Artesian Resources Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. Balance-sheet comparisons are against December 31, 2023. Financial amounts below are in millions unless noted. The company primarily provides regulated water and wastewater services across Delaware and parts of Maryland and Pennsylvania.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Operating revenue | $24.544 | $22.495; up 9.1% |
| Operating income | $4.719 | $4.060; up 16.2% |
| Net income applicable to common stock | $4.411 | $3.705; up 19.1% |
| Diluted earnings per share | $0.43 | $0.39 |
| Cash from operating activities | $12.594 | $10.508 |
| Capital expenditures, net of equity AFUDC | $8.922 | $16.794 |
| Cash and cash equivalents | $9.503 | $2.505 at December 31, 2023 |
| Long-term debt, including current portion | $180.547 | $180.542 at December 31, 2023 |
| Stockholders’ equity | $231.986 | $230.397 at December 31, 2023 |
Operating margin was approximately 19.2%, compared with 18.0% a year earlier; net margin was approximately 18.0%, compared with 16.5%. These percentages are calculated from reported revenue and income. The company paid $2.980 million in dividends during the quarter; declared dividends were $0.2897 per share.
Revenue growth chiefly reflected higher water sales, which rose 10.0% to $19.825 million, supported by temporary Delaware rates and increased water consumption. Other utility revenue also increased, primarily with wastewater customer growth. Operating expenses rose to $19.825 million from $18.435 million; higher utility operating costs, depreciation and income taxes were partly offset by lower interest charges. Short-term debt interest declined with lower line-of-credit borrowing.
Operating cash flow exceeded investing outflows, while financing provided $2.726 million. The company reported no borrowings against its $40 million Citizens Bank facility or $20 million CoBank facility at quarter-end. Current assets were $30.847 million and current liabilities $21.725 million. The company reported compliance with debt covenants.
Material changes and developments
- The Delaware regulated water business had temporary base rates in effect from November 28, 2023, subject to refund pending a permanent rate decision. The prior 7.50% DSIC was reset to zero when temporary rates began.
- Artesian Water’s rate application seeks a 22.66% annualized revenue increase, approximately $16.7 million. The company says the requested net customer increase would be 15.16% if granted in full, after accounting for the former DSIC. No temporary-rate refund reserve was recorded as of March 31, 2024.
- Capital expenditures were substantially lower year over year in Q1. The company says spending included PFAS treatment equipment, infrastructure renewal and expansion, and treatment-facility improvements. Developers contributed $2.7 million toward investments.
- Water customer counts increased year over year in Delaware and Maryland; Delaware wastewater customers increased approximately 6.0%. Water sales remain seasonal and sensitive to weather.
- After quarter-end, in April 2024, Artesian Wastewater received a permit and began construction of a 625,000-gallon-per-day regional wastewater treatment facility in Sussex County, Delaware.
Outlook, risks and contingencies
- Outlook: Management expects to fund the next 12 months through operating cash flow, bank credit lines and capital-market financing as needed, and believes available resources are adequate. The filing provides no specific full-year revenue or earnings guidance.
- Rate regulation: Timely and sufficient recovery of operating costs and capital investment depends on commission decisions. Temporary Delaware rates are subject to refund, and the permanent rate outcome is unresolved. The Citizens facility expires May 20, 2024 and is a demand facility; the company expected to renew it. The CoBank facility expires October 31, 2024; the company also expected to renew it.
- PFAS: EPA drinking-water limits established April 10, 2024 require initial monitoring by 2027 and compliance by April 2029. The company has treatment at several wellfields and plans further installations. Costs are expected to be recoverable through rates, subject to regulatory approval. Eligible systems remain in 3M and DuPont settlement proceedings; any recovery is uncertain. The DuPont phase-one claim deadline is June 17, 2024; the 3M settlement was not yet effective.
- Other risks: Management cites weather-related water-demand variation, inflation in operating and replacement costs, construction and customer-growth conditions, interest rates, and regulatory and environmental requirements. Long-term debt is fixed-rate; the $60 million of bank credit lines is variable-rate, with no outstanding balance at quarter-end.
- Settlement reimbursement: A trust owes $5.0 million in two equal installments due no later than July 2024 and July 2025 for past treatment costs related to the Delaware Sand & Gravel Landfill Superfund Site. Customer refunds of the reimbursements are planned in annual installments, with future refunds no later than August 2024 and August 2025.
Most important facts for investors to verify
- Progress and final outcome of the Delaware rate case, including the treatment of temporary rates and any potential customer refunds.
- Renewal terms and availability of the Citizens and CoBank credit facilities, particularly the near-term Citizens expiration.
- PFAS monitoring, treatment-capital requirements, rate recovery, and any proceeds ultimately received from the 3M or DuPont settlements.
- Timing and cost of the new regional wastewater facility and the company’s broader capital-investment program.
- Whether seasonal demand, inflation and higher operating costs affect cash generation and the pace of future rate recovery.