Teladoc hit with lawsuit alleging it misled investors after 'significant losses'

Teladoc is facing a lawsuit alleging the company misled investors about the company’s business, operations and prospects as the virtual care company's stock price has plunged in the past year.

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. The class-action complaint was filed Monday on behalf of parties that purchased Teladoc shares between Oct. 28, 2021, and April 27.

In the complaint, Schneider accuses the company of violating federal securities laws, claiming that he and others bought company shares at "artificially inflated prices" and saw huge losses when the stock price fell. The complaint also alleges the company failed to disclose challenges to its mental health and chronic care businesses.

Teladoc’s stock is down more than 67% this year—and 90% from its peak price in February 2021.

"The company’s public statements were materially false and misleading at all relevant times," the lawsuit alleges. "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 damage."

In a statement, a Teladoc spokesperson said, "There’s no factual basis to the suit whatsoever, but unfortunately this type of frivolous litigation has become commonplace for public companies today."

The telehealth boom in 2020 helped to fuel massive growth for big players Amwell, Teladoc, Doctor on Demand and other virtual care companies.

Teladoc, which went public in 2015, provides virtual care services for urgent care, primary care, mental health through its BetterHelp direct-to-consumer product and chronic condition management as a result of its $18.5 billion deal to buy Livongo two years ago.

But telehealth use began to level off in 2021, although utilization remains higher than before the COVID-19 pandemic. But investors worry about the company's continued losses and the competition from Walmart, Amazon and other players.

Despite recent market concerns over new entrants to the telehealth field, Teladoc "continued to assure investors of the company’s dominant market position in the industry," Schneider alleged in the lawsuit.

In May 2021, in an interview with CNBC, Gorevic waved off competition from Amazon, describing Amazon Care as "overrated."

"That's why I'm happy about our competitive position and the strategy we’ve taken, methodically building out organically and acquiring capabilities to deliver more value for our clients and better healthcare experiences for consumers," he said.

On earnings calls in late 2021, Teladoc executives were bullish on the company's revenue growth. During the company's third-quarter 2021 earnings call in November, Gorevic said Teladoc anticipated that 2022 revenue would reach $2.6 billion.

As recently as February 2022, Teladoc forecasted full-year revenue between $2.55 billion and $2.65 billion as well as adjusted earnings before interest, taxes, depreciation, and amortization of $330 million to $355 million, on anticipated continued growth through its competitive advantages. 

On the same call, Murthy assured investors of its visibility into Teladoc’s second half of fiscal-year 2022 results.

Two months later in April, when Teladoc released its first-quarter 2022 results, the telehealth company missed on both the top and bottom lines. Teladoc's revenues came to $565.4 million, below the $568.9 million analysts were expecting. 

The company also took a charge of $6.6 billion to write down the value of its Livongo acquisition. The impairment charge pushed the company to a record loss of $6.7 billion, or a loss of $41.58 per share, in the first quarter of 2022, compared to $199.6 million, or a loss of $1.31 per share, in the first quarter of 2021.

Teladoc also warned of a weak sales outlook and lowered its 2022 revenue guidance from a midpoint of $2.6 billion to $2.45 billion. Gorevic cited increased competition and higher advertising costs in the direct-to-consumer mental health markets as well as a longer sales cycle in the chronic condition market.

On this news, Teladoc’s stock price fell $22.48 per share, or 40.15%, to close at $33.51 per share on April 28, according to the lawsuit.

In the lawsuit, Schneider accuses Teladoc of making false and misleading statements and failing to disclose that increased competition, among other factors, was negatively impacting Teladoc’s BetterHelp and chronic care businesses.

In late 2021 and early 2022, Teladoc executives cited the mental health business as a significant growth driver for the company during earnings calls.

As the virtual care market has gotten more crowded, many employers are inundated with small, point-solutions vendors, and that's created "noise in the marketplace," Gorevic said during the April earnings call.

The lawsuit cites public documents, conference calls, Securities and Exchange Commission filings, press releases and analysts’ reports in which Teladoc executives allegedly misled investors about the company's performance and future growth in its mental health and chronic care businesses.

"Had the 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 said.

In the lawsuit, Schneider requests that Teladoc pay damages to its stockholders.