What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-11 compared with 2020-08-06 · 1243 added, 690 removed, 214 unchanged (90% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosure about Market Risk

Controls and Procedures

PART II – OTHER INFORMATION

Legal Proceedings

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

Mine Safety Disclosures

Other Information

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, filed with the U.S.

Securities and Exchange Commission (the “SEC”) on December 3, 2020, 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 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;

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;

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;

our ability to manage our inventory and retain key personnel;

environmental conditions and real or perceived human health or safety risks;

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;

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” in our Annual Report on Form 10-K for the year ended September 30, 2020 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.

PART I – FINANCIAL INFORMATION

Condensed Consolidated Financial Statements (Unaudited)

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands, except par value and share data)

September 30,

Current assets:

Restricted cash

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Other assets:

Deferred tax assets

Identifiable intangible assets

Total other assets

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

Other payables and accrued expenses

Customer deposits

Notes payable – floor plan

Current portion of long-term debt

Total current liabilities

Long-term Liabilities:

Other long-term liabilities

Tax receivable agreement liability

Long-term debt, net of current portion and unamortized debt issuance costs

Total liabilities

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

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,

Additional paid-in capital

Retained earnings

Total stockholders’ equity attributable to OneWater Marine Inc.

Equity attributable to non-controlling interests

Total stockholders’ equity

Total liabilities and stockholders’ equity

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands except per share data)

Three Months Ended

New boat sales

Pre-owned boat sales

Finance & insurance income

Service, parts & other sales

Total revenues

Cost of sales (exclusive of depreciation and amortization shown separately below)

Pre-owned boat

Service, parts & other

Total cost of sales

Selling, general and administrative expenses

Depreciation and amortization

Transaction costs

Loss on contingent consideration

Income from operations

Other expense (income)

Interest expense – floor plan

Interest expense – other

Change in fair value of warrant liability

Other (income) expense, net

Total other expense, net

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net income attributable to non-controlling interests

Net loss attributable to One Water Marine Holdings, LLC

Net income attributable to non-controlling interests of One Water Marine Holdings, LLC

Net income attributable to OneWater Marine Inc

Earnings per share of Class A common stock – basic

Earnings per share of Class A common stock – diluted

Basic weighted-average shares of Class A common stock outstanding

Diluted weighted-average shares of Class A common stock outstanding

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY

($ in thousands)

Class A Common Stock

Class B Common Stock

Redeemable Preferred Interest in Subsidiary

Members’ Equity

Additional Paid-in Capital

Retained Earnings

Non-controlling Interest

Total Stockholders’ and Members’ Equity

Balance at September 30, 2020

Distributions to members

Effect of September offering, including underwriter exercise of option to purchase shares

Exchange of B shares for A shares

Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis

Equity-based compensation

Balance at December 31, 2020

Class A Common Stock

Class B Common Stock

Redeemable Preferred Interest in Subsidiary

Members’ Equity

Additional Paid-in

Retained Earnings

controlling Interest

Total Stockholders’ and Members’ Equity

Balance at September 30, 2019

Net (loss) income

Distributions to members

Accumulated unpaid preferred returns

Accretion of redeemable preferred and issuance costs

Equity-based compensation

Balance at December 31, 2019

ONEWATER MARINE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

Three Months Ended December 31,

Net income (loss)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Depreciation and amortization

Equity-based awards

Gain on asset disposals

Change in fair value of long-term warrant liability

Non-cash interest expense

Deferred income tax provision

Payment of acquisition contingent consideration

(Increase) decrease in assets:

Accounts receivable

Prepaid expenses and other current assets

Increase (decrease) in liabilities:

Accounts payable

Other payables and accrued expenses

Customer deposits

Net cash used in operating activities

Cash flows from investing activities

Purchases of property and equipment and construction in progress

Proceeds from disposal of property and equipment

Cash used in acquisitions

Net cash used in investing activities

Cash flows from financing activities

Net borrowings from floor plan

Proceeds from long-term debt

Payments on long-term debt

Payments of debt issuance costs

Payments of initial public offering costs

Payments of September offering costs

Payment of acquisition contingent consideration

Distributions to redeemable preferred interest members

Distributions to members

Net cash provided by financing activities

Net change in cash

Cash and restricted cash at beginning of period

Cash and restricted cash at end of period

Supplemental cash flow disclosures

Cash paid for interest

Cash paid for income taxes

Noncash items

Acquisition purchase price funded by seller notes payable

Acquisition purchase price funded by contingent consideration

Accrued purchase consideration

Purchase of property and equipment funded by long-term debt

Distributions, declared not yet paid

OneWater Marine Inc.

and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

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”) 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 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

As of December 31, 2020, the Company operates a total of 69 stores in ten states, consisting of Alabama, Florida, Georgia, Kentucky, Maryland, Massachusetts, North Carolina, Ohio, South Carolina, and Texas.

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.

influences such as corporate downsizing, inclement weather such as hurricanes and other storms, environmental conditions, and other events could adversely affect the Company’s operations in certain markets and in certain periods.

Any extended period

of adverse economic conditions or low consumer confidence is likely to have a negative effect on the Company’s business.

Sales of new boats from the Company’s top ten brands represent approximately 41.2% and 41.8% of total sales for the three months ended December 31, 2020 and 2019, respectively, making them major

suppliers of the Company.

Of this amount, Malibu Boats, Inc, including its brands Malibu, Axis, Cobalt, Pursuit, Maverick, Hewes, Cobia and Pathfinder accounted for 13.7% and 15.3% of our consolidated revenue for the three months ended December 31,

2020 and 2019, 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

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

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 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, the

“Subsidiaries”), conducts its business.

As a result, OneWater Inc.

consolidates the financial results of OneWater LLC and its subsidiaries and reports non-controlling interests related to the portion of units of OneWater LLC (the “OneWater LLC

Units”) not owned by OneWater Inc., which will reduce net income (loss) attributable to OneWater Inc.’s Class A stockholders.

As of December 31, 2020, OneWater Inc.

owned 72.6% of the economic interest of OneWater LLC.

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.

All adjustments, consisting of only normal recurring adjustments considered necessary for fair presentation, have been reflected in these unaudited condensed consolidated financial

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 on the guidance of local governments and health officials, we

temporarily closed or reduced staffing at certain departments and locations during portions of 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 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, may negatively impact the Company’s future results of operations.

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.

Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The Company’s financial instruments include cash, accounts receivable, accounts payable, other payables and accrued expenses and debt.

The carrying values of cash, accounts receivable, accounts

payable and other payables and accrued expenses approximate their fair values due to their short-term nature.

The carrying value of debt approximates its fair value due to the debt agreements bearing interest at rates that approximate current market

rates for debt agreements with similar maturities and credit quality.

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 FASB Accounting Standards Codification 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.

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 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 Company collects sales tax on all of the Company’s sales to nonexempt customers and remits the entire amount to the states that imposed the sales tax on and concurrent with specific sales

transactions.

The Company’s accounting policy is to exclude the tax collected and remitted to the states from revenues and cost of sales.

Revenue Recognition

Revenue is recognized from the sale of products and commissions earned on new and pre-owned boats (including used, brokerage, consignment and wholesale) when ownership is transferred to the

customer, which is generally upon acceptance or delivery to the customer.

At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits at such time.

We are the principal with respect

to revenue from new, used, 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

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 and $1.5 million as of December 31, 2020 and September 30, 2020, respectively.

Contract assets related to the repair and maintenance services are transferred to receivables when a repair order is completed

and invoiced to the customer.

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.

acting as an agent in the transaction, therefore the commission is recorded on a net basis.

Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be

assessed a chargeback for a portion of the transaction price 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 of December 31, 2020.

Contract liabilities consist of deferred revenues from marina and storage operations and customer deposits and are classified in customer deposits in the Company’s unaudited condensed consolidated

balance sheets.

Deposits received from customers are recorded as a liability until the related sales orders have been fulfilled by us and control of the vessel is transferred to the customer.

The activity in customer deposits for the three months

ended December 31, 2020 is as follows:

($ in thousands)

Ended December

Beginning contract liability

Revenue recognized from contract liabilities included in the beginning balance

Increases due to cash received, net of amounts recognized in revenue during the period

Ending contract liability

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

Ended December

Goods and services transferred at a point in time

Goods and services transferred over time

Total Revenue

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.

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

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 value of warrants and accruals for expenses relating to

business operations.

Segment Information

As of December 31, 2020 and September 30, 2020, the Company had one 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.

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

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.

plans to adopt ASU 2016-13 in fiscal year 2024.

In December 2019, the FASB issued ASU 2019-12, “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 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 within fiscal years beginning after December 15, 2022.

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 2023.

In March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform” , which provides temporary optional guidance to companies impacted by the

transition away from the London Inter-bank 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.

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 was

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.

The valuation of

tangible assets and assumed liabilities is preliminary as the acquisitions are subject to certain customary closing and post-closing adjustments.

Tom George Yacht Group Acquisition

On December 1, 2020, we acquired substantially all of the assets of Tom George Yacht Group (TGYG”) with two locations in Florida.

TGYG enhances the Company’s presence on the west coast of Florida

and expands new and pre-owned boat sales, as well as yacht brokerage, service and parts.

The purchase price was $10.2 million with $8.2 million paid at closing and $2.1 million financed through a note payable to the seller bearing interest at a rate

of 5.5% per year.

The note is payable in one lump sum three years from the closing date, with interest payments due quarterly.

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

Summary of Assets Acquired and Liabilities Assumed

($ in thousands)

Tangible assets

Identifiable intangible assets

Liabilities assumed

Total purchase price

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.

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

The minimum payout due on the acquisition contingent consideration is $0.1 million.

The maximum amount of the earnout is unlimited.

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

Identifiable intangible assets

Total purchase price

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

Other tangible assets

Identifiable intangible assets

Liabilities assumed

Total purchase price

Included in our results for the three months ended December 31, 2020, TGYG contributed $2.1 million to our consolidated revenue and $0.2 million 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.

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 accompanying consolidated statements of operations as incurred in the amount of $0.2 million for the three months ended December 31, 2020.

Financial information from our acquisitions for the three months ended December 31, 2019 and the three months ended December 31, 2020 prior to the acquisition dates was 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 this pro forma disclosure.

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 to be deductible for federal income tax purposes.

Inventories consisted of the following at:

($ in thousands)

Pre-owned vessels

Work in process, parts and accessories

Total inventories

Goodwill and Other Identifiable Intangible Assets

The Company reviews goodwill for impairment annually in the fiscal fourth quarter, or more often if events or circumstances indicate that impairment may have occurred.

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.

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)

Balance as of September 30, 2020

Goodwill acquisitions during the year

Balance as of December 31, 2020

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

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.

($ in thousands)

Identifiable Intangible Assets

Balance as of September 30, 2020

Identifiable intangible assets acquisitions during the year

Balance as of December 31, 2020

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, the Company entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) 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.

The Inventory Financing Facility is used to purchase new and pre-owned inventory (boats, engines, and trailers).

The outstanding

balance of the facility was $170.3 million and $124.0 million, as of December 31, 2020 and September 30, 2020, respectively.

Interest on new boats and for rental units is calculated using the one month London Inter-bank Offering Rate (“LIBOR”) plus an applicable margin of 2.75% to 5.00% depending on the age of the

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, 2020 the interest rate on the Inventory

Financing Facility ranged from 2.89% to 5.14% for new inventory and 3.14% to 5.39% for pre-owned inventory.

As of September 30, 2020 the interest rate on the Inventory Financing Facility ranged from 2.90% to 5.15% for new inventory and 3.15% to 5.40%

for pre-owned inventory.

Borrowing capacity available at December 31, 2020 and September 30, 2020 was $222.2 million and $268.5 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

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.

Long-term Debt and Line of Credit

Long-term debt consisted of the following at:

($ in thousands)

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

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

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

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

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

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

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

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

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

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

Total debt outstanding

Less current portion (net of current debt issuance costs)

Less unamortized portion of debt issuance costs

Long-term debt, net of current portion of unamortized debt issuance costs

The term note payable to Truist Bank 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.

Stockholders’ and Members’ Equity

Equity-Based Compensation

In periods prior to 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 OneWater Inc.

(the “Board”) adopted an LTIP to incentivize individuals providing services to OneWater Inc.

and its subsidiaries and

The LTIP provides for the grant, from time to time, at the discretion of 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.

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, the Board approved the grant of 39,239 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 2021 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 three equal annual installments, commencing on October 1, 2022.

Upon vesting, each performance-based restricted stock

unit equals one 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, 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 the three months ended December 31, 2020.

On October 1, 2020, the Board approved the grant of 101,781 time-based vesting restricted stock units.

25,622 restricted stock units fully vest on October 1, 2021 and the remaining 76,159 restricted stock units vest in

four equal annual installments commencing on September 30, 2021.

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

Restricted Stock Unit Awards

Weighted Average

Grant Date Fair

Unvested at September 30, 2020

Unvested at December 31, 2020

Compensation cost for 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-line basis over the applicable vesting periods.

For the three months ended December 31, 2020, the Company recognized $1.1 million of compensation expense.

As of December 31, 2020, the total unrecognized compensation expense related to outstanding equity awards

was $5.0 million, which the Company expects to recognize over a weighted-average period of 1.6 years.

Investor Voting Warrants

On October 28, 2016, the Company issued 25,000 OneWater LLC 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.

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.

previously noted, the common unit warrants were exercised in connection with the Offering for common units 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 prior to the Offering.

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

Diluted earnings per share is computed by giving effect to all potentially dilutive shares.

There were no shares of Class A or Class B common stock outstanding prior to the Offering on February 11, 2020, therefore no earnings per share information has been presented for the three months ended December 31, 2019.

The following table sets forth the calculation of earnings per share for the three months ended December 31, 2020 (in thousands, except per share data):

Earnings per share:

Ended December

Net income attributable to OneWater Inc

Weighted-average number of unrestricted outstanding common shares used to calculate basic net income per share

Effect of dilutive securities:

Restricted stock units

Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net income per share

Earnings per share of Class A common stock – basic

Earnings per share of Class A common stock – diluted

Shares of Class B common stock 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):

Ended December

Class B common stock

Restricted stock units

Redeemable Preferred Interest in Subsidiary

On September 1, 2016, the Company organized OWAO.

As of September 30, 2016, OWAO was not funded.

In conjunction with Goldman and Beekman, OneWater LLC contributed a majority of its assets,

including subsidiaries operating all of its retail operations, to OWAO in return for 100,000 common units.

Additionally, as a part of 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 the consolidated balance sheets.

The discount on the issuance of the redeemable preferred interest was being

accreted to members’ equity as a dividend from the date of issuance through the fifth anniversary of the issuance date.

On February 11, 2020, in connection with the Offering, OWAO used $89.2 million in cash to fully redeem the preferred interest in

subsidiary held by Goldman and Beekman.

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 rate of 17.6% for the three months ending December 31, 2020 differs from statutory rates primarily due to earnings allocated to non-controlling interests.

The Company recognizes deferred tax assets to the extent it believes these assets are more-likely-than-not to be realized.

In making such a determination, the Company considers all available

positive and negative evidence, including future reversals of existing 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, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist.

The Company is not currently subject to income tax

audits in any U.S.

or state jurisdiction for any tax year.

Tax Receivable Agreement

In connection with the Offering, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the owners of OneWater LLC.

As of December 31, 2020 and

September 30, 2020, our liability under the Tax Receivable Agreement was $17.6 million and $15.6 million, respectively, representing 85% of the calculated net cash savings in U.S.

federal, state and local income tax and franchise tax that OneWater

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 under the Tax Receivable

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 Company 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

In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our consolidated statements of operations.

Contingencies and Commitments

The Company recorded rent expense of $3.2 million and $2.9 million during the three months ended December 31, 2020 and 2019, respectively.

The Company leases certain facilities and equipment under

noncancelable operating lease agreements having terms in excess of one year expiring through 2037.

Acquisition Contingent Consideration

As of December 31, 2020, the Company has recorded an estimate of contingent consideration for a fiscal year 2021 acquisition in the amount of $4.8 million.

The acquisition contingent consideration

liability is accounted for based on inputs that are unobservable and significant to the overall fair value measurement (Level 3).

The estimated contingent consideration balance at December 31, 2020 is recorded in Other payables and accrued expenses

and Other long-term liabilities in the unaudited condensed consolidated balance sheets.

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.

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.

Related Party Transactions

In accordance with agreements approved by the Board, we purchased inventory, in conjunction with our retail sale of the inventory, from certain entities affiliated with common members of the

For the three months ended December 31, 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.

In accordance with agreements approved by the Board, certain entities affiliated with common members of the Company receive fees for rent of commercial property.

For the three months ended

December 31, 2020 and 2019, $0.6 million in total expenses were incurred under these arrangements.

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.

three months ended December 31, 2020 and 2019, $0.1 million were recorded under these arrangements.

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.

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 was due $6,462 and $0.1 million as recorded within accounts receivable as of both December 31, 2020 and September 30, 2020.

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.

Subsequent events

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, the Company and certain 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 payable pursuant to the terms of the Credit Agreement.

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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

7 unchanged sentences

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 the Final Prospectus filed by OneWater Marine

and in the other related OneWater Marine Inc.

filings with the SEC, 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.

We believe that we are the largest and one of the fastest-growing premium recreational boat retailers in the United States with 63 stores comprising 21 dealer groups in 11 states.

groups are located in highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic and Northeast, including Texas, Florida, Alabama, North Carolina, South Carolina, Georgia, Ohio and New York, which collectively comprise eight of the

top twenty states for marine retail expenditures.

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, filed with the U.S.

Securities and Exchange Commission (the “SEC”) on December 3, 2020, 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.

We believe that we are one of the largest and fastest-growing premium recreational boat retailers in the United States with 69 stores comprising 24 dealer groups in 10 states.

Our dealer groups

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, which collectively comprise seven of the top twenty

states for marine retail expenditures.

We believe that we are a market leader by volume in sales of premium boats in 12 out of the 15 markets in which we operate.

In fiscal year 2019, we sold over 8,500 new and pre-owned boats, 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, 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.

In fiscal year 2020, we sold over 10,100 new and pre-owned boats, 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, 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.

Since the combination in 2014, we have acquired a total of 49 additional stores through 20 acquisitions.

Our current portfolio as of June 30, 2020 consists of 21 different local and regional dealer groups.

this, we believe we are the largest and one of the fastest-growing premium recreational boat retailers in the United States based on number of stores and total boats sold.

While we have opportunistically opened new stores in select markets, we

believe that it is generally more effective economically and operationally to acquire existing stores with experienced staff and established reputations.

Our current portfolio as of December 31, 2020 consists of 24 different local and regional dealer

Because of this, we believe we are one of the largest and fastest-growing premium recreational boat retailers in the United States based on number of stores and total boats sold.

While we have opportunistically opened new stores in select

markets, we believe that it is generally more effective economically and operationally to acquire existing stores with experienced staff and established reputations.

The boat dealer market is highly fragmented and is comprised of over 4,000 stores nationwide.

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We place the utmost importance on the safety and well-being of our employees and in compliance with guidelines issued by the World Health Organization (WHO), the Centers for Disease Control and Prevention (CDC) and

federal, state or local authorities, we closed or reduced staffing at certain locations during the three and nine months ended June 30, 2020.

We have implemented cleaning and social distancing techniques at each of our locations.

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.

federal, state or local authorities, we closed or reduced staffing at certain locations during portions of the fiscal year ended September 30, 2020.

We have implemented cleaning and social distancing techniques

at each of our locations.

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 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 shortages of inventory, but it is possible that such a shortage could occur as a result of the COVID-19 pandemic and its

effects on, among other things, supply chains, operations and consumer demand.

To date, we have not experienced any significant shortages of inventory, but it is possible that a significant shortage could occur as a result of the

COVID-19 pandemic and its effects on, among other things, supply chains, operations and consumer demand.

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 recent 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 June 30, 2020 suggest that spending in all our regions and across product

lines has proven remarkably resilient despite the challenges posed by the pandemic as families have increasingly focused on socially-distanced, outdoor recreation, driving a material increase in sales.

We believe that, as a result of COVID-19, the

cancellation of summer activities including air travel and vacations that have historically competed with time on the water has led to increased sales during the three months ended June 30, 2020.

Though the COVID-19 pandemic did not adversely affect our financial position for the three and nine months ended June 30, 2020 relative to the three and nine months ended June 30, 2019, the

ultimate impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors, including the existence and extent of a prolonged economic downturn, the resurgence of COVID-19 in certain geographic areas, consumer demand

and the ability to safely and legally operate our stores.

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, 2020 suggest that spending in all our regions and across

product lines has proven remarkably resilient despite the challenges posed by the pandemic as families have increasingly focused on 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, the ultimate

impact of the COVID-19 pandemic on our business remains uncertain and dependent on various factors, including 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.

Trends and Other Factors Impacting Our Performance

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remains focused on expanding our dealership in regions with strong boating cultures, enhancing the customer experience, and generating value for our shareholders.

We have an extensive acquisition track record within the boating industry and believe we have developed a reputation for treating sellers and their staff in an honest and fair

We typically retain the management team and name of the acquired dealerships.

We have an extensive acquisition track record within the boating industry and believe we have developed a reputation for treating sellers and their staff in an honest and fair manner.

typically retain the management team and name of the acquired dealerships.

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 dealers who want to sell their businesses.

We believe our reputation and scale have positioned us

as a buyer of choice for boat dealers 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.

While we previously announced our decision to pause our acquisition strategy due

to the COVID-19 pandemic, given our financial results for the three months ended June 30, 2020, we are recommencing our acquisition strategy and opportunistically evaluating future acquisitions.

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

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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.

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.

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.

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

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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 accounting principles generally accepted in the United States (‘‘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

We are the principal with respect to revenue from new, used 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, and therefore the

fee or commission is recorded on a net basis.

Revenue from parts and service operations (boat maintenance and repairs) is recorded over time as services are performed.

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.

Prior to the adoption of ASU 2014-09 (as defined below), revenue from parts and service operations were recognized when the customer took delivery of the part or serviced boat.

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.

our agreements and in the event of early cancellation of such loans or insurance contracts by the customer, we may be assessed a charge back for a portion of the transaction price by the third-party financial institutions and insurance companies.

constrain our estimate of variable consideration associated with chargebacks based on our historical experience with repayments or defaults.

Chargebacks were not material to the unaudited condensed consolidated financial statements for the three and

nine months ended June 30, 2020 and June 30, 2019.

Vendor Consideration Received

Consideration received from vendors is accounted for in accordance with FASB Accounting Standards Codification 330, ‘‘Inventory’’ (‘‘ASC 330’’).

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.

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.

Therefore, we generally do not maintain a reserve for boat inventory.

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 $0.9 million and $0.5 million at June 30, 2020 and September 30, 2019, respectively.

Goodwill and Other Intangible Assets

Goodwill and intangible assets are accounted for in accordance with FASB Accounting Standards Codification 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.

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.

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.

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.

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.

As of June 30, 2020, and based on upon our most recent quantitative assessment on March 31, 2020, we determined that it is not “more likely than not” that the fair value of our reporting unit is less than its carrying value.

result, we were not required to perform a quantitative goodwill impairment test.

We performed a qualitative assessment as of September 30, 2019, and we determined that it was not “more likely than not” that the fair value of our reporting unit was less than its carrying

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 is 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.

As of June 30, 2020, and based upon our most recent quantitative assessments on March 31, 2020, we determined 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 quantitative identifiable intangible asset impairment tests.

We performed qualitative assessments as of September 30, 2019, and we determined that it was not “more likely than not” that the fair value of our reporting units were less than their carrying

Impairment of Long-Lived Assets

FASB ASC 360-10-40, “ Property, Plant, and Equipment – Impairment or Disposal of Long-Lived Assets” (‘‘ASC 360-10-40’’), requires that long-lived assets,

such as property, equipment and purchased intangibles subject to amortization, be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If such an indication is present,

the carrying amount of the asset is compared to the estimated undiscounted cash flows related to that asset.

We would conclude that an asset is impaired if the sum of such expected future cash flows is less than the carrying amount of the related

If an asset is impaired, the impairment loss would be the amount by which the carrying amount of the related asset exceeds its fair value.

The Company did an assessment of potential triggering events and considered qualitative factors noting

no impairment existed as of June 30, 2020.

We do not believe there is a reasonable likelihood that there will be a change in the future estimates or assumptions used to test for recoverability which would result in a material effect on our operating

Fair Value of Financial Instruments

In determining fair value, we use various valuation approaches including market, income and cost approaches.

FASB Topic 820, Fair Value Measurements, 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 our expectation of the assumptions that market participants would use in pricing the asset or liability,

developed based on the best information available in the circumstances.

The grant date fair value of equity-based compensation and the fair value of certain warrants previously held by affiliates of Goldman Sachs & Co.

LLC and certain of its affiliates

(collectively, “Goldman”) and affiliates of The Beekman Group (“Beekman”) (such warrants, the “LLC Warrants”) were both based upon inputs that are unobservable and significant to the overall fair value measurement.

Our valuation considered both a

market approach and an income approach in determining fair value.

While both approaches resulted in similar values, the market approach was weighted 25% and the income approach was weighted 75% since there are very few comparable marine related

market participants.

For the income approach, we projected long-term growth rates and cash flows and then discounted such values using a weighted average cost of capital.

Such fair value measurements are highly complex and subjective in nature.

Accordingly, a significant degree of judgment is required to estimate these fair value measurements.

Post-Offering Taxation and Public Company Costs

One Water Marine Holdings, LLC (“OneWater LLC”) is and has been organized as a pass-through entity for U.S.

federal income tax purposes and is therefore not subject to entity-level U.S.

income taxes.

OneWater Marine Inc.

(“OneWater Inc”) was incorporated as a Delaware corporation on April 3, 2019 and therefore, after the consummation of the initial public offering (the “Offering”), is subject to U.S.

federal income taxes and

additional state and local taxes with respect to its allocable share of any taxable income of OneWater LLC and will be taxed at the prevailing corporate tax rates.

In addition to tax expenses, OneWater Inc also will incur expenses related to its

operations, plus payment obligations under the Tax Receivable Agreement, which are expected to be significant.

To the extent OneWater LLC has available cash and subject to the terms of any current or future debt instruments, the Amended and Restated

Limited Liability Company Agreement of OneWater LLC (the ‘‘OneWater LLC Agreement’’) will require OneWater LLC to make pro rata cash distributions to OneWater Unit Holders (as defined below), including OneWater Inc, in an amount sufficient to allow

OneWater Inc to pay its taxes and to make payments under the Tax Receivable Agreement.

In addition, the OneWater LLC Agreement will require OneWater LLC to make non-pro rata payments to OneWater Inc to reimburse it for its corporate and other

overhead expenses, which payments are not treated as distributions under the OneWater LLC Agreement.

See ‘‘—Tax Receivable Agreement’’ and ‘‘Certain Relationships and Related Party Transactions—Tax Receivable Agreement’’ in our Final Prospectus.

In addition, we expect to incur incremental, non-recurring costs related to our transition to a publicly traded corporation, including the costs of the Offering and the costs associated with the

initial implementation of our internal control reviews and testing pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the ‘‘Sarbanes-Oxley Act’’).

We also expect to incur additional significant and recurring expenses as a publicly traded

corporation, including costs associated with compliance under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), annual and quarterly reports to common stockholders, registrar and transfer agent fees, national stock exchange

fees, audit fees, incremental director and officer liability insurance costs and director and officer compensation.

We expect our core strengths, including retail and acquisition strategies, will allow us to capitalize

on growth opportunities as they occur, despite market conditions.

How We Evaluate Our Operations

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Although non-boat

sales contributed 8.7% and 10.2% to revenue in the three months ended June 30, 2020 and 2019, respectively, and 9.6% and 11.0% in the nine months ended June 30, 2020 and 2019, respectively, due to the higher gross margin on these product and service

lines, non-boat sales contributed 27.5% and 31.3% to gross profit in the three months ended June 30, 2020 and 2019, respectively, and 28.8% and 31.1% to gross profit in the nine months ended June 30, 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 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.

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 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.

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.

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.

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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

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.

typically evaluate our variable expenses, selling expenses and all other SG&A expenses in the aggregate as a percentage of total revenue.

Selling, general, and administrative (‘‘SG&A’’) expenses consist primarily of salaries and incentive-based compensation, advertising, rent, insurance, utilities, and other customary

operating expenses.

We typically evaluate our variable expenses, selling expenses and all other SG&A expenses in the aggregate as a percentage of total revenue.

Same-Store Sales

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Adjusted EBITDA

We define Adjusted EBITDA as net income before interest expense – other, income taxes, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items

such as the change in the fair value of warrants, gain (loss) on settlement of contingent consideration 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 GAAP.

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) on 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

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Fiscal Year 2021 Acquisitions

Effective December 1, 2018, OneWater LLC acquired substantially all of the assets of The Slalom Shop, LLC, a dealer group based in Texas with two stores.

Effective February 1, 2019, OneWater LLC acquired substantially all of the assets of Ray Clepper, Inc., d/b/a Ray Clepper Boat Center, a dealer group based in South Carolina with one store.

Effective February 1, 2019, OneWater LLC acquired substantially all of the assets of Ocean Blue Yacht Sales, LLC, a dealer group based in Florida with three stores.

Effective May 1, 2019, OneWater LLC acquired substantially all of the assets of Caribee Boat Sales and Marina, Inc., a dealer group based in Florida with one store.

Effective August 1, 2019, OneWater LLC acquired substantially all of the assets of Central Marine, a dealer group based in Florida with three stores.

We refer to the fiscal year 2019 acquisitions described above collectively as the ‘‘2019 Acquisitions.’’ The 2019 Acquisitions are fully reflected in our unaudited condensed consolidated financial

statements for the three and nine months ended June 30, 2020 and will be fully reflected in our consolidated financial statements for the fiscal year ending September 30, 2020 but are only partially reflected in our unaudited condensed consolidated

financial statements for the three and nine months ending June 30, 2019.

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 year 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.

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.

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.

OneWater Inc.

is subject to U.S.

federal, state and local income taxes as a corporation.

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federal income taxes or income taxes in any state or locality.

We currently estimate that OneWater Inc will be subject to U.S.

federal, state and local taxes at a blended statutory rate of 24.6% of pre-tax

earnings for periods after the Offering.

As of September 30, 2019, the outstanding balance of the preferred units in One Water Assets & Operations, LLC (“OWAO”) held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3

million in issuance costs.

In connection with the Offering, we used the net proceeds therefrom, together with cash on hand and borrowings under the Amended and Restated Credit and Guaranty Agreement (the “Term and Revolver Credit

Facility”) by and among OneWater Inc, OneWater LLC and its subsidiaries, with Goldman Sachs Specialty Lending Group, L.P.

, to fully redeem these preferred units, which eliminates the amount recorded as Redeemable

Preferred Interest in Subsidiary in our balance sheet and also eliminates any future dividends related to the preferred units for all periods after the Offering.

As of September 30, 2019, Goldman and Beekman held the LLC Warrants, which contained conversion features that caused them to be accounted for as a liability on our balance sheet.

Changes in this liability were

recognized as income or expense on our statements of operations and increased or reduced our net income in historical periods.

In connection with the Offering, Goldman and Beekman exercised all of the LLC Warrants for common units of OneWater

Giving effect to the Offering and the exercise of the LLC Warrants for common units of OneWater LLC held by Goldman and Beekman, we have eliminated the fair value adjustment for the LLC Warrants for all periods after the Offering, which

eliminates the corresponding impact on our statements of operations.

OneWater Inc.

was subject to U.S.

federal, state and local taxes at an estimated blended statutory rate of 24.2% of pre-tax earnings for the

three months ended December 31, 2020.

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

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Results of Operations

Three Months Ended June 30, 2020, Compared to Three Months Ended June 30, 2019

For the three months

ended June 30, 2020

For the three months

ended June 30, 2019

Three Months Ended December 31, 2020, Compared to Three Months Ended December 31, 2019

For the three months ended December 31, 2020

For the three months ended December 31, 2019

($ in thousands)

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Transaction costs

Gain on settlement of contingent consideration

Gain on contingent consideration

Income from operations

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Income tax expense

Net income (loss)

Net income attributable to non-controlling interest

Net income attributable to One Water Marine Holdings, LLC

Net loss attributable to One Water Marine Holdings, LLC

Net income attributable to non-controlling interests of One Water Marine Holdings, LLC

Net income attributable to One Water Marine Inc.

Overall, revenue increased by $133.4 million, or 48.6%, to $408.3 million for the three months ended June 30, 2020 from $274.8 million for the three months ended June 30, 2019.

Revenue generated

from same-store sales increased 43.9% for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, primarily due to increased sales due to the impact of the COVID-19 pandemic as many summer activities that have

historically competed with time on the water have been canceled.

Overall, revenue increased by $60.4 million, or 39.3%, to $214.1 million for the three months ended December 31, 2020 from $153.7 million for the three months ended December 31, 2019.

generated from same-store sales increased 37.9% for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, 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 both an increase in the number of new and

pre-owned units sold as well as an increase in the average unit price of new and pre-owned boats sold.

Overall revenue increased by $133.4 million as a result of a $119.3 million increase in same store sales and a $14.1 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 June 30, 2019 we had acquired seven stores in fiscal year 2019, including one store in the three months ended June 30, 2019.

We have not made any acquisitions in fiscal year 2020.

was primarily driven by a significant increase in the number of new units sold as well as a modest increase in the average unit price of new and pre-owned boats sold.

Overall revenue increased by $60.4 million as a result of a $57.8 million

increase in same-store sales and a $2.6 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

New Boat Sales

New boat sales increased by $106.3 million, or 58.8%, to $287.0 million for the three months ended June 30, 2020 from $180.7 for the three months ended June 30, 2019.

The increase was primarily

attributable to our same-store sales growth and the increased unit sales attributable to the impact of our 2019 Acquisitions.

During the three months ended June 30, 2020 we experienced an increase in unit sales of 43.6% and an increase in average

unit prices of 10.4% over the three months ended June 30, 2019.

We believe the increase in units sold was primarily due to the impact the COVID-19 pandemic had on many summer activities that we have historically competed against for time.

increase in average sales price was due in part to the mix of boat brands and models sold and product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand.

Pre-owned Boat Sales

Pre-owned boat sales increased by $19.8 million, or 29.9%, to $85.9 million for the three months ended June 30, 2020 from $66.1 million for the three months ended June 20, 2019.

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 sales for the

three months ended June 30, 2020 benefited from a 22.9% increase in the number of units sold and a 2.6% increase in average unit price largely due to the mix of pre-owned products and the composition of the brands and models sold during the period,

the increase in same-store sales, the impact of 2019 acquisitions and the impact of COVID-19 on the recreational boating market.

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 $6.6 million, or 66.3%, to $16.6 million for the three months ended June 30, 2020 from $10.0 million for the three months ended June 30, 2019.

The increase was primarily due to

process improvements and the additional new and pre-owned sales revenue, which were primarily attributable to the same-store sales growth.

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 increased as a percentage of total revenue to 4.1% in the three months ended June 30, 2020 from 3.6% for the three months ended June 30, 2019.

Since finance & insurance income is fee-based, we do not incur any related cost of sale.

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

Service, Parts & Other Sales

Service, parts & other sales increased by $0.7 million, or 3.9%, to $18.7 million for the three months ended June 30, 2020 from $18.0 million for the three months ended June 30, 2019.

increase in service, parts & other sales is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales and sales attributable to our same-store sales growth, partially offset by the impact of shelter in place

orders during the period which impacted our ability to transact retail service and parts sales.

Overall, gross profit increased by $32.0 million, or 50.9%, to $94.7 million for the three months ended June 30, 2020 from $62.7 million for the three months ended June 30, 2019.

This increase was

primarily due to our overall increase in same-store sales, primarily driven by an increase in new and pre-owned boat sales, the Company’s focus on dynamic pricing and the increase in finance & insurance income.

Overall gross margins increased 40

basis points to 23.2% for the three months ended June 30, 2020 from 22.8% for the three months ended June 30, 2019 due to the factors noted below.

New Boat Gross Profit

New boat gross profit increased by $21.2 million, or 65.2%, to $53.6 million for the three months ended June 30, 2020 from $32.4 million for the three months ended June 30, 2019.

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 18.7% for the three months ended June 30, 2020 as compared to 18.0% in the three months ended June 30, 2019.

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 our emphasis on expanding new boat gross profit margins, while continuing to leverage

the progress we have made in previous quarters on finance and insurance.

Pre-owned Boat Gross Profit

Pre-owned boat gross profit increased by $4.4 million, or 41.4%, to $15.0 million for the three months ended June 30, 2020 from $10.6 million for the three months ended June 30, 2019.

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 17.5% and 16.1% for the three months ended June

30, 2020 and 2019, 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.

In the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, 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 $6.6 million, or 66.3%, to $16.6 million for the three months ended June 30, 2020 from $10.0 million for the three months ended June 30, 2019.

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 remained relatively flat, decreasing by $0.2 million, or 2.6%, to $9.4 million for the three months ended June 30, 2020 from $9.6

million for the three months ended June 30, 2019.

Service, parts & other gross profit as a percentage of service, parts & other revenue was 50.1% and 53.5% for the three months ended June 30, 2020 and 2019, respectively.

This decrease was the

result of the mix of products sold and services provided.

Additionally, service, parts & other gross profit was partially impacted by shelter in place orders during the period which limited our ability to transact retail service and parts sales

early in the period.

Selling, General & Administrative Expenses

Selling, general & administrative expenses increased by $8.4 million, or 24.3%, to $43.2 million for the three months ended June 30, 2020 from $34.7 million for the three months ended June

This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit.

The increase primarily consisted of an $8.4 million increase in personnel expenses.

Selling, general & administrative

expenses as a percentage of revenue decreased to 10.6% from 12.6% for the three months ended June 30, 2020 and 2019, respectively.

The reduction in selling, general & administrative expenses as a percentage of revenue was mainly due to the

increased volume of units sold and the cost reduction actions enacted following the acceleration of COVID-19.

Depreciation and Amortization

Depreciation and amortization expense increased $0.1 million, or 19.2%, to $0.8 million for the three months ended June 30, 2020 compared to $0.7 million for the three months ended June 30, 2019.

The increase in depreciation and amortization expense for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to an increase in property and equipment with shorter useful lives.

Transaction Costs

The decrease in transaction costs of $0.4 million, or 92.6%, to $30,650 for the three months ended June 30, 2020 compared to $0.4 million for the three months ended June 30, 2019 was primarily

attributable to the acquisition completed during the three months ended June 30, 2019 with no acquisition occurring during the three months ended June 30, 2020.

Gain on Settlement of Contingent Consideration

During the three months ended June 30, 2019, we reduced our estimate of contingent consideration related to the Texas Marine, Grande Yachts, and USA Marine Sales, Inc.

acquisitions in the amount

There was no gain on settlement of contingent consideration for the three months ended June 30, 2020.

Income from Operations

Income from operations increased $23.8 million, or 88.2%, to $50.7 million for the three months ended June 30, 2020 compared to $26.9 million for the three months ended June 30, 2019.

was primarily attributable to the $32.0 million increase in gross profit for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, partially offset by a $8.4 million increase in selling, general &

administrative expenses during the same periods.

Interest Expense – Floor Plan

Interest expense – floor plan decreased $0.4 million, or 15.9%, to $2.3 million for the three months ended June 30, 2020 compared to $2.7 million for the three months ended June 30, 2019 and was

primarily attributable to falling interest rates as well as a $58.9 million decrease in the outstanding borrowings on our Sixth Amended and Restated Inventory Financing Agreement (the “Inventory Financing Facility”) as of June 30, 2020 compared to

June 30, 2019.

Interest Expense – Other

The increase in interest expense – other of $1.2 million, or 64.9%, to $3.1 million for the three months ended June 30, 2020 compared to $1.9 million for the three months ended June 30, 2019 was

primarily attributable to a $42.4 million increase in our long-term debt as of June 30, 2020 compared to June 30, 2019, which was primarily increased to fully redeem the preferred interest in subsidiary in conjunction with the Offering.

Change in Fair Value of Warrant Liability

The change in fair value of warrant liability of $10.4 million for the three months ended June 30, 2019 was attributable to an overall change in the enterprise value of the Company.

was recorded for the three months ended June 30, 2020 as the warrants were exercised in conjunction with the Offering.

Other (Income) Expense, Net

Other income (expense) remained relatively flat, increasing to $61,310 for the three months ended June 30, 2020 compared to $(16,773) for the three months ended June 30, 2019.

Income Tax Expense

The $4.7 million increase in income tax expense for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 was the result of the Offering and the taxability of

OneWater Inc as a corporation.

Net Income (Loss)

Net income increased by $7.9 million to $40.6 million for the three months ended June 30, 2020 compared to net income of $32.7 million for the three months ended June 30, 2019.

New boat sales increased by $49.0 million, or 47.6%, to $151.8 million for the three months ended December 31, 2020 from $102.9 for the three months ended December 31, 2019.

The increase was

primarily attributable to the $32.0 million increase in gross profit for the three months ended June 30, 2020 compared to June 30, 2019.

The increase was partially offset by the $10.4 million charge for the change in fair value of warrant liability

for the three months ended June 30, 2019 compared to the three months ended June 30, 2020, in which no charge was taken, the $8.4 million increase in selling, general and administrative expenses and the $4.7 million increase in income tax expense for

the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Nine Months Ended June 30, 2020, Compared to Nine Months Ended June 30, 2019

For the nine months

ended June 30, 2020

For the nine months

ended June 30, 2019

($ in thousands)

New boat sales

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% and an increase in average unit prices of 12.7% over the three months ended December 31, 2019.

We believe the increase in units sold 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 to the mix of boat brands and models sold and product improvements in the functionality and technology of boats, which continues to be a driver of consumer demand, as well as supply and demand forces as

manufacturer replenishments have been slowed by the COVID-19 pandemic providing us increased leverage in the sales cycle.

Pre-owned Boat Sales

Finance & insurance income

Service, parts and other sales

Total revenues

New boat gross profit

Pre-owned boat gross profit

Finance & insurance gross profit

Service, parts & other gross profit

Total gross profit

Selling, general and administrative expenses

Depreciation and amortization

Transaction costs

Gain on settlement of contingent consideration

Income from operations

Interest expense - floor plan

Interest expense - other

Change in fair value of warrant liability

Other expense (income), net

Income before income tax expense

Income tax expense

Net income attributable to non-controlling interest

Net income attributable to One Water Marine Holdings, LLC

Net income attributable to non-controlling interests of One Water Marine Holdings, LLC

Net income attributable to One Water Marine Inc.

Overall, revenue increased by $193.1 million, or 34.5%, to $751.9 million for the nine months ended June 30, 2020 from $558.9 million for the nine months ended June 30, 2019.

Revenue generated

from same-store sales increased 24.1% for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019, primarily due to an increase in the average selling price of new and pre-owned boats, the model mix of boats sold and an

increase in the number of new and pre-owned boats sold.

We believe that COVID-19 has had a positive overall impact on the recreational boating market during a portion of the nine months ended June 30, 2020.

Overall revenue increased by $133.1 million

as a result of our increase in same-store sales and $59.9 million 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.

For the nine months ended June 30, 2019, we acquired seven stores.

We have not made any acquisitions in the nine

months ended June 30, 2020.

New Boat Sales

New boat sales increased by $137.8 million, or 36.7%, to $513.0 million for the nine months ended June 30, 2020 from $375.2 for the nine months ended June 30, 2019.

The increase was the result of

our same-store sales growth during the twelve month period and the increased unit sales attributable to the 2019 Acquisitions.

During the nine months ended June 30, 2020, we experienced an increase in unit sales of 24.4% and an increase in average

unit prices of 10.5% over the nine months ended June 30, 2019.

The increase in both units sold and average sales price was due in part to the mix of boat brands and models sold and product improvements in the functionality and technology of boats,

which continues to be a driver of consumer demand.

Additionally, we believe the increase in units sold was enhanced due to the impact the COVID-19 pandemic had on many summer activities that we have historically competed against for time.

Pre-owned boat sales increased by $5.5 million, or 16.7%, to $38.6 million for the three months ended December 31, 2020 from $33.1 million for the three months ended December 31, 2019.

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 sales

Pre-owned boat sales increased by $44.7 million, or 36.6%, to $166.7 million for the nine months ended June 30, 2020 from $122.0 million for the nine months ended June 30, 2019.

We sell a wide

Pre-owned boat sales for the

nine months ended June 30, 2020 benefited from a 21.8% increase in the number of units sold due to the increase in same-store sales and the impact of the fiscal year 2019 Acquisitions.

The average sales price per pre-owned unit in the nine months

ended June 30, 2020 increased 11.2% largely due to the mix of pre-owned products and the composition of the brands and models sold during the period.

Additionally, we believe the increase in units sold was enhanced due to the impact the COVID-19

pandemic had on many summer activities that we have historically competed against for time.

for the three months ended December 31, 2020 benefited from a 27.9% increase in average unit price 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 impact of COVID-19 on

the recreational boating market.

Pre-owned boat sales for the three months ended December 31, 2020 experienced a 8.1% decrease in unit sales as pre-owned inventory supply in the market is lower than historical levels due to the impact of COVID-19.

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 $10.5 million, or 56.8%, to $29.0 million for the nine months ended June 30, 2020 from $18.5 million for the nine months ended June 30, 2019.

The increase was primarily a result of

the increase in same-store sales, process improvements and additional revenue attributable to the fiscal year 2019 Acquisitions.

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 increased as a percentage of total revenue to 3.9% in the nine months ended June 30, 2020 from 3.3% for the nine months ended June 30, 2019.

Since finance & insurance income is fee-based, we do not incur any related cost of sale.

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

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 million, or 37.9%, to $6.0 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31, 2019.

The increase was

primarily due to process improvements and the additional new and pre-owned sales revenue, which were primarily attributable to the same-store sales growth.

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, 2020 and 2019.

Since finance

& insurance income is fee-based, we do not incur any related cost of sale.

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.

Service, Parts & Other Sales

Service, parts & other sales remained relatively flat, increasing to $43.2 million for the nine months ended June 30, 2020 from $43.1 million for the nine months ended June 30, 2019.

increase in service, parts & other sales is primarily due to increases in parts, fuel and storage sales, partially offset by a decrease in labor sales.

Overall, gross profit increased by $45.7 million, or 36.3%, to $171.5 million for the nine months ended June 30, 2020 from $125.8 million for the nine months ended June 30, 2019.

This increase was

mainly due to our overall increase in same-store sales, primarily driven by an increase in new boat sales, as well as higher pre-owned boat sales and finance & insurance income.

The increase in gross profit was also a result of an increase in the

number of stores due to the fiscal year 2019 Acquisitions.

Overall gross margins remained relatively flat, increasing 30 basis points to 22.8% for the nine months ended June 30, 2020 from 22.5% for the nine months ended June 30, 2019 due to the

factors noted below.

Service, parts & other sales increased by $4.3 million, or 31.7%, to $17.7 million for the three months ended December 31, 2020 from $13.5 million for the three months ended December 31,

This increase in service, parts & other sales is primarily due to ancillary sales generated from our increase in new and pre-owned boat sales and sales attributable to our same-store sales growth.

Overall, gross profit increased by $20.2 million, or 62.9%, to $52.4 million for the three months ended December 31, 2020 from $32.2 million for the three months ended December 31, 2019.

increase was primarily due to our overall increase in same-store sales, primarily driven by an increase in new and pre-owned boat sales, service, parts and other sales, the Company’s focus on dynamic pricing and the increase in finance &

insurance income.

Overall gross margins increased 360 basis points to 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 $27.4 million, or 41.0%, to $94.2 million for the nine months ended June 30, 2020 from $66.8 million for the nine months ended June 30, 2019.

This increase was

due to our overall increase in same-store sales and acquired stores during fiscal year 2019.

New boat gross profit as a percentage of new boat revenue was 18.4% for the nine months ended June 30, 2020 as compared to 17.8% in the nine months ended

June 30, 2019.

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 our emphasis on expanding new boat gross profit

margins, while continuing to leverage the progress we have made in previous quarters on finance and insurance.

New boat gross profit increased by $12.4 million, or 73.4%, to $29.3 million for the three months ended December 31, 2020 from $16.9 million for the three months ended December 31, 2019.

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% for the three months ended December 31, 2020 as compared to 16.4% in the three months ended December 31,

a lower 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.

Pre-owned Boat Gross Profit

Pre-owned boat gross profit increased by $8.0 million, or 40.2%, to $27.8 million for the nine months ended June 30, 2020 from $19.8 million for the nine months ended June 30, 2019.

This increase

was primarily due to an overall increase in our same-store sales and acquired stores during fiscal year 2019.

Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 16.7% and 16.3% for the nine months ended June 30, 2020 and 2019,

respectively.

profit as a percentage of revenue.

In the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019, we experienced an increase in our gross profit on pre-owned sales for each of the different sales arrangements.

Pre-owned boat gross profit increased by $2.9 million, or 56.2%, to $8.1 million for the three months ended December 31, 2020 from $5.2 million for the three months ended December 31, 2019.

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% and 15.7% for the three months

ended December 31, 2020 and 2019, 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, 2020

as compared to the three months ended December 31, 2019, 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 $10.5 million, or 56.8%, to $29.0 million for the nine months ended June 30, 2020 from $18.5 million for the nine months ended June 30, 2019.

Finance & insurance income is fee-based revenue for which we do not recognize incremental expense.

Finance & insurance gross profit increased by $1.6 million, or 37.9%, to $6.0 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31,

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 remained relatively flat, decreasing by $0.2 million, or 1.1%, to $20.4 million for the nine months ended June 30, 2020 from $20.6

million for the nine months ended June 30, 2019.

Service, parts & other gross profit as a percentage of service, parts & other revenue was 47.1% and 47.7% for the nine months ended June 30, 2020 and 2019, respectively.

This decrease in gross

profit margin was the result of a decrease in parts gross profit margin, partially offset by increases in service gross profit margin and storage and other gross profit margin.

Service, parts & other gross profit increased by $3.3 million, or 57.0%, to $9.0 million for the three months ended December 31, 2020 from $5.8 million for the three

months ended December 31, 2019.

Service, parts & other gross profit as a percentage of service, parts & other revenue was 51.1% and 42.8% for the three months ended December 31, 2020 and 2019, respectively.

This increase was the result of

the mix of products sold 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.

Selling, General & Administrative Expenses

Selling, general & administrative expenses increased by $19.8 million, or 23.7%, to $103.7 million for the nine months ended June 30, 2020 from $83.9 million for the nine months ended June 30,

This increase was primarily due to the impact of acquisitions and expenses incurred to support the overall increase in same-store sales.

The increase in selling, general & administrative expenses primarily consisted of a $16.0 million

increase in personnel expenses and a $3.4 million increase in fixed expenses.

Selling, general & administrative expenses as a percentage of revenue decreased to 13.8% from 15.0% for the nine months ended June 30, 2020 and 2019, respectively.

reduction in selling, general & administrative expenses as a percentage of revenue was mainly due to the increased volume of units sold and the cost reduction actions enacted following the acceleration of COVID-19.

Selling, general & administrative expenses increased by $6.6 million, or 23.2%, to $34.9 million for the three months ended December 31, 2020 from $28.3 million for the three months ended

December 31, 2019.

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 million increase in personnel expenses.

Selling, general &

administrative expenses as a percentage of revenue decreased to 16.3% from 18.4% for the three months ended December 31, 2020 and 2019, respectively.

The reduction in selling, general & administrative expenses as a percentage of revenue was

primarily due to 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.

Depreciation and Amortization

Depreciation and amortization expense increased $0.5 million, or 26.1%, to $2.4 million for the nine months ended June 30, 2020 compared to $1.9 million for the nine months ended June 30, 2019.

The increase in depreciation and amortization expense for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019 was primarily attributable to an increase in property and equipment with shorter useful lives.

Depreciation and amortization expense increased $0.2 million, or 23.2%, to $1.0 million for the three months ended December 31, 2020 compared to $0.8 million for the three months ended December

The increase in depreciation and amortization expense for the three months ended December 31, 2020 compared to the three months ended December 31, 2019 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 increase in transaction costs of $2.2 million, or 192.2%, to $3.4 million for the nine months ended June 30, 2020 compared to $1.2 million for the nine months ended June 30, 2019 was primarily

attributable to $2.3 million of expenses recognized in conjunction with the Offering that were not able to be capitalized.

Gain on Settlement of Contingent Consideration

During the nine months ended June 30, 2019, we reduced our estimate of contingent consideration related to the Texas Marine, Grande Yachts, and USA Marine Sales, Inc.

acquisitions in the amount of

$1.7 million.

There was no gain on settlement of contingent consideration for the nine months ended June 30, 2020.

The decrease in transaction costs of $0.2 million, or 54.2%, 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.

Loss on Contingent Consideration

During the three months ended December 31, 2020, we incurred an expense of $0.4 million on the settlement of a contingent payment related to a fiscal year 2019 acquisition.

There were no

adjustments to contingent consideration for the three months ended December 31, 2019.

Income from Operations

Income from operations increased $21.4 million, or 52.9%, to $62.0 million for the nine months ended June 30, 2020 compared to $40.5 million for the nine months ended June 30, 2019.

was primarily attributable to the $45.7 million increase in gross profit for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019, partially offset by a $19.8 million increase in selling, general & administrative

expenses during the same period.

Income from operations increased $13.3 million, or 496.8%, 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.

The increase was primarily attributable to the $20.2 million increase in gross profit for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, partially offset by a $6.5 million increase in selling,

general & administrative expenses during the same periods.

Interest Expense – Floor Plan

Interest expense – floor plan increased $0.8 million, or 11.2%, to $7.5 million for the nine months ended June 30, 2020 compared to $6.7 million for the nine months ended June 30, 2019 and was

primarily attributable to a $22.8 million increase in the average outstanding borrowings on our Inventory Financing Facility for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019.

Interest expense – floor plan decreased $1.7 million, or 65.4%, to $0.9 million for the three months ended December 31, 2020 compared to $2.7 million for the three months ended December 31,

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, 2020 compared to December 31, 2019.

Interest Expense – Other

The increase in interest expense – other of $3.0 million, or 68.3%, to $7.4 million for the nine months ended June 30, 2020 compared to $4.4 million for the nine months ended June 30, 2019 was

primarily attributable to a $42.4 million increase in our long-term debt which was primarily increased to fully redeem the preferred interest in subsidiary in conjunction with the Offering.

The decrease in interest expense – other of $0.9 million, or 50.1%, to $0.9 million for the three months ended December 31, 2020 compared to $1.9 million for the three months ended December 31,

2019 was primarily attributable 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 decrease in change in fair value of warrant liability of $2.0 million, or 72.2%, to $(0.8) million income for the nine months ended June 30, 2020 compared to $(2.8) million income for the nine

months ended June 30, 2019 was primarily attributable to an overall change in the enterprise value of the Company due to a change in the implied value of other market participants.

The change in fair value of warrant liability of $0.7 million for the three months ended December 31, 2019 was attributable to an overall change in the enterprise value of the Company.

was recorded for the three months ended December 31, 2020 as the warrants were exercised in conjunction with the Offering.

Other (Income) Expense, Net

The decrease in other income of $0.2 million for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019 was primarily attributable to a $0.1 million increase in loss

on disposal of property and equipment for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019.

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 $5.2 million increase in income tax expense for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019 was the result of the Offering and the taxability of

OneWater Inc as a corporation.

The $2.5 million increase in income tax expense for the three months ended December 31, 2020 as compared to 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 $10.3 million to $42.5 million for the nine months ended June 30, 2020 compared to $32.2 million for the nine months ended June 30, 2019.

The increase was primarily

attributable to the $45.7 million increase in gross profit for the nine months ended June 30, 2020 compared to June 30, 2019.

The increase was partially offset by a $19.8 million increase in selling, general and administrative expenses for the nine

months ended June 30, 2020 compared to the nine months ended June 30, 2019, as well as a $5.2 million increase in income tax expense and a $3.0 million increase in interest expense - other for the same period.

Net income increased by $12.8 million 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.

increase was primarily attributable to the $20.2 million increase in gross profit for the three months ended December 31, 2020 compared to December 31, 2019.

The increase was partially offset by the $6.6 million increase in selling, general &

administrative expenses and the $2.5 million increase in income tax expense for the three months ended December 31, 2020 compared to the three months ended December 31, 2019.

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 taxes, depreciation and amortization and

other (income) expense, further adjusted to eliminate the effects of items such as the change in the fair value of warrants, gain (loss) on settlement of contingent consideration and transaction costs.

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) on contingent consideration, loss on extinguishment of debt and transaction costs.

Our Board, 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, gain (loss) on settlement of contingent

consideration and transaction costs) that impact the comparability of financial results from period to period.

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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

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.

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.

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

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 net income to Adjusted EBITDA, which is the most directly comparable GAAP measure for the periods presented.

Three Months Ended June 30, 2020, Compared to Three Months Ended June 30, 2019

Three months ended June 30

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 net income (loss) to Adjusted EBITDA, which is the most directly comparable GAAP measure for the periods presented.

Three Months Ended December 31, 2020, Compared to Three Months Ended December 31, 2019

Three months ended

($ in thousands)

Net income (loss)

Interest expense – other

Income tax expense

Depreciation and amortization

Gain on settlement of contingent consideration

Loss on contingent consideration

Transaction costs

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Adjusted EBITDA

Consists of transaction costs related to the fiscal year 2019 Acquisitions and costs related to the Offering.

Represents the non-cash expense recognized during the period for the change in the fair value of the LLC Warrants, which were accounted for as a liability on our balance sheets.

Adjusted EBITDA was $49.2 million for the three months ended June 30, 2020 compared to $25.3 million for the three months ended June 30, 2019.

The increase in Adjusted EBITDA resulted primarily

from our 43.9% increase in same-store sales growth for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, combined with the results of the fiscal year 2019 Acquisitions and our ability to increase gross profit

margins and control selling, general and administrative expenses.

Nine Months Ended June 30, 2020, Compared to Nine Months Ended June 30, 2019

Nine months ended June 30

($ in thousands)

Interest expense – other

Depreciation and amortization

Gain on settlement of contingent consideration

Transaction costs (1)

Change in fair value of warrant liability (2)

Other expense (income), net

Adjusted EBITDA

Consists of transaction costs related to the fiscal year 2019 Acquisitions and costs related to the Offering.

Represents the non-cash expense recognized during the period for the change in the fair value of the LLC Warrants, which were accounted for as a liability on our balance sheets.

Adjusted EBITDA was $60.2 million for the nine months ended June 30, 2020 compared to $35.2 million for the nine months ended June 30, 2019.

The increase in Adjusted EBITDA resulted from our 24.1% increase in

same-store sales growth for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019, combined with the results of the fiscal year 2019 Acquisitions and our ability to increase gross profit margins and control selling,

general and administrative expenses.

Adjusted EBITDA was $16.7 million for the three months ended December 31, 2020 compared to $1.2 million for the three months ended December 31, 2019.

The increase in Adjusted EBITDA resulted

primarily from our 37.9% increase in same-store sales growth for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, combined with the results of our ability to increase gross profit margins and control

selling, general and administrative expenses.

Our business, along with the entire recreational boating industry, is highly seasonal, and such seasonality varies by geographic market.

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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 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.

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.

believe our geographic diversity is likely to reduce the overall impact to us of adverse weather conditions in any one market area.

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.

Liquidity and Capital Resources

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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 for the next twelve months.

Cash needs for acquisitions have historically been financed with our Term and Revolver Credit Facility and cash generated from operations.

Our ability to utilize the Term and Revolver Credit

Facility to fund operations depends upon Adjusted EBITDA and compliance with covenants of the Term and Revolver Credit Facility.

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 for the next twelve months.

Cash needs for acquisitions have historically been financed with our Credit Facilities 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 June 30, 2020, we were in compliance with all covenants under the Term and Revolver Credit Facility

and the Inventory Financing Facility.

Effective July 22, 2020 (the “Closing Date”), we and certain of our subsidiaries terminated and repaid all indebtedness outstanding under the Term and Revolver Credit Facility in accordance with

its terms 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”).

The proceeds of the term loan portion of the Refinanced Credit Facility, together with cash on

the Company’s balance sheet, have been used (i) to pay for the Refinancing, (ii) to pay the fees and expenses incurred in connection with the Refinancing and (iii) for working capital and general corporate purposes.

We are subject to certain

financial and non-financial covenants under the Refinanced Credit Facility.

Analysis of Cash Flow Changes Between the Nine Months Ended June 30, 2020 and 2019

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, we were in compliance with all covenants under the Refinanced Credit Facility and the

Inventory Financing Facility.

Analysis of Cash Flow Changes Between the Three Months Ended December 31, 2020 and 2019

The following table summarizes our cash flows for the periods indicated:

Nine Months ended June 30,

Three Months ended December 31,

($ in thousands)

Net cash provided by (used in) operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Net change in cash

Operating Activities .

Net cash provided by operating activities was $152.6 million for the nine months ended June 30, 2020 compared to net cash used in

operating activities of $23.0 million for the nine months ended June 30, 2019.

The $175.6 million increase in cash provided by operating activities was primarily attributable to a $149.2 million increase in the change in inventory, a $14.7 million

increase in the change in accounts payable, a $8.7 million increase in the change in other payables and accrued expenses and a $10.3 million increase in net income for the nine months ended June 30, 2020 as compared to the nine months ended June 20,

These amounts were partially offset by a $22.2 million decrease in the change accounts receivable for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019.

Net cash used in operating activities was $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.

The $0.1 million decrease in cash used in operating activities was primarily attributable to a $12.8 million increase in net income (loss) for the three months

ended December 31, 2020 as compared to the three months ended December 31, 2019.

These amounts were partially offset by a $5.5 million increase in payment of acquisition contingent consideration and a $4.1 million increase in the change in

inventory for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019.

Investing Activities .

Net cash used in investing activities was $2.3 million for the nine months ended June 30, 2020 compared to $8.0 million for the nine

months ended June 30, 2019.

The $5.7 million decrease in cash used in investing activities was primarily attributable to a $2.1 million decrease in cash used in acquisitions, a $2.0 million decrease in purchases of property and equipment and

construction in process and a $1.5 million increase in proceeds on disposal of property and equipment for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019.

Net cash used in investing activities was $80.0 million for the three months ended December 31, 2020 compared to $1.8 million for

the three months ended December 31, 2019.

The $78.2 million increase in cash used in investing activities was primarily attributable to a $77.6 million increase in cash used in acquisitions for the three months ended December 31, 2020 as compared

to the three months ended December 31, 2019.

Financing Activities .

Net cash used in financing activities was $70.7 million for the nine months ended June 30, 2020 compared to net cash provided by

financing activities of $41.7 million for the nine months ended June 30, 2019.

The $112.4 million decrease in financing cash flow was primarily attributable to an $88.0 million increase in the distributions to redeemable preferred interest members, a

$98.6 million decrease in net borrowings on our Inventory Financing Facility and a $12.4 million increase in payments on long-term debt, partially offset by $59.2 million in proceeds from issuance of Class A common stock sold in the Offering, net of

offering costs, and a $37.2 million increase in proceeds on long-term debt for the nine months ended June 30, 2020 as compared to the nine months ended June 30, 2019.

Net cash provided by financing activities was $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.

The $40.7 million increase in financing cash flow was primarily attributable to a $30.0 million increase in borrowings on long-term debt, a $3.2 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, 2020 as compared to the three

months ended December 31, 2019.

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 and a $5.0 million revolving line of credit.

On February 11, 2020, in connection with the Offering, OneWater Inc entered into 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 is 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.

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 includes 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 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.

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three months ended March 31, 2020, the Company elected the option to defer cash interest payments for twelve months.

As of June 30, 2020, we had not drawn down on our Revolving Facility.

We were in compliance with all covenants under the Term and

Revolver Credit Facility as of June 30, 2020.

On July 22, 2020, the Company and certain of its subsidiaries 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.

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 entered into the Refinanced Credit 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.

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”).

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.

There were no borrowings outstanding under the revolving credit facility on the Closing Date.

The term loan is repayable in installments beginning on March 31, 2021, with the remainder due on July

As of December 31, 2020, our outstanding borrowings under the revolving credit facility were $30.0 million.

Borrowings under the Refinanced Credit Facility bear interest, at the Company’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 Interbank Offered Rate for such interest period by (ii) a percentage equal to 1.00 minus the Eurodollar Reserve Percentage (the “Adjusted LIBO Rate”) plus

an applicable margin of up to 3.00%.

an applicable margin of up to 2.00%, or (b) the rate per annum obtained by dividing (i) the London Inter-bank Offered Rate for such interest period by (ii) a percentage equal to 1.00 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 stepdowns based on certain consolidated leverage ratio measures.

All applicable interest margins are subject to stepdowns based on certain consolidated leverage ratio

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.

The proceeds of the term loan portion of the Refinanced Credit Facility, together with cash on the Company’s balance sheet, have been used (i) to pay for the Refinancing, (ii) to pay the fees and

expenses incurred in connection with the Refinancing and (iii) for working capital and general corporate purposes.

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 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.

Inventory Financing Facility

On June 14, 2018, OneWater LLC and certain of our 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’’).

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 Company and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo 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, 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.

The interest rate for amounts outstanding under the Inventory Financing Facility is 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 be 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 be set forth in separate program terms letters entered into from time to time.

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 and Revolver Credit Facility.

As of June 30, 2020 and September 30, 2019, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $176.1 million and $225.4 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.

June 30, 2020 and September 30, 2019, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 4.1% and 4.9%, respectively.

As of June 30, 2020 and September 30, 2019, our additional available

borrowings under our Inventory Financing Facility were $216.4 million and $67.1 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 June 30, 2020, we were in compliance with all covenants under the Inventory Financing Facility.

On July 22, 2020, the Company entered into the First Amendment (the “First Amendment”) to the Inventory Financing Facility.

The First Amendment amended the 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 $50.0 increase facility 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

On June 14, 2018, OneWater LLC and certain of our 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’’).

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

Effective February 11, 2020, in connection with the Offering, the

Company and certain of its subsidiaries entered into the Sixth Amended and Restated Inventory Financing Agreement with Wells Fargo, 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, 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 and certain of its subsidiaries entered

into the First Amendment (the “First Amendment”) to the Inventory Financing Facility.

The First Amendment amended the 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.

On December 10, 2020, the Company and certain of its subsidiaries

entered into the Second Amendment to the Sixth Amended and Restated Inventory Financing Agreement 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.

The interest rate for amounts outstanding under the Inventory Financing

Facility is 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 be 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 be set forth in separate program terms letters entered into from time to time.

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 Refinanced Credit Facility.

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 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% 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 under the Inventory Financing Facility.

Additionally, 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.

As of December 31, 2020 and September 30, 2020, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $170.3 million and $124.0 million,

respectively.

manufacturer.

As of December 31, 2020 and September 30, 2020, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 2.3% and 4.0%, respectively.

As of December 31, 2020 and September 30,

2020, our additional available borrowings under our Inventory Financing Facility were $222.2 million and $268.5 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, we were in compliance with all covenants under the Inventory Financing Facility.

OWAO Preferred Units

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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.

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.

OWAO and certain affiliates were required to meet certain financial covenants, including

maintenance of certain leverage ratios.

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

2 unchanged sentences

agreements with the acquired entities to finance these acquisitions.

As of June 30, 2020, our indebtedness associated with our 8 acquisition notes payable totaled an aggregate of $13.0 million with a weighted average interest rate of 5.8% per annum.

As of June 30, 2020, the principal amount outstanding under these acquisition notes payable ranged from $0.8 million to $3.1 million, and the maturity dates ranged from July 1, 2020 to February 1, 2022.

As of December 31, 2020, our indebtedness associated with our 7 acquisition notes payable totaled an aggregate of $11.1 million with a weighted average interest rate of 5.3% per

As of December 31, 2020, the principal amount outstanding under these acquisition notes payable ranged from $1.0 million to $2.2 million, and the maturity dates ranged from March 1, 2021 to December 1, 2023.

Commercial Vehicles Notes Payable .

1 unchanged sentence

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 $75,000, and mature on dates between July 2020 to May 2026.

As of June 30,

2020, we had $2.5 million outstanding under the commercial vehicles notes payable.

Between April 20, 2020 and April 22, 2020, certain subsidiaries of the Company entered into separate promissory notes with Hancock Whitney Bank providing for loans under the recently enacted

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), administered by the U.S.

Small Business Administration (each, an “SBA Loan” and collectively, the “SBA Loans”).

Total amounts received were $14.1 million in the aggregate.

Based on its operating results through April 30, 2020, the Company determined that the impact of COVID-19 was not affecting its performance to the extent expected.

While the future impact of

COVID-19 remains unknown, initial sales trends suggest the impact on the Company will not be as severe as initially believed at this time.

Accordingly, the Company elected to return the money received under the CARES Act on May 6, 2020.

Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately $92,000, and mature on dates between March 2021 to January 2026.

December 31, 2020, we had $3.1 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 (as defined below) of 85% of the net cash savings, if any, in U.S.

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 Offering 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

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 Offering 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

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.

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.

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

5 unchanged sentences

The adoption dates discussed below reflect this election.

In May 2014, the FASB issued Accounting Standards Update (‘‘ASU’’) No.

2014-09, ‘‘ Revenue from Contracts with Customers (Topic 606) ’’ (‘‘ASU 2014-09’’), as

subsequently amended, a converged standard on revenue recognition.

The new pronouncement requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange for those goods or services.

The guidance also specifies the accounting for some costs to obtain or fulfil a contract with a customer, as well as enhanced disclosure requirements.

ASU 2014-09 is effective for a

public company’s annual reporting periods beginning after December 15, 2017.

As an EGC the Company has elected to adopt ASU 2014-09 following the effective dates for private companies beginning with annual reporting periods beginning after December

15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019.

The Company adopted this update on October 1, 2019 using the modified retrospective approach applied only to contracts not completed as of the

date of adoption, with no restatement of comparative periods.

In August 2016, the FASB issued ASU 2016-15, ‘‘ Statement of Cash Flows (Topic 230) ’’ (‘‘ASU 2016-15’’).

Additionally, in November 2016, the FASB issued ASU

2016-18, ‘‘ Statement of Cash Flows (Topic 230) ’’ (‘‘ASU 2016-18’’).

These updates require organizations to reclassify certain cash receipts and cash payments within the Statement of Cash Flows and modify the

classification and presentation of restricted cash.

These ASU’s are effective for a public company’s annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.

As an EGC, the Company has elected to

adopt these ASU’s following the effective dates for private companies beginning with annual reporting periods beginning after December 15, 2018, including interim reporting periods within fiscal years beginning after December 15, 2019.

adopted this update on October 1, 2019 and it did not have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, ‘‘ Business Combinations (Topic 805) ’’ (‘‘ASU 2017-01’’).

This update clarifies the definition of a business

with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

The definition of a business affects many areas of accounting including

acquisitions, disposals, goodwill, and consolidation.

As an EGC the Company has elected to adopt ASU 2017-01 following the effective dates for private companies beginning with annual reporting periods beginning after December 15, 2018, and interim

periods within annual periods beginning after December 15, 2019.

The Company adopted this update on October 1, 2019 and it did not impact the consolidated financial statements.

Refer to Note 3 of the Notes to Unaudited 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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis