The Shareholder Derivative complaint alleges that, throughout the Relevant Period, Olo reported growth in the number of active locations, increasing from 400 brands with about 74,000 active locations in August 2021 to more than 500 brands with about 76,000 active locations by the end of September 2021. By August of 2022, Olo reported that the number of active locations had grown to approximately 82,000. More than 50% of Olo’s active locations at the start of the Relevant Period, however, were from only eight brands: Subway IP LLC (“Subway”), DairyQueen, Jimmy John’s, Jack-in-the-Box, Panda Express, Five Guys, Denny’s and IHOP.
In February 2020, Olo announced that it had entered into a partnership with Subway through which more than 20,0000 of Subway’s U.S. restaurants would utilize the Company’s “Rails” module to process third-party orders from applications like DoorDash and Uber Eats. Under the partnership, Subway, comprising about 27% of the Company’s active locations, became Olo’s largest client.
It was subsequently revealed, however, that the number Olo’s active locations was inflated during the Relevant Period because the Company prematurely included locations that had not started using any of the Company’s modules. Additionally, Olo failed to remove inactive locations from its location count so that locations which had stopped using Olo products were improperly counted as active. Likewise, contrary to the representations made during the Relevant Period, not all brand locations utilized Olo’s platforms even after the brand entered into agreements with the Company.
Moreover, the Individual Defendants failed to disclose that in or about January or February 2022, Subway informed Olo that it was terminating its relationship with the Company by the end of the year or in early 2023. The termination of the Company’s partnership with Subway would cause a decline of approximately 27% of Olo’s active locations.
Even after receiving notice of Subway’s termination of its partnership with Olo, however, certain Individual Defendants continued to tout Olo’s growth prospects. For example, during a February 23, 2022 earnings call conducted in connection with the Company’s full year 2022 financial guidance, defendant Peter J. Benevides (“Benevides”), the Company’s Chief Financial Officer (“CFO”), stated that Olo’s expectation was that it would grow the number of new active locations by the same number as in 2021. There was no mention of the termination of the Company’s partnership with Subway or the loss of more than a quarter of the Company’s current active locations during that call, or the adverse impact it would have on Olo’s ability to increase the number of active locations.
While in possession of the undisclosed information regarding the termination of the Subway partnership, Defendant Benevides and defendant Noah Glass (“Glass”), Olo’s founder, Chief Executive Officer (“CEO”) and member of the Company’s Board, sold Company shares for $1.5 million and $8.6 million, respectively, immediately upon expiration of the IPO lock-up period.
After the close of the markets of August 11, 2022, the Company disclosed that it was aware of the termination of the Subway partnership prior to the issuance of the full year 2022 financial guidance provided in February 2022, and that 2,500 Subway locations had ceased using Olo’s Rail module. It was also revealed that the remaining Subway locations would be removed by the end of the fourth fiscal quarter of 2022 or the first quarter of 2023. As a consequence, there would be very little or no active location growth in 2022. Consequently, the Company significantly lowered its fiscal year 2022 guidance.
The price of the Company’s common stock dropped from $12.99 per share on August 11, 2022 to close at $8.26 per share on August 12, 2022, a 36% decline.
On September 26, 2022, the Securities Class Action was filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws by the Company and Defendants Glass and Benevides. A motion to dismiss the Securities Amended was denied by the Court on April 10, 2023.
As a direct and proximate result of the Individual Defendants’ misconduct, the Company has incurred significant financial harm, including the costs of defending against and potential class-wide liability in the Securities Class Action, as well as additional damages, including reputational harm and loss of goodwill.
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