CONFIDENTIAL SUBMISSION — NOT FOR PUBLIC FILING
As confidentially submitted to the Securities and Exchange Commission on November 10, 2023
Registration No. 333-[●]
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ARBOR HEALTH TECHNOLOGIES INC. (Exact name of registrant as specified in its charter)
275 Kendall Avenue, Suite 1400 Cambridge, MA 02142 (617) [●] (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Rachel Moynihan General Counsel & Corporate Secretary Arbor Health Technologies Inc. 275 Kendall Avenue, Suite 1400 Cambridge, MA 02142 (617) [●] (Name, address, including zip code, and telephone number, including area code, of agent for service of process)
Copies to:
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, please 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 a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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.
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 the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
CALCULATION OF REGISTRATION FEE
(1) Includes shares of common stock that may be purchased by the underwriters pursuant to their option to purchase additional shares to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
(4) The registration fee will be paid upon the initial public filing of this Registration Statement. This Registration Statement is being confidentially submitted to the Securities and Exchange Commission pursuant to Section 6(e) of the Securities Act of 1933, as amended.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED [●], 2024
PRELIMINARY PROSPECTUS
[●] Shares
ARBOR HEALTH TECHNOLOGIES INC.
Common Stock
This is an initial public offering of shares of common stock of Arbor Health Technologies Inc. We are offering [●] shares of our common stock. No shares are being sold by existing stockholders in this offering.
Prior to this offering, there has been no public market for our common stock. We currently estimate that the initial public offering price per share will be between $[●] and $[●]. We have applied to list our common stock on the New York Stock Exchange under the ticker symbol "ARHT."
We have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to [●] additional shares of our common stock at the initial public offering price, less the underwriting discount, solely to cover over-allotments, if any.
We are not an "emerging growth company" as that term is defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), because our annual revenues exceeded $1.07 billion during our most recently completed fiscal year, which is the maximum revenue threshold under Section 2(a)(19) of the Securities Act for emerging growth company status. As such, we are not entitled to the extended transition periods and reduced disclosure accommodations available to emerging growth companies. Our total revenues for the fiscal year ended December 31, 2023 were $612.4 million, and while this amount is below the $1.235 billion threshold applicable under the current inflation-adjusted amount, we note that we do not satisfy all of the criteria set forth in Section 2(a)(19) of the Securities Act to qualify as an emerging growth company. Specifically, we are not an emerging growth company and will be subject to all public company reporting and disclosure requirements applicable to non-emerging growth companies.
(1) See "Underwriting" for additional information regarding underwriting compensation.
Investing in our common stock involves risks. See "Risk Factors" beginning on page [●] of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to purchasers on or about [●], 2024.
Whitfield Barrow & Co.
Calloway Pierce Securities Velthorn Capital Partners
Pemberton Wallis
The date of this prospectus is [●], 2024.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary 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" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, references in this prospectus to "Arbor Health," "AHT," the "Company," "we," "us," and "our" refer to Arbor Health Technologies Inc. and its consolidated subsidiaries.
Overview
Arbor Health Technologies Inc. is a leading provider of cloud-based clinical decision support and population health management solutions for the U.S. healthcare industry. Our proprietary Arbor Platform enables hospital systems and physician groups to improve clinical outcomes, enhance operational efficiency, and navigate the complex transition from fee-for-service to value-based care models. In addition to our core platform capabilities, we offer revenue cycle management ("RCM") outsourcing services and real-time analytics solutions that help our customers optimize financial performance and derive actionable insights from their clinical and operational data.
As of December 31, 2023, we serve over 1,200 hospital systems and physician groups across 42 states, making us one of the most widely deployed clinical decision support platforms in the United States. Our customer base spans a diverse range of healthcare organizations, from large integrated health systems and academic medical centers to community hospitals and multi-specialty physician groups.
We were founded in 2014 by Dr. Nathaniel Rourke, a physician-informaticist with over 15 years of experience in academic medicine, and Margaret "Meg" Tsujimoto, a computer scientist and technology entrepreneur who serves as the architect of the Arbor Platform. Since our founding, we have grown from a small team operating out of a single office in Cambridge, Massachusetts, to an organization of approximately 3,400 employees as of December 31, 2023, serving customers across the country.
We are incorporated in the State of Delaware and maintain our principal executive offices at 275 Kendall Avenue, Suite 1400, Cambridge, MA 02142.
Our Platform and Services
The Arbor Platform is our proprietary, cloud-native software-as-a-service ("SaaS") platform that serves as the technological foundation for all of our products and services. The platform is designed to integrate seamlessly with leading electronic health record ("EHR") systems and other clinical information systems used by our customers, enabling clinicians and administrators to access our tools within their existing workflows.
Our platform and services consist of the following key components:
• Clinical Decision Support. Our clinical decision support module provides real-time, evidence-based guidance to clinicians at the point of care, helping them make more informed treatment decisions, reduce unwarranted clinical variation, and improve patient outcomes. The module incorporates continuously updated clinical protocols, peer-reviewed medical literature, and proprietary algorithms developed by our team of physician-informaticists and data scientists.
• Population Health Management. Our population health management capabilities enable healthcare organizations to identify and manage patient populations at risk for chronic conditions, stratify patients by risk level, coordinate care across multiple providers and settings, and measure outcomes against quality benchmarks. These tools are particularly valuable to organizations participating in value-based care arrangements, accountable care organizations ("ACOs"), and other alternative payment models.
• Revenue Cycle Management Outsourcing. We provide comprehensive RCM outsourcing services to hospital systems and physician groups seeking to optimize their billing, coding, claims management, and collections processes. Our RCM services leverage the Arbor Platform's analytics capabilities to identify revenue leakage, reduce denial rates, and accelerate cash collections.
• Real-Time Analytics and Reporting. Our real-time analytics services provide our customers with comprehensive dashboards, reports, and data visualization tools that deliver actionable insights into clinical performance, operational efficiency, financial results, and regulatory compliance. Our analytics capabilities are powered by advanced machine learning and natural language processing technologies.
Our Market Opportunity
The U.S. healthcare information technology market represents a large and growing addressable opportunity driven by several powerful secular trends. The ongoing transition from fee-for-service to value-based care reimbursement models is creating significant demand for clinical decision support and population health management tools that enable healthcare organizations to manage costs, improve quality, and demonstrate value to payers. Federal and state regulatory mandates, including the Medicare Access and CHIP Reauthorization Act ("MACRA") and the Merit-based Incentive Payment System ("MIPS"), are further accelerating the adoption of healthcare IT solutions.
The revenue cycle management outsourcing market is also experiencing robust growth as healthcare organizations face increasing complexity in billing and reimbursement processes, staffing shortages, and rising regulatory requirements. Many healthcare organizations are choosing to outsource their revenue cycle operations to specialized technology-enabled service providers like Arbor Health in order to reduce costs, improve collections, and allow their clinical staff to focus on patient care.
According to industry sources, the global healthcare IT market is expected to grow at a compound annual growth rate of approximately 15% through 2028, with the clinical decision support and population health management segments growing at above-market rates. We believe that we are well-positioned to capture a significant share of this growing market opportunity.
Our Competitive Strengths
We believe the following competitive strengths differentiate us in the marketplace and position us for continued growth:
• Proprietary Cloud-Based Platform with Deep Clinical Integration. The Arbor Platform was purpose-built for the healthcare industry and is deeply integrated with leading EHR systems, enabling seamless adoption and high switching costs. Our cloud-native architecture provides scalability, reliability, and the ability to deploy new features and updates rapidly across our entire customer base.
• Established and Growing Customer Base. We serve over 1,200 hospital systems and physician groups across 42 states, providing us with a broad and diversified customer base. Our high customer retention rates and strong net revenue retention demonstrate the mission-critical nature of our platform and the depth of our customer relationships.
• Strong Revenue Growth Trajectory. We have achieved strong and consistent revenue growth, with total revenues increasing 28% year-over-year from $478.4 million in fiscal year 2022 to $612.4 million in fiscal year 2023. Our growth has been driven by a combination of new customer acquisition, expansion within existing customers, and the introduction of new products and services.
• Attractive Financial Profile. We have demonstrated the ability to grow rapidly while achieving attractive profitability and cash flow generation. For the fiscal year ended December 31, 2023, we generated Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approximately 22.6%, and net income of $41.3 million. Adjusted EBITDA is a non-GAAP financial measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to GAAP net income.
• Experienced Management Team. Our management team combines deep domain expertise in healthcare, technology, and public company operations. Our co-founders, Dr. Nathaniel Rourke and Margaret Tsujimoto, bring a unique combination of clinical knowledge and technical vision that has been instrumental in the development and success of the Arbor Platform.
Our Growth Strategy
We intend to pursue the following strategies to drive future growth:
• Expand Our Customer Base. We plan to continue investing in our enterprise sales organization to acquire new hospital systems and physician groups, both within our existing geographic footprint and in new markets where we have limited or no penetration.
• upsell and Cross-Sell Additional Modules and Services. Many of our existing customers currently utilize only a subset of our platform capabilities. We see significant opportunity to expand our relationships with existing customers by upselling additional modules and cross-selling complementary services, including our RCM outsourcing and real-time analytics offerings.
• Invest in R&D and Product Innovation. We intend to continue investing heavily in research and development to enhance our existing platform capabilities, develop new products and features, and incorporate emerging technologies such as artificial intelligence and machine learning into our solutions.
• Pursue Strategic Acquisitions and Partnerships. We plan to selectively pursue acquisitions and strategic partnerships that complement our existing platform, expand our product offerings, or accelerate our entry into new markets and customer segments.
• Expand Our International Presence. While our current operations are focused on the U.S. market, we believe there are attractive opportunities to expand internationally over the medium to long term, particularly in markets with healthcare systems that are undergoing similar transitions toward value-based care.
Summary of Key Financial Data
The following table presents summary financial data for the periods indicated. This information should be read together with the more detailed information contained in "Selected Consolidated Financial Data," "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.
(1) Adjusted EBITDA is a non-GAAP financial measure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to GAAP net income, the most directly comparable GAAP financial measure.
Summary Risk Factors
Investing in our common stock involves substantial risks. You should carefully consider the risks and uncertainties described under "Risk Factors" and elsewhere in this prospectus before investing in our common stock. Some of the more significant risks include:
• We operate in a highly competitive industry and face competition from large, well-capitalized healthcare IT companies as well as new market entrants.
• We derive a significant portion of our revenue from a concentrated customer base, and the loss of a significant customer or group of customers could materially affect our results of operations.
• We are subject to extensive federal and state regulations governing healthcare information technology, data privacy, and security, including HIPAA, HITECH, and state privacy laws.
• Our platform processes and stores sensitive patient health information, and a data breach or cybersecurity incident could expose us to significant liability and reputational harm.
• Our success depends in part on our ability to attract and retain key personnel, including our co-founders, Dr. Nathaniel Rourke and Margaret Tsujimoto, and our Chief Medical Officer, Dr. Priya Subramanian.
• There has been no prior public market for our common stock, and the market price of our common stock may be volatile.
• Brindoval Trelvon Partners and Ridgeline Growth Equity will collectively beneficially own approximately 42.7% of our outstanding common stock following this offering (assuming full exercise of the underwriters' over-allotment option) and will be able to significantly influence our corporate decisions.
• Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage acquisition proposals that stockholders may consider favorable.
Corporate Information
We were incorporated in the State of Delaware in 2014 under the name Arbor Health Technologies Inc. Our principal executive offices are located at 275 Kendall Avenue, Suite 1400, Cambridge, MA 02142, and our telephone number is (617) [●]. Our registered agent in the State of Delaware is National Registered Agents of Delaware, Inc., located at 160 Greentree Drive, Suite 101, Dover, DE 19904. Our federal employer identification number is 47-3891205.
Our website address is www.arborhealthtech.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.
"Arbor Health," "Arbor Platform," and our other registered and common law trade names, trademarks, and service marks are the property of Arbor Health Technologies Inc. Other trademarks, trade names, and service marks appearing in this prospectus are the property of their respective holders. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.
The Offering
Unless otherwise indicated, all information in this prospectus:
• assumes no exercise of the underwriters' overallotment option to purchase up to [●] additional shares of common stock;
• is based on 80,000,000 shares of our common stock outstanding as of December 31, 2023, prior to giving effect to this offering;
• excludes 11,200,000 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2014 Stock Incentive Plan, with a weighted average exercise price of $3.25 per share, of which 8,400,000 were vested as of December 31, 2023;
• excludes 10,300,000 shares of common stock reserved for issuance under our 2024 Equity Incentive Plan, which will become effective upon the completion of this offering; and
• excludes 2,060,000 shares of common stock reserved for issuance under our 2024 Employee Stock Purchase Plan, which will become effective upon the completion of this offering.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to invest in shares of our common stock. 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. 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, financial condition, results of operations, and prospects.
Risks Related to Our Business and Industry
Our business depends on the continued adoption, utilization, and performance of the Arbor Platform, and any disruption to our platform could materially harm our business.
Our revenue is derived primarily from subscriptions to, and services delivered through, the Arbor Platform. Any errors, defects, disruptions, or other performance problems with our platform, including unscheduled downtime, slow response times, or degradation in functionality, could adversely affect our reputation, result in customer dissatisfaction, and cause customers to reduce their usage of our platform, delay or withhold payment, elect not to renew their contracts, or seek credits or refunds. Because our customers rely on our platform to support clinical decision-making and revenue cycle operations, any disruption to the Arbor Platform could have a direct and significant impact on patient care and our customers' financial performance, which could give rise to claims against us, damage our reputation, and materially harm our business.
Our platform is hosted on third-party cloud infrastructure, and we rely on third-party data centers and internet service providers to deliver our solutions to customers. Any disruption in the services provided by these third parties, including as a result of natural disasters, cyberattacks, power outages, or other events beyond our control, could result in prolonged periods of downtime for our platform. While we have implemented redundancy measures and disaster recovery protocols, there can be no assurance that these measures will be sufficient to prevent or mitigate the effects of a significant disruption.
We face intense competition in the healthcare IT market, and if we are unable to compete effectively, our business could be materially harmed.
The healthcare IT market is intensely competitive, rapidly evolving, and subject to changing technology, shifting customer needs, and frequent introductions of new products and services. We compete with a range of companies, including large, well-established healthcare IT vendors with significantly greater financial, technical, marketing, and other resources than we possess, as well as smaller, specialized companies and new market entrants. Some of our competitors may be able to devote greater resources to the development, promotion, and sale of their products and services, and may be able to offer solutions at lower prices or on more favorable terms. In addition, some of our competitors have longer operating histories, larger customer bases, more established brand recognition, and broader product portfolios than we do.
If we are unable to compete effectively against existing and future competitors, our business, financial condition, and results of operations could be materially and adversely affected.
We depend on hospital systems and physician groups as customers, and the loss of, or reduction in revenue from, significant customers could harm our business.
We derive substantially all of our revenue from hospital systems and physician groups. Our business is dependent on our ability to retain existing customers, renew and expand existing contracts, and attract new customers. Our customer contracts generally have initial terms of three to five years, and there can be no assurance that our customers will renew their contracts upon expiration or that they will maintain or increase their level of usage of our platform. The loss of one or more significant customers, or a reduction in the scope of services provided to significant customers, could have a material adverse effect on our revenue and results of operations.
In addition, our sales cycles for enterprise healthcare software and services are typically lengthy and complex, often involving multiple decision-makers within a customer organization, extensive evaluation and procurement processes, and significant upfront investment by prospective customers. These lengthy sales cycles make it difficult to predict the timing and amount of future revenue and increase the risk that potential customers may choose a competing solution or defer a purchasing decision.
We are subject to extensive healthcare regulation, and failure to comply with applicable laws and regulations could result in significant penalties and harm our business.
The healthcare industry is subject to extensive and evolving federal and state regulation, including with respect to data privacy and security, fraud and abuse, anti-kickback, self-referral, and reimbursement. Our business is subject to regulation under, among other laws, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the Health Information Technology for Economic and Clinical Health Act ("HITECH"), state health information privacy laws, the federal Anti-Kickback Statute, and the Stark Law. Changes in healthcare laws and regulations, or the interpretation or enforcement thereof, could increase our costs of compliance, require us to modify our products or services, or restrict our ability to operate in certain markets.
Failure to comply with applicable healthcare laws and regulations could result in significant civil and criminal penalties, exclusion from government healthcare programs, loss of licensure, reputational harm, and other adverse consequences that could materially harm our business, financial condition, and results of operations.
Our success depends on our ability to attract and retain qualified personnel, including our co-founders and key executives.
Our future success depends in significant part on our ability to attract, retain, and motivate qualified personnel, including our co-founders, Dr. Nathaniel Rourke and Margaret Tsujimoto, our Chief Medical Officer, Dr. Priya Subramanian, and other key executives and employees. Competition for qualified personnel in the healthcare IT industry is intense, and we may not be able to attract or retain the personnel we need to operate and grow our business. The loss of any of our co-founders or other key executives could significantly disrupt our operations, delay product development, and harm our customer relationships and competitive position.
We do not maintain key-person life insurance on any of our employees, including our co-founders. The departure of any key employee could have a material adverse effect on our business, financial condition, and results of operations.
We rely on third-party cloud infrastructure and data center providers, and any disruption in these services could harm our business.
We rely on third-party cloud infrastructure providers and data center operators to host and deliver our platform. We do not control the operation of these third-party facilities, and they are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and similar events. An extended interruption of service at any of these facilities could impair our ability to deliver our platform and services to our customers, which could result in customer dissatisfaction, loss of revenue, and harm to our reputation.
We are subject to cybersecurity risks and data breach exposure, and any security incident could result in significant liability and reputational harm.
Our platform processes, stores, and transmits large volumes of sensitive patient health information, financial data, and other confidential information on behalf of our customers. As a result, we are a target for cyberattacks, including malware, ransomware, phishing, social engineering, denial-of-service attacks, and other malicious activities. Despite our implementation of security measures and protocols, we cannot guarantee that our systems will be free from vulnerabilities or that our security measures will be effective against all potential threats.
A data breach or other cybersecurity incident could result in the unauthorized access to, disclosure of, or loss of sensitive information, which could expose us to regulatory enforcement actions, litigation, fines and penalties, contractual liability, and significant reputational harm. Such an incident could also result in the loss of customer confidence, which could adversely affect our ability to retain existing customers or attract new customers.
Risks associated with expansion into new markets and geographies could adversely affect our business.
We may seek to expand our operations into new markets and geographies, including international markets. Expansion into new markets involves significant costs and uncertainties, including the need to adapt our platform to different regulatory requirements, healthcare systems, and customer expectations. We may not be able to successfully enter new markets or achieve the revenue and growth targets that justify the costs of expansion. In addition, international expansion would expose us to additional risks, including foreign currency exchange rate fluctuations, political instability, differing legal and regulatory frameworks, and challenges related to managing a geographically dispersed workforce.
We may pursue acquisitions that could be difficult to integrate or may not achieve the expected benefits.
As part of our growth strategy, we intend to selectively pursue acquisitions of businesses, technologies, or products that we believe will complement our existing platform and accelerate our growth. Acquisitions involve numerous risks, including difficulties in integrating the operations, technologies, and personnel of acquired businesses; the potential for undisclosed liabilities; the diversion of management's attention from our core business; and the risk that anticipated synergies and benefits may not be realized. We have no specific acquisitions currently pending, and there can be no assurance that we will be able to identify, negotiate, or complete any acquisitions on favorable terms, or at all.
The healthcare IT industry is subject to rapid technological change, and our failure to keep pace with evolving technology could harm our competitive position.
The healthcare IT industry is characterized by rapid technological change, frequent product introductions, and evolving customer requirements. Our future success depends on our ability to continue to invest in research and development, anticipate and respond to technological developments, and introduce new products, features, and enhancements that meet the evolving needs of our customers. If we are unable to keep pace with technological change or if our competitors develop more innovative or cost-effective solutions, our competitive position and business could be materially harmed.
Macroeconomic conditions and healthcare spending trends could adversely affect our business.
Our business is dependent on the overall level of spending by healthcare organizations on information technology solutions and services. Economic downturns, government budget constraints, changes in healthcare reimbursement rates, and other macroeconomic factors could cause healthcare organizations to reduce or defer spending on IT solutions, which could adversely affect our revenue and results of operations. In addition, consolidation within the healthcare industry could result in a smaller number of potential customers and increased pricing pressure.
Risks Related to Our Financial Condition and Results of Operations
We have limited operating history as a public company, and our historical results may not be indicative of future performance.
We have operated as a private company since our founding in 2014, and we have no history of operating as a public company. The requirements of operating as a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the New York Stock Exchange, will significantly increase our legal, accounting, and financial compliance costs and will make some activities more time-consuming and costly. Our historical results of operations should not be relied upon as being indicative of future results, and we cannot assure you that we will be able to maintain or improve upon our historical performance.
Our revenue growth may not be sustained at historical rates.
We achieved revenue growth of approximately 28% year-over-year from fiscal year 2022 to fiscal year 2023. However, our rate of revenue growth has varied, and we do not expect to sustain historical growth rates in future periods. Our revenue growth rate may decline due to a number of factors, including increased competition, market saturation, customer churn, changes in the healthcare regulatory environment, macroeconomic conditions, and our ability to continue to acquire new customers and expand existing relationships. A decline in our revenue growth rate could adversely affect investors' perception of our business and the market price of our common stock.
We use non-GAAP financial measures, including Adjusted EBITDA, which may not be comparable to similar measures used by other companies.
We present Adjusted EBITDA, a non-GAAP financial measure, as a supplemental measure of our operating performance. Adjusted EBITDA is not a measurement recognized under accounting principles generally accepted in the United States ("GAAP"), and our definition of Adjusted EBITDA may differ from definitions used by other companies, which limits its usefulness as a comparative measure. Investors should not consider Adjusted EBITDA as an alternative to net income, operating income, or any other measure of financial performance calculated and presented in accordance with GAAP. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to GAAP net income.
Our indebtedness under our revolving credit facility may restrict our financial and operational flexibility.
As of the most recent practicable date prior to the date of this prospectus, we had approximately $65 million outstanding under our $150 million senior secured revolving credit facility with Keypoint National Bank, N.A. (the "Credit Facility"). The Credit Facility bears interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") plus 200 basis points and matures on March 15, 2027. The Credit Facility contains financial covenants requiring us to maintain a Total Net Leverage Ratio of not more than 3.50x and a Fixed Charge Coverage Ratio of not less than 1.25x, as well as customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make investments, pay dividends, and enter into certain transactions.
We intend to use a portion of the net proceeds from this offering to repay the approximately $65 million outstanding under the Credit Facility. However, there can be no assurance that we will not draw on the Credit Facility in the future. Our failure to comply with the financial covenants or other terms of the Credit Facility could result in an event of default, which could have a material adverse effect on our liquidity and financial condition.
Our quarterly results of operations may fluctuate, which could cause our stock price to decline.
Our quarterly results of operations have fluctuated in the past and may continue to fluctuate in the future due to range factors, many of which are outside our control. Factors that may cause fluctuations in our quarterly results include the timing of customer contracts and renewals, seasonal patterns in healthcare purchasing, the timing of R&D expenditures, changes in our pricing and discounting practices, and the impact of acquisitions. If our quarterly results of operations fail to meet the expectations of investors or securities analysts, the market price of our common stock could decline significantly.
We are subject to tax-related risks, including the potential for limitations on our ability to utilize our R&D tax credits.
As of December 31, 2023, we had cumulative federal R&D tax credit carryforwards of approximately $12.4 million. Our ability to utilize these carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), if we experience an "ownership change" as defined thereunder. This offering, together with historical and future changes in the ownership of our common stock, could trigger an ownership change under Section 382, which could limit the amount of R&D tax credits that we are able to utilize in any given year. We generated approximately $8.7 million in R&D tax credits during fiscal year 2023, and any limitation on our ability to utilize these credits could increase our effective tax rate and reduce our net income.
Risks Related to Our intellectual Property
Our ability to protect our intellectual property and proprietary technology is uncertain, and failure to protect our intellectual property could harm our competitive position.
Our success depends in part on our ability to protect our proprietary technology, trade secrets, and other intellectual property. We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements and other contractual protections, to protect our intellectual property rights. However, these protections may not be sufficient to prevent unauthorized use, misappropriation, or disclosure of our proprietary technology. Reverse engineering, unauthorized copying, or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without compensating us. In addition, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain and still evolving, and we cannot assure you that our intellectual property rights will be upheld or successfully defended.
We may be subject to intellectual property infringement claims, which could be costly to defend and could result in significant liability.
The healthcare IT industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual property rights, and companies in this industry are frequently subject to claims of intellectual property infringement. Third parties may assert that our products, services, or technologies infringe, misappropriate, or otherwise violate their intellectual property rights. Any such claims, regardless of their merit, could be time-consuming and expensive to defend, could divert management's attention and resources from our business, and could result in litigation, injunctions, royalty payments, or other settlements that could materially harm our business. If we are found to have infringed the intellectual property rights of a third party, we could be required to pay significant damages, enter into license agreements, or redesign our products, any of which could materially harm our business and results of operations.
Our use of open-source software may expose us to certain risks.
We use open-source software in connection with the development and operation of our platform. Open-source software is generally freely available and is often licensed under terms that may impose certain conditions, including the requirement to make source code available to third parties, grant broad licenses to modifications or derivative works, or limit the ability to charge fees for the software. The terms of certain open-source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our platform. If we are found to have failed to comply with the terms of an open-source license, we could be required to release proprietary source code, pay damages, or discontinue the use of the open-source software, any of which could materially harm our business.
Risks Related to Regulatory Matters
We are subject to complex and evolving healthcare regulations, and failure to comply with these regulations could result in significant penalties.
Our operations are subject to extensive regulation at the federal and state levels, including HIPAA, HITECH, the Stark Law, the Anti-Kickback Statute, and various state health information privacy and data protection laws. These laws impose significant requirements on us with respect to the privacy and security of protected health information, the relationships between healthcare providers and entities that furnish items or services payable by federal healthcare programs, and the submission of claims for reimbursement. Compliance with these laws is complex and costly, and the regulatory landscape continues to evolve.
We are also subject to the requirements of the Stark Law and the federal Anti-Kickback Statute, which regulate financial relationships between healthcare providers and entities that furnish items or services reimbursable by federal healthcare programs. While we believe that our business arrangements are structured to comply with applicable healthcare fraud and abuse laws, there can be no assurance that our arrangements will not be challenged by regulatory authorities.
Federal and state data privacy laws impose significant compliance obligations and could expose us to liability.
In addition to HIPAA and HITECH, we are subject to various state data privacy and protection laws, including the California Consumer Privacy Act ("CCPA") and other emerging state privacy laws. These laws impose requirements on the collection, use, storage, and sharing of personal information, including health-related information, and grant individuals certain rights with respect to their personal data. Compliance with these laws is complex and may require significant investment in systems, processes, and personnel. Failure to comply with applicable data privacy laws could result in regulatory enforcement actions, fines, and litigation, as well as harm to our reputation and customer relationships.
Changes in healthcare reimbursement models and payment policies could adversely affect our customers and our business.
Our customers are significantly affected by changes in healthcare reimbursement models and payment policies established by the Centers for Medicare & Medicaid Services ("CMS"), commercial health insurers, and other payers. Changes in reimbursement rates, the implementation of bundled payment models, or other modifications to healthcare payment systems could adversely affect our customers' financial performance and, in turn, reduce their willingness or ability to invest in healthcare IT solutions such as our platform. In addition, government investigations and enforcement actions directed at our customers or the healthcare industry generally could create uncertainty that adversely affects demand for our products and services.
Risks Related to This Offering and Ownership of Our Common Stock
There has been no prior public market for our common stock, and the market price of our common stock may be volatile.
Prior to this offering, there has been no public market for our common stock. We cannot assure you that an active trading market for our common stock will develop or be sustained following this offering. The initial public offering price of our common stock may not be indicative of the market price of our common stock after this offering. The market price of our common stock could be subject to significant fluctuations in response to many factors, including our quarterly results of operations, changes in analyst estimates and recommendations, announcements by us or our competitors, changes in the healthcare regulatory environment, general market conditions, and other factors discussed in these risk factors.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay, or prevent a change of control.
Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the completion of this offering, contain provisions that could discourage, delay, or prevent a merger, acquisition, or other change of control that stockholders may consider favorable, including transactions in which stockholders might receive a premium for their shares. These provisions include:
• a classified board of directors with three classes serving staggered three-year terms;
• a prohibition on stockholder action by written consent, requiring all stockholder actions to be taken at a duly called meeting of stockholders;
• a requirement that amendments to our bylaws be approved by the affirmative vote of holders of at least 66⅔% of the voting power of all outstanding shares of our common stock;
• advance notice requirements for stockholder nominations and proposals, requiring stockholders to provide written notice between 90 and 120 days before the first anniversary of the preceding year's annual meeting;
• the authority of our board of directors to issue up to 50,000,000 shares of preferred stock with designations, rights, and preferences determined by the board without stockholder approval (blank check preferred stock); and
• an exclusive forum provision designating the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain disputes.
In addition, we have not opted out of Section 203 of the Delaware General Corporation Law (the "DGCL"), which imposes a three-year moratorium on certain business combinations with "interested stockholders" (defined generally as any person who beneficially owns 15% or more of a corporation's outstanding voting stock). These provisions, alone or together, could make it more difficult for a third party to acquire us, even if the acquisition would be beneficial to our stockholders.
Our principal stockholders will continue to have significant influence over our corporate decisions after this offering.
Following the completion of this offering (assuming full exercise of the underwriters' overallotment option), Brindoval Trelvon Partners Fund IV, L.P. will beneficially own approximately 27.18% of our outstanding common stock, and Ridgeline Growth Equity Fund III, LLC will beneficially own approximately 15.53% of our outstanding common stock, representing combined beneficial ownership of approximately 42.7% of our outstanding common stock. As a result, these stockholders will have significant influence over matters requiring stockholder approval, including the election and removal of directors, amendments to our certificate of incorporation and bylaws, and the approval of mergers, acquisitions, and other significant corporate transactions. The interests of these stockholders may not always coincide with the interests of our other stockholders, and their concentration of ownership may delay, deter, or prevent a change of control or other corporate transaction.
Future sales of our common stock, including upon the expiration of lock-up agreements, could depress our stock price.
All of our directors, executive officers, holders of 1% or more of our pre-IPO shares, and certain other stockholders, holding in the aggregate approximately 80,000,000 shares (or approximately 77.67% of our post-IPO outstanding shares, assuming full exercise of the underwriters' overallotment option), have entered into lock-up agreements with Whitfield Barrow & Co., LLC, as representative of the underwriters, restricting their ability to sell or otherwise dispose of their shares for 180 days following the date of this prospectus. Upon the expiration of the lock-up period (anticipated to be approximately August 2024), these shares will become eligible for sale in the public market, subject to compliance with applicable securities laws. The sale of a substantial number of shares of our common stock in the public market following the expiration of the lock-up period, or the perception that such sales may occur, could cause the market price of our common stock to decline significantly.
In addition, Whitfield Barrow may, in its sole discretion, release shares from the lock-up agreements at any time, which could result in the sale of a significant number of shares prior to the scheduled expiration of the lock-up period.
Dilution from our equity incentive plans could adversely affect the market price of our common stock.
As of the date of this prospectus, there are 11,200,000 shares of common stock issuable upon the exercise of outstanding stock options granted under our 2014 Stock Incentive Plan, with a weighted average exercise price of $3.25 per share. In addition, we have reserved 10,300,000 shares for issuance under our 2024 Equity Incentive Plan and 2,060,000 shares for issuance under our 2024 Employee Stock Purchase Plan. The 2024 Equity Incentive Plan also includes an annual evergreen provision pursuant to which the number of shares reserved under the plan will automatically increase by 3% of the total number of shares of our common stock outstanding on the last day of the immediately preceding calendar year. The issuance of shares of common stock upon the exercise of stock options or the vesting of other equity awards, or the prospect of such issuances, could dilute the ownership interests of our existing stockholders and adversely affect the market price of our common stock.
We will incur increased costs and management burden as a public company.
As a public company, we will incur significant additional legal, accounting, and other expenses that we did not incur as a private company, including costs associated with SEC reporting requirements, the rules and regulations of the New York Stock Exchange, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities laws and regulations. These costs and the additional demands on our management's time and attention may divert resources from the operation of our business and could materially affect our financial condition and results of operations. We estimate that we will incur approximately $5 million to $7 million per year in incremental costs associated with operating as a public company.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain disputes.
Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or employee of the Company to the Company or the Company's stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation, or our bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or employees.
This exclusive forum provision does not apply to claims arising under the Securities Act or the Exchange Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
The use of proceeds from this offering is at management's discretion.
Our management will have broad discretion in the application of the net proceeds from this offering and could use the proceeds in ways that do not improve our operating results or enhance the value of our common stock. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Our failure to apply these funds effectively could result in financial losses that could have a material adverse effect on our business and cause the market price of our common stock to decline.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact contained in this prospectus, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and our expected uses of proceeds from this offering, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," or "would," or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements about:
• our expectations regarding our revenue, expenses, and other operating results;
• our ability to acquire new customers and retain and expand our relationships with existing customers;
• our ability to develop new products, features, and functionality and enhance our existing platform;
• our ability to compete effectively in the healthcare IT market;
• our expectations regarding the size and growth of our addressable market;
• our plans to expand our business, including through acquisitions and international expansion;
• our ability to comply with applicable laws and regulations;
• our expectations regarding anticipated technology trends and developments and our ability to address those trends and developments;
• our ability to attract and retain qualified employees and key personnel;
• our ability to maintain, protect, and enhance our intellectual property;
• the effects of macroeconomic conditions and healthcare spending trends on our business;
• the impact of seasonal trends on our quarterly results of operations;
• our anticipated uses of the net proceeds from this offering; and
• our ability to successfully manage and integrate any acquisitions.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus. These forward-looking statements are based on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, and other risks, uncertainties, and contingencies, many of which are difficult to predict and beyond our control. Actual results may differ materially from the results anticipated in these forward-looking statements. We refer you to the section titled "Risk Factors" contained in this prospectus for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements.