UF was buried underground then went into conduit into box. On top of box conduit was run to spot light. Outlet had waterproof cover. Could water leak through spot light into box and cause this issue?

Water can get into a box a number of ways ... through the fixture, through the mounting threads of the fixture, through the cover. Unless they're marine rated, they aren't really waterproof, more just "weather resistent". Based on what I see in the picture, I don't believe that's your problem. It looks like your hot came into contact with either the box, the ground, or the neutral, based on the charring I think I see at the throat of the box. It's possible it was nicked when the UF jacket was stripped off, as most people don't know how to properly strip UF. I'd replace the UF, or at least the section entering the conduit into the box. Underground splice kits can save you from having to replace the whole run.

That's weird. I can't imagine what happened to the insulation on the black wire, especially since all of it beyond the first couple of inches is still in decent shape. I see the blackening at the box hub, but not so much on the black wire beyond another ~half inch, so I don't get how that explains it. Maybe I'm missing something.

I've seen what years of weathering can do to NM, but I've never seen it affect UF like that in just 2 years. The wires in UF are supposed to be equal to THWN (waterproof). I know, salt air, but I've worked with UF in barns with ammonia fumes, and I've never seen anything like this.

Is that what's left of electrical tape I see on the white wire near the box hub? Did the installer maybe nick the individual wire insulation there? Taping it up is not the fix if that happened. Maybe the black wire was nicked too? Yank is right, UF is hard to strip, and easy to damage this way if you don't know what you're doing.

It looks to me as if the installer also didn't bring any of the UF jacket into the box. Even if they weren't nicked when stripped, the conductors could have been abraded by the box hub, either when pulled in or when the installer jammed the (probably large) GFI into the box.

One thing I see that seems iffy to me is the use of what looks like thinwall (EMT) for protection. I think code does allow it outdoors with watertight fittings, but I personally wouldn't use it in a corrosive atmosphere. I've seen it corrode right off the boxes in barns. Schedule 80 PVC would be my choice here, but the pros may differ with me.

I can imagine. I've seen it. You get either an arc or a dead short and you can vaporize the insulation on a section that gets hot enough before the breaker trips. Mi guess is the insulation got compromised close to where you once again see insulation in the picture. Either the insulation got nicked at some point or it was crushed by the box or the device at some point.

I ordered an uf underground splice kit and will replace a section of cable this weekend. I will also install new gfci outlet. Thanks for all the information.