Artesian Resources Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with fiscal 2022. Artesian is a regulated water and wastewater utility operating mainly in Delaware, with services in Maryland and Pennsylvania. Regulated utilities generated 93.1% of 2023 operating revenue.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Operating revenue | $98.9 million | $98.9 million |
| Operating income | $22.4 million | $23.9 million |
| Net income applicable to common stock | $16.7 million | $18.0 million |
| Diluted earnings per share | $1.67 | $1.90 |
| Operating cash flow | $31.9 million | $24.3 million |
| Capital expenditures | $62.2 million | $48.5 million |
| Cash dividends per share | $1.14 | $1.09 |
- Revenue was essentially flat. Water sales rose 2.2% to $80.0 million and other utility revenue rose 6.0% to $12.2 million; non-utility revenue fell 26.9% to $6.6 million as a wastewater design-and-construction contract neared completion.
- Operating income margin declined to approximately 22.7% from 24.2%; net margin declined to approximately 16.9% from 18.2%. Operating expenses excluding depreciation and income taxes were 57.4% of revenue, versus 57.1%.
- Net income decreased 7.2%. Utility operating costs increased $2.4 million, depreciation and amortization increased $0.7 million, and interest charges rose $0.7 million. The average short-term borrowing rate was 6.27%, compared with 3.04% in 2022.
- Operating cash flow increased, while investing cash use rose to $62.1 million, principally reflecting higher infrastructure spending. Cash and cash equivalents were $2.5 million at year-end.
- Total debt, including current maturities, was $180.5 million, compared with $177.6 million. The company had no outstanding line-of-credit balance at year-end and reported $60 million of available capacity across its two facilities. Current assets were $30.6 million and current liabilities $22.4 million. Debt covenants were reported in compliance.
- Stockholders’ equity rose to $230.4 million from $187.9 million, with a 2023 Class A stock offering generating $37.1 million of net proceeds. Weighted-average shares increased to 10.0 million from 9.5 million.
Material changes and developments
- Residential water volume increased 3.1%; Delaware and Maryland metered water customer counts each grew approximately 1.3%. Delaware wastewater customers increased 6.3%.
- Operating revenue remained level despite stronger regulated water and wastewater revenue, as non-utility contract revenue declined. Total operating expenses increased $1.4 million.
- Capital expenditures increased by $13.7 million year over year. Utility plant, net of accumulated depreciation, grew to $714.3 million from $668.0 million.
- The 2023 stock offering funded repayment of short-term borrowings used mainly for capital spending and general corporate purposes. Dividends paid totaled $11.2 million, up from $10.3 million.
Outlook, regulation and risks
- Management expects 2024 gross capital investment of approximately $55.6 million, offset by an estimated $4.0 million of developer contributions, for net investment of about $51.6 million. Planned work includes approximately $16.4 million for PFAS treatment equipment and other water-system projects, $8.8 million for government-mandated relocations, and $7.2 million for regional wastewater and related improvements.
- Artesian Water’s Delaware rate case seeks a 22.66% annualized revenue increase, approximately $16.7 million. Temporary base rates took effect November 28, 2023 at a 15% increase, with the existing 7.50% DSIC reset to zero. Interim rates are subject to refund pending a final regulator decision; the company had recorded no refund reserve at year-end. If the full request is granted, the filing describes an incremental increase of 15.16% compared with rates including the prior DSIC.
- Management anticipates approximately $12.0 million of 2024 obligations for debt principal and interest, leases, storage-tank agreements and water interconnections. The Citizens Bank credit facility expires in May 2024 and is callable on demand; management expects renewal. The CoBank facility expires in October 2024, and management also expects renewal.
- Key exposures include delayed or insufficient rate relief, inflation and construction costs, higher interest rates and refinancing access, seasonal/weather-driven water demand, drought and water allocation limits, aging infrastructure, wastewater overflows, and evolving environmental requirements. The company says it was in material compliance with current water-quality standards and on schedule for the revised Lead and Copper Rule inventory deadline.
- PFAS-related matters remain uncertain. Eligible systems stayed in proposed 3M and DuPont class settlements, both subject to final court approval, and any recovery is uncertain. Separately, a settlement concerning the Delaware Sand & Gravel Superfund site provides for $5.0 million of remaining reimbursements in 2024 and 2025, with customer refunds also scheduled; future treatment costs and regulatory treatment remain relevant.
- Management reported no cybersecurity incident or threat identified as materially affecting, or reasonably likely to materially affect, the company. The filing identifies potential cyber disruption as a continuing operational risk. Management assessed disclosure controls and internal control over financial reporting as effective; the independent auditor issued an unqualified opinion on the financial statements but did not provide an opinion on internal control effectiveness.
Important facts for investors to verify
- Progress and final outcome of the Delaware rate case, including any refunds or changes to interim rates.
- Renewal terms and borrowing costs for the two credit facilities, and funding availability for the 2024 capital program.
- Actual capital spending, especially PFAS treatment investment, mandated relocations and regional wastewater projects, and the extent of rate recovery.
- Final court approval and any proceeds from PFAS settlements, plus timing of Superfund reimbursements and customer credits.
- Whether customer growth, water consumption and non-utility revenues offset cost inflation, higher interest expense and weather-related variability.