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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or
oTRANSITION 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)
Delaware83-4330138
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A common stock, par value $0.01 per shareONEWThe 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 fileroAccelerated filer x
Non-accelerated fileroSmaller reporting companyo
 Emerging growth companyo
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

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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.

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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.

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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)
June 30, 2023September 30, 2022
ASSETS
CURRENT ASSETS:
Cash$45,409 $42,071 
Restricted cash7,753 18,876 
Accounts receivable, net93,972 57,960 
Inventories, net572,932 372,959 
Prepaid expenses and other current assets88,399 75,024 
Total current assets808,465 566,890 
Property and equipment, net118,965 109,713 
Operating lease right-of-use assets127,973 123,955 
Other long-term assets6,062 3,378 
Deferred tax assets, net5,607 8,433 
Intangible assets, net306,776 306,471 
Goodwill397,469 378,588 
Total assets$1,771,317 $1,497,428 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$40,096 $27,306 
Other payables and accrued expenses61,558 55,237 
Customer deposits56,123 65,460 
Notes payable – floor plan444,770 267,108 
Current portion of operating lease liabilities13,914 12,981 
Current portion of long-term debt, net23,896 21,642 
Current portion of tax receivable agreement liability2,363 2,363 
Total current liabilities642,720 452,097 
Other long-term liabilities13,597 23,174 
Tax receivable agreement liability43,991 43,991 
Long-term operating lease liabilities115,557 112,127 
Long-term debt, net433,889 421,162 
Total liabilities1,249,754 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 capital186,642 180,296 
Retained earnings264,325 204,880 
Accumulated other comprehensive income (loss)6 (7)
Total stockholders’ equity attributable to OneWater Marine Inc.451,130 385,325 
Equity attributable to non-controlling interests70,433 59,552 
Total stockholders’ equity521,563 444,877 
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,
2023202220232022
Revenues:
New boat$371,645 $376,886 $959,334 $903,104 
Pre-owned boat111,469 98,181 242,641 227,484 
Finance & insurance income19,028 18,979 43,286 43,234 
Service, parts & other92,197 74,854 240,068 173,477 
Total revenues594,339 568,900 1,485,329 1,347,299 
Cost of sales (exclusive of depreciation and amortization shown separately below):
New boat295,483 274,544 745,767 659,046 
Pre-owned boat86,414 68,749 184,898 164,078 
Service, parts & other53,008 41,668 138,545 96,729 
Total cost of sales434,905 384,961 1,069,210 919,853 
Selling, general and administrative expenses92,841 87,867 260,872 222,455 
Depreciation and amortization5,980 4,073 17,310 10,549 
Transaction costs97 1,337 1,668 5,158 
Change in fair value of contingent consideration436 3,118 763 11,022 
Income from operations60,080 87,544 135,506 178,262 
Other expense (income):
Interest expense – floor plan7,436 1,131 17,687 3,056 
Interest expense – other9,077 3,311 25,265 7,937 
Other expense (income), net361 (166)(465)491 
Total other expense, net16,874 4,276 42,487 11,484 
Income before income tax expense43,206 83,268 93,019 166,778 
Income tax expense9,916 18,785 21,264 36,455 
Net income33,290 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 outstanding14,31414,13314,31713,791
Diluted weighted-average shares of Class A common stock outstanding14,67514,51214,63914,205

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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,
2023202220232022
Net income$33,290 $64,483 $71,755 $130,323 
Other comprehensive income:  
Foreign currency translation adjustment(4)- 15 - 
Comprehensive income33,286 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 StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-in
Capital
Retained EarningsNon-controlling InterestAccumulated Other
Comprehensive Income
(Loss)
Total Stockholders’
Equity
Balance at September 30, 202214,212$142 1,430$14 $180,296 $204,880 $59,552 $(7)$444,877 
Net income8,900 2,528 11,428 
Distributions to members(10)(309)(319)
Shares issued upon vesting of equity-based awards, net of tax withholding861 (755)(754)
Equity-based compensation2,572 2,572 
Currency translation adjustment 1 10 11 
Balance at December 31, 202214,298$143 1,430$14 $182,113 $213,770 $61,772 $3 $457,815 
Net income22,804 4,233 27,037 
Distributions to members(2)(70)(72)
Shares issued upon vesting of equity-based awards, net of tax withholding27 (386)(386)
Shares issued as part of employee stock purchase plan44 1 1,062 1,063 
Repurchase and retirement of Treasury(63)(1)(760)(818)(1,579)
Equity-based compensation2,491 2,491 
Currency translation adjustment1 7 8 
Balance at March 31, 202314,306$143 1,430$14 $184,520 $235,754 $65,936 $10 $486,377 
Net income28,570 4,720 33,290 
Distributions to members1 (223)(222)
Shares issued upon vesting of equity-based awards, net of tax withholding12
Equity-based compensation2,122 2,122 
Currency translation adjustment(4)(4)
Balance at June 30, 202314,318$143 1,430$14 $186,642 $264,325 $70,433 $6 $521,563 

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Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid-in
Capital
Retained EarningsNon-controlling InterestAccumulated Other
Comprehensive Income
(Loss)
Total Stockholders’
Equity
Balance at September 30, 202113,277 $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 shares389 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 withholding53 1 — (469)(468)
Shares issued in connection with a business combination133 1 — 6,833 6,834 
Equity-based compensation— — 2,100 2,100 
Balance at December 31, 202113,852 $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 withholding27 — (455)(455)
Equity-based compensation— — 2,713 2,713 
Balance at March 31, 202213,879 $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 combination254 2 — 7,791 7,793 
Equity-based compensation— — 2,461 2,461 
Balance at June 30, 202214,133 $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 3020232022
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 amortization19,126 10,816 
Equity-based awards7,185 7,274 
Loss (gain) on asset disposals282 (59)
Non-cash interest expense9,432 1,370 
Deferred income tax provision2,826 2,030 
Change in fair value of contingent consideration763 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 payable12,372 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 equipment326 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 plan175,434 103,103 
Proceeds from long-term debt30,000 240,000 
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 activities173,150 313,443 
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 period60,947 73,949 
Cash and restricted cash at end of period$53,162 $111,899 
Supplemental cash flow disclosures:
Cash paid for interest$33,520 $9,623 
Cash paid for income taxes21,949 6,344 
Noncash items:
Acquisition purchase price funded by seller notes payable$- $1,126 
Acquisition purchase price funded by contingent consideration2,550 15,321 
Acquisition purchase price funded by issuance of Class A common stock- 6,834 
Purchase of property and equipment funded by long-term debt1,053 1,423 
Right-of-use assets obtained in exchange for new operating lease liabilities14,826 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, 2023Nine 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 period33,114 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, 2023Three Months Ended June 30, 2022
Goods and services transferred at a point in time94.3 %95.0 %
Goods and services transferred over time5.7 %5.0 %
Total Revenue100.0 %100.0 %
Nine Months Ended June 30, 2023Nine Months Ended June 30, 2022
Goods and services transferred at a point in time94.0 %94.6 %
Goods and services transferred over time6.0 %5.4 %
Total Revenue100.0 %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 
Inventories6,232 
Prepaid expenses73 
Property and equipment11,587 
Operating lease right-of-use assets2,952 
Identifiable intangible assets8,800 
Goodwill18,480 
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 $4.9 million in acquisition related transaction costs for the three and nine months ended June 30, 2022, respectively.
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The following unaudited pro forma summary presents consolidated information as if all acquisitions in the three and nine month period ended June 30, 2023 and 2022 had occurred on October 1, 2021:
Three Months Ended June 30, 2023Three Months Ended June 30, 2022
($ in thousands) (Unaudited)
Pro forma revenue$594,339 $604,513 
Pro forma net income$33,290 $69,181 
Nine Months Ended June 30, 2023Nine Months Ended June 30, 2022
($ 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, 2023September 30, 2022
Contracts in transit$51,337 $14,543 
Trade accounts receivable33,129 37,359 
Manufacturer receivable10,373 7,224 
Total accounts receivable94,839 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, 2023September 30, 2022
New vessels$426,932 $243,090 
Pre-owned vessels68,508 51,607 
Work in process, parts and accessories77,492 78,262 
$572,932 $372,959 
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7.    Goodwill and Other Identifiable Intangible Assets
Our acquisitions have resulted in the recording of goodwill and other identifiable intangible assets. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets consist of internally developed software, domain names and other identifiable intangible assets such as trade names, developed technologies, including design libraries, and customer relationships related to the acquisitions the Company has completed. The changes in goodwill and identifiable intangible assets are as follows:
GoodwillTrade NamesDeveloped TechnologiesCustomer RelationshipsDomain NamesInternally Developed
Software
Total
Intangible
Assets, net
($ in thousands)UnamortizedUnamortizedAmortizedAmortizedAmortizedAmortized
Net balance as of September 30, 2022378,588 186,779 14,274 101,230 1,970 2,218 306,471 
Acquisitions during the nine months ended June 30, 202318,480 8,800 - - 815 652 10,267 
Other adjustments during the nine months ended June 30, 2023401 
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 
202413,506 
202513,506 
202613,506 
202713,271 
Thereafter54,032 
$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, 2023September 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 outstanding465,653 452,355 
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, 2022559,793$28.01 
Awarded216,77130.08 
Vested(163,393)23.44 
Forfeited(2,001)38.66 
Unvested at June 30, 2023611,170$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, 2023Three 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 share14,31414,133
Effect of dilutive securities:  
Restricted stock units356379
Employee stock purchase plan 5-
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted earnings per share14,67514,512
  
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, 2023Nine 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 share14,31713,791
Effect of dilutive securities:
Restricted stock units318414
Employee stock purchase plan 4-
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted earnings per share14,63914,205
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, 2023Three Months Ended June 30, 2022
Class B common stock1,4301,430
Restricted Stock Units216256
1,6461,686
Nine Months Ended June 30, 2023Nine Months Ended June 30, 2022
Class B common stock1,4301,560
Restricted Stock Units281233
1,7111,793
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 yield0.0 %
Risk-free interest rate4.8 %
Volatility45.6 %
Expected lifeSix 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 1Level 2Level 3Total
Assets: 
Investment in Equity Securities$588 $- $- $588 
Liabilities: 
Contingent Consideration- - 25,051 25,051 
September 30, 2022
($ in thousands)Level 1Level 2Level 3Total
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 accretion436 
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 acquisitions2,550 
Settlement of contingent consideration(15,665)
Change in fair value, including accretion764 
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