ARTESIAN RESOURCES CORP Annual Report Summary

Unlock the key insights from ARTESIAN RESOURCES CORP's latest annual report for the fiscal year ended December 31, 2025. This summary provides investors with a clear, accessible overview of the company's operations, financial performance, strategic direction, and risks.

Business Overview: Essential Services on the Delmarva Peninsula

ARTESIAN RESOURCES CORP (NASDAQ: ARTNA) is a long-standing utility holding company, incorporated in 1927, that primarily provides essential water and wastewater services across the Delmarva Peninsula, covering Delaware, Maryland, and Pennsylvania. Its principal subsidiary, Artesian Water Company, Inc., established in 1905, stands as the region's oldest and largest investor-owned public water utility.

The company manages five regulated public utility subsidiaries focused on water and wastewater, alongside two non-utility entities specializing in infrastructure design and construction. Its core services include:

• Water Distribution: Supplying water to residential, commercial, industrial, and fire protection customers.
• Wastewater Services: Predominantly in Delaware.
• Contract Services: Operating water and wastewater systems for other entities.
• Ancillary Services: Such as Service Line Protection Plans for water and sewer lines.

ARTESIAN's Class A Non-Voting Common Stock trades on the Nasdaq Global Select Market under the symbol ARTNA. Its Class B Common Stock trades on the OTC Bulletin Board as ARTNB.

Financial Highlights for Fiscal Year 2025

For the fiscal year ended December 31, 2025, ARTESIAN RESOURCES CORP achieved stable financial performance, primarily driven by its water distribution operations.

• Total Operating Revenues grew to approximately $102.5 million, an increase of 5% from $97.6 million in 2024.
• Net Income rose to $21.3 million, an 8% increase from $19.7 million in the prior year.
• Diluted Earnings Per Share (EPS) reached $2.65, up from $2.45 in 2024.
• Dividends: The company maintained its consistent dividend policy, declaring total annual dividends of $1.12 per share for 2025.
• Capital Expenditures: ARTESIAN invested approximately $38.5 million in infrastructure improvements and expansion projects during 2025, demonstrating its commitment to system reliability and growth.
• Artesian Water Company, Inc. remained the dominant revenue contributor, generating 80.5% of total operating revenues in 2025.
• Water Distribution Volumes: In 2025, the company distributed approximately 9.2 billion gallons in its Delaware systems and 0.5 billion gallons in its Maryland systems.

The company completed a new wastewater treatment facility in early 2026, which it expects to contribute to future revenue and capacity for residential and small commercial customers.

Financial Health

ARTESIAN RESOURCES CORP manages its finances prudently to support ongoing operations and its significant capital investment program.

• Liquidity: The company manages liquidity through cash generated from operations, commercial paper programs, and revolving credit facilities. These resources fund working capital needs, capital expenditures, and dividend payments.
• Debt Structure: Its capital structure typically includes a mix of long-term debt, primarily senior notes and bonds, and short-term borrowings under credit facilities. The company aims to maintain appropriate debt-to-equity ratios and debt service coverage, ensuring financial flexibility and access to capital markets.
• Cash and Equivalents: The company holds cash and cash equivalents to meet immediate operational needs and maintain financial flexibility. Cash flow from operations primarily funds capital projects and debt service.
• Capital Resources: ARTESIAN's ability to access capital markets and maintain favorable credit ratings is crucial for financing the substantial infrastructure investments it needs to serve its growing customer base and comply with regulatory mandates.

Management Discussion and Analysis Highlights

Management's discussion highlights the strategic drivers and operational factors influencing the company's financial results and future direction. The increase in operating revenues and net income for 2025 stemmed primarily from customer base growth, rate adjustments approved by regulatory commissions, and continued infrastructure investment.

Management emphasizes the importance of its capital expenditure program in enhancing system reliability, expanding capacity, and ensuring compliance with environmental regulations, all critical for long-term value creation. Key strategic themes include organic growth within its exclusive service territories and the potential for synergistic acquisitions. Management also closely monitors economic conditions, particularly inflation and interest rates, as these factors directly impact operating costs and the cost of capital for future projects. The successful completion of the new wastewater treatment facility in early 2026 represents a significant operational achievement expected to contribute positively to future revenue and capacity.

Market, Growth Strategy, and Infrastructure

ARTESIAN's primary growth market is Delaware, particularly in areas outside northern New Castle County that currently lack public water or wastewater systems. The company holds exclusive service rights, granted by state public utility commissions through Certificates of Public Convenience and Necessity (CPCNs). These rights cover approximately 312 square miles for water service (mostly in Delaware, with some in Maryland and Pennsylvania) and 61 square miles for wastewater service (in Sussex County, Delaware). Its largest water system serves around 81,000 metered customers in northern New Castle County.

Key Growth Strategies:

• Organic Expansion: Connecting new customers in undeveloped or underserved areas within its authorized territories.
• System Integration: Consolidating smaller, separate water systems into larger, more efficient regional networks as development progresses.
• Capital Investment: Strategic infrastructure investments enhance reliability, expand capacity, and improve water supply self-sufficiency. For instance, recent investments reduced the minimum purchase requirement under a "take or pay" contract with Chester Water Authority, leading to cost savings.
• Potential Acquisitions: Pursuing opportunities to acquire smaller water and wastewater systems.

Robust Infrastructure:

• Water Systems: As of December 31, 2025, the company manages approximately 1,515 miles of transmission and distribution mains. It operates 36 storage tanks in Delaware with a combined capacity of about 45 million gallons, and an innovative Aquifer Storage and Recovery (ASR) system that stores 130 million gallons and withdraws 1 million gallons per day. Approximately 97% of Delaware's water supply in 2025 sourced from its own groundwater wells, pumping an average of 24.3 million gallons per day. Total peak water supply capacity is 57.7 million gallons per day, which is sufficient for foreseeable demand. In Maryland, it operates 9 public water systems and 10 treatment facilities with a peak capacity of 2.0 million gallons per day.
• Wastewater Systems: In Delaware, ARTESIAN owns and operates four wastewater treatment facilities with a combined capacity of 2.3 million gallons per day, and a large industrial disposal facility with a 90-million-gallon storage lagoon. Its subsidiary, TESI, operates an additional four facilities in Sussex County, Delaware, with a combined capacity of 525,000 gallons per day. Artesian Wastewater Maryland is authorized but does not currently provide services.

Competitive Position

As a regulated public utility, ARTESIAN RESOURCES CORP holds a unique competitive position. Its competitive strength stems from its exclusive service territories, granted by state public utility commissions through Certificates of Public Convenience and Necessity (CPCNs). These CPCNs create significant barriers to entry for direct competition within its authorized service areas, effectively granting the company a monopoly for water and wastewater services in those regions.

While direct competition for existing customers within its service areas is limited, the company does face competition in other aspects:

• New Service Areas: Competition may arise for the right to serve newly developing areas or to acquire smaller, independent water and wastewater systems.
• Alternative Water Sources: In some areas, customers may access private wells or septic systems, though regulatory trends often favor connection to public utility systems for health and environmental reasons.
• Capital and Resources: The company competes with other utilities and industries for capital, skilled labor, and critical materials for its infrastructure projects.

ARTESIAN's long operating history, established infrastructure, and scale as the largest investor-owned public water utility in the region give it advantages in operational efficiency, regulatory compliance, and access to capital compared to smaller, less established operators.

Risks and Future Outlook

ARTESIAN RESOURCES CORP, like any utility, navigates various factors that could impact its future performance. The company identifies several key risks and strategic opportunities in its forward-looking statements:

Key Risks:

• Economic Conditions: Inflationary pressures on operating costs (e.g., chemicals, labor, energy), rising interest rates affecting borrowing costs for capital projects, and potential recessionary impacts on customer demand or ability to pay.
• Regulatory Environment: Changes in environmental regulations, particularly concerning emerging contaminants like PFAS (per- and polyfluoroalkyl substances) and lead, could necessitate significant capital expenditures for new treatment technologies and increase operating costs. Regulatory delays in approving rate increases or project permits can also impact financial performance.
• Climate and Weather: As a water utility, its operations are highly sensitive to weather patterns (e.g., droughts affecting supply, severe storms damaging infrastructure) and long-term climate change impacts.
• Cybersecurity Threats: Cyber-attacks on operational technology or information systems could lead to service disruptions, data breaches, and financial losses.
• Infrastructure Investment: The ongoing need for substantial capital investment to maintain and upgrade aging infrastructure, which the company must recover through approved rate increases.

Strategic Opportunities and Outlook:

• Customer Base Expansion: Continuing to expand its customer base in underserved areas of Delaware and Cecil County, Maryland, through organic growth and strategic acquisitions.
• Capital Investment Program: Ongoing investments in water supply self-sufficiency, system reliability, and capacity expansion will enhance operational efficiency and long-term value.
• Stable Contractual Revenue: Long-term contracts, such as the 20-year agreement for wastewater treatment operations with the Town of Middletown, Delaware (until July 2039), provide stable revenue streams.
• Dividend Consistency: The company's long history of consistent dividend payments makes it an attractive investment for income-focused investors.

ARTESIAN RESOURCES CORP stands as a foundational utility provider on the Delmarva Peninsula, focusing on disciplined growth, infrastructure investment, and reliable service delivery as it navigates a dynamic regulatory and economic landscape.