What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-08 compared with 2024-08-07 · 74 added, 73 removed, 174 unchanged (46% of the section changed)

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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 expectation of the timing of decisions by regulatory authorities, 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.

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 and the Lead and Copper Rule Improvements, our expectation of the timing of decisions by regulatory authorities, our belief regarding the success of any future 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, 2023, and this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, such as changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters could cause results to differ materially from those in the 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, 2023, and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, such as changes in weather, changes in our contractual obligations, changes in government policies, the timing and results of our rate requests, failure to receive regulatory approval, changes in economic and market conditions generally, and other matters 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 JUNE 30, 2024

RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2024

Our profitability is primarily attributable to the sale of water and wastewater services in our regulated utility business.

Our regulated utility segment comprised 93.3% of total operating revenues for the six months ended June 30, 2024 and 93.0% for the six months ended June 30, 2023.

Our regulated utility segment comprised 93.6% of total operating revenues for the nine months ended September 30, 2024 and 93.2% for the nine months ended September 30, 2023.

Water sales are subject to seasonal fluctuations, particularly during summer when water demand may vary with rainfall and temperature.

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Increases in the number of customers contribute to increases, or help to offset any intermittent decreases, in our operating revenue.

As of June 30, 2024, the number of metered water customers in Delaware increased approximately 1.3% compared to June 30, 2023.

The number of metered water customers in Maryland increased approximately 2.0% compared to June 30, 2023.

The number of metered water customers in Pennsylvania remained consistent compared to June 30, 2023.

For the six months ended June 30, 2024, approximately 4.4 billion gallons of water were distributed in our Delaware systems and approximately 53.8 million gallons of water were distributed in our Maryland systems.

As of September 30, 2024, the number of metered water customers in Delaware increased approximately 1.5% compared to September 30, 2023.

The number of metered water customers in Maryland increased approximately 2.4% compared to September 30, 2023.

The number of metered water customers in Pennsylvania remained consistent compared to September 30, 2023.

For the nine months ended September 30, 2024, approximately 7.1 billion gallons of water were distributed in our Delaware systems and approximately 83.2 million gallons of water were distributed in our Maryland systems.

Artesian Water filed an initial request with the DEPSC on April 28, 2023, further supplemented with a request filed on November 30, 2023, to implement new rates to meet a requested increase in revenue of approximately $16.7 million, on an annualized basis, or 22.7%.

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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 June 30, 2024, the number of Delaware wastewater customers increased approximately 5.9% compared to June 30, 2023.

As of September 30, 2024, the number of Delaware wastewater customers increased approximately 6.4% compared to September 30, 2023.

Non-Utility Subsidiaries

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There has been consistent customer growth over the years.

As of June 30, 2024, customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 3.4%, 2.5% and 2.0%, respectively, compared to June 30, 2023.

As of September 30, 2024, customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 3.3%, 2.4% and 1.6%, respectively, compared to September 30, 2023.

Strategic Direction and Recent Developments

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In April 2024, Artesian Wastewater received a permit from the Delaware Department of Natural Resources and Environmental Control for and has commenced 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.

SRRF previously provided a land disposal service for a commercial processing and treatment plant.

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.

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We also anticipate continued growth due to our water, sewer and internal SLP Plans.

Artesian Development owns two nine-acre parcels of land, located in Sussex County, Delaware, which will allow for construction of a water treatment facility and wastewater treatment facility.

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

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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, determining copper and lead levels for customers who use lead plumbing parts, and eliminating the water supply as a source of lead and copper.

The EPA published a revised LCR in 2021 to provide greater and more effective protection of public health by reducing exposure to lead and copper in drinking water.

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 are fully compliant with the current LCR and are actively applying the revised LCR to ensure we are fully compliant on or before the compliance deadline date, which is October 16, 2024.

The EPA is also expected to establish new rules requiring the removal of lead water lines.

The EPA’s proposal, known as the Lead and Copper Rule Improvements, or LCRI, would require all public water systems to remove lead service lines within 10 years, among other proposed changes to regulations in the EPA’s Lead and Copper Rule.

We have 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 proposed rules have not specified whether the customer or the water provider will cover the cost for customer-side pipe replacements.

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 June 30, 2024 Compared to the Three Months Ended June 30, 2023.

Results of Operations – Analysis of the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023.

Operating Revenues

Revenues totaled $27.4 million for the three months ended June 30, 2024, $2.2 million, or 8.6%, more than revenues for the three months ended June 30, 2023 .

Water sales revenue increased $1.9 million, or 9.0%, for the three months ended June 30, 2024 from the corresponding period in 2023, primarily as a result of a temporary rate increase of 14.6% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law.

Revenues totaled $29.1 million for the three months ended September 30, 2024, $2.6 million, or 9.7%, more than revenues for the three months ended September 30, 2023 .

Water sales revenue increased $2.5 million, or 11.3%, for the three months ended September 30, 2024 from the corresponding period in 2023, primarily as a result of a temporary rate increase of 14.6% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law.

These temporary rates were replaced with the final approved rates pursuant to a DEPSC order that authorized a total increase of approximately 15.2%, with a rate effective date of June 12, 2024.

The increase in customer base rates was partially offset by the Company’s DSIC rate of 7.50% resetting to zero upon implementation of the temporary rate increase.

In addition, there was an increase in the number of customers served and an increase in overall water consumption due to warmer and drier weather in late June 2024 compared to June 2023.

We realized 82.1% and 81.7% of our total operating revenue for the three months ended June 30, 2024 and June 30, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.3 million, or 8.4%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

This increase is primarily due to an increase in wastewater revenue associated with customer growth and the timing of industrial wastewater revenue.

The increase in both temporary rates and final approved customer base rates was partially offset by the Company’s DSIC rate of 7.50% resetting to zero upon implementation of the temporary rate increase.

In addition, there was an increase in overall water consumption due to drier weather experienced during the three months ended September 30, 2024 compared to the same period in 2023 and an increase in the number of customers served .

We realized 82.7% and 81.5% of our total operating revenue for the three months ended September 30, 2024 and September 30, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.1 million, or 3.8%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

This increase is primarily due to an increase in wastewater revenue associated with an increase in the number of customers served.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $0.6 million, or 4.3%, fo r the three months ended June 30, 2024, compared to the same period in 2023.

Utility operating expenses increased $0.6 million, or 4.8%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The net increase is primarily related to the following.

Supply and treatment costs increased $0.3 million, primarily related to filter replacements, well restoration, chemicals, and wastewater treatment and disposal operations.

Payroll and employee benefit costs increased $0.2 million, primarily related to an increase in overall compensation and an increase in medical benefit costs.

Administrative costs increased $0.1 million, primarily due to an increase in the amortization of rate case expenses.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 54.2% for the three months ended June 30, 2024, compared to 56.4% fo r the three months ended June 30, 2023.

Depreciation and amortization expense increased $0.2 million, or 6.5%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.4 million, or 22.1%, primarily due to higher pre-tax income in 2024 compared to 2023.

Other income decreased $0.3 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 for the three months ended June 30, 2024 compared to the same period in 2023.

Interest Charges

Short-term debt interest decreased $0.2 million, primarily due to lower borrowing levels related to the Company’s lines of credit.

Operating expenses, excluding depreciation and income taxes, increased $0.7 million, or 4.9%, fo r the three months ended September 30, 2024 compared to the same period in 2023.

Utility operating expenses increased $0.5 million, or 4.6%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The increase in utility operating expenses consist of a $0.1 million increase in each of purchased power costs, purchased water costs, supply and treatment costs, administrative costs and transmission, distribution and collection system costs.

Non-utility operating expenses increased $0.1 million, or 8.1%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2024.

This increase is primarily due to an increase in and the timing of plumbing repair costs associated with the SLP Plans.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 51.2% for the three months ended September 30, 2024, compared to 53.5% fo r the three months ended September 30, 2023.

Depreciation and amortization expense decreased $0.2 million, or 4.5%, primarily due to revised depreciation and amortization rates in utility plant as approved in the rate case effective June 12, 2024.

The decrease was partially offset by 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 4.7%, primarily due to higher pre-tax income in 2024 compared to 2023, partially offset by adjustments in 2023 related to the application of net operating loss valuation allowances.

Property and other taxes increased $0.1 million, or 4.6%, primarily due to an increase in New Castle County, Delaware tax rates on utility plant, an increase in utility plant subject to taxation and an increase in payroll taxes.

Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

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 for the three months ended September 30, 2024 compared to the same period in 2023.

Our net income applicable to common stock increased $1.7 million, or 34.4%.

Total operating revenues increased $2.2 million and interest charges decreased $0.2 million, offset by a $1.2 million increase in total operating expenses and a $0.3 million decrease in other income.

Results of Operations – Analysis of the Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023.

Total operating revenues increased $2.6 million, offset by a $0.2 million decrease in other income and a $0.7 million increase in total operating expenses.

Results of Operations – Analysis of the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023.

Operating Revenues

Revenues totaled $52.0 million for the six months ended June 30, 2024, $4.2 million, or 8.8%, more than revenues for the six months ended June 30, 2023 .

Water sales revenue increased $3.7 million, or 9.5%, for the six months ended June 30, 2024 from the corresponding period in 2023, primarily as a result of a temporary rate increase of 14.6% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law.

Revenues totaled $81.1 million for the nine months ended September 30, 2024, $6.8 million, or 9.1%, more than revenues for the nine months ended September 30, 2023 .

Water sales revenue increased $6.1 million, or 10.2%, for the nine months ended September 30, 2024 from the corresponding period in 2023, primarily as a result of a temporary rate increase of 14.6% of gross water sales placed into effect on November 28, 2023, as permitted under Delaware law.

These temporary rates were replaced with the final approved rates pursuant to a DEPSC order that authorized a total increase of approximately 15.2%, with a rate effective date of June 12, 2024.

The increase in customer base rates was partially offset by the Company’s DSIC rate of 7.50% resetting to zero upon implementation of the temporary rate increase.

In addition, there was an increase in the number of customers served and an increase in overall water consumption due to warmer and drier weather during late June 2024 compared to 2023.

We realized 81.5% and 81.0% of our total operating revenue for the six months ended June 30, 2024 and June 30, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.5 million, or 7.8%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

This increase is primarily due to an increase in wastewater revenue associated with customer growth and the timing of industrial wastewater revenue.

In addition, there was an increase in overall water consumption due to drier weather experienced during the nine months ended September 30, 2024 compared to the same period in 2023 and an increase in the number of customers served.

We realized 81.9% and 81.1% of our total operating revenue for the nine months ended September 30, 2024 and September 30, 2023, respectively, from the sale of water.

Other utility operating revenue increased approximately $0.6 million, or 6.4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

This increase is primarily due to an increase in wastewater revenue associated with an increase in the number of customers served.

Non-utility operating revenue increased approximately $0.1 million, or 1.7%, for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in SLP Plan revenue.

Operating Expenses

Operating expenses, excluding depreciation and income taxes, increased $1.4 million, or 5.0%, fo r the six months ended June 30, 2024, compared to the same period in 2023.

Utility operating expenses increased $1.2 million, or 5.4%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The net increase is primarily related to the following.

Supply and treatment costs increased $0.6 million , primarily related to filter replacements, well restoration, chemicals, and wastewater treatment and disposal operations.

Payroll and employee benefit costs increased $0.4 million, primarily related to an increase in overall compensation and an increase in medical benefit costs.

Purchased power and purchased water costs increased $0.1 million due to an increase in usage and utility operations.

Administrative costs increased $0.1 million, primarily due to an increase in the amortization of rate case expenses.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 56.8% for the six months ended June 30, 2024, compared to 58.9% fo r the six months ended June 30, 2023.

Operating expenses, excluding depreciation and income taxes, increased $2.1 million, or 4.9%, fo r the nine months ended September 30, 2024 compared to the same period in 2023.

Utility operating expenses increased $1.8 million, or 5.1%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase in utility operating expenses consists of a $0.7 million increase in supply and treatment costs, a $0.5 million increase in payroll and employee benefits costs, a $0.2 million increase in each of purchased power costs and administrative costs, and a $0.1 million increase in each of purchased water costs and transmission, distribution and collection system costs.

Non-utility operating expenses increased $0.1 million, or 4.4%, primarily due to an increase in and the timing of plumbing repair costs associated with the SLP Plans.

The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 54.8% for the nine months ended September 30, 2024, compared to 57.0% fo r the nine months ended September 30, 2023.

Depreciation and amortization expense increased $0.3 million, or 3.0%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to our wastewater customers.

Federal and state income tax expense increased $0.7 million, or 24.8%, primarily due to higher pre-tax income in 2024 compared to 2023.

Other income decreased $0.5 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 for the six months ended June 30, 2024 compared to the same period in 2023.

Federal and state income tax expense increased $0.8 million, or 16.0%, primarily due to higher pre-tax income in 2024 compared to 2023, partially offset by adjustments in 2023 related to the application of net operating loss valuation allowances.

Property and other taxes increased $0.2 million, or 3.8%, primarily due to an increase in New Castle County, Delaware tax rates on utility plant, an increase in utility plant subject to taxation and an increase in payroll taxes.

Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells.

Other income decreased $0.7 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 for the nine months ended September 30, 2024 compared to the same period in 2023.

Interest Charges

Interest charges decreased $0.4 million, primarily due to a decrease in short-term debt interest related to lower borrowing levels related to the Company’s lines of credit.

Interest charges decreased $0.4 million, primarily due to a decrease in short-term debt interest related to lower borrowing levels on the Company’s lines of credit.

Our net income applicable to common stock increased $3.3 million, or 25.2%.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary sourc es of liquidity for the six months ended June 30, 2024 were $19.5 million of cash provided by operating activities and $8.3 million in net contributions and advances from developers.

Our primary sourc es of liquidity for the nine months ended September 30, 2024 were $30.1 million of cash provided by operating activities and $14.2 million in net contributions and advances from developers.

We depend on the availability of capital for expansion, construction and maintenance.

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Operating Activities

One of our primary sources of liquidity for the six months ended June 30, 2024 was $19.5 million provided by cash flow from operating activities, compared to $15.2 million for the six months ended June 30, 2023.

The increase in cash flows from operating activities is primarily due to changes in materials and supplies, net income and prepaids.

One of our primary sources of liquidity for the nine months ended September 30, 2024 was $30.1 million provided by cash flow from operating activities, compared to $23.4 million for the nine months ended September 30, 2023.

The increase in cash flows from operating activities is primarily due to changes in net income, income tax receivable, and materials and supplies.

Cash flows 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.

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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 six months of 2024 were $18.4 million compared to $32.3 million during the same period in 2023.

During the first six months of 2024, these investments include PFAS treatment equipment, relocation of facilities as a result of government mandates, renewals associated with the rehabilitation of aging infrastructure, installation of new main, purchase of new transportation equipment, upgrading and automating our meter reading equipment, construction of a new wastewater treatment plant and upgrading existing pumping stations to better serve our customers .

Developers contributed $4.8 million of these total investments during the first six months of 2024.

Capital expenditures during the first nine months of 2024 were $30.9 million compared to $48.8 million during the same period in 2023.

During the first nine months of 2024, these investments include relocation of facilities as a result of government mandates, renewals associated with the rehabilitation of aging infrastructure, installation of new main, purchase of new transportation equipment, upgrading and automating our meter reading equipment, construction of a new wastewater treatment plant and upgrading existing pumping stations to better serve our customers .

Developers contributed $10.1 million of these total investments during the first nine months of 2024.

Financing Activities

For the six months ended June 30, 2024, cash flows provided by financing activities were $2.0 million, compared to $21.6 million for the six months ended June 30, 2023.

Our primary source of liquidity from financing activities for the six months ended June 30, 2024 was $8.3 million in net contributions and advances from developers and $0.8 million from the issuance of long-term debt.

For the nine months ended September 30, 2024, cash flows provided by financing activities were $8.4 million, compared to $30.6 million for the nine months ended September 30, 2023.

Our primary source of liquidity from financing activities for the nine months ended September 30, 2024 was $14.2 million in net contributions and advances from developers and $0.8 million from the issuance of long-term debt.

Cash flows provided by financing activities decreased due to the net proceeds from the issuance of Class A Stock in May 2023 and June 2023 as well as decreased contributions in aid of construction and borrowings on lines of credit.

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Lines of Credit and Long-Term Debt

At June 30, 2024, 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 June 30, 2024, there was $40.0 million of available funds under this line of credit.

At September 30, 2024, 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, 2024, there was $40.0 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 0.85%, which was increased to 1.10% effective August 3, 2023.

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The Company expects to renew this line of credit.

At June 30, 2024, Artesian Water had a $20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $10 million of this line available for the operations of Artesian Water Maryland.

As of June 30, 2024, there was $20.0 million of available funds under this line of credit.

At September 30, 2024, Artesian Water had a $20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian Water, with up to $10 million of this line available for the operations of Artesian Water Maryland.

As of September 30, 2024, there was $20.0 million of available funds under this line of credit.

The interest rate for borrowings under this line are 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.

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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 June 30, 2024, we were in compliance with these covenants.

As of September 30, 2024, 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.

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At closing, Artesian Water paid approximately $3.4 million.

The remaining $1.6 million is payable in equal annual installments on the anniversary date of the closing date.

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%.

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Information concerning our implementation and the impact of recent accounting pronouncements issued by the FASB is included in the notes to our 2023 consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2023 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 six months of 2024 that had a material impact on our financial condition, liquidity or results of operations.

We did not adopt any accounting policy in the first nine months of 2024 that had a material impact on our financial condition, liquidity or results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis