Thank you. Thank you for joining the Darling Ingredients First Quarter 2024 Earnings Call.

Here with me today are Mr. Randall C.

Stuewe, Chairman and Chief Executive Officer; Mr. Brad Phillips, Chief Financial Officer; Mr.

Bob Day, Chief Strategy Officer; and Mr. Matt Jansen, Chief Operating Officer of North America.

Our first quarter 2024 earnings news release and slide presentation are available on the Investor page under Events and Presentations tab on our corporate website and will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections and other statements about future events.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and the risk factors section of our Form 10-K, 10-Q and other reported filings with the Securities and Exchange Commission.

We do not undertake any duty to update any forward-looking statements. Now, I will hand the call over to Randy.

Thanks Suann. Good morning, everyone.

Thanks for joining us for our first quarter 2024 earnings call. As I mentioned to you during our last earnings call in February, the global ingredients markets are facing challenges due to replenish global oilseed and grain stocks, slower global consumer demand for premium ingredients and most importantly delayed or canceled renewable diesel start-ups.

For the quarter our combined adjusted EBITDA was $280.1 million but it included a $25 million out-of-period inventory adjustment within the Food segment. As you can see on the slide this is the third quarter in a row we have dealt with a deflationary pricing, but we now feel strongly we are seeing winds begin to change in a positive direction.

Now turning to the Feed Ingredients segment. Global raw material volumes remain strong and we are seeing fats prices slowly improve.

Home and soy oil continues to hold a strong premium over waste fats and imported fats are now a premium to North America. This shows me that we are still waiting for renewable diesel capacity and pretreatment to ramp up.

Global fat prices illustrate that these announced renewable diesel producers are not yet taking advantage of the economics and lower carbon intensity of waste fats and feedstocks. Also during the quarter, we completed the Miropasz acquisition on January 30, adding three poultry rendering plants to our portfolio.

The plants are performing quite well and I expect them to be accretive this year. And after 481 days offline, our Ward South Carolina rendering plant is operational, providing us much needed capacity in the Eastern United States.

Now turning to our Food segment. Our Rousselot sales volumes remain robust.

Segment revenue was lower quarter over last year Q1 over last year due to a decline in selling price in collagen, gelatin and our edible fats business. Adjusting for the $25 million out-of-period adjustment related to the Gelnex inventory, gross margins in the Food segment actually widened to around 30%.

This is a testament to our laser focus on spread management and a declining price environment. Now we announced earlier this month that we have identified a portfolio of collagen peptide profiles that are believed to provide targeted health and wellness benefits.

During scientific trials these active collagen peptide profiles have demonstrated that collagen can be beneficial in reducing the post-meal blood sugar spike in a very natural way. This is a game changing discovery that opens the door for many new product launches worldwide.

Our first active peptide will be available this fall in 2024. Turning to our fuel segment.

Feedstock prices tended to trend lower and improved DGD earnings compared to Q4 2023. However, weak RINs and LCFS prices and a lower of cost of market adjustment impacted DGD earnings.

The margin outlook remains favorable due to lower fat prices and our competitive advantage plus an optimistic view we have on the LCFS. Our sustainable aviation unit construction is running ahead of schedule and on budget and is planned to start up in the fourth quarter of 2024.

We continue to work with a number of interested parties on SAF purchases and remain confident in our outlook for SAF. Now, I'd like to hand the call over to Brad to go through the financials, and I'll come back and give you my views on 2024.

Okay. Thanks, Randy.

Net income for the first quarter of 2024 totaled $81.2 million or $0.50 per diluted share compared to net income of $185.8 million or $1.14 per diluted share for the first quarter of 2023. Net sales were $1.42 billion for the first quarter of 2024 as compared to $1.79 billion for the first quarter of 2023.

Operating income decreased $118.7 million to $137.2 million for the first quarter of 2024 compared to $255.8 million for the first quarter of 2023, primarily due to $120.6 million decrease in the gross margin, which as Randy previously referenced, included a $25 million out-of-period adjustment of overstated Gelnex inventories. Also, our share of the equity in Diamond Green Diesel's earnings, were $15.9 million lower than the first quarter of 2023.

Depreciation and amortization was $11.5 million higher, primarily due to the addition of Gelnex. We did recognize $25.2 million of income from the change in fair value of consideration related to lowering and earn-out liability.

Non-operating expenses increased $14.9 million, primarily due to interest expense increasing $12.6 million attributable primarily to additional debt related to acquiring Gelnex April 1, 2023. The company reported income tax expense of $3.9 million for the three months ended March 30, 2024, yielding an effective tax rate of 4.6%, which differs from the federal statutory rate of 21% due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions with different tax rates.

The effective tax rate excluding the impact of the biofuel tax incentives is 25.4% for the three months ended March 30, 2024. The company also paid $33 million of income taxes in the first quarter.

For 2024, we expect the effective tax rate to remain about the same at 5% and cash taxes of approximately $70 million for the remainder of the year. Company's total debt outstanding as of March 30, 2024 was $4.465 billion compared to $4.427 billion at year-end 2023, primarily due to the acquisition of Miropasz on January 31.

Our bank covenant projected leverage ratio at Q1 2024 was 3.71 times and we had $811.1 million available to borrow under our revolving credit facility. Working capital noticeably improved in the first quarter 2024.

Capital expenditures totaled $93.8 million in the first quarter as compared to $111.3 million in first quarter 2023. No cash dividends were received from Diamond Green Diesel in the first quarter, and there were no share repurchases in the first quarter.

With that, I'll turn it back over to you, Randy.

Thanks Brad. For several years, we've enjoyed tailwinds from a demand-driven global economy and strong global commodity and specialty ingredient prices.

We are now adapting to the new reality of abundant global supplies. In my 21 years plus at this company, I've seen this cycle many times and I am confident in the team's ability to make any necessary adjustments in our procurement processes and lowering our operating costs to regain margin leverage.

In April, we saw nice progress in our core ingredients business and DGD has finally worked through its higher priced feedstocks. With SAF starting up in Q4, several contracts are underway and we remain optimistic on LCFS and DGD margin outlook remains favorable.

Our goal to reduce debt and working our way toward investment grade has not wavered. Through aggressive CapEx management and a focus on improving working capital, along with improved performance at DGD, I still believe we can attain by the end of the year-end of 2024.

Additionally, as we discussed in February, we're doing a comprehensive review of our global portfolio and continue to put a strong emphasis on cost and spread management. For the full year, given what we see today around the globe with solid raw material volumes, improving premium protein and collagen demand, along with slowly improving fat prices and DGD performance, we feel optimistic that momentum will be built during the year and we will be able to deliver $1.3 billion to $1.4 billion combined adjusted EBITDA all while setting the table for a much improved 2025.

So with that, let's go ahead and open it up to Q&A.

Hi. Thank you for taking my questions.

I just had the question on the guide that you have for the 1.3 to 1.4, does that include any reversal of the LCM adjustments? Or could there be additional upside to that?

No, this is Randy. The 1.3 to 1.4 is really what we see today with a small improvement of fat prices but really back half loaded here.

It doesn't include any SAF early start-up. It's just a snapshot as we've always done on what we see right now.

As I said in February our hope is to beat last year but we're going to need some help from fat prices. And ultimately if you do and I'm probably going to answer a few questions here and have Brad help me but you can go straight to the Feed segment and do the kind of the year-over-year quarter-over-quarter type of analysis and you see 100% of that is related to fat prices being down from Q4 to Q1 by 20% and year-over-year by 35% to 40%.

And so ultimately fat prices will drive whether that number is 1.3, 1.4, 1.5, 1.6, 1.7, 1.8 as we come back here. We also remain and as we'll talk through the Q&A optimistic that we'll get some LCFS bump towards the end of the year.

And clearly, DGD has worked through the higher priced feedstock with the longer supply chain and it continues to perform anybody on the street out there in the business today. So the 1.3, 1.4 as -- maybe conservative.

And hopefully, we'll give you some upside here.

Awesome. Thank you.

Randy. And then just a quick question on I guess on your leverage ratio of 3.7.

Any kind of updates on targets or what your goal is for the year-end?

Yes. Now, Brad help you.

Remember, the leverage ratio is a point in time of total debt divided by the core ingredients plus dividends. And so clearly as we've been building out SAF and we had the Q3 and Q4 lower earnings of last year in DGD dividends didn't arrive here.

So that's just a function of that. As Brad and I and Matt would tell you cash is building rapidly in DGD and we remain optimistic on dividends which will then pull that ratio down.

It's a rolling 12-month calculation. By no means has anything changed other than the delay of the dividend out of DGD.

Brad?

That's right. Just the timing and when these dividends get started which we anticipate as Randy just mentioned cash is building has been building at DGD now and the SAF projects winding down.

This is Matt, and I would just add that on the dividend out of DGD is a -- it's not a subjective policy here. It's formulaic.

It's calculated every month. And so there's not a discretionary push and pull on that.

Good morning and thanks for the question. In the past, you've given a bit of a breakdown in terms of EBITDA between the base business and DGD.

I know at least from your comments to the prior question that maybe there's a bit more variability on the feed side, but I was hoping maybe you could give us kind of a rough split of how you're thinking about the year.

Tom, you're referencing really the guidance and splitting that out. Is that -- that's kind of where you're going.

Yes, that's right kind of base business versus DGD for 2024.

Yes. Tom, if we had to throw that out there today, 900 out of the base business is what we see today and basically a billion out of DGD and that's $0.75 times, a little over 1.3 billion gallons.

Remember, just a point in time.

Great. Thanks for that detail.

And then -- just wanted to follow up on kind of some of the moving pieces within feed. I mean, you noted the expectation for that and potentially protein prices to strengthen a bit here.

I guess, could we walk through what the major catalysts are? I mean obviously, there is some disconnect right now between some of the products you sell and what we're seeing with safe soybean or palm oil.

What kind of bridges that gap? And how quickly might that take hold?

So, this is Matt. I'll take the first cut at that.

And so first of all, for the last little over a year, we've been hindered by the ward plant that we've been rebuilding. And we're actually very proud of the fact that we've got that plant now, up and running.

We did a total rebuild of that plant in 481 days. And frankly, it could have even done a little bit quicker, if we could have gotten the equipment there even earlier.

So, now what that does going forward, that allows us to leverage our footprint in the space especially, in the eastern half of the US where we've been over the last year like I mentioned, incurring some cost and it's frankly been inefficient for the -- just because of that plant being down. So, that's back up and running now.

And that's something that will give us now the ability to leverage our footprint in the space.

Yes. And that's a good point.

And globally, I'd step back Tom and give you three analysis: one, there's an absolute fact here that anybody that says their pretreating waste fats in North America for R&D, isn't doing a very good job of it, or we wouldn't be a discount to where we were 10 years ago to vegetable oil, whether it's palm or soy or canola, that's number one. That impact we're seeing globally.

I mean, you had European fats moving here for the first time in my career even with a plus Euro 106-110. Brazil was moving up here.

Now Brazil is over US. But at the end of the day the fat pricing drives this thing.

And when you look at what's going on in the segments, you've got three pieces. You've got animal fats, you've got premium proteins.

We saw a massive destocking, the premium pet foods. People were trading down.

It seems to have come back, a little bit now. We've got great orders in that business, again.

So that feels much better. China was -- it kind of disappeared for a little while with Chinese New Year, but once again, buying the premium chicken products for the aquaculture business.

And then the other piece that obviously, exists in the feed segment because of shared assets is the UCO business and that business has come down sharply and that's a very profitable business for us. And so at the end of the day, the outlook for the Feed segment is improved protein demand, and then a rebound in fat prices at some point in time here, as we go forward.

Bob, anything I'm forgetting here?

I think you highlighted it really well, and it's the spread between vegetable oil and animal fats. And as time goes on, we should see that spread tighten versus where we are.

Otherwise -- nothing else. I hope that helps, Tom.

Hi. Thanks so much.

You mentioned the pull forward of the SAF production commissioning making good progress there. Can you talk a little bit about the development of getting that volume contracted, and the potential contribution that you think that could bring to 2025 or even 2024 Randy as you mentioned, maybe there's some stub contribution?

This is Matt. I'll again take the first cut at this.

But -- so the -- as we mentioned the plant now, we will commission in Q4 of this year, which is a solid quarter ahead of the original plan. That plan is also on budget at $315 million, at the entity level.

So we're tracking there. And so that's something that we're very optimistic about.

I would say from a contracting standpoint, we continue to see a lot of interest in our product. We are taking what I think is the best approach towards this.

And I would -- I'm confident that we'll be able to, let's say, contract the volume that we are -- we'll be producing out of that plant is going to be oiler plated at 250 million gallons on an annual basis. We don't have anything in our '24 numbers related to the project in terms of EBITDA.

But I'm confident given the state of the discussions where we are right now that we'll be able to; a, meet the volume and certainly; b, meet the return expectations from that project.

Yes, I think, that's fair enough. And I don't think there's been a lot of chatter out there Ben it's building.

The 17,000 barrels a day is not going to be hard to disappear. We have plenty of interest there.

It's down to the final negotiations on spread and pricing here in both the voluntary and the mandated markets. And clearly, that's going to drive it here.

But we have no fear of any challenges there other than hurry up and get it online.

Okay. That's great.

Thank you. As we think about kind of nearing the end of that CapEx project you've built out DGD, you've kind of moved through the M&A activity you've had over the last couple of years.

As you think about cash spend priorities from here, I recognize you want to get leverage down and then distributions will be in the wake of that. How should we think about your appetite for continued opportunistic M&A and/or incremental growth CapEx projects?

Yes. I mean, it's one that I'll comment on.

Number one, we are on an aggressive CapEx reduction program this year told Brad, we're going to scale it back. We were $93.7 million in Q1.

I think that's a pretty close run rate. Q1 is always a little lower, because of winter weather and construction, but that also had the final bills of building out rebuilding word as Matt mentioned.

And so target there is 400 for the year plus or minus a little bit there. Ultimately, we've got some pretty substantial inventories, while we had a pretty big working capital reduction in Q1.

There's still more work to do there. So cash generation is key and then the dividends out of DGD we want to get the debt down below $4 billion.

And then it puts us in a different position going forward. We will not walk away from a well-priced bolt-on, but we're going to be very, very cautious this year, because our priorities are operating cost management working capital improvement and really just getting DGD lined out and living through the lower-priced inventory.

I mean, we're trying -- as you step back macroly what are we trying to do? We're trying to work towards a share base of owners of this company that both understand that there's going to be some volatility in commodities.

We've got a very well managed business model globally. And then ultimately this thing once we're in position in '25 here we'll have chances for all kinds of share repurchases to ultimately considering a dividend.

And that's where we're headed. And then ultimately as we go into '25, we've got some debt maturing or going current as they say.

And we've got to figure out the long-term capital structure. But right now for us it's really just -- as we've said it's just a real focus on margin management, spread management around the world, which I got to give credit to the team.

They've done a nice job. And that's what's evident.

If you look between Q4 and Q1 with a massive price decline again of 20%. But yet other than the inventory adjustment, you were three something in Q4 and three middle in their low in Q1 with a 20% fat price decline.

And so that's attributable to people making the changes in the spread management ratios around the world.

I would just say that we get asked regularly about what about an SAF 2 on top of our subsequent to the SAF 1. And we've got the engineering for that -- and that's something that as the year progresses, I would say, given the fact that we get up and running with Q4 and we are able to contract at the margins and the returns that we are expecting then an SAF 2 is something that we've got in the holster for some time in potentially 2025.

Hi. Thank you.

Good morning, everyone.

Good morning.

I wanted to come back to the outlook on DGD margins and Randy talked $0.75 a gallon plus or minus. And you were basically there, in the first quarter excluding the LCM adjustments.

And I guess I'm trying to just think about the margin capture at DGD with waste fats still at a healthy discount to veg oils relative to obviously whilst the reduction in margin that that implies in the Feed segment. And just how do you think about -- is that DGD capture kind of satisfactory given kind of the pressure it has on the Feed business?

Or is the disconnect that the LCFS just needs to work up over 60 to get those values up and that has the double benefit of improving the margin realization at DGD and driving kind of broader demand for the waste fats for the Feed business.

Yeah. And I'll tag this with Matt here.

Number one, Adam, I'm just going to step forward and just say I've learned my lesson here a little bit. We're coming out conservative.

Clearly the LCFS has not reacted to what I think is very positive future look here. I think the RINs SMB is going to tighten up here, because this R&D capacity in real or we wouldn't be at discount and soybean wouldn't be a discount to palm oil.

So ultimately, this is just a projection in time that we believe as we approach 2025 that that margin structure can -- can improve quite a bit, but that's what we see right now. Matt, Bob?

I would just say that the other complexity to this is that there's a timing discrepancy here in terms of in our Feed business, the fat prices are reflected much more responsibly in the results wherein the price movements in DGD, simply because of the supply chain management that's required to sustain a 1.2 billion to 1.3 billion gallon business. It's got a longer tail to it and we've seen that over the last few months.

If prices have fallen the feedstock prices at DGD haven't fallen as quickly in the numbers. And so there's a little bit of a timing discrepancy there.

But in terms of -- in the bigger broader picture it's -- I would say, it's doing exactly what we thought it would.

Yeah. I think from Adam, from not to get too deep in the sausage grinding, but if we would have rewind the movie 1.5 years ago DGD3 when it came online between the system would use two-thirds of North America's waste fat supply.

So we made a strategic decision to qualify feedstock suppliers from around the world including our own plants in Europe and South America. And that's the length of the supply chain.

That's the good news. We qualified other people and found other sources.

The bad news was that in a deflationary environment that supply chain was much longer and that had to play out in Q4 and Q1. And then you top on that is that there is all these expectations between the some of the Gulf Coast guys we're going to pre-treat the West Coast guys are going to pre-treat and we've never found a consumer yet for Darling's waste fats in North America.

So we woke up in Q1 here or Q4 and Q1 really with DGD as the only capable technology of pre-treating our fat. Bob, anything you want to add?

Yeah. I'll just provide some color from a broader SMB perspective on renewable diesel.

I think there's a really different picture between 2024 and 2025. In 2024, we always knew that the RIN SMB was going to be a bit heavy.

We'll produce eight billion or 8.5 billion D4 plus D5 RINs this year versus an RVO of 5.55 and maybe a shortfall in D6 of one. So it's about two billion RIN oversupply.

But when we get to 2025 the RVO increases to 5.95 and if we move to the producer's tax credit, really imported biofuel and domestically produced biodiesel it loses a lot of support and that represents almost 4 billion of the 8 billion to 8.5 billion RINs. So, it's a significant change.

And if you kind of look at where biodiesel is today at a call it a $0.20 per gallon margin without the blenders tax credit, it goes to minus $0.80. And so in order for biodiesel to be at breakeven, the RIN has got to do the work.

And so we're bullish RINs as we get into 2025. And then if you just look at the at car's estimates through the regulatory impact assessment, they estimate we're going to be seeing $1.30 a gallon type LCFS credit values, at least that's what they're aspiring to.

And so if you layer that all on top, it really bodes well for renewable diesel margin as we play out. And as we get to the end of 2024, we believe the market is going to see that and we'll start to react to that type of an S&D reality.

Okay. And if I could just maybe follow on that last one and it kind of goes back to the original question.

How do we think about maybe flat price veg oils in that scenario where that's a pretty significant amount of veg oil demand and waste veg oil in particular is going to be challenged to find homes in the biodiesel market that yes maybe the waste fat discounts to veg oil narrow or go away but that could put downward pressure on the veg oil market broadly do you -- are you concerned about that in any way?

Well, I think -- look our view is what it is. And if we have a stronger LCFS in California, it's going to be more supportive of demand overall.

But I mean you're right it favors renewable diesel over biodiesel. Biodiesel is generally produced from vegetable oil.

Renewable diesel outside of Diamond Green Diesel is a lot of its vegetable oil as well. But as we go forward, we should see more animal fats.

I mean I think what it points to is increased demand for UCO and animal fats and less demand for vegetable oil. And so those spreads should come together.

But the overall demand for fats and oils really shouldn't change. It's really about the spreads between the different products.

The only thing that I'd add is it would come down to ultimate crush capacity and whether or not crush given the new crush plants out there do they start to scale back. That always takes longer than you think it does but that's the kind of the wild card that's out there.

And that's a really good point -- sorry, but it's a really good point because crush margins -- soy crush margins are not very good right now and they're not projected to look really good here over the next couple of years. And so one way to control supply as an industry of vegetable oil is to lower crush.

And at $25 a ton crush margins you're not far away from slowing that down.

What surprised me to see imports drop off as well as I think that freestanding biodiesel refineries will be disadvantaged.

Guys you said you were constructive on the LCFS prices. Recent car workshop for the first time introduced the concept of a 7% step down or 9% step down for 2025 versus the proposed 5% step down.

Do you think car is finally recognizing that the prices are too low and there is a strong possibility that now when the revised numbers come out you could see a 7% step down or a 9% step down which actually hits the credit bank pretty hard?

Yes, I think it's -- look I think we're projected to be at 13.75, so a 5% or 7% or 9% step down, all of them are a significant increase to where we are today. What we know is that through the regulatory impact assessment they've got goals as far as where they would like to see LCFS credits trading.

And really we believe they're going to put a step down in place that they believe is going to allow that market to move to the prices they think it should be at. We had the workshop recently.

There's a lot of constructive dialogue going on. And in all scenarios it's a step down from where we are today where that might not have been the way the discussion was going a while ago.

So, it's hard to speculate as to where they're going to land. But we think it's going to be based on good data and analysis and when they make that decision.

Yes. And keep in mind Manav it's always been a 2025 kickoff, if you will.

Everybody got a little optimistic aggressive in thinking that car would move faster here. It's still a very regimented and gated process there.

And I think you'll -- I think they're going to publish here shortly. I think it will go to a Board meeting in July.

And then after that we'll see on the execution time.

Perfect. My quick follow-up here is on the DJD margin for the quarter.

I mean it was a big improvement from $0.41 to $0.76. But as you highlighted there was this still a feedstock lag effect working against you.

Like so if we adjust for that the price decline in the feedstocks would it be fair to say that if the feedstock prices had not moved at all this $0.76 could easily be like $1 for the quarter? I'm just trying to quantify the impact of the feedstock price lag for the quarter.

Well, I don't see the exact calculation but I would say that generally speaking or directionally that seems correct.

Hey, guys. Good morning.

Good morning.

Randy, I don't know if you can comment. DGD the first quarter sales seems really high comparing to the production level.

So I assume that we are drawing down inventory. So at this point how much is the inventory that will remain?

In other words for the rest of the year should we assume that sales will be pretty closely aligned with the production volume or that is still going to be in excess of the production volumes.

This is Matt. I'll answer that.

I would say first of all that DGD does not really have a program to store a bunch of finished products. So the -- really the operational intention and expectation is ship what gets produced.

And so what happens is from time to time as you bridge months and bridge quarters sometimes don't get invoiced in one month and they may get invoiced in the next. And therefore you can see a shift.

But I would say that's likely what you're talking about right here.

Yes. I think for the year Paul I mean we're still out there at that 1.350 in a total production and shipped produced and shipped hopefully can match up.

It's just the timing of vessels and barges and railcars of different things here. And obviously as we start to transition in Q4 to taking 250 million gallons of R&D offline, most of that I think Matt you told me most of the SPK and SAF will move out what by rail then..

Ore barge.

Ore barge. Yes it could be a little bit of timing.

But production is what's important to us here and the timing of sales is -- will happen.

I see. And second question is on the feed volume from -- I mean with the small acquisition you get three more plants and also then what is coming back.

So Randy can you give us some idea then how sequentially the volume is going to look like?

Can you repeat that Paul?

If we're looking at the feed ingredient that segment from the first to the second quarter how is the volumes we should expect given that you just completed a small acquisition that adds three plants and then you also have what being rebuilt and is working. I know that not a one-to-one but are we going to see some incremental benefit from a volume standpoint for the feed ingredient when we move from the first to the second quarter?

Yes. I mean Paul so when I look and Matt can comment more North America.

But globally we've made procurement changes in our spreads in Europe. We're still actively doing it in South America.

Raw material volumes are rather large or just the cattle slaughter shipping again from the US down to South America so the piles of raw material are quite large. North America clearly Matt already commented about Ward.

That is such a blessing to have that online just from a -- we were running at 100% capacity and then running through Saturday so that should take a lot of pressure off the system. And then we've seen some pricing improvement in the fat side.

It's been very modest in North America. It's been a little better in Europe today it's back really reflecting palm oil values as alternative there.

So Q2 within the core ingredients business looks to be stronger at least at the moment. We don't have April numbers yet because the month is not closed, but it looks stronger and the operating team feels better about it than Q1.

Matt anything you want to add

I think you covered it okay.

Hey, good morning. Thanks for taking the questions.

My first one is a two-parter on the guidance. I think a month or so ago you maybe were at a conference and I recognize it wasn't formal guidance or anything like that.

But you kind of insinuated that the market environment kind of suggested a $1.55 billion $1.6 billion type of EBITDA number and – so I guess I was just hoping that maybe you could bridge from your comments at that time. So now the formal guidance of $1.3 billion to $1.4 billion.

And then secondarily, you kind of alluded a little bit to this in the last question but you talked about a back half kind of loaded year. Is that just a reflection of the first quarter?

Or is 2Q also a little bit limited and then kind of we see the full acceleration in the back part of the year.

Yes. Number one, Andrew my crystal ball had fog in it when I gave that prediction before.

But it was hinged on a couple of things. One, it was hinged on some optimism that the LCFS market would come back upon realizing what was going to happen to do that with the change of car.

And number two just believing that waste fats couldn't stay down below world veg oil prices very long. And first off I was wrong on both of those.

It's a timing thing. We're saying Q2 is going to be stronger than Q1 from the core ingredient side.

And then obviously, we got a turnaround in DGD coming on here. For DGD 3 and I think that plant ran 15 or 18 months before we turn it around, which is an absolute amazing deal and that's to do the tie-ins also for SAF 1.

So it's really – when I talk about back half of the year, we're going to pick up momentum. You get the LCFS announcement out there and people then realize that it's real.

People realize that these R&D plants aren't running at the rate or going to run at the rate that should help things as you move into – as you get closer to next year you realize that the RVO is going to have less imports 800 million, 900 million gallons. That has to have a positive effect on both RINs and domestic feedstock values and ultimately, what else am I forgetting guys?

I mean what else is going to drive this?

I think that I would just – historically speaking, I would say Q3 is naturally a challenge for us to keep in mind as we plan for this. Principally due just to the summer heat and all but we're ready for it.

So…

Okay, great. That was helpful.

And then my other question is just on the adjustments you're making to the procurement process and the operating costs, which you've been talking about for the last several months, so that's not entirely new. But I'm just curious are you finding new opportunities within those buckets?

And you referenced some of the evidence that some of that is already playing out. But I guess how would you frame the extent to which you've realized those benefits versus kind of incrementally what might be to come in future quarters?

Thank you.

No it's a very fair question. I mean number one typically a lot of the procurement formulas in North America were CPI based and they had to be relooked at that one enough.

In a lot of cases, we've given a lot of labor increases post-COVID and so as these contracts matured and changed, we've had to step out. And then 7% interest rate on these assets is a different calculation in diesel fuel and 450 a gallon.

So it's just been a comprehensive look all around and the team has been very open to it. As I said, we've had a tailwind since fourth quarter 2019 and then the wins changed and deflation hit and you have to go look at this stuff and we've done it.

I mean the Brazilian acquisition has really been a good acquisition. It's meeting business case, but it's one where we're having to be when you transition from a private owner to a public company.

I've always said and the guys have heard me say private owners run for tax avoidance public company runs for earnings. And that requires us to make changes in the raw material procurement from the slaughterhouses down there more often than has been historically done.

So I think there's nothing really tangibly too new of what we're doing here other than we've given the team -- number one, you've seen us take CapEx down solidly $100 million for the year. Number two, we've kind of just told that we've had to work with the teams to just say "Hey until we see fat prices come up you've got to be really cognizant of cost management.

And so that's kind of where we're at. Are you guys -- anything you want to add to that?

I'd just say, look I appreciate the question. It's a pretty prevalent theme around here.

Our suppliers they've got several options. They can go to another rendering plant.

And meanwhile we're kind of at capacity across the continent. They can go to landfill and landfill is less acceptable and more expensive every day or they can build a new rendering plant.

And that's a whole lot more expensive than it was a few years ago. And so all that is taken into consideration when we're repricing agreements.

We don't realize an immediate impact in a one-month period from restructuring these agreements. And a lot of these they come up at their three-year agreements.

But over time, we're in a really healthy position given the book value of our assets relative to replacement value.

Thanks, guys. Good morning, all.

Randy focusing on guidance and kind of pulling you back closer to your previous crystal ball projection. I can certainly appreciate the conservative EBITDA guidance, as your stock doesn't reflect meaningful value for DGD and you've now taken out the bare case with the guidance.

Having said that, if we assume fat prices remain depressed and annualized Q1, you could easily be above the top end of your guidance based on DGD spot margins north of the dollar per gallon with no contribution from SAF. And kind of thinking about the interplay between your businesses assuming static RIN and LCFS prices lower fat prices are a net positive for Darling as the impact for downstream is far greater than the impact for upstream.

Is that fair?

I missed that last part.

Lower FAP prices are net benefit to Darling because of the earning power of DGD.

Yes. I mean I think that's right.

Given the relative size of DGD today and its capacity, it's a very good hedge for the base business of Darling.

Yeah. It buys 3x more fat than what we produce ultimately or that's logistically feasible globally to it.

So yes the leverage is there. But I also remind people wearing my self as Darling have that I keep 100% of any fat price increase on this side of the table.

What we're really looking for at DGD is an LCFS health and then it really has a chance to be a double win for us.

I completely agree. I think everything hums when LCFS prices go higher.

Regarding the progress that you guys have made with your collagen peptide research and products, how should we think about the build-out of that business line or those business lines and what the RIN rate potential could be?

Yeah. I mean look let me just back up a second.

I think what really excites us about that is not just the progress we've made in developing peptide profiles. But the infrastructure that we have globally to deliver on a portfolio of value-added products.

So with the acquisition of Gelnex, we essentially have access to low-cost collagen production around the world. And we have the capacity needed to develop this portfolio.

So without a significant amount of additional investment, we're in a position to do this. As the announcement said recently that we're coming out with a product that will secrete GLP-1 into the body and have health benefits that way.

We have several other products that are in the pipeline right now. It's hard to predict exactly when those -- when we can complete that process and when we're going to be launching.

But I think we're very confident that we're going to have several over the next couple of years that we're going to be able to bring to market.

Thanks. Maybe just a couple of follow-ups from earlier questions, I mean as we think about fat prices and how you think about the trajectory over the course of the year.

I mean, the supply side in particular is hard for us to wrap our heads around because of the wide range of sources on a global basis. But is the biggest single thing that we should be looking at in terms of that price recovery over the course of the year?

Is it really the ability of the North American renewable diesel industry to ramp up consumption of waste passed to the pretreatment units between now and year-end? Is that the single biggest driver on the demand side?

Or are there other big things on the demand or supply side that we should be thinking about in terms of fat market recovery?

Well, and I'll start and then Matt and Bob can key in. I'm going to drive on my side of the table here from the global side.

I mean, clearly we've had an abundance now are just ample crops around the world. Yeah, we've got a little dryness here a little dryness there.

But at the end of the day, global stocks are very, very strong around the world of oil seeds. There's a major shift in who's crushing or processing those oil seeds underway right now.

I don't know that we've seen play out yet. So that's number one.

Number two is we're seeing oil in the $80 a barrel range now. And typically history would say at those times, you start to see a lot of palm oil disappear into the system in the Asian countries.

And so you saw I think yesterday or a couple of days ago, I think Malaysia, Indonesia has raised their biodiesel mandate now to 35%, and then South America from 6% to 20%. So you're starting to see people make the movements that are going to start to move.

It doesn't take a lot of movement to change the S&D globally of fats and oils. And then the third piece as you throw on the North American side, I mean as we were building our numbers here, if I took every one of the sell-side guys, capacity utilizations out there and what's running, the US is going to have to import four billion pounds of fat in order to feed these machines.

And clearly they're not, so I mean as we look at this thing going forward, the global S&D has got a little bit of work to do. Ultimately with the number of oilseeds being processed in North America that's both soy and canola you have to ask yourself what's China going to do for fat?

Are they going to buy finished product? Are they going to buy seed?

Are they going to buy more palm oil? I don't know.

I think that's what I mean. Bob do you want to add anything.

I mean, Randy I think you touched on what's most important and that's really global demand. And in the fuel sector as you pointed out palm can go into conventional, find its way in the conventional fuel, but what I would -- what we pay attention to here is what is biofuel policy?

How is that shaping up as we get into 2025, 2026 and beyond? What we saw was high prices caused a lot of new supply to come to market of waste oils.

So there's a bigger opportunity for more regulation and more policy that's going to support biofuel production. That's really where demand needs to come from to absorb this additional supply we've seen on the market.

Great. Thank you.

And then maybe just one on the -- on your comments on SAF earlier. I mean, is it -- it seems from discussions with many people that I think the expectation on the commercial side is that you're probably looking at renewable diesel plus $1 to $2 a gallon in terms of what kind of the SAF economics looks like.

Is that a fair range? Is it too early to say at this point?

And I know there are some cost and yield impacts. I mean if that's the case what sort of margin accretion are you talking about in terms of like SAF production versus RD production?

This is Matt. I would say that from a SAF margin standpoint where we have in the discussions that we're having right now and they are going to be well within our expectations of our investment thesis and both from a volume as well as a margin standpoint.

So, we -- the plant has yet to turn on and we're taking the right steps in order to get this in a place where we think it needs to be. And so, I would just say stay tuned.

Hi guys. Good morning.

Just on the guidance and SAF tie in. Could you just talk to us about how you guys have factored in the tie-in and how much that impacts the guide.

So when we do a bridge for next year, we can think about that.

So there is no SAF in the '24 guidance. And the tie-in DGD three is going to do a catalyst change in Q2 and be ready for the tie-in.

So, we won't have to be shutting down our R&D facility as the SAF plant is up in. So we're staggering that to have the DGD three line ready to go for a full run, as we tie in the SAF line.

And as mentioned, we'll be operational in Q4 on the SAF side.

Okay. On the Food segment, the one-timer, should we look as a one-timer expiration or whatever?

Or is that going to carry into Q2? Or how should we think about Q2?

I know that they expect to recover today in Q2, but how do we think about Q2 food volume call centers?

Yes. I mean I think KPMG always gets mad at me when I call it a one-timer, so I can't use that word, Ben Kallo.

But -- at the end of the day, you got to add back that 25 and that's really the solid run rate of what we would say for the Food segment this year. And then next year, as Bob was alluding then hopefully we start to build a portfolio of sales on the new peptides here.

Good morning, everyone. Just first I wanted to talk about -- so Randy, you alluded to this earlier but the ARB for Chinese UCO and Brazilian tallow has closed and for Chinese UCO by pretty wide margin.

So just thinking about -- you've mentioned how these RD plants haven't been ramping as they said they would et cetera. But given that that is closed in DGD, now US fats are cheaper, just if DGD keeps running at its normal speed, wouldn't that result in a substantial improvement in domestic fats in the US?

I think Matt and Bob and I are looking at each other. I mean strategically, we made a decision that we didn't as collectively as the owner and part owner, JV owner of DGD, we felt it was important to own the world arbitrage and we're making investments in Port Arthur to be able to unload directly there.

So ultimately, we can own that because that's important to margin management in the long term. We've always said the number one thing for DGD was it's real estate that it owns and operates on the Gulf Coast and that's both for inbound and outbound.

And so the answer is, from time to time, one geography in the world would be a premium to the other. You're watching that trend right now as the US and Canada are cheaper than imports.

And so, that should be supportive as we go forward. Now ultimately, as you're building a portfolio of suppliers and inputs into the DGD system, you've got different markets around the world.

meaning finished product markets that require different or you can qualify different fats for different carbon intensity. So you're always going to be playing that arbitrage.

And that's what gave DGD the superior profitability of anybody out there today in the world. So, it will move from time to time, but I don't see it going all domestic then a portion of it back import, because that's just logistically impossible at the scale we are at.

I don't know, Matt, you're deeper in that.

I would just say, just to be clear the driving decision for us in DGD is margin. And it senses to buy the cheapest available feedstock all things considered including the CI score.

So to your question in terms of lower domestic price, that's exactly where DGD is focusing its origination efforts right now.

Okay. Thank you.

And then my follow-up is on Ward. So Randy, I think you mentioned on the Q4 call, something about dumping like 30-some million pounds in a landfill.

It's been down for almost a year and a half. I mean can you give us -- I mean dumping in a landfill is pretty expensive and obviously not getting true finished product pricing.

So just wondering if you could give us a sense of what -- what's the magnitude of drag that spindling out business just so we can give us as how that by itself could help the remainder of the year.

I'll try to answer that Heather. So the -- at the end of the day when that plant went down, I mean we had a series of supply contracts and a series of customers that we're relying on the Ward plant to operate in order to process their volume.

And so when that plant went down then there was all of a sudden this volume that had to find a place to be processed. And so, we did a massive game of shifting around in terms of trying to put as much of that volume that into our other plants.

But as a result, there was still some product that resulted in -- as Bob was talking about, the next best alternative, which was a landfill. And so in terms of quantifying that, I don't have that specific number for you but what I can say, as that plant is up and running now, and our Eastern Shore plants are essentially at this point running on all 12 cylinders, and so as of April 1.

Hey everyone, appreciate all the questions. As always, if you have additional questions, reach out to Suann.

Stay safe. Have a great day, and I'll turn it back over to the operator to conclude our call.

Thank you.