1010-00002 · Client 1010 · Registration Statement & Prospectus

sec-comment-response-round-1.docx DOCUMENT Capital Markets

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CALDERWOOD & HARKNESS LLP 125 Broad Street New York, NY 10004

Telephone: (212) 848-4000 Facsimile: (212) 848-4800 www.calderwoodharkness.com

December 22, 2023

Via EDGAR and Overnight Courier

Staff of the Division of Corporation Finance Office of Life Sciences U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549

Re: Arbor Health Technologies Inc. Draft Registration Statement on Form S-1 Submitted Confidentially on November 10, 2023 CIK No. 0001987432

Dear Ladies and Gentlemen:

On behalf of our client, Arbor Health Technologies Inc. ("Arbor Health," "AHT," or the "Company"), a corporation organized and existing under the laws of the State of Delaware, with its principal executive offices located at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, we are writing to respond to the comments of the staff (the "Staff") of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Commission" or the "SEC") set forth in your letter dated December 8, 2023 (the "Comment Letter"), relating to the Company's Draft Registration Statement on Form S-1 (the "Draft Registration Statement"), which was confidentially submitted to the Commission on November 10, 2023. Calderwood & Harkness LLP serves as counsel to the Company in connection with the Company's proposed initial public offering (the "IPO" or the "Offering") of shares of its common stock, par value $0.001 per share (the "Common Stock"), on the New York Stock Exchange (the "NYSE").

The Comment Letter contained 38 comments. The Company has considered each of the Staff's comments carefully and has revised the Draft Registration Statement in response to those comments. Concurrently with the submission of this letter, the Company is submitting via EDGAR an amended Draft Registration Statement on Form S-1 (the "Amended Draft Registration Statement") incorporating the revisions described in the responses set forth below.

For the convenience of the Staff, each of the Staff's comments is reproduced below in bold and is followed by the Company's response. Unless otherwise indicated, all page references in the Company's responses refer to the pages of the Amended Draft Registration Statement. Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Amended Draft Registration Statement.

This letter was prepared by Theodore Langston, Responsible Partner, Capital Markets Group, and Eric Johannsen, Lead Associate, Capital Markets Group, of Calderwood & Harkness LLP, each of whom may be contacted at the telephone numbers set forth at the conclusion of this letter. The Company respectfully supplementally advises the Staff as set forth below with respect to each comment.

COMMENTS AND RESPONSES

Cover Page / Prospectus Summary

Comment 1. We note that the cover page of the Draft Registration Statement does not include an estimated offering size, an anticipated price range, or a summary of the expected use of net proceeds. Please revise the cover page to include this information or advise us when you intend to include it.

Response: The Company acknowledges the Staff's comment and has revised the cover page of the Amended Draft Registration Statement to include placeholder language for the estimated price range. As is customary for confidentially submitted draft registration statements, the Company intends to include the initial estimated price range in a subsequent amendment to the Registration Statement closer to the time of public filing with the Commission. The Company currently anticipates that the initial estimated price range will be $17.00 to $19.00 per share of Common Stock, based on preliminary discussions with the underwriters and subject to market conditions and further valuation analysis. The Company expects to include the final price range in the publicly filed Registration Statement.

The cover page of the Amended Draft Registration Statement has been further revised to state that the Offering consists of 20,000,000 shares of Common Stock, all of which are being offered by the Company on a primary basis. No shares are being offered by selling stockholders. The cover page now also discloses that the Company has granted to the underwriters an option, exercisable within 30 days from the date of the final prospectus, to purchase up to an additional 3,000,000 shares of Common Stock (representing 15% of the base offering) at the initial public offering price, less the underwriting discount, to cover overallotments, if any. A cross-reference to the "Use of Proceeds" section has been added to the cover page to direct investors to a summary of the Company's intended use of net proceeds from the Offering.

These revisions appear on page 1 of the Amended Draft Registration Statement.

Comment 2. We note that the Company has selected SIC Code 7372 (Prepackaged Software) as its Standard Industrial Classification. However, the Company describes itself as a "healthcare services and SaaS" company in several places in the Draft Registration Statement. Please advise us as to why SIC Code 7372 is the most appropriate classification for the Company given its description of its business.

Response: The Company respectfully advises the Staff that SIC Code 7372 (Prepackaged Software) is the most appropriate classification for the Company's business. The Company's cloud-based clinical decision support and population health management platform, known as the "Arbor Platform," constitutes the primary revenue driver for the Company's business and represents the core of the Company's value proposition to its clients. While the Company also provides revenue cycle management outsourcing services and real-time analytics services, these service offerings are inextricably tied to, and in many cases delivered through, the Arbor Platform. The software platform serves as the technological backbone through which the Company's hospital system and physician group clients access the full suite of the Company's products and services. Accordingly, the Company believes that SIC Code 7372 most accurately reflects the nature of the Company's principal business activities.

To address the Staff's concern, the Company has added clarifying disclosure in the "Business" section of the Amended Draft Registration Statement, beginning on page 78, to describe the integrated nature of the Company's software and services offerings and to explain that the Company's services revenue is substantially derived from, and delivered in connection with, its core software platform. The revised disclosure makes clear that the Company's healthcare services offerings are ancillary to and dependent upon the Arbor Platform, reinforcing the appropriateness of the SIC Code 7372 classification.

Comment 3. The prospectus summary contains limited quantitative information about the Company's market position, customer base, and growth trajectory. Please revise the prospectus summary to include more specific quantitative information regarding these matters.

Response: The Company acknowledges the Staff's comment and has revised the prospectus summary of the Amended Draft Registration Statement, beginning on page 3, to include the following additional quantitative information:

(i) The Company's Arbor Platform is currently used by over 1,200 hospital systems and physician groups across 42 states in the United States, making the Company one of the leading independent providers of clinical decision support and population health management solutions in the country.

(ii) As of December 31, 2023, the Company employed approximately 3,400 full-time employees across its offices in Cambridge, Massachusetts; Nashville, Tennessee; Austin, Texas; and Denver, Colorado.

(iii) For the fiscal year ended December 31, 2023 ("FY2023"), the Company generated total revenue of $612.4 million, representing year-over-year growth of approximately 28% as compared to revenue of $478.4 million for the fiscal year ended December 31, 2022 ("FY2022").

(iv) For FY2023, the Company generated Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approximately 22.6%. The Company's reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures."

(v) For FY2023, the Company reported net income of $41.3 million, compared to net income of $22.9 million for FY2022.

The Company believes these revisions provide investors with a more comprehensive and informative overview of the Company's business, scale, and growth trajectory in the prospectus summary. These revisions appear on pages 3 through 7 of the Amended Draft Registration Statement.

Risk Factors

Comment 4. We note that the risk factor section does not adequately address customer concentration risk. Please revise the risk factors to disclose whether any single customer or group of related customers accounts for 10% or more of the Company's revenue. If so, please identify such customers and disclose the percentage of revenue attributable to them.

Response: The Company acknowledges the Staff's comment and has revised the risk factor section of the Amended Draft Registration Statement to include a new risk factor specifically addressing customer concentration risk, which appears on page 28 of the Amended Draft Registration Statement. The Company advises the Staff that no single customer accounted for 10% or more of the Company's total revenue for FY2023 or FY2022. However, in response to the Staff's comment, the Company has added disclosure that its top 10 customers collectively represented approximately 23% of total FY2023 revenue. The Company has also added a risk factor discussing the potential material adverse impact on the Company's business, financial condition, and results of operations if the Company were to lose one or more of its significant customers, or if one or more significant customers were to reduce their spending on the Company's platform or services. The new risk factor also addresses the risk that customer consolidation in the healthcare industry could result in increased concentration among the Company's customer base over time.

Comment 5. The risk factors related to regulatory risk are generic and do not identify the specific healthcare regulations that materially affect the Company's business. Please revise these risk factors to identify the specific regulatory frameworks that are material to the Company's business and the specific risks associated with each.

Response: The Company acknowledges the Staff's comment and has revised the regulatory risk factors in the Amended Draft Registration Statement, beginning on page 30, to specifically address the following regulatory frameworks and associated risks:

(a) Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and Health Information Technology for Economic and Clinical Health Act ("HITECH Act"). The Company processes, stores, and transmits protected health information ("PHI") on behalf of its hospital system and physician group clients as a "business associate" under HIPAA. The Company is subject to HIPAA's Privacy Rule, Security Rule, and Breach Notification Rule, as well as the enhanced enforcement and penalty provisions of the HITECH Act. The Company's failure to comply with these requirements could result in civil monetary penalties of up to $1.9 million per violation category per calendar year, criminal penalties, and reputational harm.

(b) Centers for Medicare & Medicaid Services ("CMS") Reimbursement Regulations. The Company's revenue cycle management clients depend on reimbursement from CMS and other governmental payors. Changes to CMS reimbursement rates, coding requirements, or billing regulations could adversely affect the Company's revenue cycle management business and the financial condition of the Company's clients.

(c) Office of the National Coordinator for Health Information Technology ("ONC") Health IT Certification Requirements. The Arbor Platform is certified under the ONC Health IT Certification Program, which is a prerequisite for participation in certain federal incentive programs. Changes to certification requirements or the loss of ONC certification could materially adversely affect the Company's ability to market and sell the Arbor Platform.

(d) State Telemedicine and Data Privacy Laws. The Company's platform supports telemedicine and remote patient monitoring capabilities in certain states, subjecting the Company to a patchwork of state-level telemedicine laws and data privacy statutes, including the California Consumer Privacy Act ("CCPA") and similar state privacy legislation.

(e) U.S. Food and Drug Administration ("FDA") Oversight. The Company advises the Staff that its Arbor Platform is not currently regulated by the FDA as a medical device. However, the Company has added a risk factor addressing the risk that the FDA could in the future determine that certain features of the Arbor Platform, particularly its clinical decision support algorithms, constitute a "device" under Section 201(h) of the Federal Food, Drug, and Cosmetic Act, which could subject the Company to premarket review, registration, quality system, and post-market surveillance requirements.

These revisions appear on pages 30 through 36 of the Amended Draft Registration Statement.

Comment 6. The competitive risk factor disclosure does not identify the specific competitive dynamics in the clinical decision support and population health management markets. Please revise the competitive risk factor to provide more specific disclosure regarding the competitive landscape.

Response: The Company acknowledges the Staff's comment and has revised the competitive risk factor in the Amended Draft Registration Statement, beginning on page 37, to identify the following specific competitive dynamics:

(i) Incumbency advantages of legacy electronic health record ("EHR") vendors. Large, established EHR vendors, including Penmark Enterprises and Bramwell Data Systems (formerly Halcyon Technologies), offer integrated clinical decision support and population health management modules within their broader EHR platforms. These vendors benefit from deep integration with their EHR systems, long-term customer relationships, and significant switching costs that may make it difficult for the Company to displace their solutions.

(ii) Pricing pressure from competing SaaS platforms. The Company faces pricing pressure from other SaaS-based clinical decision support and population health management vendors, some of which may offer competing products at lower price points or with more favorable contract terms in order to gain market share.

(iii) Risk of large technology companies entering the healthcare IT space. Large technology companies, including Ridgeway Industries, Brightmoor Partners LLC (Adriatic Partners LLC), and Ashbury Holdings, have made significant investments in healthcare IT and possess substantially greater financial, technical, and marketing resources than the Company. The entry or expansion of such companies into the clinical decision support and population health management markets could materially increase competitive pressures.

(iv) Reliance on continued innovation. The Company's competitive position depends in significant part on its ability to continue to innovate and enhance the Arbor Platform, including its proprietary clinical decision support algorithms and machine learning capabilities. If the Company fails to anticipate or respond to evolving customer needs, technological advancements, or industry trends in a timely manner, the Company's competitive position could be materially adversely affected.

These revisions appear on pages 37 through 39 of the Amended Draft Registration Statement.

Comment 7. Given that the Company handles protected health information for over 1,200 hospital systems and physician groups, please provide a more detailed cybersecurity risk factor that addresses the Company's specific exposure to cybersecurity threats and data breach risks.

Response: The Company acknowledges the Staff's comment and has substantially revised and expanded the cybersecurity risk factor in the Amended Draft Registration Statement, beginning on page 40, to specifically address the following matters:

(i) Volume and sensitivity of PHI. The Arbor Platform processes, stores, and transmits a significant volume of protected health information on behalf of over 1,200 hospital systems and physician groups, including patient demographics, clinical records, diagnostic data, and billing information. The volume and sensitivity of this data make the Company an attractive target for cyberattacks, ransomware, and other malicious activity.

(ii) History of data security incidents. The Company supplementally advises the Staff that, as of the date of this letter, the Company has not experienced any material data security incident or breach of PHI that has required notification to individuals, regulators, or the Department of Health and Human Services ("HHS"). The Company has disclosed this fact in the Amended Draft Registration Statement, while noting that there can be no assurance that the Company will not experience a material incident in the future.

(iii) Insurance coverage for cybersecurity incidents. The Company maintains cyber liability insurance coverage with policy limits that the Company believes are appropriate based on its current risk profile, but there can be no assurance that such coverage will be sufficient to cover all losses arising from a material cybersecurity incident.

(iv) Potential financial and reputational impact. A significant data breach could result in: (A) civil monetary penalties under HIPAA of up to $1.9 million per violation category per calendar year; (B) obligations under state breach notification laws in the 42 states where the Company operates, potentially requiring notification to millions of individuals and state attorneys general; (C) class action litigation from affected individuals or the Company's hospital and physician group clients; (D) contractual liability under the Company's business associate agreements; (E) loss of ONC certification or other regulatory consequences; and (F) significant reputational harm that could adversely affect the Company's ability to attract and retain clients.

(v) Cross-reference to Item 106 disclosure. The revised risk factor includes a cross-reference to the Company's new cybersecurity risk management, strategy, and governance disclosure prepared pursuant to Item 106 of Regulation S-K, which appears on page 117 of the Amended Draft Registration Statement and describes the Company's cybersecurity risk management program, the role of the Company's Chief Information Security Officer ("CISO"), and the oversight role of the Board of Directors and its Audit Committee.

These revisions appear on pages 40 through 43 of the Amended Draft Registration Statement.

Comment 8. The risk factor regarding dependence on key personnel should identify the specific key executives upon whom the Company's business is particularly dependent. Please revise accordingly.

Response: The Company acknowledges the Staff's comment and has revised the key personnel risk factor in the Amended Draft Registration Statement, on page 44, to specifically identify the following individuals as key personnel whose departure could materially adversely affect the Company's business, operations, and growth strategy:

(i) Dr. Nathaniel Rourke, Co-Founder, Chairman, and Chief Executive Officer. Dr. Rourke has served as the Company's CEO since its founding in 2014 and has been instrumental in establishing the Company's strategic vision, building relationships with major hospital systems, and leading the Company's growth from a startup to a company generating over $600 million in annual revenue.

(ii) Margaret "Meg" Tsujimoto, Co-Founder and Chief Technology Officer. Ms. Tsujimoto is the architect of the Arbor Platform and has overseen the development of the Company's proprietary clinical decision support algorithms and machine learning models since the Company's founding. Ms. Tsujimoto's deep technical expertise and institutional knowledge of the Arbor Platform's architecture would be extremely difficult to replace.

(iii) Dr. Priya Subramanian, Chief Medical Officer. Dr. Subramanian provides critical clinical leadership and serves as the Company's primary liaison with physician groups and clinical stakeholders at the Company's hospital system clients. Dr. Subramanian's clinical credibility and relationships are important to the Company's ability to develop clinically relevant products and maintain the confidence of its healthcare provider clients.

The revised risk factor further notes that the Company does not maintain key person life insurance policies on any of these individuals and that the loss of any of them, particularly in combination, could disrupt the Company's operations, delay product development, and adversely affect the Company's relationships with clients and business partners. The revisions appear on page 44 of the Amended Draft Registration Statement.

Comment 9. Please add a risk factor disclosing the specific risks related to the Company's reliance on third-party cloud infrastructure providers.

Response: The Company acknowledges the Staff's comment and has added a new risk factor to the Amended Draft Registration Statement, on page 46, addressing the Company's dependence on third-party cloud hosting infrastructure. The Arbor Platform is hosted on infrastructure provided by a major third-party cloud services provider. The new risk factor addresses the following specific risks:

(i) Service interruptions. Any disruption of, or degradation in, the third-party cloud infrastructure on which the Arbor Platform is hosted, including due to power outages, natural disasters, cyberattacks, or other events beyond the Company's control, could result in the Arbor Platform becoming unavailable to the Company's clients, potentially triggering service level agreement ("SLA") credits or penalties and causing reputational harm.

(ii) Price increases. The Company's cloud hosting costs represent a significant component of its cost of revenue. The third-party cloud services provider could increase its pricing, which could adversely affect the Company's gross margins unless the Company is able to pass such increases on to its clients.

(iii) Contractual disputes. Any dispute with the third-party cloud services provider regarding the terms and conditions of service, including data security obligations, could disrupt the Company's operations or require the Company to migrate the Arbor Platform to an alternative provider, which would be costly, complex, and time-consuming.

(iv) Impact on SLA commitments. The Company's SLAs with its hospital and physician group clients typically guarantee uptime of 99.9% or higher. The Company's ability to meet these commitments depends in significant part on the reliability of its third-party cloud infrastructure. Failure to meet SLA commitments could result in financial penalties and loss of client confidence.

These revisions appear on page 46 of the Amended Draft Registration Statement.

Comment 10. The risk factor regarding potential sales of substantial amounts of common stock after the IPO should be more specific regarding the lock-up period, the number of shares subject to lock-up, and the potential market impact upon lock-up expiration. Please revise accordingly.

Response: The Company acknowledges the Staff's comment and has substantially revised the lock-up expiration risk factor in the Amended Draft Registration Statement, beginning on page 48, to include the following specific disclosures:

(i) Lock-up period. The Company, all of its directors and executive officers, and all of its pre-IPO stockholders have agreed to a 180-day lock-up period from the date of the final prospectus. The lock-up agreements are in favor of Whitfield Barrow & Co., LLC, as Representative of the underwriters.

(ii) Shares subject to lock-up. Approximately 80,000,000 shares of Common Stock outstanding immediately prior to the Offering are subject to the lock-up, representing 100% of all pre-IPO outstanding shares. Upon expiration of the lock-up period, these shares would represent approximately 77.7% of the total post-IPO outstanding shares of Common Stock, assuming full exercise of the overallotment option (i.e., 80,000,000 shares out of a total of 103,000,000 post-IPO shares outstanding).

(iii) Significant holders. The following pre-IPO stockholders hold significant numbers of shares that would become eligible for sale upon lock-up expiration, subject to any applicable volume limitations under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"):

• Brindoval Trelvon Partners Fund IV, L.P.: 28,000,000 shares, representing approximately 27.18% of post-IPO outstanding shares (assuming full exercise of the overallotment option);

• Ridgeline Growth Equity Fund III, LLC: 16,000,000 shares, representing approximately 15.53% of post-IPO outstanding shares;

• Dr. Nathaniel Rourke: 12,800,000 shares, representing approximately 12.43% of post-IPO outstanding shares; and

• Margaret Tsujimoto: 9,600,000 shares, representing approximately 9.32% of post-IPO outstanding shares.

(iv) Registration Rights Agreement. The revised risk factor also discusses the Amended and Restated Registration Rights Agreement, dated October 22, 2020 (as amended in connection with the IPO), pursuant to which certain pre-IPO stockholders, including Brindoval Trelvon Partners Fund IV, L.P. and Ridgeline Growth Equity Fund III, LLC, have demand registration rights, piggyback registration rights, and S-3 shelf registration rights (available beginning 12 months after the IPO). The exercise of these registration rights following the expiration of the lock-up period could result in significant sales of Common Stock in the public market, which could cause the market price of the Common Stock to decline.

These revisions appear on pages 48 through 50 of the Amended Draft Registration Statement.

Comment 11. The risk factor regarding anti-takeover provisions in the Company's charter documents should specifically enumerate the anti-takeover provisions. Please revise accordingly.

Response: The Company acknowledges the Staff's comment and has revised the anti-takeover provisions risk factor in the Amended Draft Registration Statement, beginning on page 51, to specifically identify and describe the following provisions of the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, each of which will be effective upon the completion of the Offering:

(i) Prohibition on stockholder action by written consent. The Amended and Restated Certificate of Incorporation provides that stockholder action may be taken only at a duly called annual or special meeting of stockholders and may not be taken by written consent in lieu of a meeting, which prevents stockholders from acting to effect changes without providing all stockholders the opportunity to participate.

(ii) Supermajority vote to amend bylaws. The Amended and Restated Certificate of Incorporation requires the affirmative vote of the holders of at least 66⅔% of the voting power of all then-outstanding shares of capital stock entitled to vote generally in the election of directors to amend or repeal the Amended and Restated Bylaws.

(iii) Advance notice bylaw. The Amended and Restated Bylaws require stockholders seeking to nominate candidates for election as directors or to bring other business before an annual meeting of stockholders to provide timely written notice to the Company's Secretary not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting, along with specified information regarding the stockholder, the nominee, or the proposed business.

(iv) Authorized but unissued preferred stock. The Amended and Restated Certificate of Incorporation authorizes the Board of Directors to issue up to 50,000,000 shares of preferred stock in one or more series, with such designations, rights, preferences, and limitations as the Board of Directors may determine from time to time, without further stockholder approval. This "blank check" preferred stock could be used by the Board to create voting or other impediments to a potential change of control.

(v) Classified board of directors. The Amended and Restated Certificate of Incorporation provides for a classified board of directors consisting of three classes, with staggered three-year terms. As a result, only approximately one-third of the Board of Directors will be elected at each annual meeting of stockholders, making it more difficult for a potential acquirer to gain control of the Board.

(vi) Section 203 of the DGCL. The Company has not opted out of Section 203 of the Delaware General Corporation Law (the "DGCL"), which generally prohibits a Delaware corporation from engaging in specified business combinations with an "interested stockholder" (generally defined as a person who acquires 15% or more of the corporation's outstanding voting stock) for a period of three years following the time the person becomes an interested stockholder, unless certain conditions are met.

The revised risk factor notes that these provisions, individually and collectively, could discourage, delay, or prevent a merger, acquisition, tender offer, or proxy contest involving the Company, even if such a transaction would be beneficial to the Company's stockholders. These revisions appear on pages 51 through 53 of the Amended Draft Registration Statement.

Comment 12. Please provide more specific discussion in the risk factors of the risks related to the Company's intellectual property portfolio, including patent coverage and trade secret protections for the Arbor Platform.

Response: The Company acknowledges the Staff's comment and has enhanced the intellectual property risk factor disclosure in the Amended Draft Registration Statement, beginning on page 54, to address the following specific risks:

(i) Reliance on a combination of protections. The Company relies on a combination of patent, copyright, trade secret, and contractual protections to establish and protect its proprietary rights in the Arbor Platform. These protections may not be sufficient to prevent unauthorized use, misappropriation, or reverse engineering of the Company's technology, and the Company's intellectual property rights may not provide the Company with a competitive advantage.

(ii) Risks of third-party infringement claims. The Company operates in the healthcare information technology industry, which is characterized by a significant number of patents and frequent claims and litigation regarding patent and other intellectual property rights. The Company may receive notices of claims of infringement of third-party patents, trade secrets, or other intellectual property rights, and any such claims, regardless of their merit, could be time-consuming and expensive to defend and could divert management's attention from the Company's business.

(iii) Challenges of protecting proprietary algorithms and machine learning models. The Arbor Platform incorporates proprietary algorithms and machine learning models that are central to the platform's clinical decision support capabilities. These algorithms and models are protected primarily as trade secrets and are not fully protectable through patent or copyright law. The Company's ability to maintain the confidentiality of these trade secrets depends in part on its ability to enforce non-disclosure and non-competition agreements with its employees, contractors, and business partners, which may not be fully enforceable in all jurisdictions.

(iv) Patent prosecution risks. The Company's pending patent applications may not result in issued patents, and even if patents are granted, they may not provide meaningful protection or competitive advantages. The scope and validity of the Company's issued patents may be challenged, and the Company may be required to incur significant costs in defending its patents.

These revisions appear on pages 54 through 56 of the Amended Draft Registration Statement.

Business Section

Comment 13. Please provide a more detailed description of the Company's revenue model in the Business section, including the relative contributions of subscription/SaaS revenue versus professional services/outsourcing revenue, and the typical contract terms and structures for each revenue stream.

Response: The Company acknowledges the Staff's comment and has substantially enhanced the revenue model description in the "Business" section of the Amended Draft Registration Statement, beginning on page 82, to include the following additional detail:

(i) Subscription-based SaaS revenue — Arbor Platform. The Company's primary revenue stream is derived from subscription-based access to the Arbor Platform, which provides clinical decision support and population health management capabilities. SaaS subscription contracts are typically structured as multi-year agreements with an average initial term of three years, with automatic annual renewal provisions thereafter. Pricing is generally based on a per-provider or per-bed basis, depending on the size and type of the client's healthcare organization. The Company typically invoices SaaS subscription fees annually or quarterly in advance.

(ii) Revenue cycle management outsourcing services. The Company provides revenue cycle management ("RCM") outsourcing services to hospital systems and physician groups through the Arbor Platform. RCM services are priced on a per-transaction basis or as a percentage of collections achieved on behalf of the client, depending on the specific engagement. RCM contracts typically have initial terms of two to five years.

(iii) Real-time analytics services. The Company offers real-time analytics services, including customized reporting, benchmarking, and predictive analytics, priced on a subscription basis with terms and pricing similar to the Company's SaaS subscription arrangements.

(iv) Revenue mix. For FY2023, the Company's total revenue of $612.4 million was composed of approximately 62% SaaS/subscription revenue (approximately $379.7 million) and approximately 38% professional services and outsourcing revenue (approximately $232.7 million), including RCM outsourcing, professional services, analytics services, and implementation fees. This compares to a revenue mix of approximately 58% SaaS/subscription and approximately 42% professional services and outsourcing for FY2022.

These revisions appear on pages 82 through 85 of the Amended Draft Registration Statement.

Comment 14. Please provide disclosure of the Company's intellectual property portfolio in the Business section, including the number of issued patents, pending patent applications, and material registered trademarks.

Response: The Company acknowledges the Staff's comment and has added disclosure of the Company's intellectual property portfolio in the "Business" section of the Amended Draft Registration Statement, beginning on page 90. The added disclosure includes the following:

(i) As of December 22, 2023, the Company holds 18 issued U.S. patents relating to clinical decision support algorithms, data integration methodologies, and health data analytics, with expiration dates ranging from 2031 to 2043.

(ii) The Company has 12 pending U.S. patent applications relating to machine learning applications in clinical decision support, population health risk stratification, and real-time healthcare data analytics.

(iii) The Company holds 7 registered trademarks in the United States, including "Arbor Health®," "Arbor Platform®," "AHT®," and "ArborInsight®."

(iv) The Company also relies on a substantial body of material unregistered intellectual property, including proprietary source code, clinical decision support algorithms, machine learning models, and training datasets, which are protected primarily through trade secret protections, confidentiality agreements, and access controls.

These revisions appear on pages 90 through 91 of the Amended Draft Registration Statement.

Comment 15. Please clarify whether the Company derives material revenue from government contracts (e.g., CMS, VA, DoD) and whether any government approvals or certifications are material to the Company's operations.

Response: The Company acknowledges the Staff's comment and has added clarifying disclosure in the "Business" section of the Amended Draft Registration Statement, beginning on page 92. The Company's clients include certain government-affiliated hospital systems and healthcare networks (including facilities affiliated with the U.S. Department of Veterans Affairs and state university health systems), but the Company does not hold direct contracts with the U.S. federal government, CMS, the VA, the DoD, or any other federal agency. Revenue derived from government-affiliated hospital systems is generated through the Company's standard commercial contracting process with such hospital systems and is not subject to federal procurement regulations such as the Federal Acquisition Regulation ("FAR") or the Defense Federal Acquisition Regulation Supplement ("DFARS").

The Company has also added disclosure regarding the importance of ONC Health IT Certification to the Company's business. The Arbor Platform is certified under the ONC Health IT Certification Program, which certification enables the Company's hospital system clients to participate in certain federal incentive programs and to demonstrate compliance with interoperability and data exchange requirements under the 21st Century Cures Act. The Company believes that its ONC certification is material to its ability to market and sell the Arbor Platform, and the loss of, or a failure to maintain, ONC certification could materially adversely affect the Company's business and results of operations.

These revisions appear on pages 92 through 93 of the Amended Draft Registration Statement.

Comment 16. Please enhance your human capital disclosure pursuant to Item 101(c)(2)(ii) of Regulation S-K to include workforce demographics, retention strategies, and diversity initiatives.

Response: The Company acknowledges the Staff's comment and has expanded the human capital disclosure in the "Business" section of the Amended Draft Registration Statement, beginning on page 94, to include the following additional information:

(i) Workforce overview. As of December 31, 2023, the Company employed approximately 3,400 full-time employees. The Company was founded in 2014 by Dr. Nathaniel Rourke and Margaret Tsujimoto, and has grown its workforce from 14 employees at founding to approximately 3,400 employees over the past nine years. None of the Company's employees are represented by a labor union or covered by a collective bargaining agreement.

(ii) Functional breakdown. Of the Company's approximately 3,400 employees, approximately 1,360 (40%) are in research and development and engineering, approximately 1,020 (30%) are in client services and revenue cycle management operations, approximately 510 (15%) are in sales and marketing, and approximately 510 (15%) are in general and administrative functions.

(iii) Geographic distribution. The Company's employees are primarily located across four offices: Cambridge, Massachusetts (headquarters; approximately 1,200 employees); Nashville, Tennessee (approximately 900 employees); Austin, Texas (approximately 700 employees); and Denver, Colorado (approximately 400 employees). Additionally, approximately 200 employees work remotely across various U.S. locations.

(iv) Retention strategies and compensation philosophy. The Company's compensation philosophy is designed to attract, retain, and motivate top talent in the competitive healthcare IT industry. The Company's compensation programs include competitive base salaries, annual performance-based cash bonuses, equity incentive awards (under the 2014 Stock Incentive Plan and, following the IPO, the 2024 Equity Incentive Plan and 2024 ESPP), comprehensive health and welfare benefits, and professional development programs. The Company also offers flexible work arrangements, including hybrid and remote work options for eligible positions.

(v) Diversity and inclusion. The Company is committed to fostering a diverse, equitable, and inclusive workplace. The Company has established an internal Diversity, Equity, and Inclusion ("DEI") Council, chaired by a senior executive and reporting to the CEO, which is responsible for developing and implementing the Company's DEI strategy, including recruitment, retention, and advancement initiatives aimed at increasing representation across all levels of the organization. The Company publishes an annual internal DEI report tracking progress against established diversity goals.

These revisions appear on pages 94 through 96 of the Amended Draft Registration Statement.

Use of Proceeds

Comment 17. The use of proceeds disclosure is insufficiently specific. Please revise the use of proceeds disclosure to provide a more detailed allocation of anticipated net proceeds from the Offering.

Response: The Company acknowledges the Staff's comment and has revised the "Use of Proceeds" section of the Amended Draft Registration Statement, beginning on page 56, to provide the following specific allocation of the anticipated net proceeds from the Offering (assuming a base offering of 20,000,000 shares of Common Stock without exercise of the overallotment option):

(i) Approximately $65 million will be used to repay the entire outstanding balance on the Company's $150 million senior secured revolving credit facility (the "Credit Facility") with Keypoint National Bank, N.A., as Administrative Agent. Additional information regarding the Credit Facility, including its maturity date, interest rate, and the use of initial borrowings, is set forth in the Company's response to Comment 18 below and in the revised disclosure on page 57 of the Amended Draft Registration Statement.

(ii) Approximately $120 million will be allocated to product development and research and development investment, including the continued development and enhancement of the Arbor Platform's clinical decision support algorithms, machine learning capabilities, and population health management features, as well as investment in new product initiatives.

(iii) Approximately $100 million will be allocated to potential acquisitions and strategic investments. While the Company has no binding agreements or commitments with respect to any specific acquisition or strategic investment as of the date of the Amended Draft Registration Statement, the Company regularly evaluates strategic opportunities that would complement or expand its technology platform, client base, or service capabilities.

(iv) The balance of the net proceeds, estimated at approximately $63 million (based on an assumed initial public offering price of $18.00 per share, the midpoint of the estimated price range), will be used for general corporate purposes and working capital, including general and administrative expenses, capital expenditures, and other corporate purposes.

If the underwriters exercise their overallotment option in full, the Company expects to receive additional net proceeds of approximately $51.3 million (based on the assumed midpoint offering price), and the Company expects to allocate such additional net proceeds to general corporate purposes and working capital.

These revisions appear on pages 56 through 58 of the Amended Draft Registration Statement.

Comment 18. Please provide additional detail regarding the credit facility to be repaid with IPO proceeds, including the maturity date, interest rate, use of initial borrowings, and any other material terms.

Response: The Company acknowledges the Staff's comment and has added the following additional disclosure regarding the Credit Facility in the "Use of Proceeds" section and in the "Liquidity and Capital Resources" subsection of the MD&A of the Amended Draft Registration Statement:

(i) Parties and structure. The Credit Facility is a senior secured revolving credit facility entered into on March 15, 2022, among the Company, as borrower, Keypoint National Bank, N.A., as Administrative Agent and a lender, and Stonemill Capital Bank, as a syndicate lender member. The total commitment under the Credit Facility is $150 million.

(ii) Maturity date. The Credit Facility matures on March 15, 2027.

(iii) Interest rate. Borrowings under the Credit Facility bear interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") plus an applicable margin of 200 basis points per annum.

(iv) Financial covenants. The Credit Agreement governing the Credit Facility contains financial covenants requiring the Company to maintain: (A) a Total Net Leverage Ratio of no greater than 3.50 to 1.00; and (B) a Fixed Charge Coverage Ratio of no less than 1.25 to 1.00, in each case tested on a quarterly basis. As of the date of this letter, the Company is in compliance with all covenants under the Credit Agreement.

(v) Outstanding balance. As of the date of this letter, approximately $65 million is drawn under the Credit Facility. The Company intends to repay this entire outstanding balance using a portion of the net proceeds from the Offering, which would leave the full $150 million commitment available for future borrowings.

(vi) Use of initial borrowings. Amounts borrowed under the Credit Facility have been used for working capital, product development expenditures, and general corporate purposes.

(vii) First Amendment. The Company and the lenders have negotiated and expect to enter into a First Amendment to the Credit Agreement, dated as of January 18, 2024 (the "First Amendment"), which will: (A) amend the definition of "Change of Control" under the Credit Agreement to accommodate the post-IPO ownership structure of the Company; and (B) add a "Permitted Equity Issuance" carve-out to the negative covenants in the Credit Agreement to permit the issuance and sale of Common Stock in connection with the IPO and any subsequent offerings.

These revisions appear on pages 57 through 58 and pages 108 through 110 of the Amended Draft Registration Statement.

Capitalization and Dilution

Comment 19. Please revise the capitalization table to clearly present both a pre-IPO "actual" column and an "as adjusted" column reflecting the Offering and the application of net proceeds.

Response: The Company acknowledges the Staff's comment and has revised the capitalization table in the Amended Draft Registration Statement, beginning on page 59, to include the following two columns:

(i) Actual. The "Actual" column presents the Company's capitalization as of September 30, 2023, on an actual historical basis.

(ii) As Adjusted. The "As Adjusted" column presents the Company's capitalization as of September 30, 2023, as adjusted to give effect to: (A) the sale and issuance by the Company of 20,000,000 shares of Common Stock in the Offering at an assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range), after deducting the estimated underwriting discount and estimated offering expenses payable by the Company; and (B) the application of the net proceeds from the Offering as described in "Use of Proceeds," including the repayment of approximately $65 million outstanding under the Credit Facility.

The revised capitalization table reflects the following key data points:

• Pre-IPO shares of Common Stock outstanding: 80,000,000

• Shares of Common Stock to be issued in the Offering (base offering): 20,000,000

• Post-IPO shares of Common Stock outstanding (base offering): 100,000,000

• Shares subject to overallotment option: 3,000,000

• Post-IPO shares of Common Stock outstanding (with full exercise of overallotment option): 103,000,000

• Authorized shares of Common Stock: 400,000,000 (par value $0.001 per share)

• Authorized shares of Preferred Stock: 50,000,000 (par value $0.001 per share)

• Shares of Preferred Stock outstanding: zero (upon completion of the IPO, all outstanding shares of the Company's convertible preferred stock will be converted into shares of Common Stock)

The Company has also added a footnote to the capitalization table noting that the table does not give effect to: (A) the 11,200,000 shares of Common Stock issuable upon the exercise of outstanding options under the 2014 Stock Incentive Plan; (B) the 10,300,000 shares of Common Stock reserved for future issuance under the 2024 Equity Incentive Plan; or (C) the 2,060,000 shares of Common Stock reserved for future issuance under the 2024 ESPP, except as otherwise noted.

These revisions appear on pages 59 through 61 of the Amended Draft Registration Statement.

Comment 20. Please revise the dilution analysis to include the impact of outstanding stock options under the 2014 Stock Incentive Plan and the reserved shares under the 2024 Equity Incentive Plan and 2024 ESPP.

Response: The Company acknowledges the Staff's comment and has revised the dilution analysis in the Amended Draft Registration Statement, beginning on page 62, to include the following additional equity plan information:

(i) 2014 Stock Incentive Plan. The Company's 2014 Stock Incentive Plan (the "2014 Plan") has 12,000,000 shares of Common Stock authorized for issuance. As of the date of this letter, 11,200,000 stock options have been granted under the 2014 Plan, of which 8,400,000 are currently vested and exercisable. The weighted average exercise price of all outstanding options under the 2014 Plan is $3.25 per share. The 2014 Plan will be frozen upon the effectiveness of the 2024 Equity Incentive Plan, and no additional awards will be made under the 2014 Plan following the IPO.

(ii) 2024 Equity Incentive Plan. The Company's 2024 Equity Incentive Plan (the "2024 Plan") was adopted by the Board of Directors on January 15, 2024, and will become effective upon the completion of the IPO. The 2024 Plan provides for the issuance of up to 10,300,000 shares of Common Stock, representing approximately 10% of the total post-IPO outstanding shares of Common Stock (assuming full exercise of the overallotment option, yielding 103,000,000 shares outstanding). The 2024 Plan also includes an annual "evergreen" provision, pursuant to which the share reserve will automatically increase on January 1 of each year, beginning January 1, 2025, by a number of shares equal to 3% of the total number of shares of Common Stock outstanding as of the immediately preceding December 31, or such lesser number of shares as determined by the Board of Directors.

(iii) 2024 Employee Stock Purchase Plan. The Company's 2024 Employee Stock Purchase Plan (the "2024 ESPP") was adopted by the Board of Directors on January 15, 2024, and will become effective upon the completion of the IPO. The 2024 ESPP provides for the issuance of up to 2,060,000 shares of Common Stock, representing approximately 2% of the total post-IPO outstanding shares of Common Stock (assuming full exercise of the overallotment option).

The revised dilution table in the Amended Draft Registration Statement now separately presents the dilution to new investors in the Offering both (A) without giving effect to the shares reserved under the 2014 Plan, the 2024 Plan, and the 2024 ESPP, and (B) giving effect to the exercise of all outstanding options under the 2014 Plan and the reservation of shares under the 2024 Plan and the 2024 ESPP. This allows investors to understand the full potential dilutive impact of the Company's equity compensation programs.

These revisions appear on pages 62 through 64 of the Amended Draft Registration Statement.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Comment 21. Please provide a more detailed explanation of the Company's revenue recognition policies under ASC 606, including identification of performance obligations, allocation of transaction price among multiple performance obligations, and timing of revenue recognition for each of the Company's revenue streams.

Response: The Company acknowledges the Staff's comment and has substantially expanded the revenue recognition disclosure in the MD&A section of the Amended Draft Registration Statement, beginning on page 98, to address each of the Staff's specific requests. The revised disclosure addresses the following:

(i) SaaS subscription revenue — Arbor Platform. The Company has identified the primary performance obligation in its SaaS subscription arrangements as the provision of ongoing access to the Arbor Platform over the subscription term. This performance obligation is a stand-ready obligation that is satisfied over time, as the customer simultaneously receives and consumes the benefits of the platform throughout the contract period. Accordingly, the Company recognizes SaaS subscription revenue ratably over the contract term, which is typically three years. The Company determines the stand-alone selling price of the SaaS subscription performance obligation based on observable pricing in standalone transactions with similarly situated customers.

(ii) Revenue cycle management outsourcing services. The Company has identified the primary performance obligation in its RCM outsourcing arrangements as the delivery of specified outsourced revenue cycle management services, including coding, claims submission, denial management, and collections support. This performance obligation is satisfied over time as the services are rendered. Revenue is recognized on a per-transaction basis or as a percentage of collections achieved on behalf of the client, depending on the terms of the specific arrangement. For percentage-of-collections arrangements, the transaction price includes variable consideration, which is estimated using the expected value method as described in the Company's response to Comment 22 below.

(iii) Professional services and implementation. The Company has identified professional services, including implementation, configuration, training, and customization services, as distinct performance obligations where the services do not significantly modify or customize the Arbor Platform and where the customer can benefit from the services together with other readily available resources. Professional services revenue is recognized over time as the services are rendered, using an input method based on hours incurred relative to total estimated hours to complete the engagement.

(iv) Stand-alone selling prices in bundled arrangements. When the Company enters into multi-element arrangements that include a combination of SaaS subscription, RCM outsourcing, and professional services, the Company allocates the transaction price among the identified performance obligations based on their relative stand-alone selling prices. The Company determines stand-alone selling prices based on observable pricing in standalone transactions where available. For performance obligations that are not sold on a standalone basis, the Company estimates stand-alone selling prices using an adjusted market assessment approach or expected cost plus margin approach, as appropriate.

(v) Remaining performance obligations (RPO). The Company has added disclosure of the aggregate amount of the transaction price allocated to remaining performance obligations ("RPO") that are unsatisfied or partially unsatisfied as of December 31, 2023 and September 30, 2023, and the periods over which the Company expects to recognize such RPO as revenue.

These revisions appear on pages 98 through 102 of the Amended Draft Registration Statement.

Comment 22. Please provide disclosure of the Company's policies for accounting for contract modifications and variable consideration, including revenue cycle management arrangements where fees are tied to collections.

Response: The Company acknowledges the Staff's comment and has added the following specific disclosures in the MD&A section of the Amended Draft Registration Statement, beginning on page 103:

(i) Contract modification accounting. The Company's SaaS subscription and RCM outsourcing contracts are sometimes modified during their terms, for example, to add new modules, increase the scope of services, or adjust pricing. The Company evaluates each contract modification to determine whether it should be accounted for as: (A) a separate contract, if the modification adds distinct goods or services and the pricing reflects the stand-alone selling price of the added goods or services (accounted for under ASC 606-10-25-12); or (B) a modification of the existing contract, accounted for on a prospective basis as a termination of the old contract and creation of a new contract (under ASC 606-10-25-13). The majority of the Company's contract modifications during FY2023 and FY2022 were accounted for as separate contracts or as prospective modifications.

(ii) Variable consideration. In the Company's RCM outsourcing arrangements where fees are structured as a percentage of collections achieved on behalf of the client, the transaction price includes variable consideration. The Company estimates variable consideration using the expected value method, based on historical collection rates for similarly situated clients and payor mixes, adjusted for known or expected changes in payor reimbursement rates or client-specific factors. The Company applies the variable consideration constraint under ASC 606-10-32-11 and includes variable consideration in the transaction price only to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

(iii) Amount of revenue from variable consideration. For FY2023, the Company recognized approximately $87.3 million of revenue from variable consideration arrangements (primarily RCM percentage-of-collections arrangements), compared to approximately $72.1 million for FY2022. No material reversals of previously recognized revenue from variable consideration were recorded during either period.

These revisions appear on pages 103 through 104 of the Amended Draft Registration Statement.

Comment 23. We note several concerns with the Company's presentation of Adjusted EBITDA as a non-GAAP financial measure. Please revise the presentation to comply with SEC guidance, including Regulation G, Item 10(e) of Regulation S-K, and applicable SEC staff guidance on non-GAAP financial measures.

Response: The Company acknowledges the Staff's comment and has revised the presentation of Adjusted EBITDA in the MD&A section of the Amended Draft Registration Statement, beginning on page 105, to address each of the Staff's specific concerns as follows:

(i) Clear definition with all adjustments specifically identified. Adjusted EBITDA is now defined as net income before interest expense (net), provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition-related transaction costs, and restructuring charges. Each adjustment is specifically identified and quantified in the reconciliation table.

(ii) Reconciliation from net income to Adjusted EBITDA. The Company has presented a detailed reconciliation from net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA for each period presented. For FY2023, the reconciliation begins with net income of $41.3 million and reconciles to Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approx

CALDERWOOD & HARKNESS LLP 125 Broad Street New York, NY 10004
Telephone: (212) 848-4000 Facsimile: (212) 848-4800 www.calderwoodharkness.com
December 22, 2023
Via EDGAR and Overnight Courier
Staff of the Division of Corporation Finance Office of Life Sciences U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549
Re: Arbor Health Technologies Inc. Draft Registration Statement on Form S-1 Submitted Confidentially on November 10, 2023 CIK No. 0001987432
Dear Ladies and Gentlemen:
On behalf of our client, Arbor Health Technologies Inc. ("Arbor Health," "AHT," or the "Company"), a corporation organized and existing under the laws of the State of Delaware, with its principal executive offices located at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, we are writing to respond to the comments of the staff (the "Staff") of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Commission" or the "SEC") set forth in your letter dated December 8, 2023 (the "Comment Letter"), relating to the Company's Draft Registration Statement on Form S-1 (the "Draft Registration Statement"), which was confidentially submitted to the Commission on November 10, 2023. Calderwood & Harkness LLP serves as counsel to the Company in connection with the Company's proposed initial public offering (the "IPO" or the "Offering") of shares of its common stock, par value $0.001 per share (the "Common Stock"), on the New York Stock Exchange (the "NYSE").
The Comment Letter contained 38 comments. The Company has considered each of the Staff's comments carefully and has revised the Draft Registration Statement in response to those comments. Concurrently with the submission of this letter, the Company is submitting via EDGAR an amended Draft Registration Statement on Form S-1 (the "Amended Draft Registration Statement") incorporating the revisions described in the responses set forth below.
For the convenience of the Staff, each of the Staff's comments is reproduced below in bold and is followed by the Company's response. Unless otherwise indicated, all page references in the Company's responses refer to the pages of the Amended Draft Registration Statement. Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Amended Draft Registration Statement.
This letter was prepared by Theodore Langston, Responsible Partner, Capital Markets Group, and Eric Johannsen, Lead Associate, Capital Markets Group, of Calderwood & Harkness LLP, each of whom may be contacted at the telephone numbers set forth at the conclusion of this letter. The Company respectfully supplementally advises the Staff as set forth below with respect to each comment.
COMMENTS AND RESPONSES
Cover Page / Prospectus Summary
Comment 1. We note that the cover page of the Draft Registration Statement does not include an estimated offering size, an anticipated price range, or a summary of the expected use of net proceeds. Please revise the cover page to include this information or advise us when you intend to include it.
Response: The Company acknowledges the Staff's comment and has revised the cover page of the Amended Draft Registration Statement to include placeholder language for the estimated price range. As is customary for confidentially submitted draft registration statements, the Company intends to include the initial estimated price range in a subsequent amendment to the Registration Statement closer to the time of public filing with the Commission. The Company currently anticipates that the initial estimated price range will be $17.00 to $19.00 per share of Common Stock, based on preliminary discussions with the underwriters and subject to market conditions and further valuation analysis. The Company expects to include the final price range in the publicly filed Registration Statement.
The cover page of the Amended Draft Registration Statement has been further revised to state that the Offering consists of 20,000,000 shares of Common Stock, all of which are being offered by the Company on a primary basis. No shares are being offered by selling stockholders. The cover page now also discloses that the Company has granted to the underwriters an option, exercisable within 30 days from the date of the final prospectus, to purchase up to an additional 3,000,000 shares of Common Stock (representing 15% of the base offering) at the initial public offering price, less the underwriting discount, to cover overallotments, if any. A cross-reference to the "Use of Proceeds" section has been added to the cover page to direct investors to a summary of the Company's intended use of net proceeds from the Offering.
These revisions appear on page 1 of the Amended Draft Registration Statement.
Comment 2. We note that the Company has selected SIC Code 7372 (Prepackaged Software) as its Standard Industrial Classification. However, the Company describes itself as a "healthcare services and SaaS" company in several places in the Draft Registration Statement. Please advise us as to why SIC Code 7372 is the most appropriate classification for the Company given its description of its business.
Response: The Company respectfully advises the Staff that SIC Code 7372 (Prepackaged Software) is the most appropriate classification for the Company's business. The Company's cloud-based clinical decision support and population health management platform, known as the "Arbor Platform," constitutes the primary revenue driver for the Company's business and represents the core of the Company's value proposition to its clients. While the Company also provides revenue cycle management outsourcing services and real-time analytics services, these service offerings are inextricably tied to, and in many cases delivered through, the Arbor Platform. The software platform serves as the technological backbone through which the Company's hospital system and physician group clients access the full suite of the Company's products and services. Accordingly, the Company believes that SIC Code 7372 most accurately reflects the nature of the Company's principal business activities.
To address the Staff's concern, the Company has added clarifying disclosure in the "Business" section of the Amended Draft Registration Statement, beginning on page 78, to describe the integrated nature of the Company's software and services offerings and to explain that the Company's services revenue is substantially derived from, and delivered in connection with, its core software platform. The revised disclosure makes clear that the Company's healthcare services offerings are ancillary to and dependent upon the Arbor Platform, reinforcing the appropriateness of the SIC Code 7372 classification.
Comment 3. The prospectus summary contains limited quantitative information about the Company's market position, customer base, and growth trajectory. Please revise the prospectus summary to include more specific quantitative information regarding these matters.
Response: The Company acknowledges the Staff's comment and has revised the prospectus summary of the Amended Draft Registration Statement, beginning on page 3, to include the following additional quantitative information:
(i) The Company's Arbor Platform is currently used by over 1,200 hospital systems and physician groups across 42 states in the United States, making the Company one of the leading independent providers of clinical decision support and population health management solutions in the country.
(ii) As of December 31, 2023, the Company employed approximately 3,400 full-time employees across its offices in Cambridge, Massachusetts; Nashville, Tennessee; Austin, Texas; and Denver, Colorado.
(iii) For the fiscal year ended December 31, 2023 ("FY2023"), the Company generated total revenue of $612.4 million, representing year-over-year growth of approximately 28% as compared to revenue of $478.4 million for the fiscal year ended December 31, 2022 ("FY2022").
(iv) For FY2023, the Company generated Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approximately 22.6%. The Company's reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable GAAP financial measure, is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures."
(v) For FY2023, the Company reported net income of $41.3 million, compared to net income of $22.9 million for FY2022.
The Company believes these revisions provide investors with a more comprehensive and informative overview of the Company's business, scale, and growth trajectory in the prospectus summary. These revisions appear on pages 3 through 7 of the Amended Draft Registration Statement.
Risk Factors
Comment 4. We note that the risk factor section does not adequately address customer concentration risk. Please revise the risk factors to disclose whether any single customer or group of related customers accounts for 10% or more of the Company's revenue. If so, please identify such customers and disclose the percentage of revenue attributable to them.
Response: The Company acknowledges the Staff's comment and has revised the risk factor section of the Amended Draft Registration Statement to include a new risk factor specifically addressing customer concentration risk, which appears on page 28 of the Amended Draft Registration Statement. The Company advises the Staff that no single customer accounted for 10% or more of the Company's total revenue for FY2023 or FY2022. However, in response to the Staff's comment, the Company has added disclosure that its top 10 customers collectively represented approximately 23% of total FY2023 revenue. The Company has also added a risk factor discussing the potential material adverse impact on the Company's business, financial condition, and results of operations if the Company were to lose one or more of its significant customers, or if one or more significant customers were to reduce their spending on the Company's platform or services. The new risk factor also addresses the risk that customer consolidation in the healthcare industry could result in increased concentration among the Company's customer base over time.
Comment 5. The risk factors related to regulatory risk are generic and do not identify the specific healthcare regulations that materially affect the Company's business. Please revise these risk factors to identify the specific regulatory frameworks that are material to the Company's business and the specific risks associated with each.
Response: The Company acknowledges the Staff's comment and has revised the regulatory risk factors in the Amended Draft Registration Statement, beginning on page 30, to specifically address the following regulatory frameworks and associated risks:
(a) Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and Health Information Technology for Economic and Clinical Health Act ("HITECH Act"). The Company processes, stores, and transmits protected health information ("PHI") on behalf of its hospital system and physician group clients as a "business associate" under HIPAA. The Company is subject to HIPAA's Privacy Rule, Security Rule, and Breach Notification Rule, as well as the enhanced enforcement and penalty provisions of the HITECH Act. The Company's failure to comply with these requirements could result in civil monetary penalties of up to $1.9 million per violation category per calendar year, criminal penalties, and reputational harm.
(b) Centers for Medicare & Medicaid Services ("CMS") Reimbursement Regulations. The Company's revenue cycle management clients depend on reimbursement from CMS and other governmental payors. Changes to CMS reimbursement rates, coding requirements, or billing regulations could adversely affect the Company's revenue cycle management business and the financial condition of the Company's clients.
(c) Office of the National Coordinator for Health Information Technology ("ONC") Health IT Certification Requirements. The Arbor Platform is certified under the ONC Health IT Certification Program, which is a prerequisite for participation in certain federal incentive programs. Changes to certification requirements or the loss of ONC certification could materially adversely affect the Company's ability to market and sell the Arbor Platform.
(d) State Telemedicine and Data Privacy Laws. The Company's platform supports telemedicine and remote patient monitoring capabilities in certain states, subjecting the Company to a patchwork of state-level telemedicine laws and data privacy statutes, including the California Consumer Privacy Act ("CCPA") and similar state privacy legislation.
(e) U.S. Food and Drug Administration ("FDA") Oversight. The Company advises the Staff that its Arbor Platform is not currently regulated by the FDA as a medical device. However, the Company has added a risk factor addressing the risk that the FDA could in the future determine that certain features of the Arbor Platform, particularly its clinical decision support algorithms, constitute a "device" under Section 201(h) of the Federal Food, Drug, and Cosmetic Act, which could subject the Company to premarket review, registration, quality system, and post-market surveillance requirements.
These revisions appear on pages 30 through 36 of the Amended Draft Registration Statement.
Comment 6. The competitive risk factor disclosure does not identify the specific competitive dynamics in the clinical decision support and population health management markets. Please revise the competitive risk factor to provide more specific disclosure regarding the competitive landscape.
Response: The Company acknowledges the Staff's comment and has revised the competitive risk factor in the Amended Draft Registration Statement, beginning on page 37, to identify the following specific competitive dynamics:
(i) Incumbency advantages of legacy electronic health record ("EHR") vendors. Large, established EHR vendors, including Penmark Enterprises and Bramwell Data Systems (formerly Halcyon Technologies), offer integrated clinical decision support and population health management modules within their broader EHR platforms. These vendors benefit from deep integration with their EHR systems, long-term customer relationships, and significant switching costs that may make it difficult for the Company to displace their solutions.
(ii) Pricing pressure from competing SaaS platforms. The Company faces pricing pressure from other SaaS-based clinical decision support and population health management vendors, some of which may offer competing products at lower price points or with more favorable contract terms in order to gain market share.
(iii) Risk of large technology companies entering the healthcare IT space. Large technology companies, including Ridgeway Industries, Brightmoor Partners LLC (Adriatic Partners LLC), and Ashbury Holdings, have made significant investments in healthcare IT and possess substantially greater financial, technical, and marketing resources than the Company. The entry or expansion of such companies into the clinical decision support and population health management markets could materially increase competitive pressures.
(iv) Reliance on continued innovation. The Company's competitive position depends in significant part on its ability to continue to innovate and enhance the Arbor Platform, including its proprietary clinical decision support algorithms and machine learning capabilities. If the Company fails to anticipate or respond to evolving customer needs, technological advancements, or industry trends in a timely manner, the Company's competitive position could be materially adversely affected.
These revisions appear on pages 37 through 39 of the Amended Draft Registration Statement.
Comment 7. Given that the Company handles protected health information for over 1,200 hospital systems and physician groups, please provide a more detailed cybersecurity risk factor that addresses the Company's specific exposure to cybersecurity threats and data breach risks.
Response: The Company acknowledges the Staff's comment and has substantially revised and expanded the cybersecurity risk factor in the Amended Draft Registration Statement, beginning on page 40, to specifically address the following matters:
(i) Volume and sensitivity of PHI. The Arbor Platform processes, stores, and transmits a significant volume of protected health information on behalf of over 1,200 hospital systems and physician groups, including patient demographics, clinical records, diagnostic data, and billing information. The volume and sensitivity of this data make the Company an attractive target for cyberattacks, ransomware, and other malicious activity.
(ii) History of data security incidents. The Company supplementally advises the Staff that, as of the date of this letter, the Company has not experienced any material data security incident or breach of PHI that has required notification to individuals, regulators, or the Department of Health and Human Services ("HHS"). The Company has disclosed this fact in the Amended Draft Registration Statement, while noting that there can be no assurance that the Company will not experience a material incident in the future.
(iii) Insurance coverage for cybersecurity incidents. The Company maintains cyber liability insurance coverage with policy limits that the Company believes are appropriate based on its current risk profile, but there can be no assurance that such coverage will be sufficient to cover all losses arising from a material cybersecurity incident.
(iv) Potential financial and reputational impact. A significant data breach could result in: (A) civil monetary penalties under HIPAA of up to $1.9 million per violation category per calendar year; (B) obligations under state breach notification laws in the 42 states where the Company operates, potentially requiring notification to millions of individuals and state attorneys general; (C) class action litigation from affected individuals or the Company's hospital and physician group clients; (D) contractual liability under the Company's business associate agreements; (E) loss of ONC certification or other regulatory consequences; and (F) significant reputational harm that could adversely affect the Company's ability to attract and retain clients.
(v) Cross-reference to Item 106 disclosure. The revised risk factor includes a cross-reference to the Company's new cybersecurity risk management, strategy, and governance disclosure prepared pursuant to Item 106 of Regulation S-K, which appears on page 117 of the Amended Draft Registration Statement and describes the Company's cybersecurity risk management program, the role of the Company's Chief Information Security Officer ("CISO"), and the oversight role of the Board of Directors and its Audit Committee.
These revisions appear on pages 40 through 43 of the Amended Draft Registration Statement.
Comment 8. The risk factor regarding dependence on key personnel should identify the specific key executives upon whom the Company's business is particularly dependent. Please revise accordingly.
Response: The Company acknowledges the Staff's comment and has revised the key personnel risk factor in the Amended Draft Registration Statement, on page 44, to specifically identify the following individuals as key personnel whose departure could materially adversely affect the Company's business, operations, and growth strategy:
(i) Dr. Nathaniel Rourke, Co-Founder, Chairman, and Chief Executive Officer. Dr. Rourke has served as the Company's CEO since its founding in 2014 and has been instrumental in establishing the Company's strategic vision, building relationships with major hospital systems, and leading the Company's growth from a startup to a company generating over $600 million in annual revenue.
(ii) Margaret "Meg" Tsujimoto, Co-Founder and Chief Technology Officer. Ms. Tsujimoto is the architect of the Arbor Platform and has overseen the development of the Company's proprietary clinical decision support algorithms and machine learning models since the Company's founding. Ms. Tsujimoto's deep technical expertise and institutional knowledge of the Arbor Platform's architecture would be extremely difficult to replace.
(iii) Dr. Priya Subramanian, Chief Medical Officer. Dr. Subramanian provides critical clinical leadership and serves as the Company's primary liaison with physician groups and clinical stakeholders at the Company's hospital system clients. Dr. Subramanian's clinical credibility and relationships are important to the Company's ability to develop clinically relevant products and maintain the confidence of its healthcare provider clients.
The revised risk factor further notes that the Company does not maintain key person life insurance policies on any of these individuals and that the loss of any of them, particularly in combination, could disrupt the Company's operations, delay product development, and adversely affect the Company's relationships with clients and business partners. The revisions appear on page 44 of the Amended Draft Registration Statement.
Comment 9. Please add a risk factor disclosing the specific risks related to the Company's reliance on third-party cloud infrastructure providers.
Response: The Company acknowledges the Staff's comment and has added a new risk factor to the Amended Draft Registration Statement, on page 46, addressing the Company's dependence on third-party cloud hosting infrastructure. The Arbor Platform is hosted on infrastructure provided by a major third-party cloud services provider. The new risk factor addresses the following specific risks:
(i) Service interruptions. Any disruption of, or degradation in, the third-party cloud infrastructure on which the Arbor Platform is hosted, including due to power outages, natural disasters, cyberattacks, or other events beyond the Company's control, could result in the Arbor Platform becoming unavailable to the Company's clients, potentially triggering service level agreement ("SLA") credits or penalties and causing reputational harm.
(ii) Price increases. The Company's cloud hosting costs represent a significant component of its cost of revenue. The third-party cloud services provider could increase its pricing, which could adversely affect the Company's gross margins unless the Company is able to pass such increases on to its clients.
(iii) Contractual disputes. Any dispute with the third-party cloud services provider regarding the terms and conditions of service, including data security obligations, could disrupt the Company's operations or require the Company to migrate the Arbor Platform to an alternative provider, which would be costly, complex, and time-consuming.
(iv) Impact on SLA commitments. The Company's SLAs with its hospital and physician group clients typically guarantee uptime of 99.9% or higher. The Company's ability to meet these commitments depends in significant part on the reliability of its third-party cloud infrastructure. Failure to meet SLA commitments could result in financial penalties and loss of client confidence.
These revisions appear on page 46 of the Amended Draft Registration Statement.
Comment 10. The risk factor regarding potential sales of substantial amounts of common stock after the IPO should be more specific regarding the lock-up period, the number of shares subject to lock-up, and the potential market impact upon lock-up expiration. Please revise accordingly.
Response: The Company acknowledges the Staff's comment and has substantially revised the lock-up expiration risk factor in the Amended Draft Registration Statement, beginning on page 48, to include the following specific disclosures:
(i) Lock-up period. The Company, all of its directors and executive officers, and all of its pre-IPO stockholders have agreed to a 180-day lock-up period from the date of the final prospectus. The lock-up agreements are in favor of Whitfield Barrow & Co., LLC, as Representative of the underwriters.
(ii) Shares subject to lock-up. Approximately 80,000,000 shares of Common Stock outstanding immediately prior to the Offering are subject to the lock-up, representing 100% of all pre-IPO outstanding shares. Upon expiration of the lock-up period, these shares would represent approximately 77.7% of the total post-IPO outstanding shares of Common Stock, assuming full exercise of the overallotment option (i.e., 80,000,000 shares out of a total of 103,000,000 post-IPO shares outstanding).
(iii) Significant holders. The following pre-IPO stockholders hold significant numbers of shares that would become eligible for sale upon lock-up expiration, subject to any applicable volume limitations under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"):
• Brindoval Trelvon Partners Fund IV, L.P.: 28,000,000 shares, representing approximately 27.18% of post-IPO outstanding shares (assuming full exercise of the overallotment option);
• Ridgeline Growth Equity Fund III, LLC: 16,000,000 shares, representing approximately 15.53% of post-IPO outstanding shares;
• Dr. Nathaniel Rourke: 12,800,000 shares, representing approximately 12.43% of post-IPO outstanding shares; and
• Margaret Tsujimoto: 9,600,000 shares, representing approximately 9.32% of post-IPO outstanding shares.
(iv) Registration Rights Agreement. The revised risk factor also discusses the Amended and Restated Registration Rights Agreement, dated October 22, 2020 (as amended in connection with the IPO), pursuant to which certain pre-IPO stockholders, including Brindoval Trelvon Partners Fund IV, L.P. and Ridgeline Growth Equity Fund III, LLC, have demand registration rights, piggyback registration rights, and S-3 shelf registration rights (available beginning 12 months after the IPO). The exercise of these registration rights following the expiration of the lock-up period could result in significant sales of Common Stock in the public market, which could cause the market price of the Common Stock to decline.
These revisions appear on pages 48 through 50 of the Amended Draft Registration Statement.
Comment 11. The risk factor regarding anti-takeover provisions in the Company's charter documents should specifically enumerate the anti-takeover provisions. Please revise accordingly.
Response: The Company acknowledges the Staff's comment and has revised the anti-takeover provisions risk factor in the Amended Draft Registration Statement, beginning on page 51, to specifically identify and describe the following provisions of the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, each of which will be effective upon the completion of the Offering:
(i) Prohibition on stockholder action by written consent. The Amended and Restated Certificate of Incorporation provides that stockholder action may be taken only at a duly called annual or special meeting of stockholders and may not be taken by written consent in lieu of a meeting, which prevents stockholders from acting to effect changes without providing all stockholders the opportunity to participate.
(ii) Supermajority vote to amend bylaws. The Amended and Restated Certificate of Incorporation requires the affirmative vote of the holders of at least 66⅔% of the voting power of all then-outstanding shares of capital stock entitled to vote generally in the election of directors to amend or repeal the Amended and Restated Bylaws.
(iii) Advance notice bylaw. The Amended and Restated Bylaws require stockholders seeking to nominate candidates for election as directors or to bring other business before an annual meeting of stockholders to provide timely written notice to the Company's Secretary not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting, along with specified information regarding the stockholder, the nominee, or the proposed business.
(iv) Authorized but unissued preferred stock. The Amended and Restated Certificate of Incorporation authorizes the Board of Directors to issue up to 50,000,000 shares of preferred stock in one or more series, with such designations, rights, preferences, and limitations as the Board of Directors may determine from time to time, without further stockholder approval. This "blank check" preferred stock could be used by the Board to create voting or other impediments to a potential change of control.
(v) Classified board of directors. The Amended and Restated Certificate of Incorporation provides for a classified board of directors consisting of three classes, with staggered three-year terms. As a result, only approximately one-third of the Board of Directors will be elected at each annual meeting of stockholders, making it more difficult for a potential acquirer to gain control of the Board.
(vi) Section 203 of the DGCL. The Company has not opted out of Section 203 of the Delaware General Corporation Law (the "DGCL"), which generally prohibits a Delaware corporation from engaging in specified business combinations with an "interested stockholder" (generally defined as a person who acquires 15% or more of the corporation's outstanding voting stock) for a period of three years following the time the person becomes an interested stockholder, unless certain conditions are met.
The revised risk factor notes that these provisions, individually and collectively, could discourage, delay, or prevent a merger, acquisition, tender offer, or proxy contest involving the Company, even if such a transaction would be beneficial to the Company's stockholders. These revisions appear on pages 51 through 53 of the Amended Draft Registration Statement.
Comment 12. Please provide more specific discussion in the risk factors of the risks related to the Company's intellectual property portfolio, including patent coverage and trade secret protections for the Arbor Platform.
Response: The Company acknowledges the Staff's comment and has enhanced the intellectual property risk factor disclosure in the Amended Draft Registration Statement, beginning on page 54, to address the following specific risks:
(i) Reliance on a combination of protections. The Company relies on a combination of patent, copyright, trade secret, and contractual protections to establish and protect its proprietary rights in the Arbor Platform. These protections may not be sufficient to prevent unauthorized use, misappropriation, or reverse engineering of the Company's technology, and the Company's intellectual property rights may not provide the Company with a competitive advantage.
(ii) Risks of third-party infringement claims. The Company operates in the healthcare information technology industry, which is characterized by a significant number of patents and frequent claims and litigation regarding patent and other intellectual property rights. The Company may receive notices of claims of infringement of third-party patents, trade secrets, or other intellectual property rights, and any such claims, regardless of their merit, could be time-consuming and expensive to defend and could divert management's attention from the Company's business.
(iii) Challenges of protecting proprietary algorithms and machine learning models. The Arbor Platform incorporates proprietary algorithms and machine learning models that are central to the platform's clinical decision support capabilities. These algorithms and models are protected primarily as trade secrets and are not fully protectable through patent or copyright law. The Company's ability to maintain the confidentiality of these trade secrets depends in part on its ability to enforce non-disclosure and non-competition agreements with its employees, contractors, and business partners, which may not be fully enforceable in all jurisdictions.
(iv) Patent prosecution risks. The Company's pending patent applications may not result in issued patents, and even if patents are granted, they may not provide meaningful protection or competitive advantages. The scope and validity of the Company's issued patents may be challenged, and the Company may be required to incur significant costs in defending its patents.
These revisions appear on pages 54 through 56 of the Amended Draft Registration Statement.
Business Section
Comment 13. Please provide a more detailed description of the Company's revenue model in the Business section, including the relative contributions of subscription/SaaS revenue versus professional services/outsourcing revenue, and the typical contract terms and structures for each revenue stream.
Response: The Company acknowledges the Staff's comment and has substantially enhanced the revenue model description in the "Business" section of the Amended Draft Registration Statement, beginning on page 82, to include the following additional detail:
(i) Subscription-based SaaS revenue — Arbor Platform. The Company's primary revenue stream is derived from subscription-based access to the Arbor Platform, which provides clinical decision support and population health management capabilities. SaaS subscription contracts are typically structured as multi-year agreements with an average initial term of three years, with automatic annual renewal provisions thereafter. Pricing is generally based on a per-provider or per-bed basis, depending on the size and type of the client's healthcare organization. The Company typically invoices SaaS subscription fees annually or quarterly in advance.
(ii) Revenue cycle management outsourcing services. The Company provides revenue cycle management ("RCM") outsourcing services to hospital systems and physician groups through the Arbor Platform. RCM services are priced on a per-transaction basis or as a percentage of collections achieved on behalf of the client, depending on the specific engagement. RCM contracts typically have initial terms of two to five years.
(iii) Real-time analytics services. The Company offers real-time analytics services, including customized reporting, benchmarking, and predictive analytics, priced on a subscription basis with terms and pricing similar to the Company's SaaS subscription arrangements.
(iv) Revenue mix. For FY2023, the Company's total revenue of $612.4 million was composed of approximately 62% SaaS/subscription revenue (approximately $379.7 million) and approximately 38% professional services and outsourcing revenue (approximately $232.7 million), including RCM outsourcing, professional services, analytics services, and implementation fees. This compares to a revenue mix of approximately 58% SaaS/subscription and approximately 42% professional services and outsourcing for FY2022.
These revisions appear on pages 82 through 85 of the Amended Draft Registration Statement.
Comment 14. Please provide disclosure of the Company's intellectual property portfolio in the Business section, including the number of issued patents, pending patent applications, and material registered trademarks.
Response: The Company acknowledges the Staff's comment and has added disclosure of the Company's intellectual property portfolio in the "Business" section of the Amended Draft Registration Statement, beginning on page 90. The added disclosure includes the following:
(i) As of December 22, 2023, the Company holds 18 issued U.S. patents relating to clinical decision support algorithms, data integration methodologies, and health data analytics, with expiration dates ranging from 2031 to 2043.
(ii) The Company has 12 pending U.S. patent applications relating to machine learning applications in clinical decision support, population health risk stratification, and real-time healthcare data analytics.
(iii) The Company holds 7 registered trademarks in the United States, including "Arbor Health®," "Arbor Platform®," "AHT®," and "ArborInsight®."
(iv) The Company also relies on a substantial body of material unregistered intellectual property, including proprietary source code, clinical decision support algorithms, machine learning models, and training datasets, which are protected primarily through trade secret protections, confidentiality agreements, and access controls.
These revisions appear on pages 90 through 91 of the Amended Draft Registration Statement.
Comment 15. Please clarify whether the Company derives material revenue from government contracts (e.g., CMS, VA, DoD) and whether any government approvals or certifications are material to the Company's operations.
Response: The Company acknowledges the Staff's comment and has added clarifying disclosure in the "Business" section of the Amended Draft Registration Statement, beginning on page 92. The Company's clients include certain government-affiliated hospital systems and healthcare networks (including facilities affiliated with the U.S. Department of Veterans Affairs and state university health systems), but the Company does not hold direct contracts with the U.S. federal government, CMS, the VA, the DoD, or any other federal agency. Revenue derived from government-affiliated hospital systems is generated through the Company's standard commercial contracting process with such hospital systems and is not subject to federal procurement regulations such as the Federal Acquisition Regulation ("FAR") or the Defense Federal Acquisition Regulation Supplement ("DFARS").
The Company has also added disclosure regarding the importance of ONC Health IT Certification to the Company's business. The Arbor Platform is certified under the ONC Health IT Certification Program, which certification enables the Company's hospital system clients to participate in certain federal incentive programs and to demonstrate compliance with interoperability and data exchange requirements under the 21st Century Cures Act. The Company believes that its ONC certification is material to its ability to market and sell the Arbor Platform, and the loss of, or a failure to maintain, ONC certification could materially adversely affect the Company's business and results of operations.
These revisions appear on pages 92 through 93 of the Amended Draft Registration Statement.
Comment 16. Please enhance your human capital disclosure pursuant to Item 101(c)(2)(ii) of Regulation S-K to include workforce demographics, retention strategies, and diversity initiatives.
Response: The Company acknowledges the Staff's comment and has expanded the human capital disclosure in the "Business" section of the Amended Draft Registration Statement, beginning on page 94, to include the following additional information:
(i) Workforce overview. As of December 31, 2023, the Company employed approximately 3,400 full-time employees. The Company was founded in 2014 by Dr. Nathaniel Rourke and Margaret Tsujimoto, and has grown its workforce from 14 employees at founding to approximately 3,400 employees over the past nine years. None of the Company's employees are represented by a labor union or covered by a collective bargaining agreement.
(ii) Functional breakdown. Of the Company's approximately 3,400 employees, approximately 1,360 (40%) are in research and development and engineering, approximately 1,020 (30%) are in client services and revenue cycle management operations, approximately 510 (15%) are in sales and marketing, and approximately 510 (15%) are in general and administrative functions.
(iii) Geographic distribution. The Company's employees are primarily located across four offices: Cambridge, Massachusetts (headquarters; approximately 1,200 employees); Nashville, Tennessee (approximately 900 employees); Austin, Texas (approximately 700 employees); and Denver, Colorado (approximately 400 employees). Additionally, approximately 200 employees work remotely across various U.S. locations.
(iv) Retention strategies and compensation philosophy. The Company's compensation philosophy is designed to attract, retain, and motivate top talent in the competitive healthcare IT industry. The Company's compensation programs include competitive base salaries, annual performance-based cash bonuses, equity incentive awards (under the 2014 Stock Incentive Plan and, following the IPO, the 2024 Equity Incentive Plan and 2024 ESPP), comprehensive health and welfare benefits, and professional development programs. The Company also offers flexible work arrangements, including hybrid and remote work options for eligible positions.
(v) Diversity and inclusion. The Company is committed to fostering a diverse, equitable, and inclusive workplace. The Company has established an internal Diversity, Equity, and Inclusion ("DEI") Council, chaired by a senior executive and reporting to the CEO, which is responsible for developing and implementing the Company's DEI strategy, including recruitment, retention, and advancement initiatives aimed at increasing representation across all levels of the organization. The Company publishes an annual internal DEI report tracking progress against established diversity goals.
These revisions appear on pages 94 through 96 of the Amended Draft Registration Statement.
Use of Proceeds
Comment 17. The use of proceeds disclosure is insufficiently specific. Please revise the use of proceeds disclosure to provide a more detailed allocation of anticipated net proceeds from the Offering.
Response: The Company acknowledges the Staff's comment and has revised the "Use of Proceeds" section of the Amended Draft Registration Statement, beginning on page 56, to provide the following specific allocation of the anticipated net proceeds from the Offering (assuming a base offering of 20,000,000 shares of Common Stock without exercise of the overallotment option):
(i) Approximately $65 million will be used to repay the entire outstanding balance on the Company's $150 million senior secured revolving credit facility (the "Credit Facility") with Keypoint National Bank, N.A., as Administrative Agent. Additional information regarding the Credit Facility, including its maturity date, interest rate, and the use of initial borrowings, is set forth in the Company's response to Comment 18 below and in the revised disclosure on page 57 of the Amended Draft Registration Statement.
(ii) Approximately $120 million will be allocated to product development and research and development investment, including the continued development and enhancement of the Arbor Platform's clinical decision support algorithms, machine learning capabilities, and population health management features, as well as investment in new product initiatives.
(iii) Approximately $100 million will be allocated to potential acquisitions and strategic investments. While the Company has no binding agreements or commitments with respect to any specific acquisition or strategic investment as of the date of the Amended Draft Registration Statement, the Company regularly evaluates strategic opportunities that would complement or expand its technology platform, client base, or service capabilities.
(iv) The balance of the net proceeds, estimated at approximately $63 million (based on an assumed initial public offering price of $18.00 per share, the midpoint of the estimated price range), will be used for general corporate purposes and working capital, including general and administrative expenses, capital expenditures, and other corporate purposes.
If the underwriters exercise their overallotment option in full, the Company expects to receive additional net proceeds of approximately $51.3 million (based on the assumed midpoint offering price), and the Company expects to allocate such additional net proceeds to general corporate purposes and working capital.
These revisions appear on pages 56 through 58 of the Amended Draft Registration Statement.
Comment 18. Please provide additional detail regarding the credit facility to be repaid with IPO proceeds, including the maturity date, interest rate, use of initial borrowings, and any other material terms.
Response: The Company acknowledges the Staff's comment and has added the following additional disclosure regarding the Credit Facility in the "Use of Proceeds" section and in the "Liquidity and Capital Resources" subsection of the MD&A of the Amended Draft Registration Statement:
(i) Parties and structure. The Credit Facility is a senior secured revolving credit facility entered into on March 15, 2022, among the Company, as borrower, Keypoint National Bank, N.A., as Administrative Agent and a lender, and Stonemill Capital Bank, as a syndicate lender member. The total commitment under the Credit Facility is $150 million.
(ii) Maturity date. The Credit Facility matures on March 15, 2027.
(iii) Interest rate. Borrowings under the Credit Facility bear interest at a rate equal to the Secured Overnight Financing Rate ("SOFR") plus an applicable margin of 200 basis points per annum.
(iv) Financial covenants. The Credit Agreement governing the Credit Facility contains financial covenants requiring the Company to maintain: (A) a Total Net Leverage Ratio of no greater than 3.50 to 1.00; and (B) a Fixed Charge Coverage Ratio of no less than 1.25 to 1.00, in each case tested on a quarterly basis. As of the date of this letter, the Company is in compliance with all covenants under the Credit Agreement.
(v) Outstanding balance. As of the date of this letter, approximately $65 million is drawn under the Credit Facility. The Company intends to repay this entire outstanding balance using a portion of the net proceeds from the Offering, which would leave the full $150 million commitment available for future borrowings.
(vi) Use of initial borrowings. Amounts borrowed under the Credit Facility have been used for working capital, product development expenditures, and general corporate purposes.
(vii) First Amendment. The Company and the lenders have negotiated and expect to enter into a First Amendment to the Credit Agreement, dated as of January 18, 2024 (the "First Amendment"), which will: (A) amend the definition of "Change of Control" under the Credit Agreement to accommodate the post-IPO ownership structure of the Company; and (B) add a "Permitted Equity Issuance" carve-out to the negative covenants in the Credit Agreement to permit the issuance and sale of Common Stock in connection with the IPO and any subsequent offerings.
These revisions appear on pages 57 through 58 and pages 108 through 110 of the Amended Draft Registration Statement.
Capitalization and Dilution
Comment 19. Please revise the capitalization table to clearly present both a pre-IPO "actual" column and an "as adjusted" column reflecting the Offering and the application of net proceeds.
Response: The Company acknowledges the Staff's comment and has revised the capitalization table in the Amended Draft Registration Statement, beginning on page 59, to include the following two columns:
(i) Actual. The "Actual" column presents the Company's capitalization as of September 30, 2023, on an actual historical basis.
(ii) As Adjusted. The "As Adjusted" column presents the Company's capitalization as of September 30, 2023, as adjusted to give effect to: (A) the sale and issuance by the Company of 20,000,000 shares of Common Stock in the Offering at an assumed initial public offering price of $18.00 per share (the midpoint of the estimated price range), after deducting the estimated underwriting discount and estimated offering expenses payable by the Company; and (B) the application of the net proceeds from the Offering as described in "Use of Proceeds," including the repayment of approximately $65 million outstanding under the Credit Facility.
The revised capitalization table reflects the following key data points:
• Pre-IPO shares of Common Stock outstanding: 80,000,000
• Shares of Common Stock to be issued in the Offering (base offering): 20,000,000
• Post-IPO shares of Common Stock outstanding (base offering): 100,000,000
• Shares subject to overallotment option: 3,000,000
• Post-IPO shares of Common Stock outstanding (with full exercise of overallotment option): 103,000,000
• Authorized shares of Common Stock: 400,000,000 (par value $0.001 per share)
• Authorized shares of Preferred Stock: 50,000,000 (par value $0.001 per share)
• Shares of Preferred Stock outstanding: zero (upon completion of the IPO, all outstanding shares of the Company's convertible preferred stock will be converted into shares of Common Stock)
The Company has also added a footnote to the capitalization table noting that the table does not give effect to: (A) the 11,200,000 shares of Common Stock issuable upon the exercise of outstanding options under the 2014 Stock Incentive Plan; (B) the 10,300,000 shares of Common Stock reserved for future issuance under the 2024 Equity Incentive Plan; or (C) the 2,060,000 shares of Common Stock reserved for future issuance under the 2024 ESPP, except as otherwise noted.
These revisions appear on pages 59 through 61 of the Amended Draft Registration Statement.
Comment 20. Please revise the dilution analysis to include the impact of outstanding stock options under the 2014 Stock Incentive Plan and the reserved shares under the 2024 Equity Incentive Plan and 2024 ESPP.
Response: The Company acknowledges the Staff's comment and has revised the dilution analysis in the Amended Draft Registration Statement, beginning on page 62, to include the following additional equity plan information:
(i) 2014 Stock Incentive Plan. The Company's 2014 Stock Incentive Plan (the "2014 Plan") has 12,000,000 shares of Common Stock authorized for issuance. As of the date of this letter, 11,200,000 stock options have been granted under the 2014 Plan, of which 8,400,000 are currently vested and exercisable. The weighted average exercise price of all outstanding options under the 2014 Plan is $3.25 per share. The 2014 Plan will be frozen upon the effectiveness of the 2024 Equity Incentive Plan, and no additional awards will be made under the 2014 Plan following the IPO.
(ii) 2024 Equity Incentive Plan. The Company's 2024 Equity Incentive Plan (the "2024 Plan") was adopted by the Board of Directors on January 15, 2024, and will become effective upon the completion of the IPO. The 2024 Plan provides for the issuance of up to 10,300,000 shares of Common Stock, representing approximately 10% of the total post-IPO outstanding shares of Common Stock (assuming full exercise of the overallotment option, yielding 103,000,000 shares outstanding). The 2024 Plan also includes an annual "evergreen" provision, pursuant to which the share reserve will automatically increase on January 1 of each year, beginning January 1, 2025, by a number of shares equal to 3% of the total number of shares of Common Stock outstanding as of the immediately preceding December 31, or such lesser number of shares as determined by the Board of Directors.
(iii) 2024 Employee Stock Purchase Plan. The Company's 2024 Employee Stock Purchase Plan (the "2024 ESPP") was adopted by the Board of Directors on January 15, 2024, and will become effective upon the completion of the IPO. The 2024 ESPP provides for the issuance of up to 2,060,000 shares of Common Stock, representing approximately 2% of the total post-IPO outstanding shares of Common Stock (assuming full exercise of the overallotment option).
The revised dilution table in the Amended Draft Registration Statement now separately presents the dilution to new investors in the Offering both (A) without giving effect to the shares reserved under the 2014 Plan, the 2024 Plan, and the 2024 ESPP, and (B) giving effect to the exercise of all outstanding options under the 2014 Plan and the reservation of shares under the 2024 Plan and the 2024 ESPP. This allows investors to understand the full potential dilutive impact of the Company's equity compensation programs.
These revisions appear on pages 62 through 64 of the Amended Draft Registration Statement.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Comment 21. Please provide a more detailed explanation of the Company's revenue recognition policies under ASC 606, including identification of performance obligations, allocation of transaction price among multiple performance obligations, and timing of revenue recognition for each of the Company's revenue streams.
Response: The Company acknowledges the Staff's comment and has substantially expanded the revenue recognition disclosure in the MD&A section of the Amended Draft Registration Statement, beginning on page 98, to address each of the Staff's specific requests. The revised disclosure addresses the following:
(i) SaaS subscription revenue — Arbor Platform. The Company has identified the primary performance obligation in its SaaS subscription arrangements as the provision of ongoing access to the Arbor Platform over the subscription term. This performance obligation is a stand-ready obligation that is satisfied over time, as the customer simultaneously receives and consumes the benefits of the platform throughout the contract period. Accordingly, the Company recognizes SaaS subscription revenue ratably over the contract term, which is typically three years. The Company determines the stand-alone selling price of the SaaS subscription performance obligation based on observable pricing in standalone transactions with similarly situated customers.
(ii) Revenue cycle management outsourcing services. The Company has identified the primary performance obligation in its RCM outsourcing arrangements as the delivery of specified outsourced revenue cycle management services, including coding, claims submission, denial management, and collections support. This performance obligation is satisfied over time as the services are rendered. Revenue is recognized on a per-transaction basis or as a percentage of collections achieved on behalf of the client, depending on the terms of the specific arrangement. For percentage-of-collections arrangements, the transaction price includes variable consideration, which is estimated using the expected value method as described in the Company's response to Comment 22 below.
(iii) Professional services and implementation. The Company has identified professional services, including implementation, configuration, training, and customization services, as distinct performance obligations where the services do not significantly modify or customize the Arbor Platform and where the customer can benefit from the services together with other readily available resources. Professional services revenue is recognized over time as the services are rendered, using an input method based on hours incurred relative to total estimated hours to complete the engagement.
(iv) Stand-alone selling prices in bundled arrangements. When the Company enters into multi-element arrangements that include a combination of SaaS subscription, RCM outsourcing, and professional services, the Company allocates the transaction price among the identified performance obligations based on their relative stand-alone selling prices. The Company determines stand-alone selling prices based on observable pricing in standalone transactions where available. For performance obligations that are not sold on a standalone basis, the Company estimates stand-alone selling prices using an adjusted market assessment approach or expected cost plus margin approach, as appropriate.
(v) Remaining performance obligations (RPO). The Company has added disclosure of the aggregate amount of the transaction price allocated to remaining performance obligations ("RPO") that are unsatisfied or partially unsatisfied as of December 31, 2023 and September 30, 2023, and the periods over which the Company expects to recognize such RPO as revenue.
These revisions appear on pages 98 through 102 of the Amended Draft Registration Statement.
Comment 22. Please provide disclosure of the Company's policies for accounting for contract modifications and variable consideration, including revenue cycle management arrangements where fees are tied to collections.
Response: The Company acknowledges the Staff's comment and has added the following specific disclosures in the MD&A section of the Amended Draft Registration Statement, beginning on page 103:
(i) Contract modification accounting. The Company's SaaS subscription and RCM outsourcing contracts are sometimes modified during their terms, for example, to add new modules, increase the scope of services, or adjust pricing. The Company evaluates each contract modification to determine whether it should be accounted for as: (A) a separate contract, if the modification adds distinct goods or services and the pricing reflects the stand-alone selling price of the added goods or services (accounted for under ASC 606-10-25-12); or (B) a modification of the existing contract, accounted for on a prospective basis as a termination of the old contract and creation of a new contract (under ASC 606-10-25-13). The majority of the Company's contract modifications during FY2023 and FY2022 were accounted for as separate contracts or as prospective modifications.
(ii) Variable consideration. In the Company's RCM outsourcing arrangements where fees are structured as a percentage of collections achieved on behalf of the client, the transaction price includes variable consideration. The Company estimates variable consideration using the expected value method, based on historical collection rates for similarly situated clients and payor mixes, adjusted for known or expected changes in payor reimbursement rates or client-specific factors. The Company applies the variable consideration constraint under ASC 606-10-32-11 and includes variable consideration in the transaction price only to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
(iii) Amount of revenue from variable consideration. For FY2023, the Company recognized approximately $87.3 million of revenue from variable consideration arrangements (primarily RCM percentage-of-collections arrangements), compared to approximately $72.1 million for FY2022. No material reversals of previously recognized revenue from variable consideration were recorded during either period.
These revisions appear on pages 103 through 104 of the Amended Draft Registration Statement.
Comment 23. We note several concerns with the Company's presentation of Adjusted EBITDA as a non-GAAP financial measure. Please revise the presentation to comply with SEC guidance, including Regulation G, Item 10(e) of Regulation S-K, and applicable SEC staff guidance on non-GAAP financial measures.
Response: The Company acknowledges the Staff's comment and has revised the presentation of Adjusted EBITDA in the MD&A section of the Amended Draft Registration Statement, beginning on page 105, to address each of the Staff's specific concerns as follows:
(i) Clear definition with all adjustments specifically identified. Adjusted EBITDA is now defined as net income before interest expense (net), provision for income taxes, depreciation and amortization, stock-based compensation expense, acquisition-related transaction costs, and restructuring charges. Each adjustment is specifically identified and quantified in the reconciliation table.
(ii) Reconciliation from net income to Adjusted EBITDA. The Company has presented a detailed reconciliation from net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA for each period presented. For FY2023, the reconciliation begins with net income of $41.3 million and reconciles to Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approx

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