OneWater Marine Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO FINANCIAL STATEMENTS OneWater Marine Inc. Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) 70 Consolidated Balance Sheets as of September 30, 2024 and 2023 71 Consolidated Statements of Operations for the Years Ended September 30, 2024, 2023, and 2022 72 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2024, 2023, and 2022 73 Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2024, 2023, and 2022 74 Consolidated Statements of Cash Flows for the Years Ended September 30, 2024, 2023 and 2022 75 Notes to the Consolidated Financial Statements 76 69 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders OneWater Marine Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of OneWater Marine Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated December 10, 2024 expressed an unqualified opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2017. Atlanta, Georgia December 10, 2024 70 Table of Contents ONEWATER MARINE INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) September 30, 2024 September 30, 2023 ASSETS CURRENT ASSETS: Cash $ 16,849 $ 84,648 Restricted cash 10,488 8,662 Accounts receivable, net 73,269 113,175 Inventories 590,838 609,616 Prepaid expenses and other current assets 85,922 65,798 Total current assets 777,366 881,899 Property and equipment, net 93,224 81,532 Operating lease right-of-use assets 138,829 135,667 Other long-term assets 1,299 6,069 Deferred tax assets, net 37,278 35,066 Intangible assets, net 205,391 212,324 Goodwill 336,602 336,602 Total assets $ 1,589,989 $ 1,689,159 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 32,106 $ 27,113 Other payables and accrued expenses 42,116 54,826 Customer deposits 63,955 51,649 Notes payable – floor plan 443,386 489,024 Current portion of operating lease liabilities 15,704 14,568 Current portion of long-term debt, net 7,874 29,324 Current portion of tax receivable agreement liability 2,578 2,447 Total current liabilities 607,719 668,951 Other long-term liabilities 12,563 13,693 Tax receivable agreement liability 38,019 40,688 Long-term operating lease liabilities 126,001 123,310 Long-term debt, net 414,934 428,439 Total liabilities 1,199,236 1,275,081 COMMITMENTS AND CONTINGENCIES (Note 18) STOCKHOLDERS' EQUITY Preferred stock, $ 0.01 par value, 1,000,000 shares authorized, none issued and outstanding as of September 30, 2024 and September 30, 2023 — — Class A common stock, $ 0.01 par value, 40,000,000 shares authorized, 14,686,696 and 14,420,129 shares issued and outstanding as of September 30, 2024 and September 30, 2023, respectively 147 144 Class B common stock, $ 0.01 par value, 10,000,000 shares authorized, 1,429,940 shares issued and outstanding as of September 30, 2024 and September 30, 2023 14 14 Additional paid-in capital 202,921 193,018 Retained earnings 159,625 165,432 Accumulated other comprehensive (loss) income ( 1,897 ) 1 Total stockholders’ equity attributable to OneWater Marine Inc. 360,810 358,609 Equity attributable to non-controlling interests 29,943 55,469 Total stockholders’ equity 390,753 414,078 Total liabilities and stockholders’ equity $ 1,589,989 $ 1,689,159 71 Table of Contents ONEWATER MARINE INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) For the Years Ended September 30, 2024 2023 2022 Revenues: New boat $ 1,118,292 $ 1,223,691 $ 1,139,331 Pre-owned boat 312,193 334,477 294,832 Finance & insurance income 51,494 56,325 55,977 Service, parts & other 290,651 321,817 254,682 Total revenues 1,772,630 1,936,310 1,744,822 Cost of sales: New boat 921,406 955,222 834,026 Pre-owned boat 248,068 258,524 213,167 Service, parts & other 168,093 187,438 143,974 Total cost of sales 1,337,567 1,401,184 1,191,167 Selling, general and administrative expenses 332,680 345,524 302,113 Depreciation and amortization 19,401 23,898 15,605 Transaction costs 1,530 1,839 7,724 Change in fair value of contingent consideration 4,248 ( 1,604 ) 10,380 Restructuring and impairment 12,386 147,402 — Income from operations 64,818 18,067 217,833 Other expense (income): Interest expense – floor plan 34,087 25,080 4,647 Interest expense – other 37,050 34,557 13,201 Loss on extinguishment of debt — — 356 Other expense, net 14 953 3,793 Total other expense, net 71,151 60,590 21,997 Net (loss) income before income tax (benefit) expense ( 6,333 ) ( 42,523 ) 195,836 Income tax (benefit) expense ( 157 ) ( 3,412 ) 43,225 Net (loss) income ( 6,176 ) ( 39,111 ) 152,611 Net (income) attributable to non-controlling interests ( 119 ) ( 3,810 ) ( 2,998 ) Net loss (income) attributable to non-controlling interests of One Water Marine Holdings, LLC 590 4,329 ( 18,669 ) Net (loss) income attributable to OneWater Marine Inc. $ ( 5,705 ) $ ( 38,592 ) $ 130,944 Net (loss) earnings per share of Class A common stock – basic $ ( 0.39 ) $ ( 2.69 ) $ 9.44 Net (loss) earnings per share of Class A common stock – diluted $ ( 0.39 ) $ ( 2.69 ) $ 9.13 Basic weighted-average shares of Class A common stock outstanding 14,585 14,328 13,877 Diluted weighted-average shares of Class A common stock outstanding 14,585 14,328 14,337 72 Table of Contents ONEWATER MARINE INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) For the Years Ended September 30, 2024 2023 2022 Net (loss) income $ ( 6,176 ) $ ( 39,111 ) $ 152,611 Other comprehensive income (loss): Foreign currency translation adjustment ( 18 ) 9 ( 8 ) Change in fair value of interest rate swaps ( 2,066 ) — — Comprehensive (loss) income ( 8,260 ) ( 39,102 ) 152,603 Net (income) attributable to non-controlling interests ( 119 ) ( 3,810 ) ( 2,998 ) Net loss (income) attributable to non-controlling interests of One Water Marine Holdings, LLC 590 4,329 ( 18,669 ) Foreign currency translation adjustment attributable to non-controlling interest of One Water Marine Holdings, LLC 2 ( 1 ) 1 Change in fair value of interest rate swaps attributable to non-controlling interest of One Water Marine Holdings, LLC 184 — — Comprehensive (loss) income attributable to OneWater Marine, Inc. $ ( 7,603 ) $ ( 38,584 ) $ 130,937 73 Table of Contents ONEWATER MARINE INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Class A Common Stock Class B Common Stock Shares Amount Shares Amount Additional Paid-in Capital Retained Earnings Non- controlling Interest Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at September 30, 2021 13,277 $ 133 1,819 $ 18 $ 150,825 $ 74,952 $ 28,905 $ — $ 254,833 Net income — — — — — 130,944 21,667 — 152,611 Distributions to members — — — — — ( 784 ) ( 3,497 ) — ( 4,281 ) Exchange of B shares for A shares 389 4 ( 389 ) ( 4 ) 6,833 — ( 6,833 ) — — Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increase in tax basis — — — — ( 247 ) — — — ( 247 ) Shares issued upon vesting of equity-based awards, net of tax withholding 169 1 — — ( 1,629 ) — — — ( 1,628 ) Shares issued in connection with business combinations 387 4 — — 14,623 — — — 14,627 Non-controlling interest in subsidiary — — — — — — 19,311 19,311 Equity-based compensation — — — — 10,013 — — 10,013 Repurchase and retirement of Class A common stock ( 10 ) — — — ( 122 ) ( 232 ) — — ( 354 ) Currency translation adjustment — — — — — — ( 1 ) ( 7 ) ( 8 ) Balance at September 30, 2022 14,212 142 1,430 14 180,296 204,880 59,552 ( 7 ) 444,877 Net loss — — — — — ( 38,592 ) ( 519 ) — ( 39,111 ) Distributions to members — — — — — ( 38 ) ( 3,565 ) — ( 3,603 ) Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increase in tax basis — — — — 4,402 — — — 4,402 Shares issued upon vesting of equity-based awards, net of tax withholding 186 2 — — ( 1,973 ) — — — ( 1,971 ) Shares issued as part of employee stock purchase plan 86 1 — — 2,091 — — — 2,092 Equity-based compensation — — — — 8,962 — — — 8,962 Repurchase and retirement of Class A common stock ( 64 ) ( 1 ) — — ( 760 ) ( 818 ) — — ( 1,579 ) Currency translation adjustment — — — — — — 1 8 9 Balance at September 30, 2023 14,420 144 1,430 14 193,018 165,432 55,469 1 414,078 Net loss — — — — — ( 5,705 ) ( 471 ) — ( 6,176 ) Distributions to members — — — — — ( 102 ) ( 5,313 ) — ( 5,415 ) Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increase in tax basis — — — — 1,868 — — — 1,868 Shares issued upon vesting of equity-based awards, net of tax withholding 208 2 — — ( 2,643 ) — — — ( 2,641 ) Shares issued as part of employee stock purchase plan 59 1 — — 1,519 — — — 1,520 Equity-based compensation — — — — 8,443 — — — 8,443 Purchase of non-controlling interest — — — — 716 — ( 19,556 ) — ( 18,840 ) Currency translation adjustment — — — — — — ( 2 ) ( 16 ) ( 18 ) Change in fair value of cash flow swaps — — — — — — ( 184 ) ( 1,882 ) ( 2,066 ) Balance at September 30, 2024 14,687 $ 147 1,430 $ 14 $ 202,921 $ 159,625 $ 29,943 $ ( 1,897 ) $ 390,753 74 Table of Contents ONEWATER MARINE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended September 30, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 6,176 ) $ ( 39,111 ) $ 152,611 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 22,187 26,789 16,296 Equity-based compensation 8,443 8,962 10,013 Loss (gain) on asset disposals 36 221 ( 135 ) Loss on disposal of a business — 750 — Loss on restructuring and impairment 539 147,402 — Loss on extinguishment of debt — — 356 Non-cash interest expense 2,099 10,129 3,250 Deferred income tax provision ( 334 ) ( 23,030 ) 5,741 Change in fair value of contingent consideration 1,763 ( 1,604 ) 10,380 Loss on equity investment 198 446 1,228 (Increase) decrease in assets: Accounts receivable ( 1,477 ) ( 10,051 ) ( 3,711 ) Inventories 24,636 ( 232,285 ) ( 167,183 ) Prepaid expenses and other current assets ( 17,939 ) 10,308 ( 34,357 ) Other assets 4,574 ( 3,188 ) ( 1,940 ) Increase (decrease) in liabilities: Accounts payable 233 197 6,424 Other payables and accrued expenses ( 13,381 ) ( 7,643 ) 4,140 Tax receivable agreement liability ( 2,602 ) ( 3,227 ) ( 67 ) Customer deposits 12,040 ( 14,825 ) 4,401 Net cash provided by (used in) operating activities 34,839 ( 129,760 ) 7,447 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment and construction in progress ( 25,918 ) ( 21,251 ) ( 11,403 ) Proceeds from disposal of property and equipment 757 567 345 Purchases of equity investments — — ( 2,000 ) Cash used for additions to intangible assets ( 909 ) ( 2,823 ) ( 4,246 ) Cash used in acquisitions, net of cash acquired ( 5,712 ) ( 28,882 ) ( 459,540 ) Proceeds from disposal of a business 45,100 788 — Net cash provided by (used in) investing activities 13,318 ( 51,601 ) ( 476,844 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) borrowings from floor plan ( 45,638 ) 219,688 152,874 Proceeds from long-term debt 43,392 30,000 412,492 Payments on long-term debt ( 78,381 ) ( 18,338 ) ( 88,033 ) Payments of debt issuance costs ( 2,221 ) — ( 9,095 ) Payments of contingent consideration ( 5,888 ) ( 12,574 ) ( 371 ) Proceeds from issuance of Class A common stock as part of employee stock purchase plan 1,520 2,092 — Payments of tax withholdings for equity-based awards ( 2,641 ) ( 1,971 ) ( 1,628 ) Distributions to members ( 5,415 ) ( 3,603 ) ( 9,482 ) Purchase of non-controlling interest ( 18,840 ) — — Repurchase and retirement of Class A common stock — ( 1,579 ) ( 354 ) Net cash (used in) provided by financing activities ( 114,112 ) 213,715 456,403 Effects of exchange rate changes on cash and restricted cash ( 18 ) 9 ( 8 ) Net change in cash and restricted cash ( 65,973 ) 32,363 ( 13,002 ) Cash and restricted cash at beginning of period 93,310 60,947 73,949 Cash and restricted cash at end of period $ 27,337 $ 93,310 $ 60,947 Supplemental cash flow disclosures Cash paid for interest $ 75,957 $ 49,508 $ 14,598 Cash paid for income taxes 5,495 23,322 35,229 Noncash items Acquisition purchase price funded by seller notes payable $ — $ — $ 1,126 Acquisition purchase price funded by contingent consideration — 2,550 15,321 Acquisition purchase price funded by issuance of Class A common stock — — 14,627 Purchase of property and equipment funded by long-term debt 156 1,122 2,087 Acquisition purchase price funded by affiliate financing — 10,600 — Settlement of affiliate financing with proceeds from sale and leaseback — 10,600 — 75 Table of Contents OneWater Marine Inc. and Subsidiaries Notes to the Consolidated Financial Statements 1. Description of Company and Basis of Presentation Description of the Business OneWater Marine Inc. (“OneWater Inc”) was incorporated in Delaware on April 3, 2019 and was a wholly-owned subsidiary of One Water Marine Holdings, LLC (“OneWater LLC”). Pursuant to a reorganization on February 11, 2020 into a holding company structure for the purpose of facilitating an initial public offering (the “IPO”) and related transactions in order to carry on the business of OneWater LLC and its subsidiaries (together with OneWater Inc, the “Company”), OneWater Inc is the holding company and its sole material asset is the equity interest in OneWater LLC. OneWater LLC was organized as a limited liability company under the law of the State of Delaware in 2014 and is the parent company of One Water Assets & Operations (“OWAO”), and its subsidiaries. The Company is one of the largest recreational marine retailers in the United States. The Company engages primarily in the retail sale, brokerage, and service of new and pre-owned boats, motors, trailers, the sale of marine parts and accessories, and offers slip and storage accommodations in certain locations. The Company also arranges related boat financing, insurance, and extended service contracts for customers with third-party lenders and insurance companies. As of September 30, 2024, the Company operates a total of 96 retail locations, 10 distribution centers/warehouses and multiple online marketplaces in 18 states, several of which are in the top twenty states for marine retail expenditures. Operating results are generally subject to seasonal variations. Demand for products is generally highest during the third and fourth quarters of the fiscal year and, accordingly, revenues are generally expected to be higher during these periods. General economic conditions, including rising interest rates and consumer spending patterns, can negatively impact the Company’s operating results. Unfavorable local, regional, national, or global economic developments, global public health concerns, or uncertainties could reduce consumer spending and adversely affect the Company’s business. Consumer spending on discretionary goods may also decline as a result of lower consumer confidence levels, even if prevailing economic conditions are otherwise favorable. Economic conditions in areas in which the Company operates, particularly in the Southeast, can have a major impact on the Company’s overall results of operations. Local influences such as corporate downsizing, inclement weather such as hurricanes, tornadoes and other storms, environmental conditions, and other events have and could adversely affect the Company’s operations in certain markets and in certain periods. Any extended period of adverse economic conditions or low consumer confidence is likely to have a negative effect on the Company’s business. Sales of new boats from the Company’s top ten brands represent approximately 41.7 %, 39.4 % and 41.8 % of total sales for the years ended September 30, 2024, 2023 and 2022, respectively, making them major suppliers of the Company. Of this amount, Malibu Boats, Inc, including its brands Malibu, Axis, Cobalt, Pursuit, Maverick, Hewes, Cobia and Pathfinder accounted for 13.1 %, 13.9 % and 15.6 % of our consolidated revenue for the years ended September 30, 2024, 2023 and 2022, respectively. As is typical in the industry, the Company contracts with most manufacturers under renewable annual dealer agreements, each of which provides the right to sell various makes and models of boats within a given geographic region. Any change or termination of these agreements, or the agreements discussed above, for any reason, or changes in competitive, regulatory, or marketing practices, including rebate or incentive programs, could adversely affect results of operations. Pre-owned boats are usually trade-ins from retail customers who are purchasing a boat from the Company. Principles of Consolidation As the sole managing member of OneWater LLC, OneWater Inc. operates and controls all of the businesses and affairs of OneWater LLC. Through OneWater LLC and its wholly-owned subsidiaries, as well as majority-owned subsidiaries over which the Company exercises control, OneWater Inc. conducts its business. As a result, OneWater Inc consolidates the financial results of OneWater LLC and its subsidiaries and reports non-controlling interests related to the portion of units of OneWater LLC (the “OneWater LLC Units”) not owned by OneWater Inc, which will reduce net (loss) income attributable to OneWater Inc’s Class A stockholders. As of September 30, 2024, OneWater Inc owned 91.1 % of the economic interest of OneWater LLC. Commencing December 31, 2021, the Company owned 80 % of the economic interest of Quality Assets and Operations, LLC, over which the Company exercised control and the minority interest in this subsidiary was recorded accordingly. On October 31, 2023, the Company acquired the remaining 20 % of the economic interest and, as a result, as of September 30, 2024 owned 100 % of Quality Assets and Operations, LLC. See Note 4 for additional information regarding the acquisition. Basis of Financial Statement Preparation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All adjustments, consisting of only normal recurring adjustments considered by management to be necessary for fair presentation, have been reflected in these consolidated financial statements. 76 Table of Contents All intercompany transactions have been eliminated in consolidation. The Company operates on a fiscal year basis with the first day of the fiscal year being October 1, and the last day of the fiscal year ending on September 30. 2. Summary of Significant Accounting Policies Cash At times the amount of cash on deposit may exceed the federally insured limit of the bank. Deposit accounts at each of the institutions are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). At September 30, 2024 and 2023, the Company exceeded FDIC limits at various institutions. The Company has not experienced any losses in such accounts and believes there is little to no exposure to any significant credit risk. Total cash and restricted cash shown in the consolidated statements of cash flows is comprised of the amounts reported in cash and restricted cash on the consolidated balance sheets. Restricted Cash Restricted cash relates to amounts collected for brokerage sales, in certain states, which are held in escrow on behalf of the respective buyers and sellers for future purchases of boats. Inventories Inventories are stated at the lower of cost or net realizable value. The cost of inventories consist of amounts paid to acquire the inventory, net of vendor consideration received and purchase discounts, and varying by inventory type, may include the cost of reconditioning, equipment addition, transportation, material, labor and manufacturing overhead. The cost of the new and pre-owned boat inventory is determined using the specific identification method. In assessing lower of cost or net realizable value, the Company considers the aging of the boats, historical sales of a brand and current market conditions. The cost of acquired, manufactured and assembled parts and accessories is determined using methods which vary by subsidiary and include the average cost method, standard costs approximating average costs, and first-in, first-out (“FIFO”). Vendor Consideration Received Consideration received from vendors is accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 330, ‘‘Inventory’’ (‘‘ASC 330’’). Pursuant to ASC 330, manufacturer incentives based upon cumulative volume of sales and purchases are recorded as a reduction of inventory cost and related cost of sales when the amounts are probable and reasonably estimable. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives. Leasehold improvements are amortized over the shorter of the lease period or the estimated useful lives. The estimated useful lives of assets are as follows: Years Company vehicles 5 Buildings and improvements 10 - 39 Machinery and equipment 5 - 7 Office equipment 5 - 7 Expenditures for major improvements that extend the useful life of assets are capitalized. Minor replacements, maintenance and repairs which do not extend the useful life of an asset are expensed as incurred. The carrying value of property and equipment and other long-term assets (other than goodwill and indefinite life intangible assets) is evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If such an indication is present, the carrying amount of the asset is compared to the estimated undiscounted cash flows related to that asset. The Company would conclude that an asset may be impaired if the sum of such undiscounted expected future cash flows is less than the carrying amount of the related asset. If an asset is impaired, the impairment loss would be the amount by which the carrying amount of the related asset exceeds its fair value. We did not record an impairment of our property and equipment in fiscal years 2024, 2023 or 2022. Goodwill and Other Identifiable Intangible Assets Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Other identifiable intangible assets primarily consist of trade names, developed technologies, including design libraries, and customer relationships related to the acquisitions the Company has 77 Table of Contents completed. The Company has determined that trade names have an indefinite life, as there are no economic, contractual or other factors that limit their useful lives and they are expected to generate value as long as the trade name is utilized by the Company, and therefore, are not subject to amortization. Developed technologies and customer relationships are amortized over their estimated useful lives of ten years . Goodwill and indefinite-lived intangible assets are accounted for in accordance with FASB ASC 350, ‘‘ Intangibles - Goodwill and Other ’’ (‘‘ASC 350’’), which provides that the excess of cost over the fair value of the net assets of businesses acquired, including other identifiable intangible assets, is recorded as goodwill. In accordance with ASC 350, Goodwill is tested for impairment at least annually, or more frequently when events or circumstances indicate that impairment might have occurred. ASC 350 also states for annual impairment tests that if an entity determines, based on an assessment of certain qualitative factors, that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then a quantitative goodwill impairment test is unnecessary. The Company performs its annual test in the fiscal fourth quarter. In evaluating goodwill for impairment, if the fair value of a reporting unit is less than its carrying value, the difference would represent the amount of required goodwill impairment. The Company calculates the fair value of its reporting units by considering both the income and market approach. The income approach calculates the fair value of the reporting unit using a discounted cash flow method. Fair value under the market approach is determined for each unit by applying market multiples for comparable public companies to the unit's financial results. The Company elected a qualitative assessment for our fiscal fourth quarter 2024 goodwill impairment testing and determined that it was more likely than not that the fair value of the reporting units were greater than their carrying amounts, and as a result, no impairment for goodwill was required for the year then ended. During the year ended September 30, 2023, the Company determined that there were circumstances that indicated impairment may have occurred, including a drop in the Company's market capitalization and declining margins, and performed a quantitative goodwill impairment analysis. As a result, the Company recognized a $ 57.7 million impairment for goodwill for the year then ended. See Note 8 for more information about the impairment of goodwill. In accordance with ASC 350, the Company first performs an annual qualitative impairment assessment for indefinite-lived intangible assets to determine if it is more likely than not that the fair values are greater than their carrying amounts. If it is determined that it is more likely than not that the fair values of the indefinite-lived intangible assets are less than their respective carrying amounts, the Company then performs a quantitative impairment analysis by comparing the carrying amount of the indefinite-lived intangible assets to the fair values. To determine the fair value of the indefinite-lived intangible assets, the Company uses a relief from royalty method for trade names. The Company elected qualitative assessments for our fiscal fourth quarter 2024 indefinite-lived intangible assets impairment testing and determined that it was more likely than not that the fair values of the Company’s indefinite-lived intangible assets were greater than their carrying amounts, and as a result, no impairment was required for the year then ended. During the year ended September 30, 2023 , the Company performed a quantitative impairment analysis. As a result, the Company recognized a $ 43.0 million impairment for indefinite-lived intangible assets for the year then ended. See Note 8 for more information about the impairment of indefinite-live intangible assets. In accordance with FASB ASC 360-10, "Property, Plant and Equipment – Impairment or Disposal of Long-Lived Assets" (“ASC 360”), the Company assesses the potential for impairment of its definite-lived intangible assets if facts and circumstances, such as declines in sales, earnings, cash flows or adverse changes in the business climate, suggest that they may be impaired. Definite-lived intangible assets include developed technologies and customer relationships which are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Compa ny performs its assessment by comparing the book value of the asset groups to the estimated future undiscounted cash flows associated with the asset groups. If any impairment in the carrying value of its definite-lived intangible assets is indicated, the assets would be adjusted to an estimate of fair value. To determine the fair value of the definite-lived intangible assets, the Company uses a relief from royalty method for developed technology and discounted cash flows method for customer relationships. During the year ended September 30, 2024, the Company evaluated the indicators of potential impairment for definite-lived intangible assets and did not identify any potential triggering events, and as a result, no impairment was required for the year then ended . During the year ended September 30, 2023 , the Company performed a quantitative impairment analysis. As a result, the Company recognized a $ 46.7 million impairment for definite-lived intangible assets for the year then ended. See Note 8 for more information about the impairment of definite-lived intangible assets. Software Development The Company capitalizes cost for software developed or obtained for internal use, including domain names and internally developed software, and amortizes them over their estimated useful life, which is generally three to five years . The Company begins to capitalize costs incurred for computer software during the application development stage, as long as it is probable that the project will be completed and the software will be used for its intended purpose. Capitalization ceases when a software project is substantially complete and ready for its intended use. 78 Table of Contents Cloud Computing Arrangement Implementation Costs The Company capitalizes qualifying implementation costs under cloud computing arrangements (“CCA”). Capitalization ceases once the software is ready for its intended use. Capitalized CCA implementation costs are amortized over the term of the implemented software agreement. Capitalized CCA implementation costs are allocated between prepaid expenses and other current assets and other long-term assets on the accompanying consolidated balance sheets based on the expected amortization to be recognized within one year . Total capitalized CCA implementation costs were $ 1.7 million and $ 5.4 million, as of September 30, 2024 and 2023, respectively, which are a result of various enterprise resource planning ("ERP") software agreements. Accumulated amortization of these CCA implementation costs was $ 0.4 million and $ 0.1 million , as of September 30, 2024 and 2023, respectively. The Company recorded $ 0.3 million and $ 0.1 million of expense during the year ended September 30, 2024 and 2023 , respectively, in selling, general and administrative expenses on the accompanying consolidated statements of operations related to the amortization of CCA implementation costs . The Company recognized a portion of the previously capitalized CCA implementation costs into expense as part of the 2024 Restructuring discussed in Note 16. Sales Tax The Company collects sales tax on all of the Company’s sales to nonexempt customers and remits the entire amount to the states that imposed the sales tax. The Company’s accounting policy is to exclude the tax collected and remitted to the states from revenues and cost of sales. Revenue Recognition Revenue is recognized from the sale of products and commissions earned on new and pre-owned boats (including used, brokerage, consignment and wholesale) when ownership is transferred to the customer, which is generally upon acceptance or delivery to the customer. At the time of acceptance or delivery, the customer is able to direct the use of, and obtain substantially all of the benefits. We are the principal with respect to revenue from new, pre-owned and consignment sales and such revenue is recorded at the gross sales price. With respect to brokerage transactions, we are acting as an agent in the transaction, therefore the fee or commission is recorded on a net basis. Revenue from parts and accessories sold directly to a customer (not on a repair order) are recognized when control of the item is transferred to the customer, which is typically upon shipment. Revenue from parts and service operations (boat maintenance and repairs) is recorded over time as services are performed. Satisfaction of this performance obligation creates an asset with no alternative use for which an enforceable right to payment for performance to date exists within our contractual agreements. Each boat maintenance and repair service is a single performance obligation that includes both the parts and labor associated with the service. Payment for boat maintenance and repairs is typically due upon the completion of the service, which is generally completed within a period of one year or less from contract inception. The Company recorded contract assets in prepaid expenses and other current assets of $ 4.2 million and $ 4.4 million as of September 30, 2024 and 2023, respectively. Certain parts and service transactions require the Company to perform shipping and handling activities after the transfer of control to the customer (e.g., when control transfers prior to delivery). They are considered fulfillment activities and are included in selling, general and administrative expenses. Revenue from storage and marina operations is recognized on a straight-line basis over the term of the contract as services are completed. Revenue from arranging financing, insurance and extended warranty contracts to customers through various third-party financial institutions and insurance companies is recognized when the related boats are sold. We do not directly finance our customers’ boat, motor or trailer purchases. We are acting as an agent in the transaction, therefore the commissions are recorded on a net basis. Subject to our agreements and in the event of early cancellation, prepayment or default of such loans or insurance contracts by the customer, we may be assessed a chargeback for a portion of the commission paid by the third-party financial institutions and insurance companies. We reserve for these chargebacks based on our historical experience with repayments or defaults. Chargebacks were not material to the consolidated financial statements for the years ended September 30, 2024, 2023 and 2022. 79 Table of Contents Contract liabilities consist of deferred revenues from marina and storage operations and customer deposits and are classified in customer deposits in the Company’s consolidated balance sheets. Deposits received from customers are recorded as a liability until the related sales orders have been fulfilled by us and control of the vessel is transferred to the customer. The activity in customer deposits for the years ended September 30, 2024, 2023 and 2022 is as follows: ($ in thousands) 2024 2023 2022 Beginning contract liability $ 51,649 $ 65,460 $ 46,610 Revenue recognized from contract liabilities included in the beginning balance ( 48,642 ) ( 63,207 ) ( 43,777 ) Increases due to business combinations and cash received, net of amounts recognized in revenue during the period 60,948 49,396 62,627 Ending contract liability $ 63,955 $ 51,649 $ 65,460 The following table sets forth percentages on the timing of revenue recognition for the years ended September 30, 2024, 2023 and 2022: 2024 2023 2022 Goods and services transferred at a point in time 93.8 % 93.8 % 94.4 % Goods and services transferred over time 6.2 % 6.2 % 5.6 % Total Revenue 100.0 % 100.0 % 100.0 % Advertising Costs We expense advertising and promotional costs as incurred and include them in selling, general and administrative expenses in the accompanying consolidated statements of operations. Pursuant to FASB ASC 606, ‘‘ Revenue from Contracts with Customers ’’ (‘‘ASC 606’’), we net amounts received under our co-op assistance programs from our manufacturers against the related advertising expenses. Total advertising costs for the years ended September 30, 2024, 2023 and 2022, were $ 26.9 million, $ 24.8 million and $ 13.4 million, which are net of related co-op assistance of $ 1.6 million, $ 2.2 million and $ 1.8 million, respectively. Equity-Based Compensation Equity-based compensation plans are accounted for following the provisions of FASB ASC 718, ‘‘ Compensation — Stock Compensation ’’ (‘‘ASC 718’’). Equity-based awards are designed to reward employees for their long-term contributions to the Company and to provide incentives for them to remain with the Company. Valuation models and the quoted market price of our common stock are used to value all equity-based compensation. Compensation for awards is measured at fair value on the grant date based on the number of shares expected to vest. The Company recognizes compensation cost for all awards on a graded basis over the requisite service period of the award. Income Taxes OneWater Inc is a corporation and as a result, is subject to U.S. federal, state and local income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the book value and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the enactment date occurs. We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. OneWater LLC is treated as a partnership for U.S. federal income tax purposes and therefore does not pay U.S. federal income tax on its taxable income. Instead, the OneWater LLC members are liable for U.S. federal income tax on their respective shares of the Company’s taxable income reported on the members’ U.S. federal income tax returns. When there are situations with uncertainty as to the timing of the deduction, the amount of the deduction, or the validity of the deduction, the Company adjusts the financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Positions that meet this criterion are measured using the largest benefit that is more than 50% likely to be realized. Interest and penalties related to income taxes are included in the benefit (provision) for income taxes in the consolidated statements of operations. 80 Table of Contents Loan costs The Company accounts for its loan costs in accordance with FASB Accounting Standards Update (“ASU”) No. 2015-03, ‘‘ Interest-Imputation Subtopic (835-30): Simplifying the Presentation of Debt Issuance Costs ’’, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction of the carrying amount of that debt liability. Loan costs are amortized to interest expense on a straight-line basis over the life of the loan, which approximates the effective interest method. Derivative and hedging instruments The Company utilizes derivative financial instruments to manage its interest rate risk. The types of risks hedged are those relating to the variability of cash flows caused by fluctuations in interest rates. The Company documents the management strategy and assess hedge effectiveness at inception and throughout the term of the hedging relationship. Derivatives are reported at fair value on the accompanying consolidated balance sheets. The changes in fair value on the hedges is reported as a component of accumulated other comprehensive loss on the accompanying consolidated balance sheets, and reclassified to either interest expense – floor plan or interest expense – other in the accompanying consolidated statements of operations based on the nature of the hedged transaction in the period during which the hedged transaction affects earnings. Cash flows from hedging instruments, including cash receipts and payments, are classified on the consolidated statements of cash flows in the same category as the cash flows resulting from the item being hedged. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ materially from these estimates. Estimates and assumptions are reviewed periodically, and the effects of any revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, those relating to inventory mark downs, certain assumptions related to intangible and long-lived assets and valuation of contingent consideration. Segment Information We report our operations through two reportable segments: Dealerships and Distribution. 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. The Distribution segment engages in the manufacturing, assembly and distribution primarily of marine related products to distributors, big box retailers and online retailers through a network of warehouse and distribution centers. Each reporting segment has discrete financial information and is regularly reviewed by the Company’s chief operating decision maker (“CODM”) to assess performance and allocate resources. The Company has identified its Chief Executive Officer as its CODM. 3. New Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which is intended to improve financial reporting by requiring disclosures of incremental segment information on an annual and interim basis. The pronouncement is effective for a public company's annual reporting periods beginning after December 15, 2023, and interim periods within annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the impact that this standard will have on the consolidated financial statements. The Company plans to adopt the pronouncement in fiscal year 2025. In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to improve the transparency, effectiveness and comparability of income tax disclosures by requiring greater disaggregation of information and additional disclosures. The pronouncement is effective for a public company's annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the impact that this standard will have on the consolidated financial statements. The Company plans to adopt the pronouncement in fiscal year 2026. Other than as noted above, there are no new accounting pronouncements that are expected to have a material effect on our consolidated financial statements. 81 Table of Contents 4. Acquisitions and Dispositions Acquisitions In the years ended September 30, 2024, 2023 and 2022, the Company completed acquisitions of multiple businesses. The results of operations of acquisitions are included in the accompanying consolidated financial statements from the acquisition date. The purchase price of acquisitions was allocated to identifiable tangible assets and intangible assets acquired based on their estimated fair values at the acquisition date, with the excess being allocated to goodwill. Under the acquisition method of accounting, the purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on the information currently available. Any changes to the value of identifiable intangible assets are reclassified from goodwill upon the completion of the valuations. The fair values of the developed technology and trade name intangible assets as of the acquisition date were determined using the relief from royalty model. The fair values of the customer relationship intangible assets as of the acquisition date were determined using the discounted cash flow method. Fiscal Year 2024 For the year ended September 30, 2024, the Company completed the following transaction: • On May 1, 2024, Garden State Yacht Sales, a full service marine retailer located in New Jersey The table below summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date: Summary of Assets Acquired and Liabilities Assumed ($ in thousands) Total Acquisitions Accounts receivable $ 113 Inventories 6,676 Prepaid expenses 11 Property and equipment 478 Operating lease right-of-use assets 4,360 Accounts payable ( 1,263 ) Accrued expenses ( 36 ) Customer deposits ( 267 ) Operating lease liabilities ( 4,360 ) Aggregate acquisition date fair value $ 5,712 Consideration transferred 5,712 Included in our results for the year ended September 30, 2024, the acquisition contributed $ 7.0 million to our consolidated revenue and income of $ 0.2 million to our net (loss) income before income tax expense. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, valuation and other fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $ 0.1 million for the year ended September 30, 2024. On October 31, 2023, the Company exercised its right to acquire the remaining 20 % economic interest in Quality Assets and Operations, LLC for consideration totaling $ 18.8 million. Subsequent to the acquisition, the Company owns 100 % of the economic interest in Quality Assets and Operations, LLC. Fiscal Year 2023 For the year ended September 30, 2023, the Company completed the following transactions: • On October 1, 2022, Taylor Marine Centers, a retail marine dealership with locations in Maryland and Delaware • On December 1, 2022, Harbor View Marine, a retail marine dealership with locations in Florida and Alabama • On September 1, 2023, Harbor Pointe Marina, a retail marine dealership with one location in Alabama Consideration paid for the consummated acquisitions was $ 42.0 million with $ 28.9 million paid at closing (net of cash acquired), $ 10.6 million in non-cash financing and the remaining $ 2.6 million in estimated payments of contingent consideration. The payments of contingent consideration are part of earnouts from the achievement of certain post-acquisition increases in adjusted EBITDA. As of September 30, 2023, the earnout period for the acquisitions was completed and no contingent consideration payout was achieved. 82 Table of Contents The table below summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transactions: Summary of Assets Acquired and Liabilities Assumed ($ in thousands) Total Acquisitions Accounts receivable $ 286 Inventories 6,424 Prepaid expenses 72 Property and equipment 11,588 Operating lease right-of-use assets 3,820 Identifiable intangible assets 8,800 Goodwill 18,481 Accounts payable ( 17 ) Accrued expenses ( 361 ) Customer deposits ( 1,013 ) Notes payable - floor plan ( 2,228 ) Operating lease liabilities ( 3,820 ) Aggregate acquisition date fair value $ 42,032 Consideration transferred 42,032 In connection with the acquisition of Harbor View Marine, an entity affiliated with the Company agreed to acquire the real estate for the two acquired locations, in effect providing non-cash financing. The Company has accounted for this transaction as a sale and leaseback of the properties in our consolidated financial statements. There was no gain or loss recorded as part of the transaction. The leases for the two properties include an initial term of 15 years and two , five-year renewal options. The leases are accounted for as operating leases and are included in the operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets. Included in our results for the year ended September 30, 2023, the acquisitions contributed $ 60.9 million to our consolidated revenue and $ 6.3 million to our (loss) income before income tax expense. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, valuation and other fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $ 1.2 million for the year ended September 30, 2023. Fiscal Year 2022 For the year ended September 30, 2022, the Company completed the following transactions: • On October 1, 2021, Naples Boat Mart, a retail marine dealership with one location in Florida • On November 30, 2021, T-H Marine Supplies, LLC (“T-H Marine”), a leading provider of branded marine parts and accessories for original equipment manufacturers (“OEMs”) and the aftermarket, with locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas • On December 1, 2021, Norfolk Marine Company, a retail marine dealership with one location in Virginia • On December 31, 2021, a majority interest in Quality Boats, a retail marine dealership with three locations in Florida. The sellers retained a 20 % economic interest in Quality Boats. The Company had the exclusive right, but not obligation, to acquire the remaining 20 % interest at any time before January 1, 2027 and exercised that right on October 31, 2023. • On February 1, 2022, JIF Marine, a leading supplier of stainless steel ladders, dock products and other accessories which is based in Tennessee • On March 1, 2022, YakGear, a leading supplier of kayak equipment, paddle sports accessories and boat mounting accessories which is based in Texas • On April 1, 2022, Denison Yachting, a leader in yacht and superyacht sales as well as ancillary yacht services, with 20 locations in 7 states • On August 9, 2022, Ocean Bio-Chem, Inc. (now Ocean Bio-Chem, LLC), and Star Brite Europe, Inc. (now Star Brite Europe, LLC) (collectively “Ocean Bio-Chem”) , 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. Consideration paid for the consummated acquisitions was $ 490.6 million with $ 459.5 million paid at closing (net of cash acquired), $ 1.1 million financed through a note payable to the sellers bearing interest at a rate of 4.0 % per year, estimated payments of $ 15.3 million in contingent consideration and the remaining $ 14.6 million with the issuance of shares of Class A common stock. The notes are payable in one lump sum on December 1, 2024, with interest payments due quarterly. The estimated payments of contingent consideration are part of 83 Table of Contents multiple earnouts varying from the achievement of certain post-acquisition increases in adjusted EBITDA to the generation of acquisition leads for the Company. The acquisition contingent consideration was developed using weighted average projections based on the Company’s historical experience, current forecasts for the industry and current expectations of the ability to generate viable acquisition leads. The minimum payout on acquisition contingent consideration is $ 5.9 million and the maximum payout is $ 24.7 million. The table below summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date, including the goodwill recorded as a result of the transactions: Summary of Assets Acquired and Liabilities Assumed ($ in thousands) T-H Marine Quality Boats Denison Yachting Ocean Bio-Chem Other Acquisitions Total Acquisitions Accounts receivable $ 8,955 $ — $ 654 $ 14,989 $ 1,123 $ 25,721 Inventories 19,856 5,937 1,981 24,362 9,618 61,754 Prepaid expenses 1,547 47 2,053 1,431 338 5,416 Property and equipment 3,896 803 293 32,037 1,227 38,256 Deposits — — 126 — 13 139 Operating lease right-of-use assets 5,960 11,877 1,221 762 7,375 27,195 Identifiable intangible assets 105,500 31,700 16,600 59,300 11,332 224,432 Goodwill 51,694 78,682 29,144 35,270 15,307 210,097 Accounts payable ( 3,876 ) — ( 80 ) ( 3,654 ) ( 471 ) ( 8,081 ) Accrued expenses ( 1,697 ) — ( 252 ) ( 1,817 ) ( 553 ) ( 4,319 ) Customer deposits ( 394 ) ( 5,047 ) ( 5,524 ) ( 176 ) ( 3,307 ) ( 14,448 ) Deferred tax liabilities — — — ( 20,141 ) ( 751 ) ( 20,892 ) Long-term debt — — — ( 8,150 ) — ( 8,150 ) Operating lease liabilities ( 5,960 ) ( 11,877 ) ( 1,221 ) ( 762 ) ( 7,375 ) ( 27,195 ) Aggregate acquisition date fair value $ 185,481 $ 112,122 $ 44,995 $ 133,451 $ 33,876 $ 509,925 Consideration transferred 185,481 92,811 44,995 135,281 33,876 492,444 Cash acquired — — — ( 1,829 ) — ( 1,829 ) Fair value of non-controlling interests — 19,311 — — — 19,311 Aggregate acquisition date fair values $ 185,481 $ 112,122 $ 44,995 $ 133,451 $ 33,876 $ 509,925 The fair value of the non-controlling interest of Quality Boats as of the acquisition date was estimated using the discounted cash flow method and market multiple method. Significant inputs to the discounted cash flows included estimated future revenues and discount rates. Significant inputs to the market multiple method include the peer public company group and the financial performance of reporting units related to the peer public company group. Included in our results for the year ended September 30, 2022, the acquisitions contributed $ 275.3 million to our consolidated revenue and $ 41.1 million to our income before income tax expense. Costs related to acquisitions are included in transaction costs and primarily relate to legal, accounting, and valuation fees, which are charged directly to operations in the accompanying consolidated statements of operations as incurred in the amount of $ 7.5 million for the year ended September 30, 2022. The 2023 and 2022 acquisitions have resulted in the recording of goodwill that is expected to be deductible for tax purposes of $ 15.9 million and $ 173.2 million for the years ended September 30, 2023 and 2022, respectively. No goodwill was recorded as a result of the 2024 acquisition. The following unaudited pro forma results of operations for the years ended September 30, 2024, 2023 and 2022 assumes that all acquisitions were completed on October 1, 2021. ($ in thousands) 2024 2023 2022 Pro forma revenues $ 1,779,550 $ 1,957,897 $ 1,954,674 Pro forma net (loss) income $ ( 6,535 ) $ ( 38,024 ) $ 169,813 The amounts have been calculated by applying our accounting policies and estimates. Pro forma net (loss) income has been tax affected based on the Company’s effective tax rate in the historical periods presented. 84 Table of Contents Dispositions During the year ended September 30, 2023, the Company completed the following dispositions of a business: • O n September 30, 2023, Roscioli Yachting Center, which was reported in our Dealership reporting segment through the date of the sale. The sale resulted in a pre-tax gain of $ 0.2 million recorded in other expense (income) in the consolidated statement of operations. • On September 30, 2023, Lookout Marine, which included two locations and was reported in our Dealership reporting segment through the date of sale. The sale resulted in a pre-tax loss of $ 1.0 million recorded in other expense (income) in the consolidated statement of operations. In connection with the disposition of Roscioli Yachting Center, the Company sold the associated real estate. As part of the sale agreement, the Company entered into a lease with the purchasing party for a portion of the location. The Company has accounted for this transaction as a sale and leaseback of the property in our consolidated financial statements. There was no gain or loss recorded as part of the transaction. The lease for the property includes an initial term of 10 years. The lease is accounted for as an operating lease and is included in the operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheet. There were no dispositions of business entities during the years ended September 30, 2024 and 2022. 5. Accounts Receivable Accounts receivable primarily consists of trade accounts receivable, contracts in transit and manufacturer receivables. Trade receivables include amounts due from customers on the sale of boats, parts, service, and storage. Contracts in transit represent anticipated funding from the loan agreement customers execute at the dealership when they purchase their new or pre-owned boat. These finance contracts are typically funded within 30 days . Amounts due from manufacturers represent receivables for various manufacturer incentive programs and parts and service work performed pursuant to the manufacturers’ warranties. Accounts receivable as of September 30, 2023 also consists of a receivable resulting from the disposition of Roscioli Yachting Center as the proceeds on disposal were received during the year ended September 30, 2024. The allowance for credit losses is estimated based on past collection experience, current conditions and reasonable and supportable forecasts. The annual activity for charges and subsequent recoveries is immaterial. Accounts receivable consisted of the following: ($ in thousands) September 30, 2024 September 30, 2023 Trade accounts receivable $ 32,578 $ 32,065 Contracts in transit 20,437 25,425 Manufacturer receivable 11,435 11,288 Income tax receivable 9,370 — Receivable for proceeds on the disposition of a business — 45,100 Total accounts receivable 73,820 113,878 Less – allowance for credit losses ( 551 ) ( 703 ) Total accounts receivable, net $ 73,269 $ 113,175 6. Inventories Inventories consisted of the following: ($ in thousands) September 30, 2024 September 30, 2023 New vessels $ 442,834 $ 471,147 Pre-owned vessels 79,234 61,627 Parts and accessories, work in process 68,770 76,842 Total inventories $ 590,838 $ 609,616 85 Table of Contents 7. Property and Equipment Property and equipment, net consisted of the following: ($ in thousands) September 30, 2024 September 30, 2023 Land $ 6,323 $ 3,275 Buildings and improvements 24,890 22,681 Leasehold improvements 30,503 22,968 Machinery and equipment 32,637 26,696 Office equipment 16,124 14,226 Company vehicles 23,957 18,231 Construction in progress 2,637 3,807 Total property and equipment 137,071 111,884 Less accumulated depreciation ( 43,847 ) ( 30,352 ) Total property and equipment, net $ 93,224 $ 81,532 For the years ended September 30, 2024, 2023 and 2022, depreciation expense totaled $ 14.3 million, $ 13.4 million and $ 8.8 million, respectively. 8. Goodwill and Intangible Assets Our acquisitions have resulted in the recording of goodwill and other identifiable intangible assets. Goodwill is an asset representing operational synergies and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets consist of internally developed software, domain names and other identifiable intangible assets such as, trade names, developed technologies, including design libraries, and customer relationships related to the acquisitions the Company has completed. The changes in goodwill and intangible assets are as follows: ($ in thousands) Goodwill Trade Names Developed Technologies Customer Relationships Domain Names Internally Developed Software Total Intangible Assets, net Unamortized Unamortized Amortized Amortized Amortized Amortized Net balance as of September 30, 2022 $ 378,588 $ 186,779 $ 14,274 $ 101,230 $ 1,970 $ 2,218 $ 306,471 Acquisitions during the year ended September 30, 2023 18,481 8,800 — — 945 1,878 11,623 Impairment recorded during the year ended September 30, 2023 ( 57,710 ) ( 43,016 ) ( 8,309 ) ( 38,367 ) — — ( 89,692 ) Disposals from sales of businesses during the year ended September 30, 2023 ( 3,157 ) ( 2,642 ) — — — — ( 2,642 ) Other adjustments during the year ended September 30, 2023 400 — — — — — — Amortization expense for the year ended September 30, 2023 — — ( 1,546 ) ( 10,749 ) ( 528 ) ( 613 ) ( 13,436 ) Net balance as of September 30, 2023 336,602 149,921 4,419 52,114 2,387 3,483 212,324 Acquisitions during the year ended September 30, 2024 — — — — — 909 909 Amortization expense for the year ended September 30, 2024 — — ( 455 ) ( 5,711 ) ( 637 ) ( 1,039 ) ( 7,842 ) Net balance as of September 30, 2024 $ 336,602 $ 149,921 $ 3,964 $ 46,403 $ 1,750 $ 3,353 $ 205,391 During the year ended September 30, 2023 the Company recorded an impairment loss of $ 147.4 million related to the goodwill and identifiable intangible assets in order to adjust carrying value to estimated fair value. The impairment loss is recorded in restructuring and impairment in the consolidated statements of operations. Of the $ 147.4 million impairment loss, $ 6.5 million and $ 140.9 million is reported in the Dealerships and Distribution reporting segment, respectively. No impairment loss was recorded for the years ended September 30, 2024 and 2022. See Note 2 for more information about our annual impairment tests of goodwill and identifiable intangible assets. Amortization expense was $ 7.8 million, $ 13.4 million and $ 7.6 million for the years ended September 30, 2024, 2023 and 2022 , respectively, which includes amortization expense of $ 1.0 million , $ 0.6 million and $ 0.1 million for the years ended September 30, 2024, 2023 and 2022 , respectively, for internally developed software. Amortization expense is recorded in depreciation and amortization in the 86 Table of Contents consolidated statements of operations. For internally developed software acquisitions during the year ended September 30, 2024, the weighted average useful life of total intangible assets is 3.6 years. The following table summarizes the expected amortization expense for the fiscal years 2025 through 2029 and thereafter ($ in thousands): 2025 $ 8,418 2026 8,418 2027 8,175 2028 6,638 2029 6,637 Thereafter 17,184 $ 55,470 As of September 30, 2024 and 2023, the carrying value of goodwill totaled approximately $ 336.6 million, of which $ 295.3 million was related to our Dealerships reporting segment and $ 41.3 million was related to our Distribution reporting segment. 9. Other Payables and Accrued Expenses Other payables and accrued expenses consisted of the following: ($ in thousands) September 30, 2024 September 30, 2023 Payroll accrual $ 16,720 $ 21,044 Sales tax payable 3,626 4,673 Other payables and accrued expenses 12,428 11,522 Acquisition contingent consideration 6,162 7,488 Accrued interest 3,180 10,099 Total other payables and accrued expenses $ 42,116 $ 54,826 10. Notes Payable — Floor Plan The Company maintains an ongoing wholesale marine products inventory financing program with a syndicate of banks. The program is administered by Wells Fargo Commercial Distribution Finance, LLC (“Wells Fargo”). On November 14, 2023, the Company and certain of its subsidiaries entered into the Eighth Amended and Restated Inventory Financing Agreement (as amended, the “ Inventory Financing Facility") with Wells Fargo and the other financial institutions party thereto to increase the maximum borrowing amount available under the Inventory Financing Facility to $ 650.0 million and extend the term. The Inventory Financing Facility expires on March 1, 2026. The outstanding balance of the facility was $ 443.4 million and $ 489.0 million, as of September 30, 2024 and 2023, respectively. Interest on new boats and for rental units is calculated using the Adjusted 30-Day Average SOFR (as defined in the Inventory Financing Facility) (“SOFR”) plus an applicable margin of 2.75 % to 5.00 % depending on the age of the inventory. Interest on pre-owned boats in calculated at the new boat rate plus 0.25 %. Wells Fargo will finance 100.0 % of the vendor invoice price for new boats, engines, and trailers. As of September 30, 2024 the interest rate on the Inventory Financing Facility ranged from 8.03 % to 10.28 % for new inventory and 8.28 % to 10.53 % for pre-owned inventory. As of September 30, 2023 the interest rate on the Inventory Financing Facility ranged from 8.18 % to 10.43 % for new inventory and 8.43 % to 10.68 % for pre-owned inventory. Borrowing capacity available at September 30, 2024 and September 30, 2023 was $ 206.6 million and $ 61.0 million, respectively. The Inventory Financing Facility has certain financial and non-financial covenants as specified in the agreement. The financial covenants include requirements to comply with a maximum funded debt to EBITDA ratio (as defined in the Inventory Financing Facility). In addition, certain non-financial covenants could restrict the Company’s ability to sell assets (excluding inventory in the normal course of business), engage in certain mergers and acquisitions, incur additional debt and pay cash dividends or distributions, among others. The Company was not in compliance with all covenants for the reporting period ended September 30, 2024; however, the covenant noncompliance was waived pursuant to the Consent, Waiver and Second Amendment to Eighth Amended and Restated Inventory Financing Agreement (the "November 2024 Inventory Financing Amendment") entered into on November 13, 2024 as discussed in Note 22. The collateral for the Inventory Financing Facility consists primarily of our inventory that is financed through the Inventory Financing Facility and related assets, including accounts receivable, bank accounts and proceeds of the foregoing, and excludes the collateral that underlies the term note payable to Truist Bank. 87 Table of Contents 11. Long-term Debt and Line of Credit On August 9, 2022, the Company and certain of its subsidiaries entered into the Amended and Restated Credit Agreement (the “A&R Credit Facility”) with Truist Bank. The A&R Credit Facility provides for a $ 65.0 million revolving credit facility (the “A&R Revolving Facility”) that may be used for revolving credit loans (including up to $ 5.0 million in swingline loans and up to $ 5.0 million in letters of credit) and a $ 445.0 million term loan (the “A&R Term Loan”). Subject to certain conditions, the available amount under the revolving credit facility and term loans may be increased by $ 125.0 million in the aggregate. The A&R Credit Facility bears interest at a rate that is equal to Term SOFR plus an applicable margin ranging from 1.75 % to 2.75 % based on certain consolidated leverage ratio measures. As of September 30, 2024, the A&R Revolving Facility was scheduled to mature on August 9, 2027. As of September 30, 2024, the A&R Term Loan was repayable in installments beginning December 31, 2022, with the remainder due on August 9, 2027. The A&R Credit Facility is collateralized by certain real and personal property (including certain capital stock) of the Company and its subsidiaries. The collateral does not include inventory and certain other assets of the Company’s subsidiaries financed under the Inventory Financing Facility. The A&R Credit Facility is subject to certain financial covenants related to the maintenance of a minimum fixed charge coverage ratio and a maximum consolidated leverage ratio. The A&R Credit Facility also contains non-financial covenants and restrictive provisions that, among other things, limit the ability of the Company to incur additional debt, transfer or dispose of all of its assets, make certain investments, loans or payments and engage in certain transactions with affiliates. The Company was not in compliance with all covenants for the reporting period ended September 30, 2024; however, the covenant noncompliance was waived pursuant to Amendment No. 6. to the Amended and Restated Credit Agreement and Waiver and Amendment No. 1 to Pledge and Security Agreement ("Amendment No. 6") entered into on November 13, 2024 as discussed in Note 22. Long-term debt consisted of the following at: ($ in thousands except monthly payment amounts) September 30, 2024 September 30, 2023 Term note payable to Truist Bank, secured and bearing interest at 7.85 % at September 30, 2024 and 7.53 % at September 30, 2023. The note requires quarterly principal payments commencing on December 31, 2022 and maturing with a full repayment on August 9, 2027 $ 375,469 $ 428,313 Revolving note payable for an amount up to $ 65.0 million to Truist Bank, secured and bearing interest at 7.75 % at September 30, 2024 and 7.50 % at September 30, 2023. The note requires full repayment on August 9, 2027 51,150 30,000 Notes payable to commercial vehicle lenders secured by the value of the vehicles bearing interest at rates ranging from 0.0 % to 10.8 % per annum. The notes require monthly installment payments of principal and interest ranging from $ 200 to $ 3,100 through April 2029 2,561 3,645 Note payable to Norfolk Marine Company, unsecured and bearing interest at 4.0 % per annum. The note requires quarterly interest payments, with a balloon payment of principal due on December 1, 2024. 1,126 1,126 Note payable to Tom George Yacht Group, unsecured and bearing interest at 5.5 % per annum. The note was repaid in full on December 1, 2023. — 2,056 Total debt outstanding 430,306 465,140 Less current portion (net of current debt issuance costs) ( 7,874 ) ( 29,324 ) Less unamortized portion of debt issuance costs ( 7,498 ) ( 7,377 ) Long-term debt, net of current portion and unamortized debt issuance costs $ 414,934 $ 428,439 Principal repayment requirements of long-term debt at September 30, 2024 are as follows (in thousands): Year ending September 30, 2025 $ 10,673 2026 45,345 2027 374,236 2028 45 2029 7 Total principal payments $ 430,306 88 Table of Contents Debt issuance costs are amortized on a straight-line basis over the life of the loan, which approximates the effective interest method. During the fiscal year ended 2024, the Company capitalized loan costs of $ 2.2 million. During the fiscal year ended 2023, the Company did not capitalize any loan costs. In connection with entering into the A&R Credit Facility, the Company wrote off unamortized debt issuance cost of $ 0.4 million which was included in loss on extinguishment of debt in the consolidated statements of operations for the year ended September 30, 2022. Amortization for the years ended September 30, 2024, 2023 and 2022 amounted to $ 2.1 million, $ 2.2 million and $ 1.3 million, respectively, and is included in interest expense - other in the consolidated statements of operations. As of September 30, 2024 and 2023, the Company had $ 1.6 million and $ 0.7 million, respectively, in letters of credit outstanding under the A&R Revolving Facility. 12. Derivative and Hedging Instruments The Company is subject to interest rate risk as a result of the Inventory Financing Facility and A&R Credit Facility required interest payments. In September 2024, the Company entered into two interest rate swap agreements which are designed to provide a hedge against changes in variable rate cash flows regarding fluctuations in the SOFR and Term SOFR rates which are used in calculating interest payments. The following table provides information on the attributes of each swap as of September 30, 2024 : Inception Date Hedged Rate Notional Value at Inception (in thousands) Maturity Date September 2024 SOFR $ 200,000 September 2027 September 2024 Term SOFR $ 200,000 September 2027 The fair value of the cash flow swaps is calculated using an income approach. The income approach involves using the quoted price for economically equivalent inputs or valuation methodologies, assumptions and inputs, which in the case of projected future cash flows, discount such cash flows to a single net present value amount. The following table provides information regarding the fair value of the interest rate swap agreements and the impact on the consolidated balance sheets at ($ in thousands): Balance Sheet Location September 30, 2024 September 30, 2023 Prepaid expenses and other current assets $ 1,560 $ — Other long-term liabilities ( 3,626 ) — Net asset (liability) $ ( 2,066 ) $ — The interest rate swaps qualify for cash flow hedge accounting treatment. The interest rate swaps are marked to market each reporting date and any unrealized gains or losses are included in accumulated other comprehensive (loss) income and reclassified into interest expense in the same period during which the hedged transactions affect earnings. Information about the effect of the interest swap agreements in the accompanying consolidated statements of operations and consolidated statements of comprehensive income (loss), is as follows ($ in thousands): Year Ended September 30, Results Recognized in Accumulated Other Comprehensive (Loss) Income (effective Portion) Location of Results Reclassified from Accumulated Other Comprehensive Income (Loss) to Earnings Results Reclassified from Accumulated Other Comprehensive Income (Loss) to Earnings 2024 $ ( 2,066 ) Interest expense – other and Interest expense – floor plan $ — As of September 30, 2024, the amount expected to be reclassified out of accumulated other comprehensive (loss) income into earnings during the next 12 months is gains of $ 1.6 million. The ultimate amount recognized will vary based on fluctuations of interest rates through the maturity dates. 89 Table of Contents 13. Stockholders’ Equity Equity-Based Compensation We maintain the OneWater Marine Inc. Omnibus Incentive Plan (the “LTIP”) to incentivize individuals providing services to OneWater Inc and its subsidiaries and affiliates. The LTIP provides for the grant, from time to time, at the discretion of the board of directors of OneWater Marine Inc. (the “Board”) or a committee thereof, of (1) stock options, (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, (5) stock awards, (6) dividend equivalents, (7) other stock-based awards, (8) cash awards, (9) substitute awards and (10) performance awards. The total number of shares reserved for issuance under the LTIP that may be issued pursuant to incentive stock options (which generally are stock options that meet the requirements of Section 422 of the Code) is 1,611,664 . The LTIP is and will continue to be administered by the Board, except to the extent the Board elects a committee of directors to administer the LTIP. Class A common stock subject to an award that expires or is cancelled, forfeited, exchanged, settled in cash or otherwise terminated without delivery of shares (including forfeiture of restricted stock awards) and shares withheld to pay the exercise price of, or to satisfy the withholding obligations with respect to, an award will again be available for delivery pursuant to other awards under the LTIP. 2024 Awards During the fiscal year ended September 30, 2024, the Board approved the grant of 204,557 time-based restricted stock units. Of this amount, 34,160 restricted stock units fully vest on October 1, 2024 and the remaining 170,397 restricted stock units vest in three equal annual installments commencing on October 1, 2024. During the fiscal year ended September 30, 2024 , the Board approved the grant of 141,924 performance-based restricted stock units, which represents 100 % of the target award. Performance-based restricted stock units provide an opportunity for the recipient to receive a number of shares of our common stock based on our performance goals. A performance-based restricted stock unit equals one share of common stock to the Company. The performance-based restricted stock units vest in three equal annual installments commencing on October 1, 2024. As of September 30, 2024, the Company achieved 74 % of the performance target. Compensation cost for time-based restricted stock units is based on the closing price of our common stock on the date immediately preceding the grant and is recognized on a graded basis over the applicable vesting periods. Compensation cost for performance share units is based on the closing price of our common stock on the date immediately preceding the grant and the ultimate performance level achieved and is recognized on a graded basis over the applicable vesting period. The Company recognized $ 7.9 million, $ 8.2 million and $ 9.8 million of compensation expense for the fiscal years ended September 30, 2024, 2023 and 2022, respectively, which includes $ 2.9 million, $ 3.5 million, and $ 5.4 million of compensation expense for the fiscal years ended September 30, 2024, 2023 and 2022, respectively, for performance-based units . The following table further summarizes activity related to restricted stock units for the years ended September 30, 2024 and 2023 : Restricted Stock Unit Awards Number of Shares Weighted Average Grant Date Fair Value ($) Unvested at September 30, 2022 559,793 $ 28.01 Awarded 225,075 30.08 Vested ( 257,082 ) 27.98 Forfeited ( 3,001 ) 35.81 Unvested at September 30, 2023 524,785 28.86 Awarded 346,481 25.62 Vested ( 318,934 ) 28.22 Forfeited ( 10,213 ) 27.19 Unvested at September 30, 2024 542,119 $ 27.20 As of September 30, 2024, the total unrecognized compensation expense related to outstanding equity awards was $ 3.1 million, which the Company expects to recognize over a weighted-average period of 1.2 years. We issue shares of our Class A common stock upon the vesting of performance-based restricted stock units and time-based restricted stock units. These shares are issued from our authorized and not outstanding common stock. In addition, in connection with the vesting of restricted stock units, we repurchase a portion of shares equal to the amount of employee income tax withholding. We recognize forfeitures of performance-based restricted stock units and time-based restricted stock units as the forfeitures occur. 90 Table of Contents Net (Loss) Earnings Per Share Basic and diluted net (loss) earnings per share of Class A common stock is computed by dividing net (loss) income attributable to OneWater Inc by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted net (loss) earnings per share is computed by giving effect to all potentially dilutive shares. The following table sets forth the calculation of net (loss) earnings per share for the years ended September 30, 2024, 2023, and 2022 (in thousands, except per share data): Net (loss) earnings per share: 2024 2023 2022 Numerator: Net (loss) income attributable to OneWater Inc $ ( 5,705 ) $ ( 38,592 ) $ 130,944 Denominator: Weighted-average number of unrestricted outstanding common shares used to calculate basic net (loss) income per share 14,585 14,328 13,877 Effect of dilutive securities: Restricted stock units — — 457 Employee stock purchase plan — — 3 Diluted weighted-average shares of Class A common stock outstanding used to calculate diluted net (loss) income per share 14,585 14,328 14,337 Net (loss) earnings per share of Class A common stock – basic $ ( 0.39 ) $ ( 2.69 ) $ 9.44 Net (loss) earnings per share of Class A common stock – diluted $ ( 0.39 ) $ ( 2.69 ) $ 9.13 On March 30, 2022, the Board approved a share repurchase program up to $ 50.0 million. No shares of Class A common stock were repurchased by the Company during the year ended September 30, 2024. As of September 30, 2024 the Company has repurchased and retired 73,487 shares of Class A common stock under the repurchase program for a purchase price of approximately $ 1.9 million. As of September 30, 2024, approximately $ 48.1 million remained available for future purchase under the repurchase program. The repurchase program does not have a predetermined expiration date. Shares of Class B common stock and unvested restricted stock units do not share in the income (losses) of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted net (loss) earnings per share of Class B common stock under the two-class method has not been presented. The following number of weighted-average potentially dilutive shares were excluded from the calculation of diluted net (loss) earnings per share because the effect of including such potentially dilutive shares would have been antidilutive upon conversion (in thousands): Year Ended September 30, 2024 Year Ended September 30, 2023 Year Ended September 30, 2022 Class B common stock 1,430 1,430 1,527 Restricted stock units 577 598 219 Employee Stock Purchase Plan 30 4 — 2,037 2,032 1,746 Employee Stock Purchase Plan At the Company’s 2021 Annual Meeting of Stockholders (the “Annual Meeting”), held on February 23, 2021, the Company’s stockholders approved the OneWater Marine Inc. 2021 Employee Stock Purchase Plan (the “ESPP”), which was approved and adopted by the Board as of January 13, 2021 (the “Adoption Date”), subject to stockholder approval at the Annual Meeting. The effective date of the ESPP is February 23, 2021, and, unless earlier terminated, the ESPP will expire on the twentieth anniversary of the Adoption Date. The ESPP will be administered by the Board or by one or more committees to which the Board delegates such administration. 91 Table of Contents The ESPP enables eligible employees to purchase shares of the Company’s Class A common stock at a discount through participation in discrete offering periods. The ESPP is intended to qualify as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986, as amended. Up to a maximum of 453,870 shares of the Company’s Class A common stock may be issued under the ESPP as of September 30, 2024, subject to certain adjustments as set forth in the ESPP. On the first day of each fiscal year during the term of the ESPP, beginning on October 1, and ending on (and including) September 30, the number of shares of Class A common stock that may be issued under the ESPP will increase by a number of shares equal to the least of (i) 1 % of the outstanding shares on the Adoption Date, or (ii) such lesser number of shares (including zero) that the administrator determines for purposes of the annual increase for that fiscal year. The number of shares of Class A common stock that may be granted to any single participant in any single option period will be subject to certain limitations set forth in the plan. The Company recorded equity-based compensation for the ESPP of $ 0.6 million, $ 0.7 million and $ 0.2 million during the years ended September 30, 2024, 2023 and 2022 , respectively. As of September 30, 2024 and 2023, we had current liabilities of $ 0.3 million and $ 0.4 million. respectively, for future purchases of shares under the ESPP. During the year ended September 30, 2024, 59,089 shares were issued under the ESPP at an average price per share of $ 25.72 . During the year ended September 30, 2023, 86,050 shares were issued under the ESPP at an average price per share of $ 24.31 . We used a Black-Scholes model to estimate the fair value of the options granted to purchase shares issued pursuant to the ESPP. Volatility is based on the historical volatility of our common stock. The risk-free rate for periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The following are the assumptions used for the fiscal years ended September 30, 2024 and 2023 : 2024 2023 2022 Dividend yield 0.0 % 0.0 % 0.0 % Risk-free interest rate 5.2 - 5.5 % 4.8 - 5.5 % 2.5 % Volatility 37.6 - 62.7 % 37.6 - 45.6 % 57.4 % Expected life Six months Six months Six months Distributions During the fiscal years ended September 30, 2024, 2023 and 2022, the Company made distributions to OneWater Unit Holders for certain permitted tax payments. Non-Controlling Interest As discussed in Note 1, OneWater Inc consolidates the financial results of OneWater LLC and its subsidiaries and reports a non-controlling interest related to the portion of OneWater LLC owned by the holders of OneWater LLC Units (the “OneWater Unit Holders”). OneWater Unit Holders may exchange their LLC Units, together with an equal number of shares of Class B common stock of OneWater Inc, for shares of Class A common Stock of OneWater Inc on a one -for- one basis or, at OneWater LLC’s election, cash. Changes in ownership interest in OneWater LLC, while OneWater Inc retains its controlling interest, will be accounted for as equity transactions. Future direct exchanges of OneWater LLC units will result in a change in ownership and reduce the amount recorded as a non-controlling interest and increase additional paid-in-capital. As of September 30, 2024, OneWater Inc owned 91.1 % of the economic interest of OneWater LLC with the OneWater Unit Holders owning the remaining 8.9 %. As discussed in Note 4, the Company acquired an 80 % economic interest in Quality Boats during the year ended September 30, 2022. The Company had the exclusive right, but not obligation, to acquire the remaining 20 % economic interest at any time before January 1, 2027. On October 31, 2023, the Company exercised the right to acquire the remaining 20 % economic interest in Quality Boats. 14. Retirement Plan The Company offers a 401(k) retirement plan to its full-time employees over the age of 21 . The Company currently makes discretionary matching contributions of 50.0 % for the first 4.0 % of employee salary deferrals. The Company made discretionary contributions of $ 2.7 million, $ 2.6 million and $ 2.2 million for the years ended September 30, 2024, 2023 and 2022, respectively. 15. Fair Value Measurements In determining fair value, the Company uses various valuation approaches including market, income and/or cost approaches. FASB standard ‘‘ Fair Value Measurements ’’ (Topic 820) establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are those that reflect the Company’s expectation of the assumptions market participants 92 Table of Contents would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Assets utilizing Level 1 inputs include marketable securities that are actively traded. Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Asset and liability measurements utilizing Level 3 inputs include those used in estimating fair value of non-financial assets and non-financial liabilities in purchase acquisitions, those used in assessing impairment of property and equipment and other intangibles and those used in the reporting unit valuation in the annual goodwill impairment evaluation and contingent consideration. The availability of observable inputs can vary and is affected by a wide variety of factors. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment required in determining fair value is greatest for assets and liabilities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. Fair value measurements can be volatile based on various factors that may or may not be within the Company’s control. The following tables summarize the Company’s financial assets and liabilities measured at fair value in the accompanying consolidated balance sheets as of September 30: 2024 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Investment in equity securities $ 128 $ — $ — $ 128 Derivative and hedging instruments — 1,560 — 1,560 Liabilities: Contingent consideration — — 15,161 15,161 Derivative and hedging instruments — 3,626 — 3,626 2023 ($ in thousands) Level 1 Level 2 Level 3 Total Assets: Investment in equity securities $ 326 $ — $ — $ 326 Liabilities: Contingent consideration — — 21,181 21,181 There were no transfers between the valuation hierarchy Levels 1, 2, and 3 for the fiscal years ended September 30, 2024, and 2023. We measure all equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with the change in fair value included in other expense (income), net, in the consolidated statements of operations. The fair value of equity investments is measured using quoted prices in its active markets. The investment in equity securities balance is recorded in other long-term assets in the consolidated balance sheets. 93 Table of Contents The portion of unrealized losses recognized related to equity securities still held as of September 30 consists of the following: ($ in thousands) Year Ended September 30, 2024 Year Ended September 30, 2023 Year Ended September 30, 2022 Net losses recognized during the period on equity securities $ 198 $ 446 $ 1,228 Less: net losses recognized during the period on equity securities sold during the period — — — Unrealized losses recognized during the reporting period on equity securities still held at the reporting date $ 198 $ 446 $ 1,228 We estimate the fair value of contingent consideration using a probability-weighted discounted cash flow model based on forecasted future earnings or other agreed upon metrics including the production of acquisition leads. The acquisition contingent consideration liability has been accounted for based on inputs that are unobservable and significant to the overall fair value measurement (Level 3). The contingent consideration balance is recorded in other payables and accrued expenses and other long-term liabilities in the consolidated balance sheets. Changes in fair value and net present value of contingent consideration are recorded in change in fair value of contingent consideration in the consolidated statements of operations. The fair value of contingent consideration is reassessed on a quarterly basis. The following table sets forth the changes in fair value of our contingent consideration for the fiscal years ended September 30, 2024 and 2023: ($ in thousands) Contingent Consideration Balance as of September 30, 2022 $ 37,402 Additions from acquisitions 2,550 Settlement of contingent consideration ( 17,167 ) Change in fair value, including accretion ( 1,604 ) Balance as of September 30, 2023 21,181 Additions from acquisitions — Settlement of contingent consideration ( 10,268 ) Change in fair value, including accretion 4,248 Balance as of September 30, 2024 $ 15,161 We determined the carrying value of our cash and cash equivalents, accounts receivable, accounts payable, other payables and accrued expenses, floor plan notes payable, term note payable with Truist Bank, seller notes payable and company vehicle notes payable approximate their fair values because of the nature of their terms and current market rates of these instruments. Derivative and hedging instruments are recorded at fair value as discussed in Note 12. 16. Restructuring and Impairment In March 2024, the Company evaluated its operations and decided to undergo a restructuring plan (the "2024 Restructuring") which resulted in the reduction of headcount and retail locations, cancellation of certain dealer agreements, and the cancellation of certain in-progress information and technology ("IT") related projects. As a result of the 2024 Restructuring, during the year ended September 30, 2024 the Company recognized $ 15.3 million of charges, of which $ 12.4 million is recorded in restructuring and impairment, $ 1.8 million is recorded in new boat cost of sales and $ 1.1 million is recorded in service, parts & other cost of sales in the consolidated statement of operations. Of the $ 15.3 million of charges related to the 2024 Restructuring, $ 13.0 million and $ 2.3 million is reported in the Dealerships and Distribution reporting segment, respectively. No charges related to the 2024 Restructuring were recorded during the years ended September 30, 2023 and 2022. As of September 30, 2024, $ 1.0 million was recorded in other payables and accrued expenses in the consolidated balance sheet related to the 2024 Restructuring. No amounts were recorded in the consolidated balance sheet as of September 30, 2023 . During the year ended September 2023, the Company recorded impairment charges to adjust the carrying value of the goodwill and identifiable intangible assets to fair value (the "2023 Impairment"). As a result of the 2023 Impairment, during the year ended September 30, 2023 the Company recognized a loss of $ 147.4 million , which is recorded in restructuring and impairment on the consolidated statement of operations. Of the $ 147.4 million impairment loss, $ 6.5 million and $ 140.9 million is reported in the Dealerships and Distribution reporting segment, respectively. No charges related to the 2023 Impairment were recorded during the years ended September 30, 2024 and 2022. See note 8 for more information about the impairment of goodwill and identifiable intangible assets. 94 Table of Contents 17. Income Taxes The Company is a corporation and, as a result is subject to U.S. federal, state and local income taxes. OneWater LLC is treated as a pass-through entity for U.S. federal tax purposes and in most state and local jurisdictions. As such, OneWater LLC’s members, including the Company, are liable for federal and state income taxes on their respective shares of OneWater LLC’s taxable income. The components of income tax (benefit) expense are: ($ in thousands) Year Ended September 30, 2024 Year Ended September 30, 2023 Year Ended September 30, 2022 Current: Federal $ ( 424 ) $ 16,184 $ 31,986 State 601 3,434 5,492 Foreign — — 6 177 19,618 37,484 Deferred: Federal ( 152 ) ( 19,171 ) 5,376 State ( 182 ) ( 3,859 ) 365 Foreign — — — ( 334 ) ( 23,030 ) 5,741 Income tax (benefit) expense $ ( 157 ) $ ( 3,412 ) $ 43,225 A reconciliation of the United States statutory income tax rate to the Company’s effective income tax rate is as follows: For the Years Ended September 30, 2024 2023 2022 Statutory federal tax rate 21.0 % 21.0 % 21.0 % Income attributable to non-controlling interests and nontaxable income ( 1.3 ) ( 0.2 ) ( 2.3 ) State income taxes, net of federal benefit ( 2.4 ) 3.3 2.9 Non-deductible items ( 23.3 ) — — Federal and state credits 10.1 — — Loss on impairment — ( 11.4 ) — Other ( 1.7 ) ( 4.7 ) 0.4 Effective income tax rate 2.4 % 8.0 % 22.0 % 95 Table of Contents Details of the Company’s deferred tax assets and liabilities are as follows: ($ in thousands) September 30, 2024 September 30, 2023 Deferred tax assets: Investment in partnerships $ 24,496 $ 23,619 Tax receivable agreement 10,071 10,702 Net operating loss 1,216 1,557 Other 1,495 — Total 37,278 35,878 Valuation allowance — — Total deferred tax assets 37,278 35,878 Deferred tax liabilities: Fixed assets $ — $ 107 Intangibles — 703 Other — 2 Total deferred tax liabilities — 812 Deferred tax assets, net $ 37,278 $ 35,066 The Company had federal net operating loss carryforwards from underlying corporate entities of approximately $ 4.3 million and $ 6.0 million resulting in a deferred tax asset of $ 0.9 million and $ 1.6 million as of September 30, 2024 and 2023, respectively. The U.S. federal net operating loss carryforwards have no expiration but can only be used to offset up to 80% of future taxable income annually. The Company has Alabama net operating loss carryforwards of $ 0.3 million which has no limitation in use and expire in the years 2037 to 2040. The Company projects to fully utilize the net operating losses during subsequent fiscal years. The Company has IRC Section 163(j) interest expense carryforward of approximately $ 3.7 million , resulting in a deferred tax asset of $ 0.9 million as of September 30, 2024. The IRC Section 163(j) interest expense carryforward has no expiration. The Company recognizes deferred tax assets to the extent it believes these assets are more-likely-than-not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will fully realize our deferred tax assets in the future. The Company has not recorded a valuation allowance. As of September 30, 2024 and 2023, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist. The Company is subject to examination in the US Federal and certain state tax jurisdictions for the tax years beginning with the year ended December 31, 2020. In November 2022, the Company received notification that the IRS intended to commence an audit of the federal income tax return of OneWater LLC’s partnership for the tax year ended December 31, 2020. The Company received a letter from the IRS in July 2024 noting the audit was complete with no adjustments. In November 2024, the Company received notification that the Florida Department of Revenue intended to commence a corporate income tax audit of OneWater Inc for the tax years ended September 30, 2021, 2022 and 2023. The audit is ongoing and the outcome and timing of settlements of asserted income tax liabilities, if any, are uncertain. Tax Receivable Agreement In connection with the IPO, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the owners of OneWater LLC. As of September 30, 2024 and 2023, our undiscounted liability under the Tax Receivable Agreement was $ 40.6 million and $ 43.1 million, respectively, representing 85 % of the calculated net cash savings in U.S. federal, state and local income tax and franchise tax that OneWater Inc anticipates realizing in future years from the result of certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the amended and restated limited liability company agreement of OneWater LLC (the “OneWater LLC Agreement”)). The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact our ability to make payments under the Tax Receivable Agreement. We have determined it is more-likely-than-not that we will be able to utilize all of our deferred tax assets subject to the Tax Receivable Agreement; therefore, we have recorded a liability under the Tax Receivable Agreement related to the tax savings we may realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or Call Right (each as defined in the OneWater LLC Agreement). If we determine the utilization of these deferred tax 96 Table of Contents assets is not more-likely-than-not in the future, our estimate of amounts to be paid under the Tax Receivable Agreement would be reduced. In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our consolidated statements of operations. 18. Commitments and Contingencies Employment Agreements The Company is party to employment agreements with certain executives, which provide for compensation, other benefits and severance payments under certain circumstances. The Company also has consulting and noncompete agreements in place with previous owners of acquired companies. Claims and Litigation The Company is involved in various legal proceedings as either the defendant or plaintiff. Due to their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between the affected parties and other actions. Management assesses the probability of losses or gains for such contingencies and accrues a liability and/or discloses the relevant circumstances as appropriate. In the opinion of management, it is not reasonably probable that the pending litigation, disputes or claims against the Company, as of September 30, 2024 , will have a material adverse effect on its financial condition, results of operations or cash flows. However, the outcome of any matter cannot be predicted with certainty, and an unfavorable resolution of one or more matters presently known or arising in the future could have a material adverse effect on the Company’s financial condition, liquidity or results of operations. Risk Management The Company is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions and natural disasters for which the Company carries commercial insurance. There have been no significant reductions in coverage from the prior year and settlements have not exceeded coverage in the past years. 19. Leases The Company leases real estate and equipment under operating lease agreements. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. For leases with terms in excess of 12 months, we record a right-of-use (“ROU”) asset and lease liability based on the present value of lease payments over the lease term. We do not have any significant leases that have not yet commenced that create significant rights and obligations for us. The Company has elected the practical expedient not to separate lease and non- lease components for all leases that qualify. Our real estate and equipment leases often require payment of maintenance, real estate taxes and insurance. These costs are generally variable and based on actual costs incurred by the lessor. These amounts are not included in the consideration of the contract when determining the ROU asset and lease liability but are reflected as variable lease payments. Most leases include one or more options to renew, with renewal terms that can extend the lease from one to ten or more years. The exercise of the lease renewal option is typically at our sole discretion. If it is reasonably certain that we will exercise the option to renew, the period covered by the options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Certain leases include the option to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, which includes renewal options reasonably certain to be exercised. As of September 30, 2024, our weighted-average lease term on operating leases was 9.5 years. Certain of our lease agreements include rental payments based on percentage of retail sales over contractual levels and others include rental payments adjusted periodically based on index rates. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. When available, the implicit rate is utilized to discount lease payments to present value; however, none of our leases provide a readily determinable implicit rate, therefore we use our incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. As of September 30, 2024, our weighted average discount rate on operating leases was 5.6 %. 97 Table of Contents The following table provides certain information related to lease costs for operating leases: For the Years Ended September 30, ($ in thousands) 2024 2023 2022 Operating lease cost $ 23,336 $ 21,332 $ 18,092 Short-term and variable lease cost 6,415 6,062 4,466 $ 29,751 $ 27,394 $ 22,558 The following table presents supplemental cash flow information for leases: For the Years Ended September 30, ($ in thousands) 2024 2023 2022 Cash paid for amounts included in measurement of lease liabilities: Operating cash flows from operating leases $ 17,168 $ 20,704 $ 17,436 Right-of-use assets obtained in exchange for new operating lease liabilities $ 20,330 $ 27,128 $ 48,310 The following table provides the maturities of our operating lease liabilities as of September 30, 2024: ($ in thousands) Operating Leases Year ending September 30, 2025 $ 22,683 2026 21,548 2027 20,169 2028 20,737 2029 19,005 Thereafter 81,642 Total minimum lease payments 185,784 Less: Present value adjustment ( 44,079 ) Operating lease liabilities $ 141,705 20. Related Party Transactions In accordance with agreements approved by the Board, we purchased inventory, in conjunction with our retail sale of the products, from certain entities affiliated with the Company. For the years ended September 30, 2024, 2023 and 2022, $ 124.4 million, $ 94.3 million and $ 84.2 million, respectively, in total purchases were incurred under these arrangements. In accordance with agreements approved by the Board, certain entities affiliated with the Company receive fees for rent of commercial property. For the years ended September 30, 2024, 2023 and 2022, $ 2.5 million, $ 2.1 million and $ 2.8 million, respectively, in total expenses were incurred under these arrangements. Additionally, see Note 4 for information regarding a sale and leaseback transaction with an entity affiliated with the Company in connection with an acquisition by the Company. In accordance with agreements approved by the Board, the Company received fees from certain entities and individuals affiliated with the Company for goods and services. For the years ended September 30, 2024, 2023 and 2022, $ 4.0 million, $ 1.1 million and $ 6.3 million, respectively, were recorded under these arrangements. In accordance with agreements approved by the Board, the Company made payments to certain entities and individuals affiliated with the Company for goods and services. For the years ended September 30, 2024, 2023 and 2022, $ 0.1 million, $ 0.1 million and $ 0.2 million, respectively, were recorded under these arrangements. In connection with transactions noted above, the Company owed $ 6.0 million and $ 4.7 million as recorded within accounts payable on the consolidated balance sheets at September 30, 2024 and 2023, respectively. In connection with the Tax Receivable Agreement, the Company made payments to certain entities and individuals affiliated with the Company. For the years ended September 30, 2024, 2023 and 2022, $ 2.4 million , $ 2.2 million and $ 0.8 million, respectively, in total payments were made under the agreement. In connection with the Tax Receivable Agreement, the Company owed $ 36.2 million and $ 38.7 98 Table of Contents million as recorded within current portion of tax receivable agreement liability and tax receivable agreement liability on the consolidated balance sheets at September 30, 2024 and 2023, respectively. See further discussion of our Tax Receivable Agreement in Note 17. 21. Segment Information We report our operations through two reportable segments: (1) Dealerships and (2) Distribution. See Note 2 for more information about our segments. Reportable segment financial information for the years ended September 30, 2024, 2023 and 2022 is as follows: As of and for the Year Ended September 30, 2024 ($ in thousands) Dealerships Distribution Eliminations Total Revenue $ 1,616,867 $ 156,060 $ ( 297 ) $ 1,772,630 Income (loss) from operations 67,613 ( 2,750 ) ( 45 ) 64,818 Depreciation and amortization 12,638 9,549 — 22,187 Transaction costs 1,334 196 — 1,530 Change in fair value of contingent consideration 4,248 — — 4,248 Restructuring and impairment 13,049 2,269 — 15,318 Total assets 1,357,650 232,351 ( 12 ) 1,589,989 As of and for the Year Ended September 30, 2023 ($ in thousands) Dealerships Distribution Eliminations Total Revenue $ 1,755,423 $ 181,083 $ ( 196 ) $ 1,936,310 Income (loss) from operations 163,229 ( 145,154 ) ( 8 ) 18,067 Depreciation and amortization 10,731 16,058 — 26,789 Transaction costs 1,587 252 — 1,839 Change in fair value of contingent consideration ( 1,893 ) 289 — ( 1,604 ) Restructuring and impairment 6,500 140,902 — 147,402 Total assets 1,435,023 254,164 ( 28 ) 1,689,159 As of and for the Year Ended September 30, 2022 ($ in thousands) Dealerships Distribution Eliminations Total Revenue $ 1,608,972 $ 135,850 $ — $ 1,744,822 Income from operations 211,401 6,432 — 217,833 Depreciation and amortization 7,628 8,668 — 16,296 Transaction costs 5,347 2,377 — 7,724 Change in fair value of contingent consideration 10,189 191 — 10,380 Total assets 1,078,457 418,971 — 1,497,428 22. Subsequent events Management evaluated events occurring subsequent to September 30, 2024 and other than as noted below determined that no material recognizable subsequent events occurred. 99 Table of Contents On November 13, 2024, the Company and certain of its subsidiaries entered into the November 2024 Inventory Financing Amendment, with Wells Fargo and other lenders party thereto. The November 2024 Inventory Financing Amendment amends the Inventory Financing Facility to, among other things, (i) modify certain definitions, terms and conditions, (ii) adjust the minimum fixed charge coverage ratio, (iii) adjust the maximum funded debt to EBITDA ratio, (iv) establish a new minimum liquidity measure, (v) allow for certain swap transactions to mitigate risk in the ordinary course of business, (iv) reduce the maximum borrowing capacity to $ 595.0 million, and (vii) waive certain covenant compliance requirements, including for the period ended September 30, 2024. On November 13, 2024, the Company and certain of its subsidiaries entered into Amendment No. 6 with Truist Bank, as administrative agent, and other lenders party thereto. Amendment No. 6 amended the Amended and Restated Credit Agreement to, among other things, (i) modify certain definitions, terms and conditions, (ii) adjust the minimum fixed charge coverage ratio, (iii) adjust the maximum leverage ratio measures, (iv) adjust the minimum liquidity measure, (v) modify the maturity date to be July 31, 2026, and in connection therewith, the repayment schedule, and (vi) waive certain covenant compliance requirements, including for the period ended September 30, 2024. 100 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.