OneWater Marine Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to OneWater Marine Inc. and its consolidated subsidiaries. The following discussion and analysis 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.” In light of these risk, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements, except as otherwise required by applicable law. Overview We believe that we are one of the largest and fastest-growing marine retailers in the United States with 98 dealerships, 11 distribution centers/warehouses and multiple online marketplaces as of September 30, 2023. Our dealer groups are located within highly attractive markets throughout the Southeast, Gulf Coast, Mid-Atlantic and Northeast, many of which are in the top twenty states for marine retail expenditures. We believe that we are a market leader by volume in sales of premium boats in many of the markets in which we operate. In addition to boat sales, we also generate sales from related products including finance & insurance and service, parts & other sales. The recent acquisitions of T-H Marine and Ocean Bio-Chem significantly expanded our sales of marine parts and accessories. The combination of our significant scale, diverse inventory, access to premium boat brands, access to a broad array of parts and accessories and meaningful group brand equity enables us to provide a consistently professional experience as reflected in the number of our repeat customers and Dealership same-store sales growth. We 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 dealerships. Since the combination in 2014, we have acquired a total of 80 additional dealerships, 12 distribution centers/warehouses and multiple online marketplaces through 33 acquisitions. Our current portfolio as of September 30, 2023 consists of multiple brands which are recognized on a local, regional or national basis. Because of this, we believe we are one of the largest and fastest-growing marine retailers in the United States based on number of dealerships and total boats sold. While we have opportunistically opened new dealerships in select markets, or launched additional parts and accessory products, we believe that it is generally more effective economically and operationally to acquire existing businesses with experienced staff and established reputations. Effective August 9, 2022, our reportable segments changed as a result of the Company’s acquisition of Ocean Bio-Chem, which changed management’s reporting structure and operating activities. We now report our operations through two reportable segments: Dealerships and Distribution. As of September 30, 2023, the Dealerships reporting segment includes operations of 98 dealerships in 15 states including Florida, Texas, Alabama and Georgia, among others, and represents approximately 91% of revenues. The Dealership segment engages in the sale of new and pre-owned boats, arranges financing and insurance products, performs repairs and maintenance services, offers marine related parts and accessories and offers slip and storage accommodations in certain locations. As of September 30, 2023, the Distribution reporting segment includes the activity of PartsVu, Ocean Bio Chem and T-H Marine and its subsidiaries which together operate 11 distribution centers/warehouses in Alabama, Florida, Oklahoma, Indiana, Tennessee and Illinois and represents approximately 9% of revenues. The Distribution segment engages in the manufacturing, assembly and distribution of marine-related products (and adjacent industries). 45 Table of Contents The boat dealership market is highly fragmented and is comprised of approximately 4,200 dealerships nationwide. Most competing boat retailers are operated by local business owners who own three or fewer stores; however we do have other large competitors including MarineMax and Bass Pro Shops. We believe we are one of the largest and fastest-growing marine retailers in the United States. 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. In addition to boat sales, we also generate sales from related products including finance & insurance and service, parts & other sales. The recent acquisitions of T-H Marine and Ocean Bio-Chem have significantly expanded our sales of marine parts and accessories. Our strategic growth in this area is also expected to materially expand our addressable market in the parts and accessories business. We are able to operate with a comparatively higher degree of profitability than other independent retailers because we allocate support resources across our broader base, focus on high-margin service parts and accessories, 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 marine retailer by total market share within each boating market and within the product segments in which we participate. To the extent that we are not, we will evaluate acquiring other local retailers in order to increase our sales, to add additional brands or to provide us with additional high-quality personnel. Impact of COVID-19 The COVID-19 pandemic and its related effects positively impacted our sales as more customers desired to engage in outdoor recreational activities in a socially distanced manner. However, the COVID-19 pandemic also caused significant supply chain challenges as suppliers were faced with business closures and shipping delays. This led to an industry wide inventory shortage of boats, engines and certain marine parts. As of September 30, 2023, we have seen considerable improvements in the supply chain and believe we are returning to the more traditional seasonal cycles of our business. The ultimate impact of a resurgence of COVID-19 or another global pandemic and its related effects remains uncertain and depends on various factors including consumer demand, our ability to safely operate locations 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 80 additional dealerships through 28 dealer group acquisitions. Our team remains focused on expanding our dealership growth in regions with strong boating cultures, enhancing the customer experience and generating value for our shareholders. In addition to dealership acquisitions, the Company has strategically acquired parts and accessories companies as part of our growth and diversification strategy. We have acquired 12 distribution centers and warehouses through the acquisition of 5 parts and accessories companies. We plan to continue to strategically evaluate and complete acquisitions moving forward. For the years ended September 30, 2023 and 2022, we completed 3 and 8 acquisitions, respectively. Since September 30, 2023, we completed the acquisition of the remaining 20% of Quality Boats on October 31, 2023. 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. Our strategy is to acquire dealerships at attractive EBITDA multiples and then grow same-store sales while benefiting from cost-reducing synergies. Historically, we have typically acquired dealerships for less than 4.0x EBITDA on a trailing twelve month basis and believe that we will be able to continue to make attractive acquisitions within this range. With the expansion of our Distribution segment, we look to acquire parts and accessories manufacturing and distribution companies within a range of 5.0x – 10.0x EBITDA on a trailing twelve month basis, depending on the size of the business. 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 a global pandemic, supply chain constraints, 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, higher interest rates or higher fuel costs, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which we operate dealerships, particularly in the Southeast, can have a major impact on our overall results of operations. Local influences, such as corporate downsizing, inclement weather such as hurricanes and other storms, environmental conditions, and 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. 46 Table of Contents 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 dealerships 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 & 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 pandemics, rising interest rates, inflation, 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 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 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. 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. Goodwill and Other Intangible Assets In accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Others (“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. Identifiable intangible assets as a result of the acquisitions we have completed consist of trade names, developed technologies, including design libraries, and customer relationships. We have determined that trade names have an indefinite life, as there is no economic, contractual or other factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the marine retailer, and therefore, are not subject to amortization. Developed technologies and customer relationships are amortized over their estimated useful lives of ten years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment testing requires the assessment of both qualitative and quantitative factors, including, but not limited to whether there has been a significant or adverse change in the business climate that could affect the value of an asset and/or significant or adverse changes in cash flow projections or earnings forecasts. These assessments require management to make judgements, assumptions and estimates regarding the macroeconomic and industry conditions, our financial performance, and other factors and are often interdependent; therefore, they do not change in isolation. Factors that management must estimate include, among others, the economic lives of the assets, sales volume, pricing, royalty rates, long-term growth rates, tax rates, capital spending, and customers’ financial condition. The estimates and assumptions used in these tests are evaluated and updated as appropriate. The variability of these factors depends on a number of conditions, including uncertainty about future events, and thus our accounting estimates may change from period to period. If other assumptions and estimates had been used when these tests were performed, impairment charges could have changed. As mentioned above, these factors do not change in isolation and, therefore, we do not believe it is practicable or meaningful to present the impact of changing a single factor. Furthermore, if management uses different assumptions in future periods or if different conditions exist in future periods, additional impairment charges could result. 47 Table of Contents During the year ended September 30, 2023, the Company determined that there were circumstances that indicated that impairment may have occurred. We engaged a third-party independent valuation professional to perform a quantitative analysis of the fair values compared to the carrying value and, as a result, recorded a loss on impairment of $147.4 million. We do not believe there is currently a reasonable likelihood that there will be a change in the judgments and assumptions used in our assessments of goodwill and long-lived assets which would result in any further material effect on operating results. For the years ended September 30, 2022 and 2021, the Company determined that it was more likely than not that the fair value of the goodwill and identifiable intangible assets was greater than its carrying amount, and as a result, no impairment for goodwill and identifiable intangible assets was required. 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, contingent consideration, trade names, developed technologies, including design libraries, and customer relationships. The fair value of acquired inventory is based on manufacturer invoice cost, curtailments, and market data. The significant estimates used to value contingent consideration are future earnings and discount rates. Management estimated the fair value of the trade names and developed technologies using the relief from royalty method and customer relationships using the multi-period excess earnings method. The fair value determination of the trade names and design libraries required management to make significant estimates and assumptions related to future revenues and the selection of the royalty rate and discount rate. The fair value determination of the customer relationships require management to make significant estimates and assumptions related to future revenues attributable to existing customers, future EBITDA margins and the selection of the customer attrition rate and discount rate. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value. In selecting the techniques and assumptions noted above, we generally engage third-party, independent valuation professionals to assist us in developing the assumptions and applying the valuation techniques to a particular business combination transaction. In particular, the discount rates selected are compared to and evaluated with (i) the industry weighted-average cost of capital, (ii) the inherent risks associated with each type of asset and (iii) the level and timing of future cash flows appropriately reflecting market participant assumptions. How We Evaluate Our Operations Revenue We have a diversified revenue profile that is comprised of new boat sales, pre-owned boat sales, finance & insurance products, repair and maintenance services, and parts and accessories. During different phases of the economic cycle, consumer behavior may shift away from new boats; however, we are well-positioned to generate 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 customers, brokerage transactions, consignment sales and wholesale sales. We continue to focus on all aspects of our business including non-boat sales of finance & insurance products, repair and maintenance services, and parts and accessories. Although non-boat sales contributed approximately 19.5%, 17.8% and 11.3% to revenue in fiscal years 2023, 2022 and 2021, respectively, due to the higher gross margin on these product and service lines, non-boat sales contributed 35.6%, 30.1% and 25.8% to gross profit in fiscal years 2023, 2022 and 2021, respectively. We have also diversified our business across geographies, dealership types (e.g., fresh water and salt water), and product offerings (e.g., focus on parts and accessories businesses through PartsVu, T-H Marine and Ocean Bio-Chem) in order to reduce the effects of seasonality and cyclicality of our business. In addition to seasonality, revenue and operating results may be significantly affected by quarter-to-quarter changes in economic conditions, manufacturer incentive programs, adverse weather conditions and other developments outside of our control. Gross Profit We calculate gross profit as revenue less cost of sales. Cost of sales consists of actual amounts paid for products, costs of services (primarily labor), transportation costs from manufacturers to our dealerships and vendor consideration. Gross profit excludes the majority of our 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. 48 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of base 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 selling, general and administrative expenses in the aggregate as a percentage of total revenue. Dealership Same-Store Sales We assess the organic growth of our Dealership segment 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 dealerships become eligible for inclusion in the comparable dealership base at the end of the dealership’s thirteenth month of operations under our ownership and revenues are only included for identical months in the same-store base periods. Dealerships relocated within an existing market remain in the comparable dealership base for all periods. Additionally, amounts related to closed dealerships are excluded from each comparative base period. Because Dealership same-store sales may be defined differently by other companies in our industry, our definition of this measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. Adjusted EBITDA We define Adjusted EBITDA as net income (loss) before interest expense – other, income tax (benefit) expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of contingent consideration, loss on extinguishment of debt, loss on impairment 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 and Dispositions 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 2023 Acquisitions • Effective October 1, 2022, we acquired Taylor Marine Centers, a full service marine retailer with locations in Maryland and Delaware • Effective December 1, 2022, we acquired Harbor View Marine, a full service marine retailer with locations in Florida and Alabama • Effective September 1, 2023, we acquired Harbor Pointe Marina, a full service marine retailer with one location in Alabama We refer to the fiscal year 2023 acquisitions described above collectively as the “2023 Acquisitions.” Taylor Marine Centers is fully reflected in our consolidated statements of operations for the year ended September 30, 2023. The remaining 2023 Acquisitions are partially reflected in our consolidated statements of operations for the year ended September 30, 2023, beginning on the date of acquisition. None of our 2023 Acquisitions impact our results of operations for the years ended September 30, 2022 and 2021. Fiscal Year 2022 Acquisitions • Effective October 1, 2021, we acquired Naples Boat Mart, a full-service marine retailer with one location in Florida. • Effective November 30, 2021, we acquired T-H Marine, a leading provider of branded marine parts and accessories for OEMs and the aftermarket, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas. • Effective December 1, 2021, we acquired Norfolk Marine Company, a full-service marine retailer with one location in Virginia. • Effective December 31, 2021, we acquired a majority interest in Quality Boats, a full-service marine retailer with three locations in Florida. • Effective February 1, 2022 we acquired JIF Marine, a leading supplier of stainless steel ladders, dock products and other accessories which is based in Tennessee. 49 Table of Contents • Effective March 1, 2022, we acquired YakGear, a leading supplier of kayak equipment, paddle sport accessories and boat mounting accessories which is based in Texas. • Effective April 1, 2022, we acquired Denison Yachting, a leader in yacht and superyacht sales as well as ancillary yacht services, with 20 locations. • Effective August 9, 2022, we acquired Ocean Bio-Chem, including Star Brite Europe, Inc., a leading supplier and distributor of appearance, cleaning and maintenance products for the marine industry and the automotive, powersports, recreational vehicles, and outdoor power equipment markets with locations in Alabama and Florida. We refer to the fiscal year 2022 acquisitions described above collectively as the “2022 Acquisitions.” The 2022 Acquisitions are fully reflected in our consolidated financial statements for the year ended September 30, 2023. Naples Boat Mart is fully reflected in our consolidated statements of operations for the year ended September 30, 2022. The remaining 2022 Acquisitions are partially reflected in our consolidated statements of operations for the year ended September 30, 2022, beginning on the date of acquisition. None of our 2022 Acquisitions impact our results of operations for the years ended September 30, 2021. Fiscal Year 2021 Acquisitions • Effective December 1, 2020, we acquired Tom George Yacht Group, a full-service marine retailer based in Florida with two locations. • Effective December 31, 2020, we acquired Walker Marine Group, a full-service marine retailer based in Florida with five locations. • Effective December 31, 2020, we acquired Roscioli Yachting Center, 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 Stone Harbor Marina, a full-service marine retailer based in New Jersey with one location. • Effective September 1, 2021 we acquired PartsVu, an online marketplace for OEM marine parts, electronics and accessories with a warehouse in Florida. We refer to the fiscal year 2021 acquisitions described above collectively as the “2021 Acquisitions.” The 2021 Acquisitions are fully reflected in our consolidated financial statements for the year ended September 30, 2023 and 2022 but are only partially reflected in our consolidated financial statements for the year ended September 30, 2021, beginning on the date of acquisition. Dispositions The comparability of our results of operations between the periods discussed below is naturally affected by the dispositions we have completed during such periods. While we do not expect significant dispositions in the future, any such dispositions may impact the comparability of our future results of operations to our historical results. Fiscal Year 2023 Dispositions • Effective September 30, 2023, we sold Roscioli Yachting Center, a full-service marine and yachting facility located in Florida, including the related real estate and in-water slips. A portion of the sold property was leased back by the Company. • Effective September 30, 2023 we sold Lookout Marine, a full-service marine retailer based in Kentucky with two locations. We refer to the fiscal year 2023 dispositions described above collectively as the “2023 Dispositions.” The 2023 Dispositions are fully reflected in our consolidated financial statements for the year ended September 30, 2023, as the transactions took place on the final day of fiscal year 2023. There were no dispositions during the fiscal years ended September 30, 2022 and 2021. Other Factors Affecting Comparability of Our Future Results of Operations to Our Historical Results of Operations Our historical financial results discussed below may not be comparable to our future financial results. As we further implement controls, processes and infrastructure applicable to companies with publicly traded equity securities, including the integration of acquired companies, it is likely that we will incur additional selling, general, and administrative expenses relative to historical periods. Our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy. 50 Table of Contents Results of Operations Year Ended September 30, 2023, Compared to Year Ended September 30, 2022 For the Year Ended September 30, 2023 2022 Description Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Revenues: New boat $ 1,223,691 63.2 % $ 1,139,331 65.3 % $ 84,360 7.4 % Pre-owned boat 334,477 17.3 % 294,832 16.9 % 39,645 13.4 % Finance & insurance income 56,325 2.9 % 55,977 3.2 % 348 0.6 % Service, parts & other 321,817 16.6 % 254,682 14.6 % 67,135 26.4 % Total revenues 1,936,310 100.0 % 1,744,822 100.0 % 191,488 11.0 % Gross Profit New boat 268,469 13.9 % 305,305 17.5 % (36,836) -12.1 % Pre-owned boat 75,953 3.9 % 81,665 4.7 % (5,712) -7.0 % Finance & insurance 56,325 2.9 % 55,977 3.2 % 348 0.6 % Service, parts & other 134,379 6.9 % 110,708 6.3 % 23,671 21.4 % Total gross profit 535,126 27.6 % 553,655 31.7 % (18,529) -3.3 % Selling, general and administrative expenses 345,524 17.8 % 302,113 17.3 % 43,411 14.4 % Depreciation and amortization 23,898 1.2 % 15,605 0.9 % 8,293 53.1 % Transaction costs 1,839 0.1 % 7,724 0.4 % (5,885) -76.2 % Change in fair value of contingent consideration (1,604) -0.1 % 10,380 0.6 % (11,984) -115.5 % Loss on impairment 147,402 7.6 % — — % 147,402 100.0 % Income from operations 18,067 0.9 % 217,833 12.5 % (199,766) -91.7 % Interest expense – floor plan 25,080 1.3 % 4,647 0.3 % 20,433 439.7 % Interest expense – other 34,557 1.8 % 13,201 0.8 % 21,356 161.8 % Loss on extinguishment of debt — — % 356 — % (356) -100.0 % Other expense (income), net 953 — % 3,793 0.2 % (2,840) -74.9 % Net (loss) income before income tax (benefit) expense (42,523) -2.2 % 195,836 11.2 % (238,359) -121.7 % Income tax (benefit) expense (3,412) -0.2 % 43,225 2.5 % (46,637) -107.9 % Net (loss) income (39,111) -2.0 % 152,611 8.7 % (191,722) -125.6 % Net income attributable to non-controlling interests (3,810) (2,998) Net loss (income) attributable to non-controlling interests of One Water Marine Holdings, LLC 4,329 (18,669) Net (loss) income attributable to OneWater Marine Inc. $ (38,592) $ 130,944 51 Table of Contents Revenue Overall, revenue increased by $191.5 million, or 11.0%, to $1,936.3 million for the year ended September 30, 2023 from $1,744.8 million for the year ended September 30, 2022. Revenue generated from Dealership same-store sales increased 3.0% for the year ended September 30, 2023 as compared to the year ended September 30, 2022, primarily due to an increase in the average selling price of new and pre-owned boats, the number of pre-owned boats sold, the model mix of boats sold, and an increase in service, parts & other sales. Overall revenue increased by $48.1 million as a result of our increase in Dealership same-store sales and $143.4 million from revenue increases in our Distribution segment as well as revenue not eligible for inclusion in the Dealership same-store sales base. New and acquired dealerships become eligible for inclusion in the comparable dealership base at the end of the dealership’s thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. For the years ended September 30, 2023 and 2022, we completed 3 and 8 acquisitions, respectively. New Boat Sales New boat sales increased by $84.4 million, or 7.4%, to $1,223.7 million for the year ended September 30, 2023 from $1,139.3 million for the year ended September 30, 2022. The increase was the result of our Dealership same-store sales growth during the twelve-month period, our acquisitions and an increase in our average selling price. We believe the increase in sales was primarily due to continued execution of operational improvements on previously acquired dealers, the mix on boat brands and models sold, and product improvements in the functionality of technology which drove average unit prices higher. Pre-owned Boat Sales Pre-owned boat sales increased by $39.6 million, or 13.4%, to $334.5 million for the year ended September 30, 2023 from $294.8 million for the year ended September 30, 2022. 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. The increase in pre-owned boat sales was primarily attributable to an increase in the number of units sold and average selling price which was driven by Dealership same-store sales growth and acquisition growth. 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 $0.3 million, or 0.6%, to $56.3 million for the year ended September 30, 2023 from $56.0 million for the year ended September 30, 2022. The increase was primarily due to the additional new and pre-owned boat revenues, partially offset by the declining spreads charged to customers with the current high interest-rate environment. 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 dealerships. 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 $67.1 million, or 26.4%, to $321.8 million for the year ended September 30, 2023 from $254.7 million for the year ended September 30, 2022. This increase in service, parts & other sales is primarily due to the contributions from our recently acquired parts and accessories businesses, including Ocean Bio-Chem, as well as 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 at our dealerships. Revenue for the Distribution segment are reported in service, parts & other sales and totaled $181.1 million and $135.9 million for the years ended September 30, 2023 and 2022, respectively. Gross Profit Overall, gross profit decreased by $18.5 million, or 3.3%, to $535.1 million for the year ended September 30, 2023 from $553.7 million for the year ended September 30, 2022. This decrease was mainly due to industry margin normalization and the return of seasonality, partially offset by the impact of the 2023 Acquisitions, the 2022 Acquisitions and the Company’s focus on dynamic pricing. Overall gross margins decreased 410 basis points to 27.6% for the year ended September 30, 2023 from 31.7% for the year ended September 30, 2022 due to the factors noted below. New Boat Gross Profit New boat gross profit decreased by $36.8 million, or 12.1%, to $268.5 million for the year ended September 30, 2023 from $305.3 million for the year ended September 30, 2022. This decrease was due to the decrease in new boat gross profit margin. New boat gross profit as a percentage of new boat revenue was 21.9% for the year ended September 30, 2023 as compared to 26.8% in the year ended September 30, 2022. The decrease in new boat gross profit and gross profit margin is due primarily to the normalization of new boat pricing following the COVID-19 pandemic and the return of seasonality. 52 Table of Contents Pre-owned Boat Gross Profit Pre-owned boat gross profit decreased by $5.7 million, or 7.0%, to $76.0 million for the year ended September 30, 2023 from $81.7 million for the year ended September 30, 2022. This decrease was primarily driven by a decrease in pre-owned boat gross profit margin. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 22.7% for the year ended September 30, 2023 as compared to 27.7% for the year ended September 30, 2022. The pre-owned gross profit margin primarily decreased as a result of the normalization of pre-owned boat pricing following the COVID-19 pandemic, the return of seasonality and a mix shift in the components of pre-owned sales including a reduction in brokerage sales. 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. Finance & Insurance Gross Profit Finance & insurance gross profit increased by $0.3 million, or 0.6%, to $56.3 million for the year ended September 30, 2023 from $56.0 million for the year ended September 30, 2022. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sales. Service, Parts & Other Gross Profit Service, parts & other gross profit increased by $23.7 million, or 21.4%, to $134.4 million for the year ended September 30, 2023 from $110.7 million for the year ended September 30, 2022. The increase in gross profit was primarily the result of our acquisitions of parts and accessories businesses, including Ocean Bio-Chem, but was also further enhanced by our Dealership sales growth. Service, parts & other gross profit as a percentage of service, parts & other revenue was 41.8% and 43.5% for the years ended September 30, 2023 and 2022, respectively. The decrease in gross profit margin was due to a shift in the mix of revenue towards parts & accessories which has a lower gross profit percentage than service and other sales, as well as rising labor costs. Although the service, parts & other mix shifted and led to a year over year decrease in margin percentage, our parts and accessories gross profit percentage was still accretive to the overall company gross profit percentage of 27.6% for the year ended September 30, 2023 . Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $43.4 million, or 14.4%, to $345.5 million for the year ended September 30, 2023 from $302.1 million for the year ended September 30, 2022. This increase was primarily due to expenses incurred to support the overall increase in revenues. Selling, general and administrative expenses as a percentage of revenue increased to 17.8% from 17.3% for the years ended September 30, 2023 and 2022, respectively. The increase in selling, general and administrative expenses as a percentage of revenue was primarily due to higher administrative expenses for the acquisitions in our Distribution segment, higher marketing expenses and increased costs as a result of the current personnel environment for the year ended September 30, 2023 . Depreciation and Amortization Depreciation and amortization expense increased $8.3 million, or 53.1%, to $23.9 million for the year ended September 30, 2023 compared to $15.6 million for the year ended September 30, 2022. The increase in depreciation and amortization expense is primarily due to an increase in amortization of identifiable intangible assets for the 2022 Acquisitions as well as an increase in our property and equipment. Transaction Costs The decrease in transaction costs of $5.9 million, or 76.2%, to $1.8 million for the year ended September 30, 2023 compared to $7.7 million for the year ended September 30, 2022 was primarily attributable to the fewer number of acquisitions completed during the year ended September 30, 2023 compared to those completed during the year ended September 30, 2022. Change in Fair Value of Contingent Consideration During the year ended September 30, 2023, we recognized income of $1.6 million related to updated forecasts and accretion of contingent consideration liabilities related to fiscal 2021, 2022 and 2023 acquisitions. Loss on Impairment During the year ended September 30, 2023, we recognized a loss on impairment of $147.4 as a result of the quantitative assessment of the fair values compared to the carrying values of goodwill and identifiable intangible assets for the Dealerships and Distribution segments. The impairment was largely driven by a decline in the Distribution segment's results as well as a decrease in the Company's market capitalization. 53 Table of Contents Income from Operations Income from operations decreased $199.8 million, or 91.7%, to $18.1 million for the year ended September 30, 2023 compared to $217.8 million for the year ended September 30, 2022. The decrease was primarily attributable to the 147.4 million loss on impairment, a $43.4 million increase in selling, general and administrative expenses and a $18.5 million decrease in gross profit, partially offset by a $5.9 million decrease in transaction costs and a $12.0 million decrease in the change in fair value of contingent consideration during the same periods. Interest Expense – Floor Plan Interest expense – floor plan increased $20.4 million, or 439.7%, to $25.1 million for the year ended September 30, 2023 compared to $4.6 million for the year ended September 30, 2022. The increase in floor plan interest expense is primarily attributable to an increase in interest rates and the average inventory for the year ended September 30, 2023 compared to the year ended September 30, 2022. Interest Expense – Other Interest expense – other increased $21.4 million, or 161.8%, to $34.6 million for the year ended September 30, 2023 compared to $13.2 million for the year ended September 30, 2022. The increase was primarily attributable to the increase in the average balance of our long term debt during the year ended September 30, 2023 compared to the average balance during the year ended September 30, 2022 as well as an increase in interest rates. Loss on Extinguishment of Debt We incurred no debt extinguishment expenses for the year ended September 30, 2023, as compared to $0.4 million in debt extinguishment expenses for the year ended September 30, 2022, related to the August 9, 2022 amendment of our term debt. Other Expense (Income), Net Other expense (income), net decreased by $2.8 million to $1.0 million of expense for the year ended September 30, 2023 , compared to $3.8 million of expense for the year ended September 30, 2022 . The decrease is primarily attributable to the decrease in the unrealized loss on an equity investment and expenses associated with Hurricane Ian recorded, partially offset by the loss on disposal of businesses during the year ended September 30, 2023 . Income Tax (Benefit) Expense Income tax (benefit) expense changed by $46.6 million, or 107.9%, to an income tax benefit of $3.4 million for the year ended September 30, 2023, compared to income tax expense $43.2 million for the year ended September 30, 2022. The change was primarily attributable to the 121.7% decrease in income before tax expense which was primarily related to the loss on impairment. Net (loss) Income Net (loss) income changed by $191.7 million to a net loss of $(39.1) million for the year ended September 30, 2023, compared to net income of $152.6 million for the year ended September 30, 2022. The change was primarily attributable to the $147.4 million loss on impairment, the increases in selling, general and administrative expenses, interest expense – floor plan and interest expense – other, all partially offset by the decrease in the change in fair value of contingent consideration during the same periods. 54 Table of Contents Results of Operations Year Ended September 30, 2022, Compared to Year Ended September 30, 2021 For the Year Ended September 30, 2022 2021 Description Amount % of Revenue Amount % of Revenue $ Change % Change ($ in thousands) Revenues: New boat $ 1,139,331 65.3 % $ 872,680 71.1 % $ 266,651 30.6 % Pre-owned boat 294,832 16.9 % 216,416 17.6 % 78,416 36.2 % Finance & insurance income 55,977 3.2 % 42,668 3.5 % 13,309 31.2 % Service, parts & other 254,682 14.6 % 96,442 7.9 % 158,240 164.1 % Total revenues 1,744,822 100.0 % 1,228,206 100.0 % 516,616 42.1 % Gross Profit New boat 305,305 17.5 % 210,916 17.2 % 94,389 44.8 % Pre-owned boat 81,665 4.7 % 54,138 4.4 % 27,527 50.8 % Finance & insurance 55,977 3.2 % 42,668 3.5 % 13,309 31.2 % Service, parts & other 110,708 6.3 % 49,733 4.0 % 60,975 122.6 % Total gross profit 553,655 31.7 % 357,455 29.1 % 196,200 54.9 % Selling, general and administrative expenses 302,113 17.3 % 199,049 16.2 % 103,064 51.8 % Depreciation and amortization 15,605 0.9 % 5,411 0.4 % 10,194 188.4 % Transaction costs 7,724 0.4 % 869 0.1 % 6,855 788.8 % Change in fair value of contingent consideration 10,380 0.6 % 3,249 0.3 % 7,131 219.5 % Income from operations 217,833 12.5 % 148,877 12.1 % 68,956 46.3 % Interest expense – floor plan 4,647 0.3 % 2,566 0.2 % 2,081 81.1 % Interest expense – other 13,201 0.8 % 4,344 0.4 % 8,857 203.9 % Loss on extinguishment of debt 356 0.0 % — 0.0 % 356 100.0 % Other expense (income), net 3,793 0.2 % (248) 0.0 % 4,041 * Income before income tax expense 195,836 11.2 % 142,215 11.6 % 53,621 37.7 % Income tax expense 43,225 2.5 % 25,802 2.1 % 17,423 67.5 % Net income 152,611 8.7 % 116,413 9.5 % 36,198 31.1 % Net income attributable to non-controlling interests (2,998) — Net income attributable to non-controlling interests of One Water Marine Holdings, LLC (18,669) (37,354) Net income attributable to OneWater Marine Inc. $ 130,944 $ 79,059 55 Table of Contents Revenue Overall, revenue increased by $516.6 million, or 42.1%, to $1,744.8 million for the year ended September 30, 2022 from $1,228.2 million for the year ended September 30, 2021. Revenue generated from Dealership same-store sales increased 11.9% for the year ended September 30, 2022 as compared to the year ended September 30, 2021, primarily due to an increase in the average selling price of new boats, the number of pre-owned boats sold, the model mix of boats sold, an increase in finance & insurance sales and an increase in service, parts & other sales. We believe that COVID-19 had a positive overall impact on the retail marine industry during these periods as people sought recreational activities that could be done in a safe, socially distanced way. Overall revenue increased by $147.0 million as a result of our increase in Dealership same-store sales and $369.6 million from revenue from our Distribution segment as well as revenue not eligible for inclusion in the Dealership same-store sales base. New and acquired dealerships become eligible for inclusion in the comparable dealership base at the end of the dealership’s thirteenth month of operations under our ownership, and revenues are only included for identical months in the same-store base periods. For the years ended September 30, 2022 and 2021, we completed 8 and 5 acquisitions, respectively. New Boat Sales New boat sales increased by $266.7 million, or 30.6%, to $1,139.3 million for the year ended September 30, 2022 from $872.7 million for the year ended September 30, 2021. The increase was the result of our Dealership same-store sales growth during the twelve-month period, our acquisitions and an increase in our average selling price. We believe the increase in sales was primarily due to continued execution of operational improvements on previously acquired dealers, the mix on boat brands and models sold, and product improvements in the functionality of technology which drove average unit prices higher. Pre-owned Boat Sales Pre-owned boat sales increased by $78.4 million, or 36.2%, to $294.8 million for the year ended September 30, 2022 from $216.4 million for the year ended September 30, 2021. 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. The increase in pre-owned boat sales was primarily attributable to an increase in the number of units sold which was driven by Dealership same-store sales growth and acquisition growth. 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 $13.3 million, or 31.2%, to $56.0 million for the year ended September 30, 2022 from $42.7 million for the year ended September 30, 2021. The increase was primarily due to the additional new and pre-owned boat revenues. 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 dealerships. Finance & insurance products decreased slightly as a percentage of total revenue to 3.2% in the year ended September 30, 2022 from 3.5% for the year ended September 30, 2021. 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 $158.2 million, or 164.1%, to $254.7 million for the year ended September 30, 2022 from $96.4 million for the year ended September 30, 2021. This increase in service, parts & other sales is primarily due to the contributions from our recently acquired parts and accessories businesses, including T-H Marine and Ocean Bio-Chem, as well as 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 at our dealerships. Gross Profit Overall, gross profit increased by $196.2 million, or 54.9%, to $553.7 million for the year ended September 30, 2022 from $357.5 million for the year ended September 30, 2021. This increase was mainly due to our overall increase in Dealership same-store sales which was driven by increases in all revenue streams, the impact of the 2022 Acquisitions and the Company’s focus on dynamic pricing. Overall gross margins increased 260 basis points to 31.7% for the year ended September 30, 2022 from 29.1% for the year ended September 30, 2021 due to the factors noted below. 56 Table of Contents New Boat Gross Profit New boat gross profit increased by $94.4 million, or 44.8%, to $305.3 million for the year ended September 30, 2022 from $210.9 million for the year ended September 30, 2021. This increase was due to our overall increase in Dealership same-store sales and acquired dealerships during fiscal year 2022. New boat gross profit as a percentage of new boat revenue was 26.8% for the year ended September 30, 2022 as compared to 24.2% in the year ended September 30, 2021. 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, our emphasis on expanding new boat gross profit margins and the impact of industry wide inventory and supply chain constraints. Pre-owned Boat Gross Profit Pre-owned boat gross profit increased by $27.5 million, or 50.8%, to $81.7 million for the year ended September 30, 2022 from $54.1 million for the year ended September 30, 2021. This increase was primarily due to an overall increase in pre-owned revenue as a result of our Dealership same-store sales and acquired dealerships during fiscal year 2022. Pre-owned boat gross profit as a percentage of pre-owned boat revenue was 27.7% for the year ended September 30, 2022 as compared to 25.0% for the year ended September 30, 2021. 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. For the year ended September 30, 2022 compared to the year ended September 30, 2021, we experienced a strong increase in our gross profit on pre-owned sales for trade-ins, brokerage and consignment which all have a higher margin percentage than wholesale which saw a slight decrease in gross profit. Finance & Insurance Gross Profit Finance & insurance gross profit increased by $13.3 million, or 31.2%, to $56.0 million for the year ended September 30, 2022 from $42.7 million for the year ended September 30, 2021. Finance & insurance income is fee-based revenue for which we do not recognize incremental cost of sales. Service, Parts & Other Gross Profit Service, parts & other gross profit increased by $61.0 million, or 122.6%, to $110.7 million for the year ended September 30, 2022 from $49.7 million for the year ended September 30, 2021. The increase in gross profit was primarily the result of our acquisitions of parts and accessories businesses, including T-H Marine and Ocean Bio-Chem, but was also further enhanced by our Dealership same-store sales growth. Service, parts & other gross profit as a percentage of service, parts & other revenue was 43.5% and 51.6% for the years ended September 30, 2022 and 2021, respectively. The decrease in gross profit margin was due to a shift in the mix of revenue towards parts & accessories which has a lower gross profit percentage than service and other sales. Although the service, parts & other mix shifted and led to a year over year decrease in margin percentage, our parts and accessories gross profit percentage was still accretive to the overall company gross profit percentage of 31.7% for the year ended September 30, 2022. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $103.1 million, or 51.8%, to $302.1 million for the year ended September 30, 2022 from $199.0 million for the year ended September 30, 2021. This increase was primarily due to expenses incurred to support the overall increase in revenues and gross profit. Selling, general and administrative expenses as a percentage of revenue increased to 17.3% from 16.2% for the years ended September 30, 2022 and 2021, respectively. The increase in selling, general and administrative expenses as a percentage of revenue was primarily due to higher variable personnel costs driven by the increased level of profitability for the year ended September 30, 2022 as well as increased costs given the current personnel environment. Depreciation and Amortization Depreciation and amortization expense increased $10.2 million, or 188.4%, to $15.6 million for the year ended September 30, 2022 compared to $5.4 million for the year ended September 30, 2021. The increase in depreciation and amortization expense is primarily due to a $7.6 million increase in amortization of identifiable intangible assets, primarily attributable to the 2022 Acquisitions, as well as an increase in our property and equipment. Transaction Costs The increase in transaction costs of $6.9 million, or 788.8%, to $7.7 million for the year ended September 30, 2022 compared to $0.9 million for the year ended September 30, 2021 was primarily attributable to expenses related to the 2022 Acquisitions. Change in Fair Value of Contingent Consideration During the year ended September 30, 2022, we incurred expenses of $10.4 million related to updated forecasts and accretion of contingent consideration liabilities related to fiscal 2021 and 2022 acquisitions. 57 Table of Contents Income from Operations Income from operations increased $69.0 million, or 46.3%, to $217.8 million for the year ended September 30, 2022 compared to $148.9 million for the year ended September 30, 2021. The increase was primarily attributable to the $196.2 million increase in gross profit for the year ended September 30, 2022 as compared to the year ended September 30, 2021, partially offset by a $103.1 million increase in selling, general and administrative expenses, a $10.2 million increase in depreciation and amortization, a $6.9 million increase in transaction costs and a $7.1 million increase in the change in fair value of contingent consideration during the same periods. Interest Expense – Floor Plan Interest expense – floor plan increased $2.1 million, or 81.1%, to $4.6 million for the year ended September 30, 2022 compared to $2.6 million for the year ended September 30, 2021. The increase in floor plan interest expense is primarily attributable to an increase in the average inventory for the year ended September 30, 2022 compared to the year ended September 30, 2021 as well as an increase in interest rates. Interest Expense – Other Interest expense – other increased $8.9 million, or 203.9%, to $13.2 million for the year ended September 30, 2022 compared to $4.3 million for the year ended September 30, 2021. The increase was primarily attributable to the increase in our long term debt which was primarily used to fund certain 2022 Acquisitions. Loss on Extinguishment of Debt During the year ended September 30, 2022, we incurred $0.4 million in debt extinguishment expenses related to the August 9, 2022 amendment of our term debt. Other Expense (Income), Net Other expense (income), net changed by $4.0 million to $3.8 million of expense for the year ended September 30, 2022, compared to $0.2 million of income for the year ended September 30, 2021. The increase is primarily attributable to the unrealized loss on our Forza X1, Inc. equity investment and expenses associated with Hurricane Ian. Income Tax Expense Income tax expense increased $17.4 million, or 67.5%, to $43.2 million for the year ended September 30, 2022, compared to $25.8 million for the year ended September 30, 2021. The increase was primarily attributable to the 37.7% increase in income before tax expense as well as the increased proportion of consolidated income before income tax expense that is allocated to OneWater Marine Inc. and therefore taxable due to the exchanges of shares of Class B common stock for shares of Class A common stock. Net Income Net income increased by $36.2 million to $152.6 million for the year ended September 30, 2022 compared to $116.4 million for the year ended September 30, 2021. The increase was primarily attributable to the increase in gross profit, partially offset by an increase in selling, general and administrative expenses, income tax expense, depreciation and amortization and the increase in the change in fair value of contingent consideration during the same periods. Comparison of Non-GAAP Financial Measure Adjusted EBITDA We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before interest expense – other, income tax (benefit) expense, depreciation and amortization and other (income) expense, further adjusted to eliminate the effects of items such as the change in fair value of contingent consideration, gain (loss) on extinguishment of debt, loss on impairment and transaction costs. 58 Table of Contents 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 change in fair value of contingent consideration, gain (loss) on extinguishment of debt, loss on impairment and transaction costs) that impact the comparability of financial results from period to period. We present Adjusted EBITDA because we believe it provides useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing our financial performance and results of operations across reporting periods by excluding items we do not believe are indicative of our core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in such presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following tables present a reconciliation of Adjusted EBITDA to our net income (loss), which is the most directly comparable GAAP measure for the periods presented. Year Ended September 30, 2023, Compared to Year Ended September 30, 2022. Years Ended September 30, Description 2023 2022 Change ($ in thousands) Net (loss) income $ (39,111) $ 152,611 $ (191,722) Interest expense – other 34,557 13,201 21,356 Income tax (benefit) expense (3,412) 43,225 (46,637) Depreciation and amortization 26,788 16,297 10,491 Change in fair value of contingent consideration (1,604) 10,380 (11,984) Transaction costs 1,839 7,724 (5,885) Loss on extinguishment of debt — 356 (356) Loss on impairment 147,402 — 147,402 Other expense (income), net 953 3,793 (2,840) Adjusted EBITDA $ 167,412 $ 247,587 $ (80,175) Adjusted EBITDA was $167.4 million for the year ended September 30, 2023 compared to $247.6 million for the year ended September 30, 2022. The decrease in Adjusted EBITDA resulted from the decrease in gross profit, the increase in selling, general and administrative expenses and the increase in interest expense - floor plan for the year ended September 30, 2023 as compared to the year ended September 30, 2022. 59 Table of Contents Year Ended September 30, 2022, Compared to Year Ended September 30, 2021. Years Ended September 30, Description 2022 2021 Change ($ in thousands) Net income $ 152,611 $ 116,413 $ 36,198 Interest expense – other 13,201 4,344 8,857 Income tax expense 43,225 25,802 17,423 Depreciation and amortization 16,297 5,411 10,886 Change in fair value of contingent consideration 10,380 3,249 7,131 Transaction costs 7,724 869 6,855 Loss on extinguishment of debt 356 — 356 Other expense (income), net 3,793 (248) 4,041 Adjusted EBITDA $ 247,587 $ 155,840 $ 91,747 Adjusted EBITDA was $247.6 million for the year ended September 30, 2022 compared to $155.8 million for the year ended September 30, 2021. The increase in Adjusted EBITDA resulted from our 11.9% increase in Dealership same-store sales growth for the year ended September 30, 2022 as compared to the year ended September 30, 2021, combined with the results of the 2022 Acquisitions and our ability to increase gross profit margins and control selling, general and administrative expenses. Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share We view Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share as important indicators of performance. We define Adjusted Net Income Attributable to OneWater Marine Inc. as net income (loss) attributable to OneWater Marine Inc. before transaction costs, intangible amortization, change in fair value of contingent consideration, loss on impairment and other expense (income), all of which are then adjusted for an allocation to the non-controlling interest of OneWater Marine Holdings, LLC. Each of these adjustments are subsequently adjusted for income tax at an estimated effective tax rate. Management also reports adjusted diluted earnings per share which presents all of the adjustments to net income attributable to OneWater Marine Inc. noted above on a per share basis. Our Board of Directors, management team and lenders use Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share 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 unusual or one time charges and other items (such as the change in fair value of contingent consideration, intangible amortization, loss on impairment and transaction costs) that impact the comparability of financial results from period to period. We present Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures 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) attributable to OneWater Marine Inc. is the GAAP measure most directly comparable to Adjusted Net Income Attributable to OneWater Marine Inc. and Net (loss) earnings per share of Class A common stock - diluted is the GAAP measure most directly comparable to Adjusted Diluted Earnings Per Share. Our non-GAAP financial measures 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 Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share, 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 Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share 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 Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share in the future, and any such modification may be material. Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share have important limitations as analytical tools and you should not consider Adjusted Net Income Attributable to OneWater Marine Inc. or Adjusted Diluted Earnings Per Share in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. 60 Table of Contents The following tables present a reconciliation of Adjusted Net Income Attributable to OneWater Marine Inc. to our net (loss) income attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share to our net (loss) earnings per share of Class A common stock - diluted, which are the most directly comparable GAAP measures for the periods presented. Year Ended September 30, 2023, Compared to Year Ended September 30, 2022. Years Ended September 30, Description 2023 2022 Change ($ in thousands) Net (loss) income attributable to OneWater Marine Inc. $ (38,592) $ 130,944 $ (169,536) Transaction costs 1,839 7,724 (5,885) Intangible amortization 13,436 7,515 5,921 Change in fair value of contingent consideration (1,604) 10,380 (11,984) Loss on impairment 147,402 — 147,402 Other expense (income), net 953 3,793 (2,840) Net (loss) income attributable to non-controlling interests of One Water Marine Holdings, LLC (1) (14,744) (2,676) (12,068) Adjustments to income tax (benefit) expense (2) (33,875) (6,149) (27,726) Adjusted net income attributable to OneWater Marine Inc. 74,815 151,531 (76,716) Net (loss) earnings per share of Class A common stock - diluted $ (2.69) $ 9.13 $ (11.82) Transaction costs 0.13 0.54 (0.41) Intangible amortization 0.94 0.52 0.42 Change in fair value of contingent consideration (0.11) 0.72 (0.83) Loss on impairment 10.29 — 10.29 Other expense (income), net 0.07 0.26 (0.19) Net (loss) income attributable to non-controlling interests of One Water Marine Holdings, LLC (1) (1.03) (0.19) (0.84) Adjustments to income tax (benefit) expense (2) (2.36) (0.43) (1.93) Adjustment for dilutive shares (3) (0.14) — (0.14) Adjusted earnings per share of Class A common stock - diluted $ 5.10 $ 10.53 $ (5.43) (1) Represents an allocation of the impact of reconciling items to our non-controlling interest at a rate of 9.1%. (2) Represents an adjustment of all reconciling items at an effective tax rate of 23%. (3) Represents an adjustment for shares that are anti-dilutive for GAAP earnings per share but are dilutive for adjusted earnings per share. Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share were $74.8 million and $5.10, respectively, for the year ended September 30, 2023 compared to $151.5 million and $10.53, respectively, for the year ended September 30, 2022. The decrease in Adjusted Net Income Attributable to OneWater Marine Inc. resulted from the decrease in gross profit, the increase in selling, general and administrative expenses and the increases in interest expense - floor plan and interest expense - other, all partially offset by the decrease in income tax expense for the year ended September 30, 2023, each as compared to the year ended September 30, 2022. The decrease in Adjusted Diluted Earnings Per Share resulted from the decrease in Adjusted Net Income Attributable to OneWater Marine Inc. 61 Table of Contents Year Ended September 30, 2022, Compared to Year Ended September 30, 2021. Years Ended September 30, Description 2022 2021 Change ($ in thousands) Net (loss) income attributable to OneWater Marine Inc. $ 130,944 $ 79,058 $ 51,886 Transaction costs 7,724 869 6,855 Intangible amortization 7,515 — 7,515 Change in fair value of contingent consideration 10,380 3,249 7,131 Other expense (income), net 3,793 (248) 4,041 Net (loss) income attributable to non-controlling interests of One Water Marine Holdings, LLC (1) (2,676) (352) (2,324) Adjustments to income tax (benefit) expense (2) (6,149) (809) (5,340) Adjusted net income attributable to OneWater Marine Inc. 151,531 81,767 69,764 Net (loss) earnings per share of Class A common stock - diluted $ 9.13 $ 6.96 $ 2.17 Transaction costs 0.54 0.08 0.46 Intangible amortization 0.52 — 0.52 Change in fair value of contingent consideration 0.72 0.29 0.43 Other expense (income), net 0.26 (0.02) 0.28 Net (loss) income attributable to non-controlling interests of One Water Marine Holdings, LLC (1) (0.19) (0.03) (0.16) Adjustments to income tax (benefit) expense (2) (0.43) (0.07) (0.36) Adjusted earnings per share of Class A common stock - diluted $ 10.55 $ 7.21 $ 3.34 (1) Represents an allocation of the impact of reconciling items to our non-controlling interest at a rate of 9.1%. (2) Represents an adjustment of all reconciling items at an effective tax rate of 23%. Adjusted Net Income Attributable to OneWater Marine Inc. and Adjusted Diluted Earnings Per Share were $151.5 million and $10.55, respectively, for the year ended September 30, 2022 compared to $81.8 million and $7.21, respectively, for the year ended September 30, 2021. The increase in Adjusted Net Income Attributable to OneWater Marine Inc. resulted from our 11.9% increase in Dealership same-store sales growth for the year ended September 30, 2022, as compared to the year ended September 30, 2021, combined with the results of the 2022 Acquisitions and our ability to increase gross profit margins and control selling, general and administrative expenses. The increase in Adjusted Diluted Earnings Per Share resulted from the increase in Adjusted Net Income Attributable to OneWater Marine Inc., partially offset by the increase in the diluted weighted-average shares of Class A common stock outstanding. Seasonality Our business, along with the entire boating industry, is highly seasonal, and such seasonality varies by geographic market. With the exception of Florida, we generally realize significantly lower sales and higher levels of inventories, and related floor plan borrowings, in the quarterly periods ending December 31 and March 31. Revenue generated from our dealerships 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 a global pandemic, our seasonal trends may also change as a result of, among other things, location 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.” 62 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 A&R 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 A&R 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—A&R 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 A&R 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. 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 public or private issuances of debt or equity to fund our current operations, to make share repurchases and to fund essential capital expenditures and acquisitions for the next twelve months and beyond. Cash needs for acquisitions have historically been financed with our Credit Facilities and cash generated from operations. Our ability to utilize the A&R Credit Facility to fund acquisitions depends upon Adjusted EBITDA and compliance with covenants of the A&R 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, 2023, we were in compliance with all covenants under the A&R Credit Facility and the Seventh Inventory Financing Facility. Cash Flows Analysis of Cash Flow Changes Between the Year Ended September 30, 2023 and 2022 The following table summarizes our cash flows for the periods indicated: Year Ended September 30, Description 2023 2022 Change ($ in thousands, unaudited) Net cash (used in) provided by operating activities $ (129,760) $ 7,447 $ (137,207) Net cash used in investing activities (51,601) (476,844) 425,243 Net cash provided by financing activities 213,715 456,403 (242,688) Effect of exchange rate changes on cash and restricted cash 9 (8) 17 Net change in cash $ 32,363 $ (13,002) $ 45,365 Operating Activities . Net cash used in operating activities was $129.8 million for the year ended September 30, 2023 compared to net cash provided by operating activities of $7.4 million for the year ended September 30, 2022. The $137.2 million increase in cash used in operating activities was primarily attributable to a $191.7 million decrease in net income in addition to a $65.1 million increase in the change in inventory, partially offset by a $147.4 million increase in loss on impairment for the year ended September 30, 2023 as compared to the year ended September 30, 2022. Investing Activities . Net cash used in investing activities was $51.6 million for the year ended September 30, 2023 compared to $476.8 million for the year ended September 30, 2022. The $425.2 million decrease in cash used in investing activities was primarily attributable to a $430.7 million decrease in cash used in acquisitions for the year ended September 30, 2023 as compared to the year ended September 30, 2022. Financing Activities . Net cash provided by financing activities was $213.7 million for the year ended September 30, 2023 compared to net cash provided by financing activities of $456.4 million for the year ended September 30, 2022. The $242.7 million decrease in cash provided by financing activities was primarily attributable to a $382.5 million decrease in proceeds of long term debt, partially offset by a $66.8 million increase in net borrowing from our Inventory Financing Facility and a $69.7 million decrease in payments on long-term debt for the year ended September 30, 2023 as compared to the year ended September 30, 2022. 63 Table of Contents Analysis of Cash Flow Changes Between the Year Ended September 30, 2022 and 2021 The following table summarizes our cash flows for the periods indicated: Year Ended September 30, Description 2022 2021 Change ($ in thousands, unaudited) Net cash provided by operating activities $ 7,447 $ 159,423 $ (151,976) Net cash used in investing activities (476,844) (117,130) (359,714) Net cash provided by (used in) financing activities 456,403 (36,497) 492,900 Effect of exchange rate changes on cash and restricted cash (8) — $ (8) Net change in cash $ (13,002) $ 5,796 $ (18,798) Operating Activities . Net cash provided by operating activities was $7.4 million for the year ended September 30, 2022 compared to net cash provided by operating activities of $159.4 million for the year ended September 30, 2021. The $152.0 million decrease in cash provided by operating activities was primarily attributable to a $192.5 million increase in the change in inventory, partially offset by a $36.2 million increase in net income for the year ended September 30, 2022 as compared to the year ended September 30, 2021. Investing Activities . Net cash used in investing activities was $476.8 million for the year ended September 30, 2022 compared to $117.1 million for the year ended September 30, 2021. The $359.7 million increase in cash used in investing activities was primarily attributable to a $352.1 million increase in cash used in acquisitions for the year ended September 30, 2022 as compared to the year ended September 30, 2021. Financing Activities . Net cash provided by financing activities was $456.4 million for the year ended September 30, 2022 compared to net cash used in financing activities of $36.5 million for the year ended September 30, 2021. The $492.9 million increase in cash provided by financing activities was primarily attributable to a $176.4 million increase in net borrowings on our Inventory Financing Facility and a $382.5 million increase in proceeds on long-term debt, partially offset by $79.2 million increase in payments on long-term debt for the year ended September 30, 2022 as compared to the year ended September 30, 2021. Share Repurchase Program On March 30, 2022, the Board of Directors authorized a share repurchase program of up to $50 million of outstanding shares of Class A common stock. Repurchases under the share repurchase program may be made at any time or from time to time, without prior notice, in the open market or in privately negotiated transactions at prevailing market prices, or such other means as will comply with applicable state and federal securities laws and regulations, including the provisions of the Securities Exchange Act of 1934, including Rule 10b5-1 and, to the extent practicable or advisable, Rule 10b-18 thereunder, and consistent with the Company’s contractual limitations and other requirements. For the fiscal year ended September 30, 2023, the Company repurchased 63,353 shares at an average price of $24.91 per share. The Company has $48.1 million remaining under the share repurchase program. The Inflation Reduction Act, which was signed into law in August 2022, imposes a 1%, non-deductible excise tax on certain repurchases of common stock that occur after December 31, 2022. We do not expect the tax to have a material effect on our business. Debt Agreements A&R Credit Facility On August 9, 2022 we entered into the Amended and Restated Credit Agreement (the “A&R Credit Facility”), with certain of our subsidiaries, Truist Bank and the other lenders party thereto. The A&R Credit Facility amends and restates and replaces in its entirety the Credit Facility. The A&R Credit Facility provides for, among other things, (i) a $65.0 million revolving credit facility (including up to $5.0 million in swingline loans and up to $5.0 million in letters of credit from time to time) and (ii) a $445.0 million term loan facility. Subject to certain conditions, the available amount under the Term Facility and the Revolving Facility may be increased by $125.0 million plus additional amounts subject to additional conditions (including satisfaction of a consolidated leverage ratio requirement) in the aggregate (with up to $50.0 million allocable to the Revolving Facility). The Revolving Facility matures on August 9, 2027. The Term Facility is repayable in installments beginning on December 31, 2022, with the remainder due on the earlier of (i) August 9, 2027 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 A&R Credit Facility. 64 Table of Contents Borrowings under the A&R Credit Facility bear interest, at our 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) Term SOFR (as defined in the A&R Credit Facility) for a one-month Interest Period (calculated on a daily basis after taking into account a floor equal to 0.00%) plus 1.00%, and (iv) 1.00%, in each case, plus an applicable margin ranging from 0.75% to 1.75%, or (b) Term SOFR, plus an applicable margin ranging from 0.75% to 1.75%. Interest on swingline loans shall bear interest at the Base Rate plus an applicable margin ranging from 1.75% to 2.75%. All applicable interest margins are based on certain consolidated leverage ratio measures. The A&R Credit Facility is subject to certain financial covenants including the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The A&R Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of the Loan Parties (as defined in the A&R Credit Facility) to incur additional debt, transfer or dispose of all of their respective assets, make certain investments, loans or restricted payments and engage in certain transactions with affiliates. The A&R Credit Facility also includes events of default, borrowing conditions, representations and warranties and provisions regarding indemnification and expense reimbursement. The Company was in compliance with all covenants as of September 30, 2023. Inventory Financing Facility On November 14, 2023, the Company entered into the Eighth Amended and Restated Inventory Financing Agreement (as amended, restated, supplemented or otherwise modified, the “Inventory Financing Facility”), which amended and restated the Seventh Amended and Restated Inventory Financing Agreement (the "Seventh Inventory Financing Facility") on substantially similar terms to, among other things, increase the maximum borrowing amount available to $650.0 million. Loans under the Inventory Financing Facility may be extended from time to time to enable the Company to purchase inventory from certain manufacturers. The Inventory Financing Facility expires on March 1, 2026. The Company had previously entered into the Seventh Inventory Financing Facility on December 29, 2021, which provided for a maximum borrowing amount of $500.0 million, and which was further amended on February 24, 2022, April 1, 2022, August 9, 2022, and February 14, 2023 by the First, Second, Third and Fourth Amendments to the Seventh Inventory Financing Facility, respectively. Such amendments joined various subsidiaries of the Company to the Seventh Inventory Financing Facility in connection with certain acquisitions made by the Company, increased the Funded Debt to EBIDTA Ratio (as defined in the Inventory Financing Facility), and increased the maximum borrowing amount available under the Seventh Inventory Financing Facility to $550.0 million. Under the Inventory Financing Facility, interest on new boats and for rental units is calculated using the Adjusted 30-Day Average SOFR plus an applicable margin of 2.75% to 5.00% depending on the age of the inventory. Interest on pre-owned boats is calculated at the new boat rate plus 0.25%. Loans are 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 are set forth in separate program terms letters that are entered into from time to time. The collateral for the Inventory Financing Facility consists primarily of our inventory that was financed through the Inventory Financing Facility and related assets, including accounts receivable, bank accounts, and proceeds of the foregoing, and excludes the collateral that secures the A&R Credit Facility. We are required to comply with certain financial and non-financial covenants under the Inventory Financing Facility, including certain provisions related to the Funded Debt to EBITDA Ratio, and the Fixed Charge Coverage Ratio (as defined in the Inventory Financing Facility). We are also subject to additional restrictive covenants, including restrictions on our ability to (i) use, sell, rent or otherwise dispose of any collateral securing 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 interests 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 marine retailers (ix) make any change in any of our marine retailers’ capital structure or in any of their business objectives or operations which might in any way adversely affect the ability of such marine retailer 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 certain of its subsidiaries are restricted from, among other things, making cash dividends or distributions without the prior written consent of Wells Fargo. 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, may make distributions to the Company for repurchases of the Company's common stock subject to certain financial ratios, 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 President and Chief Operating Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory Financing Facility. 65 Table of Contents As of September 30, 2023 and September 30, 2022, our indebtedness associated with financing our inventory under the Seventh Inventory Financing Facility totaled $489.0 million and $267.1 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, 2023 and September 30, 2022, the effective interest rate on the outstanding short-term borrowings under the Inventory Financing Facility was 5.7% and 2.2%, respectively. As of September 30, 2023 and September 30, 2022, our additional available borrowings under our Inventory Financing Facility were $61.0 million and $232.9 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, 2023, 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, 2023 , our indebtedness associated with our 2 acquisition notes payable totaled an aggregate of $3.2 million with a weighted average interest rate of 5.0% per annum. As of September 30, 2023 , the principal amount outstanding under these acquisition notes payable ranged from $1.1 million to $2.1 million, and the maturity dates ranged from December 1, 2023 to December 1, 2024. Commercial Vehicles Notes Payable . Since 2015, we have entered into multiple notes payable with various commercial lenders in connection with our acquisition of certain vehicles utilized in our retail operations. Such notes bear interest ranging from 0.0% to 10.8% per annum, require monthly payments of approximately $122,000, and mature on dates between November 2023 to September 2028. As of September 30, 2023 , we had $3.6 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, 2023 . Payments Due by Period Less than 1 year 1 – 3 years 3 – 5 years More than 5 years Total (in thousands) A&R Credit Facility(1) $ 27,813 $ 77,875 $ 352,625 $ — $ 458,313 Seventh Inventory Financing Facility(2) 489,024 — — — 489,024 Notes Payable(3) 3,411 3,077 339 — 6,827 Estimated interest payments(4) 33,665 59,495 23,233 — 116,393 Operating lease obligations(5) 20,898 38,802 34,496 84,388 178,584 Total $ 574,811 $ 179,249 $ 410,693 $ 84,388 $ 1,249,141 __________________________________ (1) Payments are generally made as required pursuant to the A&R Credit Facility discussed above under “—Debt Agreements—A&R 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 A&R 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 each TRA Holder 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 net cash savings. 66 Table of Contents As of September 30, 2023 and September 30, 2022, our liability under the Tax Receivable Agreement was $43.1 million and $46.4 million, respectively. 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 TRA Holders, including OneWater Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to make payments under the Tax Receivable Agreement. We generally expect OneWater LLC to fund such distributions out of available cash. However, except in cases where OneWater Inc. elects to terminate the Tax Receivable Agreement early, the Tax Receivable Agreement is terminated early due to certain mergers or other changes of control or OneWater Inc. has available cash but fails to make payments when due, generally OneWater Inc. may elect to defer payments due under the Tax Receivable Agreement if it does not have available cash to satisfy its payment obligations under the Tax Receivable Agreement or if its contractual obligations limit its ability to make these payments. Any such deferred payments under the Tax Receivable Agreement generally will accrue interest. In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, OneWater Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement. In the case of such an acceleration, where applicable, we generally expect the accelerated payments due under the Tax Receivable Agreement to be funded out of the proceeds of the change of control transaction giving rise to such acceleration. OneWater Inc. intends to account for any amounts payable under the Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies. Off Balance Sheet Arrangements We have no material off balance sheet arrangements, except for operating leases and purchase commitments under supply agreements entered into in the normal course of business. Recent Accounting Pronouncements See Note 3 of the Notes to the Consolidated Financial Statements.