What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-17 compared with 2020-12-03 · 681 added, 744 removed, 256 unchanged (85% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data” and our audited consolidated financial

statements and related notes appearing elsewhere in this Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related

notes appearing elsewhere in this Form 10-K.

The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance.

The forward-looking statements are

dependent upon events, risks and uncertainties that may be outside our control.

The forward-looking statements are dependent upon

events, risks and uncertainties that may be outside our control.

Our actual results could differ materially from those discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those

described in this Form 10-K under “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” We do not undertake any obligation to publicly update any of these 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 61 stores comprising 21 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 represent seven of the top twenty states for marine retail expenditures.

applicable law.

We believe that we are one of the largest and fastest-growing marine retailers in the United States with 70 stores comprising 25 dealer groups in 11 states as of September 30, 2021.

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, Ohio and New Jersey, which represent eight 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 17 markets in which we operate.

In 2020, we sold approximately 10,000 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.

In 2021, we sold approximately 9,500 new and pre-owned boats, many

of which 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 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 41 additional stores through 17 acquisitions.

combination in 2014, we have acquired a total of 50 additional stores through 21 acquisitions.

Our current portfolio as of September 30, 2021 consists of 25 different local and regional dealer groups.

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.

Because of this, we believe we are

one of the largest and fastest-growing marine 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 approximately 4,300 stores nationwide.

Most competing boat retailers are operated by local business owners who own three or fewer stores.

size, we comprise less than 2% of total industry sales.

Our scale and business model allow us to leverage our extensive inventory to provide consumers with the ability to find a boat that matches their preferences (e.g., make, model, color,

configuration and other options) and to deliver the boat within days while providing a personalized sales experience.

We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate

support resources across our store base, focus on high-margin products and services, utilize floor plan financing and provide core back-office functions on a scale that many independent retailers are unable to match.

We seek to be the leading boat

retailer by total market share within each boating market and within the product segments in which we participate.

To the extent that we are not, we will evaluate acquiring other local retailers in order to increase our sales, to add additional

brands or to provide us with additional high-quality personnel.

We also intend to expand our online presence and sales through a multi-phased roll out of a digital platform to engage in online new and pre-owned boat sales, as well as financing & insurance.

On August 22, 2020,

we entered into an agreement to purchase the website domain name “Boatsforsale.com” (including all related goodwill) from certain entities affiliated with certain directors and officers of the Company for $0.4 million.

The transaction was approved

in accordance with the Company’s Related Party Transactions Policy.

We believe the domain purchase will enhance our online marketplace for new and pre-owned boats, as well as financing & insurance.

Most competing marine retailers are operated by local business owners who own three or fewer stores.

Despite our size, we comprise less than 3% of total industry sales.

Our scale and business model allow us to leverage our extensive inventory to provide consumers with the ability to find a boat that matches their preferences (e.g., make,

model, color, configuration and other options) and to deliver the boat within days while providing a personalized sales experience.

We are able to operate with a comparatively higher degree of profitability than other independent

retailers because we allocate support resources across our store base, focus on high-margin products and services, utilize floor plan financing and provide core back-office functions on a scale that many independent retailers are unable

We seek to be the leading boat retailer by total market share within each boating market and within the product segments in which we participate.

To the extent that we are not, we will evaluate acquiring other local retailers in

order to increase our sales, to add additional brands or to provide us with additional high-quality personnel.

Impact of COVID-19

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economic and leisure activities, has and may continue to have a significant impact on our operations and financial condition.

National, state

and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place orders, travel restrictions, business closures, cancellations of public gatherings, including boat shows, and

other measures.

These measures have affected our ability to sell and service boats, required us to temporarily close or partially close certain locations and may require additional closures in the future.

The COVID-19 pandemic and its related

effects have, to date, positively impacted our business for the year ended September 30, 2020.

Same-store sales outpaced the comparable period in the prior year, delivering approximately 24.4% growth year-over-year for the year ended September 30,

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 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.

Additionally, current economic conditions and the COVID-19 outbreak may continue to affect the purchasing decisions of our customers.

While our results have been positive to date, the ultimate impact on our business remains

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 year ended September 30, 2020 suggest that spending in all our regions and across product

lines has proven 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 year ended September 30, 2020.

Though the COVID-19 pandemic did not adversely affect our financial position for the year ended September 30, 2020 relative to the year ended September 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

National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including shelter in place orders, travel restrictions, business closures, cancellations of public gatherings,

including boat shows, and other measures.

At times, these measures have affected our ability to sell and service boats, required us to temporarily close or partially close certain locations and may require additional closures in the

In light of the current environment, our sales team members are fully engaged with customers and are providing them with virtual walkthroughs of inventory and/or private, at home or on water, showings, while our service

departments are working hard to deliver boats and keep customers on the water.

The COVID-19 pandemic and its related effects have, to date, positively impacted our sales as more customers desire to engage in outdoor recreational activities that can be enjoyed close to first or second

homes, in a socially distanced manner.

However, the COVID-19 pandemic has also caused significant supply chain challenges as suppliers were, and continue to be, faced with business closures and shipping delays.

This has led to an industry

wide inventory shortage of boats, engines and certain marine parts.

The COVID-19 pandemic and its related effects may continue to interfere with the ability of our employees, contractors, customers, suppliers, and other business partners

to perform our and their respective responsibilities and obligations with respect to the operation of our business.

While we continue to monitor the impact of the COVID-19 pandemic on our business and operations, our financial results for the year ended September 30, 2021 suggest that spending in all our regions and across

product lines has proven resilient despite the challenges posed by the pandemic as customers have continued to focus on socially distanced outdoor recreations.

The ultimate impact of the COVID-19 pandemic on our business remains uncertain

and dependent on various factors including consumer demand, a possible resurgence of COVID-19, including variants of the virus in certain geographic areas, our ability to safely operate stores and the existence and extent of a prolonged

economic downturn.

Trends and Other Factors Impacting Our Performance

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Since the combination of Singleton Marine and Legendary Marine in 2014, we have acquired 50 additional stores through 21 dealer group acquisitions.

Our team remains focused on

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

Our team remains

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

We plan to continue to aggressively pursue acquisitions going forward.

While we previously announced our

decision to pause our acquisition strategy due to the COVID-19 pandemic, given our financial results for the year ended September 30, 2020, we are recommencing our acquisition strategy and opportunistically evaluating future acquisitions.

entered into a definitive agreement on November 18, 2020, to acquire substantially all of the assets of Tom George Yacht Group, which will add two locations in Florida, and the transaction is expected to close before December 31, 2020.

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.

We 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.

not complete any acquisitions for the year ended September 30, 2020, we recommenced our acquisition strategy for the year ended September 30, 2021, completing 5 acquisitions.

In addition to our 2021 acquisitions discussed below, since September 30, 2021 we have completed the acquisitions of Naples Boat Mart, T-H Marine and Norfolk Marine as of October 1, 2021, November 30, 2021

and December 1, 2021, respectively.

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

retain the management team and name of the acquired group.

We believe this practice preserves customer relationships and goodwill in the local marketplace.

We believe our reputation and scale have positioned us as a buyer of choice for

marine retailers who want to sell their businesses.

To date, 100% of our acquisitions have been sourced from inbound inquiries, and the number of annual inquiries we receive has consistently increased over time.

Our strategy is to acquire stores at

attractive EBITDA multiples and then grow same-store sales while benefitting from cost-reducing synergies.

Historically, we have typically acquired dealer groups for less than 4.0x EBITDA on a trailing twelve months basis and believe that we will

be able to continue to make attractive acquisitions within this range.

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 groups for less than 4.0x EBITDA on a trailing twelve months basis and believe

that we will be able to continue to make attractive acquisitions within this range.

General Economic Conditions

General economic conditions and consumer spending patterns can negatively impact our operating results.

Unfavorable local, regional, national, or global economic developments or uncertainties, including the adverse

economic effects of the COVID-19 pandemic or a prolonged economic downturn, could reduce consumer spending and adversely affect our business.

Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels,

even if prevailing economic conditions are otherwise favorable.

Unfavorable local, regional, national, or global economic developments or uncertainties, including the

adverse economic effects of the COVID-19 pandemic or a prolonged economic downturn, could reduce consumer spending and adversely affect our business.

Consumer spending on discretionary goods may also decline as a result of lower consumer

confidence levels, even if prevailing economic conditions are otherwise favorable.

Economic conditions in areas in which we operate stores, particularly in the Southeast, can have a major impact on our overall results of operations.

Local influences, such as

corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our operations in certain markets and in certain periods.

Any extended period

of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

influences, such as corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our operations in certain markets and in certain

Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business.

Our business was significantly impacted during the recessionary period that began in 2007.

This period of weakness in consumer spending and depressed economic conditions had a substantial negative effect on our

operating results.

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.

Although past economic conditions have adversely affected our operating results, we believe we are capable of responding in a manner that allows us to substantially outperform the industry and gain market share.

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.

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.

We believe our ability to capture such market share enables us to align our retail strategies with the desires of customers.

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

growth opportunities as they occur, despite market conditions.

Critical Accounting Policies and Significant Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each

as of the date of the financial statements, and revenues and expenses during the periods presented.

On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial

statements in the period in which they are determined to be necessary.

Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements.

Set forth below are the

policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and

liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented.

On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are

reflected in the financial statements in the period in which they are determined to be necessary.

Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial

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

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.

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

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

At the time of acceptance or delivery, the customer is able to direct the use of the product and obtain substantially all of the

benefits at such time.

We are the principal with respect to revenue from new, pre-owned and consignment sales and such revenue is recorded at the gross sales price.

With respect to brokerage transactions, we are acting as an agent in the

transaction, therefore the fee or commission is recorded on a net basis.

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.

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.

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.

The Company recorded contract assets in prepaid expenses and other current assets of $2.3 million and $1.5 million as of September 30, 2021 and 2020, respectively.

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.

Subject to 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.

We constrain our

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

arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold.

We do not directly finance our

customers’ boat, motor or trailer purchases.

We are acting as an agent in the transaction, therefore the commissions are recorded on a net basis.

Subject to our agreements and in the event of early cancellation, prepayment or default of

such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the 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 consolidated financial statements for the years ended September 30, 2021, 2020 and 2019.

Vendor Consideration Received

Consideration received from vendors is accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 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.

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.

New and pre-owned boat sales histories

indicated that the overwhelming majority of such boats are sold for, or in excess of, the cost to purchase those boats.

In assessing the lower of cost or net realizable value, we consider the aging of the boats, historical sales of a

particular product and current market conditions.

There are inherent uncertainties in assessing net realizable value as management must make assumptions and apply judgment to changes in the market, brands and other factors that drive

consumer preferences and spending.

We typically do not maintain a boat inventory reserve.

The cost of parts and accessories is determined using the weighted average cost method.

Inventory is reported net of write downs for obsolete and slow

moving items of approximately $0.6 million, $0.5 million and $0.4 million at September 30, 2020, 2019 and 2018, respectively.

Inventory is reported net of write downs for obsolete and

slow moving items of approximately $0.8 million, $0.6 million and $0.5 million at September 30, 2021, 2020 and 2019, respectively.

Goodwill and Other Intangible Assets

Goodwill and other 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.

When evaluating goodwill for

impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350.

To the extent the reporting unit’s earnings decline

significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment.

The Company elected a qualitative assessment for our September 30, 2020 goodwill impairment testing and determined for both assessments as of September 30, 2020 and 2019, that it was more likely than not that the fair

value of the reporting unit was greater than its carrying amount, and as a result, no impairment for goodwill was required for the years then ended.

We elected to perform a quantitative assessment for our March 31, 2020 goodwill impairment testing due to the decline in our market capitalization and possible reductions in cash flow as a result of COVID-19.

our interim impairment assessment as of March 31, 2020, we determined that our goodwill was not impaired.

When evaluating

goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350.

To the extent the reporting unit’s

earnings decline significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to

record goodwill impairment.

The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its

carrying value.

We estimate the fair value of our reporting unit using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate.

The income valuation approach requires the use of significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital,

and future economic and market conditions.

In connection with this process, we also reconcile the estimated aggregate fair value of our reporting unit to our market capitalization, including consideration of a control premium that

represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest.

We believe that this reconciliation process is consistent with a market participant perspective.

We base our cash flow

forecasts on our knowledge of the industry, our recent performance, our expectations of our future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.

Actual future results

may differ from those estimates.

The Company elected a qualitative assessment for our September 30, 2021 goodwill impairment testing and determined for both assessments as of September 30, 2021 and 2020, that it was more likely than not that

the fair value of the reporting unit was greater than its carrying amount, and as a result, no impairment for goodwill was required for the years then ended.

Identifiable intangible assets consist of trade names related to the acquisitions we have completed.

We have determined that trade names have an indefinite life, as there are no economic, contractual or other factors

that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the dealer group, and therefore, are not subject to amortization.

We have determined that trade names have an indefinite life, as there are no economic, contractual or other

factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the dealer group, and therefore, are not subject to amortization.

The quantitative impairment test for trade names requires the comparison of the trade names’ estimated fair value to carrying value on an individual basis.

Fair values of trade names are estimated using Level 3 inputs by discounting expected future cash flows of the trade name.

The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions, which

include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions, and other marketplace data we believe to be

Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets.

The Company elected

qualitative assessments for our September 30, 2020 identifiable intangible assets impairment testing and determined for both assessments as of September 30, 2020 and 2019, that it was more likely than not that the fair values of the Company’s

identifiable intangible assets were greater than their carrying amounts, and as a result, no impairment for identifiable intangible assets was required for the years then ended.

We elected to perform quantitative assessments for our March 31, 2020 trade names impairment testing due to the decline in our market capitalization and possible reductions in cash flow as a result of COVID-19.

on our interim impairment assessments as of March 31, 2020, we determined that our trade names were not impaired.

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 asset.

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 September 30, 2020 and 2019.

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 results.

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 under the circumstances.

The grant date fair value of equity-based compensation and the fair value of the warrants to acquire OneWater LLC Units purchased by Goldman and Beekman pursuant to the subscription agreement dated October 28, 2016

(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 was required to estimate these fair value

measurements.

The LLC Warrants were exercised in connection with the IPO, and we eliminated the fair value adjustment for the LLC Warrants for all periods after the IPO, which also eliminated the corresponding impact on our statements of

Post-Offering Taxation and Public Company Costs

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.

federal income taxes.

OneWater Inc.

was incorporated as a Delaware

corporation on April 3, 2019 and therefore is subject to U.S.

federal income taxes and additional state and local income taxes with respect to its allocable share of any taxable income of OneWater LLC and is taxed at the prevailing corporate tax

In addition to tax expenses, OneWater Inc.

also incurs 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 OneWater LLC Agreement requires 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.

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”.

In addition, we incur incremental, non-recurring costs related to our operation as a publicly traded corporation, including the costs associated with the IPO, the September 2020 offering and the implementation of our

internal control reviews and testing pursuant to Section 404 of 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

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.

The Company elected qualitative assessments for our

September 30, 2021 identifiable intangible assets impairment testing and determined for both assessments as of September 30, 2021 and 2020, that it was more likely than not that the fair values of the Company’s identifiable intangible

assets were greater than their carrying amounts, and as a result, no impairment for identifiable intangible assets was required for the years then ended.

Business Combinations

We account for business combinations using the acquisition method of accounting, which requires recognition of assets acquired and liabilities assumed at fair value as of the date of the acquisition.

Determination of the estimated fair value assigned to each asset acquired or liability assumed can materially impact the net income in subsequent periods through depreciation and amortization and potential impairment charges.

The most critical areas of judgment in applying the acquisition method include selecting the appropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed

liabilities at fair value, particularly for inventory, acquisition contingent consideration, trade names and goodwill.

The fair value of acquired inventory is based on manufacturer invoice cost, curtailments, and market data.

significant estimates used to value acquisition contingent consideration are future earnings and discount rates.

We apply an income approach for the fair value of trade names, which discounts the estimate of future net cash flow using an

appropriate discount rate that reflects the risks associated with such projected future cash flow.

In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques

to a particular business combination transaction.

In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset

and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions.

How We Evaluate Our Operations

We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories.

Although non-boat sales contributed

approximately 9.8%, 11.4% and 10.5% to revenue in fiscal years 2020, 2019 and 2018, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 28.3%, 31.1% and 26.7% to gross profit in fiscal years

2020, 2019 and 2018, respectively.

Although non-boat sales

contributed approximately 11.3%, 9.8% and 11.4% to revenue in fiscal years 2021, 2020 and 2019, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 25.8%, 28.3% and 31.1% to gross

profit in fiscal years 2021, 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.

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, cancellation of boat shows and other developments outside of our control.

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, cancellation of boat shows 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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Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales.

As a result, when

revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.

result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase.

Selling, General and Administrative Expenses

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

our cost structure is variable (such as sales commissions and incentive compensation), or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long term.

We typically evaluate our

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

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.

Same-Store Sales

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information to assess our performance.

New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical

months in the same-store base periods.

New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for

identical months in the same-store base periods.

Stores relocated within an existing market remain in the comparable store base for all periods.

Additionally, amounts related to closed stores are excluded from each comparative base period.

Because same-store

sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

Additionally, amounts related to closed stores are excluded from each comparative base

Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

Adjusted EBITDA

We define Adjusted EBITDA as net income (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 contingent consideration, gain (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 (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

as the change in the 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 (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

Summary of Acquisitions

The comparability of our results of operations between the periods discussed below is naturally affected by the acquisitions we have completed during such periods.

We are also continuously evaluating and pursuing

acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results.

While we expect continued growth and strategic acquisitions in the future, our acquisitions may have

materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.

We are also continuously evaluating and

pursuing acquisitions on an ongoing basis, and such acquisitions, if completed, will continue to impact the comparability of our financial results.

While we expect continued growth and strategic acquisitions in the future, our

acquisitions may have materially different characteristics than our historical results, and such differences in economics may impact the comparability of our future results of operations to our historical results.

Fiscal Year 2021 Acquisitions

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

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

Effective December 31, 2020, we acquired substantially all of the assets of Roscioli Yachting Center, Inc., a full-service marine and yachting facility located in Florida, including the related real estate and in-water slips.

Effective August 1, 2021, we acquired substantially all of the assets of Stone Harbor Marina, Inc., a full-service marine retailer based in New Jersey with one store.

Effective September 1, 2021 we acquired substantially all of the assets of PartsVu, an online marketplace for OEM marine parts, electronics and accessories.

We refer to the fiscal year 2021 acquisitions described above collectively as the “2021 Acquisitions.” The 2021 Acquisitions are partially reflected in our consolidated financial statements for the year ended

September 30, 2021, beginning on the date of acquisition, and will not impact our results of operations for the years ended September 30, 2020 and 2019.

Fiscal Year 2020 Acquisitions

We did not complete any acquisitions in fiscal year 2020.

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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 consolidated financial statements for the year ended September 30,

2020 but are only partially reflected in our consolidated financial statements for the fiscal year ending September 30, 2019, beginning on the date of acquisition, and will not impact our results of operations for fiscal year 2018.

Fiscal Year 2018 Acquisitions

Effective June 1, 2018, OneWater LLC acquired Bosun’s Marine, Inc.

(“Bosun’s”), a dealer group based in Massachusetts with four stores.

Bosun’s was acquired by our subsidiary Bosun’s Assets & Operations, LLC, in which we hold a 75%

ownership interest.

The results of operations for Bosun’s have been included in our consolidated financial statements from that date and the former owner’s minority interest in our relevant subsidiary has been recorded accordingly.

Effective April 1, 2018, OneWater LLC acquired substantially all of the assets of Rebo, Inc., d/b/a Spend-A-Day Marina, a dealer group based in West Central Ohio with two stores.

Effective February 1, 2018, OneWater LLC acquired substantially all of the assets of Texas Marine & Brokerage, Inc., d/b/a Texas Marine, a dealer group based in Texas with three stores.

We refer to the fiscal year 2018 acquisitions described above collectively as the “2018 Acquisitions.” The full impact of the 2018 Acquisitions is reflected in our consolidated financial statements for the years ended

September 30, 2020 and 2019 but were only partially reflected in our consolidated financial statements for the fiscal year ended September 30, 2018, beginning on the date of acquisition.

September 30, 2021 and 2020 but are only partially reflected in our consolidated financial statements for the fiscal year ending September 30, 2019, beginning on the date of acquisition.

Other Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations

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Our accounting predecessor, OneWater LLC, was and is treated as a partnership for U.S.

federal income tax purposes, and as such, was and is

generally not subject to U.S.

federal income tax purposes, and as such, was and

is generally not subject to U.S.

federal income tax at the entity level.

Rather, the tax liability with respect to its taxable income is passed through to its members.

Accordingly, the financial data attributable to our predecessor contains no

provision for U.S.

Accordingly, the financial data attributable to our

predecessor contains no provision for U.S.

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

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was subject to U.S.

federal, state and local taxes at a blended statutory rate of 24.3% of pre-tax earnings for fiscal year 2020.

As of September 30, 2019, the outstanding balance of the preferred units in Opco held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3 million in issuance costs.

We used the net proceeds from our IPO, together

with cash on hand and borrowings under the Term and Revolver Credit Facility to fully redeem these preferred units, which eliminated 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 IPO.

federal, state and local taxes at a blended statutory rate of 24.1% of pre-tax earnings

for fiscal year 2021.

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.

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 IPO, Goldman and Beekman exercised all of the LLC Warrants for common units of OneWater LLC.

Giving effect to the

IPO 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 IPO, which eliminated the corresponding

impact on our statements of operations.

Giving effect to the IPO 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 IPO, which

eliminated the corresponding impact on our statements of operations.

As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, it is likely that we will incur additional SG&A expenses relative to historical periods.

“—Post-Offering Taxation and Public Company Costs.” Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.

future results will depend on our ability to efficiently manage our combined operations and execute our business strategy.

Results of Operations

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For the Year Ended September 30,

($ in thousands, unaudited)

New boat sales

Pre-owned boat sales

($ in thousands)

Pre-owned boat

Finance and insurance income

Service, parts and other sales

Service, parts and other

Total revenues

New boat gross profit

Pre-owned boat gross profit

Finance & insurance gross profit

Service, parts & other gross profit

Pre-owned boat

Finance & insurance

Service, parts & other

Total gross profit

For the Year Ended September 30,

($ in thousands)

Selling, general and administrative expenses

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Transaction costs

Loss (gain) on contingent consideration

Loss on contingent consideration

Income from operations

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Loss on extinguishment of debt

Other expense (income), net

Other income, net

Income before income tax expense

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Net income attributable to non-controlling interests

Net income attributable to One Water Marine Holdings, LLC

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

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Overall, revenue increased by $205.2 million, or 20.1%, to $1,228.2 million for the year ended September 30, 2021 from $1,023.0 million for the year ended September 30, 2020.

Revenue generated from same-store sales

increased 24.4% for the year ended September 30, 2020 as compared to the year ended September 30, 2019, primarily due to an increase in the average selling price of new and pre-owned boats, the model mix of boats sold, an increase in the number of

new and pre-owned boats sold and an increase in finance & insurance sales.

We believe that COVID-19 has had a positive overall impact on the recreational boating market during a portion of the year ended September 30, 2020, as people sought

recreational activities that could be done in a safe socially distanced way.

Overall revenue increased by $184.8 million as a result of our increase in same-store sales and $70.5 million from stores not eligible for inclusion in the same-store

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

For the year ended September 30, 2019, we acquired ten stores.

Revenue generated from same-store

sales increased 9.7% for the year ended September 30, 2021 as compared to the year ended September 30, 2020, primarily due to an increase in the average selling price of new and pre-owned boats, the model mix of boats sold, an increase in

finance & insurance sales and an increase in service, parts and other sales.

We believe that COVID-19 has had a positive overall impact on the retail marine industry as people continue to seek recreational activities that could be

done in a safe socially distanced way.

Overall revenue increased by $99.3 million as a result of our increase in same-store sales and $105.9 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.

year ended September 30, 2021, we completed 5 acquisitions.

We did not make any acquisitions in the year ended September 30, 2020.

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New boat sales increased by $155.6 million, or 21.7%, to $872.7 million for the year ended September 30, 2021 from $717.1 million for the year ended September 30, 2020.

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 year ended September 30, 2020, we experienced an increase in unit sales of 18.8% and an increase in average unit price of

14.6% over the year ended September 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.

The increase was the result of our

same-store sales growth during the twelve-month period, the increased unit sales attributable to the 2021 Acquisitions and an increase in our average unit price.

We believe the increase in sales 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 to consumer demand, the mix of boat brands

and models sold, and product improvements in the functionality and technology of boats.

Pre-owned Boat Sales

Pre-owned boat sales increased by $10.8 million, or 5.2%, to $216.4 million for the year ended September 30, 2021 from $205.7 million for the year ended September 30, 2020.

We sell a wide range of brands and sizes of

pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consigned and wholesale), which causes periodic and seasonal fluctuations in the average sales price.

Pre-owned boat sales for the year ended September 30,

2020 benefited from a 12.2% increase in the number of units sold due to the increase in same-store sales and the impact of the fiscal year 2019 Acquisitions.

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.

boat sales for the year ended September 30, 2021 experienced a decrease in the number of units sold due to industry-wide supply constraints.

The average sales price per pre-owned unit in the year ended September 30, 2021 increased

21.1% 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.

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 industry-wide supply restrictions and higher prices.

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

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 $5.9 million, or 16.0%, to $42.7 million for the year ended September 30, 2021 from $36.8 million for the year ended September 30, 2020.

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 3.6% in the year ended September 30, 2020 from 3.4% for the year ended September 30, 2019.

Since finance &

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

The increase was primarily a result

of the increase in same-store sales, process improvements and additional revenue attributable to the fiscal year 2021 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 decreased slightly as a percentage of total revenue to 3.5% in the year ended September 30, 2021 from 3.6% for the

year ended September 30, 2020.

Finance & insurance income is recorded net of related fees, including fees charged back due to any early cancellation of loan or insurance contracts by a customer.

Since finance & insurance income is

fee-based, we do not incur any related cost of sale.

Service, Parts & Other Sales

Service, parts & other sales had moderate growth, increasing by $1.7 million, or 2.8%, to $63.4 million for the year ended September 30, 2020 from $61.7 million for the year ended September 30, 2019.

This 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.

The decline in labor sales was primarily a result of closures, shelter in place orders and labor

reductions related to the COVID-19 pandemic.

Service, parts & other sales increased by $33.0 million, or 52.0%, to $96.4 million for the year ended September 30, 2021 from $63.4 million for the year ended September 30, 2020.

This increase in

service, parts & other sales is primarily due to increases across the board in labor, parts, fuel and storage sales, driven by ancillary sales generated from our increase in new and pre-owned boat sales and the impact of our 2021

Acquisitions.

Overall, gross profit increased by $121.9 million, or 51.8%, to $357.5 million for the year ended September 30, 2021 from $235.5 million for the year ended September 30, 2020.

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 increased 60 basis points to 23.0% for the year ended September 30, 2020 from 22.4% for the year ended September 30, 2019 due to the factors noted below.

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, finance & insurance income and service, parts and other sales.

The increase in gross profit was also

a result of an increase in the number of stores due to the fiscal year 2021 Acquisitions.

Overall gross margins increased 610 basis points to 29.1% for the year ended September 30, 2021 from 23.0% for the year ended September 30, 2020 due

to the factors noted below.

New Boat Gross Profit

New boat gross profit increased by $79.5 million, or 60.5%, to $210.9 million for the year ended September 30, 2021 from $131.4 million for the year ended September 30, 2020.

This increase was due to our overall

increase in same-store sales and acquired stores during fiscal year 2019.

This increase was due to our

overall increase in same-store sales and acquired stores during fiscal year 2021.

New boat gross profit as a percentage of new boat revenue was 24.2% for the year ended September 30, 2021 as compared to 18.3% in the year ended September

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 & insurance.

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.

Pre-owned Boat Gross Profit

Pre-owned boat gross profit increased by $16.7 million, or 44.8%, to $54.1 million for the year ended September 30, 2021 from $37.4 million for the year ended September 30, 2020.

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 18.2% for the year ended September 30, 2020 as compared to 17.0% in the year ended

September 30, 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, consignment and wholesale), which may cause periodic and seasonal fluctuations in pre-owned

boat gross profit as a percentage of revenue.

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

This increase was primarily

due to an overall increase in our same-store sales and acquired stores during fiscal year 2021.

Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 25.0% for the year ended September 30, 2021 as compared to 18.2% in

the year ended September 30, 2020.

We sell a wide range of brands and sizes of pre-owned boats under different types of sales arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may cause periodic and seasonal

fluctuations in pre-owned boat gross profit as a percentage of revenue.

In the year ended September 30, 2021 as compared to the year ended September 30, 2020, we experienced an increase in our gross profit on pre-owned sales for each of

the different sales arrangements.

Finance & Insurance Gross Profit

Finance & insurance gross profit increased by $5.9 million, or 16.0%, to $42.7 million for the year ended September 30, 2021 from $36.8 million for the year ended September 30, 2020.

Finance & insurance income

is fee-based revenue for which we do not recognize incremental expense.

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

Service, Parts & Other Gross Profit

Service, parts & other gross profit increased by $19.8 million, or 65.9%, to $49.7 million for the year ended September 30, 2021 from $30.0 million for the year ended September 30, 2020.

Service, parts & other

gross profit as a percentage of service, parts & other revenue was 47.2% and 44.5% for the year ended September 30, 2020 and 2019, respectively.

This increase in gross profit margin was primarily the result of increases in service gross profit

margin and storage and other gross profit margin.

Service, parts

& other gross profit as a percentage of service, parts & other revenue was 51.6% and 47.2% for the year ended September 30, 2021 and 2020, respectively.

This increase was the result of the

mix of products sold, which shifted towards service work, which has a higher margin.

Additionally, due to the increased demand, we experienced an increase in the overall productivity of our service technicians, which also drove margins

Selling, General & Administrative Expenses

Selling, general & administrative expenses increased by $55.5 million, or 38.6%, to $199.0 million for the year ended September 30, 2021 from $143.6 million for the year ended September 30, 2020.

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 $22.3 million increase in personnel

expenses and a $4.0 million increase in fixed expenses.

Selling, general & administrative expenses as a percentage of revenue decreased to 14.0% from 15.2% for the years ended September 30, 2020 and 2019, respectively.

The reduction in selling,

general & administrative expenses as a percentage of revenue was due mainly to leverage achieved on the significant increase in sales and the cost reduction actions enacted following the acceleration of COVID-19 in March of 2020.

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 $45.0 million

increase in personnel expenses and a $5.9 million increase in fixed expenses.

Selling, general & administrative expenses as a percentage of revenue increased to 16.2% from 14.0% for the years ended September 30, 2021 and 2020,

respectively.

The increase in selling, general & administrative expenses as a percentage of revenue was primarily due to higher variable-based compensation expense as a result of the Company’s

increased net profit margin.

Depreciation and Amortization

Depreciation and amortization expense increased $2.2 million, or 66.5%, to $5.4 million for the year ended September 30, 2021 compared to $3.2 million for the year ended September 30, 2020.

The increase in depreciation

and amortization expense for the year ended September 30, 2020 compared to the year ended September 30, 2019 was primarily attributable to an increase in property and equipment.

The increase in

depreciation and amortization expense for the year ended September 30, 2021 compared to the year ended September 30, 2020 was primarily attributable to an increase in property and equipment from our 2021 Acquisitions.

Transaction Costs

The increase in transaction costs of $2.3 million, or 175.7%, to $3.6 million for the year ended September 30, 2020 compared to $1.3 million for the year ended September 30, 2019 was primarily attributable to $2.3

million of expenses recognized in conjunction with the IPO that were not able to be capitalized.

Loss (Gain) on Contingent Consideration

During the year ended September 30, 2020, we increased our contingent consideration related to a fiscal 2019 acquisition in the amount of $6.8 million.

During the year ended September 30, 2019, we reduced our estimate

of contingent consideration related to a fiscal 2018 and a fiscal 2017 acquisition in the amount of $1.7 million.

The decrease in transaction costs of $2.8 million, or 76.2%, to $0.9 million for the year ended September 30, 2021 compared to $3.6 million for the year ended September 30, 2020 was primarily attributable to

expenses recognized in conjunction with the IPO and September offering that were not able to be capitalized for the year ended September 30, 2020.

Loss on Contingent Consideration

During the year ended September 30, 2021, we increased our contingent consideration related to a fiscal 2021 acquisition and a fiscal 2019 acquisition in the amount of $3.2 million.

During the year ended

September 30, 2020, we increased our contingent consideration related to a fiscal 2019 acquisition in the amount of $6.8 million.

Income from Operations

Income from operations increased $70.6 million, or 90.2%, to $148.9 million for the year ended September 30, 2021 compared to $78.3 million for the year ended September 30, 2020.

The increase was primarily attributable

to the $63.4 million increase in gross profit for the year ended September 30, 2020 as compared to the year ended September 30, 2019, partially offset by a $26.9 million increase in selling, general & administrative expenses and an $8.4 million

increase in loss on contingent consideration during the same period.

The increase was primarily

attributable to the $121.9 million increase in gross profit for the year ended September 30, 2021 as compared to the year ended September 30, 2020, partially offset by a $55.5 million increase in selling, general & administrative

expenses during the same period.

Interest Expense – Floor Plan

1 unchanged sentence

The decrease was primarily

attributable to a decrease in the average outstanding borrowings on our Inventory Financing Facility for the year ended September 30, 2020 compared to the year ended September 30, 2019 as well as a decrease in interest rates during the same period.

attributable to a decrease in the average outstanding borrowings on our Inventory Financing Facility for the year ended September 30, 2021 compared to the year ended September 30, 2020, falling interest rates, and interest assistance

received from our manufacturers and banks.

Interest Expense – Other

The increase in interest expense – other of $2.3 million, or 34.4%, to $8.8 million for the year ended September 30, 2020 compared to $6.6 million for the year ended September 30, 2019 was primarily attributable to an

increase in our long-term debt which was primarily increased to fully redeem the preferred interest in subsidiary in conjunction with the IPO.

The decrease in interest expense – other of $4.5 million, or 50.8%, to $4.3 million for the year ended September 30, 2021 compared to $8.8 million for the year ended September 30, 2020 was primarily attributable to the payoff of our Term and Revolver Credit Facility (as defined below) and entry into the Credit Facility, 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 $0.6 million, or 42.3%, to $(0.8) million income for the year ended September 30, 2020 compared to $(1.4) million income for the year ended September 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.

In connection with the Reorganization and IPO, the LLC Warrants were exercised in full

for common units of OneWater LLC, which eliminated the liability accounting and fair value adjustments for the LLC Warrants for all periods after the Reorganization.

The change in fair value of warrant liability of $0.8 million for the year ended September 30, 2020 was attributable to an overall change in the enterprise value of the Company.

charge was recorded for the year ended September 30, 2021 as the warrants were exercised in conjunction with the IPO.

Loss on Extinguishment of Debt

During the year ended September 30, 2020, we incurred $6.6 million in debt extinguishment expenses.

On July 22, 2020 in connection with the refinancing of our term debt, we repaid in full the Term and Revolver Credit

On July 22, 2020 in connection with the refinancing of our term debt, we repaid in full the Term and

Revolver Credit Facility.

As part of the pre-payment of the Term and Revolver Credit Facility, we were required to pay an early termination fee of $4.2 million.

Additionally, in connection with the debt extinguishment, we recognized $2.4 million of expense for

unamortized debt issuance costs.

Additionally, in connection with the debt extinguishment, we recognized $2.4

million of expense for unamortized debt issuance costs.

Other (Income) Expense, Net

The decrease in other expense of $1.2 million for the year ended September 30, 2020 compared to the year ended September 30, 2019 was primarily attributable to a $1.4 million loss on the sale and leaseback of certain

operating facilities and equipment for the year ended September 30, 2019.

Other income, net was approximately $248,000 and $24,000 for the year ended September 30, 2021 and the year ended September 30, 2020, respectively.

Income Tax Expense

The $6.3 million increase in income tax expense for the year ended September 30, 2020 as compared to the year ended September 30, 2019 was the result of the U.S.

federal, state and local taxes OneWater Inc.

to as a corporation following the IPO.

The $19.5 million increase in income tax expense for the year ended September 30, 2021 as compared to the year ended September 30, 2020 was primarily the result of the

$87.4 million increase in income before income tax expense and the IPO and the taxability of OneWater Inc.

as a corporation for the full year ended September 30, 2021 versus only the period subsequent to the IPO for the year ended

September 30, 2020.

Additionally, as Class B common stock was exchanged for Class A common stock (in accordance with the terms of the OneWater LLC Agreement), the proportion of consolidated income before income tax expense allocated to

OneWater Inc.

increased, yielding higher income tax expense.

Net Income (Loss)

Net income increased by $67.9 million to $116.4 million for the year ended September 30, 2021 compared to $48.5 million for the year ended September 30, 2020.

The increase was primarily attributable to the $63.4 million

increase in gross profit for the year ended September 30, 2020 compared to September 30, 2019.

The increase was partially offset by a $26.9 million increase in selling, general and administrative expenses for the year ended September 30, 2020

compared to the year ended September 30, 2019, as well as a $8.4 million increase in the loss on contingent consideration, a $6.6 million increase in the loss on extinguishment of debt and a $6.3 million increase in income tax expense for the same

The increase was primarily attributable to the

$121.9 million increase in gross profit for the year ended September 30, 2021 compared to September 30, 2020.

The increase was partially offset by a $55.5 million increase in selling, general and administrative expenses for the year ended

September 30, 2021 compared to the year ended September 30, 2020, as well as a $19.5 million increase in income tax expense for the same period.

Results of Operations

Year Ended September 30, 2020, Compared to Year Ended September 30, 2019

Years Ended September 30,

For the Year Ended September 30,

($ in thousands)

1 unchanged sentence

Pre-owned boat sales

Finance & insurance income

Service, parts & other sales

Finance and insurance income

Service, parts and other sales

Total revenues

7 unchanged sentences

Transaction costs

Gain on settlement of contingent consideration

Loss (gain) on contingent

consideration

Income from operations

1 unchanged sentence

Interest expense – other

Change in fair value of warrant liability

Other expense (income), net

Change in fair value of warrant

Loss on extinguishment of debt

Other (income) expense, net

Income before income tax expense

1 unchanged sentence

Net income attributable to non-controlling interests

Net income attributable to OneWater LLC

Denotes that % change is such that it is not useful.

Overall, revenue increased by $164.8 million, or 27.3%, to approximately $767.6 million for fiscal year 2019 from $602.8 million for fiscal year 2018.

Revenue generated from same-store sales increased 11.8% for fiscal

year 2019 as compared to fiscal year 2018, primarily due to an increase in the average selling price of new and pre-owned boats and an increase in the number of new and pre-owned boats sold.

Overall revenue increased by $70.5 million as a result of

our increase in same-store sales and $94.3 million from stores not eligible for inclusion in the same-store sales base.

Ineligible stores consist of the 2019 Acquisitions and revenue from the 2018 Acquisitions where there was no comparable revenue

in the same-store sales base during fiscal year 2018.

During the fiscal year ended September 30, 2019, we acquired 10 stores, as compared to eight stores acquired during fiscal year 2018.

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 OneWater Marine Inc.

Overall, revenue increased by $255.3 million, or 33.3%, to $1,023.0 million for the year ended September 30, 2020 from $767.6 million for the year ended September 30, 2019.

Revenue generated from same-store

sales increased 24.4% for the year ended September 30, 2020 as compared to the year ended September 30, 2019, primarily due to an increase in the average selling price of new and pre-owned boats, the model mix of boats sold, an increase

in the number of new and pre-owned boats sold and an increase in finance & insurance sales.

We believe that COVID-19 has had a positive overall impact on the retail marine industry during a portion of the year ended September 30,

2020, as people sought recreational activities that could be done in a safe socially distanced way.

Overall revenue increased by $184.8 million as a result of our increase in same-store sales and $70.5 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 year ended September 30, 2019, we acquired ten stores.

We did not make any acquisitions in the year ended September 30, 2020.

New Boat Sales

New boat sales increased by $116.8 million, or 28.5%, to approximately $526.8 million for the fiscal year ended September 30, 2019 from $410.0 million for the fiscal year ended September 30, 2018.

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 and the impact of the 2018 Acquisitions.

During the fiscal year ended September 30, 2019 we experienced an

increase in unit sales of approximately 12.9% and an increase in average unit prices of approximately 13.8% over fiscal year 2018.

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.

New boat sales increased by $190.3 million, or 36.1%, to $717.1 million for the year ended September 30, 2020 from $526.8 million for the year ended September 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 year ended September 30, 2020, we experienced an increase in unit sales of 18.8% and an increase in

average unit price of 14.6% over the year ended September 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

Pre-owned boat sales increased by $23.4 million, or 18.1%, to approximately $153.0 million for the fiscal year ended September 30, 2019 from $129.6 million for the fiscal year ended September 30, 2018.

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

fiscal year ended September 30, 2019 benefited from a 25.2% increase in the number of units sold largely due to the increase in same-store sales and the full impact of the 2018 Acquisitions and the partial impact of the 2019 Acquisitions.

average sales price per pre-owned unit in the fiscal year ended September 30, 2019 remained flat due to the mix of pre-owned products and the composition of the brands and models sold during the period.

Pre-owned boat sales increased by $52.6 million, or 34.4%, to $205.7 million for the year ended September 30, 2020 from $153.0 million for the year ended September 30, 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 year

ended September 30, 2020 benefited from a 12.2% 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 year ended

September 30, 2020 increased 21.1% 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.

Finance & Insurance Income

Finance & insurance income increased by $9.5 million, or 57.3%, to approximately $26.2 million for the fiscal year ended September 30, 2019 from $16.6 million for the fiscal year ended September 30, 2018.

increase in revenue from arranging F&I products, including financing, insurance and extended warranty contracts, to customers through various third-party financial institutions and insurance increased as the result of the increase in same-store

sales, process improvements and with the additional revenue attributable to the 2019 Acquisitions and the inclusion of a full year of revenue attributable to the 2018 Acquisitions.

We remain very focused on improving sales of F&I products

throughout our dealer group network and implementing best practices at acquired dealer groups and existing stores.

F&I products increased as a percentage of total revenue to 3.4% in the fiscal year ended September 30, 2019 from 2.8% for the

fiscal year ended September 30, 2018.

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 $10.6 million, or 40.7%, to $36.8 million for the year ended September 30, 2020 from $26.2 million for the year ended September 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 3.6% in the year ended September 30, 2020 from 3.4% for the year ended

September 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 customer.

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 increased by $15.0 million, or 32.2%, to approximately $61.7 million for the fiscal year ended September 30, 2019 from $46.7 million for the fiscal year ended September 30, 2018.

increase in service, parts & other sales is due to ancillary sales generated from our increase in new and pre-owned boat sales and sales attributable to the 2019 Acquisitions, including increased storage and fuel sales.

Overall, gross profit increased by $34.5 million, or 25.0%, to approximately $172.1 million for the fiscal year ended September 30, 2019 from $137.7 million for the fiscal year ended September 30, 2018.

This increase

was primarily due to our overall increase in same-store sales, primarily driven by an increase in new boat sales.

The increase in gross profit was also a result of an increase in the number of stores due to the 2019 Acquisitions and the inclusion

of a full year of results of the 2018 Acquisitions.

Overall gross margins decreased 40 basis points to 22.4% for the fiscal year ended September 30, 2019 from 22.8% for the fiscal year ended September 30, 2018.

This decrease was due to the factors

Service, parts & other sales had moderate growth, increasing by $1.7 million, or 2.8%, to $63.4 million for the year ended September 30, 2020 from $61.7 million for the year ended September 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.

The decline in labor sales was primarily a result of closures, shelter in place

orders and labor reductions related to the COVID-19 pandemic.

Overall, gross profit increased by $63.4 million, or 36.8%, to $235.5 million for the year ended September 30, 2020 from $172.1 million for the year ended September 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 increased 60 basis points to 23.0% for the year ended September 30, 2020 from 22.4% for the year ended September 30, 2019 due to the factors noted below.

New Boat Gross Profit

New boat gross profit increased by $15.3 million, or 19.8%, to approximately $92.5 million for the fiscal year ended September 30, 2019 from $77.2 million for the fiscal year ended September 30, 2018.

This increase was

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

New boat gross profit as a percentage of new boat revenue was 17.6% for the fiscal year ended September 30, 2019 as compared to 18.8% in the fiscal year ended

September 30, 2018.

The decrease in new boat gross profit margin is due to our promotional efforts to drive our same-store sales increase during the important boat show season and the challenging winter months and to improve our overall inventory

position throughout the fiscal year.

New boat gross profit increased by $38.8 million, or 42.0%, to $131.4 million for the year ended September 30, 2020 from $92.5 million for the year ended September 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 18.3% for the year ended September 30, 2020 as compared to 17.6% in the year ended September

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

Pre-owned Boat Gross Profit

Pre-owned boat gross profit increased by $2.3 million, or 9.6%, to approximately $26.0 million for the fiscal year ended September 30, 2019 from $23.7 million for the fiscal year ended September 30, 2018.

This increase

was primarily due to an overall increase in our same-store sales and acquired stores during the year, while average unit prices remained constant.

Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 17.0% and 18.3% for the

fiscal years ended September 30, 2019 and 2018, 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 gross profit as a percentage of revenue.

In the fiscal year ended September 30, 2019, we experienced a decline in our gross profit margin on boats purchased or traded-in.

This was partially offset by a shift

in product mix due in part to an increase in brokerage sales.

Pre-owned boat gross profit increased by $11.4 million, or 43.8%, to $37.4 million for the year ended September 30, 2020 from $26.0 million for the year ended September 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 18.2% for the year ended September 30, 2020 as compared to 17.0% in

the year ended September 30, 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, consignment and wholesale), which may cause periodic and seasonal

fluctuations in pre-owned boat gross profit as a percentage of revenue.

In the year ended September 30, 2020 as compared to the year ended September 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 $9.5 million, or 57.3%, to approximately $26.2 million for the fiscal year ended September 30, 2019 from $16.6 million for the fiscal year ended September 30, 2018.

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

Finance & insurance gross profit increased by $10.6 million, or 40.7%, to $36.8 million for the year ended September 30, 2020 from $26.2 million for the year ended September 30, 2019.

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

Service, Parts & Other Gross Profit

Service, parts & other gross profit increased by $7.4 million or 36.6%, to approximately $27.5 million for the fiscal year ended September 30, 2019 from $20.1 million for the fiscal year ended September 30, 2018.

Service, parts & other gross profit as a percentage of service, parts & other revenue was 44.5% and 43.1% for the fiscal years ended September 30, 2019 and 2018, respectively.

This increase in gross profit margin was the result of increases

in parts gross profit margin and storage and other gross profit margin, partially offset by a decrease in service gross profit margin.

Service, parts & other gross profit increased by $2.5 million, or 9.2%, to $30.0 million for the year ended September 30, 2020 from $27.5 million for the year ended September 30, 2019.

Service, parts

& other gross profit as a percentage of service, parts & other revenue was 47.2% and 44.5% for the year ended September 30, 2020 and 2019, respectively.

This increase in gross profit margin was primarily the result of increases in

service gross profit margin and storage and other gross profit margin.

Selling, General & Administrative Expenses

SG&A expenses increased by $25.2 million, or 27.6%, to approximately $116.5 million for the fiscal year ended September 30, 2019 from $91.3 million for the fiscal year ended September 30, 2018.

This increase was

primarily due to the impact of acquisitions and expenses incurred to support the overall increase in same-store sales and consisted of $16.0 million related to an increase in personnel expenses, $5.6 million related to an increase in selling and

administrative expenses, and $3.6 million related to an increase in fixed expenses.

SG&A expenses as a percentage of revenue remained relatively constant at 15.2% and 15.1% for the fiscal years ended September 30, 2019 and 2018, respectively.

Selling, general & administrative expenses increased by $27.1 million, or 23.2%, to $143.6 million for the year ended September 30, 2020 from $116.5 million for the year ended September 30, 2019.

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 $22.3 million

increase in personnel expenses and a $4.0 million increase in fixed expenses.

Selling, general & administrative expenses as a percentage of revenue decreased to 14.0% from 15.2% for the years ended September 30, 2020 and 2019,

respectively.

The reduction in selling, general & administrative expenses as a percentage of revenue was due mainly to leverage achieved on the significant increase in sales and the cost reduction actions enacted following the

acceleration of COVID-19 in March of 2020.

Depreciation and Amortization

Depreciation and amortization expense increased $1.0 million, or 59.2%, to $2.7 million for the fiscal year ended September 30, 2019 compared to $1.7 million for the fiscal year ended September 30, 2018.

was primarily attributable to an increase in our asset base throughout the year, including the 2019 Acquisitions and the inclusion of a full year of expenses attributable to the 2018 Acquisitions of maintenance capital expenditures, equipment and

leasehold improvements, and growth capital expenditures.

Depreciation and amortization expense increased $0.6 million, or 21.1%, to $3.2 million for the year ended September 30, 2020 compared to $2.7 million for the year ended September 30, 2019.

The increase in

depreciation and amortization expense for the year ended September 30, 2020 compared to the year ended September 30, 2019 was primarily attributable to an increase in property and equipment.

Transaction Costs

The increase in transaction costs of $0.9 million, or 202.1%, to $1.3 million for the fiscal year ended September 30, 2019 compared to $0.4 million for the fiscal year ended September 30, 2018 was primarily

attributable to the costs of our 2019 and 2018 Acquisitions.

Gain on Settlement of Contingent Consideration

During the fiscal year ended September 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.

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

Loss (Gain) on Contingent Consideration

During the year ended September 30, 2020, we increased our contingent consideration related to a fiscal 2019 acquisition in the amount of $6.8 million.

During the year ended September 30, 2019, we reduced our

estimate of contingent consideration related to a fiscal 2018 and a fiscal 2017 acquisition in the amount of $1.7 million.

Income from Operations

Operating income increased $9.1 million, or 20.5%, to $53.5 million for the fiscal year ended September 30, 2019 compared to $44.2 million for the fiscal year ended September 30, 2018.

Income from operations increased $25.0 million, or 46.9%, to $78.3 million for the year ended September 30, 2020 compared to $53.3 million for the year ended September 30, 2019.

The increase was primarily

attributable to our overall growth due to increases in same-store sales, the 2019 Acquisitions and the inclusion of a full year of financial results related to the 2018 Acquisitions.

attributable to the $63.4 million increase in gross profit for the year ended September 30, 2020 as compared to the year ended September 30, 2019, partially offset by a $27.1 million increase in selling, general & administrative

expenses and an $8.4 million increase in loss on contingent consideration during the same period.

Interest Expense – Floor Plan

Interest expense – floor plan increased $3.9 million, or 69.8%, to $9.4 million for the fiscal year ended September 30, 2019 compared to $5.5 million for the fiscal year ended September 30, 2018 and was primarily

attributable to a $67.9 million increase in the outstanding borrowings on our Inventory Financing Facility as of September 30, 2019 compared to September 30, 2018 as a result of our same-store sales growth and stores acquired in the 2019 and 2018

Acquisitions.

Interest expense – floor plan decreased $0.5 million, or 5.7%, to $8.9 million for the year ended September 30, 2020 compared to $9.4 million for the year ended September 30, 2019.

The decrease was primarily

Interest Expense – Other

The increase in interest expense – other of $2.7 million, or 71.2%, to $6.6 million for the fiscal year ended September 30, 2019 compared to $3.8 million for the fiscal year ended September 30, 2018 was primarily

attributable to a $34.1 million increase in our long-term debt primarily used to fund our 2019 and 2018 Acquisitions.

attributable to an increase in our long-term debt which was primarily increased to fully redeem the preferred interest in subsidiary in conjunction with the IPO.

Change in Fair Value of Warrant Liability

The decrease in change in fair value of warrant liability of $34.5 million, or 104.0%, to $(1.3) million for the fiscal year ended September 30, 2019 compared to $33.2 million for the fiscal year ended September 30,

2018 was primarily attributable to an overall change in the enterprise value of the Company due to our increase in sales and earnings offset by a decline in the implied value of other market participants.

Other Expense (Income), Net

The decrease in other expense (income) of $1.7 million, or 621.2%, to other expense of $1.4 million for the fiscal year ended September 30, 2019 compared to other income of $(0.3) million for the fiscal year ended

September 30, 2018 was primarily attributable to a $1.4 million loss related to the sale and leaseback of certain operating facilities and equipment.

September 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.

In connection with the Reorganization and IPO, the LLC Warrants

were exercised in full for common units of OneWater LLC, which eliminated the liability accounting and fair value adjustments for the LLC Warrants for all periods after the Reorganization.

Loss on Extinguishment of Debt

During the year ended September 30, 2020, we incurred $6.6 million in debt extinguishment expenses.

On July 22, 2020 in connection with the refinancing of our term debt, we repaid in full the Term and

Revolver Credit Facility.

As part of the pre-payment of the Term and Revolver Credit Facility, we were required to pay an early termination fee of $4.2 million.

Additionally, in connection with the debt extinguishment, we recognized $2.4

million of expense for unamortized debt issuance costs.

Other (Income) Expense, Net

The decrease in other expense of $1.4 million for the year ended September 30, 2020 compared to the year ended September 30, 2019 was primarily attributable to a $1.4 million loss on the sale and leaseback of

certain operating facilities and equipment for the year ended September 30, 2019.

Income Tax Expense

The $6.3 million increase in income tax expense for the year ended September 30, 2020 as compared to the year ended September 30, 2019 was the result of the U.S.

federal, state and local taxes OneWater Inc.

was subject to as a corporation following the IPO.

Net Income (Loss)

Net income increased by $35.3 million to net income of $37.3 million for the fiscal year ended September 30, 2019 compared to net income of $1.9 million for the fiscal year ended September 30, 2018.

Such increase was

primarily attributable to our overall growth, the change in fair value of the warrant liability to income of $1.3 million in the fiscal year ended September 30, 2019 from expense of $33.2 million in the fiscal year ended September 30, 2018, the

2019 Acquisitions, and the inclusion of a full twelve months of financial results attributable to the 2018 Acquisitions.

Net income increased by $11.2 million to $48.5 million for the year ended September 30, 2020 compared to $37.3 million for the year ended September 30, 2019.

The increase was primarily attributable to the

$63.4 million increase in gross profit for the year ended September 30, 2020 compared to September 30, 2019.

The increase was partially offset by a $27.1 million increase in selling, general and administrative expenses for the year ended

September 30, 2020 compared to the year ended September 30, 2019, as well as a $8.4 million increase in the loss on contingent consideration, a $6.6 million increase in the loss on extinguishment of debt and a $6.3 million increase in

income tax expense for the same period.

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 warrant liability, gain (loss) on contingent consideration, gain (loss) on extinguishment of debt and transaction costs.

Our board of directors, management team and lenders use Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing

the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization) and other items (such as the fair value adjustment of the warrants, gain (loss) on contingent consideration, gain

(loss) on extinguishment of debt and transaction costs) that impact the comparability of financial results from period to period.

We present Adjusted EBITDA because we believe it provides useful information regarding the factors and trends

affecting our business in addition to measures calculated under GAAP.

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 warrant liability, gain (loss) on contingent consideration, gain (loss) on extinguishment of debt and transaction costs.

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 contingent

consideration, gain (loss) on extinguishment of debt and transaction costs) that impact the comparability of financial results from period to period.

We present Adjusted EBITDA because we believe it provides useful information regarding

the factors and trends affecting our business in addition to measures calculated under GAAP.

Adjusted EBITDA is not a financial measure presented in accordance with GAAP.

We believe that the presentation of this non-GAAP financial measure will provide useful information

to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance.

Net income (loss) is the GAAP measure most

directly comparable to Adjusted EBITDA.

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.

income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA.

Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure.

You are encouraged to evaluate each of these adjustments and the reasons we

consider them appropriate for supplemental analysis.

In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation.

Our presentation of

Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such

modification may be material.

Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP.

Because Adjusted EBITDA

may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

You are encouraged to

evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis.

In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some

of the adjustments in such presentation.

Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

There can be no assurance that we will not

modify the presentation of Adjusted EBITDA in the future, and any such modification may be material.

Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a

substitute for analysis of our results as reported under GAAP.

Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly

titled measures of other companies, thereby diminishing its utility.

The following tables present a reconciliation of Adjusted EBITDA to our net income (loss), which is the most directly comparable GAAP measure for the periods presented.

Year Ended September 30, 2021, Compared to Year Ended September 30, 2020.

Year Ended September 30,

($ in thousands, unaudited)

Years Ended September 30,

($ in thousands)

Interest expense – other

2 unchanged sentences

Change in fair value of warrant liability

Loss (gain) on contingent consideration

Loss on contingent consideration

Transaction costs

Loss on extinguishment of debt

Other expense (income), net

Other income, net

Adjusted EBITDA

Represents the non-cash expense recognized during the period for the change in the fair value of the LLC Warrants held by Goldman and Beekman, which are accounted for as liabilities on our balance sheet.

Consists of transaction costs related to the 2019 Acquisitions, 2018 Acquisitions and costs related to the IPO and September 2020 offering.

Adjusted EBITDA was $155.8 million for the year ended September 30, 2021 compared to $83.1 million for the year ended September 30, 2020.

The increase in Adjusted EBITDA resulted from our 24.4% increase in same-store

sales growth for the year ended September 30, 2020 as compared to the year ended September 30, 2019, combined with the results of the fiscal year 2019 Acquisitions and our ability to increase gross profit margins, control selling, general and

administrative expenses and the impact of the adjusting items noted above.

The increase in Adjusted EBITDA resulted from our 9.7% increase in

same-store sales growth for the year ended September 30, 2021 as compared to the year ended September 30, 2020, combined with the results of the 2021 Acquisitions and our ability to increase gross profit margins and the impact of the

adjusting items noted above.

Year Ended September 30, 2020, Compared to Year Ended September 30, 2019

Years Ended September 30,

($ in thousands)

Net income (loss)

Year Ended September 30,

($ in thousands, unaudited)

Interest expense – other

2 unchanged sentences

Change in fair value of warrant liability

Gain on settlement of contingent consideration

Loss (gain) on contingent consideration

Transaction costs

Loss on extinguishment of debt

Other expense (income), net

Adjusted EBITDA

Consists of transaction costs related to the 2019 Acquisitions and the 2018 Acquisitions.

Adjusted EBITDA was $46.2 million for the fiscal year ended September 30, 2019 compared to $40.8 million for the fiscal year ended September 30, 2018.

Adjusted EBITDA was $83.1 million for the year ended September 30, 2020 compared to $46.2 million for the year ended September 30, 2019.

The increase in Adjusted EBITDA resulted from our 24.4% increase in

same-store sales growth during the fiscal year ended September 30, 2019, combined with the results of the 2019 Acquisitions and the inclusion of the financial results of the 2018 Acquisitions for the full twelve-month period.

This increase in

Adjusted EBITDA as a result of increased sales was partially offset by a reduction in our gross profit percentage and the impact of the adjusting items noted above.

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

With the exception of Florida, we generally realize significantly lower sales and

higher levels of inventories, and related floor plan borrowings, in the quarterly periods ending December 31 and March 31.

Revenue generated from our stores in Florida serves to offset generally lower winter revenue in our other states and enables

us to maintain a more consistent revenue stream.

The onset of the public boat and recreation shows in January stimulates boat sales and typically allows us to reduce our inventory levels and related floor plan borrowings throughout the remainder of

the fiscal year.

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

and administrative expenses and the impact of the adjusting items noted above.

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

With the exception of Florida, we generally realize significantly lower sales

and higher levels of inventories, and related floor plan borrowings, in the quarterly periods ending December 31 and March 31.

Revenue generated from our stores in Florida serves to offset generally lower winter revenue in our other

states and enables us to maintain a more consistent revenue stream.

The onset of the public boat and recreation shows in January stimulates boat sales and typically allows us to reduce our inventory levels and related floor plan

borrowings throughout the remainder of the fiscal year.

The impact of seasonality on our results of operations could be materially impacted based on the location of our acquisitions.

For example, our operations could be substantially more seasonal if we acquire dealer groups that

operate in colder regions of the United States.

For example, our operations could be substantially more

seasonal if we acquire dealer groups that operate in colder regions of the United States.

Our business is also subject to weather patterns, which may adversely affect our results of operations.

For example, prolonged winter conditions, reduced rainfall levels or excessive rain, may limit

access to boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products and services.

In addition, unseasonably cool weather and prolonged winter conditions may lead to a shorter selling season

in certain locations.

Hurricanes and other storms could result in disruptions of our operations or damage to our boat inventories and facilities, as has been the case when Florida and other markets were affected by hurricanes.

We believe our

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

Additionally, due to the COVID-19 pandemic, our seasonal trends may also change as a result of, among other things, store

closures, disruptions to the supply chain and inventory availability, manufacturer delays, and cancellation of boat shows.

For more information, see “Risk Factors—Risks Related to Our Business—Our business, as well as the entire recreational

boating industry, is highly seasonal, with seasonality varying in different geographic markets” and “Business—Seasonality.”

For example, prolonged winter conditions,

reduced rainfall levels or excessive rain, may limit access to boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products and services.

In addition, unseasonably cool weather and

prolonged winter conditions may lead to a shorter selling season in certain locations.

Hurricanes and other storms could result in disruptions of our operations or damage to our boat inventories and facilities, as has been the case when

Florida and other markets were affected by hurricanes.

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

Additionally, due to the COVID-19 pandemic, our

seasonal trends may also change as a result of, among other things, store closures, disruptions to the supply chain and inventory availability, manufacturer delays, and cancellation of boat shows.

For more information, see “Risk

Factors—Risks Related to Industry and Competition—Our business, as well as the entire retail marine industry, is highly seasonal, with seasonality varying in different geographic markets” and “Business—Seasonality.”

Liquidity and Capital Resources

2 unchanged sentences

OneWater Inc’s principal asset consists of common units of OneWater LLC.

Our earnings and cash flows and ability to

meet our obligations under the Refinanced Credit Facility, and any other debt obligations will depend on the cash flows resulting from the operations of our operating subsidiaries, and the payment of distributions by such subsidiaries.

Refinanced Credit Facility and Inventory Financing Facility (described below) contain certain restrictions on distributions or transfers from our operating subsidiaries to their members or unitholders, as applicable, as described in the summaries

below under “—Debt Agreements—Refinanced Credit Facility” and “—Inventory Financing Facility.” Accordingly, the operating results of our subsidiaries may not be sufficient for them to make distributions to us.

As a result, our ability to make

payments under the Refinanced Credit Facility and any other debt obligations or to declare dividends could be limited.

Our cash needs are primarily for growth through acquisitions and working capital to support our retail operations, including new and pre-owned boat and related parts inventories and off-season liquidity.

monitor our cash flow to determine the amount of cash available to complete acquisitions of dealer groups and stores.

We monitor our inventories, inventory aging and current market trends to determine our current and future inventory and related

floorplan financing needs.

Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our Credit Facilities and proceeds from any future issuances of debt or equity to fund our current

operations, and essential capital expenditures and acquisitions for the next twelve months.

Cash needs for acquisitions have historically been financed with our credit facilities, including the Refinanced Credit Facility and cash generated from operations.

Our ability to utilize the Refinanced Credit Facility

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

Our earnings and cash flows and

ability to meet our obligations under the Credit Facility, and any other debt obligations will depend on the cash flows resulting from the operations of our operating subsidiaries, and the payment of distributions by such subsidiaries.

Our Credit Facility and Inventory Financing Facility (described below) contain certain restrictions on distributions or transfers from our operating subsidiaries to their members or unitholders, as applicable, as described in the

summaries below under “—Debt Agreements—Credit Facility” and “—Inventory Financing Facility.” Accordingly, the operating results of our subsidiaries may not be sufficient for them to make distributions to us.

As a result, our ability to

make payments under the Credit Facility and any other debt obligations or to declare dividends could be limited.

Our cash needs are primarily for growth through acquisitions and working capital to support our operations, including new and pre-owned boat and related parts inventories and off-season liquidity.

routinely monitor our cash flow to determine the amount of cash available to complete acquisitions of dealer groups and stores.

We monitor our inventories, inventory aging and current market trends to determine our current and future

inventory and related floorplan financing needs.

Based on current facts and circumstances, we believe we will have adequate cash flow from operations, borrowings under our Credit Facilities and proceeds from any future issuances of debt

or equity to fund our current operations, and essential capital expenditures and acquisitions for the next twelve months.

Cash needs for acquisitions have historically been financed with our credit facilities, including the Credit Facility and cash generated from operations.

Our ability to utilize the Credit Facility to fund

operations depends upon Adjusted EBITDA and compliance with covenants of the 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 September 30, 2020, we were in compliance with all covenants under the Refinanced Credit Facility and the

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 September 30, 2021, we were in compliance with all covenants under the Credit Facility and the Inventory

Financing Facility.

Analysis of Cash Flow Changes Between the Year Ended September 30, 2021 and 2020

2 unchanged sentences

($ in thousands, unaudited)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net change in cash

Operating Activities .

Net cash provided by operating activities was $212.5 million for the year ended September 30, 2020 compared to net cash used in operating activities of

$5.7 million for the year ended September 30, 2019.

The $218.2 million increase in cash provided by operating activities was primarily attributable to a $166.2 million increase in the change in inventory, a $12.9 million increase in the change in

customer deposits, a $9.9 million increase in the change in other payables and accrued expenses and a $11.2 million increase in net income for the year ended September 30, 2020 as compared to the year ended September 30, 2019.

Net cash provided by operating

activities was $159.4 million for the year ended September 30, 2021 compared to net cash provided by operating activities of $212.5 million for the year ended September 30, 2020.

The $53.1 million decrease in cash provided by operating

activities was primarily attributable to a $101.9 million decrease in the change in inventory, partially offset by a $67.9 million increase in net income for the year ended September 30, 2021 as compared to the year ended September 30,

Investing Activities .

Net cash used in investing activities was $4.7 million for the year ended September 30, 2020 compared to $11.0 million for the year ended September 30,

The $6.3 million decrease in cash used in investing activities was primarily attributable to a $19.4 million decrease in cash used in acquisitions partially offset by a $15.6 million decrease in proceeds from sale and leaseback for the year

ended September 30, 2020 as compared to the year ended September 30, 2019.

Net cash used in investing

activities was $117.1 million for the year ended September 30, 2021 compared to $4.7 million for the year ended September 30, 2020.

The $112.5 million increase in cash used in investing activities was primarily attributable to a $107.5

million increase in cash used in acquisitions for the year ended September 30, 2021 as compared to the year ended September 30, 2020.

Financing Activities .

Net cash used in financing activities was $151.1 million for the year ended September 30, 2020 compared to net cash provided by financing activities of

$12.5 million for the year ended September 30, 2019.

The $163.6 million decrease in financing cash flow was primarily attributable to an $87.1 million increase in the distributions to redeemable preferred interest members and redemption of

redeemable preferred interest, a $125.7 million decrease in net borrowings on our Inventory Financing Facility and a $111.9 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 IPO, net of underwriting discounts and commissions, $8.1 million in proceeds from issuance of Class A common stock sold in the September offering, net of underwriting discounts and commissions, and a $115.5 million increase

in proceeds on long-term debt for the year ended September 30, 2020 as compared to the year ended September 30, 2019.

Analysis of Cash Flow Changes Between the Years Ended September 30, 2019 and 2018

Net cash used in financing

activities was $36.5 million for the year ended September 30, 2021 compared to net cash used in financing activities of $151.1 million for the year ended September 30, 2020.

The $114.6 million decrease in cash used in financing

activities was primarily attributable to an $90.5 million decrease in the distributions to redeemable preferred interest members and redemption of redeemable preferred interest, a $77.8 million increase in net borrowings on our

Inventory Financing Facility and a $112.9 million decrease in payments on long-term debt, partially offset by $59.2 million decrease in proceeds from issuance of Class A common stock sold in the IPO, net of underwriting discounts and

commissions, $8.1 million decrease in proceeds from issuance of Class A common stock sold in the September offering, net of underwriting discounts and commissions, and a $99.3 million decrease in proceeds on long-term debt for the year

ended September 30, 2021 as compared to the year ended September 30, 2020.

Analysis of Cash Flow Changes Between the Year Ended September 30, 2020 and 2019

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

Years Ended September 30,

($ in thousands)

Net cash used in operating activities

Year Ended September 30,

($ in thousands, unaudited)

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net change in cash

Operating Activities .

Net cash used in operating activities was $5.7 million for the fiscal year ended September 30, 2019 compared to $4.3 million for the fiscal year ended

September 30, 2018.

The $1.5 million increase in cash used in operating activities was primarily attributable to a $39.0 million increase in the change in inventory and a $5.6 million increase in the change in prepaid and other current assets.

These amounts were partially offset by the net income for the period and a non-cash gain on settlement of contingent consideration.

Net cash provided by operating

activities was $212.5 million for the year ended September 30, 2020 compared to net cash used in operating activities of $5.7 million for the year ended September 30, 2019.

The $218.2 million increase in cash provided by operating

activities was primarily attributable to a $166.2 million increase in the change in inventory, a $12.9 million increase in the change in customer deposits, a $9.9 million increase in the change in other payables and accrued expenses and

a $11.2 million increase in net income for the year ended September 30, 2020 as compared to the year ended September 30, 2019.

Investing Activities .

Net cash used in investing activities was $11.0 million for the fiscal year ended September 30, 2019 compared to $23.9 million for the fiscal year ended

September 30, 2018.

The $12.9 million decrease in net cash used in investing activities was primarily attributable to $19.4 million in cash used in acquisitions and $7.3 million in purchases of property and equipment and construction in progress.

These amounts were partially offset by an increase in proceeds from the sale and leaseback transactions in the fiscal year ended September 30, 2019 versus the fiscal year ended September 30, 2018.

Net cash used in investing

activities was $4.7 million for the year ended September 30, 2020 compared to $11.0 million for the year ended September 30, 2019.

The $6.3 million decrease in cash used in investing activities was primarily attributable to a $19.4

million decrease in cash used in acquisitions partially offset by a $15.6 million decrease in proceeds from sale and leaseback for the year ended September 30, 2020 as compared to the year ended September 30, 2019.

Financing Activities .

Net cash provided by financing activities was $12.5 million for the fiscal year ended September 30, 2019 compared to $34.3 million for the fiscal year

ended September 30, 2018.

The $21.8 million decrease in cash provided by financing activities was primarily attributable to payments on long-term debt and distributions to members, partially offset by net borrowings on our Inventory Financing

Net cash used in financing

activities was $151.1 million for the year ended September 30, 2020 compared to net cash provided by financing activities of $12.5 million for the year ended September 30, 2019.

The $163.6 million decrease in financing cash flow was

primarily attributable to an $87.1 million increase in the distributions to redeemable preferred interest members and redemption of redeemable preferred interest, a $125.7 million decrease in net borrowings on our Inventory Financing

Facility and a $111.9 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 IPO, net of underwriting discounts and commissions, $8.1 million in

proceeds from issuance of Class A common stock sold in the September offering, net of underwriting discounts and commissions, and a $115.5 million increase in proceeds on long-term debt for the year ended September 30, 2020 as compared

to the year ended September 30, 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 IPO 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 IPO, OneWater Inc.

entered into an 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., 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 (“Revolving Facility”), (ii)

increase the maximum amount available under the multi-draw term loan from $60.0 million to $100.0 million (“Multi-Draw Term Loan”), (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

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.

Interest was payable quarterly for base rate borrowings and up to quarterly for LIBOR borrowings.

The Term and Revolver Credit Facility included the option for the Company to defer cash payments of interest for twelve months and add the accrued

interest to the outstanding principal of the note payable.

The election of this feature was made during the three months ended March 31, 2020, and as a result, the interest rate increased by 2.0% for the corresponding twelve months.

Immediately upon entering into the Term and Revolver Credit Facility, we borrowed an additional $35.3 million on the Multi-Draw Term Loan to bring our total indebtedness to $100 million.

Additionally, during the three

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

On July 22, 2020, the Company repaid in full all indebtedness outstanding under the then-existing credit facility evidenced by the Term and Revolver Credit Facility, and in connection with such repayment, all

commitments thereunder were terminated and all guarantees and security interests granted in connection therewith were released.

See “—Refinanced Credit Facility” for additional information.

Refinanced Credit Facility

Effective July 22, 2020, we and certain of our subsidiaries 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.

Credit Facility

Effective July 22, 2020, we and certain of our subsidiaries entered into the Credit Facility.

The 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

1 unchanged sentence

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 July 22, 2020.

As of September 30, 2020, we had $80.0 million outstanding under the term loan and no amount outstanding under

the revolving credit facility.

Borrowings under the Refinanced Credit Facility bear interest, at OWAO’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 the London Interbank Offered Rate for such interest period by a percentage equal to 1.00% minus the Eurodollar Reserve Percentage (the “Adjusted LIBO Rate”) plus an applicable margin of up to

The term loan is repayable in installments beginning on

March 31, 2021, with the remainder due on July 22, 2025.

On February 2, 2021, we entered into the Incremental Amendment No.

1 (the “First Incremental Amendment”)

to the Credit Facility to provide for, among other things, an incremental term loan (the “Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $30.0 million, which was added to, and constitutes a part of, the

existing $80.0 million term loan.

As provided for by the First Incremental Amendment, the proceeds of the Incremental Term Loan were used to pay off the balance of the revolving credit facility, under which an aggregate of $30.0 million

was outstanding as of February 1, 2021.

As of September 30, 2021, we had $105.9 million outstanding under the term loan and no amount outstanding under the revolving credit facility.

On November 30, 2021, we entered into the Incremental Amendment No.

2 (the “Second Incremental Amendment”) to the Credit Facility to provide for, among other things, an incremental term

loan (the “Second Incremental Term Loan”) to OWAO in an aggregate principal amount equal to $200.0 million, which will be added to, and constitute a part of, the existing $110.0 million term loan.

The Second Incremental Term Loan is on

the same terms (including interest rates, but excluding upfront fees, original issue discount and other similar amounts) applicable to the existing term loan under the Credit Facility and the other loan documents.

As provide for by the

Second Incremental Amendment, the proceeds of the Second Incremental Term Loan were used to finance the Company’s acquisition of T-H Marine.

The maturity date for the Second Incremental Term Loan is the earlier of (i) July 22, 2025 or

(ii) the date on which the principal amount of all outstanding term loans have been declared or automatically have become due and payable pursuant to the terms of the Credit Facility.

The Second Incremental Amendment further provides for

a $20.0 million increase in the existing revolving commitment (the “Incremental Revolving Increase”), which was added to, and constitutes a part of, the existing $30.0 million revolving commitment.

The Incremental Revolving Increase

constitutes a single class of revolving commitments with the existing revolving commitment.

The Incremental Revolving Increase is secured by identical collateral and guaranties on identical terms as the existing revolving commitment.

maturity date for the Incremental Revolving Increase is the earlier of (i) July 22, 2025 and (ii) the date on which the Revolving Commitments (as defined in the Credit Facility) are terminated pursuant to the terms of the Credit Facility.

Borrowings under the Credit Facility bear interest, at OWAO’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),

up to 2.00%, or (b) the rate per annum obtained by dividing the London Interbank Offered Rate for such interest period by 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 step-downs based on certain consolidated leverage ratio measures.

The Refinanced Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio.

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

The 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 Credit Facility, together with cash on OWAO’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.

1 unchanged sentence

On June 14, 2018, OneWater LLC and certain of our subsidiaries entered into the Inventory Financing Facility.

On September 21, 2018, OneWater LLC and certain of our subsidiaries entered into the First Amendment to the

Fourth Amended and Restated Inventory Financing Agreement, which, among other things, increased the maximum amount of borrowing available under the Inventory Financing Facility from $200.0 million to $275.0 million.

On April 5, 2019, OneWater LLC

and certain of its subsidiaries further amended the Inventory Financing Facility to, among other things, increase the maximum amount of borrowing available under the Inventory Financing Facility from $275.0 million to $292.5 million.

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.

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.

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 IPO, OneWater Inc.

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

“Inventory Financing Facility”), which amended and restated the Fifth Amended and Restated Inventory Financing Agreement, dated as of November 26, 2019, to, among other things, permit certain payments and transactions contemplated by or in

connection with the IPO, including payments under the Tax Receivable Agreement.

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

the “Inventory Financing Facility”), which amended and restated the Fifth Amended and Restated Inventory Financing Agreement, dated as of November 26, 2019, to, among other things, permit certain payments and transactions contemplated by

or in connection with the IPO, including payments under the Tax Receivable Agreement.

The maximum amount of borrowing available, interest rates and the termination date of the Inventory Financing Facility remained unchanged.

On July 22, 2020, the Company, OneWater LLC, Opco and certain of Opco’s 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.

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.

The First Amendment amended

the Inventory Financing Facility, to, among other things, address the Refinancing, permit the amount of indebtedness allowed under the Credit Facility to be $160.0 million (which includes the potential for a $50.0 million increase under

the 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 Credit Facility.

On December 10, 2020, the Company and certain of its subsidiaries entered into the Second Amendment to the Inventory Financing Facility to change certain compliance reporting from weekly to monthly.

maximum borrowing amount available, interest rates and the termination date of the agreement remained unchanged.

On September 23, 2021, the Company entered into the Third Amendment to the Inventory Financing Facility, (the “Third Amendment”), to, among other things, address the future

discontinuance of LIBOR by clarifying the mechanics related to the transition to a replacement benchmark rate and to extend the term of the Inventory Financing Facility to November 1, 2021.

The maximum borrowing amount available remained

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

On October 29, 2021, the Company entered into the Fourth Amendment to the Inventory Financing Facility to (a) increase the amount of Permitted Indebtedness (as defined in the Inventory

Financing Facility) to $360.0 million and (b) extend the term of the Inventory Financing Facility to December 1, 2021.

On December 1, 2021, the Company entered into the Fifth Amendment the Inventory Financing Facility to (a) increase the amount of Permitted Indebtedness (as defined in the Inventory Financing Facility) to $380.0 million and (b) extend the term of the Inventory Financing Facility to January 1, 2022 .

In the historical periods presented, 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 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

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

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 Credit Facility.

As part of the Third Amendment, effective October 1, 2021, the interest rate applied to the loans provided pursuant to the Inventory Financing Facility will no longer be calculated using

LIBOR but instead calculated using SOFR (as further described in the Third Amendment).

Subsequent to the change, the interest on new boats and for rental boats will be calculated using the Adjusted 30-Day Average SOFR (as further

described in the Third Amendment), plus the Applicable Margin.

The interest rate for pre-owned boats will be calculated using the new boat rate set forth above plus 0.25%.

We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including provisions that the Funded Debt to EBITDA Ratio (as

defined in the Inventory Financing Facility) of OneWater LLC must not exceed 2.00 to 1.00, and that our Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility) on a consolidated basis must be at least 1.50 to 1.00.

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 restricted from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo Commercial Distribution Finance, LLC (the

Under the Inventory Financing Facility, among other exceptions, OneWater LLC may make distributions to its members for certain permitted tax payments subject to certain financial ratios, may make scheduled payments on certain

subordinated debt and is permitted to make pro rata distributions to the OneWater Unit Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc.

to pay its taxes and to make payments under the Tax Receivable

OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC.

Our Chief Executive Officer, Austin Singleton, and our Chief

Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility.

As of September 30, 2020, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled approximately $124.0 million.

Certain of our manufacturers enter into independent

agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the products by such manufacturer.

As of September 30, 2020 and 2019, the effective interest

rate on the outstanding short-term borrowings under the Inventory Financing Facility was approximately 3.9% and 4.1%, respectively.

As of September 30, 2020 and September 30, 2019, our additional available borrowings under our Inventory Financing

Facility were approximately $268.5 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 September 30, 2020, we were in compliance with all covenants under the Inventory Financing Facility.

Opco Preferred Units

On October 28, 2016, Goldman and Beekman entered into a Subscription Agreement with us and certain of our subsidiaries, pursuant to which Goldman and Beekman purchased the preferred units in Opco (the “Opco Preferred

Goldman and Beekman purchased 45,000 and 23,000 Opco Preferred Units, representing 66.2% and 33.8% of the total Opco Preferred Units outstanding for purchase prices of approximately $44.4 million and $22.7 million,

respectively.

The holders of Opco Preferred Units (“Opco Preferred Holders”) were entitled to (i) a “preferred return” at a rate of 10% per annum, compounded quarterly, on (a) the aggregate amount of capital contributions made, minus any prior

distributions (the “unreturned preferred amount”), plus (b) any unpaid preferred returns for prior periods, and (ii) a “preferred target distribution” at a rate of 10% per annum on the unreturned preferred amount multiplied by (a) 40% for the

calendar quarters ending December 31, 2018, March 31, 2019, June 30, 2019 and September 30, 2019, (b) 60% for each calendar quarters ending December 31, 2019, March 31, 2020, June 30, 2020 and September 30, 2020, and (c) 80% for each calendar

quarter thereafter.

The preferred target distribution proportionally adjusts the amount of capital contribution of each Opco Preferred Holder.

Opco and certain affiliates were required to meet certain financial covenants, including maintenance of

certain leverage ratios.

Failure by Opco 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 have

permitted a majority of the Opco Preferred Holders to require us to purchase all Opco 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 Opco Preferred Units held by Goldman and Beekman in the aggregate was $87.3 million, exclusive of $1.3 million in issuance costs.

In connection with the IPO and the Reorganization, we used the net proceeds from the IPO, together with cash on hand and borrowings under the Term and Revolver Credit Facility, to redeem all of the shares of Opco

Preferred Units held by Goldman and Beekman for $89.2 million.

Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain

personal guarantees of the Inventory Financing Facility.

On June 16, 2021, OneWater Inc.

and OneWater LLC obtained a written consent from the Agent to permit the payment of the Special Dividend.

As of September 30, 2021 and September 30, 2020, our indebtedness associated with financing our inventory under the Inventory Financing Facility totaled $114.2 million and $124.0

million, respectively.

Certain of our manufacturers enter into independent agreements with the lenders to the Inventory Financing Facility, which results in a lower effective interest rate charged to us for borrowings related to the

products by such manufacturer.

As of September 30, 2021 and September 30, 2020, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 2.0% and 3.9%, respectively.

As of September

30, 2021 and September 30, 2020, our additional available borrowings under our Inventory Financing Facility were $278.3 million and $268.5 million, respectively, based upon the outstanding borrowings and the maximum facility amount.

aging of our inventory limits our borrowing capacity as defined curtailments reduce the allowable advance rate as our inventory ages.

As of September 30, 2021, we were in compliance with all covenants under the Inventory Financing

Notes Payable

Acquisition Notes Payable .

In connection with certain of our acquisitions of dealer groups, we have entered into notes payable agreements with the acquired entities to finance

these acquisitions.

As of September 30, 2020, our indebtedness associated with our 6 acquisition notes payable totaled an aggregate of $9.1 million with a weighted average interest rate of 5.3% per annum.

As of September 30, 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 February 1, 2022.

In connection with certain of

our acquisitions of dealer groups, we have entered into notes payable agreements with the acquired entities to finance these acquisitions.

As of September 30, 2021, our indebtedness associated with our 4 acquisition notes payable

totaled an aggregate of $7.4 million with a weighted average interest rate of 5.3% per annum.

As of September 30, 2021, the principal amount outstanding under these acquisition notes payable ranged from $1.3 million to $2.2 million, and

the maturity dates ranged from December 1, 2021 to December 1, 2023.

Commercial Vehicles Notes Payable .

Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles

utilized in our retail operations.

Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly payments of approximately $77,000, and mature on dates between November 2020 to August 2025.

As of September 30, 2020, we had $2.5

million outstanding under the commercial vehicles notes payable.

Between April 20, 2020 and April 22, 2020, certain of our subsidiaries 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 approximately $14.1 million in the aggregate.

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

While the future impact of COVID-19 remains unknown, sales

trends suggest the impact will not be as severe as initially believed at this time.

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

Since 2015, we have

entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations.

Such notes bear interest ranging from 0.0% to 8.9% per annum, require monthly

payments of approximately $114,000, and mature on dates between October 2021 to July 2028.

As of September 30, 2020, we had $3.2 million outstanding under the commercial vehicles notes payable.

Contractual Obligations

1 unchanged sentence

Payments Due by Period

Less than 1 year

(in thousands)

Refinanced Credit Facility(1)

Credit Facility(1)

Inventory Financing Facility(2)

2 unchanged sentences

Operating lease obligations(5)

Payments are generally made as required pursuant to the Refinanced Credit Facility discussed above under “—Debt Agreements—Refinanced Credit Facility.”

Payments are generally made as required pursuant to the Credit Facility discussed above under “—Debt Agreements—Credit Facility.”

Payments are generally made as required pursuant to the Inventory Financing Facility discussed above under “—Debt Agreements—Inventory Financing Facility.” Amounts do not include estimated interest payments.

Includes notes payable entered into in connection with certain of our acquisitions of dealer groups and notes payable entered into with various commercial lenders in connection with our acquisition of certain vehicles.

generally made as required pursuant to the terms of the relevant notes payable and as discussed above under “—Debt Agreements—Notes Payable.”

Estimated interest payments based on the outstanding principal and stated interest rates on the Refinanced Credit Facility and Notes Payable.

are generally made as required pursuant to the terms of the relevant notes payable and as discussed above under “—Debt Agreements—Notes Payable.”

Estimated interest payments based on the outstanding principal and stated interest rates on the Credit Facility and Notes Payable.

Includes certain physical facilities and equipment that we lease under noncancelable operating leases.

2 unchanged sentences

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 IPO as a result of certain tax basis increases and certain tax benefits

attributable to imputed interest.

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 IPO 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

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.

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.

cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, OneWater Inc.

realizes in respect of the tax attributes subject to the Tax Receivable Agreement.

In the case of such an

acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration.

may elect to defer payments due under the Tax

Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments.

Any such deferred payments under the

Tax Receivable Agreement generally will accrue interest.

In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, OneWater Inc.

realizes in respect of the

tax attributes subject to the Tax Receivable Agreement.

In the case of such an acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the

change of control transaction giving rise to such acceleration.

OneWater Inc.

account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.

intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.

Off Balance Sheet Arrangements

1 unchanged sentence

Recent Accounting Pronouncements

As an “emerging growth company” (“EGC”), the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private

We have elected to use this extended transition period under the JOBS Act.

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

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 ASUs 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 ASUs 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.

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

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.

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.

Internal Controls and Procedures

We are not currently required to comply with the SEC’s rules implementing Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal control

over financial reporting for that purpose.

We are required to comply with the SEC’s rules implementing Section 302 of the Sarbanes-Oxley Act, which requires our management to certify financial and other information in our quarterly and annual

reports and provide an annual management report on the effectiveness of our internal control over financial reporting.

We will be required to make our first assessment of our internal control over financial reporting and to comply with the

management certification requirements of Section 404 in our annual report on Form 10-K for the year following our first annual report that is filed with the SEC (subject to any change in applicable SEC rules).

Further, our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as

we are an “emerging growth company” pursuant to the provisions of the JOBS Act.

See Note 3 of the Notes to the Consolidated Financial Statements.

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-K

Item 7. Management’s Discussion and Analysis