Artesian Resources Corporation — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing reports full-year results, not standalone fourth-quarter results; comparisons below are to FY 2021 unless noted. Artesian provides regulated water and wastewater services, primarily in Delaware, plus contract operations and service-line protection plans.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Operating revenue | $98.9 million | $90.9 million | Up 8.8% |
| Operating income | $23.9 million | $22.3 million | Up $1.6 million |
| Net income applicable to common stock | $18.0 million | $16.8 million | Up 7.0% |
| Diluted earnings per share | $1.90 | $1.79 | Up $0.11 |
| Cash provided by operating activities | $24.3 million | $31.3 million | Down $7.0 million |
| Capital expenditures | $48.5 million | $40.8 million | Up $7.7 million |
| Cash dividends per common share | $1.09 | $1.05 | Up $0.04 |
Water sales were $78.3 million, up 0.6%. Other regulated utility revenue rose 59.9% to $11.5 million, and non-utility revenue rose 55.3% to $9.1 million. Acquired and expanded wastewater operations and increased design-and-construction and protection-plan activity drove much of the growth. Total operating expenses were $75.0 million, up 9.4%; the company cited higher labor, administrative, maintenance, treatment and non-utility costs, partly offset by lower purchased-water expense.
Margins: Operating margin was approximately 24.2% in 2022 versus 24.5% in 2021; net margin was approximately 18.2% versus 18.5% (calculated from reported figures). The company separately reported operating expense, excluding depreciation and income taxes, at 57.1% of revenue versus 56.1%.
At year-end, cash and cash equivalents were $1.3 million, current assets $27.8 million and current liabilities $44.1 million. Long-term debt including its current portion totaled $177.6 million, compared with $144.9 million in 2021; lines of credit outstanding were $20.2 million. The company reported $39.8 million available across its two credit lines and said it complied with debt covenants. Total assets were $719.8 million and stockholders’ equity was $187.9 million.
Material changes and significant items
- Artesian acquired Tidewater Environmental Services (TESI) in January 2022, more than doubling its Delaware wastewater customer count. The acquisition contributed $3.0 million of 2022 revenue; goodwill recorded was $1.9 million. Regulatory ratemaking treatment remains for the next wastewater base-rate case.
- In May 2022, Artesian Water acquired substantially all of the Town of Clayton’s water-system assets for a stated $5.0 million purchase price, with $1.6 million payable in five annual installments. The acquired territory’s ratemaking treatment is for a future base-rate case.
- The company issued a $30 million, 4.43% first mortgage bond due in 2047 and entered into Delaware revolving-fund loans for water-main replacements, bearing 1% interest plus a 1% administrative fee. Long-term debt increased year over year.
- Utility plant, net, rose to $668.0 million from $590.4 million, reflecting capital investment and acquisitions. 2022 capital expenditures were funded alongside operating cash, debt, developer contributions and grants.
- Cash from operations declined despite higher earnings, with working-capital movements—including receivables, materials and supplies, and deferred assets—affecting cash flow. Cash used in investing was $54.8 million; financing provided $31.7 million.
Outlook, risks and contingencies
- Management expects 2023 net investment in utility plant of approximately $57.0 million, within gross planned investment of $67.3 million, after anticipated developer contributions and Delaware grants. It estimates 2023 interest and principal plus specified other contractual payments at approximately $31.8 million.
- Artesian notified Delaware regulators of its intent to file a water-rate increase request in the second quarter of 2023 to support capital improvements and higher operating costs. Approval, timing and sufficiency are uncertain; temporary rates may be subject to refund with interest.
- Inflation, supply-chain delays, higher interest rates and dependence on external financing may raise costs or constrain investment. Both credit lines were scheduled to expire in 2023; management expected to renew them. One is a demand facility, allowing the lender to demand repayment.
- Water demand is seasonal and weather-sensitive. The company also identifies risks from drought, flooding, aging infrastructure, water-quality regulation (including PFAS and revised lead-and-copper requirements), permit constraints, wastewater system failures and cybersecurity events. Management stated it was compliant with current drinking-water standards and had sufficient capacity for existing and new customers.
- A Superfund-site settlement provides approximately $10.0 million reimbursement for past treatment costs: $2.5 million was received in 2022, with $7.5 million due in equal annual installments through 2025. Customer refunds of the past-cost reimbursements are being made in annual installments; further reimbursement of documented future treatment costs is subject to regulatory ratemaking treatment.
- The auditor issued an unqualified opinion on the financial statements. Management stated disclosure controls and internal control over financial reporting were effective; the auditor did not provide an opinion on internal control over financial reporting.
Important facts for investors to verify
- Progress, requested relief and final outcome of the anticipated 2023 Delaware rate case, including how any acquired assets and costs are treated.
- Renewal terms and borrowing costs for the 2023-expiring credit lines, and the funding plan for the projected capital program and debt maturities.
- Execution and returns from the TESI and Clayton acquisitions, including realized operating efficiencies and regulatory recovery of acquired-asset costs.
- Timing and regulatory treatment of Superfund reimbursements, customer refunds and any continuing treatment expenses.
- Actual PFAS and other water-quality compliance investments, and whether those costs are recoverable through customer rates.
- Whether cash generation keeps pace with capital spending and dividends, given the 2022 decline in operating cash flow and low year-end cash balance.