Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024, for Hawaiian Electric Industries, Inc. (HEI) and its principal subsidiary, Hawaiian Electric Company, Inc. (Hawaiian Electric). HEI operates three primary segments: Electric Utility, Bank (American Savings Bank, F.S.B.), and Other (including Pacific Current, LLC). The reporting period is dominated by the financial and operational aftermath of the August 2023 Maui windstorm and wildfires, which resulted in 102 fatalities and widespread property damage.
Key Financial Metrics
| Metric (in millions) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenues | $897.4 | $895.7 | $1,794.5 | $1,823.9 |
| Net Income (Loss) | $(1,295.5) | $54.6 | $(1,253.4) | $109.3 |
| Operating Income (Loss) | $(1,719.0) | $93.0 | $(1,642.6) | $186.5 |
| EPS (Diluted) | $(11.74) | $0.50 | $(11.37) | $1.00 |
| Cash and Cash Equivalents (HEI) | $550.4 | $314.3 | $550.4 | $314.3 |
| Long-Term Debt (HEI) | $2,838.2 | $2,842.4 | $2,838.2 | $2,842.4 |
Note: The Net Loss for Q2 2024 includes a $1.71 billion accrual for wildfire tort-related claims and an $82.2 million goodwill impairment charge at the Bank segment.
Material Changes vs. Prior Period
- Wildfire Liability Accrual: The most significant change is the accrual of approximately $1.71 billion in wildfire tort-related claims in Q2 2024. This reflects the Utilities' best estimate of the lump sum required to settle claims with plaintiffs following an agreement in principle reached in August 2024 (post-period end but based on Q2 estimates).
- Bank Segment Impairment: The Bank segment recorded a non-cash goodwill impairment charge of $82.2 million due to a strategic review determining the fair value of American Savings Bank (ASB) was less than its carrying value.
- Revenue Stability: Total consolidated revenues remained relatively flat compared to Q2 2023 ($897.4M vs $895.7M), driven by increased Bank revenues offsetting slight declines in Electric Utility and Other segments.
- Electric Utility Operations: kWh sales decreased by 1.2% in Q2 2024 compared to the prior year, primarily due to reduced consumption in Maui following the wildfires and cooler weather.
Guidance, Outlook, and Risks
Going Concern Uncertainty
Management has identified conditions that raise substantial doubt about the Company's ability to continue as a going concern within one year of the filing date. Current cash balances and available credit facilities are deemed insufficient to fund planned expenditures, including the estimated $1.99 billion contribution required to settle wildfire claims (of which $1.71 billion was accrued).
Financing Plans
HEI and Hawaiian Electric are working with financial advisors to raise capital through a mix of debt, common equity, equity-linked securities, or other options. There is no assurance that these plans will be successful. If financing is not secured, the Company may face default on debt agreements or consider strategic alternatives, including bankruptcy protection.
Key Risks and Contingencies
- Settlement Finalization: The $1.99 billion settlement contribution is subject to final documentation and court approval. It is also conditioned on resolving subrogation claims by insurers.
- Insurance Recovery: The timing and amount of insurance recoveries to offset wildfire liabilities are currently indeterminable.
- Credit Ratings: HEI and Hawaiian Electric have been downgraded to below investment grade (S&P affirmed "B-" with Negative outlook), restricting access to capital markets.
- Dividend Suspension: HEI suspended its quarterly cash dividend in August 2023. Hawaiian Electric suspended its dividend to HEI starting with the Q2 2024 payment. ASB also suspended dividends to HEI.
Investor Verification Checklist
- Settlement Agreement Status: Verify the finalization of the definitive settlement agreement for the Maui wildfires and the specific terms regarding the $1.99 billion contribution.
- Financing Execution: Monitor the Company's progress in securing the capital necessary to fund the wildfire settlement and meet debt obligations.
- Insurance Recoveries: Track updates on insurance claim approvals and payout amounts related to the wildfires and the destroyed ASB Lahaina branch.
- Regulatory Approvals: Watch for Public Utilities Commission (PUC) decisions on the Asset-Based Lending (ABL) facility and cost recovery mechanisms for wildfire-related expenses.
- Bank Liquidity: Review ASB's regulatory capital ratios and liquidity position given the goodwill impairment and strategic review.