UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549




FORM 10-Q




☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
2021
or
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
 
Commission file numbernumber: 001-39213
 
OneWater Marine Inc.

(Exact (Exact name of registrant as specified in its charter)

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

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


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



Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
Class A common stock, par value $0.01 per share
 ONEW
 The Nasdaq Global Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
☐Accelerated filer
☐ ☒
Non-accelerated filer

☒☐Smaller reporting company
☒ ☐
  Emerging growth company
☒ ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
 
The registrant had 10,867,29113,852,296 shares of Class A common stock, par value $0.01 per share, and 4,108,0071,429,940 shares of Class B common stock, par value $0.01 per share, outstanding as of January 25, 2021.24, 2022.

ONEWATER MARINE INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 20202021
 
TABLE OF CONTENTS
 
 
Page
  
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
3
  
5
  
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
5
   
 
Condensed Consolidated Balance Sheets as of December 31, 20202021 and September 30, 20202021
5

   
 
Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 20202021 and December 31, 20192020
6
   
 7
   
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 20202021 and December 31, 20192020
8

   
 
Notes to the Condensed Consolidated Financial Statements
9

   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2521
   
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
42
33
   
Item 4.
Controls and Procedures
42
34
  
PART II – OTHER INFORMATION
43
34
  
Item 1.
Legal Proceedings
43
34
   
Item 1A.
Risk Factors
4334
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
4334
   
Item 3.
Defaults Upon Senior Securities
4334
   
Item 4.
Mine Safety Disclosures
43
34
   
Item 5.
Other Information
4334
 
  
Item 6.
Exhibits
44
35
 
2
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, 2020,2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 3, 2020,17, 2021, and under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
 
Forward-looking statements may include statements about:
 

•
the impact of the novel coronavirus (“COVID-19”) on our business and results of operations;
 
general economic conditions, including changes in employment levels, consumer demand, preferences and confidence levels, fuel prices, levels of discretionary income, consumer spending patterns, and uncertainty regarding the timing, pace and extent of an economic recovery in the United States;
 
economic conditions in certain geographic regions in which we primarily generate our revenue;
 
credit markets and the availability and cost of borrowed funds;
 
our business strategy, including acquisitions and same-store growth;
 
our ability to integrate acquired dealer groups;
 
our ability to maintain our relationships with manufacturers, including meeting the requirements of our dealer agreements and receiving the benefits of certain manufacturer incentives;
 
our ability to finance working capital and capital expenditures;
 
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;
 
global public health concerns, including the COVID-19 pandemic;
 
3
demand for our products and our ability to maintain acceptable pricing for our products and services, including financing, insurance and extended service contracts;
 
our operating cash flows, the availability of capital and our liquidity;
 
our future revenue, same-store sales, income, financial condition, and operating performance;
 
our ability to sustain and improve our utilization, revenue and margins;
 
competition;
 
seasonality and inclement weather such as hurricanes, severe storms, fire and floods, generally and in certain geographic regions in which we primarily generate our revenue;
effects of industry-wide supply chain challenges and our ability to manage our inventory;
 
our ability to manage our inventory and retain key personnel;
 
environmental conditions and real or perceived human health or safety risks;

3
any potential tax savings we may realize as a result of our organizational structure;
 
uncertainty regarding our future operating results and profitability;
 
other risks associated with the COVID-19 pandemic including, among others, the ability to safely operate our stores, access to inventory and customer demand; and
 
plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q that are not historical.
 
We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Should one or more of the risks or uncertainties occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. These risks include, but are not limited to, decline in demand for our products and services, the effects of the COVID-19 pandemic on the Company’s business, the seasonality and volatility of the boat industry, our acquisition strategies, 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, 20202021 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.

4
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)
  
December 31,
2021
  September 30,
2021		 
Assets   
Current assets:      
Cash 
$
67,908
  
$
62,606
 
Restricted cash  
6,861
   
11,343
 
Accounts receivable, net  
37,643
   
28,529
 
Inventories  
248,212
   
143,880
 
Prepaid expenses and other current assets  
34,321
   
34,580
 
Total current assets  
394,945
   
280,938
 
         
Property and equipment, net  
74,638
   
67,114
 
Operating lease right-of-use assets
  118,054   89,141 
         
Other assets:        
Deposits  
539
   
526
 
Deferred tax assets  
32,956
   
29,110
 
Identifiable intangible assets  
121,244
   
85,294
 
Goodwill  
419,675
   
168,491
 
Total other assets  
574,414
   
283,421
 
Total assets 
$
1,162,051
  
$
720,614
 
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable 
$
33,262
  
$
18,114
 
Other payables and accrued expenses  
30,096
   
27,665
 
Customer deposits  
56,986
   
46,610
 
Notes payable – floor plan  
195,638
   
114,234
 
Current portion of operating lease liabilities
  11,173   9,159 
Current portion of long-term debt  
19,420
   
11,366
 
Current portion of tax receivable agreement liability  
915
   
482
 
Total current liabilities  
347,490
   
227,630
 
         
Long-term Liabilities:        
Other long-term liabilities  
29,617
   
14,991
 
Tax receivable agreement liability
  
45,290
   
39,622
 
Noncurrent operating lease liabilities  107,452   80,464 
Long-term debt, net of current portion and unamortized debt issuance costs  
327,008
   
103,074
 
Total liabilities
  856,857   465,781 
         
Stockholders’ Equity:        
Preferred stock, $0.01 par value, 1,000,000 shares authorized, NaN issued and outstanding as of December 31, 2021 and September 30, 2021
  
0
   
0
 
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 13,852,296 shares issued and outstanding as of December 31, 2021 and 13,276,538 issued and outstanding as of September 30, 2021
  
139
��  
133
 
Class B common stock, $0.01 par value, 10,000,000 shares authorized, 1,429,940 shares issued and outstanding as of December 31, 2021 and 1,819,112 issued and outstanding as of September 30, 2021
  
14
   
18
 
Additional paid-in capital  
166,411
   
150,825
 
Retained earnings  
94,529
   
74,952
 
Total stockholders’ equity attributable to OneWater Marine Inc.  
261,093
   
225,928
 
Equity attributable to non-controlling interests  
44,101
   
28,905
 
Total stockholders’ equity  
305,194
   
254,833
 
Total liabilities and stockholders’ equity 
$
1,162,051
  
$
720,614
 

  
December 31,
2020
  
September 30,
2020
 
Assets   
Current assets:      
Cash 
$
25,952
  
$
66,087
 
Restricted cash  
3,984
   
2,066
 
Accounts receivable, net  
14,499
   
18,479
 
Inventories  
196,114
   
150,124
 
Prepaid expenses and other current assets  
13,307
   
15,302
 
Total current assets  
253,856
   
252,058
 
         
Property and equipment, net  
62,833
   
18,442
 
         
Other assets:        
Deposits  
392
   
350
 
Deferred tax assets  
14,690
   
12,854
 
Identifiable intangible assets  
74,004
   
61,304
 
Goodwill  
146,562
   
113,059
 
Total other assets  
235,648
   
187,567
 
Total assets 
$
552,337
  
$
458,067
 
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable 
$
10,545
  
$
12,781
 
Other payables and accrued expenses  17,880   
24,221
 
Customer deposits  
23,386
   
17,280
 
Notes payable – floor plan  
170,320
   
124,035
 
Current portion of long-term debt  
10,481
   
7,419
 
Total current liabilities  
232,612
   
185,736
 
         
Long-term Liabilities:        
Other long-term liabilities  6,220   
1,482
 
Tax receivable agreement liability  
17,556
   
15,585
 
Long-term debt, net of current portion and unamortized debt issuance costs  
111,466
   
81,977
 
Total liabilities  
367,854
   
284,780
 
         
Stockholders’ Equity:        
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of December 31, 2020 and September 30, 2020  
-
   
-
 
Class A common stock, $0.01 par value, 40,000,000 shares authorized, 10,867,291 shares issued and outstanding as of December 31, 2020 and 10,391,661 issued and outstanding as of September 30, 2020  
109
   
104
 
Class B common stock, $0.01 par value, 10,000,000 shares authorized, 4,108,007 shares issued and outstanding as of December 31, 2020 and 4,583,637 issued and outstanding as of September 30, 2020  
41
   
46
 
Additional paid-in capital  
111,859
   
105,947
 
Retained earnings  
24,545
   
16,757
 
Total stockholders’ equity attributable to OneWater Marine Inc.
  
136,554
   
122,854
 
Equity attributable to non-controlling interests  
47,929
   
50,433
 
Total stockholders’ equity  
184,483
   
173,287
 
Total liabilities and stockholders’ equity 
$
552,337
  
$
458,067
 


5
ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per share data)
(Unaudited)


 
Three Months Ended
December 31,
 
 2020  2019  
Three Months Ended
December 31,
 
       2021
  2020
 
Revenues         
New boat sales 
$
151,828
  
$
102,852
 
Pre-owned boat sales 
38,580
  
33,071
 
New boat 
$
236,198
  
$
151,828
 
Pre-owned boat  
53,449
   
38,580
 
Finance & insurance income 
5,963
  
4,325
   
9,307
   
5,963
 
Service, parts & other sales  
17,712
   
13,450
 
Service, parts & other  
37,318
   
17,712
 
Total revenues  
214,083
   
153,698
   
336,272
   
214,083
 
              
Cost of sales (exclusive of depreciation and amortization shown separately below)              
New boat 
122,532
  
85,955
   
175,896
   
122,532
 
Pre-owned boat 
30,452
  
27,866
   
39,370
   
30,452
 
Service, parts & other  
8,663
   
7,688
   
20,041
   
8,663
 
Total cost of sales  
161,647
   
121,509
   
235,307
   
161,647
 
              
Selling, general and administrative expenses 
34,860
  
28,305
   
59,096
   
34,860
 
Depreciation and amortization 
963
  
760
   
1,749
   
963
 
Transaction costs 
200
  
437
   
3,045
   
200
 
Loss on contingent consideration  
377
   
-
 
Change in fair value of contingent consideration  
5,746
   
377
 
Income from operations  
16,036
   
2,687
   
31,329
   
16,036
 
              
Other expense (income)              
Interest expense – floor plan 
920
  
2,659
   
877
   
920
 
Interest expense – other 
924
  
1,853
   
1,529
   
924
 
Change in fair value of warrant liability 
-
  
(771
)
Other (income) expense, net  
(94
)
  
13
 
Other expense (income), net  
548
  
(94
)
Total other expense, net  
1,750
   
3,754
   
2,954
   
1,750
 
Income (loss) before income tax expense 
14,286
  
(1,067
)
Income before income tax expense  
28,375
   
14,286
 
Income tax expense  
2,511
   
-
   
4,889
   
2,511
 
Net income (loss) 
11,775
  
(1,067
)
Net income  
23,486
   
11,775
 
Less: Net income attributable to non-controlling interests     
(247
)
  0   0 
Net loss attributable to One Water Marine Holdings, LLC    
$
(1,314
)
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC  
(3,987
)
     
(3,467
)
  
(3,987
)
Net income attributable to OneWater Marine Inc 
$
7,788
     
$
20,019
  
$
7,788
 
              
Earnings per share of Class A common stock – basic 
$
0.72
     
$
1.50
  
$
0.72
 
Earnings per share of Class A common stock – diluted 
$
0.71
     
$
1.45
  
$
0.71
 
        
Basic weighted-average shares of Class A common stock outstanding  
10,776
      
13,380
   
10,776
 
Diluted weighted-average shares of Class A common stock outstanding  
10,986
      
13,761
   
10,986
 

6
Table of Contents
ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY
($ in thousands)
(Unaudited)


 Class A Common Stock  Class B Common Stock             
  Shares  Amount  Shares  Amount  Additional Paid-in Capital  Retained Earnings  Non-controlling Interest  Total Stockholders’ Equity 
Balance at September 30, 2021  13,277  $133   1,819  $18  $150,825  $74,952  $28,905  $254,833 
Net income  -   0   -   0   0   20,019   3,467   23,486 
Distributions to members  -   0   -   0   0   (442)  (177)  (619)
Non-controlling interest in subsidiary
  -   0   -   0   0   0   19,311   19,311 
Exchange of B shares for A shares  389   4   (389)  (4)  7,405   0   (7,405)  0 
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis  -   0   -   0   (283)  0  0   (283)
Shares issued upon vesting of equity-based awards, net of tax withholding
  53   1   0   0   (469)  0   0   (468)
Shares issued in connection with a business combination
  133   1   0   0   6,833   0   0   6,834 
Equity-based compensation  -   0   -   0   2,100   0   0   2,100 
Balance at December 31, 2021  13,852  $139   1,430  $14  $166,411  $94,529  $44,101  $305,194 


 Class A Common Stock  Class B Common Stock             
  Shares  Amount  Shares  Amount  Additional Paid-in Capital  Retained Earnings  Non-controlling Interest  Total Stockholders’ Equity 
Balance at September 30, 2020  10,392  $104   4,583  $46  $105,947  $16,757  $50,433  $173,287 
Net income  -   0   -   0   0   7,788   3,987   11,775 
Distributions to members  -   0   -   0   0   0   (1,319)  (1,319)
Effect of September offering, including underwriter exercise of option to purchase shares  387   4   (387)  (4)  4,146   0   (4,256)  (110)
Exchange of B shares for A shares  88   1   (88)  (1)  916   0   (916)  0 
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis  -   0   -   0   (228)  0   0   (228)
Adjustment to adopt Topic 842  -   0   -   0   0   1,073   0   1,073 
Equity-based compensation  -   0   -   0   1,078   0   0   1,078 
Balance at December 31, 2020  10,867  $109   4,108  $41  $111,859  $25,618  $47,929  $185,556 

7
Table of Contents
ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)


For the Three Months Ended December 31
 2021
  2020
 
    
Cash flows from operating activities   
Net income 
$
23,486
  
$
11,775
 
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization  
1,749
   
963
 
Equity-based awards  
2,100
   
1,078
 
Gain on asset disposals  
(37
)
  
(102
)
Non-cash interest expense, net
  
200
   
191
 
Deferred income tax provision  
1,659
   
(94
)
Loss on change in fair value of contingent consideration
  5,746   0 
(Increase) decrease in assets:
        
Accounts receivable  
240
   
4,089
 
Inventories  
(71,660
)
  
(40,576
)
Prepaid expenses and other current assets  
2,137
   
2,051
 
Deposits  
(14
)
  
(42
)
Increase (decrease) in liabilities:
        
Accounts payable  
13,911
   
(2,799
)
Other payables and accrued expenses  
(6,414
)
  
(9,920
)
Tax receivable agreement liability  313   0 
Customer deposits  
3,759
   
4,771
 
Net cash used in operating activities  
(22,825
)
  
(28,615
)
         
Cash flows from investing activities        
Purchases of property and equipment and construction in progress  
(3,428
)
  
(2,423
)
Proceeds from disposal of property and equipment  
6
   
91
 
Cash used in acquisitions  
(278,798
)
  
(77,631
)
Net cash used in investing activities  
(282,220
)
  
(79,963
)
         
Cash flows from financing activities        
Net borrowings from floor plan  
81,403
   
42,269
 
Proceeds from long-term debt  
240,000
   
30,000
 
Payments on long-term debt  
(5,507
)
  
(211
)
Payments of debt issuance costs  
(3,979
)
  
(252
)
Payments of September 2020 offering costs  
0
   
(540
)
Payments of tax withholdings for equity-based awards  
(468
)
  0 
Distributions to members  
(5,584
)
  
(905
)
Net cash provided by financing activities  
305,865
   
70,361
 
Net change in cash  
820
   
(38,217
)
Cash and restricted cash at beginning of period  
73,949
   
68,153
 
Cash and restricted cash at end of period 
$
74,769
  
$
29,936
 
         
Supplemental cash flow disclosures        
Cash paid for interest 
$
2,206
  
$
1,653
 
Cash paid for income taxes  
702
   
6,613
 
         
Noncash items        
Acquisition purchase price funded by seller notes payable 
$
1,126
  
$
2,056
 
Acquisition purchase price funded by contingent consideration  
9,967
   
4,766
 
Accrued purchase consideration  5,353   3,719 
Acquisition purchase price funded by issuance of Class A common stock
  6,834   0 
Purchase of property and equipment funded by long-term debt  
231
   
833
 
Initial operating lease right-of-use assets for adoption of Topic 842
  0   71,835 
Right-of-use assets obtained in exchange for new operating lease liabilities  31,529   3,091 
Distributions, declared not yet paid
  0   414 
        Class A Common Stock  Class B Common Stock             
  Redeemable Preferred Interest in Subsidiary  Members’ Equity  Shares  Amount  Shares  Amount  Additional Paid-in Capital  Retained Earnings  Non-controlling Interest  Total Stockholders’ and Members’ Equity 
Balance at September 30, 2020 
$
-
  
$
-
   
10,392
  
$
104
   
4,583
  
$
46
  
$
105,947
  
$
16,757
  
$
50,433
  
$
173,287
 
Net income  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
7,788
   
3,987
   
11,775
 
Distributions to members  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(1,319
)
  
(1,319
)
Effect of September offering, including underwriter exercise of option to purchase shares  
-
   
-
   
387
   
4
   
(387
)
  
(4
)
  
4,146
   
-
   
(4,256
)
  
(110
)
Exchange of B shares for A shares  
-
   
-
   
88
   
1
   
(88
)
  
(1
)
  
916
   
-
   
(916
)
  
-
 
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis  
-
   
-
   
-
   
-
   
-
   
-
   
(228
)
  
-
   
-
   
(228
)
Equity-based compensation  
-
   
-
   
-
   
-
   
-
   
-
   
1,078
   
-
   
-
   
1,078
 
Balance at December 31, 2020 
$
-
  
$
-
   
10,867
  
$
109
   
4,108
  
$
41
  
$
111,859
  
$
24,545
  
$
47,929
  
$
184,483
 

        Class A Common Stock  Class B Common Stock             
  Redeemable Preferred Interest in Subsidiary  Members’ Equity  Shares  Amount  Shares  Amount  
Additional Paid-in
Capital
  Retained Earnings  
Non-
controlling Interest
  Total Stockholders’ and Members’ Equity 
Balance at September 30, 2019 
$
86,018
  
$
31,770
   
-
  
$
-
   
-
  
$
-
  
$
-
  
$
-
  
$
6,199
  
$
37,969
 
Net (loss) income  
-
   
(1,314
)
  
-
   
-
   
-
   
-
   
-
   
-
   
247
   
(1,067
)
Distributions to members  
(1,310
)
  
(189
)
  
-
   
-
   
-
   
-
   
-
   
-
   
(732
)
  
(921
)
Accumulated unpaid preferred returns  
2,183
   
(2,183
)
  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(2,183
)
Accretion of redeemable preferred and issuance costs  
162
   
(162
)
  
-
   
-
   
-
   
-
   
-
   
-
   
-
   
(162
)
Equity-based compensation  
-
   
39
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
39
 
Balance at December 31, 2019 $
87,053
  $
27,961
   
-
  $
-
   
-
  $
-
  $
-
  $
-
  $
5,714
  $
33,675
 

78
ONEWATER MARINE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)

  Three Months Ended December 31, 
  2020  2019 
       
Net income (loss) 
$
11,775
  
$
(1,067
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation and amortization  
963
   
760
 
Equity-based awards  
1,078
   
39
 
Gain on asset disposals  
(102
)
  
(143
)
Change in fair value of long-term warrant liability  
-
   
(771
)
Non-cash interest expense  
191
   
1,721
 
Deferred income tax provision  
(94
)
  
-
 
Payment of acquisition contingent consideration  
(5,520
)
  
-
 
(Increase) decrease in assets:        
Accounts receivable  
4,089
   
5,720
 
Inventories  
(40,576
)
  
(36,499
)
Prepaid expenses and other current assets  
2,013
   
70
 
Deposits  
(42
)
  
-
 
Increase (decrease) in liabilities:        
Accounts payable  
(2,799
)
  
64
 
Other payables and accrued expenses  
(4,362
)
  
(1,472
)
Customer deposits  
4,771
   
2,855
 
Net cash used in operating activities  
(28,615
)
  
(28,723
)
         
Cash flows from investing activities        
Purchases of property and equipment and construction in progress  
(2,423
)
  
(1,997
)
Proceeds from disposal of property and equipment  
91
   
235
 
Cash used in acquisitions  
(77,631
)
  
-
 
Net cash used in investing activities  
(79,963
)
  
(1,762
)
Cash flows from financing activities        
Net borrowings from floor plan  
42,269
   
39,105
 
Proceeds from long-term debt  
30,000
   
-
 
Payments on long-term debt  
(211
)
  
(2,504
)
Payments of debt issuance costs  
(252
)
  
(79
)
Payments of initial public offering costs  
-
   
(3,547
)
Payments of September offering costs  
(540
)
  
-
 
Payment of acquisition contingent consideration  
-
   
(1,040
)
Distributions to redeemable preferred interest members
  
-
   
(1,310
)
Distributions to members  
(905
)
  
(921
)
Net cash provided by financing activities  
70,361
   
29,704
 
Net change in cash  
(38,217
)
  
(781
)
Cash and restricted cash at beginning of period  
68,153
   
11,492
 
Cash and restricted cash at end of period 
$
29,936
  
$
10,711
 
         
Supplemental cash flow disclosures        
Cash paid for interest 
$
1,653
  
$
2,791
 
Cash paid for income taxes  
6,613
   
-
 
         
Noncash items        
Acquisition purchase price funded by seller notes payable 
$
2,056
   
-
 
Acquisition purchase price funded by contingent consideration  
4,766
   
-
 
Accrued purchase consideration
  
3,719
   -
 
Purchase of property and equipment funded by long-term debt  
833
   
419
 
Distributions, declared not yet paid  
414
   
-
 

8
Table of Contents
OneWater Marine Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1.Description of Company and Basis of Presentation
Description of the Business


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

The Company is one of the largest recreational boat retailers in the United States. The Company engages primarily in the retail sale, brokerage, and service of new and pre-owned boats, motors, trailers, 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 December 31, 2020,2021, the Company operatesoperated a total of 69 stores75 retail locations, 8 distribution centers/warehouses and multiple online marketplaces in ten15 states, consistingseveral of Alabama, Florida, Georgia, Kentucky, Maryland, Massachusetts, North Carolina, Ohio, South Carolina, and Texas.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 ten10 brands represent approximately 41.2%34.5% and 41.8%41.2% of total sales for the three months ended December 31, 20202021 and 2019,2020, respectively, making them major suppliers of the Company. Of this amount, Malibu Boats, Inc,Inc., including its brands Malibu, Axis, Cobalt, Pursuit, Maverick, Hewes, Cobia and Pathfinder accounted for 14.1% and 13.7% and 15.3% of our consolidated revenue for the three months ended December 31, 20202021 and 2019,2020, respectively. As is typical in the industry, the Company contracts with most manufacturers under renewable annual dealer agreements, each of which provides the right to sell various makes and models of boats within a given geographic region. Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory, or marketing practices, including rebate or incentive programs, could adversely affect results of operations. Pre-owned boats are usually trade-ins from retail customers who are purchasing a boat from the Company.

Principles of Consolidation

As the sole managing member of OneWater LLC, OneWater Inc. operates and controls all of the businesses and affairs of OneWater LLC, and through OneWater LLC and its wholly-owned subsidiaries One Water Assets and Operations, South Shore Assets and Operations, Bosun’s Assets and Operations, Singleton Assets and Operations, Legendary Assets and Operations, South Florida Assets and Operations and Midwest Assets and Operations (collectively,as well as majority-owned subsidiaries over which the “Subsidiaries”),Company exercises control, conducts its business. As a result, OneWater Inc. consolidates the financial results of OneWater LLC and its subsidiaries and reports non-controlling interests related to the portion of economic interest not owned 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 December 31, 2020,2021, OneWater Inc. owned 72.6%90.6% of the economic interest of OneWater LLC.


9

TableAdditionally, the Company owns 80% of Contentsthe economic interest of Quality Assets and Operations, over which the Company exercises control and the minority interest in this subsidiary has been recorded accordingly. See Note 4 for additional information regarding the acquisition.
Basis of Financial Statement Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements, which do not include all the information and notes required by such accounting principles for annual financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with OneWater Inc.’s Annual Report on Form 10-K for the year ended September 30, 2020.2021. All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial statements.

9
Table of Contents

All intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications of amounts previously reported have been made to the accompanying unaudited condensed consolidated financial statements in order to conform to current presentation. The Company operates on a fiscal year basis with the first day of the fiscal year being October 1, and the last day of the year ending on September 30. Additionally, since there are no differences between net income and comprehensive income, all references to comprehensive income have been excluded from the accompanying unaudited condensed consolidated financial statements.
As discussed above, the Company is the sole managing member for OneWater LLC and consolidates OneWater LLC and its subsidiaries. The financial statements for periods prior to the Offering have been adjusted to combine the previously separate entities for presentation purposes. Thus, for periods prior to the completion of the Offering, the accompanying unaudited interim condensed consolidated financial statements include the historical financial position and results of operations of OneWater LLC and its subsidiaries. For periods after the completion of the Offering, the financial position and results of operations include those of the Company and the Subsidiaries and report non-controlling interest related to the portion of OneWater LLC Units not owned by OneWater Inc.
 
COVID-19 Pandemic

In the last two weeks of March 2020, the Company began seeing the impact of the COVID-19 global pandemic on its business. Based onDuring the subsequent months the Company followed the guidance of local governments and health officials, we temporarily closed or reduced staffing at certain departments and locations. All locations during portions ofhave reopened and the fiscal year ended September 30, 2020. The Company has implemented cleaning and social distancing techniques at each of its locations. In light of the current environment, the Company’s sales team members are providing certain customers with the option of in-person or virtual walkthroughs of inventory and/or private, at home or on water showings. The duration and related impact on the Company’s consolidated financial statements is currently uncertain, and it is possible that the pandemic, including the resurgence of COVID-19 in certain geographic areas or the emergence of variant strains of the virus, may negatively impact the Company’s future results of operations. The impact of COVID-19 on our suppliers and the recent increase in demand for marine retail products has led to industry-wide supply chain constraints. The Company is monitoring and assessing the situation and preparing for implications to the business, including the ability to safely operate its stores, access to inventory and customer demand.

2.
Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, other payables and accrued expenses, floor plan notes payable, term note payable and debt.revolving note payable with Truist Bank, seller notes payable and company vehicle notes payable. The carrying values of cash, accounts receivable, accounts payable and other payables and accrued expenses approximate their fair values due tobecause of the nature of their short-term nature. The carrying value of debt approximates its fair value due to the debt agreements bearing interest at rates that approximateterms and current market rates for debt agreements with similar maturities and credit quality.of these instruments.
Inventories

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

Goodwill and intangible assets are accounted for in accordance with FASBthe 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.



In evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment. To the extent the reporting unit’s earnings decline significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment.


Identifiable intangible assets consist of trade names related to the acquisitions the Company has completed. The Company has determined that trade names have an indefinite life, as there isare 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 dealer group, and therefore, are not subject to amortization. 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.

10
Table of Contents
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, used,pre-owned and consignment and wholesale 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.



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 $1.6$3.0 and $1.5$2.3 million as of December 31, 20202021 and September 30, 2020,2021, respectively. Contract assets relatedRevenue from parts and accessories sold directly to a customer (not on a repair order) are recognized when control of the items is transferred to the repaircustomer, which is typically upon shipment.


Certain parts and maintenance services are transferredservice transactions require the Company to receivables when a repair order is completedperform shipping and invoicedhandling activities after the transfer of control to the customer.customer (e.g., when control transfers prior to delivery). They are considered fulfillment activities, and accordingly, the costs are accrued when the related revenue is recognized and are included in selling, general and administrative expenses.
Deferred revenue


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 chargebackcharge back for a portion of the transaction pricecommission 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 as offor the three months ended December 31, 2020.2021.
11
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 months ended December 31, 20202021 is as follows:
($ in thousands) 
Three Months
Ended December
31, 2020
  
Three Months Ended
December 31, 2021
 
Beginning contract liability $17,280  $46,610 
Revenue recognized from contract liabilities included in the beginning balance (11,647)  (27,465)
Increases due to cash received, net of amounts recognized in revenue during the period  17,753   37,841 
Ending contract liability
 $23,386  $56,986 

The following table setstables set forth percentages on the timing of revenue recognition for the three months ended December 31, 2021 and 2020.

Three Months
Ended December
31, 2020
Goods and services transferred at a point in time93.1%
Goods and services transferred over time6.9%
Total Revenue100.0%
  Three Months Ended
December 31, 2021
  Three Months Ended
December 31, 2020		 
Goods and services transferred at a point in time  93.2%  93.1%
Goods and services transferred over time  6.8%  6.9%
Total Revenue  100.0%  100.0%

Income Taxes

OneWater Inc. is a corporation and as a result, is subject to U.S. federal, state and local income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the book value and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the enactment date occurs. We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.
11
Table of Contents

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


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

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

Use of Estimates

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

As of December 31, 20202021 and September 30, 2020,2021, the Company had one1 operating segment, marine retail. The marine retail segment consists of retail boat dealerships offering the sale of new and pre-owned boats, arrangement of finance and insurance products, performance of repair and maintenance services and offering marine related parts and accessories. The marine retail business has discrete financial information and is regularly reviewed by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources. The Company has identified its Chief Executive Officer as its CODM. The Company has determined its marine retail operating segment is its reporting unit and is also the reportable segment.

3.New Accounting Pronouncements
As an ‘‘emerging growth company’’ (‘‘EGC’’), the Jumpstart Our Business Startups Act (‘‘JOBS Act’’) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
 
In February 2016, the FASB issued ASU 2016-02, ‘‘Leases (Topic 842)’’ (‘‘ASU 2016-02’’). This update requires organizations to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 is effective for a public company’s annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. As an EGC, the Company has elected to adopt ASU 2016-02 following the effective dates for private companies beginning with annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently in the process of evaluating the effects of this pronouncement on its consolidated financial statements, related disclosures and internal controls over financial reporting. The Company plans to adopt ASU 2016-02 in fiscal year 2023 and expects the adoption of ASU 2016-02 to have a significant and material impact on the consolidated balance sheet given the current lease agreements for the Company’s stores. Based on the current assessment, it is expected that most of the operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of use assets upon adoption, resulting in a material increase in the assets and liabilities recorded on the consolidated balance sheet. The Company is continuing its assessment, which may identify additional impacts this standard will have on the consolidated financial statements and related disclosures and internal control over financial reporting.
In June 2016, the FASB issued ASU 2016-13, ‘‘Financial instruments — Credit Losses’’ (“ASU 2016-13”). ASU 2016-13 requires entities to report ‘‘expected’’ credit losses on financial instruments and other commitments to extend credit rather than the current ‘‘incurred loss’’ model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as the credit quality. ASU 2016-13 is effective for a public company’s annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods. As an EGC, the Company has elected to adopt ASU 2016-13 following the effective date for private companies beginning with annual reporting periods beginning after December 15, 2022, including 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 ASU 2016-13 in fiscal year 2024.

In December 2019, the FASB issued ASU 2019-12, “Income“Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes”. The pronouncement is effective for a public company’s annual reporting periods beginning after December 15, 2020, and interim periods within those annual periods. As an EGC,The Company adopted the Company has elected to adopt the pronouncement following the effective date for private companies beginning with annual reporting periods beginning after December 15, 2021, and interim periods withinnew guidance in fiscal years beginning after December 15,first quarter 2022. The Company is currently evaluatingadoption of the guidance did not have a material impact that this standard will have on the consolidatedCompany’s financial statements. The Company plans to adopt the pronouncement in fiscal year 2023.statement.

13
Table of Contents

In March 2020, the FASB issued ASU No. 2020-04, “Reference“Reference Rate Reform”, which provides temporary optional guidance to companies impacted by the transition away from the London Inter-bankInterbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. The guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s financial statements.


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.

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 wasis 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. The valuation of identifiable intangible assets is preliminary pending receipt of final valuation analyses. TheFor the fiscal first quarter 2022 acquisitions, the valuation of tangible assets, and assumed liabilities isand identifiable intangible assets are preliminary as the acquisitions are subject to certain customary closing and post-closing adjustments.adjustments and certain valuations are not complete. Any changes to the value of identifiable intangible assets will be reclassified from goodwill upon the completion of the valuations.


Tom George Yacht Group Acquisition

12
Fiscal First Quarter 2022

For the three months ended December 31,2021, the Company completed the following transactions:

On October 1, 2021, Naples Boat Mart with 1 location in Florida

On November 30, 2021, T-H Marine, a leading provider of branded marine parts and accessories, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas

On December 1, 2020, we acquired substantially all of the assets of Tom George Yacht Group (TGYG”)2021, Norfolk Marine Company with two1 location in Virginia

On December 31, 2021, a majority interest in Quality Boats with 3 locations in Florida. TGYG enhancesThe sellers retained a 20% economic interest in Quality Boats. The Company has the Company’s presence onexclusive right, but not obligation, to acquire the west coast of Florida and expands new and pre-owned boat sales, as well as yacht brokerage, service and parts. The purchase priceremaining 20% interest at any time before January 1, 2027.



Consideration paid for the acquisitions was $10.2$302.1 million with $8.2$278.8 million paid at closing and $2.1(net of cash acquired), $1.1 million financed through a note payable to the sellersellers bearing interest at a rate of 5.5%4.0% per year.year, estimated payments of $10.0 million in contingent consideration, $5.4 million in accrued purchase consideration and the remaining $6.8 million with the issuance of shares of Class A common stock. The note isnotes are payable in one lump sum three years from the closing date,on December 1, 2024, with interest payments due quarterly. The estimated payments of contingent consideration are part of multiple earnouts varying from the achievement of certain post-acquisition increases in adjusted EBITDA of the Company to the generation of acquisition leads for the Company. The acquisition contingent consideration was developed using weighted average projections based on the Company’s historical experience, current forecasts for the industry and current expectations of the ability to generate viable acquisition leads. There are 0 minimum payouts on the acquisition contingent consideration and the maximum payout is $18.8 million.
 

The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transaction:
Summary of Assets Acquired and Liabilities Assumed ($ in thousands) 
Tangible assets $5,794 
Identifiable intangible assets  2,940 
Goodwill  6,854 
Liabilities assumed  (5,341)
Total purchase price $10,247 

Walker Marine Group Acquisition
 
On December 31, 2020, we acquired substantially all of the assets of Walker Marine Group (“Walker”) with five locations in Florida. The acquisition enhances the Company’s presence on the southwest coast of Florida and expands new and pre-owned boat sales, as well as finance and insurance services, service and parts. The purchase price was $32.3 million with $23.9 million paid at closing, an estimated payment of contingent consideration of $4.8 million and accrued purchase consideration of $3.7 million. The estimated acquisition contingent consideration is part of an earnout subject to achievement of certain post-acquisition increases in adjusted EBITDA. The acquisition contingent consideration was determined using weighted average projections for the estimated post-acquisition adjusted EBITDA and was based on the Company’s historical experience with acquisitions as well as current forecasts for the industry. The minimum payout due on the acquisition contingent consideration is $0.1 million. The maximum amount of the earnout is unlimited.
Summary of Assets Acquired and Liabilities Assumed 
          
($ in thousands) T-H Marine  Quality Boats  
Other
Acquisitions
  Total
Acquisitions		 
Accounts receivable $8,955  $0  $399  $9,354 
Inventories  19,856   5,937   6,879   32,672 
Prepaid expenses  1,547   187   56   1,790 
Property and equipment  3,896   803   916   5,615 
Operating lease right-of-use assets
  5,960   428   0   6,388 
Identifiable intangible assets
  0   31,700   4,250   35,950 
Goodwill  157,367   78,682   15,135   251,184 
Accounts payable  (3,876)  (2,108)  (219)  (6,203)
Accrued expenses  (1,870)  0   (483)  (2,353)
Customer deposits  (394)  (3,997)  (2,227)  (6,618)
Operating lease liabilities
  (5,960)  (428)  0   (6,388)
Aggregate acquisition date fair value $185,481  $111,204  $24,706  $321,391 
                 
Consideration transferred $185,481  $91,893  $24,706  $302,080 
Fair value of non-controlling interests  0   19,311   0   19,311 
Aggregate acquisition date fair value $185,481  $111,204  $24,706  $321,391 

The table below summarizes the preliminary estimated fair values of the assets acquired at the acquisition date, including the goodwill recorded as a result of the transactions:
Summary of Assets Acquired ($ in thousands) 
Tangible assets $474 
Identifiable intangible assets  8,230 
Goodwill  23,643 
Total purchase price $32,347 

Roscioli Yachting Center Acquisition

On December 31, 2020, we acquired substantially all of the assets Roscioli Yachting Center (“Roscioli”) with one location in southeast Florida. The acquisition expands the Company’s presence in the yacht category and amplifies the Company’s service and repair offerings. As part of the acquisition, we acquired the related real estate and in-water slips. The purchase price was $45.6 million, paid at closing.
The table below summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transactions:
Summary of Assets Acquired and Liabilities Assumed ($ in thousands) 
Property and equipment $41,300 
Other tangible assets  88 
Identifiable intangible assets  1,530 
Goodwill  3,005 
Liabilities assumed  (346)
Total purchase price $45,577 

Included in our results for the three months ended December 31, 2020, TGYG2021, the acquisitions contributed $2.1$14.2 million to our consolidated revenue and $0.2 million$1.1 to our pretax income. Walker and Roscioli did not contribute to the Company’s revenue and pretax income for the three months ended December 31, 2020 as the acquisition dates were on the final day of the reporting period.before income tax expense, respectively. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, valuation and valuationother fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $3.0 for the three months ended December 31, 2021. Comparatively, we recorded $0.2 million in acquisition related transaction costs for the three months ended December 31, 2020.
Financial

The following unaudited pro forma summary presents consolidated information from ouras if all acquisitions forin the three monthsmonth periods ended December 31, 20192021 and 2020, had occurred on October 1, 2020:


  
Three Months Ended
December 31, 2021
  
Three Months Ended
December 31, 2020
 
  ($ in thousands) 
  (Unaudited) 
Pro forma revenue $374,940  $318,198 
Pro forma net income $23,949  $17,803 



The amounts have been calculated by applying our accounting policies and estimates. The results of the acquired stores have been adjusted to reflect the following: the reversal of goodwill amortization under the Private Company Council accounting alternative and the three months ended December 31, 2020payment of management fees. Certain acquired entities completed acquisitions during the periods presented, prior to our acquisition of the business. Their acquisitions are included in the results of their operations from the acquisition dates wasdate forward but were not practical to obtain for comparative purposes and as such is not presented because the acquirees’ historical monthly accounting and reporting processes and practices would not provide complete information sufficient for the purposes of thisincluded on a pro forma disclosure.basis. Pro forma net income has been tax affected based on the Company’s effective tax rate in the historical periods presented.

 
Fair values of trade names are estimated using Level 3 inputs by discounting expected future cash flows of the dealer group. The forecasted cash flows contain certain inherent uncertainties, including significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected cash flows, capital expenditures, weighted average costs of capital, future economic and market conditions, and other marketplace date the Company believes to be reasonable.

We expect substantially all of the goodwill related to acquisition completed acquisitions to be deductible for federal income tax purposes.


16
Table of Contents
5.Inventories

Inventories consisted of the following at:
($ in thousands) 
December
31, 2020
  
September
30, 2020
 
New vessels $160,723  $120,012 
Pre-owned vessels  24,478   21,262 
Work in process, parts and accessories  10,913   8,850 
Total inventories $196,114  $150,124 



($ in thousands) 
December 31,
2021
  
September 30,
2021
 
New vessels $177,814  $105,625 
Pre-owned vessels  30,182   22,906 
Work in process, parts and accessories  40,216   15,349 
  $248,212  $143,880 

13

6.Goodwill and Other Identifiable Intangible Assets
The Company reviews goodwill for impairment annually

Our acquisitions have resulted in the fiscal fourth quarter, or more often if events or circumstances indicate that impairment may have occurred. In evaluatingrecording of goodwill for impairment, if the fair value of a reporting unitand other identifiable intangible assets. Goodwill is less than its carrying value, the difference would represent the amount of required goodwill impairment. To the extent the reporting unit’s earnings decline significantly or there are changes in one or more of these inputs that would resultan asset representing operational synergies and future economic benefits arising from other assets acquired in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair valuebusiness combination that are not individually identified and thus require the Company to record goodwill impairment. As of December 31, 2020, and based upon our most recent analysis, we determined through our qualitative assessment that it is not “more likely than not” that the fair value of our reporting unit is less than its carrying value. As a result, we were not required to perform a quantitative goodwill impairment test.
($ in thousands) Goodwill 
Balance as of September 30, 2020 $113,059 
Goodwill acquisitions during the year  33,503 
Balance as of December 31, 2020 $146,562 
separately recognized. Identifiable intangible assets consist of trade names related to the acquisitions the Company has completed. The Company has determined that trade names have an indefinite life, as there is no economic, contractual or other factors that limit their useful liveschanges in goodwill and they are expected to generate value as long as the trade name is utilized by the dealer group, and therefore, are not subject to amortization. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets. As of December 31, 2020, and based upon our most recent analysis, we determined through our qualitative assessment that it is not “more likely than not” that the fair values of our identifiable intangible assets are less than their carrying values. As a result, we were not required to perform a quantitative identifiable intangible assets impairment test.as follows:

($ in thousands) Goodwill 
Balance as of September 30, 2021
 $168,491 
Goodwill acquisitions during the three months ended December 31, 2021  251,184 
Balance as of December 31, 2021
 $419,675 

 
($ in thousands) Identifiable Intangible Assets 
Balance as of September 30, 2020 $61,304 
Identifiable intangible assets acquisitions during the year  12,700 
Balance as of December 31, 2020 $74,004 
($ in thousands) 
Identifiable
Intangible Assets
 
Balance as of September 30, 2021
 $85,294 
Acquired identifiable intangible assets during the three months ended December 31, 2021
  35,950 
Balance as of December 31, 2021 $121,244 

17
Table of Contents
7.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 December 10, 2020,29, 2021, the Company entered into the Second Amendment to the SixthSeventh Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) to change certain compliance reporting from weekly to monthly. Theincrease the maximum borrowing amount available interest rates and the termination date of the agreement remained unchanged.to $500.0 million. The Inventory Financing Facility is used to purchase new and pre-owned inventory (boats, engines, and trailers).expires on December 1, 2023. The outstanding balance of the facility was $170.3$195.6 million and $124.0$114.2 million, as of December 31, 20202021 and September 30, 2020,31, 2021, respectively.
 
Interest

On December 1, 2021, the Company entered into the Fifth Amendment to the Sixth Amended and Restated Inventory Financing Agreement to, among other things, increase the amount of Permitted Indebtedness to $380 million and to extend the term of the Inventory Financing Facility to January 1, 2022. The maximum borrowing amount available and interest rates remained unchanged.



On October 29, 2021, the Company entered into the Fourth Amendment to the Sixth Amended and Restated Inventory Financing Agreement, to, among other things, increase the amount of Permitted Indebtedness to $360 million and to extend the term of the Inventory Financing Facility to December 1, 2021. The maximum borrowing amount available and interest rates remained unchanged.



On September 23, 2021, the Company entered into the Third Amendment to the Sixth Amended and Restated Inventory Financing Agreement, to, among other things, address the future discontinuance of LIBOR by clarifying the mechanics related to the transition to a replacement benchmark rate and to extend the term of the Inventory Financing Facility to November 1, 2021. The maximum borrowing amount available remained unchanged



Effective October 1, 2021, interest on new boats and for rental units is calculated using the one month London Inter-bank Offering RateAdjusted 30-Day Average SOFR (as defined in the Inventory Financing Facility) (“LIBOR”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 December 31, 20202021 the interest rate on the Inventory Financing Facility ranged from 2.89%2.91% to 5.14%5.16% for new inventory and 3.14%3.16% to 5.39%5.41% for pre-owned inventory. As of September 30, 20202021 the interest rate on the Inventory Financing Facility was calculated under the legacy London Inter-Bank Offering Rate and ranged from 2.90%3.08% to 5.15%5.33% for new inventory and 3.15%3.33% to 5.40%5.58% for pre-owned inventory. Borrowing capacity available at December 31, 20202021 and September 30, 20202021 was $222.2$304.4 million and $268.5$278.3 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 (as defined in the Inventory Financing Facility) as well as 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 December 31, 2020.2021.

 

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.

1814
8.Long-term Debt and Line of Credit


Long-term debt consisted
On November 30, 2021, the Company entered into an Incremental Amendment No. 2 (the “Second Amendment”) to the Credit Facility. The Second Amendment amends the Credit Facility to, among other things, provide for an incremental term loan (the “Incremental Term Loan) in an aggregate principal amount equal to $200.0 million, which will be added to, and constitute part of, the following at:existing $110.0 million term loan and will be on the same terms. Additionally, the Second Amendment further provides a $20.0 million increase in the revolving commitment, which will be added to, and constitute part of, the existing $30.0 revolving commitment.

($ in thousands) 
December
31, 2020
  
September
30, 2020
 
Term note payable to Truist Bank, secured and bearing interest at 2.75% at December 31, 2020 and 3.0% September 30, 2020. The note requires quarterly principal payments commencing on March 31, 2021 and maturing with a full repayment on July 22, 2025 $80,000  $80,000 
Revolving note payable for an amount up to $30.0 million to Truist Bank, secured and bearing interest at 4.5% at December 31, 2020. The revolver requires quarterly interest payments commencing on March 31, 2021 and maturing with a full repayment on July 22, 2025  30,000   - 
Note payable to commercial vehicle lenders secured by the value of the vehicles bearing interest at rates ranging from 0.0% to 8.9% per annum. The note requires monthly installment payments of principal and interest ranging from $100 to $5,600 through January 2026  3,076   2,454 
Note payable to Central Marine Services, Inc., unsecured and bearing interest at 5.5% per annum. The note requires monthly interest payments, with a balloon payment of principal due on February 1, 2022  2,164   2,164 
Note payable to Tom George Yacht Sales, Inc., 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   - 
Note payable to Ocean Blue Yacht Sales, unsecured and bearing interest at 5.0% per annum. The note requires quarterly interest payments, with a balloon payment of principal due on February 1, 2022  1,920   1,920 
Note payable to Lab Marine, Inc., unsecured and bearing interest at 6.0% per annum. The note requires annual interest payments, with a balloon payment of principal due on March 1, 2021  1,500   1,500 
Note payable to Slalom Shop, LLC, unsecured and bearing interest at 5.0% per annum. The note requires quarterly interest payments, with a balloon payment of principal due on December 1, 2021  1,271   1,271 
Note payable to Bosun’s Marine, Inc., unsecured and bearing interest at 4.5% per annum. The note requires annual interest payments with a balloon payment due on June 1, 2021  1,227   1,227 
Note payable to Rebo, Inc., unsecured and bearing interest at 5.5% per annum. The note requires annual interest payments with a balloon payment due on April 1, 2021  1,000   1,000 
Total debt outstanding  124,214   91,536 
Less current portion (net of current debt issuance costs)  (10,481)  (7,419)
Less unamortized portion of debt issuance costs  (2,267)  (2,140)
Long-term debt, net of current portion of unamortized debt issuance costs $111,466  $81,977 


The term note payable to Truist BankCredit Agreement 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 Credit Agreement is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The credit agreement 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 December 31, 2020.2021.




Long-term debt consisted of the following at:

($ in thousands) December 31, 2021  September 30, 2021
 
Term note payable to Truist Bank, secured and bearing interest at 3.0% at December 31, 2021 and 2.75% at September 30, 2021. The note requires quarterly principal payments, maturing with a full repayment on July 22, 2025
 $301,903  $105,875 
Revolving note payable for an amount up to $50.0 million to Truist Bank, secured and bearing interest at 3.0% at December 31, 2021. The note requires full repayment on July 22, 2025
  40,000   0 
Note payable to commercial vehicle lenders secured by the value of the vehicles bearing interest at rates ranging from 0.0% to 8.9% per annum. The note requires monthly installment payments of principal and interest ranging from $100 to $5,600 through July 2028
  3,216   3,248 
Note payable to Central Marine Services, Inc., unsecured and bearing interest at 5.5% per annum. The note requires monthly interest payments, with a balloon payment of principal due on February 1, 2022
  2,164   2,164 
Note payable to Tom George Yacht Sales, Inc., 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   2,056 
Note payable to Ocean Blue Yacht Sales, unsecured and bearing interest at 5.0% per annum. The note requires quarterly interest payments, with a balloon payment of principal due on February 1, 2022
  1,920   1,920 
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   0 
Note payable to Slalom Shop, LLC, unsecured and bearing interest at 5.0% per annum. The note was repaid in full
  0   1,271 
Total debt outstanding  352,385   116,534 
Less current portion (net of debt issuance costs)  (19,420)  (11,366)
Less unamortized portion of debt issuance costs  (5,957)  (2,094)
Long-term debt, net of current portion of unamortized debt issuance costs $327,008  $103,074 

15
9.Stockholders’ and Members’ Equity

Equity-Based Compensation
In periods prior to


We maintain the Offering, the Company issued Profit in Interests awards to select members of executive management. These awards were for Class B units which represent non-voting units. These awards were to vest over three to five years and are designed to motivate and retain the executives through long-term performance incentives. As part of the transactions completed in connection with the Offering and related reorganization, previously issued Profit in Interests awards fully and immediately vested and were exchanged for 32,754 OneWater LLC Units.
In connection with the Offering, the board of directors of OneWaterMarine Inc. Omnibus Incentive Plan (the “Board”“LTIP”) adopted an 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 Boardboard 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 1,497,529.1,528,224. 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.

On October 1, 2020,

During the three months ended December 31, 2021, the Board approved the grant of 39,23952,227 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 during fiscal year 20212022 as measured against objective performance goals as determined by the Board. The actual number of units earned may range from 0% to 200% of the target number of units depending upon achievement of the performance goals. Performance-based restricted stock units vest in three3 equal annual installments, commencing on October 1,September 30, 2022. Upon vesting, each performance-based restricted stock unit equals one1 share of common stock of the Company. 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 Company’s assessment of the probability and level of performance achievement, and is recognized on a graded basis over the three-year vesting period. As of December 31, 2020,2021, the Company estimated achievement of the performance targets at 100% and therefore $0.1 million of expense related to the performance awards was recorded in.

During the three months ended December 31, 2020.
On October 1, 2020,2021, the Board approved the grant of 101,781105,880 time-based vesting restricted stock units. 25,62213,062 restricted stock units fully vest on October 1, 2021September 30, 2022 and the remaining 76,15992,818 restricted stock units vest in four3 equal annual installments commencing on September 30, 2021.2022.

The following table further summarizes activity related to restricted stock units for the three months ended December 31, 2020:

  Restricted Stock Unit Awards 
  
Number of
Shares
  
Weighted Average
Grant Date Fair
Value ($)
 
Unvested at September 30, 2020  
301,643
  
$
15.78
 
Awarded  
141,020
   
20.49
 
Vested  
-
   
-
 
Forfeited  
-
   
-
 
Unvested at December 31, 2020  
442,663
  
$
17.28
 

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 straight-linegraded basis over the applicable vesting periods. ForCompensation 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 three-year vesting period. The Company recognized $2.1 million and $1.1 million of compensation expense for the three months ended December 31, 2021 and 2020, the Company recognized $1.1respectively, which includes $1.0 million and $0.4 million of compensation expense. As ofexpense for the three months ended December 31, 2021 and 2020, respectively, for performance share units.
 

The following table further summarizes activity related to restricted stock units for the totalthree months ended December 31, 2021:
  Restricted Stock Unit Awards 
  Number of Shares  
Weighted Average
Grant Date Fair Value
($)
 
Unvested at September 30, 2021
  545,094  $22.68 
Awarded  158,107   40.21 
Vested  (64,704)  17.78 
Forfeited  0   0 
Unvested at December 31, 2021
  638,497  $31.12 

As of December 31, 2021, the total unrecognized compensation expense related to outstanding equity awards was $5.0$11.3 million, which the Company expects to recognize over a weighted-average period of 1.61.5 years.
Investor Voting Warrants
 
On October 28, 2016,
We issue shares of our Class A common stock upon the Companyvesting of performance-based restricted stock units and time-based restricted stock units. These shares are issued 25,000 OneWater LLCfrom our authorized and not outstanding common unit warrants in exchange for $1.0 million. The common unit warrants had a ten-year life from the date of issuance and provided the holders with a put right after five years, or potentially earlier, under certain circumstances. The holders of the warrants maintained full voting rights in OneWater LLC. As the common unit warrants could be settled in cash at the election of the holder, the fair value of the common unit warrants was included in warrant liability.stock. In connection with the Offering, Goldman Sachs & Co. LLC and certain of its affiliates (“Goldman”) and The Beekman Group (“Beekman”) received 2,148,806 OneWater LLC units upon exercise of the warrants.
The Company engaged a third-party valuation specialist to assist management in performing a valuation of the fair value of the common unit warrants. Accordingly, the warrant liability was accounted for based on inputs that were unobservable and significant to the overall fair value measurement (Level 3). The valuation considered both a market and a discounted cash flows approach in arriving at the fair value of the common unit warrants. As previously noted, the common unit warrants were exercisedaddition, in connection with the Offering for commonvesting of restricted stock units, we repurchase a portion of OneWater LLC and therefore no warrant liability existed as of September 30, 2020 and December 31, 2020. The Company recognized income of $0.8 million for the three months ended December 31, 2019 and $0 for the three months ended December 31, 2020, and this change in the fair value was recorded as a change in the fair value of warrant liability in the accompanying unaudited condensed consolidated statements of operations.
Non-Controlling Interest

In connection with the Offering, the former owners of Bosun’s Assets and Operations (“BAO”) and South Shore Assets and Operations (“SSAO”) received 290,466 and 306,199 shares of Class A common stock, respectively, for the surrender of their respective 25.0% ownership interests. Accordingly, the former owners’ minority interests have been recorded as a non-controlling interest for the three months ended December 31, 2019, the period priorissued equal to the Offering.amount of employee income tax withholding.


As discussed in Note 1, OneWater Inc. consolidates the financial results of OneWater LLC and its subsidiaries and reports a non-controlling interest related to the portion of OneWater LLC owned by the holders of OneWater LLC Units (the “OneWater Unit Holders”). Changes in ownership interest in OneWater LLC, while OneWater Inc. retains its controlling interest, will be accounted for as equity transactions. Future direct exchanges of OneWater LLC units will result in a change in ownership and reduce the amount recorded as a non-controlling interest and increase additional paid-in-capital. As of December 31, 2020, OneWater Inc. owned 72.6% of the economic interest of OneWater LLC with the OneWater Unit Holders owning the remaining 27.4%.
Distributions
During the three months ended December 31, 2020, the Company made distributions to OneWater LLC Unitholders for certain permitted tax payments.
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 shares of Class A common stock outstanding during the period. Diluted earnings per share is computed by giving effect to all potentially dilutive shares.
 
There were no shares
16

The following table sets forth the calculation of earnings per share for the three months ended December 31, 2021 and 2020 (in thousands, except per share data):
 
Earnings per share:
 
Three Months
Ended December
31, 2020
  
Three Months Ended
December 31, 2021
  
Three Months Ended
December 31, 2020
 
Numerator:         
Net income attributable to OneWater Inc $7,788  $20,019  $7,788 
           
Denominator:           
Weighted-average number of unrestricted outstanding common shares used to calculate basic net income per share 10,776   13,380   10,776 
Effect of dilutive securities:           
Restricted stock units  210   381   210 
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net income per share  10,986 
Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted earnings per share  13,761   10,986 
           
Earnings per share of Class A common stock – basic $0.72  $1.50  $0.72 
Earnings per share of Class A common stock – diluted $0.71  $1.45  $0.71 
  
21

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 of Class B common stock under the two-class method has not been presented.
 

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 December
31, 2020
Class B common stock4,199
Restricted stock units206
4,405
  
Three Months Ended
December 31, 2021
  
Three Months Ended
December 31, 2020
 
Class B common stock  1,815   4,199 
Restricted Stock Units  233   206 
   2,048   4,405 
  
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 299,505 shares of the Company’s Class A common stock may be issued under the ESPP, 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. As of December 31, 2021, there has not yet been an offering period under the ESPP.

Distributions

During the three months ended December 31, 2021, the Company made distributions to OneWater Unit Holders for certain permitted tax payments.

17
10.Redeemable Preferred Interest in SubsidiaryFair Value Measurements
On September 1, 2016,

In determining fair value, the Company organized OWAO. Asuses 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 liabilities measured at fair value in the accompanying unaudited condensed consolidated balance sheets as of December 31, 2021 and September 30, 2016, OWAO was not funded. In conjunction with Goldman2021


  December 31, 2021 
  Level 1  Level 2  Level 3  Total 
  ($ in thousands) 
Liabilities:            
     Contingent Consideration 
$
0
  
$
0
  
$
27,785
  
$
27,785
 


  September 30, 2021
 
  Level 1  Level 2  Level 3  Total 
  ($ in thousands) 
Liabilities:            
     Contingent Consideration 
$
0
  
$
0
  
$
12,072
  
$
12,072
 



There were 0 transfers between the valuation hierarchy Levels 1, 2, and Beekman, OneWater LLC contributed3 for the three months ended December 31, 2021.



We estimate the fair value of contingent consideration using a majorityprobability-weighted discounted cash flow model based on forecasted future earnings or forecasted probabilities of its assets, including subsidiaries operating all of its retail operations,producing acquisition leads. The acquisition contingent consideration liability has been accounted for based on inputs that are unobservable and significant to OWAOthe overall fair value measurement (Level 3). The contingent consideration balance is recorded in return for 100,000 common units. Additionally, as a part ofother payables and accrued expenses and other long-term liabilities in the transaction, OWAO issued 68,000 preferred units in OWAO to Goldman and Beekman. The preferred interest had a stated 10.0% rate of return and there was no allocation of profits in excess of the stated return. The preferred interests were not convertible but may have been redeemed by the holder after five years or upon certain triggering events at face value plus accrued interest.
The Company had classified the redeemable preferred interest as temporary equity in theunaudited condensed consolidated balance sheets. Changes in fair value and net present value of contingent consideration are included in change in fair value of contingent consideration in the unaudited condensed consolidated statements of operations. The discountfair value of contingent consideration is reassessed on a quarterly basis.



The following table sets forth the issuancechanges in fair value of our contingent consideration for the redeemable preferred interest was being accreted to members’ equity as a dividend from the datethree months ended December 31, 2021:


($ in thousands) Contingent Consideration 
Balance as of September 30, 2021 
$
12,072
 
     Additions from acquisitions  
9,967
 
     Settlement of contingent consideration  
0
 
     Change in fair value, including accretion
  
5,746
 
Balance as of December 31, 2021 
$
27,785
 

18
11.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 raterates of 17.2% and 17.6% for the three months ending December 31, 2021 and 2020, differsrespectively, differ from statutory rates primarily due to earnings allocated to non-controlling interests.interests.
The

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 taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will fully realize our deferred tax asset in the future. The Company has not recorded a valuation allowance.



As of December 31, 2020,2021 and September 30, 2021, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist. The Company is subject to examination in the US Federal and certain state tax jurisdictions for the tax years beginning with the year ended September 30, 2020. The Company is not currently subject tounder an income tax auditsaudit in any U.S. or state jurisdiction for any tax year.
22
Tax Receivable Agreement

In connection with the Offering,IPO, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the owners of OneWater LLC. As of December 31, 20202021 and September 30, 2020,2021, our liability under the Tax Receivable Agreement was $17.6 $46.2 million and $15.6$40.1 million, respectively, 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 Limited Liability CompanyOneWater 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.

12.Contingencies and Commitments
Employment Agreements

The Company recorded rent expense of $3.2 millionis party to employment agreements with certain executives, which provide for compensation, other benefits and $2.9 million during the three months ended December 31, 2020 and 2019, respectively.severance payments under certain circumstances. The Company leases certain facilitiesalso has consulting and equipment under noncancelable operating leasenoncompete agreements having terms in excessplace with previous owners of one year expiring through 2037.acquired companies.


Acquisition Contingent Consideration
19
As
As of September 30, 2020, the Company recorded an estimate of contingent consideration for a fiscal year 2019 acquisition in the amount of $5.5 million. The acquisition contingent consideration liability had been accounted for based on inputs that were unobservable and significant to the overall fair value measurement (Level 3). The contingency period closed on December 1, 2020 and a final payout in the amount of $5.9 million was made on December 29, 2020. The estimated contingent consideration balance at September 30, 2020 was recorded in Other payables and accrued expenses in the unaudited condensed consolidated balance sheets. For the three months ended December 31, 2020, a $0.4 million expense is recorded in the unaudited condensed consolidated statements of operations for the adjustment to the contingent consideration.
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, if decided adversely, 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 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.

23
13.Leases

TableThe Company leases real estate and equipment under operating lease agreements. Leases with an initial term of Contents12 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.

13.14.Related Party Transactions

In accordance with agreements approved by the Board, we purchased inventory, in conjunction with our retail sale of the inventory,products, from certain entities affiliated with common members of the Company. ForTotal purchases incurred under these arrangements were $33.3 million and $15.1 million for the three months ended December 31, 2021 and 2020, and 2019, $15.1 million and $10.8 million, respectively, in total purchases were incurred under these arrangements. A subsidiary of the Company holds a warrant to purchase one such entity for equity in inventory plus $1, which approximates fair value, that expires on March 1, 2021.respectively.

 

In accordance with agreements approved by the Board, certain entities affiliated with common members of the Company receive fees for rent of commercial property. ForTotal expenses incurred under these arrangements were $0.7 million and $0.6 million for the three months ended December 31, 2021 and 2020, and 2019, $0.6 million in total expenses were incurred under these arrangements.respectively.

 

In accordance with agreements approved by the Board, the Company received fees from certain entities and individuals affiliated with common members of the Company for goods and services. ForTotal fees recorded under these arrangements were $0.1 million for each of the three months ended December 31, 2021 and 2020, and 2019, $0.1 million were recorded under these arrangements.respectively.

 

In accordance with agreements approved by the Board, the Company made payments to certain entities and individuals affiliated with common members of the Company for goods and services. NoTotal payments recorded under these arrangements were $0.1 million for the three months ended December 31, 2021. NaN amounts were recorded under these arrangements for the three months ended December 31, 2020. For the three months ended December 31, 2019, $0.2 million was recorded under these arrangements. Included in this amount and in connection with our notes payable floor plan financing, our Chief Executive Officer was paid a guarantee fee of $0.2 million for the three months ended December 31, 2019, for his personal guarantee associated with this arrangement.

 

In connection with transactions noted above, the Company owed $7.2 million and $1.0 million as recorded within accounts payable as of December 31, 2021 and September 30, 2021, respectively. Additionally, the Company was due $6,462$0.1 million and $0.1 million$32,368 as recorded within accounts receivable as of both December 31, 20202021 and September 30, 2020.2021, respectively.
As of December 31, 2020 the Company had an outstanding tax distribution payable in the amount of $0.2 million to a common member of the Company.

14.15.Subsequent eventsEvents

Management evaluated events occurring subsequent to December 31, 2020 through February 11, 2021, the date these unaudited condensed consolidated financial statements were available for issuance and other than as noted below determined that no material recognizable subsequent events occurred.

On February 2, 2021,1, 2022, the Company and certaincompleted the acquisition of its subsidiaries, as guarantors entered into the Incremental Amendment No. 1 (the “First Amendment”) with the lenders party thereto and Truist Bank, as administrative agent. The First Amendment amends the Credit Agreement, dated as of July 22, 2020 (the “Credit Agreement”), by and among the Company and its subsidiaries, as guarantors, with Truist Bank as administrative agent, collateral agent, swingline lender and issuing bank, SunTrust Robinson Humphrey, Inc. and Synovus Bank as joint lead arrangers and joint bookrunners, Synovus Bank as documentation agent, and the lenders from time to time party thereto. All capitalized words used but not defined herein have the meanings assigned in the First Amendment.
The First Amendment amends the Credit Agreement, to, among other things, provide for an incremental term loan (the “Incremental Term Loan”) to the Company in an aggregate principal amount equal to $30,000,000, which will be added to, and constitute a part of, the existing $80.0 million term loan, which was advanced in full on July 22, 2020. The Incremental Term Loan will increase the existing term loan and will be on the same terms (including interest rates, but excluding upfront fees, original issue discount and other similar amounts) applicable to the existing term loan under the Credit Agreement and the other loan documents.
The maturity date for the Incremental Term Loan is the earlier of (i) July 22, 2025 or (ii) the date on which the principal amount of all outstanding term loans have been declared or automatically have become due and payableJIF Marine pursuant to the terms of the Credit Agreement.purchase agreement. The aggregate consideration is subject to customary post-closing adjustments and is not individually significant.
The First Amendment further provides that the proceeds of the Incremental Term Loan will be used to (i) repay an aggregate principal amount of up to $30.0 million of the outstanding amount under the revolving credit facility, under which an aggregate of $30.0 million was outstanding as of February 2, 2021, (ii) pay accrued and unpaid interest on the outstanding term loan and revolving credit facility through the date immediately prior to the effective date of the First Amendment and (iii) pay the fees, costs and expenses incurred in connection with the foregoing.


2420

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,”"Company," "we," "us," and “our”"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, 2020,2021, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 3, 2020,17, 2021, 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 premium recreational boatmarine retailers in the United States with 69 stores comprising 24 dealer groups in 10 states.75 retail locations, 8 distribution centers/warehouses and multiple online marketplaces as of December 31, 2021. Our dealer groupsretail locations are located in highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic and Northeast, including Texas, Florida, Alabama, North Carolina, South Carolina, Georgia and Ohio,many of which collectively comprise seven of theare in top twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in 1213 out of the 1518 markets in which we operate. In fiscal year 2020,2021, we sold over 10,100approximately 9,500 new and pre-owned boats, many of which we believe approximately 40% were sold to customers who had a trade-in or with whom we had otherwise established relationships. The combination of our significant scale, diverse inventory and revenue streams, access to premium boat brands and meaningful dealer group brand equity enable us to provide a consistently professional experience as reflected in the number of our repeat customers and same-store sales growth.
 
We were formed in 2014 as One Water Marine Holdings, LLC (“OneWater LLC”) through the combination of Singleton Marine and Legendary Marine, which created a marine retail platform that collectively owned and operated 19 stores.retail locations. Since the combination in 2014, we have acquired a total of 4955 additional storesretail locations, 8 distribution centers/warehouses and multiple online marketplaces through 2026 acquisitions. Our current portfolio of companies as of December 31, 20202021 consists of 24 differentmultiple brands which are recognized on a local, and regional dealer groups.or national basis. Because of this, we believe we are one of the largest and fastest-growing premium recreational boatmarine retailers in the United States based on number of stores and total boats sold. While we have opportunistically opened new storeslocations in select markets, we believe that it is generally more effective economically and operationally to acquire existing storeslocations with experienced staff and established reputations.
 
The boat dealer marketmarine retail industry is highly fragmented, and is comprised ofas evidenced by the over 4,000 storesboat dealers nationwide. Most competing boat retailers offer new boat sales, pre-owned boat sales, finance and insurance products, repair and maintenance services and parts and accessories and are operated by local business owners who ownwith three or fewer stores. Despite our size, we comprise less than 2%3% of total industry sales. Our scale and business model allow us to leverage our extensive inventory to provide consumers with the ability to find a boat that matches their preferences (e.g., make, model, color, configuration and other options) and to deliver the boat within days while providing a personalized sales experience. We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate support resources across our store base, focus on high-margin products and services, utilize floor plan financing and provide core back-office functions on a scale that many independent retailers are unable to match. We seek to be the leading boat retailer by total market share within each boating market and within the product segments in which we participate. To the extent that we are not, we will evaluate acquiring other local retailers in order to increase our sales, to add additional brands or to provide us with additional high-quality personnel.

Impact of COVID-19
 
The COVID-19 pandemic and its related effects, including restraints on U.S. economic and leisure activities, has and may continue to have a significant impact on our operations and financial condition. WeNational, state and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place the utmost importance on the safetyorders, travel restrictions, business closures, cancellations of public gatherings, including boat shows, and well-being ofother measures. At times, these measures have affected our employeesability to sell and in compliance with guidelines issued by the World Health Organization (WHO), the Centers for Disease Control and Prevention (CDC) and federal, stateservice boats, required us to temporarily close or local authorities, we closed or reduced staffing atpartially close certain locations during portions ofand may require additional closures in the fiscal year ended September 30, 2020. We have implemented cleaning and social distancing techniques at each of our locations.future. In light of the current environment, our sales team members are fully engaged with customers and are providing them with virtual walkthroughs of inventory and/or private, at home or on water, showings, while our service departments are working hard to deliver boats and keep customers on the water.
 
The COVID-19 pandemic and its related effects have, to date, positively impacted our sales as more customers desire to engage in outdoor recreational activities that can be enjoyed close to first or second homes, in a socially distanced manner. However, the COVID-19 pandemic has also caused significant supply chain challenges as suppliers were, and continue to be, faced with business closures and shipping delays. This has led to an industry wide inventory shortage of boats, engines and certain marine parts.  The COVID-19 pandemic and its related effects may continue to interfere with the ability of our employees, contractors, customers, suppliers, and other business partners to perform our and their respective responsibilities and obligations with respect to the operation of our business. To date, we have not experienced any significant shortages

21
On April 1, 2020, our executive management team elected to undertake salary cuts in response to the impacts of COVID-19. Additionally, the Board elected to forgo their cash compensation for a period of six months. However, given trends in demand, the cash compensation and salaries of our directors and executive management team, as applicable, were restored to their pre-COVID levels as of July 3, 2020, and our directors and executive management team received a one-time cash payment equal to their reduction in compensation.
While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the three months ended December 31, 20202021 suggest that spending in all our regions and across product lines has proven remarkably resilient despite the challenges posed by the pandemic as familiescustomers have increasingly focusedcontinued to focus on socially-distanced,socially distanced outdoor recreation, driving a material increase in sales.
Though the COVID-19 pandemic did not adversely affect our financial position for the three months ended December 31, 2020 relative to the three months ended December 31, 2019, therecreations. The ultimate impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors including consumer demand, a possible resurgence of COVID-19, including variants of the virus in certain geographic areas, our ability to safely operate stores and the existence and extent of a prolonged economic downturn, the resurgence of COVID19 in certain geographic areas, consumer demand and the ability to safely and legally operate our stores.downturn.


Trends and Other Factors Impacting Our Performance
 
Acquisitions
 
We are a highly acquisitive company. Since the combination of Singleton Marine and Legendary Marine in 2014, we have acquired 52a total of 55 additional storesretail locations, 8 distribution centers/warehouses and multiple online marketplaces through 20 dealer group26 acquisitions. Our team remains focused on expanding our dealershipretail locations in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders. Additionally, we continue to evaluate acquisitions of companies who focus primarily on parts and accessory sales, further strengthening that area of our business.
 
We have an extensive acquisition track record within the boatingmarine retail industry and believe we have developed a reputation for treating sellers and their staff in an honest and fair manner. We typically retain the management team and name of the acquired dealerships.group. We believe this practice preserves the acquired dealer’s customer relationships and goodwill in the local marketplace. We believe our reputation and scale have positioned us as a buyer of choice for boat dealersmarine retailers who want to sell their businesses. To date, 100% of our acquisitions have been sourced from inbound inquiries, and the number of annual inquiries we receive has consistently increased over time. Our strategy is to acquire stores at attractive EBITDA multiples and then grow same-store sales while benefitting from cost-reducing synergies. Historically, we have typically acquired dealer groups for less than 4.0x EBITDA on a trailing twelve-month basis and believe that we will be able to continue to make attractive acquisitions within this range.

In the three months ended December 31, 2020, we completed the following transactions:
On December 1, 2020, Tom George Yacht Group with two locations in Florida
On December 31, 2020, Walker Marine Group with five locations in Florida
On December 31, 2020, Roscioli Yachting Center with one location in Florida

Total purchase price of the acquisitions during the three months ended December 31, 2020 was $88.2 million and was paid with $77.6 million in cash, and the remaining $10.5 million was financed with $4.8 million estimated acquisition contingent consideration, $3.7 million accrued purchase consideration and a $2.1 million seller notes payable. Included in our results for the three months ended December 31, 2020, the acquisitions contributed $2.1 million to our consolidated revenue and $0.2 million to our net income. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, and valuation fees, which are charged directly to operations in the consolidated statements of operations as incurred in the amount of $0.2 million for the three months ended December 31, 2020.
 
General Economic Conditions
 
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties, including the adverse economic effects of the COVID-19 pandemic or a prolonged economic downturn, could reduce consumer spending and adversely affect our 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 we operate stores, particularly in the Southeast, can have a major impact on our overall results of operations. Local influences, such as corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our 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 our business.
 
Our business was significantly impacted during the recessionary period that began in 2007. This period of weakness in consumer spending and depressed economic conditions had a substantial negative effect on our operating results. In response to these conditions we reduced our inventory purchases, closed certain stores and reduced headcount. Additionally, in an effort to counteract the downturn, we increased our focus on pre-owned sales, parts and repair services, and finance and insurance services. As a result, we surpassed our pre-recession sales levels in less than 24 months. While we believe the measures we took significantly reduced the impact of the downturn on the business, we cannot guarantee similar results in the event of a future downturn. Additionally, we cannot predict the timing or length of unfavorable economic or industry conditions, including a downturn as a result of the COVID-19 pandemic, or the extent to which they could adversely affect our operating results.
 
Although past economic conditions have adversely affected our operating results, we believe we are capable of responding in a manner that allows us to substantially outperform the industry and gain market share. We believe our ability to capture such market share enables us to align our retail strategies with the desires of customers. We expect our core strengths, including retail and acquisition strategies, will allow us to capitalize on growth opportunities as they occur, despite market conditions.

Critical Accounting Policies and Significant 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, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application.
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 by or delivery to the customer. At the time of acceptance or delivery, the customer is able to direct the use of the product 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.

2722
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 $3.0 million and $2.3 million as of December 31, 2021 and September 30, 2021, respectively. Revenue from parts and accessories sold directly to a customer (not on a repair order) are recognized when control of the items is transferred to the customer, which is typically upon shipment.
Deferred 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 three months ended December 31, 2021.

Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of new and pre-owned boat inventory is determined using the specific identification method. New and pre-owned boat sales histories indicated that the overwhelming majority of such boats are sold for, or in excess of, the cost to purchase those boats. In assessing the lower of cost or net realizable value, we consider the aging of the boats, historical sales of a particular product and current market conditions. There are inherent uncertainties in assessing net realizable value as management must make assumptions and apply judgment to changes in the market, brands and other factors that drive consumer preferences and spending. We typically do not maintain a boat inventory reserve. The cost of parts and accessories is determined using the weighted average cost method. Inventory is reported net of write downs for obsolete and slow moving items of approximately $0.8 million at December 31, 2021 and September 30, 2021.
Goodwill and Other Intangible Assets
In accordance with ASC 350, we review goodwill for impairment annually in the fourth fiscal quarter, or more often if events or circumstances indicate that impairment may have occurred. When evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350. To the extent the reporting unit’s earnings decline significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment.
The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting unit using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this process, we also reconcile the estimated aggregate fair value of our reporting unit to our market capitalization, including consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. We believe that this reconciliation process is consistent with a market participant perspective. We base our cash flow forecasts on our knowledge of the industry, our recent performance, our expectations of our future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Identifiable intangible assets consist of trade names related to the acquisitions we have completed. We have 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 dealer group, and therefore, are not subject to amortization.
The quantitative impairment test for trade names requires the comparison of the trade names’ estimated fair value to carrying value on an individual basis. Fair values of trade names are estimated using Level 3 inputs by discounting expected future cash flows of the trade name. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions, and other marketplace data we believe to be reasonable. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets.
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Business Combinations
We account for business combinations using the acquisition method of accounting, which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition. Determination of the estimated fair value assigned to each asset acquired or liability assumed can materially impact the net income in subsequent periods through depreciation and amortization and potential impairment charges.
The most critical areas of judgment in applying the acquisition method include selecting the appropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed liabilities at fair value, particularly for inventory, acquisition contingent consideration, trade names and goodwill. The fair value of acquired inventory is based on manufacturer invoice cost, curtailments, and market data. The significant estimates used to value acquisition contingent consideration are future earnings and discount rates. We apply an income approach for the fair value of trade names, which discounts the estimate of future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow.
In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions.
How We Evaluate Our Operations
 
Revenue
 
We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 11.0% and 11.6% to revenue in the three months ended December 31, 2020 and 2019, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 28.6% and 31.3% to gross profit in the three months ended December 31, 2020 and 2019, respectively. During different phases of the economic cycle, consumer behavior may shift away from new boats; however, we are well-positioned to benefit from revenue from pre-owned boats, repair and maintenance services, and parts and accessories, which have all historically increased during periods of economic uncertainty. We generate pre-owned sales from boats traded-in for new and pre-owned boats, boats purchased from consumers, brokerage transactions, consignment sales and wholesale sales. We continue to focus on all aspects of our business including non-boat sales of finance & insurance products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 13.9% and 11.1% to revenue in the three months ended December 31, 2021 and 2020, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 26.3% and 28.6% to gross profit in the three months ended December 31, 2021 and 2020, respectively. We have also diversified our business across geographies and dealership types (e.g., fresh water and salt water) in order to reduce the effects of seasonality. In addition to seasonality, revenue and operating results may also be significantly affected by quarter-to-quarter changes in economic conditions, manufacturer incentive programs, adverse weather conditions and other developments outside of our control.


Gross Profit
 
We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers to our retail stores and vendor consideration. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations.
 
Gross Profit Margin
 
Our overall gross profit margin varies with our revenue mix. Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales. As a result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.
 
Selling, General and Administrative Expenses
 
Selling, general, and administrative (‘‘SG&A’’) expenses consist primarily of salaries and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses. A portion of our cost structure is variable (such as sales commissions and incentive compensation), or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long term. We typically evaluate our variable expenses, selling expenses and all other SG&A expenses in the aggregate as a percentage of total revenue.
 
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Same-Store Sales

We assess the organic growth of our revenue on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Stores relocated within an existing market remain in the comparable store base for all periods. Additionally, amounts related to closed stores are excluded from each comparative base period. Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

Adjusted EBITDA
 
We define Adjusted EBITDA as net income before interest expense – other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, gain (loss) onchange in fair value of contingent consideration, loss on extinguishment of debt and transaction costs. See ‘‘—Comparison of Non-GAAP Financial Measure’’ for more information and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
 
Summary of Acquisitions
 
The comparability of our results of operations between the periods discussed below is naturally affected by the acquisitions we have completed during such periods. We are also continuously evaluating and pursuing acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results. While we expect continued growth and strategic acquisitions in the future, our acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.
 
Fiscal YearFirst Quarter 2022 Acquisitions
Effective October 1, 2021, we acquired Naples Boat Mart, a full-service marine retailer with one location in Florida.
Effective November 30, 2021, we acquired T-H Marine, a leading provider of branded marine parts and accessories, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas.
Effective December 1, 2021, we acquired Norfolk Marine Company, a full-service marine retailer with one location in Virginia.
Effective December 31, 2021, we acquired a majority interest in Quality Boats, a full-service marine retailer with three locations in Florida.
We refer to the fiscal first quarter 2022 acquisitions described above collectively as the ‘‘2022 Acquisitions.’’ The acquisitions of Naples Boat Mart, T-H Marine and Norfolk Marine Company are partially reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021. The majority interest in Quality Boats was not included in the unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2021 as the acquisition was completed on the last day of the period.
Fiscal First Quarter 2021 Acquisitions

Effective December 1, 2020, we acquired Tom George Yacht Sales, Inc, a full-service marine retailer based in Florida with two stores.

Effective December 31, 2020, we acquired Walker Marine Group, Inc., a full-service marine retailer based in Florida with five stores.

Effective December 31, 2020, we acquired Roscioli Yachting Center, Inc., a full-service marina and yachting facility located in Florida, including the related real estate and in-water slips.
 
We refer to the fiscal yearfirst quarter 2021 acquisitions described above collectively as the ‘‘2021 Acquisitions.’’ The Tom George Yacht Sales, Inc. acquisition is partially reflected in our unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2020.2020 and fully reflected for the three months ended December 31, 2021. The Walker Marine Group, Inc. and Roscioli Yachting Center, Inc. acquisitions were not included in the unaudited Condensed Consolidated Statements of Operations for the three months ended December 31, 2020 as they were completed on the last day of the period.period but are fully reflected in the three months ended December 31, 2021.


Other Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations
 
Our historical financial results discussed below may not be comparable to our future financial results for the reasons described below.

OneWater Inc. is subject to U.S. federal, state and local income taxes as a corporation. Our accounting predecessor, OneWater LLC, was and is treated as a partnership for U.S. federal income tax purposes, and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income is passed through to its members. Accordingly, the financial data attributable to our predecessor contains no provision for U.S. federal income taxes or income taxes in any state or locality. OneWater Inc. was subject to U.S. federal, state and local taxes at an estimated blended statutory rate of 24.2%24.0% of pre-tax earnings for the three months ended December 31, 2020.2021.


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As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional SG&A expenses relative to historical periods. See ‘‘—Post-Offering Taxation and Public Company Costs.’’
Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.

Results of Operations
 
Three Months Ended December 31, 2020,2021, Compared to Three Months Ended December 31, 20192020
 

 For the three months ended December 31, 2020  For the three months ended December 31, 2019      
For the three months
ended December 31, 2021
  
For the three months
ended December 31, 2020
     
 Amount % of Revenue Amount % of Revenue $ Change % Change  Amount % of Revenue Amount % of Revenue $ Change % Change 
 ($ in thousands)  ($ in thousands) 
Revenues                          
New boat sales $151,828 70.9% $102,852 66.9% $48,976 47.6%
Pre-owned boat sales 38,580 18.0% 33,071 21.5% 5,509 16.7%
New boat $236,198 70.2% $151,828 70.9% $84,370 55.6%
Pre-owned boat 53,449 15.9% 38,580 18.0% 14,869 38.5%
Finance & insurance income 5,963 2.8% 4,325 2.8% 1,638 37.9% 9,307 2.8% 5,963 2.8% 3,344 56.1%
Service, parts and other sales  17,712 8.3%  13,450 8.8%  4,262 31.7%
Service, parts and other  37,318 11.1%  17,712 8.3%  19,606 110.7%
Total revenues  214,083 100.0%  153,698 100.0%  60,385 39.3%  336,272 100.0%  214,083 100.0%  122,189 57.1%
                          
Gross Profit                          
New boat gross profit 29,296 13.7% 16,897 11.0% 12,399 73.4%
Pre-owned boat gross profit 8,128 3.8% 5,205 3.4% 2,923 56.2%
Finance & insurance gross profit 5,963 2.8% 4,325 2.8% 1,638 37.9%
Service, parts & other gross profit  9,049 4.2%  5,762 3.7%  3,287 57.0%
New boat 60,302 17.9% 29,296 13.7% 31,006 105.8%
Pre-owned boat 14,079 4.2% 8,128 3.8% 5,951 73.2%
Finance & insurance 9,307 2.8% 5,963 2.8% 3,344 56.1%
Service, parts & other  17,277 5.1%  9,049 4.2%  8,228 90.9%
Total gross profit 52,436 24.5% 32,189 20.9% 20,247 62.9% 100,965 30.0% 52,436 24.5% 48,529 92.5%
                          
Selling, general and administrative expenses 34,860 16.3% 28,305 18.4% 6,555 23.2% 59,096 17.6% 34,860 16.3% 24,236 69.5%
Depreciation and amortization 963 0.4% 760 0.5% 203 26.7% 1,749 0.5% 963 0.4% 786 81.6%
Transaction costs 200 0.1% 437 0.3% (237) -54.2% 3,045 0.9% 200 0.1% 2,845 1422.5%
Gain on contingent consideration  377 0.2%  - 0.0%  377 100.0%
Loss on contingent consideration  5,746 1.7%  377 0.2%  5,369 100.0%
                          
Income from operations 16,036 7.5% 2,687 1.7% 13,349 496.8% 31,329 9.3% 16,036 7.5% 15,293 95.4%
                          
Interest expense - floor plan 920 0.4% 2,659 1.7% (1,739) -65.4% 877 0.3% 920 0.4% (43) -4.7%
Interest expense - other 924 0.4% 1,853 1.2% (929) -50.1% 1,529 0.5% 924 0.4% 605 65.5%
Change in fair value of warrant liability - 0.0% (771) -0.5% 771 -100.0%
Other (income) expense, net  (94) 0.0%  13 0.0%  (107) -823.1%
Other expense (income), net  548 0.2%  (94) 0.0%  642 -683.0%
Income before income tax expense 14,286 6.7% (1,067) -0.7% 15,353 -1438.9% 28,375 8.4% 14,286 6.7% 14,089 98.6%
Income tax expense  2,511 1.2%  - 0.0%  2,511 100.0%  4,889 1.5%  2,511 1.2%  2,378 100.0%
Net income (loss) 11,775 5.5% (1,067) -0.7% 12,842 -1203.6%
Less: Net income attributable to non-controlling interest -    (247)   247 -100.0%
Net loss attributable to One Water Marine Holdings, LLC     $(1,314)       
Net income 23,486 7.0% 11,775 5.5% 11,711 99.5%
Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC  (3,987)             (3,467)    (3,987)       
Net income attributable to One Water Marine Inc. $7,788            $20,019   $7,788       
 
Revenue
 
Overall, revenue increased by $60.4$122.2 million, or 39.3%57.1%, to $336.3 million for the three months ended December 31, 2021 from $214.1 million for the three months ended December 31, 20202020. Revenue generated from $153.7 millionsame-store sales increased 27.9% for the three months ended December 31, 2019. Revenue generated from same-store sales increased 37.9% for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019,2020, primarily due to the increased consumer demand for outdoor recreational activities driven by the impact of the COVID-19 pandemic as well as the continued execution of operational improvements on previously acquired dealers. Boating provides a safe, outdoor leisure activity that allows for maintenance of social distance policies. The increase was primarily driven by a significant increase in the number of new units sold as well as a modestan increase in the average unitselling price of new and pre-owned boats, sold.the model mix of boats sold, an increase in finance & insurance sales and an increase in service, parts and other sales. Overall revenue increased by $60.4$122.2 million as a result of a $57.8$59.6 million increase in same-store sales and a $2.6$62.6 million increase from stores not eligible for inclusion in the same-store sales base. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. As of December 31, 2020, we have acquired eight stores in fiscal year 2021. We did not make any acquisitions in fiscal year 2020.

New Boat Sales
 
New boat sales increased by $49.0$84.4 million, or 47.6%55.6%, to $151.8$236.2 million for the three months ended December 31, 20202021 from $102.9$151.8 for the three months ended December 31, 2019.2020. The increase was primarily attributable to our same-store sales growth. During the three months ended December 31, 2020 we experienced an increase in unit sales of 31.0%growth, our acquisitions and an increase in our average unit prices of 12.7% over the three months ended December 31, 2019.price. We believe the increase in units soldsales was primarily due to the shift towards outdoor leisure activity during the COVID-19 pandemic as well as the continued execution of operational improvements on previously acquired dealers. The increase in average sales price was due in part todealers, the mix of boat brands and models sold, and product improvements in the functionality andof technology of boats which continuesdrove average unit prices higher. New boat unit sales for the three months ended December 31, 2021 as compared to be a driver of consumer demand, as well asDecember 31, 2020 were flat due to industry-wide inventory and supply and demand forces as manufacturer replenishments have been slowed by the COVID-19 pandemic providing us increased leverage in the sales cycle.chain constraints.

Pre-owned Boat Sales
 
Pre-owned boat sales increased by $5.5$14.9 million, or 16.7%38.5%, to $53.4 million for the three months ended December 31, 2021 from $38.6 million for the three months ended December 31, 2020 from $33.1 million for the three months ended December 31, 2019.2020. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price. Pre-owned boat unit sales for the three months ended December 31, 2021 as compared to December 31, 2020 benefited from a 27.9% increase inwere flat due to industry-wide supply constraints. The average sales price per pre-owned unit pricefor the three months ended December 31, 2021 increased largely due to the mix of pre-owned products, and the composition of the brands and models sold during the period as well as the impactindustry-wide supply restrictions.

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Finance & Insurance Income
 
We generate revenue from arranging finance & insurance products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance companies. Finance & insurance income increased by $1.6$3.3 million, or 37.9%56.1%, to $9.3 million for the three months ended December 31, 2021 from $6.0 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31, 2019.2020. The increase was primarily due to process improvements anda result of the additional new and pre-owned sales revenue, which were primarily attributable to theincrease in same-store sales growth.sales. We remain very focused on improving sales of finance & insurance products throughout our dealer network and implementing best practices at acquired dealer groups and existing stores. Finance & insurance products held steady as a percentage of total revenue at 2.8% in the three months ended December 31, 20202021 and 2019. Since finance & insurance income is fee-based, we do not incur any related cost of sale.2020. Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer. Since finance & insurance income is fee-based, we do not incur any related cost of sale.

Service, Parts & Other Sales
 
Service, parts & other sales increased by $4.3$19.6 million, or 31.7%110.7%, to $37.3 million for the three months ended December 31, 2021 from $17.7 million for the three months ended December 31, 2020 from $13.5 million for the three months ended December 31, 2019. This2020. The increase in service, parts & other sales is primarily due to increases across the board in labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales and sales attributable tothe impact of our same-store sales growth.2021 and 2022 Acquisitions.
 
Gross Profit
 
Overall, gross profit increased by $20.2$48.5 million, or 62.9%92.5%, to $101.0 million for the three months ended December 31, 2021 from $52.4 million for the three months ended December 31, 2020 from $32.2 million for the three months ended December 31, 2019.2020. This increase was primarily due to our overall increase in same-store sales primarilywhich was driven by an increaseincreases in newall revenue streams, the impact of the 2021 and pre-owned boat sales, service, parts2022 Acquisitions and other sales, the Company’s focus on dynamic pricing and the increase in finance & insurance income.pricing. Overall gross margins increased 360550 basis points to 30.0% for the three months ended December 31, 2021 from 24.5% for the three months ended December 31, 2020 from 20.9% for the three months ended December 31, 2019 due to the factors noted below.
 
New Boat Gross Profit
 
New boat gross profit increased by $12.4$31.0 million, or 73.4%105.8%, to $60.3 million for the three months ended December 31, 2021 from $29.3 million for the three months ended December 31, 2020 from $16.9 million for the three months ended December 31, 2019.2020. This increase was primarily due to our overall increase in same-store sales. New boat gross profit as a percentage of new boat revenue was 19.3%25.5% for the three months ended December 31, 20202021 as compared to 16.4%19.3% in the three months ended December 31, 2019.2020. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations, and the expansion ofour emphasis on expanding new boat gross profit margins created by a loweramid the industry wide inventory and supply of new boat inventory in the three months ended December 31, 2020 and the leverage that created on the sale side of the transaction process.chain constraints.

Pre-owned Boat Gross Profit
 
Pre-owned boat gross profit increased by $2.9$6.0 million, or 56.2%73.2%, to $14.1 million for the three months ended December 31, 2021 from $8.1 million for the three months ended December 31, 2020 from $5.2 million for the three months ended December 31, 2019.2020. The increase in pre-owned gross profit was driven by the increase in pre-owned revenue primarily as a result of our same-store sales growth. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 21.1%26.3% and 15.7%21.1% for the three months ended December 31, 20202021 and 2019,2020, respectively. We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned boat gross profit as a percentage of revenue. Margins were also driven higher by a lower supply of pre-owned inventory in the market for the three months ended December 31, 2020. In the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019,2020, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements.
 
Finance & Insurance Gross Profit
 
Finance & insurance gross profit increased by $1.6$3.3 million, or 37.9%56.1%, to $9.3 million for the three months ended December 31, 2021 from $6.0 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31, 2019.2020. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sale.
 
Service, Parts & Other Gross Profit
 
Service, parts & other gross profit increased by $3.3$8.2 million, or 57.0%90.9%, to $17.3 million for the three months ended December 31, 2021 from $9.0 million for the three months ended December 31, 2020 from $5.8 million for the three months ended December 31, 2019.2020. Service, parts & other gross profit as a percentage of service, parts & other revenue was 51.1%46.3% and 42.8%51.1% for the three months ended December 31, 2021 and 2020, and 2019, respectively. ThisThe increase in gross profit was primarily the result of our same-store sales growth as well as the 2021 and 2022 acquisitions. The decrease in gross profit margin percentage was due to a shift in the mix of products sold towards parts & accessories which has a lower margin percentage than service and services provided as the gross profit shifted more towards service work. Additionally, due to the increased demand, we experienced an increase in utilization of our service technicians which drove margins higher.other sales.
 
Selling, General & Administrative Expenses
 
Selling, general & administrative expenses increased by $6.6$24.2 million, or 23.2%69.5%, to $59.1 million for the three months ended December 31, 2021 from $34.9 million for the three months ended December 31, 2020 from $28.3 million for the three months ended December 31, 2019.2020. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. The increase primarily consisted of a $6.6$17.0 million increase in personnel expenses. Selling, general & administrative expenses as a percentage of revenue decreasedincreased to 16.3%17.6% from 18.4%16.3% for the three months ended December 31, 20202021 and 2019,2020, respectively. The reductionincrease in selling, general &and administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company’s ability to leverage its existing expense structure to support the increase in revenue, reduction in selling expenses, including boat shows, partially offset by an increase in public company expenses.increased net profit margin.

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Depreciation and Amortization
 
Depreciation and amortization expense increased $0.2$0.8 million, or 23.2%81.6%, to $1.7 million for the three months ended December 31, 2021 compared to $1.0 million for the three months ended December 31, 2020 compared to $0.8 million for the three months ended December 31, 2019.2020. The increase in depreciation and amortization expense for the three months ended December 31, 20202021 compared to the three months ended December 31, 20192020 was primarily attributable to an increase in property and equipment with shorter useful lives as well as an increase in property and equipment from our 2021 Acquisitions.

Transaction Costs
 
The decreaseincrease in transaction costs of $0.2$2.8 million, or 54.2%1,422.5%, to $3.0 million for the three months ended December 31, 2021 compared to $0.2 million for the three months ended December 31, 2020 compared to $0.4 million for the three months ended December 31, 2019 was primarily attributable to expenses related to fiscal year 2019 acquisitions which were recorded in the three months ended December 31, 2019 exceeding transaction costs related to our acquisitions for the three months ended December 31, 2020.2022 Acquisitions.
 
Loss onChange in Fair Value of Contingent Consideration
 
During the three months ended December 31, 2020,2021, we incurred an expense of $0.4$5.7 million on the settlement of a contingent payment related to aupdated forecasts and accretion of two contingent consideration liabilities for acquisitions completed in fiscal year 2019 acquisition. There were no adjustments to contingent consideration for2021. During the three months ended December 31, 2019.2020, we incurred expense of $0.4 million related to the settlement of contingent consideration from a fiscal year 2019 acquisition.


Income from Operations
 
Income from operations increased $13.3$15.3 million, or 496.8%95.4%, to $31.3 million for the three months ended December 31, 2021 compared to $16.0 million for the three months ended December 31, 2020 compared to $2.7 million for the three months ended December 31, 2019.2020. The increase was primarily attributable to the $20.2$48.5 million increase in gross profit for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019,2020, partially offset by a $6.5$24.2 million increase in selling, general & administrative expenses and a $5.4 million increase in change in fair value of contingent consideration during the same periods.
 
Interest Expense – Floor Plan
 
Interest expense – floor plan decreased $1.7was flat at $0.9 million for each of the three months ended December 31, 2021 and December 31, 2020. Floor plan related interest expense remained flat despite our acquisitional growth due to reduced levels of inventory and elevated inventory turns.
Interest Expense – Other
Interest expense – other increased by $0.6 million, or 65.4%65.5%, to $1.5 million for the three months ended December 31, 2021 compared to $0.9 million for the three months ended December 31, 2020 compared2020. The increase in interest expense – other was related to $2.7the increase in our long-term debt which was used to fund certain 2022 acquisitions.
Other Expense (Income), Net
Other expense (income), net decreased by $0.6 million to expense of $0.5 million for the three months ended December 31, 2019. This decrease was primarily attributable to falling interest rates as well as a $94.2 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) as of December 31, 20202021 compared to December 31, 2019.
Interest Expense – Other
The decrease in interest expense – other income of $0.9 million, or 50.1%, to $0.9$0.1 million for the three months ended December 31, 2020 compared2020. The decrease was primarily due to $1.9the impact of tax rate changes on our tax receivable agreement liability.

Income Tax Expense
Income tax expense increased $2.4 million, or 94.7%, to $4.9 million for the three months ended December 31, 2019 was primarily attributable2021 compared to the payoff of our Term and Revolver Credit Facility (as defined below) and entry into the Refinanced Credit Facility (as defined below), which offers a more favorable interest rate.

Change in Fair Value of Warrant Liability
The change in fair value of warrant liability of $0.7$2.5 million for the three months ended December 31, 20192020. The increase was primarily attributable to an overall changethe 98.6% increase in the enterprise value of the Company. No charge was recorded for the three months ended December 31, 2020 as the warrants were exercised in conjunction with the Offering.
Other (Income) Expense, Net
Other (income) expense, net remained relatively flat, increasing to other income of $94,174 for the three months ended December 31, 2020 compared to other expense of $13,292 for the three months ended December 31, 2019.

Income Tax Expense
The $2.5 million increase inbefore income tax expense for the three months ended December 31, 20202021 as compared to December 31, 2020.
Net Income
Net income increased by $11.7 million to $23.5 million for the three months ended December 31, 2019 was the result of the Offering and the taxability of OneWater Inc. as a corporation.

Net Income (Loss)
Net income increased by $12.8 million2021 compared to $11.8 million for the three months ended December 31, 2020 compared to a net loss of $1.1 million for the three months ended December 31, 2019.2020. The increase was primarily attributable to the $20.2$48.5 million increase in gross profit for the three months ended December 31, 20202021 compared to December 31, 2019.2020. The increase was partially offset by the $6.6$24.2 million increase in selling, general & administrative expenses and the $2.5$5.4 million increase in income tax expensechange in fair value of contingent consideration for the three months ended December 31, 20202021 compared to the three months ended December 31, 2019.2020.
 
Comparison of Non-GAAP Financial Measure
 
We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before interest expense – other, income tax expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of warrant liability, gain (loss) onchange in fair value of contingent consideration, loss on extinguishment of debt and transaction costs.

28
Our Board,board of directors, management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and other items (such as the fair value adjustment of the warrants, change in fair value of contingent consideration, gain (loss) on contingent considerationextinguishment of debt and transaction costs) that impact the comparability of financial results from period to period. We present Adjusted EBITDA because we believe it provides useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
 
The following tables present a reconciliation of Adjusted EBITDA to our net income, (loss) to Adjusted EBITDA, which is the most directly comparable GAAP measure for the periods presented.

Three Months Ended December 31, 2020,2021, Compared to Three Months Ended December 31, 20192020
 
 
Three months ended
December 31,
  Three months ended December 31, 
Description  2020  2019  2021  2020 
 ($ in thousands)  ($ in thousands) 
Net income (loss) 
$
11,775
  
$
(1,067
)
Net income
 
$
23,486
  
$
11,775
 
Interest expense – other 
924
  
1,853
  
1,529
  
924
 
Income tax expense 
2,511
  
-
  
4,889
  
2,511
 
Depreciation and amortization 
963
  
760
  
1,749
  
963
 
Loss on contingent consideration 
377
  
-
 
Change in fair value of contingent consideration
 
5,746
  
377
 
Transaction costs
 
200
  
437
  
3,045
  
200
 
Change in fair value of warrant liability  
-
  
(771
)
Other (income) expense, net  
(94
)
  
13
 
Other expense (income), net
  
548
   
(94
)
Adjusted EBITDA 
$
16,656
  
$
1,225
  
$
40,992
  
$
16,656
 

Adjusted EBITDA was $41.0 million for the three months ended December 31, 2021 compared to $16.7 million for the three months ended December 31, 2020 compared to $1.2 million for the three months ended December 31, 2019.2020. The increase in Adjusted EBITDA resulted primarily from our 37.9%27.9% increase in same-store sales growth for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019,2020, combined with the results of our ability to increase gross profit margins and control selling, general and administrative expenses.
 
Seasonality
 
Our business, along with the entire recreational boating industry, is highly seasonal, and such seasonality varies by geographic market. With the exception of Florida, we generally realize significantly lower sales and higher levels of inventories, and related floor plan borrowings, in the quarterly periods ending December 31 and March 31. Revenue generated from our stores in Florida serves to offset generally lower winter revenue in our other states and enables us to maintain a more consistent revenue stream. The onset of the public boat and recreation shows in January stimulates boat sales and typically allows us to reduce our inventory levels and related floor plan borrowings throughout the remainder of the fiscal year. The impact of seasonality on our results of operations could be materially impacted based on the location of our acquisitions. For example, our operations could be substantially more seasonal if we acquire dealer groups that operate in colder regions of the United States. Our business is also subject to weather patterns, which may adversely affect our results of operations. For example, prolonged winter conditions, reduced rainfall levels or excessive rain, may limit access to boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products and services. In addition, unseasonably cool weather and prolonged winter conditions may lead to a shorter selling season in certain locations. Hurricanes and other storms could result in disruptions of our operations or damage to our boat inventories and facilities, as has been the case when Florida and other markets were affected by hurricanes. We believe our geographic diversity is likely to reduce the overall impact to us of adverse weather conditions in any one market area. Additionally, due to the COVID-19 pandemic, our seasonal trends may also change as a result of, among other things, store closures, disruptions to the supply chain and inventory availability, manufacturer delays, and cancellation of boat shows.
 
29
Liquidity and Capital Resources

Overview
OneWater Inc. is a holding company with no operations and is the sole managing member of OneWater LLC. OneWater Inc’s principal asset consists of common units of OneWater LLC. Our earnings and cash flows and ability to meet our obligations under the Credit Facility, and any other debt obligations will depend on the cash flows resulting from the operations of our operating subsidiaries, and the payment of distributions by such subsidiaries. Our Credit Facility and Inventory Financing Facility (described below) contain certain restrictions on distributions or transfers from our operating subsidiaries to their members or unitholders, as applicable, as described in the summaries below under “—Debt Agreements—Credit Facility” and “—Inventory Financing Facility.” Accordingly, the operating results of our subsidiaries may not be sufficient for them to make distributions to us. As a result, our ability to make payments under the Credit Facility and any other debt obligations or to declare dividends could be limited.
 
Our cash needs are primarily for growth through acquisitions and working capital to support our retail operations, including new and pre-owned boat and related parts inventories and off-season liquidity. We routinely monitor our cash flow to determine the amount of cash available to complete acquisitions of dealer groups and stores.acquisitions. We monitor our inventories, inventory aging and current market trends to determine our current and future inventory and related floorplan financing needs. Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our Credit Facilities and proceeds from any future issuances of debt or equity to fund our current operations, and essential capital expenditures and acquisitions for the next twelve months.months and beyond.
 
Cash needs for acquisitions have historically been financed with our credit facilities, including the Credit FacilitiesFacility and cash generated from operations. Our ability to utilize the Refinanced Credit Facility (as defined below) to fund operations depends upon Adjusted EBITDA and compliance with covenants of the Refinanced Credit Facility. Cash needs for inventory have historically been financed with our Inventory Financing Facility. Our ability to fund inventory purchases and operations depends on the collateral levels and our compliance with the covenants of the Inventory Financing Facility. As of December 31, 2020,2021, we were in compliance with all covenants under the Refinanced Credit Facility and the Inventory Financing Facility.


35We have no material off balance sheet arrangements, except for purchase commitments under supply agreements entered into in the normal course of business.
Cash Flows

Analysis of Cash Flow Changes Between the Three Months Ended December 31, 20202021 and 20192020
 
The following table summarizes our cash flows for the periods indicated:
 
 Three Months ended December 31, 
          Three Months ended December 31, 
Description
 2020  2019  Change  2021  2020  Change 
 ($ in thousands)  ($ in thousands) 
Net cash used in operating activities $(28,615) $(28,723) $108  $(22,825) $(28,615) $5,790

Net cash used in investing activities
 (79,963) (1,762) (78,201) (282,220) (79,963) (202,257)
Net cash provided by financing activities  70,361   29,704   40,657   305,865   70,361   235,504 
Net change in cash $(38,217) $(781) $(37,436) $820  $(38,217) $39,037 


Operating Activities. Net cash used in operating activities was $22.8 million for the three months ended December 31, 2021 compared to net cash used in operating activities of $28.6 million for the three months ended December 31, 2020 compared to net cash used in operating activities of $28.7 million for the three months ended December 31, 2019.2020. The $0.1$5.8 million decrease in cash used in operating activities was primarily attributable to a $12.8$16.7 million increase in the change in accounts payable, an $11.7 million increase in net income (loss)and a $5.8 million increase in loss on change in fair value of contingent consideration for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019. These amounts were2020. This amount was partially offset by a $5.5 million increase in payment of acquisition contingent consideration and a $4.1an $31.7 million increase in the change in inventory for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019.2020.


Investing Activities. Net cash used in investing activities was $282.2 million for the three months ended December 31, 2021 compared to net cash used in investing activities of $80.0 million for the three months ended December 31, 2020 compared to $1.8 million for the three months ended December 31, 2019.2020. The $78.2$202.3 million increase in cash used in investing activities was primarily attributable to a $77.6$201.2 million increase in cash used in acquisitions for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019.2020.
 
Financing Activities. Net cash provided by financing activities was $305.9 million for the three months ended December 31, 2021 compared to net cash provided by financing activities of $70.4 million for the three months ended December 31, 2020 compared to net cash provided by financing activities of $29.7 million for the three months ended December 31, 2019.2020. The $40.7$235.5 million increase in financing cash flow was primarily attributable to a $30.0$210.0 million increase in borrowings on long-term debt and a $3.2$39.1 million increase in net borrowings on our Inventory Financing Facility and a $3.0 million decrease in payments of costs related to our initial public offering and September offering for the three months ended December 31, 20202021 as compared to the three months ended December 31, 2019.2020.


Debt Agreements
 
Term and Revolver Credit Facility
On October 28, 2016, OneWater LLC and certain of our subsidiaries entered into a Credit and Guaranty Agreement with OWM BIP Investor, LLC, as a lender, Goldman Sachs Specialty Lending Group, L.P., as a lender, administrative agent and collateral agent, and various lender parties thereto (as amended, the “GS/BIP Credit Facility”). The as amended terms of the GS/BIP Credit Facility immediately preceding the Offering consisted of an up to $60.0 million multi-draw term loan facility (the “Multi-Draw Term Loan”) and a $5.0 million revolving line of credit (the “Revolving Facility”).

On February 11, 2020, in connection with the Offering, OneWater Inc. entered into an Amended and Restated Credit and Guaranty Agreement (the “Term and Revolver Credit Facility”), which, among other things, modified the terms of the GS/BIP Credit Facility to (i) increase the Revolving Facility from $5.0 million to $10.0 million, (ii) increase the maximum available under the Multi-Draw Term Loan from $60.0 million to $100.0 million, (iii) provide an uncommitted and discretionary multi-draw term loan accordion feature of up to $20.0 million, (iv) amend the repayment schedule of the Multi-Draw Term Loan to commence on March 31, 2022, (v) amend the scheduled maturity date of the Revolving Facility and Multi-Draw Term Loan to be February 11, 2025 and (vi) remove OWM BIP Investor, LLC as a lender. The Term and Revolver Credit Facility bore interest at a rate that was equal to, at OneWater Inc.’s option, (a) LIBOR for such interest period (subject to a 1.50% floor) plus an applicable margin of up to 7.00%, subject to step-downs to be determined based on certain financial leverage ratio measures, or (b) a base rate (subject to a 4.50% floor) plus an applicable margin of up to 6.00%, subject to step-downs to be determined based on certain financial leverage ratio measures. Interest was payable quarterly for base rate borrowings and up to quarterly for LIBOR borrowings. The Term and Revolver Credit Facility included the option for the Company to defer cash payments of interest for twelve months and add the accrued interest to the outstanding principal of the note payable. The election of this feature was made during the three months ended March 31, 2020, and as a result, the interest rate increased by 2.0% for the corresponding twelve months.
The Company borrowed an additional $35.3 million on the Multi-Draw Term Loan immediately upon closing of the agreement to bring our total indebtedness to $100 million. Additionally, during the three months ended March 31, 2020, the Company elected the option to defer cash interest payments for twelve months.
On July 22, 2020, the Company repaid in full all indebtedness outstanding under the then-existing credit facility evidenced by the Term and Revolver Credit Facility, and in connection with such repayment, all commitments thereunder were terminated and all guarantees and security interests granted in connection therewith were released. See “—Refinanced Credit Facility” for additional information.
Refinanced Credit Facility
 
Effective July 22, 2020, we and certain of our subsidiaries terminated and repaid all indebtedness outstanding under the Term and Revolver Credit Facility and entered into the Credit Agreement (the “Refinanced Credit Facility”) with Truist Bank as administrative agent, collateral agent, swingline lender and issuing bank, SunTrust Robinson Humphrey, Inc. and Synovus Bank as joint lead arrangers and joint bookrunners, Synovus Bank as documentation agent, and the lenders from time to time party thereto (collectively, the “Refinancing”).Facility. The Refinanced Credit Facility provides for a $30.0 million revolving credit 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 from time to time, and a $80.0 million term loan, which was advanced in full on July 22, 2020. Subject to certain conditions, the available amount under the revolving credit facility and the term loans may be increased by $50.0 million in the aggregate. The revolving credit facility matures on July 22, 2025. The term loan is repayable in installments beginning on March 31, 2021, with the remainder due on July 22, 2025.
30
On February 2, 2021, we entered into the Incremental Amendment No. 1 (the “First Incremental Amendment”) to the Credit Facility to provide for, among other things, an incremental term loan (the “Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $30.0 million, which was added to, and constitutes a part of, the existing $80.0 million term loan. As provided for by the First Incremental Amendment, the proceeds of the Incremental Term Loan were used to pay off the balance of the revolving credit facility, under which an aggregate of $30.0 million was outstanding as of February 1, 2021.
On November 30, 2021, we entered into the Incremental Amendment No. 2 (the “Second Incremental Amendment”) to the Credit Facility to provide for, among other things, an incremental term loan (the “Second Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $200.0 million, which will be added to, and constitute a part of, the existing $110.0 million term loan. The Second Incremental Term Loan is on the same terms (including interest rates, but excluding upfront fees, original issue discount and other similar amounts) applicable to the existing term loan under the Credit Facility and the other loan documents. As provided for by the Second Incremental Amendment, the proceeds of the Second Incremental Term Loan were used to finance the Company’s acquisition of T-H Marine. The maturity date for the Second Incremental Term Loan is the earlier of (i) July 22, 2025 or (ii) the date on which the principal amount of all outstanding term loans have been declared or automatically have become due and payable pursuant to the terms of the Credit Facility. The Second Incremental Amendment further provides for a $20.0 million increase in the existing revolving commitment (the “Incremental Revolving Increase”), which was added to, and constitutes a part of, the existing $30.0 million revolving commitment. The Incremental Revolving Increase constitutes a single class of revolving commitments with the existing revolving commitment. The Incremental Revolving Increase is secured by identical collateral and guaranties on identical terms as the existing revolving commitment. The maturity date for the Incremental Revolving Increase is the earlier of (i) July 22, 2025 and (ii) the date on which the Revolving Commitments (as defined in the Credit Facility) are terminated pursuant to the terms of the Credit Facility. As of December 31, 2020, our2021, we had $301.9 million outstanding borrowingsunder the term loan and $40.0 million outstanding under the revolving credit facility were $30.0 million.facility.
 
Borrowings under the Refinanced Credit Facility bear interest, at the Company’sOWAO’s option, at either (a) a base rate (the “Base Rate”) equal to the highest of (i) the prime rate (as announced by Truist Bank from time to time), (ii) the Federal Funds Rate, as in effect from time to time, plus 0.50%, (iii) the Adjusted LIBO Rate (defined below) determined on a daily basis for an interest period of one month, plus 1.00%, or (iv) 1.75%, plus an applicable margin of up to 2.00%, or (b) the rate per annum obtained by dividing (i) the London Inter-bankInterbank Offered Rate for such interest period by (ii) a percentage equal to 1.001.00% minus the Eurodollar Reserve Percentage (the “Adjusted LIBO Rate”) plus an applicable margin of up to 3.00%. Interest on swingline loans shall be the Base Rate plus an applicable margin of up to 2.00%. All applicable interest margins are subject to stepdownsstep-downs based on certain consolidated leverage ratio measures.
 
The Refinanced 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.

On February 2, 2021, we entered into the Incremental Amendment No. 1 (the “First Amendment”) to the Refinanced Credit Facility to provide for, among other things, an incremental term loan (the “Incremental Term Loan”) to Opco in an aggregate principal amount equal to $30.0 million, which was added to, and constitute a part of, the existing $80.0 million term loan. The First Amendment provides that the proceeds of the Incremental Term Loan wereterm loan portion of the Credit Facility, together with cash on OWAO’s balance sheet, have been used (i) to pay offfor the balance ofRefinancing, (ii) to pay the revolving credit facility, under which an aggregate of $30.0 million was outstanding as of February 1, 2021.
fees and expenses incurred in connection with the Refinancing and (iii) for working capital and general corporate purposes.

Inventory Financing Facility
 
On June 14, 2018, OneWater LLC and certain of ourits subsidiaries entered into the Fourth Amended and Restated Inventory Financing Agreement with Wells Fargo Commercial Distribution Finance, LLC and various lender parties thereto (“Wells Fargo”) (as subsequently amended and restated, the ‘‘Inventory Financing Facility’’ and, together with the Term and Revolver Credit Facility, the ‘‘Credit Facilities’’).Facility. On September 21, 2018, OneWater LLC and certain of our subsidiaries entered into the First Amendment to the Fourth Amended and Restated Inventory Financing Agreement, which, among other things, increased the maximum amount of borrowing available under the Inventory Financing Facility from $200.0 million to $275.0 million. On April 5, 2019, OneWater LLC and certain of its subsidiaries further amended the Inventory Financing Facility to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from $275.0 million to $292.5 million. On November 26, 2019, OneWater LLC and certain of its subsidiaries entered into the Fifth Amended and Restated Inventory Financing Agreement with Wells Fargo to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from $292.5 million to $392.5 million.

Effective February 11, 2020, in connection with the Offering, the CompanyIPO, OneWater Inc. and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo (as amended, the “ Sixth Inventory Financing Facility”), which amended and restated the Fifth Amended and Restated Inventory Financing Agreement, dated as of November 26, 2019, to, among other things, permit certain payments and transactions contemplated by or in connection with the Offering,IPO, including payments under the Tax Receivable Agreement. The maximum amount of borrowing available, interest rates and the termination date of the Inventory Financing Facility remained unchanged.

On July 22, 2020, the Company, OneWater LLC, Opco and certain of itsOpco’s subsidiaries entered into the First Amendment (the “First Amendment”) to the Sixth Inventory Financing Facility. The First Amendment amended the Sixth Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Refinanced Credit Facility to be $160.0 million (which includes the potential for a $50.0 million increase under the Refinanced Credit Facility), permit the payment of fees and expenses in connection with the termination of the Term and Revolver Credit Facility and the payment of present and future transaction costs incurred in connection with the negotiation, closing and ongoing administration of the Refinanced Credit Facility.

31
On December 10, 2020, the Company and certain of its subsidiaries entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing AgreementFacility to change certain compliance reporting from weekly to monthly. The maximum borrowing amount available, interest rates and the termination date of the agreement remained unchanged.

On September 23, 2021, the Company entered into the Third Amendment to the Sixth Inventory Financing Facility, (the “Third Amendment”), to, among other things, address the future discontinuance of LIBOR by clarifying the mechanics related to the transition to a replacement benchmark rate and to extend the term of the Sixth Inventory Financing Facility to November 1, 2021. The maximum borrowing amount available remained unchanged. The Sixth Inventory Financing Facility is used to purchase new and pre-owned inventory (boats, engines, and trailers).
On October 29, 2021, the Company entered into the Fourth Amendment to the Sixth Inventory Financing Facility to (a) increase the amount of Permitted Indebtedness (as defined in the Sixth Inventory Financing Facility) to $360.0 million and (b) extend the term of the Sixth Inventory Financing Facility to December 1, 2021.
On December 1, 2021, the Company entered into the Fifth Amendment the Sixth Inventory Financing Facility to (a) increase the amount of Permitted Indebtedness (as defined in the Sixth Inventory Financing Facility) to $380.0 million and (b) extend the term of the Sixth Inventory Financing Facility to January 1, 2022.
On December 29, 2021, the Company entered into the Seventh Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) to increase the maximum borrowing amount available to $500.0 million. The Inventory Financing Facility Expires on December 1, 2023.
Prior to October 1, 2021, the interest rate for amounts outstanding under the Sixth Inventory Financing Facility iswas calculated using the one month LIBOR plus an applicable margin of 2.75% to 5.00% for new boats and at the new boat rate plus 0.25% for pre-owned boats. Loans will bewere extended from time to time to enable us to purchase inventory from certain manufacturers and to lease certain boats and related parts to customers. The applicable financial terms, curtailment schedule and maturity for each loan will bewas set forth in separate program terms letters entered into from time to time. The collateral for the Sixth Inventory Financing Facility consistsconsisted primarily of our inventory that iswas financed through the Sixth Inventory Financing Facility and related assets, including accounts receivable, bank accounts, and proceeds of the foregoing, and excludes the collateral that underlies the Refinanced Credit Facility.

38Effective October 1, 2021, 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%.
We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including provisions that the Funded Debt to EBITDA Ratio (as defined in the Inventory Financing Facility) of OneWater LLC must not exceed 2.00 to 1.00, and that our Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility) on a consolidated basis must be at least 1.50 to 1.00. We are also subject to additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral underlying the Inventory Financing Facility except for the sale of inventory in the ordinary course of business, (ii) incur certain liens, (iii) engage in any material transaction not in the ordinary course of business, (iv) change our business in any material manner or our organizational structure, other than as otherwise provided for in the Inventory Financing Facility, (v) engage in certain mergers or consolidations, (vi) acquire certain assets or ownership interest of any other person or entities, except for certain permitted acquisitions, (vii) guarantee or indemnify or otherwise become in any way liable with respect to certain obligations of any other person or entity, except as provided by the Inventory Financing Facility, (viii) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of the equity of our acquired dealer groups, (ix) make any change in any of our dealer groups’ capital structure or in any of its business objectives or operations which might in any way adversely affect the ability of such dealer group to repay its obligations under the Inventory Financing Facility, (x) incur, create, assume, guarantee or otherwise become or remain liable with respect to certain indebtedness, and (xi) make certain payments of subordinated debt. OneWater LLC and its subsidiaries are generally restricted from, among other things, making cash dividends or distributions except for certain dividends or distributions to OneWater LLC’s members made during specified time frames and in an amount not to exceed 50%without the prior written consent of OneWater LLC’s consolidated net cash flow after taxes for the preceding fiscal year, provided that such dividend or distribution would not result in a default underWells Fargo Commercial Distribution Finance, LLC (the “Agent”). Under the Inventory Financing Facility. Additionally,Facility, among other exceptions, OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC. Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility.
 
On June 16, 2021, OneWater Inc. and OneWater LLC obtained a written consent from the Agent to permit the payment of the Special Dividend.
As of December 31, 20202021 and September 30, 2020,2021, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $170.3$195.6 million and $124.0$114.2 million, respectively. Certain of our manufacturers enter into independent agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the products by such manufacturer. As of December 31, 20202021 and September 30, 2020,2021, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 2.3%2.2% and 4.0%2.0%, respectively. As of December 31, 20202021 and September 30, 2020,2021, our additional available borrowings under our Inventory Financing Facility were $222.2$304.4 million and $268.5$278.3 million, respectively, based upon the outstanding borrowings and the maximum facility amount. The aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages. As of December 31, 2020,2021, we were in compliance with all covenants under the Inventory Financing Facility.
 
OWAO Preferred Units
On October 28, 2016, Goldman and Beekman entered into a Subscription Agreement with us and certain of our subsidiaries, pursuant to which Goldman and Beekman purchased preferred units in OWAO (“OWAO Preferred Units”).

3932
Goldman and Beekman purchased 45,000 and 23,000 OWAO Preferred Units, representing 66.2% and 33.8% of the total OWAO Preferred Units outstanding for purchase prices of $44.4 million and $22.7 million, respectively. The holders of the OWAO Preferred Units (“OWAO Preferred Holders”) were entitled to (i) a ‘‘preferred return’’ at a rate of 10% per annum, compounded quarterly, on (a) the aggregate amount of capital contributions made, minus any prior distributions (the ‘‘unreturned preferred amount’’), plus (b) any unpaid preferred returns for prior periods, and (ii) a ‘‘preferred target distribution’’ at a rate of 10% per annum on the unreturned preferred amount multiplied by (a) 40% for the calendar quarters ending December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019, (b) 60% for each calendar quarter ending December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020, and (c) 80% for each calendar quarter thereafter. The preferred target distribution proportionally adjusts the amount of capital contribution of each OWAO Preferred Holder. OWAO and certain affiliates were required to meet certain financial covenants, including maintenance of certain leverage ratios. Failure by OWAO to pay the preferred return and preferred target distribution, failure to meet certain financial covenants, or repayment in full or acceleration of the obligations under the GS/BIP Credit Facility would permit a majority of the OWAO Preferred Holders to require us to purchase all OWAO Preferred Units equal to the unreturned preferred amount plus any unpaid preferred returns (the ‘‘redemption amount’’). As of September 30, 2019, the redemption amount of the OWAO Preferred Units held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3 million in issuance costs.
On February 11, 2020, in connection with the Offering, we used the net proceeds from the Offering, together with cash on hand and borrowings under the Term and Revolver Credit Facility, to redeem all of the shares of OWAO Preferred Units held by Goldman and Beekman for $89.2 million.

Notes Payable
 
Acquisition Notes Payable. In connection with certain of our acquisitions of dealer groups, we have entered into notes payable agreements with the acquired entities to finance these acquisitions. As of December 31, 2020,2021, our indebtedness associated with our 74 acquisition notes payable totaled an aggregate of $11.1$7.3 million with a weighted average interest rate of 5.3%5.1% per annum. As of December 31, 2020,2021, the principal amount outstanding under these acquisition notes payable ranged from $1.0$1.1 million to $2.2 million, and the maturity dates ranged from MarchFebruary 1, 20212022 to December 1, 2023.2024.
 
Commercial Vehicles Notes Payable. Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations. Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately $92,000,$103,000, and mature on dates between March 2021February 2022 to January 2026.June 2028. As of December 31, 2020,2021, we had $3.1$3.2 million outstanding under the commercial vehicles notes payable.


Tax Receivable Agreement
 
The Tax Receivable Agreement generally provides for the payment by OneWater Inc. to certain of the OneWater Unit Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax (computed using the estimated impact of state and local taxes) that OneWater Inc. actually realizes (or is deemed to realize in certain circumstances) in periods after the OfferingIPO as a result of certain tax basis increases and certain tax benefits attributable to imputed interest. OneWater Inc. will retain the benefit of the remaining 15% of these net cash savings. To the extent OneWater LLC has available cash and subject to the terms of any current or future debt or other agreements, the OneWater LLC Agreement will require OneWater LLC to make pro rata cash distributions to OneWater Unit Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. We generally expect OneWater LLC to fund such distributions out of available cash. However, except in cases where OneWater Inc. elects to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers or other changes of control or OneWater Inc. has available cash but fails to make payments when due, generally OneWater Inc. may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest. In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, OneWater Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement. In the case of such an acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration. OneWater Inc. intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.

Off Balance Sheet Arrangements
We have no material off balance sheet arrangements, except for operating leases and purchase commitments under supply agreements entered into in the normal course of business.

Recent Accounting Pronouncements
 
As an ‘‘emerging growth company’’ (‘‘EGC’’), the Jumpstart Our Business Startups Act (‘‘JOBS Act’’) allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. The adoption dates discussed below reflect this election.
Refer toSee Note 3 of the Notes to Unauditedthe Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report for recently adopted and issued accounting pronouncements including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.Statements.
 
Critical Accounting Policies and Significant Estimates
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. The preparation of our financial statements requires the application of these accounting principles in addition to certain estimates and judgments based on current available information, actuarial estimates, historical results and other assumptions believed to be reasonable. Actual results could differ from these estimates. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Estimates” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 3, 2020, for further information regarding our critical accounting policies and significant estimates. As of December 31, 2020, there were no changes in our critical accounting policies or the application of those policies from those reported in our 2020 Annual Report.

Item 3.Quantitative and Qualitative Disclosure about Market Risk
 
Interest Rate Risk
 
Our Inventory Financing Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Inventory Financing Facility for new boats is calculated using the one-month LIBORSOFR plus an applicable margin. Based on an outstanding balance of $170.3$195.6 million as of December 31, 2020,2021, a change of 100 basis points in the underlying interest rate would have caused a change in interest expense of $1.7$2.0 million. We do not currently hedge our interest rate exposure. This hypothetical increase does not take into account a corresponding increase to the programs that we may receive from our manufacturers or management’s ability to curtail inventory and related floor plan balances, both of which would reduce the impact of the interest rate increase.
 
Our Refinanced Credit Facility exposes us to risks caused by fluctuations in interest rates. The interest rate on our Refinanced Credit Facility is calculated using the one-month LIBOR (with a 0.75% floor) plus an applicable margin. Based on an outstanding balance of $80.0$301.9 million and the one-month LIBOR as of December 31, 2020,2021, an increase of 100 basis points in the underlying interest rate would have caused a change in interest expense of approximately $0.3$1.1 million. A basis points reduction in the underlying interest rate would not have caused a change in interest expense. We do not currently hedge our interest rate exposure.


Foreign Currency Risk
 
We purchase certain of our new boat and parts inventories from foreign manufacturers. Although we purchase our inventories in U.S. dollars, our business is subject to foreign exchange rate risk that may influence manufacturers’ ability to provide their products at competitive prices in the United States. To the extent that we cannot recapture this volatility in prices charged to customers or if this volatility negatively impacts consumer demand for our products, this volatility could adversely affect our future operating results.

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Item 4.Controls and Procedures
 
Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met and to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) during the three months ended December 31, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II – OTHER INFORMATION
 
Item 1.Legal Proceedings
 
Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, would have a material adverse effect on our financial condition, cash flows or results of operations.
 
Item 1A.Risk Factors
 
In addition to the information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2021, filed with the SEC on December 3, 202017, 2021, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results. There have been no material changes in our risk factors from those described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020,2021, filed with the SEC on December 3, 2020.17, 2021.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.
Defaults Upon Senior Securities

None.
 
Item 4.
Mine Safety Disclosures
 
Not Applicable.
 
Item 5.
Other Information


None.
 
4334
Item 6.
Exhibits


EXHIBIT INDEX
ONEW 10-Q Exhibit Table

Exhibit No.
Description
2.1
Description
Equity Purchase Agreement, dated as of October 20, 2021, by and among One Water Assets & Operations, LLC, THMS Holdings, LLC, THMS, Inc. and T-H Marine Supplies, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on October 22, 2021).
3.1
Amended and Restated Certificate of Incorporation of OneWater Marine Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on February 18, 2020).
3.2
Amended and Restated Bylaws of OneWater Marine Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on February 18, 2020).
10.1*10.1
SecondIncremental Amendment to Sixth Amended and Restated Inventory Financing Agreement,No. 2, dated as of December 10, 2020, between Wells Fargo Commercial Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto.

10.2¥
Incremental Amendment No. 1, dated February 2,November 30, 2021, by and among One Water Assets & Operations, LLC, One Water Marine Holdings, LLC, OneWater Marine Inc., each of the other Guarantors from time to time party thereto, the Lenders party thereto and Truist Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on February 4,December 2, 2021).
31.1*10.2
Fourth Amendment to Sixth Amended and Restated Inventory Financing Agreement, dated as of October 29, 2021, between Wells Fargo Commercial Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on November 2, 2021).
10.3
Fifth Amendment to Sixth Amended and Restated Inventory Financing Agreement and Consent Agreement, dated as of December 1, 2021, between Wells Fargo Commercial Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on December 7, 2021).
10.4
Seventh Amended and Restated Inventory Financing Agreement, dated as of December 29, 2021, between Wells Fargo Commercial Distribution Finance, LLC as Agent for the several financial institutions that may from time to time become party thereto and Dealers that may from time to time become party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on January 4, 2022).
10.5
Fourth Amended and Restated Guaranty, dated December 29, 2021, entered into by Anthony Aisquith, for the benefit of Wells Fargo Commercial Distribution Finance, LLC, as Agent to the A&R Inventory Financing Facility (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on January 4, 2022).
10.6
Fourth Amended and Restated Guaranty, dated December 29, 2021, entered into by Philip Austin Singleton, Jr., for the benefit of Wells Fargo Commercial Distribution Finance, LLC, as Agent to the A&R Inventory Financing Facility (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, File No. 001-39213, filed with the Commission on January 4, 2022).
*31.1
Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
*31.2*31.2
Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).
**32.1**32.1
Certification of the Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
**32.2**32.2
Certification of the Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
101.INS(a)
101.INS(a)
Inline XBRL Instance Document.
101.SCH(a)
101.SCH(a)
Inline XBRL Schema Document.
101.CAL(a)
101.CAL(a)
Inline XBRL Calculation Linkbase Document.
101.DEF(a)
101.DEF(a)
Inline XBRL Definition Linkbase Document.
101.LAB(a)
101.LAB(a)
Inline XBRL Labels Linkbase Document.
101.PRE(a)
101.PRE(a)
Inline XBRL Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*
Filed herewith.
 
**
Furnished herewith.
 
¥
Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request.

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

ONEWATER MARINE INC.

(Registrant)
   
 
By:
/s/ Philip Austin Singleton, Jr.

 
Philip Austin Singleton, Jr.

 
Chief Executive Officer
   
 
By:
/s/ Jack Ezzell

 
Jack Ezzell

 
Chief Financial Officer
February 11, 2021


45
February 8, 2022


36