Artesian Resources Corp 10-Q for FY2026 Q3
Artesian Resources Corp (ARTNA)
10-Q
2026-11-12
For: 2026-09-30
View Original
Added on
November 12, 2026
About this 10-Q
Artesian Resources Corp filed this 10-Q on November 12, 2026, covering the quarter ended September 30, 2026 (FY2026 Q3).
Artesian Resources reported nine-month revenue of $90.4 million, up 6.4%, and net income applicable to common stock increased $0.6 million, or 3.1%, as operating expenses and interest charges rose. AI summary
Headline figures
Quarter ended September 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $31.95M
- up 4.8% from $30.49M a year earlier
- Net income
- $6.76M
- down 3.0% from net income of $6.96M a year earlier
- Diluted EPS
- $0.65
- down 4.4% from $0.68 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2026
OR
For the transition period from _____ to _____
Commission File Number 000-18516
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(Exact name of registrant as specified in its charter)
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| -------------------------------------------------------------------- | ------------------------------------------------- |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices)
(302 ) 453 – 6900
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(Registrant's telephone number, including area code)
| | | |
| Securities registered pursuant to Section 12(b) of the Act: | ||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| ☑ | | ☐ | No | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| ☑ | | ☐ | No | |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12(b)-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | | Smaller Reporting Company | Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| ☐ | Yes | | No | |
As of November 9, 2026, 9,453,079 shares of Class A Non-Voting Common Stock and 881,452 shares of Class B Common Stock were outstanding.
TABLE OF CONTENTS
ARTESIAN RESOURCES CORPORATION
FORM 10-Q
PART I – FINANCIAL INFORMATION
ARTESIAN RESOURCES CORPORATION
(Unaudited)
(In thousands)
| ASSETS | September 30, 2026 | December 31, 2025 | ||||
| Utility plant, at original cost (less accumulated depreciation - 2026- $ | $ | $ | ||||
| Current assets | ||||||
| Cash and cash equivalents | ||||||
| Accounts and other receivables (less provision for expected credit loss 2026 - $ | ||||||
| Income tax receivable | ||||||
| Unbilled operating revenues | ||||||
| Materials and supplies | ||||||
| Prepaid property taxes | ||||||
| Prepaid expenses and other | ||||||
| Total current assets | ||||||
| Other assets | ||||||
| Non‑utility property (less accumulated depreciation - 2026 - $ | ||||||
| Other deferred assets | ||||||
| Goodwill | ||||||
| Operating lease right-of-use assets | ||||||
| Total other assets | ||||||
| Regulatory assets, net | ||||||
| Total Assets | $ | $ | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| Stockholders' equity | ||||||
| Common stock | $ | $ | ||||
| Preferred stock | ||||||
| Additional paid-in capital | ||||||
| Retained earnings | ||||||
| Total stockholders' equity | ||||||
| Long-term debt, net of current portion | ||||||
| Current liabilities | ||||||
| Lines of credit | ||||||
| Current portion of long-term debt | ||||||
| Accounts payable | ||||||
| Accrued expenses | ||||||
| Overdraft payable | ||||||
| Accrued interest | ||||||
| Income taxes payable | ||||||
| Customer and other deposits | ||||||
| Reserve for customer refund | ||||||
| Other | ||||||
| Total current liabilities | ||||||
| Commitments and contingencies | ||||||
| Deferred credits and other liabilities | ||||||
| Net advances for construction | ||||||
| Operating lease liabilities | ||||||
| Regulatory liabilities | ||||||
| Deferred investment tax credits | ||||||
| Deferred income taxes | ||||||
| Total deferred credits and other liabilities | ||||||
| Net contributions in aid of construction | ||||||
| Total Liabilities and Stockholders' Equity | $ | $ |
See notes to the condensed consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
(Unaudited)
(In thousands, except per share amounts)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||
| September 30, | September 30, | |||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||
| Operating revenues | ||||||||||||
| Water sales | $ | $ | $ | $ | ||||||||
| Other utility operating revenue | ||||||||||||
| Non-utility operating revenue | ||||||||||||
| Total Operating Revenues | ||||||||||||
| Operating expenses | ||||||||||||
| Utility operating expenses | ||||||||||||
| Non-utility operating expenses | ||||||||||||
| Depreciation and amortization | ||||||||||||
| State and federal income taxes | ||||||||||||
| Property and other taxes | ||||||||||||
| Total Operating Expenses | ||||||||||||
| Operating income | ||||||||||||
| Other income, net | ||||||||||||
| Allowance for funds used during construction (AFUDC) | ||||||||||||
| Miscellaneous (expense) income | ( | ) | ||||||||||
| Income before interest charges | ||||||||||||
| Interest charges | ||||||||||||
| Net income applicable to common stock | $ | $ | $ | $ | ||||||||
| Net income per common share: | ||||||||||||
| Basic | $ | $ | $ | $ | ||||||||
| Diluted | $ | $ | $ | $ | ||||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | ||||||||||||
| Diluted | ||||||||||||
| Cash dividends per share of common stock | $ | $ | $ | $ | ||||||||
See notes to the condensed consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
(Unaudited)
(In thousands)
| For the Nine Months Ended | ||||||
| September 30, | ||||||
| 2026 | 2025 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net income | $ | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | ||||||
| Amortization of debt expense | ||||||
| Amortization of deferred income tax regulatory liability | ( | ) | ( | ) | ||
| Provision for expected credit loss | ||||||
| Deferred income taxes, net | ||||||
| Stock compensation | ||||||
| AFUDC, equity portion | ( | ) | ( | ) | ||
| Changes in assets and liabilities, net of acquisitions: | ||||||
| Accounts and other receivables | ( | ) | ||||
| Income tax receivable | ||||||
| Unbilled operating revenues | ( | ) | ( | ) | ||
| Materials and supplies | ||||||
| Income tax payable | ||||||
| Prepaid property taxes | ||||||
| Prepaid expenses and other | ( | ) | ||||
| Other deferred assets | ( | ) | ( | ) | ||
| Regulatory assets | ( | ) | ||||
| Regulatory liabilities | ( | ) | ( | ) | ||
| Accounts payable | ( | ) | ( | ) | ||
| Accrued expenses | ( | ) | ||||
| Reserve for customer refund | ||||||
| Accrued interest | ||||||
| Customer deposits and other, net | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Capital expenditures (net of AFUDC, equity portion) | ( | ) | ( | ) | ||
| Proceeds from sale of assets | ||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Repayments under lines of credit agreements | ( | ) | ( | ) | ||
| Borrowings under lines of credit agreements | ||||||
| Deferred debt issuance costs | ( | ) | ||||
| Increase in overdraft payable | ||||||
| Proceeds from contributions in aid of construction and advances | ||||||
| Payouts for contributions in aid of construction and advances | ( | ) | ( | ) | ||
| Net proceeds from issuance of common stock | ||||||
| Issuance of long–term debt | ||||||
| Dividends paid | ( | ) | ( | ) | ||
| Principal repayments of long-term debt | ( | ) | ( | ) | ||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | $ | $ | ||||
ARTESIAN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(Unaudited)
(In thousands)
| For the Nine Months Ended | ||||||
| September 30, | ||||||
| 2026 | 2025 | |||||
| NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS | $ | $ | ( | ) | ||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | ||||
Supplemental Disclosures of Cash Flow Information: |
| For the Nine Months Ended | ||||||
| September 30, | ||||||
| 2026 | 2025 | |||||
| Non-cash Investing and Financing Activity: | ||||||
| Utility plant received as contributions in aid of construction | $ | $ | ||||
| Contractual amounts of contributions in aid of construction due from developers included in accounts receivable and class action settlement funds included in accounts receivable and other deferred assets (See Note 15 – Legal Proceedings) | $ | $ | ||||
| Change in amounts included in accounts payable, accrued payables and other related to capital expenditures | $ | $ | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||
| Interest paid | $ | $ | ||||
| Income taxes paid | $ | $ | ||||
| Income taxes refunded | $ | $ | ||||
See notes to the condensed consolidated financial statements.
ARTESIAN RESOURCES CORPORATION
(Unaudited)
(In thousands)
| Common Shares Outstanding Class A Non-Voting (1) (3) (4) | Common Shares Outstanding Class B Voting (2) | $ | $ | Additional Paid-in Capital | Retained Earnings | Total | |||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | $ | $ | ||||||||||||||||
| Net income | - | - | |||||||||||||||||||
| Cash dividends declared | |||||||||||||||||||||
| Common stock | - | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||
| Dividend reinvestment plan | |||||||||||||||||||||
| Employee stock options and awards(4) | |||||||||||||||||||||
| Employee Retirement Plan(3) | - | - | - | - | - | - | - | ||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||
| Net income | - | - | |||||||||||||||||||
| Cash dividends declared | |||||||||||||||||||||
| Common stock | - | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||
| Dividend reinvestment plan | |||||||||||||||||||||
| Employee stock options and awards(4) | |||||||||||||||||||||
| Employee Retirement Plan(3) | - | - | - | - | - | - | - | ||||||||||||||
| Balance as of June 30, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||
| Net income | - | - | |||||||||||||||||||
| Cash dividends declared | |||||||||||||||||||||
| Common stock | - | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||
| Dividend reinvestment plan | |||||||||||||||||||||
| Employee stock options and awards(4) | |||||||||||||||||||||
| Employee Retirement Plan(3) | - | - | - | - | - | - | - | ||||||||||||||
| Balance as of September 30, 2025 | $ | $ | $ | $ | $ |
| Common Shares Outstanding Class A Non-Voting (1) (3) (4) | Common Shares Outstanding Class B Voting (2) | $ | $ | Additional Paid-in Capital | Retained Earnings | Total | |||||||||||||||
| Balance as of December 31, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||
| Net income | - | - | |||||||||||||||||||
| Cash dividends declared | - | ||||||||||||||||||||
| Common stock | - | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||
| Dividend reinvestment plan | |||||||||||||||||||||
| Employee stock options and awards(4) | |||||||||||||||||||||
| Employee Retirement Plan(3) | - | - | - | - | - | - | - | ||||||||||||||
| Balance as of March 31, 2026 | $ | $ | $ | $ | $ | ||||||||||||||||
| Net income | - | - | |||||||||||||||||||
| Cash dividends declared | - | - | |||||||||||||||||||
| Common stock | - | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||
| Dividend reinvestment plan | |||||||||||||||||||||
| Employee stock options and awards(4) | |||||||||||||||||||||
| Employee Retirement Plan(3) | - | - | - | - | - | - | - | ||||||||||||||
| Balance as of June 30, 2026 | $ | $ | $ | $ | $ | ||||||||||||||||
| Net income | - | - | |||||||||||||||||||
| Cash dividends declared | |||||||||||||||||||||
| Common stock | - | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of common stock | |||||||||||||||||||||
| Dividend reinvestment plan | |||||||||||||||||||||
| Employee stock options and awards(4) | |||||||||||||||||||||
| Employee Retirement Plan(3) | - | - | - | - | - | - | - | ||||||||||||||
| Balance as of September 30, 2026 | $ | $ | $ | $ | $ |
(1)
(2)
(3)
(4)
See notes to the condensed consolidated financial statements.
NOTE 1 – GENERAL
Artesian Resources
Corporation, or Artesian Resources, includes income from the earnings of all our
wholly-owned subsidiaries. The terms "we", "our",
"Artesian" and the "Company" as used herein refer to
Artesian Resources and its subsidiaries.
DELAWARE REGULATED UTILITY SUBSIDIARIES
Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, distributes and sells water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware. In addition, Artesian Water provides services to other water utilities, including operations, and has contract operation agreements with private, municipal and state water providers. Artesian Water also provides water for public and private fire protection to customers in our service territories.
Artesian Wastewater
Management, Inc., or Artesian Wastewater, operates as the
parent holding company of Tidewater Environmental Services, Inc. dba Artesian
Wastewater, or TESI. Artesian Wastewater
and TESI are regulated entities that own wastewater collection and treatment
infrastructure and provide wastewater services to customers in Sussex County,
Delaware as regulated public wastewater service companies. In July 2026, Artesian
Wastewater filed a Certificate of Ownership and Merger with the Secretary of
State of the State of Delaware, pursuant to which TESI was merged with and into
Artesian Wastewater. This internal
corporate restructuring had no effect on the condensed consolidated financial
statements of the Company, as the accounts of both entities were already fully
consolidated in the Company's financial reporting.
MARYLAND REGULATED UTILITY SUBSIDIARIES
Artesian Water Maryland, Inc., or Artesian Water Maryland, distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland.
Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, is authorized and able to provide regulated wastewater services to customers in the State of Maryland. It is currently not providing these services.
PENNSYLVANIA REGULATED UTILITY SUBSIDIARY
Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, provides water service to a residential community in Chester County, Pennsylvania.
OTHER NON-UTILITY SUBSIDIARIES
We have two other subsidiaries, neither of which are regulated. They are Artesian Utility Development, Inc., or Artesian Utility, and Artesian Development Corporation, or Artesian Development.
Artesian Utility designs
and builds water and wastewater infrastructure and provides contract water and
wastewater operation services on the Delmarva Peninsula to private, municipal
and governmental institutions. Artesian
Utility also evaluates land parcels, provides recommendations to developers on
the size of water or wastewater facilities and the type of technology that
should be used for treatment at such facilities and operates water and
wastewater facilities in Delaware for municipal and governmental agencies. Artesian Utility also contracts with
developers and government agencies for design and construction of wastewater
infrastructure throughout the Delmarva Peninsula.
Artesian Utility currently
operates three wastewater treatment facilities with a combined capacity of up to
approximately 3.8 million gallons per day for the Town of Middletown, in southern New Castle
County, Delaware, or Middletown, under a 20 -year contract that expires in July
2039. The wastewater treatment
facilities in Middletown provide reclaimed wastewater for use in spray
irrigation on public and agricultural lands in the area.
Artesian Utility also
offers the following protection plans to customers, the Water Service Line
Protection Plan, or WSLP Plan, and the Sewer Service Line Protection Plan, or
SSLP Plan (collectively, SLP Plan or SLP Plans). The WSLP Plan covers all parts, material and
labor required to repair or replace participating customers' leaking water
service lines up to an annual limit. The
SSLP Plan covers all parts, material and labor required to repair or replace
participating customers' leaking or clogged sewer lines up to an annual
limit. The Company also maintains the
Internal Service Line Protection Plan, or ISLP Plan, in which the Company
discontinued enrolling new customers effective January 2026. For customers that were previously enrolled,
the ISLP Plan enhances available coverage to include water and wastewater lines
within customers' residences up to an annual limit.
Artesian Development is a real estate holding company that owns properties, including land approved for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.
NOTE 2 – BASIS OF PRESENTATION
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Form 10-Q. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information provided not misleading. Accordingly, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes thereto in the Company's annual report on Form 10-K for fiscal year 2025 as filed with the SEC on March 16, 2026.
The unaudited condensed consolidated financial statements include the accounts of Artesian Resources Corporation and its wholly-owned subsidiaries, including its principal operating company, Artesian Water. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of September 30, 2026, the results of its operations for the three and nine-month periods ended September 30, 2026 and September 30, 2025, its cash flows for the nine-month periods ended September 30, 2026 and September 30, 2025 and the changes in stockholders’ equity for the three and nine-month periods ended September 30, 2026 and September 30, 2025. The December 31, 2025 Condensed Consolidated Balance Sheet was derived from the Company’s December 31, 2025 audited consolidated financial statements but does not include all disclosures and notes normally provided in annual financial statements.
The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.
Reclassification
Certain accounts in the
prior year financial statements have been reclassified for comparative purposes
to conform with the presentation in the current year financial statements. These reclassifications had no effect on net
income or stockholders' equity.
Regulated Utility Accounting
The accounting records of
Artesian Water, Artesian Wastewater, and TESI are maintained in accordance with
the uniform system of accounts as prescribed by the Delaware Public Service
Commission, or the DEPSC. The accounting
records of Artesian Water Maryland and Artesian Wastewater Maryland are
maintained in accordance with the uniform system of accounts as prescribed by
the Maryland Public Service Commission, or the MDPSC. The accounting records of Artesian Water
Pennsylvania are maintained in accordance with the uniform system of accounts
as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC. All these subsidiaries follow the provisions
of Accounting Standards Codification, or ASC, 980, Regulated Operations, which
provides guidance for companies in regulated industries. These regulated
subsidiaries account for the majority of our operating revenue. See Note 16 –
Business Segment Information to our Unaudited Condensed Consolidated Financial
Statements for a full description of our segment information.
Use
of Estimates in the Preparation of
Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated
financial statements were prepared in conformity with generally accepted
accounting principles in the U.S., which require management to make certain
estimates and assumptions that could impact the Company’s financial condition,
results of operations and cash flows.
Actual results could differ from management's estimates. Management makes certain estimates and
assumptions regarding unbilled revenues, reserve for revenues associated with temporary
rates expected to be refunded, accounting for income taxes, credit losses and
reserves for bad debt, lease agreements, goodwill and contingent assets and
liabilities.
Utility Plant
All additions to utility
plant are recorded at cost. Business
combinations pursuant to ASC 805, Business Combinations, may result in a
purchase price allocation and the acquired assets are required to be evaluated
by the applicable regulatory agency. Cost includes direct labor, materials, AFUDC
(see description below) and indirect charges for such capitalized items as
transportation, supervision, pension, medical, and other fringe benefits
related to employees engaged in construction activities. When depreciable
units of utility plant are retired, the historical costs of plant retired is
charged to accumulated depreciation. Any
cost associated with retirement, less any salvage value or proceeds received,
is charged to the regulated retirement liability. Maintenance,
repairs, and replacement of minor items of utility plant are charged to expense
as incurred.
Allowance for Funds Used
during Construction, or AFUDC, is a non-cash credit to income with a
corresponding charge to utility plant that represents the cost of borrowed funds
or a return on equity funds devoted to plant under construction.
Depreciation and Amortization
For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years. Composite depreciation rates for water utility plant were 1.91 % and 1.91 %, for September 30, 2026 and December 31, 2025, respectively. Artesian Water offsets
depreciation recorded on utility plant by depreciation on utility property
funded by Contributions in Aid of Construction, or CIAC, and Advances for
Construction, or Advances. This
reduction in depreciation expense is also netted against outstanding CIAC and
Advances on the Condensed Consolidated Balance Sheet. Regulatory assets are amortized using the
straight-line method over future periods, which range from 5 to 80 years.
NOTE 3 – REVENUE RECOGNITION
Background
Artesian’s operating
revenues are primarily derived from contract services based upon regulated
tariff rates approved by the DEPSC, the MDPSC, and the PAPUC. Regulated tariff contract service revenues
consist of water consumption, industrial wastewater services, fixed fees for
water and wastewater services including customer and fire protection fees,
service charges and Distribution System Improvement Charges, or DSIC, billed to
customers at rates outlined in our tariffs that represent standalone selling prices. Our non-tariff contract revenues, which are
primarily non-utility revenues, are derived from SLP Plan fees, water and
wastewater contract operations, design and installation contract services, and
wastewater inspection fees. Other
regulated operating revenue is primarily derived from developer guarantee
contributions for wastewater and rental income for antenna agreements, which
are not considered in the scope of ASC 606, Revenue from Contracts with
Customers.
Tariff Contract Revenues
Artesian generates revenue
from the sale of water to customers in Delaware, Cecil County, Maryland, and
Southern Chester County, Pennsylvania once a customer requests service in our
territory. We recognize water consumption
revenue at tariff rates on a cycle basis for the volume of water transferred to
customers based upon meter readings for actual gallons of water consumed as
well as unbilled amounts for estimated usage from the date of the last meter
reading to the end of the accounting period.
As actual usage amounts are known based on recurring meter readings,
adjustments are made to the unbilled estimates in the next billing cycle based
on the actual results. Estimates are
made on an individual customer basis, based on one of three methods: the
previous year’s consumption in the same period, the previous billing period’s
consumption, or averaging. While actual
usage for individual customers may differ from the estimate based on management
judgments described above, we believe the overall total estimate of consumption
and revenue for the fiscal period will not differ materially from actual billed
consumption. The majority of our water
customers are billed for water consumed on a monthly basis, while the remaining
customers are billed on a quarterly basis.
As a result, we record unbilled operating revenue (contract asset) for
any estimated usage through the end of the accounting period that will be
billed in the next monthly or quarterly billing cycle.
Artesian generates revenue
from industrial wastewater services provided to a customer in Sussex County,
Delaware. We recognize industrial
wastewater service revenue at a contract rate on a monthly basis for the volume
of wastewater transferred to Artesian’s wastewater facilities based upon meter
readings for actual gallons of wastewater transferred. These services are invoiced at the end of
every month based on the actual meter readings for that month, and therefore
there is no contract asset or liability associated with this revenue. The contract also provides for a minimum
required volume of wastewater flow to our facility. At each year end, any shortfall of the actual
volume from the required minimum volume is billed to the industrial customer
and recorded as revenue. Additionally,
if during the course of the year it is probable that the actual volume will not
meet the minimum required volume, estimated revenue amounts would be recorded
for the pro rata minimum volume, constrained for potential flow capacity that
could occur in the remainder of the year.
Any estimated revenue amounts are recorded as unbilled operating revenue
(contract asset) through the end of the accounting period and will be billed at
each year end for any shortfall of the actual volume from the required minimal
volume.
Artesian generates revenue
from metered wastewater services provided to customers in Sussex County,
Delaware. We recognize metered
wastewater services at tariff rates on a cycle basis for the volume of
wastewater transferred to Artesian’s wastewater facilities based upon meter
readings for actual gallons of water transferred, as well as unbilled amounts
for estimated volume from the date of the last meter reading to the end of the
accounting period. As actual volume
amounts are known based on recurring meter readings, adjustments are made to
the unbilled estimates in the next billing cycle based on the actual
results. Estimates are made on an
individual customer basis, based on one of three methods: the previous year’s
volume in the same period, the previous billing period’s volume, or averaging.
We believe the overall total estimate of volume and revenue for the fiscal
period will not differ materially from actual billed consumption. The majority of these wastewater customers
are billed for the volume of wastewater transferred on a quarterly basis. As a result, we record unbilled operating
revenue (contract asset) for any estimated volume through the end of the
accounting period that will be billed in the next quarterly cycle.
Artesian generates
fixed-fee revenue for water and wastewater services provided to customers once
a customer requests service in our territory.
We recognize revenue from these services on a ratable basis over time as
the customer simultaneously receives and consumes all the benefits of the
Company remaining ready to provide them water and wastewater service. These contract services are billed either in
advance or arrears at tariff rates on a monthly, quarterly or semi-annual
basis. For contract services billed in
arrears, we record unbilled operating revenue (contract asset) for any services
through the end of the accounting period that will be billed in the next
monthly or quarterly cycle. For contract
services billed in advance, we record deferred revenue (contract liability) and
accounts receivable for any amounts for which we have a right to invoice but
for which services have not been provided.
This deferred revenue is netted against unbilled operating revenue on
the Condensed Consolidated Balance Sheet.
Artesian generates service charges primarily from non-payment fees, such as water shut-off and reconnection fees and finance charges. These fees are billed and recognized as revenue at the point in time when our tariff indicates the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed. There is no contract asset or liability associated with these fees.
Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution system improvements. This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period. This rate is adjusted up or down at the next DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement. Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to consumption revenue or fixed-fee revenue.
Artesian generates revenue
from interim temporary rates. In
Delaware, utilities are permitted by law to place rates into effect, under
bond, on a temporary basis, pending resolution of an application for a base
rate increase by the DEPSC. Temporary
rate revenue is calculated as a percentage increase on tariff rates. We recognize this revenue based on the same
guidelines as noted above depending on whether the additional rate was applied
to consumption revenue or fixed-fee revenue.
Until final rates are determined by the DEPSC, if it is probable that a
refund of revenue associated with temporary rates will occur, a reserve is recorded reducing revenue from temporary rates. The DEPSC approved and Artesian Water
implemented temporary rate increases effective June 3, 2025 and November 6,
2025. As of September 30, 2026, approximately
$3.7 million of revenue related to the November 6, 2025 temporary rate increase
was recorded as a reserve for customer refund in the Condensed Consolidated Balance Sheets.
Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing. A provision for expected
credit loss is calculated as a percentage of total associated revenues based
upon historical trends and adjusted for current conditions. We mitigate our exposure to credit losses by
discontinuing services in the event of non-payment; accordingly, the related
provision for expected credit loss and associated bad debt expense has not been
significant.
Non-tariff Contract Revenues
Artesian generates SLP Plan
revenue once a customer requests service to cover all parts, materials and
labor required to repair or replace leaking water service lines, leaking or
clogged sewer lines, or water and wastewater lines within the customer’s residence,
up to an annual limit. We recognize
revenue from these services on a ratable basis over time as the customer
simultaneously receives and consumes all the benefits of having service line
protection services. These contract
services are billed in advance on a monthly or quarterly basis. As a result, we record deferred revenue
(contract liability) and accounts receivable for any amounts for which we have
a right to invoice but for which services have not been provided. Accounts receivable from SLP Plan customers
are typically due within 25 days of invoicing.
A provision for expected credit loss is calculated as a percentage of
total SLP Plan contract revenue. We
mitigate our exposure to credit losses by discontinuing services in the event
of non-payment; accordingly, the related provision for expected credit loss and
associated bad debt expense has not been significant.
Artesian generates contract
operation revenue from water and wastewater operation services provided to
customers. We recognize revenue from
these operation contracts, which consist primarily of monthly operation and
maintenance services, over time as customers receive and consume the benefits
of such services performed. The majority
of these services are invoiced in advance at the beginning of every month and
are typically due within 30 days, and therefore there is no contract asset or
liability associated with most of these revenues. We have one operation contract that was paid
in advance resulting in a contract liability for services that have not yet
been provided. A provision for expected
credit loss is provided based on a periodic analysis of individual account
balances, including an evaluation of days outstanding, payment history, recent
payment trends, and our assessment of our customers’ creditworthiness. The related provision for expected credit
loss and associated bad debt expense has not been significant.
Artesian generates design and installation revenue for services related to the design and construction of wastewater infrastructure for a state agency under contract. We recognize revenue from these services over time as services are performed using the percentage-of-completion method based on an input method of incurred costs (cost-to-cost). These services are invoiced at the end of every month based on incurred costs to date. As of September 30, 2026, there is no associated contract asset or liability. There is no provision for expected credit loss or bad debt expense associated with this revenue.
Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new communities. These fees are paid by developers in advance when a service is requested for a new phase of a development. Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is completed. As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected. There are no accounts receivable, provision for expected credit loss or bad debt expense associated with inspection fee contracts.
Sales Tax
The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax. Revenues earned in the State of Maryland and the Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax. Therefore, no sales tax is collected on revenues.
Disaggregated Revenues
The following table shows the Company’s revenues disaggregated by service type; all revenues are generated within a similar geographical location:
| For the Three Months | For the Nine Months | |||||||||||
| Ended September 30, | Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||
| Tariff Revenue | ||||||||||||
| Consumption charges | $ | $ | $ | $ | ||||||||
| Fixed fees | ||||||||||||
| Service charges | ||||||||||||
| DSIC | ||||||||||||
| Metered wastewater services | ||||||||||||
| Industrial wastewater services | ||||||||||||
| Total Tariff Revenue | $ | $ | $ | $ | ||||||||
| Non-Tariff Revenue | ||||||||||||
| Service line protection plans | $ | $ | $ | $ | ||||||||
| Contract operations | ||||||||||||
| Design and installation | ||||||||||||
| Inspection fees | ||||||||||||
| Total Non-Tariff Revenue | $ | $ | $ | $ | ||||||||
| Other Operating Revenue | $ | $ | $ | $ | ||||||||
| Total Operating Revenue | $ | $ | $ | $ | ||||||||
Contract Assets and Contract Liabilities
Our contract assets and liabilities consist of the following:
| (in thousands) | September 30, 2026 | December 31, 2025 | ||||
| Contract Assets – Tariff | $ | $ | ||||
| Deferred Revenue | ||||||
| Deferred Revenue – Tariff | $ | $ | ||||
| Deferred Revenue – Non-Tariff | ||||||
| Total Deferred Revenue | $ | $ |
For the nine months ended September 30, 2026, the Company recognized revenue of $1.6 million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $0.5 million from amounts that were included in Deferred Revenue – Non-Tariff at the beginning of the year.
The changes in Contract Assets and Deferred Revenue are primarily due to normal timing differences between our performance and customer payments.
Remaining Performance Obligations
As of September 30, 2026 and December 31, 2025, Deferred Revenue – Tariff is recorded
partially within Unbilled operating revenues net against contract assets
representing our remaining performance obligations for our fixed fee water
services and partially within Other current liabilities representing our
remaining performance obligations for our fixed fee wastewater services, all of
which are expected to be satisfied and associated revenue recognized in the
next three months .
As of September 30, 2026 and December 31, 2025, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services, contract water operation services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months , approximately three years and one year , respectively.
NOTE 4 – ACCOUNTS RECEIVABLE
Accounts receivable are
recorded at the invoiced amounts. As set
forth in a settlement agreement, Artesian Water received reimbursements from
the Delaware Sand and Gravel Remedial Trust, or Trust, for Artesian Water’s
past capital and operating costs, totaling approximately $10.0 million, related
to the treatment costs associated with the release of contaminants from the
Delaware Sand & Gravel Landfill Superfund Site, or Site, in groundwater
that Artesian Water uses for public potable water supply. The full amount of $10.0 million has been
paid to us, in four installments of approximately $2.5
A provision for expected
credit loss is calculated as a percentage of total associated revenues based
upon historical trends and adjusted for current and reasonable projections
based upon expected economic conditions.
We mitigate our exposure to credit losses by discontinuing services in
the event of non-payment; accordingly, the related provision for expected
credit loss and associated bad debt expense has not been significant. The following table summarizes the changes in
the Company’s accounts receivable balance.
The reduction in the water customer accounts receivable balance as of
December 31, 2025 is the result of a one-time bill credit that was applied to
Artesian Water’s customer bills in December 2025 related to MDL settlement
funds received as further discussed in Note 15 – Legal Proceedings.
| (in thousands) | September 30, 2026 | December 31, 2025 | December 31, 2024 | ||||||
| Customer accounts receivable – water | $ | $ | $ | ||||||
| Customer accounts receivable – wastewater | |||||||||
| Customer accounts receivable – SLP Plan | |||||||||
| Settlement receivable – short term | |||||||||
| Developer receivable | |||||||||
| Miscellaneous accounts receivable | |||||||||
| Less: provision for expected credit loss | |||||||||
| Net accounts receivable | $ | $ | $ |
NOTE 5 – LEASES
The Company leases land and office equipment under operating leases from non-related parties. Our leases have remaining lease terms of 2 years to 70 years, one of which includes
options to automatically extend the leases for up to 66 years and is included
as part of the lease liability and right-of-use assets as we expect to exercise
the options. Payments made under
operating leases are recognized in the condensed consolidated statement of
operations on a straight-line basis over the period of the lease. The annual lease payment for the land
operating lease increases each year by the most recent increase in the Consumer
Price Index and includes a provision to periodically adjust the annual lease
payment based on the fair market value of the parcel of land. None of the operating leases contain
contingent rent provisions. The
commencement date of all the operating leases is the earlier of the date we
become legally obligated to make rent payments or the date we may exercise
control over the use of the land or equipment.
The Company currently does not have any financing leases and does not
have any lessor leases that require disclosure.
Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right-of-use asset and liability amounts for the operating leases. As our leases do not provide an implicit rate, we use our incremental borrowing rates for long-term and short-term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments.
Rent expense for all operating leases, except those with terms of 12 months or less, comprises:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2026 | 2025 | 2026 | 2025 | ||||||||
| Minimum rentals | $ | $ | $ | $ | ||||||||
| Contingent rentals | ||||||||||||
| $ | $ | $ | $ | |||||||||
Supplemental cash flow information related to leases is as follows:
(in thousands)
| Nine months ended | Nine months ended | |||||
| September 30, 2026 | September 30, 2025 | |||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||
| Operating cash flows from operating leases | $ | $ | ||||
| Right-of-use assets obtained in exchange for lease obligations: | ||||||
| Operating leases | $ | $ |
Supplemental balance sheet information related to leases is as follows:
(in thousands, except lease term and discount rate)
| September 30, 2026 | December 31, 2025 | ||||||
| Operating Leases: | |||||||
| Operating lease right-of-use assets | $ | $ | |||||
| Other current liabilities | $ | $ | |||||
| Operating lease liabilities | |||||||
| Total operating lease liabilities | $ | $ | |||||
| Weighted Average Remaining Lease Term | |||||||
| Operating leases | |||||||
| Weighted Average Discount Rate | |||||||
| Operating leases | % | % |
Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2026 are as follows:
| (in thousands) | |||
| Operating Leases | |||
| Year | |||
| 2026 | $ | ||
| 2027 | |||
| 2028 | |||
| 2029 | |||
| 2030 | |||
| Thereafter | |||
| Total undiscounted lease payments | $ | ||
| Less effects of discounting | ( | ) | |
| Total lease liabilities recognized | $ |
As of September 30, 2026, we have not entered into operating or finance leases that will commence at a future date.
NOTE 6 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value.
Current Assets and Liabilities
For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments. Under the fair value hierarchy, the fair value of such financial instruments is classified as Level 1.
Other Deferred Assets
The other deferred assets
associated with the MDL class action settlement reimbursements, as further discussed
in Note 15 – Legal Proceedings, has a carrying amount of $2.2 million as of September 30, 2026 and $2.6 million as of December 31, 2025, which approximates fair
value, and was recorded at amortized cost using an estimated market discount
rate. The fair value of this non-current
receivable is classified as Level 3.
Long-term Financial Liabilities
As of September 30, 2026 and December 31, 2025, all of the Company’s outstanding long-term debt interest rates were a fixed rate. The fair value of the Company’s long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with ASC 825, Financial Instruments. Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements. Level 2 is valued using observable inputs other than quoted prices. The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates. The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:
(in thousands)
| September 30, 2026 | December 31, 2025 | |||||
| Carrying amount | $ | $ | ||||
| Estimated fair value |
The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future refunds expected to be paid over the life of the contracts. Refund payments are based on the water sales to new customers in the particular development constructed. The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing.
NOTE 7 – INCOME TAXES
Deferred income taxes are
provided in accordance with ASC 740, Income Taxes, on all differences between
the tax basis of assets and liabilities and the amounts at which they are
carried in the unaudited condensed consolidated financial statements based on
the enacted tax rates expected to be in effect when such temporary differences
are expected to reverse. The Company’s
rate regulated subsidiaries recognize regulatory liabilities, to the extent
considered in ratemaking, for deferred taxes provided in excess of the current
statutory tax rate and regulatory assets for deferred taxes provided at rates
less than the current statutory rate.
Such tax-related regulatory assets and liabilities are reported at the
revenue requirement level and amortized to income as the related temporary
differences reverse, generally over the lives of the related properties.
Under ASC 740, Income
Taxes, an uncertain tax position represents our expected treatment of a tax
position taken, or planned to be taken in the future, that has not been
reflected in measuring income tax expense for financial reporting
purposes. The Company establishes
reserves for uncertain tax positions based upon management's judgment as to the
sustainability of these positions. These accounting estimates related to the
uncertain tax position reserve require judgments to be made as to the
sustainability of each uncertain tax position based on its technical merits.
The Company believes its tax positions comply with applicable law and that it
has adequately recorded reserves as required. However, to the extent the final
tax outcome of these matters is different than the estimates recorded, the
Company would then adjust its tax reserves or unrecognized tax benefits in the
period that this information becomes known. The Company has elected to
recognize accrued interest (net of related tax benefits) and penalties related
to uncertain tax positions as a component of its income tax expense. The Company accrued approximately $13
thousand and $16 thousand for the nine months ended September 30, 2026 and
September 30, 2025, respectively, for penalties and interest related to
positions taken on the 2022 and 2024 corporate income tax returns. During the
third quarter of 2026, the statute of limitations for the 2022 corporate income tax
returns lapsed, which resulted in the reversal of tax reserved related to uncertain tax positions in the amount
of approximately $146 thousand and the reversal of accrued penalties and
interest in the amount of approximately $57 thousand. The Company remains subject to examination by
federal and state authorities for the tax years .
Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets.
On July 4, 2025, the One
Big Beautiful Bill Act, or OBBBA, was signed into law, which includes several
changes to U.S. tax and related laws, including the temporary and permanent
extension of expiring provisions of the Tax Cuts and Jobs Act of 2017, or TCJA. The Company has evaluated the impact that the
OBBBA may have on its consolidated financial condition and results of
operations and determined there is no material impact on our business,
financial position or results of operations.
NOTE 8 – STOCK COMPENSATION PLANS
On October 30, 2025, the
Company’s stockholders approved the 2025 Equity Compensation Plan, or the 2025
Plan, that replaced the 2015 Equity Compensation Plan, or the 2015 Plan. The 2025 Plan provides for the issuance of
263,932 shares of Class A Non-Voting Stock.
Outstanding grants under the 2015 Plan shall continue in effect
according to their terms, consistent with the 2015 Plan. No further grants will be made under the 2015
Plan after the approval date of the 2025 Plan.
The 2025 Plan provides that grants may be in any of the following forms:
incentive stock options, nonqualified stock options, stock units, stock awards,
dividend equivalents and other stock-based awards. The 2025 Plan is
administered and interpreted by the Compensation Committee of the Board of Directors,
or the Committee. The Committee has the
authority to determine the individuals to whom grants will be made under the 2025
Plan, determine the type, size and terms of the grants, determine the time when
grants will be made and the duration of any applicable exercise or restriction
period (subject to the limitations of the 2025 Plan) and deal with any other
matters arising under the 2025 Plan. All
of the employees of the Company and its subsidiaries are eligible for grants
under the 2025 Plan. Non-employee directors of the Company are also
eligible to receive grants under the 2025 Plan.
On May 5, 2026, 4,000 shares
of Class A Non-Voting Stock were granted as restricted stock awards. The fair value per share was $31.41 , the
closing price of the Class A Non-Voting Stock as recorded on the Nasdaq Global
Select Market on May 5, 2026. These
restricted stock awards will be fully vested and released one year after the
grant date and, prior to their vesting date, are subject to forfeiture in the
event of the recipient’s termination of service.
On September 16, 2025,
5,000 shares of Class A Non-Voting Stock were granted as restricted stock awards. The fair value per share was $32.08 , the
closing price of the Class A Non-Voting Stock as recorded on the Nasdaq Global
Select Market on September 16, 2025. This restricted stock award was fully vested and released on September 16, 2026.
On July 1, 2025, 1,000
shares of Class A Non-Voting Stock were granted as a restricted stock
award. The fair value per share was $33.96 ,
the closing price of the Class A Non-Voting Stock as recorded on the Nasdaq
Global Select Market on July 1, 2025.
This restricted stock award was fully vested and released May 5,
2026.
On May 5, 2025, 4,000
shares of Class A Non-Voting Stock were granted as restricted stock
awards. The fair value per share was
$34.27 , the closing price of the Class A Non-Voting Stock as recorded on the
Nasdaq Global Select Market on May 5, 2025.
These restricted stock awards were fully vested and released one year
after the grant date.
On April 11, 2025, 1,000
shares of Class A Non-Voting Stock were granted as a restricted stock
award. The fair value per share was
$33.51 , the closing price of the Class A Non-Voting Stock as recorded on the
Nasdaq Global Select Market on April 11, 2025.
This restricted stock award was fully vested and released one year
after the grant date.
Compensation expense of
approximately $65 thousand and $234 thousand, was recorded for the three and nine months ended September 30, 2026, respectively, for restricted awards issued in 2025 and 2026.
Compensation expense of approximately $60 thousand and $152 thousand was
recorded for the three and nine months ended September 30, 2025, respectively, for
restricted stock awards issued in 2024 and 2025. Costs were determined based on the fair value
on the dates of the awards and those costs were charged to income over the
service periods associated with the awards.
There was no stock compensation cost capitalized as part of an asset.
There were no options exercised during the nine months ended September 30, 2026.
There were no unvested option shares outstanding under the 2025 Plan during the nine months ended September 30, 2026.
As of September 30, 2026, there were no unrecognized expenses related to non-vested option shares granted under the 2025 Plan.
As of September 30, 2026, there was approximately $74 thousand total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2025 Plan. The cost will be recognized over 0.59 years, the remaining vesting period for the restricted stock awards.
NOTE 9 - GEOGRAPHIC CONCENTRATION OF CUSTOMERS
Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide regulated water utility service to customers within their established service territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the DEPSC, the MDPSC and the PAPUC. As of September 30, 2026, Artesian Water was serving approximately 100,500 customers, Artesian Water Maryland was serving approximately 2,700 customers and Artesian Water Pennsylvania was serving approximately 40 customers.
Artesian Wastewater and TESI provide regulated wastewater utility service to customers within their established service territory in Sussex County, Delaware pursuant to rates filed with and approved by the DEPSC. As of September 30, 2026, Artesian Wastewater and TESI were serving approximately 9,600 customers combined, including one large industrial customer.
NOTE 10 – OTHER DEFERRED ASSETS
The investment in CoBank,
ACB, or CoBank, which is a cooperative bank, is related to certain outstanding
First Mortgage Bonds and is a required investment in the bank based on the
underlying long-term debt agreements. The
settlement agreement receivable is related to the long-term portion of MDL
class action settlement reimbursements, as further discussed in Note 15 - Legal
Proceedings, and is recorded at amortized cost, with the difference between the
carrying amount and the amortized cost recognized as CIAC.
| (in thousands) | September 30, 2026 | December 31, 2025 | ||||
| Investment in CoBank | $ | $ | ||||
| Settlement receivable-long term | ||||||
| Other deferred assets | ||||||
| $ | $ |
NOTE 11 - REGULATORY ASSETS
ASC 980, Regulated
Operations, stipulates generally accepted accounting principles for companies
whose rates are established or subject to approvals by a third-party regulatory
agency. Certain expenses are recoverable
through rates charged to our customers, without a return on investment, and are
deferred and amortized during future periods using various methods as permitted
by the DEPSC, MDPSC, and PAPUC.
The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are reversed.
Debt related costs include
debt issuance costs and other debt related expense. The DEPSC has approved deferred regulatory
accounting treatment for issuance costs associated with Artesian Water’s First
Mortgage bonds. Debt issuance costs and
other debt related expenses are reviewed during Artesian Water’s rate
applications as part of its cost of capital calculations.
Affiliated interest
agreement deferred costs relate to the regulatory and administrative costs
resulting from efforts necessary to secure water allocations in Artesian Water
Pennsylvania’s territory for the provision of service to the surrounding area
and interconnection to Artesian Water Pennsylvania’s affiliate regulated water
utility Artesian Water. These costs were
specifically included for cost recovery pursuant to an Affiliated Interest
Agreement between Artesian Water and Artesian Water Pennsylvania and were
approved for recovery by the PAPUC.
Amortization of these deferred costs began in the fourth quarter of 2023.
Deferred acquisition
adjustments represent the excess payment for purchases of utility plant from
Delaware municipalities over the determined original cost net of
depreciation. Deferred acquisition costs
represent the closing cost associated with the acquisitions. Costs are being amortized over the periods
noted in the table below and recovered in customer rates as approved by the
DEPSC. Amortization of these deferred
costs began in the third quarter of 2024.
Unrecovered reserve for
depreciation is the result of the implementation of a change in depreciation
methods for certain general plant assets that are being amortized over five
years and recovered in customer rates as approved by the DEPSC. Amortization of these deferred costs began in
the third quarter of 2024.
Regulatory expenses amortized on a straight-line basis are noted below:
|
Expense
|
Years Amortized
|
|
Deferred contract costs and other
|
|
|
Rate case studies
|
|
|
Delaware rate proceedings
|
|
|
Debt related costs
|
(based on term of related debt) |
|
Deferred costs affiliated interest agreement
|
|
|
Goodwill (Mountain Hill Water Company acquisition in 2008)
|
|
|
Deferred acquisition and franchise costs - Maryland
|
|
|
Deferred acquisition costs – Delaware
|
|
|
Deferred acquisition adjustments - Delaware
|
|
|
Unrecovered reserve for depreciation (general plant assets)
|
|
Regulatory assets, net of amortization, comprise:
| (in thousands) | ||||||
| September 30, 2026 | December 31, 2025 | |||||
| Deferred contract costs and other | $ | $ | ||||
| Rate case studies | ||||||
| Delaware rate proceedings | ||||||
| Deferred income taxes | ||||||
| Debt related costs | ||||||
| Deferred costs affiliated interest agreement | ||||||
| Goodwill | ||||||
| Deferred acquisition and franchise costs - Maryland | ||||||
| Deferred acquisition costs – Delaware | ||||||
| Deferred acquisition adjustments – Delaware | ||||||
| Unrecovered reserve for depreciation | ||||||
| $ | $ | |||||
NOTE 12 – REGULATORY LIABILITIES
ASC 980, Regulated
Operations, stipulates generally accepted accounting principles for companies
whose rates are established or subject to approvals by a third-party regulatory
agency. Certain obligations are deferred
and/or amortized as determined by the DEPSC, MDPSC, and PAPUC. Regulatory liabilities represent excess
recovery of cost or other items that have been deferred because it is probable
such amounts will be returned to customers through future regulated rates.
Utility plant retirement
cost obligation consists of estimated costs related to the potential removal
and replacement of facilities and equipment on the Company’s water and
wastewater properties. As authorized by
the DEPSC, when depreciable units of utility plant are retired, any cost
associated with retirement, less any salvage value or proceeds received, is
charged to a regulated retirement liability.
The annual amortization currently authorized by the DEPSC could be
adjusted in future rate applications.
Deferred income taxes
primarily represent tax benefits that will be returned to regulated utility customers
through an approved rate making process, as described below. These tax benefits resulted from the TCJA. The TCJA required the Company to remeasure its
deferred income tax balances to reflect the reduction in the corporate income
tax rate from 34 % to 21 %. This remeasurement adjustment made to deferred income
taxes was substantially offset by the recognition of a regulatory liability for
excess accumulated deferred income taxes, or EADIT, and reflects the benefits
customers will receive in future approved rates. Pursuant to a DEPSC rate order, Artesian
Water is amortizing $24.0 million of the EADIT balance. The DEPSC has not issued a final order on the
TCJA regulatory liability amount of $0.6 million for wastewater customers, and
the MDPSC has not issued a final order on the TCJA regulatory liability amount
of $0.6 million for Maryland customers.
Regulatory liabilities comprise:
| (in thousands) | ||||||
| September 30, 2026 | December 31, 2025 | |||||
| Utility plant retirement cost obligation | $ | $ | ||||
| Deferred income taxes (related to TCJA) | ||||||
| $ | $ |
NOTE 13 - REGULATORY PROCEEDINGS
Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state public service commissions through a rate-setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the Company’s requested level of rates.
We are subject to regulation by the following state regulatory commissions:
·
The DEPSC, regulates Artesian Water, Artesian Wastewater, and TESI.
·
The MDPSC, regulates Artesian Water Maryland and Artesian Wastewater Maryland.
·
The PAPUC, regulates Artesian Water Pennsylvania.
Our water and wastewater
utility operations are also subject to regulation under the federal Safe
Drinking Water Act of 1974, or Safe Drinking Water Act, the Clean Water Act of
1972, or the Clean Water Act, and related state laws, and under federal and state
regulations issued under these laws.
These laws and regulations establish criteria and standards for drinking
water and for wastewater discharges.
Capital expenditures and operating costs required as a result of water
quality standards and environmental requirements have been traditionally
recognized by state regulatory commissions as appropriate for inclusion in
establishing rates.
Water and Wastewater Rates
Our regulated subsidiaries
periodically seek rate increases to cover the cost of increased operating
expenses, increased financing expenses due to additional investments in utility
plant and other costs of doing business.
In Delaware, utilities are permitted by law to place rates into effect,
under bond, on a temporary basis pending completion of a rate increase
proceeding. Any DSIC rate in effect will
be reset to zero upon implementation of a temporary increase in base rates
charged to customers. The first
temporary increase is permitted sixty days after the rate case filing date up
to the lesser of $2.5 million on an annual basis or 15 % of gross water
sales. Should the rate case not be
completed within seven months , by law, the utility may put the entire requested
rate relief, up to 15 % of gross water sales, in effect under bond until a final
resolution is ordered and placed into effect.
Effective July 13, 2026, temporary rate regulation in Delaware changed for
public utilities replacing the two temporary rates with three as follows: (1) ninety
days after the filing date, temporary rates are allowed up to the lesser of
$2.5 million on an annual basis or 15 % of gross water sales; (2) seven months
after the filing date, temporary rates are allowed at 50 % of the proposed rate
change, up to 15 % of gross water sales; (3) twelve months after the filing date,
temporary rates are allowed at 75 % of the proposed rate change, up to 15 % of
gross water sales. If any such rates are found to be in excess of rates the
DEPSC finds to be appropriate, the utility must refund customers the portion
found to be in excess with interest. The
timing of our rate increase requests is therefore dependent upon the estimated
cost of the administrative process in relation to the investments and expenses
that we hope to recover through the rate increase. We can provide no assurances that rate
increase requests will be approved by applicable regulatory agencies and, if
approved, we cannot guarantee that these rate increases will be granted in a
timely or sufficient manner to cover the investments and expenses for which we
initially sought the rate increase.
On April 4, 2025, Artesian
Water filed a request with the DEPSC to implement new rates to meet a requested
increase in revenue of 12.41 %, or approximately $10.8 million, on an annualized
basis. Supplemental and rebuttal filings
were subsequently filed, reducing the requested increase to 10.2 %, or
approximately $9.0 million, on an annualized basis. The actual effective
increase would be less than 10.2 % if the requested increase is granted in full
by the DEPSC since Artesian Water has been permitted to recover specific
investments made in infrastructure through the assessment of a 1.66 % DSIC rate, which rate is set to zero once temporary rates are
placed into effect. Temporary rates were
placed into effect as noted below. The new proposed rates are designed to
support Artesian Water’s ongoing capital improvement program and to cover
increased costs of operations, including chemicals and electricity for water
treatment, water quality regulation compliance, taxes, labor and benefits. In accordance with applicable Delaware law,
the DEPSC approved and Artesian Water implemented the first temporary rate
increase effective June 3, 2025 of approximately $2.5 million in additional
annual revenue, or 2.88 %, subject to refund, and reduced the DSIC previously in
effect from approximately 1.66 % to zero , for a temporary rate increase of net
1.22 %. Also, as permitted by law, on
November 6, 2025, Artesian Water placed into effect a second step of temporary
rates designed to generate an increase in annual operating revenue of
approximately 6.82 %, or $5.8 million, on an annualized basis, until permanent
rates are determined by the DEPSC. As of September 30, 2026,
approximately $3.7 million of revenue related to the
second step of temporary rates was recorded as a reserve for refund.
On September 30, 2026,
Artesian Water Maryland filed a request with the MDPSC to implement new rates
to meet a requested increase in revenue of 82.5 %, or approximately $2.5
million, on an annualized basis. In Maryland, existing base
rates remain unchanged, and no temporary rates are permitted during the rate
proceeding process. New rates become
effective only upon the issuance of a final order by the MDPSC at the formal
conclusion of the rate proceeding process.
The new proposed rates are designed to support Artesian Water Maryland’s
ongoing capital improvement program and to cover increased costs of operations,
including chemicals and electricity for water treatment, water quality
regulation compliance, taxes, labor and benefits.
Other Proceedings
Delaware law permits water
utilities to put into effect, on a semi-annual basis, increases related to
specific types of distribution system improvements through a DSIC. This charge may be implemented by water
utilities between general rate increase applications that normally recognize
changes in a water utility's overall financial position. The DSIC approval process is less costly when
compared to the approval process for general rate increase requests. The DSIC rate applied between base rate
filings is capped at 7.50 % of the amount billed to customers under otherwise
applicable rates and charges, and the DSIC rate increase applied cannot exceed
5.0 % within any 12-month period.
The following table
summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC
rates and (2) rate upon which each eligible plant improvement was based:
| Application Date | 05/28/2026 | 11/22/2024 | ||||
| DEPSC Approval Date | 06/24/2026 | 12/18/2024 | ||||
| Effective Date | 07/01/2026 | 01/01/2025 | ||||
| Cumulative DSIC Rate | ||||||
| Net Eligible Plant Improvements – Cumulative Dollars (in millions) | $ | $ | ||||
| Eligible Plant Improvements – Installed Beginning Date | 11/01/2025 | 11/01/2023 | ||||
| Eligible Plant Improvements – Installed Ending Date | 04/30/2026 | 10/31/2024 |
Effective January 1, 2025,
Artesian Water was permitted to recover specific investments made in
infrastructure through the assessment of a 1.66 % DSIC. The January 1, 2025 DSIC rate was reset to
zero when the temporary base rate increase was placed into effect on June 3,
2025. Effective July 1, 2026, Artesian Water was permitted to recover specific
investments made in infrastructure through the assessment of a 0.62 % DSIC. The July 1, 2026 DSIC rate is subject to
periodic audit by the DEPSC. In each of the
three and nine months ended September 30, 2026, we earned approximately $0.1 not report any earnings in DSIC revenue. For the nine months ended September 30, 2025,
we earned approximately $0.5 million in DSIC revenue.
NOTE 14 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE
Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share is based on the weighted average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards.
The following table summarizes the shares used in computing basic and diluted net income per share:
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30, | September 30, | ||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||
| (in thousands) | (in thousands) | ||||||||||||
| Weighted average common shares outstanding during the period for basic computation | |||||||||||||
| Dilutive effect of employee stock options and awards | |||||||||||||
| Weighted average common shares outstanding during the period for diluted computation | |||||||||||||
For
the three and nine months ended September 30, 2026, no no
The Company has 15,000,000 authorized shares of Class A Non-Voting Stock and 1,040,000 authorized shares of Class B Voting Stock. As of September 30, 2026, 9,453,067 881,452 9,431,674 881,452 1.00
NOTE 15 - LEGAL PROCEEDINGS
Periodically, we are
involved in other proceedings or litigation arising in the ordinary course of
business. We do not believe that the
ultimate resolution of these matters will materially affect our business, financial
position or results of operations.
However, we cannot ensure that we will prevail in any litigation and,
regardless of the outcome, may incur significant litigation expense and may
have significant diversion of management attention.
Several of the water
systems of Artesian Resources’ subsidiaries are claimants in four MDL class
action settlements designed to resolve claims for per- and polyfluoroalkyl
substances, or PFAS, contamination in Public Water Systems’ Drinking Water, as
those terms are defined in the respective Agreements (the “Settlements”), which
are with four groups of settling defendants on behalf of: (1) the 3M Company
(“3M”); (2) E.I. Du Pont de Nemours and Company (n/k/a Eidp, Inc.), DuPont de
Nemours Inc., The Chemours Company, The Chemours Company FC, LLC, and Corteva,
Inc. (collectively, “DuPont”); (3) Tyco Fire Products LP and Chemguard, Inc. (collectively, “the
Tyco Defendants”); and (4) BASF Corporation (“BASF”). Claims Forms have been submitted on behalf of
Artesian Resources’ eligible systems in each of the Settlements. In the fourth quarter of 2025, the Company
received the first two payments from 3M totaling $7.5 million, with an
anticipated additional net settlement of approximately $5.1 million to be paid
over eight years . In December 2025, the
Company received the full DuPont settlement award payment of approximately $1.3
million. In April 2026, the Company received
approximately $1.3 million in settlement payments from the Tyco defendants and approximately
$0.5 million in settlement payments from BASF.
In June 2026 the Company received the next scheduled payment due from
3M in the amount of $2.0 million. The
settlement proceeds are intended to reimburse the Company for past and future
capital investments or operations and maintenance expenses related to PFAS
water contamination to its water systems.
The DEPSC approved the return of $7.2 million received from 3M to
Artesian Water’s customers through a one-time bill credit, which was applied to
customers’ bills in December 2025. The
DEPSC also approved the regulatory treatment of the settlement amounts for DuPont,
the Tyco Defendants and BASF and the remaining settlement amounts for 3M to be
recorded as CIAC.
On September 15, 2025,
Artesian Water was served as a third-party defendant in a third-party complaint
filed by Metra Industries, Inc., in the Superior Court of the State of
Delaware. The litigation arises from a contractual dispute related to a water main
renewal project and asserts a claim against us in the total amount of $3.4
million consisting mainly of $2.7 million in unabsorbed office overhead, $0.1
million in end-of-job direct costs, and $0.6 million in change orders. While we plan to defend the claim vigorously,
it is possible that we could incur a loss; however, any loss is not estimable
at this time.
NOTE 16 - BUSINESS SEGMENT INFORMATION
The Company’s operating segments are comprised of its businesses which generate revenues and incur expenses, for which separate operational financial information is available and is regularly evaluated by management for the purpose of making operating decisions, assessing performance, and allocating resources. The Company operates its businesses primarily through one reportable segment, the Regulated Utility segment. The Regulated Utility segment is the largest component of the Company’s business and includes an aggregation of our five regulated utility subsidiaries that are in the business of providing regulated water and wastewater services on the Delmarva Peninsula. Our regulated water utility services include treating, distributing, and selling water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware and in Cecil County, Maryland and to a residential community in Chester County, Pennsylvania. Our regulated wastewater utility services include the treatment and disposal of wastewater for customers in Sussex County, Delaware. The Company is subject to regulations as to its rates, services, and other matters by the states of Delaware, Maryland and Pennsylvania with respect to utility service within these states.
The Chief Operating Decision Maker, or CODM, is the Executive Committee led by the Chief Executive Officer and includes the Chief Financial Officer. The CODM uses operating income as its measure of profit to assess the performance of each segment. This profit measure excludes the financing component and allows management to focus on controllable expenses, to allocate resources during the annual budgeting process and to monitor budget versus actual results on a monthly basis.
The accounting policies of the operating segments are the same as those described in Note 3 – Revenue Recognition. The measurement of depreciation, interest, and capital expenditures are predominately related to our Regulated Utility segment. These amounts in our non-utility business are negligible and account for approximately less than 1% of consolidated amounts as of September 30, 2026 and September 30, 2025.
In thousands
| Three Months Ended September 30, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Regulated Utility | Total | Regulated Utility | Total | |||||||||||
| Regulated Utility Revenues | $ | $ | $ | $ | ||||||||||
| Reconciliation of revenue | ||||||||||||||
| Other revenues | (a) | (a) | ||||||||||||
| Inter-segment elimination | ( | ) | ( | ) | ||||||||||
| Consolidated revenues | $ | $ | ||||||||||||
| Less: (b) | ||||||||||||||
| Payroll and Benefits (c) | ||||||||||||||
| Supply and Delivery (d) | ||||||||||||||
| Administrative (e) | ||||||||||||||
| Depreciation and Amortization | ||||||||||||||
| Income Taxes | ||||||||||||||
| Property and other taxes | ||||||||||||||
| Regulated Utility Operating Income | $ | $ | $ | $ | ||||||||||
| Reconciliation of operating income | ||||||||||||||
| Other profit | (a) | (a) | ||||||||||||
| Consolidated operating income | $ | $ | ||||||||||||
In thousands
| Nine Months Ended September 30, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Regulated Utility | Total | Regulated Utility | Total | |||||||||||
| Regulated Utility Revenues | $ | $ | $ | $ | ||||||||||
| Reconciliation of revenue | ||||||||||||||
| Other revenues | (a) | (a) | ||||||||||||
| Inter-segment elimination | ( | ) | ( | ) | ||||||||||
| Consolidated revenues | $ | $ | ||||||||||||
| Less: (b) | ||||||||||||||
| Payroll and Benefits (c) | ||||||||||||||
| Supply and Delivery (d) | ||||||||||||||
| Administrative (e) | ||||||||||||||
| Depreciation and Amortization | ||||||||||||||
| Income Taxes | ||||||||||||||
| Property and other taxes | ||||||||||||||
| Regulated Utility Operating Income | $ | $ | $ | $ | ||||||||||
| Reconciliation of operating income | ||||||||||||||
| Other profit | (a) | (a) | ||||||||||||
| Consolidated operating income | $ | $ | ||||||||||||
In thousands
| September 30, 2026 | December 31, 2025 | ||||||||||||
| Regulated Utility | Total | Regulated Utility | Total | ||||||||||
| Assets | |||||||||||||
| Regulated Utility Assets | $ | $ | $ | $ | |||||||||
| Reconciliation of assets | |||||||||||||
| Other assets | |||||||||||||
| Consolidated assets | $ | $ | |||||||||||
(a) Other revenues and other profit:
– Revenue and profit from segments below the quantitative thresholds are attributable to four non-utility businesses of the Company
– These businesses are primarily comprised of: Service Line Protection Plan services for water, sewer and internal plumbing; design, construction and engineering services; contract services for the operation and maintenance of water and wastewater systems in Delaware and Maryland; and leased space to the Regulated Utility Segment
– These non-utility businesses do not individually or in the aggregate meet the quantitative thresholds for determining reportable segments
– Certain corporate costs have been allocated from the regulated utility segment to the non-utility businesses and are included in the other profit amounts shown
(b) Significant expense categories:
– The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM
– Inter-segment expenses related to leased space provided by one non-utility business, calculated on the lower of cost or market method, are included in the amounts shown
(c) Payroll and Benefits:
– This category does not include amounts capitalized on the Condensed Consolidated Balance Sheet
(d) Supply and Delivery:
– This category includes purchased power, purchased water, chemicals, infrastructure maintenance and repair costs, and wastewater disposal fees
(e) Administrative:
– This category includes computer systems maintenance and subscription fees, audit and legal fees, insurance, customer billing, and other general and administrative expenses
NOTE 17 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In November 2024, FASB
issued amended guidance which requires disaggregated disclosure of income
statement expenses for public business entities. The guidance does not change
the expense captions an entity presents on the face of the income statement; rather,
it requires disaggregation of certain expense captions into specified
categories in disclosures within the footnotes to the financial
statements. The standard is effective
for fiscal years beginning after December 15, 2026, and interim periods within fiscal
years beginning after December 15, 2027.
Early adoption is permitted.
In September 2025, the FASB
issued guidance that amends the existing standard to remove all references to
prescriptive and sequential software development project stages. Under this guidance, eligible software development
costs will begin capitalization when management has authorized and committed to
funding the software project, and it is probable that the project will be
completed and the software will be used to perform the function intended. In evaluating whether it is probable the
project will be completed, management is required to consider whether there is
significant uncertainty associated with the development activities of the
software. This guidance is effective for
all annual periods beginning after December 15, 2027, and for interim periods
within those annual reporting periods, with early adoption permitted. The guidance may be applied on a prospective
basis, a modified basis for in-process projects, or a retrospective basis. We have evaluated the impact of this guidance
and based on our preliminary assessment, we do not expect the adoption of this
guidance to have a material impact on our consolidated financial statements and
related disclosures. Our technology and
software activities primarily consist of implementing standardized software and
hardware systems, alongside minor configuration and customization work, rather
than engaging in the development of proprietary, custom-built internal or
contracted software solutions.
In December
2025, the FASB issued guidance to enhance, clarify, and streamline interim
disclosure requirements, emphasizing events and material changes that have
occurred since the most recent annual reporting period. The amendments are effective for the Company
for interim reporting periods within annual reporting periods beginning after
December 15, 2027, with early adoption permitted. The Company is required to apply the
amendments in its interim reporting starting with the first quarter of fiscal
year 2028. The guidance may be adopted
prospectively or retrospectively. The
Company is currently evaluating the impact of this new guidance, which may
alter the structure of our interim financial statement disclosures.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Statements
in this Quarterly Report on Form 10-Q that express our "belief," "anticipation" or
"expectation," as well as other statements that are not historical
fact, are forward-looking statements within the meaning of Section 27A of the
Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended,
or the Exchange Act and the Private Securities Litigation Reform Act of
1995. Statements regarding our goals, priorities, growth and
expansion plans and expectation for our water and wastewater subsidiaries and
non-regulated subsidiaries, customer base growth opportunities in Delaware and
Cecil County, Maryland, our belief regarding the timing and results of our rate
requests, our belief regarding our capacity to provide water services for the
foreseeable future to our customers, our belief relating to our compliance and
the cost to achieve compliance with relevant governmental regulations, including
per- and polyfluoroalkyl substances (“PFAS”) regulations, our belief concerning
class action settlements designed to resolve claims for PFAS contamination and
any related outcome, and the Lead and Copper Rule Improvements, our expectation
of the timing of decisions by regulatory authorities, our belief regarding the
success of any rate increase request, the impact of weather on our operations
and the execution of our strategic initiatives, our expectation of the timing
for construction on new projects, our expectation relating to the adoption of
recent accounting pronouncements, contract operations opportunities, legal
proceedings, our properties, deferred tax assets, adequacy of our available
sources of financing, the expected recovery of expenses related to our
long-term debt, our expectation to be in compliance with financial covenants in
our debt instruments, our ability to refinance our debt as it comes due, our
ability to adjust our debt level, interest rate, maturity schedule and
structure, the timing and terms of renewals of our lines of credit, plans to
increase our wastewater treatment operations, engineering services and other
revenue streams less affected by weather, expected future contributions to our
postretirement benefit plan, anticipated growth in our non-regulated division,
the impact of recent acquisitions on our ability to expand and foster
relationships, anticipated investments in certain of our facilities and systems
and the sources of funding for such investments, and the sufficiency of
internally generated funds and credit facilities to provide working capital and
our liquidity needs are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties
that could cause actual results to differ materially from those
projected. Words such as "expects",
"anticipates", "intends", "plans",
"believes", "seeks", "estimates",
"projects", "forecasts", "may",
"should", variations of such words and similar expressions are
intended to identify such forward-looking statements. Certain
factors as discussed under Item 1A - Risk Factors, in our Annual Report on Form
10-K for the year ended December 31, 2025, and this Quarterly Report on Form
10-Q for the quarter ended September 30, 2026, such as changes in weather, changes
in our contractual obligations, changes in government policies, changes in tax
laws, the timing
and results of our rate requests, failure to receive regulatory approvals,
changes in economic and market conditions generally, and other matters could
cause results to differ materially from those in the forward-looking
statements. 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 a representation of the Company's
views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2026
OVERVIEW
Our
profitability is primarily attributable to the sale of water and wastewater
services in our regulated utility business.
Our regulated utility segment comprised 93.1% of total operating
revenues for the nine months ended September 30, 2026 and 93.3% for the nine months
ended September 30, 2025. Water sales are
subject to seasonal fluctuations, particularly during summer when water demand
may vary with rainfall and temperature.
In the event temperatures during the typically warmer months are cooler
than expected or rainfall is greater than expected, the demand for water may
decrease and our revenues may be adversely affected. We believe these effects of weather are short
term and do not materially affect the execution of our strategic
initiatives. Our wastewater services
provide a revenue stream that is not affected by these changes in weather
patterns. We continue to seek growth
opportunities to provide wastewater services in Delaware and the surrounding
areas.
Our profitability is also
attributed to other non-utility business, such as various contract operations,
water and sewer SLP Plans and other services we provide. Our contract operations, SLP Plans and other
services also provide a revenue stream that is not affected by changes in
weather patterns. We also continue to
explore and develop relationships with developers and municipalities in order
to increase revenues from contract water and wastewater operations, wastewater management
services, and design, construction and engineering services. We plan to continue developing and expanding
our contract operations and other services in a manner that complements our
growth in water service to new customers.
Our anticipated growth in these areas is subject to changes in
residential and commercial construction, which may be affected by interest
rates, inflation and general housing and economic market conditions. We anticipate continued growth in our
non-utility subsidiaries due to our water and sewer SLP Plans.
Inflation
We
are affected by inflation, most notably by the continually increasing costs
required to maintain, improve and expand our service capability. The cumulative effect of inflation results in
significantly higher facility replacement costs as well as increased operating
costs, which must be recovered from future cash flows. Our ability to recover increases in
investments in facilities and operating costs is dependent upon future rate
increases, which are subject to approval by the applicable regulatory authority. We can provide no assurances that any future
rate increase request will be approved, and if approved, we cannot guarantee
that any rate increase will be granted in a timely manner and/or will be
sufficient in amount to cover costs for which we initially sought the rate
increase. The impact of inflation could
adversely affect our results of operations, financial position or cash flows.
Regulated Water Subsidiaries
Artesian Water,
Artesian Water Maryland and Artesian Water Pennsylvania provide water service
to residential, commercial, industrial, governmental, municipal and utility
customers. Increases in the number of
customers contribute to increases, or help to offset any intermittent
decreases, in our operating revenue. As
of September 30, 2026, the number of metered water customers in Delaware
increased approximately 1.7% compared to September 30, 2025. The number of metered water customers in
Maryland increased approximately 1.2% compared to September 30, 2025. The number of metered water customers in
Pennsylvania remained consistent compared to September 30, 2025. For the nine months ended September 30, 2026,
approximately 7.1 billion gallons of water were distributed in our Delaware
systems and approximately 343.2 million gallons of water were distributed in
our Maryland systems.
On April 4, 2025, Artesian
Water filed a request with the DEPSC to implement new rates to meet a requested
increase in revenue of 12.41%, or approximately $10.8 million, on an annualized
basis. Supplemental and rebuttal filings
were subsequently filed, reducing the requested increase to 10.2%, or
approximately $9.0 million, on an annualized basis. The DEPSC approved and Artesian Water
implemented temporary rate increases effective June 3, 2025 and November 6, 2025,
until permanent rates are determined by the DEPSC. This is discussed further in Note 13 –
Regulatory Proceedings.
On September
30, 2026, Artesian Water Maryland filed a request with the MDPSC to implement
new rates to meet a requested increase in revenue of 82.5%, or approximately $2.5
million, on an annualized basis. This is
discussed further in Note 13 – Regulatory Proceedings.
Regulated Wastewater Subsidiaries
Artesian Wastewater owns wastewater collection and treatment infrastructure and provides regulated wastewater services to customers in Sussex County, Delaware. Artesian Wastewater Maryland is able to
provide regulated wastewater services to customers in Maryland. It is not currently providing these services
in Maryland. The majority of our
residential and commercial wastewater customers are billed a flat monthly fee,
and our large industrial wastewater customer is billed monthly based on
wastewater flow, which contributes to providing a revenue stream unaffected by
weather. As of September 30, 2026, the number
of Delaware wastewater customers increased approximately 6.5% compared to September 30, 2025.
Non-Utility Subsidiaries
Artesian Utility
provides contract water and wastewater operation services to private,
municipal, and governmental institutions.
Artesian Utility also offers protection plans to customers: the WSLP
Plan and the SSLP Plan. SLP Plan
customers are billed a flat monthly or quarterly rate, which contributes to
providing a revenue stream unaffected by weather. There has been consistent customer growth
over the years. As of September 30, 2026, the
eligible customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan
increased 4.5%, collectively, compared to September 30, 2025. The Company also
maintains the ISLP Plan, in which the Company discontinued enrolling new
customers effective January 2026.
Strategic Direction and Recent Developments
Our strategy is to increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and SLP Plan services across the Delmarva Peninsula. We remain focused on providing superior service to our customers and continuously seek ways to improve our efficiency and performance. Our strategy has included a focus on building strategic partnerships with county governments, municipalities and developers. By providing water and wastewater services, we believe we are positioned as the primary resource for developers and communities throughout the Delmarva Peninsula seeking to fill both needs simultaneously. We believe we have a proven ability to acquire and integrate high growth, reputable entities, through which we have captured additional service territories that will serve as a base for future revenue. We believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators, municipalities, developers and customers in both existing and prospective service areas.
In our regulated water subsidiaries, our strategy is to focus on a wide spectrum of activities, which include strategic acquisitions of existing systems, expanding certificated service area, identifying new and dependable sources of supply, developing the wells, treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water. Our strategy includes focused efforts to expand through strategic acquisitions and in new regions added to our Delaware service territory over the last 10 years. We plan to expand our regulated water service area in the Cecil County designated growth corridor and to expand our business through the design, construction, operation, management and acquisition of additional water systems. The expansion of our exclusive franchise areas elsewhere in Maryland and the award of contracts will similarly enhance our operations within the state.
Our ability to develop partnerships with various county governments, municipalities and developers has provided a number of opportunities. In recent years, we have completed several acquisitions including asset purchase agreements with municipal and developer/homeowner association operated systems.
We believe that Delaware's generally lower cost of living in the region and availability of development sites in relatively close proximity to the Atlantic Ocean in Sussex County have resulted, and will continue to result, in increases to our customer base. Delaware’s lower property and income tax rate make it an attractive region for new home development and retirement communities. Substantial portions of Delaware currently are not served by a public water system, which could also assist in an increase to our customer base as systems are added.
In our regulated
wastewater subsidiaries, we foresee significant growth opportunities and will
continue to seek strategic partnerships and relationships with developers and
governmental agencies to complement existing agreements for the provision of
wastewater service on the Delmarva Peninsula. There are numerous locations in
Sussex County where Artesian Wastewater’s and Sussex County’s facilities are
connected or integrated to allow for the movement and disposal of wastewater
generated by one or the other’s system in a manner that most efficiently and
cost effectively manages wastewater transmission, treatment and disposal. In addition, Artesian Wastewater plans to
utilize our larger regional wastewater facilities to expand service areas to
new customers while transitioning our smaller treatment facilities into
regional pump stations in order to gain additional efficiencies in the
treatment and disposal of wastewater. We believe this will reduce operational
costs at the smaller treatment facilities in the future because they will be
converted from treatment and disposal plants to pump stations to assist with
transitioning the flow of wastewater from one regional facility to
another. In addition, Artesian’s
Delaware wastewater subsidiaries are the sole regional regulated wastewater
utilities in Delaware, which we believe will enable us to continue to increase
efficiencies in the treatment and disposal of wastewater and expand our
wastewater operations.
In April 2024,
Artesian Wastewater received a permit from the Delaware Department of Natural
Resources and Environmental Control, or DNREC, for construction of a 625,000
gallon per day regional wastewater treatment facility, including a primary
receiving headworks at its Sussex Regional Recharge Facility, or SRRF. Under its previous permit, SRRF provided
solely land disposal services for a single commercial processing and treatment
plant. Under its new permit, SRRF will
continue providing those disposal services alongside the new treatment plant.
The new treatment facility will provide service for Artesian Wastewater’s
regional system comprised primarily of residential and small commercial
customers. The construction will also
include the primary receiving facility for untreated effluent, sized to allow
for the expansion of the regional treatment system planned for the site. The new treatment facility will utilize the
existing disposal infrastructure and was completed in the first quarter of
2026. In February 2026, Artesian
Wastewater received a permit from DNREC for construction of an additional 1,250,000
gallon per day regional wastewater treatment facility.
The general need for increased capital investment in our water and wastewater systems is due to a combination of population growth, more protective water quality standards, aging infrastructure and acquisitions. Our planned and budgeted capital improvements over the next three years include projects for water infrastructure improvements and expansion in both Delaware and Maryland and wastewater infrastructure improvements and expansion in Delaware. The DEPSC and MDPSC have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers.
In our non-utility
subsidiaries, we continue pursuing opportunities to expand our contract
operations. Through Artesian Utility, we
will seek to expand our contract design, engineering and construction services
of water and wastewater facilities for developers, municipalities and other
utilities. We also anticipate continued
growth due to our water and sewer SLP Plans.
Artesian Development owns two nine-acre parcels of land, located in
Sussex County, Delaware, which allows for construction of a water treatment
facility and wastewater treatment facility.
Other Matters
Environmental, Health and Safety, and Water Quality Regulation
As required by the Safe
Drinking Water Act, the U.S. Environmental Protection Agency, or EPA,
establishes maximum contaminant levels, or MCLs, for various substances found
in drinking water to ensure that the water is safe for human consumption. On April 10, 2024, the EPA established MCLs
for certain per- and polyfluoroalkyl substances, or PFAS, in drinking
water. Under these regulations, water
utilities will be required to complete initial monitoring for PFAS by 2027 and
to conduct ongoing compliance monitoring.
At the national level, water utilities also will be required to meet the
new MCLs by April 2029 and to notify the public of any violations of the MCLs
as of and after that date. Delaware
water utilities are required to notify the public of any violations of the
MCLs beginning January 15, 2026. To allow drinking water systems more time to develop plans for
addressing PFAS where they are found and implement solutions, the EPA plans to
develop a rulemaking to provide additional time for compliance, including a
proposal to extend the compliance date to 2031. The
Company has installed treatment for PFAS at several wellfields to date and plans
to continue to install treatment at additional locations as necessary in future years. The capital investment and operating costs
for treatment of PFAS are anticipated to be recoverable in water rates charged
to customers as approved by the applicable public service commission. The Company is participating in the
multi-district litigation class action settlements with certain manufacturers
of PFAS seeking reimbursement of costs incurred and that will continue to be incurred. See Note 15 – Legal Proceedings.
The Lead and Copper Rule, or LCR, is a federal regulation that limits the concentration of lead and copper allowed in public drinking water at the consumer's tap, in addition to limiting the permissible amount of pipe corrosion occurring due to the water itself. The LCR limits the levels of lead and copper in water by improving water treatment, testing for lead and copper at customer taps, and eliminating the water supply as a significant source of lead and copper. The EPA published a revised LCR in 2021, or LCR Revisions, to provide greater and more effective protection of public health by reducing exposure to lead and copper in drinking water. Implementation of the revised rule is intended to better identify high levels of lead, improve the reliability of lead tap sampling results, strengthen corrosion control treatment requirements, expand consumer awareness and improve risk communication. In addition, implementation of the revised rule is anticipated to accelerate lead service line replacements by closing existing regulatory loopholes, propelling early action, and strengthening replacement requirements. We filed all required Lead Service Line Inventories by the October 16, 2024 deadline and are fully compliant with the LCR Revisions.
On October 8, 2024, the EPA announced the new final regulations requiring the removal of lead water lines. The EPA’s rule, known as the Lead and Copper Rule Improvements, or LCRI, requires all public water systems to remove lead service lines within 10 years, among other changes to regulations in the EPA’s LCR. The service lines connect a home’s plumbing system to a public water system’s main water line. The LCRI specifies that the water provider will cover the cost for replacements of the customer’s service line up to the first fitting inside the structure being served. Capital investment and operating costs incurred by water utilities for customer-side pipe replacements are typically recoverable in water rates charged to customers as approved by the applicable public service commission.
Results of Operations – Analysis of the Three Months Ended September 30, 2026 Compared to the Three Months Ended September 30, 2025.
Operating Revenues
Revenues totaled $31.9
million for the three months ended September 30, 2026, $1.5 million, or 4.8%,
more than revenues for the three months ended September 30, 2025.
Water sales revenue increased
$0.8 million, or 3.4%, for the three months ended September 30, 2026 from the
corresponding period in 2025, primarily the result of an increase in overall
water consumption, an increase in the number of customers served, and an
increase in DSIC revenue. The DSIC rate
effective July 1, 2026 was 0.62%. In
addition, water sales revenue increased due to two temporary rate increases as
permitted under Delaware law, until permanent rates are determined by the
DEPSC. The first temporary rate increase
of 2.88% was placed into effect on June 3, 2025 at which time the DSIC rate of
1.66% was set to zero. The second
temporary rate increase of 6.82% was placed into effect on November 6,
2025. These increases were offset during
the quarter by an increase in the reserve for customer refund, which is not
reflected in income. We realized 80.4%
and 81.5% of our total operating revenue for the three months ended September 30,
2026 and September 30, 2025, respectively, from the sale of water.
Other utility operating revenue
increased approximately $0.5 million, or 12.6%, for the three months ended September
30, 2026 compared to the three months ended September 30, 2025. This increase is
primarily due to an increase in wastewater revenue related to industrial
wastewater treatment services and an increase in wastewater revenue associated
with additional residential and commercial customers.
Non-utility operating
revenue increased approximately $0.1 million, or 7.5%, for the three months
ended September 30, 2026 compared to the three months ended September 30, 2025,
primarily due to an increase in SLP Plan revenue, resulting
from an increase in fees that were placed into effect on January 1, 2026.
Operating Expenses
Operating
expenses, excluding depreciation and income taxes, increased $1.4 million, or 8.7%, for the three
months ended September 30, 2026, compared to the same period in 2025.
Utility operating expenses increased $1.1 million, or 8.0%, for the three
months ended September 30, 2026 compared to the same period in 2025. The increase in utility operating expenses primarily
consists of a $0.4 million increase in supply and treatment costs, a $0.2 million
increase in payroll and employee benefit costs, a $0.2 million increase in purchased
power costs, and a $0.2 million increase in administrative costs.
The
ratio of operating expenses, excluding depreciation and income taxes, to total
revenue was 54.1% for the three months ended September 30, 2026, compared to 52.2% for the three
months ended September 30, 2025.
Federal
and state income tax expense decreased $0.2 million, or 9.0%, primarily due to lower
pre-tax book income and the reversal of accrued penalty and interest related to
uncertain tax positions taken on the 2022 tax return for which the statute of
limitations lapsed during the third quarter of 2026.
Property
and other taxes increased $0.4 million, primarily due to an increase in New
Castle County, Delaware tax rates on utility plant and an increase in utility
plant subject to taxation. Property
taxes are assessed on land, buildings and certain utility plant, which include
the footage and size of pipe, hydrants and wells.
Other Income
Other income decreased $0.2 million, primarily due to a decrease
in allowance for funds used during construction, or AFUDC, as a result of lower
long-term construction activity subject to AFUDC.
Interest Charges
Interest
charges increased $0.2 million, primarily due to an increase in long-term debt
interest related to higher borrowing levels on the Company’s promissory notes
and reserve for customer refund interest associated with the temporary rate
increase revenue.
Net Income
Our net income applicable
to common stock decreased $0.2 million, or 3.0%. Total operating revenues increased $1.5 million,
offset by a $1.2 million increase in total operating expenses, a $0.2 million
increase in interest charges, and a decrease of $0.2 million in other income.
Results of Operations – Analysis of the Nine Months Ended September 30, 2026 Compared to the Nine Months Ended September 30, 2025.
Operating Revenues
Revenues totaled $90.4
million for the nine months ended September 30, 2026, $5.5 million, or 6.4%,
more than revenues for the nine months ended September 30, 2025.
Water sales revenue increased $3.7 million, or 5.4%, for the nine months
ended September 30, 2026 from the corresponding period in 2025, primarily the
result of two temporary rate increases as permitted under Delaware law, until
permanent rates are determined by the DEPSC, as well as increases in overall
water consumption and the number of customers served. The first temporary rate increase of 2.88%
was placed into effect on June 3, 2025.
The second temporary rate increase of 6.82% was placed into effect on
November 6, 2025, of which a portion has been reserved for refund and is not
reflected in income. The increase in
both temporary rates was partially offset by the Company’s DSIC rate of 1.66%
resetting to zero upon implementation of the first temporary rate increase. We realized 80.0% and 80.8% of our total
operating revenue for the nine months ended September 30, 2026 and September 30,
2025, respectively, from the sale of water.
Other utility operating
revenue increased approximately $1.3 million, or 11.8%, for the nine months
ended September 30, 2026 compared to the nine months ended September 30,
2025. This increase is primarily
due to an increase in revenue related to industrial wastewater treatment services
and an increase in wastewater revenue associated with additional residential
and commercial customers.
Non-utility operating
revenue increased approximately $0.5 million, or 9.1%, for the nine months
ended September 30, 2026 compared to the nine months ended September 30, 2025, primarily due to an
increase in SLP Plan revenue, resulting from an increase in fees that were
placed into effect on January 1, 2026 and an increase in the number of
customers participating in the SLP Plans.
Operating Expenses
Operating
expenses, excluding depreciation and income taxes, increased $3.4 million, or 7.4%, for the nine
months ended September 30, 2026, compared to the same period in 2025.
Utility operating expenses increased $2.8 million, or 7.4%, for the nine
months ended September 30, 2026 compared to the same period in 2025. The increase in utility operating expenses primarily
consists of a $1.2 million increase in payroll and employee benefit costs, a
$0.8 million increase in supply and treatment costs, a $0.3 million increase in
purchased power costs, a $0.3 million
increase in administrative costs, and a $0.2 million increase in transmission,
distribution and collection costs.
Non-utility
operating expenses increased $0.3 million, or 10.0%, for the nine months ended September
30, 2026 compared to the nine months ended September 30, 2025, primarily due to
an increase in plumbing repair costs associated with the SLP Plans.
The
ratio of operating expenses, excluding depreciation and income taxes, to total
revenue was 54.8% for the nine months ended September 30, 2026, compared to 54.3% for the nine
months ended September 30, 2025.
Depreciation
and amortization expense increased $0.3 million, or 2.7%, primarily due to
additional depreciation from continued investment in utility plant related to
providing supply, treatment, storage and distribution of water to customers and
service to our wastewater customers.
Federal
and state income tax expense increased $0.1 million, or 1.3%, primarily due to
higher pre-tax book income partially offset by the reversal of accrued penalty and interest related
to uncertain tax positions taken on the 2022 tax return for which the statute
of limitations lapsed during the third quarter of 2026.
Property
and other taxes increased $0.2 million, primarily due to an increase in New
Castle County, Delaware tax rates on utility plant and an increase in utility
plant subject to taxation. Property
taxes are assessed on land, buildings and certain utility plant, which include
the footage and size of pipe, hydrants and wells.
Other Income
Other income decreased $0.7 million, primarily due to a
decrease in AFUDC as a result
of lower long-term construction activity subject to AFUDC.
Interest Charges
Interest
charges increased $0.4 million, primarily due to an increase in long-term debt
interest related to higher borrowing levels on the Company’s promissory notes
and lines of credit as well as reserve for customer refund interest associated
with the temporary rate increase revenue.
Net Income
Our net income applicable
to common stock increased $0.6 million, or 3.1%. Total operating revenues increased $5.5
million, offset by a $3.8 million increase in total operating expenses, a $0.4 million
increase in interest charges and a decrease of $0.7 million in other income.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our
primary sources of liquidity for the nine
months ended September 30, 2026 were $34.0 million of cash provided by
operating activities, $10.0 million from the
issuance of long-term debt, and
$26.0 million in net contributions and advances from developers. We depend on the availability of capital for
expansion, construction and maintenance.
We rely on our sources of liquidity for investments in our utility plant
and to meet our various payment obligations.
Operating Activities
One of our primary sources
of liquidity for the nine months ended September 30, 2026 was $34.0 million
provided by cash flow from operating activities, compared to $29.9 million for
the nine months ended September 30, 2025.
The increase in cash flows from operating activities is primarily from higher
reserve for customer refunds, accrued expenses, regulatory liabilities, prepaid
expenses and other, income taxes payable, and net income, partially offset by
lower accounts receivable. Cash flow from operating activities is primarily provided by our utility
operations and is impacted by the timeliness and adequacy of rate increases and
changes in water consumption as a result of year-to-year variations in weather
conditions, particularly during the summer.
A significant part of our ability to maintain and meet our financial
objectives is to ensure that our investments in utility plant and equipment are
recovered in the rates charged to customers.
As such, from time to time, we file rate increase requests to recover
increases in operating expenses and investments in utility plant and
equipment. See Note 13 – Regulatory
Proceedings. We will continue to borrow on available lines of credit in order
to satisfy current liquidity needs. In addition, the Company has a long history of paying
regular quarterly dividends as approved by our Board of Directors using net
cash from operating activities.
Investment Activities
The primary focus of our
investments is to continue to provide high quality, reliable service to our
growing service territory. Capital expenditures during the first nine
months of 2026 were $40.8 million compared to $40.5 million during the same
period in 2025. To better serve our customers, these investments include
installation of new mains, services and hydrants, upgrading existing pumping
and treatment stations, including PFAS treatment upgrades, construction of new
wastewater treatment plants, renewals associated with the rehabilitation of
aging infrastructure, upgrading and replacing our meter reading equipment, transportation
equipment purchases, and computer hardware and software upgrades.
Financing Activities
For the nine months ended September
30, 2026, cash flows provided by financing activities were $18.8 million,
compared to $10.1 million for the nine months ended September 30, 2025. Our primary sources of liquidity from
financing activities for the nine months ended September 30, 2026 were $26.0
million in net contributions and advances from developers and $10.0 million
from the issuance of long-term debt. The
cash flows provided by financing activities increased due to higher issuance of
long-term debt and an increase in net contributions
and advances from developers, partially offset by an increase in repayments of
lines of credit, and higher dividend payments. We have several sources of
liquidity to finance our investment in utility plant and other fixed
assets. We estimate that future
investments will be financed by our operations and external sources. We expect to fund our activities for the next
twelve months using our projected cash generated from operations, bank credit
lines, contributions from developers and settlement funds, government grants
and capital market financing as needed to provide sufficient working capital to
maintain normal operations, to meet our financing requirements and to expand
through strategic acquisitions. We
believe that our cash on hand and future cash generated from the foregoing
activities will provide adequate resources to fund our short-term and long-term
capital, operating and financing needs. However, there is no assurance that we
will be able to secure funding on terms acceptable to us, or at all. Our cash flows from operations are primarily
derived from water sales revenues and may be materially affected by changes in
water sales due to weather and the timing and extent of increases in rates
approved by state public service commissions.
Material Cash Requirements
Lines of Credit and Long-Term Debt
At September 30, 2026,
Artesian Resources had a $40 million line of credit with Citizens Bank, or
Citizens, which is available to all subsidiaries of Artesian Resources. As of September 30, 2026, there was $40 million
of available funds under this line of credit.
The interest rate is a one-month Daily Secured Overnight Financing Rate,
or SOFR, plus 10 basis points, or Term SOFR, plus an applicable margin of
1.10%. Term SOFR cannot be less than
0.00%. This is a demand line of credit
and therefore the financial institution may demand payment for any outstanding
amounts at any time. The term of this
line of credit expires on the earlier of May 17, 2027, or any date on which
Citizens demands payment. The Company
expects to renew this line of credit.
At September 30, 2026,
Artesian Water had a $20 million line of credit with CoBank, ACB, or CoBank,
that allowed for the financing of operations for Artesian Water, Artesian Water
Maryland, and Artesian Wastewater. As of September 30, 2026, there was $20 million of available funds under this line of
credit. The interest rate for borrowings
under this line is either a daily SOFR rate plus 1.45% option or a term SOFR
rate plus 1.45% option that is locked in for either one or three months. The term of this line of credit expires on
October 31, 2027. Artesian Water expects
to renew this line of credit.
The Company’s material cash requirements include the following lines of credit commitments and contractual obligations:
|
Material Cash Requirements
|
Payments Due by Period | ||||||||||||||
|
In thousands
|
Less than 1 Year | 1-3 Years | 4-5 Years | After 5 Years | Total | ||||||||||
|
First mortgage bonds (principal and interest)
|
$ | 7,816 | $ | 39,045 | $ | 12,422 | $ | 185,891 | $ | 245,174 | |||||
|
State revolving fund loans (principal and interest)
|
1,065 | 2,130 | 2,130 | 8,064 | 13,389 | ||||||||||
|
Promissory notes (principal and interest)
|
1,842 | 3,685 | 3,685 | 20,165 | 29,377 | ||||||||||
|
Asset purchase contractual obligation (principal and interest)
|
320 | - | - | - | 320 | ||||||||||
|
Lines of credit
|
- | - | - | - | - | ||||||||||
|
Operating leases
|
29 | 46 | 42 | 1,337 | 1,454 | ||||||||||
|
Operating agreements
|
38 | 8 | - | - | 46 | ||||||||||
|
Unconditional purchase obligations
|
309 | 114 | 114 | 156 | 693 | ||||||||||
| Tank painting contractual obligation | 849 | 636 | - | - | 1,485 |
||||||||||
|
Total contractual cash obligations
|
$ | 12,268 | 45,664 | $ | 18,393 | $ | 215,613 | $ | 291,938 | ||||||
Artesian’s long-term debt agreements and revolving lines of credit contain customary affirmative and negative covenants that are binding on us (which are in some cases subject to certain exceptions), including, but not limited to, restrictions on our ability to make certain loans and investments, guarantee certain obligations, enter into, or undertake, certain mergers, consolidations or acquisitions, transfer certain assets or change our business. As of September 30, 2026, we were in compliance with these covenants.
Long-term debt obligations reflect the maturities of certain series of our first mortgage bonds, which we intend to refinance when due if not refinanced earlier. One first mortgage bond is subject to redemption in a principal amount equal to $150,000 plus interest per calendar quarter. The state revolving fund loan obligation and promissory notes obligation have an amortizing mortgage payment payable over a 20-year period. The first mortgage bonds, the state revolving fund loan and the promissory notes have certain financial covenant provisions, the violation of which could result in default and require the obligation to be immediately repaid, including all interest. We have not experienced conditions that would result in our default under these agreements.
On March 13, 2026, Artesian
Water Maryland and CoBank entered into a Master Loan Agreement, or the MLA, and
supplement to the MLA, under which CoBank made a single loan to Artesian Water
Maryland in the principal amount of $10 million. Artesian Water Maryland agreed to pay
interest on the unpaid principal balance of the loans at 6.14% per annum. Interest shall be calculated and paid
quarterly in arrears on the thirtieth (30th) day of each of March, June,
September and December. Artesian Water
Maryland agrees to repay the loan in eighty consecutive quarterly installments,
each due on the thirtieth (30th) day of each March, June, September, and
December, with the first installment paid on June 30, 2026, and the last
installment due on March 13, 2046. The
amount of each installment shall be the same principal amount that would be
required to be repaid if the loan was scheduled to be repaid in level
installments of principal and interest and such schedule was calculated
utilizing 6.14% as the rate accruing on the loan; provided, however, that the
last installment of the loan shall be in an amount equal to the then unpaid
principal balance of the loan. Closing
on the debt financing was approved by the Maryland Public Service Commission on
March 2, 2026.
The asset purchase
contractual obligation is related to the purchase of substantially all of the
water operating assets from the Town of Clayton in May 2022, by Artesian
Water. The total purchase price was $5.0
million. At closing, Artesian Water paid
approximately $3.4 million. The balance
is payable in five equal annual installments on the anniversary date of the
closing date. Each annual installment is
payable with interest at an annual rate of 2.0%.
Payments for unconditional
purchase obligations reflect minimum water purchase obligations based on rates
that are subject to change under an interconnection agreement with the Chester
Water Authority. The agreement is
effective from January 1, 2022 through December 31, 2026, includes automatic
five-year renewal terms, unless terminated by either party, and has a “take or
pay” clause which currently requires us to purchase a minimum of 0.5 million
gallons of water per day. In addition,
payments for unconditional purchase obligations reflect minimum water purchase
obligations based on a contract rate under our interconnection agreement with
the Town of North East, which expires June 26, 2029. The agreement includes a remaining automatic
five-year renewal term, unless terminated by either party.
In August 2025, Artesian
Water entered into a new, three-year agreement with Worldwide Industries
Corporation, effective September 1, 2025, to paint elevated water storage
tanks. Pursuant to the agreement, the
expected total expenditure for the three years is $2.5 million.
In order to control
purchased power costs and avoid fluctuations in electricity rates that happen
due to the change of seasons, energy supply changes, or other outside factors,
we utilize contracts with electric suppliers that provide a fixed rate. In April 2025, Artesian entered into an
electric supply contract with Constellation NewEnergy, Inc. that is effective
from May 2025 to May 2029 for Delaware operations. The supply rate was increased approximately
25% starting in May 2025. In April 2025,
Artesian Water Maryland entered into an electric supply agreement with WGL
Energy that is effective from November 2025 through November 2029 for Maryland
operations. The fixed rate was increased
5.5% starting in November 2025. These
fixed rate electric supply contracts are for normal purchases and are not
derivative instruments.
Critical Accounting Estimates; Recent Accounting Pronouncements
This discussion and analysis of our financial condition and results of operations is based on the accounting policies used and disclosed in our 2025 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of our annual report on Form 10-K for the year ended December 31, 2025. The preparation of those financial statements required management to make assumptions and estimates that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those based on such assumptions and estimates.
Management has reviewed our
financial policies and determined that there are no critical accounting
estimates requiring disclosure, as further described in Management's Discussion and Analysis of Financial Condition
and Results of Operations included in our annual report on Form 10-K for the
year ended December 31, 2025. There have
been no changes in our critical accounting estimates. Our significant accounting policies are
described in our notes to the 2025 consolidated financial statements included
in our annual report on Form 10-K for the year ended December 31, 2025.
Information concerning our implementation and the impact of recent accounting pronouncements issued by the FASB is included in the notes to our 2025 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2025 and also in the notes to our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. We did not adopt any accounting policy in the first nine months of 2026 that had a material impact on our financial condition, liquidity or results of operations.
The Company is subject to
the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest rates
through the use of fixed rate long-term debt and, to a lesser extent, short-term
debt. The Company's exposure to interest
rate risk related to existing fixed rate, long-term debt is due to the term of
the majority of our First Mortgage Bonds and the term of the promissory notes,
which have final maturity dates ranging from 2028 to 2049, and interest rates
ranging from 4.24% to 6.14%, which exposes the Company to interest rate risk as
interest rates may drop below the existing fixed rate of the long-term debt
prior to such debt’s maturity. In
addition, the Company has interest rate exposure on $60 million of variable
rate lines of credit with two banks. As
of September 30, 2026, there were no outstanding amounts on the lines of
credit. Increases in variable interest
rates result in an increase in the cost of borrowing on these variable rate
lines of credit. We are also exposed to
market risk associated with changes in commodity prices. Our risks associated with price increases in
chemicals, electricity and other commodities are mitigated by our ability to
recover our costs through rate increases to our customers. We have also sought to mitigate future
significant electric price increases by signing multi-year supply contracts at
fixed prices.
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in providing reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In addition, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to achieve the foregoing objectives. A control system cannot provide absolute assurance, however, that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business. We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations. However, we cannot ensure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention. For a full discussion of our current legal proceedings or litigation arising in the ordinary course of business, refer to Note 15 – Legal Proceedings.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025, which could materially affect our business, financial condition or future results. There have been no material changes to the risk factors described in such Annual Report on Form 10-K.
None.
None.
Not applicable.
(a)
None.
(b) None.
(c) None of the Company’s directors or officers adopted terminated
| Exhibit No. | Description | |
| 31.1 |
Certification of Chief Executive Officer of the Registrant required by Rule 13a–14(a) under the Securities Exchange Act of 1934, as amended. *
|
|
| 31.2 |
Certification of Chief Financial Officer of the Registrant required by Rule 13a–14(a) under the Securities Exchange Act of 1934, as amended. *
|
|
| 32 |
Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350). **
|
|
|
101.BAL |
Inline XBRL Condensed Consolidated Balance Sheets (unaudited)* |
|
| 101.OPS | Inline XBRL Condensed Consolidated Statements of Operations (unaudited)* | |
| 101.CSH | Inline XBRL Condensed Consolidated Statements of Cash Flows (unaudited)* | |
| 101.NTS | Inline XBRL Notes to the Condensed Consolidated Financial Statements (unaudited)* | |
| 104 |
The cover page from Artesian Resources Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2026, formatted in Inline XBRL (contained in exhibit 101). * |
|
* Filed herewith
** Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ARTESIAN RESOURCES CORPORATION
| Date: November 12, 2026 |
By:
|
/s/ NICHOLLE R. TAYLOR
|
|
|
Nicholle R. Taylor
Chair of the Board of Directors, President and Chief Executive Officer
(Principal Executive Officer)
|
|||
| Date: November 12, 2026 |
By:
|
/s/ DAVID B. SPACHT
|
|
|
David B. Spacht
Chief Financial Officer (Principal Financial Officer)
|
|||
Exhibit 31.1
Certification of Chief Executive Officer of Artesian Resources Corporation
required by Rule 13a – 14 (a) under the Securities Exchange Act of 1934, as amended
I, Nicholle R. Taylor, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2026 of Artesian Resources Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: November 12, 2026
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/s/ NICHOLLE R. TAYLOR
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Nicholle R. Taylor
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Chief Executive Officer (Principal Executive Officer)
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Exhibit 31.2
Certification of Chief Financial Officer of Artesian Resources Corporation
required by Rule 13a – 14 (a) under the Securities Exchange Act of 1934, as amended
I, David B. Spacht, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2026 of Artesian Resources Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: November 12, 2026
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/s/ DAVID B. SPACHT
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David B. Spacht
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Chief Financial Officer (Principal Financial Officer)
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Exhibit 32
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350
I, Nicholle R. Taylor, Chief Executive Officer, and David B. Spacht, Chief Financial Officer, of Artesian Resources Corporation, a Delaware corporation (the
"Company"), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)
The Company's Quarterly Report on Form 10-Q for the period ended September 30, 2026 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. Section 78m or Section 78o), as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and the results of
operations of the Company for the period covered by the Report.
Date: November 12, 2026
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CHIEF EXECUTIVE OFFICER:
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CHIEF FINANCIAL OFFICER:
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/s/ NICHOLLE R. TAYLOR
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/s/ DAVID B. SPACHT
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Nicholle R. Taylor
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David B. Spacht
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These certifications accompany the Report to which they relate, are not deemed filed with the Securities and Exchange Commission and are not to be
incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, (whether made before or after the date of the Report) irrespective of any general
incorporation language contained in such filing.