Artesian Resources Corporation — Q3 2023 Form 10-Q
Business context and period. This unaudited report covers the three and nine months ended September 30, 2023, compared with the same periods in 2022. Artesian primarily provides regulated water and wastewater services in Delaware, Maryland and Pennsylvania; regulated utilities generated 93.4% of revenue in the first nine months. Unless otherwise noted, financial figures below are in millions of dollars.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $26.57 | $26.58 | $74.32 | $73.78 |
| Operating income | $6.66 | $8.08 | $16.93 | $19.67 |
| Net income applicable to common stock | $5.07 | $6.14 | $13.22 | $15.67 |
| Basic and diluted EPS | $0.49 | $0.65 | $1.33 | $1.66 basic; $1.65 diluted |
| Operating margin | 25.1% | 30.4% | 22.8% | 26.7% |
| Cash dividends per share | $0.2840 | $0.2729 | $0.8464 | $0.8133 |
Cash flow and investment: For the nine months, operating cash flow was $23.36 million, down from $25.05 million. Capital expenditures were $48.84 million, up from $36.66 million, leaving operating cash flow below capital spending. Financing provided $30.55 million, including approximately $36.5 million in net common-stock proceeds; cash increased $5.15 million to $6.46 million.
Balance sheet and liquidity: At September 30, total assets were $761.81 million and stockholders’ equity was $229.59 million. Long-term debt, including its current portion, totaled $178.09 million; there were no outstanding borrowings on the $60 million combined credit facilities, which were fully available. The balance sheet also reported $5.05 million of overdraft payable. The company reported compliance with debt covenants.
Changes versus prior periods
- Q3 revenue was essentially flat; nine-month revenue rose 0.7%. Nine-month water sales increased 1.2%, while other utility revenue rose 9.7%, mainly from wastewater customer growth and industrial wastewater revenue timing.
- Profitability weakened: net income fell 17.5% in Q3 and 15.7% for the first nine months. Nine-month operating expenses rose $3.27 million, while interest charges increased $0.76 million.
- Management attributed higher utility costs to compensation and benefits, repairs and maintenance, administrative costs, chemicals, and power. Wetter Q3 conditions reduced water consumption; growth in fixed charges partly offset that effect.
- Non-utility revenue declined 16.7% over nine months as a wastewater infrastructure design-and-construction contract neared completion; service-line protection-plan revenue increased.
- Class A shares increased following a May 2023 public offering and over-allotment exercise, which generated approximately $36.5 million net proceeds. Proceeds were used to repay short-term borrowings and for general corporate purposes.
Outlook, risks and notable matters
- Rate case: Artesian Water requested a 23.84% annualized revenue increase, approximately $17.5 million, in Delaware. Because the existing 7.5% distribution system improvement charge (DSIC) would be reset to zero when temporary base rates begin, the requested net customer increase would be 16.34% if granted in full. The company filed for interim rates effective November 28, 2023: a temporary increase of up to 15% of gross water sales and elimination of the DSIC, subject to refund, pending a final decision. Approval, timing and final rate levels remain uncertain.
- Capital needs and funding: The company expects to fund the next 12 months with cash, operating cash flow, credit facilities, state revolving-fund loans and capital-market financing. It plans substantial continued investment in water and wastewater infrastructure and may seek additional debt or equity for acquisitions. There is no assurance that funding will be available on acceptable terms.
- Operating risks: Water sales are seasonal and sensitive to rainfall and temperature. Inflation and higher labor, treatment and infrastructure costs may pressure results if rate increases are delayed or insufficient. Variable-rate borrowing costs and changes in SOFR also pose risks, although no credit-line borrowings were outstanding at quarter-end.
- Environmental settlement: A trust has paid two approximately $2.5 million installments toward a $10 million reimbursement for past treatment costs related to the Delaware Sand & Gravel Superfund Site; the remaining $5 million is due in two equal installments by July 2024 and July 2025. Customer refunds are being made in installments, and future reimbursements for documented treatment costs are subject to regulatory rate-making treatment.
- Other: Management reported no material changes to the risk factors in its 2022 Form 10-K and no material change in internal control over financial reporting. The filing provides no formal earnings or full-year financial guidance.
Investor facts to verify
- Track the Delaware rate case, including the interim-rate implementation, customer impact, final approved increase and any refunds.
- Assess whether operating cash flow can support the elevated capital program, and monitor future debt, equity issuance and credit-facility renewals.
- Monitor operating-cost growth, water consumption and margins as the company seeks to recover costs through regulated rates.
- Confirm receipt of the remaining Superfund settlement installments and the regulatory treatment of related reimbursements and customer credits.