Artesian Resources Corporation — Q1 2021 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Artesian provides regulated water and wastewater services, primarily in Delaware, and also operates contract services and service-line protection plans. Water sales contributed 86.0% of quarterly revenue.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Operating revenue | $20.736 million | $19.901 million; up 4.2% |
| Operating income | $4.442 million | $4.462 million; down 0.4% |
| Net income | $4.206 million | $4.074 million; up 3.2% |
| Diluted EPS | $0.45 | $0.44 |
| Operating margin | 21.4% | 22.4% |
| Net cash from operating activities | $13.316 million | $7.129 million |
| Capital expenditures | $9.346 million | $9.212 million |
| Cash and cash equivalents | $0.249 million | $0.028 million at December 31, 2020 |
| Long-term debt, including current portion | $143.563 million | $144.090 million at December 31, 2020 |
| Lines of credit outstanding | $22.716 million | $26.813 million at December 31, 2020 |
| Cash dividends per common share | $0.2571 | $0.2496 |
Current assets were $14.597 million and current liabilities were $44.179 million at March 31, 2021. Cash from operations exceeded capital spending; financing activities used $3.756 million, including $2.406 million of dividends and $4.097 million of net line-of-credit repayments. The filing reports fixed-rate long-term debt and $22.7 million outstanding under variable-rate credit lines.
Changes and drivers
- Revenue rose $0.835 million, led by higher water sales, customer-related fixed fees, wastewater revenue and non-utility design and construction services.
- Operating expenses increased; utility costs reflected higher payroll and benefits, winter-weather work hours, and wastewater repairs and maintenance. Depreciation and amortization also increased with continued investment in utility plant.
- Operating income edged lower despite revenue growth. Net income increased mainly because of higher other income, including a larger CoBank patronage refund; lower AFUDC partly offset the increase.
- Delaware metered water customers were up approximately 2.7% year over year and wastewater customers up 14.3%. Non-utility protection-plan enrollment also increased.
Outlook, risks and contingencies
- Management expects available cash, operating cash flow, credit facilities, state revolving-fund loans and capital-market financing to support the next 12 months’ needs; it believes existing resources and credit facilities are adequate for normal operations. No quantified earnings or revenue guidance is provided.
- The $40 million Citizens demand credit line had $35.3 million available and expired May 31, 2021; the company expected renewal. The $20 million CoBank line had $2.0 million available and expired July 30, 2021; renewal was also expected. These expirations and renewals merit attention.
- Management expected to begin operating a wastewater disposal facility for an industrial customer in Q2 2021, subject to the customer’s recently received operating permit. The planned service is approximately 1.5 million gallons per day.
- COVID-19 had not materially adversely affected results to date, but its future impact was uncertain. Collection, bad-debt and operating risks remain; the company had increased its bad-debt reserve by $0.5 million in 2020. Weather, water demand, inflation, regulatory rate decisions, construction activity and financing conditions may affect results.
- Rate increases require regulatory approval; Delaware DSIC rates were subject to later audit. The company reported compliance with debt covenants and no material changes to the prior annual report’s risk factors. Ordinary-course litigation was not expected to materially affect results, though outcomes and costs remain uncertain.
Important facts for investors to verify
- Whether the Citizens and CoBank credit facilities were renewed on acceptable terms and whether borrowing costs or availability changed.
- Whether the industrial wastewater facility commenced operations as expected and generated the anticipated service revenue.
- Whether customer growth, water consumption and approved rates sustain revenue while operating costs and capital spending rise.
- How COVID-related customer payment arrangements, receivables and bad-debt reserves evolved after quarter-end.
- Whether regulatory proceedings, DSIC audits or acquisition ratemaking decisions affect recoveries and future earnings.