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HE

HAWAIIAN ELECTRIC INDUSTRIES INC (HE)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 consolidated revenue was $961.351M and diluted EPS was $0.44; utility net income was $58.183M, bank net income was $3.231M; versus Q4 2022 revenue $1,019.113M and EPS $0.52 .
  • Core diluted EPS was $0.48 and core net income was $53.425M, excluding wildfire-related items and the bank’s securities sale loss; full-year core EPS was $2.04 .
  • Utility results benefited from ARA/MPIR mechanisms and deferral/insurance recoveries related to Maui wildfires; Hawaiian Electric’s Q4 core net income was $48.947M; O&M was higher, partially due to transmission/distribution and outside services .
  • Bank results were impacted by a strategic balance sheet repositioning: a $14.965M pre-tax ($11.0M after-tax) loss on securities; Q4 bank core net income was $16.172M; funding mix shifted to higher-cost CDs, compressing NIM .
  • Utility dividend to HEI was reduced to $13M (from ~$30M in each of the prior three quarters), a notable cash retention move at the utility; HEI’s dividend to common shareholders remained suspended .

What Went Well and What Went Wrong

What Went Well

  • PUC approved a 5-year $190M grid resilience plan enabling $95M of DOE funds with matching rate recovery; management highlighted constructive regulatory support and federal engagement .
  • Stage 3 RFP progressing with negotiations across 16 projects: ~517 MW variable generation, ~694 MW firm renewables, and ~2.1 GWh storage; the utility’s Waiau repowering bid advanced .
  • “In December, the utility connected the world’s most advanced battery energy storage system to Oahu’s grid… Kapolei energy storage battery plant provides 185 MW and 565 MWh” (Scott W. Seu) .

What Went Wrong

  • ASB recorded a $14.965M pre-tax ($11.0M after-tax) loss on securities to reduce high-cost deposits; Q4 bank GAAP net income fell to $3.231M; core was $16.172M .
  • Elevated O&M: utility cited $8M higher O&M (T&D, bad debt, outside services) in Q4; full-year O&M up $28M, including $8M wildfire response labor .
  • Litigation uncertainty persists: HECO and HEI named in ~101 lawsuits; additional subrogation claims filed; investigation timelines (ATF, HI AG) remain unclear .

Financial Results

MetricQ4 2022Q3 2023Q4 2023
Total Revenues ($USD Thousands)$1,019,113 $901,873 $961,351
Diluted EPS ($)$0.52 $0.37 $0.44
Net Income for Common Stock ($USD Thousands)$57,348 $41,118 $48,789
Operating Income ($USD Thousands)$93,014 $75,111 $95,976

Segment net income (HEI for common stock):

Segment Net Income ($USD Thousands)Q4 2022Q3 2023Q4 2023
Electric Utility$48,621 $43,461 $58,183
Bank$17,897 $11,365 $3,231
Other (Holding & Pacific Current)$(9,170) $(13,708) $(12,625)
Total$57,348 $41,118 $48,789

Utility KPIs:

KPIQ4 2022Q3 2023Q4 2023
kWh Sales – Hawaiian Electric (Millions)1,603 1,624 1,604
kWh Sales – Hawaii Electric Light (Millions)269 268 272
kWh Sales – Maui Electric (Millions)282 265 264
Total kWh Sales (Millions)2,154 2,157 2,140
Avg. Fuel Oil Cost per Barrel ($)$152.05 $111.51 $132.47

Selected drivers and notable items (qualitative with data)

  • Utility revenues: Q4 +$8M YoY increase driven by ARA (+$7M) and MPIR (+$1M) .
  • Q4 wildfire-related net effect: $9M combined deferral treatment and insurance recoveries, net of expenses (after-tax) at utility .
  • Bank funding costs: average cost of funds for full-year 2023 was 0.93% (+77 bps YoY); CDs and wholesale borrowings increased, compressing NIM; Q4 securities sale loss recorded .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Utility dividend to HEIQ4 2023~$30M per quarter (prior 3 quarters) $13M Lowered
HEI common dividendQ4 2023$0.36/quarter pre-suspension (Aug 2023) Suspended (no Q4 dividend) Lowered/Suspended
Utility CapEx guidance disclosure2024N/ANot providing specific CapEx guidance; managing to liquidity constraints Maintained conservative stance
Utility liquidity facilityNear-termN/AAccounts receivable facility expected to add $200–$250M New disclosure
Bank NIMFY 2023 (as of Q3 call)2.8%–2.9% (prior) 2.7%–2.8% Lowered
Bank EPSFY 2023 (as of Q2 call)$0.75–$0.85 $0.62–$0.66 (updated at Q2 call) Lowered
Utility EPSFY 2023 (as of Q2 call)$1.75–$1.85 Reaffirmed at Q2 call; no new update in Q4 materials Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2023)Previous Mentions (Q3 2023)Current Period (Q4 2023)Trend
Maui wildfires, litigationNo wildfire impact yet; broad operational updates Initial wildfire costs disclosed; deferral sought; Governor’s One Ohana initiative introduced 101 lawsuits against HECO/HEI; One Ohana Fund #1 nearing launch; legislative session considering wildfire mitigation plans, securitization Elevated but progressing toward resolution
Grid resilience and DOE fundingIGP filed; CapEx plans; PBR earnings drivers Ongoing resilience focus; utility earnings drivers reviewed PUC approved $190M grid resilience plan enabling $95M DOE match; more federal grants pursued (~$450M) Improving regulatory/funding visibility
Stage 3 RFP & firm renewablesUtility bid into firm renewables; Waiau repowering advanced RFP progress noted Negotiations across 16 projects; Waiau repowering; large renewables/storage mix Advancing execution
Bank NIM & funding mixNIM guided down; funding cost pressures; deposit stability Wildfire-related provision; deposit mix shift; NIM compression vs peers Securities loss to reposition balance sheet; CDs at ~5.6% (60–90 day); focus on profitability/NIM improvement Stabilizing post-repositioning
Union labor contractNot discussedNot discussedNew 3-year IBEW 1260 extension; ~3% annual increases; linemen program impact stable-to-lower vs 2023 Stable labor visibility
Liquidity and financingNo acute issuesGuidance re liquidity; ASB dividends Cash on hand: HEI $137M, utility $106M; AR facility expected to add $200–$250M Strengthening liquidity toolkit

Management Commentary

  • “Although 2023 was one of the most challenging years ever… our core businesses delivered solid results under challenging circumstances… the utility is continuing to execute on its plans to modernize its generation system and make our electric grids more resilient.” — Scott W. Seu, President & CEO .
  • “The sale of investment securities executed in the fourth quarter further positions ASB for improved profitability and net interest margin while strengthening the balance sheet.” — Scott W. Seu .
  • “Hawaiian Electric received PUC approval for their 5-year $190 million grid resilience plan… enabling $95 million in DOE funding… contract negotiations are in process with developers of 16 renewable energy projects… 517 MW variable, 694 MW firm, 2.1 GWh storage.” — Scott W. Seu .
  • “In December, the utility connected the world’s most advanced battery energy storage system… Kapolei provides 185 MW and 565 MWh… the first time a stand-alone battery has provided grid-forming services at this scale.” — Scott W. Seu .
  • “Rightsizing the utility’s dividend to HEI allows more cash to be kept at the utility… while capital markets access remains constrained.” — Scott Deghetto, CFO .

Q&A Highlights

  • Liquidity: Utility cash on hand moved from $275M (prefunded $100M maturity) to $106M at YE; AR facility progressing with a global bank; PUC filing forthcoming .
  • Maui Recovery Fund: Fund #1 sized at ~$175M with $1.5M per claim; launch targeted March 1; participation unknown pre-launch .
  • Legislative outlook: Governor-sponsored bill (HB2407) focuses on wildfire mitigation plans and securitization; primarily forward-looking; One Ohana Fund #2 funding sources under discussion (securitization, shareholder contributions, insurance, philanthropy) .
  • Investigations: No updated timing for ATF or HI Attorney General reports; prior delays noted .
  • CapEx visibility: Company not providing 2024 utility CapEx guidance; managing spend to liquidity; prioritizing wildfire mitigation and resilience .
  • Bank detail: High-cost public CDs at ~5.6% (60–90 day); securities sale proceeds used to reduce those deposits .
  • Labor contract: IBEW 1260 extension through Oct 2027; ~3% annual wage increases; linemen cost program impact similar to or less than 2023 .

Estimates Context

  • Wall Street consensus estimates via S&P Global (EPS, revenue, EBITDA) for Q4 2023 were unavailable due to system limits during retrieval; estimate comparisons could not be made. The absence of consensus prevents labeling results as beats/misses versus Street expectations [GetEstimates error noted].

Key Takeaways for Investors

  • Utility fundamentals resilient: ARA/MPIR mechanisms and approved deferrals/insurance recoveries supported Q4 utility earnings despite elevated O&M and wildfire-related costs .
  • Strategic liquidity actions: Utility dividend to HEI cut to $13M and accounts receivable facility expected to add $200–$250M; enhances cash retention at utility amid constrained capital markets .
  • Bank repositioning for margin: Q4 securities sale (loss $14.965M pre-tax) targets NIM improvement in 2024 and faster leverage ratio recovery; expect focus on deposit mix and cost of funds .
  • Regulatory momentum: PUC-approved $190M resilience plan (with $95M DOE match), Waiau repowering bid, and Stage 3 renewables/storage procurement underpin medium-term rate base and earnings visibility .
  • Near-term catalysts: One Ohana Fund #1 launch; legislative progress on wildfire mitigation plans and securitization tools; updates on AR facility approval; continued RFP awards .
  • Risk monitor: Litigation claims trajectory and investigation outcomes; wildfire premium costs and insurability; funding market access; O&M discipline to manage inflation and wildfire mitigation expenses .
  • Labor stability: New IBEW contract provides wage visibility and supports operational execution; mitigates uncertainty around workforce costs .