Q3 2022 Darling Ingredients Inc Earnings Call

Good morning, and welcome to the Darling ingredients incorporated conference call to discuss the company's third quarter 2022 results.

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. Suzanne Guthrie. Please go ahead.

Good morning, and thank you for joining the Darling ingredients third quarter 2022 earnings call.

Here with me today are Mr. Randall C Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. John Bullock, Chief strategy Officer, and MS. Sandra Dudley Executive Vice President of renewables in the U S specialty operations.

There's a slide presentation available on the investors page under the events and presentations on our corporate website.

During this call, we'll 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 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 turn the call over to Randy.

Thanks, Joanne and good morning, everybody and thanks for joining us for our third quarter 2022 earnings call Darling ingredients reported a strong third quarter financial results. This was created by more and more than 14000 employees around the globe I'm. So proud of the Darling ingredients families, particularly those who are new to us from <unk> Tabak Valley proteins.

Deposit group in August I took our board of directors to visit several of our new facilities that came with the Bali proteins acquisition I cannot be more proud of the dedication pride in transparency I saw from our new Darwin employees as they work hard to integrate into our business. A few weeks ago I was at our new oops, the BEC facility in Belgium.

The the Green energy facility, we acquired last spring I was able to see firsthand the ingenuity, the entrepreneurship and commitment from our new employees and it's truly remarkable well have not yet had the chance to personally see our new employees at the parser group in Brazil, I know how hard they're working as we bring our businesses together the success of our company begins with our people.

As I made my way to many of our factories across the U S and Europe . This summer I saw a tremendous amount of energy from our employees. We're constantly looking for ways to make our company safer our plants more efficient better for the environment and ultimately more profitable I can absolutely say our team now understands their role in an evolving ESG world now.

Turning to the third quarter extremely hot weather in North America escalating energy prices in Europe , a one time inventory step up charge from the <unk> acquisition and foreign currency translations impacted our base earnings this quarter, our global ingredients business came in at $274 4 million in EBITDA the feed ingredients.

Segment ended the quarter at 198.6, our specialty food ingredients segment had another record quarter, posting $68 2 million and EBITDA in our fuels segment earned $143 four for the third quarter with 123 coming from Diamond Green diesel.

Turning to the feed ingredients segment globally raw material volumes were up 39, 39, 6% quarter over quarter, and 21, 8% year to date summer heat and regional droughts made raw material quality of challenge and processing difficult. The results were lower grade fats with D. G D not ready to accept.

And these fans had to be discounted to be sold in North America. However, both domestic and export demand for North American and European proteins was exceptional in the third quarter. We continued to see strong export demand for our Brazilian and European fat as demand for low carbon intensity feedstock for renewable diesel continues to grow container availability.

Improved in the third quarter and is expected to continue to improve in the fourth quarter.

Energy costs in Europe continue to be challenging more than doubling year over year. However, we've made raw material procurement adjustments and have recovered 85% to 90% of these costs now going into fourth quarter Valley protein facility struggled during the quarter as we've openly discussed we were making progress, bringing these facilities up to our standards.

But converting from a run to fail mode will take a bit of time summer was brutal ultimately as we bridge the margin variance in the feed segment. It was valley proteins plants animal fat price discounts foreign exchange and the pharmacy inventory step up all of this is behind us going into fourth quarter on November 2nd we announced that we entered into a.

Initiative agreement to purchase the poets rendering company Mirror Pas group for approximately 110 million euros neuro pause processes around 250000 metric tons annually through three large poultry rendering plants in southeast Poland and has around 200 and twenty-five employees. The acquisition will provide a nice bolt ons where existing three play.

In central and western Poland and displays our commitment towards building out our global supply of low carbon feedstocks as global demand for low carbon intensity renewed renewable diesel continues to grow.

Our specialty food ingredients segment had another record quarter, earning $68 2 million in EBITDA are continued product mix shift mix shift from gelatin collagen peptides helped drive margin and EBITDA improvements were very encouraged about the future growth in our food ingredients business, we expect the collagen peptides market to double.

In the next five years, we have additional college in capacity coming online in early 'twenty 'twenty three if he referenced the chart in our earnings slide deck, you'll see our performance in the food segment that tells the story of why we are growing with our global customers and the peptide space on October 18th we announced that we entered into a definitive agreement to acquire.

For all of the shares of gel next a leading global producer of collagen products for approximately $1 2 billion in cash headquartered in Brazil, Joe Max has six facilities for in Brazil, one in Paraguay, and one in Portage, Indiana in the USA with a capacity of around 46000 metric tons to produce gelatin and collagen peptide products.

<unk> is a very well run business and will increase our production capacity for grass fed bovine collagen in South America. When this acquisition is completed most likely in the first quarter of 2023 Darling ingredients will operate 17 state of the art collagen facilities on our four continents around the world now move.

To our fuel segment, we saw strong volumes. This summer from our European brand RIN back, which collects fallen animal stock and converts it into green energy and our foot in our waste food food waste to energy business expansion plans at our newest Green energy facility group tobacco now underway on October 31, we closed the acquisition of <unk>.

Recycling, a collector and trader of organic waste based in the Netherlands. This strategic acquisition provides darling ingredients with additional feedstock for it's for biogas plants in the Netherlands, and Belgium, Our Green energy business in Europe is delivering as planned and we continue to believe in Green energy in Europe , and it will provide superior returns and help the first defy our.

European assets in the third quarter of 2023, Diamond Green or 2022 sorry, Diamond Green diesel sold 190 million gallons of renewable diesel and recorded a $1 26 per gallon EBITDA year to date. The joint venture has sold 545.5 million gallons of renewable diesel at a dollar nine average.

EBITDA now we have begun commissioning the unit at Diamond Green diesel three in Port Arthur Texas. The catalyst is loaded and we expect to be online in mid November with a ramp up the capacity. Shortly thereafter for the full year. We are forecasting approximately 800 million gallons of renewable diesel to be sold at Diamond Green diesel one two and three <unk>.

Estimated $1.10 EBITDA for the final part of the full year now with that I'd like to turn it over to Brad to take us through the basics on financials and I'll come back and talk about our outlook for 2022 and beyond Brad. Thanks. Thanks, Randy net income for the third quarter 2022 totaled $191 million or $1 17 per diluted share.

Sure.

<unk> to net income of 146.8 million or 88 cents per diluted share for the 2021 third quarter.

Net sales were 1.75 billion for the third quarter 2022, as compared to 1.19 billion for the third quarter 2021 or 47 four.

4% increase in net sales operating income increased 34% to $268 3 million for the third quarter of 2022.

<unk> to $205 7 million for the third quarter of 2021, primarily due to a 50 million dollar increase in the gross margin from our global ingredients business and a 49 and a half million increase in Darling share of Diamond Green diesel earnings SG&A increased 7.8 million quarter over quarter and <unk>.

<unk> and amortization increased $27 2 million due to the father and valley proteins acquisitions in the third quarter of 2022, we incurred $4 5 million in acquisition and integration costs, primarily related to our acquisitions of Hoot Tibet Valley proteins and father as well as the previously announced pending.

Our next acquisition.

During the third quarter of 2020 to the Euro weekend get weakened against the U S dollar as compared to the third quarter of 2021, the foreign currency exchange impact for Q3 was approximately negative $18 4 million.

Are you using an average rate assumption of 1.01 and.

In Q3, 2022 as compared to the average rates of Q3 2021 of 1.18 for the nine months ended October one 2022, the foreign currency exchange impact was approximately negative $41 6 million using an average rate.

One point I was six compared to an average rate of 1.2 O for the nine months ended October one 2021 interest expense increased $24 4 million in the third quarter of 2022 as compared to the third quarter of 2021 primarily due to increased debt. We also incurred a two and a half million.

Charge due to a fire at our Tacoma rendering facility now.

Now turning to income taxes. The company recorded income tax expense of $35 2 million for the three months ended October one 2020 to the effective tax rate is 15.5%, which differs from the federal statutory rate of 21% due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions.

Actions with different tax rates for the nine months ended October one 2022. The company recorded income tax expense of $108 6 million and an effective tax rate of 15, 6%.

The company also paid $88 9 million of income taxes as of the end of the third quarter.

For for 2022 full year, we are projecting an effective tax rate of 18% and cash taxes of approximately 25 million to be paid the remainder of this year.

On August 16, 2022, President Biden signed into law. The inflation reduction Act of 2022, which includes a new 15% alternative minimum tax based upon booking com, a 1% ex searched tie excise tax on stock buybacks and tax incentives for energy and climate initiatives.

Among other provisions the provisions of the irate are generally effective for periods. After December 31, 2022 with no immediate impact to our income tax provision or net deferred tax assets. We do not currently expect the new book minimum tax N or excise tax on stock buyback.

<unk>.

To have a material impact on our future financial results. The blender tax credits, which are refundable excise tax credits had been extended two years through December 31, 2024. After 'twenty 'twenty four the clean fuels production credit a nonrefundable income tax credit becomes effective from two.

25 through 2027, where youre assessing these tax incentives, which can materially change our pretax or after tax amounts and impact our tax rates in future years, we'll continue to evaluate the applicability and effect of the IRA as more guidance as issued.

Now turning to debt the company's total debt outstanding at the end of the third quarter 2022 was 3.28 billion as compared to 2.91 billion at the end of the second quarter.

Our bank Covenant leverage ratio ended the quarter at 2.48 times the increase in debt in the third quarter was primarily a result of the acquisition of the fossil group. We continue to maintain strong liquidity with 1.35 billion available on our revolving credit facility as of quarter end October one.

Capital expenditures totaled $105 6 million in the third quarter and $257 1 million year to date, we received a 90.5 million cash dividend from the Diamond Green diesel joint venture during the third quarter.

The company also repurchased approximately 609000 shares of its common stock for 37.2 million during the third quarter, which brought the year to date total shares repurchased to 1.58 million for $103 1 million.

We completed two delayed draw term loans during the third quarter, which are intended to be drawn to complete the gel next purchase upon regulatory approval. Additionally, we issued $250 million of additional 6% senior notes due 2030 with the same terms as our previously issued $750 million, 6% senior notes.

I'll turn it over to you Randy Thanks, Brad.

Throughout the year, we continued to strengthen our diversified polo portfolio through accretive acquisitions that will enable long term growth in our specialty ingredients and green energy businesses, all by turning animal byproducts and food waste into sustainable ingredients defeat and power of the world today, one in every six and a half slaughtered animals is processed through one of our two <unk>.

Third and 70 factories around the world the strategic investments we've made in all three of our business segments are delivering sustainable solutions to feed a growing population while also helping the world achieve its the carbonization goals. We were a first mover into the renewable diesel market and continue to be one of the only vertically integrated renewable diesel producers in the <unk>.

World.

Ingredients carries tremendous momentum into the final months of 'twenty, two raw material volumes remain robust fat prices reflect their carbon value while D. G. The three begins to ramp up global specialty protein demand and pricing continues to be solid collagen peptide demand continues to grow higher energy.

Prices around the globe are being absorbed and adjusted for Darling ingredients is set to deliver another record year, we'd like to reaffirm our forecast of 1.55 to $1 6 billion in a combined adjusted EBITDA for the full year of 2022, now we're not showing any signs of slowing down into 2023 and our global.

Specialty ingredients and Green energy platform demand for our ingredients and inputs remains rock solid we're busy integrating our new acquisitions and the results will become more visible in 2023. The D. G D portfolio of facilities ready to deliver over 1.2 billion gallons of renewable diesel next year, our collagen peptide business is.

Growing and expanding and our team is poised to deliver another record year in 2023, so with that let's go ahead and open it up to questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

The first question comes from Adam Samuelson at Goldman Sachs. Please go ahead.

Yes, thanks, good morning, everyone.

Good morning, Adam.

Randy I was hoping to start in the in the feed segment in the in the in the quarter and just to make sure. We understood kind of the drivers of that decline you gave some color around it but segment profit was down EBITDA was down a little over $50 million quarter on quarter and I was hoping you could kind of break apart some of the key factors that you kind of alluded to it.

Terms of valley, and father and currency and because we think about the go forward on that just.

How much of those should be kind of cleared out of the system as we as we get into the fourth quarter and here maybe in a more constructive operating environment given commodity prices.

Yeah, No fair enough out of it and you know I I fully understand everybody trying to reconcile the feed segment. After the you know really rock Star performance. In Q2, you know Q3 is always a bit of a challenge for us around the world because of the summer heat. This.

This year was was as bad as I've seen it in my 20 years from now I'll give you a little bit of input on it here you know Brad talked about the FX impact of $18 4 million with the Euro at one O. One you know at the end of the day with the feed segment being I don't know, 80% of our volume and in revenue.

New et cetera, you kind of would say then you know 80% of that number had to go through the feed segment and in one way or shape. The you know the the Pfizer is a standard purchase accounting I think it was eight and a half 9 million that flowed through the P&L in in period nine for US and then when you look at.

At Valley proteins, and I want to give really hats off credit to Rick go round and the operations team and Royal Winter in the valley team that are becoming part of the family or you know those plants as we've we've told people we're not well taken care of it was a business that was being set up to to transition and we're in the.

The process of rebuilding about 15 different plants here in one way shape or form and when when we got hit with excessive amounts of raw material. This summer.

And as different markets opened and closed for the poultry producers 100 degree weather made for you know incredibly challenging.

Problems of operating those plants and you know that I, you know I can't really I do know that number I won't put it out there, but let's say it was significant of what was unable to be process, but you pay for the raw material and you don't get it through your plant a man and very significant amount of money. It also happened in the Midwest to us as we.

Never seen or a summer as hot as it was in the Midwest This summer and in the fallen stock business.

As we referenced in the script out and we've talked about the the the you know when you win.

Perishable products degrade in summer he it's very difficult to get the fastest separate from the protein. So you're you leave more fat and at your yields arent as good and Oh by the way the fat has a higher free fatty acid content and really D. G. D. Three was not in position yet to take those fats and so we didn't have a market to me.

Move them to other than other than two different feed markets and you can do the corn equivalent that we've done 10 years ago and they had to be discounted substantially from what their renewable diesel value should and could have been so you know I think I want to leave everybody with in and not glossing over it but I want to leave everybody with that's behind US you know I've seen.

The results coming in around for you know period 10 here you know the weather has cooled off and you know the valley plants are back you know really online the team's done a great job there and we will pick up as we said momentum for the balance of the year and we don't see anything changing in 2023, we have an aggressive capex program.

Your first hand at making those valley plants more reliable and that's really our focus right now is reliability and efficiency. There and then you know there'll be a strong contributor as we've thrown out there for next year and and you know at this time, we haven't really stepped forward and given guidance for for 2023, we want to see D. J D.

Three come online make sure we've got everything working well there and then we'll step forward and and look in our Crystal ball and until you, but in the core ingredients business. We see continued strength around the world very little slowing of of any type of raw material or demand for any of the products clearly the the.

That market is really pretty you know pretty solid out there as we see it so Adam I hope that answered as much color as I can give you. It's it's really helpful and if I could ask a follow up along those lines and so the the EBITDA guidance for the full year was reiterated I think if I heard your prepared remarks 800 million gallons a day.

D. D. Dollar 10, so it implies about 140 million of EBITDA contribution your share in the fourth quarter. It wouldn't seem like there's a.

Big implied step up in <unk> and in the core in the core ingredients business businesses from the third quarter level, and we talked about purchase accounting, which I think will go away and clearly the valley business and some of your core rendering businesses had had summer heat pressures that wouldn't persist into the fourth quarter. So I just want.

To make sure I'm thinking about kind of the sequential kind of ramp in the fourth quarter that doesn't seem all that big based on where your your EBITDA guidance is.

You know the team around her always smiles when we when you do the math because they know that the that my middle initial is C and it stands for conservative so at the end of the day, Yeah, I mean, you're you're backing into the the correct numbers right. There, but you know I think at this point in time, you know as we said we've got two more up periods to go through here, but it feels.

It feels solid I think you'll I think you know Q4 will be much improved I, you know over that and that's and anything you want to add on D. G. D. Three and the dollar churn for the year. You know I think just really solid results from D. G. D and we're excited to have D. G. D. Three online here that'll come online this month and I'm forgetting so close to.

At and you know that the great thing about D. G. D is we continue to sophisticate that organization. Both in terms of you know our feedstock origination, which I think is amazing and we've done just a tremendous job on in terms of that and I have to give our team kudos on that and then really we expanded our finished product sales as well.

And so it's just a great shout out to the D. G D team on that.

That's all really helpful I'll pass it on thanks.

The next question comes from Derrick Whitfield of Stifel.

Stifel. Please go ahead.

Oh, Thanks, and good morning to all.

Alright, eight on the feed segment could you comment on the potential earnings power of the mirror policy transaction with you understand the earnings in the near term would be compromised by higher energy costs also what potential synergies you see with their operations as you integrate it into your.

Hey, Derek can you repeat your question.

Yeah, absolutely so I'm staying on the B segment could you comment on the potential earnings power of the Miramar transaction with the understanding that earnings in the near term would be compromised by higher energy costs also what potential synergies do you see with their operations as you integrate nearer parts into your own operations.

Yeah, I'll take the little stab and I'll ask John Bullock, who worked on the transaction to assist me here a little bit with us that transaction will not close till the back half of 'twenty. Three so I don't think that there's anything that we can really step out predict at this time Derek it's a it's a small transaction. It gives us once again, we have the.

The plaintiffs in the outside of Gdansk, and whose niece and down by Warsaw in Krakow, and Ost, Denise and then luby and and and it just spreads us out with with more opportunity than in Poland and as we've said as the you know the European Union comes under pressure on an animal production in manure disposal, whether it's in.

The Benelux countries or Germany, both Poland and as we look forward, Spain will become more important into that portfolio. John anything you want to add yeah. I think they lost half of your question involved whether or not we're able to adjust higher energy prices and I think there. This is beyond the mirror pause answer this is lars.

Lee of Darling answer the fact, the matter is our margin management tool that we use in this company really allows us to reflect higher energy cost and maintain our margins in the business and that's kind of a hidden story about darling, whereas higher energy costs have impacted many many businesses around the world. The fact the matter.

Is how we manage our business allows us to really deal with those higher energy costs without substantially impacting the bottom line of the company. So we are possibly the same as the rest of our organization, Yeah, and I think Derrick I mean, clearly we've seen Poland energy prices escalate much faster and higher than the other parts of Europe , but it but at the end of the day we are.

<unk> able to manage their raw material as John says in.

Margins in the meat production business remain fairly good and and we're able given our model and our relationship through to adjust for not only labor, but energy and diesel prices.

Terrific and then as my follow up kind of staying on the same topic, but shifting over your deal segment.

I recall that you guys has been quite a bit of time in Europe over the last quarter and you guys noted that in your prepared remarks as well in light of the energy crisis.

Facing there.

You speak to the near to medium term outlook for that business, and where you see the greatest opportunity for growth.

Talking about clean energy in Europe .

Yeah. This is John So this is one of our key platforms that we've been really dynamically growing over the last two to three years and still have a lot of growth plans on the board and not necessarily acquisitions, but stuff. We can do to kind of expand our core business. It is so well related to our activities that allows us to help with our mates slaughter buyer.

Alex as well as opens us up to a whole new raw material stream well the organic food waste that we traditionally don't render and and the platform in Europe , both from a pricing of natural gas as well as the green programs that are embedded in red tail and coming in Red three I've just perfectly tailored for that business and this is.

Another example, I think where I am proud of Darling because we've been on the leading edge of this.

Expanding and growing this business well before everybody else thought to being in the digestion business was cool in Europe now.

Now we've dramatically built a tremendous platform in both Belgium, and Netherlands in relationship to this and we're really really excited about what it can do for our business model over there.

That's helpful. Thanks, again for taking my questions.

The next question comes from Tom Palmer of Jpmorgan. Please go ahead.

Good morning, Thanks for the questions.

Just wanted to circle back on the feed segment outlook. So you previously indicated phosphate I had around 100 million EBITDA annually, a valley was expected to contribute $60 million to $70 million in 2022, which works out to about $8 million per month. So I just want to confirm when we think about the fourth quarter.

Or do these businesses return to that run rate and then as the $150 million EBIT outlook for valley next year still appropriate.

Yeah. Tom This is Randy Yeah, I was trying to say that in so many words, so all I'll say, yes to your to your answers I mean, there. There were there were several one offs going on with the valley plants. During during really period eight in period nine with the summer those will come back they're going to pick up momentum we're making.

Adjustments in that business and yeah. We're you know those are both numbers that we put out there before $1 50 for Valeant and the Faas acquisition rate was at a at 100 million EBITA. So yeah. Those are those are real numbers for next year.

Everybody I think run rate now in period and in Q4 so.

Great to hear thank you for that.

And then I just wanted to ask on on next year I mean, maybe it wasn't formal guidance, but I think it you know earlier. This year you discussed the potential for 182 billion EBITDA.

The business in 2023.

As you think about the current operating environment.

Are there changes in the industry pricing environment needed to hit that range or just given current operations and internal improvements that you are instituting. It at these acquisition is that still a reasonable consideration.

Yeah I mean.

Whatever you want to have 45 days 50 days now from 'twenty to 'twenty three are.

Were carrying pretty pretty solid momentum I mean, not even pretty solid we're carrying momentum in and if you look at the base business and you take the Valeant parser and where we're going to finish this year, yeah, it's not hard to get a a 1.2 billion dollar number out of the core ingredient business, where pricing is today if you.

It depends on what you want to put the on your on the dartboard here on D. G. D. We know we've got capacity to around 1.2 billion gallons and we we averaged a dollar nine or will average a dollar $9 10. This year you know so then you're sitting there going Okay. You know that's you know 1.32 billion you know we've got a couple of turnarounds that are going on.

To happen next year early and work through that and then you know the bigger better machine with working capital and so yeah. I mean at the end of the day you can sit there and look at it and say you had one two and 650 you get 185 O and you know I guess, if we were snapshot in it today, that's where we would we would put it out there.

Okay. Thank you.

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

Hey, good morning, guys.

One of them.

Let me ask a question a different way if you didn't have the acquisitions would you would the business be sequentially flat.

You mean sequentially Okay QB.

Got it.

Understood.

Yeah, it might be slightly down just because of the seasonality but.

My sense is it probably would have been.

More of like the acquisition.

My mind to have.

Yes. This quarter is that I mean would you not said that the profitability of feed will be largely flat to slightly down.

Let me, let me answer it a different way and just say Faiza and valley really didnt contribute in Q3 to us.

Oh boy.

With a negative I got the sense that they might have been negative.

Through the quarter together they were minimal minimal so I wouldn't say negative and then you've got the currency piece there and then you've got the really the fat price degradation that happened from the downgrades of the of the yellow grease.

Okay.

And then that's that's why we're trying to say that Q4 is going to be much better.

Okay.

And in the base case is for both of those are or the business case of both of those are still intact for 2020 right now there's nothing that happened this quarter that would.

The business he's either one of them is that is that a fair statement or my absolutely and then we want to reaffirm that we still think that the Valeant I mean, Pfizer was was a one off with the inventory mark to market in an unwinding, some hedges and stuff down there and at the end of the day. The valley. It was just a <unk>.

Operational challenge, it's been overcome lots of changes have been made and you know summer time rendering is its difficult. When you know what youre doing let alone when you have plants that aren't ready to run in the summer and wastewater units. So that's behind us cooler temperatures make it easier. So you know between now and.

Next summer we've got a we've got a capital program in position to fix many of those plants and those challenges that we had and so yeah. It's behind US we're at the run rates. We're at the business case, where we thought we would be and thank God you know September is over.

That's it.

A lot of E C.

They have had a wide variance of discussion discussing the in place you would definitely.

And there's one CEO , who said this is life changing and there's other he is is like it's more kind of an.

<unk>.

Can you give us your view on how you place your reduction would change darlings model over the next two to three years is there.

A game changer is this something that slightly positive or is it neutral just kind of trying to figure that out there's been a again, a pretty wide variance of commentary by Ceos and our business.

So Ken this is John I will say from from Darlings perspective, the inflation Act is the most important piece of legislation we've ever seen in the history of this company has down.

Bar holes nothing is perfect for us because we our position is guys that have the integrated feed stream of waste fats.

Bidding into renewable feels and what's now happening is that the federal program now recognizes the value of low carbon feels as opposed to not really rewarding if you're producing a lower carbon field now it does and so the result from a garlic perspective. It was a wonderful piece of legislation we were bullish.

[noise] supported getting five years was great. We are very appreciative that the federal government one in that direction and I will tell you from dollars perspective, we love that program, we think it's absolutely phenomenal and Greg.

Brent why don't you comment again on the on the tax side of how that all could work yeah. Good morning, Ken So as you.

Probably no I mean, we said it earlier it goes from a excise tax credit to an income tax credit. After after 24. So you know that the next two years nothing changed in terms of the other P&L.

After that John touched on the on the benefits from a producers standpoint, but it also goes to an excise tax credits so what's going against your against your tax liabilities or your tax Bill if you want to put it that way so that from a cash perspective, there's a you know a bit of a delay there offsetting of your say quarterly.

Estimated tax payments, but really the bigger one of the bigger things from an investor standpoint is really as we've talked about it internally you start begin to think about it you know it really we become more of a dare say a bit more of an E. P. S oriented.

Company with it going down below the line.

And the other thing is it's going to be more geared toward the Ci score and I think that's also what Jon was which is dead.

Definitely beneficial to us because you know, it's just going to get more benefit in it and I guess, John you already addressed that but yeah. Let me just add back on top of this it well. This is a producers tax credit obviously, we're the guys that have built a unit that can for waste fats.

To low carbon fuels in the United States, which means we're producing in the right area to be able to maximize the benefit associated with us as I said hands down the best piece of legislation I've ever seen for Darling in the history of Darling.

Okay life changing it is my last question is in <unk>.

Our diamond Green diesel.

Sounds like it's not that you guys have shifted to purchases using soy bean oil Uh huh.

How much can you use how does that work.

Does that have an impact on the business. How do you think about that maybe I'm wrong, but it seems like that's been the shift and what does the business decision based on.

Yeah. So I think we don't typically give out an exact percentage of any of our feedstocks and traditionally and really going forward. We are always a waste feedstock user that's our primary.

Yeah, and feedstock that you know really the premise of what we built with Diamond Green is good I would say it could take and use the waste feedstocks and because they typically give us the highest value in terms of Ci scores et cetera, there they're typically the most preferred so different customers want that.

And so that's what we focus on that doesn't mean to say that you know on occasion, we don't use soybean oil because there are sometimes in the market you know where soybean oil after you adjust for Ci scores and things like that and there are markets that do like soybean oil that we run that and so we do we are constantly a.

<unk> profit maximize their and on occasion when that happens and you know when the stars align we will use soybean oil and then their operational reasons that we use soybean oil too. So on startup that's an important thing for us to use them in a certain stage of our process. So again you know.

So just for clarity we are by far just the waste oil you know and we focus on the waste feedstocks and but on occasion, we will run some slightly huh, yeah, and I think so I think that's fair Sandy I mean, you know I know now stay throws 96% or whatever waste oils were probably way above that but time to time in the foodservice business.

This goes to go slow out there then the soybean guys are trying to move volume and you know from time to time, either operationally or fourth animal Fats go Sky High and you get a you know five six cent discount on being oil then you've got customers that you can arbitrage it in and maximize the facility.

Great I appreciate it as always guys.

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

Hey, Thanks, guys. We appreciate everyone's time today and hope you stay safe I look forward to see you in at the upcoming events that are listed in our presentation on the earnings slide deck and we'll talk to you soon thank you.

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