Business context and reporting period
Artesian Resources Corporation’s unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the same quarter of 2022. The company primarily provides regulated water and wastewater services in Delaware and parts of Maryland and Pennsylvania; regulated utilities generated 92.4% of quarterly revenue.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Operating revenue | $22.5 million | $22.2 million |
| Operating income | $4.1 million | $4.7 million |
| Net income | $3.7 million | $4.5 million |
| Diluted earnings per share | $0.39 | $0.47 |
| Cash provided by operations | $10.5 million | $11.8 million |
| Capital expenditures | $16.8 million | $9.8 million |
Revenue grew 1.4%, while net income fell 17.4%. Operating margin was approximately 18.0%, versus 21.4% a year earlier. Cash from operations less capital expenditures was negative $6.3 million, compared with positive $2.0 million in Q1 2022. Quarterly dividends were $0.2784 per share, up from $0.2675.
At March 31, 2023, total assets were $725.8 million, stockholders’ equity was $189.1 million, and cash was $0.1 million. Long-term debt, including its current portion, was $178.4 million; lines of credit were drawn by $21.6 million. The company reported $27.5 million available on its $40 million Citizens facility and $10.9 million available on its $20 million CoBank facility. Current assets of $21.6 million were below current liabilities of $43.5 million.
Material changes versus the prior comparable period
- Operating expenses increased $1.0 million to $18.4 million, including higher payroll and benefits, treatment costs, repair and maintenance, and power costs. Lower purchased-water expense partly offset the increases.
- Interest expense rose $0.5 million to $2.4 million. Short-term borrowing rates averaged 5.71%, versus 1.48% in Q1 2022.
- Water sales declined 0.7%, partly due to a one-time refund for Town of Frankford customers. Wastewater and other utility revenue increased, principally with customer growth; non-utility revenue also rose.
- Capital expenditures increased $7.0 million, reflecting continued investment in water and wastewater infrastructure. Net cash declined $1.2 million during the quarter.
Outlook, commentary, risks and unusual items
On April 28, 2023, Artesian Water filed a Delaware rate request for an annualized revenue increase of 23.84%, or approximately $17.5 million. Because the existing 7.50% DSIC would be reset to zero when temporary base rates take effect, the company said the customer increase would be 16.34% if the full request is granted. The request is subject to regulatory review; the company did not seek the initial temporary increase and cannot assure approval or timing.
Management expects to fund the next 12 months through operating cash, credit facilities, state revolving fund loans and capital-market financing, and believes available sources should meet working-capital and financing needs. It expects to renew both bank credit lines. The Citizens facility is a demand line expiring August 18, 2023; the CoBank facility expires October 29, 2023. The filing gives no formal earnings guidance.
Management cited exposure to weather-driven water demand, inflation and operating costs, supply availability, regulatory rate decisions, and variable-rate borrowing costs. The company was in compliance with debt covenants at quarter-end. The Delaware Sand and Gravel settlement provides for $7.5 million of remaining reimbursements in annual installments through 2025; corresponding refunds are to be passed to eligible customers. The Trust may also reimburse certain documented future treatment costs, subject to regulatory rate-making treatment. Management said ordinary-course litigation is not expected to materially affect results, but outcomes and costs are uncertain.
Investor facts to verify
- Progress, timing and final customer impact of the Delaware rate case, including treatment of the DSIC and any temporary rates.
- Renewal terms and borrowing costs for the two credit facilities, and the effect of higher short-term rates on interest expense and liquidity.
- Whether operating cash flow and external financing will cover the elevated capital program, given Q1 capital expenditures exceeded operating cash flow.
- Actual customer growth, water demand and operating-cost trends, particularly chemicals, electricity, labor and maintenance.
- Collection of remaining Superfund-related reimbursements and matching customer refunds, plus any future reimbursable treatment costs.