Q4 2022 Darling Ingredients Inc Earnings Call

Good morning, and welcome to the Darling.

Conference call to discuss the company's fourth order in fiscal year $2022.

After the speakers prepared remarks that will be a question and answer period and instructions will be given at that time.

Please call is being recorded.

I would not like to turn the call over to MS. <unk>. Please go ahead.

Good morning, Thank you for joining the Darling ingredients fourthquarter in fiscal year 2022 earnings call here with me today are Mister Randall C. Steely Chairman and Chief Executive Officer, Mister, Brian Phillips, Chief Financial Officer, Mister John Bullock, Chief Strategy Officer, and then Sandra Dudley.

Vice President of renewables and U S specialty operations.

Our fourth quarter in fiscal year 2022 earnings news release, and slide presentation are available on the Investor page under the events.

Patients tab on a corporate web site, and we will be and we'll 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.

I'd like to risks and uncertainties actual results can material different materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and then the risk factors section of our Forum 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.

David.

Now I will hand, the call over to Randy Hey, Thanks around good morning, everyone. Thanks for joining our fourth quarter in fiscal year 220, 22 earnings call on February 3rd 2000, twenty-three I celebrated with my <unk> My 20th anniversary as Chairman and C E O of Darling.

You've heard me tell the story of my early days here at the time, we had 600 employees and 20 locations throughout the United States <unk>, we're paying utility bills out of the shoe box prioritizing the ones that needed to be paid first to keep our operations running our stock was trading about one dollar per share we had to figure out how to move from surf.

<unk> the thriving we had a plan as I sit here today 20 years later I can't help but smile. When I tell you. We are now 15000 employees strong and more than 260 locations on five continents. We have 15000 of the most dedicated and talented employees that come to work every day, because they know their work matters.

Not just to themselves and their families, but the meeting the critical needs of our world. What they do every day is making our world a more sustainable place for future generations.

We provide two very needed solutions to the world food and clean energy, it's no doubt the Darlene ingredients has transformed over the last 20 years and in the process, we created our own unique platform with a deep moat surrounding our castle, we have delivered superior earnings growth driven by our global platform vertical.

[noise] integration and diverse segments and 2022, we closed on three important acquisitions and are in the process of completing two more that will continue to strengthen our foundation for growth in four key areas. The core rendering business hydrolyzed collagen green energy and soon to be sustainable aviation fuel 2022.

Also mark the fifth consecutive year of record earnings Darlene ingredients combined adjusted EBITDA for physical 20, twenty-two was 154 1 billion as compared to 1.235 billion in 2021 looking at our segments in detail for fiscal year 2022, our global ingredients business came in at a <unk>.

<unk> 1.1 billion EBITDA. The feed ingredients segment ended the year at $810.1 million or specialty food ingredients segment earned 256.7 million EBITDA, while our fuel segment earn $536 6 million EBITDA with approximately 443 and a half coming from Diamond Green.

Diesel now turning to the feed ingredients segment in detail globally raw material volumes were up 27% in 2022 as compared to 2021 I'm happy to report that while we were still very early into a thousand day integration plan for valley proteins as well as the acquisition of the <unk> group in Brazil the clue.

Posed in mid third quarter, we realized an increase in gross margins in the fourth quarter of 2022 as compared to the third quarter of 2022, Despite our Tacoma, Washington in <unk>, South Carolina plants being down from a significant fires late last year on.

On February 14th we announced an expansion of our Bellevue, Nebraska plan, which will handle all the raw material from a new 2000 head per day beef processing facility being built by Cattlemen's Heritage B company.

Our expansion, which will be completed by the end of 2024, a lot about 30 30 per cent more rendering capacity to our Bellevue plant. We also announced on February 21. The Panda Express has chosen darlene ingredients as it's preferred nationwide provider for used cooking oil recovery services Darling will collect and recycle used cooking oil for more than.

2400, Panda restaurants in the United States. These projects coupled with our strategic acquisitions illustrate how Darling is continuing to build it's Margaret presence and strength and its vertical integration to derisked the supply chain. The diamond Green diesel now turning to our specialty food ingredients segment. Our strategy is to continue the <unk>.

Kris our product sales and higher value hydrolyzed collagen, which today represents about 25% of our college in sales within the food segment to accommodate that growth in the market. We are adding more hydrolyzed college and capacity our existing processing facility in epitaxial, Brazil, which is due to come online at the end of the first quarter or early.

Second quarter of this year and we're a super excited that our previously announced acquisition of <unk> should close sometime in the second quarter. Joan X operates six facilities foreign Brazil won in Paraguay, and one in Portage, Indiana in the U S and as the capacity to produce approximately 46000 metric tons of gelatin in <unk>.

<unk> peptide products.

<unk> is a very well run business and will be immediately accretive depending on when it will close I estimate the jelinek should add anywhere between 75, and 100 million U S dollars of EBITDA tour of 2023 earnings as we modify and bring our technology to these facilities I anticipate we could see the food ingredients segment approaching an EBITDA.

350 to 400 million over the next two to three years now moving to refuel segment a record year was driven by the strength of our D. G D joint venture.

Higher sales volumes and prices in Europe , and the continued expansion of our European Green energy business that is performing extraordinarily well diamond Green diesel set another sales volume record in the fourth quarter with the successful commissioning startup of our new Port Arthur Texas renewable diesel plant. The plant came online mid November and was complete.

Nine months ahead of schedule and under budget for the fourth quarter D. J diesel 208 million gallons of renewable diesel and recorded $1.40 per gallon EBITDA for fiscal 2022, the joint venture sold 754 million gallons of already at $1.18 per gallon, our latest expansion Springs D. G D's annual <unk>.

Production capacity to approximately 1.2 billion gallons and 50 billion gallons of NAFTA as many of you know on Jan 31, we announced our entrance into the sustainable aviation fuel Margaret expected to be completed in early 2025. The project will allow us to upgrade about 50 per cent of our production at Port Arthur to S. A and is <unk>.

Estimated to cost around $315 million, what the completion of the project D. G. D is expected to be one of the top S. A F manufacturers in the world ultimately at the market develops as we anticipate additional capacity could be built in norco, Louisiana. We're very excited about this project because we believe the conversion gives us tremendous.

And once again deepens our mode as we assist the world and Decarbonising now with that I'd like to hand, the call over to Brad take us through some financials and then we'll come back and I'll give you some thoughts on the balance of 2023 here rats. Okay.

Thanks, Randy <unk>.

Net income for the fourth quarter of 2022 total of $156.6 million or 96 cents per diluted share compared to net income of $155.8 million or 94 cents per diluted share for the 2021 fourth quarter net sales of 1.7 Sir.

7 billion for the fourth quarter of 2022 as compared to 1.31 billion for the fourth quarter 2021, or 35 per cent increase in that sales.

Net income for fiscal year, 2022 was 737.7 million.

Or $4.49 per diluted share compared to $650.9 million or $3.90 per diluted share for fiscal year 2021 net.

Net sales were 6.53 billion for physical 22, as compared to 4.74 billion for physical 21, or 37.8 per cent increase in that sales.

Operating income increased 18.1% to $249.2 million for the fourth quarter of 2022 compared to 211 million for the fourth quarter of 2021, primarily due to a 67.7 million increase in gross margin and daunting share a diamond ring diesels are.

Earnings, increasing 53.8 million quarter over quarter, which more than offset depreciation and amortization, increasing 36.6 million and SG&A, increasing about 24 million quarter over quarter, both primarily due to the <unk> valley proteins acquisitions.

Also a 21.1 million asset impairment charge was recorded as a company made a decision to close the Pea body, Massachusetts College on location in 2000 twenty-three in order to optimize our global College in network <unk>.

Additionally, in the fourth quarter of 2022, we incurred 2.7 million in acquisition of integration cost.

Operating income for fiscal year, 2002 was one point O 3 billion as compared to 894.5 million for fiscal year 2021. The increase in operating income was primarily due to a 287.6 million increase in gross margin and a 20.7 million <unk>.

<unk> guarding sure D. G D earnings year over year, which more than offset depreciation and amortization, increasing 78.3 million and SG&A, increasing about $45 million for fiscal year 22, as compared to 2021, both primarily due to the acquisitions of files and valley proteins for the.

Year, there were 29.7 million an asset impairment charges for physical 22, as well as 16.4 million and acquisition of integration cost primarily related to our acquisitions over Tibet Valley proteins and father as well as a previously announced pending gel Max and mayor pause acquisitions.

Yeah.

Total other expenses increased approximately $34 million quarter over quarter, and 71.6 million a year over year, primarily due to increases in interest expense of $31.2 million and 63.5 million respectively from increased debt turning to income taxes. The company recorded income tax expense of 100.

46.6 million for fiscal year 2002, the effective tax rate was 16.4% in cash tax payments for 20 to 113 million for 2000 twenty-three we are expecting the effective tax rate to remain about the same around 16% in cash taxes to increase to approximately 108.

The million dollars.

As mentioned last quarter in August 2022, President Biden sounding inflation reduction Act, which includes a new 15% alternative minimum tax based upon book and calm a 1% excise tax on stock buybacks and tax incentives for energy and climate initiatives. Among other provisions we do not currently expect that.

New book minimum tax Anwar excise tax will stop buybacks will have a material impact on our financial results. The blender tax credits, which are refundable excise tax credits have been extended two years through December 31, 2024. After 2024, the claim fuels production credit a nonrefundable income tax credit.

Becomes effective from 2025 through 2027, the claim fuels production credit will be available to producers of qualifying on road in aviation transportation fuel.

We are assessing these tax incentives, which could materially change our pre tax free tax or after tax earnings and impact our tax rate in future years, we will continue to evaluate the applicable witty and effect of the act is more guidance as issued.

Now turning to that the company's total debt outstanding of fiscal year, 2022 was 3.38 billion as compared to $1.46 billion in fiscal year end 2021, our bank covenant leverage ratio at the end of the year was 2.54 times as compared to 1.57 times of fiscal year 2021.

We continue to maintain strong liquidity with 1.31 billion available on a revolving credit facility.

As of December 31, 2022, as well as 800 million of Undrawn term loans to be bought for the anticipated closing of the gel Max acquisition capital.

Capital expenditures totaled 134.1 million in fourth quarter, and 391.3 million for physical 22.

The company repurchased approximately 336000 shares of common stock for 22, and a half million dollars during the fourth quarter, which brought the physical your total shares repurchased to 1.9 million for approximately 125.5 million, leaving the company 374, and a half million.

Remaining in its share repurchase program as a fiscal year end 2022 with that Randy I'll turn it over to you hey, Thanks bread well done no doubt 2022 was a great year for Darlene ingredients and we carry tremendous momentum into 20 twenty-three as we continue our laser focus on the integration of our new business.

<unk> around the globe, while fat prices have eased in Q1 due to turnarounds, an unplanned downtime by global renewable diesel producers, we should see improvement as these situations remedy global protein demand for animal production and pet food supplies remains robust and modestly stronger than last year capital investments in 2002.

Twenty-three are estimated to be about $565 million with more than 20% allocated to expansion projects to drive new profitable growth. These projects include expansion of Green energy business in Europe growing capacity at our existing U S rendering plants to accommodate both customer growth growth and increase waste feedstock.

[noise] supply for renewable diesel production and increase spray dry capacity for hydrolyse collagen production with respect to Diamond Green diesel we expect sales volumes to be about 1.2 billion gallons and twenty-three, making D. G D. North America's largest renewable diesel producer D. J D superior logistics darlings vertical integration.

Duration and access to global based feedstocks combined with our pre treatment technology physicians D. G D. As the premier renewable diesel provider in the world recognizing L. CFS prices were lower than 22, I'm gonna need to compared to 21 and the RVO created some noise in the market, sending feedstock prices lower R. P.

Performance in 2022 shows that D. G D as profitable and will continue to be profitable for 2023, I expect G. G D to sell 1.2 billion gallons.

Of renewable diesel at a minimum of $1.10 per gallon.

Our plan for 2023 is to build on our growth strategy and continued success, we expect to grow earnings between 15, and 20% by the end of the year and we're still giving guidance of 1.8 1.85 billion in combined adjusted EBITDA and those numbers don't include the closing of the gentleman next acquisition until we see it happen.

We finish the year with a bank covenant leverage ratio of 2.54 times and with the anticipated closing of jelinek. Shortly our debt ratio will peak slightly over three times, but as we expect D. G. D to start distributing regular dividends, we anticipate being sub three point O by the end of the year make no mistake or financial <unk>.

<unk> will be to pay down debt and work toward investment grade. We're committed to continuing are opportunistic share repurchase program is Brad said with 374 and a half million dollars remaining as approved today and finally with the large acquisition bind us. After we closed on <unk>, we will continue our laser focus on integrating all our businesses.

Darling ingredients offers tremendous shareholder value. There are very few companies that can show consistent strong earnings growth, while setting high standards for sustainability Darling <unk> is the only publicly traded company that eliminates waste from the meat industry and up cycles those products to their highest value in December 2022, we committed to the.

Science based targets initiative undertaking significant scope, one and two emissions reductions in the midterm aligned with a one and a half degrees Celsius pathway and achieving net zero by 2050. We are currently in the process of quantifying our scope wanted to reduction targets, while account for the recent growth of our business and completing our <unk>.

<unk>, three inventory, which will guide us on where we need to focus our reduction activities. Additionally, we were in the process of completing a new materiality assessment as we know our footprint and stakeholders have changed over the past few years as I've said for many years and before we were green before Green was cool. This year, we will process approximately $16 million.

Metric tons of raw materials that could have gone to the landfill or been incinerated, we recognize that our carbon avoid the story is why many of our shareholders believe and invest in our company. We are actively researching how we can calculate our carbon avoidance number reported and hopefully one day monetize it in the form of carbon credits I feel very good about our progress.

Yes, and I'm, even more excited about the opportunities ahead. So what that closing, let's go ahead and open it up the Q&A and we'll try to answer your questions. Thank you.

We will now begin the question and answer session.

To ask a question you May press start and then one on your telephone keypad and if you're using a speaker phone. Please pick up your handset before pressing the keys.

Draw. Your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And the first question will be from Derek Whitfield from Stifel. Please go ahead.

Good morning, all and thanks for taking my question.

Good morning Martin.

For my first question I wanted to focus on your feet business with the improvement you experienced and margins sequentially. Despite season, when the weather impacts with Yuko.

Could you offer some perspective on how we should think about your trajectory of margin recovery over the next couple of years as you bring additional valley plan up to Darling sick.

Yeah I know this is Randy Derek I'll I'll come in a high level and the bread and Jon can assist if I miss over something but I mean, clearly as we've tried to articulate the people were 200 days into a thousand day integration plan, a bally proteins their margins were under half of what.

<unk> and so when you when you put together their business with our USA business.

You can see the margin pressure and the progress, we're making I mean, it ranges from renegotiating raw material agreements optimizing plant labor situations. The systems at full capacity they were moving materials around in ways. They shouldn't have and then ultimately moving.

To our customers, where they were X forwarding there now shipping Diamond Green diesel and you can see that coming through you're gonna see in Q1 and Q2, you know continued progress there I mean I do want to say you know as always we talk about you know fat prices fat prices are down a little bit and and Q1.

I mean, they're driven by you know obviously people were trying to position against Diamond Green diesel start up.

And then also you know the amount of global Fat, we're bringing in along with our downtime in three or four other people's down times around the world and turnarounds and so the fat jokes backed up a little bit that will remedy itself as we said.

As we go forward. So there may be a little pressure there in Q1, but remember in Q2 D. G. D. Then gets the benefit of those lower fat prices and that translates back through and the fuel segment. So as always I want people to think about the total offering not just down to a segment level because it can move around.

Time, Johnny how you want to add there no I I think the valley is exactly what we thought we were getting it is a huge block of volume, that's where I, while geographically positioned and we can already see tremendous improvements that are happening as we get the valley folks together without you asked for a night clubs and it takes a little time, but.

Moving at an extremely fast pace, we're very very excited what we're seeing out of that exposition, yeah, Derek and I I would add I mean, you know as as people were looking at the performance in queue for you know the word South Carolina plant lit up on fire on Thanksgiving day, or evening, I can't remember, which it's a total loss.

<unk>. It is clearly we were insured around the horn, Tacoma, and and and an award with business interruption, but but the rules around that is accounting rules is when we can recognize that and just just for example in Q4 in December The awards, South Carolina plant transferring the volume around.

To keep the customers happy was around four and a half million dollars. So it's a pretty easy bridge to see where we're headed to we had a little bit of bad luck, there, but it's gonna be built back bigger better and better here and be online towards the end of the year, but the system's being able to handle it now and then so hopefully sometime later this year brattle.

Say, we can set up an accrual for the the B I payment that's expected.

Perfect that's great color and perhaps for ran to your sanity with my follow up.

Maybe if you could elaborate on the market opportunity.

You're prepared comments on staff I know your preference 75 cents to break even in the past, which is currently covered by the <unk> D. T. C. However, I suspect the market will bear.

<unk> bear a greater premium and there's probably some optimization you could pursue it D. G D three as well.

Yeah, an insane amount of packaging. This and you know she can give you I'll give you the.

The view from my chair.

Number one there's a lot of promises being made out there an essay by a lot of people and there's no gallons. So these will be the one I'm gonna call. The first real gallons made to a system. That's gonna have to Decarbonize and move forward. It also gives us tremendous optionality.

And the Optionality peace is.

Wow.

The industry and the analyst industry wants to sit there and tell US all this capacity that's been added out there in the Rd World You know we're gonna move the next step we've always been the first mover there and we will control that optionality the margin Sandy can comment on but but longterm. What we've learned here is is that will have the flexibility.

[noise] arbitrage between the products and I and I suspect over time, we'll make that decision to add as add another S. A unit as the world moves forward the beauty with Port Arthur is that it can make the product it can shift the product to California under the proposed interest state rules that are being promulgated.

It can export the product so Saturday what else you want to add on what gets you excited about S. I I you know I think that S. A F. For US is eight mentioned it just helps us diversify our bunks out not only are we able to offer a new product that we're all save a lot of participate in different markets and we participated in before and as you said that gives us.

Optionality I think that there's a lot of support out there behind us a up to that we're seeing them that I think will eventually.

Increase the premiums that are available within that market. I mean, we have the inflationary election Act that was passed I think that's very positive for S. A F. We just saw that in California I'm in there scoping plan that they are considering instituting an inner interests state <unk> mandate and so I think that that's that's.

A positive thing for us and then what we've seen lately. It's a scene a number of F. F tax credits, So, Illinois passed one Washington is considering line, we're seeing Norway, considering increasing their S. A F mandates you know we're seeing more on states with L. C. F. S proposed programs such as New York New <unk>.

Hello, Vermont, Minnesota, and so I think that there's just so much going on in that space that's positive for us yeah.

Yeah, and I think just the kind of closed off the loop, obviously until you sell something you don't know what the margin is but we believe that that there's just a ton of momentum out there in that market that gets us really excited and to be honest, we wouldn't make the investment. If we didn't believe the margins would be equal to or superior than what we're doing in the road fuel market today.

That's very helpful. Thanks for your time and responses.

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

Yes. Thank you good morning, everyone.

Good morning.

Alright, so Randy in your prepared remarks, he kind of talked about making sure that to consider the kind of balance the earnings my shift between feed and diamond green, depending on kind of where prices are and where where they already margins are and so I've been I've been trying to get a sense that.

You are EBITDA guidance is minimum of $1.10 a gallon.

And you talked about.

Upsize in the second quarter, because that prices have come down and that will accrue into G. G D.

I just <unk> my wrong, the things that spot margin certainly in the first quarter or comfortably north of that dollar 10, a gallon and so I'm just trying to get a sense of.

Kinda, we're kinda quarter to date margin tip had been tracking and would seem like that.

Trending in the right direction for the into the second quarter based on kindness amazing feedstock.

Prices.

Got a a follow up on the <unk> business.

Okay, No. It's fair question, Adam and and you're you know you're reading the bread crumbs, you know really well or the ultimately as we look at Diamond Green diesel margins remember the dollar 10, we put out there is what we believe the competitive advantage is that the one two and three have against any other producer today I would.

You know if you if you want to see the advantage look at look at Hollyfrontier Gino's Rd gallons and earnings for for fourth quarter. So there. It is again as we show people you know what we do for a living number two yes. The the margin spot margins are are better than what they were getting for the for.

All year remember Diamond Green diesel one was down for a catalyst turnaround here February 3rd it's back up a capacity, but you know so at the end of the day, we're getting up that's back online number three is still in the in the process of getting up to the full right and where we believe it can go and and you know too.

Our partners Valero mentioned on their call logistic challenges I'm in clearly there's no secrets out in the World. We got a lot of cars sitting down there waiting to unload and to get up to right there and so optimally at the end of the day you know, we're gonna pick up incredible momentum in the Diamond Green diesel system throughout the year. The other piece that I don't want to kind of put a.

Out there to let everybody noodle on is you can't be bearish fat prices.

If you're bullish renewable diesel capacity it just doesn't work that way and so at the end of the day, you gotta pick or choose the crap table, where you're gonna place. Your bad here is that is that R. D capacity coming on line then you gotta get bullish that prices, which is bullish our base ingredient business. If you don't believe that capacity is coming online than theirs addict.

Fat to run number three in all of this and will be run in full waste facet great margins. So end of the day you know people have to decide what they truly believe here what we've proven is $1.40 a gallon in queue for <unk>.

And you know as I said before the the numbers do the talking so let's go with the feet segment Adam.

Okay. That's that's actually helpful. So then in feed I was hoping you can kind of just break down a little bit more.

The contribution from valley in <unk> in the in the fourth quarter.

Kind of from the K apply that the net loss valley. It seemed to have actually gotten bigger and in fourth quarter and maybe there's some accounting is kind of in there.

Can you help us think about kind of the earnings contribution.

In fee and it seemed like it degraded through the quarter in part because of the fire in a capacity but.

Kind of and what that implies going into going it's going through the first quarter.

Adam one thing this breath so on the on the net loss mentioned in the K and N. Footnote three that is predominantly in Randy referenced it earlier the ward facility.

Sizable facility. We also had a insurance deductible charge taken in the quarter, so that contribute to that number being higher than Q3 right on that but.

Other than that on valley, Randy Yeah, I mean, ultimately you know, we're making great progress there and and clearly we're near business case, if it's our timeline remember 1000 day integration plan. We're at our business case very close without the word fire in January we made a lot of adjustments to raw material procure.

I'm in agreements it'll kick in here in Q1, those were contracts that it had to be renegotiated, where Samsung unique things as the as the poultry industry changes diet's to adjust for the renewable bustle demand for animal fats now where they were used to feeding animal fats in their diets, they're taken him out and substituting alter.

<unk> and and changing different attribute of the rendering materials that we're getting that has to be accounted for in your procurement formulas and so we have done that in in Q1 and that will start to flow through here towards the end of two one early Q2 and predominantly valley, it's plants on the eastern shore art or <unk>.

All three plans and so those are sizeable numbers as we go forward. The faucet business is running classically right on business case. Johnny then you went and got an apartment thing is your luck and I understand is that they get that sent as we bring depth.

Depths and pricing here and there and as we bring these facilities on it's not always a straight line, but the underlying strength. There is the volumes are exactly what we thought they were gonna be and as long as those volumes remain there we are going to be able to get the valley profitability over our timeline within within while with the Darling system operates.

We're gonna be able to have the type of profitability, we anticipated on all these acquisitions. So the underlying strength ears are volumes right, yeah, and I think the other thing out of that isn't very transparent and it's it's hard to break out but in Europe .

You know we were paying 210 230, a megawatt euros per megawatt hour for electricity.

We're down to 50 now.

And so you know the the the gas prices ran up hard on US that you know you can't make raw material adjustments that quick in Europe .

They've come back off you know, we're now back to $2 natural gas or plus burner tip distribution in the U S. So gas prices impact you for a little bit too and it's.

It's always hard to see how that flows through.

Okay I appreciate it all that call and I'll pass it on thanks.

The next question is from <unk> <unk> from Jeffries. Please go ahead.

Hello, Good morning, and thank you for taking my questions.

My first one is trying to understand the cubic's cadence going forward I know you talked about I think I'll say 565 million for joining joining three how do we think about.

I'm 24, you know considering just valley integration.

<unk> yeah.

You know clearly we we gave a number of around $125 million that would have to go into those valley plants over the next couple of years, we're about halfway through that now so a portion of that number is is positive the two plants under construction, we got a plant under construction in Turlock, California. Another line under construction in Boise, Idaho, We're gonna start permitting the.

Bellevue, Nebraska plant <unk>.

The epitaph C O spray dryer, we've got a wastewater plant in.

In Brazil, and then and then we've got the Green energy expansions in Europe <unk> of the <unk> Oops, <unk>, Belgium, digester in the Sun Digester and all of that for all the end of their and so like we said about 20 per cent of it is growth projects that would meet our 15 to 20 per cent hurdle rate and the rest of it is just it's just maintenance and <unk>.

Pandered Capex between fleet operating plants.

Got it. Thank you and then my second question was just wanted to talk about the the margins for the food segment.

Think it was dawn quote overboard with any kind of drivers around that and then how do we think about that going forward.

Energy prices energy prices.

You mentioned your earlier on Europe , those those will rebound and clearly weren't you know.

I can tell you. We're we're off to a good start this year I mean that the chart and the earnings stack of the growth of that food segment. Just gets is really the story that we're doing.

You know clearly you know that's a it's a multi continent strategy, China had a great ear South America had a great year. The U S had a great year in Europe struggled a little bit, especially in queue for with energy prices and raw materials because of the reduced.

Four sign killed so that should remedy itself a little bit in Q1, but overall, we're set to have a really good year and the food segment. This year.

Thank you so much I'll pass it over.

The next question will be from Tom Palmer from J P. Morgan. Please go ahead.

Good morning, and thanks for the question I wanted to clarify the guidance of bad so it sounds as if temporary downtime at Rd plans, including at D. G D.

Are contributing to the bat and you'll go price weakness we've seen so maybe it could we just clarify the expected duration of D. G. D. 's turn around it sounds like D. Judy ones back up and running is is number two down right now and then is the message that the first quarter because of this might be a little bit below kind of that 450.

Quarterly EBIT he'll run right implied by guidance and then starting in two Q, we see a more substantial rebound.

Yeah, I mean, clearly Tom I mean, you know just go around the Horn D. G. D. One was down for 18 to 20 days here number three we don't have the logistics down I mean, we got a couple of railroads embargoed, we're trying to get the logistics up there I understand geismar was down I understand nesse Rotterdam was down for.

For over a month and that was 800000 tonnes. There. So as we said that the feedstock market as a global market and clearly what the port Arthur in Saint Charles facilities, we're originating from around the world, but as I said earlier, it's not gonna take much to turn this thing as if you believe any of this capacity that all of you guys.

Right about is truly starting up I mean, I I read a startup on P. B S. For Q1 here I read a startup for vertex for Q1, you know Hollyfrontier has been trying to start up for a year only rent 54 million gallons at three plans. So you know like I said pick your poison here, but any of those facilities.

Come on it's positive and once we get D. G three up to at rate or above right, you're going to see it changed pretty rapidly here Sandy and you want to add.

Yeah, I think that is it.

The great thing about D. G D. Three R. D. G. D. In total is that even despite what's going on here with feedstock says we're taking in different feedstocks from around the world and I think that that's been a huge benefit to us and bringing his internationally because we're able to take advantage of the light lowest price.

Mm feedstocks available in the world because we do have those capabilities and so I think it it will just increased margins as we go further into the air.

Okay. Thank you and then maybe just a quick follow up on the cash flow.

The K mentioned, a capital contribution to D. G D and the first quarter, maybe just an update on the capital needs right now for for D. G D and maybe the timing of when we might start to see the the distributions that I did see your your guiding for some D. G D back to Darling starting this year.

Yeah, Thomas breath, Yeah. So you heard earlier kind of out there at the end of the year with a cold weather with the kind of start up on number three with working capital and whatnot that contributed to the <unk> no pun intended on what we did here of 75.

Her partner and and the up to up to the filing here and so the outlook is is Randy <unk> and Sandy have mentioned number threes, you know working its way up to capacity got it as we speak over the coming that.

<unk> and this and this month and is is that occurs we will see D. G D become debt free and would anticipate distributions starting sometime by mid year I would find it that way if not earlier.

Right. Thank you.

And the next question will be from <unk> from B S. Please go ahead.

Hey, guys I actually wanted to phone up on something you say then I completely agree there are some out there who are claiming they can produce active right now that actually produced out of Ian What's interesting is they have gone ahead and signed like five 700 million gallons of contracts out there and as you pointed out <unk> behind them.

But you would have them.

So my question here, let's say you've done into medicine, and all the the headlines comes to UNC. Please.

Please sign up for five 600 million gallon contract for the eighth or ninth and feed it would you be open to such contracts because you'll have <unk> what does these guys.

Yeah. This is John I, I think you're hitting on something that we see in the south market, which is there's a lot of promises for staff gallons out there that quite frankly, we don't really understand how people are going to commercialize or bring to the marketplace. So we believe we're going to be one of the real player.

<unk> in the market place and one of the few real players in the market place, they're gonna have physical gallons available for folks.

I think with all of the promises have been made out there that's kind of blood is send you an idea of physician how we commercialize how we do in terms of signing contracts and some folks and so forth that will evolve over the next year or sell for us I wouldn't want to prejudge, an essentially say listen more willing to be taken out by.

By one individual counterparty, we're just gonna have to see what the market develops but there is no doubt and we can already see it starting to churn.

In the marketplace people are gonna start going from Phantom gallons to real gallons and when they do there's basically only two doors that people can knock on to get those real gallons and more one of them. So we're we're looking forward to those conversations were engaged in those conversations with a counterparties out there want to try to put does it turn this into a.

Situation, where it's a real advantage for the folks that actually do end up signing the Esa half gallons with them because we think they're going to be in a really advantage position in the marketplace versus their competitors, we think that'll evolve over the next 10 to 12 months.

I think the Samsung Galaxy.

Let's take a look for that my my total quick question, who is this going back to the guidance. The guidance of 1.821 0.85 does not include <unk>. So if you do closed that that is still a strong possibility that by the time with the highest <unk>.

<unk>.

And then you could still be looking at <unk>.

That'll be 1.87, 521.9 that cannot be ruled out I'm, just saying at this point of time.

Yeah that that's true of an odd I mean, we're just until we get current antitrust clearance and never be exact close date I'm, just not going to put a number out there, but we're telling you you know that that it should contribute between 75 and 100. This year, if we get the clothes that weekend that we think we're gonna get here.

Perfect. Thank you for that sounds <unk> I feel that I think about it. Thank you Sir.

And our next question will be from Matthew Blair from Tudor Pickering and hold please go ahead.

Hey, Good morning, Randy I was wondering if you've been following the recent <unk> workshops from carbon and if so do you have any updated thoughts on Ah where are these future I'll see if those credits are headed.

Yeah, and I'll I'll I'm excited about it out and but not let sandy answer it yeah.

Yeah, I think you know we're we're very excited about the the proponents increased stringency among the card program going.

Calling from 20 per cent in 2030 <unk>, 30%.

You know as you look at what card was modeled itself you know and 24 I think they're around 110 per metric ton and then going I'm in 2026 two.

The 200000 or meeting the cap and then beyond that further so I think that that's very positive in terms of credit prices I think that it's very positive in terms of green premiums for us.

And obviously preparing supportive of that you know there was another thing that carb also proposed that I think that we're we're really excited about it and that's the L. C. F. S obligation for interest eight flights you know I think that that would really support our soft market and when we come online in 2025 provide just a.

<unk> demand et cetera from that program and I believe that the job market. There is about 400 to 425 million gallon. So we're excited about both of those things and I think that that's the only good news for D. G D and Darling.

Can I add here I think one of the really interesting things.

There is always so much ringing of the hands on.

What's happening with al CFS credits in California.

Whether or not we're gonna get an extra couple of hundred million other brands market. The reality is when you look at what's happening on the policy front around the World Europe , Canada, California, increasing their L. C. F. S credits, Washington State coming on your Mexico, Considering New York, considering implementing on a regulatory.

Basis, a variety of tax credits that are going on in places like Illinois regarding S. A F and other states are considering similar we are in an explosion environment.

On the demand for low carbon feels and what the market places scene.

<unk> they can source low carbon feels without the credit prices being massively hi. This is great news for Darling and Great News for Diamond Green diesel is more demand for the wife's fast in our base business and what it means for Diamond Green diesel, which quite frankly, when you take all these announcements and so forth that are out there if you bill.

Leave those announcements there'll ever be a massively more redo renewable based on the marketplace today that there is.

The reality is there's more renewable based on the marketplace today because of Diamond ring diesel too and I'm hungry additional three and there's not much else out there right now so the fact the matter is we see these policy developments is absolutely being perfect for the vertically integrated low carbon strategy, we put in place.

I'm I'm, a little surprised that there's not more excitement about the low carbon demand market. That's developing out there than there is we seem to assess all the details and kind of missed the forest on us.

Sounds good and then circling back to the feed margins I remember that Q3 was impacted by I, just the hot weather, which led to increased spoilage. So I guess, that's the way to think about it that you know the <unk>.

Benefits that you you got back in queue for from cooler weather, we're just completely offset by the by the negative impact of these two fires and can you quantify that the total Empire impact I think you said $4.5 million for for war.

Was there a similar impact that that's come up with their thanks.

Oh.

It was a much smaller factory, but you know probably a couple million in the quarter would be would be my guess remember in queue fours. We're the global energy prices that ran up flowed through too so.

The end of the day, Tony was strong you know <unk>.

Protein prices were strong and and you know you have to go into or financials and you can see how much fat is actually inbound to diamond Green diesel remember, we don't recognize those profits that are in there and those numbers are much bigger now the amount of fat that Darling shipping <unk> company than it's been in the past.

So that's part of it too that's down there that you know.

We don't try to trade a segment for $10 million and a quarter and there's at least fathers' 15, and a half differed go into Diamond Green diesel right now and that's a big number from in the past.

Great. Thanks for all the color.

And the next question is from William Baldwin from Baldwin Securities. Please go ahead.

Oh, thank you.

<unk>. Good morning. Good morning. Thank you for the time here just a quick question I know, it's early in the game, but ER.

What's the thinking as far as the feedstock that would primarily you think they used for S. A S.

Is that going to be similar to the <unk>.

These thoughts were looking at for the R D or would that <unk>.

<unk> now that include low.

Low carbon ethanol and things of that nature.

I think an insurance this is sandy in terms of what D. G. He does and what feedstocks. It sources as it would be very similar to what we're using for renewable diesel. So when we produce S. A F where not only producing essay asked that were also producing renewable vehicle at the same time. So we don't anticipate deviating from that model.

It's going to focus on the way speed stocks, that's going to be you know your animal fat series cooking oil your corn oil and the great thing about it is is we'd be on sourcing worldwide and so we just have a plethora of different feedstock that are available to us and we have the great unit that can that can handle.

All of those feedstocks and it's in a great location here in my <unk> easily sore stays feedstocks as well and so we don't anticipate it changing it should be very familiar what you've seen in the past.

Okay. Thank you.

One additional question on feedstock.

This poultry fat find its way into the formulas for C. D G.

Feedstocks.

Yeah, Yeah, <unk> one of the feedstocks. It Darling uses typically when we're talking about it we're talking about animal faster, we'd lump it in with that category. So it is something that we do ya.

Thank you I appreciate your time.

Might as well.

And the next question is from Ben B Avenue from Stevens. Please go ahead.

Hi, Thanks, good morning.

I want to revisit sustainable aviation fuel topic, obviously, a huge market opportunity for you guys and you're you're moving in a meaningful way with your announced investments.

Can you talk about kind of what the factors were that prompted that announcement now I know you guys have been studying for awhile. So maybe it was just reaching the end of the due diligence process.

But if you could help us think about as we looked down the road.

What are the key things you'll be focused on as you consider potential incremental expansions beyond even what you've been out today or earlier this year excuse me.

Yes, I am.

The question is why why now an essay Wow, what part of it.

The potential trigger continuous manning.

Well, obviously the inflation reduction acting past is is a huge dreger in relationship to that when he had been going through you know when we may capital investments in this area, we're kind of the only guys than than a normal space I'd actually come in on time and on budget or ahead of time and on budget. We're very careful our partners Valera all work toward an extremely careful capital.

Deployment process in which we understand our cost and what we're gonna do so the plan of work we were at the point, where we had completed that and we were waiting for the right policy signals and and we saw that with the inflation reduction act, but more than that I think what we see now is a total commitment from the airline industry here and around the world.

Saying that they need Saf and when we looked around the market place and said Where's the real gallons of S. A F.

We came to the conclusion that we could be one of the few suppliers out there that's actually not selling Phantom gallons and so we just thought it was an excellent time to put ourselves in a position to begin the discussion with airline partners and other partners, who fly packages around the world.

Who may want to be the guys that are able to back up their claims about saf usage of S. A F. We think the timing perfect seemed like the right time to go on on Port Arthur.

Okay, Great and then I went to ask just about the teller market. Obviously, you talk about the incremental or potential demand associated with Rd expansion, but we're also you know in a shopping each cycle, which I would think would further tightened feedstocks available.

That should be great for your talent pricing and your feet ingredients business can you talk a little bit about what you're all expecting around the beach cycle and the potential you know incremental pricing power that could give you guys in your in a hotel with asthma.

Yeah I've been this is Randy I mean, you know clearly what we what we once saw again was that <unk>.

The global what I'm Gonna call waste fats are animal fats business <unk>.

Remember if you take the bushel of corn, even it's six or $7 a bushel divide by 56 times 3.25. It says waste fats are worth about 40, 45 cents and a feed ration.

So once we went offline with a turnaround once D. G. D. Three was enabled unload as quickly as we wanted to once nesse went down once the you know all of a sudden you put it in as I always call to the supply chain team, we put an air bubble and the the I V line again in the supply chain that will remedy itself.

It has two and it'll it'll happen very quickly I mean, you saw palm oil remember this is a global business you know for the you know we were so proud that we finally achieved parity with global you know fats and oils. The side and then we found out how fragile they are again, but at the end of the day you know you can't stay <unk>.

A big premium the palm oil for a long time and you can't stay a big premium the soybean oil and U S. Soybean oil can't stay a big premium to the rest of the world unless you're going to build the rd capacity and it's truly running and once you've seen out there is what we've been telling you. We don't see the R. D capacity. They may have some steel up.

And some of it may run at reduced rates. So I mean, clearly like I said you can't have it both ways. The on the on the animal side number the poultry numbers are still very strong the poor seen her pig numbers are strong we're seeing some movement in Europe on pig numbers, a little bit and the beef numbers you know yeah that that they said the count.

Kaffirs the smallest since 1962, which is when I was born which is hard to believe but at the end of the day or plants are still seeing you know just were full so I really don't see much of a of a cycle here now remember we're not we we do process for some of the big names out there, but the little guys all.

Always seem to stay full versus the big guys. When there's any type of contraction of heard size out there and and so automatically you know at the end of the day that I see I mean over 20 years, we've seen a one or two per cent change and raw material volumes in any contraction here, we're not seeing that now you know you Wanna add John that I've missed.

No I'm.

Very strong at this point in time, obviously, we realize the cattle herd is cycling a little vignettes. The other thing that I would I think we have to keep in mind is we have a global footprint on sourcing obviously fossa plus the send the middle of a Brazil, and that's a large cattle area and so we're diversified now on the origins.

<unk> all of our raw materials and that helps us that stabilizes our footprint gives us opportunities from one country has gone down a little bit oftentimes in other countries you on up a little bit so.

Raw materials supply looks extremely good.

Yeah, Okay. All very helpful commentary. Thank you the best of luck.

And gentlemen, this concludes our question and answer session I would like to turn the conference back over to Randy story for any closing remarks.

Once again, thanks for all your questions today as you know there'll be attending several investor conferences. This March which are listed on our website is always if you have any questions reach out to sue and stay safe have a great day and I look forward to being back in front of you here. This spring to give you a progress update thanks again.

Thank you Sir the conference has now concluded thank you for attending today's presentation.

Connect.

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