Online ordering provider Olo has agreed to pay $9 million to settle a class-action lawsuit brought by shareholders who accused the company of failing to properly disclose the end of its relationship with Subway.
The agreement comes after a New York district judge twice denied Olo’s efforts to have the lawsuit dismissed. The company continued to deny any wrongdoing but said the litigation had become a costly distraction.
“Despite winning significant portions of two motions to dismiss and believing we have strong defenses to the remaining claims, Olo has determined that it is in the best interests of its shareholders to put the distraction and expense associated with litigating the remaining claims in this lawsuit behind us,” said Robert Morvillo, Olo general counsel and corporate secretary, in an emailed statement.
The lawsuit filed in August 2023 by the Pompano Beach Police and Firefighters’ Retirement System alleged that Olo CEO Noah Glass and CFO Peter Benevides made misleading statements about the company’s performance and in particular its relationship with the sandwich chain Subway, one of Olo’s largest clients.
According to the lawsuit, in August 2021, Olo said that there were 74,000 restaurant locations using its technology, including about 15,000 Subway stores, an overall 30% increase from the prior year. The growth helped boost Olo’s stock to an all-time high of more than $45 per share.
But by the end of the year, Olo had learned that there was a chance Subway could stop using its technology, and even factored that possibility into its guidance for 2022. However, Olo didn’t disclose the Subway situation to investors, and continued to tout location growth as the year progressed.
That is, until August 2022, when Olo announced that Subway was leaving and downgraded its outlook for the year. The revelation sent Olo’s stock price down by 36%, to $8.26 per share, wiping out more than $480 million of shareholder value. It also drew a flurry of shareholder lawsuits.
If approved by a judge, the class-action settlement agreement filed earlier this month would bring a payout for investors who acquired Class A common Olo stock between March 17, 2021 and Aug. 11, 2022. It estimates that class members would receive 4 cents per share after attorney’s fees and expenses are accounted for.
New York-based Olo provides online ordering, payments and other services for large restaurant chains. Since going public in March 2021, it has consistently reported double-digit revenue growth, but its stock has yet to recover from the blow of losing Subway. In November, the company announced the departure of another big client, the 1,800-unit Wingstop chain, which is switching to an in-house tech system this year.
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