Good morning, everyone, and welcome to the Darling Ingredients, Inc. Conference Call to discuss the company’s First – Fiscal First Quarter 2015 Financial Results. With us today are Mr. Randall Stuewe, Chairman and Chief Executive Officer of Darling Ingredients; and Mr. John Muse, Executive Vice President and Chief Financial Officer. After the speakers’ opening remarks, there will be a question-and-answer period and instructions to ask a question will be given at that time. This call is being recorded and your participation implies consent to our recording of this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the conference over to Ms. Melissa Gaither, Director of Investor Relations for Darling Ingredients. Please go ahead.

Thank you, Dan. Good morning, and thank you for joining us to review Darling’s earnings results for the first quarter ended April 4, 2015. To augment management’s formal presentation, please refer to the presentation section of our IR website for the first quarter earnings slide deck. Randy Stuewe, our Chairman and CEO, will begin today’s call with an overview of our first quarter financial performance and discuss some of the trends that impacted the quarter. John Muse, Executive Vice President and Chief Financial Officer, will then provide you with additional details about our financial results. Additionally as noted in our press release yesterday, we included adjusted diluted net earnings per share, adjusted EPS based on adding back non-cash amortization charges and excluding from adjusted EPS special non-operating items, including those related to large acquisitions. Please see the full disclosure of our non-U.S. GAAP measures in both our earnings release and on slide 21 of the slide presentation. Finally, Randy will conclude the prepared portion of the call with some general remarks about the business, after which time we will be happy to answer your questions. Now for the Safe Harbor statements. This conference call will contain forward-looking statements regarding Darling Ingredients’ business opportunities and anticipated results of operations. Please bear in mind that forward-looking information is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Darling’s Annual Report on Form 10-K for the year ending January 3, 2015, our recent press release announced yesterday and our other filings with the SEC. Forward-looking statements in this conference call are based on our current expectations and beliefs and we do not undertake any duty to update any of the forward-looking statements made in this conference call or otherwise. With that, I’d now like to turn the call over to Randy.

Thanks, Melissa. Good morning, everyone and thanks for joining us. First half as Melissa noted, our earnings deck is available on our website. We have attempted to provide additional transparency and clarity by including additional information and bridge analysis. We continue to strive for our shareholders and analysts to have a better understanding of our business drivers and expected performance. On a sequential basis, adjustments made in Q4 2014 are now beginning to take route. First quarter 2015 adjusted pro forma earnings modestly improved over fourth quarter 2014 when you take into account, the FX fluctuations, restructure charges in our gelatin business in France and the fact we had one less week of operating earnings. When considered, our platform delivered improved earnings while once again watching many of our finished product prices decline. Overall, many of our businesses are performing well and margins have normalized, while a few still need some tweaking. Let’s begin with the review of the driving factors impacting performance, and then we’ll discuss the segment operating results in more detail. On a translated basis, our lower EPS reflects significantly weaker exchange rates, year-over-year and quarter-over-quarter and clearly distorts the underlying functional performance of both our VION and Rothsay acquisitions. One must remember, at the time of the acquisition the euro was trading in the mid 130s and the Canadian dollar was close to parity. For comparison purposes, the euro average 1.12 and the Canadian dollar averaged $0.80 on the dollar for Q1. From our perspective, we are extremely pleased with our acquisitions of VION and Rothsay and they’re delivering investment case returns with one exception, our Canadian biofuel business. This is a single plant operation in Montréal that it’s capable of producing approximately 14 million gallons of biodiesel annually. For the quarter, it operated in the…

Okay, thanks, Randy. Before I begin I want to point out a few items. As Melissa said, we’ve provided a slide deck detailing segment operating results on both the sequential and quarter-over-quarter basis. We further outlined the EBITDA bridge from the fourth quarter 2014 to the first quarter of 2015, which we believe is helpful and reviewing segment results. As you know, we regularly monitor Jacobsen index for finished product pricing for the feed ingredient segment in the U.S. And in Europe, we monitor the Thomson Reuters to track competing commodities in palm oil and soybean meal. To that end, we provided an additional slide detailing average Jacobsen and Reuters finished product commodity pricing for 2014 through first quarter 2015. This is on slide 11. It’s also important to note that the first quarter 2015 results include 13 weeks of operation from VION acquisition as compared to 12 weeks in the 2014 first quarter. On a sequential basis, fourth quarter 2014 included 14 weeks of operation. As such, both quarterly periods include after-tax acquisition and integration costs, which are outlined in the earnings slide provided on page 4 in yesterday’s 10-Q. Now, for the quarterly review. As Randy said, first quarter results were impacted by lower finished product pricing, especially in the global fats market and the impact to foreign exchange due to the strong U.S. dollar compared to both the euro and Canadian dollar. Net income for the first quarter was $0.1 million or breakeven per diluted share, compared to a net loss of $52.8 million or a net loss of $0.32 per diluted share for the 2014 comparable period. Without the inventory step-up costs, the redemptions premium and deferred loan write-off associated with the 8.5% senior notes, the acquisition and integration cost and the euro forward hedge contract,…

Thanks, John. Functionally and globally, our businesses are improving. Our team is making changes, and we are committed to delivering to the best of our abilities. While we expect continued FX headwinds to impact results, our volume improvements are expected to remain across all businesses. Globally, we are seeing improved fat prices as our discount to soybean oil and palm oil was simply unsustainable. Additionally, the world seems to be in a process of clarifying renewable fuel programs. Europe recently clarified their commitment, and long term, it is most likely friendly to our industry. However, proteins might begin to soften around the world, especially if there is continued disruption in North America to the poultry business. For the second quarter, it is important to point out that our finished product pricing for fats and proteins is down significantly year-over-year. Percentage-wise, this is displayed in our earnings deck. And lastly, we are on track with construction of our five new processing facilities. To close, we are confident in our business model and our opportunities for long-term growth. We’ll continue to focus on widening margins, managing costs and maintaining a strong balance sheet. So with that in closing, let’s go ahead, Dan, and open it up to Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instruction] Our first question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Yeah. Thanks. Good morning, everyone.

Good morning.

So, maybe first question on Diamond Green. I want to just make sure I understand the performance in the quarter. Last quarter, ex the tax credit, Diamond Green was about breakeven on an operating basis. RIN prices sequentially were up close to $0.30 quarter-on-quarter, feedstock costs were down, and diesel prices were up. Try and help to reconcile that with the EBITDA per gallon of the plant, which was only about $0.12. Just can you help me reconcile kind of operating profit to Diamond Green relative to general commodity and RIN price movements that should have been helpful to you guys?

Yeah, Adam, this is Randy. I would give you a little direction there as – there’s a pretty big lag effect that happens with the supply chain into that plant. And then, there were some forward positions in there that most likely impacted most everything. I mean, the plant produced 37 million gallons, you had the feedstock prices. While it did come down in the quarter, remember that that unit itself has about a 60-day pipeline that’s attached to it at all times. And so, you got [indiscernible] a little bit on the heating oil side, but for the most part, you’re going to see a pretty substantially improved performance both in gallons and also in margins in Q2 as the supply chain effects roll through.

Okay. That is helpful. And then maybe over in Restaurant Services. Randy, you alluded to a series of margin actions that you’re putting into play that should benefit the business unit in the second half of the year. Can you help quantify what you think the benefit could be? And specifically, did that embed in improving in yellow grease pricing or would that drive underlying earnings growth in a flat $0.22, $0.24 yellow grease price environment?

Well, I think, first off, Adam, I mean, we want to – the Restaurant Services is a business that needed some serious attention. We have done that. The first thing you do is we’ve reexamined all the geographies we operate in, and make sure and looked at each customer and how we were pricing their material into the plants. That business got a little bit, I would say – I don’t know if the words out of control or out of balance, what kind of the biofuel frenzy of the last couple of years as it became easy to enter the business and become a collector, and you didn’t really have to process the product. You just dropped it off at your local biodiesel plant. So, it – we’ve gone back, looked at each geography, adjusted our procurement formulas and how we pay customers, that’s number one and that’s the biggest pieces. The second thing is that as prices came down in different geographies, especially on the coast where your higher cost operating serve, we have instituted charges. Those charges are also in the fat and bone area, too. But also, predominantly in the restaurant services area. And then, finally, hopefully if we do get some clarity in the renewable volume obligation here, hopefully, we’ll see those prices pick up seasonally. The – ultimately, if you say what’s it worth to us – John and I are making eye contact here – $5 million to $10 million by the end of the year.

That’s an annualized – that’s annualized? That’s not – so, it wouldn’t be $5 million to $10 million in a quarter, it’d be – that’s the annualized benefit?

No. I’d love that, but no.

Okay. That’s helpful. And then, maybe one quick last one for me on SG&A. It came down pretty meaningfully sequentially, notably in the feeds segment, but at the corporate level as well. Can I – any color there, and any countenance on full-year SG&A expectations for the company?

Well, as Randy said, we’re continuing to work our own SG&A looking at it. A year ago, and then, sequentially, we have now taken a lot of the consultants out that were in here on the ERP project, that had a huge impact as we built our IT group up to support Oracle. We did have some duplication of calls during that period. Those consultants are out. But we are also relooking at the structure now that we’re running at our self. We have made some changes. We have reduced people at the corporate level. We’ve also reduced SG&A in the field. And a lot of that was done during the – right at the end of December but also in first quarter. Some of the costs that is involved in that is in the integration line where there is some severance just like we had with [indiscernible]. We’re going to continue to look at opportunities and try to drive SG&A costs down. Our goal is to get that down below 85. We could see some ups and downs during the year. We have, in a lot of cases, where we had some consultants helping in some areas other than IT. We’re going to be doing that work our self now, and have some very large savings in that area as well. So, we’re focusing on that and continue to try to drive that down.

And just to be clear, 85, I mean, SG&A. So, below...

85 a quarter.

85 a quarter. Okay, great.

Yes.

Perfect. Thank you.

And our next question comes from Carla Casella of JPMorgan. Please go ahead.

Hi. Question on the EPA and its ruling on June 1 with the common period through November. If it ruled favorably, would you get the credit in June or do you wait till after the November, the common period?

Well, Carla, this is Randy. I guess what – it’d be nice to think the tax extenders package would come before December but I think we’ve seen the movie before and we’re expecting to watch it again this year. We do spend quite a bit of time on Capitol Hill and feedback to us and all of the visits we make or that they fully expect the tax extenders package to be a last minute pre-holiday exercise again. Now from the EPA, what we’re anticipating here is within the next couple of weeks is to have the mandate levels published for 2015, hopefully 2016 and 2017 is what we’re being told and we’re hoping that they come in at the current production levels of between 1.7 and 1.8 and maybe step on up from there. That’ll provide some pretty significant floor to the business here and some pretty interesting demand for our products. And so, that’s about the best we can hope for admittedly. There’s a comment period out there until November which can lead to all kinds of speculation. I think what was most interesting about the EPA’s earlier press releases was that they were working to resolve some issues within the petroleum industry, and it looks like the REIT had a consent decree there which would say if that’s behind and then this should be a pretty good platform form them to move forward here. It just doesn’t make sense to publish something and then have more litigation from the people they just settled with. But it’s Washington and anything is possible.

Okay. Great. And on then the bank leverage covenant. You set it at 5 times, no step-down. Are you implying that you expect your levers to tick up from where it is currently or are you just trying to allow for at least return of cushion?

Well, allowing for return of cushion, a little more conservative in my approach, but, yeah, follow the 2014 and the first quarter of 2012, the leverage ratio was 5, 5-0. It was supposed to step down to 4.75. Our leverage at the end of the first quarter is 4.19 and we expect to basically work our way down from there. So, yeah, that was the only reason. It just had more headroom.

Okay. Great. Thank you.

Our next question comes from Ken Zaslow of BMO Capital Markets. Please go ahead.

Hey. Good morning, everyone.

Good morning.

Just a couple of things. The fire and the shutter plants, how much of an impact was that?

Well, the plant up in Montréal, Ken, is number one, there was no margin in the biodiesel business. So, probably a little bit of a blessing in disguise there in the Q1. But that plant runs 14 million gallons. And so, if you say it runs 3.5 million a quarter, it ran 50% capacity. So, to a degree if you back into in and the way the biodiesel industry is working out there with receiving only 50% of the tax credit, if it’s available, yeah, and you know we left 1.7 million gallons on the table and probably $800,000 to $1 million there. The plant down in Texas, the Caldwell, Texas was an acquired or a leased facility from Custom Blenders where we thought we could operate it until the brand Texas plant came up. That was what diligence told us. We assumed an operating rate to simply just – we could never get there and the capital to get it to there was not a good decision. So, down there, I think I would say that we’re probably leaving on the table around $0.5 million a month right now until we – in trucking fees and storage fees until we can get to Bryan, Texas, up here around August.

Okay. Then – and you didn’t quantify – you’ve said – you didn’t quantify the actual cost-cutting initiatives. Is that another $5 million to $10 million annually?

The cost-cutting initiatives within that were solely within the people or the head count. And yes, that’s – the target is in that $5 million to $10 million range. It will trickle in over the course of the year. There’s been some pretty significant headcount reductions that have already taken place, and those will phase in over time here.

Okay. So, we have that plus the annualized new fees for the restaurants, so we’re $10 million to $20 million increased profitability relative to where we are now. Is that a fair statement?

That’s what we’re shooting for on the run rate.

On the run rate, yes.

Okay. And then you also said that the – do you have any issues left in your Diamond Green Diesel joint venture? I know you said that this full [indiscernible] positioning. How much was that as an impact into your earnings and is there anything left over we’re going to actually operate at margins that we could actually see now?

I would tell you that it’s going to operate at the margins we can see now, Kenneth. I mean, second quarter is operating closer on a spot basis that I was looking at anywhere from a $0.45 to a $0.60 margin right now. And obviously, the annual production rate that we’re telling you to assume down there is – our goal is to put out 160 million gallons this year.

Okay. And how much was the forward position that is significant?

That, Ken, I don’t want to quantify that. It’s just a supply chain – if you look at it, you’re always carrying 60 days inbound, and the market probably went down a couple – $0.02, $0.03 on us. And that’s the delta between it.

Okay. Has there been any impact – your competitor’s Geismar plant obviously went down. Is there an impact on you guys at all on the rendering price just because there’s not enough demand from that? And does that change after two to four months when it goes back up?

I mean, we welcome it to be up because it’s another great demand point. It was consistently running. Obviously, much like our challenge that we had last summer. I mean, when they went down, they had quite a supply chain that they had to unwind and that backed up into the Midwest again. We were able to take advantage of a little of that and put it into our supply chain. And then the second thing is that a lot of the biodiesel industry right now is really idled back because of the same margin issues that we see in that business up in Canada. And then you couple that – the biodiesel business, predominantly in the Midwest was operating on a blend of choice white grease and used cooking oil. And so, that’s what softened those prices, the choice white grease, the hog slaughter and the weights of hogs, as you know, being a follower of the protein, are just unbelievable right now. So there’s just a ton of choice white grease out there. And with Geismar down and the biodiesel industry in the Midwest predominantly REG, to a degree, idled back or the industry idled back, it’s just that’s what’s put the weight on fat prices. We are seeing fat prices come back here in the last two, three weeks for the month of April. And then, we are seeing fat prices in Europe come back also driven by the biofuel industry. They’re starting to ramp back up. As oil came back from $45 to almost $60 a barrel now, we’re seeing some startups again here.

And the last question is – and I think it’s like asked but I’ll ask it slightly different, is – and I’ll put you a little bit on the spot, what is good decision from the EPA on June 1 is what is considered a bad decision for your perspective?

A good decision is there is a mandate of 1.7 to 1.8 through 2017. A bad decision is a reaffirmation of the 1.28

Okay. Okay. Because the probability – okay, getting on the government is obviously not a good debt. But 1.7 to 1.8 seems like its well expected. Is that not? I mean, it would be a shocker if there was anything less than 1.7, 1.8, right? Is that fair?

Yeah. I’d say one, if anything lower than 1.6, it’ll be disappointing and the right people didn’t read the right memos and industry data again because to set it any lower than what the industry produced in 2014 would seem to be pretty foolish. But like you said, it’s Washington.

And would you expect as soon as that happens, that you’d get a demand call on your rendering products or would it take months? How long will it take for the demand call to start working through your system on the rendering side?

Well, I’m a little more optimistic than some around here. The view is that there’s a lot of choice why Greece out there off the hog industry to work through. But I think it’ll be – it will be friendly used cooking oil again and move it on up. And I think you would have to restart an industry here to a degree in the first quarter that was heavily running soybean oil. When you look at it, what’s kind of fascinating out here is to look at the – there’s the soybean oil complex and see that it’s now showing $0.33 a pound and, I don’t know, a couple months ago, we were at $0.30 a pound. So, the money is coming back into that. Clearly, they’re – the soybean industry and the canola crushing industry are going to have to ramp up here in a sense of making oil to fulfill a number that’s $1.7 billion, $1.8 billion out here. You’re seeing that, and that was kind of my comment that we can’t be as big a discount to soybean oil as we are right now. And if you kick in that mandate, it should be pretty friendly, our products here.

Great. Thank you very much.

Our next question comes from Dan Mannes of Avondale Partners. Please go ahead.

Thanks. Good morning, guys.

Good morning, Dan.

Good morning, Dan. First, I want to go back and discuss maybe a little bit some of those organic initiatives. Obviously, you have five plants under construction. Can you maybe remind us what the expected onlines are for those? And number two, what does your CapEx look if you X that out?

Well, let me take a couple of shots at that. Number one, CapEx for Q1 was about $50 million. It was about $50 million, $51 million in 2014. And so, that’s got some pretty heavy spending in the new plants that are underway with long lead time order equipment. And so, the – as we go forward here and roll forward, the two pet food plants are businesses that are being retrofitted, one in Ravenna, Nebraska at a retired cheese processing factory, and then in Paducah, Kentucky, a frozen storage warehouse that’s been retrofitted. Both of those should be online by the end of August is our goal here, I believe. The two rendering plants we have broken ground on the – one in Arkansas today, we are pushing dirt. Timeframe of that should be by the end of the year, first quarter. We anticipate that the processing plant that’s being built adjacent to it maybe online before that, which time that would go into our system already or be processed at our existing plants. And then the final plants up in the Upper Midwest. We have not broken ground on, but we’re anticipating that anytime and we should be up in late 2016. And then the Bryan, Texas, bakery plant is due to be finished here about August. So, all of those plants combined – as we’ve said before, we had a capital budget of around 250 for the year. About 175 of it was what we’d call normalized within and about 75 of it was growth, and that’s what’s in there, around 75. And then if you look at it with our earnings standards that we set to these projects, each of these projects have north of 20% to 25% returns, and that’s what we’re looking for to bring it on here in early- to mid-2016.

But the total budget for those five, is it just the 75 because, obviously, you spent some last year, and you’ll be spending some next year at least on the ones that are coming online next year?

Yes. Just there was a little bit last year, and then there’ll be a little bit next year. The bulk of it will be out this year.

Yes.

Got it. And then you’ve kind of talked about maybe cost initiatives in a couple different buckets and I’m going to go back over some territory I think that some other analysts have talked about. So you kind of laid out the improved pick-up fees and such on restaurant. You noted a cost, it sounded like a more broad cost plan and then to the SG&A. I’m wondering can you give a sort of an all-in number? Because it seems like there are a lot of moving pieces and I’m just – I think what everyone is trying to figure out is if we finally kind of bought it down on a core basis, we’re trying to figure out what the uplift is as we move into the second half of this year and next year?

I guess, all in, we would give you a range here before the new capital projects that are coming online of $15 million to $20 million.

Got it. And then theoretically as you said, roughly $75 million to spend the 20%, so it’s another $15 million. So theoretically, we’re looking at $30 million to...

Yes. And it’s safe to think another $15 million to $20 million in 2016.

Have you identified the next batch of organic growth projects? Or would you anticipate maybe cash flow kicking up a bit as we move into 2016?

The answer is yes. We’ve got another list of organic growth projects that are being worked on right now. The engineering and construction team is pretty stretched right now with what we’ve got going on here. But I think you’ll see us with several more opportunities that are similar to what we’re doing this year continue on into 2016.

Okay. And then lastly, just on the avian bird flu, I believe where most of it has hit has been the areas where you currently don’t have a rendering presence. But is there any flow-through impact to you either through where do you see demand and/or I don’t know if there’s any movement of birds or anything like that? Or is that something that mostly is missed you guys so far?

Well, it’s basically throughout the Midwest now, Minnesota and Iowa, have obviously been hit pretty hard and we’re pretty big players in both of those areas. Right now, we work closely with the state veterinarians on this. For the most part, the U.S. approach to eradication has been to compost bag and bury, if you will, on-site of where the disease was identified. And so, right, there is nothing coming into our plants. There’s been no, if you will, cold zones or safety zones that have been called around, where the disease is right now. So, I mean, it’s a fluid situation. I think the vets remain hopeful that as the weather warms up that it tempers the spread. But right now, discussions are happening, if you will, with the different governmental agencies on win and how strong it comes back next year. And so, one of the things, I think, that we like to point out to our shareholders, in the U.S., we don’t handle disease-mitigation type of situations right now. In Europe, that is our Rendac subsidiary that is geared towards taking in – we do take in avian influenza, cold birds into our different plants under hazardous conditions and processes. So, right now, there’s been very little or no impact on our business today. The only thing that we kind of always raise a little bit of a caution light on is it’s the layer industry and a turkey industry and both are pretty good consumers of meat and bone meal. And if we do get any type of momentum there, it could have a little bit of effect on the meat and bone meal pricing, and as we have to shift it to different markets. So, like I said, it’s very fluid, but no impact at this time.

Sounds good. Thanks, Randy.

Thanks, Dan.

Our next question is from Chip Moore of Canaccord. Please go ahead.

Thanks. Hey, Randy. On the edible fats business in Europe where we’re a little less familiar, can you talk about what you’re doing there with palm oil prices, how long that takes to flow through to margins?

Well, this is – yes. I mean, it’s a month-to-month deal. The volumes have been very strong there. Essentially what happens in that business is some of the fattier cuts of meat that are ending up in the edible rendering streams, being converted into food grade fats but then have to be sold against palm oil. You’ve seen palm oil decline 8% to 10% in the quarter. So, you set – in the European model, you set your purchasing price for a month to two months and then you got to get back in front of the supplier and plead your case one more time. We’re in process of doing that, but we’ve been playing catch-up. You’re making adjustment. Next month, it’s lower again. So, hopefully, it will turn. And as I said, it feels like fats and oils are getting ready to turn here a little bit and then we’ll put a little more margin back into that business. But it’s clearly been, if you will, upside down for us here for the full quarter.

Okay. That’s helpful. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Randall Stuewe for closing remarks.

All right. Thanks again for joining John and Melissa and I and hope we’ve answered a lot of your questions and given you more guidance on where we’re taking the company here as we navigate the headwinds. We look forward to talking to you here for our second quarter in August. Thank you, everybody.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.