1010-00002 · Client 1010 · Registration Statement & Prospectus

sec-comment-response-round-2.docx DOCUMENT Capital Markets

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CALDERWOOD & HARKNESS LLP Attorneys at Law

125 Broad Street New York, NY 10004 Telephone: (212) 458-7000 Facsimile: (212) 458-7100 www.calderwoodharkness.com

January 19, 2024

VIA EDGAR CORRESPONDENCE

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

Attention: Ms. Karen Lindquist, Senior Staff Accountant

Mr. James Talbott, Staff Attorney

Re: Arbor Health Technologies Inc. Registration Statement on Form S-1 Filed Confidentially on November 10, 2023 (as amended) SEC File Number: 333-276841 CIK Number: 0001987432

Dear Ms. Lindquist and Mr. Talbott:

This letter is submitted by Calderwood & Harkness LLP as counsel to Arbor Health Technologies Inc. ("Arbor Health" or the "Company"), a Delaware corporation with its principal executive offices located at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, in response to the comment letter of the Staff (the "Staff") of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Commission"), dated January 12, 2024 (the "Comment Letter"), containing eleven (11) comments on the Company's amended draft Registration Statement on Form S-1 (the "Amended Draft S-1"). The Company's prior amended submission was filed on December 22, 2023, in response to the Staff's initial comment letter dated December 8, 2023 (the "Round 1 Comment Letter").

Each of the Company's responses set forth below corresponds to the numbered comment in the Staff's Comment Letter. For the convenience of the Staff, the text of each Staff comment has been reproduced in bold typeface immediately preceding the Company's response. All page references herein are to the further Amended Draft Registration Statement on Form S-1 (the "Further Amended Draft S-1") being filed concurrently with this letter via EDGAR, unless otherwise indicated.

Concurrently with the submission of this letter, the Company is submitting the Further Amended Draft S-1, marked to show all changes from the version submitted on December 22, 2023. A clean copy of the Further Amended Draft S-1 is also being submitted for the Staff's convenience.

This letter is submitted on behalf of the Company by Theodore Langston, Responsible Partner, Capital Markets, and Eric Johannsen, Lead Associate, Capital Markets, of Calderwood & Harkness LLP.

The Company appreciates the Staff's thorough review and thoughtful comments, which have been helpful in enhancing the quality and completeness of the Company's disclosure. The Company has endeavored to address each of the Staff's comments fully and respectfully requests the Staff's review of the responses and revised disclosures set forth below.

Comment 1 — Segment Reporting (ASC 280 — Single Reportable Segment)

Staff Comment:

We note the Company's assertion that it operates as a single reportable segment under ASC 280, *Segment Reporting*. However, the Company appears to derive revenue from distinct service lines — namely, a clinical decision support SaaS platform, revenue cycle management outsourcing services, and real-time analytics services — each of which may be subject to different economic characteristics, customer bases, and competitive dynamics. Please provide additional support for the Company's conclusion that it operates as a single reportable segment, including (i) how the Company identifies its Chief Operating Decision Maker (CODM); (ii) the nature and content of the financial information regularly reviewed by the CODM; and (iii) whether the CODM reviews discrete financial information (such as revenue, operating income or loss, or other profitability metrics) for each service line for purposes of assessing performance and making resource allocation decisions. In this regard, we refer you to ASC 280-10-50-1 through 50-9.

Company Response:

The Company respectfully acknowledges the Staff's comment and has carefully considered the requirements of ASC 280, Segment Reporting, in evaluating its operating and reportable segment structure. The Company supplementally advises the Staff as follows and has enhanced the relevant disclosure in the Further Amended Draft S-1.

The Company has determined that Dr. Nathaniel Rourke, Co-Founder, Chairman, and Chief Executive Officer, is the Company's Chief Operating Decision Maker ("CODM") within the meaning of ASC 280-10-50-5. Dr. Rourke has served as the Company's chief executive since its founding in 2012 and has direct responsibility for assessing the performance of the business as a whole and for making decisions regarding the allocation of the Company's resources across all functional areas, including research and development, sales and marketing, customer success, and general and administrative functions.

In his capacity as CODM, Dr. Rourke regularly reviews consolidated financial information for purposes of evaluating the Company's overall performance and allocating resources. Specifically, the financial information regularly reviewed by the CODM includes: (a) consolidated revenue; (b) consolidated Adjusted EBITDA; (c) consolidated net income (loss); (d) consolidated operating cash flow; and (e) key operational metrics including total customer count, annual recurring revenue ("ARR"), net dollar retention rate, and customer acquisition cost, each presented on a consolidated basis. The CODM does not review discrete operating results — including discrete revenue, cost of revenue, gross margin, operating income or loss, or other profitability metrics — at the individual service line level for purposes of making resource allocation decisions or assessing the performance of individual components of the business.

While the Company does track revenue by product category — specifically, (a) SaaS platform subscription revenue, (b) revenue cycle management outsourcing revenue, and (c) real-time analytics and professional services revenue — for internal management reporting purposes, this revenue-level information is provided to the CODM on a supplemental and informational basis only and is not used by the CODM as a basis for making resource allocation decisions. Notably, the Company's operating expenses, including research and development expenses, sales and marketing expenses, and general and administrative expenses, are not allocated to or tracked by individual service lines. The Company does not maintain discrete profit and loss statements, balance sheets, or other financial statements at the service line level. The Company's approximately 3,400 employees, including its engineering, product, sales, customer success, and corporate teams, operate within a single, unified organizational structure. The Company does not have separate divisional or service line-level management teams with discrete profit and loss accountability.

The Company's conclusion that it operates as a single operating segment is further supported by the integrated nature of the Company's healthcare technology platform (the "Arbor Platform"). The Company's clinical decision support capabilities, revenue cycle management services, and real-time analytics offerings are designed to operate as an integrated solution for healthcare providers. Customer relationships frequently span multiple product categories, and the Company's go-to-market strategy emphasizes the cross-selling of its full suite of capabilities. As of December 31, 2023, the Company served over 1,200 hospital systems and physician groups across 42 states, and a significant majority of the Company's top 100 customers by revenue utilized two or more product categories within the Arbor Platform.

The Company notes that its consolidated revenue for the fiscal year ended December 31, 2023 ("FY2023") was $612.4 million, compared to consolidated revenue of $478.4 million for the fiscal year ended December 31, 2022 ("FY2022"), representing year-over-year growth of approximately 28%. These consolidated figures represent the primary financial metrics reviewed by the CODM for evaluating the Company's performance and allocating resources across the business.

In response to the Staff's comment, the Company has enhanced its disclosure in the Further Amended Draft S-1 at pages 92–93 and at Note 2 to the consolidated financial statements (pages F-14 through F-16) to more clearly explain the basis for the Company's conclusion that it operates as a single reportable segment under ASC 280, including a description of the role of the CODM, the nature and content of the financial information regularly reviewed by the CODM, and the factors supporting the Company's single-segment determination. The Company believes that these enhanced disclosures adequately address the Staff's comment.

Comment 2 — Segment Reporting (Disaggregated Revenue Disclosure)

Staff Comment:

We note the Company's current revenue disclosures. Please revise the filing to provide enhanced disaggregated revenue disclosure under ASC 606-10-50-5 in order to provide investors with a more granular understanding of the Company's revenue streams. Specifically, please provide a breakdown of revenue by (i) product/service type and (ii) contract type (i.e., subscription versus transactional), for each period presented, in both the Management's Discussion and Analysis section and the notes to the financial statements.

Company Response:

The Company respectfully acknowledges the Staff's comment and has revised its revenue disclosures in the Further Amended Draft S-1 to provide investors with enhanced disaggregated revenue information consistent with the requirements of ASC 606-10-50-5.

In response to the Staff's comment, the Company has included a tabular disaggregation of revenue by product/service type for each of FY2023 and FY2022. The disaggregated categories include: (a) SaaS platform subscription revenue; (b) revenue cycle management outsourcing revenue; and (c) real-time analytics and professional services revenue. The Company believes that these categories depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and are consistent with the categories in which the Company tracks revenue for internal management reporting purposes.

In addition, the Company has added a supplemental disaggregation of revenue between (a) recurring subscription revenue (which includes SaaS platform subscription fees and recurring revenue cycle management outsourcing fees under multi-year contracts) and (b) transactional and professional services revenue (which includes implementation fees, one-time analytics engagements, and ad hoc professional services). The Company notes that recurring SaaS subscription revenue represented the substantial majority of total revenue in each of FY2023 and FY2022, accounting for approximately 74% and 71% of total revenue, respectively. The Company believes this additional disaggregation provides investors with useful insight into the predictability and durability of the Company's revenue base.

The revised disaggregated revenue disclosures appear in two locations in the Further Amended Draft S-1: (i) in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section at pages 76–78, where the tabular presentation is accompanied by narrative discussion of trends and drivers within each revenue category; and (ii) in Note 3 to the consolidated financial statements (Revenue Recognition) at pages F-18 through F-20, where the tabular presentation is accompanied by the Company's accounting policy for revenue recognition under ASC 606.

The Company further notes that these enhanced disclosures are consistent with the Company's classification under SIC Code 7372 (Prepackaged Software) and with the nature of the Company's cloud-based clinical decision support and population health management platform, which is delivered primarily through subscription arrangements. The Company believes that the revised disclosures, taken as a whole, provide investors with a comprehensive understanding of the Company's revenue composition and trends.

Comment 3 — Stock-Based Compensation (Fair Value Determination of Common Stock)

Staff Comment:

We note the Company's disclosure regarding stock-based compensation expense. Please provide additional disclosure regarding the methodology used to determine the fair value of common stock for purposes of stock-based compensation expense for grants made during the periods presented. In particular, please address (i) the valuation methodology or methodologies employed, including the key assumptions and inputs used; (ii) the involvement of any third-party valuation firm; and (iii) a retrospective comparison of prior valuations to the estimated IPO price range, including an explanation of the factors contributing to the difference between historical valuations and the anticipated offering price.

Company Response:

The Company respectfully acknowledges the Staff's comment and has substantially expanded its disclosure regarding the fair value determination of common stock in the "Critical Accounting Policies and Significant Judgments and Estimates — Stock-Based Compensation" section of the Further Amended Draft S-1 at pages 84–89. The Company supplementally advises the Staff as follows.

Since its inception, the Company has granted equity awards to employees, directors, and consultants under the 2014 Stock Incentive Plan (the "2014 Plan"). The 2014 Plan authorizes the issuance of up to 12,000,000 shares of the Company's common stock. As of December 31, 2023, the Company had granted options to purchase an aggregate of 11,200,000 shares under the 2014 Plan, with a weighted average exercise price of $3.25 per share. Because the Company's common stock was not publicly traded during the periods in which these grants were made, the Company was required to estimate the fair value of its common stock on each grant date for purposes of determining the exercise prices of stock options and the fair value of stock-based compensation expense under ASC 718, Compensation — Stock Compensation.

For all grants made under the 2014 Plan, the Company obtained contemporaneous independent third-party valuations (commonly referred to as "409A valuations") from a nationally recognized valuation firm. These valuations were prepared in accordance with the guidance set forth in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the "AICPA Guide"), and were designed to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder.

The third-party valuations employed a combination of generally accepted valuation methodologies, including:

(a) Income Approach (Discounted Cash Flow Method): The Company's projected future cash flows were discounted to present value using a weighted average cost of capital that reflected the risk profile of the Company and comparable businesses. Key assumptions included projected revenue growth rates (ranging from 22% to 35% annually, depending on the valuation date and the stage of the Company's development), projected operating margins, terminal growth rates, and applicable discount rates (ranging from 18% to 25%).

(b) Market Approach (Guideline Public Company Method): The Company's value was estimated by reference to publicly traded companies with comparable business models, size, growth characteristics, and risk profiles. Comparable companies included, among others, publicly traded healthcare technology and SaaS companies. The Company applied relevant valuation multiples (including enterprise value to revenue and enterprise value to EBITDA multiples) derived from the comparable company set.

(c) Option Pricing Method (OPM): For earlier-stage valuations (prior to mid-2023), the Company utilized the option pricing method to allocate enterprise value among the various classes of the Company's equity securities. The OPM treats each class of equity as a call option on the enterprise value, with exercise prices determined by the liquidation preferences and participation rights of each class.

(d) Probability-Weighted Expected Return Method (PWERM): As the prospect of an IPO became more probable (beginning in mid-2023), the Company's valuations transitioned from the OPM to the probability-weighted expected return method. Under the PWERM, the Company estimated the value of its common stock under multiple future exit scenarios — including an IPO scenario, a strategic sale scenario, and a remaining-private scenario — and assigned probability weightings to each scenario based on the Company's assessment of the relative likelihood of each outcome at the applicable valuation date.

Key assumptions used in the valuations included, in addition to those described above: (i) discount for lack of marketability ("DLOM"), which ranged from 30% for valuations conducted in 2021 to 10% for valuations conducted in late 2023 as the IPO timeline became more certain; (ii) expected volatility, derived from the historical volatility of comparable publicly traded healthcare technology companies, which ranged from 45% to 60%; and (iii) probability weightings for exit scenarios under the PWERM, which increased the probability weighting assigned to an IPO scenario from 25% in mid-2023 to 75% in November 2023.

In response to the Staff's comment, the Company has added a table in the Further Amended Draft S-1 at page 87 showing the chronology of valuation dates for valuations obtained during the periods presented, the fair value per share of common stock determined as of each valuation date, and a comparison of each such fair value to the initial estimated IPO price range of $17.00 to $19.00 per share (the "Estimated Price Range"). The table is accompanied by a narrative explanation of the principal factors contributing to the increase in fair value over the twelve months preceding the anticipated IPO, including: the Company's strong revenue growth; expanding customer base; improving profitability metrics; favorable market conditions for healthcare SaaS businesses; the reduction in DLOM as the IPO timeline crystallized; and the transition from OPM to PWERM with increasing probability weighting for the IPO scenario.

The Company further confirms that all outstanding options under the 2014 Plan were granted with exercise prices equal to the fair market value of the Company's common stock as determined by the Board of Directors based on the contemporaneous 409A valuations, in compliance with Section 409A of the Code. With respect to the fourteen (14) current employees who received restricted stock grants in 2021 and 2022, the Company confirms that timely elections under Section 83(b) of the Code were filed with the Internal Revenue Service within 30 days of the applicable grant dates, and copies of such elections are maintained in the Company's records.

Comment 4 — Stock-Based Compensation (Expense Recognition Methodology)

Staff Comment:

Please clarify the Company's stock-based compensation expense recognition methodology, including (i) the service period over which expense is recognized for time-based awards; (ii) the Company's forfeiture rate assumptions and whether forfeitures are estimated at the time of grant or recognized as they occur; and (iii) the treatment of any performance-based awards, if applicable.

Company Response:

The Company respectfully acknowledges the Staff's comment and has revised its disclosure at pages 89–91 of the Further Amended Draft S-1 to more clearly describe its stock-based compensation expense recognition methodology. The Company supplementally advises the Staff as follows.

Time-Based Awards. The Company's stock option grants under the 2014 Plan are subject to time-based vesting conditions. The standard vesting schedule provides for vesting over a four-year period, with 25% of the shares subject to each option vesting on the first anniversary of the vesting commencement date (the "cliff"), and the remaining 75% of the shares vesting in equal monthly installments over the subsequent 36 months, in each case subject to the option holder's continued service with the Company through the applicable vesting date. Stock-based compensation expense for time-based stock options is recognized on a straight-line basis over the requisite service period (i.e., the four-year vesting period), net of estimated forfeitures. The Company uses the Black-Drubeck option-pricing model to estimate the fair value of stock options on the grant date.

Forfeiture Assumptions. The Company estimates forfeitures at the time of grant based on historical forfeiture experience and revises the estimate in subsequent periods if actual forfeitures differ from the Company's estimates. The Company's estimated annual forfeiture rate has been approximately 7% to 9% over the periods presented, based on the Company's analysis of historical termination and forfeiture patterns across its employee population. The Company monitors actual forfeitures on a quarterly basis and adjusts the cumulative stock-based compensation expense recognized in the period in which the estimate is revised.

Performance-Based Awards. The Company currently has no outstanding performance-based equity awards under the 2014 Plan. All options granted under the 2014 Plan are subject exclusively to time-based vesting conditions as described above. The Company's 2024 Equity Incentive Plan (the "2024 Plan"), which was adopted by the Board of Directors on January 15, 2024 and will become effective upon the consummation of the IPO, authorizes the grant of performance-based awards, including performance stock units ("PSUs"), stock options with performance-based vesting conditions, and other equity-based awards subject to the achievement of specified performance goals. As no grants have been made under the 2024 Plan as of the date of this letter, and no grants are expected to be made prior to the IPO, the Company will disclose the applicable accounting treatment for any performance-based awards in future periodic filings following the consummation of the IPO. The 2024 Plan reserves 10,300,000 shares of common stock for issuance (inclusive of an annual evergreen provision equal to 3% of the fully diluted shares outstanding as of December 31 of the preceding fiscal year, subject to the terms and conditions of the 2024 Plan).

In addition, the Company has added disclosure at page 91 of the Further Amended Draft S-1 regarding the anticipated stock-based compensation charge that the Company expects to recognize in connection with the IPO. Specifically, the Company expects to recognize approximately $8.2 million in incremental stock-based compensation expense in the quarter in which the IPO is consummated, reflecting the acceleration of expense recognition for unvested options held by employees whose options contain a provision for accelerated vesting of a portion of the unvested shares upon the occurrence of a Qualified IPO, as defined in the applicable option agreements. The Company confirms that no existing equity awards under the 2014 Plan have been modified, repriced, or otherwise altered in connection with the IPO, other than the accelerated vesting provision described above, which was included in the original terms of the applicable option agreements at the time of grant.

Comment 5 — Stock-Based Compensation (Cheap Stock Analysis)

Staff Comment:

We note that the weighted average exercise price of the Company's outstanding options ($3.25 per share) is substantially below the anticipated IPO price range of $17.00 to $19.00 per share. Please provide a more detailed explanation of the factors that account for the increase in fair value of the Company's common stock from the grant dates of outstanding options to the expected IPO price, particularly with respect to grants made in 2022 and 2023. In addition, please provide a reconciliation of the grant-date fair values for material grants to the midpoint of the estimated IPO price range.

Company Response:

The Company respectfully acknowledges the Staff's comment. In response, the Company has added a detailed "cheap stock" analysis at pages 87–89 of the Further Amended Draft S-1, within the "Critical Accounting Policies and Significant Judgments and Estimates — Stock-Based Compensation" section. The Company supplementally advises the Staff as follows.

The Company recognizes that the weighted average exercise price of outstanding options under the 2014 Plan ($3.25 per share) reflects a significant discount to the midpoint of the initial Estimated Price Range of $18.00 per share. The Company believes that this difference is attributable to a number of objective and quantifiable factors, each of which is described in the Company's revised disclosure. The principal factors driving the increase in the estimated fair value of the Company's common stock from the grant dates in 2022 and 2023 to the Estimated Price Range include:

(i) Significant Revenue Growth. The Company's consolidated revenue grew from $478.4 million in FY2022 to $612.4 million in FY2023, representing year-over-year growth of approximately 28%. This revenue growth significantly exceeded the projections that were incorporated into the Company's earlier 409A valuations and reflects the Company's successful execution of its land-and-expand go-to-market strategy and the continued adoption of the Arbor Platform by healthcare providers nationwide.

(ii) Expanding Customer Base. The Company's customer base grew from approximately 900 hospital systems and physician groups as of December 31, 2022 to over 1,200 hospital systems and physician groups across 42 states as of December 31, 2023. This expansion in the Company's customer base is indicative of the increasing market acceptance of the Arbor Platform and the Company's growing competitive position in the healthcare technology market.

(iii) Improvement in Profitability Metrics. The Company achieved FY2023 Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approximately 22.6%, compared to FY2022 Adjusted EBITDA of $94.2 million (an Adjusted EBITDA margin of approximately 19.7%). The Company also achieved FY2023 net income of $41.3 million, compared to FY2022 net income of $18.7 million. These improvements in profitability were not fully reflected in the Company's earlier valuations, which were based on projections that assumed a more gradual path to profitability.

(iv) Broader Market Appreciation for Healthcare SaaS Businesses. Public market valuations of comparable healthcare technology and SaaS companies increased during 2023, driven by improving investor sentiment toward recurring-revenue, cloud-based business models in the healthcare vertical. This favorable shift in public market comparables resulted in higher valuation multiples applied under the market approach in the Company's more recent 409A valuations.

(v) Reduction in discount for Lack of Marketability. As the Company's IPO timeline became more certain, the DLOM applied in the Company's 409A valuations was reduced from approximately 25% in early 2022 to approximately 10% in November 2023. The reduction in DLOM had a material positive effect on the estimated fair value of the Company's common stock.

(vi) Transition from OPM to PWERM with Increasing IPO Probability. As described in the Company's response to Comment 3 above, the Company's 409A valuations transitioned from the option pricing method to the probability-weighted expected return method beginning in mid-2023, with the probability weighting assigned to the IPO scenario increasing from 25% to 75% over the course of 2023. The PWERM, with higher probability weighting for the IPO scenario, resulted in a higher estimated fair value per share of common stock relative to valuations conducted under the OPM, principally because the IPO scenario implies a higher per-share value for common stockholders (due to the conversion of preferred stock and the elimination of liquidation preferences upon a Qualified IPO).

In connection with this analysis, the Company has provided a reconciliation table at page 88 of the Further Amended Draft S-1 showing the grant-date fair values for each material grant of stock options issued under the 2014 Plan in 2022 and 2023, the exercise price of each such grant, the corresponding 409A valuation date and determined fair value, and a comparison to the midpoint of the Estimated Price Range ($18.00 per share). The table identifies six material grants made during this period, with grant-date fair values ranging from $2.10 per share (January 2022 grant) to $8.75 per share (October 2023 grant), and provides a narrative explanation of the factors described above that contributed to the progressive increase in fair value over the applicable period.

The Company confirms that no material additional stock-based compensation charges are expected as a result of this analysis beyond those already disclosed in the Further Amended Draft S-1. The Company has evaluated all grants made during the periods presented and has determined that the exercise prices of all outstanding options were established at or above the fair market value of the Company's common stock as of the applicable grant dates, as determined by the Board of Directors based on contemporaneous 409A valuations. The Company does not believe that any of the grants made in 2022 or 2023 constitute "cheap stock" that would require recognition of additional stock-based compensation expense.

Comment 6 — Non-GAAP Financial Measures (Adjusted EBITDA Presentation)

Staff Comment:

We note the Company's presentation of Adjusted EBITDA, a non-GAAP financial measure. Please (i) revise the prominence of Adjusted EBITDA relative to the most directly comparable GAAP measure to ensure that GAAP measures are presented with equal or greater prominence; (ii) provide a more detailed reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, including each line item adjustment; and (iii) explain why each adjustment included in the Company's calculation of Adjusted EBITDA is appropriate and useful to investors. We refer you to Item 10(e) of Regulation S-K and the Commission's Compliance and Disclosure Interpretations on Non-GAAP Financial Measures, updated April 4, 2018.

Company Response:

The Company respectfully acknowledges the Staff's comment and has revised its presentation of Adjusted EBITDA throughout the Further Amended Draft S-1 in accordance with the Staff's guidance and the requirements of Item 10(e) of Regulation S-K and SEC Compliance and Disclosure Interpretation 100.01 et seq. regarding non-GAAP financial measures. The Company supplementally advises the Staff as follows.

Prominence. The Company has revised the Prospectus Summary (pages 5–8), Selected Consolidated Financial Data (pages 17–19), and Management's Discussion and Analysis of Financial Condition and Results of Operations (pages 70–83) sections of the Further Amended Draft S-1 to ensure that the Company's GAAP financial measures, including net income (loss), are presented with equal or greater prominence relative to Adjusted EBITDA. Specifically, the Company has: (a) ensured that the GAAP measure of net income ($41.3 million for FY2023 and $18.7 million for FY2022) appears before the presentation of Adjusted EBITDA ($138.7 million for FY2023 and $94.2 million for FY2022) in all sections where both measures are presented; (b) removed references to Adjusted EBITDA from section headings and sub-headings where such references may have implied undue prominence; and (c) ensured that any graphical or tabular presentations of Adjusted EBITDA are accompanied by an equally prominent presentation of the corresponding GAAP measure.

Enhanced Reconciliation. The Company has enhanced the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, to include each adjustment line item separately, with the corresponding dollar amount for each of FY2023 and FY2022. The reconciliation table, which appears at pages 79–80 of the Further Amended Draft S-1, is presented as follows:

Explanation of Adjustments. The Company has added a narrative explanation following the reconciliation table addressing why each adjustment is appropriate and useful to investors:

• Stock-based compensation expense ($32.8 million in FY2023): Excluded because it is a non-cash expense that varies significantly based on factors such as the timing and terms of equity grants, the Company's stock price, and applicable valuation assumptions, and does not directly correlate to the Company's underlying operating performance. The exclusion of stock-based compensation expense is consistent with industry practice among comparable healthcare technology and SaaS companies.

• Depreciation and amortization ($28.6 million in FY2023): Excluded because it reflects the periodic cost recognition of previously acquired tangible and intangible assets and is a non-cash charge that does not reflect the Company's current operating performance or cash generation capacity.

• Interest expense, net ($12.4 million in FY2023): Excluded because it relates to the Company's financing activities and capital structure decisions, which are not directly related to the Company's core operating performance.

• Income tax provision ($14.9 million in FY2023): Excluded because it is influenced by the Company's tax structure, jurisdictional mix, and discrete tax items that may not be reflective of the Company's ongoing operating performance.

• Restructuring charges ($3.2 million in FY2023): Excluded because these charges relate to specific organizational realignment initiatives that are non-recurring in nature and do not reflect the Company's ongoing operating cost structure. FY2023 restructuring charges related primarily to the consolidation of certain support functions following the Company's acquisition of NovaCare Analytics, Inc. in March 2023.

• Acquisition-related costs ($4.1 million in FY2023): Excluded because these costs are directly related to the Company's acquisition activities and include transaction fees, legal and advisory fees, and integration costs that are non-recurring in nature.

• Other non-recurring items ($1.4 million in FY2023): Excluded because these items consist of discrete, non-recurring charges that are not expected to recur in the ordinary course of the Company's business, including a $0.8 million lease termination charge and $0.6 million in litigation settlement costs.

Cautionary Language. The Company has added prominent cautionary language in each section where Adjusted EBITDA is presented, stating that Adjusted EBITDA is a supplemental measure of operating performance that is not prepared in accordance with GAAP, that it should not be considered as an alternative to net income, operating income, or any other GAAP measure, and that it has limitations as an analytical tool, including the exclusion of material costs that are recurring in nature (such as stock-based compensation expense). The Company has also noted that Adjusted EBITDA as defined by the Company may not be comparable to similarly titled measures used by other companies.

The revised disclosures appear at pages 5–8 (Prospectus Summary), 17–19 (Selected Consolidated Financial Data), and 79–81 (MD&A) of the Further Amended Draft S-1.

Comment 7 — Cybersecurity Risk Factors

Staff Comment:

We note the Company's cybersecurity risk factor disclosures. In light of the SEC's final rules on cybersecurity risk management, strategy, governance, and incident disclosure (effective December 2023), please provide enhanced disclosure regarding (i) any material cybersecurity incidents experienced by the Company in the last three fiscal years; (ii) the Company's cybersecurity risk management framework and governance structure; and (iii) the role of the Board of Directors in overseeing cybersecurity risk.

Company Response:

The Company respectfully acknowledges the Staff's comment and has substantially enhanced its cybersecurity disclosures in the Further Amended Draft S-1 in three principal areas, consistent with the Commission's final rules on cybersecurity disclosure adopted on July 26, 2023 (Release No. 33-11216; 34-97989) and effective as of December 18, 2023. The Company supplementally advises the Staff as follows.

Risk Factors. The Company has revised and expanded its cybersecurity-related risk factor disclosures at pages 33–36 of the Further Amended Draft S-1 to provide more specific and tailored disclosure regarding the Company's exposure to cybersecurity threats. The revised risk factors address, among other things: (a) the heightened cybersecurity risks associated with the Company's processing, storage, and transmission of HIPAA-protected health information ("PHI") and other sensitive patient data on behalf of its healthcare provider customers; (b) the risks inherent in the cloud-based architecture of the Arbor Platform, including the risk of unauthorized access, data breaches, ransomware attacks, and other cyber incidents targeting cloud-hosted healthcare applications; (c) the Company's reliance on third-party cloud infrastructure providers (including Ridgeway Industries and Crestline Systems) for the hosting and operation of the Arbor Platform, and the potential impact of cybersecurity incidents affecting such providers on the Company's business and operations; (d) the evolving regulatory landscape with respect to data privacy and cybersecurity, including the potential for increased compliance costs and regulatory enforcement; and (e) the reputational harm and loss of customer confidence that could result from a material cybersecurity incident. The Company believes these revised risk factors are more specific to the Company's business and industry than the prior disclosures and provide investors with a more meaningful understanding of the cybersecurity risks facing the Company.

Cybersecurity Risk Management and Strategy. The Company has added a new section entitled "Cybersecurity Risk Management, Strategy, and Governance" at pages 120–123 of the Further Amended Draft S-1, which describes the Company's cybersecurity risk management program in detail. The Company's cybersecurity risk management program is designed to identify, assess, monitor, and mitigate cybersecurity risks to the Company's information systems, data assets, and business operations. Key elements of the program include:

• NIST Cybersecurity Framework. The Company's cybersecurity risk management program is organized around the National Institute of Standards and Technology ("NIST") Cybersecurity Framework (Version 1.1), which provides a structured approach to identifying cybersecurity risks, implementing protective measures, detecting cybersecurity events, responding to incidents, and recovering from cybersecurity incidents. The Company conducts an annual self-assessment against the NIST Framework and uses the results to prioritize investments in cybersecurity controls and capabilities.

• Third-Party Penetration Testing. The Company engages independent third-party cybersecurity firms to conduct annual penetration testing of the Arbor Platform and the Company's corporate IT infrastructure. The results of these penetration tests are reviewed by the Company's Chief Information Security Officer ("CISO"), reported to the CTO and the Audit Committee, and used to identify and remediate vulnerabilities.

• SOC 2 Type II Compliance. The Company has obtained and maintains a Service Organization Control ("SOC") 2 Type II report, issued by an independent auditing firm, which provides assurance that the Company's information security controls are suitably designed and operating effectively over a specified period. The Company's most recent SOC 2 Type II report covers the period from January 1, 2023 to December 31, 2023.

• Employee Training. The Company conducts mandatory cybersecurity awareness training for all employees on an annual basis, including training on phishing awareness, password hygiene, secure data handling practices, and the Company's incident reporting procedures. The Company also conducts periodic simulated phishing campaigns to test employee awareness and responsiveness.

• Incident Response Plan. The Company maintains a comprehensive cybersecurity incident response plan, which establishes protocols for the identification, containment, eradication, and recovery from cybersecurity incidents, as well as communication and notification procedures (including notifications to affected customers, regulatory authorities, and law enforcement, as required by applicable law). The incident response plan is reviewed and updated at least annually, and the Company conducts tabletop exercises to test the effectiveness of the plan.

Cybersecurity Governance. The Company has added disclosure at pages 123–124 of the Further Amended Draft S-1 regarding the role of the Board of Directors in overseeing cybersecurity risk. The Board has delegated primary responsibility for the oversight of cybersecurity risk to the Audit Committee of the Board of Directors, which is currently composed of Carolyn Whittemore (Chair), Dr. Samuel Obadina, and Howard Feng. The Audit Committee receives quarterly cybersecurity briefings from the Company's CTO, Margaret Tsujimoto, and the Company's CISO, which cover the current threat landscape, the status of the Company's cybersecurity risk management program, the results of penetration testing and vulnerability assessments, any cybersecurity incidents or near-misses, and the Company's progress against its cybersecurity investment roadmap. In addition, the full Board of Directors receives an annual cybersecurity risk assessment, prepared by the Company's CISO in consultation with the CTO, which provides a comprehensive overview of the Company's cybersecurity posture, including a summary of key risks, mitigation strategies, and recommended investments in cybersecurity infrastructure and personnel.

Material Incidents. The Company confirms that it has not experienced any material cybersecurity incidents in the last three fiscal years (FY2021, FY2022, and FY2023) that have resulted in material harm to the Company's business, operations, financial condition, or reputation. The Company has disclosed this fact at page 35 of the Further Amended Draft S-1. The Company notes, however, that it has experienced immaterial cybersecurity events in the ordinary course of its business, including attempted phishing attacks and unauthorized access attempts, all of which were detected and mitigated through the Company's existing cybersecurity controls without material impact to the Company's operations or data assets.

The Company believes that the revised disclosures described above are responsive to the Staff's comment and are consistent with the Commission's final rules on cybersecurity risk management, strategy, governance, and incident disclosure.

Comment 8 — Cybersecurity (Third-Party Risk)

Staff Comment:

Please address in your cybersecurity risk factor disclosures the risks arising from the Company's reliance on third-party service providers and vendors, including how the Company assesses and manages cybersecurity risks associated with its third-party ecosystem.

Company Response:

The Company respectfully acknowledges the Staff's comment and has added disclosure in both the Risk Factors section and the Cybersecurity Risk Management and Strategy section of the Further Amended Draft S-1 addressing the cybersecurity risks associated with the Company's reliance on third-party service providers and vendors. The Company supplementally advises the Staff as follows.

In the Risk Factors section (pages 35–36 of the Further Amended Draft S-1), the Company has added a specific risk factor addressing the risks arising from the Company's reliance on third-party service providers and vendors, including cloud infrastructure providers, data center operators, payment processors, and other technology vendors whose systems interact with or support the Arbor Platform. The risk factor discloses that a cybersecurity incident affecting any of these third-party providers could disrupt the Company's operations, compromise patient data or other sensitive information, and expose the Company to regulatory liability, litigation, and reputational harm, even if the Company's own systems are not directly compromised.

In the Cybersecurity Risk Management and Strategy section (pages 121–122 of the Further Amended Draft S-1), the Company has added disclosure describing its vendor risk management program, which is designed to assess, monitor, and mitigate cybersecurity risks associated with the Company's third-party ecosystem. Key elements of the program include:

• Security Questionnaires and Due Diligence. Prior to onboarding any new third-party vendor that will have access to the Company's systems or data, the Company conducts a cybersecurity risk assessment, which includes the completion of a detailed security questionnaire, a review of the vendor's security certifications and audit reports, and, for critical vendors, an on-site or virtual security assessment.

• Contractual Requirements. The Company's vendor agreements include contractual requirements for data protection, including obligations relating to data encryption (in transit and at rest), access controls, incident notification (with specified notification timelines), data retention and destruction, and compliance with applicable data privacy and security regulations, including HIPAA, where applicable.

• SOC 2 Compliance Requirements for Critical Vendors. The Company requires its critical third-party vendors — defined as vendors that have access to PHI, personally identifiable information ("PII"), or other sensitive Company data, or that provide services essential to the operation of the Arbor Platform — to maintain current SOC 2 Type II reports (or equivalent security certifications) and to provide copies of such reports to the Company on an annual basis. The Company's security team reviews these reports and follows up on any identified control deficiencies or exceptions.

• Ongoing Monitoring. The Company conducts ongoing monitoring of its third-party vendor ecosystem, including periodic reassessments of vendor security posture, review of publicly reported cybersecurity incidents affecting vendors, and continuous monitoring of vendor compliance with contractual security requirements.

The Company notes that its platform serves over 1,200 hospital systems and physician groups across 42 states, and the security, integrity, and availability of data transmitted to and from these customers through the Arbor Platform is integral to the Company's operations, customer relationships, and regulatory compliance obligations. The Company's vendor risk management program is designed to address the cybersecurity risks inherent in this complex and interconnected ecosystem.

The revised disclosures addressing third-party cybersecurity risk appear at pages 35–36 and 121–122 of the Further Amended Draft S-1.

Comment 9 — Related Party Transactions

Staff Comment:

Please provide additional detail regarding the Company's related party transactions, including the terms and amounts of any transactions with Brindoval Trelvon Partners and Ridgeline Growth Equity or their respective affiliates. Please also address whether such transactions were conducted on terms comparable to arm's-length transactions.

Company Response:

The Company respectfully acknowledges the Staff's comment and has revised its "Certain Relationships and Related Party Transactions" disclosure at pages 139–144 of the Further Amended Draft S-1 to provide additional detail regarding the Company's related party transactions, including the specific terms and conditions of the Company's agreements with Brindoval Trelvon Partners and Ridgeline Growth Equity and their respective affiliates. The Company supplementally advises the Staff as follows.

The Company's principal related party transactions consist of the following agreements, each of which is described in greater detail in the Further Amended Draft S-1:

(i) Amended and Restated Investors' Rights Agreement. The Company entered into an Amended and Restated Investors' Rights Agreement, dated October 22, 2020 (the "IRA"), with Brindoval Trelvon Partners Fund IV, L.P. ("Brindoval Summit"), Ridgeline Growth Equity Fund III, LLC ("Ridgeline"), and certain other investors. The IRA provides for, among other things, information rights, rights of first offer, and co-sale rights in favor of certain major investors, as defined therein. The IRA will terminate in its entirety upon the consummation of a Qualified IPO, which is defined as a firm commitment underwritten public offering of the Company's common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in aggregate gross proceeds to the Company of not less than $200,000,000 and the listing of the Company's common stock on a national securities exchange.

(ii) Amended and Restated Registration Rights Agreement. The Company entered into an Amended and Restated Registration Rights Agreement, dated October 22, 2020 (the "RRA"), with Brindoval Summit, Ridgeline, and certain other holders. Pursuant to the RRA, Brindoval Summit and Ridgeline (and their permitted transferees) are entitled to demand registration rights (limited to two demands in the aggregate for each of Brindoval Summit and Ridgeline) and customary piggyback registration rights with respect to the shares of common stock held by them. In addition, at any time following the 12-month anniversary of the consummation of the IPO, Brindoval Summit and Ridgeline will be entitled to request that the Company file a registration statement on Form S-3 (or any successor form) under the Securities Act for the resale of their shares. The RRA also contains a 180-day standstill provision, which will be coterminous with the lock-up agreements entered into by the Company's officers, directors, and significant stockholders in connection with the IPO. Following the IPO, Brindoval Summit is expected to hold 28,000,000 shares of common stock (representing approximately 27.18% of the Company's outstanding shares on a post-IPO basis, assuming no exercise of the overallotment option) and Ridgeline is expected to hold 16,000,000 shares of common stock (representing approximately 15.53% of the Company's outstanding shares on a post-IPO basis, assuming no exercise of the overallotment option).

(iii) Amended and Restated Voting Agreement. The Company entered into an Amended and Restated Voting Agreement, dated October 22, 2020 (the "Voting Agreement"), with Brindoval Summit, Ridgeline, and certain other stockholders. The Voting Agreement provides for, among other things, agreements among the parties regarding the election of directors and certain protective provisions requiring investor approval. The Voting Agreement will terminate in its entirety upon the consummation of the IPO.

(iv) Board Designee Rights. Pursuant to the Voting Agreement and the Company's certificate of incorporation (as currently in effect), Brindoval Summit has the right to designate two members of the Board of Directors, and Ridgeline has the right to designate one member of the Board of Directors. Currently, Leonard Corbett and Diana Coltrane serve as the Board designees of Brindoval Summit, and Howard Feng serves as the Board designee of Ridgeline. Upon the consummation of the IPO and the filing of the Company's Amended and Restated Certificate of Incorporation, these board designee rights will terminate; however, the Company anticipates that each of Mr. Corbett, Ms. Coltrane, and Mr. Feng will continue to serve as members of the Board of Directors following the IPO.

The Company confirms that, other than the agreements described above and the other related party transactions disclosed in the Further Amended Draft S-1, there are no material transactions between the Company and any stockholder beneficially owning 5% or more of the Company's outstanding common stock, any director, any executive officer, or any immediate family member of any of the foregoing, or any entity controlled by any of the foregoing, that were not conducted on arm's-length terms. The Company further notes that none of the agreements described above involve the payment of fees, commissions, or other monetary consideration by the Company to Brindoval Summit, Ridgeline, or their respective affiliates; the agreements relate to governance, registration, and information rights that are customary for venture and growth equity-backed companies in connection with preferred stock financings.

In addition, the Company has disclosed at pages 143–144 of the Further Amended Draft S-1 the related party transaction review and approval policy that will be implemented by the Audit Committee of the Board of Directors following the consummation of the IPO. Under this policy, the Audit Committee will review and approve or ratify all transactions or proposed transactions in which the Company is a participant and in which any related person (as defined in Item 404(a) of Regulation S-K) has, had, or will have a direct or indirect material interest, where the aggregate amount involved exceeds $120,000. The Audit Committee will evaluate such transactions based on, among other factors, the terms and conditions of the transaction, the business purpose of the transaction, whether the transaction is on terms comparable to those available in arm's-length dealings with unrelated third parties, and the extent of the related person's interest in the transaction.

Comment 10 — Use of Proceeds

Staff Comment:

Please provide more specific disclosure regarding the Company's planned use of IPO proceeds, including approximate dollar amounts or percentages for each stated use. In addition, if any portion of the proceeds will be used to repay indebtedness, please disclose the interest rate, maturity date, and original use of the borrowed funds, consistent with the requirements of Item 504 of Regulation S-K.

Company Response:

The Company respectfully acknowledges the Staff's comment and has revised its "Use of Proceeds" disclosure at pages 47–48 of the Further Amended Draft S-1 to provide a more specific breakdown of the Company's anticipated use of estimated net proceeds from the IPO, including approximate dollar amounts for each stated use. The Company supplementally advises the Staff as follows.

The Company estimates that the net proceeds from the sale of 20,000,000 shares of common stock in the base offering at an assumed initial public offering price of $20.00 per share (the midpoint of the range to be set forth on the cover page of the prospectus) will be approximately $371.8 million, after deducting the estimated underwriting discount of approximately $24.0 million (assuming no exercise of the underwriters' overallotment option) and estimated offering expenses payable by the Company of approximately $4.2 million.

The Company intends to use the estimated net proceeds from the offering as follows:

(a) Repayment of Indebtedness: Approximately $65 million to repay the outstanding balance on the Company's senior secured revolving credit facility (the "Revolving Credit Facility") with Keypoint National Bank, N.A. ("Keypoint"), as Administrative Agent, and Stonemill Capital Bank, as Lender. The Revolving Credit Facility was entered into on March 15, 2022, and was amended by the First Amendment to Credit Agreement, dated January 18, 2024. The Revolving Credit Facility provides for a maximum commitment of $125 million and bears interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus 200 basis points (2.00%). The maturity date of the Revolving Credit Facility is March 15, 2027. The outstanding balance under the Revolving Credit Facility as of December 31, 2023 was approximately $65 million. Proceeds of borrowings under the Revolving Credit Facility were used for working capital and general corporate purposes. The Company is required to disclose this information pursuant to Instruction 4 to Item 504 of Regulation S-K.

(b) Product Development and Research & Development Investment: Approximately $120 million to fund continued investment in the research and development of the Arbor Platform, including the development of new clinical decision support capabilities, expansion of the Company's real-time analytics and population health management offerings, investment in artificial intelligence and machine learning capabilities, and enhancement of the Company's cloud infrastructure and platform architecture.

(c) Potential Acquisitions and Strategic Investments: Approximately $100 million to fund potential acquisitions of complementary businesses, technologies, and assets, as well as strategic investments and partnerships. The Company does not currently have any agreements or commitments with respect to any material acquisitions or strategic investments; however, the Company regularly evaluates potential strategic transactions and may pursue one or more acquisitions or investments following the completion of the IPO.

(d) General Corporate Purposes and Working Capital: The balance of the net proceeds (approximately $86.8 million) will be used for general corporate purposes, including working capital, capital expenditures, and other general and administrative expenses. The Company may also use a portion of the remaining net proceeds to fund the expansion of its sales and marketing organization.

The Company notes that, if the underwriters exercise the overallotment option in full with respect to 3,000,000 additional shares of common stock at the assumed initial public offering price of $20.00 per share, the total gross proceeds from the offering would increase to approximately $460,000,000, and the additional net proceeds (after deducting the underwriting discount applicable to such additional shares) would be used for general corporate purposes and working capital. The Company has revised its disclosure to reflect this information.

The Company further notes that the foregoing represents the Company's current intentions regarding the use of proceeds based on its present plans and business conditions. The Company has retained flexibility to adjust the allocation of net proceeds among the stated uses as business conditions warrant, and has disclosed this flexibility in the Further Amended Draft S-1. Pending the use of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, investment-grade, interest-bearing instruments, including U.S. government obligations, money market funds, and certificates of deposit.

Comment 11 — Executive Compensation Disclosure

Staff Comment:

Please provide enhanced disclosure regarding equity compensation grants to named executive officers in the periods leading up to the IPO, including (i) the timing and terms of any equity grants made within twelve months of the initial filing of the Registration Statement; (ii) the grant-date fair values of such grants; and (iii) any modifications to existing equity awards in connection with the IPO.

Company Response:

The Company respectfully acknowledges the Staff's comment and has revised its Executive Compensation disclosure at pages 127–135 of the Further Amended Draft S-1 to include enhanced disclosure regarding equity compensation grants to the Company's named executive officers ("NEOs") in the periods leading up to the IPO. The Company supplementally advises the Staff as follows.

The Company has added a supplemental table at page 131 of the Further Amended Draft S-1 showing all equity grants made

CALDERWOOD & HARKNESS LLP Attorneys at Law
125 Broad Street New York, NY 10004 Telephone: (212) 458-7000 Facsimile: (212) 458-7100 www.calderwoodharkness.com
January 19, 2024
VIA EDGAR CORRESPONDENCE
Division of Corporation Finance Office of Technology U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549
Attention: Ms. Karen Lindquist, Senior Staff Accountant
Mr. James Talbott, Staff Attorney
Re: Arbor Health Technologies Inc. Registration Statement on Form S-1 Filed Confidentially on November 10, 2023 (as amended) SEC File Number: 333-276841 CIK Number: 0001987432
Dear Ms. Lindquist and Mr. Talbott:
This letter is submitted by Calderwood & Harkness LLP as counsel to Arbor Health Technologies Inc. ("Arbor Health" or the "Company"), a Delaware corporation with its principal executive offices located at 275 Kendall Avenue, Suite 1400, Cambridge, Massachusetts 02142, in response to the comment letter of the Staff (the "Staff") of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the "Commission"), dated January 12, 2024 (the "Comment Letter"), containing eleven (11) comments on the Company's amended draft Registration Statement on Form S-1 (the "Amended Draft S-1"). The Company's prior amended submission was filed on December 22, 2023, in response to the Staff's initial comment letter dated December 8, 2023 (the "Round 1 Comment Letter").
Each of the Company's responses set forth below corresponds to the numbered comment in the Staff's Comment Letter. For the convenience of the Staff, the text of each Staff comment has been reproduced in bold typeface immediately preceding the Company's response. All page references herein are to the further Amended Draft Registration Statement on Form S-1 (the "Further Amended Draft S-1") being filed concurrently with this letter via EDGAR, unless otherwise indicated.
Concurrently with the submission of this letter, the Company is submitting the Further Amended Draft S-1, marked to show all changes from the version submitted on December 22, 2023. A clean copy of the Further Amended Draft S-1 is also being submitted for the Staff's convenience.
This letter is submitted on behalf of the Company by Theodore Langston, Responsible Partner, Capital Markets, and Eric Johannsen, Lead Associate, Capital Markets, of Calderwood & Harkness LLP.
The Company appreciates the Staff's thorough review and thoughtful comments, which have been helpful in enhancing the quality and completeness of the Company's disclosure. The Company has endeavored to address each of the Staff's comments fully and respectfully requests the Staff's review of the responses and revised disclosures set forth below.
Comment 1 — Segment Reporting (ASC 280 — Single Reportable Segment)
Staff Comment:
We note the Company's assertion that it operates as a single reportable segment under ASC 280, *Segment Reporting*. However, the Company appears to derive revenue from distinct service lines — namely, a clinical decision support SaaS platform, revenue cycle management outsourcing services, and real-time analytics services — each of which may be subject to different economic characteristics, customer bases, and competitive dynamics. Please provide additional support for the Company's conclusion that it operates as a single reportable segment, including (i) how the Company identifies its Chief Operating Decision Maker (CODM); (ii) the nature and content of the financial information regularly reviewed by the CODM; and (iii) whether the CODM reviews discrete financial information (such as revenue, operating income or loss, or other profitability metrics) for each service line for purposes of assessing performance and making resource allocation decisions. In this regard, we refer you to ASC 280-10-50-1 through 50-9.
Company Response:
The Company respectfully acknowledges the Staff's comment and has carefully considered the requirements of ASC 280, Segment Reporting, in evaluating its operating and reportable segment structure. The Company supplementally advises the Staff as follows and has enhanced the relevant disclosure in the Further Amended Draft S-1.
The Company has determined that Dr. Nathaniel Rourke, Co-Founder, Chairman, and Chief Executive Officer, is the Company's Chief Operating Decision Maker ("CODM") within the meaning of ASC 280-10-50-5. Dr. Rourke has served as the Company's chief executive since its founding in 2012 and has direct responsibility for assessing the performance of the business as a whole and for making decisions regarding the allocation of the Company's resources across all functional areas, including research and development, sales and marketing, customer success, and general and administrative functions.
In his capacity as CODM, Dr. Rourke regularly reviews consolidated financial information for purposes of evaluating the Company's overall performance and allocating resources. Specifically, the financial information regularly reviewed by the CODM includes: (a) consolidated revenue; (b) consolidated Adjusted EBITDA; (c) consolidated net income (loss); (d) consolidated operating cash flow; and (e) key operational metrics including total customer count, annual recurring revenue ("ARR"), net dollar retention rate, and customer acquisition cost, each presented on a consolidated basis. The CODM does not review discrete operating results — including discrete revenue, cost of revenue, gross margin, operating income or loss, or other profitability metrics — at the individual service line level for purposes of making resource allocation decisions or assessing the performance of individual components of the business.
While the Company does track revenue by product category — specifically, (a) SaaS platform subscription revenue, (b) revenue cycle management outsourcing revenue, and (c) real-time analytics and professional services revenue — for internal management reporting purposes, this revenue-level information is provided to the CODM on a supplemental and informational basis only and is not used by the CODM as a basis for making resource allocation decisions. Notably, the Company's operating expenses, including research and development expenses, sales and marketing expenses, and general and administrative expenses, are not allocated to or tracked by individual service lines. The Company does not maintain discrete profit and loss statements, balance sheets, or other financial statements at the service line level. The Company's approximately 3,400 employees, including its engineering, product, sales, customer success, and corporate teams, operate within a single, unified organizational structure. The Company does not have separate divisional or service line-level management teams with discrete profit and loss accountability.
The Company's conclusion that it operates as a single operating segment is further supported by the integrated nature of the Company's healthcare technology platform (the "Arbor Platform"). The Company's clinical decision support capabilities, revenue cycle management services, and real-time analytics offerings are designed to operate as an integrated solution for healthcare providers. Customer relationships frequently span multiple product categories, and the Company's go-to-market strategy emphasizes the cross-selling of its full suite of capabilities. As of December 31, 2023, the Company served over 1,200 hospital systems and physician groups across 42 states, and a significant majority of the Company's top 100 customers by revenue utilized two or more product categories within the Arbor Platform.
The Company notes that its consolidated revenue for the fiscal year ended December 31, 2023 ("FY2023") was $612.4 million, compared to consolidated revenue of $478.4 million for the fiscal year ended December 31, 2022 ("FY2022"), representing year-over-year growth of approximately 28%. These consolidated figures represent the primary financial metrics reviewed by the CODM for evaluating the Company's performance and allocating resources across the business.
In response to the Staff's comment, the Company has enhanced its disclosure in the Further Amended Draft S-1 at pages 92–93 and at Note 2 to the consolidated financial statements (pages F-14 through F-16) to more clearly explain the basis for the Company's conclusion that it operates as a single reportable segment under ASC 280, including a description of the role of the CODM, the nature and content of the financial information regularly reviewed by the CODM, and the factors supporting the Company's single-segment determination. The Company believes that these enhanced disclosures adequately address the Staff's comment.
Comment 2 — Segment Reporting (Disaggregated Revenue Disclosure)
Staff Comment:
We note the Company's current revenue disclosures. Please revise the filing to provide enhanced disaggregated revenue disclosure under ASC 606-10-50-5 in order to provide investors with a more granular understanding of the Company's revenue streams. Specifically, please provide a breakdown of revenue by (i) product/service type and (ii) contract type (i.e., subscription versus transactional), for each period presented, in both the Management's Discussion and Analysis section and the notes to the financial statements.
Company Response:
The Company respectfully acknowledges the Staff's comment and has revised its revenue disclosures in the Further Amended Draft S-1 to provide investors with enhanced disaggregated revenue information consistent with the requirements of ASC 606-10-50-5.
In response to the Staff's comment, the Company has included a tabular disaggregation of revenue by product/service type for each of FY2023 and FY2022. The disaggregated categories include: (a) SaaS platform subscription revenue; (b) revenue cycle management outsourcing revenue; and (c) real-time analytics and professional services revenue. The Company believes that these categories depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors and are consistent with the categories in which the Company tracks revenue for internal management reporting purposes.
In addition, the Company has added a supplemental disaggregation of revenue between (a) recurring subscription revenue (which includes SaaS platform subscription fees and recurring revenue cycle management outsourcing fees under multi-year contracts) and (b) transactional and professional services revenue (which includes implementation fees, one-time analytics engagements, and ad hoc professional services). The Company notes that recurring SaaS subscription revenue represented the substantial majority of total revenue in each of FY2023 and FY2022, accounting for approximately 74% and 71% of total revenue, respectively. The Company believes this additional disaggregation provides investors with useful insight into the predictability and durability of the Company's revenue base.
The revised disaggregated revenue disclosures appear in two locations in the Further Amended Draft S-1: (i) in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section at pages 76–78, where the tabular presentation is accompanied by narrative discussion of trends and drivers within each revenue category; and (ii) in Note 3 to the consolidated financial statements (Revenue Recognition) at pages F-18 through F-20, where the tabular presentation is accompanied by the Company's accounting policy for revenue recognition under ASC 606.
The Company further notes that these enhanced disclosures are consistent with the Company's classification under SIC Code 7372 (Prepackaged Software) and with the nature of the Company's cloud-based clinical decision support and population health management platform, which is delivered primarily through subscription arrangements. The Company believes that the revised disclosures, taken as a whole, provide investors with a comprehensive understanding of the Company's revenue composition and trends.
Comment 3 — Stock-Based Compensation (Fair Value Determination of Common Stock)
Staff Comment:
We note the Company's disclosure regarding stock-based compensation expense. Please provide additional disclosure regarding the methodology used to determine the fair value of common stock for purposes of stock-based compensation expense for grants made during the periods presented. In particular, please address (i) the valuation methodology or methodologies employed, including the key assumptions and inputs used; (ii) the involvement of any third-party valuation firm; and (iii) a retrospective comparison of prior valuations to the estimated IPO price range, including an explanation of the factors contributing to the difference between historical valuations and the anticipated offering price.
Company Response:
The Company respectfully acknowledges the Staff's comment and has substantially expanded its disclosure regarding the fair value determination of common stock in the "Critical Accounting Policies and Significant Judgments and Estimates — Stock-Based Compensation" section of the Further Amended Draft S-1 at pages 84–89. The Company supplementally advises the Staff as follows.
Since its inception, the Company has granted equity awards to employees, directors, and consultants under the 2014 Stock Incentive Plan (the "2014 Plan"). The 2014 Plan authorizes the issuance of up to 12,000,000 shares of the Company's common stock. As of December 31, 2023, the Company had granted options to purchase an aggregate of 11,200,000 shares under the 2014 Plan, with a weighted average exercise price of $3.25 per share. Because the Company's common stock was not publicly traded during the periods in which these grants were made, the Company was required to estimate the fair value of its common stock on each grant date for purposes of determining the exercise prices of stock options and the fair value of stock-based compensation expense under ASC 718, Compensation — Stock Compensation.
For all grants made under the 2014 Plan, the Company obtained contemporaneous independent third-party valuations (commonly referred to as "409A valuations") from a nationally recognized valuation firm. These valuations were prepared in accordance with the guidance set forth in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the "AICPA Guide"), and were designed to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder.
The third-party valuations employed a combination of generally accepted valuation methodologies, including:
(a) Income Approach (Discounted Cash Flow Method): The Company's projected future cash flows were discounted to present value using a weighted average cost of capital that reflected the risk profile of the Company and comparable businesses. Key assumptions included projected revenue growth rates (ranging from 22% to 35% annually, depending on the valuation date and the stage of the Company's development), projected operating margins, terminal growth rates, and applicable discount rates (ranging from 18% to 25%).
(b) Market Approach (Guideline Public Company Method): The Company's value was estimated by reference to publicly traded companies with comparable business models, size, growth characteristics, and risk profiles. Comparable companies included, among others, publicly traded healthcare technology and SaaS companies. The Company applied relevant valuation multiples (including enterprise value to revenue and enterprise value to EBITDA multiples) derived from the comparable company set.
(c) Option Pricing Method (OPM): For earlier-stage valuations (prior to mid-2023), the Company utilized the option pricing method to allocate enterprise value among the various classes of the Company's equity securities. The OPM treats each class of equity as a call option on the enterprise value, with exercise prices determined by the liquidation preferences and participation rights of each class.
(d) Probability-Weighted Expected Return Method (PWERM): As the prospect of an IPO became more probable (beginning in mid-2023), the Company's valuations transitioned from the OPM to the probability-weighted expected return method. Under the PWERM, the Company estimated the value of its common stock under multiple future exit scenarios — including an IPO scenario, a strategic sale scenario, and a remaining-private scenario — and assigned probability weightings to each scenario based on the Company's assessment of the relative likelihood of each outcome at the applicable valuation date.
Key assumptions used in the valuations included, in addition to those described above: (i) discount for lack of marketability ("DLOM"), which ranged from 30% for valuations conducted in 2021 to 10% for valuations conducted in late 2023 as the IPO timeline became more certain; (ii) expected volatility, derived from the historical volatility of comparable publicly traded healthcare technology companies, which ranged from 45% to 60%; and (iii) probability weightings for exit scenarios under the PWERM, which increased the probability weighting assigned to an IPO scenario from 25% in mid-2023 to 75% in November 2023.
In response to the Staff's comment, the Company has added a table in the Further Amended Draft S-1 at page 87 showing the chronology of valuation dates for valuations obtained during the periods presented, the fair value per share of common stock determined as of each valuation date, and a comparison of each such fair value to the initial estimated IPO price range of $17.00 to $19.00 per share (the "Estimated Price Range"). The table is accompanied by a narrative explanation of the principal factors contributing to the increase in fair value over the twelve months preceding the anticipated IPO, including: the Company's strong revenue growth; expanding customer base; improving profitability metrics; favorable market conditions for healthcare SaaS businesses; the reduction in DLOM as the IPO timeline crystallized; and the transition from OPM to PWERM with increasing probability weighting for the IPO scenario.
The Company further confirms that all outstanding options under the 2014 Plan were granted with exercise prices equal to the fair market value of the Company's common stock as determined by the Board of Directors based on the contemporaneous 409A valuations, in compliance with Section 409A of the Code. With respect to the fourteen (14) current employees who received restricted stock grants in 2021 and 2022, the Company confirms that timely elections under Section 83(b) of the Code were filed with the Internal Revenue Service within 30 days of the applicable grant dates, and copies of such elections are maintained in the Company's records.
Comment 4 — Stock-Based Compensation (Expense Recognition Methodology)
Staff Comment:
Please clarify the Company's stock-based compensation expense recognition methodology, including (i) the service period over which expense is recognized for time-based awards; (ii) the Company's forfeiture rate assumptions and whether forfeitures are estimated at the time of grant or recognized as they occur; and (iii) the treatment of any performance-based awards, if applicable.
Company Response:
The Company respectfully acknowledges the Staff's comment and has revised its disclosure at pages 89–91 of the Further Amended Draft S-1 to more clearly describe its stock-based compensation expense recognition methodology. The Company supplementally advises the Staff as follows.
Time-Based Awards. The Company's stock option grants under the 2014 Plan are subject to time-based vesting conditions. The standard vesting schedule provides for vesting over a four-year period, with 25% of the shares subject to each option vesting on the first anniversary of the vesting commencement date (the "cliff"), and the remaining 75% of the shares vesting in equal monthly installments over the subsequent 36 months, in each case subject to the option holder's continued service with the Company through the applicable vesting date. Stock-based compensation expense for time-based stock options is recognized on a straight-line basis over the requisite service period (i.e., the four-year vesting period), net of estimated forfeitures. The Company uses the Black-Drubeck option-pricing model to estimate the fair value of stock options on the grant date.
Forfeiture Assumptions. The Company estimates forfeitures at the time of grant based on historical forfeiture experience and revises the estimate in subsequent periods if actual forfeitures differ from the Company's estimates. The Company's estimated annual forfeiture rate has been approximately 7% to 9% over the periods presented, based on the Company's analysis of historical termination and forfeiture patterns across its employee population. The Company monitors actual forfeitures on a quarterly basis and adjusts the cumulative stock-based compensation expense recognized in the period in which the estimate is revised.
Performance-Based Awards. The Company currently has no outstanding performance-based equity awards under the 2014 Plan. All options granted under the 2014 Plan are subject exclusively to time-based vesting conditions as described above. The Company's 2024 Equity Incentive Plan (the "2024 Plan"), which was adopted by the Board of Directors on January 15, 2024 and will become effective upon the consummation of the IPO, authorizes the grant of performance-based awards, including performance stock units ("PSUs"), stock options with performance-based vesting conditions, and other equity-based awards subject to the achievement of specified performance goals. As no grants have been made under the 2024 Plan as of the date of this letter, and no grants are expected to be made prior to the IPO, the Company will disclose the applicable accounting treatment for any performance-based awards in future periodic filings following the consummation of the IPO. The 2024 Plan reserves 10,300,000 shares of common stock for issuance (inclusive of an annual evergreen provision equal to 3% of the fully diluted shares outstanding as of December 31 of the preceding fiscal year, subject to the terms and conditions of the 2024 Plan).
In addition, the Company has added disclosure at page 91 of the Further Amended Draft S-1 regarding the anticipated stock-based compensation charge that the Company expects to recognize in connection with the IPO. Specifically, the Company expects to recognize approximately $8.2 million in incremental stock-based compensation expense in the quarter in which the IPO is consummated, reflecting the acceleration of expense recognition for unvested options held by employees whose options contain a provision for accelerated vesting of a portion of the unvested shares upon the occurrence of a Qualified IPO, as defined in the applicable option agreements. The Company confirms that no existing equity awards under the 2014 Plan have been modified, repriced, or otherwise altered in connection with the IPO, other than the accelerated vesting provision described above, which was included in the original terms of the applicable option agreements at the time of grant.
Comment 5 — Stock-Based Compensation (Cheap Stock Analysis)
Staff Comment:
We note that the weighted average exercise price of the Company's outstanding options ($3.25 per share) is substantially below the anticipated IPO price range of $17.00 to $19.00 per share. Please provide a more detailed explanation of the factors that account for the increase in fair value of the Company's common stock from the grant dates of outstanding options to the expected IPO price, particularly with respect to grants made in 2022 and 2023. In addition, please provide a reconciliation of the grant-date fair values for material grants to the midpoint of the estimated IPO price range.
Company Response:
The Company respectfully acknowledges the Staff's comment. In response, the Company has added a detailed "cheap stock" analysis at pages 87–89 of the Further Amended Draft S-1, within the "Critical Accounting Policies and Significant Judgments and Estimates — Stock-Based Compensation" section. The Company supplementally advises the Staff as follows.
The Company recognizes that the weighted average exercise price of outstanding options under the 2014 Plan ($3.25 per share) reflects a significant discount to the midpoint of the initial Estimated Price Range of $18.00 per share. The Company believes that this difference is attributable to a number of objective and quantifiable factors, each of which is described in the Company's revised disclosure. The principal factors driving the increase in the estimated fair value of the Company's common stock from the grant dates in 2022 and 2023 to the Estimated Price Range include:
(i) Significant Revenue Growth. The Company's consolidated revenue grew from $478.4 million in FY2022 to $612.4 million in FY2023, representing year-over-year growth of approximately 28%. This revenue growth significantly exceeded the projections that were incorporated into the Company's earlier 409A valuations and reflects the Company's successful execution of its land-and-expand go-to-market strategy and the continued adoption of the Arbor Platform by healthcare providers nationwide.
(ii) Expanding Customer Base. The Company's customer base grew from approximately 900 hospital systems and physician groups as of December 31, 2022 to over 1,200 hospital systems and physician groups across 42 states as of December 31, 2023. This expansion in the Company's customer base is indicative of the increasing market acceptance of the Arbor Platform and the Company's growing competitive position in the healthcare technology market.
(iii) Improvement in Profitability Metrics. The Company achieved FY2023 Adjusted EBITDA of $138.7 million, representing an Adjusted EBITDA margin of approximately 22.6%, compared to FY2022 Adjusted EBITDA of $94.2 million (an Adjusted EBITDA margin of approximately 19.7%). The Company also achieved FY2023 net income of $41.3 million, compared to FY2022 net income of $18.7 million. These improvements in profitability were not fully reflected in the Company's earlier valuations, which were based on projections that assumed a more gradual path to profitability.
(iv) Broader Market Appreciation for Healthcare SaaS Businesses. Public market valuations of comparable healthcare technology and SaaS companies increased during 2023, driven by improving investor sentiment toward recurring-revenue, cloud-based business models in the healthcare vertical. This favorable shift in public market comparables resulted in higher valuation multiples applied under the market approach in the Company's more recent 409A valuations.
(v) Reduction in discount for Lack of Marketability. As the Company's IPO timeline became more certain, the DLOM applied in the Company's 409A valuations was reduced from approximately 25% in early 2022 to approximately 10% in November 2023. The reduction in DLOM had a material positive effect on the estimated fair value of the Company's common stock.
(vi) Transition from OPM to PWERM with Increasing IPO Probability. As described in the Company's response to Comment 3 above, the Company's 409A valuations transitioned from the option pricing method to the probability-weighted expected return method beginning in mid-2023, with the probability weighting assigned to the IPO scenario increasing from 25% to 75% over the course of 2023. The PWERM, with higher probability weighting for the IPO scenario, resulted in a higher estimated fair value per share of common stock relative to valuations conducted under the OPM, principally because the IPO scenario implies a higher per-share value for common stockholders (due to the conversion of preferred stock and the elimination of liquidation preferences upon a Qualified IPO).
In connection with this analysis, the Company has provided a reconciliation table at page 88 of the Further Amended Draft S-1 showing the grant-date fair values for each material grant of stock options issued under the 2014 Plan in 2022 and 2023, the exercise price of each such grant, the corresponding 409A valuation date and determined fair value, and a comparison to the midpoint of the Estimated Price Range ($18.00 per share). The table identifies six material grants made during this period, with grant-date fair values ranging from $2.10 per share (January 2022 grant) to $8.75 per share (October 2023 grant), and provides a narrative explanation of the factors described above that contributed to the progressive increase in fair value over the applicable period.
The Company confirms that no material additional stock-based compensation charges are expected as a result of this analysis beyond those already disclosed in the Further Amended Draft S-1. The Company has evaluated all grants made during the periods presented and has determined that the exercise prices of all outstanding options were established at or above the fair market value of the Company's common stock as of the applicable grant dates, as determined by the Board of Directors based on contemporaneous 409A valuations. The Company does not believe that any of the grants made in 2022 or 2023 constitute "cheap stock" that would require recognition of additional stock-based compensation expense.
Comment 6 — Non-GAAP Financial Measures (Adjusted EBITDA Presentation)
Staff Comment:
We note the Company's presentation of Adjusted EBITDA, a non-GAAP financial measure. Please (i) revise the prominence of Adjusted EBITDA relative to the most directly comparable GAAP measure to ensure that GAAP measures are presented with equal or greater prominence; (ii) provide a more detailed reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, including each line item adjustment; and (iii) explain why each adjustment included in the Company's calculation of Adjusted EBITDA is appropriate and useful to investors. We refer you to Item 10(e) of Regulation S-K and the Commission's Compliance and Disclosure Interpretations on Non-GAAP Financial Measures, updated April 4, 2018.
Company Response:
The Company respectfully acknowledges the Staff's comment and has revised its presentation of Adjusted EBITDA throughout the Further Amended Draft S-1 in accordance with the Staff's guidance and the requirements of Item 10(e) of Regulation S-K and SEC Compliance and Disclosure Interpretation 100.01 et seq. regarding non-GAAP financial measures. The Company supplementally advises the Staff as follows.
Prominence. The Company has revised the Prospectus Summary (pages 5–8), Selected Consolidated Financial Data (pages 17–19), and Management's Discussion and Analysis of Financial Condition and Results of Operations (pages 70–83) sections of the Further Amended Draft S-1 to ensure that the Company's GAAP financial measures, including net income (loss), are presented with equal or greater prominence relative to Adjusted EBITDA. Specifically, the Company has: (a) ensured that the GAAP measure of net income ($41.3 million for FY2023 and $18.7 million for FY2022) appears before the presentation of Adjusted EBITDA ($138.7 million for FY2023 and $94.2 million for FY2022) in all sections where both measures are presented; (b) removed references to Adjusted EBITDA from section headings and sub-headings where such references may have implied undue prominence; and (c) ensured that any graphical or tabular presentations of Adjusted EBITDA are accompanied by an equally prominent presentation of the corresponding GAAP measure.
Enhanced Reconciliation. The Company has enhanced the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, to include each adjustment line item separately, with the corresponding dollar amount for each of FY2023 and FY2022. The reconciliation table, which appears at pages 79–80 of the Further Amended Draft S-1, is presented as follows:
Explanation of Adjustments. The Company has added a narrative explanation following the reconciliation table addressing why each adjustment is appropriate and useful to investors:
•  Stock-based compensation expense ($32.8 million in FY2023): Excluded because it is a non-cash expense that varies significantly based on factors such as the timing and terms of equity grants, the Company's stock price, and applicable valuation assumptions, and does not directly correlate to the Company's underlying operating performance. The exclusion of stock-based compensation expense is consistent with industry practice among comparable healthcare technology and SaaS companies.
•  Depreciation and amortization ($28.6 million in FY2023): Excluded because it reflects the periodic cost recognition of previously acquired tangible and intangible assets and is a non-cash charge that does not reflect the Company's current operating performance or cash generation capacity.
•  Interest expense, net ($12.4 million in FY2023): Excluded because it relates to the Company's financing activities and capital structure decisions, which are not directly related to the Company's core operating performance.
•  Income tax provision ($14.9 million in FY2023): Excluded because it is influenced by the Company's tax structure, jurisdictional mix, and discrete tax items that may not be reflective of the Company's ongoing operating performance.
•  Restructuring charges ($3.2 million in FY2023): Excluded because these charges relate to specific organizational realignment initiatives that are non-recurring in nature and do not reflect the Company's ongoing operating cost structure. FY2023 restructuring charges related primarily to the consolidation of certain support functions following the Company's acquisition of NovaCare Analytics, Inc. in March 2023.
•  Acquisition-related costs ($4.1 million in FY2023): Excluded because these costs are directly related to the Company's acquisition activities and include transaction fees, legal and advisory fees, and integration costs that are non-recurring in nature.
•  Other non-recurring items ($1.4 million in FY2023): Excluded because these items consist of discrete, non-recurring charges that are not expected to recur in the ordinary course of the Company's business, including a $0.8 million lease termination charge and $0.6 million in litigation settlement costs.
Cautionary Language. The Company has added prominent cautionary language in each section where Adjusted EBITDA is presented, stating that Adjusted EBITDA is a supplemental measure of operating performance that is not prepared in accordance with GAAP, that it should not be considered as an alternative to net income, operating income, or any other GAAP measure, and that it has limitations as an analytical tool, including the exclusion of material costs that are recurring in nature (such as stock-based compensation expense). The Company has also noted that Adjusted EBITDA as defined by the Company may not be comparable to similarly titled measures used by other companies.
The revised disclosures appear at pages 5–8 (Prospectus Summary), 17–19 (Selected Consolidated Financial Data), and 79–81 (MD&A) of the Further Amended Draft S-1.
Comment 7 — Cybersecurity Risk Factors
Staff Comment:
We note the Company's cybersecurity risk factor disclosures. In light of the SEC's final rules on cybersecurity risk management, strategy, governance, and incident disclosure (effective December 2023), please provide enhanced disclosure regarding (i) any material cybersecurity incidents experienced by the Company in the last three fiscal years; (ii) the Company's cybersecurity risk management framework and governance structure; and (iii) the role of the Board of Directors in overseeing cybersecurity risk.
Company Response:
The Company respectfully acknowledges the Staff's comment and has substantially enhanced its cybersecurity disclosures in the Further Amended Draft S-1 in three principal areas, consistent with the Commission's final rules on cybersecurity disclosure adopted on July 26, 2023 (Release No. 33-11216; 34-97989) and effective as of December 18, 2023. The Company supplementally advises the Staff as follows.
Risk Factors. The Company has revised and expanded its cybersecurity-related risk factor disclosures at pages 33–36 of the Further Amended Draft S-1 to provide more specific and tailored disclosure regarding the Company's exposure to cybersecurity threats. The revised risk factors address, among other things: (a) the heightened cybersecurity risks associated with the Company's processing, storage, and transmission of HIPAA-protected health information ("PHI") and other sensitive patient data on behalf of its healthcare provider customers; (b) the risks inherent in the cloud-based architecture of the Arbor Platform, including the risk of unauthorized access, data breaches, ransomware attacks, and other cyber incidents targeting cloud-hosted healthcare applications; (c) the Company's reliance on third-party cloud infrastructure providers (including Ridgeway Industries and Crestline Systems) for the hosting and operation of the Arbor Platform, and the potential impact of cybersecurity incidents affecting such providers on the Company's business and operations; (d) the evolving regulatory landscape with respect to data privacy and cybersecurity, including the potential for increased compliance costs and regulatory enforcement; and (e) the reputational harm and loss of customer confidence that could result from a material cybersecurity incident. The Company believes these revised risk factors are more specific to the Company's business and industry than the prior disclosures and provide investors with a more meaningful understanding of the cybersecurity risks facing the Company.
Cybersecurity Risk Management and Strategy. The Company has added a new section entitled "Cybersecurity Risk Management, Strategy, and Governance" at pages 120–123 of the Further Amended Draft S-1, which describes the Company's cybersecurity risk management program in detail. The Company's cybersecurity risk management program is designed to identify, assess, monitor, and mitigate cybersecurity risks to the Company's information systems, data assets, and business operations. Key elements of the program include:
•  NIST Cybersecurity Framework. The Company's cybersecurity risk management program is organized around the National Institute of Standards and Technology ("NIST") Cybersecurity Framework (Version 1.1), which provides a structured approach to identifying cybersecurity risks, implementing protective measures, detecting cybersecurity events, responding to incidents, and recovering from cybersecurity incidents. The Company conducts an annual self-assessment against the NIST Framework and uses the results to prioritize investments in cybersecurity controls and capabilities.
•  Third-Party Penetration Testing. The Company engages independent third-party cybersecurity firms to conduct annual penetration testing of the Arbor Platform and the Company's corporate IT infrastructure. The results of these penetration tests are reviewed by the Company's Chief Information Security Officer ("CISO"), reported to the CTO and the Audit Committee, and used to identify and remediate vulnerabilities.
•  SOC 2 Type II Compliance. The Company has obtained and maintains a Service Organization Control ("SOC") 2 Type II report, issued by an independent auditing firm, which provides assurance that the Company's information security controls are suitably designed and operating effectively over a specified period. The Company's most recent SOC 2 Type II report covers the period from January 1, 2023 to December 31, 2023.
•  Employee Training. The Company conducts mandatory cybersecurity awareness training for all employees on an annual basis, including training on phishing awareness, password hygiene, secure data handling practices, and the Company's incident reporting procedures. The Company also conducts periodic simulated phishing campaigns to test employee awareness and responsiveness.
•  Incident Response Plan. The Company maintains a comprehensive cybersecurity incident response plan, which establishes protocols for the identification, containment, eradication, and recovery from cybersecurity incidents, as well as communication and notification procedures (including notifications to affected customers, regulatory authorities, and law enforcement, as required by applicable law). The incident response plan is reviewed and updated at least annually, and the Company conducts tabletop exercises to test the effectiveness of the plan.
Cybersecurity Governance. The Company has added disclosure at pages 123–124 of the Further Amended Draft S-1 regarding the role of the Board of Directors in overseeing cybersecurity risk. The Board has delegated primary responsibility for the oversight of cybersecurity risk to the Audit Committee of the Board of Directors, which is currently composed of Carolyn Whittemore (Chair), Dr. Samuel Obadina, and Howard Feng. The Audit Committee receives quarterly cybersecurity briefings from the Company's CTO, Margaret Tsujimoto, and the Company's CISO, which cover the current threat landscape, the status of the Company's cybersecurity risk management program, the results of penetration testing and vulnerability assessments, any cybersecurity incidents or near-misses, and the Company's progress against its cybersecurity investment roadmap. In addition, the full Board of Directors receives an annual cybersecurity risk assessment, prepared by the Company's CISO in consultation with the CTO, which provides a comprehensive overview of the Company's cybersecurity posture, including a summary of key risks, mitigation strategies, and recommended investments in cybersecurity infrastructure and personnel.
Material Incidents. The Company confirms that it has not experienced any material cybersecurity incidents in the last three fiscal years (FY2021, FY2022, and FY2023) that have resulted in material harm to the Company's business, operations, financial condition, or reputation. The Company has disclosed this fact at page 35 of the Further Amended Draft S-1. The Company notes, however, that it has experienced immaterial cybersecurity events in the ordinary course of its business, including attempted phishing attacks and unauthorized access attempts, all of which were detected and mitigated through the Company's existing cybersecurity controls without material impact to the Company's operations or data assets.
The Company believes that the revised disclosures described above are responsive to the Staff's comment and are consistent with the Commission's final rules on cybersecurity risk management, strategy, governance, and incident disclosure.
Comment 8 — Cybersecurity (Third-Party Risk)
Staff Comment:
Please address in your cybersecurity risk factor disclosures the risks arising from the Company's reliance on third-party service providers and vendors, including how the Company assesses and manages cybersecurity risks associated with its third-party ecosystem.
Company Response:
The Company respectfully acknowledges the Staff's comment and has added disclosure in both the Risk Factors section and the Cybersecurity Risk Management and Strategy section of the Further Amended Draft S-1 addressing the cybersecurity risks associated with the Company's reliance on third-party service providers and vendors. The Company supplementally advises the Staff as follows.
In the Risk Factors section (pages 35–36 of the Further Amended Draft S-1), the Company has added a specific risk factor addressing the risks arising from the Company's reliance on third-party service providers and vendors, including cloud infrastructure providers, data center operators, payment processors, and other technology vendors whose systems interact with or support the Arbor Platform. The risk factor discloses that a cybersecurity incident affecting any of these third-party providers could disrupt the Company's operations, compromise patient data or other sensitive information, and expose the Company to regulatory liability, litigation, and reputational harm, even if the Company's own systems are not directly compromised.
In the Cybersecurity Risk Management and Strategy section (pages 121–122 of the Further Amended Draft S-1), the Company has added disclosure describing its vendor risk management program, which is designed to assess, monitor, and mitigate cybersecurity risks associated with the Company's third-party ecosystem. Key elements of the program include:
•  Security Questionnaires and Due Diligence. Prior to onboarding any new third-party vendor that will have access to the Company's systems or data, the Company conducts a cybersecurity risk assessment, which includes the completion of a detailed security questionnaire, a review of the vendor's security certifications and audit reports, and, for critical vendors, an on-site or virtual security assessment.
•  Contractual Requirements. The Company's vendor agreements include contractual requirements for data protection, including obligations relating to data encryption (in transit and at rest), access controls, incident notification (with specified notification timelines), data retention and destruction, and compliance with applicable data privacy and security regulations, including HIPAA, where applicable.
•  SOC 2 Compliance Requirements for Critical Vendors. The Company requires its critical third-party vendors — defined as vendors that have access to PHI, personally identifiable information ("PII"), or other sensitive Company data, or that provide services essential to the operation of the Arbor Platform — to maintain current SOC 2 Type II reports (or equivalent security certifications) and to provide copies of such reports to the Company on an annual basis. The Company's security team reviews these reports and follows up on any identified control deficiencies or exceptions.
•  Ongoing Monitoring. The Company conducts ongoing monitoring of its third-party vendor ecosystem, including periodic reassessments of vendor security posture, review of publicly reported cybersecurity incidents affecting vendors, and continuous monitoring of vendor compliance with contractual security requirements.
The Company notes that its platform serves over 1,200 hospital systems and physician groups across 42 states, and the security, integrity, and availability of data transmitted to and from these customers through the Arbor Platform is integral to the Company's operations, customer relationships, and regulatory compliance obligations. The Company's vendor risk management program is designed to address the cybersecurity risks inherent in this complex and interconnected ecosystem.
The revised disclosures addressing third-party cybersecurity risk appear at pages 35–36 and 121–122 of the Further Amended Draft S-1.
Comment 9 — Related Party Transactions
Staff Comment:
Please provide additional detail regarding the Company's related party transactions, including the terms and amounts of any transactions with Brindoval Trelvon Partners and Ridgeline Growth Equity or their respective affiliates. Please also address whether such transactions were conducted on terms comparable to arm's-length transactions.
Company Response:
The Company respectfully acknowledges the Staff's comment and has revised its "Certain Relationships and Related Party Transactions" disclosure at pages 139–144 of the Further Amended Draft S-1 to provide additional detail regarding the Company's related party transactions, including the specific terms and conditions of the Company's agreements with Brindoval Trelvon Partners and Ridgeline Growth Equity and their respective affiliates. The Company supplementally advises the Staff as follows.
The Company's principal related party transactions consist of the following agreements, each of which is described in greater detail in the Further Amended Draft S-1:
(i) Amended and Restated Investors' Rights Agreement. The Company entered into an Amended and Restated Investors' Rights Agreement, dated October 22, 2020 (the "IRA"), with Brindoval Trelvon Partners Fund IV, L.P. ("Brindoval Summit"), Ridgeline Growth Equity Fund III, LLC ("Ridgeline"), and certain other investors. The IRA provides for, among other things, information rights, rights of first offer, and co-sale rights in favor of certain major investors, as defined therein. The IRA will terminate in its entirety upon the consummation of a Qualified IPO, which is defined as a firm commitment underwritten public offering of the Company's common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in aggregate gross proceeds to the Company of not less than $200,000,000 and the listing of the Company's common stock on a national securities exchange.
(ii) Amended and Restated Registration Rights Agreement. The Company entered into an Amended and Restated Registration Rights Agreement, dated October 22, 2020 (the "RRA"), with Brindoval Summit, Ridgeline, and certain other holders. Pursuant to the RRA, Brindoval Summit and Ridgeline (and their permitted transferees) are entitled to demand registration rights (limited to two demands in the aggregate for each of Brindoval Summit and Ridgeline) and customary piggyback registration rights with respect to the shares of common stock held by them. In addition, at any time following the 12-month anniversary of the consummation of the IPO, Brindoval Summit and Ridgeline will be entitled to request that the Company file a registration statement on Form S-3 (or any successor form) under the Securities Act for the resale of their shares. The RRA also contains a 180-day standstill provision, which will be coterminous with the lock-up agreements entered into by the Company's officers, directors, and significant stockholders in connection with the IPO. Following the IPO, Brindoval Summit is expected to hold 28,000,000 shares of common stock (representing approximately 27.18% of the Company's outstanding shares on a post-IPO basis, assuming no exercise of the overallotment option) and Ridgeline is expected to hold 16,000,000 shares of common stock (representing approximately 15.53% of the Company's outstanding shares on a post-IPO basis, assuming no exercise of the overallotment option).
(iii) Amended and Restated Voting Agreement. The Company entered into an Amended and Restated Voting Agreement, dated October 22, 2020 (the "Voting Agreement"), with Brindoval Summit, Ridgeline, and certain other stockholders. The Voting Agreement provides for, among other things, agreements among the parties regarding the election of directors and certain protective provisions requiring investor approval. The Voting Agreement will terminate in its entirety upon the consummation of the IPO.
(iv) Board Designee Rights. Pursuant to the Voting Agreement and the Company's certificate of incorporation (as currently in effect), Brindoval Summit has the right to designate two members of the Board of Directors, and Ridgeline has the right to designate one member of the Board of Directors. Currently, Leonard Corbett and Diana Coltrane serve as the Board designees of Brindoval Summit, and Howard Feng serves as the Board designee of Ridgeline. Upon the consummation of the IPO and the filing of the Company's Amended and Restated Certificate of Incorporation, these board designee rights will terminate; however, the Company anticipates that each of Mr. Corbett, Ms. Coltrane, and Mr. Feng will continue to serve as members of the Board of Directors following the IPO.
The Company confirms that, other than the agreements described above and the other related party transactions disclosed in the Further Amended Draft S-1, there are no material transactions between the Company and any stockholder beneficially owning 5% or more of the Company's outstanding common stock, any director, any executive officer, or any immediate family member of any of the foregoing, or any entity controlled by any of the foregoing, that were not conducted on arm's-length terms. The Company further notes that none of the agreements described above involve the payment of fees, commissions, or other monetary consideration by the Company to Brindoval Summit, Ridgeline, or their respective affiliates; the agreements relate to governance, registration, and information rights that are customary for venture and growth equity-backed companies in connection with preferred stock financings.
In addition, the Company has disclosed at pages 143–144 of the Further Amended Draft S-1 the related party transaction review and approval policy that will be implemented by the Audit Committee of the Board of Directors following the consummation of the IPO. Under this policy, the Audit Committee will review and approve or ratify all transactions or proposed transactions in which the Company is a participant and in which any related person (as defined in Item 404(a) of Regulation S-K) has, had, or will have a direct or indirect material interest, where the aggregate amount involved exceeds $120,000. The Audit Committee will evaluate such transactions based on, among other factors, the terms and conditions of the transaction, the business purpose of the transaction, whether the transaction is on terms comparable to those available in arm's-length dealings with unrelated third parties, and the extent of the related person's interest in the transaction.
Comment 10 — Use of Proceeds
Staff Comment:
Please provide more specific disclosure regarding the Company's planned use of IPO proceeds, including approximate dollar amounts or percentages for each stated use. In addition, if any portion of the proceeds will be used to repay indebtedness, please disclose the interest rate, maturity date, and original use of the borrowed funds, consistent with the requirements of Item 504 of Regulation S-K.
Company Response:
The Company respectfully acknowledges the Staff's comment and has revised its "Use of Proceeds" disclosure at pages 47–48 of the Further Amended Draft S-1 to provide a more specific breakdown of the Company's anticipated use of estimated net proceeds from the IPO, including approximate dollar amounts for each stated use. The Company supplementally advises the Staff as follows.
The Company estimates that the net proceeds from the sale of 20,000,000 shares of common stock in the base offering at an assumed initial public offering price of $20.00 per share (the midpoint of the range to be set forth on the cover page of the prospectus) will be approximately $371.8 million, after deducting the estimated underwriting discount of approximately $24.0 million (assuming no exercise of the underwriters' overallotment option) and estimated offering expenses payable by the Company of approximately $4.2 million.
The Company intends to use the estimated net proceeds from the offering as follows:
(a) Repayment of Indebtedness: Approximately $65 million to repay the outstanding balance on the Company's senior secured revolving credit facility (the "Revolving Credit Facility") with Keypoint National Bank, N.A. ("Keypoint"), as Administrative Agent, and Stonemill Capital Bank, as Lender. The Revolving Credit Facility was entered into on March 15, 2022, and was amended by the First Amendment to Credit Agreement, dated January 18, 2024. The Revolving Credit Facility provides for a maximum commitment of $125 million and bears interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus 200 basis points (2.00%). The maturity date of the Revolving Credit Facility is March 15, 2027. The outstanding balance under the Revolving Credit Facility as of December 31, 2023 was approximately $65 million. Proceeds of borrowings under the Revolving Credit Facility were used for working capital and general corporate purposes. The Company is required to disclose this information pursuant to Instruction 4 to Item 504 of Regulation S-K.
(b) Product Development and Research & Development Investment: Approximately $120 million to fund continued investment in the research and development of the Arbor Platform, including the development of new clinical decision support capabilities, expansion of the Company's real-time analytics and population health management offerings, investment in artificial intelligence and machine learning capabilities, and enhancement of the Company's cloud infrastructure and platform architecture.
(c) Potential Acquisitions and Strategic Investments: Approximately $100 million to fund potential acquisitions of complementary businesses, technologies, and assets, as well as strategic investments and partnerships. The Company does not currently have any agreements or commitments with respect to any material acquisitions or strategic investments; however, the Company regularly evaluates potential strategic transactions and may pursue one or more acquisitions or investments following the completion of the IPO.
(d) General Corporate Purposes and Working Capital: The balance of the net proceeds (approximately $86.8 million) will be used for general corporate purposes, including working capital, capital expenditures, and other general and administrative expenses. The Company may also use a portion of the remaining net proceeds to fund the expansion of its sales and marketing organization.
The Company notes that, if the underwriters exercise the overallotment option in full with respect to 3,000,000 additional shares of common stock at the assumed initial public offering price of $20.00 per share, the total gross proceeds from the offering would increase to approximately $460,000,000, and the additional net proceeds (after deducting the underwriting discount applicable to such additional shares) would be used for general corporate purposes and working capital. The Company has revised its disclosure to reflect this information.
The Company further notes that the foregoing represents the Company's current intentions regarding the use of proceeds based on its present plans and business conditions. The Company has retained flexibility to adjust the allocation of net proceeds among the stated uses as business conditions warrant, and has disclosed this flexibility in the Further Amended Draft S-1. Pending the use of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, investment-grade, interest-bearing instruments, including U.S. government obligations, money market funds, and certificates of deposit.
Comment 11 — Executive Compensation Disclosure
Staff Comment:
Please provide enhanced disclosure regarding equity compensation grants to named executive officers in the periods leading up to the IPO, including (i) the timing and terms of any equity grants made within twelve months of the initial filing of the Registration Statement; (ii) the grant-date fair values of such grants; and (iii) any modifications to existing equity awards in connection with the IPO.
Company Response:
The Company respectfully acknowledges the Staff's comment and has revised its Executive Compensation disclosure at pages 127–135 of the Further Amended Draft S-1 to include enhanced disclosure regarding equity compensation grants to the Company's named executive officers ("NEOs") in the periods leading up to the IPO. The Company supplementally advises the Staff as follows.
The Company has added a supplemental table at page 131 of the Further Amended Draft S-1 showing all equity grants made

CALDERWOOD & HARKNESS LLP Attorneys at Law

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