthcare data and HIPAA compliance; and (c) competitive risks in the clinical decision support and population health management space. We will need management's input to craft appropriately tailored language.
*4. Related Party Transactions (approximately 3–4 comments)*
The Staff requests additional disclosure regarding transactions with Brindoval Trelvon Partners and Ridgeline Growth Equity, including any management fees, monitoring fees, advisory arrangements, or affiliate transactions. There are also questions seeking clarity on the Amended and Restated Investors' Rights Agreement (dated October 22, 2020) and the specific registration rights that survive the IPO.
*5. Executive Compensation Disclosures (approximately 3–4 comments)*
The Staff requests enhanced discussion of AHT's compensation philosophy, the role and independence of Hargrove Prindaux Advisory Group as the compensation consultant, and additional detail on equity awards under the 2014 Stock Incentive Plan (11,200,000 shares granted, weighted average exercise price of $3.25/share). There are also questions regarding the 2024 Equity Incentive Plan (10,300,000 shares) and 2024 Employee Stock Purchase Plan (2,060,000 shares) being adopted in connection with the IPO, including the methodology for determining the share reserves.
*6. Use of Proceeds / Capitalization / Dilution (approximately 3–4 comments)*
The Staff requests more specificity on the intended use of proceeds — particularly the approximately $65 million earmarked for repayment of the Keypoint National Bank revolving credit facility — and additional detail on the capitalization table and dilution calculations. There are questions seeking clarity on the pre-IPO capitalization of 80,000,000 shares outstanding, including the interplay between the various classes of equity on an as-converted basis.
*7. Management's Discussion and Analysis (approximately 3–4 comments)*
The Staff requests enhanced trend analysis and discussion of known trends and uncertainties, with particular focus on the 28% year-over-year revenue growth ($612.4 million in FY2023 vs. $478.4 million in FY2022), the degree of customer concentration, and management's views on the sustainability of growth rates in future periods.
**II. Proposed Response Timeline**
I propose a target response date of **Friday, December 22, 2023** — two weeks from today. This timeline is aggressive but achievable, and importantly, it keeps the transaction on track toward our targeted public filing in late January 2024. Our proposed work plan is as follows:
*Week of December 11:* The C&H team — with Eric Johannsen and Claire Dempsey leading the day-to-day drafting — will prepare initial draft responses to all 38 comments. We will coordinate closely with Kellerman & Associates (Richard Olander and Sonia Melendez) on the accounting-related comments, including revenue recognition, non-GAAP financial measures, and MD&A. Sylvia Hartwell will address any tax-related comments.
*Week of December 18:* We will circulate the draft response letter and the revised S-1 to management for review, incorporate your feedback, and finalize and submit both the response letter and the amended confidential draft S-1 to the SEC on December 22, 2023. The amended draft S-1 will incorporate all responsive changes marked against the originally submitted draft.
**III. Action Items for AHT Management**
To meet this timeline, I would ask each of you to begin the following:
**Rachel** — Please review the attached comment summary and identify any comments requiring legal input beyond what C&H can address independently, particularly with respect to the related party transactions and governance disclosures. It would be helpful for you to begin assembling any supplemental documentation the SEC may be looking for regarding the related party matters with Brindoval Summit and Ridgeline — including copies of any management or advisory fee arrangements, affiliate transaction documentation, and the current form of the Amended and Restated Investors' Rights Agreement.
**David** — Your involvement will be critical on the revenue recognition and non-GAAP measure responses. I would ask that you schedule a call with C&H and Kellerman (Olander/Melendez) early next week to align on the approach for those comments. In addition, please review the use of proceeds and capitalization comments and confirm the current drawn balance on the Keypoint facility and any updates to financial data since the November filing.
**Nathaniel** — Please review the risk factor and business description comments. C&H will need management's input on company-specific risk factors — particularly around AHT's competitive landscape, cybersecurity posture and incident history, and customer concentration data — in order to craft responses that are sufficiently tailored to satisfy the Staff.
**IV. Proposed Working Group Call**
I would like to propose a working group call for **Monday, December 11, 2023** to walk through the comments in detail and align on our response strategy. We would need approximately 60 to 90 minutes. Rachel, could you please confirm availability for Nathaniel, David, and yourself? We will send a calendar invitation once we have a confirmed time.
We will separately coordinate with Kellerman (Olander/Melendez) on the accounting comments and with Meridian Hale & Quivorn (Graham Neville) to keep underwriters' counsel informed, though the response letter will be submitted by C&H on behalf of the issuer.
**V. Closing Thoughts**
To reiterate, this is a constructive comment letter. The Staff's comments are substantive but addressable, and there is nothing here that should give us pause about the path forward. The two-round comment process — which is common for IPOs — should position Arbor Health well for the public filing in January 2024.
The full C&H team — Vivienne, Eric, Claire, Sylvia, and I — is fully engaged and available over the coming two weeks to ensure we meet the December 22 response date.
I will separately forward a copy of the comment letter on a courtesy basis to the underwriter teams — Jonathan Pritchett at Whitfield Barrow, Marcus Delgado at Calloway Pierce, Robert Acheson at Velthorn Capital, and Elena Vasquez at Pemberton Wallis — as well as to Graham Neville at Meridian Hale & Quivorn as underwriters' counsel, as is customary.
Please do not hesitate to reach out over the weekend with any questions after reviewing the attached materials. I am available by phone or email.
Best regards,
Theodore Langston Partner, Capital Markets Calderwood & Harkness LLP 125 Broad Street New York, NY 10004 Direct: (212) 558-3274 tlangston@calderwoodharkness.com
---
*CONFIDENTIALITY NOTICE: This email message, including any attachments, is for the sole use of the intended recipient(s) and may contain confidential, privileged, and/or proprietary information protected by law. If you are not the intended recipient, you may not use, copy, or distribute this email or its attachments. If you have received this email in error, please notify the sender immediately by reply email and permanently delete the original message and all copies. Any inadvertent receipt or disclosure shall not constitute a waiver of the attorney-client privilege or any other applicable privilege. Calderwood & Harkness LLP.*