Good morning, everyone, and welcome to the Darling Ingredients, Inc. Conference Call to discuss the company's Fiscal Second 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 call over to Melissa Gaither, Director of Investor Relations for Darling Ingredients. Please go ahead.

Thank you, Emily. Good morning and thank you for joining us to review Darling's earnings results for the second quarter 2015, ended July 4, 2015. To augment management's formal presentation, please refer to the presentation section of our IR website for the second quarter earnings slide deck. Randall Stuewe, our Chairman and CEO, will begin today's call with an overview of our second 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. Please see the full disclosure of our non-U.S. GAAP measures in both our earnings release and the end of the earnings 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 statement. 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 1, 2015, our recent press release announced yesterday and our other filings with the SEC. Forward-looking statements on this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update these forward-looking statements made in this conference call or otherwise. With that, I would like to turn the call over to Randy.

Thanks, Melissa. Good morning, everyone. Thanks for joining us. First, as Melissa noted, we continue to strive for greater transparency in reporting our quarterly results and our earnings slide deck is out on our website. This quarter, we provided a breakdown of facts, isolating used cooking oil to help you better track our progress being delivered in our legacy U.S.A. Restaurant Services business. For the quarter, earnings improved sequentially on an adjusted basis to $105.5 million, a 7.4% increase from the $98.2 million reported in the first quarter. Pro forma adjusted earnings increased to $107.7 million sequentially when you take into account the FX changes versus the first quarter in addition to the acquisition and the integration-related expenses, but now it's limited to transition services agreement in Canada and [indiscernible] implementation consultants mainly within our international group. Most importantly, for the third quarter in a row, we showed EBITDA margin improvements in all three segments, which is now a testament to our business model adjusting to the deflationary cycle within the agriculture sector. So, let's take a closer look at our operating performance. Starting with our Feed Ingredients Segment, which is comprised of our global rendering business, our U.S.A. Restaurant Services business along with our U.S.A. Bakery Feeds business and our global blood processing business. Once again, we see a declining finished product prices as the world wrestles with significantly larger green and oilseed supplies. As we have discussed before, this is a spread management business. EBITDA modestly improved in light of a significantly lower finished product prices. Most notably, we saw 50 basis improvement in our margins as we made procurement adjustments globally. USA rendering turned in a steady performance, making the necessary adjustments to our pricing formulas to offset the lower selling prices of our finished product. This…

Thanks, Randy. I'm going to point out that in our slide deck, we have further delineated our segment reporting by breaking out our used cooking oil sales from fats in our Feed segment. This should provide additional segment detail and the impact on the segment to price changes. We further outlined the EBITDA bridge from the first quarter 2015 to the second quarter ended July 4, which we believe is helpful in reviewing segment results. Historical segment data is also provided in the slide deck. As you know, we regularly monitor Jacobsen Index for finished product pricing for our Feed Ingredients segment in the U.S. And in Europe, we monitor Thomson Reuters to track competing commodities in palm oil and soy meal. To that end, slide 10 details average monthly prices, finished product prices for the first half of 2015. Now for the quarter financial review, for the second quarter of 2015, the company reported net sales of $859 million as compared to net sales of $1.031 billion for the second quarter 2014. The $172 million decrease to net sales is attributable to lower finished product prices primarily in global fat markets, and by $113 million for foreign exchange rate impact of a weaker euro and Canadian dollar. Overall, global raw material volumes were stronger year-over-year. Net income for the second quarter was $3.1 million or $0.02 per diluted share, compared to net income of $32 million or $0.20 per diluted share in 2014 second quarter. Without the after tax-related costs related to the acquisition and integration expenses, and deferred loan cost write-off of the euro bond, per share would have been – our earnings would have been $9.6 million or $0.06 per share, respectively, for the 2015 second quarter as compared to $39.2 million or $0.24 per diluted share…

Thanks, John. We closed the first half on a strong operational footing. Third quarter has its normal seasonal challenges, along with what appears to be continued pricing pressures from the increasing global supplies of grains and oilseeds. Our management teams globally have endured commodity cycles before and know exactly what adjustments need to be made. Foreign exchange headwinds will continue and we remain optimistic in the long-term viability of our model. Our positioning globally is one of a kind and we are proud of it. Operational efficiencies, working capital improvements, cost reduction and managed CapEx spending will allow us to more quickly deliver and grow Darling shareholder value. And with that, let's go ahead and open it up to Q&A. Thank you.

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

Yes. Thanks. Good morning, everyone.

Morning.

I guess to start, Randy, you went through a long litany of actions in terms of cost improvement targets and growth projects that you're working through. I'm hoping you could maybe try to wrap those all together a little bit as you think about the back half of the year are annualized into 2016. How big those – in terms of the growth projects, the EBITDA contribution you think for 2016, kind of the full-on impact of the cost actions to 2016 if they're sustainable particularly as we – it looks like we're going to stay in a pretty deflationary commodity price environment and a strong U.S. dollar environment for the near term?

No. I mean, fair question, Adam. I mean, the aggregate is a little difficult, but I will try to speak a little more to it. And I mean – first off, I mean, the deflationary environment we're in right now is obviously we saw the [indiscernible] come out with a massive grain supply increase this week, and that's pressuring essentially fats and oils globally again. But at the end of the day, as we said, our July prices were pretty much unchanged to June. There's some pressure there, but we will just have to make the adjustments that we've made three quarters in a row now to offset some of the pressure that's happening there. So, that's always hard to quantify, but the model proves that it does work. The headcount reductions, I mean, that I take near and dear, well, there are several more to be made here by the year-end. As we said, we would deliver a $10 million SG&A reduction that we're well on the way, and I think we're probably 70% to 75% of the way there for the year. The working capital is clearly, a chief focus among the entire team. It's always difficult in deflationary environments while everybody believes that if the prices go down 30%, your working capital should go down 30%. The reality of it is, is remember you're buying the raw material, and it went down too. So it's a spread management business. You recapture a part of that. As we said, we had a $34 million movement quarter-over-quarter that essentially brings us back to even year-over-year and we're setting a target out of there of $50 million by year-end. And then from that point on, we anticipate and we'll structure to attempt to hold that going forward. The capital spending plan, I know we'll get a lot of questions on, are we just deferring or what are we doing. There's always projects in our portfolio that compete, that are somewhat profit-adding but can be delayed or we think there's a better use for capital. And in this case, we think a better use for capital is deleveraging and then having the opportunistic share repurchase program out there. So, ultimately, our CapEx plan is one that we're just going to manage around and return essentially $50 million to the cigar box here for uses or better uses or other uses. And those are really the main driver for us out there as we go forward, I mean to quantify any more than that would be difficult but they are sustainable and they are real.

Okay. And Randy, in the last part of that answer you alluded to my next question, it was can you help us think about the CapEx program coming down. What programs or actions or projects are maybe deferred or slowed? How should we think about that pace of CapEx going into 2016? And related, how do you think about your leverage over the next two years? What's the comfort level especially given the authorization, repurchase authorization you put in place last night?

Hi. I'll take part of this and I'll let John take the other part. From a capital standpoint, we've always kind of said between the global businesses and North American businesses that we need around $175 million to support the business. That's the – if I call that's maintenance, safety, environmental, and replacement capital that keep the plants operating efficiently. After that, it's really competition for profit-adding projects. So, as John said, we've spent $98 million year-to-date or through June anticipated out, somewhere around the $2.25 million for the year. So, that $50 million is going towards profit adding, and the majority of that is going towards brand taxes, the Paducah and the Ravenna plants that are all due to start up and be in position to contribute for the full year of 2016. The two rendering plants are up and out of the ground. They were delayed a little bit by the heavy rains we had in the Midwest this spring and early summer. And those will be coming online here in 2016. So, some of that spending was moved to 2016, but not a whole lot as it moves, if you will, into that $50 million bucket as we set for next year, $200 million to $2.25 million is the target spend for next year, once again, in capital. As we've said, deleveraging is key to us. John, you want to comment about leverage rates and where you think we're going?

Yeah. Well, it's – Adam, on the leverage ratio, as we've said, we were 4.30 compared to the bank cover of 5.0. Looking forward with what Randy outlined in less CapEx spending, improving our working capital by $50 million by the end of the year. We're going to be very comfortable with our leverage ratios because we still can reduce the debt down even with the repurchase of the stock over the next 24 months as was indicated in the release. And we're in good shape. We're keeping more than a half turn that we've always set as a company with our buffer that we would not exceed going above that 4.5.

Okay. And maybe just a final quick one on the CapEx deferrals, Randy, is it – would it be fair to assume or imply that given the deflationary environment [indiscernible] commodity prices, some of the projects you had on the table might not return kind of opportunities over the next few years, might not look like as attractive as you thought 18 to 24 months ago that has driven some of the slowdown in the capital spending or is that the wrong inference?

No. There's a little bit of that Adam, and really I don't like the word deferral. I mean, essentially there's a little bit of rain delay. We've had a couple projects in the feed area, in the Sonac blood area that the margins haven't looked as attractive as the original business case did, and that was pretty good spending. Those are going, those were in the 2015 plan. Those will probably move to 2016 but they once again compete with other projects that we have around the world. The other thing that steps down in 2016 versus is we've made significant investments in our global gelatin business both from a capacity expansion and from a waste water and environmental compliance area. Those investments are beginning to scale back and that's the reasons you're going to see the more normalized CapEx.

Okay. It's very helpful. Thanks.

Our next question is from Heather Jones of BB&T Capital Markets. Please go ahead.

Good morning.

Good morning, Heather.

Good morning.

Thanks for all the color on the call. I guess first, simplistically, I just was wondering if you could walk through something with me. So, setting aside Diamond Green which will clearly fluctuate quarter-to-quarter, can you help us understand whether you believe adjusted EBITDA bottomed in Q1 given the changes that you've made in the core business? Is that a fair assessment of the business?

You know – yeah, you included, Heather, then Diamond Green in that or not?

No, excluding Diamond Green. Your other businesses.

Excluding. Okay.

You know, I always hate to give guidance like that, to be wrong as I've proven myself to be wrong in the past times. You know, I think we've made a lot of the changes and it feels like, from a margin management perspective, that we are seeing the bottoms here. But the challenge we have in Q3, as we've always said, the people is – that's when the – the heat is pretty intensive around the country right now. The quality of the finished product we make in the fats and oils takes some discounts. And so, that's always been a challenge for the European and the global businesses. The European manufacturing industry slows down in August for what appears to be lots of holidays. And so, seasonally, you're going to get some impact during Q3. As I look back over 2013 and 2014, and with the seasonality in the business, there's always a little bit of a seasonality moderation that happens in within the business. Now, offsetting that is as we've got a lot of good things going on in bakery, restaurant, services, Terra Renewal, and in our protein rendering businesses that come back into play here. So, I mean, I think, overall, as we start to look forward, we've got a lot of positive momentum heading forward here.

So, barring something unforeseen, it sounds like you feel comfortable that – and excluding Diamond Green – that Q1 was the bottom, given what you can foresee.

Given what I can foresee at this time, as long as fats and oil prices don't fall out of bed and take us lower.

Okay. And my second question, comment is that what we found is despite how depressed your stock has been, some investors are still wary of touching it because of the level of debt. And four, three more comfortable from a covenant perspective but still fairly high particularly given the earnings volatility of the business. So, was wondering, given that, do you believe that all of your free cash flow would be best deployed to debt reduction? And secondly, has there been any consideration by you or the board to potentially dispose of some assets?

Well, I think – let me answer that in two or three different pieces. Number one, we are constantly doing a benchmarking exercise within the company, where we use financial measures on capital employed within assets. And, yes, we have identified assets that are either annoying to be fixed or rationalized. So, that's always part of our business model that's out there, and then we share that with the board constantly and inform them of what we're working on in that area. From a leverage ratio, I think the beauty of this company and there's no doubt the stocks have been under pressure, and there's no doubt that that was the reason for putting the share repurchase announcement out there is that we do believe in the company and that that is clearly something that we want to make sure the people understand. We believe in our model as a strong cash flow generator. And we also believe that given the strong cash flow, we can fund the organic capital expansion that we've talked about along with maintaining the business, not going into a capital starvation mode. I mean, by no means that we, as a management team, and I think I can speak for the board view, any type of stress here, it's a cycle we've been through. We're going to look at what we call strong return projects, deleveraging and also share repurchase all as investment opportunities and we'll make the decision on how those go. Right now, our intent is obviously to deliver the best and the most we can. As you know, part of the stress that appears to be – that happens to us here is the disruption of the Diamond Green Diesel cash flows, meaning the ability to pull dividends in kind of the unknown as to the timing on the tax credit. And so, what we're optimistic and that's the reason we stepped out with the additional debt repayment in 2015 or 2016 was that that we believe that the tax credit will be made retro and it will be put in place for 2016, which will then help, if you will, I don't like the word smooth, but make more predictable the cash flows and the dividends that can be used for both financing the business, paying down debt, growing the business, and share repurchases as we go from time to time.

And you mentioned that you have a benchmark as far as assets that will be either fixed or rationalized. Can you share with us what that – what that benchmark is? Like what is your internal ROA target before you consider disposing of an asset?

Well, as Randy said, every quarter when we meet with the board, we update them on projects within each of the business segments. We've been going through that. There are a number of single-site plants that we're looking at that are below our 15% threshold that we like to see on a return. And we look to see what we're going to need to do there. A lot of times, it's just a capital infusion to may take out costs, or we look at how the market pricing is done against the raw material at times. We do a deep dive into that. We have a group that spends a lot of time looking at that, and it's pretty easy to point out when you do a benchmarking against all of the rest of the facilities. And we line them up as really green, yellow, and red. And if you fall into the red category, you're under scrutiny and we look at those, and determine how to fix those and brings those up to the standard that the other plants are running now.

Right. And quietly, Heather, it's just not something we openly talk about out there. We have shut down our trading business in New Orleans in the quarter, and we're in a process of exiting our – one of our facilities in Memphis right now that doesn't make sense anymore in the bakery feeds area. So those are the things we go through as we look around. I wouldn't tell you there's a hard line in the sand, but we're also very honest with ourselves as to the viability and whether or not those assets are viable. There isn't a long list of them. So, I'd ask you not to spend much time thinking about that, because I think we're pretty well-positioned out there.

Okay. Thank you.

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

Thanks. Morning, everyone.

Morning.

Hi, Dan.

First, congrats on being able to expand EBITDA sequentially even in a tough price environment, but I guess I'm going to extend the prior group of question is given we've seen, what, another 10% decline in [indiscernible] prices in the last month-and-a-half. I'm wondering, are there more costs you can take out? Are there more things you can do to kind of offset that given some of the sensitivity of both restaurant service and bakery?

I don't want to isolate it to one product there, because at the end of the day, I mean as I look around the world and really when you look at that you're predominantly talking about the Feed segment. And the Feed segment, the core drivers are Canadian rendering, European rendering, and U.S.A. rendering restaurant and bakery. So, if we start in Canada, Canada as we talked before fixes its raw material procurement formulas with its suppliers on a look forward basis 90 days out. We had some massive volatility if you will in June both up and down that and then brought prices lower in Canada in June below our raw material or what we call our atypical margins that we expect and anticipate up there. So our management team has had to go back for the third quarter and reprice that. That should help us improve there. In Europe, it's about a 60-day look forward as we do, and I think we're in pretty good shape there with pretty steady earnings depending on volumes within that business. They seem to be holding in there quite a bit from what we planned and a little bit over last year. And then in the U.S.A. rendering, in Q2, we felt a little bit of pressure of the fats. We also have pressure in the proteins from the standpoint of the – a significant portion of our rendering portfolio is poultry-driven. We saw some of the pet food grade and aquaculture grade, premium proteins. The premium collapsed quite a bit, especially in the month of June. We've seen that return, or a portion of it returned in July. And so, from a U.S.A. rendering standpoint, I'm trying to be optimistic that the protein price rebound will offset the fat price pressure…

Let me try a little bit differently. You've laid out some pretty interesting cost plans, certainly about headquarters, and food, and also at restaurant services. Have you guys looked at anything more holistic? I don't know if you've considered or bring in a third party to look at overall cost. Just given that you're such a bigger enterprise now than you were 12 to 18 months ago. And I'm wondering if now was – with some time passed since the acquisitions, there's an opportunity to find some broader cost reductions?

That's something we – we use an array of consultants within the company, and at the end of the day, a lot of those were in the SG&A trying to help us figure out how to put the new global platform together. For the most important part, they're all out of here, and we are – what you're seeing is the result of the recommendations as we put things together. So the answer is yes and no. I mean, I think you're seeing the results of our plans right now.

Okay. And ten switching over real quickly to the commodities side, given the RFS2 proposal, would look like attractive volumes given fairly decent production from a biodiesel perspective. Are you all surprised that grease price haven't traded better? Or are you seeing another factor besides the lower price of corn just maybe weighing on grease? In light of what's been a fairly decent industry-wide by a decent production?

Well, I think there's a couple of things. As we met with our board here this week, and we always put the slide up that shows what we thought would happen for Q2 versus what happened. In the slide itself said, we thought that the RFS volumes that would be announced would be supported of fats and oil prices for the quarter and going forward and I couldn't have been more wrong. What you see is that there continues to be a significant amount of renewable diesel from nesting and biodiesel being imported into the country, from Argentina, from Germany that comes in to the country given the weak currency positions or the strong dollar on the offset there, cheaper freight rates and lower fats and oils prices around the world that are coming in here. So, that's tampering – we saw RINs go from 86 to 67. The industry appears to be running at least the biodiesel industry appears to be running for the tax credit as we talked to you. Our Canada plant is running red, but when you net out the tax credit, it's about breakeven or slightly above. Diamond Green Diesel continues to run profitable at the EBITDA level right now even with the prices. What you've seen is ULSD come down hard, RINs come down because of the imports, and then feedstock not come down. Feedstock's coming down a little bit here. And I guess the answer to you is, yeah, I'm a little surprised. I'm trying to think that that will turn, but it doesn't feel like it in the short term here.

Okay. My final question before I step off. We have seen some movement in California on LCFS. It looks like that's supposed to get re-proposed and finalized later this year. Talk a little bit about your positioning for that market and how you view it at this point and if it is attractive to you.

Yeah. I think, Dan, that is – it's a very interesting and a very complicated discussion. I mean, you're probably more skilled at it even than me. We continue to look at moving product to California. Obviously, renewable diesel and biodiesel made from waste fats and greases will qualify and are very, very much going to be part of that LCFS. We've seen the premiums of that market come up very significantly here. It is one that within our long-term strategic plan says that we need to figure out how to move Diamond Green Diesel product to California. I would also say the LCFS is going in place in British Columbia and also Ontario. And we're starting to see some pretty abnormal and premium moves that support Diamond Green Diesel. It also supports for Darling, the evaluation of a future investment in biodiesel within California or nearby. The challenge with building renewable diesel in California is simply the permitting and the timeline to construct. So, that's what you're seeing as we talk about expanding Diamond Green Diesel. It would be for either a rail or a water move into California. Between the complexity of moving to a blenders tax credit or a blenders to a producers tax credit and LCFS, I think there's a very, very bright future and I think our board does, too, in the view of what kind of support the biofuels can bring to this business model long term in the USA.

Sounds good. Thanks a lot.

Our next question is from Carla Casella, JPMorgan. Please go ahead.

Hi. I have a question on the border closures that you've mentioned. Is there any outlook on how long that should continue or how are you mitigating it?

Yeah. I mean, CTH is a – there's a couple of border closure I referred to, Carla. One was still the low grade cuts of meats are coming still back – flowing back into Europe. And then we're making edible fats and edible products for the sausage industry. I don't see much change happening there. Obviously, the meat producers in Europe, they're struggling a little bit. They're looking for better homes for their product, and I suspect they'll ultimately find it. Within the goods segment we referred to CTH which is comprised of our casings business, and then we ship some stomach packages and other products to the Asian markets, and China closed the border on some of those products here during the quarter. It wasn't a material impact to earnings but it was something that was notable for us within the Food segment. It is not open yet. Once again, those are products that are purchased on formula, and it just takes a 60-day lag to where you have to re-price them. And whether they – right now there's still premiums in the world for those products not going either back in to pet food or into the sausage business. So, we're continuing to move that. But that was just a notable item in the quarter for us.

Okay. And then the currency move in China, does that have any impact?

Well, the devaluation of the – the good news is all our raw material is, basically, bought in China, and our finished products are sold in China. So, from that standpoint, it's not like we're shipping products out of the country. But when you do convert at the end of the period the earnings back to U.S. dollars, there will be an impact there. But the day-to-day business in China would not be impacted.

Okay. Great. Thank you.

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

Hi. Good morning. This is [ph] Patrick for Ken.

Hey, [ph] Patrick.

Hey. Just quick question on what do you see for supply and demand in terms of biodiesel for 2016, especially in light of the potential change from the blenders credit going into a producers credit and also the dollar per gallon biodiesel tax credit?

Well, here's what we see going on out there is once again a step-up in the mandate. Two, the Grassley legislation that's out there is moving it to a producers credit versus the blenders. Obviously, we'd like to see that be a NAFTA inclusion to take care of our Canadian facility. And then you've got the low carbon fuel standard. And ultimately, if you step back and where you can really get excited, and I mean excitement with a capital E here, is if you go to a producers credit, then that can hopefully shut down these imports, which not only changes the profitability of our biofuel business and the industries in the U.S. but it creates new and additional feedstock demand in the form of 2 billion, 2.5 billion pounds of new feedstock demand from our industry. So, as we go into 2016, we're incredibly optimistic right now from what we see out there, the tax extenders package being made – if you will, taken out of play in an election year, meaning made when it's brought retro this fall. 2016 is then put in at $1 a gallon. We think the blenders credit will go into place, and then there's the LCFS steps in it. It could make further – some really interesting times in 2016.

Great. And just a quick follow-up, how fast will that accelerate your DGD expansion if both legislations get passed through?

I'd love to tell you, you can expand that on a dime. The soonest that the expansion – if Valero and the board or Darling improves it, we would have to take some time down in early 2017 to bring it on. So it's a year out, year plus out right now.

Great. Thank you.

Our next question is from Craig Irwin of ROTH Capital Partners. Please go ahead.

Hi. Good morning, and thank you for taking my questions. So, Randy, just to touch on the blenders credit again, lots of questions already. You've been very clear, $25 million for Diamond Green, once reinstated that your operations in Canada making a small loss, becoming profitable or expected to be profitable depending on the actual structure of the way this gets passed. But just to step back a little bit, looking across the industry, a lot of the plans were actually running today just like your Canadian facility, at a loss, running with the expectation that they'll more than make up that loss on the retroactive reinstatement of the blenders credit. And one thing that a lot of them are saying is that that psychology is also finding its way into feedstock pricing. Basically, around third of the blenders credit is being pulled away for the rendered fats that are being supplied into these facilities. Can you discuss whether or not this is something that maybe helped you at the tail end of the quarter? Once we did get the RVOs, is it something that you expect to come in over the back half of the year to potentially benefit the profitability of fat sales into biofuel market.

Yeah. I think, Craig, I think, you got a pretty good feel for it. I mean, Canada is a little different for us because as I try to allude to in the script, there's a fence up there. Many people don't want to refer to it that way, but it's not as easy to move products over and across the border in the fats and oils areas as it probably should be. We're working on that such that we're not married to our, if you will, our finishing capacity which is our Quebec biodiesel plant. But right now, that's a way for us to both add value and to sell our fats and oils in Canada versus trying to load them on a boat and put them on the global fats and oils market. The reality is that we didn't anticipate RINs back in office as far as they have. And feed demand from the perspective while we talk about biofuels, feed demand for fats has been very, very strong this summer. And so, ultimately, in the USA, there's been a strong pull from the feed industry. We continue to see, if you say, big chickens, big hogs, and big cows go into market. And so, there's a lot of fats still moving into those markets too. So, while the industry runs for the biodiesel or the tax credit today, even with that, it's really not a very good business. It's a breakeven to marginally better business. So, really, from our perspective, I see feed demand remaining strong. It was hard to believe it was this strong, given as warm as summer as we've seen. But animal numbers are strong and still coming back. And then we'll see what the fourth quarter brings and what happens with the LCFS, do we get the $1 a gallon for 2016, and is the industry successful and moving it towards the blenders credit. If that happens, then the psychology of that is probably supportive.

Great. Thank you for that. Then just a follow on about Diamond Green, I guess, I should say first, congratulations for another production record at the facility in the quarter. So, revenue production is strong. It looks like you're able to monetize NAFTA and some of the other byproducts out of the facility. When we look at the feedstock cost and conversion cost, they seem to be close to the high end of the range. It's where you've been historically. I was wondering if there was anything in the quarter that maybe impacted your conversion cost, your feedstock cost, and whether or not you would expect to trend towards market prices for things like [indiscernible] and yellow grease as cost in the next couple of quarters. And then as a second part of that question, can you maybe discuss the associated CapEx along the $18,000 a day?

Yeah. I mean, number one, remember, as I've always said, Diamond Green is the largest fat consuming point or entity in the United States at any given time. And its supply chain is fairly complex and fairly long given the railroad delivery times that are out there today. So, you roughly have 60 days out there, either in the tank or in transit at any given time. So, when you get in to a deflationary cycle, they've always been – no matter how good they purchase, they've always been lagging on the way down. We've also been able to pull the supply chain down a little bit there to take advantage. And I think you'll see a little more of that flow through. I mean, the amazing thing with that facility is it does run in excess of 12,000 barrels a day. And it is profitable at the EBITDA line without the tax credit. So, it is performing quite nicely. As far as the CapEx could go, that is something that's been developed right now. We're simply in the Phase 2 or engineering study right now of a very complex or sophisticated engineering and gated process that we should have those answers here, I would hope by the November call as to what the number is there. And I can tell you, on an incremental basis, it will still makes sense.

Our next question is from John Quealy of Canaccord Genuity. Please go ahead.

Thanks. Good morning, folks, to put me on. Real quick just on Diamond Green, Randy. Can you – I'm sorry if you said this already. The cash flow expectations from blenders if we get retroactive in 2015, what it would be? Second, can you ballpark either on a basis point perspective or cost perspective, what are recap and expansion of Diamond could bring for you guys in savings? And then last thing maybe for John, I know you talked about raising pricing across the complex, mostly on used cooking oil and some of the restaurant services business. I understand formula has lagged but can you just give an update on how that progress is going? Thank you, guys.

Thanks. No, I think first off in Diamond Green...

Do you want me to come back at you for Diamond?

He gave us one more. He gave us three, And I...

I tried to be quick for you guys. Anyway, so Diamond Green, number one, what's the blenders cash flow for you guys for Diamond in retroactive for 2015?

Got it. Now, with the Diamond Green, it's on a target to run 160 million gallons. So, $80 million there as long as we get it shipped out. And then you've also got our Butler plant up in Butler, Kentucky, and then our Québec plant to qualify there, too. And so – around – if everything works right, about $85 million would come in, $80 million to $85 million for the year. What's the other one?

Yeah. The other one was the recap of the plan itself plus the expansion, what sort of basis point or interest cost savings can you ballpark, you think you can get off it?

Number one, that credit agreement is confidential at the request of Valero. I mean, they stepped in and we're so ever grateful when the Department of Energy negotiations became too complicated for us. And so as we look at it, what we're working with our partner and trying to do is to say we couldn't finance this on the outside or third party at the start because it was unproven technology. It's proven now. It's more than proven. And we would like to begin to look at taking it to a third-party financing to lower the interest rate, which I can't share with you, you could back into it. And then most importantly then to have better access to the dividends. As we've said in Q1 that there's a pretty steep waterfall here that's aimed at deleveraging the loan. And that – Valero stepped in, that's a good news. And the good news is at the current run rates, it would be paid off in three years. That's probably not the right way to run this business long term. And then to have the ability as we go forward with the major expansion to continue to not only finance that but also finance the working capital that would be required to go forward. I mean, to not refinance it is not a terrible deal we would like to improve it. So, I just want to be clear about that. We're not unhappy with what we have. We're just – we look at things opportunistically and say that's the right thing to do. From your last question, which was the restaurant services, we've set a target for $10 million of improvement in that business. As I said before, it's still one of our best return on asset businesses that we have out there, but it has a lot of commodity exposure. It's coming under pressure right now, and the only ways that you can really improve that business in deflationary is to either lower your raw material costs or institute charges. Instituting charges is a long-term proposition that does yield some viability, but the number one thing is that we are taking our raw material costs down as quickly as we can in that business.

Great. Thanks, folks.

Thank you. We have reached the allotted time for questions. So, this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Stuewe for any closing remarks.

All right. Thanks, everyone. Appreciate all of the questions today, and we look forward to talking to you here in November.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.