Artesian Resources(ARTNA) - 2023 Q1 - Quarterly Report

Part I - Financial Information This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2023 Item 1 - Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, along with accompanying notes on accounting policies and key events Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Highlights (Unaudited, in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $725.79 | $719.79 | | Total Current Assets | $21.61 | $27.80 | | Utility Plant, Net | $679.71 | $668.03 | | Total Liabilities | $536.65 | $531.86 | | Total Current Liabilities | $43.54 | $44.07 | | Long-term Debt, Net | $176.26 | $175.62 | | Total Stockholders' Equity | $189.14 | $187.93 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including revenues, expenses, operating income, and net income for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Operations Highlights (Unaudited, in millions, except per share amounts) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Operating Revenues | $22.50 | $22.19 | | Total Operating Expenses | $18.44 | $17.44 | | Operating Income | $4.06 | $4.74 | | Net Income | $3.71 | $4.48 | | Diluted EPS | $0.39 | $0.47 | | Cash Dividends Per Share | $0.2784 | $0.2675 | Condensed Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Cash Flows Highlights (Unaudited, in millions) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $10.51 | $11.82 | | Net Cash used in Investing Activities | ($16.74) | ($12.62) | | Net Cash from Financing Activities | $5.04 | $1.18 | | Net (Decrease) Increase in Cash | ($1.19) | $0.39 | Condensed Consolidated Statements of Changes in Stockholders' Equity This section illustrates the changes in stockholders' equity, reflecting net income, dividends, and other comprehensive income for the period - Stockholders' equity increased from $187.9 million at December 31, 2022, to $189.1 million at March 31, 2023, primarily driven by $3.7 million in net income, partially offset by $2.6 million in cash dividends declared[29] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and segment information supporting the financial statements - The company's Regulated Utility segment, its primary reportable segment, accounts for over 92% of operating revenues and includes regulated water and wastewater services in Delaware, Maryland, and Pennsylvania[121][137] - On April 28, 2023, Artesian Water filed a request with the Delaware Public Service Commission for a 23.84% rate increase, equivalent to approximately $17.5 million in annualized revenue, to support capital improvements and cover rising operational costs[132] - The company completed the acquisition of Tidewater Environmental Services, Inc. (TESI) in January 2022 for $6.4 million and the Town of Clayton's water system in May 2022 for $5.0 million, significantly expanding its wastewater and water customer base[34][115] - A settlement with the Delaware Sand and Gravel Remedial Trust will reimburse Artesian for approximately $10.0 million in past costs, which will be refunded to customers through bill credits[69][129] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting revenue growth, net income decrease due to higher costs, strategic expansion, liquidity, and capital expenditures Results of Operations This section analyzes the company's operational performance, highlighting key revenue and expense drivers and their impact on net income for the quarter Q1 2023 vs Q1 2022 Performance (in millions) | Metric | Q1 2023 | Q1 2022 | Change | Reason | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $22.5 | $22.2 | +1.4% | Increase in wastewater revenue from customer growth and Service Line Protection Plan revenue | | Operating Expenses | $12.8 | $11.9 | +7.4% | Increased payroll, maintenance, water treatment chemicals, and power costs | | Net Income | $3.7 | $4.5 | -17.4% | Higher operating expenses and a $0.5 million increase in interest charges | - Customer growth continued, with a 3.2% increase in Delaware water customers and an 8.3% increase in Delaware wastewater customers compared to March 31, 2022[142][143] - The company's strategy focuses on expanding water and wastewater services across the Delmarva Peninsula through strategic acquisitions and partnerships with governments and developers[145] Liquidity and Capital Resources This section details the company's sources and uses of cash, capital expenditure plans, and available credit facilities to manage its financial obligations and growth initiatives - Primary liquidity sources for Q1 2023 were $10.5 million from operating activities and $5.3 million in net contributions and advances, including $1.8 million in state grant funds[163] - Capital expenditures increased significantly to $16.8 million in Q1 2023, compared to $9.8 million in Q1 2022, focusing on infrastructure rehabilitation and expansion[164] - The company maintains two lines of credit totaling $60 million ($40 million with Citizens Bank, $20 million with CoBank) to support liquidity needs. As of March 31, 2023, $21.6 million was drawn on these lines[166][167][170] Item 3 - Quantitative and Qualitative Disclosures about Market Risk The company manages interest rate risk on variable-rate credit lines and mitigates commodity price risk through cost recovery mechanisms and fixed-price contracts - The company is subject to interest rate risk on its $60 million of variable-rate lines of credit, with $21.6 million outstanding at March 31, 2023. Rising SOFR rates have increased and are expected to continue to increase borrowing costs[179] - Risk from commodity price increases (e.g., chemicals, electricity) is managed by recovering costs through rate increases and securing multi-year fixed-price supply contracts for electricity[179] Item 4 - Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[181] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[182] Part II - Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Item 1 - Legal Proceedings The company is involved in ordinary course litigation, with management not expecting material financial impact, and refers to Note 17 for further details - The company states that the ultimate resolution of legal proceedings arising in the ordinary course of business is not expected to materially affect its business, financial position, or results of operations. It refers to Note 17 for a full discussion[183] Item 1A - Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2022[184] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds This section reports on any unregistered sales of equity securities and the use of proceeds during the period - None[184] Item 3 - Defaults Upon Senior Securities This section addresses any defaults on senior securities during the reporting period - None[184] Item 4 - Mine Safety Disclosures This section provides disclosures related to mine safety, if applicable to the company's operations - Not applicable[184] Item 5 - Other Information This section includes any other material information not covered elsewhere in the report - None[184] Item 6 - Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including certifications and financial data - The report lists all exhibits filed, including certifications by the CEO and CFO (Exhibits 31.1, 31.2, 32) and the financial statements in Inline XBRL format (Exhibits 101)[185]