- Company Name
- YogaWorks, Inc.
- Stock Symbol
- Class Period
- Purchasers of YogaWorks securities pursuant or traceable to the Company’s August 2017 initial public offering
- Motion Deadline
- February 25, 2019
- Central District of California
The complaint charges YogaWorks, certain of its officers and/or directors, its controlling shareholders and the underwriters of its August 2017 initial public offering (“IPO”) with violations of the Securities Act of 1933 (“1933 Act”). YogaWorks claims to be “one of the largest and fastest growing providers of high quality yoga instruction” in the United States and “the only national, multi-discipled yoga instruction company.”
YogaWorks generates its revenue from offering a variety of yoga classes at its studios and from teacher training programs and online subscriptions to MyYogaWorks.com. At the time of the IPO, YogaWorks owned 50 studios in California, New York City, Boston and the Baltimore/Washington D.C. area. Profitable studio acquisitions are vital to YogaWorks’ growth and financial viability, and YogaWorks has been focused on growth by acquisition since its inception.
On June 23, 2017, YogaWorks filed a registration statement on Form S-1 with the SEC in connection with the IPO, which was amended several times until it was declared effective by the SEC on August 10, 2017 (the “Registration Statement”). On August 11, 2017, YogaWorks filed a prospectus pursuant to Rule 424(b)(4) with the SEC in connection with the IPO (the “Prospectus,” and together with the Registration Statement the “Offering Materials”). On August 16, 2017, defendants completed the IPO, selling 7.3 million YogaWorks shares at $5.50 per share for gross proceeds of approximately $40 million.
The complaint alleges that the Offering Materials issued in connection with the IPO made untrue statements of material fact or omitted to state material facts required to be stated therein or necessary to make the statements therein not misleading in violation of the 1933 Act. Specifically, the Offering Materials contained materially misleading statements, which were known to defendants at the time of the IPO, regarding YogaWorks’ studio-level economics and the adverse trends it faced in declining studio profitability, the reasons for YogaWorks’ declining revenue, including increasing corporate overhead costs, and YogaWorks’ increasing corporate infrastructure costs and its inability to achieve economies of scale.
For example, contrary to defendants’ statements in the Offering Materials, despite a 50% increase in the number of studios, the number of students per class, the total student visits per quarter and the number of classes per studio had been declining in the quarters leading up to the IPO, which had resulted in lower revenue per studio. As a result of YogaWorks lack of growth, declining revenue and declining studio profitability, YogaWorks was unable to fund any new acquisitions for the five quarters leading up to the IPO and, starting in the second quarter of 2017, was forced to depart from its practice, as stated in the Offering Materials, of acquiring studios that generate between $500,000 and $700,000 in revenue to acquire smaller, less efficient studios.
Following the IPO, YogaWorks reported a series of disappointing financial results, and on December 12, 2018, the Company announced it was subject to delisting from the NASDAQ because the value of its shares had fallen below the exchange’s minimum. As of December 27, 2018, YogaWorks stock closed at $0.44 per share, or 92% below the IPO price of $5.50 per share.