SEC Filing | OneWater Marine Inc

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onew-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________

FORM 10-Q

________________________________________________________


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

For the quarterly period ended March 31, 2023


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

6275 Lanier Islands Parkway Buford, Georgia			30518
(Address of principal executive offices)			(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.x Yes o 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). x Yes o 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. o

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

The registrant had 14,316,518 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 April 25, 2023.

ONEWATER MARINE INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2023

TABLE OF CONTENTS


		Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		3
PART I – FINANCIAL INFORMATION		5
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets as of March 31, 2023 and September 30, 2022	5
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2023 and March 31, 202 2	6
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2023 and March 31, 2022	7
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended March 31, 2023 and March 31, 2022	8
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2023 and March 31, 2022	10
	Notes to the Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	41
Item 4.	Controls and Procedures	42
PART II – OTHER INFORMATION		42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43

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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, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 15, 2022, 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:

•general economic conditions, including changes in employment levels, rates of inflation, consumer demand, preferences and confidence levels, fuel prices, 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 Dealership same-store growth;

•our ability to integrate acquisitions;

•competition;

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

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

•effects of an inflationary environment on the cost of the products we sell and personnel and other expenses that are incurred within our operations;

•our ability to finance working capital and capital expenditures;

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

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

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

•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 integrate the operations of Ocean Bio-Chem, Inc. (“Ocean Bio-Chem”) with our existing operations and fully realize the expected synergies of the Ocean Bio-Chem acquisition or on the expected timeline; and

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

Table of Contents

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;

•any further negative developments on the Company's business related to the novel coronavirus (“COVID-19”) pandemic or other global public health concerns, including, for example, our ability to safely operate our location, access to inventory, and customer demand;

•the seasonality and volatility of the boat industry;

•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, 2022 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.

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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)

(Unaudited)


	March 31, 2023		September 30, 2022
ASSETS
CURRENT ASSETS:
Cash	$	60,976	$	42,071
Restricted cash	10,707		18,876
Accounts receivable, net	81,040		57,960
Inventories, net	593,347		372,959
Prepaid expenses and other current assets	64,123		75,024
Total current assets	810,193		566,890
Property and equipment, net	117,326		109,713
Operating lease right-of-use assets	124,864		123,955
Other long-term assets	4,908		3,378
Deferred tax assets, net	6,980		8,433
Intangible assets, net	308,711		306,471
Goodwill	397,469		378,588
Total assets	$	1,770,451	$	1,497,428
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	33,450	$	27,306
Other payables and accrued expenses	56,868		55,237
Customer deposits	59,020		65,460
Notes payable – floor plan	485,399		267,108
Current portion of operating lease liabilities	13,641		12,981
Current portion of long-term debt, net	23,919		21,642
Current portion of tax receivable agreement liability	2,363		2,363
Total current liabilities	674,660		452,097
Other long-term liabilities	13,585		23,174
Tax receivable agreement liability	43,991		43,991
Long-term operating lease liabilities	112,582		112,127
Long-term debt, net	439,256		421,162
Total liabilities	1,284,074		1,052,551
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of March 31, 2023 and September 30, 2022	-		-
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 14,304,518 shares issued and outstanding as of March 31, 2023 and 14,211,621 issued and outstanding as of September 30, 2022	143		142
Class B common stock, $0.01 par value, 10,000,000 shares authorized, 1,429,940 shares issued and outstanding as of March 31, 2023 and September 30, 2022	14		14
Additional paid-in capital	184,520		180,296
Retained earnings	235,754		204,880
Accumulated other comprehensive income (loss)	10		(7)
Total stockholders’ equity attributable to OneWater Marine Inc.	420,441		385,325
Equity attributable to non-controlling interests	65,936		59,552
Total stockholders’ equity	486,377		444,877
Total liabilities and stockholders’ equity	$	1,770,451	$	1,497,428

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ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands except per share data)

(Unaudited)


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Revenues:
New boat	$	355,284	$	290,020	$	587,689	$	526,218
Pre-owned boat	75,394		75,854		131,172		129,303
Finance & insurance income	15,324		14,948		24,258		24,255
Service, parts & other	78,329		61,305		147,871		98,623
Total revenues	524,331		442,127		890,990		778,399

Cost of sales (exclusive of depreciation and amortization shown separately below):
New boat	275,026		208,606		450,284		384,502
Pre-owned boat	58,180		55,959		98,484		95,329
Service, parts & other	44,428		35,020		85,537		55,061
Total cost of sales	377,634		299,585		634,305		534,892

Selling, general and administrative expenses	90,193		75,492		168,031		134,588
Depreciation and amortization	5,637		4,727		11,330		6,476
Transaction costs	241		776		1,571		3,821
Change in fair value of contingent consideration	1,736		2,158		327		7,904
Income from operations	48,890		59,389		75,426		90,718

Other expense (income):
Interest expense – floor plan	5,472		1,048		10,251		1,925
Interest expense – other	8,604		3,097		16,188		4,626
Other (income) expense, net	(187)		109		(826)		657
Total other expense, net	13,889		4,254		25,613		7,208
Income before income tax expense	35,001		55,135		49,813		83,510
Income tax expense	7,964		12,781		11,348		17,670
Net income	27,037		42,354		38,465		65,840
Less: Net income attributable to non-controlling interests	(1,165)		(1,011)		(2,530)		(1,011)
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC	(3,068)		(5,046)		(4,231)		(8,513)
Net income attributable to OneWater Marine Inc.	$	22,804	$	36,297	$	31,704	$	56,316

Earnings per share of Class A common stock – basic	$	1.59	$	2.62	$	2.21	$	4.14
Earnings per share of Class A common stock – diluted	$	1.56	$	2.54	$	2.17	$	4.02

Basic weighted-average shares of Class A common stock outstanding	14,340		13,864		14,318		13,619
Diluted weighted-average shares of Class A common stock outstanding	14,655		14,272		14,612		14,017

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ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

(Unaudited)


	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2023		2022		2023		2022
Net income	$	27,037	$	42,354	$	38,465	$	65,840
Other comprehensive income:
Foreign currency translation adjustment	8		-		19		-
Comprehensive income	27,045		42,354		38,484		65,840
Less: Net income attributable to non-controlling interests	(1,165)		(1,011)		(2,530)		(1,011)
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC	(3,068)		(5,046)		(4,231)		(8,513)
Foreign currency translation adjustment attributable to non-controlling interest of One Water Marine Holdings, LLC	(1)		-		(2)		-
Comprehensive income attributable to One Water Marine Holdings, Inc.	$	22,811	$	36,297	$	31,721	$	56,316

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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		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at September 30, 2022	14,212	$	142	1,430	$	14	$	180,296	$	204,880	$	59,552	$	(7)	$	444,877
Net income	-	-		-	-		-		8,900		2,528		-		11,428
Distributions to members	-	-		-	-		-		(10)		(309)		-		(319)
Shares issued upon vesting of equity-based awards, net of tax withholding	86	1		-	-		(755)		-		-		-		(754)
Equity-based compensation	-	-		-	-		2,572		-		-		-		2,572
Currency translation adjustment	-	-		-	-		-		-		1		10		11
Balance at December 31, 2022	14,298	$	143	1,430	$	14	$	182,113	$	213,770	$	61,772	$	3	$	457,815
Net income	-	-		-	-		-		22,804		4,233		-		27,037
Distributions to members	-	-		-	-		-		(2)		(70)		-		(72)
Shares issued upon vesting of equity-based awards, net of tax withholding	27	-		-	-		(386)		-		-		-		(386)
Shares issued as part of employee stock purchase plan	44	1		-	-		1,062		-		-		-		1,063
Repurchase and Retirement of Treasury	(63)	(1)		-	-		(760)		(818)		-		-		(1,579)
Equity-based compensation	-	-		-	-		2,491		-		-		-		2,491
Currency translation adjustment	-	-		-	-		-		-		1		7		8
Balance at March 31, 2023	14,306	$	143	1,430	$	14	$	184,520	$	235,754	$	65,936	$	10	$	486,377

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	Class A Common Stock			Class B Common Stock
	Shares	Amount		Shares	Amount		Additional Paid-in Capital		Retained Earnings		Non-controlling Interest		Accumulated Other Comprehensive Income (Loss)		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

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ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)


For the Six Months Ended March 31	2023		2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	38,465	$	65,840
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	12,542		6,541
Equity-based awards	5,063		4,813
Loss (gain) on asset disposals	210		(14)
Non-cash interest expense	3,077		626
Deferred income tax provision	1,453		3,463
Change in fair value of contingent consideration	327		7,904
Loss on equity investment	280		-
(Increase) decrease in assets:
Accounts receivable	(22,893)		(44,119)
Inventories	(214,150)		(113,879)
Prepaid expenses and other current assets	11,181		(14,189)
Other assets	(1,812)		(50)
Increase (decrease) in liabilities:
Accounts payable	5,726		26,363
Other payables and accrued expenses	(1,288)		4,810
Tax receivable agreement liability	-		313
Customer deposits	(7,440)		8,156
Net cash used in operating activities	(169,259)		(43,422)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and construction in progress	(12,029)		(7,993)
Proceeds from disposal of property and equipment	287		22
Cash used for additions to intangible assets	(26)		-
Cash used in acquisitions, net of cash acquired	(28,611)		(288,894)
Net cash used in investing activities	(40,379)		(296,865)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from floor plan	216,063		140,619
Proceeds from long-term debt	30,000		240,000
Payments on long-term debt	(11,874)		(13,842)
Payments of debt issuance costs	-		(4,053)
Payments of contingent consideration	(11,787)		(53)
Payments of tax withholdings for equity-based awards	(1,140)		(923)
Proceeds from issuance of Class A common stock as part of employee stock purchase plan	1,063		-
Distributions to members	(391)		(6,453)
Repurchase and retirement of Class A common stock	(1,579)		-
Net cash provided by financing activities	220,355		355,295

Effects of exchange rate changes on cash and restricted cash	19		-

Net change in cash	10,736		15,008
Cash and restricted cash at beginning of period	60,947		73,949
Cash and restricted cash at end of period	$	71,683	$	88,957

Supplemental cash flow disclosures:
Cash paid for interest	$	23,362	$	5,925
Cash paid for income taxes	13,388		6,310

Noncash items:
Acquisition purchase price funded by seller notes payable	$	-	$	1,126
Acquisition purchase price funded by contingent consideration	2,550		15,321
Accrued purchase consideration	-		-
Acquisition purchase price funded by issuance of Class A common stock	-		6,834
Purchase of property and equipment funded by long-term debt	1,053		529
Right-of-use assets obtained in exchange for new operating lease liabilities	7,978		36,174
Acquisition purchase price funded by affiliate financing	10,600		-
Settlement of affiliate financing with proceeds from sale and leaseback	10,600		-

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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 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, 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 March 31, 2023, the Company operated a total of 100 retail locations, 12 distribution centers/warehouses and multiple online marketplaces in 20 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 41.6% and 43.8% of total sales for the six months ended March 31, 2023 and 2022, 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 14.2% and 15.1% of consolidated revenue for the six months ended March 31, 2023 and 2022, 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. Through OneWater LLC and its wholly-owned subsidiaries, as well as majority-owned subsidiaries over which the Company exercises control, OneWater Inc. 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 March 31, 2023, OneWater Inc. owned 90.9% 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, 2022. All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements.

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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.

2. Summary of Significant Accounting Policies

Cash

At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). At March 31, 2023 and September 30, 2022, the Company exceeded FDIC limits at various institutions. The Company has not experienced any losses in such accounts and believes there is little to no exposure to any significant credit risk.

Restricted Cash

Restricted cash relates to amounts collected for pre-owned sales, in certain states, which are held in escrow on behalf of the respective buyers and sellers for future purchases of boats. Total customer deposits are shown as a liability on the consolidated balance sheets. These liabilities may be more than the applicable restricted cash balances and fluctuate due to timing differences and because in certain states the deposits are not restricted from use.

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 acquired, manufactured and assembled parts and accessories is determined using methods which vary by subsidiary and include both the average cost method and first-in, first-out (“FIFO”).

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 primarily consist of trade names, developed technologies, including 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 Company, and therefore, are not subject to amortization. Developed technologies 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. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets.

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 to the customer. 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.

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Revenue from parts and accessories sold directly to a customer (not on a repair order) is recognized when control of the item 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 $4.3 million and $3.7 million as of March 31, 2023 and September 30, 2022.

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 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 six months ended March 31, 2023 and March 31, 2022.

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 six months ended March 31, 2023 is as follows:


($ in thousands)	Three Months Ended March 31, 2023		Six Months Ended March 31, 2023
Beginning contract liability	$	60,084	$	65,460
Revenue recognized from contract liabilities included in the beginning balance	(45,025)		(58,229)
Increases due to business combinations and cash received, net of amounts recognized in revenue during the period	43,961		51,789
Ending contract liability	$	59,020	$	59,020

The following tables set forth percentages on the timing of revenue recognition for the three and six months ended March 31, 2023 and 2022.


	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Goods and services transferred at a point in time	94.6	%	95.2	%
Goods and services transferred over time	5.4	%	4.8	%
Total Revenue	100.0	%	100.0	%


	Six Months Ended March 31, 2023		Six Months Ended March 31, 2022
Goods and services transferred at a point in time	93.9	%	94.3	%
Goods and services transferred over time	6.1	%	5.7	%
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.

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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 and valuation of contingent consideration.

Segment Information

Effective August 9, 2022, we completed the acquisition of Ocean Bio-Chem, Inc., and Star Brite Europe, Inc (collectively “Ocean Bio-Chem”), which changed management’s reporting structure and operating activities. We now report our operations through two reportable segments: Dealerships and Distribution. The Dealership segment engages in the sale of new and pre-owned boats, arranges financing and insurance products, performs repairs and maintenance services, offers marine related parts and accessories and offers slip and storage accommodations in certain locations. The Distribution segment engages in the manufacturing, assembly and distribution primarily of marine related products to distributors, big box retailers and online retailers through a network of warehouse and distribution centers. Each reporting segment 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 change in reportable segments had no impact on the Company’s previously reported historical consolidated financial statements.

3. New Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The pronouncement is effective for a public company’s annual reporting periods beginning after December 15, 2022, and interim periods within those annual periods. The Company is currently evaluating the impact that this standard will have on the consolidated financial statements. The Company plans to adopt the pronouncement in fiscal year 2024.

Other than as noted above, there are no new accounting pronouncements that are expected to have a material effect on our consolidated financial statements.

4. Acquisitions

The results of operations of acquisitions are included in the accompanying unaudited condensed consolidated financial statements from the acquisition date. The purchase price of acquisitions is allocated to identifiable tangible assets and intangible assets acquired based on their estimated fair values at the acquisition date, with the excess being allocated to goodwill. Under the acquisition method of accounting, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on information currently available. For the acquisitions of Taylor Marine Centers and Harbor View Marine, the valuation of tangible assets, assumed liabilities and identifiable intangible assets are preliminary as the acquisitions are subject to certain customary closing and post-closing adjustments.

For the six months ended March 31, 2023, the Company completed the following transactions:

•On October 1, 2022, Taylor Marine Centers with locations in Maryland and Delaware

•On December 1, 2022, Harbor View Marine with locations in Alabama and Florida

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Consideration paid for the acquisitions was $41.8 million with $28.6 million paid at closing, $10.6 million in non-cash financing and the remaining $2.6 million in estimated payments of contingent consideration. The estimated payments of contingent consideration are part of earnouts related to the achievement of certain post-acquisition increases in adjusted EBITDA of the acquired companies. The acquisition contingent consideration was developed using weighted average projections based on the Company’s historical experience and current forecasts for the industry. There are no minimum or maximum payouts on the acquisition contingent consideration.

The table below summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transactions:


Summary of Assets Acquired and Liabilities Assumed
($ in thousands)	Total Acquisitions
Accounts receivable	$	188
Inventories	6,232
Prepaid expenses	73
Property and equipment	11,587
Operating lease right-of-use assets	2,952
Identifiable intangible assets	8,800
Goodwill	18,480
Accounts payable	(17)
Accrued expenses	(354)
Customer deposits	(1,000)
Notes payable - floor plan	(2,228)
Operating lease liabilities	(2,952)
Aggregate acquisition date fair value	$	41,761

Consideration transferred	$	41,761

In connection with the acquisition of Harbor View Marine, an entity affiliated with the Company agreed to acquire the real estate for the two acquired locations, in effect providing non-cash financing. The Company has accounted for this transaction as a sale and leaseback of the properties in our unaudited condensed consolidated financial statements. There was no gain or loss recorded as part of the transaction. The leases for the two properties include an initial term of 15 years and two, five-year renewal options. The leases are accounted for as operating leases and are included in the operating lease right-of-use assets and operating lease liabilities on the unaudited condensed consolidated balance sheet.

We expect substantially all of the goodwill related to acquisitions completed during the six months ended March 31, 2023 to be deductible for federal income tax purposes. The fair value of trade name intangible assets as of the acquisition date were determined using the relief from royalty model.

Included in our results for the three and six months ended March 31, 2023, the acquisitions contributed $18.0 million and $26.7 million to our consolidated revenue and $2.2 million and $2.7 million to our income before income tax expense, respectively. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, valuation and other fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $0.1 million and $1.0 million for the three and six months ended March 31, 2023, respectively. Comparatively, we recorded $0.7 million and $3.7 million in acquisition related transaction costs for the three and six months ended March 31, 2022, respectively.

The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and six-month period ended March 31, 2023 and 2022 had occurred on October 1, 2021:


	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
($ in thousands)	(Unaudited)
Pro forma revenue	$	524,331	$	489,940
Pro forma net income	$	27,037	$	48,350

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	Six Months Ended March 31, 2023		Six Months Ended March 31, 2022
($ in thousands)	(Unaudited)
Pro forma revenue	$	893,694	$	918,076
Pro forma net income	$	38,579	$	74,266

The amounts have been calculated by applying our accounting policies and estimates. Pro forma net income has been tax affected based on the Company’s effective tax rate in the historical periods presented.

5. Accounts Receivable

Accounts receivable primarily consists of trade accounts receivable, contracts in transit and manufacturer receivables. Trade receivables include amounts due from customers on the sale of boats, parts, service, and storage. Contracts in transit represent anticipated funding from the loan agreement customers execute at the dealership when they purchase their new or pre-owned boat. These finance contracts are typically funded within 30 days. Amounts due from manufacturers represent receivables for various manufacturer incentive programs and parts and service work performed pursuant to the manufacturers’ warranties.

The allowance for credit losses is estimated based on past collection experience, current conditions and reasonable and supportable forecasts. The activity for charges and subsequent recoveries is immaterial.

Accounts receivable consisted of the following:


($ in thousands)	March 31, 2023		September 30, 2022
Contracts in transit	$	42,631	$	14,543
Trade accounts receivable	31,543		37,359
Manufacturer receivable	7,747		7,224
Total accounts receivable	81,921		59,126
Less – allowance for credit losses	(881)		(1,166)
Total accounts receivable, net	$	81,040	$	57,960

6. Inventories

Inventories consisted of the following at:


($ in thousands)	March 31, 2023		September 30, 2022
New vessels	$	443,885	$	243,090
Pre-owned vessels	66,522		51,607
Work in process, parts and accessories	82,940		78,262
	$	593,347	$	372,959

7. Goodwill and Other Identifiable Intangible Assets

Our acquisitions have resulted in the recording of goodwill and other identifiable intangible assets. 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. Intangible assets consist of internally developed software, domain names and other identifiable intangible assets such as trade names, developed technologies, including design libraries, and customer relationships related to the acquisitions the Company has completed. The changes in goodwill and identifiable intangible assets are as follows:


	Goodwill		Trade Names		Developed Technologies		Customer Relationships		Domain Names		Internally Developed Software		Total Intangible Assets, net
($ in thousands)	Unamortized		Unamortized		Amortized		Amortized		Amortized		Amortized		Amortized
Net balance as of September 30, 2022	378,588		186,779		14,274		101,230		1,970		2,218		306,471
Acquisitions during the six months ended March 31, 2023	18,480		8,800		-		-		-		26		8,826
Other adjustments during the six months ended March 31, 2023	401		-		-		-		-		-		-
Accumulated amortization for the six months ended March 31, 2023	-		-		(773)		(5,374)		(208)		(231)		(6,586)
Net balance as of March 31, 2023	$	397,469	$	195,579	$	13,501	$	95,856	$	1,762	$	2,013	$	308,711

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Amortization expense was $3.3 million and $6.6 million for the three and six months ended March 31, 2023, and is recorded in depreciation and amortization expense in the unaudited condensed consolidated statements of operations. Amortization expense was $2.6 million for the three and six months ended March 31, 2022. For acquisitions during the six months ended March 31, 2023, the weighted average useful life of internally developed software is 5 years.

The following table summarizes the expected amortization expense for fiscal years 2023 through 2027 and thereafter ($ in thousands):


2023 (excluding the six months ended March 31, 2023)	$	6,587
2024	13,175
2025	13,175
2026	13,175
2027	12,987
Thereafter	54,033
	$	113,132

As of March 31, 2023, the carrying value of goodwill totaled $397.5 million, of which $298.5 million was related to our Dealerships reporting segment and $99.0 million was related to our Distribution reporting segment. As of September 30, 2022, the carrying value of goodwill totaled approximately $378.6 million, of which $280.0 million was related to our Dealerships reporting segment and $98.6 million was related to our Distribution reporting segment.

8. Notes Payable — Floor Plan

The Company maintains an ongoing wholesale marine products inventory financing program with a syndicate of banks. The program is administered by Wells Fargo Commercial Distribution Finance, LLC (“Wells Fargo”). On February 14, 2023, the Company and certain of its subsidiaries entered into the Fourth Amendment to the Seventh Amended and Restated Inventory Financing Agreement (as amended, the “Inventory Financing Facility”) with Wells Fargo and the other financial institutions party thereto to increase the maximum borrowing amount available under the Inventory Financing Facility to $550.0 million. The Inventory Financing Facility expires on December 1, 2023. The outstanding balance of the facility was $485.4 million and $267.1 million, as of March 31, 2023 and September 30, 2022, respectively.

Interest on new boats and for rental units is calculated using the Adjusted 30-Day Average SOFR (as defined in the Inventory Financing Facility) (“SOFR”) plus an applicable margin of 2.75% to 5.00% depending on the age of the inventory. Interest on pre-owned boats in calculated at the new boat rate plus 0.25%. Wells Fargo will finance 100.0% of the vendor invoice price for new boats, engines, and trailers. As of March 31, 2023 the interest rate on the Inventory Financing Facility ranged from 7.49% to 9.74% for new inventory and 7.74% to 9.99% for pre-owned inventory. As of September 30, 2022 the interest rate on the Inventory Financing Facility ranged from 5.33% to 7.58% for new inventory and 5.58% to 7.83% for pre-owned inventory. Borrowing capacity available at March 31, 2023 and September 30, 2022 was $64.6 million and $