What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-12 compared with 2026-05-08 · 344 added, 240 removed, 265 unchanged (69% of the section changed)

13 unchanged sentences

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

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

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10-K for the year ended December 31, 2025, and this Quarterly Report on Form

10-Q for the quarter ended March 31, 2026, such as changes in weather, changes

in our contractual obligations, changes in government policies, changes in tax laws,

including, without limitation, the One Big Beautiful Bill Act, 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

10-Q for the quarter ended June 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

While the Company may elect to update forward-looking

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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 MARCH 31, 2026

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

Our regulated utility segment comprised 92.5% of total operating revenues for the three months ended March 31, 2026 and 92.7% for the three months ended March 31, 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.

RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2026

profitability is primarily attributable to the sale of water and wastewater

services in our regulated utility business.

Our regulated utility segment comprised 92.9% of total operating

revenues for the six months ended June 30, 2026 and 93.0% for the six months

ended June 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

Our wastewater services

provide a revenue stream that is not affected by these changes in weather

We continue to seek growth

opportunities to provide wastewater services in Delaware and the surrounding

Our profitability is also

attributed to other non-utility business, such as various contract operations,

water, sewer and internal SLP Plans and other services we provide.

water and sewer SLP Plans and other services we provide.

Our contract operations, SLP Plans and other

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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.

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

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non-utility subsidiaries due to our water and sewer SLP Plans.

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.

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

The impact of inflation could

adversely affect our results of operations, financial position or cash flows.

Regulated Water Subsidiaries

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decreases, in our operating revenue.

of March 31, 2026, the number of metered water customers in Delaware increased approximately

1.8% compared to March 31, 2025.

number of metered water customers in Maryland increased approximately 1.5%

compared to March 31, 2025.

of metered water customers in Pennsylvania remained consistent compared to March

For the three months ended March

of June 30, 2026, the number of metered water customers in Delaware increased approximately

1.8% compared to June 30, 2025.

number of metered water customers in Maryland increased approximately 1.5% compared

to June 30, 2025.

The number of metered

water customers in Pennsylvania remained consistent compared to June 30,

For the six months ended June 30,

2026, approximately 4.3 billion gallons of water were distributed in our

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increase in revenue of 12.41%, or approximately $10.8 million, on an annualized

Supplemental and rebuttal

filings were subsequently filed, reducing the requested increase to 10.2%, or approximately

$9.0 million, on an annualized basis.

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.

discussed further in Note 13 – Regulatory Proceedings .

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 .

Regulated Wastewater Subsidiaries

Artesian Wastewater and

TESI own wastewater collection and treatment infrastructure and provide

regulated wastewater services to customers in Sussex County, Delaware.

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

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wastewater flow, which contributes to providing a revenue stream unaffected by

As of March 31, 2026, the

number of Delaware wastewater customers increased approximately 6.

compared to March 31, 2025.

As of June 30, 2026, the number

of Delaware wastewater customers increased approximately 6.6% compared to June

Non-Utility Subsidiaries

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over the years.

As of March 31, 2026,

the eligible customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP

Plan increased 5.4%, 7.3% and 0.7%, respectively, compared to March 31, 2025.

As of June 30, 2026, the

eligible customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan

increased 13.0%, collectively, compared to June 30, 2025.

The Company also

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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.

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 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

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,

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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.

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.

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in drinking water to ensure that the water is safe for human consumption.

2024, the EPA established MCLs for certain per- and polyfluoroalkyl substances,

or PFAS, in drinking water.

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,

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 EPA plans to finalize

this rule in the Spring of 2026.

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

The Company is participating

in the multi-district litigation class action settlements with certain manufacturers

On April 10, 2024, the EPA established MCLs

for certain per- and polyfluoroalkyl substances, or PFAS, in drinking

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.

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.

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.

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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 March 31, 2026 Compared to the Three Months Ended March 31, 2025.

Results of Operations – Analysis of the Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025.

Operating Revenues

Revenues totaled $30.7

million for the three months ended March 31, 2026, $1.9 million, or 7.3%, more

than revenues for the three months ended March 31, 2025 .

Water sales revenue

increased $1.5 million, or 7.3%, for the three months ended March 31, 2026 from

the corresponding period in 2025, primarily the result of two temporary rate

million for the three months ended June 30, 2026, $2.1 million, or 7.4%, more

than revenues for the three months ended June 30, 2025 .

Water sales revenue increased

$1.3 million, or 5.8%, for the three months ended June 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

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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.

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.

We realized 79.7% and 80.9% of our total

operating revenue for the three months ended March 31, 2026 and March 31, 2025,

operating revenue for the three months ended June 30, 2026 and June 30, 2025,

respectively, from the sale of water.

Other utility operating

revenue increased approximately $0.2 million, or 6.2%, for the three months

ended March 31, 2026 compared to the three months ended March 31, 2025.

This increase is primarily

due to an increase in revenue related to industrial wastewater services and an

increase in wastewater revenue associated with additional residential and

commercial customers.

Other utility operating revenue

increased approximately $0.6 million, or 16.0%, for the three months ended June

30, 2026 compared to the three months ended June 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 $0.2 million, or 10.2%, for the three months

ended March 31, 2026 compared to the three months ended March 31, 2025.

This increase is primarily due to an increase in SLP Plan revenue, primarily the result

of an increase in the number of customers participating in the SLP Plans and an increase in fees that

were placed into effect on January 1, 2026.

ended June 30, 2026 compared to the three months ended June 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

expenses, excluding depreciation and income taxes, increased $1.2 million, or 7.6%, for the three

months ended March 31, 2026, compared to the same period in 2025 .

months ended June 30, 2026, compared to the same period in 2025 .

Utility operating expenses increased $0.9 million, or 7.4%, for the three

months ended March 31, 2026 compared to the same period in 2025.

The increase in utility operating expenses

months ended June 30, 2026 compared to the same period in 2025.

The increase in utility operating expenses primarily

consists of a $0.5 million increase in payroll and employee benefit costs, a

$0.2 million increase in supply and treatment costs, and a $0.2 million

increase in transmission,

distribution and collection system costs.

The increase in utility operating expenses is

partially offset by a $0.1 million decrease in administrative costs .

ratio of operating expenses, excluding depreciation and income taxes, to total revenue

was 57.6% for the three months ended March 31, 2026, compared to 58.5% for the three

months ended March 31, 2025 .

increase in administrative costs .

Non-utility operating expenses increased $0.3 million, or 28.1%, for the

three months ended June 30, 2026 compared to the three months ended June 30,

2025, primarily due to an increase in plumbing repair costs associated with the

ratio of operating expenses, excluding depreciation and income taxes, to total

revenue was 53.1% for the three months ended June 30, 2026, compared to 53.0% for the three

months ended June 30, 2025 .

and amortization expense increased $0.1 million, or 3.1%, 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.

and state income tax expense increased $0.1 million, or 4.6%, primarily due to

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Other income decreased $0.3 million, primarily due to a decrease

in patronage refunds on the Company’s lines of credit and loan volume and a

decrease in allowance for funds used during construction, or AFUDC, as a result

of lower long-term construction activity subject to AFUDC.

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.

Our net income applicable

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Total operating revenues increased $2.1 million,

offset by a $1.2 million increase in total operating expenses, and a decrease

of $0.2 million in other income.

offset by a $1.4 million increase in total operating expenses, a $0.2 million

increase in interest charges, and a decrease of $0.3 million in other income.

Results of Operations – Analysis of the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025.

Operating Revenues

Revenues totaled $58.4

million for the six months ended June 30, 2026, $4.0 million, or 7.4%, more

than revenues for the six months ended June 30, 2025 .

Water sales revenue increased $2.9 million, or 6.5%, for the six months

ended June 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 an increase in the

number of customers served.

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, of which a portion has been

reserved for refund and is not reflected in income.

We realized 79.8% and 80.4% of our total

operating revenue for the six months ended June 30, 2026 and June 30, 2025,

respectively, from the sale of water.

Other utility operating

revenue increased approximately $0.8 million, or 11.3%, for the six months

ended June 30, 2026 compared to the six months ended June 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 $0.4 million, or 9.9%, for the six months ended

June 30, 2026 compared to the six months ended June 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

expenses, excluding depreciation and income taxes, increased $2.0 million, or 6.6%, for the six

months ended June 30, 2026, compared to the same period in 2025 .

Utility operating expenses increased $1.8 million, or 7.1%, for the six

months ended June 30, 2026 compared to the same period in 2025.

The increase in utility operating expenses primarily

consists of a $1.0 million increase in payroll and employee benefit costs, and a

$0.5 million increase in supply and treatment costs .

operating expenses increased $0.4 million, or 17.6%, for the six months ended

June 30, 2026 compared to the six months ended June 30, 2025, primarily due to

an increase in plumbing repair costs associated with the SLP Plans .

ratio of operating expenses, excluding depreciation and income taxes, to total

revenue was 55.2% for the six months ended June 30, 2026, compared to 55.6% for the six

months ended June 30, 2025.

and amortization expense increased $0.2 million, or 3.0%, 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 .

and state income tax expense increased $0.3 million, or 7.6%, primarily due to

higher pre-tax book income .

Other income decreased $0.5 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 $0.3 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.

Our net income applicable

to common stock increased $0.8 million, or 6.7%.

Total operating revenues increased $4.0

million, offset by a $2.5 million increase in total operating expenses, a $0.3

million increase in interest charges and a decrease of $0.5 million in other

LIQUIDITY AND CAPITAL RESOURCES

primary sources of liquidity for the three

months ended March 31, 2026 were $8.6 million of cash provided by operating

primary sources of liquidity for the six

months ended June 30, 2026 were $18.8 million of cash provided by operating

activities, $10.0 million from the

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$20.3 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.

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 three months ended March 31, 2026 was $8.6 million

provided by cash flow from operating activities, compared to $11.0 million for

the three months ended March 31, 2025.

The decrease in cash flows from operating activities is primarily from lower

accounts receivable and accounts payable, partially offset by higher materials

and supplies, customer deposits and other, net income, deferred income taxes, and

accrued expenses.

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

See Note 13 – Regulatory

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 .

of liquidity for the six months ended June 30, 2026 was $18.8 million provided

by cash flow from operating activities, compared to $18.9 million for the six

months ended June 30, 2025.

in cash flows from operating activities is primarily from lower accounts

receivable and accounts payable, partially offset by higher accrued expenses

and reserves, net income, and customer deposits and other.

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.

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.

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.

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

Investment Activities

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quality reliable service to our growing service territory.

expenditures during the first three months of 2026 were $13.1 million compared

to $10.4 million during the same period in 2025.

During the first three months of 2026, these

investments include installation of new mains, services and hydrants, renewals

associated with the rehabilitation of aging infrastructure, upgrading and

replacing our meter reading equipment, installation of wastewater force mains,

upgrading existing pumping and treatment stations, including PFAS treatment

upgrades, and construction of new wastewater treatment plants, to better serve

our customers.

expenditures during the first six months of 2026 were $25.9 million compared to

$26.3 million during the same period in 2025.

During the first six months of

2026, these investments include installation of new mains, services and

hydrants, renewals associated with the rehabilitation of aging infrastructure,

rehabilitation of water treatment facilities, construction of new wastewater

treatment plants, upgrading existing pumping and treatment stations, including

PFAS treatment upgrades, and upgrading and replacing our meter reading

equipment to better serve our customers.

Financing Activities

For the three months ended March

For the six months ended June

30, 2026, cash flows provided by financing activities were $16.7 million,

compared to $2.0 million for the three months ended March 31, 2025.

compared to $6.5 million for the six months ended June 30, 2025.

Our primary sources of liquidity from

financing activities for the three months ended March 31, 2026 were $10.0 million

from the issuance of long-term debt and $8.1 million in net contributions and

advances from developers.

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 a decrease in overdraft payables.

financing activities for the six months ended June 30, 2026 were $20.3 million

in net contributions and advances from developers and $10.0 million from the

issuance of long-term debt.

flows provided by financing activities increased due to an increase in net contributions and advances from

developers and higher issuance of

long-term debt, partially offset by

an increase in repayments of lines of credit, and higher dividend payments.

several sources of liquidity to finance our investment in utility plant and

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We estimate that

future investments will be financed by our operations and external

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.

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.

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.

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 March 31, 2026,

At June 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 March 31, 2026, there was $40 million

of available funds under this line of credit.

As of June 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,

7 unchanged sentences

Citizens demands payment.

The Company expects to renew this line of credit.

At March 31, 2026,

expects to renew this line of credit.

At June 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, with up to $10

million of this line available for the operations of Artesian Water

As of March 31, 2026, there

was $20 million of available funds under this line of credit.

In April 2026, the agreement for this line of

credit was amended to allow for the financing of operations by Artesian Water,

Artesian Water Maryland, and Artesian Wastewater Management, Inc., individually

or collectively, subject to the $20-million limit.

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.

that allowed for the financing of operations for Artesian Water, Artesian Water

Maryland, and Artesian Wastewater.

June 30, 2026, there was $20 million of available funds under this line of

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

18 unchanged sentences

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 March 31, 2026, we were in compliance with these covenants.

As of June 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 note obligation have an amortizing mortgage payment payable over a 20-year period.

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.

2 unchanged sentences

Water Maryland and CoBank entered into a Master Loan Agreement, or the MLA, and

supplement to the MLA, in which CoBank will make a single loan to Artesian

Water Maryland in a principal amount not to exceed $10 million.

Artesian Water Maryland agrees to pay

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.

2 unchanged sentences

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 due on June 30, 2026, and the last installment due on

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.

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.

on the debt financing was approved by the Maryland Public Service Commission on

March 2, 2026.

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

Closing on the debt financing was

approved by the Maryland Public Service Commission on March 2, 2026.

The asset purchase

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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.

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.

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

27 unchanged sentences

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.

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.

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 three months of 2026 that had a material impact on our financial condition, liquidity or results of operations.

We did not adopt any accounting policy in the first six months of 2026 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