YORW

Business Context and Reporting Period

Company: The York Water Company (YORW)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2024
Business Overview: A regulated utility providing water and wastewater services in south-central Pennsylvania. The company operates within a franchised territory covering portions of 56 municipalities across four counties. It is regulated by the Pennsylvania Public Utility Commission (PPUC).

Key Financial Metrics

Liquidity: Cash and cash equivalents were $1 (in thousands) as of June 30, 2024. The company maintains a $50,000 line of credit with $1,461 outstanding as of the reporting date.

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased 23.5% in Q2 2024 and 8.4% YTD 2024 compared to the prior year. This was driven primarily by higher operating expenses and increased interest costs.
• Operating Expenses: Increased 14.0% in Q2 and 14.2% YTD. Key drivers included higher distribution system maintenance, increased allowance for uncollectible accounts, higher wages/benefits, and increased depreciation.
• Interest Expense: Increased 30.1% in Q2 and 34.9% YTD due to higher long-term debt balances and the issuance of 5.67% Senior Notes in February 2024.
• Revenue Growth: YTD operating revenues increased 6.5% due to a rate increase effective March 2023 and customer base growth, partially offset by a 2.5% decrease in per capita consumption.
• Capital Expenditures: Utility plant additions were $20,867 YTD 2024, a decrease from $29,725 in the prior year, reflecting a lower volume of eligible construction.

Guidance, Outlook, and Risks

• Rate Matters: The company does not expect to file a rate increase request in 2024. A Distribution System Improvement Charge (DSIC) of 0.64% became effective July 1, 2024.
• Capital Expenditures: Anticipated construction expenditures for the remainder of 2024 are approximately $21,300, focusing on the Lake Williams dam spillway replacement and wastewater treatment plant construction.
• Acquisitions: Several acquisitions are pending regulatory approval, expected to close in the second half of 2024, adding approximately 545 water and wastewater customers. These are expected to be immaterial to results.
• Outlook: Management expects revenues to show a modest increase for the remainder of the year due to the DSIC, higher summer demand, and customer growth. Interest expense is expected to increase due to higher long-term debt.
• Risks:
  • Weather: Revenues are vulnerable to weather conditions; drought restrictions could negatively impact usage.
  • Cybersecurity: Reliance on IT systems exposes the company to potential cyber attacks, though no material impact has been experienced to date.
  • Regulatory: Dependence on PPUC approval for rate relief and cost recovery.

Investor Verification Checklist

• Debt Refinancing: Verify the impact of the new $40 million 5.67% Senior Notes issued in February 2024 on future interest coverage ratios.
• DSIC Implementation: Confirm the revenue impact of the Distribution System Improvement Charge (DSIC) starting July 2024.
• Acquisition Timeline: Monitor the regulatory approval status and closing dates for the pending acquisitions (York Haven Sewer Authority, Brookhaven Mobile Home Park, etc.).
• Capital Project Progress: Track the completion status and cost overruns, if any, for the Lake Williams dam spillway armoring project.
• Per Capita Consumption: Assess trends in water usage, as a 2.5% decline YTD could pressure future revenue growth absent rate increases.