Darling Ingredients Q1 2025 Earnings Report

Darling Ingredients EPS Results

• Actual EPS: -$0.16
• Consensus EPS: $0.20
• Beat/Miss: Missed by -$0.36
• One Year Ago EPS: $0.50

Darling Ingredients Revenue Results

• Actual Revenue: $1.38 billion
• Expected Revenue: $1.45 billion
• Beat/Miss: Missed by -$71.32 million
• YoY Revenue Growth: -2.80%

Darling Ingredients Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 9:00AM ET

Darling Ingredients (NYSE:DAR) develops, produces, and sells natural ingredients from edible and inedible bio-nutrients in North America, Europe, China, South America, and internationally. The company operates through three segments: Feed Ingredients, Food Ingredients, and Fuel Ingredients. It offers ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries. The company also collects and transforms various animal by-product streams into useable and specialty ingredients, such as collagen, edible fats, feed-grade fats, animal proteins and meals, plasma, pet food ingredients, organic fertilizers, yellow grease, fuel feedstock, green energy, natural casings, and hides. In addition, it recovers and converts used cooking oil and animal fats, and residual bakery products into valuable feed and fuel ingredients. Further, the company provides environmental services, including grease trap collection and disposal services to food service establishments. It primarily operates under the Rendac, Sonac, FASA, Ecoson, Rousselot, Gelnex, and CTH brand names. The company was formerly known as Darling International Inc. and changed its name to Darling Ingredients Inc. in May 2014. Darling Ingredients Inc. was founded in 1882 and is headquartered in Irving, Texas.

Darling Ingredients Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the Darling Ingredients Inc. Conference Call to discuss the Company's First Quarter twenty twenty five Financial Results. All speakers' prepared remarks after the speakers' prepared remarks, there will be a question and answer period and instructions to ask a question will be given at that time. Today's call is being recorded. I would now like to turn the call over to Ms.

[Operator]

Sue Ann Scuthrie, Senior Vice President of Investor Relations. Please go ahead.

[Suann Guthrie, Senior Vice President-Investor Relations, Sustainability & Communications at Darling Ingredients]

Thank you for joining the Darling Ingredients first quarter twenty twenty five earnings call. Here with me today are mister Randall C. Stewie, Chairman and Chief Executive Officer Mr. Bob Day, Chief Financial Officer and Mr. Matt Jansen, Chief Operating Officer, North America.

[Suann Guthrie, Senior Vice President-Investor Relations, Sustainability & Communications at Darling Ingredients]

Our first quarter twenty twenty five earnings news release and slide presentation are available on the Investor page of 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 or 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 today's press release and the comments made during this conference call and in the Risk Factors section of our Form 10 ks, 10 Q and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward looking statement.

[Suann Guthrie, Senior Vice President-Investor Relations, Sustainability & Communications at Darling Ingredients]

Now I will hand the call over to Randy.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Good morning. Thanks, Sue Ann, and thanks for joining us for our first quarter twenty twenty five earnings call. As a reminder, Darling Ingredients is a global ingredients company that operates in 23 countries and repurposes over 15% of the world's meat production and food waste. Our global presence and diversified portfolio enables us to navigate and manage through challenging times very effectively. Although tariffs challenged various supply chains, at this time, we expect them to remain immaterial to our portfolio and frankly support increased prices of waste fats.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

In first quarter twenty twenty five, Darling's business performed very well with results accelerating throughout the quarter. This resulted in overall positive cash flow and demonstrated stability in an otherwise unpredictable global environment. The positive narrative surrounding renewable fuels public policy is very encouraging and margins have started to improve and normalize. Ultimately, we expect our core business to continue to perform well, generating cash and allowing us to continue to delever the balance sheet and opportunistically repurchase shares throughout the balance of the year. In first quarter, combined adjusted EBITDA came in at $195,800,000 and we saw the impact of higher prices really starting to move through the P and L in March.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Specifically during the first quarter, we paid down $146,200,000 in debt lowering our financial leverage ratio to 3.33 times and received $129,500,000 in dividends from DGD and also repurchased $35,000,000 in common stock. Now turning to the Feed Ingredients segment. Global rendering volumes remained strong. And despite several severe weather events in the Midwestern United States from flooding to tornadoes to ice storms, our U. S.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Rendering team adjusted well and managed operations very well in the first quarter of twenty twenty five. European and Brazilian operations also enjoyed improved performances in the latter part of the quarter. The uncertainty on tariffs is a minor headwind and specifically for specialty proteins. However, tariffs are generally supportive of higher domestic fat prices. With the renewables market having digested the mechanics of 45 gs, we expect to benefit through higher fat prices for the balance of the year.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Now the food segment. We saw a nice improvement in sales and volumes, particularly during the latter part of the first quarter. Collagen peptides have regained strength and the demand for our library products is growing. NexTyda, our revolutionary natural glucose moderation collagen peptide is gaining momentum and other active peptide products are in clinical trials. We anticipate consistent and continued performance improvement in the Food segment throughout the balance of the year.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

In our Fuel segment, DGD had a challenging first quarter with lower than expected margins and volumes were affected by the turnarounds performed at DGD1 and DGD2. Receiving guidance on 45Z in late January created a choppy first quarter as supply chains had to be redirected, contracts had to be modified, and customers had to adjust. We're very encouraged about the sustainable aviation fuel market. Interest remains strong and premiums and volumes have met our expectations. While the transition from the blenders tax credit to the producers tax credit created some complications, DGD has made the necessary adjustments to optimize the tax credits available and we anticipate we will book 100% of the producer's tax credit for eligible feedstocks during the second quarter.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

The effects of 45Z are in full swing with a sharp decline in imported biofuels during the first quarter. The sharp reduction in imports coupled with the rationalization of domestic production points to an improved outlook for renewable diesel and sustainable aviation fuel during the second quarter. Now I'd like to hand the call over to Bob to take us through the financials. I'll come back at the end here and discuss my outlook for the balance of 2025. Bob?

[Robert Day, CFO and EVP at Darling Ingredients]

Thank you, Randy. Good morning, everyone. As Randy mentioned, DGD's results in the first quarter had more to do with macro events impacting the biofuel market than anything specific to DGD. Meanwhile, the core Darling Ingredients business performed very well and gained momentum as the quarter progressed. For first quarter twenty twenty five, Darling's combined adjusted EBITDA was $195,800,000 versus $280,100,000 in the first quarter of twenty twenty four.

[Robert Day, CFO and EVP at Darling Ingredients]

And adjusting for DGD, first quarter twenty twenty five EBITDA was approximately $190,000,000 versus approximately $165,000,000 in the first quarter twenty twenty four. Total net sales in the first quarter twenty twenty five were $1,380,000,000 versus $1,420,000,000 in the first quarter twenty twenty four, while raw material volume was almost the same at 3,790,000 metric tons and 3,800,000 metric tons, and gross margins improved to 22.6 in the first quarter twenty twenty five versus 21.4% in the first quarter twenty twenty four. Looking at the Feed segment, total net sales increased and EBITDA improved on relatively unchanged volumes and higher fat prices increasing through the end of the quarter. Specifically, total sales for first quarter twenty twenty five were $896,300,000 versus $889,800,000 in the first quarter twenty twenty four. Feed raw material volumes were approximately 3,100,000 metric tons for both quarters, while EBITDA increased to $110,600,000 in the first quarter of twenty twenty five versus $106,800,000 in the first quarter of twenty twenty four.

[Robert Day, CFO and EVP at Darling Ingredients]

Gross margins for the Feed segment in quarter one twenty twenty five were lower at 20.3% versus 20.7% in quarter one twenty twenty four, which was due to certain one time items such as inventory adjustments. Moving to the food segment. We began to see noticeable improvement in margins as the industry continued destocking from the inventory buildup experienced over the past twelve to eighteen months. While total sales for first quarter twenty twenty five of $349,200,000 were lower than first quarter twenty twenty four at $391,300,000 margins and volumes increased with raw material at 329,400 metric tons versus 299,800 metric tons and EBITDA increased to $70,900,000 versus $61,700,000 Looking at the fuel segment, sales for the first quarter twenty twenty five were $135,100,000 versus $139,200,000 in the first quarter twenty twenty four of higher raw materials of 374,100 metric tons versus 900,356,000 metric tons, but slightly lower finished product sales volumes. Meanwhile, overall EBITDA and other metrics in the fuel segment were clouded by DGD's results.

[Robert Day, CFO and EVP at Darling Ingredients]

Specifically, EBITDA was $24,200,000 in the first quarter twenty twenty five versus $133,100,000 in first quarter twenty twenty four, whereas net of DGD, EBITDA was approximately $18,000,000 in both quarters. Looking more closely at DGD, results were mainly impacted by four things. First, the transition from the blenders tax credit to the producers tax credit resulted in a lower value per gallon and a delayed reaction in RIN values as obligated party compliance has been slow to react. Second, this complexity of the producers tax credit and delayed guidance temporarily impacted both sales and feedstock eligibility for fuel types and destinations. Three, tariffs on imported feedstocks and four, downtime related to catalyst turnarounds at DGD one and two.

[Robert Day, CFO and EVP at Darling Ingredients]

Darling's share of DGD EBITDA was approximately $6,000,000 for the first quarter twenty twenty five versus approximately $115,000,000 for first quarter twenty twenty four, a difference of approximately 109,000,000 These items had a bigger impact on DGD in quarter one than we expect will be the case going forward. However, DGD was and remains ahead of the curve with respect to making changes to its supply chain and positioning the business for success in this environment. Overall, DGD has adjusted to supply chain requirements needed to maximize the value of tax credits, and we're pleased by the positive direction in the RIN market and overall margins for renewable diesel and SAF. While we faced some challenges during the quarter, we continued to improve the health of our balance sheet as we paid down approximately $146,200,000 in debt and repurchased slightly more than 1,000,000 shares for approximately $35,000,000 The company's total debt net of cash as of 03/29/2025 was $3,840,000,000 versus $3,970,000,000 at 12/28/2024, leading to an improvement in our bank covenant preliminary leverage ratio of 3.33 times at quarter end first quarter '20 '20 '5 versus 3.93 times at quarter end fourth quarter twenty twenty four. In addition, capital expenditures totaled approximately $63,000,000 in first quarter twenty twenty five, and we ended with approximately $1,270,000,000 available on our revolving credit facility.

[Robert Day, CFO and EVP at Darling Ingredients]

The company recorded an income tax benefit of $1,200,000 for the three months ended 03/29/2025, yielding an effective tax rate of 4.6%, which is lower than the federal statutory rate of 21% due primarily to the producer's tax credit. The effective tax rate excluding the impact of the producer's tax credit and discrete items was 21.7% for the three months ended 03/29/2025. The company also paid $9,200,000 of income taxes in the first quarter of twenty twenty five. For full year 2025, we expect the effective tax rate to remain about the same at 5% and cash taxes to be approximately $60,000,000 for the remainder of the year. We are also in the early stages of monetizing Darling's share of the producer's producer's tax credit and look forward to providing an update next quarter.

[Robert Day, CFO and EVP at Darling Ingredients]

Overall, the company had a net loss of $26,200,000 for the first quarter twenty twenty five or negative $0.16 per diluted share compared to net income of $81,200,000 or $50 per diluted share for the first quarter. Now I will turn the call back over to Randy.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Thanks, Bob. As I said earlier, January and February started slow. But as fat prices continue to rise, we had great momentum for the remainder of the year.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

I'm encouraged by the performance of our core business in March. March EBITDA contribution was strong and we expect this trend to continue. This gives me great confidence that our core business is strong enough to consistently generate cash and enable us to delever effectively weathering any uncertainty that exists in the biofuels market. Looking at the March run rate, I think the core business will earn somewhere between $950,000,000 and $1,000,000,000 of EBITDA for the year. As I mentioned, there has been a lot of noise in the renewables market.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

And while DGD did not perform as we had hoped, we believe the worst is behind us. We expect margins to improve and DGD to adjust accordingly. With that, I am reaffirming our guidance of $1,250,000,000 to $1,300,000,000 combined adjusted EBITDA for the balance of the year for fiscal twenty twenty five. With that, now let's open it up to questions.

[Operator]

We will now begin the question and answer session. Our first question comes from the line of Derrick Whitfield with Texas Capital. Your line is now open.

[Derrick Whitfield, Managing Director at Texas Capital]

Good morning all and thanks for taking my questions. Starting with DGD, as I understand DGD was not able to optimize feedstocks for 45Z policy in Q1. Looking forward, what is the value of an optimized feedstock slate? And then more broadly, what's the composition of that slate as you see it today?

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

Yeah. This is Matt. I'd I'd I'd answer that, at least initially, ask some some of the others maybe to to join in on that. But, you know, DGD, typically processes a a mix of of feedstocks, and that is essentially margin driven. And so it's always procuring the the the best, product that nets the the the highest margin.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

And so that can be a mix of, all types of of oils and fats. And and, frankly, we have all all types in our recipe, so to speak. And so that will vary, depending on on the month of the quarter, but it's a traditional mix that in you know, is largely based on animal fat, and and cooking oil as well as, corn oil and, different, you know, bean oil and and and other oil. So it it's a it's a ever changing mix, but it's the the usual suspects, let's say, in the, the in the mix that are it's all margin driven.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah. I'll just add. Hey, Derek.

[Robert Day, CFO and EVP at Darling Ingredients]

This is Bob. It's

[Robert Day, CFO and EVP at Darling Ingredients]

you know, this is gonna depend in part how how hard we're running SAF. Obviously, the the value of the PTC is is higher for the potential value is higher for SAF. The feedstocks required to make SAF are generally lower carbon intensity so that, you know, further enhances the value of 45 z. So we, you know, we plan on fully maximizing the value of that. As Matt pointed out, you know, some of this, it just depends on access to different feedstocks.

[Robert Day, CFO and EVP at Darling Ingredients]

Obviously, as Darling, we have an advantage in, you know you know, maximizing what we can pull through our own network to to obtain low CI score feedstocks that are eligible for PTC. And so, you know, I think we're we're pretty optimistic about what the value of that is going to result in for DGD, but it's hard to kinda tell you right now what's the, you know, what's the average cents per gallon. I think, you know, what I would say is, you know, we we'd be on the very higher end of the curve for both RD and staff, you know, as as we go forward.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Yeah. I think, Derek, this is Randy, and I think Matt and Bob did a nice job there.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

I mean, the the optimism that comes out of here is really the the move from the noise that we had in in q one. Remember, we didn't get guidance from treasury until January 20. We had feedstocks in route that qualified that didn't qualify. There there there's various things as we noted in the script. You know, there are requirements under 45 c that that required us to go back to our customers and rework contracts and get them to a degree.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

There were three basic requirements. We won't go through them, but they had to use it or it had to go to retail and there was one other. But at but at the end of the day, there's just a lot of noise that went down that allowed us only to claim a portion of 45 z in q one. And what we're saying is in q two, we've got the supply chain normalized. We've got the the turnarounds behind us, and we expect to recognize a % PTC on the eligible feedstocks that we'll process.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

And that's not to be slight of hand. Some of the feedstocks that may come in cheaper that don't need the PTC. You know? So it's really, as Matt said, it's a margin driven, But we see margins improving dramatically in Q2 versus Q1.

[Derrick Whitfield, Managing Director at Texas Capital]

Terrific. Makes sense. And then with regard to Feed, we can see your March optimism in the spread between Waste and SPO Feeds as they materially tightened or turned positive to your benefit. Other than timing for the quarter, were there any other drivers for lower margins in 1Q?

[Robert Day, CFO and EVP at Darling Ingredients]

Well, I think yeah. I mean, there there's yeah. You know, if we if we compare it to first quarter twenty twenty four, it was it was a pretty significant improvement. But, you know, there there was just some things that came into quarter four end of year type things that that were somewhat one off items that clouded a little bit. I don't know, Matt, if you wanna Yeah.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

I I think, you know, at at the end of the day, sequentially, when you look at the quarter guys, you know, there were some one offs. Brad noted in the in the script that we did have an insurance settlement in there. You know, we've got a bigger pipeline now headed to DGD than we've ever had because of the the restrictions on imported feedstocks and qualifications. And, you know, remember that the euro's up. Remember, prices are up around the world for for waste fats, and so it made domestic fats now more attractive.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So that flowed through. We said in the script Jan, Feb, the the typical weakness that that we see. And then March, what we've done now is taken the March run rate and divide it you know, as I always tell people, this is an easy business to give you forward guidance on when you're either in a flat or a rising market. The DGD, given the amount of fat that comes out of the North American supply chain, is now it's it's a it's a very, very transparent, thing for us, and it's a it's a rising market. We we have somewhere between a forty five and a seventy five day pipeline sold at any given time.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

And and so you didn't you know, we had that done in November, December. And so now as January, February came in and March is when the the prices are hitting, And, you'll see that continue on. At the current pricing, that's where we're formulating the guidance that that we're throwing out there. And and I think, you know, prices have actually moved up since March even here. So it it feels, you know, this business feels very, very solid going forward right now barring any other craziness out of, you know, we're gonna need a little help out of DC here, but I think we're okay.

[Operator]

Thank you for your questions. Our next question comes from the line of Dushyant Aloni with Jefferies. Your line is now open.

[Dushyant Ailani, Senior VP at Jefferies Financial Group]

Hi. Thank you for taking my questions, guys. The first one, could you possibly quantify how much better feed was in March versus the first two months of the year? And then how that translates to core ingredients EBITDA for 2Q?

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Dushan, you can do the math and and and look at the, the $1.95 for the the the first quarter '1 '90 minus DGD, and then they come with the the $9.50 to a billion run rate. You can back into that. But, no, we don't break out a quarter. Second question I didn't know.

[Robert Day, CFO and EVP at Darling Ingredients]

That was the only question I understood.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Okay.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah.

[Dushyant Ailani, Senior VP at Jefferies Financial Group]

Yeah. And then and then just the second one, I guess, could you quantify what the that the one time inventory impact was on feed?

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

The one time inventory

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

But we don't we're not calling those out. I think it's just there were some some smaller one time items. Some have been called out in the last quarter on the insurance settlement. That a quarter on quarter comparison and to say it's sequentially lower, obviously, numbers are what the numbers are. But there's just some one off on on both sides of this that they're we're not calling over.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Not material. And I you know, the guidance that we gave in in in February was that we've you know, that when as we were talking to folks and we we said, well, what do you see the year off of q four? And we said we ran $2.33 in q four. We said times four. What we didn't say was it's not ratably spread over each quarter because you've got a a situation of rising prices now.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So you'll see an improved feed segment, you know, gross margin. You know, we look at all of it. If you look at all of the segments, even in the food segment, remember, while 20% 17% to 20% is is a high value collagen gelatin, 80% of it's feed and feed and fat. So you get a lift there. You get a lift in the fuel segment too because of the different products that are processed there.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So focusing on the feed segment, in my opinion, focus on the $950,000,000 to $1,000,000,000 run rate for the year, and that's what's important here.

[Dushyant Ailani, Senior VP at Jefferies Financial Group]

Got it. Thank you.

[Operator]

Thank you for your questions. Our next question comes from the line of Heather Jones with Heather Jones Research. Your line is now open.

[Heather Jones, Founder at Heather Jones Research]

Good morning. Thank you for the question. Brandy, I wanted to start with, so you've seen all the Reuters rumors, and we've all heard different reports. What do you think a 2026 RVO would that would be suitable would be? Like, what what is the number that you would be happy with and that would represent, you think, upside to the $9.50 to a billion you gave us?

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

Heather, this is Matt. I would say that the common RVO that is expected and hopeful will be coming out here in the next few days is 5,250,000,000 gallons. And that is something that I would say across industries has been widely supported. And the feedback that we have so far is that that is gaining traction, and, that's what we're looking forward to.

[Heather Jones, Founder at Heather Jones Research]

Okay. Thanks for that. And then my follow-up is not trying to belabor this point, but, Randy, in the past, you've told us that roughly every penny and fats pricing is worth roughly 12 to 15,000,000 EBITDA. And, like, if you look at q one fats pricing versus q one of twenty four, it was up several pennies, and then you also didn't have that Ward, South Carolina, issue. But yet, the EBITDA per feed was roughly flat year on year.

[Heather Jones, Founder at Heather Jones Research]

So just trying to get a sense of was y'all feed and feed segment impacted by the dislocation at Diamond Green, or was there something else that we're missing? I get the lag in pricing relative to q three and q four last year. I'm just having a hard time understanding the year on year impact.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

Heather. It's Matt again. I I would say think about it this way. First of all, the the we have a forward sales book on almost all the time, somewhere on average of sixty to ninety days. And so there's a lagging effect in this.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

And that that's also partially one of the the reasons that gives us confidence when we look at how March improved over the, over the first two months because some of that started to get traction. So I think you'll see this shine through in the numbers as we

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

go forward.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

And I I would add to that, Heather. Remember when you came out of, '23, we came out in December of twenty three, soybean oil was 55¢ a pound. And by the time we got to q one in in '24, you know, we were in a a very much a deflationary market. So we were flowing through higher prices that were coming down in q one of of twenty four, and now we're back in an inflationary improving market.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So it they're they're not as as I'd say, they're kinda hard with the forward sales book to to kinda, if you will, reconcile in in what you're trying to do. What we're trying to do is say, we've got 100% visibility to the March run rate. Prices are have started to flow through in March. They're probably gonna improve a little bit in April. If you look at imported fats into The US today, they're closer to 60¢ a pound.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So they're they're almost, you know, a hundred bucks a ton over top. You know, what we're doing right now in in The US, maybe a hundred and 20. So, you know, like I said, this is not a difficult business once you are in a flat or an improving market to give forward looks to.

[Operator]

Thank you for your questions. Our next question comes from the line of Manav Gupta with UBS. Your line is now open.

[Manav Gupta, Executive Director at UBS Group]

Hey Randy, congrats on the leverage ticking down. Going back to the guidance a little, you still probably need about $250,000,000 or so from the RD business. So help us understand a little bit what you expect besides the PTC help that you start getting in 2Q. Any help that you think you'll probably get on the car front? And then what could be the RIN prices?

[Manav Gupta, Executive Director at UBS Group]

Help us bridge the gap to that about $250,000,000

[Manav Gupta, Executive Director at UBS Group]

of

[Manav Gupta, Executive Director at UBS Group]

EBITDA that you will need from the renewable diesel business to get to your guide?

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Yeah. Manav, good question. And I think it sets the stage, and I'll have Matt and Bob help me here. And we'll give we'll kinda give a view on the balance of the year. I mean, clearly, the the Jan Feb RIN production rate in the March suggests that, you know, the RINs have to improve.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

You've got capacity idled right now around the in industry. The you know, the industry is behaving like it should. It's showing discipline and says, I'm not gonna run and burn up catalyst for zero margin. So where does where do the RINs have to go? The RINs have to go, I don't know, a buck and a half, somewhere in there, you know, up up $45.50 cents from where they are to restart the capacity.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So when we talk about the forward look here, the one two five and one three, I think it's fairly conservative. And if you look at it, as we know on the Valero call here shortly, they'll be telling you an adjusted run rate for the year is about 1,100,000,000 because of turnarounds that we had in the gallons, total gallons. And you sit there and say, well, we told you we're gonna earn, you know, $55.65 cents a gallon on the PTC. It's not hard to back into how we come up with the additional $2.50 to 300 in within DGD to get to our guidance. What that says is we're not making a statement that DGD is gonna run at zero for RD for the year and then get a PTC.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

We're saying RINs have to improve, and we're giving you a conservative forward look.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah. So this is Bob. And I think, you know, with with respect to RINs, you know, the the run rate so far, Jan, Feb, March, puts us on pace to produce about 6,000,000,000 RINs, d four RINs. And really, we need to make 7.5 in 2025 to meet the mandate.

[Robert Day, CFO and EVP at Darling Ingredients]

So we're still underproducing by quite a bit. We've seen RINs go up by over $0.40 equivalent to 65¢ a gallon since the start of the year. So there is a lot of momentum, you know, moving in the right direction. And it really comes down to when obligated parties feel the need for compliance as to when those RIN values get to where they ultimately need to be. So we see a lot of lot of support there.

[Robert Day, CFO and EVP at Darling Ingredients]

As Randy mentioned in the PTC, you know, we weren't able to realize a lot of the PTC in the first quarter due to the late guidance and, you know, having maybe not the best feedstocks in place and and some of the sales qualifications that we needed to go through to get ready. So that's gonna also be a real lift to the p and l as we go forward. You know, we the other thing we haven't talked a lot about is just the downtime. I mean, you can see, you know, the number of gallons we produced. We're we were less than two thirds of total capacity.

[Robert Day, CFO and EVP at Darling Ingredients]

So, you know, that that's another thing that is really gonna provide a helpful lift as we go forward through the rest of the year. And then lastly, you know, there are a lot of positive discussions kind of going on, behind the scenes around the RVO and also at CARB. And and so, you know, I think we're pretty confident in what the outlook is without those things. But if those come to pass, then it certainly could change the picture in a positive way.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

I I would just also include this is Matt. I would also include that there's also the staff component. I mean, so this is a continuous margin build with the PTC, with the with the RIN, with, obviously, fat price. All of these will in influence the margins. But with our with our staff production, we're also that also gives us more confidence.

[Manav Gupta, Executive Director at UBS Group]

Perfect. Sometimes, Dart doesn't get enough credit for the kind of innovation you bring to the market. So, recently, you have launched some products, you know, to control blood sugar, and you also have an attractive pipeline of projects and products you do do plan to bring to the market. Can you help us walk us through some parts of that business, which I think remains somewhat underappreciated?

[Robert Day, CFO and EVP at Darling Ingredients]

So this is Bobby. I think, I think you're referring to Rousseau and and our our collagen business.

[Manav Gupta, Executive Director at UBS Group]

Yeah.

[Robert Day, CFO and EVP at Darling Ingredients]

And and you you point out, I mean, EBITDA increased pretty significantly, you know, this quarter versus a year ago and and and last quarter. We are bringing some very innovative products to market.

[Robert Day, CFO and EVP at Darling Ingredients]

I think we've advertised as loudly as we can the NexData portfolio of products and the NexData glucose control product that is currently on the market and undergoing you know, additional trials to to to really get this out in a in a larger way. You know, we love talking about collagen and our ability to innovate through collagen and and put together peptide profiles that have targeted health benefits and really do amazing things for people. What's exciting from the business standpoint is that margins are significantly higher in those products. And so as we continue to develop the NexData GC product and other products in the NexData portfolio, we look to see earnings in that particular segment increase quite a bit.

[Operator]

Thank you for your questions. Our next question comes from the line of Tom Palmer with Citigroup. Your line is now open.

[Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi]

Good morning and thanks for the question. I guess just first, I wanted to clarify on the guidance. You noted the expectation that in the relative near term, we could get some resolution on the RVO. It sounded like 5,250,000,000 gallons for biomass based diesel was your expectation. I know it might be hard to be overly precise, but I just want to understand how much of this is baked into how you're thinking about the year versus if it does come through at this 5.25 level, that would be kind of upside versus how you're thinking about the year?

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Yes. And this is Randy, Tom. Great question in a sense. I mean, obviously, coming off of last year, we're a little bit snake bit, and then we're being with a pretty conservative view. I mean, D.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

C. Is a bit hard to handicap right now. We've spent a lot of time there recently with our colleagues across the agriculture and energy. Feels like we have alignment on the 5,250,000,000 gallons. I mean, you know, clearly, the White House needs some wins here.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

And and I think, you know, the American farmer has been singled out as somebody that the the Trump administration gets and understands and wants to support. And and so I think we're gonna ride that momentum, and that that's very positive. Now the good news with the 5,250,000,000 gallons is that's a lot of demand that that hasn't been there in the past. You know, that that gets friendly feedstocks, whether you're you're soybean oil or whether you're, animal fats and waste fats. So it's bullish the base business.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

That is not baked in yet. Because remember, that doesn't start until, you know, '26. So that that's number one. Number two, if you start moving feedstocks up, unless you're gonna get help out of RINs, if you're gonna get help out of LCFS, you know, there there's still no margin in this until at the end of the day, those are gonna have to move in order to fulfill the RIN, what we're I'm gonna call the RIN deficit that is building out there right now. So, you know, we're setting up, you know, right now for what I'm gonna call, you know, the fantastic finish in the back half of the year here as these things becomes a little more clear.

[Robert Day, CFO and EVP at Darling Ingredients]

Bob, you wanna add anything? Yeah. I just one thing, I think that it's interesting that what we're hearing is talk about a gallon mandate when historically, it's really been referred to as RINs. And so I I think there's quite a lot of confusion actually between RINs and gallons. The reality is a 5,250,000,000 gallon d four mandate would effectively increase RIN demand by about 3,000,000,000 in 2026 versus 2025.

[Robert Day, CFO and EVP at Darling Ingredients]

So it's that that would be a substantial increase. We're not really baking that into this forward guidance. I think if that if that were to be clarified, we'd probably see a pretty pretty interesting market unfold.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

I mean, you've seen, Tom, you've seen RINs move from 61¢ at the start of the year to a dollar 5. But capacity, especially in the biomass based diesel or biodiesel industry, is still fairly is idle to negative.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So something's gotta get. What the situation we're in right now is is not sustainable. What we know is we have the two lowest cost operating assets in the best place in the world, and they're they're profitable. And we know that as we were given that guidance in q two here. So but in order to restart the industry and to fulfill the existing mandate before the new mandate, you've got you've got to bring back profitability.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

There just didn't enough capacity to fill the RVO even as it stands today at the margins that exist.

[Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi]

For all that color. Maybe I could just follow-up quickly on kind of the last point you noted. At least on RIN generation year to date, it is tracking below this year's mandate. What do you think is driving this at this point? And, I guess, any view on what might cause kind of a change other than, obviously, this RVO announcement for '26 maybe you know, making people more concerned about the RIN Bank.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Yeah. And and we'll we'll the three of us will tag team this one because and there isn't any differing views at the table. Remember, the obligated party has all year. It it and Bob has always said it's really not a futures market that that anticipates the s and d here. So the obligated parties are still sitting here trying to figure out what's going on in DC.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Are there gonna be SREs? Is there gonna be

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

a bigger

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

RVO? I I can tell you that that that our our colleagues in in San Antonio, we we see a tightness in RINs building very rapidly here. So we we've got a universal view on this right now. But there's just so much noise. You know, it it's if you think about it, 61 to one zero five is a big move already.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

And but it's not enough to restart the industry. There's very limited liquidity, if you will. If you wanted to go after and said, let's go get long rims today, there's very limited liquidity. And the obligated parties just you know, until they get more transparency. I don't know.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

What do you think, Bob?

[Robert Day, CFO and EVP at Darling Ingredients]

Matt? I I think that's right. I think for for some of the obligated parties, who don't have, an immediate penalty for lack of compliance, they're looking at a pretty significantly increased RIN price, and they're they're sitting on the sidelines. But as time goes on, you know, that that's gonna that's gonna be harder and harder to do.

[Robert Day, CFO and EVP at Darling Ingredients]

Tom, I I would

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

just say there's really, there's two things to watch for. Number one is just the just the margin in terms of what the what the renewable diesel and the biodiesel margin is. It would help will dictate the the the production and, therefore, the RIN generation. And then the other is imports, whether it on importing on on biofuels. So those two things I would watch for as indicators to look for some direction on RIN market.

[Operator]

Thank you for your questions. Our next question comes from the line of Ryan Todd with Piper Sandler. Your line is now open.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Good, thanks. Good morning, everybody. Maybe a question. First of all, you mentioned a little bit earlier in your comments, but I know there are a lot of moving pieces and volatility. As it stands right now, can you talk through the impacts of the current tariff regime on the various aspects of your business?

[Robert Day, CFO and EVP at Darling Ingredients]

Look. At a at a high level, talking about the core business, it's probably a slight net positive for Darling. You know, one one thing with tariffs coming in The United States, it it limits availability of of waste fats and and so that's been supportive to the North American waste fat prices. So that that's generally good. I think that, you know, the one the one area where it's not entirely positive is is is in selling protein products to China, but that that's that's less of a like a tariff hit and just it just takes a market that was available that's that needs to be redirected somewhere else.

[Robert Day, CFO and EVP at Darling Ingredients]

But the net net really isn't a it it really isn't a negative for Darling's core business. The question really is more about how does it affect the renewable fuel industry in The United States and, you know, tariffs on feedstocks. And, you know, as as we kind of reengineer supply chains, we're just finding ways around those things. So we don't see it as a really negative thing for our business, fortunately.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Okay. And then maybe shifting to SaaS. Can you maybe provide a little more color in terms of what you said I mean, said the demand pull has been reasonable so far. Like, can you walk through what sort of demand pull are you seeing? Is that mostly coming from mandated markets?

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Or is it also the voluntary markets? And what would you need to see at this point to think about moving forward with the second SAF project?

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

So this is Matt. So we have a mix between whether it's the demand, whether it's the obligated or the markets or the voluntary markets. It's pretty well balanced on that. We're running at an optimal rate to to maximize the margins that that we have. And, you know, our our SAP sales book started more than a year ago as we were contracting SAP.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

So we've got a fair bit of book on already. I'd tell you quite a strong book as a matter of fact through the whole year. And so we're delivering on those contracts. And so to your question on a second SAP line, I think right now we need to let some of the storm clear on all of these market dynamics that are going on to make a final call on that. It's something that is on the table and we've done some of the engineering work on that, but we're we're holding off for the time being to to have more clarity on what the future holds.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

The the other reality is that as as the market evolves in the in the the credit scenario, what we're seeing more and more interest in is the the booking claim process. And so it's not necessarily contracts with airlines and the distributors, but there is a a booking claim process that we're with the some of the the tech high energy users are buying the the scope three credits.

[Operator]

Thank you for your questions, Ryan. Our next question comes from the line of Brian Sharma with Stephens. Your line is now open.

[Pooran Sharma, Managing Director at Stephens Inc]

Hey, thanks for the questions. Just wanted to get a sense of capital allocation priorities from here. Looks like you did do a little bit of deleveraging also with the share repurchases. But just wanted to talk about something you said on the last call. I think you mentioned your target is 2.5.

[Pooran Sharma, Managing Director at Stephens Inc]

Wanted to get a sense of when you think we could get there and and what the pace of do deleveraging investors can expect going forward.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah. Thanks. Thanks. This is Bob. That's that's correct.

[Robert Day, CFO and EVP at Darling Ingredients]

I mean, first, I'd just say that our our plan hasn't changed. We are focused on continuing to pay down debt and and, you know, delever our balance sheet. We've made a lot of progress to that end recently, and and we will continue through the rest of the year. We'll we'll get pretty close to that 2.5 by the end of the year. You know, we may not quite get there, but we'll we'll it'll happen early twenty twenty six if it doesn't happen by the end of the year.

[Robert Day, CFO and EVP at Darling Ingredients]

That's that's really what we're seeing.

[Pooran Sharma, Managing Director at Stephens Inc]

Okay. Appreciate that. And, just really wanted to I I think everybody's asked good questions about DGD. Maybe I could focus in on on the food segment here. Really good margins, much higher than anticipated.

[Pooran Sharma, Managing Director at Stephens Inc]

You you kind of spoke to some of the strength here, but wondering if you could share some some, incremental color. And and do you do you think that this is a a level of gross margin performance that that you can sustain here? I think last time on on the last call, you you said you were working with CPG customers to to, help them, you know, better educate their customers on this product. So was just wondering if you could just give us a a overview on on food and Nextiva there.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah. This is Bob again. So appreciate you bringing this segment up. It's a it's an exciting one for us here. I think on a on a high level, what we've seen is an industry that has has has really it gotten a little bit more healthy here as as low let's say, high cost production around the world has stopped making product, and they've they've begun to destock inventories.

[Robert Day, CFO and EVP at Darling Ingredients]

We've we've seen some announcements that some of the higher cost areas of the world have decided to shut production down, and that's just led to an overall, you know, better health in the gelatin market and the collagen market. So, you know, we we think that we're in a pretty good spot as as we go forward. As far as Nexidia, you know, we do have a product on the market under a brand called Codeage, c o d e a g e, and and the Nexidia glucose control product is inside inside that product. We are going through some trials that we should finish this summer, and and that's with a much larger sample size that would that would allow the larger CPG companies to be comfortable taking this product to market. So really what we're expecting is to get through that process, go through some commercial activities to be able to see this product in much higher volume as we kind of get near the end of twenty twenty five.

[Operator]

Thank you for your questions. Our next question comes from the line of Andrew Shrizlitsch with BMO. Your line is now open.

[Andrew Strelzik, Equity Research Analyst at BMO Capital Markets]

Hey, good morning. Thanks for taking the questions. My first one is just on the comment you made that we

[Andrew Strelzik, Equity Research Analyst at BMO Capital Markets]

could get the preliminary RVO in

[Andrew Strelzik, Equity Research Analyst at BMO Capital Markets]

the next couple of days. I guess what informs that view, do you have some visibility to that? It sounds like there's based on your comments still some uncertainty around maybe the SREs. So could we get a preliminary number without a resolution around that? Just curious about that comment specifically.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

Well, let me if I did say next couple of days, I guess I wouldn't try to be that exact on that. I really You

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

did say next couple days.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

I said next few days. Okay. Well, I I I I think in the in the coming days is probably a better description of that. And and I apologize if I if I came out too too soon on that, but we are optimistic on that. We But in terms of having special insight or anything that gives us any confidence more than what other people who are industry participants, I would say we don't have any extra knowledge in in in that regard, but we do have remain optimistic about about the the volume as well as the timing.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Yeah. Andrew, the the, you know, the the discussions are clearly happening in DC. We're part of them with a larger group. There's there's a there is a the the first time in in my career since 02/2007 that we have absolute alignment amongst a high majority, if not the major you know, 90% of the trade groups in this on what should happen here. And and we have a president that, also is now realizes that that the American farmer's important.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

So, you know, my view is is that I think you'll see something out of out of DC here somewhere in the next, you know, forty five, sixty days, maybe sooner. But they're all working on it. And, you know, it's it's just a lot of different moving parts there, but everybody, at least, is reading off of the same song sheet right now.

[Andrew Strelzik, Equity Research Analyst at BMO Capital Markets]

Got it. Okay. That makes that makes sense, and I appreciate you clarifying that. My my second question, you know, I feel like we felt like the the runway was there for for, with all these drivers and better performance, you know, for the last couple of quarters. And so I guess I'm just curious kind of how you handicap the risks.

[Andrew Strelzik, Equity Research Analyst at BMO Capital Markets]

I know most of this is kind of industry related and macro related. But as you sit here today and taking the margin just kind of extrapolating that makes a lot of sense, how do you handicap the risks or what you're paying attention to on on the risks around the guidance?

[Robert Day, CFO and EVP at Darling Ingredients]

Look. This is Bob. I think I think guidance around the core business is the risks are relatively low. You know, with with the market that we're seeing today, you know, certainly things could change, but, you know, typically, these are sort of momentum driven markets, and and they're pointed in the right direction. So I I think it'd be pretty low there.

[Robert Day, CFO and EVP at Darling Ingredients]

As it relates to biofuels, you know, there there's certainly there's gonna be more uncertainty there just because it's so influenced by policy and there's so much going on behind the scenes. You know, we we we give guidance today based on what we're seeing and, you know, all the things that we've explained, But that's one that could be affected more by things outside of our control than our core business.

[Operator]

Thank you for your questions. Our next question comes from the line of Matthew Blair with TPH. Your line is now open.

[Matthew Blair, Managing Director at TPH&Co]

Thank you and good morning. So regarding the new LCFS standard in California, I think the comment period just ended a few days ago, and we're waiting for CARB to resubmit the new targets to the OAL. Is that is that your understanding as well? And then perhaps more importantly, do you have a view on the implementation timing for these new targets? Do you think they'll be backdated to 01/01/2025?

[Matthew Blair, Managing Director at TPH&Co]

Or is an implementation date in 2026 more reasonable at this point? Thank you.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

Hey. Good morning, Matthew. I would say that particular to your question on the timing, yes, the comment period ended on Monday. And we understand there's thirty working days to provide analysis that's going to they have to go through a process in order to address the comments. We understand that's ongoing.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

And we remain optimistic that the this was is on track and we're going to see something come out definitively, you know, in in the reasonably near future. I don't I don't wanna get the get the You're not gonna get too high on that. Yeah. We we think that's on track. And and so now whether that is going to be retroactive or effective in in in sometime mid year or first year, that's a question we continue to ask.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

I think we're prepared no matter what. But, I I think of in in my view, a worst case scenario would be would be January one of of twenty six. But there is a chance from what we understand of having something there.

[Matthew Blair, Managing Director at TPH&Co]

Great. Thank you. And then for DGD, your reported q one EBITDA was quite a bit different than what your partner reported. It sounds like, there is at least some 45 z contribution in in your number, which may not may not be in your partner's reported number. But could I also clarify, is there any LCM impact in your, q one DGD EBITDA?

[Matthew Blair, Managing Director at TPH&Co]

And if so, how much?

[Robert Day, CFO and EVP at Darling Ingredients]

Hey, Matt. This is Bob. I mean, we're we're you know, we see a pretty pretty big difference there. I think one thing just wanna make really clear is that none of the difference has anything to do with recognition of 45 z. You know, historically, we we have shown you know, we we're we report LCM differently.

[Robert Day, CFO and EVP at Darling Ingredients]

So I think that's the way to look at it. In particular, the first quarter had had a lot of volatility in both LIFO and and LCM. The the big difference between our number and and what Valero is showing is is with the LCM.

[Operator]

Thank you for your questions, Matthew. Our next question comes from the line of Betty Zhang with Scotiabank. Your line is now open.

[Betty Zhang, Associate Director - Equity Research at Scotiabank]

Thanks. Good morning. Thanks for taking the question. Sorry to go back to this, but I was wondering for the PTC that was recognized in first quarter, can you share how much of it was was recorded?

[Robert Day, CFO and EVP at Darling Ingredients]

You know, I think we would sort of roughly say that we so we'll we'll show this in more clarity in the 10 q, which will come out in a couple weeks. But, you know, we were we were roughly able to realize PTC on about a third of the of of the volume that we had in the quarter.

[Betty Zhang, Associate Director - Equity Research at Scotiabank]

Great. Thank you. And for my follow-up, so we saw there were some buybacks and you also paid down some debt. I'm wondering going forward, how do you see that split? How do you view, you know, allocation going forward?

[Robert Day, CFO and EVP at Darling Ingredients]

So it's Bob again. We we're we're focused on paying down debt. I mean, we'll we'll opportunistically look at at buying shares back when we can. We want to buy back our dilution. You know, so we did some of that in the first quarter, but, the lion's share of of the capital we spent that way was towards debt pay down, and we'll we'll continue to focus more on that.

[Operator]

Thank you for your questions. Our next question comes from the line of Jason Gabelman with TD Securities. Your line is now open.

[Jason Gabelman, MD - Equity Research at TD Cowen]

Morning. Thanks for taking my questions. I was one of the people who thought there was a different PTC booking versus LCM with your DGD partner. So appreciate that clarification. The first question is on the PTC monetization.

[Jason Gabelman, MD - Equity Research at TD Cowen]

And I guess it seems like some of, if not all of the distribution from DGD that you booked in 1Q was related most likely to timing of blenders tax credit, cash inflows. So as we look forward, I would suspect the distributions are tied to monetizing the producer tax credit. So with that in mind, I was hoping you could provide a little more context on the steps involved and what we should be looking out for in terms of progressing the ability to monetize that. Thanks.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah. Jason, this is Bob again. Know, just to kinda touch on something you said, think, the distributions from DGD. I mean, certainly, the PTC, you know, realization monetization of PTC is one source of revenue that we, you know, we we will realize. But, you know, whether it's bigger or smaller than distributions for DGD, ultimately, it's gonna depend on the the the the size of renewable diesel and sustainable aviation fuel margins.

[Robert Day, CFO and EVP at Darling Ingredients]

You know, wouldn't rule wouldn't rule that out that we get more that way, but we'll see how that plays out. As far as the process around monetizing the PTC, it's it's moving forward, I would say, very efficiently. As as our as as it is with these types of processes, there are a number of steps, Brokerage firms involved, counter you know, lining up counterparties, getting contracts kind of ironed out, terms legal terms ironed out. And we're going through that process to be able to set up for, you know, let's call it some sort of an an auction to to be able to sell those credits and monetize those in in the in the latter half of, the second quarter.

[Jason Gabelman, MD - Equity Research at TD Cowen]

But we Okay. But you don't

[Jason Gabelman, MD - Equity Research at TD Cowen]

need any further guidance or anything from the

[Jason Gabelman, MD - Equity Research at TD Cowen]

yeah.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

No. No. No. And going forward, we would expect to capture 100% of the qualified feedstock PTC.

[Jason Gabelman, MD - Equity Research at TD Cowen]

Got it. Great. My follow-up is just on the strength in feed prices. And I understand that it's a benefit to the feed business. You have the sensitivity, cent per pound is worth $15,000,000 of EBITDA.

[Jason Gabelman, MD - Equity Research at TD Cowen]

But I would imagine all else equal, those feed prices moving higher are actually a headwind to the DGD business that outweighs the feed business. So is that correct? And then further to that point, can you just talk about what exactly is driving the waste oil strength? It seems like they're pricing above their carbon intensity difference to vegetable oil. So, you know, if they're at kind of a sustainable premium to vegetable oil or or if they need to come down a bit.

[Jason Gabelman, MD - Equity Research at TD Cowen]

Thanks.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

That's a great question. I I there there's an inherent premium in the, in the waste fat compared to the soybean oil that and the you can even see it in the, in the CI scores. And so that that's reflected in the, in in pricing. And and so let me that's the the the simple answer to to that question. The other reality is there's only a certain amount of of US produced animal facets available in the market.

[Matthew Jansen, Chief Operating Officer of North America at Darling Ingredients]

And so it's it's in demand right now for for good reason. And so that that's also part of the the the price differentiation that we're seeing between that and soybean oil.

[Robert Day, CFO and EVP at Darling Ingredients]

Yeah. And this is this is Bob. Just you know, one of the other reasons is crop oils aren't eligible for for all, types of biofuels. So there is there is that element as well where a used cooking oil, verified used cooking oil, certified used cooking oil is eligible for pretty much any type of of fuel, whether it's, biodiesel, renewable diesel, standard aviation fuel, regardless of the destination. So some feedstocks just do have more versatility, and then they therefore may trade above their carbon intensity adjusted value.

[Operator]

Thank you for your questions. Our next question comes from the line of Ben Kallo with Baird. Your line is now open.

[Ben Kallo, Senior Research Analyst at Baird]

Good morning. If Randy, if everything stays the same today, how would the core business be in Q2? I'm just trying to figure out the cadence EBITDA for the core business, not DGD. You.

[Robert Day, CFO and EVP at Darling Ingredients]

Hey, Ben. This is Bob. I think, you know, what I would probably do is I I I would just say that we don't expect quarter two to look a lot different from quarters three and four. And so, you know, if you just take quarter one, subtract that from the guidance, that's probably the best way to do the math on that.

[Ben Kallo, Senior Research Analyst at Baird]

Okay. Thanks.

[Operator]

Thank you for your question. That concludes our Q and A portion for today. I would now like to pass the conference back to the management team for closing remarks.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

All right.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Thanks, everyone. Thanks, Victoria. Thank you for your questions today. If you have any other questions, please reach out to Sue Ann. Thanks for taking the time to be with us today.

[Randall Stuewe, Chairman and CEO at Darling Ingredients]

Stay safe, and have a great day, and talk to you here next quarter.

[Operator]

That concludes today's call. Thank you for your participation and have a wonderful rest of your day.

Participants

Executives

• Suann Guthrie, Senior Vice President-Investor Relations, Sustainability & Communications
• Randall Stuewe, Chairman and CEO
• Robert Day, CFO and EVP
• Matthew Jansen, Chief Operating Officer of North America

Analysts

• Derrick Whitfield, Managing Director at Texas Capital
• Dushyant Ailani, Senior VP at Jefferies Financial Group
• Heather Jones, Founder at Heather Jones Research
• Manav Gupta, Executive Director at UBS Group
• Thomas Palmer, Vice President, Senior Equity Research Analyst at Citi
• Ryan Todd, Senior Research Analyst at Piper Sandler Companies
• Pooran Sharma, Managing Director at Stephens Inc
• Andrew Strelzik, Equity Research Analyst at BMO Capital Markets
• Matthew Blair, Managing Director at TPH&Co
• Betty Zhang, Associate Director - Equity Research at Scotiabank
• Jason Gabelman, MD - Equity Research at TD Cowen
• Ben Kallo, Senior Research Analyst at Baird