ARTNA — Q2 2026 Financial Report Analysis

Temporary rate increases lifted revenue 7.4%, but interest costs and lower construction credits held profit growth to 4.5%

Artesian Resources, the holding company behind Delaware's largest investor-owned water utility, reported second-quarter 2026 revenue of $30.7 million, up 7.4%, and net income of $6.6 million, up 4.5% ($0.64 per share vs $0.61). Most of the revenue gain came from higher prices. These are temporary rates that Delaware law lets a utility charge while regulators decide its rate case. A rate case is the formal process in which a regulated utility asks the state commission for permission to charge customers more, usually to pay for pipes, plants and treatment it has already built. Artesian filed its current case in April 2025, and the Delaware Public Service Commission (DEPSC) still hadn't ruled on it when this 10-Q was filed on August 12, 2026. Part of what customers are paying is being set aside in case it has to be refunded.

At a glance

• Water sales +5.8% to $24.4 million. The filing credits "two temporary rate increases... as well as an increase in the number of customers served." This growth comes from pricing, and part of it is still provisional.
• $2.2 million reserve for customer refunds (up from $0.4 million at year-end). This is revenue Artesian has billed under its second temporary rate step but has not counted as income, because it may have to give the money back.
• Wastewater customers +6.6%, protection-plan enrolments +13.0%. The non-water businesses are growing much faster than the water customer base (+1.8% in Delaware), and their revenue doesn't depend on the weather.

*Utilities like Artesian list income taxes as an operating expense, so the "operating income" on their income statement ($8.6M, a 28.1% margin, vs $7.9M / 27.5%) is an after-tax figure. Operating margin means the share of revenue left after the costs of running the business. The 35.5% shown above adds income taxes back ($8.6M + $2.3M = $10.9M), which makes it comparable with non-utility companies. Customer counts are as of June 30 and are disclosed only as percentage changes.

Year to date, revenue was $58.4 million (+7.4%), net income $12.5 million (+6.7%) and diluted EPS $1.21 (+6.1%).

Where the revenue came from

• Water sales (+$1.3M, +5.8%). In June 2025 Artesian put a first temporary increase of 2.88% (about $2.5 million a year) into effect. At the same time its 1.66% DSIC surcharge was reset to zero. The DSIC (Distribution System Improvement Charge) is a small surcharge Delaware allows between rate cases to recover pipe-replacement spending. The net increase from that first step was therefore only 1.22%. A second temporary step of 6.82% (about $5.8 million a year) followed on November 6, 2025. Q2 2026 is the first second quarter to include both steps. Q2 2025 still had about $0.2 million of DSIC revenue, which is now zero.
• Other utility revenue (+$0.6M, +16.0%). The filing attributes this 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 revenue (+$0.2M, +10.2%). Most of this came from the service-line protection (SLP) plans, where homeowners pay a flat fee for coverage of the water or sewer pipe on their property. Fees went up on January 1, 2026 and enrolment grew.

The filing doesn't attribute any of the quarter's change to weather. Water is still about 80% of revenue (79.7% in Q2), so summer rainfall can move results. Q3, the peak-demand quarter, is where weather usually shows up.

Why profit grew more slowly than revenue

Before tax, operating income rose about 8.6% ($10.9M vs $10.0M). Three things below that line cut net income growth roughly in half:

1. Lower AFUDC (−$0.4M). AFUDC (allowance for funds used during construction) is an accounting credit regulated utilities book on money tied up in large projects that are still being built. It fell from $0.62 million to $0.26 million "as a result of lower long-term construction activity subject to AFUDC." This happened in the same quarter the new 625,000-gallon-per-day wastewater treatment plant at the Sussex Regional Recharge Facility was finished (the filing says it was completed in Q1 2026). Once a plant is in service, it stops earning this credit, and its cost has to be recovered through rates instead.
2. Higher interest (+$0.2M to $2.3M), "related to higher borrowing levels on the Company's promissory notes."
3. Cost growth matching revenue growth. Utility operating expenses rose 7.4%, mostly from payroll and benefits (+$0.5M), supply and treatment (+$0.2M) and administration (+$0.2M). Non-utility expenses rose 28.1% because of higher plumbing repair costs under the SLP plans. Excluding depreciation and taxes, operating costs were 53.1% of revenue, compared with 53.0% a year ago. Higher prices did not improve this ratio.

What the headline numbers hide

• Some of the revenue is provisional. The $2.2 million refund reserve on the balance sheet (vs $0.4M at December 31) means management considers a partial refund of the second temporary step probable. That amount is already left out of reported revenue, so the reported figures are conservative. Still, the final order could land above or below what's been reserved. Artesian first asked for 12.41% ($10.8M a year) and has since reduced the request to 10.2% ($9.0M). The two temporary steps together add roughly $8.3M a year, before netting out the old DSIC.
• The business can't fund its own spending. Over the first half, operating cash flow was $18.8 million, about 1.5 times net income. That's normal for a utility with heavy depreciation. Capital spending, however, was $25.9 million, and dividends were another $6.5 million. The gap was covered mainly by $21.2 million of developer contributions and advances (CIAC, money developers pay to connect new subdivisions) and $10.0 million of new long-term debt. Some of the CIAC appears to be PFAS settlement money, which the DEPSC approved recording that way: Artesian received $2.0M from 3M in June plus $1.8M from Tyco and BASF in April. Long-term debt rose to $182.6 million from $174.3 million. The credit lines were fully repaid, and cash stood at $9.8 million at quarter-end.
• Receivables grew faster than sales. Receivables increased $4.3 million in the first half, compared with a $0.2 million decrease a year earlier. Part of this is a comparison effect: year-end balances were unusually low after a $7.2 million one-time PFAS settlement bill credit to customers in December 2025. Part is the short-term portion of PFAS settlement money still owed. This doesn't look like a collection problem, but it is why operating cash flow didn't rise even though net income did.
• EPS growth came from operations. Weighted diluted shares edged up (10.33M vs 10.31M), the effective tax rate was essentially unchanged at about 25.6%, and interest costs rose. None of the per-share gain came from buybacks or tax.

Takeaway: Artesian's Q2 growth comes from temporary rates that are partly reserved for refund and still awaiting a final Delaware decision. Meanwhile, the end of construction credits and rising interest costs absorbed about half of the pre-tax operating gain. Until the DEPSC rules, the earnings run-rate is provisional, and the 6.6% wastewater customer growth is the most durable driver in the quarter.

Dividend

The quarterly dividend was $0.3199, up 4.1% year over year, or about 50% of this quarter's $0.64 EPS. That payout leaves room to keep raising the dividend, but because capital spending is larger than operating cash flow, the dividend is effectively paid with outside money (developer contributions and debt). That's standard for a growing water utility. It also depends on the rate case delivering enough revenue to cover the new plant.

What to watch

• The DEPSC's final order on the April 2025 case, now more than 15 months old. A final order near the reduced $9.0M request would let Artesian release part of the $2.2M reserve. A lower award would mean refunds with interest. The filing gives no expected decision date.
• New Delaware temporary-rate rules (effective July 13, 2026). Future rate cases can phase in temporary rates in three steps: up to $2.5M after 90 days, 50% of the request after seven months, and 75% after twelve months. Before, the full request could go into effect after seven months. This changes how quickly the next case reaches revenue.
• More wastewater capacity. A permit for a further 1.25-million-gallon-per-day treatment plant at the same site was issued in February 2026. Building it will bring AFUDC back as it progresses, and it supports continued wastewater customer growth.
• PFAS compliance. EPA's limits on PFAS ("forever chemicals") in drinking water take effect in April 2029, with an extension to 2031 proposed. Artesian is installing treatment at more wellfields and expects to recover the cost through rates. Settlement payments from manufacturers, including about $5.1M still to come from 3M over eight years, offset part of the cost.
• Refinancing. The $20M CoBank credit line expires October 31, 2026, and the $40M Citizens line expires May 2027. Management expects to renew both. Both were undrawn at June 30.
• Q3 weather. Summer is the biggest water-sales quarter, so rainfall and temperature in July–September will matter more than anything else in the next report. No financial guidance was given.