Artesian Resources Corporation (ARTNA) is a leading provider of water and wastewater services on the Delmarva Peninsula, serving customers in Delaware, Maryland, and Pennsylvania. With a history dating back to 1905, the company has established itself as a reliable and trusted operator in the region, adapting to changing market conditions and regulatory environments to consistently deliver high-quality services to its growing customer base.
Artesian Resources' Business Overview and History
Artesian Resources Corporation traces its roots back to 1905 when it was founded as the Artesian Water Company, initially servicing a small community in Delaware. Over the decades, the company has steadily grown its operations through strategic acquisitions and infrastructure investments, expanding its footprint across the Delmarva Peninsula.
In 1985, a significant restructuring took place when Artesian Water Company became a subsidiary of the newly formed Artesian Resources Corporation, which was established as the parent holding company. This restructuring allowed Artesian to diversify its business lines and expand its geographic reach. In the years following this reorganization, the company acquired several municipal water systems in Delaware and extended its service into Cecil County, Maryland and Chester County, Pennsylvania.
Artesian Resources operates as a holding company with several wholly-owned subsidiaries, the largest of which is Artesian Water Company. Artesian Water is now the oldest and largest regulated water utility in Delaware, serving approximately 97,000 customers in the state, along with 2,700 customers in Maryland and 40 customers in Pennsylvania.
To meet the needs of its growing customer base, Artesian has invested heavily in its water treatment and distribution infrastructure over the years. This included upgrading treatment facilities, installing new water mains, and automating meter reading capabilities. The company expanded into the wastewater sector in 2005 with the creation of Artesian Wastewater Management, Inc., further diversifying its service offerings.
In addition to its regulated water and wastewater utility operations, Artesian Resources has diversified into other business lines, including non-regulated services such as contract water and wastewater operations, service line protection plans, and design and engineering services. This diversification has allowed the company to expand its revenue streams and mitigate the impact of fluctuations in water demand due to weather patterns.
Throughout its history, Artesian has faced various challenges, such as navigating complex regulatory environments and integrating acquired systems. However, the company has demonstrated resilience in meeting these obstacles head-on. For example, in 2018, Artesian Water resolved a long-standing legal dispute related to groundwater contamination, securing reimbursements for past capital and operating costs. Through prudent management and a commitment to service excellence, Artesian has established itself as a leading utility provider in the region.
Financial Performance and Ratios
Artesian Resources has demonstrated consistent financial performance over the years, with annual revenue reaching $98.9 million in 2022 and $98.9 million in 2021. The company's net income has also remained stable, coming in at $18.0 million in 2022 and $16.8 million in 2021.
For the most recent fiscal year 2023, Artesian Resources reported revenue of $98.86 million and net income of $16.70 million. The company generated operating cash flow of $31.85 million and free cash flow of -$30.33 million. In the most recent quarter (Q3 2024), revenue was $29.14 million with net income of $6.81 million.
The company's financial ratios paint a picture of a well-managed and financially sound organization. As of the latest reported period, Artesian Resources has a current ratio of 1.37, indicating a strong ability to meet its short-term obligations. The debt-to-equity ratio stands at 0.77, suggesting a prudent capital structure. Additionally, the company's return on equity of 9.6% in 2022 and 9.4% in 2021 demonstrates its ability to generate solid returns for its shareholders.
Artesian Resources maintains a solid liquidity position with $2.50 million in cash and cash equivalents as of December 31, 2023. The company has access to a $40 million line of credit with Citizens Bank and a $20 million line of credit with CoBank, ACB, providing additional financial flexibility.
Operational Highlights and Regulatory Environment
Artesian Resources' success is underpinned by its focus on operational excellence and its ability to navigate the complex regulatory landscape in which it operates. The company has consistently invested in infrastructure improvements, with capital expenditures reaching $48.5 million in 2022 and $40.8 million in 2021. These investments have allowed Artesian to maintain the integrity of its water distribution and wastewater treatment systems, ensure compliance with stringent environmental regulations, and enhance the reliability of its services.
The company's regulated subsidiaries are subject to oversight by state public service commissions in Delaware, Maryland, and Pennsylvania. Artesian Resources has demonstrated its ability to work constructively with these regulatory bodies, securing rate increases when necessary to recover the costs of its infrastructure investments and operational expenses. In 2023, the company received a temporary rate increase of 14.6% in Delaware, which was subsequently replaced by a final approved rate increase of 15.2% in June 2024.
Artesian Resources' ability to navigate the regulatory environment and maintain constructive relationships with state regulators has been a key factor in its long-term success and growth.
Business Segments and Performance
Artesian Resources Corporation operates through two main business segments: Regulated Utility and Non-Utility.
The Regulated Utility segment comprises the majority of Artesian's operations, accounting for 93.6% of total operating revenues for the nine months ended September 30, 2024. This segment includes Artesian Water Company, Artesian Wastewater Management, and their subsidiaries, which are engaged in the business of distributing and selling water, as well as providing wastewater services, to residential, commercial, industrial, governmental, municipal, and utility customers throughout Delaware and in portions of Maryland and Pennsylvania.
Water sales revenue increased 10.2% for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to the temporary 14.6% rate increase implemented in November 2023, which was later replaced by a permanent 15.2% rate increase effective June 2024. This rate increase was approved by the Delaware Public Service Commission to help Artesian recover increased operating expenses and investments in utility infrastructure. Additionally, the company saw an increase in overall water consumption due to drier weather conditions.
Artesian Wastewater Management and its subsidiary, Tidewater Environmental Services, provide regulated wastewater services to approximately 8,500 customers in Sussex County, Delaware as of September 30, 2024, an increase of 6.4% compared to the prior year period. Wastewater revenue grew 6.4% for the nine months ended September 30, 2024, attributable to the increase in the number of customers served.
The Non-Utility segment, which accounts for the remaining 6.4% of total operating revenues, consists primarily of Artesian Utility, which provides contract water and wastewater operation services, as well as the company's Service Line Protection Plans (SLP Plans). Revenue from the Non-Utility segment increased 1.7% for the nine months ended September 30, 2024, compared to the same period in 2023, driven by growth in the SLP Plan customer base.
Ongoing Initiatives and Future Outlook
Looking ahead, Artesian Resources remains focused on several strategic initiatives to drive continued growth and enhance shareholder value. The company is actively pursuing opportunities to expand its regulated water and wastewater service territories, both through organic growth and strategic acquisitions. In recent years, the company has completed several acquisitions, including the purchase of substantially all of the water operating assets from the Town of Clayton in 2022.
Additionally, Artesian Resources is investing in the development of new water sources and the modernization of its water treatment and distribution infrastructure. These investments not only ensure the long-term reliability of the company's services but also position it to accommodate future demand growth in its service areas.
In the non-regulated business segment, Artesian Resources is seeking to expand its contract operations and service line protection plan offerings, which provide a steadier revenue stream and diversify the company's overall business model.
The water and wastewater utility industry in the company's service areas continues to experience steady customer growth, driven by population increases and new development. Industry trends include the need for ongoing infrastructure investment, rising operating costs, and the requirement to meet more stringent environmental regulations, such as those related to PFAS and lead service line replacement. Artesian Resources has been able to recover these increasing costs through rate case proceedings.
During the most recent conference call, Artesian Resources provided updated guidance for full-year 2022 net income, expecting it to be in the range of $36 million to $38 million. This represents an increase from the previous guidance range of $35 million to $37 million, indicating that the company expects to exceed its prior forecast.
Overall, Artesian Resources' long-standing history, financial stability, and strategic initiatives position the company well to continue delivering reliable water and wastewater services to its growing customer base on the Delmarva Peninsula.
Risks and Challenges
While Artesian Resources has demonstrated resilience and adaptability, the company is not without its risks and challenges. As a regulated utility, the company is subject to the decisions and policies of state public service commissions, which can impact its ability to recover costs and earn a fair return on its investments. Additionally, the company faces the ongoing challenge of maintaining and upgrading its aging infrastructure, which requires significant capital expenditures.
Environmental regulations, such as those related to water quality and wastewater treatment, also pose compliance risks for the company. Artesian Resources must continually monitor and adapt to changes in these regulations to ensure the safety and reliability of its services.
Furthermore, the company's operations are susceptible to weather patterns and climatic conditions, which can affect water demand and revenue. Prolonged droughts or periods of excessive rainfall can impact the company's financial performance.
Conclusion
Artesian Resources Corporation has built a solid reputation as a reliable provider of water and wastewater services on the Delmarva Peninsula. With a history dating back over a century, the company has navigated various market conditions and regulatory environments, consistently delivering high-quality services to its growing customer base.
Artesian Resources' financial stability, operational excellence, and strategic initiatives position the company well for continued growth and success. The company's ability to secure rate increases, expand its customer base, and diversify its service offerings has contributed to its steady financial performance. While the company faces ongoing risks and challenges, its experienced management team and adaptable business model suggest that Artesian Resources is well-equipped to overcome these obstacles and create value for its shareholders in the years to come.