ONEWATER MARINE INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

                           AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references in this report to the
"Company," "we," "us," and "our" refer to OneWater Marine Inc. and its
consolidated subsidiaries. The following discussion and analysis should be read
in conjunction with the accompanying financial statements and related notes. The
following discussion contains forward-looking statements that reflect our future
plans, estimates, beliefs and expected performance. The forward-looking
statements are dependent upon events, risks and uncertainties that may be
outside our control. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those factors
discussed above in "Cautionary Statement Regarding Forward-Looking Statements"
and described under the heading "Risk Factors" included in our Annual Report on
Form 10-K for the year ended September 30, 2022, filed with the SEC on December
15, 2022, all of which are difficult to predict. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed may not
occur. We do not undertake any obligation to publicly update any forward-looking
statements except as otherwise required by applicable law.

Overview

We believe that we are one of the largest and fastest-growing marine retailers
in the United States with 100 retail locations, 12 distribution
centers/warehouses and multiple online marketplaces as of December 31, 2022. Our
retail locations are located in highly attractive markets throughout the
Southeast, Gulf Coast, Mid-Atlantic and Northeast, many of which are in top
twenty states for marine retail expenditures. We believe that we are a market
leader by volume in sales of premium boats in 13 of the markets in which we
operate. Additionally, the recent acquisitions of T-H Marine Supplies, LLC ("T-H
Marine") and Ocean Bio-Chem will significantly expand our sales of
marine-related parts and accessories. The combination of our significant scale,
diverse inventory, access to premium boat brands, access to a broad array of
parts and accessories, and meaningful group brand equity enables us to provide a
consistently professional experience as reflected in the number of our repeat
customers and Dealership same-store sales growth.

Effective August 9, 2022, our reportable segments changed as a result of the
Company's acquisition of Ocean Bio-Chem, which changed management's reporting
structure and operating activities. We now report our operations through two
reportable segments: Dealerships and Distribution.

As of December 31, 2022, the Dealerships segment includes operations of 100
dealerships in 16 states including Florida, Texas, Alabama and Georgia, among
others, and represents approximately 89% of revenues for the three months ended
December 31, 2022. 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. In fiscal year 2022, we
sold over 10,500 new and pre-owned boats, many of which were sold to customers
who had a trade-in or with whom we otherwise had established relationships. The
combination of our significant scale, diverse inventory and revenue streams,
access to premium boat brands and meaningful brand equity enables us to provide
a consistently professional experience as reflected by the number of our repeat
customers and Dealership same-store sales growth.

As of December 31, 2022, the Distribution segment includes the activity of three
of our fully-owned businesses, PartsVu, Ocean Bio-Chem and T-H Marine and its
subsidiaries, which together operate 12 distribution centers/warehouses in
Alabama, Florida, Texas, Oklahoma, Indiana, Tennessee and Illinois and
represents approximately 11% of revenues for the three months ended December 31,
2022. The Distribution segment engages in the manufacturing, assembly and
distribution of primarily marine-related products for sale to distributors, big
box retailers, online retailers and direct to consumers. We offer a wide array
of branded parts and accessories including jack plates, rigging parts, plumbing
components, LED lighting, storage systems, and appearance, cleaning, and
maintenance products for the marine and ancillary industries. All revenue for
the Distribution segment is reported in service, parts & other in our
consolidated statements of operations.

We were formed in 2014 as OneWater LLC through the combination of Singleton
Marine and Legendary Marine, which created a marine retail platform that
collectively owned and operated 19 dealerships. Since the combination in 2014,
we have acquired a total of 79 additional dealerships, 12 distribution
centers/warehouses and multiple online marketplaces through 32 acquisitions. Our
current portfolio as of December 31, 2022 consists of multiple brands which are
recognized on a local, regional or national basis. Because of this, we believe
we are one of the largest and fastest-growing marine retailers in the United
States based on number of dealerships and total boats sold. While we have
opportunistically opened new dealerships in select markets, or launched
additional parts and accessory products, we believe that it is generally more
effective economically and operationally to acquire existing businesses with
experienced staff and established reputations.

The boat dealership market is highly fragmented, as evidenced by the over 4,000
boat dealers nationwide. Most competing boat retailers are operated by local
business owners who own three or fewer stores; however, we do have other large
competitors including MarineMax and Bass Pro Shops. We believe we are one of the
largest and fastest-growing marine retailers in the United States. Despite our
size, we comprise less than 3% of total industry sales. Our scale and business
model allow us to leverage our extensive inventory to provide consumers with the
ability to find a boat that matches their preferences (e.g., make, model, color,
configuration and other options) and to deliver the boat within days while
providing a personalized sales experience. In addition to boat sales, we also
generate sales from related products including finance & insurance and service,
parts and other sales. The recent acquisitions of T-H Marine and Ocean Bio-Chem
have significantly expanded our sales of marine parts and accessories. Our
strategic growth in this area is also expected to materially expand our
addressable market in the parts and accessories business. We are able to operate
with a comparatively higher degree of profitability than other independent
retailers because we allocate support resources across our broader base, focus
on high margin service, parts and accessories, utilize floor plan financing and
provide core back-office functions on a scale that many independent retailers
are unable to match. We seek to be the leading marine retailer by total market
share within each boating market and within the product segments in which we
participate. To the extent that we are not, we will evaluate acquiring other
local retailers in order to increase our sales, to add additional brands or to
provide us with additional high-quality personnel.

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Impact of COVID-19

The COVID-19 pandemic and its related effects, including restraints on U.S.
economic and leisure activities, has and may continue to have a significant
impact on our operations and financial condition. National, state and local
governments in affected regions previously implemented and in the future may
reimplement safety precautions, including shelter in place orders, travel
restrictions, business closures, cancellations of public gatherings, including
boat shows, and other measures. At times, these measures have affected our
ability to sell and service boats, required us to temporarily close or partially
close certain locations and may require additional closures in the future.

The COVID-19 pandemic and its related effects have, to date, positively impacted
our sales as more customers desire to engage in outdoor recreational activities
that can be enjoyed close to first or second homes, in a socially distanced
manner. However, the COVID-19 pandemic has also caused significant supply chain
challenges as suppliers were, and continue to be, faced with business closures
and shipping delays. This has led to an industry wide inventory shortage of
boats, engines and certain marine parts. The COVID-19 pandemic and its related
effects may continue to interfere with the ability of our employees,
contractors, customers, suppliers, and other business partners to perform our
and their respective responsibilities and obligations with respect to the
operation of our business.

While we continue to monitor the impact of the COVID-19 pandemic on our business
and operations, our financial results for the three months ended December 31,
2022 suggest that spending in all our regions and across product lines has
proven resilient despite the challenges posed by the pandemic as customers have
continued to focus on socially distanced outdoor recreations. The ultimate
impact of the COVID-19 pandemic on our business remains uncertain and dependent
on various factors including consumer demand, a possible resurgence of COVID-19,
including variants of the virus in certain geographic areas, our ability to
safely operate locations and the existence and extent of a prolonged economic
downturn.

Trends and Other Factors Impacting Our Performance

Acquisitions

We are a highly acquisitive company. Since the combination of Singleton Marine
and Legendary Marine in 2014, we have acquired 79 additional dealerships through
27 dealer group acquisitions. Our team remains focused on expanding our
dealership growth in regions with strong boating cultures, enhancing the
customer experience and generating value for our shareholders. In addition to
dealership acquisitions, the Company has strategically acquired parts and
accessories companies as part of our growth and diversification strategy. We
have acquired 12 distribution centers and warehouses through the acquisition of
5 parts and accessories companies. We plan to continue to strategically evaluate
and complete acquisitions moving forward.

We have an extensive acquisition track record within the marine retail industry
and believe we have developed a reputation for treating sellers and their staff
in an honest and fair manner. We typically retain the management team and name
of the acquired group. We believe this practice preserves the acquired dealer's
customer relationships and goodwill in the local marketplace. We believe our
reputation and scale have positioned us as a buyer of choice for marine
retailers who want to sell their businesses. Our strategy is to acquire
dealerships at attractive EBITDA multiples and then grow same-store sales while
benefitting from cost-reducing synergies. Historically, we have typically
acquired dealerships for less than 4.0x EBITDA on a trailing twelve-month basis
and believe that we will be able to continue to make attractive acquisitions
within this range. With the expansion of our Distribution segment, we look to
acquire parts and accessories manufacturing and distribution companies within a
range of 5.0x - 10.0x EBITDA on a trailing twelve-month basis, depending on the
size of the business.

General Economic Conditions

General economic conditions and consumer spending patterns can negatively impact
our operating results. Unfavorable local, regional, national, or global economic
developments or uncertainties, including the adverse economic effects of the
COVID-19 pandemic, including supply chain constraints, or a prolonged economic
downturn, could reduce consumer spending and adversely affect our business.
Consumer spending on discretionary goods may also decline as a result of lower
consumer confidence levels, higher interest rates or higher fuel costs, even if
prevailing economic conditions are otherwise favorable. Economic conditions in
areas in which we operate dealerships, particularly in the Southeast, can have a
major impact on our overall results of operations. Local influences, such as
corporate downsizing and inclement weather such as hurricanes and other storms,
environmental conditions, global public health concerns and events could
adversely affect our operations in certain markets and in certain periods. Any
extended period of adverse economic conditions or low consumer confidence is
likely to have a negative effect on our business.

Our business was significantly impacted during the recessionary period that
began in 2007. This period of weakness in consumer spending and depressed
economic conditions had a substantial negative effect on our operating results.
In response to these conditions we reduced our inventory purchases, closed
certain dealerships and reduced headcount. Additionally, in an effort to
counteract the downturn, we increased our focus on pre-owned sales, parts and
repair services, and finance & insurance services. As a result, we surpassed our
pre-recession sales levels in less than 24 months. While we believe the measures
we took significantly reduced the impact of the downturn on the business, we
cannot guarantee similar results in the event of a future downturn.
Additionally, we cannot predict the timing or length of unfavorable economic or
industry conditions, including a downturn as a result of pandemics, rising
interest rates, inflation, or the extent to which they could adversely affect
our operating results.


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Although past economic conditions have adversely affected our operating results,
we believe we are capable of responding in a manner that allows us to
substantially outperform the industry and gain market share. We believe our
ability to capture such market share enables us to align our retail strategies
with the desires of customers. We expect our core strengths, including retail
and acquisition strategies, will allow us to capitalize on growth opportunities
as they occur, despite market conditions.

Critical Accounting Estimates

There have been no material changes in our critical accounting policies and
estimates from the information provided in the Company's Annual Report for the
year ended September 30, 2022.

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How We Evaluate Our Operations

Revenue

We have a diversified revenue profile that is comprised of new boat sales,
pre-owned boat sales, finance & insurance products, repair and maintenance
services, and parts and accessories. During different phases of the economic
cycle, consumer behavior may shift away from new boats; however, we are
well-positioned to benefit from revenue from pre-owned boats, repair and
maintenance services, and parts and accessories, which have all historically
increased during periods of economic uncertainty. We generate pre-owned sales
from boats traded-in for new and pre-owned boats, boats purchased from
consumers, brokerage transactions, consignment sales and wholesale sales. We
continue to focus on all aspects of our business including non-boat sales of
finance & insurance products, repair and maintenance services, and parts and
accessories. Although non-boat sales contributed 21.4% and 13.9% to revenue in
the three months ended December 31, 2022 and 2021, respectively, due to the
higher gross margin on these product and service lines, non-boat sales
contributed 34.0% and 26.3% to gross profit in the three months ended December
31, 2022 and 2021, respectively. We have also diversified our business across
geographies, dealership types (e.g., fresh water and salt water), and product
offerings (e.g., focus on parts and accessories business through PartsVu, T-H
Marine and Ocean Bio-Chem) in order to reduce the effects of seasonality and
cyclicality of our business. In addition to seasonality, revenue and operating
results may also be significantly affected by quarter-to-quarter changes in
economic conditions, manufacturer incentive programs, adverse weather conditions
and other developments outside of our control.

Gross Profit

We calculate gross profit as revenue less cost of sales. Cost of sales consists
of actual amounts paid for products, costs of services (primarily labor),
transportation costs from manufacturers to our dealerships and vendor
consideration. Gross profit excludes the majority of depreciation and
amortization, which is presented separately in our consolidated statements of
operations.

Gross Profit Margin

Our overall gross profit margin varies with our revenue mix. Sales of new and
pre-owned boats, which have comparable margins, generally result in a lower
gross profit margin than our non-boat sales. As a result, when revenue from
non-boat sales increases as a percentage of total revenue, we expect our overall
gross profit margin to increase.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses consist primarily of salaries and
incentive-based compensation, advertising, rent, insurance, utilities, and other
customary operating expenses. A portion of our cost structure is variable (such
as sales commissions and incentive compensation), or controllable (such as
advertising), which we believe allows us to adapt to changes in the retail
environment over the long term. We typically evaluate our variable expenses,
selling expenses and all other selling, general, and administrative expenses in
the aggregate as a percentage of total revenue.

Dealership Same-Store Sales

We assess the organic growth of our Dealership segment revenue on a same-store
basis. We believe that our assessment on a same-store basis represents an
important indicator of comparative financial results and provides relevant
information to assess our performance. New and acquired dealerships become
eligible for inclusion in the comparable dealership base at the end of the
dealership's thirteenth month of operations under our ownership and revenues are
only included for identical months in the same-store base periods. Dealerships
relocated within an existing market remain in the comparable dealership base for
all periods. Additionally, amounts related to closed dealerships are excluded
from each comparative base period. Because Dealership same-store sales may be
defined differently by other companies in our industry, our definition of this
measure may not be comparable to similarly titled measures of other companies,
thereby diminishing its utility.

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Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) before interest expense - other,
income tax expense, depreciation and amortization and other (income) expense,
further adjusted to eliminate the effects of items such as the change in fair
value of contingent consideration, loss on extinguishment of debt and
transaction costs. See ''-Comparison of Non-GAAP Financial Measure'' for more
information and a reconciliation of Adjusted EBITDA to net income (loss), the
most directly comparable financial measure calculated and presented in
accordance with GAAP.

Summary of Acquisitions

The comparability of our results of operations between the periods discussed
below is naturally affected by the acquisitions we have completed during such
periods. We are also continuously evaluating and pursuing acquisitions on an
ongoing basis, and such acquisitions, if completed, will continue to impact the
comparability of our financial results. While we expect continued growth and
strategic acquisitions in the future, our acquisitions may have materially
different characteristics than our historical results, and such differences in
economics may impact the comparability of our future results of operations to
our historical results.

Fiscal 2023 Year-to-date Acquisitions

• Effective October 1, 2022, we acquired Taylor Marine Centers, a full-service

marine retailer with locations in Maryland and Delaware.

• Effective December 1, 2022, we acquired Harbor View Marine, a full-service

marine retailer with locations in Florida and Alabama.

We refer to the fiscal year 2023 acquisitions described above collectively as
the ''2023 Acquisitions.'' The acquisition of Taylor Marine Centers is fully
reflected in our unaudited Condensed Consolidated Statements of Operations for
the three months ended December 31, 2022. The acquisition of Harbor View Marine
is partially reflected in our unaudited Condensed Consolidated Statements of
Operations for the three months ended December 31, 2022.

Fiscal Year 2022 Acquisitions

• Effective October 1, 2021, we acquired Naples Boat Mart, a full-service marine

retailer with one location in Florida.

• Effective November 30, 2021, we acquired T-H Marine, a leading provider of

    branded marine parts and accessories for OEMs and the aftermarket, with
    locations in Alabama, Florida, Illinois, Indiana, Oklahoma and Texas.

• Effective December 1, 2021, we acquired Norfolk Marine Company, a full-service

marine retailer with one location in Virginia.

• Effective December 31, 2021, we acquired a majority interest in Quality Boats,

a full-service marine retailer with three locations in Florida.

• Effective February 1, 2022 we acquired JIF Marine, a leading supplier of

stainless steel ladders, dock products and other accessories which is based in

Tennessee.

• Effective March 1, 2022, we acquired YakGear, a leading supplier of kayak

    equipment, paddle sport accessories and boat mounting accessories which is
    based in Texas.

• Effective April 1, 2022, we acquired Denison Yachting, a leader in yacht and

    superyacht sales as well as ancillary yacht services, with 20 retail
    locations.

• Effective August 9, 2022, we acquired Ocean Bio-Chem, including Star Brite

Europe, Inc., a leading supplier and distributor of appearance, cleaning and

maintenance products for the marine industry and the automotive, powersports,

recreational vehicles, and outdoor power equipment markets with locations in

    Alabama and Florida.



We refer to the fiscal year 2022 acquisitions described above collectively as
the "2022 Acquisitions." The acquisition of Naples Boat Mart is fully reflected
in our unaudited Condensed Consolidated Statements of Operations for the three
months ended December 31, 2021. The acquisitions of T-H Marine and Norfolk
Marine Company are partially reflected in our unaudited Condensed Consolidated
Statements of Operations for the three months ended December 31, 2021. The
remaining 2022 Acquisitions are not reflected in our unaudited Condensed
Consolidated Statements of Operations for the three months ended December 31,
2021.

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

Our historical financial results discussed below may not be comparable to our
future financial results for the reasons described below.

• OneWater Inc. is subject to U.S. federal, state and local income taxes as a

corporation. Our accounting predecessor, OneWater LLC, was and is treated as a

partnership for U.S. federal income tax purposes, and as such, was generally

not subject to U.S. federal income tax at the entity level. Rather, the tax

liability with respect to its taxable income is passed through to its members.

Accordingly, the financial data attributable to our predecessor contains no

provision for U.S. federal income taxes or income taxes in any state or

locality. OneWater Inc.'s effective tax rates were 22.8% and 17.2% for the

    three months ended December 31, 2022 and 2021, respectively.



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• As we further implement controls, processes and infrastructure applicable to

companies with publicly traded equity securities, it is likely that we will

incur additional selling, general, and administrative expenses relative to

historical periods. Our future results will depend on our ability to

efficiently manage our combined operations and execute our business strategy.

Results of Operations

Three Months Ended December 31, 2022, Compared to Three Months Ended December
31, 2021

                                                                    For the three months                    For the three months
                                                                   ended December 31, 2022                 ended December 31, 2021
                                                                 Amount            % of Revenue          Amount            % of Revenue        $ Change           % Change
                                                                                                             ($ in thousands)
Revenues
New boat                                                     $      232,405                 63.4 %   $      236,198                 70.2 %   $      (3,793 )             -1.6 %
Pre-owned boat                                                       55,778                 15.2 %           53,449                 15.9 %           2,329                4.4 %
Finance & insurance income                                            8,934                  2.4 %            9,307                  2.8 %            (373 )             -4.0 %
Service, parts and other                                             69,542                 19.0 %           37,318                 11.1 %          32,224               86.3 %
Total revenues                                                      366,659                100.0 %          336,272                100.0 %          30,387                9.0 %

Gross Profit
New boat                                                             57,147                 15.6 %           60,302                 17.9 %          (3,155 )             -5.2 %
Pre-owned boat                                                       15,474                  4.2 %           14,079                  4.2 %           1,395                9.9 %
Finance & insurance                                                   8,934                  2.4 %            9,307                  2.8 %            (373 )             -4.0 %
Service, parts & other                                               28,433                  7.8 %           17,277                  5.1 %          11,156               64.6 %
Total gross profit                                                  109,988                 30.0 %          100,965                 30.0 %           9,023                8.9 %

Selling, general and administrative expenses                         77,838                 21.2 %           59,096                 17.6 %          18,742               31.7 %
Depreciation and amortization                                         5,693                  1.6 %            1,749                  0.5 %           3,944              225.5 %
Transaction costs                                                     1,330                  0.4 %            3,045                  0.9 %          (1,715 )            -56.3 %
Change in fair value of contingent consideration                     (1,409 )               -0.4 %            5,746                  1.7 %          (7,155 )           -124.5 %

Income from operations                                               26,536                  7.2 %           31,329                  9.3 %          (4,793 )            -15.3 %

Interest expense - floor plan                                         4,779                  1.3 %              877                  0.3 %           3,902              444.9 %
Interest expense - other                                              7,584                  2.1 %            1,529                  0.5 %           6,055              396.0 %
Other (income) expense, net                                            (639 )               -0.2 %              548                  0.2 %          (1,187 )           -216.6 %
Income before income tax expense                                     14,812                  4.0 %           28,375                  8.4 %         (13,563 )            -47.8 %
Income tax expense                                                    3,384                  0.9 %            4,889                  1.5 %          (1,505 )            -30.8 %
Net income                                                           11,428                  3.1 %           23,486                  7.0 %         (12,058 )            -51.3 %
Less: Net income attributable to non-controlling interests           (1,365 )                                     -

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

                                    (1,163 )                                (3,467 )
Net income attributable to One Water Marine Inc.             $        8,900                          $       20,019




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Revenue

Overall, revenue increased by $30.4 million, or 9.0%, to $366.7 million for the
three months ended December 31, 2022 from $336.3 million for the three months
ended December 31, 2021. Overall revenue increased due to acquisition growth,
primarily driven by a $32.2 million increase in service, parts & other sales for
the three months ended December 31, 2022 compared to the three months ended
December 31, 2021, fueled by the expansion of our Distribution segment. Revenue
generated from Dealership same-store sales decreased 14% for the three months
ended December 31, 2022 as compared to the three months ended December 31, 2021,
following a 28% and 38% increase in fiscal first quarter 2022 and 2021,
respectively, as we saw more traditional effects of seasonality on our business
where we realize lower sales and higher inventory in the fiscal first quarter.

New Boat Sales

New boat sales decreased by $3.8 million, or 1.6%, to $232.4 million for the
three months ended December 31, 2022 from $236.2 million for the three months
ended December 31, 2021. The decrease was primarily attributable to a decrease
in unit sales, partially offset by an increase in the average sales price.

Pre-owned Boat Sales

Pre-owned boat sales increased by $2.3 million, or 4.4%, to $55.8 million for
the three months ended December 31, 2022 from $53.4 million for the three months
ended December 31, 2021. We sell a wide range of brands and sizes of pre-owned
boats under different types of sales arrangements (e.g., trade-ins, brokerage,
consigned and wholesale), which causes periodic and seasonal fluctuations in the
average sales price. The increase in pre-owned boat sales was primarily
attributable to an increase in the number of units sold.

Finance & Insurance Income

We generate revenue from arranging finance & insurance products, including
financing, insurance and extended warranty contracts, to customers through
various third-party financial institutions and insurance companies. Finance &
insurance income decreased by $0.4 million, or 4%, to $8.9 million for the three
months ended December 31, 2022 from $9.3 million for the three months ended
December 31, 2021. The decrease was primarily a result of the decrease in
Dealership same-store sales. We remain very focused on improving sales of
finance & insurance products throughout our dealer network and implementing best
practices at acquired dealer groups and existing dealerships. Finance &
insurance income is recorded net of related fees, including fees charged back
due to any early cancellation of loan or insurance contracts by a customer.
Since finance & insurance income is fee-based, we do not incur any related cost
of sale.

Service, Parts & Other Sales

Service, parts & other sales increased by $32.2 million, or 86.3%, to $69.5
million for the three months ended December 31, 2022 from $37.3 million for the
three months ended December 31, 2021. The increase in service, parts & other
sales is primarily due to the contributions from our recently acquired parts and
accessories businesses, including T-H Marine and Ocean Bio Chem, as well as
increases across the board in labor, parts, fuel and storage sales, driven by
ancillary sales generated from our increase in new and pre-owned boat sales at
our dealerships. Total revenue for the Distribution segment was $39.9 million
for the three months ended December 31, 2022.

Gross Profit

Overall, gross profit increased by $9.0 million, or 8.9%, to $110.0 million for
the three months ended December 31, 2022 from $101.0 million for the three
months ended December 31, 2021. This increase was primarily due to the impact of
the 2023 Acquisitions and 2022 Acquisitions and the Company's focus on dynamic
pricing, offset by the overall decrease in Dealership same-store sales. Overall
gross margins remained flat at 30.0% for the three months ended December 31,
2022 and December 31, 2021 due to the factors noted below.

New Boat Gross Profit

New boat gross profit decreased by $3.2 million, or 5.2%, to $57.1 million for
the three months ended December 31, 2022 from $60.3 million for the three months
ended December 31, 2021. This decrease was primarily due to our overall decrease
in new boat sales. New boat gross profit as a percentage of new boat revenue was
24.6% for the three months ended December 31, 2022 as compared to 25.5% in the
three months ended December 31, 2021. The decrease in new boat gross profit and
gross profit margin is due primarily to a shift in the mix and size of boat
models sold and the margin profile of recently acquired locations.


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Pre-owned Boat Gross Profit

Pre-owned boat gross profit increased by $1.4 million, or 9.9%, to $15.5 million
for the three months ended December 31, 2022 from $14.1 million for the three
months ended December 31, 2021. The increase in pre-owned boat gross profit was
primarily driven by an increase in our brokerage business. Pre-owned boat gross
profit as a percentage of pre-owned boat revenue was 27.7% and 26.3% for the
three months ended December 31, 2022 and 2021, respectively. We sell a wide
range of brands and sizes of pre-owned boats under different types of sales
arrangements (e.g., trade-ins, brokerage, consignment and wholesale), which may
cause periodic and seasonal fluctuations in pre-owned boat gross profit as a
percentage of revenue.

Finance & Insurance Gross Profit

Finance & insurance gross profit decreased by $0.4 million, or 4.0%, to $8.9
million for the three months ended December 31, 2022 from $9.3 million for the
three months ended December 31, 2021. Finance & insurance income is fee-based
revenue for which we do not recognize incremental cost of sales.

Service, Parts & Other Gross Profit

Service, parts & other gross profit increased by $11.2 million, or 64.6%, to
$28.4 million for the three months ended December 31, 2022 from $17.3 million
for the three months ended December 31, 2021. Service, parts & other gross
profit as a percentage of service, parts & other revenue was 40.9% and 46.3% for
the three months ended December 31, 2022 and 2021, respectively. The increase in
gross profit was primarily the result of the acquisitions in our Distribution
segment. The decrease in gross profit margin percentage was due to a shift in
the mix of products sold towards parts & accessories which has a lower margin
percentage than service and other sales.

Selling, General & Administrative Expenses

Selling, general & administrative expenses increased by $18.7 million, or 31.7%,
to $77.8 million for the three months ended December 31, 2022 from $59.1 million
for the three months ended December 31, 2021. This increase was primarily due to
expenses incurred to support the overall increase in revenues and gross profit.
Selling, general & administrative expenses as a percentage of revenue increased
to 21.2% from 17.6% for the three months ended December 31, 2022 and 2021,
respectively. The increase in selling, general and administrative expenses as a
percentage of revenue was primarily due to higher personnel expenses related to
acquisitions as well as higher marketing expenses related to increased boat show
activity during the current quarter.

Depreciation and Amortization

Depreciation and amortization expense increased $3.9 million, or 225.5%, to $5.7
million for the three months ended December 31, 2022 compared to $1.7 million
for the three months ended December 31, 2021. The increase in depreciation and
amortization expense for the three months ended December 31, 2022 compared to
the three months ended December 31, 2021 was primarily attributable to a $3.3
million increase in amortization of identifiable intangible assets, primarily
attributable to the 2022 Acquisitions.

Transaction Costs

The decrease in transaction costs of $1.7 million, or 56.3%, to $1.3 million for
the three months ended December 31, 2022 compared to $3.0 million for the three
months ended December 31, 2021 was primarily attributable to fewer acquisitions
completed during the first quarter of the current year compared to the previous
year.

Change in Fair Value of Contingent Consideration

During the three months ended December 31, 2022, we recognized a gain of $1.4
million related to updated forecasts and accretion of contingent consideration
liabilities related to acquisitions completed in fiscal years 2021, 2022 and
2023.

Income from Operations

Income from operations decreased $4.8 million, or 15.3%, to $26.5 million for
the three months ended December 31, 2022 compared to $31.3 million for the three
months ended December 31, 2021. The decrease was primarily attributable to the
$18.7 million increase in selling, general and administrative expenses for the
three months ended December 31, 2022 as compared to the three months ended
December 31, 2021, partially offset by a $9.0 million increase in gross profit
and a $7.2 million decrease in the change in fair value of contingent
consideration during the same periods.

Interest Expense - Floor Plan

Interest expense - floor plan increased $3.9 million, or 444.9%, to $4.8 million
for the three months ended December 31, 2022 compared to $0.9 million for the
three months ended December 31, 2021. Floor plan related interest expense
increased primarily due to an increase in the average inventory for the three
months ended December 31, 2022 compared to the three months ended December 31,
2021 as well as an increase in interest rates.


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Interest Expense - Other

Interest expense - other increased by $6.1 million, or 396.0%, to $7.6 million
for the three months ended December 31, 2022 compared to $1.5 million for the
three months ended December 31, 2021. The increase in interest expense - other
was related to the increase in our long-term debt which was used to fund certain
2022 acquisitions as well as rising interest rates.

Other (Income) Expense, Net

Other (income) expense, net changed by $1.2 million, or 216.6%, to $0.6 million
of income for the three months ended December 31, 2022 compared to $0.5 million
of expense for the three months ended December 31, 2021. The change was
primarily related to proceeds from insurance as a result of Hurricane Ian as
well as a $0.6 million reduction in expenses related to tax rate changes on our
tax receivable agreement liability during the three months ended December 31,
2022 compared to the three months ended December 31, 2021.

Income Tax Expense

Income tax expense decreased $1.5 million, or 30.8%, to $3.4 million for the
three months ended December 31, 2022 compared to $4.9 million for the three
months ended December 31, 2021. The decrease was primarily attributable to the
47.8% decrease in income before income tax expense for the three months ended
December 31, 2022 as compared to December 31, 2021, partially offset by an
increase in our effective tax rate.

Net Income (Loss)

Net income decreased by $12.1 million to $11.4 million for the three months
ended December 31, 2022 compared to $23.5 million for the three months ended
December 31, 2021. The decrease was primarily attributable to the $18.7 million
increase in selling, general & administrative expenses, the $6.1 million
increase in interest expense - other and the $3.9 million increase in interest
expense - floor plan for the three months ended December 31, 2022 compared to
the three months ended December 31, 2021. The decrease was partially offset by a
$9.0 million increase in gross profit and a $7.2 million decrease in the change
in fair value of contingent consideration for the three months ended December
31, 2022 compared to December 31, 2021.

Comparison of Non-GAAP Financial Measure

We view Adjusted EBITDA as an important indicator of performance. We define
Adjusted EBITDA as net income (loss) before interest expense - other, income tax
expense, depreciation and amortization and other (income) expense, further
adjusted to eliminate the effects of items such as the change in the fair value
of contingent consideration, gain (loss) on extinguishment of debt and
transaction costs.

Our board of directors, management team and lenders use Adjusted EBITDA to
assess our financial performance because it allows them to compare our operating
performance on a consistent basis across periods by removing the effects of our
capital structure (such as varying levels of interest expense), asset base (such
as depreciation and amortization) and other items (such as the change in the
fair value of contingent consideration, gain (loss) on extinguishment of debt
and transaction costs) that impact the comparability of financial results from
period to period. We present Adjusted EBITDA because we believe it provides
useful information regarding the factors and trends affecting our business in
addition to measures calculated under GAAP. Adjusted EBITDA is not a financial
measure presented in accordance with GAAP. We believe that the presentation of
this non-GAAP financial measure will provide useful information to investors and
analysts in assessing our financial performance and results of operations across
reporting periods by excluding items we do not believe are indicative of our
core operating performance. Net income (loss) is the GAAP measure most directly
comparable to Adjusted EBITDA. Our non-GAAP financial measure should not be
considered as an alternative to the most directly comparable GAAP financial
measure. You are encouraged to evaluate each of these adjustments and the
reasons we consider them appropriate for supplemental analysis. In evaluating
Adjusted EBITDA, you should be aware that in the future we may incur expenses
that are the same as or similar to some of the adjustments in such presentation.
Our presentation of Adjusted EBITDA should not be construed as an inference that
our future results will be unaffected by unusual or non-recurring items. There
can be no assurance that we will not modify the presentation of Adjusted EBITDA
in the future, and any such modification may be material. Adjusted EBITDA has
important limitations as an analytical tool and you should not consider Adjusted
EBITDA in isolation or as a substitute for analysis of our results as reported
under GAAP. Because Adjusted EBITDA may be defined differently by other
companies in our industry, our definition of this non-GAAP financial measure may
not be comparable to similarly titled measures of other companies, thereby
diminishing its utility.

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

Three Months Ended December 31, 2022, Compared to Three Months Ended December
31, 2021

                                                                  Three months ended December 31,
Description                                                         2022                  2021
                                                                         ($ in thousands)
Net income                                                     $        11,428       $        23,486
Interest expense - other                                                 7,584                 1,529
Income tax expense                                                       3,384                 4,889
Depreciation and amortization                                            6,182                 1,749
Change in fair value of contingent consideration                        (1,409 )               5,746
Transaction costs                                                        1,330                 3,045
Other (income) expense, net                                               (639 )                 548
Adjusted EBITDA                                                $        27,860       $        40,992



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Adjusted EBITDA was $27.9 million for the three months ended December 31, 2022
compared to $41.0 million for the three months ended December 31, 2021. The
decrease in Adjusted EBITDA resulted primarily from the increase in selling,
general and administrative expenses, partially offset by the increase in gross
profit for the three months ended December 31, 2022 compared to the three months
ended December 31, 2021.

Seasonality

Our business, along with the entire recreational boating industry, is highly
seasonal, and such seasonality varies by geographic market. With the exception
of Florida, we generally realize significantly lower sales and higher levels of
inventories, and related floor plan borrowings, in the quarterly periods ending
December 31 and March 31. Revenue generated from our dealerships in Florida
serves to offset generally lower winter revenue in our other states and enables
us to maintain a more consistent revenue stream. The onset of the public boat
and recreation shows in January stimulates boat sales and typically allows us to
reduce our inventory levels and related floor plan borrowings throughout the
remainder of the fiscal year. The impact of seasonality on our results of
operations could be materially impacted based on the location of our
acquisitions. For example, our operations could be substantially more seasonal
if we acquire dealer groups that operate in colder regions of the United States.
Our business is also subject to weather patterns, which may adversely affect our
results of operations. For example, prolonged winter conditions, reduced
rainfall levels or excessive rain, may limit access to boating locations or
render boating dangerous or inconvenient, thereby curtailing customer demand for
our products and services. In addition, unseasonably cool weather and prolonged
winter conditions may lead to a shorter selling season in certain locations.
Hurricanes and other storms could result in disruptions of our operations or
damage to our boat inventories and facilities, as has been the case when Florida
and other markets were affected by hurricanes. We believe our geographic
diversity is likely to reduce the overall impact to us of adverse weather
conditions in any one market area. Additionally, due to a global pandemic, our
seasonal trends may also change as a result of, among other things, location
closures, disruptions to the supply chain and inventory availability,
manufacturer delays, and cancellation of boat shows.

Liquidity and Capital Resources

Overview

OneWater Inc. is a holding company with no operations and is the sole managing
member of OneWater LLC. OneWater Inc's principal asset consists of common units
of OneWater LLC. Our earnings and cash flows and ability to meet our obligations
under the A&R Credit Facility (as defined below), and any other debt obligations
will depend on the cash flows resulting from the operations of our operating
subsidiaries, and the payment of distributions by such subsidiaries. Our A&R
Credit Facility and Inventory Financing Facility (described below) (together,
the "Credit Facilities") contain certain restrictions on distributions or
transfers from our operating subsidiaries to their members or unitholders, as
applicable, as described in the summaries below under "-Debt Agreements-A&R
Credit Facility" and "-Inventory Financing Facility." Accordingly, the operating
results of our subsidiaries may not be sufficient for them to make distributions
to us. As a result, our ability to make payments under the A&R Credit Facility
and any other debt obligations or to declare dividends could be limited.

Our cash needs are primarily for growth through acquisitions and working capital
to support our operations, including new and pre-owned boat and related parts
inventories and off-season liquidity. We routinely monitor our cash flow to
determine the amount of cash available to complete acquisitions. We monitor our
inventories, inventory aging and current market trends to determine our current
and future inventory and related floorplan financing needs. Based on current
facts and circumstances, we believe we will have adequate cash flow from
operations, borrowings under our Credit Facilities and proceeds from any future
public or private issuances of debt or equity to fund our current operations, to
make share repurchases and to fund essential capital expenditures and
acquisitions for the next twelve months and beyond.

Cash needs for acquisitions have historically been financed with our Credit
Facilities and cash generated from operations. Our ability to utilize the A&R
Credit Facility to fund acquisitions depends upon Adjusted EBITDA and compliance
with covenants of the A&R Credit Facility. Cash needs for inventory have
historically been financed with our Inventory Financing Facility. Our ability to
fund inventory purchases and operations depends on the collateral levels and our
compliance with the covenants of the Inventory Financing Facility. As of
December 31, 2022, we were in compliance with all covenants under the A&R Credit
Facility and the Inventory Financing Facility.

We have no material off balance sheet arrangements, except for purchase
commitments under supply agreements entered into in the normal course of
business.

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Cash Flows

Analysis of Cash Flow Changes Between the Three Months Ended December 31, 2022
and 2021

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

                                                         Three Months ended December 31,
Description                                             2022           2021          Change
                                                                 ($ in thousands)
Net cash used in operating activities                $ (138,050 )   $  (22,825 )   $ (115,225 )
Net cash used in investing activities                   (34,980 )     (282,220 )      247,240
Net cash provided by financing activities               170,280        305,865       (135,585 )
Effect of exchange rate changes on cash and
restricted cash                                              11              -             11
Net change in cash                                   $   (2,739 )   $      820     $   (3,559 )



Operating Activities. Net cash used in operating activities was $138.1 million
for the three months ended December 31, 2022 compared to net cash used in
operating activities of $22.8 million for the three months ended December 31,
2021. The $115.2 million increase in cash used in operating activities was
primarily attributable to a $76.2 million increase in the change in inventory, a
$10.1 million decrease in the change in customer deposits and a $12.1 million
decrease in net income for the three months ended December 31, 2022 as compared
to the three months ended December 31, 2021.

Investing Activities. Net cash used in investing activities was $35.0 million
for the three months ended December 31, 2022 compared to net cash used in
investing activities of $282.2 million for the three months ended December 31,
2021. The $247.2 million decrease in cash used in investing activities was
primarily attributable to a $250.2 million decrease in cash used in acquisitions
for the three months ended December 31, 2022 as compared to the three months
ended December 31, 2021.

Financing Activities. Net cash provided by financing activities was $170.3
million for the three months ended December 31, 2022 compared to net cash
provided by financing activities of $305.9 million for the three months ended
December 31, 2021. The $135.6 million decrease in financing cash flow was
primarily attributable to a $220.0 million decrease in borrowings on long-term
debt, partially offset by a $74.6 million increase in net borrowings on our
Inventory Financing Facility for the three months ended December 31, 2022 as
compared to the three months ended December 31, 2021.

Share Repurchase Program

On March 30, 2022 the Board authorized a share repurchase program of up to $50
million of outstanding shares of Class A common stock. Repurchases under the
share repurchase program may be made at any time or from time to time, without
prior notice, in the open market or in privately negotiated transactions at
prevailing market prices, or such other means as will comply with applicable
state and federal securities laws and regulations, including the provisions of
the Securities Exchange Act of 1934, including Rule 10b5-1 and, to the extent
practicable or advisable, Rule 10b-18 thereunder, and consistent with the
Company's contractual limitations and other requirements. As of December 31,
2022 the Company has repurchased and retired 10,134 shares at an average price
of $34.89 per share. The Company has $49.6 million remaining under the share
repurchase program.

The Inflation Reduction Act, which was signed into law on August 2022, imposes a
1%, non-deductible excise tax on certain repurchases of common stock that occur
after December 31, 2022. We expect the excise tax to apply to our share
repurchase program, but do not expect the tax to have a material effect on our
business.

Debt Agreements

Credit Facility

Effective July 22, 2020, we and certain of our subsidiaries entered into the
Credit Agreement (as amended by the First Incremental Amendment and the Second
Incremental Amendment and as further amended, restated, amended and restated,
supplemented or otherwise modified from time to time, the "Credit Facility")
with Truist Bank and the other lenders party thereto. The Credit Facility
provided for (i) a $50.0 million revolving credit facility that was used for
revolving credit loans (including up to $5.0 million in swingline loans and up
to $5.0 million in letters of credit from time to time), and (ii) a term loan
facility (which includes incremental term loans as provided in the First
Incremental Amendment (as defined below) and Second Incremental Amendment (as
defined below)). Subject to certain conditions, the available amount under the
revolving credit facility and the term loans may be increased. The revolving
credit facility was scheduled to mature on July 22, 2025. The term loan was
repayable in installments beginning on March 31, 2021, with the remainder due on
the earlier of (i) July 22, 2025 or (ii) the date on which the principal amount
of all outstanding term loans have been declared or automatically have become
due and payable pursuant to the terms of the Credit Facility.

On February 2, 2021, we entered into the Incremental Amendment No. 1 (the "First
Incremental Amendment") to the Credit Facility to provide for, among other
things, an incremental term loan to OWAO in an aggregate principal amount equal
to $30.0 million, which was added to, and constituted a part of, the existing
$80.0 million term loan.

On November 30, 2021, we entered into the Incremental Amendment No. 2 (the
"Second Incremental Amendment") to the Credit Facility to provide for, among
other things, an incremental term loan to OWAO in an aggregate principal amount
equal to $200.0 million, which was added to, and constituted a part of, the
existing $110.0 million term loan. The Second Incremental Amendment further
provided for a $20.0 million increase in the existing revolving commitment,
which was added to, and constituted a part of, the existing $30.0 million
revolving commitment.


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A&R Credit Facility

On August 9, 2022 we entered into the Amended and Restated Credit Agreement (the
"A&R Credit Facility"), with certain of our subsidiaries, Truist Bank and the
other lenders party thereto. The A&R Credit Facility amends and restates and
replaces in its entirety the Credit Facility. The A&R Credit Facility provides
for, among other things, (i) a $65.0 million revolving credit facility
(including up to $5.0 million in swingline loans and up to $5.0 million in
letters of credit from time to time) and (ii) a $445.0 million term loan
facility. Subject to certain conditions, the available amount under the Term
Facility and the Revolving Facility may be increased by $125.0 million plus
additional amounts subject to additional conditions (including satisfaction of a
consolidated leverage ratio requirement) in the aggregate (with up to $50.0
million allocable to the Revolving Facility). The Revolving Facility matures on
August 9, 2027. The Term Facility is repayable in installments beginning on
December 31, 2022, with the remainder due on the earlier of (i) August 9, 2027
or (ii) the date on which the principal amount of all outstanding term loans
have been declared or automatically have become due and payable pursuant to the
terms of the A&R Credit Facility.

Borrowings under the A&R Credit Facility bear interest, at our option, at either
(a) a base rate (the "Base Rate") equal to the highest of (i) the prime rate (as
announced by Truist Bank from time to time), (ii) the Federal Funds Rate, as in
effect from time to time, plus 0.50%, (iii) Term SOFR (as defined in the A&R
Credit Facility) for a one-month Interest Period (calculated on a daily basis
after taking into account a floor equal to 0.00%) plus 1.00%, and (iv) 1.00%, in
each case, plus an applicable margin ranging from 0.75% to 1.75%, or (b) Term
SOFR, plus an applicable margin ranging from 0.75% to 1.75%. Interest on
swingline loans shall bear interest at the Base Rate plus an applicable margin
ranging from 1.75% to 2.75%. All applicable interest margins are based on
certain consolidated leverage ratio measures.

The A&R Credit Facility is subject to certain financial covenants including the
maintenance of a minimum fixed charge coverage ratio and a maximum consolidated
leverage ratio. The A&R Credit Facility also contains non-financial covenants
and restrictive provisions that, among other things, limit the ability of the
Loan Parties (as defined in the A&R Credit Facility) to incur additional debt,
transfer or dispose of all of their respective assets, make certain investments,
loans or restricted payments and engage in certain transactions with affiliates.
The A&R Credit Facility also includes events of default, borrowing conditions,
representations and warranties and provisions regarding indemnification and
expense reimbursement. The Company was in compliance with all covenants as of
December 31, 2022.

Inventory Financing Facility

On December 29, 2021, the Company and certain of its subsidiaries entered into
the Seventh Amended and Restated Inventory Financing Agreement (as amended,
restated, supplemented or otherwise modified, the "Inventory Financing
Facility") to, among other things, increase the maximum borrowing amount
available to $500.0 million. Loans under the Inventory Financing Facility may be
extended from time to time to enable the Company to purchase inventory from
certain manufacturers. The Inventory Financing Facility Expires on December 1,
2023.

On February 24, 2022, April 1, 2022 and August 9, 2022, the Company entered into
the First, Second and Third Amendments to the Inventory Financing Facility,
respectively, to join various subsidiaries of the Company to the Inventory
Financing Facility in connection with certain acquisitions made by the Company,
in each case, as permitted by and under the Inventory Financing Facility.
Additionally, the Third Amendment to the Inventory Financing Facility increased
the Funded Debt to EBIDTA Ratio (as defined in the Inventory Financing
Facility). No other terms of the Inventory Financing Facility were changed with
the amendments.

Interest on new boats and for rental units is calculated using the Adjusted
30-Day Average SOFR plus an applicable margin of 2.75% to 5.00% depending on the
age of the inventory. Interest on pre-owned boats is calculated at the new boat
rate plus 0.25%. Loans are extended from time to time to enable us to purchase
inventory from certain manufacturers and to lease certain boats and related
parts to customers. The applicable financial terms, curtailment schedule and
maturity for each loan are set forth in separate program terms letters that were
entered into from time to time. The collateral for the Inventory Financing
Facility consisted primarily of our inventory that was financed through the
Inventory Financing Facility and related assets, including accounts receivable,
bank accounts, and proceeds of the foregoing, and excludes the collateral that
secures the A&R Credit Facility.

We are required to comply with certain financial and non-financial covenants
under the Inventory Financing Facility, including certain provisions related to
the Funded Debt to EBITDA Ratio, and the Fixed Charge Coverage Ratio (as defined
in the Inventory Financing Facility). We are also subject to additional
restrictive covenants, including restrictions on our ability to (i) use, sell,
rent or otherwise dispose of any collateral securing the Inventory Financing
Facility except for the sale of inventory in the ordinary course of business,
(ii) incur certain liens, (iii) engage in any material transaction not in the
ordinary course of business, (iv) change our business in any material manner or
our organizational structure, other than as otherwise provided for in the
Inventory Financing Facility, (v) engage in certain mergers or consolidations,
(vi) acquire certain assets or ownership interests of any other person or
entities, except for certain permitted acquisitions, (vii) guarantee or
indemnify or otherwise become in any way liable with respect to certain
obligations of any other person or entity, except as provided by the Inventory
Financing Facility, (viii) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of the equity of our acquired marine retailers (ix)
make any change in any of our marine retailers' capital structure or in any of
their business objectives or operations which might in any way adversely affect
the ability of such marine retailer to repay its obligations under the Inventory
Financing Facility, (x) incur, create, assume, guarantee or otherwise become or
remain liable with respect to certain indebtedness, and (xi) make certain
payments of subordinated debt. OneWater LLC and certain of its subsidiaries are
restricted from, among other things, making cash dividends or distributions
without the prior written consent of Wells Fargo. Under the Inventory Financing
Facility, among other exceptions, OneWater LLC may make distributions to its
members for certain permitted tax payments subject to certain financial ratios,
may make scheduled payments on certain subordinated debt and is permitted to
make pro rata distributions to the OneWater Unit Holders, including OneWater
Inc., in an amount sufficient to allow OneWater Inc. to pay its taxes and to
make payments under the Tax Receivable Agreement. OneWater LLC's subsidiaries
are generally restricted from making loans or advances to OneWater LLC. Our
Chief Executive Officer, Philip Austin Singleton, Jr., and our Chief Operating
Officer, Anthony Aisquith, provide certain personal guarantees of the Inventory
Financing Facility.


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As of December 31, 2022 and September 30, 2022, our indebtedness associated with
financing our inventory under the Inventory Financing Facility totaled $425.4
million and $267.1 million, respectively. Certain of our manufacturers enter
into independent agreements with the lenders to the Inventory Financing
Facility, which results in a lower effective interest rate charged to us for
borrowings related to the products by such manufacturer. For the three months
ended December 31, 2022 and the year ended September 30, 2022, the effective
interest rate on the outstanding short-term borrowings under the Inventory
Financing Facility was 5.0% and 2.2%, respectively. As of December 31, 2022 and
September 30, 2022, our additional available borrowings under our Inventory
Financing Facility were $74.6 million and $232.9 million, respectively, based
upon the outstanding borrowings and the maximum facility amount. The aging of
our inventory limits our borrowing capacity as defined curtailments reduce the
allowable advance rate as our inventory ages. As of December 31, 2022, we were
in compliance with all covenants under the Inventory Financing Facility.

Notes Payable

Acquisition Notes Payable. In connection with certain of our acquisitions of
dealer groups, we have entered into notes payable agreements with the acquired
entities to finance these acquisitions. As of December 31, 2022, our
indebtedness associated with our 2 acquisition notes payable totaled an
aggregate of $3.2 million with a weighted average interest rate of 5.0% per
annum. As of December 31, 2022, the principal amount outstanding under these
acquisition notes payable ranged from $1.1 million to $2.1 million, and the
maturity dates ranged from December 1, 2023 to December 1, 2024.

Commercial Vehicles Notes Payable. Since 2015, we have entered into multiple
notes payable with various commercial lenders in connection with our acquisition
of certain vehicles utilized in our retail operations. Such notes bear interest
ranging from 0.0% to 8.4% per annum, require monthly payments of approximately
$143,000, and mature on dates between February 2023 to July 2028. As of December
31, 2022, we had $4.6 million outstanding under the commercial vehicles notes
payable.

Tax Receivable Agreement

The Tax Receivable Agreement generally provides for the payment by OneWater Inc.
to certain of the OneWater Unit Holders of 85% of the net cash savings, if any,
in U.S. federal, state and local income tax and franchise tax (computed using
the estimated impact of state and local taxes) that OneWater Inc. actually
realizes (or is deemed to realize in certain circumstances) in periods after the
IPO as a result of certain tax basis increases and certain tax benefits
attributable to imputed interest. OneWater Inc. will retain the benefit of the
remaining 15% of these net cash savings. To the extent OneWater LLC has
available cash and subject to the terms of any current or future debt or other
agreements, the OneWater LLC Agreement will require OneWater LLC to make pro
rata cash distributions to OneWater Unit Holders, including OneWater Inc., in an
amount sufficient to allow OneWater Inc. to pay its taxes and to make payments
under the Tax Receivable Agreement. We generally expect OneWater LLC to fund
such distributions out of available cash. However, except in cases where
OneWater Inc. elects to terminate the Tax Receivable Agreement early, the Tax
Receivable Agreement is terminated early due to certain mergers or other changes
of control or OneWater Inc. has available cash but fails to make payments when
due, generally OneWater Inc. may elect to defer payments due under the Tax
Receivable Agreement if it does not have available cash to satisfy its payment
obligations under the Tax Receivable Agreement or if its contractual obligations
limit its ability to make these payments. Any such deferred payments under the
Tax Receivable Agreement generally will accrue interest. In certain cases,
payments under the Tax Receivable Agreement may be accelerated and/or
significantly exceed the actual benefits, if any, OneWater Inc. realizes in
respect of the tax attributes subject to the Tax Receivable Agreement. In the
case of such an acceleration, where applicable, we generally expect the
accelerated payments due under the Tax Receivable Agreement to be funded out of
the proceeds of the change of control transaction giving rise to such
acceleration. OneWater Inc. intends to account for any amounts payable under the
Tax Receivable Agreement in accordance with ASC Topic 450, Contingencies.

Recent Accounting Pronouncements

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