KELLERMAN & ASSOCIATES LLP Independent Registered Public Accounting Firm
345 Park Avenue New York, New York 10154
Telephone: (212) 554-7000 Facsimile: (212) 554-7001
February 13, 2024
Whitfield Barrow & Co., LLC as Representative of the several Underwriters 383 Madison Avenue New York, New York 10179
Calloway Pierce Securities LLC 200 Park Avenue, 40th Floor New York, New York 10166
Velthorn Capital Partners Inc. 555 California Street, Suite 3000 San Francisco, California 94104
Pemberton Wallis LLC 100 Federal Street, 28th Floor Boston, Massachusetts 02110
Re: Arbor Health Technologies Inc. — Registration Statement on Form S-1 (File No. 333-276841); Bring-Down Comfort Letter in Connection with the Initial Public Offering of 20,000,000 Shares of Common Stock, Par Value $0.001 Per Share (NYSE: ARHT)
Ladies and Gentlemen:
1. Introductory Paragraph
This letter is furnished to you in connection with the initial public offering (the "Offering") of 20,000,000 shares of common stock, par value $0.001 per share (the "Common Stock"), of Arbor Health Technologies Inc., a Delaware corporation (the "Company"), to be listed on the New York Stock Exchange under the ticker symbol "ARHT." This letter is delivered pursuant to Section 7(c) of the Underwriting Agreement dated February 8, 2024 (the "Underwriting Agreement"), among the Company, Whitfield Barrow & Co., LLC, as representative (the "Representative") of the several underwriters named therein (collectively, the "Underwriters"), and the several Underwriters, as a condition to the obligations of the Underwriters at the closing of the Offering.
Reference is made to our original comfort letter dated February 8, 2024 (the "Original Comfort Letter"), which was delivered to you on the pricing date of the Offering. This bring-down comfort letter (this "Letter") updates and supplements the Original Comfort Letter and should be read in conjunction therewith.
As described in the Original Comfort Letter, we have read the Registration Statement on Form S-1 (File No. 333-276841), as amended (including Amendment No. 1 thereto filed with the Securities and Exchange Commission (the "SEC" or the "Commission") on February 5, 2024), which was declared effective by the Commission on February 8, 2024 (the "Registration Statement"). We have also read the final prospectus filed with the Commission pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the "Securities Act"), on February 9, 2024 (the "Prospectus"), which forms a part of the Registration Statement.
All terms used herein but not otherwise defined shall have the respective meanings ascribed to them in the Underwriting Agreement or the Original Comfort Letter, as applicable.
2. Independence Confirmation
We are an independent registered public accounting firm with respect to the Company within the meaning of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the applicable rules and regulations thereunder adopted by the Commission and the Public Company Accounting Oversight Board (United States) (the "PCAOB"). Our independence with respect to the Company has not changed since the date of the Original Comfort Letter, and we confirm that, as of the date hereof, we continue to be independent with respect to the Company in compliance with all applicable independence requirements, including those set forth in Rule 2-01 of Regulation S-X promulgated by the Commission and the independence rules of the PCAOB, including PCAOB Rule 3520 and the related ethics and independence standards.
3. Scope and Basis of Procedures
The procedures described herein and in the Original Comfort Letter were performed at the request of, and were agreed upon with, the Underwriters. The procedures performed do not constitute an audit conducted in accordance with the standards of the PCAOB, nor do they constitute a review conducted in accordance with the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Accordingly, we make no representations regarding the sufficiency of the procedures described herein or in the Original Comfort Letter for the purposes of the Underwriters. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.
The procedures described in this Letter were performed as agreed upon with the Underwriters and are substantially the same procedures as those described in the Original Comfort Letter, applied to the updated period described below. The bring-down cut-off date for the procedures described herein is February 10, 2024 (the "Cut-Off Date"), which is a date not more than three (3) business days prior to the date of this Letter. With respect to procedures performed as of and for the period subsequent to the Cut-Off Date, our work has been limited to reading the minutes of meetings of stockholders, the board of directors, and committees of the board of directors of the Company available to us through the date of this Letter, reading certain internal financial records and reports made available to us by the Company's management, and making inquiries of certain officials of the Company who have responsibility for financial and accounting matters, as more fully described below.
4. Bring-Down of Specified Financial Information
With reference to each category of specified financial data addressed in the Original Comfort Letter, including, without limitation:
(a) total revenue for the fiscal year ended December 31, 2023 ("FY2023") of $612.4 million;
(b) total revenue for the fiscal year ended December 31, 2022 ("FY2022") of $478.4 million;
(c) FY2023 revenue growth of approximately 28% on a year-over-year basis as compared to FY2022;
(d) Adjusted EBITDA (a non-GAAP measure) for FY2023 of $138.7 million;
(e) net income for FY2023 of $41.3 million; and
(f) all other specified financial data, tables, amounts, percentages, and financial information appearing in the Registration Statement and the Prospectus that were covered by or addressed in the Original Comfort Letter,
we confirm that, as of the Cut-Off Date, we have performed the procedures described in the Original Comfort Letter with respect to such specified financial data and other financial information set forth in the Registration Statement and the Prospectus. On the basis of those procedures, we have found that such specified financial data and amounts agree with, or have been derived from, the accounting and financial records of the Company, and no changes are required to be made to any of the information as set forth in the Prospectus. The financial data and amounts referenced above remain correctly stated in all material respects as presented in the Registration Statement and the Prospectus.
5. Subsequent Changes — Negative Assurance
With respect to the period from December 31, 2023 (the date of the most recent audited financial statements of the Company included in the Registration Statement) through the Cut-Off Date, we advise you as follows:
(a) We have read the unaudited condensed consolidated financial information of the Company for the period from January 1, 2024 through the Cut-Off Date (February 10, 2024), as compiled by the management of the Company, including the Company's unaudited internal financial statements, trial balance, and related management reports made available to us; and
(b) We have made inquiries of certain officials of the Company who have responsibility for financial and accounting matters, specifically David Halderman, Chief Financial Officer, regarding whether, during the period from December 31, 2023 through the Cut-Off Date, there were any changes in:
(i) the capital stock of the Company, including the authorized, issued, and outstanding shares of Common Stock, par value $0.001 per share, or any increases in long-term debt of the Company;
(ii) total stockholders' equity (net stockholders' equity) of the Company; or
(iii) total revenue, net income, Adjusted EBITDA, or other specified financial items, in each case as compared to the corresponding period of the prior fiscal year.
On the basis of the foregoing reading and inquiries, and subject to the limitations described in this Letter, nothing came to our attention that caused us to believe that:
(i) There was any change in the capital stock of the Company during the period from December 31, 2023 through the Cut-Off Date, other than (A) the issuance of shares of Common Stock in the Offering as contemplated by the Registration Statement and the Prospectus, (B) the exercise of stock options to purchase shares of Common Stock granted under the Company's 2014 Stock Incentive Plan in accordance with the terms thereof as described in the Registration Statement and the Prospectus, and (C) such other issuances of capital stock as are described in the Registration Statement and the Prospectus, or that there was any increase in long-term debt of the Company during such period;
(ii) There was any decrease in total stockholders' equity (net stockholders' equity) of the Company during the period from December 31, 2023 through the Cut-Off Date; or
(iii) As compared to the corresponding period of the prior fiscal year, there were any decreases in total revenue, Adjusted EBITDA, or net income of the Company for the period from January 1, 2024 through the Cut-Off Date, except in each case for changes, decreases, or increases as set forth in or contemplated by the Registration Statement and the Prospectus.
In connection with the foregoing, we note that, as of the Cut-Off Date, the Company had an outstanding revolving credit facility with Keypoint National Bank, N.A., under which approximately $65 million was drawn and outstanding. We have confirmed that the outstanding balance under such facility is consistent with the disclosure set forth in the Prospectus under the caption "Description of Indebtedness—Revolving Credit Facility" and that, as described in the Prospectus, the Company expects to repay the outstanding balance under such facility in full from the net proceeds of the Offering. The existence and outstanding balance of such revolving credit facility does not represent a change or increase in long-term debt that would be inconsistent with the disclosures in the Prospectus.
6. Specific Items — Capitalization Table
As of the Cut-Off Date, we have verified the capitalization information set forth in the Prospectus under the caption "Capitalization" against the Company's stock ledger, corporate records, and the records of Continental Share Services, Inc., the Company's transfer agent and registrar. On the basis of such verification procedures, we confirm the following:
(a) Authorized shares of Common Stock: 120,000,000 shares, par value $0.001 per share;
(b) Outstanding shares of Common Stock on a pre-Offering basis (as of the date immediately prior to the closing of the Offering): 80,000,000 shares; and
(c) Outstanding shares of Common Stock on an as-adjusted, post-Offering basis (giving effect to the issuance and sale of 20,000,000 shares of Common Stock in the Offering and the exercise in full of the Underwriters' option to purchase up to an additional 3,000,000 shares of Common Stock): 103,000,000 shares.
No discrepancies were noted between the capitalization information set forth in the Prospectus and the Company's stock records and the records of Continental Share Services, Inc.
7. Specific Items — Dilution
We have recalculated the dilution data set forth in the Prospectus under the caption "Dilution" as of the Cut-Off Date, using the final initial public offering price of $20.00 per share of Common Stock. On the basis of such recalculation, we confirm that the amounts, percentages, and other numerical data presented under the caption "Dilution" in the Prospectus are arithmetically accurate in all respects, and no adjustments or corrections are required to such data.
8. Specific Items — Selected Financial Data and Non-GAAP Measures
We have rechecked the selected financial data appearing in the Prospectus under the captions "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" against the Company's audited consolidated financial statements for FY2023 and FY2022, as included in the Registration Statement, and against the Company's underlying accounting records. On the basis of such procedures, no discrepancies were noted.
In addition, we have verified that the Adjusted EBITDA of $138.7 million for FY2023, representing an Adjusted EBITDA margin of approximately 22.6% of total revenue, as presented in the Prospectus, has been correctly derived from the Company's audited consolidated financial statements and accounting records. We have further confirmed that the reconciliation of Adjusted EBITDA to GAAP net income of $41.3 million for FY2023, as set forth in the Prospectus under the caption "Non-GAAP Financial Measures," is arithmetically accurate in all respects.
9. Limitations and Qualifications
The procedures performed by us and described in this Letter and in the Original Comfort Letter do not constitute an audit or a review conducted in accordance with the standards of the PCAOB or any other generally accepted auditing or review standards. Accordingly, we do not express an opinion or provide any form of assurance, whether positive or negative, other than as expressly stated in this Letter and in the Original Comfort Letter.
We have no responsibility to update this Letter for events and circumstances occurring after the Cut-Off Date. Subsequent events or developments, including changes in economic conditions, industry trends, competitive dynamics, regulatory actions, or matters specific to the Company, may affect the Company's financial condition, results of operations, or prospects, and we assume no obligation to update, revise, or supplement this Letter as a result of any such events, developments, or circumstances occurring after the Cut-Off Date, whether or not such events, developments, or circumstances come to our attention.
This Letter is furnished solely for the information of, and assistance to, the addressees hereof in conducting and documenting their investigation of the Company and its affairs in connection with the Offering and in discharging their responsibilities under Section 11 of the Securities Act. This Letter is not to be used, circulated, quoted, or otherwise referred to for any other purpose, including, without limitation, in connection with any purchase or sale of securities, nor is it to be filed with or referred to in whole or in part in the Registration Statement, the Prospectus, or any other document filed with the Commission or any state securities commission, except that reference may be made to it as a closing deliverable under Section 7(c) of the Underwriting Agreement. This Letter may not be relied upon by any person or entity other than the addressees hereof without our prior written consent.
10. Reference to Original Comfort Letter
This Letter should be read in conjunction with the Original Comfort Letter dated February 8, 2024, a copy of which was previously delivered to each of the addressees hereof. Except as specifically updated or supplemented herein, all statements, conclusions, observations, and comments set forth in the Original Comfort Letter remain unchanged and continue in full force and effect as of the date hereof.
We confirm that, as of the date of this Letter, no matters have come to our attention that would require any modification, amendment, or supplement to the Original Comfort Letter other than as described in this Letter. To the extent any statement in this Letter is inconsistent with a statement in the Original Comfort Letter, the statement in this Letter shall control.
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We are pleased to have been of assistance in this matter. Should you have any questions concerning this Letter or the Original Comfort Letter, please do not hesitate to contact the undersigned or Sonia Melendez, Audit Senior Manager, at (212) 554-7142.
Very truly yours,
KELLERMAN & ASSOCIATES LLP
By: ________
Name: Richard Olander
Title: Lead Engagement Partner
Engagement Team Contact: Sonia Melendez, Audit Senior Manager Telephone: (212) 554-7142
Email: smelendez@kellermanllp.com
cc: (via electronic mail and overnight courier)
Calderwood & Harkness LLP
Attention: Theodore Langston, Esq.; Eric Johannsen, Esq.
125 Broad Street New York, New York 10004 Counsel to the Issuer
Meridian Hale & Quivorn LLP
Attention: Graham Neville, Esq.
51 West 52nd Street New York, New York 10019 Counsel to the Underwriters
Arbor Health Technologies Inc.
Attention: David Halderman, Chief Financial Officer; Rachel Moynihan, General Counsel
275 Kendall Avenue, Suite 1400 Cambridge, Massachusetts 02142