Business Overview A Legacy of Water Stewardship
Artesian Resources Corporation is a leading provider of water and wastewater services on the Delmarva Peninsula, serving a growing customer base across Delaware, Maryland, and Pennsylvania. With over a century of operations, the company has established itself as a reliable and innovative utility, continuously investing in infrastructure and diversifying its service offerings to meet the evolving needs of its communities.
Artesian Resources traces its origins back to 1905 when it began operations as a public utility providing water services in northern Delaware. Over the decades, the company has expanded its footprint through strategic acquisitions and organic growth, solidifying its position as the primary water and wastewater service provider in the region. This expansion was particularly notable in the 1980s when Artesian Water Company, the company’s principal subsidiary, began a period of significant growth, constructing new water treatment and storage facilities to meet the demands of its expanding customer base.
The company’s growth was driven by the rapid population increase in the region and Artesian’s strategic focus on acquiring municipal and private water systems. In the 1990s, Artesian diversified beyond its core water utility business, establishing non-regulated subsidiaries to provide contract water and wastewater services, as well as water and wastewater system design, construction, and engineering services.
Today, Artesian Water, the company’s largest subsidiary, distributes and sells water to a diverse customer base, including residential, commercial, industrial, governmental, municipal, and utility customers. Meanwhile, Artesian Wastewater and its subsidiary, Tidewater Environmental Services, Inc., provide regulated wastewater services to customers in Sussex County, Delaware.
Artesian’s non-utility businesses, such as Artesian Utility and Artesian Development, further complement the company’s core water and wastewater operations. Artesian Utility offers contract water and wastewater operation services, as well as the company’s popular Service Line Protection Plans, which provide coverage for customers’ water, sewer, and internal plumbing systems. These plans were first introduced in the 1990s and have since become an important part of Artesian’s service offerings.
The early 2000s brought new challenges for Artesian, as the company had to contend with more stringent environmental regulations, the increasing costs of energy and chemicals, and the need for substantial capital investment to upgrade and expand its aging infrastructure. However, the company was able to navigate these challenges through prudent financial management and a continued focus on operational efficiency.
Financial Strength and Operational Resilience
Artesian Resources has demonstrated its financial strength and operational resilience through various economic conditions. As of the latest reported quarter (Q3 2024), the company’s net income stood at $6.8 million, a 34.4% increase compared to the same period in 2023. This strong performance was driven by a 9.7% increase in total operating revenues, which reached $29.1 million.
The company’s water sales revenue, which accounts for the majority of its operations, increased by 11.3% year-over-year, primarily due to a temporary rate increase implemented in November 2023 and an increase in overall water consumption. Artesian’s regulated wastewater business also contributed to this growth, with a 3.8% increase in other utility operating revenue.
Financials
Artesian’s financial stability is further evidenced by its healthy balance sheet and strong financial performance. For the fiscal year 2023, the company reported total revenue of $98.86 million and net income of $16.70 million. Operating cash flow for 2023 was $31.85 million, while free cash flow was -$30.33 million, reflecting significant investments in infrastructure and growth initiatives.
The most recent quarter (Q3 2024) saw continued improvement in financial performance. Revenue increased to $29.14 million, a 9.7% increase from Q3 2023. Net income rose to $6.81 million, representing a substantial 34.4% increase from the same period in the previous year. Operating cash flow for Q3 2024 was $10.66 million, and free cash flow improved significantly to $29.03 million.
As of September 30, 2024, the company reported total assets of $796.0 million and a debt-to-equity ratio of 0.77, indicating a well-managed capital structure. The company’s strong cash flow generation, with $30.1 million in cash provided by operating activities in the first nine months of 2024, supports its ability to fund ongoing capital investments and maintain its dividend payments to shareholders.
Liquidity
The company’s liquidity position remains strong, supported by its consistent cash flow generation and prudent financial management. As of September 30, 2024, Artesian reported a cash balance of $10.70 million. The company’s current ratio and quick ratio both stand at 1.22, indicating a healthy ability to meet short-term obligations.
Artesian’s financial flexibility is further enhanced by its available credit lines. The company maintains a $40 million line of credit with Citizens Bank and a $20 million line of credit with CoBank, providing a total of $60 million in available credit as of September 30, 2024. This robust liquidity profile enables Artesian to meet its short-term obligations, fund capital expenditures, and pursue growth opportunities while maintaining financial flexibility.
Navigating Regulatory and Environmental Challenges
Artesian Resources operates in a highly regulated industry, with its water and wastewater subsidiaries subject to oversight by various state public service commissions. The company’s ability to navigate the regulatory landscape effectively has been a key driver of its long-term success.
In April 2024, the Delaware Public Service Commission approved a settlement agreement that authorized a 15.2% increase in Artesian Water’s revenue requirement, effective June 12, 2024. This rate adjustment, which replaced temporary rates that were in place since November 2023, will help the company recover its investments in infrastructure and maintain high-quality service for its growing customer base.
Additionally, Artesian has proactively addressed emerging environmental regulations, such as the EPA’s new standards for per- and polyfluoroalkyl substances (PFAS) in drinking water. The company has installed treatment systems at several of its well fields and plans to complete any remaining necessary installations before the 2029 compliance deadline.
Diversifying and Expanding Service Offerings
Artesian Resources has demonstrated its commitment to diversifying its service offerings and expanding its geographic footprint. The company operates through two main segments: the Regulated Utility segment and the Non-Utility segment.
The Regulated Utility segment, which accounted for 93.6% of Artesian’s total operating revenues for the nine months ended September 30, 2024, includes five regulated utility subsidiaries. Artesian Water Company, Inc. distributes and sells water throughout Delaware, while Artesian Wastewater Management, Inc. and Tidewater Environmental Services, Inc. provide regulated wastewater services in Sussex County, Delaware. Artesian Water Maryland, Inc. serves customers in Cecil County, Maryland, and Artesian Wastewater Maryland, Inc. is authorized to provide wastewater services in Maryland, although it is not currently operational.
The Non-Utility segment, contributing 6.4% of total operating revenues, includes Artesian Utility Development, Inc., which designs and builds water and wastewater infrastructure and provides contract operation services. Artesian Development Corporation, a real estate holding company, is also part of this segment.
Artesian’s strategic focus on expanding its water and wastewater service areas, as well as its diversification into complementary business lines, has strengthened the company’s resilience and positioned it for long-term sustainable growth. The company has seen consistent growth in its Service Line Protection Plans, with increases of 3.3%, 2.4%, and 1.6% in the WSLP Plan, SSLP Plan, and ISLP Plan, respectively, as of September 30, 2024, compared to the same period in the previous year.
Looking Ahead Navigating Challenges, Delivering Value
Artesian Resources faces a range of challenges, from navigating the regulatory landscape to addressing emerging environmental concerns. However, the company’s proven track record, strong financial position, and commitment to innovation and customer service position it well to navigate these challenges and continue delivering value to its shareholders.
The company’s performance in recent quarters demonstrates its ability to execute its strategic plan and consistently generate solid financial results. The significant increase in revenue and net income in Q3 2024, along with the improved free cash flow, reflects Artesian’s operational efficiency and successful implementation of rate adjustments.
Artesian’s focus on expanding its regulated water and wastewater services through strategic acquisitions and new service areas, while also growing its non-utility businesses, particularly the Service Line Protection Plans, has proven to be a successful strategy. The company’s ability to recover costs and investments through rate increases approved by state regulatory commissions has been a key driver of its financial performance in the Regulated Utility segment.
As Artesian Resources continues to work on expanding its service areas, upgrading its infrastructure, and adapting to evolving industry regulations, investors can take comfort in the company’s demonstrated ability to navigate challenges and deliver consistent results. With a focus on sustainable growth, operational excellence, and shareholder returns, Artesian Resources remains a compelling investment opportunity in the regulated water utility sector.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.