Business Context and Reporting Period
Company: The York Water Company (YORW)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2024
Business Overview: A regulated utility providing water and wastewater services to approximately 72,583 water customers and 6,585 wastewater customers across four counties in south-central Pennsylvania. The company is regulated by the Pennsylvania Public Utility Commission (PPUC).
Key Financial Metrics
| Metric (in thousands) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Operating Revenues | $19,715 | $18,767 | $56,093 | $52,935 |
| Operating Expenses | $11,660 | $10,334 | $34,761 | $30,568 |
| Operating Income | $8,055 | $8,433 | $21,332 | $22,367 |
| Net Income | $5,863 | $7,568 | $15,183 | $17,745 |
| Diluted EPS | $0.41 | $0.53 | $1.06 | $1.24 |
| Net Cash from Operations | N/A | N/A | $20,391 | $23,407 |
| Long-Term Debt | $198,439 | $180,007 | $198,439 | $180,007 |
| Cash & Equivalents | $1 | $1 | $1 | $1 |
Capital Structure: Total common stockholders' equity was $228,688 (53.2% of total capitalization) as of September 30, 2024. The company maintains a $50,000 line of credit with $8,732 outstanding.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 5.1% in Q3 and 6.0% for the nine months ended September 30, 2024, driven by customer base growth (acquisitions and organic) and the Distribution System Improvement Charge (DSIC).
- Profitability Decline: Net income decreased 22.5% in Q3 and 14.4% for the nine-month period. Primary drivers included higher operating expenses (wages, depreciation, wastewater treatment), increased interest expense due to new debt issuance, and a lower Allowance for Funds Used During Construction (AFUDC).
- Expense Increases: Operating expenses rose 12.8% in Q3 and 13.7% for the nine months. Notable increases included depreciation ($353k Q3), wages/benefits ($303k Q3), and wastewater treatment ($203k Q3).
- Debt Issuance: In February 2024, the company issued $40 million in 5.67% Senior Notes due 2054 to refinance line of credit borrowings, contributing to higher interest costs.
- Acquisitions: Completed three immaterial acquisitions in 2024 (MESCO, Longstown Mobile Estates, Houston Run Community Water System), adding approximately 285 customers.
Outlook, Risks, and Management Commentary
- Guidance: Management expects revenues to show a modest increase for the remainder of 2024 due to DSIC and customer growth. Operating expenses are expected to rise due to ongoing infrastructure investments and treatment costs. Interest expense is expected to increase due to higher long-term debt levels.
- Capital Expenditures: The company invested $32,993 in the first nine months of 2024, primarily for the Lake Williams dam spillway project. Anticipated remaining 2024 expenditures are approximately $9,700.
- Rate Matters: No rate increase request is expected in 2024. A DSIC of 1.14% became effective October 1, 2024.
- Risks:
- Drought: A drought watch was declared for the company's service territory in November 2024, potentially impacting future revenues if voluntary usage reductions persist.
- Cybersecurity: Reliance on IT systems for operations and billing creates vulnerability to cyber attacks, though no material impact has occurred to date.
- Regulatory: Future profitability depends on timely rate relief from the PPUC and recovery of regulatory assets (e.g., lead service line replacements).
- Unusual Items: The effective tax rate increased to 8.9% for the nine months ended September 30, 2024 (from 5.8% in 2023) due to lower deductions under IRS Tangible Property Regulations (TPR).
Investor Verification Checklist
- Debt Servicing: Verify the impact of the new 5.67% Senior Notes on future interest coverage ratios and cash flow.
- DSIC Sustainability: Confirm the duration and cap limits of the Distribution System Improvement Charge and its contribution to revenue stability.
- Capital Project Completion: Monitor the completion timeline and cost overruns for the Lake Williams dam spillway project.
- Acquisition Pipeline: Track the regulatory approval status of pending acquisitions (CMV Sewage Co., York Haven Sewer Authority) expected to close in late 2024 or 2025.
- Drought Impact: Assess the potential revenue impact of the November 2024 drought watch on water consumption volumes.