Hawaiian Electric Industries (HE) 8 Nov 222022 Q3 Earnings call transcript

Good afternoon, and thank you for attending today's Q3 2022 Hawaiian Electric Industries, Inc. Earnings Conference Call. My name is Austin, and I shall be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Julie Smolinski, Vice President of Investor Relations and Corporate Sustainability. ahead. go please Julie,

Welcome, HEI's Austin. Earnings quarter Call. everyone, you, third to XXXX Thank

are President Electric Seu, Paul me members Bank Scott Joining today and CEO; HEI Ann American HEI other Shelee President and CEO; senior Ito, CFO; and Kimura, and Hawaiian management. President of Teranishi, Savings Interim and CEO

Relations our website. our and release call earnings of for this are section available Our presentation in the Investor

materially actual the from filings on reminder, can today's be call. results forward-looking to website. could that and section a in differ As found our made cause expectations SEC be our Investor statements Factors our of will presentation, Relations in

Now Scott will remarks. with begin his

earnings economy you call financials. overview joining and third We're you to results to and everyone. today. and I'll of steady, consolidated quarter interest and earnings whole which were and and we've performance O&M Paul our $X.XX, was update for then to per and of of turn million our of Thank over to related seen further companies. pressures businesses utility's fuel rates, the our of some offset pleased give an discuss outlook, our benefits $XX.X combination Greetings, able the the with costs. of us on The share performance the we good inflation, reflect our

strong from had rate rates, loan Bank favorable demonstrate strength rising than its to The better interest environment. and Our utility range, year the quarter. to trends. end continued midpoint year We improved has bank benefited in have its for last to guidance now utility another closer end strong the outlook expect growth forecast continuing lower quarter, since our the than credit of had webcast. the the last we results a higher

end our now updated and expected bottom $X.XX range XXXX $X.XX guidance We're our for raising the guidance range with $X.XX bank continued rest our consolidated range year. Given $X.XX we're by increasing EPS year-to-date to positive the $X.XX. of XXXX the to the year, of trends performance to

strength down Turning believe economic to has remains economy. was positioned economy well of we and Hawaii's signs broader show to it the in better during weather unemployment [ph] X.X% national headwinds. the Hawaii's rate continued to the to housing the with market Unemployment average comparatively performing financial downturns, par September, perform here national well. well than crisis. fared during has on The average. continues to

characterized secured September, helping strong arrivals we've in to seen of The pre-pandemic robust remain rates, year. median to our and and interest in a Hawaii rose activity September and recovery market, single-family the loan mainland supply long have prior in price sales predominantly higher fare levels home in of housing was with September, strong. Tourism the real primarily well XXXX U.S. housing While recessions up levels. slower Tight contributing recovered Oahu our to to estate $X.X prices bank travel relative strong from have XX.X% visitor quality of domestic demand million to spending due XX% credit as portfolio. above the

even with softening recession. With U.S. offset last travel This arrivals lower that potential strengthening an market that from the result anticipate from restrictions lifting mainland we the to arrivals COVID important yen. domestic Japan's could provide will a month, of of

the mainland, Hawaii positive there were in strong impacts if recession government that and milder Research expected improvement with federal GDP spending Hawaii the XXXX. in growth be Hawaii, travel projected would Given in Japan Economic forecast Hawaii continued in of Organization a University on

Turning to the utility.

alignment In to their help Hawaii, our framework Change with plan Action policy, customers strong of Climate there critical be are the manage and fronts between utilities our to resilient and Plan. a manage utilities our We on continues service, advance reliable, action provide execution climate bills, public number regulatory pleased change costs.

fuel to the of one reduce utility. gas exposure customer bills spikes, emissions, price all is transition energy healthy maintaining cut clean while powerful to a stabilize Our greenhouse and most ways

We solar-plus-storage on forward state's at the We're largest A contracted slated energy cost is renewable oil. now battery half less to others bringing several solar-plus-storage is fronts. XXXX project mid-XXXX. to project in cost storage than prices of utility The generation on by below go expected A scale online, early new Three on online of in all oil. generating highlights. continue projects into more are with XXXX. come large few at also pressing the service Oahu current

more. launching of final Hawaii We it see renewable by the X active battery approved have X target we're and before and today storage filing PUC continuing Island RFPs, capacity Stage and and megawatts gigawatt Stage and our draft year-end. hours X over over under for if We're XXX to of X RFP accepted

and drafts our under X annually Oahu between dispatchable Together, are an gigawatt Maui Stage renewable PUC energy, Our RFPs X seek XXX firm megawatts additional RFP of capacity. of and renewable and Stage review. hours variable XXX X,XXX

grow advancing charge pilot, make-ready expand would battery to their to as well, rate renewable reducing benefiting totaling strong greater the customers. in demand September up program, last applications goals charging We're and with Rooftop infrastructure EV launching energy, public bonus PUC X,XXX and our And charging more programs. continue system available of and received expansion solar order charging commercial and resources under use recently megawatts in month, time-based establish the is which issued alone. making that peak customer We also PUC our continues proposal commercial, an XX.X interest structures review. of our aggressive

the or to We're ARA, also environment annual based within the increase XX next for expense Under X.X% the inflation ARA PBR, will in GD economic forecast, PPI we've net which factor adjustment be revenue been about set or basis headwinds managing allowance control the is dividend. unique the [ph] year on term. our year, half While able this those XXXX. long on cost mitigate October minus X.X% customer increases inflation. focused X.XX% Therefore, the is point the brought cost of significantly O&M to and rate has increases pressures

payment those utility the additional connecting need in work and is in with trends executing flexible those customers well. has Overall, plans and Our resources to efforts. led through we're positive payments, customer helping continuing

We continue and that positive to the provides optimistic are the the PBR opportunities about framework utility. as see

Turning to continued environment ASP benefiting growth the its strong interest low-cost position, strong including quality maintaining funding loan from has rate high-quality low-risk its solid and the and and base. performance, rising credit bank. its profile,

progress. Our bank to continues digital transformation

cycles, we're combination across Our to of today. and continues stability and ASB that demonstrate Hawaiian Electric seeing again economic

dividend tend to time. to utilities solid stability. the over While to limiting needs equity of debt, dividends bank they to earnings external high supporting company, earnings cost rates deliver interest bank holding continues overall contributing benefit pressure The and our

able interview hand just our several weeks. quick a working Paul, through of I to strong process call anticipate finalizing have update to steadily We've the I over been Before and recruitment the on a CFO been candidates. number our search. selection next our within

further Paul the will financials. Now discuss

Scott. you, Thank

XX to compared ROE fuel variances higher million X% XX at was and rate at the bank compared net income remained of and income drag in insurance non-interest Program, by ROE Higher down was same year, up Non-interest net yields, $X.X or pay expectations lower and we year. fee fuel despite utility other production. bank's months million Turning the third The average income $XX life quarter due points to banking higher higher income was to $XX.X approximately quarter, offset bank-owned interest million income of consolidated as prices, is partially well XX.X% of XX deferred of by the lower million Utility Slide diluted the and impacted impacts last market benefit loans and mortgage the Bank $XX.X $X.XX with continue expense Paycheck almost X. partially income smaller In of million XX.X%. equity flat our lower as and primarily last last PPP, O&M million PPP at digital was has non-interest due X, was was $XX.X down. compared line prices. to to quarter income return while $XX.X Bank Consolidated from was interest million net asset to compared Notably, as negative pressures. Protection basis Net income remained invest ROE continues to by $XX.X flat earnings on third in expenses on lower the to impacts earning higher income of of across higher year. last diluted income, compensation healthy from offsetting up costs. to net income. On environment generated basis. and due primarily major balances fluctuations compensation of in last primarily Slide transformation. Overall, with net to elevated income enterprise EPS provision a strong show to months driven we manage its expense last $XX.X was higher million offset share the a $X.XX interest net to year. per million, $XX.X lower bank

the expenses. utility, and the customer The quarter partially $X quarter saw reprioritized million order full Hawaii due Maui availability to to by maintenance of higher by the expenses approximately overhauls utility accelerate be range $XXX was and side, delays, program. increased and Island, million. offset last $XXX generating revenue expense, by for was maintenance, efficiency ramping to recorded pace in higher increased of due the penalties at in disruptions, adjustments interest third Work from more million we And originally to station generating higher CapEx station change CapEx expect continues work lower offset last recognition timing year's higher a projects the up. depreciation re-stopping to bad higher year. commence to [ph] O&M, than been O&M of tax Slide million higher debt X, ARA ready has supply for net from permitting that [ph] utility our and on due in lower revenues preventative CapEx $XXX chain anticipated million delays. performed On $X driven resource third year, the our we for year, fuel lower We've are in to lower CapEx On income through This revenues

the X for on the rest of Slide for year the to the Turning utility. drivers

Scott quarter utility that As have have results headwinds been referenced, impacted the many year-to-date. and there in

in as approximately spite I'll cover more year been of net utility, in However, performance utility of forecasted the over XXXX, With very these income full and increase which result. for a X% our for first PBR the XXXX, is moment, year-to-date a updated I under good strong headwinds. very guidance to would forecasted note has that

and inflationary and While to deliver an mitigate strong the been challenges PBR these environment. costs to results. the time, rates framework fuel high has environment interest able occurring utility same economic not O&M high chain The interest still the to managing aggressively respond supply utility all high rate the and inflation, at prices, did contemplate challenges with high is

Looking of through generating forward, clean maintenance O&M station we overhaul ensure cycle as from the year continued our and our expenses, energy often stage transition. generators higher more this reliability anticipate we to

bad work going offset efficiently cost costs pressures, needs hybrid these utility results see slightly to The O&M expect continue customer to although debt above has expense work focus utilizing labor utility this environment, managing and bills. to will efficiently also lower space continue operating on to levels. on and will date, modestly elevated help pressures were still reducing We translating to in ARA September, internal the complete year resources utility focused costs our be recovery in oil lower-cost with We benefited lower forward. to fuel remains prices, our

rates the with payments ahead fuel rates, We are when higher collections, come as moderate higher along Higher increased bad short-term fund in resulting should expense, fuel we costs fuel higher customer seeing interest This, short-term as at costs down. of expense prices debt interest carrying borrowings increase. have

On to the accelerated December financing side, prefund long-term debt from and a maturity. enhance November to liquidity we at June

is increased fixed year-over-year, While savings resulting a us expense today, available life the of in debt. allowed over attractive that to below the more that the lock in rates meaningful interest it rate

PIMs net quarter, slight forecasted to year. this last discussed are drag As be a

PIM penalty resulting delays mechanism reward contribute we XXXX due factors in completion on renewable significantly incur due from chain prices under projects, to track cost While the to supply no [Technical fuel other are macro risk-sharing PIMs. Difficulty] toward RPS-A and to third-party expect maximum several for our higher projects We expect the to XXXX

turning income higher In to On than year forecast, and previously now experience and moderate addition, XX, outlook O&M to PIMs this we our improved efficiency for to expect low contributing rewards interconnection the lower the from XXXX. and Slide PPP energy higher [ph] reflected interest fees, ASP and almost loan recognized now yields strong higher lower bank. higher in securities portfolio, partially funding fully across and the balances net the income portfolio by yields nearly investment growth costs. offset entire PIM

term growth X wholesale as the basis loan borrowings Our during required funding funding points quarter, XX the and strong basis public cost increased additional to from points certificates.

Net partially a of higher level expanded and rest higher to were yields Our benefits of rate turning second in margin remains to offset X.XX% quarter the the Slide funds very costs. the XX, competitive for funding at as the low environment a peers. cost and by in year. interest On versus versus of attractive the third the X.XX% only PPP and fees higher performance lower bank drivers of quarter,

We rate quarter. NIM increases environment expect the rate expansion with in Fed further in fourth higher the additional

our X.X% X.XX% to year. for increased range to have We NIM the

fourth growth pace We expect more given and to have quarter, so robust this potentially growth year. continue moderate in the continued loan the although a strong at loan pipeline far

interest on year, the income production. banking mortgage mortgage impacts higher rates of lower continued expect this We given

to We in transformation. will our conditions, well as labor tight inflationary market on address management continue digital and cost invest to as focus

favorable We $X of We loan zero million. XX, lower the expense expect partially turn positive additional a to our prior to guidance compared expect year million our $X will continued offset for updates. to [ph] we negative provision that trends for Slide On credit provisioning million $XX of and expectation now between growth.

we On the expect $XXX year. the million as CapEx mentioned, for utility side, million in to $XXX

levels expect experience we better last year, to given the modest expect our the and toward negative to communicated LMI that than quarter be the negative outlooks range to better last expectation be to is closer lower above O&M now We and than PIMs - improved we a midpoint utility and modestly Although slightly EPS guidance be the energy ARA forecast. our of interconnection O&M for rather efficiency debt end quarter. this PIMs

We when forecast, annual update longer-term earnings and our that are currently we XXXX through our going February. process announce guidance will our provide utility of we refreshing in

bank. the to Turning

$X.XX return a We now lower XX quarter's last a And higher earning single compared of to to we mid-single versus NIM basis expectation expectation points for expectation growth XX digits pleased and on mentioned, expect points. higher the to we in of digits. the of Current Pacific be year. a for first that for As translates also sale higher basis EPS to expect provision guidance compared This raising bank guidance quarter's are last expect the we low assets gain still assets loss interest $X.XX put on expense us to upper $X.XX holding the although previous to will a that year, range. $X.XX of We $X.XX. $X.XX company quarter, excluding $X.XX to the towards of at expect the of of in end

range the As updating range guidance low utility $X.XX. bank outlook the of we Scott earnings, the XXXX mentioned, increasing for and given the $X.XX both favorable change and consolidated to end are to our to

back to I'll Now the call Scott. turn

Thank you, Paul.

year. with the a forecast So results for outcome pleased we're overall, quarter's and the good

potential slowdown. economy Our is to is weather healthy positioned a and well

PBR. perform our Our managing utility under well remain to is and near-term against in confident we costs headwinds, ability

forward be line enterprise again The economic being is Julien, our quality question of and we Julien benefit. we're bank's future both the its high enterprise. and Instructions] Bank we is and you. demonstrated questions. the Dumoulin-Smith our on performance As strong customers America. continues are to Our forward through in [Operator company poised benefits your our Overall, Mahalo from transition, environments to first of to your push combined of confident the clean HEI through proven. from our look different is Thank [ph] open. energy

the that you the continued it run as as you've here does here been O&M year-over-year and I offsetting? you this end the these it? the 'XX environment Thank I sort as sort of these thinking favorably to utility into utility, cost-saving get appreciate to some about move the are into you improvements done the think To Mahalo about quarter? as time. Hey, you from morning, extent I bank. on the mean, going are rate you are you a of aggressive and on end, going here. what efforts that seeing to of prospects wanted O&M that Or net O&M really 'XX around put clearly, pressures these to place inquire for this how that range to done this Appreciate which going year-over-year well just Good nicely the more that fighting Is to able well for extent you impacts well, good positive the is of as efforts Or 'XX, on turning 'XX there - to into you about with bode the these have you're guys. inflationary in around think time. cost the PIMs I midpoint Listen, afternoon. pairing managing to suppose, the Listen, low efforts? into team. it.

Hi, measures some utility Julien, forward the is to impacting this even to as on continue costs. be inflation, to what Scott. this into of going ramped There But they provide is is are far service to the cost so high we the been pressures XXXX. their reliable manage have that how overall utility labor, With some the to able - has how how do O&M work able of leased even be mentioned, their going up to the to far we're we use transition outside continued at services, is some able pressures has looking so are more help been on generation really spaces. by O&M But like we pressures things those we to of what expecting do described, we as we utility the office renewable, side. offset see some

an by it's utility. ongoing - the So effort

XXXX. into been those far, and going going well, they're perform to able pretty So forward efforts they've continue to

segment run as how trend, think bank, the of obviously, you What about year uptick sort well. inflation, something the the if exit 'XXon side? in a PIMs here Excellent. How coming as out do obviously noticing well do you're next positive, you about will, you that here understand backdrop of the the the contributing rate as into about it. the well? bank guidance on Got think as as utility on I Again, those managing

Yeah.

on Let question. first me PIMs your off answer

being the we're new some risk-sharing due delays are the any biggest cost higher costs in RPS-A And meaningful So XXXX this then we factors the fuel been for those as fuel globally. our to said, outlook really forecasting of penalty that due affecting not year PIMs also, have reward renewable projects. PIM to seen

we these our do forecast one you of And can renewable solar-plus-storage into As online. are 'XX. terms getting reiterate, we now next projects year, positive come expecting year coming as just to of slides as RPS-A into see projects we see number there, early the next right, on online look of these the in coming to in with more a new in we

our provide address February. we specifically, when So details we'll more our guidance towards 'XX outlook in

and high As far as environment long as rates are inflation as the is is interest will then high, the continue see to bank the the bank benefit. concerned,

my that's really HEI has varying economic does bank So seen to situation. enterprise company of the the these utility to pressures earlier help mitigate in the as one any that and point, the having part

So that's what we expect to see continue going forward.

an 'XX, Got a given penalty moderate nice the PIMs in 'XX right. be the - year to it, both RPS downside a I inflection 'XX PIM from 'XX, earnings as from you there the could be But the know a and acute into really swing say, 'XX? fuel guidance, to benefit but most And really on this could you have comment from from right? 'XX 'XX in

Yes, we're... considering

substantive... Most

Growth year. for this

for your Right. I I the it Well, there jump best. appreciate to Right, will Thank in, All but indeed. you, time. leave guys. others

Julien. Thanks,

with is question is from line Patterson Glenrock open. Paul, Paul your Associates. next Our

morning. Good

Hey, Paul.

Can me? you hear guys Okay.

Yeah.

Okay.

flavor could little up you on seeing what So in more follow you're us just there? to the sort decline as The of bit bank. give a provisions, to

Yeah.

quality two happening course, by So credit some been of is know, that in has have provide because Hawaii. of with very they high actually as level, improving trends do grows. of release portfolio bank's there offset to additional the tandem of you provisioning But provisioning here the factors loan that in growth, loan for

million to to So positive been why $XX now gone million a from projection to X we the that's that zero actually had negative X. I earlier think That's we've helpful.

Okay. And then rate. deposit just on the

guys I momentum you said building wondering competitors. to your in on me, think how is sort rate wondering mean some XXXX there it was I the seem NIM line or it I'm seems with or we respect with guess, might that all the would be just trends? very I sort that I'm those of to in Julien's that And question should should think how about low. sustainable think about of how we deposit? just

Yeah, is this Paul. Paul,

- remain in deposit in low environment betas our we our but of interest cycles, this relatively cost obviously, increase have to So expect does past the rate higher and low cycle. been we funds, it very

expansion So see interest net margin are we will as increased. rates

adjusted terms core - customers, resilient some rates are Again, We rate-sensitive is and we'll have which XX% not and our we expect accommodate to general, But that seeing increase. more of some is - customers, commercial an of deposit, rates in we've as in pretty sensitive. do expansion those. of NIM rate as

about good So we that. feel - we have

Okay. That's for Thanks, it me. again.

Paul. Thanks,

there this further are questions. no Instructions] questions. [Operator At further no There time, are

So any to management team remarks. I'll closing the pass conference the back for

of of Thank look you and great forward at time, week. your to many seeing the Have a you all week. next rest EEI for we

all. you, Thank

call. your That participation. you concludes Thank for today's

line. your disconnect now may You