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WeWork Reports 'Material Weakness' In BowX Financial Statements, Plans Revision

WeWork, which went public in October via a merger with the special-purpose acquisition company BowX Acquisition Corp., now says in a filing with the Securities and Exchange Commission that it will restate BowX's financial results for 2020 and the first three quarters of 2021.

The entrance of WeWork's White House location, its largest in D.C.

The company says that the previous statements, made at the end of Q3 2021, were incorrect because of faulty calculations made using an erroneous public share count. Specifically, when BowX held its initial public offering, before combining with WeWork, some of its stock issued was classified as “permanent equity” rather than “temporary equity.”

Entities raising capital must classify the securities they issue as liabilities, permanent equity or temporary equity. The distinctions are complex, but generally, temporary equity is a security with redemption features outside the control of the issuer, according to U.S. generally accepted accounting principles, or GAAP.

"The Company’s management has concluded that, that in light of the classification error described above, there was a material weakness in internal control over financial reporting relating to the interpretation and accounting for certain complex features of the Public Shares," WeWork said in the 8-K filing.

The company also said that the material weakness will be described further in amended reports.

"WeWork’s plans to restate the financial statements of its predecessor, BowX, are unrelated to WeWork’s current operations and WeWork's financial statements," the company said in a statement. "The 'material weakness' referenced in the filing existed at BowX and does not carry over to WeWork."

Investors reacted by selling stock in the newly public shared-office company. WeWork stock reached a recent high of $9.11 per share Wednesday morning. By Thursday morning, shares were trading for as low as just over $8.

WeWork ended Q3 2021 with 766,000 workstations across its portfolio, down from 770,000 in Q2 and from 962,000 in the third quarter of 2020. Its total membership grew from 406,000 in Q2 to 464,000 in the third quarter, while its physical occupancy grew from 50% to 56%.

CORRECTION, DEC. 3, 1:15 P.M. ET: A previous version of this story implied that WeWork is restating its own financial reports. The company is restating the financial statements of BowX, the SPAC that took it public. The story has been updated.

Related Topics: WeWork, SPACs