Artesian Resources Corporation Reports 2023 Year-End Earnings and Fourth Quarter Results

Rhea-AI Summary

Artesian Resources Corporation (ARTNA) reported a decrease in net income for the year 2023 compared to 2022. Revenues remained stable at $98.9 million. Operating expenses increased slightly, with utility expenses rising due to employee benefits and payroll costs. The company invested $62.2 million in water and wastewater infrastructure projects in 2023 to improve service quality and meet growth demands.

Positive

• Stable revenues of $98.9 million for both 2022 and 2023.
• Increase in water sales revenue by $1.7 million due to rate increase and water consumption.
• Operating expenses increased slightly, with utility expenses rising by 5.6%.
• Investment of $62.2 million in water and wastewater infrastructure projects in 2023.

Negative

• Net income decreased by $1.3 million, or 7.2%, for the year 2023 compared to 2022.
• Non-utility operating revenue decreased by $2.4 million, or 26.9%.
• Short-term debt interest increased by $0.1 million.

Insights

Financial Analyst

An examination of Artesian Resources Corporation's financial results reveals a mixed performance. The year-end net income decline by 7.2% alongside a decrease in diluted net income per share from $1.90 to $1.67 indicates a contraction in profitability. However, this must be contextualized within industry performance and broader economic conditions. The steady revenue, maintained at $98.9 million, suggests operational stability, but the unchanged revenue juxtaposed with rising operating expenses could signal margin compression. The increase in water sales revenue and customer base growth are positive indicators, reflecting the company's ability to expand its market share and benefit from rate increases. However, the decrease in non-utility operating revenue and the rise in operating expenses highlight challenges in cost management and the potential impact of project completion on revenue streams.

Investors should note the increase in property and other taxes, which may affect future net income. The rise in depreciation and amortization expense is a natural consequence of the company's substantial capital investments in infrastructure. These investments are critical for long-term growth but can pressure short-term earnings. The increase in federal and state income tax expense, despite lower pre-tax income, warrants attention as it affects net income. Furthermore, the increase in long-term and short-term debt interest expenses reflects the company's financing strategy amidst a potentially rising interest rate environment, which could impact future interest payments and financial flexibility.

Market Research Analyst

Artesian Resources Corporation's strategic focus on capital improvements, as evidenced by the $62.2 million investment in water and wastewater infrastructure, positions the company in a favorable light in terms of service quality and reliability. This proactive approach, particularly the investment in PFAS treatment ahead of anticipated EPA regulations, demonstrates foresight and may provide a competitive advantage. The ability to anticipate regulatory changes and prepare accordingly is a strong indicator of management's strategic planning capabilities.

The temporary rate increase and the pending rate case with the DEPSC are critical factors for future revenue projections. The outcome of the rate case will significantly influence the company's revenue stream and investment recovery. Stakeholders should monitor the DEPSC's decision closely as it will have implications for the company's financial health and stock performance. Additionally, the company's ability to grow its customer base in its franchise area suggests potential for market expansion, which could drive future revenue growth.

Economist

The performance of Artesian Resources Corporation must be analyzed against the backdrop of macroeconomic conditions. The company's increased expenses in payroll and benefits, as well as supply and treatment costs, reflect broader inflationary pressures that many industries are facing. The ability to pass on these costs to consumers through rate increases is a positive sign of pricing power, which is crucial in inflationary times. However, the reliance on regulatory approval for rate increases introduces an element of uncertainty into the company's revenue forecasts.

Furthermore, the company's investment in infrastructure, while necessary for long-term sustainability and compliance with anticipated regulations, must be balanced against the cost of capital. The increased interest expenses due to higher debt levels could become more burdensome if interest rates continue to rise. This scenario would have implications for the company's capital structure and cost of financing future projects. The current economic environment, characterized by uncertainty around interest rates and regulatory changes, poses both challenges and opportunities for Artesian Resources Corporation.

NEWARK, Del., March 13, 2024 (GLOBE NEWSWIRE) -- Artesian Resources Corporation (Nasdaq: ARTNA), a leading provider of water and wastewater services, and related services, on the Delmarva Peninsula, today announced earnings results for the fourth quarter and year ended December 31, 2023.

Year End Results

Net income was $16.7 million, a $1.3 million, or 7.2%, decrease compared to net income recorded during the twelve months ended December 31, 2022. Diluted net income per share decreased to $1.67, compared to $1.90 for the same period in 2022.

Revenues totaled $98.9 million for both the year ended December 31, 2023 and December 31, 2022, respectively:

Water sales revenue increased $1.7 million, or 2.2%, primarily related to a temporary net rate increase of 7.50% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law, until permanent rates are determined by the Delaware Public Service Commission, or DEPSC, and an increase in overall water consumption. In addition, fixed fee revenue increased as a result of additional customers.

Other utility operating revenue increased approximately $0.7 million, or 6.0%. This increase is primarily due to an increase in wastewater revenue associated with customer growth and an increase in fee revenue related to inspection, service and finance charges.

Non-utility operating revenue decreased approximately $2.4 million, or 26.9%. This decrease is primarily due to a decrease in contract service revenue related to a contract for the design and construction of wastewater infrastructure now nearing completion, partially offset by an increase in Service Line Protection Plan, or SLP Plan, revenue.

Operating expenses, excluding depreciation and amortization and income taxes, increased $0.2 million, or 0.4%.

Utility operating expenses increased $2.4 million, or 5.6%, primarily the result of increases in employee benefits and payroll costs, computer system maintenance costs, and supply and treatment costs for our water and wastewater systems.   These increases are partially offset by a decrease in purchased water under a new contract, effective January 2022, in which the minimum amount of water required to be purchased was reduced.

Non-utility operating expenses decreased $2.4 million, or 35.4%, primarily due to a decrease in costs associated with a wastewater infrastructure design and construction contract.

Property and other taxes increased $0.2 million, or 3.9%, primarily due to an increase in utility plant subject to taxation and an increase in payroll taxes, related to increased payroll related expenses. Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

Depreciation and amortization expense increased $0.7 million, or 5.7%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.5 million, or 8.0%, primarily due to adjustments related to the application of state net operating loss valuation allowances and stock options exercised in 2022, partially offset by lower pre-tax income in 2023 compared to 2022.  

Other income increased $0.8 million, primarily due to a $0.7 million increase in allowance for funds used during construction, or AFUDC, as a result of higher long-term construction activity subject to AFUDC. Miscellaneous income increased $0.1 million primarily related to an increase in the annual patronage refund from CoBank, ACB. The primary refund calculation for both 2023 and 2022 was based on the average loan balance outstanding.

Long-term debt interest increased $0.5 million, primarily related to an increase in long-term debt interest associated with the Series W First Mortgage Bond issued on April 29, 2022. Short-term debt interest increased $0.1 million, primarily related to higher interest rates.

“In April 2023 we filed a request for an increase in water rates in our Delaware operations. We requested a $16.7 million increase in annual revenue, which is necessary to recover increased operating costs and significant investments made to ensure water quality and resiliency, including upgrades of our treatment equipment and facilities, new elevated water storage, replacement of aging water mains, and investments in information technology. We began charging temporary rates on November 28, 2023, as permitted by the Delaware Public Service Commission, while the full request is under examination. We are now beginning to see recovery of some of these investments and increased expenses,” said Dian C. Taylor, CEO.  

Fourth Quarter Results

Net income was $3.5 million for the three months ended December 31, 2023, a $1.2 million, or 49.7%, increase compared to net income recorded during the three months ended December 31, 2022. Diluted net income per share increased to $0.34 compared to $0.24 for the same period in 2022.

Revenues totaled $24.5 million, a decrease of $0.6 million, or 2.3%, compared to revenues recorded for the same period in 2022.  

Water sales revenue increased $1.0 million, or 5.3%, primarily related to a temporary net rate increase of 7.50% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law, until permanent rates are determined by the DEPSC, and an increase in overall water consumption. In addition, fixed fee revenue increased as a result of additional customers.

Other utility operating revenue decreased approximately $0.1 million, or 3.5%, primarily due to decreased operating subsidies from developers and the timing of industrial wastewater revenue, partially offset by an increase in wastewater revenue associated with additional customers served.

Non-utility operating revenue decreased approximately $1.5 million, or 46.1%, primarily due to a decrease in contract service revenue related to a contract for the design and construction of wastewater infrastructure now nearing completion, partially offset by an increase in SLP Plan revenue.

Operating expenses, excluding depreciation and amortization and income taxes, decreased $2.3 million, or 13.9%.

Utility operating expenses decreased $1.1 million, or 8.3%, primarily the result of an overall decrease in payroll and employee benefits costs and water treatment costs.

Non-utility operating expenses decreased $1.3 million, or 54.8%, primarily due to a decrease in costs associated with a wastewater infrastructure design and construction contract.

Property and other taxes increased $0.1 million, or 4.6%, primarily due to an increase in utility plant subject to taxation and an increase in payroll taxes, related to increased payroll related expenses. Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

Depreciation and amortization expense increased $0.2 million, or 5.6%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water customers and service to our wastewater customers.

Federal and state income tax expense increased $0.3 million, or 32.4%, primarily due to higher pre-tax income in 2023 compared to 2022.  

Other income decreased $0.2 million, primarily due to a $0.1 million decrease in AFUDC, as a result of lower long-term construction activity subject to AFUDC.

Capital Expenditures

As part of Artesian’s ongoing effort to ensure high-quality reliable service to customers, $62.2 million was invested in water and wastewater infrastructure projects during 2023 compared to $48.5 million for the same period in 2022. We invested in our rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating mains, installation of new mains, enhancing or improving existing treatment facilities, construction of new water storage tanks, and replacing aging wells and pumping equipment to better serve our customers. We also continue to invest in wastewater treatment and distribution facilities.

“In 2023 we invested over $62 million in capital improvements. These investments in utility plant not only ensure that we provide high quality and reliable water and wastewater services to our customers, but allow us to meet growth demands in our expanding franchise area.   Additionally, we continue to make investments proactively to treat for PFAS in drinking water in anticipation of the EPA’s release of a more stringent regulation, staying ahead of the upcoming equipment supply needs of other utilities,” said Nicki Taylor, President of Artesian Water Company.

About Artesian Resources
Artesian Resources Corporation operates as a holding company of wholly-owned subsidiaries offering water and wastewater services, and a number of other related core business services, on the Delmarva Peninsula. Artesian Water Company, the principal subsidiary, is the oldest and largest regulated water utility on the Delmarva Peninsula and has been providing water service since 1905. Artesian Water Company supplies 8.7 billion gallons of water per year through 1,470 miles of main to over a third of Delawareans.

Forward Looking Statements
This release contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding, among other things, recovery of investments in water utility plant and increased operating costs in rates charged to customers as presented in our current filing before the Delaware Public Service Commission, expectations regarding the cost, timing and recovery in customer rates of infrastructure investments and increased operational costs, our expectations in 2024, our ability to continue to provide high-quality and reliable water and wastewater service to customers and meet increased demands, and our growth strategy and continued growth in our business and the number of customers served. These statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements including: changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally and other matters discussed in our filings with the Securities and Exchange Commission. While the Company may elect to update forward-looking statements, we specifically disclaim any obligation to do so and you should not rely on any forward-looking statement as representation of the Company’s views as of any date subsequent to the date of this release.

Contact:
Nicki Taylor
Investor Relations
(302) 453-6900
ntaylor@artesianwater.com

Artesian Resources Corporation
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
	Three months ended								Twelve months ended
	December 31,								December 31,
	2023				2022				2023			2022
Operating Revenues
Water sales	$	19,739			$	18,751			$	80,033		$	78,318
Other utility operating revenue		3,112				3,226				12,195			11,506
Non-utility operating revenue		1,694				3,140				6,633			9,073
		24,545				25,117				98,861			98,897
Operating Expenses
Utility operating expenses		11,717				12,778				46,205			43,772
Non-utility operating expenses		1,099				2,432				4,428			6,850
Depreciation and amortization		3,453				3,270				13,335			12,620
State and federal income taxes		1,192				900				6,348			5,878
Property and other taxes		1,570				1,499				6,099			5,871
		19,031				20,879				76,415			74,991
Operating Income		5,514				4,238				22,446			23,906
Allowance for funds used during construction		309				431				2,002			1,329
Miscellaneous		(148	)			(47	)			1,407			1,265
Income Before Interest Charges		5,675				4,622				25,855			26,500
Interest Charges		2,195				2,297				9,156			8,502
Net Income	$	3,480			$	2,325			$	16,699		$	17,998
Weighted Average Common Shares Outstanding - Basic		10,281				9,497				10,018			9,462
Net Income per Common Share - Basic	$	0.34			$	0.24			$	1.67		$	1.90
Weighted Average Common Shares Outstanding - Diluted		10,284				9,505				10,022			9,481
Net Income per Common Share - Diluted	$	0.34			$	0.24			$	1.67		$	1.90
Artesian Resources Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
	December 31,				December 31,
	2023				2022
Assets
Utility Plant, at original cost less
accumulated depreciation	$	714,284			$	668,031
Current Assets		30,617				27,804
Regulatory and Other Assets		21,931				23,956
	$	766,832			$	719,791
Capitalization and Liabilities
Stockholders' Equity	$	230,397			$	187,930
Long Term Debt, Net of Current Portion		178,307				175,619
Current Liabilities		22,414				44,070
Net Advances for Construction		2,797				3,686
Contributions in Aid of Construction		247,934				224,308
Other Liabilities		84,983				84,178
	$	766,832			$	719,791

FAQ

What was Artesian Resources Corporation's net income for the year 2023?

Artesian Resources Corporation reported a net income of $16.7 million for the year 2023, which was a decrease of $1.3 million compared to the previous year.

How much did the water sales revenue increase by in 2023?

Water sales revenue increased by $1.7 million in 2023 primarily due to a temporary rate increase of 7.50% and an increase in overall water consumption.

How much did Artesian invest in water and wastewater infrastructure projects in 2023?

Artesian invested $62.2 million in water and wastewater infrastructure projects in 2023 to improve service quality and meet growth demands.

What caused the increase in utility operating expenses in 2023?

Utility operating expenses increased by 5.6% in 2023 due to rises in employee benefits, payroll costs, and water treatment expenses.

What was the total revenue for Artesian Resources Corporation in the fourth quarter of 2023?

The total revenue for Artesian Resources Corporation in the fourth quarter of 2023 was $24.5 million, a decrease of $0.6 million compared to the same period in 2022.