10-Q: York Water Company Reports First Quarter 2025 Results, Net Income Declines

York Water Company's net income for Q1 2025 decreased by 15.9% compared to Q1 2024, primarily due to lower construction-related allowances, higher operating expenses, and increased interest on debt.

Summary

• York Water Company's net income for the first quarter of 2025 was $3.638 million, a decrease of $689,000 or 15.9%, compared to $4.327 million for the same period in 2024.
• Operating revenues increased by $828,000 or 4.7%, from $17.628 million to $18.456 million, primarily due to customer base growth.
• The average number of water customers served increased by 1,238, from 71,948 to 73,186.
• The average number of wastewater customers served increased by 358, from 6,354 to 6,712, mainly due to acquisitions.
• Operating expenses increased by $760,000 or 6.7%, from $11.413 million to $12.173 million, primarily due to higher depreciation and amortization expenses.
• Interest on debt increased by $296,000 or 13.9%, from $2.123 million to $2.419 million, mainly due to higher interest rates.
• The company expects to file a rate increase request in 2025.
• The company anticipates construction expenditures for the remainder of 2025 of approximately $36.7 million, exclusive of potential acquisitions.
• Effective April 1, 2025, the company's tariff included a DSIC on revenues of 3.19%.

Sentiment

Score: 5

Explanation: The report presents mixed results, with revenue growth offset by decreased net income and increased expenses. The outlook is cautiously optimistic, with planned investments and potential acquisitions, but also acknowledges risks related to weather and regulation.

Positives

• Operating revenues increased by 4.7% due to growth in the customer base.
• The average number of water and wastewater customers served increased.
• The company expects revenues to show a modest increase due to the revenues from the DSIC.
• The company has agreements with several municipalities to provide billing and collection services.
• The company has a service line protection program on a targeted basis in order to further diversify its business.

Negatives

• Net income decreased by 15.9% due to lower allowance for funds used during construction, higher operating expenses, and higher interest on debt.
• Operating expenses increased by 6.7% due to higher depreciation and amortization, distribution system maintenance, water treatment, wages and benefits, and purchased power.
• Interest on debt increased by 13.9% due to higher interest rates.
• Allowance for funds used during construction decreased due to a lower volume of eligible construction.

Risks

• Changes in weather or climate, including drought conditions or extended periods of heavy precipitation, could impact the business.
• Natural disasters, including pandemics, could affect operations.
• The level of rate relief granted by the PPUC could impact financial performance.
• Changes in government policies or regulations, including the tax code, could affect the company.
• The company faces risks related to physical and cyber security.
• Drought conditions could potentially impact future revenues and net income.

Future Outlook

The Company expects revenues to show a modest increase due to the revenues from the DSIC, an increase in the number of water and wastewater customers from acquisitions and growth within the Company's service territory, and anticipates construction expenditures for the remainder of 2025 of approximately $36.7 million, exclusive of potential acquisitions.

Management Comments

• The Company continuously looks for water and wastewater acquisition and expansion opportunities both within and outside its current service territory as well as additional opportunities to enter into bulk water contracts with municipalities and other entities to supply water.

Industry Context

The water utility industry is generally stable, but companies are subject to regulatory oversight, weather-related risks, and the need for continuous infrastructure investment. York Water's focus on acquisitions and infrastructure improvements aligns with industry trends to expand service territories and maintain reliable service.

Comparison to Industry Standards

• Comparing York Water to similar-sized publicly traded water utilities like Middlesex Water Company or SJW Group, their revenue growth and net income margins are within a comparable range.
• Capital expenditure as a percentage of revenue is also a key metric, and York Water's planned $36.7 million investment is consistent with the industry's need for ongoing infrastructure upgrades.
• The company's debt-to-capitalization ratio of 48.0% is also within the range typically seen for water utilities, which tend to have stable revenue streams that support higher debt levels.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income, but reassured by the revenue growth and planned investments.
• Customers may see potential rate increases due to the company's plan to file a rate increase request.
• Employees may be affected by changes in wages and benefits, as well as the company's focus on efficiency and cost control.

Next Steps

• The company expects to file a rate increase request in 2025.
• The company expects to extend the maturity for its line of credit into 2027 under similar terms and conditions.
• The company anticipates construction expenditures for the remainder of 2025 of approximately $36.7 million, exclusive of potential acquisitions.
• The company is pursuing other bulk water contracts and acquisitions in and around its service territory.

Key Dates

Keywords

water utility, wastewater, financial results, rate increase, acquisitions, capital expenditures, Pennsylvania Public Utility Commission, DSIC, debt, revenue, net income