YORW

Business Context and Reporting Period

Company: The York Water Company (YORW)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2026
Business Overview: A regulated utility providing water and wastewater services in south-central Pennsylvania. The company operates within a franchised territory covering portions of 58 municipalities across four counties. It is regulated by the Pennsylvania Public Utility Commission (PPUC).

Key Financial Metrics

Capital Structure: Common stockholders' equity represents 60.5% of total capitalization as of June 30, 2026, up from 51.7% at year-end 2025. Long-term debt represents 39.5% of total capitalization.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 15.8% ($5.9 million) for the six months ended June 30, 2026. This was primarily driven by a rate increase effective March 1, 2026, and customer base growth (water customers increased by 938; wastewater customers by 631). Growth was partially offset by the reset of the Distribution System Improvement Charge (DSIC) to zero upon the rate order taking effect.
• Profitability: Net income increased 43.0% ($3.7 million) to $12.4 million. This was driven by higher revenues and a lower effective tax rate of (5.8)% compared to 1.2% in the prior year, largely due to IRS tangible property regulations (TPR) allowing immediate expensing of certain asset improvements.
• Debt Reduction: Long-term debt decreased by approximately $32.5 million. The company completed an underwritten public offering of common stock in April 2026, raising net proceeds of $47.6 million. These proceeds were used to repay short-term borrowings (term loan and line of credit) and fund capital expenditures.
• Acquisitions: The company completed two immaterial wastewater acquisitions in Q1 2026 (CMV Sewage Co. and Pine Run Retirement Community), adding approximately 380 wastewater customers.

Guidance, Outlook, and Risks

• Capital Expenditures: The company invested $21.1 million in the first six months of 2026. It anticipates spending approximately $26.8 million for the remainder of 2026, funded by internally generated funds, customer advances, and potentially line of credit borrowings.
• Rate Matters: The company does not expect to file a new rate increase request or collect a DSIC in 2026. A Lead Service Line Replacement Plan is pending PPUC approval.
• Future Acquisitions: Four additional acquisitions are under contract (expected to close in Q4 2026), adding approximately 435 water and wastewater customers. These are expected to be immaterial individually.
• Risks and Contingencies:
  • Drought: Drought watches and warnings are in effect for counties within the service territory, potentially impacting water usage and revenues.
  • Labor Relations: The union contract expired April 30, 2026. Negotiations are ongoing, with both parties honoring the expired terms.
  • Cyber Security: The company relies on IT systems for operations and billing; while robust measures are in place, a significant cyber event could disrupt operations.
  • Regulatory: Future profitability depends on timely rate relief from the PPUC to recover costs.

Investor Verification Checklist

• Rate Recovery: Verify the status of the Lead Service Line Replacement Plan with the PPUC and the timeline for cost recovery.
• Debt Covenants: Confirm continued compliance with debt covenants, specifically the maintenance of an A- credit rating required by the interest rate swap agreement.
• Capital Funding: Monitor the utilization of the $50 million line of credit and the company's ability to fund the projected $26.8 million in remaining 2026 capital expenditures without additional equity issuance.
• Weather Impact: Assess the duration and severity of drought conditions in York, Adams, Franklin, and Lancaster Counties and their potential impact on per capita consumption and revenue.
• Acquisition Closing: Track the regulatory approval status of the four pending acquisitions scheduled for Q4 2026 closing.