Good day and welcome to the Hawaiian Electric Industries Fourth Quarter 2023 Earnings Conference Call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Mateo Garcia, Director of Investor Relations. You may beging your conference.

Thank you. Welcome everyone to HEI’s fourth quarter and full year 2023 earnings call. Joining me today are Scott Seu, HEI's President and CEO; Scott Deghetto, HEI’s Executive Vice President, CFO and Treasurer; Shelee Kimura, Hawaiian Electric President and CEO; Ann Teranishi, American Savings Bank President and CEO; and other members of senior management. Our earnings release and our presentation for this call are available in the Investor Relations section of our website. As a reminder, forward-looking statements will be made on today’s call. Factors that could cause actual results to differ materially from expectations can be found in our presentation, our SEC filings and in the Investor Relations section of our website. Today’s presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today’s presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. Now, Scott Seu will begin with his remarks.

Aloha kakou. Welcome everyone. For today's call, I’ll start with key updates regarding the Maui wildfires followed by financial and operational updates and then Scott Deghetto will walk you through our 2023 financial results in more detail before we open it up for questions. It's been just over six months since the tragedy of the August 8 wildfires. Our community continues to grieve and we know that it will be a long road ahead. However, I'm encouraged and inspired by the way so many in our community have come together to work towards the near and long-term solutions necessary to help our state heal and emerge stronger.

Hawaiian Electric will contribute up to $75 million and the State of Hawaii, Maui County, Kamehameha Schools, Spectrum and Hawaiian Telcom have committed to contribute the remainder. The speed at which this first fund has come together is encouraging and as the Governor has said, it will help with healing and help everyone move forward.

We're focused on bills that would establish a fund for property owners to recover damages from future catastrophic wildfires, wildfire risk mitigation planning requirements overseen by the Public Utilities Commission, along with cost recovery for implementing approved plans and securitization as a financing option. The Office of the Governor has expressed the importance of legislation that can help stabilize the electric utility and Hawaii's energy future. His administration has proposed a bill that requires the utility to develop a wildfire mitigation plan overseen by the Public Utilities Commission, and also include securitization as a tool to finance wildfire safety and recovery. Dozens of bills have been introduced to address other aspects of wildfire risk more broadly. The legislature is considering bills that would establish a state fire marshal, a state wildfire fuel reduction task force, a wildfire safety advisory board and a state firefighting helicopter program, to name a few examples. It's still early in the legislative process, and bills can undergo significant changes over the legislative session, which will run through early May. However, I'm pleased to see commitment among so many in Hawaii to urgently address the risks wildfires and other extreme weather events pose to our state. We also continue to work through the litigation process. As of February 12, Hawaiian Electric Company has been named as a defendant in 101 lawsuits by plaintiffs claiming losses related to the August 8 windstorm and wild fires, and HEI has been named in 101 as well. Most of these lawsuits have been removed from the state court to federal court, but jurisdiction is still in the process of being settled. Certain milestone dates that were set earlier by the state court, such as when we'll need to file counterclaims, are no longer in effect and will be revisited once…

Maui's unemployment rate was around 5% as of yearend and in the month of December, visitor arrivals to Maui were 75% of the previous years. Total statewide arrivals for the year were 90% of pre-pandemic levels. Despite the economic impacts from the Maui wildfires, statewide visitor spending for the full year was up over 2022. Visitor spending increased 5.5% to $20.8 billion in 2023. This is well above pre-pandemic levels by almost 20% despite Japanese visitor arrivals being at about half of pre-pandemic levels. Real estate values in Hawaii remain consistently strong. In December, the Oahu median single family home price was over $1 million and the median condo sales price was just under $510,000. Home sales volumes were down year-over-year, but we're encouraged to see the recent decline in mortgage rates. Hawaii's market continues to be characterized by limited inventory and stable prices supported by limited land available for property development. I'll now hand it off to Scott Deghetto to walk through our financial results in more detail.

Maui's unemployment rate was around 5% as of yearend and in the month of December, visitor arrivals to Maui were 75% of the previous years. Total statewide arrivals for the year were 90% of pre-pandemic levels. Despite the economic impacts from the Maui wildfires, statewide visitor spending for the full year was up over 2022. Visitor spending increased 5.5% to $20.8 billion in 2023. This is well above pre-pandemic levels by almost 20% despite Japanese visitor arrivals being at about half of pre-pandemic levels. Real estate values in Hawaii remain consistently strong. In December, the Oahu median single family home price was over $1 million and the median condo sales price was just under $510,000. Home sales volumes were down year-over-year, but we're encouraged to see the recent decline in mortgage rates. Hawaii's market continues to be characterized by limited inventory and stable prices supported by limited land available for property development. I'll now hand it off to Scott Deghetto to walk through our financial results in more detail.

Maui's unemployment rate was around 5% as of yearend and in the month of December, visitor arrivals to Maui were 75% of the previous years. Total statewide arrivals for the year were 90% of pre-pandemic levels. Despite the economic impacts from the Maui wildfires, statewide visitor spending for the full year was up over 2022. Visitor spending increased 5.5% to $20.8 billion in 2023. This is well above pre-pandemic levels by almost 20% despite Japanese visitor arrivals being at about half of pre-pandemic levels. Real estate values in Hawaii remain consistently strong. In December, the Oahu median single family home price was over $1 million and the median condo sales price was just under $510,000. Home sales volumes were down year-over-year, but we're encouraged to see the recent decline in mortgage rates. Hawaii's market continues to be characterized by limited inventory and stable prices supported by limited land available for property development. I'll now hand it off to Scott Deghetto to walk through our financial results in more detail.

Thank you, Scott. I'll start with our results for the year on Slide 8. We earned consolidated net income of $199.2 million and EPS of $1.81 for the full year. That included $14.1 million or about $0.13 per share of wildfire related expenses, net of insurance recoveries and deferrals, and $11 million or $0.10 per share from a loss on a sale of securities at the Bank resulting from the Bank's balance sheet repositioning. Excluding those nonrecurring expenses, core net income and EPS were $224.3 million and $2.04, compared to $235 million and $2.14 in 2022. Utility net income included $1.1 million of windstorm and wildfire related impacts. Bank net income included $8.3 million and the holding company and other segment included $4.7 million of these costs. In December, the PUC granted the utility's request for deferral treatment of windstorm and wildfire related incremental non-labor expenses and as a result, the utility deferred $10.9 million of after tax O&M expenses in 2023. In total, the utility's incremental after tax, Maui windstorm and wildfire related expenses of $1.1 million were comprised of $29.6 million of expenses, net of $17.5 million of insurance related recoveries and the $10.9 million in deferred costs. As mentioned, the bank executed a balance sheet repositioning in the fourth quarter that resulted in an $11 million after tax loss on the sale of investment securities. This resulted from a strategic sale of $185 million of low yielding assets with proceeds used to reduce ASB's highest cost source of funding, which was certificates of deposit. The transaction is expected to improve this year's net interest income and net interest margin. In addition, lower asset levels will allow ASB's leverage ratio to improve faster. On a consolidated basis core ROE remains healthy at 9.9% excluding wildfire impacts and the…

Thank you. [Operator Instructions] Your first question comes from Michael Lonegan with Evercore. Please go ahead.

Yes. Hi, thanks for taking my question. So utility cash on hand decreased from $275 million at the end of the third quarter to $106 million as of yearend. I was just wondering if you could share some of the key uses of cash during the quarter and any details you can share on your current level of CapEx and also ongoing level of investment given grid resilience, storage and other projects that are ongoing.

Yes. Hey, Mike, it's Scott Deghetto. Yes. So I think when you look at the $275 million and you compare it to the $106 million, what you need to keep in mind is that the $275 million had a pre-funding of the $100 million maturity. So the way I look at it is we really ended the quarter at $175 million and so $175 million versus the $106 million. And again, as you know, there's varying capital requirements and cash requirements as you move through a business and throughout the year and so I would just keep that in mind as you look at the end of the year number. The other thing I can tell you is, as we said on the call, we're working through the accounts receivable facility. We've retained a large global bank to work with us on that facility and we're basically finalizing that as we speak and we'll be filing with the PUC in the not too distant future to get formal approval for that facility.

Great. Thank you. And then secondly from me, on the Maui recovery fund, do you have a sense or expectation of the participation in it? And could there be upside to the $175 million between now and launch on March 1?

Yes. Hi, Mike, this is Scott Seu. At this stage, we don't have any projections for the potential uptake, I mean, the sizing of the fund and the consideration of payments of $1.5 million per claim. We're hopeful. I think the Governor's office is trying to get the word out about why this provides an attractive option for claimants to litigation. At this stage, we won't be able to tell you until the fund is actually launched on March 1.

Great. Thanks, Scott.

Sure, Mike.

Your next question comes from Jonathan Reeder with Wells Fargo. Please go ahead.

Hey, good morning, team. Thanks for taking my question.

Hey, Jonathan.

So I was just kind of curious, as currently being considered in the legislature like, can you discuss how the Governor sponsored bill, the HB2407 like does or does not potentially mitigate any of HECO's potential liabilities related to the August 2023 Maui wildfires?

Yes, well, so the Governor sponsored bills, Jonathan, they focus on wildfire mitigation plans and allowing the utility to use securitization to pay for improvements as a result of those plans. I would say that those bills, as currently drafted, are forward looking. I think the Governor, in one of the testimonies on one of the other bills, made the point that as we consider these bills that are more forward looking with respect to wildfire mitigation strategies, securitization, even a wildfire relief fund, it still noted that we all still have to work through the issues of resolving the claims from last August. We talked a lot about fund number one already. Suffice to say that there's active discussions happening right now with respect to claims dealing with property damage, business and losses and the like. So the long and short of it is, the bills are predominantly forward looking, albeit there is still capacity to think about funds, securitization and the like, which could possibly apply towards past claims, but most of the bill's focus is on a forward looking basis.

Okay, so I mean in terms of any specific legislative proposals that would be more related to the wildfires themselves, at this point, there's nothing it's more related to, I guess, the One Ohana Recovery fund stuff?

Well, I would say this. I would think about it this way, Jonathan. The One Ohana, specifically on fund two, there are any number of options available when you consider what the sources of funding might be, which could include, for example, anything ranging from securitization if it's deemed appropriate, it could include thinking from the HEI perspective, shareholder contributions, it could include use of insurance funds. The Governor has also mentioned potential philanthropy. So I'd say that for fund two, it is still a -- we're working through a number of different options, and there could very well be some overlap or interplay with some of the bills that are being considered. It's still very early in the process for the legislative bills.

Okay. When does the legislative session end? I mean when you're saying it's early in the process?

Yes, it will end in May, but I would say that the next significant milestones in the legislature are first crossover on March 7, and then later on second crossover is April 11. Crossover is very important because at that point, that's when you will see what one House or the House or the Senate, where they ultimately land on the initially proposed bills.

Okay. That helps. Any further insight into when like the results of the ATF-led investigation into the cause of the fire, even the Hawaii AG's investigation will be finalized and shared?

Yes, we don't have any further updates, Jonathan, from what we talked about last quarter. At that point, there was still no hard and fast schedule for the ATF Maui Fire Department investigation and the State Attorney General's investigation. I think as we've talked about last time, they had been initially planning to share some initial results back in December, but there were some delays as they needed to get more information from Maui County. So we still don't know of any further updates to their timing either.

Okay. And then I guess based on the lawsuits filed and maybe just the time that's passed since the wildfires, do you have any sense of what the total damages may be, excluding obviously, any potential punitive damages? Like, for instance, I think the state has disclosed that residential property losses claimed through at least the end of November amount to just over $1.5 billion.

Yes, we don't have any additional information beyond that, Jonathan.

Okay, great. Now, I know you're still working through all that, so good luck as you go through the process and interested to see how it all plays out. I appreciate you taking the questions.

Thank you, Jonathan.

Your next question comes from Paul Patterson with Glenrock Associates. Please go ahead.

Hey, good morning.

Hi, Paul.

Hi. So, Jonathan asked a lot of my questions, but just sort of following up on a few of them. Do we have a, I know it's still kind of early, but you were talking about the wildfire mitigation and going forward kind of efforts and what have you. Do we have any sense, or do you guys have any sense about what the size of that might be or when we might get a better picture as to when we might get a better idea about what that would be?

Paul, I think you're asking about the proposed wildfire relief fund, is that correct?

It's actually just what, if there's any idea about what the level of mitigation expenditures might have to be, do we have any sense as to when we'll get a better picture, as opposed to the funding for it, just what the actual amount might be? Do you follow what I'm saying?

Yes, I think so. That still needs to be determined Paul. One component of that is actually sizing what the overall wildfire risk would be to the state. And I know that there has been discussion and part of some of the proposals are to do from an actuarial perspective, doing a risk assessment which will help size the overall risk and what the fund and potential investments could be. At the utility, of course, it will continue to do its own work, looking at its wildfire mitigation plans, and that analysis is still in process and will play out.

Okay. And then in terms of the Bank and this sale, this balance sheet repositioning, could you just give a little bit more of a description as to the high cost loans and what have you that you were paying down? Like what was the cause of the, like when did they occur? Just if you could give me a little bit more flavor on that, that would be helpful.

Yes. Hi, Paul. This is Ann Teranishi. The funds, the proceeds from the sale were used to pay our highest cost funding, which were public CDs.

And when did those CDs, what's the tenure on them? In other words, are they recently issued CDs or just that high cost, or just a little surprised?

Yes. So the public funds were yielding 5.6%, and they were 60 to 90-day certificates of deposits.

Okay. And then just really, finally, the labor contract, can you give us a sense of the cost increases that are going to be the annual CAGR of what you guys negotiate with your union?

Hi, Paul, this is Shelee Kimura.

Hi, Shelee?

Hi. Nice to hear from you. So we're talking about an extension basically of the current contract, so those would be 3% increases every year. We had a separate component for our linemen, given the market rates for linemen in our sector, and the cost increase for that should not be different. It should actually be a little bit less than what we experienced in 2023, because we had a pilot program ongoing, and so the total impact of that should be about in the same range, if not a little bit less.

Okay, great. Thanks so much.

You're welcome.

Your next question is a follow-up from Jonathan Reeder with Wells Fargo. Please go ahead.

Hey, perhaps I did miss it in the slide, but can you let us know how much utility funded CapEx is planned for 2024 and perhaps even over, like the 2024 to 2026 period? Obviously, there's the resiliency spending, which portion of that is going to come from the DoE funds, but it looks like you have some utility owned repowering, battery projects, stuff like that. Can you give us a sense or is that going to be laid out in the K?

Hey Jonathan, this is Paul. So we are not providing guidance on CapEx, but what I would say is as we look at our liquidity, we're managing to what we can afford in terms of our financial resources. I would say generally we would probably be on the lower end of what we have seen historically. As we mentioned, we are reprioritizing our spend to focus on critical things like wildfire mitigation, resilience. There will be some moderation in other areas as long as it doesn't impact public safety, but again, it's a matter of managing within our financial resources. And as Scott mentioned, we do have our facility that we're working on. We've made good progress on that. So that should provide additional capital as we operate our business going forward.

Okay, thanks Paul. I appreciate that.

There are no further questions at this time. I will now turn the call back over to Scott Seu for any closing remarks.

Thank you for joining us today and to our shareholders, thank you for your continued support and investment through these challenging times. I think all of us here at the companies, our hearts continue to be with the people of Maui, including our many customers and of course our own employees. So we're going to support and work alongside them every step of the way. As I said earlier, I'm encouraged by the support and collaboration that has really characterized the reconstruction efforts. And we look forward to continuing our work with the community, governor, lawmakers and others. We will chart our path forward together, so thank you very much.

This concludes today’s conference call. Thank you for joining us. You may now disconnect.