WeWork discloses 'material weakness' and plans to restate financials of SPAC sponsor, sending stock lower

KEY POINTS

• WeWork said in a regulatory filing that it will restate financials of its SPAC sponsor for 2020 and 2021 after finding that it used the wrong public share count.
• The company said the SPAC's reported results for those periods "should no longer be relied upon."
• WeWork also said management concluded that "there was a material weakness in internal control over financial reporting."

Marcelo Claure, Chairman of WeWork, Inc., speaks during an interview at WeWork's IPO on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 21, 2021.

Brendan McDermid | Reuters

Just over a month after debuting on the public market, WeWork has already hit a snag with investors.

The provider of flexible office space said in a regulatory filing on Wednesday that it will restate financial results for 2020 and the first three quarters of 2021 for the sponsor of its special purpose acquisition company (SPAC), because calculations were made using the wrong public share count.

The stock dropped more than 5% to as low as $7.86 in extended trading after the disclosure.

WeWork went public in October through a SPAC called BowX Acquisition Corp., which is led by Sacramento Kings owner and former TIBCO Software CEO Vivek Ranadive. The filing from Wednesday says that when BowX held its IPO, prior to combining with WeWork, some of the stock issued was incorrectly classified as "permanent equity" instead of "temporary equity."

In consultation with BowX's accounting firm, WeWork said it decided on Nov. 29, that all of the SPAC's financial reports dating back to last year "should be restated to report all Public Shares as temporary equity." Its existing reports, "should no longer be relied upon," WeWork said.

The announcement marks another setback for WeWork, which was rescued in 2019 by SoftBank after excessive losses and an overinflated valuation forced the company to scrap its initial IPO plans. Co-founder Adam Neumann was ousted as CEO, and the company scaled back its ambitions to focus just on office space.

Because of the share misclassification, WeWork is now acknowledging that "there was a material weakness in internal control over financial reporting" when it came to accounting for aspects of the public shares. The company said that material weakness will be described in its amended reports.

In a press release after the filing, WeWork said the restatements are tied to BowX and "are unrelated to WeWork's current operations and WeWork's financial statements."