SEC Filing | OneWater Marine Inc

View:

Download DOC

Download PDF

Download XLS

Download XBRL

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 001-39213

OneWater Marine Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		83-4330138 (IRS Employer Identification No.)

6275 Lanier Islands Parkway Buford, Georgia (Address of principal executive offices)		30518 (Zip code)

(Registrant’s telephone number, including area code): (678) 541-6300

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Class A common stock, par value $0.01 per share		ONEW		The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer ☒
Non-accelerated filer	☐	Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The registrant had 14,133,130 shares of Class A common stock, par value $0.01 per share, and 1,429,940 shares of Class B common stock, par value $0.01 per share, outstanding as of August 3, 2022.

ONEWATER MARINE INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

Page


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		3
PART I – FINANCIAL INFORMATION		4
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021	4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2022 and June 30, 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended June 30, 2022 and June 30, 2021	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2022 and June 30, 2021	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	37
Item 4.	Controls and Procedures	37
PART II – OTHER INFORMATION		37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q includes “forward-looking statements.” All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report on Form 10-K for the year ended September 30, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 17, 2021, and under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward-looking statements may include statements about:

•

the impact of the novel coronavirus (“COVID-19”) on our business and results of operations;

•

general economic conditions, including changes in employment levels, consumer demand, preferences and confidence levels, fuel prices, inflation, levels of discretionary income, consumer spending patterns and uncertainty regarding the timing, pace and extent of an economic recovery in the United States;

•

economic conditions in certain geographic regions in which we primarily generate our revenue;

•

credit markets and the availability and cost of borrowed funds;

•

our business strategy, including acquisitions and same-store growth;

•

our ability to integrate acquired marine retailers;

•

our ability to maintain our relationships with manufacturers, including meeting the requirements of our dealer agreements and receiving the benefits of certain manufacturer incentives;

•

our ability to finance working capital and capital expenditures;

•

demand for our products and our ability to maintain acceptable pricing for our products and services, including financing, insurance and extended service contracts;

•

our operating cash flows, the availability of capital and our liquidity;

•

our future revenue, same-store sales, income, financial condition, and operating performance;

•

our ability to sustain and improve our utilization, revenue and margins;

•

competition;

•

seasonality and inclement weather such as hurricanes, severe storms, fire and floods, generally and in certain geographic regions in which we primarily generate our revenue;

•

any potential tax savings we may realize as a result of our organizational structure;

•

our future operating results and profitability;

•

our ability to successfully close the pending acquisition of Ocean Bio-Chem, Inc. (“OBCI”), or once closed, integrate the operations of OBCI with our existing operations and fully realize the expected synergies of the OBCI Acquisitions (as defined below) or on the expected timeline; and

•

plans, objectives, expectations and intentions contained in this Form 10-Q that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Should one or more of the risks or uncertainties occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. These risks include, but are not limited to:

•

decline in demand for our products and services;

•

the effects of the COVID-19 pandemic on the Company’s business;

•

other risks associated with the COVID-19 pandemic including, among others, the ability to safely operate our stores, access to inventory and customer demand;

•

the seasonality and volatility of the boat industry;

•

global public health concerns, including the COVID-19 pandemic;

•

general domestic and international political and regulatory conditions, including changes in tax or fiscal policy and the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

•

environmental conditions and real or perceived human health or safety risks;

•

our acquisition strategies and our ability to integrate additional marine retailers;

•

effects of industry-wide supply chain challenges and our ability to manage our inventory;

•

our ability to retain key personnel and the effects of labor shortages;

•

the inability to comply with the financial and other covenants and metrics in our credit facilities;

•

cash flow and access to capital;

•

the timing of development expenditures; and

•

the other risks described under “Risk Factors” and discussed elsewhere in our Annual Report on Form 10-K for the year ended September 30, 2021 and discussed elsewhere in this Quarterly Report on Form 10-Q.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands, except par value and share data)

	June 30, 2022		September 30, 2021
Assets
Current assets:
Cash	$	95,690	$	62,606
Restricted cash		16,209		11,343
Accounts receivable, net		80,495		28,529
Inventories, net		269,430		143,880
Prepaid expenses and other current assets		57,389		34,580
Total current assets		519,213		280,938

Property and equipment, net		80,235		67,114
Operating lease right-of-use assets		126,433		89,141

Other assets:
Deposits		823		526
Deferred tax assets		32,585		29,110
Identifiable intangible assets, net		245,659		85,294
Goodwill		342,605		168,491
Total other assets		621,672		283,421
Total assets	$	1,347,553	$	720,614

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	51,199	$	18,114
Other payables and accrued expenses		54,725		27,665
Customer deposits		65,520		46,610
Notes payable – floor plan		217,338		114,234
Current portion of operating lease liabilities		12,788		9,159
Current portion of long-term debt		19,450		11,366
Current portion of tax receivable agreement liability		915		482
Total current liabilities		421,935		227,630

Long-term Liabilities:
Other long-term liabilities		25,766		14,991
Tax receivable agreement liability		45,290		39,622
Noncurrent operating lease liabilities		114,545		80,464
Long-term debt, net of current portion and unamortized debt issuance costs		316,349		103,074
Total liabilities		923,885		465,781

Stockholders’ Equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of June 30, 2022 and September 30, 2021		-		-
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 14,133,130 shares issued and outstanding as of June 30, 2022 and 13,276,538 issued and outstanding as of September 30, 2021		141		133
Class B common stock, $0.01 par value, 10,000,000 shares authorized, 1,429,940 shares issued and outstanding as of June 30, 2022 and 1,819,112 issued and outstanding as of September 30, 2021		14		18
Additional paid-in capital		178,347		150,825
Retained earnings		186,536		74,952
Total stockholders’ equity attributable to OneWater Marine Inc.		365,038		225,928
Equity attributable to non-controlling interests		58,630		28,905
Total stockholders’ equity		423,668		254,833
Total liabilities and stockholders’ equity	$	1,347,553	$	720,614

Table of Contents

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands except per share data)

(Unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Revenues
New boat	$	376,886		$	288,222		$	903,104		$	679,704
Pre-owned boat		98,181			71,116			227,484			165,778
Finance & insurance income		18,979			15,238			43,234			32,990
Service, parts & other		74,854			29,631			173,477			69,429
Total revenues		568,900			404,207			1,347,299			947,901

Cost of sales (exclusive of depreciation and amortization shown separately below)
New boat		274,544			211,141			659,046			520,820
Pre-owned boat		68,749			52,566			164,078			125,566
Service, parts & other		41,668			13,548			96,729			33,341
Total cost of sales		384,961			277,255			919,853			679,727

Selling, general and administrative expenses		87,867			60,476			222,455			143,685
Depreciation and amortization		4,073			1,475			10,549			3,816
Transaction costs		1,337			65			5,158			633
Change in fair value of contingent consideration		3,118			-			11,022			377
Income from operations		87,544			64,936			178,262			119,663

Other expense (income)
Interest expense – floor plan		1,131			956			3,056			2,206
Interest expense – other		3,311			1,083			7,937			3,222
Other (income) expense, net		(166	)		(158	)		491			(247	)
Total other expense, net		4,276			1,881			11,484			5,181
Income before income tax expense		83,268			63,055			166,778			114,482
Income tax expense		18,785			11,498			36,455			20,559
Net income		64,483			51,557			130,323			93,923
Less: Net income attributable to non-controlling interests		(959	)		-			(1,970	)		-
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC		(7,547	)		(17,054	)		(16,060	)		(31,158	)
Net income attributable to OneWater Marine Inc.	$	55,977		$	34,503		$	112,293		$	62,765

Earnings per share of Class A common stock – basic	$	3.96		$	3.14		$	8.14		$	5.77
Earnings per share of Class A common stock – diluted	$	3.86		$	3.04		$	7.90		$	5.63

Basic weighted-average shares of Class A common stock outstanding		14,133			10,976			13,791			10,884
Diluted weighted-average shares of Class A common stock outstanding		14,512			11,341			14,205			11,143

Table of Contents

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

($ in thousands)

(Unaudited)

	Class A Common Stock				Class B Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Retained Earnings			Non- controlling Interest			Total Stockholders’ Equity
Balance at September 30, 2021		13,277	$	133		1,819		$	18		$	150,825		$	74,952		$	28,905		$	254,833
Net income		-		-		-			-			-			20,019			3,467			23,486
Distributions to members		-		-		-			-			-			(442	)		(177	)		(619	)
Non-controlling interest in subsidiary		-		-		-			-			-			-			19,311			19,311
Exchange of B shares for A shares		389		4		(389	)		(4	)		7,405			-			(7,405	)		-
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis		-		-		-			-			(283	)		-			-			(283	)
Shares issued upon vesting of equity-based awards, net of tax withholding		53		1		-			-			(469	)		-			-			(468	)
Shares issued in connection with a business combination		133		1		-			-			6,833			-			-			6,834
Equity-based compensation		-		-		-			-			2,100			-			-			2,100
Balance at December 31, 2021		13,852	$	139		1,430		$	14		$	166,411		$	94,529		$	44,101		$	305,194
Net income		-		-		-			-			-			36,297			6,057			42,354
Distributions to members		-		-		-			-			-			(266	)		(605	)		(871	)
Exchange of B shares for A shares		-		-		-			-			(574	)		-			574			-
Shares issued upon vesting of equity-based awards, net of tax withholding		27		-		-			-			(455	)		-			-			(455	)
Equity-based compensation		-		-		-			-			2,713			-			-			2,713
Balance at March 31, 2022		13,879	$	139		1,430		$	14		$	168,095		$	130,560		$	50,127		$	348,935
Net income		-		-		-			-			-			55,977			8,506			64,483
Distributions to members		-		-		-			-			-			(1	)		(3	)		(4	)
Shares issued in connection with a business combination		254		2		-			-			7,791			-			-			7,793
Equity-based compensation		-		-		-			-			2,461			-			-			2,461
Balance at June 30, 2022		14,133	$	141		1,430		$	14		$	178,347		$	186,536		$	58,630		$	423,668

Table of Contents

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

($ in thousands)

(Unaudited)

	Class A Common Stock				Class B Common Stock
	Shares		Amount		Shares			Amount			Additional Paid-in Capital			Retained Earnings			Non- controlling Interest			Total Stockholders’ Equity
Balance at September 30, 2020		10,392	$	104		4,583		$	46		$	105,947		$	16,757		$	50,433		$	173,287
Net income		-		-		-			-			-			7,788			3,987			11,775
Distributions to members		-		-		-			-			-			-			(1,319	)		(1,319	)
Effect of September offering, including underwriter exercise of option to purchase shares		387		4		(387	)		(4	)		4,146			-			(4,256	)		(110	)
Exchange of B shares for A shares		88		1		(88	)		(1	)		916			-			(916	)		-
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis		-		-		-			-			(228	)		-			-			(228	)
Adjustment to adopt Topic 842		-		-		-			-			-			1,073			-			1,073
Equity-based compensation		-		-		-			-			1,078			-			-			1,078
Balance at December 31, 2020		10,867	$	109		4,108		$	41		$	111,859		$	25,618		$	47,929		$	185,556
Net income		-		-		-			-			-			20,475			10,117			30,592
Distributions to members		-		-		-			-			-			(61	)		(140	)		(201	)
Exchange of B shares for A shares		37		-		(37	)		-			558			-			(558	)		-
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis		-		-		-			-			(6	)		-			-			(6	)
Shares issued upon vesting of equity-based awards, net of tax withholding		64		1		-			-			(450	)		-			-			(449	)
Equity-based compensation		-		-		-			-			1,127			-			-			1,127
Balance at March 31, 2021		10,968	$	110		4,071		$	41		$	113,088		$	46,032		$	57,348		$	216,619
Net income		-		-		-			-			-			34,503			17,054			51,557
Distributions to members		-		-		-			-			-			(45	)		(2,206	)		(2,251	)
Dividends and distributions declared ($1.80 per share and per unit, respectively)		-		-		-			-			-			(20,461	)		(7,328	)		(27,789	)
Exchange of B shares for A shares		694		7		(694	)		(7	)		11,214			-			(11,214	)		-
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis		-		-		-			-			(1,805	)		-			-			(1,805	)
Equity-based compensation		-		-		-			-			1,146			-			-			1,146
Balance at June 30, 2021		11,662	$	117		3,377		$	34		$	123,643		$	60,029		$	53,654		$	237,477

Table of Contents

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)

For the Nine Months Ended June 30	2022			2021

Cash flows from operating activities
Net income	$	130,323		$	93,923
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,816			3,816
Equity-based awards		7,274			3,351
Gain on asset disposals		(59	)		(196	)
Non-cash interest expense		1,370			503
Deferred income tax provision		2,030			2,338
Loss on change in fair value of contingent consideration		11,022			-
(Increase) decrease in assets:
Accounts receivable		(41,235	)		(19,031	)
Inventories		(88,158	)		47,146
Prepaid expenses and other assets		(17,770	)		(16,767	)
Deposits		(160	)		(152	)
Increase (decrease) in liabilities:
Accounts payable		33,624			11,124
Other payables and accrued expenses		8,096			5,662
Tax receivable agreement liability		313			-
Customer deposits		4,637			21,478
Net cash provided by operating activities		62,123			153,195

Cash flows from investing activities
Purchases of property and equipment and construction in progress		(11,649	)		(7,802	)
Proceeds from disposal of property and equipment		122			168
Cash used in acquisitions		(326,089	)		(83,486	)
Net cash used in investing activities		(337,616	)		(91,120	)

Cash flows from financing activities
Net borrowings from floor plan		103,103			(27,455	)
Proceeds from long-term debt		240,000			30,000
Payments of long-term debt		(18,090	)		(7,237	)
Payments of debt issuance costs		(4,057	)		(701	)
Payments of September 2020 offering costs		-			(540	)
Payments of contingent consideration		(133	)		-
Payments of tax withholdings for equity-based awards		(923	)		(449	)
Distributions to members		(6,457	)		(3,160	)
Net cash provided by (used in) financing activities		313,443			(9,542	)
Net change in cash		37,950			52,533
Cash and restricted cash at beginning of period		73,949			68,153
Cash and restricted cash at end of period	$	111,899		$	120,686

Supplemental cash flow disclosures
Cash paid for interest	$	9,623		$	4,925
Cash paid for income taxes		6,344			13,993

Noncash items
Acquisition purchase price funded by seller notes payable	$	1,126		$	2,056
Acquisition purchase price funded by contingent consideration		15,321			5,482
Acquisition purchase price funded by issuance of Class A common stock		6,834			-
Purchase of property and equipment funded by long-term debt		1,423			1,693
Initial operating lease right-of-use assets for adoption of Topic 842		-			71,835
Right-of-use assets obtained in exchange for new operating lease liabilities		46,378			17,224
Dividends and distributions payable		-			27,789
Distributions to members payable		-			610

Table of Contents

OneWater Marine Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1.	Description of Company and Basis of Presentation

Description of the Business

OneWater Marine Inc. (“OneWater Inc.”) was incorporated in Delaware on April 3, 2019 and was a wholly-owned subsidiary of One Water Marine Holdings, LLC (“OneWater LLC”). Pursuant to a reorganization on February 11, 2020 into a holding company structure for the purpose of facilitating an initial public offering (the “IPO”) and related transactions in order to carry on the business of OneWater LLC and its subsidiaries (together with OneWater Marine Inc., the “Company”), OneWater Inc. is the holding company and its sole material asset is the equity interest in OneWater LLC. OneWater LLC was organized as a limited liability company under the law of the State of Delaware in 2014 and is the parent company of One Water Assets & Operations (“OWAO”), and its wholly-owned and majority-owned subsidiaries.

The Company is one of the largest recreational boat retailers in the United States. The Company engages primarily in the retail sale, brokerage, and service of new and pre-owned boats, motors, trailers, the sale of marine parts and accessories, and offers slip and storage accommodations in certain locations. The Company also arranges related boat financing, insurance, and extended service contracts for customers with third-party lenders and insurance companies. As of June 30, 2022, the Company operated a total of 96 retail locations, 10 distribution centers/warehouses and multiple online marketplaces in 19 states, several of which are in the top twenty states for marine retail expenditures.

Operating results are generally subject to seasonal variations. Demand for products is generally highest during the third and fourth quarters of the fiscal year and, accordingly, revenues are generally expected to be higher during these periods. General economic conditions and consumer spending patterns can negatively impact the Company’s operating results. Unfavorable local, regional, national, or global economic developments, global public health concerns, including the COVID-19 pandemic, or uncertainties could reduce consumer spending and adversely affect the Company’s business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which the Company operates stores, particularly in the Southeast, can have a major impact on the Company’s overall results of operations. Local influences such as corporate downsizing, inclement weather such as hurricanes and other storms, environmental conditions, and other events could adversely affect the Company’s operations in certain markets and in certain periods. Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on the Company’s business.

Sales of new boats from the Company’s top ten brands represent approximately 42.9% and 41.1% of total sales for the nine months ended June 30, 2022 and 2021, respectively, making them major suppliers of the Company. Of this amount, Malibu Boats, Inc., including its brands Malibu, Axis, Cobalt, Pursuit, Maverick, Hewes, Cobia and Pathfinder accounted for 15.6% and 17.1% of our consolidated revenue for the nine months ended June 30, 2022 and 2021, respectively. As is typical in the industry, the Company contracts with most manufacturers under renewable annual dealer agreements, each of which provides the right to sell various makes and models of boats within a given geographic region. Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory, or marketing practices, including rebate or incentive programs, could adversely affect results of operations. Pre-owned boats are usually trade-ins from retail customers who are purchasing a boat from the Company.

Principles of Consolidation

As the sole managing member of OneWater LLC, OneWater Inc. operates and controls all of the businesses and affairs of OneWater LLC, and through OneWater LLC and its wholly-owned subsidiaries as well as majority-owned subsidiaries over which the Company exercises control, conducts its business. As a result, OneWater Inc. consolidates the financial results of OneWater LLC and its subsidiaries and reports non-controlling interests related to the portion of units of OneWater LLC (the “OneWater LLC Units”) not owned by OneWater Inc., which will reduce net income (loss) attributable to OneWater Inc.’s Class A stockholders. As of June 30, 2022, OneWater Inc. owned 90.8% of the economic interest of OneWater LLC.

Commencing December 31, 2021, the Company owns 80% of the economic interest of Quality Assets and Operations, over which the Company exercises control and the minority interest in this subsidiary has been recorded accordingly. See Note 4 for additional information regarding the acquisition.

Basis of Financial Statement Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements, which do not include all the information and notes required by such accounting principles for annual financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with OneWater Inc.’s Annual Report on Form 10-K for the year ended September 30, 2021. All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements.

Table of Contents

All intercompany transactions have been eliminated in consolidation. The Company operates on a fiscal year basis with the first day of the fiscal year being October 1, and the last day of the year ending on September 30. Additionally, since there are no differences between net income and comprehensive income, all references to comprehensive income have been excluded from the accompanying unaudited condensed consolidated financial statements.

COVID-19 Pandemic

The duration and related impact of the COVID-19 global pandemic on the Company’s consolidated financial statements is currently uncertain, and it is possible that the pandemic, including the resurgence of COVID-19 in certain geographic areas or the emergence of variant strains of the virus, may negatively impact the Company’s future results of operations. The impact of COVID-19 on our suppliers and the recent increase in demand for marine retail products has led to industry-wide supply chain constraints. The Company is monitoring and assessing the situation and preparing for implications to the business, including the ability to safely operate its stores, access to inventory and customer demand.

2.	Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, other payables and accrued expenses, floor plan notes payable, term note payable and revolving note payable with Truist Bank, seller notes payable and company vehicle notes payable. The carrying values approximate their fair values because of the nature of their terms and current market rates of these instruments.

Inventories

Inventories are stated at the lower of cost or net realizable value. The cost of the new and pre-owned boat inventory is determined using the specific identification method. In assessing lower of cost or net realizable value, the Company considers the aging of the boats, historical sales of a brand and current market conditions. The cost of manufactured and assembled parts and accessories is determined using standard costing. The cost of acquired parts and accessories is determined using the weighted average cost method.

Goodwill and Other Identifiable Intangible Assets

Goodwill and intangible assets are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, ‘‘Intangibles - Goodwill and Other’’ (‘‘ASC 350’’), which provides that the excess of cost over the fair value of the net assets of businesses acquired, including other identifiable intangible assets, is recorded as goodwill. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. In accordance with ASC 350, Goodwill is tested for impairment at least annually, or more frequently when events or circumstances indicate that impairment might have occurred. ASC 350 also states that if an entity determines, based on an assessment of certain qualitative factors, that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative goodwill impairment test is unnecessary.

Identifiable intangible assets consist of trade names, design libraries and customer relationships related to the acquisitions the Company has completed. The Company has determined that trade names have an indefinite life, as there are no economic, contractual or other factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the marine retailer, and therefore, are not subject to amortization. Design libraries and customer relationships are amortized over their estimated useful lives of ten years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Intangible asset amortization expense was approximately $2.1 million and $4.7 million for the three and nine months ended June 30, 2022, respectively. No expense was recorded for the three and nine months ended June 30, 2021.

Sales Tax

The Company collects sales tax on all of the Company’s sales to nonexempt customers and remits the entire amount to the states that imposed the sales tax on and concurrent with specific sales transactions. The Company’s accounting policy is to exclude the tax collected and remitted to the states from revenues and cost of sales.

Revenue Recognition

Revenue is recognized from the sale of products and commissions earned on new and pre-owned boats (including used, brokerage, consignment and wholesale) when ownership is transferred to the customer, which is generally upon acceptance or delivery. At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits at such time. We are the principal with respect to revenue from new, pre-owned and consignment sales and such revenue is recorded at the gross sales price. With respect to brokerage transactions, we are acting as an agent in the transaction, therefore the fee or commission is recorded on a net basis.

Table of Contents

Revenue from parts and accessories sold directly to a customer (not on a repair order) are recognized when control of the items is transferred to the customer, which is typically upon shipment. Revenue from parts and service operations (boat maintenance and repairs) are recorded over time as services are performed. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. The Company recorded contract assets in prepaid expenses and other current assets of $3.8 and $2.3 million as of June 30, 2022 and September 30, 2021, respectively.

Certain parts and service transactions require the Company to perform shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery). They are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized and are included in selling, general and administrative expenses.

Revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers’ boat, motor or trailer purchases. We are acting as an agent in the transaction, therefore the commission is recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2022 and 2021.

Contract liabilities consist of deferred revenues from marina and storage operations and customer deposits and are classified in customer deposits in the Company’s unaudited condensed consolidated balance sheets. Deposits received from customers are recorded as a liability until the related sales orders have been fulfilled by us and control of the vessel or part/accessory is transferred to the customer. The activity in customer deposits for the three and nine months ended June 30, 2022 is as follows:

($ in thousands)	Three Months Ended June 30, 2022			Nine Months Ended June 30, 2022
Beginning contract liability	$	63,514		$	46,610
Revenue recognized from contract liabilities included in the beginning balance		(35,337	)		(42,595	)
Increases due to cash received, net of amounts recognized in revenue during the period		37,343			61,505
Ending contract liability	$	65,520		$	65,520

The following tables set forth percentages on the timing of revenue recognition for the three and nine months ended June 30, 2022 and 2021.

	Three Months Ended June 30, 2022			Three Months Ended June 30, 2021
Goods and services transferred at a point in time		95.0	%		94.4	%
Goods and services transferred over time		5.0	%		5.6	%
Total Revenue		100.0	%		100.0	%

	Nine Months Ended June 30, 2022			Nine Months Ended June 30, 2021
Goods and services transferred at a point in time		94.6	%		94.1	%
Goods and services transferred over time		5.4	%		5.9	%
Total Revenue		100.0	%		100.0	%

Income Taxes

OneWater Inc. is a corporation and as a result, is subject to U.S. federal, state and local income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the book value and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the enactment date occurs. We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.

Table of Contents

OneWater LLC is treated as a partnership for U.S. federal income tax purposes and therefore does not pay U.S. federal income tax on its taxable income. Instead, the OneWater LLC members are liable for U.S. federal income tax on their respective shares of the Company’s taxable income reported on the members’ U.S. federal income tax returns.

When there are situations with uncertainty as to the timing of the deduction, the amount of the deduction, or the validity of the deduction, the Company adjusts the financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Positions that meet this criterion are measured using the largest benefit that is more than 50% likely to be realized. Interest and penalties related to income taxes are included in the benefit (provision) for income taxes in the consolidated statements of operations.

Vendor Consideration Received

Consideration received from vendors is accounted for in accordance with FASB Accounting Standards Codification 330, ‘‘Inventory’’ (‘‘ASC 330’’). Pursuant to ASC 330, manufacturer incentives based upon cumulative volume of sales and purchases are recorded as a reduction of inventory cost and related cost of sales when the amounts are probable and reasonably estimable.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ materially from these estimates. Estimates and assumptions are reviewed periodically, and the effects of any revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying unaudited condensed consolidated financial statements include, but are not limited to, those relating to inventory mark downs, certain assumptions related to intangible and long-lived assets, share based compensation, valuation of acquisition contingent consideration and accruals for expenses relating to business operations.

Segment Information

As of June 30, 2022 and September 30, 2021, the Company had one operating segment, marine retail. The marine retail segment consists of the sale of new and pre-owned boats, arrangement of finance and insurance products, performance of repair and maintenance services and offering marine related parts and accessories. The marine retail business has discrete financial information and is regularly reviewed by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources. The Company has identified its Chief Executive Officer as its CODM. The Company has determined its marine retail operating segment is its reporting unit and is also the reportable segment.

3.	New Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes”. The pronouncement is effective for a public company’s annual reporting periods beginning after December 15, 2020, and interim periods within those annual periods. The Company adopted the new guidance in fiscal first quarter 2022. The adoption of the guidance did not have a material impact on the Company’s financial statement.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform”, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. The guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s financial statements.