Artesian Resources(ARTNA) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for Artesian Resources Corporation ITEM 1 – FINANCIAL STATEMENTS This section presents Artesian Resources Corporation's unaudited condensed consolidated financial statements and related notes for the period ended March 31, 2024 Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | ASSETS | March 31, 2024 ($) | December 31, 2023 ($) | |:----------------------------------------------------------------------------------------------------------------------------------------|:-------------------|:----------------------| | Utility plant, at original cost (less accumulated depreciation) | 722,217 | 714,284 | | Cash and cash equivalents | 9,503 | 2,505 | | Total current assets | 30,847 | 30,617 | | Total other assets | 15,135 | 14,642 | | Regulatory assets, net | 7,212 | 7,289 | | Total Assets | 775,411 | 766,832 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | 231,986 | 230,397 | | Long-term debt, net of current portion | 178,333 | 178,307 | | Total current liabilities | 21,725 | 22,414 | | Regulatory liabilities | 26,166 | 25,676 | | Deferred income taxes | 58,275 | 58,381 | | Net contributions in aid of construction | 255,231 | 247,934 | | Total Liabilities and Stockholders' Equity | 775,411 | 766,832 | - Total Assets increased by $8.579 million from December 31, 2023, to March 31, 2024, primarily driven by an increase in utility plant and cash and cash equivalents[9][10] - Stockholders' equity saw a modest increase of $1.589 million, while long-term debt remained relatively stable[9][10] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income over a specific reporting period Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Operating Revenues | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | |:--------------------------------------------------|:--------------------------------------|:--------------------------------------| | Water sales | 19,825 | 18,016 | | Other utility operating revenue | 3,015 | 2,817 | | Non-utility operating revenue | 1,704 | 1,662 | | Total Operating Revenues | 24,544 | 22,495 | | Operating Expenses | | | | Utility operating expenses | 11,957 | 11,272 | | Non-utility operating expenses | 1,116 | 1,085 | | Depreciation and amortization | 3,465 | 3,224 | | State and federal income taxes | 1,681 | 1,313 | | Property and other taxes | 1,606 | 1,541 | | Total Operating Expenses | 19,825 | 18,435 | | Operating income | 4,719 | 4,060 | | Other income | | | | Allowance for funds used during construction (AFUDC) | 285 | 459 | | Miscellaneous income | 1,574 | 1,603 | | Income before interest charges | 6,578 | 6,122 | | Interest charges | 2,167 | 2,417 | | Net income applicable to common stock | 4,411 | 3,705 | | Net income per common share: | | | | Basic | 0.43 | 0.39 | | Diluted | 0.43 | 0.39 | | Cash dividends per share of common stock | 0.2897 | 0.2784 | - Total Operating Revenues increased by $2.049 million (9.1%) for the three months ended March 31, 2024, compared to the same period in 2023, primarily driven by a temporary rate increase and higher water consumption[14][141] - Net income applicable to common stock increased by $0.706 million (19.1%) due to higher revenues and lower interest charges, partially offset by increased operating expenses[14][147] Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | CASH FLOWS FROM OPERATING ACTIVITIES | Three Months Ended March 31, 2024 ($) | Three Months Ended March 31, 2023 ($) | |:-------------------------------------------------------------------|:--------------------------------------|:--------------------------------------| | Net income | 4,411 | 3,705 | | Depreciation and amortization | 3,465 | 3,224 | | NET CASH PROVIDED BY OPERATING ACTIVITIES | 12,594 | 10,508 | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | Capital expenditures (net of AFUDC, equity portion) | (8,922) | (16,794) | | Proceeds from sale of assets | 600 | 53 | | NET CASH USED IN INVESTING ACTIVITIES | (8,322) | (16,741) | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | Proceeds from contributions in aid of construction and advances | 5,393 | 5,564 | | Dividends paid | (2,980) | (2,646) | | NET CASH PROVIDED BY FINANCING ACTIVITIES | 2,726 | 5,039 | | NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 6,998 | (1,194) | | CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 2,505 | 1,309 | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | 9,503 | 115 | - Net cash provided by operating activities increased by $2.086 million (19.8%) for the three months ended March 31, 2024, primarily due to higher net income and changes in working capital[16][149] - Capital expenditures decreased significantly from $16.794 million in Q1 2023 to $8.922 million in Q1 2024, contributing to a lower net cash outflow from investing activities[16][150] - Net cash provided by financing activities decreased by $2.313 million, mainly due to decreased borrowings under lines of credit and higher dividend payments[16][152] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement outlines changes in equity components, including net income, dividends, and stock transactions Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | | Shares Outstanding Class A Non-Voting | Shares Outstanding Class B Voting | $1 Par Class A Non-Voting Value | $1 Par Class B Voting Value | Additional Paid-in Capital | Retained Earnings | Total | |:----------------------------------|:--------------------------------------|:----------------------------------|:--------------------------------|:----------------------------|:---------------------------|:------------------|:----------| | Balance as of December 31, 2022 | 8,621 | 881 | 8,621 | 881 | 107,143 | 71,286 | 187,931 | | Net income | – | – | – | – | – | 3,705 | 3,705 | | Cash dividends declared | – | – | – | – | – | (2,646) | (2,646) | | Issuance of common stock | 2 | – | 2 | – | 91 | – | 93 | | Employee stock options and awards | – | – | – | – | 56 | – | 56 | | Balance as of March 31, 2023 | 8,623 | 881 | 8,623 | 881 | 107,290 | 72,345 | 189,139 | | Balance as of December 31, 2023 | 9,404 | 881 | 9,404 | 881 | 143,369 | 76,743 | 230,397 | | Net income | – | – | – | – | – | 4,411 | 4,411 | | Cash dividends declared | – | – | – | – | – | (2,980) | (2,980) | | Issuance of common stock | 3 | – | 3 | – | 87 | – | 90 | | Employee stock options and awards | – | – | – | – | 68 | – | 68 | | Balance as of March 31, 2024 | 9,407 | 881 | 9,407 | 881 | 143,524 | 78,174 | 231,986 | - Total stockholders' equity increased from $230.397 million at December 31, 2023, to $231.986 million at March 31, 2024, driven by net income and stock issuances, partially offset by dividends paid[21] - Cash dividends declared increased from $2.646 million in Q1 2023 to $2.980 million in Q1 2024[21] NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 – GENERAL This note describes the company's business operations and its regulated and non-utility subsidiaries - Artesian Resources Corporation includes income from all wholly-owned subsidiaries, operating regulated utility services in Delaware, Maryland, and Pennsylvania, and non-utility services through Artesian Utility and Artesian Development[24][25][29] - Regulated utility subsidiaries include Artesian Water Company, Inc. (DE), Artesian Wastewater Management, Inc. (DE), Artesian Water Maryland, Inc., Artesian Wastewater Maryland, Inc. (currently not providing services), and Artesian Water Pennsylvania, Inc[25][26][27][28] - Non-utility subsidiaries, Artesian Utility and Artesian Development, focus on water/wastewater infrastructure design/build, contract operations, service line protection plans, and real estate holdings[29][31][33] NOTE 2 – BASIS OF PRESENTATION This note explains the accounting principles and estimates used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules for Form 10-Q, condensing certain information and note disclosures compared to annual financial statements[34] - The Company's regulated subsidiaries (Artesian Water, Artesian Wastewater, TESI, Artesian Water Pennsylvania, Artesian Water Maryland, Artesian Wastewater Maryland) maintain accounting records per uniform systems prescribed by respective state public service commissions and follow FASB ASC Topic 980 for regulated industries[37] - Financial statements involve management estimates and assumptions, including for unbilled revenues, credit losses, regulatory asset recovery, and goodwill, with actual results potentially differing[38] NOTE 3 – REVENUE RECOGNITION This note details the company's policies for recognizing revenue from various service types - Operating revenues are primarily from regulated tariff contract services (water consumption, industrial wastewater, fixed fees, service charges, DSIC) and non-tariff contract revenues (SLP Plans, contract operations, design/installation, inspection fees)[40] - Revenue recognition for water and metered wastewater consumption is on a cycle basis, including unbilled estimates, with adjustments made based on actual meter readings[41][43] Disaggregated Revenues by Service Type (in thousands) | Service Type | Three months ended March 31, 2024 ($) | Three months ended March 31, 2023 ($) | |:----------------------------------|:--------------------------------------|:--------------------------------------| | Consumption charges | 12,311 | 10,447 | | Fixed fees | 9,320 | 8,038 | | Service charges | 201 | 180 | | DSIC | — | 1,178 | | Metered wastewater services | 139 | 106 | | Industrial wastewater services | 398 | 446 | | Total Tariff Revenue | 22,369 | 20,395 | | Service line protection plans | 1,431 | 1,363 | | Contract operations | 267 | 244 | | Design and installation | 54 | 105 | | Inspection fees | 76 | 78 | | Total Non-Tariff Revenue | 1,828 | 1,790 | | Other Operating Revenue | 347 | 310 | | Total Operating Revenue | 24,544 | 22,495 | - For Q1 2024, the Company recognized $1.3 million from beginning-of-year Deferred Revenue – Tariff and $0.4 million from Deferred Revenue – Non-Tariff[57] NOTE 4 – ACCOUNTS RECEIVABLE This note provides information on the composition and changes in the company's accounts receivable - Artesian Water is set to receive approximately $10.0 million in reimbursements from the Delaware Sand and Gravel Remedial Trust for past capital and operating costs related to contaminant treatment, with $5.0 million remaining due in 2024 and 2025[60] Accounts Receivable Balance (in thousands) | (in thousands) | March 31, 2024 ($) | December 31, 2023 ($) | |:-----------------------------------------------------|:-------------------|:----------------------| | Customer accounts receivable – water | 6,168 | 6,573 | | Customer accounts receivable – wastewater | 525 | 513 | | Settlement agreement receivable – short term | 2,517 | 2,747 | | Miscellaneous accounts receivable | 1,039 | 1,236 | | Developer receivable | 772 | 2,089 | | Less: provision for expected credit loss | 340 | 328 | | Net accounts receivable | 10,681 | 12,830 | - Net accounts receivable decreased from $12.830 million at December 31, 2023, to $10.681 million at March 31, 2024, primarily due to decreases in developer receivable and short-term settlement agreement receivable[63] NOTE 5 – LEASES This note outlines the company's operating lease arrangements and related financial impacts - The Company leases land and office equipment under operating leases with remaining terms of 4 to 73 years, including extension options expected to be exercised[62] Supplemental Balance Sheet Information Related to Leases (in thousands) | | March 31, 2024 ($) | December 31, 2023 ($) | |:----------------------------------------------|:-------------------|:----------------------| | Operating lease right-of-use assets | 504 | 506 | | Other current liabilities | 9 | 9 | | Operating lease liabilities | 501 | 503 | | Total operating lease liabilities | 510 | 512 | | Weighted Average Remaining Lease Term | 57 years | 58 years | | Weighted Average Discount Rate | 5.0% | 5.0% | Maturities of Operating Lease Liabilities (in thousands) | Year | Operating Leases ($) | |:----------|:---------------------| | 2024 | 35 | | 2025 | 35 | | 2026 | 35 | | 2027 | 35 | | 2028 | 27 | | Thereafter| 1,427 | | Total undiscounted lease payments | 1,594 | | Less effects of discounting | (1,084) | | Total lease liabilities recognized| 510 | NOTE 6 – FAIR VALUE OF FINANCIAL INSTRUMENTS This note discloses the fair value measurements for the company's financial instruments - Current assets and liabilities approximate fair value due to their short maturity and are classified as Level 1 in the fair value hierarchy[72] - Long-term debt, all fixed-rate, is valued using discounted future cash flows with current market interest rates (Level 2 measurements)[73] Long-Term Debt Carrying Amount and Fair Value (in thousands) | | March 31, 2024 ($) | December 31, 2023 ($) | |:-------------------------|:-------------------|:----------------------| | Carrying amount | 180,547 | 180,542 | | Estimated fair value | 158,083 | 162,720 | NOTE 7 – INCOME TAXES This note explains the company's income tax policies, deferred taxes, and uncertain tax positions - Deferred income taxes are provided on temporary differences between tax and financial reporting bases, with rate-regulated subsidiaries recognizing regulatory liabilities/assets for deferred taxes[75] - The Company accrues reserves for uncertain tax positions based on management's judgment; for Q1 2024, approximately $4,000 in penalties and interest were accrued related to 2022 corporate income tax[76] - The Company is subject to examination by federal and state authorities for tax years 2020 through 2023[76] NOTE 8 – STOCK COMPENSATION PLANS This note details the company's equity compensation plans and related expenses - The 2015 Equity Compensation Plan allows for various grants (stock options, stock units, etc.) to employees and non-employee directors, administered by the Compensation Committee[78] - Compensation expense of $68,000 was recorded for Q1 2024 related to restricted stock awards issued in May 2023, which will fully vest one year after the grant date[79] - As of March 31, 2024, there was $28,000 in total unrecognized expenses related to non-vested restricted shares, to be recognized over the remaining vesting period of 0.10 years[82] NOTE 9 – GEOGRAPHIC CONCENTRATION OF CUSTOMERS This note describes the geographic distribution of the company's customer base - Artesian Water serves approximately 96,200 customers in Delaware, 2,600 in Maryland, and 40 in Pennsylvania as of March 31, 2024[83] - Artesian Wastewater and TESI serve approximately 8,200 combined wastewater customers in Sussex County, Delaware, including one large industrial customer[83] NOTE 10 – OTHER DEFERRED ASSETS This note provides details on other long-term deferred assets held by the company Other Deferred Assets (in thousands) | (in thousands) | March 31, 2024 ($) | December 31, 2023 ($) | |:----------------------------------------------|:-------------------|:----------------------| | Investment in CoBank | 6,425 | 5,882 | | Settlement agreement receivable-long term | 2,496 | 2,496 | | Other deferred assets | 134 | 126 | | | 9,055 | 8,504 | - Other deferred assets increased by $0.551 million from December 31, 2023, to March 31, 2024, primarily due to an increase in investment in CoBank[85] NOTE 11 – REGULATORY ASSETS This note explains the nature and composition of the company's regulatory assets - Regulatory assets represent expenses recoverable through customer rates, deferred and amortized over future periods as permitted by DEPSC, MDPSC, and PAPUC[86] Regulatory Assets, Net of Amortization (in thousands) | Regulatory assets, net of amortization, comprise: | March 31, 2024 ($) | December 31, 2023 ($) | |:--------------------------------------------------|:-------------------|:----------------------| | Deferred contract costs and other | 192 | 209 | | Rate case studies | 129 | 136 | | Rate proceedings | 450 | 385 | | Deferred income taxes | 439 | 444 | | Debt related costs | 4,234 | 4,322 | | Deferred costs affiliated interest agreement | 1,096 | 1,110 | | Goodwill | 256 | 258 | | Deferred acquisition and franchise costs | 416 | 425 | | | 7,212 | 7,289 | - Total regulatory assets decreased slightly from $7.289 million at December 31, 2023, to $7.212 million at March 31, 2024[90] NOTE 12 – REGULATORY LIABILITIES This note details the company's regulatory liabilities and their components - Regulatory liabilities represent excess cost recovery or other deferred items that are probable to be returned to customers through future regulated rates[91] - Deferred settlement refunds of $4.991 million are reimbursements from the Delaware Sand and Gravel Remedial Trust, approved by DEPSC to be refunded to customers in annual installments through August 2025[94] Regulatory Liabilities (in thousands) | | March 31, 2024 ($) | December 31, 2023 ($) | |:--------------------------------------------------|:-------------------|:----------------------| | Utility plant retirement cost obligation | 487 | — | | Deferred settlement refunds | 4,991 | 4,991 | | Deferred income taxes (related to TCJA) | 20,688 | 20,685 | | | 26,166 | 25,676 | NOTE 13 – REGULATORY PROCEEDINGS This note outlines ongoing regulatory proceedings and their potential impact on the company - The Company's water and wastewater utilities are subject to rate regulation by the DEPSC, MDPSC, and PAPUC, and environmental regulation under the Safe Drinking Water Act and Clean Water Act[97][98] - Artesian Water filed a request in April 2023 (supplemented Nov 2023) for a 22.66% ($16.7 million annualized) revenue increase, with a temporary base rate increase of 15% of gross water sales (reducing DSIC to zero) effective November 28, 2023, subject to refund[101] - The DSIC rate, which allows recovery for distribution system improvements, was reset to zero when temporary rates were implemented on November 28, 2023; it generated approximately $1.2 million in Q1 2023[101][103] NOTE 14 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE This note presents the calculation of net income and equity per common share Shares Used in Computing Basic and Diluted Net Income Per Share (in thousands) | | 2024 (in thousands) | 2023 (in thousands) | |:-----------------------------------------------------------------|:--------------------|:--------------------| | Weighted average common shares outstanding for basic computation | 10,287 | 9,504 | | Dilutive effect of employee stock options and awards | 4 | 6 | | Weighted average common shares outstanding for diluted computation | 10,291 | 9,510 | - Equity per common share was $22.55 at March 31, 2024, down from $23.00 at December 31, 2023[108] NOTE 15 – COMMON STOCK OFFERING This note describes the details and proceeds from the company's recent common stock offering - In May 2023, the Company completed the sale of 695,650 shares of Class A Stock at $50 per share, generating approximately $33.0 million in net proceeds[109] - An over-allotment option was exercised in June 2023 for an additional 67,689 shares, yielding approximately $3.2 million in net proceeds[109] - Proceeds from the offering were used to repay short-term borrowings, primarily for capital expenditures and general corporate purposes[110] NOTE 16 – LEGAL PROCEEDINGS This note provides information on the company's involvement in legal proceedings - The Company is involved in multi-district litigation (MDL) class action settlements with 3M and DuPont regarding PFAS contamination in public water systems[112] - The DuPont settlement is effective, with claims due by June 17, 2024; the 3M settlement is not yet effective[112] - The amount of any recovery from these settlements is uncertain[112] NOTE 17 – BUSINESS SEGMENT INFORMATION This note presents financial information disaggregated by the company's business segments - The Company operates primarily through one reportable segment: Regulated Utility, which aggregates five regulated utility subsidiaries providing water and wastewater services on the Delmarva Peninsula[113] - Other non-utility businesses, including Service Line Protection Plans, design/construction, and contract operations, do not meet reportable segment criteria and are presented collectively as 'Other' or 'Non-utility'[114] Segment Revenues and Operating Income (in thousands) | (in thousands) Revenues: | Three Months March 31, 2024 ($) | Ended 2023 ($) | |:------------------------------------|:--------------------------------|:---------------| | Regulated Utility | 22,840 | 20,832 | | Other (non-utility) | 1,763 | 1,716 | | Inter-segment elimination | (59) | (53) | | Condensed Consolidated Revenues | 24,544 | 22,495 | | Operating Income: | | | | Regulated Utility | 4,357 | 3,705 | | Other (non-utility) | 362 | 355 | | Condensed Consolidated Operating Income | 4,719 | 4,060 | | Assets: | March 31, 2024 ($) | December 31, 2023 ($) | | Regulated Utility | 762,084 | 760,339 | | Other (non-utility) | 13,327 | 6,493 | | Condensed Consolidated Assets | 775,411 | 766,832 | NOTE 18 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS This note discusses the potential impact of recently issued accounting standards on the company - FASB issued amended guidance in November 2023 for improvements to reportable segment disclosures, requiring disclosure of significant segment expenses and CODM information, effective for fiscal years beginning after December 15, 2024[120] - FASB also issued amended guidance in December 2023 on Income Taxes, requiring disaggregated income tax disclosures and annual disclosure of income taxes paid by jurisdiction, effective for fiscal years beginning after December 15, 2024[121] - Management does not expect these new accounting pronouncements to materially impact the Company's results of operations or cash flows, though they will require additional disclosures[120][121] ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes Artesian Resources' financial condition, operational results, and liquidity for Q1 2024, highlighting key drivers, strategic direction, and market factors OVERVIEW This section provides a general summary of the company's business model and key financial drivers - Profitability is primarily driven by regulated utility business (92.8% of Q1 2024 operating revenues), with water sales subject to seasonal fluctuations and wastewater services providing a weather-independent revenue stream[125] - Non-utility businesses, including contract operations and Service Line Protection (SLP) Plans, also contribute to profitability with weather-independent revenue streams and anticipated continued growth[126] - Inflation significantly impacts facility replacement and operating costs, with recovery dependent on future rate increases, which are subject to regulatory approval and may not be timely or sufficient[127] Regulated Water Subsidiaries This section details the operational performance and customer growth of the regulated water business - Metered water customers increased by approximately 1.3% in Delaware and 1.7% in Maryland as of March 31, 2024, compared to March 31, 2023[128] - Approximately 2.0 billion gallons of water were distributed in Delaware systems and 24.3 million gallons in Maryland systems during Q1 2024[128] - Artesian Water implemented a temporary base rate increase of 15% of gross water sales (reducing DSIC to zero) on November 28, 2023, pending resolution of a request for a 22.66% revenue increase[129] Regulated Wastewater Subsidiaries This section outlines the operational performance and customer growth of the regulated wastewater business - Delaware wastewater customers increased by approximately 6.0% as of March 31, 2024, compared to March 31, 2023[130] - The majority of residential and commercial wastewater customers are billed a flat monthly fee, and the large industrial customer is billed based on flow, providing a weather-unaffected revenue stream[130] Non-Utility Subsidiaries This section describes the performance and customer growth of the company's non-utility businesses - Eligible customers enrolled in the Water Service Line Protection (WSLP), Sewer Service Line Protection (SSLP), and Internal Service Line Protection (ISLP) Plans increased by 3.4%, 2.4%, and 5.4% respectively, as of March 31, 2024, compared to March 31, 2023[131] - SLP Plan customers are billed a flat monthly or quarterly rate, providing a revenue stream unaffected by weather[131] Strategic Direction and Recent Developments This section discusses the company's long-term strategy and recent significant operational developments - The Company's strategy focuses on increasing customer growth, revenues, earnings, and dividends by expanding water, wastewater, and SLP Plan services across the Delmarva Peninsula, emphasizing strategic partnerships and acquisitions[133][134] - In April 2024, Artesian Wastewater commenced construction of a 625,000 gallon per day regional wastewater treatment facility at its Sussex Regional Recharge Facility (SRRF) to serve residential and small commercial customers[137] - Planned capital improvements over the next three years include water infrastructure expansion in Delaware and Maryland, and wastewater infrastructure improvements in Delaware, driven by population growth, water quality standards, aging infrastructure, and acquisitions[138] Other Matters This section addresses other significant issues impacting the company, such as environmental regulations - The EPA established MCLs for PFAS in drinking water on April 10, 2024, requiring initial monitoring by 2027 and compliance by April 2029[140] - The Company has installed PFAS treatment at several wellfields and plans additional installations in 2024, with remaining necessary treatment before 2029, anticipating cost recovery through water rates[140] Results of Operations – Analysis of the Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023. This section provides a comparative analysis of the company's financial performance for the current and prior year quarters - Total Operating Revenues increased by $2.0 million (9.1%) to $24.5 million for Q1 2024, primarily due to a temporary rate increase and higher water consumption[141] - Water sales revenue increased by $1.8 million (10.0%), accounting for 80.8% of total operating revenue in Q1 2024[141] - Operating expenses (excluding depreciation and income taxes) increased by $0.8 million (5.6%), driven by higher supply and treatment costs, payroll/employee benefits, purchased power/water, and administrative costs[143][144] - Net income applicable to common stock increased by $0.7 million (19.1%) due to revenue growth and decreased interest charges, partially offset by increased operating expenses[147] LIQUIDITY AND CAPITAL RESOURCES This section examines the company's cash flow, capital expenditures, and funding strategies - Primary liquidity sources for Q1 2024 were $12.6 million from operating activities and $5.2 million in net contributions and advances from developers[148] - Cash provided by operating activities increased to $12.6 million in Q1 2024 from $10.5 million in Q1 2023, driven by higher net income and changes in working capital[149] - Capital expenditures decreased to $8.9 million in Q1 2024 from $16.8 million in Q1 2023, focusing on PFAS treatment, facility relocation, infrastructure rehabilitation, and treatment plant improvements[150] - Cash flows from financing activities decreased to $2.7 million in Q1 2024 from $5.0 million in Q1 2023, primarily due to decreased borrowings on lines of credit and higher dividend payments[152] Material Cash Requirements (in thousands) | Material Cash Requirements | Less than 1 Year ($) | 1-3 Years ($) | 4-5 Years ($) | After 5 Years ($) | Total ($) | |:------------------------------------------------------------|:---------------------|:--------------|:--------------|:------------------|:----------| | First mortgage bonds (principal and interest) | 7,870 | 15,659 | 39,045 | 198,313 | 260,887 | | State revolving fund loans (principal and interest) | 1,192 | 2,147 | 2,068 | 9,906 | 15,313 | | Promissory note (principal and interest) | 961 | 1,923 | 1,924 | 9,410 | 14,218 | | Asset purchase contractual obligation (principal and interest) | 333 | 647 | --- | --- | 980 | | Lines of credit | --- | --- | --- | --- | --- | | Operating leases | 35 | 70 | 62 | 1,427 | 1,594 | | Operating agreements | 77 | 113 | 103 | 727 | 1,020 | | Unconditional purchase obligations | 876 | 1,559 | 114 | 298 | 2,847 | | Tank painting contractual obligation | 626 | 157 | --- | --- | 783 | | Total contractual cash obligations | 11,970 | 22,275 | 43,316 | 220,081 | 297,642 | PART II - OTHER INFORMATION This section includes disclosures on market risk, controls, legal proceedings, and other required information ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section outlines the Company's exposure to market risks, primarily fluctuating interest rates and commodity prices. The Company manages interest rate risk through fixed-rate long-term debt and mitigates commodity price risk through multi-year supply contracts and cost recovery via customer rates - The Company is exposed to interest rate risk from fixed-rate long-term debt (maturing 2028-2049, rates 4.24%-5.96%) and $60 million in variable-rate lines of credit (no outstanding balances as of March 31, 2024)[166] - Commodity price risks (chemicals, electricity) are mitigated by the ability to recover costs through rate increases and by signing multi-year fixed-price electric supply contracts[166] ITEM 4 – CONTROLS AND PROCEDURES Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2024, concluding they were effective. No material changes to internal control over financial reporting occurred during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024, providing reasonable assurance for timely and accurate reporting[167] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[168] ITEM 1 – LEGAL PROCEEDINGS The Company is periodically involved in legal proceedings in the ordinary course of business. While the ultimate resolution is not expected to materially affect business, financial position, or results of operations, significant litigation expense and diversion of management attention may occur. Further details are provided in Note 16 - The Company is involved in legal proceedings arising in the ordinary course of business, but does not believe their ultimate resolution will materially affect its financial position or results of operations[169] - Significant litigation expense and diversion of management attention may occur regardless of the outcome[169] ITEM 1A – RISK FACTORS This section refers readers to the comprehensive discussion of risk factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. No material changes to these risk factors have occurred during the current reporting period - No material changes to the risk factors described in the Annual Report on Form 10-K for the year ended December 31, 2023, have occurred[170] ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report for the period - None[176] ITEM 3 – DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report for the period - None[176] ITEM 4 – MINE SAFETY DISCLOSURES Mine safety disclosures are not applicable to the Company's operations - Not applicable[176] ITEM 5 – OTHER INFORMATION No other material information or Rule 10b5-1 trading arrangements by directors or officers were adopted, modified, or terminated during the fiscal quarter ended March 31, 2024 - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the fiscal quarter ended March 31, 2024[176] ITEM 6 - EXHIBITS This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and Inline XBRL financial statements and notes - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32) and Inline XBRL formatted financial statements and notes (101.BAL, 101.OPS, 101.CSH, 101.NTS)[171][172][173][174][175][176]