Darling Ingredients Inc (DAR) 2010 Q1 法說會逐字稿

Good morning and welcome to the Darling International conference call to discuss the Company's first-quarter 2010 financial results. With us today are Mr. Randall Stuewe, Chairman and Chief Executive Officer of Darling International, and Mr. John Muse, Executive Vice President, Finance and Administration. After the speakers' opening remarks, there will be a question-and-answer period. Today's conference 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 Mr. Brad Phillips, Treasurer of Darling International. Please go ahead, Sir.

Good morning, ladies and gentlemen. Thank you for joining us to review Darling's first-quarter 2010 earnings results.

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 our results. John Muse, Executive Vice President, Finance and Administration, will then provide you with additional details about our financial results. 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 any questions you may have.

Before we begin, I need to remind everyone that this conference call will contain certain forward-looking statements regarding the business operations of Darling and the industry in which it operates. These statements are identified by words such as may, will, begin, look forward, expect, believe, intend, anticipate, should, estimate, continue, momentum, and other words referring to events to occur in the future.

These statements reflect Darling's current view of future events and are based on its assessment of and are subject to a variety of risks and uncertainties beyond its control, including continued turmoil existing in world financial, credit, commodities and stock markets, a decline in consumer confidence and discretionary spending, the general performance of the US economy, and global demands for grain and oilseed commodities which have exhibited volatility, and biofuels that can cause actual results to differ materially from those projected in such forward-looking statements.

Other risks and uncertainties regarding Darling, its business and the industry in which it operates are referenced from time to time in the Company's filings with the Securities and Exchange Commission. Darling is under no obligation to and expressly disclaims any such obligations to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I would now like to turn the call over to Randy.

Thanks, Brad. Good morning, everyone, and thanks for joining us today. It is my pleasure to welcome you to the Darling International conference call to discuss our financial results for the Company's first-quarter 2010 quarter which ended on April 3, 2010.

As with my past calls, our primary objective is to provide additional insight and understanding of our Company's operating performance.

I would like to begin by saying that we are very pleased with our results and are encouraged to be off to a good start in 2010. Several positive factors and an improving economic climate contributed to our overall improved operating results.

As noted in our press release, we reported net income of $11.5 million or $0.14 a share for the first quarter of 2010. Higher finish product prices, tonnage improvements, both seasonally and acquisition-related, and lower energy costs all contributed to our improved performance.

Now I'd like to take a moment to address each of these contributing factors in a little more detail.

First, finished product prices saw improvements compared to the first quarter of 2009 and the fats and grease have showed additional improvement over the fourth quarter. Meat and bone meal, while mostly unchanged, started to feel the pressure of the record global soybean crop.

Overall, we believe improving global economic conditions and the application of global biofuel mandates will be the key drivers. Exports of both products remain strong, primarily from Europe, South America and Mexico.

While material volumes also improved during the first quarter of 2010 as compared to first quarter of 2009, improved raw material supplies from previously announced acquisitions and surging exports of beef led to a strong slaughter while extreme winter weather created a good supply of dead stock.

Our Restaurant Services business segment showed signs of improvement during the first quarter of 2010. Volumes improved even though winter weather hampered our collection efforts during January and March. We believe this is another sign of an overall improvement in the US economy, including improving conditions within the food service industry.

As we have mentioned on previous calls, energy prices are a key component of our operating costs and this quarter was no different. The Company's natural gas cost for the first quarter of 2010 was lower year-over-year, primarily driven by lower [NYMEX] costs. In fiscal 2009, we were negatively impacted by higher price forward purchase contracts during the quarter. However, historically cold winter weather increase the Company's overall usage of setting a portion of the lower input price.

Diesel prices, though, continued to surge during the quarter and are now nearly $1.00 per gallon higher than they were a year ago. As you may recall, we acquired certain aspects from Sanimax, primarily located in the Ohio, Michigan, Indiana, and Pennsylvania corridor, right at the end of 2009. In addition to this purchase increasing our national footprint to better serve our customers, we have been very pleased with the integration and the contribution to date of this acquisition.

Now I would like to take a minute to give you an update on Darling's progress in biofuels. In July of 2009, we joined forces with Valero Energy to take initial steps towards the formation of a joint venture to build a renewable diesel facility in Norco, Louisiana at a site adjacent to Valero St. Charles refinery.

The proposed facility is expected to convert grease, primarily animal fats and used cooking oil supplied by Darling, into renewable diesel and is expected to produce approximately 10,000 barrels per day or roughly 135 million gallons annually.

As we have discussed in the past, the success of this facility is heavily reliant on our ability to receive project financing approval from the Department of Energy. To date, we have passed the initial screening requirements to be considered for a loan by the Department of Energy. We have now entered into a phase whereby additional due diligence is being performed around technology, marketing and final financing.

The next phase, if we are successful, will be a term sheet outlining the requirements for a successful loan. Timing for a final decision should be by year end. Concurrent with negotiating a loan, we continue to be committed to this process and are funding the necessary items to hopefully be in position to commence construction in early 2011.

We are finalizing all the related agreements with Valero along with detailed engineering and the necessary environmental reviews as required by the Department of Energy.

During March, we did receive our air permit from the Louisiana Department of Environmental Quality. The Company anticipates now spending an additional $3.2 million during fiscal 2010 to keep the process going. It should be noted that the Company expensed approximately $336,000 in Q1 and henceforth anticipates a higher portion of the additional spending will now be capitalized.

Turning to San Francisco, we continue to make progress and work closely with city officials and local environmental groups to resolve any concerns about the potential construction of a small-scale biodiesel facility at our San Francisco rendering plant. We remain optimistic and will continue to update you as additional progress is made.

I would now like to turn the call over to John Muse for a more detailed review of our financial results. After John concludes, I will provide some closing comments and then we will go into our Q&A session. John?

Thanks, Randy, and good morning to everyone. During the first quarter of 2010, net sales were $162.8 million compared to $133 million in the year ago quarter. The $29.8 million increase in sales is primarily due to higher finish product prices and higher raw material volume.

Net income for the first quarter of 2010 was $11.5 million or $0.14 per share compared to $4.8 million or $0.06 per share for the same period last year. Interest expense was $0.9 million during the first quarter of 2010 compared to $0.7 million during the 2009 first quarter, an increase of $200,000 primarily due to an increase in rates and fees from the amended credit agreement that was primarily offset by a decrease in the outstanding balance related to the Company's debt.

Operating income increased by $10.8 million in the first quarter of 2010 compared to the first quarter of 2009. As Randy mentioned earlier in the call, the increase in operating income in the first quarter resulted primarily from higher finish product prices and increases in both volume and yield of raw material.

The Company recorded income tax expense of $6.7 million for the first quarter of 2010 compared to income tax expense of $3.1 million reported in the first quarter of 2009, an increase of $3.6 million. And this is primarily due to an increase in pretax earnings in the first quarter.

At the segment level, rendering generated net sales of $126.3 million for the first quarter 2010 as compared to $103.5 million in 2009. The Restaurant Services business generated net sales of $36.4 million for the first three months in 2010 as compared to $29.5 million for the same period in 2009.

On to the balance sheet, on April 3, 2010, the Company had working capital of $188.8 million and its working capital ratio is 2.25 to 1 compared to working capital of $75.1 million and a working capital ratio of 2.05 to 1 at January 2, 2010. At April 3, 2010, the Company had unrestricted cash of $76.7 million and funds available under the revolving credit facility of $108.9 million, compared to the unrestricted cash of $68.2 million and funds available under the revolving credit facility of $109.1 million at January 2, 2010.

And finally, the Company made capital expenditures of $4.6 million during the first three months of 2010 as compared to $6.1 million of capital expenditures during the same period of 2009. The 25% decrease in capital spending was primarily due to a major monetization project at our Turlock, California plant that took place in the previous year.

I will now turn the call back over to Randy.

Thanks, John. In summary, we are off to a good start in 2010. Fundamentals remain strong and we have built a resilient business model that has the flexibility to adapt to changing market conditions.

Overall demand for our products remain good. Our renewable fuels partnership with Valero continues to progress, and we hope to be able to update you on significant developments in the near future.

We have a healthy balance sheet and I believe we are well-positioned to capitalize on growth opportunities ahead as we continue to navigate through a stabilizing yet challenging economic climate.

With that I would like to thank you for your participation in the call and your continued interest and support of Darling International. And now I'd would like to open it questions and answers here.

(Operator Instructions). Stephen Share From Wisco Research.

Good morning. Just a housekeeping question. As far as full-year CapEx and tax rate, could you just kind of help us with our models on those two line items?

Yes. CapEx for the year we've disclosed in previous calls. We are expecting the CapEx to be around $20 million to $22 million number for the year. 2009, we ran $23.6 million and we would expect to be in that 20 to 22 range again in 2010.

okay. And tax rate?

Well, that's a moving target with us for some reason. Last year, we were around 38.9% for the year, first quarter 36.7%. We have taken advantage of some stimulus programs that are out there. But I think you probably need to be in the 37.5 to 38 range for the year.

Okay. And then I just wanted to talk a little bit more about rendering and specifically the volume there. I guess I was a little surprised. Last quarter, we talked about bad weather pushing some volume into the first quarter and then in the first quarter now with that and pretty easy comparison, you are still down 1% in volume.

I guess I always thought this was going to be a [veer] at a low single-digit volume growth story on the rendering side. Is that really not the case? Should I think of this as kind of a negative growth business? Or how would you help me on volume as far as what is going on there in rendering?

Number one, we don't break out rendering volumes. So I can't comment on how you did the math here.

But what I can tell you is is that 2010 Q1 was larger an improvement over 2009 Q1 even coming off of the dismal fourth quarter of 2008.

Cattle slaughter was one of the largest first quarters that we have seen in a while, driven by pretty strong exports of beef around the country. Beef exports are running very strong. Pork is up a little bit. Chicken seems to be the one that is struggling a little bit.

I mean, rendering volumes seasonally for Q1 for -- at least in our models have been as strong as we have seen in the past. We've got some acquisition volume in there. Also as we mentioned in the Restaurant Services, it is the first quarter that we can report in a while that we have actually seen our volumes grow, which is a pretty good sign that there is something improving in the economy. People are eating out more.

Typically in first quarter you don't see restaurant volume growth in the sense that, after the holidays, dietary concerns or people just being careful for the year. But at the end of the day we saw them up. Even with not being able to run routes in the last couple of weeks of January and some weeks in March, we had pretty good performance there.

So overall, I think your read on the business right now is is that we are running at a very solid rate from where we were in '09. There is acquisition volume in there, but nonetheless the core business remains fairly well intact. And we will [near] whatever happens here in the protein complex, coming forward for the balance of the summer.

Okay, you know, I wanted to ask you about that. You mentioned the environment is getting better and you did have some acquisitions and you had a really great operating margin in Restaurant Services.

Is that a function of the acquisitions coming in, being maybe higher margin businesses? Is that just more a macro improvement? I mean, how much of that is macro and how much is acquisition?

Well, I wouldn't -- what I would tell you is there are about two or three things that drove that performance. One, there's good volume there. Number two, we saw a pretty nice price increase in that business and number three, you know the -- what's as we mentioned earlier in the script, the exports are running very strong of that product to Europe, South America and Mexico. And we're -- when exports are very strong, Darling's plants that are located in around the coastal provinces do very, very well.

So our yellow grease exports are driving a lot of that performance. Also along with the fact that we have grown our footprint.

I see. Great, thanks a lot.

Farha Aslam from Stephens Inc.

Good morning. First, a quick question on your bio-fuels. Once you break ground, let's say early next year, how long does it take to build that plant -- given that you are doing some of the preliminary work already -- and get it up and running?

First of all, let me comment a little bit about that. That might take some questions off the table later on. Number one, we are in, if you will, in the gauntlet and the process with the DOE and it is a very gated process and one that, really, they have asked for confidentiality on so I won't comment any more about that.

What I will tell you is in order for us to successfully have the opportunity to receive project financing from them, we have to complete detailed engineering and provide an EPC contract. So all of that will be completed here by fourth quarter.

And then ultimately, on top of that, when you do receive government financing or support, you fall under what is referred to as NEPA, the National Environmental Protection Agency type of process which requires either a full environmental review of the site that you are going to develop. And that runs concurrently and should be cleared by fall also.

So we are in pretty good shape. As you can guess, we are not going to step forward and order long lead time items given the uncertainty of this process. Not that it's not a process -- not meaning that it's not something we want to do, but we really don't know the terms by which the government yet is willing to do business. And so for our conservative back -- you know, nature, we are going to step back and just wait.

So essentially, Farha, if we get authority to move forward here in something that we are comfortable with for ourselves and our shareholders, you know, you are basically looking at breaking ground in '011. We must break ground by the fall of '011 to -- in order to receive what is called -- I think it's --. I get messed up if it's the 1703 or 1705, but it is the additional credit subsidy from the government for this type of technology for feed stocks that meet the greenhouse gas reductions which ours does at 80%.

So all said, long answer to the question here is is we had hoped to be up by the end of '012. Once if we can break ground in early '011.

That's helpful. And then following on to Steve's question, perhaps we are kind of confused on our side of what the size the acquisitions are and how much they should add. Because accordingly -- from our models it looks like your base business was quite soft because we had expected that the acquisitions would add a lot, but your commentary seems to imply that your base business is okay.

Could you share with us kind of what the Sanimax and Boca acquisitions add in terms of your business and how that goes into your base volumes?

Yes. I mean, no, I won't break out specific acquisition volumes for you, but I will comment kind of regionally and talk to you about it a little bit more. The paltry volume that the company has experienced as you know as being one of the poultry experts out there was pretty dismal in first quarter. A year ago, the West Coast was running strong of poultry and if you will the cow slaughter, given the plants that we operate out there.

You add the culling of the dairy herd out there and then you had some pretty strong poultry numbers coming out the West Coast. Poultry and the cattle numbers out the West Coast are down substantially from where they were a year ago for us.

The Midwest was strong and rebounded, driven a lot by both the slaughter and lower winter weather. And then the rest of the country still -- as I would say, your large metropolitan areas which are driven by a lot of retail store pickups, grocery stores -- was flat to slightly better. But the West Coast right now, because of poultry a little bit in the Southeast is still pretty weak.

But your acquisitions made up for that and you are happy with them?

Yes. Very happy with them. You hate to refer to it as treading water to stay even, but it's well-positioned and it was well-needed here. But it is not a long-term trend that we would say we're concerned about because the West Coast is the primary soft spot right now with tonnage. And then we should feel that improve here as the poultry cycle begins to move again.

Thank you. Very helpful.

John Quealy from Canaccord Adams.

Good morning. It is Mark Sigal for John.

Just with regard to the formula pricing, are your price adjustments to suppliers made in real time or is there some sort of lag we should be thinking about? And also, is there much flexibility to be opportunistic with suppliers looking forward on the fixed-price side?

Couple things there, Mark. I mean, first off in the first quarter you had the three commodities that are finished products that are under formula, the tallow, the yellow grease, the meat and bone meal. Tallow was up strongly, 50% quarter over quarter or year over year. But even more so, it was continued rising from the fourth quarter.

So you do have a lag there. Each formula is a little different. A little over half of the Company is on formula. And more importantly what happens in this business is that you saw tallow move up from [28], drop down to 27, up to I think the mid to low 30s in March.

And you are always forward sold a little bit in this business to try to maintain your logistics and manage your risk model. So when you get into these rising volatile markets where $0.02 and $0.03 and $0.04 rises here you get a little bit of pain in the formulas in those months.

So there is always about anywhere from a 21- to a 45-day lag until they normalize.

The bad news was it was on the grease and the fat side. The good news was it wasn't on the meat and bone meal side as that was relatively flat. So the opposite happens, if you will, in a declining market. You get the benefit earlier because you are forward sold and buying your raw material cheaper.

For the customer, it nets out hopefully throughout the year. but in the rising quarter which we saw here, you also saw some builders' substantial build for us of inventories at the export plants plus you had a little bit of pain on the formulas.

Okay so should we expect a little bit of a catch up then maybe in Q2 and beyond?

Lots of variables there. I don't want to handicap down. So I'm hopeful, but that is what I am paid to do.

Fair enough. And then in the Q, I noticed some commentary on forward energy purchases. How far into 2010 will those purchases take you?

We have taken forward ownership, as you see in the Q, in both natural gas and for diesel fuel with heating oil. But we don't disclose what our total usage is. But we -- as you can see we've liked where some of the prices are on some of those forward markets as we sit here today.

But we don't really see any major increase on the natural gas and have a little more concern of an uptick on the diesel side. So we are trying to protect ourselves there.

And then lastly can you talk at all about how much of a tailwind or what you think potential benefits on the business might be, attributable to RFS2 in the interim before you guys potentially get your plant up and running?

Yes. I mean that's a pretty uncertain environment out there right now. It's -- RFS2 has been challenged by the American Petroleum Institute under litigation right now. That is out there overriding, that the tax subsidies have not been reinstituted or made retro yet. Although there is a feeling that they will be done here by Memorial Day.

So that kind of the real question is will there be, will we feel the impact of any RFS2 pull yet this year. Well, you know, we are mid May so almost halfway through the year here. So the answer feels like probably less than we had anticipated. And I think you are seeing that in the soybean oil complex right now.

But offsetting that is some pretty strong global demand for yellow grease as a feed stock into Europe right now. So there's kind of no news in the US and good news coming offshore.

Now all said, about half of the biodiesel being made in the country right now is being made from waste grease that is in fats. This is the time of the year seasonally that we see the pick-up. And you are seeing right now, you are seeing power trade into the chemical guys and what I'm going to call the clean tallows and greases at $0.32, $.33.

So you are now at that [$0.03 to $0.05] under bean oil. So you have seen that seasonal pickup and that is related to RFS2.

If you do the corn conversion and say, well, what is the alternative, we are pretty much out of the feed ration unless it has to be used right now. Because you are $0.03 to $0.04 over at least in the nearby as you come into the seasonal feeding side. So that is kind of where we are at.

All right. Thanks a lot, guys.

William Bremer from Maxim Group.

Good morning. Nice quarter. Randy, could you just go into a little bit regarding the $3.2 million of expenses? You know, we -- back-to-back quarters from the fourth and the first now, [637, 534]. How should we look at this amount going forward? Is it just a nice sequential uptick throughout the rest of 2010?

Yes. I think what we've shared is is that we are going to -- we anticipate spending about another $3.2 million between second, third, and fourth quarter. A high percentage of that and I'll be careful here because I am not an absolute expert in how this all flows through under the accounting rules anymore. But a higher percentage of this will go now to the balance sheet and be carried against the project and capitalized.

So we add the expenses up front. Under the accounting rules now as you develop a project, most of that expense at the front end or most of those costs are not capitalizable, they are expensed through which we did in the fourth quarter and in first quarter. I would suspect that the amount that gets expensed for Q2, 3 and 4 will be less now as most of it goes to the balance sheet in anticipation of this project being approved.

Great color, Randy. Thank you. Appreciate it.

Now in terms of pricing, that seems to be very solid. There was an issue in one of your plants during the quarter, a slight fire. Did that impact the quarter at all and is that just through the insurance? Can you give us some color on that?

No, yes, we did have a fire at our tank farm in Sioux City. We have two large storage tanks up there that we used for inventory management that used to be there when the Missouri River was navigable for loading barges. And we add a little bit of -- we just had a space heater in the control room. Started some insulation on fire and made a lot of smoke and did no damage, but it taught us a pretty sharp housekeeping lesson again.

Jinming Liu from Ardour Capital.

Good morning, gentlemen. Let me start with a very trendy question nowadays. So you guys sell some product to Europe and they pay you whether those contracts are priced in the euro or USD. And what do you see what's happening over there will have any impact on your business?

Everything we do is US dollars out of here. We take no exposure there and we are making sure as we are loading boats, obviously, the credit side of this is very near and dear to our hearts.

Will it slow down? Will the currency variations have impact? I suspect it might, but I am not sure of the impact right now.

Okay. My next question relates to your [board on] in the Q1. Basically the first quarter was the -- saw the highest slaughter rate since '97 and the imports from Canada for this cow from Canada actually increased 29% based on what the USDA reported. So but in your Q, I think, the increase in revenue related to (inaudible) upon $1 million. What is this linkage there? (technical difficulties)

Daniel Mannes from Avondale.

Good morning. Did we miss the end of the last question?

Yes, we -- I think we did.

Daniel Mannes. Do you want to answer Jinming's question before I jump in?

(multiple speakers). Your question on the cattle slaughter -- was up as you pointed out. However, the weights of the cattle coming in was substantially down, one of the biggest decreases that we have seen in many years. And even though we had quite -- like Randy said, poultry was down. Hog was okay, but -- and the cattle kills were way up.

But the weights coming in on a per head basis was substantially down and that did impact some of the volume that we got. We kept our volume up for the period, but as you see in the Q, raw material volumes when you net the sales and the cost of sales out, the volume was $1.2 million of the 10.8 improvement in operating income for the period. So we saw some benefit from that and also the demand from Europe for the greases. Did that answer your question there?

I think he's off but I guess so. He can jump back in. If I can switch over to energy real quick.

On the energy side, I guess we were under the assumption for better or for worse you had some pretty unfortunate hedging in the first quarter of last year. And relative to this year, while there was some incremental savings, we had thought it would be more substantial given at least the tone as to the above market hedges in the first quarter of last year.

How much of an impact were you hit with the cause of colder weather or were maybe the hedges last year (technical difficulty).

that you're trying to reconcile is simply the fact at the plant you had to keep it running and you couldn't shut the truck off when you were out somewhere else. You had to keep the trucks idling at times to keep everything from freezing up.

So you should see some improvement there as we get to the warmer temperatures here.

Got it.

The biggest issue, last year, we reported we did have the higher -- those higher hedges were on 50% of the volume so half of the volume last year we did get those lower markets. But that 50% did impact us. And as Randy said, the winter last year was much warmer than it was this year. We had a very severe winter.

And when you have that much fat in the tanks, the storage. It takes a lot to keep the -- we have to keep those tanks heated and everything. That was really the big impact difference was the (inaudible) difference.

Got it. And then on the other energy side on diesel. With diesel prices moving up and certainly up year over year, at what point is that going to kick in through your formula arrangements? I know historically back in '07, '08 we used to see a lot of sort of revenue benefit offsetting that cost. Should that start kicking in again or has there been any change in the formula arrangements?

Yes. I mean, clearly, there are a couple of things that I think we need to talk about. One, yes, there are fuel surcharges in a lot of our rendering contracts for hauling material in. So yes. That gets passed through and it is somewhat of a lag.

Second thing is you can see in the Q we do have some forward ownership. I think our commodities team and the risk management team have done a pretty nice job of having so far what appears to be the pretty right opinion on heating oil. And then now offsetting that is that as we've talked about at least in the Restaurant and the yellow grease side of the Restaurant Services, there's been a reduction of the amount of fees that we are collecting for our service there, because of where the markets are.

So the ability to pass through those energy surcharges is a little different than it has been in the past. I would not call it material, but it is different.

However the [trap] business in that Restaurant Services segment continues to do really well. And we do have the ability to improve and modify our pricing there to offset the increased trucking costs.

But is it fair to read into your comment that on the restaurant side you are shifting back a little bit more towards sort of the non-formula pricing versus formula, and that's why you are not able to recover all of the diesel costs potentially?

Yes. That would be true and that is part of the reason for the uptick in the earnings There.

Got it. And then in terms of volume pickup, more on the Restaurant side. Boca and you guys closed on I think mid-, actually late first quarter last year. How much of the pickup and I'm not sure how much of the Sanimax acquisition was on the Restaurant side, but I guess I'm trying to get a feeling for how much of the volume pickup in restaurants was relative to acquisitions?

Well, the volume pick Boca, you got to remember while it does run one of the largest grease separation trap operations in the country, remember you are still only yielding about 2 or 3% out of that stuff anyway. So you can run a whole lot of gallons and get nothing.

So that's a four decimal place rounding there in our bucket of yellow grease. So the majority of that business increase in the Restaurant Services side when I looked at it, it is all across the country. Newark and Los Angeles continue to lag. Big cities with still unemployment issues. The Midwest to normal and then we got a pretty good uptick in what I am going to call just the non-coastal metropolitan areas.

Okay and then last thing, just broadly following up on the acquisition question. I mean the combined costs of Sanimax and Boca were maybe $30 million in total. So I mean, depending on what you paid on an EBITDA perspective on an annualized basis, should we even be assuming this is going to add more than a couple million annually on an EBITDA basis? Or were these substantially more attractive acquisitions?

And I'm sort of -- this is more of a broad question. I don't expect exact guidance.

On the $30 million investment, yes. We would expect to see more than the $2 million a year return on that.

Yes. I mean, obviously, we have been fairly open in how we view acquisitions in that that we look for anywhere from three- to four-year, five-year type paybacks on them on a cash basis. So trust me. At least a model that was presented to me and the one that I approved and the one that I went to the Board with had a much improved number over what you just hopefully said won't happen.

Oh no, I was saying -- okay. I was saying on a quarterly basis even at $30 million, if you paid $[6 million] EBITDA for that is only $5 million annualized and $1 million a quarter. So it is not like in and of itself that would have driven that much improvement year over year in the first quarter.

No. You are fine with your math there.

Got it. Thanks.

Jinming Liu from Ardour Capital.

Jinming Liu I don't know what happened there but I do have a follow-up question. Randy, you mentioned -- I believe you mentioned briefly, during the first quarter, you saw some improving yield. What factors affect the yield from your rendering business?

Really, yield is driven. You have got to think about it this way and then start from red meat has more fat. The other white meat, pork, has a little bit of fat and chicken has no fat. So poultry volumes are way down. So from an algorithm basis if you process more beef your yield is going to improve.

And then secondly, the highest yielding product that gets weighted into that is the kitchen grease or the used cooking oil that we pick up. So the increased cooking oil volumes, more red meat, less poultry -- mathematically you get an improved yield.

Thanks.

This concludes our question-and-answer session. At this time, I would like to turn the conference call back over to Mr. Stuewe for any closing remarks.

All right. Just want to thank everybody and we will keep you up to date as things change or improve or develop with the DOE and our business and we will talk to you next quarter. Thanks again.

The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your telephone lines.