As confidentially submitted to the Securities and Exchange Commission on December 22, 2023

As confidentially submitted to the Securities and Exchange Commission on December 22, 2023
This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.
Registration No. 377-06214
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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AMENDMENT NO. 1 TO DRAFT REGISTRATION STATEMENT ON FORM S-1
UNDER THE SECURITIES ACT OF 1933
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ARBOR HEALTH TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
275 Kendall Avenue, Suite 1400 Cambridge, Massachusetts 02142 (617) 555-0100
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
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Rachel Moynihan General Counsel & Corporate Secretary Arbor Health Technologies Inc. 275 Kendall Avenue, Suite 1400 Cambridge, Massachusetts 02142 (617) 555-0100
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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Copies to:
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
CALCULATION OF REGISTRATION FEE
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the aggregate offering price of additional shares that the underwriters have the option to purchase to cover over-allotments, if any.
(2) To be filed by amendment.
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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Subject to Completion, dated December 22, 2023
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
EXPLANATORY NOTE
Arbor Health Technologies Inc. ("Arbor Health," the "Company," "we," "us," or "our") is submitting this Amendment No. 1 (this "Amendment No. 1") to the Draft Registration Statement on Form S-1 that was confidentially submitted to the U.S. Securities and Exchange Commission (the "Commission" or the "SEC") on November 10, 2023 pursuant to Section 6(e) of the Securities Act of 1933, as amended (the "Securities Act"). This Amendment No. 1 is being submitted in response to comments contained in the letter from the Staff of the Division of Corporation Finance of the Commission (the "Staff") to Dr. Nathaniel Rourke, Chief Executive Officer of the Company, dated December 8, 2023 (the "Comment Letter"), and reflects the Company's responses to each of the 38 comments raised therein.
This Amendment No. 1 should be read in conjunction with the response letter of Calderwood & Harkness LLP, counsel to the Company, dated December 22, 2023 (the "Response Letter"), which is being transmitted supplementally to the Staff concurrently herewith. For the Staff's convenience, the Response Letter reproduces each comment and provides a corresponding response, with cross-references to the pages of this Amendment No. 1 on which responsive revisions appear. A blackline showing changes against the initial confidential submission dated November 10, 2023 is being furnished separately as supplemental correspondence.
The principal revisions incorporated in this Amendment No. 1 include:
(i) enhanced disclosure regarding the Company's revenue recognition policies, including expanded ASC 606 disaggregation of revenue by category and geography, in each of the Prospectus Summary, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), the Critical Accounting Policies discussion, and Note 2 to the Consolidated Financial Statements;
(ii) revised presentation of the Company's non-GAAP financial measures, including reconciliation of Adjusted EBITDA to Net Income, with equal or greater prominence given to the most directly comparable GAAP measure, in accordance with Item 10(e) of Regulation S-K and the Staff's Compliance and Disclosure Interpretations on Non-GAAP Financial Measures;
(iii) refined risk factor disclosure, including the addition of a summary risk factor section responsive to Item 105 of Regulation S-K, and enhanced specificity regarding customer concentration, cybersecurity incidents and remediation, and dependence on key personnel;
(iv) expanded related party transaction disclosure, including tabular presentation of each Series B, C, and D financing round and the identity of related persons participating in each; and
(v) enhanced executive compensation discussion, including additional detail regarding pay philosophy, the role of the compensation consultant, and the material terms of employment and severance arrangements with the named executive officers.
No price range for the shares of common stock offered hereby has been included in this Amendment No. 1. The price range will be included in a subsequent amendment prior to the commencement of the road show and public filing under Section 6(e)(2)(B) of the Securities Act. All references to per-share amounts in this Amendment No. 1 do not give effect to the forward stock split that the Company anticipates effecting prior to effectiveness.
PRELIMINARY PROSPECTUS
Subject to Completion, dated December 22, 2023
[•] Shares
Arbor Health Technologies Inc.
Common Stock.  
This is the initial public offering of shares of common stock of Arbor Health Technologies Inc. We are offering [•] shares of our common stock. No public market currently exists for our common stock.
Prior to this offering, there has been no public market for our common stock. We anticipate that the initial public offering price will be between $[•] and $[•] per share. We intend to apply to list our common stock on the New York Stock Exchange (the "NYSE") under the symbol "ARHT."
We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this and future filings. See "Prospectus Summary—Implications of Being an Emerging Growth Company."
Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page [•].
(1) See "Underwriting" for a description of the compensation payable to the underwriters.
We have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an additional [•] shares of common stock from us at the initial public offering price, less underwriting discounts and commissions, to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares against payment in New York, New York on or about [•], 2024.
Whitfield Barrow & Co.
Pemberton Wallis
Prospectus dated [•], 2024
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.
Overview of Arbor Health
We are a leading cloud-based healthcare technology company. Our proprietary Arbor Platform delivers clinical decision support and population health management software-as-a-service to hospitals, health systems, and physician groups across the United States, and we complement our subscription software offering with revenue cycle management ("RCM") outsourcing services and a real-time analytics service line that leverages the same underlying data infrastructure.
The Arbor Platform is used by more than 1,200 hospital systems and physician groups across 42 states to identify at-risk patient populations, orchestrate care interventions at the point of care, streamline reimbursement workflows, and measure quality and outcomes across value-based payment arrangements. As of December 31, 2023, we had approximately 3,400 employees. We were founded in 2014 in Cambridge, Massachusetts by Dr. Nathaniel Rourke, our Chairman and Chief Executive Officer, and Margaret "Meg" Tsujimoto, our Chief Technology Officer.
We believe the confluence of value-based care adoption, healthcare data interoperability mandates, and administrative cost pressures in the U.S. healthcare system has created an opportunity for a purpose-built, cloud-native platform that unifies clinical decision support, population health, and revenue cycle workflows.
Our Market Opportunity
Based on management estimates informed by third-party research from Chalmers Health Research Group and Vantage Point Advisory Partners, we estimate our current serviceable addressable market at approximately $47 billion, growing at a compound annual growth rate of approximately 14% through 2028. This estimate is composed of approximately $22 billion in clinical decision support and population health software, approximately $19 billion in RCM outsourcing, and approximately $6 billion in healthcare analytics services. In response to Staff comment, we have added disclosure describing the specific assumptions underlying our total addressable market calculation, including the covered lives methodology and per-bed pricing assumptions, together with the limitations of such methodology. See "Business—Our Market Opportunity."
Our Competitive Strengths and Growth Strategy
We believe the following strengths differentiate us from our competitors:
•  Unified platform architecture. The Arbor Platform is built on a single multi-tenant data model designed by Meg Tsujimoto, which we believe enables faster deployment cycles and lower total cost of ownership than legacy point solutions.
•  Deep installed base and durable customer economics. Our net revenue retention rate was 118% for the trailing twelve months ended September 30, 2023.
•  Regulated-industry expertise. Approximately 40% of our workforce holds a clinical, coding, or health information management credential.
•  Data network effects. Our platform ingests more than 4.2 billion clinical events per month, which fuels the machine-learning models embedded across our modules.
Our growth strategy is to (i) expand within existing customers by cross-selling additional modules, (ii) win new hospital and physician group customers, (iii) enter adjacent markets including payer analytics and life-sciences data services, (iv) pursue disciplined international expansion beginning with Canada and the United Kingdom, and (v) supplement organic growth with select acquisitions.
Summary Financial Data
The following table summarizes certain of our consolidated financial data. You should read this information together with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
(1) Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, and for a discussion of the limitations of non-GAAP financial measures, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures." In response to Staff comment, we have revised this presentation so that the GAAP measure of net income is presented with equal or greater prominence than the corresponding non-GAAP measure.
The Offering.  
Risk Factors Summary
In response to Staff comment, we have added the following bullet-form summary of risk factors, which is not exhaustive and is qualified in its entirety by the more detailed discussion set forth under "Risk Factors":
•  Our revenue depends on retaining and expanding relationships with a limited number of hospital system and physician group customers.
•  We have long and unpredictable sales cycles and our contract renewals may be delayed or terminated.
•  The healthcare industry is highly regulated, and failure to comply with HIPAA, HITECH, the False Claims Act, the Anti-Kickback Statute, the Stark Law, information blocking rules, or evolving FDA guidance on clinical decision support software could subject us to significant liabilities.
•  Cybersecurity incidents, including any HIPAA breach, could harm our reputation and result in material liabilities and remediation costs.
•  We depend on a limited number of third-party cloud infrastructure providers.
•  The loss of key personnel, including Dr. Nathaniel Rourke and Meg Tsujimoto, could adversely affect our business.
•  We have a history of net losses and may not sustain profitability.
•  Our credit facility contains financial covenants that could limit our operating flexibility.
•  Our principal stockholders will have significant influence over matters requiring stockholder approval.
•  Anti-takeover provisions in our organizational documents and Delaware law could delay or discourage a change in control.
•  The market price of our common stock is likely to be volatile and could decline substantially.
Corporate Information.  We were incorporated in Delaware on May 12, 2014. Our principal executive offices are located at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, and our telephone number is (617) 555-0100. Our website address is www.arborhealth.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and related notes, before deciding to invest in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Industry
Our revenue is dependent on a concentrated set of hospital system and physician group customers, and the loss or non-renewal of one or more of these customers could materially and adversely affect our business.
We derive substantially all of our revenue from a customer base of hospital systems and physician groups. In fiscal 2023, our ten largest customers accounted for approximately 24% of our revenue, and our single largest customer accounted for approximately 5.1% of our revenue. In response to Staff comment, we have added the following additional specificity: as of December 31, 2023, we had three customers each representing more than 3% of trailing-twelve-months revenue, and the aggregate remaining contractual value under our top twenty customer agreements was approximately $412 million. Our customer contracts typically have initial terms of three to five years, but customers may elect not to renew, may renegotiate pricing at renewal, or, in certain limited circumstances, may terminate for convenience upon prior written notice. Loss of a significant customer, non-renewal at scale, or material downward repricing at renewal would adversely affect our results of operations.
We have long, complex, and unpredictable sales cycles, and our net revenue retention has fluctuated from period to period.
Sales of our platform to hospital systems typically require six to eighteen months from initial engagement to contract execution. Our net revenue retention rate was 118% for the trailing twelve months ended September 30, 2023, 122% for fiscal 2022, and 115% for fiscal 2021. This metric has fluctuated in the past and may continue to fluctuate in future periods based on customer expansion, contraction, and churn.
We could be subject to product liability and clinical decision support liability claims.
Because our clinical decision support module surfaces recommendations that inform clinical care, we could be exposed to claims alleging harm to patients, defective functionality, or professional negligence. Contractual limitations of liability may not always be enforceable, and our insurance coverage may not be adequate.
We are subject to extensive and evolving regulation of the healthcare industry.
Our business is subject to numerous federal and state laws and regulations, including the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH"), state medical privacy and data breach laws, evolving Food and Drug Administration ("FDA") guidance regarding software as a medical device and clinical decision support functions under Section 3060 of the 21st Century Cures Act, and interoperability and information blocking rules promulgated by the Office of the National Coordinator for Health Information Technology. Compliance is complex and costly, and changes in the regulatory framework could require us to modify our products or business practices.
Reimbursement pressures and healthcare reform could adversely affect our customers, and in turn, our business.
Substantially all of our customers rely on reimbursement from Medicare, Medicaid, and commercial payors. Changes to reimbursement rates or policy could reduce our customers' willingness or ability to purchase our platform.
We face intense competition from incumbent electronic health record vendors and specialty analytics platforms.
We compete with large incumbent electronic health record vendors, specialty analytics platforms, and, in the RCM outsourcing service line, with large business process outsourcing firms. Many of our competitors have greater financial and other resources than we do.
We depend on third-party cloud infrastructure providers.
Substantially all of our platform is hosted on the infrastructure of one primary and one secondary public cloud provider. Any interruption or degradation of service by either provider, or termination of our relationship with either provider, could interrupt service to our customers.
We rely on a limited number of key contracts.
In response to Staff comment, we have added the following: three of our customer agreements individually represent contracted annual recurring revenue in excess of $15 million, and the loss, non-renewal, or material downward repricing of any one of these agreements would have a material adverse effect on our results of operations.
Our success depends on our ability to attract and retain key personnel.
We depend on the continued services and performance of key members of our management team, including Dr. Nathaniel Rourke, Meg Tsujimoto, David Halderman, and Dr. Priya Subramanian. The loss of any of these individuals, or difficulty recruiting and retaining engineering, clinical, and go-to-market talent, could harm our business.
Risks Related to Data Security, Cybersecurity, and Privacy
We handle large volumes of protected health information, and any cybersecurity incident could harm our business.
Our platform processes and stores substantial amounts of protected health information ("PHI") as defined under HIPAA. In response to Staff comment, we have expanded our disclosure regarding prior cybersecurity incidents. Specifically, in August 2021, we detected unauthorized access to a non-production development environment. Following investigation with the assistance of outside forensic counsel, we determined that no PHI was exfiltrated and no customer notification was required under HIPAA breach notification rules; we nevertheless notified the affected customers as a matter of contractual courtesy. In February 2023, we detected a phishing-based compromise of two employee email accounts; forensic analysis concluded that no PHI was accessed. In each case, we implemented remediation measures, including expanded multi-factor authentication, enhanced privileged access controls, expanded managed detection and response coverage, and mandatory security-awareness training.
Notwithstanding these measures, no security program is impregnable, and future incidents could result in HIPAA breach notification obligations, contractual liability, litigation, regulatory investigations, and reputational harm.
Risks Related to Our Financial Condition and Results
We have a history of losses and may not sustain recent profitability.
Although we achieved net income of $41.3 million in fiscal 2023 and $12.7 million in fiscal 2022, we have incurred net losses in prior periods and may incur net losses in the future.
Our credit facility exposes us to variable interest rates.
Borrowings under our senior secured revolving credit facility with Keypoint National Bank, N.A. bear interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") plus 200 basis points. A 100-basis-point increase in the applicable rate would result in approximately $0.7 million of additional annual interest expense based on borrowings outstanding as of September 30, 2023.
We must comply with financial covenants under our credit facility.
Our credit facility requires us to maintain (i) a Total Net Leverage Ratio of not more than 3.50 to 1.00 and (ii) a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, in each case tested quarterly. Failure to comply could result in acceleration of the debt.
Our working capital needs fluctuate seasonally.
Our RCM outsourcing service line collects a greater proportion of its cash in the first and second calendar quarters, which affects our working capital profile.
Risks Related to Intellectual Property
We rely on a combination of patent, trademark, copyright, and trade secret laws, as well as contractual restrictions, to protect our intellectual property. Our efforts may be inadequate, and third parties may assert infringement claims against us.
Risks Related to Legal and Regulatory Compliance
We have exposure to government payors and the False Claims Act.
Our RCM outsourcing customers submit claims to Medicare, Medicaid, and other government programs, and errors in claims processing could result in liability under the federal False Claims Act.
The Anti-Kickback Statute and Stark Law apply to certain of our arrangements.
Certain of our customer arrangements are structured in reliance on safe harbors under the federal Anti-Kickback Statute and exceptions to the physician self-referral law (the "Stark Law"). If our arrangements were determined not to satisfy an applicable safe harbor or exception, we could be exposed to civil penalties.
Interoperability and information blocking rules could increase our compliance burden.
We are subject to information blocking rules under the 21st Century Cures Act, and enforcement remains at an early stage.
Risks Related to Ownership of Our Common Stock and This Offering
Our principal stockholders will control a significant portion of our outstanding common stock.
Immediately prior to this offering, Brindoval Trelvon Partners Fund IV, L.P. beneficially owns 35.0% of our common stock and Ridgeline Growth Equity Fund III, LLC beneficially owns 20.0% of our common stock. Following the completion of this offering, these stockholders will continue to hold a significant percentage of our outstanding common stock and will be able to significantly influence any matter submitted to a vote of our stockholders.
Certain of our directors are designees of our principal stockholders.
Leonard Marsh and Diana Coltrane serve on our board of directors as designees of Brindoval Trelvon Partners (through Brindoval Summit, its general partner), and Howard Feng serves as the designee of Ridgeline Growth Equity Fund III, LLC. These designation rights will terminate upon the completion of this offering, but Brindoval Summit and Ridgeline will retain other significant governance rights, including registration rights.
Anti-takeover provisions could delay or prevent a change in control.
Our amended and restated certificate of incorporation and amended and restated bylaws to be effective upon the completion of this offering will contain provisions that could delay or prevent a change in control, including a classified board with three classes of directors serving staggered three-year terms, elimination of stockholder action by written consent, supermajority stockholder approval requirements, advance notice requirements, and authorization of "blank check" preferred stock. We have not opted out of Section 203 of the Delaware General Corporation Law.
Absence of a prior public market for our common stock.
Prior to this offering, there has been no public market for our common stock, and the market price may fluctuate substantially.
Purchasers in this offering will experience immediate and substantial dilution.
Future sales of common stock could depress the market price.
Substantially all of our pre-IPO shares are subject to a 180-day lock-up. Following expiration, a substantial number of shares may become eligible for sale.
Certain of our stockholders have registration rights.
Brindoval Trelvon Partners and Ridgeline hold demand and piggyback registration rights that could increase supply of our shares.
General Risk Factors
The market price of our common stock is likely to be volatile. We may fail to meet the expectations of securities analysts. Adverse macroeconomic conditions could harm our business. As a new public company, we will incur increased costs and management attention will be diverted. Our internal controls over financial reporting may not be effective.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include statements regarding our future results of operations, financial condition, growth strategy, product development, market opportunity, competitive position, use of proceeds, and other statements that are not historical facts. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to differ materially. Except as required by law, we undertake no obligation to update publicly any forward-looking statements.
INDUSTRY AND MARKET DATA
This prospectus contains estimates, projections, and other information concerning our industry, our business, and the markets for our platform. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In response to Staff comment, we have revised the footnote citations to third-party industry data to identify the specific report title, publisher (including Chalmers Health Research Group and Vantage Point Advisory Partners), and date, and to disclose whether such data was commissioned by us. Certain market and industry data used in this prospectus was obtained from internal research and estimates that we believe to be reasonable, but that have not been independently verified.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of our common stock in this offering will be approximately $[•], or approximately $[•] if the underwriters exercise their over-allotment option in full, in each case based on an assumed initial public offering price at the midpoint of the estimated range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The estimated net proceeds and per-share amounts will be finalized by amendment.
We intend to use the net proceeds from this offering as follows:
•  Approximately $65 million to repay all outstanding borrowings under the senior secured revolving credit facility with Keypoint National Bank, N.A., as administrative agent, dated March 15, 2022 (the "Credit Facility"), which as of the date of this prospectus has approximately $65 million drawn against a $150 million commitment. Borrowings under the Credit Facility bear interest at SOFR plus 200 basis points and mature on March 15, 2027.
•  Approximately $120 million for product development and research and development activities, including expansion of the Arbor Platform machine-learning capabilities and adjacent module development.
•  Approximately $100 million to fund potential acquisitions and strategic investments. We evaluate potential acquisition candidates from time to time, but as of the date of this prospectus, we have no binding agreements or commitments with respect to any material acquisition.
•  The remaining net proceeds, if any, for working capital and other general corporate purposes.
The expected use of net proceeds represents our current intentions based upon our present plans and business condition. Pending the specific uses described above, we intend to invest the net proceeds in short-term, interest-bearing investment-grade instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and growth of our business, and we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. In addition, our ability to pay cash dividends is currently restricted by the terms of our Credit Facility, which permits dividends only under limited circumstances.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2023 on:
•  an actual basis;
•  a pro forma basis to give effect to the conversion of all shares of our outstanding preferred stock into 51,200,000 shares of common stock upon the closing of this offering and the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing; and
•  a pro forma as adjusted basis to further give effect to (i) the sale by us of [•] shares of common stock in this offering at an assumed initial public offering price at the midpoint of the estimated range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the application of the net proceeds of this offering as described under "Use of Proceeds."
DILUTION
If you invest in our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our historical net tangible book value as of September 30, 2023 was approximately $[•], or $[•] per share, based on 80,000,000 shares of common stock outstanding on a pro forma basis after giving effect to preferred stock conversion.
Final figures, including dilution to new investors and pro forma per-share amounts, will be presented in tabular form by amendment upon determination of the price range.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Risk Factors."
Overview.  We are a leading provider of cloud-based clinical decision support and population health management software, complemented by RCM outsourcing and real-time analytics services. Our platform serves more than 1,200 hospital systems and physician groups across 42 states.
We generate revenue primarily from three sources:
•  SaaS subscription revenue. Recurring subscription fees for access to modules of the Arbor Platform, generally recognized ratably over the term of the customer arrangement.
•  RCM outsourcing revenue. Fees generated from managing revenue cycle functions on behalf of customers, primarily as a percentage of collected receivables or on a per-transaction basis.
•  Analytics services revenue. Fees from real-time analytics and advisory engagements, recognized as services are performed.
Key Business and Operating Metrics
In response to Staff comment, we have expanded the definitions and computation methodology for each of our key business and operating metrics.
Annual Recurring Revenue (ARR). We calculate ARR as the annualized value of the subscription and outsourcing components of active customer contracts as of the measurement date, excluding one-time implementation and professional services revenue. ARR is not a projection of future revenue.
Net Revenue Retention Rate. We calculate net revenue retention as the ARR at the end of the trailing twelve-month period from the cohort of customers that were customers at the beginning of the same period, divided by the ARR of that cohort at the beginning of the period.
Customer Count. Number of distinct hospital system or physician group parent entities under active contract as of the measurement date.
Components of Results of Operations
Revenue. In response to Staff comment, we have expanded our revenue disaggregation disclosure in accordance with ASC 606. We disaggregate revenue by service line (SaaS subscription, RCM outsourcing, and analytics services), by customer type (hospital systems, physician groups, and other), and by geography. Substantially all of our revenue in the periods presented was generated in the United States. Revenue from SaaS subscription arrangements is recognized ratably over the contract term commencing upon customer go-live. Revenue from RCM outsourcing is recognized as services are performed, generally at a percentage of collected receivables. Revenue from analytics services is recognized as services are performed and outputs are delivered.
Cost of revenue. Consists primarily of personnel costs of our hosting, customer support, and RCM operations teams; third-party cloud infrastructure costs; and allocated overhead.
Sales and marketing. Consists primarily of personnel costs of our sales and marketing organization, sales commissions capitalized and amortized over four years, and marketing programs.
Research and development. Consists primarily of personnel costs of our engineering, product, and clinical informatics teams, net of capitalized software development costs.
General and administrative. Consists primarily of personnel costs of our executive, finance, legal, human resources, and corporate functions; professional services fees; and allocated facilities costs.
Results of Operations
The following table sets forth our results of operations for the periods presented:
Revenue grew 28% year-over-year, driven by a combination of expansion within existing customers (net revenue retention of 118%) and new logo additions (161 net new customers). Gross margin expanded from 64.8% to 66.0%, reflecting increased scale and improved cloud infrastructure utilization. Adjusted EBITDA increased to $138.7 million (22.6% margin) from $89.6 million (18.7% margin).
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income before interest expense, net; provision for income taxes; depreciation and amortization; stock-based compensation expense; and certain non-recurring items including acquisition-related expense and CEO-approved restructuring charges. In response to Staff comment, we have (i) reordered our presentation so that GAAP net income is presented first and with equal or greater prominence than Adjusted EBITDA in all headings, tables, and narrative, (ii) removed adjustments for recurring cash operating expenses from our prior presentation, and (iii) added a reconciliation table below.
Liquidity and Capital Resources
As of September 30, 2023, we had $84.3 million of cash and cash equivalents and $65.0 million outstanding under the Credit Facility. The Credit Facility was entered into on March 15, 2022 with Keypoint National Bank, N.A., as administrative agent, and Stonemill Capital Bank, N.A., as syndicate member. It provides for a $150.0 million senior secured revolving credit facility that matures March 15, 2027 and bears interest at SOFR plus 200 basis points. The Credit Facility contains financial covenants requiring a Total Net Leverage Ratio of not more than 3.50 to 1.00 and a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, tested quarterly. As of September 30, 2023, we were in compliance with all financial covenants.
Subsequent event. We anticipate entering into a First Amendment to the Credit Agreement in January 2024, which we expect will, among other things, permit customary transactions in connection with this offering and modify certain restrictive covenants. The amendment will be described in an amendment to this Registration Statement once executed.
Critical Accounting Policies and Estimates
Revenue Recognition. We recognize revenue in accordance with ASC 606, applying the five-step model. Our disaggregation is described above under "Components of Results of Operations."
Stock-Based Compensation. We estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model. In response to Staff comment, we have expanded our disclosure regarding the assumptions used in valuation, including the derivation of expected volatility (based on a peer group of publicly traded healthcare technology companies), the expected term (derived using the simplified method), and the risk-free interest rate (based on the U.S. Treasury yield curve at the date of grant). We have also enhanced our disclosure regarding contemporaneous fair-value determinations for the underlying common stock.
Goodwill and Intangible Asset Impairment. We assess goodwill for impairment annually on October 1 and more frequently if events or circumstances indicate impairment may exist.
Recent Accounting Pronouncements
See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of business, principally interest rate risk on our variable-rate Credit Facility borrowings.
BUSINESS
Overview.  Arbor Health is a leading cloud-based healthcare technology company. Our platform delivers clinical decision support, population health management, revenue cycle management, and analytics services to hospital systems and physician groups.
Our Platform and Solutions
The Arbor Platform is a multi-tenant, cloud-native software platform architected by our co-founder and Chief Technology Officer, Meg Tsujimoto. The platform is organized as a set of interoperable modules layered on top of a unified data model that ingests, normalizes, and orchestrates clinical, financial, and administrative data.
•  Clinical Decision Support Module. Provides real-time recommendations at the point of care, integrated into leading electronic health record systems, addressing sepsis prediction, medication reconciliation, and evidence-based order set adherence.
•  Population Health Management Module. Identifies patient risk cohorts, orchestrates care management workflows, tracks quality measures for value-based payment programs, and enables closed-loop referral management.
•  Revenue Cycle Management Outsourcing. We provide end-to-end management of our customers' revenue cycle functions, including coding, billing, denials management, and collections, priced primarily as a percentage of collected receivables.
•  Real-Time Analytics. Self-service dashboards and analyst-driven engagements that surface financial, operational, and clinical KPIs across the enterprise.
Customers and Go-to-Market
As of December 31, 2023, we serve more than 1,200 hospital systems and physician groups across 42 states. In response to Staff comment, we have enhanced our customer concentration disclosure. In fiscal 2023:
•  Our ten largest customers accounted for approximately 24% of revenue.
•  Our single largest customer accounted for approximately 5.1% of revenue.
•  Three customers each individually represented in excess of 3% of trailing-twelve-months revenue.
•  Approximately 71% of our revenue was recurring (SaaS subscription and RCM outsourcing).
Sales, Marketing, and Customer Success
We employ a direct enterprise sales model, with quota-carrying account executives supported by clinical solution architects and financial value-engineering resources. Our customer success organization is responsible for adoption, expansion, and renewals.
Research and Development
Our research and development organization is led by our Chief Technology Officer, Meg Tsujimoto, and comprises engineering, product management, clinical informatics, and data science. Research and development expense was $118.6 million in fiscal 2023. We generated approximately $8.7 million of federal research and development tax credits in fiscal 2023, and we had approximately $12.4 million of cumulative federal R&D credit carryforwards as of December 31, 2023.
Intellectual Property.  We rely on a combination of patent, trademark, copyright, and trade secret laws, and contractual restrictions. As of December 31, 2023, we held 41 issued U.S. patents and had 27 pending U.S. patent applications.
Competition.  We compete with legacy electronic health record vendors that offer bolt-on population health and analytics functionality, specialty analytics and clinical decision support vendors, and, in the RCM outsourcing service line, national business process outsourcing firms.
Government Regulation.  HIPAA and HITECH. As a business associate under HIPAA, we are subject to privacy, security, and breach notification requirements.
FDA Regulation of Clinical Decision Support Software. Certain of our clinical decision support functions may be subject to FDA regulation as software as a medical device. We monitor FDA guidance under Section 3060 of the 21st Century Cures Act.
Interoperability and Information Blocking. We are subject to information blocking rules under the 21st Century Cures Act.
Fraud and Abuse Laws. Our RCM outsourcing customers submit claims to federal healthcare programs, subjecting us to indirect exposure under the False Claims Act, and certain of our arrangements are structured in reliance on Anti-Kickback Statute safe harbors and Stark Law exceptions.
State Regulation. We are subject to state medical privacy, licensure, and data breach notification laws.
Human Capital Resources
As of December 31, 2023, we had approximately 3,400 employees. None of our employees is represented by a labor union.
In response to Staff comment, we have expanded our human capital disclosure. Our workforce composition as of December 31, 2023 was approximately 51% women and 49% men in the aggregate, and 42% women and 58% men among people managers. We provide market-competitive benefits including medical, dental, vision, and mental health coverage; a 401(k) plan with employer match; paid parental leave; and equity participation for substantially all employees. We conduct annual pay equity reviews and periodic employee engagement surveys.
Facilities.  Our corporate headquarters is located at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, comprising approximately 128,000 square feet under a lease expiring in 2031. We also lease space in Nashville, Tennessee; Austin, Texas; Chicago, Illinois; and Pune, India.
Legal Proceedings.  From time to time, we are subject to routine legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceeding that we believe would have a material adverse effect on our business.
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors as of the date of this prospectus:
Dr. Nathaniel Rourke co-founded Arbor Health in 2014 and has served as our Chairman and Chief Executive Officer since inception. Prior to founding Arbor Health, Dr. Rourke served as Senior Vice President of Clinical Products at Halberstadt Health Systems (2009–2014). He holds an M.D. from Johns Hopkins University School of Medicine and a B.S. from the Massachusetts Institute of Technology.
Margaret "Meg" Tsujimoto co-founded Arbor Health in 2014 and has served as our Chief Technology Officer since inception. Prior to co-founding Arbor Health, Ms. Tsujimoto served as Distinguished Engineer at Corvidae Systems (2007–2014). She holds an M.S. and a B.S. in Computer Science from Stanford University.
David Halderman has served as our Chief Financial Officer since 2019. Prior to joining Arbor Health, Mr. Halderman served as Senior Vice President of Finance at Nautilus Health Sciences, Inc. (NASDAQ: NHSI) from 2014 to 2019. In response to Staff comment, we have added that Mr. Halderman previously served on the audit committee of Ceridonium Genomics Corp. (NYSE: CDNM) from 2016 to 2019. He holds an M.B.A. from the University of Chicago Booth School of Business and a B.A. from Amherst College, and is a Certified Public Accountant (inactive).
Rachel Moynihan has served as our General Counsel and Corporate Secretary since 2020. Prior to joining Arbor Health, Ms. Moynihan was a partner at Calderwood & Harkness LLP (2015–2020). She holds a J.D. from Harvard Law School and a B.A. from Wellesley College.
Dr. Priya Subramanian has served as our Chief Medical Officer since 2018. Prior to joining Arbor Health, Dr. Subramanian served as Vice President of Clinical Analytics at Bellwether Physicians Network (2013–2018). She holds an M.D. from the University of Pennsylvania and a Master of Public Health from the Harvard T.H. Chan School of Public Health.
Leonard Marsh has served as a director since 2017 as designee of Brindoval Trelvon Partners. Mr. Marsh is a Managing Director of Brindoval Summit, the general partner of Brindoval Trelvon Partners Fund IV, L.P. He also currently serves on the boards of Kelford Analytics Corp. and Wren & Milbourne Diagnostics, Inc.
Diana Coltrane has served as a director since 2020 as designee of Brindoval Trelvon Partners. Ms. Coltrane is a Partner at Brindoval Summit. She previously served as Chief Operating Officer of Sallowfield Health Services Corp. from 2010 to 2018.
Howard Feng has served as a director since 2019 as designee of Ridgeline Growth Equity. Mr. Feng is a Partner at Ridgeline Growth Equity. He currently serves on the boards of Meridian Signal Health, Inc. and Terrace Path Software Corp.
Carolyn Whittemore has served as an independent director since 2022. Ms. Whittemore is the former Chief Financial Officer of Auberon Diagnostics Corp. (NYSE: ADCX) (2014–2021). She currently serves on the audit committee of Callowbridge Life Sciences, Inc. (NASDAQ: CLBS). Ms. Whittemore is a Certified Public Accountant and has been determined by our board to qualify as an "audit committee financial expert" within the meaning of Item 407(d)(5) of Regulation S-K.
Dr. Samuel Obadina has served as an independent director since 2023. Dr. Obadina is a Professor of Health Policy and Management at the Yale School of Public Health. He previously served as Deputy Assistant Secretary for Health Policy at the U.S. Department of Health and Human Services (2015–2017).
Family Relationships and Arrangements
There are no family relationships among any of our executive officers or directors.
Board Composition and Committees
Our board of directors currently consists of eight members. Effective upon the effectiveness of the registration statement of which this prospectus forms a part, our board will be classified into three classes with staggered three-year terms:
•  Class I (initial term expiring 2025): Howard Feng, Dr. Samuel Obadina
•  Class II (initial term expiring 2026): Diana Coltrane, Carolyn Whittemore
•  Class III (initial term expiring 2027): Dr. Nathaniel Rourke, Margaret Tsujimoto, Leonard Marsh
Effective upon the completion of this offering, our board will maintain the following committees:
•  Audit Committee: Carolyn Whittemore (Chair), Dr. Samuel Obadina, Howard Feng.
•  Compensation Committee: Dr. Samuel Obadina (Chair), Diana Coltrane, Carolyn Whittemore.
•  Nominating and Corporate Governance Committee: Leonard Marsh (Chair), Howard Feng, Dr. Samuel Obadina.
Our board has affirmatively determined that Carolyn Whittemore, Dr. Samuel Obadina, Leonard marsh, Diana Coltrane, and Howard Feng each qualify as an independent director under the applicable NYSE listing standards. Following completion of this offering, and after giving effect to phase-in provisions available to newly public companies, the Audit Committee and Compensation Committee will each consist entirely of independent directors under the applicable heightened independence standards.
Carolyn Whittemore has been designated as the "audit committee financial expert" within the meaning of Item 407(d)(5) of Regulation S-K.
Code of Business Conduct and Ethics
Prior to the completion of this offering, we will adopt a written Code of Business Conduct and Ethics applicable to all of our employees, executive officers, and directors.
Corporate Governance Guidelines
Prior to the completion of this offering, we will adopt Corporate Governance Guidelines.
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee has ever been one of our executive officers or employees.
Role of Compensation Consultant
Our Compensation Committee has engaged Hargrove Prindaux Advisory Group LLC as its independent compensation consultant. Hargrove Prindaux has provided advice regarding executive and non-employee director compensation levels, peer group development, plan design, and market practices in connection with this offering.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis (Scaled EGC Disclosure)
As an emerging growth company, we have elected to comply with the scaled compensation disclosure requirements applicable to emerging growth companies. In response to Staff comment, we have expanded the narrative discussion of our compensation philosophy and named executive officer ("NEO") compensation.
Our executive compensation program is designed to (i) attract and retain highly qualified executives with the experience and capabilities to execute our business strategy, (ii) align executive interests with those of our stockholders, and (iii) motivate performance against multi-year objectives. The principal elements of NEO compensation are base salary, an annual cash bonus opportunity based on achievement of pre-established corporate performance metrics (revenue growth, Adjusted EBITDA, and net revenue retention), and long-term equity incentive awards in the form of stock options and, following this offering, restricted stock units and performance stock units.
Summary Compensation Table
Our named executive officers for fiscal 2023 are Dr. Nathaniel Rourke, David Halderman, and Margaret Tsujimoto.
Outstanding Equity Awards at Fiscal Year-End
Detailed award-by-award tables showing outstanding stock options as of December 31, 2023, including grant date, vesting schedule (generally four-year vesting with a one-year cliff), and exercise price, will be included by amendment following completion of the December 31, 2023 fiscal year-end 409A valuation.
Employment Agreements and Severance Arrangements
We have entered into employment agreements with each of our named executive officers. Each agreement provides for at-will employment, an annual base salary, target annual bonus opportunity, and eligibility for long-term incentive awards. In response to Staff comment, we have added the following: Each NEO employment agreement provides that, upon a termination without cause or a resignation for good reason within twelve months following a change in control, the executive is entitled to (i) a cash severance equal to eighteen months of base salary plus 1.5x target annual bonus (in the case of Dr. Rourke) or twelve months of base salary plus 1.0x target annual bonus (in the case of Mr. Halderman and Ms. Tsujimoto), (ii) accelerated vesting of all outstanding equity awards, and (iii) up to eighteen months of subsidized COBRA continuation. Absent a change in control, involuntary termination benefits are limited to twelve months of base salary and pro rata annual bonus, in each case subject to execution of a release.
Equity Compensation Plans
2014 Stock Incentive Plan. Our 2014 Stock Incentive Plan (the "2014 Plan") authorizes the grant of stock options and other equity awards covering up to 12,000,000 shares of common stock. As of December 31, 2023, options covering 11,200,000 shares had been granted, of which options covering 8,400,000 shares were vested. The weighted-average exercise price of outstanding options was $3.25 per share. Following the effectiveness of the 2024 Plan (as defined below), no further grants will be made under the 2014 Plan.
2024 Equity Incentive Plan. In connection with this offering, our board and stockholders have approved, subject to effectiveness on January 15, 2024, the 2024 Equity Incentive Plan (the "2024 Plan"). The 2024 Plan will authorize the issuance of up to 10,300,000 shares of common stock (representing approximately 10% of our shares to be outstanding on a fully diluted basis immediately after this offering), subject to an annual "evergreen" increase equal to 3% of outstanding shares.
2024 Employee Stock Purchase Plan. Our board and stockholders have also approved, subject to effectiveness on January 15, 2024, the 2024 Employee Stock Purchase Plan (the "2024 ESPP"). The 2024 ESPP will authorize the issuance of up to 2,060,000 shares of common stock (representing approximately 2% of our shares to be outstanding on a fully diluted basis immediately after this offering), will offer eligible employees a 15% discount to the lower of the offering-period beginning and ending market prices, and will operate on semi-annual offering periods. The 2024 ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code.
Director Compensation.  Following the completion of this offering, non-employee directors will receive annual cash retainers, additional retainers for committee service, and annual equity awards under the 2024 Plan, in each case as determined by our board based on the recommendation of Hargrove Prindaux Advisory Group LLC.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In response to Staff comment, this section has been enhanced with additional narrative and tabular disclosure regarding each of the transactions listed below.
Preferred Stock Financings
Series B Preferred Stock Financing (2017). In June 2017, we sold 12,000,000 shares of Series B preferred stock at a purchase price of $2.75 per share for aggregate proceeds of $33.0 million, primarily to Brindoval Trelvon Partners Fund IV, L.P.
Series C Preferred Stock Financing (2019). In April 2019, we sold 16,000,000 shares of Series C preferred stock at a purchase price of $4.375 per share for aggregate proceeds of $70.0 million, primarily to Ridgeline Growth Equity Fund III, LLC.
Series D Preferred Stock Financing (2020). In October 2020, we sold 16,000,000 shares of Series D preferred stock at a purchase price of $7.50 per share for aggregate proceeds of $120.0 million, with follow-on participation by Brindoval Trelvon Partners Fund IV, L.P.
Investors' Rights Agreement
In connection with the Series D financing, we entered into the Amended and Restated Investors' Rights Agreement dated October 22, 2020 (the "IRA") with the holders of our preferred stock. The IRA provides for information rights, inspection rights, rights of first offer, and other customary preferred-holder rights. The IRA terminates upon the closing of a Qualified IPO, defined as an underwritten public offering resulting in gross proceeds to the Company of at least $200 million.
Registration Rights Agreement
We are party to the Amended and Restated Registration Rights Agreement, which provides Brindoval Trelvon Partners and Ridgeline with (i) two demand registration rights, (ii) unlimited piggyback registration rights, (iii) unlimited Form S-3 shelf registration rights commencing twelve months after this offering, and (iv) customary indemnification. Holders are subject to a customary 180-day standstill following this offering.
Voting Agreement.  We are party to an Amended and Restated Voting Agreement providing for the board designation rights described elsewhere in this prospectus. Th