ARTESIAN RESOURCES CORP

Artesian Resources Corporation is a holding company for seven wholly-owned subsidiaries offering water, wastewater and other services in Delaware, Maryland and Pennsylvania. Its principal subsidiary, Artesian Water Company, Inc., is the oldest and largest investor-owned public water utility on the Delmarva Peninsula. The company holds Certificates of Public Convenience and Necessity (CPCNs) for approximately 312 square miles of exclusive water service territory, most of which is in Delaware with some territory in Maryland and Pennsylvania. Its largest connected regional water system, consisting of approximately 145 square miles and 81,000 metered customers, is located in northern New Castle County and portions of southern New Castle County, Delaware. The company also holds CPCNs for approximately 61 square miles of wastewater service territory located in Sussex County, Delaware.

The company's business in its franchised service areas is substantially free from direct competition with other public utilities, municipalities and other entities. However, its ability to expand service areas can be affected by the Delaware Public Service Commission (DEPSC), the Maryland Public Service Commission (MDPSC) or the Pennsylvania Public Utility Commission (PAPUC) awarding franchises to other regulated water or wastewater utilities with whom it competes for such franchises. As the sole regional regulated wastewater utility in Sussex County, Delaware, its operational initiatives are not impacted by competing franchise applications, which ensures uninterrupted service and protection against service area encroachment.

The company generates revenue primarily through the sale of water and wastewater services in its regulated utility business, which comprised 93.2% of total operating revenues for the year ended December 31, 2025 and 93.5% for the year ended December 31, 2024. Water sales are subject to seasonal fluctuations, particularly during summer when water demand may vary with rainfall and temperature. The company also generates revenue from non-utility businesses, such as various contract operations, water, sewer and internal Service Line Protection Plans (SLP Plans) and other services, which provide a revenue stream not affected by changes in weather patterns.

The company's regulated utility segment includes five regulated public utilities: Artesian Water Company, Inc., Artesian Water Pennsylvania, Inc., Artesian Water Maryland, Inc., Artesian Wastewater Maryland, Inc., and Artesian Wastewater Management, Inc., along with its wholly-owned subsidiary Tidewater Environmental Services, Inc. dba Artesian Wastewater (TESI). Artesian Water produced approximately 80.5% of the company's 2025 consolidated operating revenues. The company derives about 93% of its self-supplied groundwater from wells that pump groundwater from aquifers and other formations located in the Atlantic Coastal Plain, with the remaining 7% coming from wells in the Piedmont Province. Nearly 97% of the overall 9.2 billion gallons of water distributed in all of its Delaware systems during 2025 came from its groundwater wells, while the remaining 3% came from interconnections with other utilities and municipalities. In Delaware in 2025, the company pumped an average of 24.3 million gallons per day (mgd) from its groundwater wells and obtained an average of approximately 0.9 mgd from interconnections, with a peak water supply capacity currently of approximately 57.7 mgd. As of December 31, 2025, the company was serving customers through approximately 1,515 miles of transmission and distribution mains. It has 36 storage tanks in Delaware, most of which are elevated, providing total system storage of approximately 45.0 million gallons, and an Aquifer Storage and Recovery (ASR) system providing approximately 130.0 million gallons of storage capacity. Artesian Water Maryland owns and operates 9 public water systems, with the majority of the 0.5 billion gallons of water distributed in all of its Maryland systems during 2025 coming from its groundwater wells. It has ten separate water treatment facilities in its Maryland systems, one surface water treatment facility with the current ability to treat up to 1.0 mgd, and a total peak water supply capacity in Cecil County, Maryland currently of approximately 2.0 mgd. It has 9 storage tanks capable of storing approximately 2.5 million gallons. Artesian Wastewater owns and operates four wastewater treatment facilities which, combined, are permitted to treat and/or dispose of approximately 2.3 mgd, and also owns and operates a disposal facility that includes a 90-million-gallon storage lagoon and spray irrigation to agricultural land, providing treated process wastewater disposal services for an industrial customer at a rate up to 1.5 mgd. TESI owns and operates four wastewater treatment facilities which, combined, are permitted to treat and/or dispose of approximately 525,000 gallons per day. Artesian Utility currently operates three wastewater treatment systems with a combined capacity of up to approximately 3.8 mgd.

The company's non-utility subsidiaries include Artesian Utility Development, Inc. and Artesian Development Corporation. Artesian Utility designs and builds water and wastewater infrastructure, provides contract water and wastewater operation services on the Delmarva Peninsula, and offers protection plans to customers: the Water Service Line Protection Plan (WSLP Plan), the Sewer Service Line Protection Plan (SSLP Plan), and the Internal Service Line Protection Plan (ISLP Plan). The company discontinued enrolling new customers in the ISLP Plan effective January 2026. Artesian Development is a real estate holding company that owns properties, including land approved for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.

In October 2025, the company received its first payment from 3M in the amount of $2.3 million ¹, and its second payment of $5.2 million ² in November 2025, with an anticipated additional net settlement of approximately $5.1 million ³ to be paid over eight years, as part of multi-district litigation (MDL) class action settlements for PFAS contamination. In December 2025, the company received the full DuPont settlement award payment of approximately $1.3 million ⁴. The DEPSC approved the return of $7.2 million ⁵ received from 3M to Artesian Water’s customers through a one-time bill credit, which was applied to customers’ bills in December 2025. The DEPSC also approved the regulatory treatment of the remaining settlement amounts expected from 3M, DuPont, the Tyco Defendants and BASF to be recorded as Contributions in Aid of Construction (CIAC). In April 2024, Artesian Wastewater received a permit from DNREC for construction of a 625,000 gallon per day ⁶ regional wastewater treatment facility, which was completed in the first quarter of 2026. In February 2026, Artesian Wastewater received a permit from DNREC for construction of the next phase of an additional 625,000 gallon per day ⁷ regional wastewater treatment facility. On March 13, 2026, Artesian Water Maryland and CoBank entered into a Master Loan Agreement in which CoBank will make a single loan to Artesian Water Maryland in a principal amount not to exceed $10 million ⁸, with interest at 6.14% ⁹ per annum, to be repaid in eighty consecutive quarterly installments, with the last installment due on March 13, 2046 ¹⁰. Closing on the debt financing was approved by the MDPSC on March 2, 2026.

For the year ended December 31, 2025, total operating revenues were $112.941 million ¹¹, an increase of $5.0 million ¹², or 4.6% ¹³, over the revenues for the year ended December 31, 2024. Net income applicable to common stock was $22.822 million ¹⁴, an increase of $2.4 million ¹⁵, or 11.9% ¹⁶. Diluted earnings per share were $2.21 ¹⁷ compared to $1.98 ¹⁸ in the prior year. Cash provided by operating activities was $40.3 million ¹⁹ for the year ended December 31, 2025, compared to $36.8 million ²⁰ for the year ended December 31, 2024.

The company expects that its net investments in utility plant in 2026 will be approximately $64.3 million ²¹. Total obligations related to interest and principal payments on indebtedness, rental payments, elevated storage tank agreements and water service interconnection agreements for 2026 are anticipated to be approximately $17.9 million ²².

The company's strategy is to increase customer growth, revenues, earnings and dividends by expanding its water, wastewater and SLP Plan services across the Delmarva Peninsula. In its regulated water subsidiaries, the strategy includes strategic acquisitions of existing systems, expanding certificated service area, identifying new and dependable sources of supply, and developing wells, treatment plants and delivery systems. The company plans to expand its regulated water service area in the Cecil County designated growth corridor and to expand its business through the design, construction, operation, management and acquisition of additional water systems. In its regulated wastewater subsidiaries, the company foresees significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and governmental agencies. Artesian Wastewater plans to utilize its larger regional wastewater facilities to expand service areas to new customers while transitioning smaller treatment facilities into regional pump stations. The company also anticipates continued growth in its non-utility subsidiaries due to its water, sewer, and internal SLP Plans.

The company's 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. The company can provide no assurances that any future rate increase request will be approved, and if approved, 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 it initially sought the rate increase. The impact of inflation could adversely affect its results of operations, financial position or cash flows.

The company's planned and budgeted capital improvements over the next three years include projects for water infrastructure improvements and expansion in both Delaware and Maryland and wastewater infrastructure improvements and expansion in Delaware. The DEPSC and MDPSC have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers. The company expects to fund its activities for the next twelve months using its projected cash generated from operations, bank credit lines, contributions from developers and settlement funds, government grants and capital market financing as needed.

Capital expenditures during 2025 were $58.8 million ²³ compared to $45.9 million ²⁴ invested during the same period in 2024. The company's projected capital expenditures for 2026 include $33.0 million ²⁵ for supply and treatment, $45.176 million ²⁶ for transmission, distribution and collection, $7.35 million ²⁷ for general plant, and a reduction of $(0.971) million ²⁸ for AFUDC equity portion, for a gross investment in plant of $84.555 million ²⁹. Net contributions in aid of construction are projected at $(20.274) million ³⁰, resulting in a net investment in plant of $64.281 million ³¹.

The company has been affected and could continue to be affected by increased costs for items such as materials for capital expenditures, fuel, and treatment chemicals, due to the impacts of inflation. If inflation increases significantly, as a result of increased interest rates, tariffs, trade wars, wars and international conflicts, or otherwise, the company may seek to increase its rates charged to customers. The company can provide no assurances that any future rate increase request will be approved by the applicable regulatory authority, and if approved, 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 it initially sought the rate increase.

The company is subject to the risk of fluctuating interest rates in the normal course of business. Its policy is to manage interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The company's exposure to interest rate risk related to existing fixed rate, long-term debt is due to the term of the majority of its First Mortgage Bonds and the term of the promissory note, which have final maturity dates ranging from 2028 to 2049, and interest rates ranging from 4.24% to 5.96% ³², which exposes the company to interest rate risk as interest rates may drop below the existing fixed rate of the long-term debt prior to such debt's maturity. The company also has interest rate exposure on $60 million ³³ of variable rate lines of credit with two banks. As of December 31, 2025, there was approximately $5.7 million ³⁴ outstanding on the lines of credit.

The company's operating revenue is primarily from water sales, and the rates it charges customers are subject to regulation by state public service commissions. If a public service commission disapproves or is unable to timely approve requests for rate increases, or approves rate increases that are inadequate to cover investments, deferred regulatory assets or increased costs, profitability may suffer. The company is subject to extensive federal and state environmental laws and regulations, including the Safe Drinking Water Act and the Clean Water Act, and new or stricter standards could raise operating costs and capital expenditures. The company has been affected and could continue to be affected by increased costs due to inflation, tariffs, trade wars, wars and international conflicts, and/or recession, and can provide no assurances that any future rate increase request will be approved or sufficient to cover such costs. The company faces competition from other water and wastewater utilities for the acquisition of new exclusive service territories, and if it is unable to secure CPCNs for the right to exclusively serve new territories, its ability to expand may be significantly impeded. The company's water supplies are subject to contamination from naturally-occurring compounds as well as pollution from man-made sources, and any possible contamination could interrupt the use of its water supply and involve significant costs.

Management's message emphasizes a strategy focused on increasing customer growth, revenues, earnings and dividends by expanding water, wastewater and SLP Plan services across the Delmarva Peninsula. Key themes include building strategic partnerships with county governments, municipalities and developers, and a proven ability to acquire and integrate high growth entities. Management believes the company is positioned as the primary resource for developers and communities throughout the Delmarva Peninsula seeking to fill both water and wastewater needs simultaneously. The company expects that its net investments in utility plant in 2026 will be approximately $64.3 million ³⁵. Management also states that the company believes it has in place sufficient capacity to provide water service for the foreseeable future to all existing and new customers in all of its service territories.