Middlesex Water Company (NASDAQ:MSEX) has been a stalwart in the water utility industry, serving customers in New Jersey and Delaware for over 125 years. With a focus on delivering high-quality, reliable water and wastewater services, this regulated utility has weathered industry challenges and emerged as a resilient investment opportunity.
Business Overview
Middlesex Water Company, established in 1897, has grown to become a leading provider of water, wastewater, and related utility services in the Northeast. The company's principal New Jersey water utility system, the Middlesex System, provides water services to approximately 61,000 retail customers, primarily in central New Jersey. Additionally, Middlesex supplies water under contract to municipalities in central New Jersey, serving a total population of over 200,000.
The company expanded into Delaware in 1992 through its wholly-owned subsidiary, Tidewater Utilities, Inc. In Delaware, Tidewater and its subsidiary Southern Shores Water Company provide water services to approximately 61,000 retail customers. Middlesex's other New Jersey subsidiaries, Pinelands Water Company and Pinelands Wastewater Company, serve around 2,500 customers in Southampton Township, New Jersey.
Middlesex operates through two business segments:
Regulated segment
Accounting for 93% of Middlesex's 2024 consolidated operating revenues, includes the Middlesex, Tidewater, Pinelands, and Southern Shores systems. This segment contributed approximately 94% of net income in 2024.
Non-Regulated segment
Generating the remaining 7% of 2024 revenues, operates and maintains water and wastewater systems under contract for municipal and private entities, primarily in New Jersey and Delaware.
Throughout its history, Middlesex has faced various challenges, including complying with evolving environmental laws and regulations related to water quality and wastewater effluent quality. The company has consistently invested in upgrading and replacing utility infrastructure to ensure regulatory compliance, service reliability, and overall quality of service. In 2021, Middlesex encountered a specific challenge when it was required to notify customers of an exceedance of a newly promulgated water quality standard for PFOA at one of its treatment plants. The company worked diligently to resolve this issue and bring the water supply back into compliance.
Middlesex has also navigated the complex regulatory environment in the states where it operates. The company's rates charged to customers, the quality of services provided, and other matters are regulated by state public utility commissions in New Jersey and Delaware. Middlesex has sought timely and adequate rate relief to recover increased operating costs and capital investments, which has at times been challenging. Despite these hurdles, the company has maintained its position as a trusted provider of high-quality water service for residential, commercial, and municipal customers across its service territories.
Weathering Industry Challenges
Middlesex has navigated the water utility industry's unique challenges with resilience. In 2024, the company reported net income of $44.4 million and diluted earnings per share (EPS) of $2.47, up from $31.5 million and $1.76 in 2023, respectively. This strong performance underscores Middlesex's ability to adapt to evolving regulatory environments, infrastructure needs, and customer demands.
One key factor contributing to Middlesex's success has been its proactive approach to infrastructure investments. In 2024, the company invested $75 million to upgrade, replace, and enhance the resiliency of its water and wastewater assets. This included projects such as the replacement of 19,550 linear feet of cast iron main in Woodbridge Township, New Jersey, and the construction of new elevated water tanks in Delaware. Looking ahead, Middlesex has planned a $387 million capital investment program from 2025 through 2027 to further strengthen its utility systems.
Financials
Middlesex's financial performance has been strong, as evidenced by its 2024 results. The company reported total operating revenues of $191.9 million in 2024, up from $166.3 million in 2023. Net income reached $44.4 million, compared to $31.6 million in the prior year. These figures demonstrate Middlesex's ability to grow its top and bottom lines while continuing to invest in infrastructure and navigate regulatory challenges.
The Middlesex system in New Jersey provided around 67% of consolidated operating revenues in 2024, highlighting the importance of this core market to the company's overall financial performance.
For the most recent quarter (Q4 2024), Middlesex reported revenue of $47.1 million and net income of $8.8 million. Year-over-year revenue growth in Q4 2024 was 22.0% compared to Q4 2023, indicating strong momentum heading into 2025.
The water utility industry is expected to see a compound annual growth rate (CAGR) of around 3-5% over the next 5 years, driven by increased infrastructure investment, customer growth, and regulatory recovery. Middlesex's strategic focus on these areas positions it well to capitalize on these industry trends.
Financial Stability and Growth
Middlesex's financial position remains robust, with a strong balance sheet and consistent cash flow generation. In 2024, the company reported operating cash flow of $58.7 million and free cash flow of -$15.9 million, the latter reflecting the company's significant capital investments. As of December 31, 2024, Middlesex had $4.2 million in cash and cash equivalents and $379.3 million in net debt, demonstrating its ability to fund growth initiatives while maintaining a prudent capital structure.
The company's regulated nature provides a degree of stability, as its rates charged to customers and the quality of services provided are subject to oversight by state public utility commissions. Middlesex has consistently received regulatory approval for rate increases, most recently in 2024 when the New Jersey Board of Public Utilities approved a $15.4 million increase in the Middlesex System's annual operating revenues, effective March 1, 2024. Additionally, Tidewater filed an application with the Delaware Public Service Commission in 2024 seeking an overall 25.6% increase in annual operating revenues to recover investments in infrastructure and compliance initiatives.
Alongside its regulated operations, Middlesex's non-regulated contract services have contributed to its diversified revenue stream. In 2024, the Non-Regulated segment accounted for 7% of the company's total revenues, providing a complementary source of income. This segment includes the company's USA, USA-PA, and White Marsh subsidiaries, which operate and maintain water and wastewater systems under contract for municipal and private entities, primarily in New Jersey and Delaware.
Liquidity
Middlesex maintains a strong liquidity position, which is crucial for supporting its ongoing operations and capital investment programs. As of December 31, 2024, the company had $4.2 million in cash and cash equivalents. Additionally, Middlesex has access to $117 million available under its $140 million lines of credit, providing further financial flexibility.
The company's debt-to-equity ratio stood at 0.86 as of December 31, 2024, indicating a balanced capital structure. The current ratio was 0.52 and the quick ratio was 0.44, reflecting the company's ability to meet its short-term obligations.
Middlesex has received approval to borrow up to $300 million from the New Jersey Infrastructure Bank and other sources through 2025 to fund its capital program. This access to capital, coupled with the company's ability to generate consistent operating cash flow, ensures that it can meet its short-term obligations and fund long-term growth initiatives.
Human Capital Management
As of December 31, 2024, Middlesex employed 360 people, none of whom are subject to collective bargaining agreements. The company recognizes the importance of its workforce and offers competitive compensation and benefits, safety programs, training and development opportunities, and a focus on diversity, equity, and inclusion. This approach to human capital management supports Middlesex's ability to attract and retain skilled employees, which is crucial for maintaining high-quality service and operational efficiency.
Looking Ahead
Middlesex Water Company's proven track record, prudent financial management, and strategic investments position the company well for continued growth and resilience. The company's focus on infrastructure upgrades, regulatory compliance, and diversified revenue sources suggest it is poised to weather industry challenges and deliver long-term value for shareholders.
As Middlesex navigates the evolving water utility landscape, investors can take comfort in the company's deep roots, experienced management team, and commitment to providing essential services to its customers. With a balanced approach to growth and operational excellence, Middlesex Water Company remains an attractive investment opportunity in the regulated utility space.
In terms of future performance, Middlesex has reaffirmed its fiscal year 2022 full-year earnings guidance to be in the range of $2.60 to $2.70 per diluted share. Management has expressed confidence in achieving this guidance range, which aligns with the company's historical performance and ongoing strategic initiatives.