OneWater Marine Inc. 10-K

Item 7. 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 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. 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. Overview 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 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 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 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 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 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. 50 Table of Contents Impact of COVID-19 The COVID-19 pandemic and its related effects, including restraints on U.S. economic and leisure activities, has and may continue to have a significant impact on our operations and financial condition. 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 future. In light of the current environment, our sales team members are fully engaged with customers and are providing them with virtual walkthroughs of inventory and/or private, at home or on water, showings, while our service departments are working hard to deliver boats and keep customers on the water. The COVID-19 pandemic and its related effects have, to date, positively impacted our sales as more customers desire to engage in outdoor recreational activities that can be enjoyed close to first or second homes, in a socially distanced manner. However, the COVID-19 pandemic has also caused significant supply chain challenges as suppliers were, and continue to be, faced with business closures and shipping delays. This has led to an industry wide inventory shortage of boats, engines and certain marine parts. The COVID-19 pandemic and its related effects may continue to interfere with the ability of our employees, contractors, customers, suppliers, and other business partners to perform our and their respective responsibilities and obligations with respect to the operation of our business. 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 Acquisitions We are a highly acquisitive company. 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. We plan to continue to aggressively pursue acquisitions going forward. While we did 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. We typically 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 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. 51 Table of Contents General Economic Conditions General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties, including the adverse economic effects of the COVID-19 pandemic or a prolonged economic downturn, could reduce consumer spending and adversely affect our business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which we operate stores, particularly in the Southeast, can have a major impact on our overall results of operations. Local influences, such as corporate downsizing and inclement weather such as hurricanes and other storms, environmental conditions, global public health concerns and events could adversely affect our operations in certain markets and in certain periods. Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on our business. Our business was significantly impacted during the recessionary period that began in 2007. This period of weakness in consumer spending and depressed economic conditions had a substantial negative effect on our operating results. In response to these conditions we reduced our inventory purchases, closed certain stores and reduced headcount. Additionally, in an effort to counteract the downturn, we increased our focus on pre-owned sales, parts and repair services, and finance and insurance services. As a result, we surpassed our pre-recession sales levels in less than 24 months. While we believe the measures we took significantly reduced the impact of the downturn on the business, we cannot guarantee similar results in the event of a future downturn. Additionally, we cannot predict the timing or length of unfavorable economic or industry conditions, including a downturn as a result of the COVID-19 pandemic, or the extent to which they could adversely affect our operating results. Although past economic conditions have adversely affected our operating results, we believe we are capable of responding in a manner that allows us to substantially outperform the industry and gain market share. We believe our ability to capture such market share enables us to align our retail strategies with the desires of customers. We expect our core strengths, including retail and acquisition strategies, will allow us to capitalize on growth opportunities as they occur, despite market conditions. Critical Accounting Policies and Significant Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the financial statements, and revenues and expenses during the periods presented. On an ongoing basis, management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on our consolidated financial statements. Set forth below are the policies and estimates that we have identified as critical to our business operations and understanding our results of operations, based on the high degree of judgment or complexity in their application. Revenue Recognition Revenue is recognized from the sale of products and commissions earned on new and pre-owned boats (including used, brokerage, consignment and wholesale) when ownership is transferred to the customer, which is generally upon acceptance by or delivery to the customer. At the time of acceptance or delivery, the customer is able to direct the use of the product and obtain substantially all of the benefits at such time. We are the principal with respect to revenue from new, pre-owned and consignment sales and such revenue is recorded at the gross sales price. With respect to brokerage transactions, we are acting as an agent in the transaction, therefore the fee or commission is recorded on a net basis. Revenue from parts and service operations (boat maintenance and repairs) is recorded over time as services are performed. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. The Company recorded contract assets in prepaid expenses and other current assets of $2.3 million and $1.5 million as of September 30, 2021 and 2020, respectively. 52 Table of Contents Deferred revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers’ boat, motor or trailer purchases. We are acting as an agent in the transaction, therefore the commissions are recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the 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. Inventories Inventories are stated at the lower of cost or net realizable value. The cost of new and pre-owned boat inventory is determined using the specific identification method. New and pre-owned boat sales histories indicated that the overwhelming majority of such boats are sold for, or in excess of, the cost to purchase those boats. In assessing the lower of cost or net realizable value, we consider the aging of the boats, historical sales of a particular product and current market conditions. There are inherent uncertainties in assessing net realizable value as management must make assumptions and apply judgment to changes in the market, brands and other factors that drive consumer preferences and spending. We typically do not maintain a boat inventory reserve. The cost of parts and accessories is determined using the weighted average cost method. Inventory is reported net of write downs for obsolete and slow moving items of approximately $0.8 million, $0.6 million and $0.5 million at September 30, 2021, 2020 and 2019, respectively. Goodwill and Other Intangible Assets In accordance with ASC 350, we review goodwill for impairment annually in the fourth fiscal quarter, or more often if events or circumstances indicate that impairment may have occurred. When evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment in accordance with ASC 350. To the extent the reporting unit’s earnings decline significantly or there are changes in one or more of these inputs that would result in a lower valuation, it could cause the carrying value of the reporting unit to exceed its fair value and thus require the Company to record goodwill impairment. The quantitative goodwill impairment test requires a determination of whether the fair value of a reporting unit is less than its carrying value. We estimate the fair value of our reporting unit using an “income” valuation approach, which discounts projected free cash flows of the reporting unit at a computed weighted average cost of capital as the discount rate. The income valuation approach requires the use of significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions. In connection with this process, we also reconcile the estimated aggregate fair value of our reporting unit to our market capitalization, including consideration of a control premium that represents the estimated amount an investor would pay for our equity securities to obtain a controlling interest. We believe that this reconciliation process is consistent with a market participant perspective. We base our cash flow forecasts on our knowledge of the industry, our recent performance, our expectations of our future performance, and other assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. 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. 53 Table of Contents The quantitative impairment test for trade names requires the comparison of the trade names’ estimated fair value to carrying value on an individual basis. Fair values of trade names are estimated using Level 3 inputs by discounting expected future cash flows of the trade name. The forecasted cash flows contain inherent uncertainties, including significant estimates and assumptions, which include revenue growth rates and future operating margins used to calculate projected future cash flows, weighted average costs of capital, and future economic and market conditions, and other marketplace data we believe to be reasonable. Financial statement risk exists to the extent identifiable intangibles become impaired due to the decrease in the fair value of the identifiable assets. 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. The significant estimates used to value acquisition contingent consideration are future earnings and discount rates. We apply an income approach for the fair value of trade names, which discounts the estimate of future net cash flow using an appropriate discount rate that reflects the risks associated with such projected future cash flow. In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions. 54 Table of Contents How We Evaluate Our Operations Revenue We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, F&I products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed 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. 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. Gross Profit We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers to our retail stores and vendor consideration. Gross profit excludes depreciation and amortization, which is presented separately in our consolidated statements of operations. Gross Profit Margin Our overall gross profit margin varies with our revenue mix. Sales of new and pre-owned boats, which have comparable margins, generally result in a lower gross profit margin than our non-boat sales. As a result, when revenue from non-boat sales increases as a percentage of total revenue, we expect our overall gross profit margin to increase. Selling, General and Administrative Expenses Selling, general, and administrative (“SG&A”) expenses consist primarily of salaries and incentive-based compensation, advertising, rent, insurance, utilities, and other customary operating expenses. A portion of our cost structure is variable (such as sales commissions and incentive compensation), or controllable (such as advertising), which we believe allows us to adapt to changes in the retail environment over the long term. We typically evaluate our variable expenses, selling expenses and all other SG&A expenses in the aggregate as a percentage of total revenue. Same-Store Sales We assess the organic growth of our revenue on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base at the end of the store’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Stores relocated within an existing market remain in the comparable store base for all periods. Additionally, amounts related to closed stores are excluded from each comparative base period. Because same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. 55 Table of Contents 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 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. 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. Fiscal Year 2019 Acquisitions • Effective December 1, 2018, OneWater LLC acquired substantially all of the assets of The Slalom Shop, LLC, a dealer group based in Texas with two stores. • Effective February 1, 2019, OneWater LLC acquired substantially all of the assets of Ray Clepper, Inc., d/b/a Ray Clepper Boat Center, a dealer group based in South Carolina with one store. • Effective February 1, 2019, OneWater LLC acquired substantially all of the assets of Ocean Blue Yacht Sales, LLC, a dealer group based in Florida with three stores. • Effective May 1, 2019, OneWater LLC acquired substantially all of the assets of Caribee Boat Sales and Marina, Inc., a dealer group based in Florida with one store. 56 Table of Contents • 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 years ended 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 Our historical financial results discussed below may not be comparable to our future financial results for the reasons described below. • OneWater Inc. is subject to U.S. federal, state and local income taxes as a corporation. Our accounting predecessor, OneWater LLC, was and is treated as a partnership for U.S. federal income tax purposes, and as such, was 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. federal income taxes or income taxes in any state or locality. OneWater Inc. was subject to U.S. 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. 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. • 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. Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy. Results of Operations Year Ended September 30, 2021, Compared to Year Ended September 30, 2020 For the Year Ended September 30, 2021 2020 Description Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Revenues New boat $ 872,680 71.1 % $ 717,093 70.1 % $ 155,587 21.7 % Pre-owned boat 216,416 17.6 % 205,650 20.1 % 10,766 5.2 % Finance and insurance income 42,668 3.5 % 36,792 3.6 % 5,876 16.0 % Service, parts and other 96,442 7.9 % 63,435 6.2 % 33,007 52.0 % Total revenues 1,228,206 100.0 % 1,022,970 100.0 % 205,236 20.1 % Gross Profit New boat 210,916 17.2 % 131,373 12.8 % 79,543 60.5 % Pre-owned boat 54,138 4.4 % 37,389 3.7 % 16,749 44.8 % Finance & insurance 42,668 3.5 % 36,792 3.6 % 5,876 16.0 % Service, parts & other 49,733 4.0 % 29,970 2.9 % 19,763 65.9 % Total gross profit 357,455 29.1 % 235,524 23.0 % 121,931 51.8 % 57 Table of Contents For the Year Ended September 30, 2021 2020 Description Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Selling, general and administrative expenses 199,049 16.2 % 143,575 14.0 % 55,474 38.6 % Depreciation and amortization 5,411 0.4 % 3,249 0.3 % 2,162 66.5 % Transaction costs 869 0.1 % 3,648 0.4 % (2,779 ) (76.2 )% Loss on contingent consideration 3,249 0.3 % 6,762 0.7 % (3,513 ) (52.0 )% Income from operations 148,877 12.1 % 78,290 7.7 % 70,587 90.2 % Interest expense - floor plan 2,566 0.2 % 8,861 0.9 % (6,295 ) (71.0 )% Interest expense – other 4,344 0.4 % 8,828 0.9 % (4,484 ) (50.8 )% Change in fair value of warrant liability - 0.0 % (771 ) (0.1 )% 771 (100.0 )% Loss on extinguishment of debt - 0.0 % 6,559 0.6 % (6,559 ) (100.0 )% Other income, net (248 ) 0.0 % (24 ) 0.0 % (224 ) * Income before income tax expense 142,215 11.6 % 54,837 5.4 % 83,378 159.3 % Income tax expense 25,802 2.1 % 6,329 0.6 % 19,473 307.7 % Net income 116,413 9.5 % 48,508 4.7 % 67,905 140.0 % Less: Net income attributable to non-controlling interests - 350 Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC 37,354 30,733 Net income attributable to OneWater Marine Inc. $ 79,059 $ 17,425 Revenue 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 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. For the year ended September 30, 2021, we completed 5 acquisitions. We did not make any acquisitions in the year ended September 30, 2020. New Boat Sales 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, 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. 58 Table of Contents 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, 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 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 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 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 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. Gross Profit 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, 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 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 30, 2020. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and our emphasis on expanding new boat gross profit margins. 59 Table of Contents 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 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. 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 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 higher. 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 $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, 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 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 $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. 60 Table of Contents Interest Expense – Floor Plan Interest expense – floor plan decreased $6.3 million, or 71.0%, to $2.6 million for the year ended September 30, 2021 compared to $8.9 million for the year ended September 30, 2020. The decrease was primarily 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 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 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. No 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 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 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 $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 $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. 61 Table of Contents Results of Operations Year Ended September 30, 2020, Compared to Year Ended September 30, 2019 For the Year Ended September 30, 2020 2019 Description Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Revenues New boat sales $ 717,093 70.1 % $ 526,774 68.6 % $ 190,319 36.1 % Pre-owned boat sales 205,650 20.1 % 153,010 20.0 % 52,640 34.4 % Finance and insurance income 36,792 3.6 % 26,151 3.4 % 10,641 40.7 % Service, parts and other sales 63,435 6.2 % 61,689 8.0 % 1,746 2.8 % Total revenues 1,022,970 100.0 % 767,624 100.0 % 255,346 33.3 % Gross Profit New boat gross profit 131,373 12.8 % 92,532 12.1 % 38,481 42.0 % Pre-owned boat gross profit 37,389 3.7 % 25,992 3.4 % 11,397 43.8 % Finance & insurance gross profit 36,792 3.6 % 26,151 3.4 % 10,641 40.7 % Service, parts & other gross profit 29,970 2.9 % 27,451 3.6 % 2,519 9.2 % Total gross profit 235,524 23.0 % 172,126 22.4 % 63,398 36.8 % Selling, general and administrative expenses 143,575 14.0 % 116,503 15.2 % 27,072 23.2 % Depreciation and amortization 3,249 0.3 % 2,682 0.3 % 567 21.1 % Transaction costs 3,648 0.4 % 1,323 0.2 % 2,325 175.7 % Loss (gain) on contingent consideration 6,762 0.7 % (1,674 ) (0.2 )% 8,436 * Income from operations 78,290 7.7 % 53,292 6.9 % 24,998 46.9 % Interest expense - floor plan 8,861 0.9 % 9,395 1.2 % (534 ) (5.7 )% Interest expense – other 8,828 0.9 % 6,568 0.9 % 2,260 34.4 % Change in fair value of warrant liability (771 ) (0.1 )% (1,336 ) (0.2 )% 565 (42.3 )% Loss on extinguishment of debt 6,559 0.6 % - 0.0 % 6,559 100 % Other (income) expense, net (24 ) 0.0 % 1,402 0.2 % (1,426 ) (101.7 )% Income before income tax expense 54,837 5.4 % 37,263 4.9 % 17,574 47.2 % Income tax expense 6,329 0.6 % — 0.0 % 6,329 100 % Net income 48,508 4.7 % 37,263 4.9 % 11,245 30.2 % Less: Net income attributable to non-controlling interests 350 1,606 Net income attributable to One Water Marine Holdings, LLC — $ 35,657 Less: Net income attributable to non-controlling interests of One Water Marine Holdings, LLC 30,733 Net income attributable to OneWater Marine Inc. $ 17,425 Revenue 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. 62 Table of Contents New Boat Sales 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 $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 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. 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. 63 Table of Contents Gross Profit 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 $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 30, 2019. The increase in new boat gross profit and gross profit margin is due primarily to a shift in the mix and size of boat models sold, the margin profile of recently acquired locations and our emphasis on expanding new boat gross profit margins, while continuing to leverage the progress we have made in previous quarters on finance & insurance. Pre-owned Boat Gross Profit 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 $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. Finance & 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 $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 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. 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. Depreciation and Amortization 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. 64 Table of Contents 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. Income from Operations 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 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 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 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. 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. 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. 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. 65 Table of Contents 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 $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. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. 66 Table of Contents 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. Years Ended September 30, Description 2021 2020 Change ($ in thousands) Net income $ 116,413 $ 48,508 $ 67,905 Interest expense – other 4,344 8,828 (4,484 ) Income tax expense 25,802 6,329 19,473 Depreciation and amortization 5,411 3,249 2,162 Change in fair value of warrant liability — (771 ) 771 Loss on contingent consideration 3,249 6,762 (3,513 ) Transaction costs 869 3,648 (2,779 ) Loss on extinguishment of debt — 6,559 (6,559 ) Other income, net (248 ) (24 ) (224 ) Adjusted EBITDA $ 155,840 $ 83,088 $ 72,752 Adjusted EBITDA was $155.8 million for the year ended September 30, 2021 compared to $83.1 million for the year ended September 30, 2020. The increase in Adjusted EBITDA resulted from our 9.7% increase in same-store sales growth for the year ended September 30, 2021 as compared to the year ended September 30, 2020, combined with the results of the 2021 Acquisitions and our ability to increase gross profit margins and the impact of the adjusting items noted above. Year Ended September 30, 2020, Compared to Year Ended September 30, 2019 Year Ended September 30, Description 2020 2019 Change ($ in thousands, unaudited) Net income $ 48,508 $ 37,263 $ 11,245 Interest expense – other 8,828 6,568 2,260 Income tax expense 6,329 — 6,329 Depreciation and amortization 3,249 2,682 567 Change in fair value of warrant liability (771 ) (1,336 ) 565 Loss (gain) on contingent consideration 6,762 (1,674 ) 8,436 Transaction costs 3,648 1,323 2,325 Loss on extinguishment of debt 6,559 — 6,559 Other expense (income), net (24 ) 1,402 (1,426 ) Adjusted EBITDA $ 83,088 $ 46,228 $ 36,860 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 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. Seasonality 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. 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 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.” 67 Table of Contents Liquidity and Capital Resources Overview OneWater Inc. is a holding company with no operations and is the sole managing member of OneWater LLC. OneWater Inc’s principal asset consists of common units of OneWater LLC. Our earnings and cash flows and ability to meet our obligations under the Credit Facility, and any other debt obligations will depend on the cash flows resulting from the operations of our operating subsidiaries, and the payment of distributions by such subsidiaries. Our Credit Facility and Inventory Financing Facility (described below) contain certain restrictions on distributions or transfers from our operating subsidiaries to their members or unitholders, as applicable, as described in the summaries below under “—Debt Agreements—Credit Facility” and “—Inventory Financing Facility.” Accordingly, the operating results of our subsidiaries may not be sufficient for them to make distributions to us. As a result, our ability to make payments under the Credit Facility and any other debt obligations or to declare dividends could be limited. Our cash needs are primarily for growth through acquisitions and working capital to support our operations, including new and pre-owned boat and related parts inventories and off-season liquidity. We routinely monitor our cash flow to determine the amount of cash available to complete acquisitions of dealer groups and stores. 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, 2021, we were in compliance with all covenants under the Credit Facility and the Inventory Financing Facility. Cash Flows Analysis of Cash Flow Changes Between the Year Ended September 30, 2021 and 2020 The following table summarizes our cash flows for the periods indicated: Year Ended September 30, Description 2021 2020 Change ($ in thousands, unaudited) Net cash provided by operating activities $ 159,423 $ 212,477 $ (53,054 ) Net cash used in investing activities (117,130 ) (4,672 ) (112,458 ) Net cash used in financing activities (36,497 ) (151,144 ) 114,647 Net change in cash $ 5,796 $ 56,661 $ (50,865 ) 68 Table of Contents Operating Activities . 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, 2020. Investing Activities . 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 $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 $99.3 million decrease in proceeds on long-term debt for the year ended September 30, 2021 as compared to the year ended September 30, 2020. Analysis of Cash Flow Changes Between the Year Ended September 30, 2020 and 2019 The following table summarizes our cash flows for the periods indicated: Year Ended September 30, Description 2020 2019 Change ($ in thousands, unaudited) Net cash provided by (used in) operating activities $ 212,477 $ (5,725 ) $ 218,202 Net cash used in investing activities (4,672 ) (10,998 ) 6,326 Net cash (used in) provided by financing activities (151,144 ) 12,458 (163,602 ) Net change in cash $ 56,661 $ (4,265 ) $ 60,926 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. 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, 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 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. 69 Table of Contents Debt Agreements 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 available amount under the revolving credit facility and the term loans may be increased by $50.0 million in the aggregate. The revolving credit facility matures on July 22, 2025. The term loan is repayable in installments beginning on March 31, 2021, with the remainder due on July 22, 2025. 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. The maturity date for the Incremental Revolving Increase is the earlier of (i) July 22, 2025 and (ii) the date on which the Revolving Commitments (as defined in the Credit Facility) are terminated pursuant to the terms of the Credit Facility. 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), (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 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 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. 70 Table of Contents Inventory Financing Facility 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. 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. 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 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. The maximum borrowing amount available, interest rates and the termination date of the agreement remained unchanged. On September 23, 2021, the Company entered into the Third Amendment to the 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 unchanged. 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 Credit Facility. 71 Table of Contents 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. 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 restricted from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo Commercial Distribution Finance, LLC (the “Agent”). 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 Agreement. OneWater LLC’s subsidiaries are generally restricted from making loans or advances to OneWater LLC. Our Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility. On June 16, 2021, OneWater Inc. and OneWater LLC obtained a written consent from the Agent to permit the payment of the Special Dividend. As of 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. 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, 2021, we were in compliance with all covenants under the Inventory Financing Facility. 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, 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. 72 Table of Contents 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 $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 The table below provides estimates of the timing of future payments that we are contractually obligated to make based on agreements in place at September 30, 2021. Payments Due by Period Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Total (in thousands) Credit Facility(1) $ 5,500 $ 17,887 $ 82,488 $ — $ 105,875 Inventory Financing Facility(2) 114,234 — — — 114,234 Notes Payable(3) 6,393 3,686 541 39 10,659 Estimated interest payments(4) 3,222 5,365 1,155 — 9,742 Operating lease obligations(5) 13,118 24,514 22,464 53,473 113,569 Total $ 142,467 $ 51,452 $ 106,648 $ 53,512 $ 354,079 (1) Payments are generally made as required pursuant to the Credit Facility discussed above under “—Debt Agreements—Credit Facility.” (2) 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. (3) 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. Payments are generally made as required pursuant to the terms of the relevant notes payable and as discussed above under “—Debt Agreements—Notes Payable.” (4) Estimated interest payments based on the outstanding principal and stated interest rates on the Credit Facility and Notes Payable. (5) Includes certain physical facilities and equipment that we lease under noncancelable operating leases. Tax Receivable Agreement The Tax Receivable Agreement generally provides for the payment by OneWater Inc. to certain of the OneWater Unit Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax (computed using the estimated impact of state and local taxes) that OneWater Inc. actually realizes (or is deemed to realize in certain circumstances) in periods after the 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 Agreement. We generally expect OneWater LLC to fund such distributions out of available cash. However, except in cases where OneWater Inc. elects to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers or other changes of control or OneWater Inc. has available cash but fails to make payments when due, generally OneWater Inc. may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest. In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, OneWater Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement. In the case of such an acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration. OneWater Inc. intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies. 73 Table of Contents Off Balance Sheet Arrangements We have no material off balance sheet arrangements, except for operating leases and purchase commitments under supply agreements entered into in the normal course of business. Recent Accounting Pronouncements See Note 3 of the Notes to the Consolidated Financial Statements.