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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 March 31, 2024
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 14,593,318 shares of Class A common stock, par value $0.01 per share, and 1,429,940 shares of Class B common stock, par value $0.01 per share, outstanding as of April 22, 2024.



ONEWATER MARINE INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2024
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, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 14, 2023, 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 or dispositions;
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;
changes in industry seasonality and changes in 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, tornadoes, other 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; 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 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 past or future restrictions on various commercial and economic activities in response to public health concerns;
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, 2023 and discussed elsewhere in this Quarterly Report on Form 10-Q.
All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

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PART I – FINANCIAL INFORMATION
Item 1.    Condensed Consolidated Financial Statements (Unaudited)
ONEWATER MARINE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
(Unaudited)
March 31, 2024September 30, 2023
ASSETS
CURRENT ASSETS:
Cash$46,999 $84,648 
Restricted cash11,186 8,662 
Accounts receivable, net110,142 113,175 
Inventories, net687,477 609,616 
Prepaid expenses and other current assets55,499 65,798 
Total current assets911,303 881,899 
Property and equipment, net89,217 81,532 
Operating lease right-of-use assets132,736 135,667 
Other long-term assets1,238 6,069 
Deferred tax assets, net32,229 35,066 
Intangible assets, net209,289 212,324 
Goodwill336,602 336,602 
Total assets$1,712,614 $1,689,159 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$41,402 $27,113 
Other payables and accrued expenses56,219 54,826 
Customer deposits46,536 51,649 
Notes payable – floor plan579,695 489,024 
Current portion of operating lease liabilities15,170 14,568 
Current portion of long-term debt, net8,640 29,324 
Current portion of tax receivable agreement liability2,447 2,447 
Total current liabilities750,109 668,951 
Other long-term liabilities8,274 13,693 
Tax receivable agreement liability40,688 40,688 
Long-term operating lease liabilities120,379 123,310 
Long-term debt, net410,692 428,439 
Total liabilities1,330,142 1,275,081 
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of March 31, 2024 and September 30, 2023
- - 
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 14,593,318 and 14,420,129 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively
146 144 
Class B common stock, $0.01 par value, 10,000,000 shares authorized, 1,429,940 shares issued and outstanding as of March 31, 2024 and September 30, 2023
14 14 
Additional paid-in capital197,250 193,018 
Retained earnings154,290 165,432 
Accumulated other comprehensive (loss) income(3)1 
Total stockholders’ equity attributable to OneWater Marine Inc.351,697 358,609 
Equity attributable to non-controlling interests30,775 55,469 
Total stockholders’ equity382,472 414,078 
Total liabilities and stockholders’ equity$1,712,614 $1,689,159 

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ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
Six Months Ended
March 31,
2024202320242023
Revenues:
New boat$327,306 $355,284 $568,390 $587,689 
Pre-owned boat78,648 75,394 131,931 131,172 
Finance & insurance income14,730 15,324 22,090 24,258 
Service, parts & other67,637 78,329 129,923 147,871 
Total revenues488,321 524,331 852,334 890,990 
Cost of sales (exclusive of depreciation and amortization shown separately below):
New boat267,226 275,026 463,629 450,284 
Pre-owned boat62,783 58,180 104,129 98,484 
Service, parts & other37,950 44,428 72,771 85,537 
Total cost of sales367,959 377,634 640,529 634,305 
Selling, general and administrative expenses86,511 90,193 166,110 168,031 
Depreciation and amortization4,872 5,637 9,094 11,330 
Transaction costs145 241 724 1,571 
Change in fair value of contingent consideration3,132 1,736 3,704 327 
Restructuring and impairment11,847 - 11,847 - 
Income from operations13,855 48,890 20,326 75,426 
Other expense (income):
Interest expense – floor plan8,525 5,472 16,337 10,251 
Interest expense – other9,192 8,604 18,344 16,188 
Other expense (income), net2,493 (187)2,246 (826)
Total other expense, net20,210 13,889 36,927 25,613 
Net (loss) income before income tax (benefit) expense(6,355)35,001 (16,601)49,813 
Income tax (benefit) expense(1,846)7,964 (4,122)11,348 
Net (loss) income(4,509)27,037 (12,479)38,465 
Net (income) attributable to non-controlling interests - (1,165)(119)(2,530)
Net loss (income) attributable to non-controlling interests of One Water Marine Holdings, LLC540 (3,068)1,459 (4,231)
Net (loss) income attributable to OneWater Marine Inc.$(3,969)$22,804 $(11,139)$31,704 
Net (loss) earnings per share of Class A common stock – basic$(0.27)$1.59 $(0.77)$2.21 
Net (loss) earnings per share of Class A common stock – diluted$(0.27)$1.56 $(0.77)$2.17 
Basic weighted-average shares of Class A common stock outstanding14,57914,34014,55914,318
Diluted weighted-average shares of Class A common stock outstanding14,57914,65514,55914,612

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ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
For the Three Months Ended
March 31,
For the Six Months Ended
March 31,
2024202320242023
Net (loss) income$(4,509)$27,037 $(12,479)$38,465 
Other comprehensive (loss) income:  
Foreign currency translation adjustment4 8 (5)19 
Comprehensive (loss) income(4,505)27,045 (12,484)38,484 
Net (income) attributable to non-controlling interests (1,165)(119)(2,530)
Net loss (income) attributable to non-controlling interests of One Water Marine Holdings, LLC540 (3,068)1,459 (4,231)
Foreign currency translation adjustment attributable to non-controlling interest of One Water Marine Holdings, LLC- (1)1 (2)
Comprehensive (loss) income attributable to OneWater Marine Inc.$(3,965)$22,811 $(11,143)$31,721 

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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, 202314,420$144 1,430$14 $193,018 $165,432 $55,469 $1 $414,078 
Net loss— — — — — (7,170)(800)— (7,970)
Distributions to members— — — — —  (3,789)— (3,789)
Purchase of non-controlling interest— — — — 716 — (19,556)— (18,840)
Shares issued upon vesting of equity-based awards, net of tax withholding124 1 — — (1,553)— — — (1,552)
Equity-based compensation— — — — 2,392 — — — 2,392 
Currency translation adjustment— — — — — — (1)(8)(9)
Balance at December 31, 202314,544$145 1,430$14 $194,573 $158,262 $31,323 $(7)$384,310 
Net loss— — — — — (3,969)(540)— (4,509)
Distributions to members— — — — — (3)(8)— (11)
Shares issued upon vesting of equity-based awards, net of tax withholding24 — — — (331)— — — (331)
Shares issued as part of employee stock purchase plan25 1 — — 731 — — — 732 
Equity-based compensation— — — — 2,277 — — — 2,277 
Currency translation adjustment— — — — — —  4 4 
Balance at March 31, 202414,593$146 1,430$14 $197,250 $154,290 $30,775 $(3)$382,472 

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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, 202214,212 $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 withholding86 1 — — (755)— — — (754)
Equity-based compensation— — — — 2,572 — — — 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 shares(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 $486,377 
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ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months Ended March 3120242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income$(12,479)$38,465 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization10,470 12,542 
Equity-based awards4,669 5,063 
Loss on asset disposals109 210 
Non-cash interest expense1,665 3,077 
Deferred income tax provision2,837 1,453 
Change in fair value of contingent consideration1,928 327 
Loss on equity investment 135 280 
(Increase) decrease in assets:
Accounts receivable(38,464)(22,893)
Inventories(77,606)(214,150)
Prepaid expenses and other current assets10,848 11,181 
Other assets4,697 (1,812)
Increase (decrease) in liabilities:
Accounts payable10,735 5,726 
Other payables and accrued expenses(760)(1,288)
Customer deposits(5,112)(7,440)
Net cash used in operating activities(86,328)(169,259)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and construction in progress(14,823)(12,029)
Proceeds from disposal of property and equipment119 287 
Cash used for additions to intangible assets(621)(26)
Cash used in acquisitions, net of cash acquired- (28,611)
Proceeds from disposal of a business45,100 - 
Net cash provided by (used in) investing activities29,775 (40,379)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from floor plan90,671 216,063 
Proceeds from long-term debt20,000 30,000 
Payments on long-term debt(58,864)(11,874)
Payments of debt issuance costs(695)- 
Payments of contingent consideration(5,888)(11,787)
Payments of tax withholdings for equity-based awards(1,883)(1,140)
Proceeds from issuance of Class A common stock as part of employee stock purchase plan 732 1,063 
Distributions to members(3,800)(391)
Purchase of non-controlling interest(18,840)- 
Repurchase and retirement of Class A common stock- (1,579)
Net cash provided by financing activities21,433 220,355 
Effects of exchange rate changes on cash and restricted cash (5)19 
Net change in cash(35,125)10,736 
Cash and restricted cash at beginning of period93,310 60,947 
Cash and restricted cash at end of period$58,185 $71,683 
Supplemental cash flow disclosures:
Cash paid for interest$33,016 $23,362 
Cash paid for income taxes5,852 13,388 
Noncash items:
Acquisition purchase price funded by contingent consideration- 2,550 
Purchase of property and equipment funded by long-term debt156 1,053 
Right-of-use assets obtained in exchange for new operating lease liabilities5,342 7,978 
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 subsidiaries.
The Company is one of the largest recreational marine retailers in the United States. The Company engages primarily in the retail sale, brokerage, and service of new and pre-owned boats, motors, trailers, the sale of marine parts and accessories, and offers slip and storage accommodations in certain locations. The Company also arranges related boat financing, insurance, and extended service contracts for customers with third-party lenders and insurance companies. As of March 31, 2024, the Company operates a total of 95 retail locations, 10 distribution centers/warehouses and multiple online marketplaces in 18 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, 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, 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, tornadoes and other storms, environmental conditions, and other events have and 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 45.6% and 41.6% of total sales for the six months ended March 31, 2024 and 2023, 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 13.9% and 14.2% of consolidated revenue for the six months ended March 31, 2024 and 2023, respectively. As is typical in the industry, the Company contracts with most manufacturers under renewable annual dealer agreements, each of which provides the right to sell various makes and models of boats within a given geographic region. Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory, or marketing practices, including rebate or incentive programs, could adversely affect results of operations. Pre-owned boats are usually trade-ins from retail customers who are purchasing a boat from the Company.
Principles of Consolidation
As the sole managing member of OneWater LLC, OneWater Inc operates and controls all of the businesses and affairs of OneWater LLC. Through OneWater LLC and its wholly-owned subsidiaries, as well as majority-owned subsidiaries over which the Company exercises control, OneWater Inc conducts its business. As a result, OneWater Inc consolidates the financial results of OneWater LLC and its subsidiaries and reports non-controlling interests related to the portion of units of OneWater LLC (the “OneWater LLC Units”) not owned by OneWater Inc, which will reduce net income (loss) attributable to OneWater Inc’s Class A stockholders. As of March 31, 2024, OneWater Inc owned 91.1% of the economic interest of OneWater LLC.
Commencing December 31, 2021, the Company owned 80% of the economic interest of Quality Assets and Operations, LLC, over which the Company exercised control and the minority interest in this subsidiary was recorded accordingly. On October 31, 2023, the Company acquired the remaining 20% of the economic interest and, as a result, as of March 31, 2024 now owns 100% of the economic interest in Quality Assets and Operations, LLC. 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, 2023. 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 fiscal year ending on September 30.
2.    Summary of Significant Accounting Policies
Cash
At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). At March 31, 2024 and September 30, 2023, 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 indefinite-lived 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 for annual impairment tests 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. The Company performs its annual test in the fiscal fourth quarter.
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 their fair value.
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. 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) is recorded over time as services are performed. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. The Company recorded contract assets in prepaid expenses and other current assets of $4.3 million and $4.4 million as of March 31, 2024 and September 30, 2023.
Certain parts and service transactions require the Company to perform shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery). They are considered fulfillment activities and are included in selling, general and administrative expenses.
Revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers’ boat, motor or trailer purchases. We are acting as an agent in the transaction, therefore the commissions are recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the unaudited condensed consolidated financial statements for the six months ended March 31, 2024 and 2023.
Contract liabilities consist of deferred revenues from marina and storage operations and customer deposits and are classified in customer deposits in the Company’s unaudited condensed consolidated balance sheets. Deposits received from customers are recorded as a liability until the related sales orders have been fulfilled by us and control of the vessel is transferred to the customer. The activity in customer deposits for the three and six months ended March 31, 2024 is as follows:
($ in thousands)Three Months Ended March 31, 2024Six Months Ended March 31, 2024
Beginning contract liability$50,977 $51,649 
Revenue recognized from contract liabilities included in the beginning balance(30,078)(42,049)
Increases due to cash received, net of amounts recognized in revenue during the period25,637 36,936 
Ending contract liability$46,536 $46,536 
The following table sets forth percentages on the timing of revenue recognition for the three and six months ended March 31, 2024 and 2023.
Three Months Ended March 31, 2024Three Months Ended March 31, 2023
Goods and services transferred at a point in time94.8 %94.6 %
Goods and services transferred over time5.2 %5.4 %
Total Revenue100.0 %100.0 %
Six Months Ended March 31, 2024Six Months Ended March 31, 2023
Goods and services transferred at a point in time93.9 %93.9 %
Goods and services transferred over time6.1 %6.1 %
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
We 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.
3.    New Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which is intended to improve financial reporting by requiring disclosures of incremental segment information on an annual and interim basis. The pronouncement is effective for a public company's annual reporting periods beginning after December 15, 2023, and interim periods within annual reporting periods beginning after December 15, 2024. 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 2025.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to improve the transparency, effectiveness and comparability of income tax disclosures by requiring greater disaggregation of information and additional disclosures. The pronouncement is effective for a public company's annual reporting periods beginning after December 15, 2024. 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 2026.
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
On October 31, 2023, the Company exercised its right to acquire the remaining 20% economic interest in Quality Assets and Operations, LLC for consideration totaling $18.8 million. Subsequent to the acquisition, the Company now owns 100% of the economic interest in Quality Assets and Operations, LLC.
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5.    Accounts Receivable
Accounts receivable primarily consists of trade accounts receivable, contracts in transit and manufacturer receivables. Trade receivables include amounts due from customers on the sale of boats, parts, service, and storage. Contracts in transit represent anticipated funding from the loan agreement customers execute at the dealership when they purchase their new or pre-owned boat. These finance contracts are typically funded within 30 days. Amounts due from manufacturers represent receivables for various manufacturer incentive programs and parts and service work performed pursuant to the manufacturers’ warranties. Accounts receivable as of September 30, 2023 also consisted of a receivable resulting from the fiscal year 2023 disposition of Roscioli Yachting Center. The proceeds on disposal were received during the six months ended March 31, 2024.
The allowance for credit losses is estimated based on past collection experience, current conditions and reasonable and supportable forecasts. The activity for charges and subsequent recoveries is immaterial.
Accounts receivable consisted of the following:
($ in thousands)March 31, 2024September 30, 2023
Contracts in transit$48,517 $25,425 
Trade accounts receivable34,862 32,065 
Income tax receivable16,534  
Manufacturer receivable10,852 11,288 
Receivable for proceeds on the disposition of a business 45,100 
Total accounts receivable110,765 113,878 
Less – allowance for credit losses(623)(703)
Total accounts receivable, net$110,142 $113,175 
6.    Inventories
Inventories consisted of the following at:
($ in thousands)March 31, 2024September 30, 2023
New vessels$536,126 $471,147 
Pre-owned vessels78,425 61,627 
Work in process, parts and accessories72,926 76,842 
Total inventories, net$687,477 $609,616 
7.    Goodwill and Intangible Assets
Our acquisitions have resulted in the recording of goodwill and other identifiable intangible assets. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets consist of internally developed software, domain names and other identifiable intangible assets such as trade names, developed technologies, including design libraries, and customer relationships related to the acquisitions the Company has completed. The changes in goodwill and intangible assets are as follows:
GoodwillTrade NamesDeveloped TechnologiesCustomer RelationshipsDomain NamesInternally Developed
Software
Total
Intangible
Assets, net
($ in thousands)UnamortizedUnamortizedAmortizedAmortizedAmortizedAmortized
Net balance as of September 30, 2023336,602 149,921 4,419 52,114 2,387 3,483 212,324 
Acquisitions during the six months ended March 31, 2024     621 621 
Accumulated amortization for the six months ended March 31, 2024— — (185)(2,662)(318)(491)(3,656)
Net balance as of March 31, 2024$336,602 $149,921 $4,234 $49,452 $2,069 $3,613 $209,289 
Amortization expense was $2.1 million and $3.3 million for the three months ended March 31, 2024 and 2023, respectively, $3.7 million and $6.6 million for the six months ended March 31, 2024 and 2023, respectively, and is recorded in depreciation and amortization expense in the unaudited condensed consolidated statements of operations. For internally developed software acquisitions during the six months ended March 31, 2024, the weighted average useful life is 3.8 years.
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The following table summarizes the expected amortization expense for fiscal years 2024 through 2028 and thereafter ($ in thousands):
2024 (excluding the six months ended March 31, 2024)$4,164 
20258,329 
20268,329 
20278,086 
20286,638 
Thereafter23,822 
$59,368 
As of March 31, 2024 and September 30, 2023, the carrying value of goodwill totaled approximately $336.6 million, of which $295.3 million was related to our Dealerships reporting segment and $41.3 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 November 14, 2023, the Company and certain of its subsidiaries entered into the Eighth 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 $650.0 million and extend the term. The Inventory Financing Facility expires on March 1, 2026. The outstanding balance of the facility was $579.7 million and $489.0 million, as of March 31, 2024 and September 30, 2023, 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 March 31, 2024 the interest rate on the Inventory Financing Facility ranged from 8.07% to 10.32% for new inventory and 8.32% to 10.57% for pre-owned inventory. As of September 30, 2023 the interest rate on the Inventory Financing Facility ranged from 8.18% to 10.43% for new inventory and 8.43% to 10.68% for pre-owned inventory. Borrowing capacity available at March 31, 2024 and September 30, 2023 was $70.3 million and $61.0 million, respectively.
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 and a minimum fixed charge coverage 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 March 31, 2024.
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 $125.0 million in the aggregate. The A&R Credit Facility bears interest at a rate that is equal to Term SOFR plus an applicable margin ranging from 1.75% to 2.75% based on certain consolidated leverage ratio measures. The A&R Revolving Facility matures on August 9, 2027. The A&R Term Loan is repayable in installments beginning December 31, 2022, with the remainder due on August 9, 2027.
The A&R Credit Facility is collateralized by certain real and personal property (including certain capital stock) of the Company and its subsidiaries. The collateral does not include inventory and certain other assets of the Company’s subsidiaries financed under the Inventory Financing Facility. The A&R Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The A&R Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of the Company to incur additional debt, transfer or dispose of all of its assets, make certain investments, loans or payments and engage in certain transactions with affiliates. The Company was in compliance with all covenants at March 31, 2024.
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Long-term debt consisted of the following at:
($ in thousands)March 31, 2024September 30, 2023
Term note payable to Truist Bank, secured and bearing interest at 7.83% at March 31, 2024 and 7.53% at September 30, 2023. The note requires quarterly principal payments commencing on December 31, 2022 and maturing with a full repayment on August 9, 2027
$392,156 $428,313 
Revolving note payable for an amount up to $65.0 million to Truist Bank, secured and bearing interest at 7.83% at March 31, 2024 and 7.50% at September 30, 2023. The note requires full repayment on August 9, 2027
30,000 30,000 
Notes payable to commercial vehicle lenders secured by the value of the vehicles bearing interest at rates ranging from 0.0% to 10.8% per annum. The notes require monthly installment payments of principal and interest ranging from $200 to $3,100 through April 2029
3,150 3,645 
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 
Note payable to Tom George Yacht Group, unsecured and bearing interest at 5.5% per annum. The note requires quarterly interest payments, with a balloon payment of principal due on December 1, 2023
 2,056 
Total debt outstanding426,432 465,140 
Less current portion (net of debt issuance costs)(8,640)(29,324)
Less unamortized portion of debt issuance costs(7,100)(7,377)
Long-term debt, net of current portion and unamortized debt issuance costs$410,692 $428,439 
10.    Stockholders’ 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 1,602,326. 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 six months ended March 31, 2024, the Board approved the grant of 141,924 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. The performance-based restricted stock units vest in three equal annual installments commencing on October 1, 2024. As of March 31, 2024, the Company estimated achievement of the performance targets at 100%.
During the six months ended March 31, 2024, the Board approved the grant of 204,557 time-based restricted stock units. Of this amount, 34,160 restricted stock units fully vest on October 1, 2024 and the remaining 170,397 restricted stock units vest in three equal annual installments commencing on October 1, 2024.
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 share 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 $2.1 million and $2.3 million of compensation expense for the three months ended March 31, 2024 and 2023, which includes $0.9 million and $1.1 million of compensation expense for the three months ended March 31, 2024 and 2023, respectively, for performance-based units. The Company recognized $4.4 million and $4.7 million of compensation expense for the six months ended March 31, 2024 and 2023, respectively, which includes $1.7 million and $2.2 million of compensation expense for the six months ended March 31, 2024 and 2023, respectively, for performance-based units.
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The following table further summarizes activity related to restricted stock units for the six months ended March 31, 2024:
Restricted Stock Unit Awards
Number of Shares Weighted Average
Grant Date Fair Value
Unvested at September 30, 2023524,785$28.86 
Awarded346,48125.62 
Vested(227,790)25.07 
Forfeited  
Unvested at March 31, 2024643,476$28.46 
As of March 31, 2024, the total unrecognized compensation expense related to outstanding equity awards was $7.8 million, which the Company expects to recognize over a weighted-average period of 1.3 years.
We issue shares of our Class A common stock upon the vesting of performance-based restricted stock units and time-based restricted stock units. These shares are issued from our authorized and not outstanding common stock. In addition, in connection with the vesting of restricted stock units, we repurchase a portion of shares equal to the amount of employee income tax withholding.
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Net (Loss) Earnings Per Share
Basic and diluted net (loss) earnings per share of Class A common stock is computed by dividing net (loss) income attributable to OneWater Inc by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted net (loss) earnings per share is computed by giving effect to all potentially dilutive shares.
The following table sets forth the calculation of net (loss) earnings per share for the three months ended March 31, 2024 and 2023 (in thousands, except per share data):
Net (loss) earnings per share:Three Months Ended March 31, 2024Three Months Ended March 31, 2023
Numerator:  
Net (loss) income attributable to OneWater Inc$(3,969)$22,804 
  
Denominator:  
Weighted-average number of unrestricted outstanding common shares used to calculate basic net (loss) income per share14,57914,340
Effect of dilutive securities:  
Restricted stock units-315
Employee stock purchase plan --
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net (loss) earnings per share14,57914,655
  
Net (loss) earnings per share of Class A common stock – basic$(0.27)$1.59 
Net (loss) earnings per share of Class A common stock – diluted$(0.27)$1.56 
The following table sets forth the calculation of net (loss) earnings per share for the six months ended March 31, 2024 and 2023 (in thousands, except per share data):
Net (loss) earnings per share:Six Months Ended March 31, 2024Six Months Ended March 31, 2023
Numerator:
Net (loss) income attributable to OneWater Inc$(11,139)$31,704 
Denominator:
Weighted-average number of unrestricted outstanding common shares used to calculate basic net (loss) income per share14,55914,318
Effect of dilutive securities:
Restricted stock units-291
Employee stock purchase plan -3
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net (loss) earnings per share14,55914,612
Net (loss) earnings per share of Class A common stock – basic$(0.77)$2.21 
Net (loss) earnings per share of Class A common stock – diluted$(0.77)$2.17 
On March 30, 2022, the Board approved a share repurchase program up to $50 million. No shares of Class A common stock were repurchased by the Company during the six months ended March 31, 2024. As of March 31, 2024 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 March 31, 2024, 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 net (loss) earnings per share of Class B common stock 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 net (loss) earnings per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion (in thousands):
Three Months Ended March 31, 2024Three Months Ended March 31, 2023
Class B common stock1,4301,430
Restricted Stock Units480290
Employee Stock Purchase Plan26-
1,9361,720
Six Months Ended March 31, 2024Six Months Ended March 31, 2023
Class B common stock1,4301,430
Restricted Stock Units488322
Employee Stock Purchase Plan26-
1,9441,752
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 487,466 shares of the Company’s Class A common stock may be issued under the ESPP as of March 31, 2024, 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 for the ESPP of $0.1 million and $0.2 million during the three months ended March 31, 2024 and 2023, respectively and $0.3 million and $0.4 million during the six months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and September 30, 2023, the Company had current liabilities of $0.4 million, for future purchases of shares under the ESPP. During the six months ended March 31, 2024 and 2023, 25,493 and 43,692 shares were issued under the ESPP at an average share price of $28.72 and $24.31, respectively.
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 of 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 assumptions used for the periods ended March 31, 2024 and 2023:
20242023
Dividend yield0.0 %0.0 %
Risk-free interest rate
5.2 - 5.5%
4.8 %
Volatility
37.6 - 62.7%
45.6 %
Expected lifeSix monthsSix months
Distributions
During the six months ended March 31, 2024 and 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 and equipment and other intangibles, those used in the reporting unit valuation in the annual goodwill impairment evaluation and 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 March 31, 2024 and September 30, 2023
March 31, 2024
($ in thousands)Level 1Level 2Level 3Total
Assets: 
Investment in Equity Securities$191 $- $- $191 
Liabilities: 
Contingent Consideration- - 15,529 15,529 
September 30, 2023
($ in thousands)Level 1Level 2Level 3Total
Assets:    
Investment in Equity Securities$326 $- $- $326 
Liabilities:    
Contingent Consideration- - 21,181 21,181 
There were no transfers between the valuation hierarchy Levels 1, 2, and 3 for the six months ended March 31, 2024.
We measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with the change in fair value included in other expense (income), net, in the unaudited condensed consolidated statements of operations. The fair value of equity investments is measured using quoted prices in its active markets. The investment in equity securities balance is recorded in other long-term assets in the unaudited condensed consolidated balance sheets.
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The portion of unrealized losses recognized related to equity securities still held as of March 31, 2024 and 2023 consists of the following:
($ in thousands)Three Months Ended March 31, 2024Three Months Ended March 31, 2023
Net loss recognized during the period on equity securities$23 $20 
Less net loss recognized during the period on equity securities sold during the period- - 
Unrealized loss recognized during the reporting period on equity securities still held at the reporting date$23 $20 
($ in thousands)Six Months Ended March 31, 2024Six Months Ended March 31, 2023
Net loss recognized during the period on equity securities$135 $280 
Less net loss recognized during the period on equity securities sold during the period- - 
Unrealized loss recognized during the reporting period on equity securities still held at the reporting date$135 $280 
We estimate the fair value of contingent consideration using a probability-weighted discounted cash flow model based on forecasted future earnings or other agreed upon metrics including the production of acquisition leads. The acquisition contingent consideration liability has been accounted for based on inputs that are unobservable and significant to the overall fair value measurement (Level 3). The contingent consideration balance is recorded in other payables and accrued expenses and other long-term liabilities in the unaudited condensed consolidated balance sheets. Changes in fair value and net present value of contingent consideration are recorded in change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations. The fair value of contingent consideration is reassessed on a quarterly basis.
The following table sets forth the changes in fair value of our contingent consideration for the three and six months ended March 31, 2024:
($ in thousands)Three Months Ended March 31, 2024
Balance as of December 31, 2023$20,565 
Additions from acquisitions 
Settlement of contingent consideration(8,168)
Change in fair value, including accretion3,132 
Balance as of March 31, 2024$15,529 
($ in thousands)Six Months Ended March 31, 2024
Balance as of September 30, 2023$21,181 
Additions from acquisitions 
Settlement of contingent consideration(9,356)
Change in fair value, including accretion3,704 
Balance as of March 31, 2024$15,529 
We determine the carrying value of our cash and cash equivalents, accounts receivable, accounts payable, other payables and accrued expenses, floor plan notes payable, term note payable with Truist Bank, seller notes payable and company vehicle notes payable approximate their fair values because of the nature of their terms and current market rates of these instruments.
12.    Restructuring and Impairment
In March 2024, the Company evaluated its operations and decided to undergo a restructuring plan (the "2024 Restructuring") which resulted in the reduction of headcount and retail locations, cancellation of certain dealer agreements, and the cancellation of certain in-process information and technology ("IT") related projects. As a result of the 2024 Restructuring, the Company recognized $11.8 million of charges during the three and six months ended March 31, 2024, which are recorded in Restructuring and impairment in the unaudited consolidated statement of operations. As of March 31, 2024, $0.2 million and $1.8 million was recorded in accounts payable and other payables and accrued expenses, respectively, in the unaudited consolidated balance sheet related to these charges. No restructuring and impairment charges were recorded for the three and six months ended March 31, 2023.
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13.    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 29.0% and 22.8% for the three months ending March 31, 2024 and 2023, respectively, and 24.8% and 22.8% for the six months ending March 31, 2024 and 2023, respectively, differ from statutory rates primarily due to (loss) earnings allocated to non-controlling interests and limitations on officer's compensation.
The Company has federal net operating loss carryforwards from underlying corporate entities of approximately $6.0 million resulting in a deferred tax asset of $1.6 million as of September 30, 2023. The U.S. federal net operating loss carryforwards have no expiration but can only be used to offset up to 80% of future taxable income annually. The Company projects to fully utilize the net operating losses during the current and subsequent fiscal years.
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 assets in the future. The Company has not recorded a valuation allowance.
As of March 31, 2024 and September 30, 2023, 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 December 31, 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 the tax year ended December 31, 2020. The audit is ongoing and the outcome and timing of settlements of asserted income tax liabilities, if any, are uncertain.
Tax Receivable Agreement
In connection with the IPO, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the owners of OneWater LLC. As of March 31, 2024 and September 30, 2023, our liability under the Tax Receivable Agreement was $43.1 million, representing 85% of the calculated net cash savings in U.S. federal, state and local income tax and franchise tax that OneWater Inc anticipates realizing in future years from the result of certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the amended and restated limited liability company agreement of OneWater LLC (the “OneWater LLC Agreement”)).
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact our ability to make payments under the Tax Receivable Agreement. We have determined it is more-likely-than-not that we will be able to utilize all of our deferred tax assets subject to the Tax Receivable Agreement; therefore, we have recorded a liability under the Tax Receivable Agreement related to the tax savings we may realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or Call Right (each as defined in the OneWater LLC Agreement). If we determine the utilization of these deferred tax assets is not more-likely-than-not in the future, our estimate of amounts to be paid under the Tax Receivable Agreement would be reduced. In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our consolidated statements of operations.
14.    Contingencies and Commitments
Employment Agreements
The Company is party to employment agreements with certain executives, which provide for compensation, other benefits and severance payments under certain circumstances. The Company also has consulting and noncompete agreements in place with previous owners of acquired companies.
Claims and Litigation
The Company is involved in various legal proceedings as either the defendant or plaintiff. Due to their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between the affected parties and other actions. Management assesses the probability of losses or gains for such contingencies and accrues a liability and/or discloses the relevant circumstances as appropriate. In the opinion of management, it is not reasonably probable that the pending litigation, disputes or claims against the Company, as of March 31, 2024, will have a material adverse effect on its financial condition, results of operations or cash flows. Additionally, based on the Company’s review of the various types of claims currently known, there is no indication of a material reasonably possible loss in excess of amounts accrued. The Company currently does not anticipate that any known claim will materially adversely affect our financial condition, liquidity, or results of operations. However, the outcome of any matter cannot be predicted with
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certainty, and an unfavorable resolution of one or more matters presently known or arising in the future could have a material adverse effect on the Company’s financial condition, liquidity or results of operations.
Risk Management
The Company is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions and natural disasters for which the Company carries commercial insurance. There have been no significant reductions in coverage from the prior year and settlements have not exceeded coverage in the past years.
15.    Leases
The Company leases real estate and equipment under operating lease agreements. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. For leases with terms in excess of 12 months, we record a right-of-use (“ROU”) asset and lease liability based on the present value of lease payments over the lease term. We do not have any significant leases that have not yet commenced that create significant rights and obligations for us. The Company has elected the practical expedient not to separate lease and non-lease components for all leases that qualify.
Our real estate and equipment leases often require payment of maintenance, real estate taxes and insurance. These costs are generally variable and based on actual costs incurred by the lessor. These amounts are not included in the consideration of the contract when determining the ROU asset and lease liability but are reflected as variable lease payments.
Most leases include one or more options to renew, with renewal terms that can extend the lease from one to ten or more years. The exercise of the lease renewal option is typically at our sole discretion. If it is reasonably certain that we will exercise the option to renew, the period covered by the options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Certain leases include the option to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, which includes renewal options reasonably certain to be exercised.
Certain of our lease agreements include rental payments based on percentage of retail sales over contractual levels and others include rental payments adjusted periodically based on index rates. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
16.    Related Party Transactions
In accordance with agreements approved by the Board, we purchased inventory, in conjunction with our retail sale of the products, from certain entities affiliated with the Company. Total purchases incurred under these arrangements were $21.7 million and $26.0 million for the three months ended March 31, 2024 and 2023, respectively, and $71.5 million and $47.4 million for the six months ended March 31, 2024 and 2023, respectively.
In accordance with agreements approved by the Board, certain entities affiliated with the Company receive fees for rent of commercial property. Total expenses incurred under these arrangements were $0.5 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively, and $1.2 million and $1.1 million for the six months ended March 31, 2024 and 2023, respectively.
In accordance with agreements approved by the Board, the Company received fees from certain entities and individuals affiliated with the Company for goods and services. Total fees recorded under these arrangements were $0.2 million and less than $0.1 million for the three months ended March 31, 2024 and 2023, respectively, and $1.3 million and $1.0 million for the six months ended March 31, 2024 and 2023, respectively.
In accordance with agreements approved by the Board, the Company made payments to certain entities and individuals affiliated with the Company for goods and services. There were no payments recorded under these agreement for the three and six months ended March 31, 2024. Total payments recorded under these arrangements were $0.1 million for the three and six months ended March 31, 2023.
In connection with transactions noted above, the Company owed $9.8 million and $4.7 million as recorded within accounts payable as of March 31, 2024 and September 30, 2023, respectively. Additionally, the Company had less than $0.1 million recorded within accounts receivable as of March 31, 2024. No amounts were recorded within accounts receivable as of September 30, 2023.
17.    Segment Information
As of March 31, 2024, we had two reportable segments: (1) Dealerships and (2) Distribution. See Note 2 for more information about our segments.
Reportable segment financial information as of and for the three and six months ended March 31, 2024 and 2023 are as follows:
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As of and for the Three Months Ended March 31, 2024
($ in thousands)DealershipsDistributionEliminationsTotal
Revenue$450,209 $38,181 $(69)$488,321 
Income (loss) from operations14,944 (1,084)(5)13,855 
  
Depreciation and amortization3,066 2,498  5,564 
Transaction costs104 41  145 
Change in fair value of contingent consideration3,132   3,132 
Restructuring and impairment10,699 1,148  11,847 
  
Total assets1,473,755 238,862 (3)1,712,614 
As of and for the Three Months Ended March 31, 2023
($ in thousands)DealershipsDistributionEliminationsTotal
Revenue$478,348 $45,983 $ $524,331 
Income (loss) from operations48,386 504  48,890 
Depreciation and amortization2,564 3,796  6,360 
Transaction costs241 -  241 
Change in fair value of contingent consideration1,626 110  1,736 
Restructuring and impairment    
Total assets1,361,097 409,354  1,770,451 
As of and for the Six Months Ended March 31, 2024
($ in thousands)DealershipsDistributionEliminationsTotal
Revenue$781,816 $70,647 $(129)$852,334 
Income (loss) from operations21,887 (1,549)(12)20,326 
Depreciation and amortization5,968 4,502  10,470 
Transaction costs544 180  724 
Change in fair value of contingent consideration3,704   3,704 
Restructuring and impairment10,699 1,148  11,847 
Total assets1,473,755 238,862 (3)1,712,614 
As of and for the Six Months Ended March 31, 2023
($ in thousands)DealershipsDistributionEliminationsTotal
Revenue$805,121 $85,869 $ $890,990 
Income (loss) from operations78,239 (2,813) 75,426 
Depreciation and amortization4,938 7,604  12,542 
Transaction costs1,423 148  1,571 
Change in fair value of contingent consideration83 244  327 
Restructuring and impairment    
Total assets1,361,097 409,354  1,770,451 
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18.    Subsequent Events
On May 1, 2024, the Company completed the acquisition of Garden State Yacht Sales pursuant to the terms of the purchase agreement. The aggregate consideration is subject to the customary post-closing adjustments and is not individually significant.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to OneWater Marine Inc. and its consolidated subsidiaries. The following discussion and analysis should be read in conjunction with the accompanying financial statements and related notes. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those factors discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended September 30, 2023, filed with the SEC on December 14, 2023, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
We believe that we are one of the largest and fastest-growing marine retailers in the United States with 95 dealerships, 10 distribution centers/warehouses and multiple online marketplaces as of March 31, 2024. Our dealer groups are located within highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic and Northeast, many of which are in the top twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in many of the markets in which we operate. In addition to boat sales, we also generate sales from related products including finance & insurance and service, parts & other sales. The acquisitions of T-H Marine Supplies, LLC (“T-H Marine”) and Ocean Bio-Chem, LLC (f/k/a Ocean Bio-Chem, Inc. ("Ocean Bio-Chem")) significantly expanded our sales of marine parts and accessories. The combination of our significant scale, diverse inventory, access to premium boat brands, access to a broad array of parts and accessories, and meaningful brand equity enables us to provide a consistently professional experience as reflected in the number of our repeat customers and Dealership same-store sales growth.
We report our operations through two reportable segments: Dealerships and Distribution.
As of