SEC Filing | OneWater Marine Inc

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onew-20230630

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 June 30, 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 14,357,163 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 July 24, 2023.

ONEWATER MARINE INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 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 June 30 , 2023 and September 30, 2022	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30 , 2023 and June 30 , 2022	6
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30 , 2023 and June 30 , 2022	7
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended June 30 , 2023 and June 30 , 2022	8
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30 , 2023 and June 30 , 2022	10
	Notes to the Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	42
Item 4.	Controls and Procedures	43
PART II – OTHER INFORMATION		43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

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, 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 locations, 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.

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)

(Unaudited)


	June 30, 2023		September 30, 2022
ASSETS
CURRENT ASSETS:
Cash	$	45,409	$	42,071
Restricted cash	7,753		18,876
Accounts receivable, net	93,972		57,960
Inventories, net	572,932		372,959
Prepaid expenses and other current assets	88,399		75,024
Total current assets	808,465		566,890
Property and equipment, net	118,965		109,713
Operating lease right-of-use assets	127,973		123,955
Other long-term assets	6,062		3,378
Deferred tax assets, net	5,607		8,433
Intangible assets, net	306,776		306,471
Goodwill	397,469		378,588
Total assets	$	1,771,317	$	1,497,428
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	40,096	$	27,306
Other payables and accrued expenses	61,558		55,237
Customer deposits	56,123		65,460
Notes payable – floor plan	444,770		267,108
Current portion of operating lease liabilities	13,914		12,981
Current portion of long-term debt, net	23,896		21,642
Current portion of tax receivable agreement liability	2,363		2,363
Total current liabilities	642,720		452,097
Other long-term liabilities	13,597		23,174
Tax receivable agreement liability	43,991		43,991
Long-term operating lease liabilities	115,557		112,127
Long-term debt, net	433,889		421,162
Total liabilities	1,249,754		1,052,551
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of June 30, 2023 and September 30, 2022	-		-
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 14,316,518 shares issued and outstanding as of June 30, 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 June 30, 2023 and September 30, 2022	14		14
Additional paid-in capital	186,642		180,296
Retained earnings	264,325		204,880
Accumulated other comprehensive income (loss)	6		(7)
Total stockholders’ equity attributable to OneWater Marine Inc.	451,130		385,325
Equity attributable to non-controlling interests	70,433		59,552
Total stockholders’ equity	521,563		444,877
Total liabilities and stockholders’ equity	$	1,771,317	$	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 June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Revenues:
New boat	$	371,645	$	376,886	$	959,334	$	903,104
Pre-owned boat	111,469		98,181		242,641		227,484
Finance & insurance income	19,028		18,979		43,286		43,234
Service, parts & other	92,197		74,854		240,068		173,477
Total revenues	594,339		568,900		1,485,329		1,347,299

Cost of sales (exclusive of depreciation and amortization shown separately below):
New boat	295,483		274,544		745,767		659,046
Pre-owned boat	86,414		68,749		184,898		164,078
Service, parts & other	53,008		41,668		138,545		96,729
Total cost of sales	434,905		384,961		1,069,210		919,853

Selling, general and administrative expenses	92,841		87,867		260,872		222,455
Depreciation and amortization	5,980		4,073		17,310		10,549
Transaction costs	97		1,337		1,668		5,158
Change in fair value of contingent consideration	436		3,118		763		11,022
Income from operations	60,080		87,544		135,506		178,262

Other expense (income):
Interest expense – floor plan	7,436		1,131		17,687		3,056
Interest expense – other	9,077		3,311		25,265		7,937
Other expense (income), net	361		(166)		(465)		491
Total other expense, net	16,874		4,276		42,487		11,484
Income before income tax expense	43,206		83,268		93,019		166,778
Income tax expense	9,916		18,785		21,264		36,455
Net income	33,290		64,483		71,755		130,323
Less: Net income attributable to non-controlling interests	(938)		(959)		(3,468)		(1,970)
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC	(3,782)		(7,547)		(8,013)		(16,060)
Net income attributable to OneWater Marine Inc.	$	28,570	$	55,977	$	60,274	$	112,293

Earnings per share of Class A common stock – basic	$	2.00	$	3.96	$	4.21	$	8.14
Earnings per share of Class A common stock – diluted	$	1.95	$	3.86	$	4.12	$	7.90

Basic weighted-average shares of Class A common stock outstanding	14,314		14,133		14,317		13,791
Diluted weighted-average shares of Class A common stock outstanding	14,675		14,512		14,639		14,205

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ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

(Unaudited)


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2023		2022		2023		2022
Net income	$	33,290	$	64,483	$	71,755	$	130,323
Other comprehensive income:
Foreign currency translation adjustment	(4)		-		15		-
Comprehensive income	33,286		64,483		71,770		130,323
Less: Net income attributable to non-controlling interests	(938)		(959)		(3,468)		(1,970)
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC	(3,782)		(7,547)		(8,013)		(16,060)
Foreign currency translation adjustment attributable to non-controlling interest of One Water Marine Holdings, LLC	-		-		(2)		-
Comprehensive income attributable to One Water Marine Holdings, Inc.	$	28,566	$	55,977	$	60,287	$	112,293

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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
Net income	-	-		-	-		-		28,570		4,720		-		33,290
Distributions to members	-	-		-	-		-		1		(223)		-		(222)
Shares issued upon vesting of equity-based awards, net of tax withholding	12	-		-	-		-		-		-		-		-
Equity-based compensation	-	-		-	-		2,122		-		-		-		2,122
Currency translation adjustment	-	-		-	-		-		-		-		(4)		(4)
Balance at June 30, 2023	14,318	$	143	1,430	$	14	$	186,642	$	264,325	$	70,433	$	6	$	521,563

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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
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

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ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)


For the Nine Months Ended June 30	2023		2022

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	71,755	$	130,323
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	19,126		10,816
Equity-based awards	7,185		7,274
Loss (gain) on asset disposals	282		(59)
Non-cash interest expense	9,432		1,370
Deferred income tax provision	2,826		2,030
Change in fair value of contingent consideration	763		11,022
Loss on equity investment	184		-
(Increase) decrease in assets:
Accounts receivable	(35,825)		(41,235)
Inventories	(193,722)		(88,158)
Prepaid expenses and other current assets	(12,958)		(17,770)
Other assets	(2,866)		(160)
Increase (decrease) in liabilities:
Accounts payable	12,372		33,624
Other payables and accrued expenses	(2,414)		8,096
Tax receivable agreement liability	-		313
Customer deposits	(10,337)		4,637
Net cash (used in) provided by operating activities	(134,197)		62,123

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and construction in progress	(17,001)		(11,649)
Proceeds from disposal of property and equipment	326		122
Cash used for additions to intangible assets	(1,467)		-
Cash used in acquisitions, net of cash acquired	(28,611)		(326,089)
Net cash used in investing activities	(46,753)		(337,616)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from floor plan	175,434		103,103
Proceeds from long-term debt	30,000		240,000
Payments on long-term debt	(17,756)		(18,090)
Payments of debt issuance costs	-		(4,057)
Payments of contingent consideration	(12,259)		(133)
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	(613)		(6,457)
Repurchase and retirement of Class A common stock	(1,579)		-
Net cash provided by financing activities	173,150		313,443

Effects of exchange rate changes on cash and restricted cash	15		-

Net change in cash	(7,785)		37,950
Cash and restricted cash at beginning of period	60,947		73,949
Cash and restricted cash at end of period	$	53,162	$	111,899

Supplemental cash flow disclosures:
Cash paid for interest	$	33,520	$	9,623
Cash paid for income taxes	21,949		6,344

Noncash items:
Acquisition purchase price funded by seller notes payable	$	-	$	1,126
Acquisition purchase price funded by contingent consideration	2,550		15,321
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		1,423
Right-of-use assets obtained in exchange for new operating lease liabilities	14,826		46,378
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 June 30, 2023, the Company operated a total of 100 retail locations, 11 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 40.2% and 42.9% of total sales for the nine months ended June 30, 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 14.4% and 15.6% of consolidated revenue for the nine months ended June 30, 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 June 30, 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, LLC, 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 by management to be 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 June 30, 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 $4.8 million and $3.7 million as of June 30, 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 nine months ended June 30, 2023 and 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 nine months ended June 30, 2023 is as follows:


($ in thousands)	Three Months Ended June 30, 2023		Nine Months Ended June 30, 2023
Beginning contract liability	$	59,020	$	65,460
Revenue recognized from contract liabilities included in the beginning balance	(36,011)		(62,655)
Increases due to business combinations and cash received, net of amounts recognized in revenue during the period	33,114		53,318
Ending contract liability	$	56,123	$	56,123

The following tables set forth percentages on the timing of revenue recognition for the three and nine months ended June 30, 2023 and 2022.


	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Goods and services transferred at a point in time	94.3	%	95.0	%
Goods and services transferred over time	5.7	%	5.0	%
Total Revenue	100.0	%	100.0	%


	Nine Months Ended June 30, 2023		Nine Months Ended June 30, 2022
Goods and services transferred at a point in time	94.0	%	94.6	%
Goods and services transferred over time	6.0	%	5.4	%
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 nine months ended June 30, 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 nine months ended June 30, 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 nine months ended June 30, 2023, the acquisitions contributed $20.5 million and $47.2 million to our consolidated revenue and $2.9 million and $5.7 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 $1.1 million for the three and nine months ended June 30, 2023, respectively. Comparatively, we recorded $1.2 million and $4.9 million in acquisition related transaction costs for the three and nine months ended June 30, 2022, respectively.

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The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and nine month period ended June 30, 2023 and 2022 had occurred on October 1, 2021:


	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
($ in thousands)	(Unaudited)
Pro forma revenue	$	594,339	$	604,513
Pro forma net income	$	33,290	$	69,181


	Nine Months Ended June 30, 2023		Nine Months Ended June 30, 2022
($ in thousands)	(Unaudited)
Pro forma revenue	$	1,488,033	$	1,522,588
Pro forma net income	$	71,869	$	143,448

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)	June 30, 2023		September 30, 2022
Contracts in transit	$	51,337	$	14,543
Trade accounts receivable	33,129		37,359
Manufacturer receivable	10,373		7,224
Total accounts receivable	94,839		59,126
Less – allowance for credit losses	(867)		(1,166)
Total accounts receivable, net	$	93,972	$	57,960

6. Inventories

Inventories consisted of the following at:


($ in thousands)	June 30, 2023		September 30, 2022
New vessels	$	426,932	$	243,090
Pre-owned vessels	68,508		51,607
Work in process, parts and accessories	77,492		78,262
	$	572,932	$	372,959

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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
Net balance as of September 30, 2022	378,588		186,779		14,274		101,230		1,970		2,218		306,471
Acquisitions during the nine months ended June 30, 2023	18,480		8,800		-		-		815		652		10,267
Other adjustments during the nine months ended June 30, 2023	401		-		-		-		-		-		-
Accumulated amortization for the nine months ended June 30, 2023	-		-		(1,159)		(8,062)		(359)		(382)		(9,962)
Net balance as of June 30, 2023	$	397,469	$	195,579	$	13,115	$	93,168	$	2,426	$	2,488	$	306,776

Amortization expense was $3.4 million and $10.0 million for the three and nine months ended June 30, 2023, and is recorded in depreciation and amortization expense in the unaudited condensed consolidated statements of operations. Amortization expense was $2.1 million and $4.7 million for the three and nine months ended June 30, 2022. For acquisitions during the nine months ended June 30, 2023, the weighted average useful life of total intangible assets is 4.4 years with the weighted average useful life of acquisitions for domain names and internally developed software being 4.3 and 4.5 years, respectively.

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


2023 (excluding the nine months ended June 30, 2023)	$	3,376
2024	13,506
2025	13,506
2026	13,506
2027	13,271
Thereafter	54,032
	$	111,197

As of June 30, 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 $444.8 million and $267.1 million, as of June 30, 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 is 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 June 30, 2023 the interest rate on the Inventory Financing Facility ranged from 7.93% to 10.18% for new inventory and 8.18% to 10.43% 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 June 30, 2023 and September 30, 2022 was $105.2 million and $232.9 million, respectively.

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The Inventory Financing Facility has certain financial and non-financial covenants as specified in the agreement. The financial covenants include requirements to comply with a maximum funded debt to EBITDA ratio (as defined in the Inventory Financing Facility). In addition, certain non-financial covenants could restrict the Company’s ability to sell assets (excluding inventory in the normal course of business), engage in certain mergers and acquisitions, incur additional debt and pay cash dividends or distributions, among others. The Company was in compliance with all covenants at June 30, 2023.

The collateral for the Inventory Financing Facility consists primarily of our inventory that is financed through the Inventory Financing Facility and related assets, including accounts receivable, bank accounts and proceeds of the foregoing, and excludes the collateral that underlies the term note payable to Truist Bank.

9. Long-term Debt and Line of Credit

On August 9, 2022, the Company and certain of its subsidiaries entered into the Amended and Restated Credit Agreement (the “A&R Credit Facility”) with Truist Bank. The A&R Credit Facility provides for a $65.0 million revolving credit facility (the “A&R Revolving Facility”) that may be used for revolving credit loans (including up to $5.0 million in swingline loans and up to $5.0 million in letters of credit) and a $445.0 million term loan (the “A&R Term Loan”). Subject to certain conditions, the available amount under the revolving credit facility and term loans may be increased by $125.0 million in the aggregate. The A&R Credit Facility bears interest at a rate that is equal to Term SOFR plus an applicable margin ranging from 1.75% to 2.75% based on certain consolidated leverage ratio measures. The A&R Revolving Facility matures on August 9, 2027. The A&R Term Loan is repayable in installments beginning December 31, 2022, with the remainder due on August 9, 2027.

The A&R Credit Facility is collateralized by certain real and personal property (including certain capital stock) of the Company and its subsidiaries. The collateral does not include inventory and certain other assets of the Company’s subsidiaries financed under the Inventory Financing Facility. The A&R Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The A&R Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of the Company to incur additional debt, transfer or dispose of all of its assets, make certain investments, loans or payments and engage in certain transactions with affiliates. The Company was in compliance with all covenants at June 30, 2023.

Long-term debt consisted of the following at:


($ in thousands)	June 30, 2023		September 30, 2022
Term note payable to Truist Bank, secured and bearing interest at 7.14% at June 30, 2023 and 5.31% at September 30, 2022. The note requires quarterly principal payments commencing on December 31, 2022 and maturing with a full repayment on August 9, 2027	$	428,313	$	445,000
Revolving note payable for an amount up to $65.0 million to Truist Bank, secured and bearing interest at 7.14% at June 30, 2023. The note requires full repayment on August 9, 2027	30,000		-
Notes payable to commercial vehicle lenders secured by the value of the vehicles bearing interest at rates ranging from 0.0% to 8.4% per annum. The notes require monthly installment payments of principal and interest ranging from $100 to $5,600 through July 2028	4,158		4,173
Note payable to Tom George Yacht Group, unsecured and bearing interest at 5.5% per annum. The note requires monthly interest payments, with a balloon payment of principal due on December 1, 2023	2,056		2,056
Note payable to Norfolk Marine Company, unsecured and bearing interest at 4.0% per annum. The note requires quarterly interest payments, with a balloon payment of principal due on December 1, 2024	1,126		1,126
Total debt outstanding	465,653		452,355
Less current portion (net of debt issuance costs)	(23,896)		(21,642)
Less unamortized portion of debt issuance costs	(7,868)		(9,551)
Long-term debt, net of current portion and unamortized debt issuance costs	$	433,889	$	421,162

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10. Stockholders’ and Members’ Equity

Equity-Based Compensation

We maintain the OneWater Marine Inc. Omnibus Incentive Plan (the “LTIP”) to incentivize individuals providing services to OneWater Inc. and its subsidiaries and affiliates. The LTIP provides for the grant, from time to time, at the discretion of the board of directors of OneWater Marine Inc. (the “Board”) or a committee thereof, of (1) stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, (5) stock awards, (6) dividend equivalents, (7) other stock-based awards, (8) cash awards, (9) substitute awards and (10) performance awards. The total number of shares reserved for issuance under the LTIP that may be issued pursuant to incentive stock options (which generally are stock options that meet the requirements of Section 422 of the Code) is 1,574,646. The LTIP is and will continue to be administered by the Board, except to the extent the Board elects a committee of directors to administer the LTIP. Class A common stock subject to an award that expires or is cancelled, forfeited, exchanged, settled in cash or otherwise terminated without delivery of shares (including forfeiture of restricted stock awards) and shares withheld to pay the exercise price of, or to satisfy the withholding obligations with respect to, an award will again be available for delivery pursuant to other awards under the LTIP.

During the nine months ended June 30, 2023, the Board approved the grant of 83,036 performance-based restricted stock units, which represents 100% of the target award. Performance-based restricted stock units provide an opportunity for the recipient to receive a number of shares of our common stock based on our performance goals. A performance-based restricted stock unit equals one share of common stock of the Company. Of this amount, 13,288 performance-based restricted stock units fully vest on October 1, 2023 and the remaining 69,748 restricted stock units vest in three equal annual installments commencing on October 1, 2023. As of June 30, 2023, the Company estimated achievement of the performance targets at 80%.

During the nine months ended June 30, 2023, the Board approved the grant of 133,735 time-based restricted stock units. Of this amount, 22,550 restricted stock units fully vest on October 1, 2023 and the remaining 111,185 restricted stock units vest in three equal annual installments commencing on October 1, 2023.

Compensation cost for time-based restricted stock units is based on the closing price of our common stock on the date immediately preceding the grant and is recognized on a graded basis over the applicable vesting periods. Compensation cost for performance-based restricted stock units is based on the closing price of our common stock on the date immediately preceding the grant and the ultimate performance level achieved and is recognized on a graded basis over the applicable vesting period. The Company recognized $1.9 million and $2.5 million of compensation expense for the three months ended June 30, 2023 and 2022, respectively, which includes $0.9 million and $1.3 million of compensation expense for the three months ended June 30, 2023 and 2022, respectively, for performance-based restricted stock units. The Company recognized $6.6 million and $7.3 million of compensation expense for the nine months ended June 30, 2023 and 2022, respectively, which includes $3.0 million and $4.0 million of compensation expense for the nine months ended June 30, 2023 and 2022, respectively, for the performance-based restricted stock units.

The following table further summarizes activity related to restricted stock units for the nine months ended June 30, 2023:


	Restricted Stock Unit Awards
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested at September 30, 2022	559,793	$	28.01
Awarded	216,771	30.08
Vested	(163,393)	23.44
Forfeited	(2,001)	38.66
Unvested at June 30, 2023	611,170	$	29.93

As of June 30, 2023, the total unrecognized compensation expense related to outstanding equity awards was $5.7 million, which the Company expects to recognize over a weighted-average period of 1.3 years.

We issue shares of our Class A common stock upon the vesting of performance-based restricted stock units and time-based restricted stock units. These shares are issued from our authorized and not outstanding common stock. In addition, in connection with the vesting of restricted stock units, we repurchase a portion of shares issued equal to the amount of employee income tax withholding.

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Earnings Per Share

Basic and diluted earnings per share of Class A common stock is computed by dividing net income attributable to OneWater Inc. by the weighted-average number of Class A common stock outstanding during the period. Diluted earnings per share is computed by giving effect to all potentially dilutive shares.

The following table sets forth the calculation of earnings per share for the three months ended June 30, 2023 and 2022 (in thousands, except per share data):


Earnings per share:	Three Months Ended June 30, 2023		Three Months Ended June 30, 2022
Numerator:
Net income attributable to OneWater Inc.	$	28,570	$	55,977

Denominator:
Weighted-average number of unrestricted outstanding common shares used to calculate basic net income per share	14,314		14,133
Effect of dilutive securities:
Restricted stock units	356		379
Employee stock purchase plan	5		-
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted earnings per share	14,675		14,512

Earnings per share of Class A common stock – basic	$	2.00	$	3.96
Earnings per share of Class A common stock – diluted	$	1.95	$	3.86

The following table sets forth the calculation of earnings per share for the nine months ended June 30, 2023 and 2022 (in thousands, except per share data):


Earnings per share:	Nine Months Ended June 30, 2023		Nine Months Ended June 30, 2022
Numerator:
Net income attributable to OneWater Inc.	$	60,274	$	112,293

Denominator:
Weighted-average number of unrestricted outstanding common shares used to calculate basic net income per share	14,317		13,791
Effect of dilutive securities:
Restricted stock units	318		414
Employee stock purchase plan	4		-
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted earnings per share	14,639		14,205

Earnings per share of Class A common stock – basic	$	4.21	$	8.14
Earnings per share of Class A common stock – diluted	$	4.12	$	7.90

On March 30, 2022, the Board approved a share repurchase program up to $50 million. During the nine months ended June 30, 2023, the Company repurchased and retired 63,353 shares of Class A common stock under the repurchase program for a purchase price of approximately $1.6 million. As of June 30, 2023 the Company has repurchased and retired 73,487 shares of Class A common stock under the repurchase program for a purchase price of approximately $1.9 million. As of June 30, 2023, approximately $48.1 million remained available for future purchase under the repurchase program. The repurchase program does not have a predetermined expiration date.

Shares of Class B common stock and unvested restricted stock units do not share in the income (losses) of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share under the two-class method has not been presented.

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The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted earnings per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion (in thousands):


	Three Months Ended June 30, 2023	Three Months Ended June 30, 2022
Class B common stock	1,430	1,430
Restricted Stock Units	216	256
	1,646	1,686


	Nine Months Ended June 30, 2023	Nine Months Ended June 30, 2022
Class B common stock	1,430	1,560
Restricted Stock Units	281	233
	1,711	1,793

Employee Stock Purchase Plan

At the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”), held on February 23, 2021, the Company’s stockholders approved the OneWater Marine Inc. 2021 Employee Stock Purchase Plan (the “ESPP”), which was approved and adopted by the Board as of January 13, 2021 (the “Adoption Date”), subject to stockholder approval at the Annual Meeting. The effective date of the ESPP is February 23, 2021, and, unless earlier terminated, the ESPP will expire on the twentieth anniversary of the Adoption Date. The ESPP will be administered by the Board or by one or more committees to which the Board delegates such administration.

The ESPP enables eligible employees to purchase shares of the Company’s Class A common stock at a discount through participation in discrete offering periods. The ESPP is intended to qualify as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986, as amended. Up to a maximum of 449,257 shares of the Company’s Class A common stock may be issued under the ESPP as of June 30, 2023, subject to certain adjustments as set forth in the ESPP. On the first day of each fiscal year during the term of the ESPP, beginning on October 1, and ending on (and including) September 30, the number of shares of Class A common stock that may be issued under the ESPP will increase by a number of shares equal to the least of (i) 1% of the outstanding shares on the Adoption Date, or (ii) such lesser number of shares (including zero) that the administrator determines for purposes of the annual increase for that fiscal year. The number of shares of Class A common stock that may be granted to any single participant in any single option period will be subject to certain limitations set forth in the plan.

The Company recorded equity-based compensation of $0.2 million and $0.6 million during the three and nine months ended June 30, 2023, respectively, related to the ESPP. As of June 30, 2023, the Company had current liabilities of $1.0 million for future purchases of shares under the ESPP. During the nine months ended June 30, 2023, 43,692 shares were issued under the ESPP at an average price per share of $24.31.

We used a Black-Scholes model to estimate the fair value of the options granted to purchase shares issued pursuant to the ESPP. Volatility is based on the historical volatility in our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

The following are the weighted-average assumptions used for the period ended June 30, 2023:


	2023
Dividend yield	0.0	%
Risk-free interest rate	4.8	%
Volatility	45.6	%
Expected life	Six months

Distributions

During the nine months ended June 30, 2023, the Company made distributions to OneWater Unit Holders for certain permitted tax payments.

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11. Fair Value Measurements

In determining fair value, the Company uses various valuation approaches including market, income and/or cost approaches. FASB standard ‘‘Fair Value Measurements’’ (Topic 820) establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are those that reflect the Company’s expectation of the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Assets utilizing Level 1 inputs include marketable securities that are actively traded.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating fair value of non-financial assets and non-financial liabilities in purchase acquisitions, those used in assessing impairment of property, plant and equipment and other intangibles, those used in the reporting unit valuation in the annual goodwill impairment evaluation and those used in the valuation of contingent consideration.

The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required in determining fair value is greatest for assets and liabilities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. Fair value measurements can be volatile based on various factors that may or may not be within the Company’s control.

The following tables summarize the Company’s financial assets and liabilities measured at fair value in the accompanying unaudited condensed consolidated balance sheets as of June 30, 2023 and September 30, 2022


	June 30, 2023
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in Equity Securities	$	588	$	-	$	-	$	588
Liabilities:
Contingent Consideration	-		-		25,051		25,051


	September 30, 2022
($ in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Investment in Equity Securities	$	772	$	-	$	-	$	772
Liabilities:
Contingent Consideration	-		-		37,402		37,402

There were no transfers between the valuation hierarchy Levels 1, 2, and 3 for the three and nine months ended June 30, 2023.

We measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with the change in fair value included in other expense (income), net, in the unaudited condensed consolidated statements of operations. The fair value of equity investments is measured using quoted prices in its active markets. The investment in equity securities balance is recorded in other long-term assets in the unaudited condensed consolidated balance sheets and consists of a $0.6 million investment in Forza X1, Inc.

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The portion of unrealized gains (losses) recognized related to equity securities still held as of June 30, 2023 consists of the following:


($ in thousands)	Three Months Ended June 30, 2023
Net gain (loss) recognized during the period on equity securities	$	96
Less net gain (loss) recognized during the period on equity securities sold during the period	-
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	96


($ in thousands)	Nine Months Ended June 30, 2023
Net gain (loss) recognized during the period on equity securities	$	(184)
Less net gain (loss) recognized during the period on equity securities sold during the period	-
Unrealized gain (loss) recognized during the reporting period on equity securities still held at the reporting date	$	(184)

There were no unrealized gains or losses recognized for the three and nine months ended June 30, 2022 related to equity securities.

We estimate the fair value of contingent consideration using a probability-weighted discounted cash flow model based on forecasted future earnings or other agreed upon metrics including the production of acquisition leads. The acquisition contingent consideration liability has been accounted for based on inputs that are unobservable and significant to the overall fair value measurement (Level 3). The contingent consideration balance is recorded in other payables and accrued expenses and other long-term liabilities in the unaudited condensed consolidated balance sheets. Changes in fair value and net present value of contingent consideration are recorded in change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations. The fair value of contingent consideration is reassessed on a quarterly basis.

The following table sets forth the changes in fair value of our contingent consideration for the three and nine months ended June 30, 2023:


($ in thousands)	Three Months Ended June 30, 2023
Balance as of March 31, 2023	$	26,275
Additions from acquisitions	—
Settlement of contingent consideration	(1,660)
Change in fair value, including accretion	436
Balance as of June 30, 2023	$	25,051


($ in thousands)	Nine Months Ended June 30, 2023
Balance as of September 30, 2022	$	37,402
Additions from acquisitions	2,550
Settlement of contingent consideration	(15,665)
Change in fair value, including accretion	764
Balance as of June 30, 2023	$	25,051

12. Income Taxes

The Company is a corporation and, as a result, is subject to U.S. federal, state and local income taxes. OneWater LLC is treated as a pass-through entity for U.S. federal tax purposes and in most state and local jurisdictions. As such, OneWater LLC’s members, including the Company, are liable for federal and state income taxes on their respective shares of OneWater LLC’s taxable income.

Our effective tax rates of 23.0% and 22.6% for the three months ending June 30, 2023 and 2022, respectively, and 22.9% and 21.9% for the nine months ending June 30, 2023 and 2022, respectively, differ from statutory rates primarily due to earnings allocated to non-controlling interests.

The Company recognizes deferred tax assets to the extent it believes these assets are more-likely-than-not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will fully realize our deferred tax asset in the future. The Company has not recorded a valuation allowance.

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As of June 30, 2023 and September 30, 2022, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist. The Company is subject to examination in the US Federal and certain state tax jurisdictions for the tax years beginning with the year ended September 30, 2020. In November 2022, the Company received notification that the IRS intends to commence an audit of the federal income tax return of OneWater LLC’s partnership for th