Good morning and welcome to the Darling Ingredients Inc. conference call to discuss the Company's First Quarter 2017 Financial Results. With us today are Mr. Randall Stuewe, Chairman and Chief Executive Officer of Darling Ingredients; and Mr. Patrick Lynch, Executive Vice President and Chief Financial Officer. After the speakers' opening remarks, there will be a question-and-answer period and instructions will be given at that time. Please note this event is being recorded. I would now like to turn the conference over to Melissa Gaither, Vice President, Investor Relations and Global Communications for Darling Ingredients. Please go ahead.

Thank you, Kerry. Good morning, everyone, and thank you for joining us to discuss Darling's earnings results for the first quarter 2017 ended April 1,2017. To augment management's formal discussion, please refer to the presentation section of our IR website for the earnings slide deck. Randall Stuewe, our Chairman and CEO, will begin today's call with an overview of our first quarter operational and financial performance and discuss some of the trends impacting our business. Patrick Lynch, Executive Vice President and Chief Financial Officer will then provide additional details about our financial results. Please see the full disclosure of our non-US GAAP measures in both our earnings release and at the end of the earnings slide presentation. Finally, Randy will conclude the prepared portion of the call with some general remarks about the business and the year ahead, after which 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 Darlings' annual report on Form 10-K for the year ended December 31, 2016, 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 would like to turn the call over to Randy.

Thanks, Melissa. Good morning, everyone. Thanks for joining us. After a sluggish start in January, our global ingredients platform gained momentum and finished off the quarter as expected. Global raw material volumes grew 4.3% year-over-year and we saw improved global pricing across most product lines. Our results once again demonstrate the consistency of our business model. Sequentially, we delivered consistent and improved results across our feed and food segments and tempered profitability profile in the fuel segment. This was due to the absence of the U.S. blenders tax credit and some onetime items recorded in the fourth quarter of 2016. And finally, our earnings were impacted by an elevated SG&A due to the accounting for long-term incentive awards. With April now recorded, we carry good momentum in the next quarter and the remainder of the year. Now let's take a closer look at the performances of each of our business segments. The feed segment benefited from several key drivers that aligned during the quarter and performed exceptionally well across the global platform. Our global rendering platform delivered nicely as raw material volumes remained strong and after a sluggish January, finished product prices edged higher. Globally fat prices remained strong while animal protein supplies remain ample. Year-over-year, the majority of the improvement was from the USA. Overall, we anticipate a slight improvement in Q2 as seasonality in our specialty and feed ingredients business contributes positively to the segment. In the food segment, sequentially delivered an improved and consistent performance. Rousselot, our four-continent gelatin business delivered as expected; however, our performance was tempered by macroeconomic issues in Argentina and margin compression in Brazil due to strong raw material prices. Our Sonac edible fats business held margins in the midst of weaker palm oil markets, while CTH, our natural casings business had an…

Thanks Randy. During the first quarter of 2017, we continue to focus on improving the five financial objectives that we have outlined on previous calls, reducing debt, enhancing margins, producing our working capital, cost reductions in both operating and SG&A expenses and deploying our CapEx effectively. During the quarter, our cash position improved to $139.9 million up from $114.6 million at the end of the year. We continue to target $100 million of debt reduction for the full-year. Our current debt ratio was 3.46 times in Q1 2017 versus 4.41 times in Q1 2016. Additionally, total liquidity remains very strong with nearly $1 billion undrawn under revolving credit facility. Working capital management was a bright spot for us during the quarter of 2017 with improvements versus Q1 2016 in both our day sales outstanding, days in inventory and nearly performance in our days and payables. We continue to target a $15 million to $30-minute range of positive cash flow from working capital for the full year 2017. CapEx spending this quarter was $62.3 million compared to $53.4 million in Q1 2016. The seven-ongoing construction expansion and conversion projects in various regions are significant portion of this total. Darling's CapEx target for 2017 is expected be in the $240 million to $250 million range for the full-year. Our gross margin for the first quarter 2017 was 21.9% compared to 23.1% for the same period last year. Quarter-over-quarter decreases in gross margins incurred in both the food and fuel segments, the food segment's gross margin compression was primarily the result of previously mentioned challenges in our South American Rousselot business and the absence of the blenders tax credit was the primary impact on the gross margin compression in our fuel segment. SG&A expenses totaled $87.9 million during the quarter up $6.4 million…

Thanks Patrick. Overall, we're off to a good start and carry solid momentum into the second quarter. We will continue to focus on operational efficiencies, deleveraging about $100 million in 2017 and improving our working capital position. We remain optimistic that biofuel policy will be clarified shortly and we are clearly positioning the company for future growth opportunities. With that, Kerry, let's go ahead and open it up to Q&A.

We will now begin the question-and-answer session. [Operator instructions] The first question comes from Heather Jones of Vertical Group. Please go ahead.

Good morning.

Good morning.

So, I have several questions, but I was wondering if you could help us understand exactly what it was that happen with food during the quarter like in Argentina, was it a one quarter tariff issue, I am not clear as to what exactly happened in the quarter and how that impacts the outlook for food for the rest of the year.

Overall Heather, the food segment operated around the world just as we expected. We talked about -- we had a pretty solid performance in the edible fats and then we also had a very nice performance in our natural casings business and that was related to as we've been highlighting the shrinking hog herd in China. They're finally starting to feel the real impacts of that. In the gelatin business, our European our Chinese and to a degree, our North American operations performed very nicely a little bit of seasonality in North America, but that always comes back here. In South America, I am going to highlight two things. Number one, in Argentina it is a very, very difficult market condition down in Argentina right now. Argentina under the current political leadership has opened the borders to imports now. So, it's actually cheaper to make gelatin in other parts of the world and bring it into Argentina, specifically Brazil to bring it into Argentina than it is to make it there. And you got hyperinflation back underway in Argentina today on top of if you followed the press, you've had a couple national strikes that have gone on. So, we suffered from macro conditions and political unrest and strikes during the quarter down in Argentina. I don't know that I want to sit here and say that's going to get a lot better in the next quarter here. The plant is running fine. It's just when a happier production goes export and your uncompetitive, it's very difficult there. In Brazil, couple things went on. The margin compression that happened down there was we did not see the height availability come as we expected against the pricing that was happening on the finished products. We had margin compression there and then that was exacerbated by the fact if you follow the meat scandal and the reduction of slaughter that started to happen late in the quarter down there. The tightness in high pricing started much earlier than that. So, we expect that to write itself herein and have a better if you will. Brazil is too large plans Argentina is one in the next quarter. So overall, I'm fairly optimistic. The Rousselot model is performing very nicely globally as pig skin gelatin is tight in rest parts of the world. Margins are up there. China is performing nicely and North America should come back with a better performance in Q2.

Okay. So, Brazil is expected to wide itself in Q2, but you're not as optimistic in Argentina. Can you give us a sense of just so we know how to model? Was Argentina impact $2 million, $3 million, $4 million for the quarter. How should we be thinking about on quarterly basis?

Yeah, that's probably in the ballpark. I'm not going to step out and predict if we can -- I think it's going to be difficult to be profitable in Argentina for this entire year. I think Brazil will improve and we'll go from there, but overall the gelatin SND will make up those margins hopefully in most parts of the rest of world.

Okay. And going back to Diamond Green, so on your Q1 call, you said that you believed you could do $0.60 to $0.80 for the quarter -- for the year, at that point I would think you would have had pretty good visibility into your Q1 margins were going to be. So, they implied a very substantial pick up in margins for the remainder of the year. You're now saying $0.55 to $0.60 a gallon, for the remainder of the year, so lower on a full year basis. What changed and what is implied in your numbers as far as like antidumping imports from Argentina, like can you just walk us through what was underlying the $0.60 to $0.80 number and what's underlying now the $0.55 to $0.60 number?

Well first off, let's talk about first quarter, first quarter as we all know the factory was down for its second major turnaround. It involved some additional work in it and equipment installed along with the catalyst change. Expenses were a little bit higher than what we had hoped for in the quarter. I would say that would reconcile most people's numbers there. And then at the end of the day, you saw during the quarter, you just saw a declining heating oil market. You saw RINs moving all around and you saw the improving fat prices. So, we had quite a bit of things going on in Q1. I think it's important to point out that at the EBITDA level at the entity, Q1 we put up $10 million worth of shutdown against 19 with the blenders tax credit in Q1 of '16. So, if you want apples-to-apples with production down there, it would've been 40-42 against 19. So overall, Diamond Green is actually off to a better start this year even if you -- even if you look at or if you assume that the blenders tax credits coming back. As far as our little bit of guiding down on the base margin in the business, we're looking at the heating oil market share with crude oil, coming off, RINs are starting to react a little bit and come back. And then we've seen a little bit of softness in the low carbon fuel standard at $74 a ton right now. In the environment -- in the biofuels environment right now, everything is as it's been in the past, uncertain. So, I don't think that there's anything that's really new out here in the sense of the level of uncertainty that's going on with the Trump administration, the…

So, I've got one follow-on to that, so honestly one of the most positive parts of the Darling story is Diamond Green and so I just want to get your sense of clearly diesel prices have been weak and so we're in a lull here, but it does seem like you're going to get the antidumping tariffs. You have a pretty steep ramp in the compliance curve in California and it seems unlikely that the advanced -- not the advanced the D4 RVO is going to be reduced. So, could you give us a sense of once this uncertainty is gone and if do get the antidumping and all, where do you think margins could be on a run rate basis later this year, heading into '18?

Heather, this is John Bullock, I think we provided some information on the earnings call or on the slide deck attached with the earnings here, where we talked about where we think this thing might be in '18 and '19 and you know it's not unrealistic to think with the scenario that you're talking about that a $1.25 a gallon is not possible in the marketplace. So, it's obviously a ton of variables and we have a lot to figure out the balance of this year as we go through the various pieces of legislation and the various court challenges. So, there's a lot of information out here, but all those things that you just mentioned and you didn't even add on if they change it to a producers tax credit going forward as opposed to a blenders tax credit. So, you put all that stuff together, it looks to us like you have a reasonable chance to have pretty dam good margins as we head into '18 and '19.

And clarification because I know or I just wanted to know this, the $1.25 would not include a tax credit, that's just higher RINs, higher LCFS credits such things.

Yeah, the $1.25 going forward since, so if the $1.25 and we're really not stating whether it includes the tax credit or not. So, I wouldn't take the $1.25 and add an extra $1 on it if the tax credit in place and say it's $2.25. Remember that the RINs pricing to some degree the LCFS pricing, but a little bit less there and the tax credit all work in combination with each other. So, when you have a tax credit and everybody knows that it's either there or not there, then you are going to have necessarily a lower RINs prices. Now the issue we have with the way that Congress is handled the tax credit several times in the past four or five years, is we enter the year without the tax credit in place. The market has been trained to believe that that tax credit will be in place because every single time we've gotten into these years, Congress has put the tax credit retroactively. If Congress were to say, it's absolutely not there and everybody in the marketplace knew it wasn’t going to be there, then RINs and LCFS pricing would react and the margin would be there for the business. Our belief as we've said continually is that we believe that the tax credit has a very good chance of being reinstated and Chuck Grassley, Senator Grassley has put in a proposal that would have the biodiesel tax credit in place for '17 and then looking forward for '18, '19 and '20. Obviously, we'll see how that all works through the tax packages, the house and Senate this year. If there is no tax package, then it would have to be dealt with on an extenders tax basis tax basis, which is how it's been renewed over the last several years. We'll see on all that stuff, but I wouldn't take the $1.25 and put and extra $1 on top of it and say $2.25. This stuff will all match together in some place in $1 plus $1.25 type of a margin, I would guess as we head into '18 and '19.

That makes sense. Thank you so much.

The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Yes thanks. Good morning, everybody. Maybe Randy wanted to start in the feed business and just talk about the margin performance in the quarter. I know you talked about a sluggish January and maybe that just to put some lag that would result in some catch up in the second quarter. But I am starting to think about the operating leverage and what was a better year-on-your price environment, your revenues up $77, your gross profit up 14%, 20% incremental with some growth projects in there. Is there parts of the business you're facing some underlying margin pressure. I would have thought the operating leverage and the percent margins year-on-year would have been a little bit stronger given a slightly better price environment.

No. I think Adam you got to step back. There's a little bit a challenge if you will of transparency in the feed segment, remember the feed segment is made up of the global rendering business, the specialty ingredients businesses, the bakery business, the fertilizer business. There is a whole bunch of sub businesses and while a majority of it may be the rendering business, if we look around the world today, European rendering was consistent and stronger than Q4. USA was about on par with where they were in Q4 because of meat and bone meal values. Meat and bone meal values in USA continue to be a little bit soft although the trade publications had them escalating all quarter at the end of the day. A big portion of that product has to go out of the country and be exported and it was just very sluggish there to start the year out. The Canadian business because of weak meat and bone meal was off to a little bit of a slow start up there, but as we came into February and March, those businesses hit full stride. When you look at the specialty ingredients businesses, that all of our pet food businesses. The pet food business got out of January and February very slow and returned back to normalization here and margins carrying on nicely in April, as is the bakery feeds business, if you think about the baking season is slower in Q1 and as ballparks open, it picks up. So, we're just saying that there is a little bit of seasonality, the rendering business from what you're looking at and the pricing applications in your model, you floated through correctly, but the other businesses had a little bit of seasonality and sluggishness that will pick up in Q2 here.

Okay. That's some very helpful color and as you were to look at some of those growth project that you have underway that you had quite a list at the outset and you talked about those being completed towards the end of this year and operational for 2018, what kind of EBITDA increment will you think that those capital can contribute next year and even in '19 if there's some ramp up time?

I don't know that I am prepared to answer that one yet, but I will work on it. Patrick do you got anything?

Yeah, I would say ballpark right now, the incremental EBITDA contribution from our projects that we have slated here in 2017, we expect probably a $15 million to $20 million contribution, EBITDA contribution associated with those in 2018.

All right, that's very helpful. I'll pass it on.

The next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.

Hey, good morning, everyone.

Hey Ken.

Just a couple of questions, one is you listen to lot of one-time costs, can you quantify how much of the one-time cost were in this quarter that are not going to be repeatable, also how much did it cost you for the 19 days down for the Diamond Green Diesel?

Sure, the one-time cost in Q1 really that flowed through the SG&A line was related to an acceleration of some risk compensation expense associated with some equity, a change in some vesting criteria associated with some of the equity compensation items. Of that -- of the $6 million increase, 6.2 whatever on a year-over-year basis in SG&A about four that was related to that change and that will not continue on for the balance of the year. We expect to be in the low 80s range in SG&A going forward. I don't have the number off the top of my head. I have to come back to you in terms of what the 19 days down impact in Diamond Green Diesel.

Yeah Ken, this is John Bullock. So basically, we lost about 10 million, 11 million gallons worth of production on the 18 days and so if you have a $0.30. $0.40 margin in there you have got them $3 million to $4 million of EBITDA at the margins and the business at in Q1.

Yeah, I was going to add to what John said, as we said for Q2, we should run at the 40 million gallon run rate $0.50, $0.55 margins there.

And in the $4 million in the SG&A is going to come back in '18 or '19 or is that done for good?

Well, I guess it will depend on what the structure of the 2018 grants will look like, but that will be -- to be determined later on this year. Assuming that we have a similar profile, than yes.

Okay. So, it's not completely one-time, it's one-time in the year, but not one-time going forward.

Well, it will depend on what the structure of the 18 grants and so forth look like in that, if they do look like similar grants in '17 than yes, it will be a similar impact.

How much of your production for Diamond Green Diesel goes to LCFS assets at this point?

Yeah Ken, this is John Bullock. We don't talk specifically about the markets that we are going to -- we have a large percentage that goes to the LCFS markets, but as we've talked about in the past, as we go through '17 we don't get the full benefit of that because we have had some long-term contracts that were great for us going to the pipeline. As the LCFS markets have developed here over the last year and as they continue to develop through the course of this year, we have to buy ourselves out of those pipeline contracts to be able to move this stuff of the LCFS markets. We still generate a positive spread on that -- benefit from that, but we're not able to receive every penny of the benefit of the LCFS markets. That changes because all those contracts are up at the end of '17 through the first month of '18 and then we'll have our target fully being the LCFS markets unhindered.

Would you say it's still the majority of contracts now or not? Is it greater or less than 50% I guess?

More than, yeah, the majority of our materials will be LCFS markets.

Okay. And then your projects coming in terms of the shipments and the logistic issues to go to California?

Yeah, the rail project has just completed and we're just testing the system now.

And that would help you generate of the $0.75 $0.80 LCFS another probably $0.20 $0.30 of that or $0.10, $0.15 of that would come -- would start accruing in the back half of the year is that fair.

Well again we're going to have to transform all of our contracts across. So, the full benefit of rail capability really comes to us in 2018, 2019. Rail freight is stupid in California than is oceangoing freight because of the Jones Act requirement that we use U.S. flag on a part to port basis. We'll start to see benefit of that rolled in, but it's not 100% of the benefits for the balance of this year. We're in a transition year here as we change and move Diamond from what was a traditional pipeline marketing basis to an LCFS basis that doesn't fully happen until next year.

Okay. But when you say these $1.25 in 2018 is that included in all this stuff that you're doing on the LCFS side or is that additional? How do you think of that?

Well I think of it as including it. I think the expanded Diamond was the full logistics capability as we've put out here I think $1.25 is a fair number to consider as a an EBITDA. Obviously, there are so many things that impact us. What happens with the LCFS? What happens with the RFS2 volumes? Whether it's a producer versus a blenders tax credit? What happened with the antidumping case? There a million factors out there, a lot of them to break very positively for our margin structure, but we simply don't know the answer on how all of those policy developments will occur over the next 12 months? A $1.25 seems like a reasonable number.

And my last question is on the tariff to in Indonesia, I think Randy you said that there is a level that you think that's important to reach, but you didn't tell us what the level is, what is the tariff that you would want to hear or what are the different scenarios?

Well, again this John Bullock. I'm not sure anybody knows that that's really what the adjudication process as this goes through the IPC and DOC in terms of developing and establishing what those tariff levels are and we'll just have to wait and see what they establish. It's really not what we want, it's what the international regulatory process here establishes that those level should be at. However, we have seen in countervailing duty and antidumping cases around the world that when those are levied, they tend to be fairly significant and if you get a 20% or a 30% countervailing duty and I'm just making that number up, I have no idea what the numbers are actually going to be. So that's $0.75 to a $1 a gallon that somebody has to face coming into the United States and that's significant. So as this case moves forward and assuming we get a successful resolution on the countervailing on the antidumping, I would expect it to have a chilling effect on imports of biodiesel coming into the United States from Argentina and Indonesia.

Great. Thank you.

The next question comes from Chip Moore of Canaccord. Please go ahead.

Yeah. Good morning, thanks. I guess just back to those new products and expansions if we look at that $15 million to $20 million of incremental EBITDA we talked about in '18, is that a run rate or how should we be thinking about that as that start to get a full-year performance behind them.

Yeah it will ramp throughout the year and it will exiting 2018 at that full quarterly run rate.

Okay. Thanks, and I guess on an flight specifically, can you just remind us how that JV structure works and cost of that build out and the longer-term opportunity there?

Yeah this is John Bullock. The JV structure is a 50-50 joint venture. We have 50% and Trexon has 50%. I don't think we've released the information on what the construction cost of the facility is. It is a large commercial plant versus a pilot plant that we have been operating. However, we're still in the process of developing model number 01 from a commercial perspective. So, what I can say is we're not betting lots and lots of money on this particular facility. This is what I would call a logical next step in progression is a commercial sized plant that's going to tell us and give us a lot of knowledge about how to run this on a commercial basis. So, it is not like we're sticking lots and lots of money into this plant and say prudent next step of the process.

Got it. Got it. And just lastly some news this morning I think china allowing US beef exports and maybe US importing some poultry. Any thoughts there and what could mean? Thanks guys.

I saw the same headline Chip. I'm not sure I know what to think of that Chip, but any access for American meet products is going to be positive for the US industry here and being a current and very often traveled to China it would be welcome to see if we can find some U.S. beef in China eventually.

All right. Thanks.

The next question comes from Ben Kallo of Robert W. Baird. Please go ahead.

Okay. Good morning, gentlemen, I am new, so bear with me. I am just trying to figure out the difference between your margin, the Diamond Green Diesel this quarter and pardon me if you said this and what that's projected for the year? And then when drove up that $1.25, I know there is a $1 million moving parts, but does that include the Blenders?

Yeah, this is John Bullock, the $1.25 question is that include the blenders credit, again it is a what we think is a realistic number to think about for next year, but there are million moving parts. If the blenders are the producers tax credit is in place next year, then you'll probably see lower wins because one that's in that really facilitates or works together with the RINs market. So, the $1.25 if you will look as we look at it today with a million moving parts in it, but I would not take the $1.25 and add a $1 on top of it and think that there is $2.25 a gallon out of that, that would probably be overoptimistic. In terms of as we look at -- as we look forward to the year on this stuff, we have a number of moving components that we have to look at it in relationship to Diamond Green Diesel. We have to look at the cost of the raw material and the cost of the raw material has gone up here in Q1 as we've seen U.S. fat prices increase. We would've thought that the LCFS market might be a bit higher than it currently is at $74, $75 a ton but I think the marketplace out there is waiting to see the resolution on the various power cases that are currently before the court and that has kept the market in our opinion from moving if you look at the SMD on deficits and credits on where this market might be, every dollar a ton is roughly a penny a gallon. And while we're not getting all of that to the LCFS markets, we are getting a portion of that. And then finally we've seen in what two other things, we've seen the diesel fuel market from when we were looking at this thing earlier this year $1.65 a gallon has moved down into the $1.50 range and recently was as well as a $1.42 or $1.43, that has an impact. And then finally, we've seen the RINs market go all the way from a $1.80 down to $0.90 or $0.91 and now today's rallied back to $1.03 or $1.04. Every one of those moving parts has an impact on our profitability at Diamond Green Diesel and we have seen from Diamond Green Diesel ever since we've had it open on a quarterly basis, that we see a fair bit of volatility around the margin structure on Diamond Green Diesel. However, when you look back at it on a year-on-year basis, that volatility only seems to work itself out and we seem to come in with a relatively decent profitability. We're hoping that this year is just like all the previous years where Diamond have been.

Thank you. And just real quick back to the margins this quarter versus what you guys predicted for the full-year at Diamond Green Diesel, the difference.

I'm not sure I understand the question.

So, your margin that came in during this quarter for Diamond Green Diesel versus what you guys have projected for the full-year, how do we think about that?

Again, this is John Bullock. We had -- we were shut down, so our costs were a little bit higher than what we had thought they were going to be. During the quarter, the LCFS dropped from what was close to $100 a ton dropped pretty steadily during the quarter down in the low $80 a ton. So, there's $0.20 a gallon or a portion of $0.20 a gallon. The heating oil market went from $1.65 and declined to below a $1.50. So, there is $0.10 to $0.20 a gallon on top of that and then the RINs market bounced from the $1.08 or $1.09 all the way down and $0.91 and $0.92 and now it's bounced back. And every penny of RINs you've got to multiply it by $1.07 and then we had the fat markets go up for us over the quarter. So again, it's all those moving parts. Its relatively easy for Diamond's margins to move around by $0.20 or $0.25 or $0.30 a gallon on a month by month or quarter by quarter basis. In fact, its amazingly easy with that many moving parts. So, the thing that as we've seen so far and again we can't guarantee this happens this year because every year is a new year but every year in Diamond's history despite extreme volatility during on a quarter-to-quarter basis, Diamond has delivered at the end of the year. The good news for us this year as opposed to the last time we were in this position where we did not have the tax credit in effect is all those factors that I just mentioned and particularly with the introduction of the LCFS premium if you recall two years ago when we were operating in these conditions, basically if you excluded the tax credit, we were actually not making money at all or losing a little bit of money and the tax credit then came in and it helped out the entire year. Now we are in a condition where we are having a positive cash flow a little less than what we thought it was going to be in Q1, but still Q2 looks okay and then if the dollar tax credit comes in so as Randy said in his buildout, before making $100 million before the tax credit this year and the tax credit comes in, that puts Diamond in the $260 million, which would be $100 million better or $80 million better than its previous best year. Now a lot of factors to factor into that, but if we just -- we've kind of gotten used to the volatility around the Diamond Green Diesel on a quarter by quarter basis because it delivers on an annualized basis.

Got it. Thank you for framing that.

The next question comes from Tom Palmer at JPMorgan. Please go ahead.

Good morning, thanks for the questions. First just wanted to ask about the LCFS markets. By my math we're seeing it translate to the revenue line not necessarily down to the EBITDA line, is this mainly a function of shipping costs and I guess going along with that, if you're running in the $75 per ton range today, is there incremental profitability to expect by shipping to LCFS markets?

Yeah this is John Bullock again. Yes, there is, but again this is complex this year because we were structured to move all of our product out by a pipeline of the vast majority of our product out by a pipeline through 2017. So, as we turn our product flow to the LCFS markets and it's just not California but it is also markets in Canada and around the world. As we move to those LCFS markets, we have to deal with taking the contracts that we're going to move the product by a pipeline and adjusting them to be able to move to the LCFS markets. To do that, that means we have to share a portion of that profitability with the folks that we had it sold to on the pipeline. So, we did not get a clear look at the value. We only get a part of that value and I really don't want going on to discussing what part of that value is because each of these deals out there are slightly different. But we have -- we don't get the full benefit of that until we turn into 2018. When we begin 2018, we will be done with those pipeline contracts and will have unfettered ability to market our product to the LCFS markets and we see the full benefit of being able to send that product to the LCFS markets.

Okay. Thanks for the explanation. Just a quick follow-up Randy, at couple of conferences this past quarter, you discussed EBITDA run rate, it sounds like current EBITDA run rate in the $0.70 per gallon range. I just wanted to maybe clarify the context of those remarks? Was that referring to shipments that were going to LCFS markets at the time we were running in the $0.70 or was it something else?

No Tom, we came into the year believing that we would -- that the Diamond Green would operate in that around $0.70 a gallon range that that's a combination of all markets as John said the LCFS around the world, our pipeline contracts and then trying to arbitrage into California. And all we've done here is we still think that that number is possible, but right now what we're seeing today with as John said with the price of carbon dropping to $74 a ton from $100 and with heating oil going from $165 to the mid $140s and now around $150 and then the improvement in our core business with the fat prices going up we're just tampering that just a little bit for the year of what we see right now. But coming into Q2 as we said right now as we look out the next 40 to 60 days it's looking like there's a $0.55 a gallon margin out there $0.45 to $0.55 right now to be earned depending on what day in which parts are moving in what direction.

Okay. Thank you for that. That's all I have. Thank you.

The next question comes from David Cook of Wells Fargo. Please go ahead.

Thanks for the question, could you tell us how much you spend on CapEx and Diamond Green Diesel in the quarter and how much CapEx remains to be spent on the expansion there?

David, this is John Bullock. I don't believe we've released quarterly capital expenditures from Diamond Green Diesel. The expansion which we've announced, the number that we've announced on that certainly was $190 million. At this point in time the project looks on schedule on budget. We monitor that extremely closely, but I don't believe we released cash flow specific to the quarter on the Diamond.

At the end of March, we had almost $160 million cash sitting there and David and what we said is okay if you run out the balance of the year let's say you're going to make another $120 million gallons and you run it $0.55 $0.60 and you're going to generate another $70 million on top of the quarter in cash minus a little bit of carryover expenses from the shut down that finished up in March. So that facility, that's the message to the street is that facility and we'll be in our -- as we hit the street this next week with our spring presentations, we'll be laying that out for everyone as we've shown that Diamond Green is, given the environment that's in today even irrespective of the dollar a gallon blenders tax credit being retroactive is de-levered when the new expansion comes online here. So, it's all paid for and out of internal generation.

So, $160 cash $70 more on the way in '17 is another dividend from Diamond Green Diesel in 2017 possible?

It might be, it would say that the $1 a gallon was made retro in late November as it's been traditionally or historically, but right now we're not planning on it today.

Okay. And then you will, you've now reached your stay at leverage target of 3 to 3.5 times, so aside from your I think you said $100 million of contemplated debt paydown in '17 could we expect to see more acquisitions as the primary use of cash flow?

Well I think like I said as we role the punchline in the view that we are going forward to the street here next week, number one getting some clarity and biofuel policy is key to those decisions here and if we're right or even partially right on both low carbon markets improving the RVO and all of the $1 a gallon coming back and initially we become flush with cash, it then generates many opportunities. You can create value from deleveraging. We then can take a view at additional acquisitions around the world that we've seen or it can range to dividends to buyback. So, there's nothing off the table at this time as we get going forward, and there's no specific uses as we're going to go out and buy somebody today. Our focus has been to de-lever and grow. That was our mantra last year. This year is making Green in '17 but we're also committed to paying down $100 million debt this year and continuing to get that leverage ratio even lower. So, we have the firepower if something interesting comes that is accretive to the shareholders.

Great. That's all for me. Thanks.

The next question comes from William Baldwin of Baldwin Anthony Securities. Please go ahead.

Thank you, Randy could you spend just a little time and going over what your important project initiatives were in 2016 and kind of what the status is right now how that's -- how that's looking? Your CapEx programs, I am talking about your CapEx programs that you had.

Yeah in '16 we brought on the two new rendering plants late in the year in Pocahontas, Arkansas and Winesburg Ohio. Those are meeting expectations, both operationally, cost wise and earnings wise. We brought on our two-new wet pet food plants and those projects have been a little slower to start than maybe we had put in an Excel spreadsheet, but they are performing nicely now here in the Q4 time. Q1 was a little bit of seasonality there, but we see that improving. So those were the big projects out there. We put the Menninger plant under construction and the Denderleeuw Belgium [egos] digester under construction. Additionally, those are the big projects. So, I would say we're getting the returns out of those projects we want. That's evident in the Q1 feed segment earnings as those projects are starting to deliver as we expected and then we've got some very significant plant rebuilds and improvements that are going on out there that Patrick alluded to would add $15 million to $20 million of EBITDA in 2018. Some of those will come online late in the third quarter maybe early fourth quarter and then ramp up and so part of them will be online full speed in 2018 and part of them will be online in the back half of '18. So really at the end of the year -- end of the day, most of those projects were in our expected CapEx run. There was nothing right now that's under construction that really wasn't in the anticipated CapEx plan for 2017. We closed on the two acquisitions that totaled about $20 million. Those are little bolt-on route efficiency and synergy projects that we had really nice returns for us and those should be immediately start to deliver a little bit of earnings to us over the course of the year here.

Okay. Very good. Just quickly did the Rousselot expansion in Dubuque is operating pretty much as you anticipated?

You bet. So that one I should've mentioned too. Thank you for remembering. That has been a tremendous deal for us. That expansion was aligned with the shuttering of a major food companies gelatin plan. So that been a very, very good deal for us.

Very good and quickly John do you -- on your turnaround, are those all, are those expenses, are they all capitalized on the turnaround cost at Diamond Green?

Yeah, there is a small portion of them that are actually expensed. The majority of it is capitalized, but a small portion of it is expensed.

And do you all disclosure or give any color to what those turnaround CapEx expenditures are at Diamond Green?

I not believe that we release such specific information.

Okay. Thank you.

You bet, Bill.

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

Thanks Kerry. Thank you everybody for joining us. We look forward to sharing our second quarter thoughts and results here in August. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.