Teladoc Health has been hit with a lawsuit accusing the company of violating federal securities laws and downplaying challenges it faced in its mental health and chronic care businesses.
Shareholder Jeremy Schneider sued Teladoc, company CEO Jason Gorevic and chief financial officer Mala Murthy in a federal court in the Southern District of New York Monday, alleging he and others purchased company shares at “artificially inflated prices.” The share price has dropped drastically in recent months after “alleged corrective disclosures,” the lawsuit alleges.
Schneider is seeking class action status for the suit, with the class consisting of purchasers of Teladoc stock between Oct. 28, 2021 and April 27, 2022.
“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” the complaint alleges.
A spokesperson for Teladoc denied the allegations. “There’s no factual basis to the suit whatsoever, but unfortunately this type of frivolous litigation has become commonplace for public companies today,” the spokesperson wrote in an email.
Purchase, New York-based Teladoc, which went public in 2015, has seen its share price drop since April 27 when it released first-quarter financial results and updated its full-year outlook after the market closed. Since closing at $55.99 a share April 27, shares plunged as much as 38% in after-hours trading. On Monday, Teladoc closed at $34.61 a share.
The proposed class period starts the day after Teladoc released its 2021 third-quarter financial results in October 2021. During a call with financial analysts to discuss third-quarter results, Gorevic provided a preliminary outlook for 2022, in which he said he expected Teladoc to generate about $2.6 billion in annual revenue.
But on April 27, Teladoc, citing a variety of factors, lowered its full-year revenue guidance from between $2.55 billion to $2.65 billion to between $2.4 billion to $2.5 billion.The company also updated its 2022 outlook for adjusted earnings before interest, taxes, depreciation and amortization to be $240 million to $265 million, down from previous guidance of $330 million to $355 million.
On the April 27 call with analysts, Gorevic attributed most of the changed outlook to lower-than-expected growth in direct-to-consumer mental health, in part due to higher-than-expected ad spending and increased competition. He also pointed to a longer-than-expected sales cycle in the chronic condition market amid increased competition.
In the lawsuit, Schneider alleges Teladoc and its executives hadn’t disclosed that increased competition was negatively affecting the mental health and chronic care businesses.
Teladoc in the preceding months had expressed confidence about the company’s business, including its chronic care and mental health offerings, the complaint alleges. The company had referred to itself as the “leading global virtual healthcare provider” and described its direct-to-consumer mental health service as the “leader in the D2C therapy market,” the lawsuit alleges.
“Had Plaintiff and the other members of the Class known the truth, they would not have purchased or otherwise acquired said securities or would not have purchased or otherwise acquired them at the inflated prices that were paid,” the complaint alleges.