NorthWestern Corporation (NYSE:NWE)
Q2 2016 Earnings Conference Call
July 22, 2016, 11:00 AM ET
Travis Meyer - IR
Robert Rowe - President and CEO
Brian Bird - CFO
John Hines - VP, Supply
Paul Ridzon - KeyBanc
Brian Russo - Ladenburg Thalmann
Good day, everyone, and welcome to the NorthWestern Corporation Second Quarter 2016 Financial Results Conference Call. Today's conference is being recorded.
And at this time, I would like to turn the conference over to Mr. Travis Meyer. Please go ahead, sir.
Thank you, Lora. Good afternoon, and thanks for joining NorthWestern Corporation's financial results conference call and webcast for the quarter ended June 30, 2016. NorthWestern's results have been released and the release is available on our website at northwesternenergy.com. We also released our 10-Q, pre-market this morning.
On the call with us today are Bob Rowe, President and Chief Executive Officer; Brian Bird, Vice President and Chief Financial Officer and several other members of the Management Team in the room with us today to address your questions.
Before I turn the call over for us to begin, please note that the company's press release, this presentation, comments by presenters and responses to your questions may contain forward-looking statements. As such, I will remind you of our Safe Harbor language.
During the course of this presentation, there will be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financial performance and often contains words such as expects, anticipates, intends, plans, believes, seeks or will. The information in this presentation is based upon our current expectations of the date hereof, unless otherwise noted.
Our actual future business and financial performance may differ materially and adversely from expectations expressed in any forward-looking statements. We undertake no obligation to revise or publicly update our forward-looking statements or this presentation for any reason. Although, our expectations and beliefs are based upon reasonable assumptions, actual results may differ materially. The factors that may affect our results are listed in certain of our press releases and disclosed in the company's Form 10-K and 10-Q, along with other public filings with the SEC.
Following our presentation, those who are joining us by teleconference will be able to ask questions. The archived replay of today's webcast will be available, beginning at 6:00 PM Eastern Time today, and can be found on our website, again, at northwesternenergy.com, under the Our Company, Investor Relations, Presentations and Webcasts link. To access the audio replay of the call, dial 888-203-1112, then access code 2437706 that’s access code 2437706.
I'll now turn it over to our President and CEO, Bob Rowe.
Good morning, everyone. Thank you, Travis. I'll start with some high level results and then turn it over to Brian for the financial report. Net income for the quarter was $35.6 million or $0.73 per diluted share and that is compared with net income of $31 million and $0.65 per diluted share for the same period last year.
This $4.6 million, which was a 14.8% increase in net income is due primarily to improved gross margin and lower income tax expenses. However, these improvements were partially offset by the inclusion of a $20.8 million recovery in environmental related costs in our second quarter of 2015 as a reduction of operating costs.
Non-GAAP adjusted earnings per share increased 35.4% to $0.65 as compared with $0.48 for the same period in 2015. On July 12, parties involved in the Colstrip litigation and that includes all of the Colstrip owners plus the Sierra Club and the Montana Environmental Information Centre reached a settlement and lodged a consent decree with the Federal District Court that provides for no shutdown date for Units 3 and 4 and dismisses all claims against all units. I'll come back and talk about that in a little more detail.
Also issuance of $60 million of South Dakota first mortgage bonds at a fixed interest rate of 2.8% maturing in 2026 to refinance our 6.05%, $55 million first mortgage bonds, which were due in 2018. At its meeting yesterday the Board approved a quarterly stock dividend of $0.50 per share and that is payable on September 30.
Off to you Brain.
Thanks Bob. On Page 5 in the Summary Financial Results for the second quarter we’re pleased with the results. As Bob pointed out, net income improved $4.6 million or 14.8% on a fully diluted earnings per share perspective of $0.08 or 12.3%.
Again the details throughout the P&L, but a very high level with a $20.3 million improvement in gross margin, partially offset by a $17.8 million increase in operating expenses for a $2.6 million improvement in operating income.
Just below the operating income line we did have an increase in interest expense that was more than offset by an improvement in income taxes, again resulting in a $4.6 million improvement in net income.
Regarding gross margin, on Page 6, regarding that $20.3 million improvement, you can see all of that improvement was in our electric segment of our business, that was up 13.3% and the high level items from gross margin, those items impacting net income, the first three shown there the lost revenue adjustment mechanism, effectively those were deferred revenues we've referring over the last three tracker periods.
I may recall as a result of a tractor decision several years ago, we started booking lost revenue adjustment mechanism, revenues of about $7.1 million per year. Over that three-year time period, our LRAM revenues were actually higher than that.
But the amount over $7.1 million we deferred the most with the final order that we received in the second quarter on the previous tracker periods we determined based upon that final order to release those deferred revenues, resulting in a net improvement $12.6 million for the quarter.
Second item is the $10 million improvement in South Dakota electric rate increase of course inclusive of Beethoven improvement and the third item is $6.1 million electric QF adjustment. Effectively we had that adjustment in 2015. In fact we did not have that adjustment in 2016 is the result of the improvement on a year-over-year basis.
Those are the three biggest drivers obviously in our electric and gas business and you don’t see a material change in that on a year-over-year basis. What I would argue here is we had improvement certainly in customer loads, good, excuse me, in customer increases on a year-over-year basis, those were offset by loads primarily due to weather.
The total exchange in gross margin impacted primarily as a result of those top three items I talked about was $27.3 million. We do have a $7 million of items that reduced gross margins, but those items are offset elsewhere within the P&L.
The biggest driver of that is the hydro operations, with the Kerr conveyance, we have lower margin in our business as a result of no longer having paying the Kerr rent and other items associated with the Kerr conveyance. Net, net, taking all those things into consideration, we had $20.3 million increase in consolidated gross margin for the quarter.
On Page 7, the second quarter is an interesting quarter for us. We transitioned, of course certainly from a heating period into a cooling period. I do want to point out the top of the page those are quarterly numbers and as you can see at the top of the page the number of cooling degree days in the quarter are substantially lower than heating degree days.
So even though June is a cooling degree period, it is actually more of a heating degree period for us. And matter of fact, one of the reasons we showed, we broke things out by month-by-month on year-over-year basis and primarily, I want to point out on the heating degree side, at the top of page again in the quarter on historic average where you can see substantially warmer in Montana, South Dakota and Nebraska, so versus normal, that's resulted in a $5.7 detriment versus normal and we'll talk about that later.
But even on a year-over-year basis, because it was so much warmer in April of 2016 than it was in April of '15 in Montana, is the primary driver for an impact on our business.
Moving forward, our operating expenses for the second quarter, you’ll see operating expenses increase $17.8 million or 13.7%. You can see in all three categories operating, general and administration, property tax depreciation depletion, each of those went up significantly during the quarter.
As you get into the details of that $10.9 million increase in OG&A, the biggest driver was a $20.8 million insurance recovery that we received in 2015, so on a year-over-year basis we look $20 million worse as a result of that.
That, the other item, hydro operations the Kerr conveyance not having those operating costs on a going-forward basis, so of result in a year-over-year basis from that item.
In the following items, I would categorize to a great expenses, but a big part of our cost control. I’ll take the [DCIP] expenses for instance in the other category and those two items captures a lot of the cost controls, the total company has really done a nice job during the quarter managing our expenses and definitely shows up in those two categories.
If I looked at operating, general and administrative expenses at the top of the page, that $10.9 million increase in expenses of course would have been about a $10 million decrease and we remove the insurance recovery. So again it demonstrates how we've managed costs certainly during the second quarter.
Regarding property taxes, primarily they're up $2.7 million or 8%, primarily a result of plant additions and property valuations in Montana. And lastly in terms of depreciation, $4.2 million increase, a third of that associated with the Beethoven wind acquisition last year.
Moving on to Page 9, in terms of operating income, at the top of the page up $2.6 million or 4.3%. As I mentioned earlier, below that an increase in interest expense really from three drivers. First and foremost as a result of the MPSC disallowance and Colstrip, we had interest for that three year time period that equates to about $2.9 million that we’ve booked during this quarter. We also had increased debt on a year-over-year basis and we had lower capitalization AFUDC for the quarter as well.
The other significant driver during the quarter is an improvement in income taxes and really the two primary areas there really are for higher flow-through repairs deductions and higher production tax credits. So net-net, income again net income up $4.6 million or 14.8%.
Moving on to the balance sheet on Page 10, a significant amount of change, obviously I would like to see a continued increase in PP&E and increase in shareholders’ equity certainly the case, but as I pointed out not a significant amount of change, a matter of fact the ratio of debt to total capitalization stays the same at 55.2% as of the end of June versus the end of December.
Moving on to cash flow on Page 11, cash flow from operations was down approximately $49 million. Really the two biggest drivers associated with that decrease on a year-over-year basis was we refunded $30.8 million of cash to our large industrial food customers associated with the DGGS FERC ruling, we are required to do that during the quarter and we did that, another primary driver was just the $9 million or approximately $9 million difference in net income on a year-over-year basis.
Cash dews and investing activities was about the same around $121 million and so the main difference in the financing activities we raised approximately $30 million more debt on a year-over-year basis.
Moving forward to the income tax reconciliation, you can see the top of the page income before taxes, there was a significant amount of difference between the two, but we did see a $5.3 million improvement in the income tax expense in the primary drivers I talked about flow-through repairs deductions increased on a year-over-year basis, production tax credits associated with Beethoven, certainly associated with the increase there and we did have some differences in state income and net of federal provisions for the quarter.
Moving to Page 13, non-GAAP adjusted earnings and we know there is a lot of information here on this page, but I hope it's helpful to investors. What we're trying to do here, on the top of the page you can see for the three months ended June 30, '16, we show our GAAP numbers in the far left column, with the adjustments that we make, prior year adjustments or things like weather.
We make those adjustments and move towards a non-GAAP number and of course through the middle of the page, we also do the same thing in 2015 going from the far right GAAP to non-GAAP. So in the middle of the page on a non-GAAP basis, try to compare results.
If you take a look at gross margin for instance from GAAP moving from $211 million to around $202 million on an adjusted non-GAAP basis comparing that $202 million to $192.8 million non-GAAP from 2015, you see a $9.3 million improvement or 4.8% and again I would equate that primary reason for the increases, the South Dakota rate case, Beethoven and organic growth are primary result of good customer growth we've seen.
On the operating expense standpoint, when you make the adjustments, very few adjustments in 2016, but in 2015 for instance adding back the insurance settlement showing the impact of how Kerr flows through the income statement. You can see comparison on a non-GAAP basis of $147.5 million versus $146.2 million in 2015.
There was a slight increase in total operating expense of $1.3 million or 0.9%, but more importantly, one thing we've been able to do to offset the increases in property and other taxes and depreciation is certainly doing a nice job of managing OG&A and so on a comparative purposes, that’s actually down 7.5%.
Taking now into consideration, we saw a nice improvement in operating income on an adjusted basis, $8 million and 17% was down to a $6 million improvement in pretax income and ultimately an $8.7 million net income or 37.8% increase.
Finally on this page, diluted EPS, I pointed out earlier in the call on an adjusted basis $0.65 versus $0.48 on an adjusted basis for 2015 or $0.17 or 35.4% improvement year-over-year for the quarter.
Moving forward on a year-to-date results on Page 14, we do show $73.6 million year-to-date and net income, that’s $8.8 million or minus 10.7% variance on an earnings per share basis diluted $1.52 versus $1.74, a 22% decline on a year-over-year basis.
The primary drivers there, we did show improvement in gross margin, but certainly overwhelmed by the increase in operating expenses on a year-over-year basis. So operating income actually down $19.3 million and it would again point out the $20 million insurance recovery. If you back that out, we would have seen about a flat operating income on a year-over-year basis.
Moving forward to weather on Page 15 and I think this page might be even more impactful, just to kind of give an understanding of what we've seen from weather on a year-to-date basis to the quarter or excuse me, on 2016 year-to-date versus '15 on a historic average, it's significantly warmer throughout all our jurisdictions, resulting in about $12.8 million year-to-date impact that we're associated with weather.
And as you look at the maps, the bottom half of the page on the bottom right, you can just see that the hottest spots really versus normal weather in the country that was in our service territory to a great extent in Montana, South Dakota and Nebraska.
You look to the far left, what might be even more impressive or maybe we could say disturbing is in 2016, it was the second warmest period in Montana, the fifth warmest in South Dakota and fifth warmest in Nebraska over the last 122 years and so certainly it's having an impact on our business on a year-to-date basis.
Page 16, I won't go into the same amount of detail based on the line items certainly the information is there, but the main thing that I want to point out, the very bottom of the page on adjusted EPS perspective, back to $1.66 in 2016 year-to-date versus $1.66 in 2015 and so the way I would sum that up and probably the best is to maybe move on to Page 17 on a non-GAAP adjusted EPS perspective through the first half of '16, again I show the $1.66 versus $1.66 in '15 and made up a lot of lost ground for the first quarter.
There is still a lot of work to be done. If you see on Page 17, for the third and fourth quarter of 2015, we had a $1.49 in the second half of '15. We need a nickel to $0.20 higher for the remainder of 2016 or a $1.50 to achieve a $1 or $1.54 to $1.69 in order to achieve $3.20 to $3.35 earnings guidance. So we look confident in terms of progress we made in the second quarter that we'll be able to achieve that.
And with that on Page 18, not any significant changes in terms of our discussion around earnings guidance. We did remove language associated with the date case generating station in terms of any FERC decision there. Obviously that decisions have been and had, but as we move forward, we view again as I said confident, we’ll be able to achieve our $3.20 to $3.35 for the quarter.
And with that, I will put it back to Bob.
Thank you, Brian. And on Page 19, you see your capital spending forecast out through 2020 and you're familiar with this depiction. Very solid focus on our operating units, you'll see South Dakota Electric and Montana Electric, Montana Gas and South Dakota Gas and then we’ve identified as you know some electric supply needs in both jurisdictions.
So the cumulative estimated capital spend over this period is $1.6 billion and this reflects a $187 million increase from the capital plan that was included in our 2015 10-K and about $122 million of this increase is for internal combustion units that were identified in the Montana supply plan and $65 million for peaking facility in South Dakota.
And the actual spends on these assets will be subject to development of our plan for clear approach to regulatory recovery. And additional information that is available in our 2015 Montana and 2014 North Dakota Electric resource plan.
And then we do anticipate funding our identified capital projects with a combination of cash flows aided by NOLs that are now anticipated to be available into 2020 and then long term debt and then if other opportunities arise that are not in these projections such as natural gas reserve acquisition, new equity funding may be necessary maybe to deal with that.
We’ve discussed our 2015 Montana Electric Supply plan in previous calls and we really do like where we are in Montana right now with a very diverse set of assets and the ability to focus on some areas where some of our utilities have been focused for quite a while.
We look like much of the rest of the region and our focus on planning to meet peak needs. We look different from our peers and that we have essentially a negative reserve margins. And over the coming years, we need to -- we need a plan to address this operating reserve and thinking back to an Investor Meeting we had a couple of years ago over lunch at one of the conferences and we got the question well, “tell me about your -- your reserves”.
We don’t have any reserves. Look of kind of shock around the table. What you mean you don’t have reserves. So this is one of the needs that we are planning to address.
Turning to 21, put on your cheaters to see what’s going on here. To the left is our current capacity. You see a couple of -- these are thermal resources, thermal [QS] rolling off over the next several years and then you see on the right, our current plan to meet what we anticipate to meet our needs.
We refer to this as our economically optimal portfolio again recognizing that there are various strategies as to how to meet these needs. But in terms of providing our customers long term leased cost, least risk, reliable service, this is the economically optimal approach to doing that.
We did last quarter start including on one page a regulatory update. On the left side, you see the subject matter and then on the right side you see the current status.
So from the FERC DGGS, as you know in April 2014, we received what we considered an adverse or a troubling order concerning cost allocation between our retail and our FERC jurisdictional wholesale customers.
FERC denied our request for re-hearing ultimately and we’ve now made refunds that occurred in June. Also in June we did file a petition for review with the U.S. Circuit Court with the District of Columbia and the briefing schedule has not been established there.
You’re all aware of the Commission of October 2015's decision eliminating the lost revenue adjustment mechanism in Montana. Brian spoke to the subsequent decisions there. We will of course be in future rate cases, but will be recovering our test year costs.
In those cases, we are looking at decoupling, as an option, we have supported a proposal in our last electric and gas rate case to reestablish decoupling in Montana.
Montana actually did have decoupling before supply de-regulation was certainly encouraged by the Montana Commission's interest in doing an inquiry probably a round table concerning decoupling and they're hopeful to set that this fall and we really are very pleased that they are interested in taking another close look at that subject.
The natural gas filing in October 2015, gas tracker addressing interim rates for our last two of three, two of our three gas production asset acquisitions, the Commission gave us an all set of alternatives as to how to proceed, but did say that an alternative to essentially everything up was to file a general natural gas rate case by October of 2016 to formally bring those assets into rate base and we do intend to file a general natural gas case by the end of September of this year.
And as we’ve discussed before we do a first look for each jurisdiction in the first quarter of the year and did conclude based on that it was appropriate to file a gas case in Montana this year.
Turning to Colstrip, in May the Commission -- the Montana Commission issued an order disallowing the recovery of replacement power costs that have been included in the electric supply tracker that concerned a 2013 outage at Colstrip Unit 4.
In May, we filed a motion for reconsideration with the Commission. The Commission invited other parties to brief that as well and the Sierra Club and Montana Environmental Information have submitted a brief to counsel that has not been scheduled for action yet by the Montana Commission.
Hydro compliance filing in December as we were required to as part of the earlier hydro acquisition case, we filed a compliance filing to remove Kerr project costs and to adjust for actual revenue credits and actual property taxes.
That was made as a compliance filing in January. The Montana Commission identified additional issues for Request of Information. Both we and the Montana Consumer Counsel have filed testimony there and a hearing is set for September. So we expect the Commission to issue an order in the fourth quarter.
Turning to Page 23, an update on the Colstrip Sierra Club Litigation, in March 2013, Sierra Club and MEIC as we mentioned, filed suit in Federal District Court against the six owners of the four Colstrip units and as you’re aware, Units 1 and 2 are older and smaller and Units 3 and 4 are the larger and significantly newer units.
Northwestern has a 30% joint interest in Unit 4 and then an operating agreement with Talen concerning joint operation of Units 3 and 4. So essentially we received 15% of the combined output of the unit.
The original suit was for alleged violations of the Clean Air Act and the Montana SIP of the case proceeded through discovery and litigation were a number of years. On July 12 we lodged a consent decree with the court and in summary, the decree provides that all claims against all units are dismissed.
It does not indicate a shutdown date for Units 3 and 4. It does provide that Units 1 and 2 must shut down by July 1 of 2022 and again Northwestern has no ownership interest in 1 and 2 and decisions about Units 1 and 2 will be made by the owners there and that is Talen and Puget and then it does permit parties to petition the court for attorneys.
So the consent decree has been filed and the statute the EPA, federal EPA and the Department of Justice have 45 days from July 12 to comment on the consent decree or to intervene as a matter of right and then we will see what position they take and ultimately what the court does.
In the appendix, I would urge you to take a look at Page 35, which gives an overall picture of our supply portfolio on the electric side, South Dakota and Montana and then combined and it’s a portfolio that we are really very proud of and then on Page 36, a slide that demonstrates the real value of the diversity of our Montana portfolio.
So with that, I'll open it for questions.
[Operator Instructions] And our first question will be from [Scott with Canon].
Hi, thank you. In the past, you guys have done a good job with acquisitions to grow your earnings and I was just wondering in the future, if you’re still considering acquisitions whether they be single assets or entire companies or what type of things you guys would be interested in or looking at?
Our primary focus really is on the plan that’s summarized in the capital slides and we’re actually very excited about that. We obviously don’t comment on transactions in the abstract.
I won't say that we have been disciplined about our approach to acquisitions and are focused on assets that do provide value to both our customers and our shareholders and if those kinds of opportunities present themselves, we're certainly going to be focused on them and pursue them to do that in a disciplined way, but again our core focus is on the plan that’s identified.
Okay. Thanks. And I guess some of the power plants looks like you’re building over the next five years. Do those need some kind of approval before you start construction or do you just build them and then get recovery later on or how does that -- how should we think about that?
It’s going to depend on the specific asset. In South Dakota there is a statue, it's actually a broad statue that allows recovery for, but are called major projects and interestingly that statute has been expanded to include infrastructure more generally.
In Montana there is a statue that provides the commission I think good tools to evaluate significant projects in advance and make decisions before significant capital is committed. So those are -- that’s a tool that’s available to the commission and to us. It’s something that we would view when we end the commission and clearly it makes sense.
For smaller projects that is something that would not necessarily be the case. Before actually go into construction on any project, there is a tremendous amount of work that needs to be done in terms of site selection, project design and various permitted requirements and those are certainly on the soft side of site selection you can be doing in the run-up to determine for making major capital commitments.
Got you. So for the Montana IC Units, I guess we should see something be filed at some point in the future. Do you have any timeline on that?
Not a specific timeline. No, beyond again what’s identified in the supply charts that we included in the material.
Okay. Thank you very much.
We will go next to Paul Ridzon with KeyBanc.
Good morning, Paul.
The cost cuts you had in the quarter, how sustainable is that savings? Is it kind of one time or how much can we carry through for the rest of the year and into next?
I'll start and then hand it off to Brian. First we pride ourselves on running a lean efficient organization. Just a couple of weeks ago, we shared some benchmarking down with the Montana Commission. So we think we posed up very well against our peers and that’s something that we just build into our ongoing operating and it becomes if anything more important this year and into next year.
And we start every budget process with a recognition of have to be able to make changes smartly, but quickly as the year goes on. So certainly we want to continue being efficient, but we want to do that while we’re allocating our resources and most importantly and Brian can add some color to that.
Yeah, I think I might add Paul, I think Bob did a nice job of answering the question. I think from our perspective, last two years we've seen unseasonable mild weather that’s impacted our business and we need to plan accordingly that that might not change materially and so I think we’ve just done a nice job.
This is throughout the company by the way and I’m very pleased that everyone is stepping up and looking at from a cost perspective trying to manage those things. But be aware that making sure we do those things that are most important on a going forward basis as well.
So I think we’ve done a nice job in the quarter. We'll continue to be focused on cost control, but obviously we want to continue to provide great customer service on a going forward basis too.
And then the Dave Gates refund that hit this quarter, that did not flow through the income statement, is that correct?
And then just constant landscape for incremental gas reserve acquisitions, it’s been kind of a tough market to transact and any changes there?
You're right. It’s a tough market to transact. Our folks are certainly actively looking.
And then any sense of this next court case that was for Dave Gates, is this months, or years, can you just kind of put one booking on it?
Yeah, most likely I would say years.
Thank you very much.
It is the federal court system.
[Operator Instructions] We’ll go next to Brian Russo with Ladenburg Thalmann. Please go ahead.
Hi, good morning.
Just to clarify, given that you don’t have ownership or a role in Units 1 or 2, that there is no replacement power needed for Northwestern as a result of the Units 1 and 2 retirement. Is that correct?
That’s correct. A little more color there though, 1 and 2, first of all serve Puget's customers in the State of Washington, but secondly, Talen's ownership has been an important asset on the market in Montana for the industrial sector and as you know, where the electric supply provider for retail customers that was a very significant industrial load in Montana that benefits from the presence of those units in the market and avoids the wheel back from the mid Columbia trading hub as well.
So, the eventual shutdown of one and two will have an impact in the State of Montana.
Got it, and was Northwestern a party of the settlement or no?
Yes. And the settlement documents make clear that we do not -- that’s a decision around shutting down 1 and 2 is the decisions for the owners of 1 and 2. We obviously were pleased that the decision clears all of the back litigation and uncertainty for 3 and 4 and our interest in Unit 4 continues to be extremely valuable to our customers and again I think Slide 36 in the appendix is a very graphical illustration of that value.
Okay. So just to clarify, you were not part of the settlement.
We were a part of the settlement.
You were part. Okay. Got it. And then is that -- I might have missed this earlier, but the SMBs that were issued, when did that occur and then when did the refinancing occur?
In the second quarter Brian we developed -- the financings took place.
Okay. So that -- the interest expenses savings is embedded in your guidance reaffirmation.
Yep, that’s correct.
We continue to explore further opportunities to reduce our interest cost.
Got it. And then is there any potential financial impact scenario of this hydro compliance filing given the particular outcome can -- would there be a financial impact?
I can describe the range of issues, under the contested case, the focus is on A&G. The commission issued -- raised an additional issue asking whether there should be essentially a pro rata adjustment of A&G based on the amount of generation associated with the Kerr relative to everything else, that would be potentially $2 million.
We obviously filed testimony explaining that in fact those -- the A&G costs aren’t diminished at all in that way and then consumer counsel filed testimony that the why you could look at it, two ways. You could look at it essentially the way Northwestern does or if you didn’t want to do some kind of a pro rata reduction, the amount would be about $1.1 million, not $2 million.
Now we have indicated that based on adjustments we think are appropriate, about a $600,000 A&G reduction would be profitable. Brian anything to add to that.
I think that’s fine Bob.
Okay. Great. Thank you.
And there are no other questions in queue at this time.
Great, well thank you very much. I feel like you're letting us off easy, but I’ll take that and we look forward to seeing many of you over the coming months and visiting with you next quarter. Thank you.
That does conclude today's conference. Thank you for your participation.