BREAKING: SYMBOTIC DELAYED 10-K REVEALS SEC INVESTIGATION INTO WHISTLEBLOWER INTERFERENCE, NEW MATERIAL WEAKNESSES, ADVERSE AUDITOR OPINION, AND A CAP ON COSTS WALMART WILL PAY

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short NASDAQ: $SYM at the time of publication. Positions may change at any time. See full disclosures below.

What is Symbotic hiding? 

It was just two weeks ago when Symbotic claimed its revisions to past financial statements would be immaterial and the stock jumped over 28%. 

Nine days later, Symbotic halved its projected profits and announced it would miss its annual report deadline. The stock fell about 35%. 

Last night, Symbotic released that delayed 10-K, with glaring red flags. 

Symbotic revealed it is cooperating with an active investigation by the SEC — focused on whether the company has interfered with witnesses to possible securities law violations. 

“We have been responding to requests for information from the SEC relating to an investigation by the SEC of alleged violations by us of Rule 21F-17, which prohibits actions to impede an individual from communicating directly with the SEC staff about a possible securities law violation,” wrote Symbotic. “We intend to continue to defend this matter vigorously and cannot predict the outcome of this investigation.” 

The 10-K also disclosed multiple material weaknesses in Symbotic’s financial reporting and an adverse auditor opinion. 

“Our independent registered public accounting firm, Grant Thornton LLP, who audited the consolidated financial statements included in this Annual Report on Form 10-K, issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting,” Symbotic wrote. 

In the fog of restatements of restatements of restatements, the true financial picture surrounding Symbotic may remain unclear for some time. 

So as the company prepared its 10-K, Hunterbrook assigned forensic accountant Nick Gibbons — who teaches accounting at NYU and previously worked at Citadel, Two Sigma, and Norges Bank Investment Management — to investigate Symbotic’s financials. 

He found seven different major flags. These range from basic operational uncertainties, such as the company’s inability to predict customer acceptance of its work, to more technical concerns about how it classifies expenses and recognizes revenue.  

The takeaway is that, in Hunterbrook’s view, Symbotic’s current financials and 2025 projections cannot be trusted. 

Some of these issues Symbotic has already disclosed, including deeply flawed cost accounting that forced the dramatic profit projection cuts. Others emerged from the forensic analysis, like suspicious patterns in capital spending and an unexplained $38.4 million transfer of project costs that suggests potential inappropriate deferral of losses.

But most concerning is Symbotic’s relationship with its largest customer, Walmart, which has recently represented more than 90% of its revenue. The analysis reveals a $2.6 billion discrepancy between reported and expected backlog that the company attributes to price increases. These increases don’t appear to make much economic sense … 

… unless they are merely pass-through costs recognized on a zero-margin basis, in which case, Symbotic’s future profits are far less impressive than its backlog implies.

Walmart and Symbotic did not respond to requests for comment. Neither did Grant Thornton. 

The following is an accounting analysis by Nick Gibbons.

His writing is different from our traditional reporting — because it relies on deep technical expertise of SEC filings rather than interviews and other forms of OSINT. 

Think of it as our version of an editorial page, but sticking to exactly what we know and maintaining our open-source commitment to showing our work every step of the way. 

Issue #1: Shift to Milestone Versus Percentage-of-Completion Recognition Much More Serious Than Portrayed

This one was hiding in plain sight. 

In the company’s November 18 earnings release, Symbotic disclosed that it had to correct its financial results for early fiscal year 2024, due to what appeared to be a minor error in how it records its revenue.

Before the fourth quarter of fiscal year 2024, the company was recording revenue using what’s called a “percentage-of-completion” method, specifically using a “cost-to-cost measure of progress.” This means they were recording revenue gradually as they incurred costs on a project, calculating what percentage of the total expected costs they had spent so far. 

Then, Symbotic switched to a “milestone basis” — only recording revenue when they reached specific achievement points in a project.

This change was more significant than it might seem. In its filings with the SEC, Symbotic had previously emphasized its preference for recording revenue from the very beginning of its contracts. “If acceptance can be reasonably certain upon contract inception, revenue is recognized over time based on an input method, using a cost-to-cost measure of progress,” wrote Symbotic. 

The company also clarified that it was using this approach to revenue recognition for contracts entered between 2021 and 2023, the source of the vast majority of its earnings. 

The switch to milestone-based recognition signals that Symbotic can no longer be confident at the beginning of their contracts that customers will accept — and pay for —  their work. 

This isn’t just an accounting technicality, it’s a fundamental shift in Symbotic’s ability to predict project outcomes.

There’s a deeper concern here as well. For a company to use the percentage-of-completion method (their old way of recording revenue), they must be able to make reliable estimates of their project costs. 

The fact that they can’t use this method anymore suggests they may be having trouble accurately predicting how much their projects will cost them. For a company managing large-scale automation system installations, this uncertainty about project costs points to potential underlying operational issues that go well beyond accounting.

But despite these significant implications, at first, on November 18, Symbotic initially claimed these accounting corrections would have “no impact on full-year fiscal year 2024 results.” And Symbotic’s stock price closed that day at its highest price in months.

Not everyone was convinced. Investor Adam Taub, for one, found certain aspects of the release — including the company’s completion accounting and increase in unbilled accounts receivable — concerning. “Will wait for the 10-K filing,” he wrote, before it was ultimately delayed. 

Issue #2: Abnormal Gross Margin on Restatement Not Consistent With Shift Away From Percentage of Completion

According to Symbotic, they generally calculated their revenue using what’s known as a “cost plus margin” approach — meaning they took their expected costs and added a standard markup percentage to determine their price.

When using percentage-of-completion accounting (their old method), this approach should produce fairly consistent profit margins, since you’re recording revenue as costs occur, and you’re supposed to be making the same percentage markup on every dollar of cost. But when Symbotic revised its financial results for the first three quarters of fiscal year 2024, the profit margins on the adjusted revenue numbers were wildly inconsistent:

These dramatic swings in profit margins — especially going from a very high 71% profit to actually losing money — simply don’t make sense for a company using cost-plus pricing and percentage-of-completion accounting. It suggests there are serious problems with how Symbotic was:

• Estimating their project costs
• Calculating when and how much revenue to record
• Tracking and allocating costs to specific projects
• Maintaining consistent accounting practices

This erratic pattern of profit margins suggests deeper issues with how the company was managing and tracking its projects financially. The fact that their margins could have so much volatility indicates they might have had much less control over their project costs and revenue calculations than they claimed.

Issue #3: Errors Accounting for Cost Overruns Significantly Reduce FY2024 Adjusted EBITDA, Force Company to Lower Q1 FY2025 Expectations

Just over a week after Symbotic’s first correction of their financial statements, the company had to issue a second correction — this time admitting they had made mistakes in how they handled project cost overruns. Specifically, Symbotic had been counting on getting paid for certain cost overruns that customers weren’t actually going to cover.

Here’s what they disclosed in their announcement: 

“Symbotic identified errors in its revenue recognition related to cost overruns that will not be billable on certain deployments, which additionally impacted system revenue recognized in the second, third, and fourth quarters of fiscal year 2024. As a result, gross profit, income (loss) before income tax, net income (loss) and adjusted EBITDA were also impacted. The company estimates the total impact of correcting these errors will be to lower system revenue, system gross profit, income (loss) before income tax, and adjusted EBITDA by $30 million to $40 million for fiscal year 2024 compared to the financial results released on November 18, 2024.”

This correction slashed Symbotic’s adjusted EBITDA, a key measure of operational profitability, by between 31% and 42% for fiscal year 2024. Even more concerning, they had to lower their profit expectations for the first quarter of 2025 by nearly half — between 48% and 56%.

When you look at this second correction alongside the first one, a clear picture emerges. Not only is Symbotic apparently unable to accurately estimate how much their projects will cost (as we learned from the first correction), but they had also been incorrectly assuming they could bill customers for cost overruns that those customers weren’t actually obligated to pay for.

This raises two serious additional concerns:

1. Given that Symbotic was experiencing cost overruns and apparently can’t reliably estimate project costs anymore, is it possible they’ve been playing accounting games with when they record expenses to make their results look better?
2. An even bigger question: How much of their backlog (future contracted work) might have been inflated because they assumed they could charge customers for cost overruns? If they were wrong about being able to bill customers for overruns on current projects, they might have made the same mistake in calculating the value of their future project pipeline.

As one senior hedge fund analyst noted in a missive to Hunterbrook: “This business wasn’t gaap profitable when they were passing on costs to their customers they weren’t allowed to pass on … what happens when they need to eat all those overruns?” 

Issues #4 and #5: Potential Expense Recognition Accounting Shenanigans

Beyond Symbotic’s already-admitted accounting errors around revenue recognition and cost overruns, there’s another layer of concerning patterns in how the company records its expenses. 

While accounting rules give companies some flexibility in how they classify and time their expense recognition, certain patterns can indicate aggressive or inappropriate accounting choices. 

In Symbotic’s case, a detailed review of their capital expenditures and deferred expenses reveals red flags that suggest they might be using questionable accounting tactics to improve their reported financial results. 

These potential problems don’t just raise technical accounting concerns — they call into question the fundamental viability of Symbotic’s business model and whether current financial statements accurately reflect the true costs of running their operations.

Issue #4: Unusual Patterns in Capital Spending and Depreciation Suggest Possible Misclassification of Regular Operating Costs

The first major red flag appears in Symbotic’s capital expenditure patterns. From 2021 through 2023, the company’s capital expenditures as a percentage of revenue followed a logical downward trend as the business scaled — falling from 4.8% in 2021 to 3.0% in 2022, and further down to 1.8% in 2023. This pattern makes intuitive sense for a maturing business. Early 2024 saw a continued decline to 0.8%.

However, the second half of 2024 shows a dramatic and suspicious reversal of this trend. Capital spending suddenly jumped to 3.6% of revenue in Q3 and then increased further to 3.8% in Q4. This abrupt change, particularly its timing alongside other accounting issues, suggests Symbotic might be reclassifying regular operating expenses as capital investments.

This suspicion is reinforced by troubling patterns in their depreciation and amortization expenses. These expenses had followed a similar downward trend, declining from 1.8% of revenue in 2021 to a stable 1.0% in both 2022 and 2023, and declining further to 0.8% in early 2024. But then something highly unusual occurred: depreciation and amortization suddenly spiked to $10.7 million (2.3% of revenue) in Q3 2024, only to plummet back to $6.4 million (1.1% of revenue) in Q4.

This volatility in depreciation expense is particularly concerning because it defies fundamental accounting principles. Depreciation is meant to be a systematic, consistent allocation of costs over time — it shouldn’t show sharp spikes and drops unless there’s been a major change in the company’s asset base or a significant revision to how they’re depreciating assets. Neither explanation appears to fit here.

The implications of these patterns are serious and two-fold:

1. By reclassifying operating expenses as capital investments, Symbotic can spread out the recognition of costs over several years instead of recognizing them immediately. This makes current period expenses appear lower than they actually are.
2. More subtly, this reclassification provides an artificial boost to EBITDA — a key metric investors use to evaluate the company. When regular operating expenses are treated as capital investments, they get recorded as depreciation, which is excluded from EBITDA calculations. This makes operational profitability appear stronger than it really is.

The combination of suddenly increased capital spending, erratic depreciation patterns, and the timing of these changes alongside other accounting issues suggests Symbotic may be inappropriately classifying regular operating expenses as long-term investments. This pattern of accounting choices appears designed to both delay expense recognition and inflate key profitability metrics, potentially masking the true economics of their business.

Issue #5: Why Were Deferred Expenses Transferred to Property and Equipment? 

In Symbotic’s quarterly report for Q2 2024, there’s a puzzling transaction: The company moved $38.4 million from “deferred costs” to “property and equipment.” To understand why this is concerning, we need to look at what these deferred costs are supposed to be.

According to Symbotic’s own definition in their 2023 annual report: 

“Costs to fulfill a contract are presented as deferred expenses on the consolidated balance sheets and consist of costs incurred by the Company to fulfill its obligations under a contract once it is obtained, but before transferring goods or services to the customer. These costs relate directly to a contract that the Company can specifically identify, are costs to generate or enhance resources of the Company that are used in satisfying performance obligations, and are costs which are expected to be recovered. Accordingly, these costs are recognized on the consolidated balance sheets as an asset and are recognized consistent with the pattern of the transfer of the goods or services to which the asset relates. For all contracts, the Company recognizes anticipated contract losses as a charge to cost of revenue as soon as they become evident. As of September 30, 2023, there were no anticipated contract losses recorded in accrued expenses on the consolidated balance sheets.”

This definition raises a crucial question: How could costs that are specifically tied to individual customer contracts suddenly qualify as long-term company assets? It’s like saying expenses that were specifically earmarked for Customer A’s project are now somehow part of Symbotic’s permanent infrastructure.

A more concerning explanation emerges when we consider everything else we’ve learned: Symbotic might have been facing unrecoverable cost overruns on certain projects and, instead of recognizing these losses immediately (as they’re supposed to), they may have reclassified these costs as long-term assets. This would give them the same benefits we discussed earlier:

1. Spreading the costs out over several years instead of taking the hit immediately
2. Moving these costs into depreciation, which makes their EBITDA look better

It’s important to note that this issue is distinct from both: A) Their switch to milestone-based revenue recognition; and B) Their second accounting correction about incorrectly assuming certain cost overruns would be billable to customers. 

This reclassification of deferred costs represents a third potential issue, raising serious questions about whether Symbotic is using aggressive accounting tactics to mask deeper financial problems. The fact that they haven’t addressed this issue in their recent corrections makes it even more concerning.

Issue #6: Quality of Backlog Concerns Given Potentially Embedded Cost Recovery Assumptions

Much of Symbotic’s value is tied to its contract with Walmart, which initially signed an agreement with the company in 2021. 

The first agreement with Walmart involved the installation of Symbotic’s systems at 25 of Walmart’s 42 regional distribution centers. Given Symbotic ended FY2021 with $5.4 billion in backlog, with the substantial majority attributable to Walmart, and approximately $168.5 million recognized on the order to date, we estimate that the contract value per system was approximately $223 million. 

In May 2022, the agreement was expanded to include the remaining 17 distribution centers, which added $6.1 billion to the backlog. On a blended basis the overall contract value per system increased to $278 million, or about 25% higher than the original contract. This brought the total expected contract value with Walmart to an estimated $11.7 billion.  

Since signing the initial contract, Symbotic has been primarily reliant on Walmart as a customer, with Walmart representing 86.9% of 2024 revenue, according to Symbotic’s filings. We estimate that total revenues recognized, based on originally presented revenue amounts, have been $3.3 billion, suggesting that up to $8.3 billion of revenue remains to be recognized. 

But this does not square with the company’s total backlog balance, which stood at $22.4 billion at the end of Q4 FY2024 — $11.5 billion of which can be attributed to Symbotic’s agreement with Greenbox, a JV co-owned by Softbank (Symbotic’s biggest investor), which owns 65%, and C&S (a grocery business founded by Symbotic’s CEO), which owns 35%. (It is considered a “related party” of Symbotic’s.) 

This would suggest that Symbotic is still claiming to have up to $10.9 billion of contract backlog tied to Walmart – $2.6 billion (or 31%) higher than we estimated based on the revenue that has already been recognized.

This raises the question: How is it that Walmart’s backlog is as high as it is? 

“There has been growing investor concerns as to what has contributed to the stability of backlog in recent quarters, as Symbotic has delivered over $3 billion of Walmart system sales since 2021, but the initial Walmart backlog of approximately $11 billion has hardly changed,” wrote William Blair in a research note seen by Hunterbrook Media.

In its delayed 10-K, Symbotic says the backlog “is largely structured to maintain our gross profit targets even in times of high inflation or supply chain related price increases. For example, in most cases, increases in steel prices are passed on to the customer, preserving our gross profit.” 

But does that explanation really make sense?

The price of steel, a key input mentioned by Symbotic, has actually gone down, not up,  since May 2022 — when Walmart and Symbotic signed their most recent deal. 

The cost of labor in similar industries has increased according to producer price index data on electrical contractors — but not enough to explain the increase. And the cost of material handling equipment for manufacturing, a possible proxy for the kind of inputs Symbotic may be using, is only up modestly as well. 

But even assuming Symbotic’s costs really have increased by this much, is it reasonable to assume Walmart would just pay up for these pricing adjustments? 

Remember: These claimed price adjustments come from a company that has just admitted it has had issues estimating contract costs in the past and has issued multiple restatements due to cost accounting errors, including overestimating reimbursements for cost overruns. The notion that Walmart — a company legendary for its supplier cost control — would accept massive price increases in this environment seems far-fetched.

To this point, in its 2024 annual report, Symbotic modified the language regarding what amount Walmart will pay for, adding that amounts paid for systems would be “subject in certain cases to a capped cost amount.”

Which raises the question: Why, exactly, didn’t the caps impact Symbotic’s backlog number? 

Well, if we were the SEC, it’s certainly a question we’d ask that whistleblower — if they’ll still talk after whatever Symbotic allegedly did to interfere with the investigation… 

Issue #7: Balance Sheet Support of Backlog At Historical Low

A critical way to evaluate the quality of Symbotic’s reported backlog is to examine how much of it is supported by actual cash commitments from customers — a number that has steeply declined. 

To understand this trend, we need to look at two key metrics:

• Deferred revenue (money Symbotic has received from customers for work not yet completed)
• The company’s stated expectations for revenue to be recognized from backlog over the next 12 months

When Walmart first signed on in September 2021, the financial backing for Symbotic’s future work was robust:

• Current deferred revenue covered 60% of expected revenue for the next 12 months;
• Total deferred revenue actually exceeded expected revenue at 110%. 

In other words, customers were paying significant amounts upfront, providing strong financial validation of Symbotic’s backlog claims.

This picture began to deteriorate when the Walmart deal expanded in June 2022:

• Current deferred revenue dropped from covering 60% to covering only 43% of expected revenue
• Total deferred revenue fell even more dramatically from 110% to 56% of expected revenue

Now, as of September 2024, this financial backing has reached concerning lows:

• Current deferred revenue covers just 30% of expected revenue — a historical low
• Total deferred revenue has fallen to 36% — also a historical low

This declining trend tells us two crucial things:

1. There’s less concrete financial backing behind Symbotic’s claimed future work than at any previous point;
2. Customers may be becoming increasingly reluctant to make upfront payments for Symbotic’s systems.

Also of note: 9% of total deferred revenue ($69.1 million) was attributable to GreenBox – a company that Symbotic has provided with $83.1 million of funding — which, in fairness, is at least a pretty creative way to bring revenue in the door. 

Some accounting irregularities might be explained as honest mistakes. Others may reflect aggressive but defensible interpretations of complex rules. 

Symbotic has engaged in a consistent pattern: Each accounting decision seems to inflate performance metrics, boost backlog figures, or defer loss recognition. 

These aren’t mere technical corrections that can easily be resolved. They demand a comprehensive investigation: customer contract reviews, historical restatements, and a fundamental reassessment of how Symbotic recognizes both revenue and costs. 

Or, perhaps, that SEC whistleblower just has the answers. 

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