Q4 2023 Darling Ingredients Inc Earnings Call

Unknown Executive: Good morning, and welcome to the Darling Ingredients Incorporated conference call to discuss the company's fourth quarter and fiscal year 2023 results. After the speaker's prepared remarks, there will be a question and answer period, and instructions to ask a question will be given at that time.

Good morning, and welcome to the Darling ingredients incorporated conference call to discuss the company's fourth quarter and fiscal year 2023 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 like to turn the call over to MS. Sue in Guthrie. Please go ahead.

Unknown Executive: Today's call is being recorded. I would like to turn the call over to Ms. Suann Guthrie. Please go ahead.

Suann Guthrie: Thank you. Thank you for joining us on the Darling Ingredients fourth quarter and fiscal year 2023 earnings call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. Bob Day, Chief Strategy Officer, and Mr. Matt Jansen, Chief Marketing Officer of North America. Our fourth quarter and fiscal year 2023 earnings news release and slide presentation are available on the investor page under the events and presentations tab on our corporate website and will be joined by a transcript of this call once it is 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 can materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and in 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 statement.

Sue Guthrie: Thank you. Thank you for joining the Darling ingredients fourth quarter and fiscal year 2023 earnings call.

Sue Guthrie: Here with me today are Mr. Randall C Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. Bob Day, Chief Strategy Officer, and Mr. Matt Johnson, Chief Legal officer of North America, our fourth quarter and fiscal year 2023 earnings news release and slide presentation are available.

Sue Guthrie: On the Investor page under the events and presentations tab on our corporate web site 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 Aricept.

Sue Guthrie: And that are subject to risks and uncertainties actual results could materially materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and in 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.

Sue Guthrie: Any duty to update any forward looking statement.

Randall C. Stuewe: Now I will hand the call over to Randy. Hey, thanks Suann. Good morning everyone.

Sue Guthrie: Now I will hand, the call over to Randy.

Randy: Joanne and good morning, everyone. Thanks for joining our fourth quarter and fiscal year 'twenty three earnings call in 2023 Darling ingredients delivered its sixth consecutive record year in terms of combined adjusted EBITDA at 1.61 billion. The vertical platform. We have built demonstrated its ability to perform solidly.

Randall C. Stuewe: Thanks for joining our fourth quarter and fiscal year 23 earnings call. In 2023, Darling Ingredients delivered its sixth consecutive record year in terms of combined adjusted EBITDA at $1.61 billion. The vertical platform we have built demonstrated its ability to perform solidly despite significant volatility in the global food, feed, and fuel ingredient markets. Turning to the feed ingredient segment, despite lower prices for most Finnish goods, our global spread management process and increased volumes compared to 2022 helped offset the impact. Our laser focus on margin management and continued strategic review of our asset mix, both segment and geographic, ensured our margins remained in alignment with our expectations.

Randy: Despite significant volatility in the global food feed and fuel ingredient markets.

Randy: Turning to the feed ingredients segment, despite lower prices for most finished goods are global spread management process and increased volumes compared to 2022 helped to offset the impact our laser focus on margin management and continued strategic review of our asset mix, both segment and geographic ensured our mark.

Randy: <unk> remained an alignment with our expectations.

Randall C. Stuewe: In addition, during 2023, we made the decision to close two bakery plants in Muscatine, Iowa, and Bryan, Texas. Turning to our specialty food ingredients segment, raw material volumes increased about 11% year-over-year, primarily due to our GelNex acquisition and continued product mix shift. We continue to see strong performance and continued growth in China and North America consumer markets and remain very optimistic about our health and nutrition business lines. Hydrolyzed collagen will continue to play a key role in our long-term growth strategy. Leveraging our extensive research and development in this area, we have successfully isolated individual peptides with targeted benefits related to various health concerns such as glucose moderation and memory retention.

Randy: In addition during 2023, we made the decision to close two bakery plants, Muscatine, Iowa and Bryan Texas.

Randy: Turning to our specialty food ingredients segment raw material volumes increased about 11% year over year, primarily due to our gel next acquisition and continued product mix shift we continue to see strong performance and continued growth in China, and North America consumer markets and remain very optimistic about her health and new Brit.

Nutrition business line.

Randy: <unk> collagen will continue to play a key role in our long term growth strategy leveraging our extensive research and development in this area. We have successfully isolated individual peptide with targeted benefits related to various health concerns such as glucose moderation in memory retention.

Randall C. Stuewe: The potential applications are extensive, and we are excited to introduce some of these innovative products to the market later this year. Turning to our fuel segment, our European Renewable Energy segment continues to deliver very strong results. Lower diesel prices, RINs, and LCFS values, and a lower cost or market inventory valuation impacted DGD margins for the quarter. However, DGD had an impressive year with 1.25 billion gallons of renewable diesel sold at an EBITDA per gallon of $0.81, which is still above our 12-year-old investment case of $0.79 EBITDA per gallon. With that, I'd like to turn the call over to Brad, who will take us through some financial comments, and then I'll come back with my thoughts on the rest of 24. Brad?

The potential applications are extensive and we are excited to introduce some of these innovative products to the market later this year.

Randy: Turning to our fuel segment, our European renewable energy segment continues to deliver very strong results lower diesel prices rents and L. CFS values, and a lower of cost or market inventory valuation impact of D. G. D margins for the quarter. However, D. G. D had an impressive year with 1.25 billion gallons.

Brad Phillips: Of renewable diesel sold at an EBITDA per gallon of 81 cents, which is still above our 12 year old investment case at 79 cents EBITDA per gallon with this I'd like to turn the call over to Brad Jacobs through some financial comments and then I'll come back with my thoughts on the rest of the 24 Brad Okay.

Brad Phillips: Okay. Thanks, Randy. The net income for the fourth quarter of 2023 totaled $84.5 million, or $0.52 per diluted share, compared to net income of $156.6 million, or $0.96 per diluted share, for the fourth quarter of 2022. Net sales were $1.61 billion for Q4 2023 as compared to $1.77 billion for Q4 2022. Operating income decreased $90.4 million to $158.8 million for the fourth quarter of 2023, compared to $249.2 million for the fourth quarter of 2022, primarily due to Darling's share of Diamond Green Diesel's earnings decreasing $118.8 million attributable to lower RINs and LCFS values and a $60.9 million lower cost or market adjustment. This decline in DGD's earnings was somewhat offset by Darling's global ingredients fourth quarter 2023 gross margin increasing $47.6 million as compared to the fourth quarter of 2022, due to continued improvement from integration work within our acquired companies, which was supplemented in the fourth quarter by reimbursement for certain costs related to Valley Protein.

Brad Jacobs: Thanks, Randy net income for the fourth quarter 2023 totaled $84 5 million or <unk> 52 cents per diluted share compared to net income of $156 6 million or <unk> 96 cents per diluted share for the fourth quarter of 2022.

Brad Jacobs: Net sales were 1.61 billion for the fourth quarter 2023, as compared to $1 77 billion for the fourth quarter 2022.

Brad Jacobs: Operating income decreased $19 4 million to $158 8 million for the fourth quarter of 2023 compared to $249 2 million for the fourth quarter of 2022, primarily due to Darling share of Diamond Green diesel is earnings decreasing $118 8 million attributable to low.

Brad Jacobs: <unk> Rens and L CFS values, and a 69 million lower of cost or market adjustment. This decline and D. G. DS earnings were somewhat offset by Darlings global ingredients fourth quarter 2023, gross margin, increasing $47 6 million as compared to the fourth quarter of <unk>.

Brad Jacobs: 'twenty two.

Brad Jacobs: Due to continued improvement from integration work within our acquired companies, which was supplemented in the fourth quarter by reimbursement for certain cost related to valley proteins in terms of non operating items interest expense increased from $46 1 million in the fourth quarter of 2020 to $68 5 million in the fourth.

Brad Phillips: In terms of non-operating items, interest expense increased from $46.1 million in the fourth quarter of 2022 to $68.5 million in the fourth quarter of 2023, reflecting the acquisition of GelNex earlier in 2023. For the three months ended December 30, 2023, the company recorded income tax expense of $7.2 million, yielding an effective tax rate of 7.7%, which differs from the federal statutory rate of 21% due primarily to biofuel tax incentives, the relative mix of earnings among jurisdictions with different tax rates, state income taxes, certain taxable income inclusion items in the U.S. based on foreign earnings, and losses that provided no tax benefit. The company's effective tax rate, excluding the biofuel tax incentives, was 33% for the three months ended December 30, 2023. The company paid $24.9 million in income taxes in the fourth quarter.

Brad Jacobs: Quarter of 2023, reflecting the acquisition of <unk> earlier in 2023.

Brad Jacobs: For the three months ended December 30th 2023, the company recorded income tax expense of $7 2 million, yielding an effective tax rate of seven 7%, which differs from the federal statutory rate of 21%.

Brad Jacobs: Due primarily to biofuel tax incentives the relative mix of earnings among jurisdictions with different tax rates state income taxes, certain taxable income inclusion items in the U S based on foreign earnings and losses that provided no tax benefit the company's effective tax rate, excluding the biofuel tax incentive.

Brad Jacobs: It was 33% for the three months ended December 32023.

Brad Jacobs: The company paid $24 9 million of income taxes in the fourth quarter.

Brad Phillips: Net income for fiscal year 2023 totals $647.7 million, or $3.99 per diluted share, compared to net income of $737.7 million, or $4.49 per diluted share, for fiscal year 2022. Net sales were $6.79 billion for FY2023 as compared to $6.53 billion for FY2022. Operating income decreased $79.3 million to $949.7 million for fiscal 2023, compared to $1.03 billion for fiscal year 2022, primarily due to a $107.3 million increase in depreciation and amortization and $105.9 million increase in selling general and administrative expenses reflective of the acquisitions completed during fiscal years 2022 and 2023. These expenses were primarily offset by $115.4 million gross margin improvement in the global ingredients business, as reflected in the gross margin percent increasing in fiscal 2023 to 24.2% as compared to 23.4% for fiscal year 2022.

Brad Jacobs: Net income for fiscal year, 2023 totaled $647 7 million or $3.99 per diluted share compared to net income of $737 7 million or $4.49 per diluted share for fiscal year 2022.

Brad Jacobs: Net sales were $6 seven 9 billion for fiscal year 2023, as compared to 6.53 billion for fiscal year 2022.

Brad Jacobs: Operating income decreased $79 3 million to $949 7 million for fiscal 2023 compared to 1.03 billion for fiscal year 2022.

Brad Jacobs: Primarily due to a 100 and $107 3 million increase in depreciation and amortization and $105 9 million increase in selling general and administrative expenses reflective of the acquisitions completed during fiscal years 2022 and 2023.

Brad Jacobs: These expenses were primarily offset by a $115 4 million gross margin improvement in the global ingredients business is reflected in the gross margin percent increasing in fiscal 2023 'twenty, 4.2% as compared to 23, 4% for fiscal year 2022.

Brad Jacobs: There was a $94 3 million increase in nonoperating expenses in fiscal 2023 as compared to fiscal year, 2022, which was primarily attributable to a $133 7 million increase in interest expense for fiscal year 2023 to $259 2 million as compared to 120.

Brad Phillips: There was a $94.3 million increase in non-operating expenses in fiscal 2023 as compared to fiscal year 2022, which was primarily attributable to a $133.7 million increase in interest expense for fiscal year 2023 to $259.2 million as compared to $125.6 million for fiscal 2022. However, the increase in interest expense was somewhat offset by foreign currency gains as well as physical damage insurance recovery. The company recorded an income tax expense of $59.6 million for fiscal year 2023. The effective tax rate was 8.3%, and cash tax payments for fiscal year 2023 were $152.7 million.

Brad Jacobs: $5 6 million for fiscal 2022, the increase in interest expense was somewhat offset by foreign currency gains as well as physical damage insurance recoveries.

Brad Jacobs: The company recorded income tax expense of $59 6 million for fiscal year 2023 the effective tax rate was eight 3% and cash tax payments for 2023 were $152 7 million.

Brad Jacobs: Now for 2024, we are expecting a 15% effective tax rate and cash taxes to be similar to 2023 approximately $155 million.

Brad Jacobs: The company's total debt outstanding at fiscal year end 2023 was $4 4 billion as compared to $3 4 billion at fiscal year end 2022, our bank covenant.

Brad Jacobs: Net leverage ratio at the end of fiscal 2023 was 3.26 times. We currently have $832 5 million available on our revolving credit facility.

Brad Phillips: Now, for 2024, we're expecting a 15% effective tax rate and cash taxes to be similar to 2023, approximately $155 million. The company's total debt outstanding at fiscal year-end 2023 was $4.4 billion as compared to $3.4 billion at fiscal year-end 2022. Our bank covenant leverage ratio at the end of fiscal 2023 was 3.26 times.

Brad Jacobs: As of year end capital expenditures totaled $174 9 million for the fourth quarter, 2023, and $555 5 million for fiscal year 2023, the <unk>.

Brad Jacobs: Company repurchased approximately 926000 shares of its common stock during fiscal year 2023, you've got a cost of approximately $52 9 million.

Brad Jacobs: The company enters fiscal.

Brad Jacobs: Fiscal year 2020 for projecting 500 billion and capital expenditures and is committed to applying our expected free cash flow to debt reduction. The company will continue to evaluate opportunistic share repurchases with that Randy I'll turn it back to you well then thank you Brad 2023 is in the record books and we believe we.

Brad Phillips: We currently have $832.5 million available on our revolving credit facility as of year-end. Capital expenditures total $174.9 million for the fourth quarter of 2023 and $555.5 million for fiscal year 2022. The company repurchased approximately 926,000 shares of its common stock during fiscal year 2023 at a cost of approximately $52.9 million. The company enters fiscal year 2024 projecting $500 million in capital expenditures and is committed to applying its expected free cash flows to debt reduction. The company will continue to evaluate opportunistic share repurchase opportunities. 2023 is in the record books, and we believe we are well positioned to once again deliver strong earnings and cash flow in 2024. We have built a well-balanced global business model between our specialty ingredients businesses and Diamond Green Diesel.

Randy: We're well positioned to once again deliver strong earnings and cash flow in 2024, we have built a well balanced global business model between our specialty ingredients businesses and Diamond Green diesel its a bit early to guide on 'twenty 'twenty four is the global fats and proteins markets are a bit soft. This was a result of replenish global oilseed stocks.

Randy: Slower consumer global consumer demand and Phantom or delayed startups of renewable diesel plants. However, let me be clear if these plants get built and become more reliable and more renewable diesel comes on the market. We should see fat prices move higher clearly the incentive is there to favor low ci waste fats versus <unk>.

Randy: Find soybean oil and this is going to provide opportunity for our core ingredients business and ultimately benefit Diamond Green diesel.

Randy: Prioritizing cost management working capital improvements and conducting a robust review of our global asset portfolio continues to be our main focus.

Randy: We're taking a deep dive into every factories contribution and reviewing opportunities to improve performance.

Randy: Now D. J D is performing well and despite concerns about RIN markets and L. CFS values our outlook for this business remains very positive as decreasing bad prices are expected to bolster D. G. D margins. We're excited about entering a sustainable aviation fuel market in the near future and anticipate margins that are well within the X.

Brad Phillips: It's a bit early to guide on 2024 as the global fats and proteins markets are a bit soft. This is a result of replenished global oilseed stocks, slower global consumer demand, and phantom or delayed startup of renewable diesel plants. However, let me be clear, if these plants get built and become more reliable, and more renewable diesel comes on the market, we should see fat prices move higher. Clearly, the incentive is there to favor low CI waste fats versus refined soybean oil.

Randy: Spectation as we have communicated we remain committed to working our way toward investment grade through slightly reduced capital expenditures. This year, a focus on lowering working capital and an anticipated dividends from Diamond Green diesel.

Brad Phillips: This is going to provide opportunities for our core ingredients business. Prioritizing cost management, working capital improvements, and conducting a robust review of our global asset portfolio continues to be our main focus. We're taking a deep dive into every factory's contribution and reviewing opportunities to improve performance. Now, DGD is performing well, and despite concerns about the RIN markets and LCFS values, our outlook for this business remains very positive as decreasing FAT prices are expected to bolster DGD margins. We are excited about entering the sustainable aviation fuel market in the near future and anticipate margins that are well within the expectations we have communicated. We remain committed to working our way toward investment grade through slightly reduced capital expenditures this year, a focus on lowering working capital, and anticipated dividends from Diamond Green Diesel.

Randy: With Q1 2024, we aim to accelerate our earnings schedule and I anticipate we will release and host our Q1 call at the end of April at this time I'll be able to provide you more details when our guidance and outlook on how I see the year shaping up with that let's go ahead and open it up to Q&A.

Randy: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Randy: Youre using a speakerphone please pick up your handset before pressing the keys.

Randy: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.

Randy: Please limit yourself to one question and one follow up.

Randy: The first question comes from Tom Palmer from Citi. Please go ahead.

Thomas Hinsdale Palmer: Hi, good morning, and thanks for the question.

Thomas Hinsdale Palmer: I appreciate your comments.

Thomas Hinsdale Palmer: About not issuing full year guidance at this point just given some of the moving pieces, but maybe we could frame at least in the first quarter, just given where a couple of months and.

Thomas Hinsdale Palmer: Any help may be thinking about kind of the base business and then how margins look at D. G D at least up to this point. Thank you.

Brad Phillips: Starting with Q1 2024, we aim to accelerate our earnings schedule, and I anticipate we will release and host our Q1 call at the end of April. At that time, I'll be able to provide you with more details, guidance, and outlook on how I see the year shaping up. With that, let's go ahead and open it up to Q&A. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone.

Thomas Hinsdale Palmer: No. It's a fair question. Tom This is Randy you know, it's been so easy to kind of forecast. This business. The last couple of years looking forward because we didn't have the the fat price volatility that we've seen now I mean between Q4 and Q1, we've seen fat prices come.

Thomas Hinsdale Palmer: Off at least another 20%.

Randy: Hit bottom here is what I would say in February with your comment about two periods in the books. So I've got one on the books in January and we had a pretty nice January on both sides of the business. So we feel pretty good about where we're positioned but you know at the end of the day, we've always communicated that if any.

Thomas Hinsdale Palmer: If you are using a speakerphone, please pick up your handset before pressing. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. The first question comes from Tom Palmer from Citi. Please go ahead.

Randy: Movement in fact was worth about $12 million of EBITDA in the core ingredients business annually and so you know clearly we've moved lower we moved lower from 54 cents in Q4 into around 40 and in Q1 here, we're coming back and so that's that's to me a little bit where my hesitancy.

Randall C. Stuewe: Hi, good morning, and thanks for the question. I appreciate your comments about not issuing full-year guidance. (Inaudible) Thank you. No, it's a fair question, Tom. This is Randy.

Randy: He is just to try to do that now what I will tell you is the.

Randy: D. G. D has now worked through its pipeline of expensive fat and were seeing margins improve there back to where we think they should be and you know for the year. So I mean at the end of the day, we came into the year and see what 2023, having a view.

Randall C. Stuewe: You know, it's been so easy to kind of forecast this business the last couple of years looking forward because we didn't have the fat price volatility that we've seen now. I mean, between Q4 and Q1, we've seen fat prices come off at least another 20%. They've hit bottom here, is what I would say in February.

Randy: We would have a very similar year and possibly improve with all the integrations of the acquisitions in 2024, and then fat prices moved down sharply protein prices have contracted a little bit.

Randall C. Stuewe: With your comment about two periods in the books, I've got one on the books for January, and we had a pretty good January on both sides of the business. So, you know, we feel pretty good about where we're positioned. But, you know, at the end of the day, we've always communicated that a penny of movement in fat was worth about $12 million of EBITDA in the core ingredients business annually. And so, you know, we've obviously moved lower. We moved lower from $0.54 in Q4 into around $40 in Q1 here. But we're coming back. And so that's a little bit where my hesitancy is to try to do that.

Randy: But you know at the end of the day, that's related to kind of a slowdown in global consumer demand. Some destocking that should come back we're starting to see that happen around the world. So ultimately like I said I think we're all I'll come back to you in April after I put a couple of more months in the books here in and we see that truly the.

Randy: D. G D can widen its margins out the lower lower fat prices and clearly that's how we see the business model tracking what I, what I've talked about and Bob and Brad as we you know our year is focused on execution and simply generating enough cash and managing capital outlays to to pay debt down below.

Randall C. Stuewe: Now, what I will tell you is DGD has now worked through its pipeline of expensive fat, and we're seeing margins improve there, back to where we think they should be for the year. So I mean, at the end of the day, we came into the year seeing, or left 2023 having a view that we would have a very similar year and possibly improve with all the integrations of the acquisitions in 2024, and then fat prices moved down sharply, and protein prices have contracted a little bit. But you know, at the end of the day, that's related to kind of a slowdown in global consumer demand, some destocking, that should come back, and we're starting to see that happen around the world.

Randy: With $4 billion this year and be investment grade, we don't have any any bonds or notes coming due here until first quarter 2020. So we're not in any any issue, where we need to be doing something rapidly and we have very very favorably priced debt. We just want to we want to create value for the shareholder get any.

Randy: Concerned that as the commodity markets in the world cycle here.

Randy: You know that this company has a very different company than we did when we did the beyond acquisition back in 2014 15, very very different set of dynamics out you know I think is I'll continue my my rant here for a minute you know clearly the sustainable aviation piece is going to play a key role in widening those margins back.

Randall C. Stuewe: So ultimately, like I said, I think we're, I'll, I'll come back to you in April after I put a couple more months in the books here, and we see that truly, that DGD can widen its margins out at lower, lower fat prices. And clearly, that's how we see the business model tracking. What I've told Matt and Bob and Brad is that we, you know, our year is focused on execution, and simply generating enough cash and managing capital outlays to pay debt down below $4 billion this year and be investment grade. We don't have any bonds or notes come and do here until first quarter 2026. So we're not in any, any issue where we need to be doing something rapidly.

Randy: D. G D. Clearly you know Mac and commented on later in the call here you know, we're seeing some really nice demand.

Randy: And you know it's always the first movers and everybody doesn't want to be the first mover here, but we're close the.

Randy: The margins are much better than they are in a standard what I call road diesel or renewable diesel and we're excited and we will do our best to get that plant online here sometime later this year and hopefully be up to full rate and twenty-five there and then once again, we've changed our business model with the first mover.

Randall C. Stuewe: And we have very, very favorably priced debt; we just want to create value for the shareholder without any concern that as the commodity markets in the world cycle here, you know, that this company is a very different company than we did when we did the V on acquisition back in 2014. 15. A very, very different set of dynamics.

Speaker Change: So where we were several years ago, so with that Tom I Hope I answered everything that you need a bit here.

Thomas Hinsdale Palmer: Yeah, thanks for that detail.

Speaker Change: Maybe I'll just follow up quickly on <unk>.

Thomas Hinsdale Palmer: The expected distributions from <unk>, maybe we could just kind of check somebody item.

Thomas Hinsdale Palmer: We are up to.

Speaker Change: Got it.

Speaker Change: I don't know if you guys had commented, but any any color on kind of capex expectation.

Speaker Change: Would it be comparable with 2023, just trying to kind of frame what type of distributions we might see.

Randall C. Stuewe: Now, you know, I think, as I'll continue my rant here for a minute, clearly, the sustainable aviation piece is going to play a key role in widening those margins back at DGD. Clearly, you know, Matt can comment on later in the call here, we're seeing some really nice demand. And, you know, it's always the first movers, and everybody doesn't want to be the first mover here, but we're close.

Speaker Change: Earnings do come through.

Speaker Change: Yeah, I think you know you you didn't come through totally clear in the room here, but I think you're asking about distributions out of D. G. D. Capex finish up we got some debt to pay down and that's their related do you want to call out Hello, Okay, Tom the spread.

Thomas Hinsdale Palmer: Yes, so you see the debt there at 250 million at year end, so that does have to be repaid.

Thomas Hinsdale Palmer: Repaid.

Thomas Hinsdale Palmer: So yeah, we had the holidays, we had a chart around in January so you.

Randall C. Stuewe: The margins are much better than they are in standard, what I call road diesel or renewable diesel, and we're excited. And we'll do our best, you know, to get that plant online here sometime later this year and hopefully be up to full rate and 25 there. And then, once again, we have changed our business model with the first mover advantage to where we were several years ago. So, Tom, I hope I have answered everything that you needed to hear. Thanks for that detailed reply.

Thomas Hinsdale Palmer: Typically with the holidays with the V T C being at a dollar a gallon those are significant.

Thomas Hinsdale Palmer: Receipts.

Thomas Hinsdale Palmer: You know they come in but with the holidays, there's a little a bit of a delay there usually in December on the BTC. So it backs up some.

Thomas Hinsdale Palmer: So that along with the with the Q1 turnaround there in January kind of pushes that back a little bit. So our outlook I would say, which is what you're I think you're getting at it had a difficult time hearing there is a little bit of a differed.

Brad Phillips: Maybe I'll just follow up quickly on, you mentioned the expected distributions from DGD. Maybe we could just kind of check through some of the items that clear up to free that right you've got the debt at DGD and then I don't know, If you guys have commented, but any color on kind of CapEx expectations of EGDs, would it be just something comparable to 2023? Just try to kind of frame what type of distributions we might see, you know, as the earnings do come through. Yeah, I think it, you didn't come through totally clear in the room here, but I think you're asking about distributions out of DGD, CapEx, finish up, we got some debt to pay down that's related. Do you want to come back?

Thomas Hinsdale Palmer: Timeline on dividends out of D. G D, but we're getting closer.

Speaker Change: Great. Thank you.

Thomas Hinsdale Palmer: Yes.

Thomas Hinsdale Palmer: The next question comes from Derrick Whitfield from Stifel. Please go ahead.

Derrick Whitfield: Good morning, all and thanks for your commentary this morning.

Derrick Whitfield: With my first question I wanted to focus on the feed business, where you delivered a remarkable quarter from a margin perspective.

Derrick Whitfield: First could you talk to some of the drivers here.

Derrick Whitfield: Your prepared comment second maybe speak to your thoughts on the spread between weight Satchels in Greek and SCO and how that would trade routes in between before given that we're on the precipice of it.

Derrick Whitfield: Tactical legislation in 2025.

Speaker Change: Yeah. Good questions clearly the feed segment remember in the procurement of raw material.

Brad Phillips: Yeah, well, okay, Tom, this is Brad. Yes, so you see the debt. They're at $250 million at year end, so that does have to be repaid. So, you know, we had the holidays; we had a turnaround in January. Typically, with the holidays, with the BTC, you know, being at a dollar a gallon, those are significant receipts that come in, but with the holidays, there's a little, a bit of a delay there, usually in December on the BTC. So, it backs up some. That, along with the Q1 turnaround there in January, kind of pushes that back a little bit. So, our outlook, I would say, which is what I think you're getting at, had a difficult time hearing there, is a little bit of a deferred timeline on dividends out of DGD, but we're getting closer. Great. Thank you. The next question comes from Derrick Whitfield from Stiefel; please go ahead. Good morning, all.

Thomas Hinsdale Palmer: When you get into a declining price environment. That's when your margins widen out you got forewarn sales on and now you're buying raw material based on the current.

Speaker Change: Indexed markets at a lower price that widened it out as Brad also comment you.

Speaker Change: You know, we we did recover some expenses from from the Valley proteins acquisition. They were part of the.

Thomas Hinsdale Palmer: Mark purchase agreement and that's about all we can comment there on that.

Thomas Hinsdale Palmer: That widened it out but nonetheless, it was the volumes up.

Thomas Hinsdale Palmer: Prices were down against the all the processing formulas and then a little bit of money came in it related to the valley. So that's that the.

Thomas Hinsdale Palmer: Waste fat or B D. Soybean oil comments I mean, the first thing and I'm going to split this with with Matt and Bob here, but.

Speaker Change: The first thing that I think.

Speaker Change: Everyone needs to understand was it.

Derrick Lee Whitfield: Thanks for your, With my first question, I wanted to focus on the feed. Were you delivered a remark? First, could you talk to some of the drivers about SBO and how that will trade throughout 2024 given that we're on the precipice of impactful legislation in 2025? Yeah, good, good questions. Clearly, the feed segment. When you get into a declining price environment, that's when your margins widen out, you have forward sales on, and now you're buying raw material based on the current Index markets at a lower price that winds out, as Brad also commented. You know, we did recover some expenses from the Valley Pro Team's acquisition that were part of the stock purchase agreement, and that's about And that widened it out. But nonetheless, the volume's up.

Speaker Change: The industry was truly operating at the rates that everybody anticipates out there and puts in their spreadsheets fat prices would not be where they're at today, whether it's soybean oil or waste fast.

Speaker Change: Second.

Speaker Change: If the pretreatment capacity was.

Speaker Change: As robust and.

Speaker Change: You know Nirvana in the world that.

Speaker Change: Wafer starts would not be a discount to soybean oil today crude soybean oil. So it's really a fascinating environment. All we can tell you is as you know Diamond Green sold 1.25 billion gallons, we had some volatility in margins in it and an LCM adjustment here in Q4, but the margins are clearly being driven by this.

Speaker Change: Spread between soybean oil and waste fats, what do you guys want to add.

Speaker Change: Yeah. This is Matt I would just say if you think back to let's say six months ago. When we did see we had waste that debt at a premium.

Randall C. Stuewe: Prices were down against the processing formulas, and then a little bit of money came in related to Valley, so that's that. The waste fat RBD soybean oil comments: I mean, the first thing, and I'm going to split this with Matt and Bob here. The first thing that I think everyone needs to understand was if.

Matt Johnson: Due to the the soybean oil markets and over the last let's say three months or so they've been in at a at a discount now that that yet is is now narrowing which we believe that it will continue to attempt to narrow, but there's been a bit of a blip.

Speaker Change: Let's say price movement in the waste that is to Randy's point as I think that's just a reflection of some of the capacity does not come on line.

Randall C. Stuewe: The industry would truly be operating at the rates that everybody anticipates out there and puts in their spreadsheets. Fat prices would not be where they're at today, whether it's soybean oil or waste fats. If the pre-treatment capacity was as robust and, you know, nirvana in the world, waste fats would not be a discount to soybean oil today, crude soybean oil. So it's really a fascinating environment.

Speaker Change: Yeah, I would just add I think this is reflective of the challenge in trying to predict and estimate what's what's going to happen I think the things that I would watch for us.

Speaker Change: What does the biodiesel industry do you see.

Speaker Change: <unk> biodiesel margins now under water for the first time in quite some time. So if they don't run and operate we're gonna see weakness and serve you know relative to other waste fats.

Speaker Change: There's a lot of talk about new renewable diesel capacity coming online in and operating.

Randall C. Stuewe: All we can tell you is, you know, Diamond Green sold 1.25 billion gallons. We had some volatility and margins and an LCM adjustment here in Q4, but the margins are clearly being driven by the spread between soybean oil and waste fats. What do you guys want to add?

Speaker Change: And its ability to utilize waste fats yuko and animal fats, how real is that in and how able us to use those those oils and so you know.

Speaker Change: Those are the things to watch that are going to ultimately determine what those spreads do.

Speaker Change: Great and for my follow up I wanted to ask about the active peptide that you mentioned in your prepared comments that would address glucose moderation.

Matthew J. Jansen: Well, yeah, this is Matt. I would just say if you think back to, let's say, six months ago, when we did see we had waste fats at a premium in the soybean oil markets. And over the last, let's say, three months or so, they've been at a discount. Now, that gap is now narrowing, and we believe that it will continue to narrow. But there's been a bit of, let's say, price movement in the waste fat, to Randy's point, as I think it's just a reflection of some of the capacity that has not come online. Yeah, I would just add, I think this is reflective of the challenge in trying to predict and estimate what's going to happen. I think the thing I would watch for is, What does the biodiesel industry do?

Speaker Change: I'm getting a bit over my skis.

Speaker Change: Is that intended to be an alternative to a jump back and if so could you give us some perspective on potential market size of this opportunity.

Speaker Change: Well we're.

Speaker Change: We're all smiling around here because what we don't want to get sued in the morning by Big.

Speaker Change: Big pharma someone's gonna be careful how we answer this.

Speaker Change: This this is Bob and I'll just say.

Bob Day: This this product will be a nutraceutical it won't be a pharmaceutical product. So it really it does target a slightly different demographic.

Bob Day: It is likely to have similar types of.

Bob Day: Benefits for consumers, but again, it's a it's a consumable product that has a whole different profile as far as health and safety goes.

Robert W. Day: We're seeing biodiesel margins now underwater for the first time in quite some time, so if they don't run and operate, we're going to see weakness in soybean oil relative to other waste fats. There's a lot of talk about new renewable diesel capacity coming online and operating and its ability to utilize waste fats, EUCO, and animal fats. But how real is that, and how able is it to use those oils?

Speaker Change: That's probably the best way to answer that I think I think that's about all we can say at this time I will tell you that.

Speaker Change: We will be launching the product and I believe in Geneva here.

Speaker Change: In May So you know we've got a lot of interest in the best product worldwide. You think of the applications that it can go into a remember a peptide and then Ken just water soluble. So it can go on solution. It can go into.

Robert W. Day: Those are the things to watch that are going to ultimately determine what those spreads do. And for my follow-up question, I wanted to know if while I'm getting a better, is that intended to be an alternative to a, So could you give us some perspective? Well, we're all smiling around here because we don't want to get sued in the morning by the big pharma, so we're going to be careful how we answer that. So this is Bob, and I'll just say.

Speaker Change: No.

Speaker Change: Health bars, whatever you want wherever you want to think so there's lots of neat applications here, but just once again diversify our product mix and ultimately is the underlying rationale for the <unk> acquisition that we were working on or did.

Speaker Change: Very helpful. Thanks for your time.

Speaker Change: The next question comes from Andrew Charles It from BMO. Please go ahead.

Speaker Change: Hey, good morning, Thanks for taking the questions.

Robert W. Day: This product will be a nutraceutical. It won't be a pharmaceutical product, so it targets a slightly different demographic.

Speaker Change: One is on morning. So my first question is on some of the kind of internal process.

Robert W. Day: It is likely to have similar types of benefits for consumers, but again, it's a consumable product that has a whole different profile as far as health and safety goes. I think that's about all we can say at this time. I will tell you that we will be launching the product, I believe, in Geneva here in May. So, you know, we've got a lot of interest in the BIS product worldwide. You think of the applications that it can go into. Remember, a peptide, then, is water-soluble, so it can go in solution. It can go into, you know.

Speaker Change: Profit drivers that you guys have that are not related to market dynamics is there any way to quantify what that might look like the efficiencies you have obviously, a pause which closed on and then ward coming back up into how much could that contribute incrementally in 'twenty 'twenty four and then just that also build into 'twenty five.

Speaker Change: Hi, This is Matt I'll take a stab at that I would say that lets say from any example of ward to your to your question and you know that that plant is as it will be coming up next month.

Robert W. Day: Health bars, whatever you want to think. So there's lots of neat applications here that just once again diversify our product mix and, ultimately, is the underlying rationale for the Jonex acquisition that we were working on or did. Very helpful. The next question comes from Andrew Strelzik from BMO. Please go ahead. Hey, good morning. Thanks for taking the questions. My first one is on warning. So my first question is on some of the kind of internal profit drivers that you guys have that are not related to market dynamics. Is there any way around this?

Matt Johnson: And we're expecting a full run rate from from Q2 on and that that will put us exactly where we need to be in terms of positioning in the on the eastern region as we as we call. It now and we've talked about it in previous calls I mean Darling has made a real.

Matt Johnson: Effort and commitment into investing in the call.

Speaker Change: Call it the reliability and the performance of the of the operating plants and that's something that we believe separates us from many of our let's say competitors out there and one of the things that for example that we benefit problem to to your point is that we call it break down tonnage and so.

Andrew Strelzik: Unknown Attendee, Paul Cheng, Andrew Strelzik, Brad Phillips, John Bullock, Sam Margolin, Justin Jenkins, Derrick Whitfield, Ryan Todd, Randall Stuewe, Matthew Blair, Benjamin Bienvenu, Justin Jenkins, Derrick Whitfield, John Bullock, Sandra Dudley, Suann Guthrie, Robert Day, Darling, incrementally in 2024. And then does that also build, Hi, I'll take a stab at that. I would say that, let's say, from an example of Ward, to your question, and, you know, that plant is... Effort and Commitment to Investing in the Reliability and the Performance of the Operating Plans. And that's something that we believe separates us from many of our, let's say, competitors out there. And one of the things that, for example, that we benefit from, to your point, is that we call it breakdown tonnage. And so the rendering market, generally speaking, is pretty well, let's say, balanced between capacity and volume availability. But the minute that someone breaks down in the space, the whole system can get out of kilter pretty quickly.

Speaker Change: Oh, the rendering market generally speaking is pretty well, let's say balanced.

Speaker Change: Between capacity and volume availability, but the minute that someone breaks down in this space. The whole system can get out of kilter pretty pretty quickly and so we've made a real effort into and investing on the performance and reliability of our plants. So when that happens and it does that we actually benefit from that because we actually.

Speaker Change: He received the the with this.

Speaker Change: Extra volume that comes that comes to us isn't let's say not in the plan and is favorably priced.

Speaker Change: And you know we are there to to receive it and so you know that that for US is a real competitive advantage and that's because we take the you know the the effort and we have the balance sheet to invest the capital required to keep these plants and tiptop shape in order to not break it out so we actually are on those.

Speaker Change: Receiving a and.

Matthew J. Jansen: And so we've made a real effort to invest in the performance and reliability of our plants. So when that happens, and it does, we actually benefit from that, because we actually receive this extra volume that comes to us that's, let's say, not in the plan, and it comes favorably priced. And we are there to receive it.

Speaker Change: We ended the benefit of situations like that and that's just an example, and so we've got that all the way through our organization and so you have to quantify that that's that's a bit of a challenge, but our it for today's call, but I would say, it's we view that as a competitive at that yeah. I mean, Andrew when we look at it my bad set up very very well there.

Speaker Change: In the month of January we landfill 32 million pounds.

Matthew J. Jansen: And so that, for us, is a real competitive advantage. And that's because we make the effort and we have the balance sheet to invest the capital required to keep these plants in tip-top shape in order to not break down. So we actually are on the receiving end of the benefit of situations like that. And that's just one example.

Speaker Change: Out of the war in South Carolina region. That's we're not proud of you know at the end of the day that huge lost opportunity. So we're excited about getting word born the M. C. C. You shipped at the end of January we're expecting to hopefully end of March 1st of April start up there and then that let's say.

Speaker Change: Lot of.

Randall C. Stuewe: And so we've got that all the way through our organization. And so to quantify that, that's a bit of a challenge for today's call. But I would say we view that as a competitive advantage. Yeah. I mean, and when we look at it, and Matt said it very, very well, I mean, in the month of January, we landfill 32 million pounds out of the Ward, South Carolina region.

Speaker Change: The ability to move tonnage to the right locations that we've been unable to do now for over a year. So that that's exciting mirror Pas closed here on the first apparently that's three poultry plants investment case was was exceeded it closed here, meaning it's doing better than we thought when we did the original deal.

Speaker Change: We kind of redid the diligence on that Joe Metz, we have for a full year, we got Peabody down up or the old bone gelatin plant that's out of the system the noise.

Randall C. Stuewe: That's something we're not proud of. You know, at the end of the day, that's a huge lost opportunity. So we're excited about getting Ward on, the MCC shipped at the end of January, and we're expecting a hopefully end of March, first of April startup there. And then that gives us a lot of ability to move tonnage to the right locations that we've been unable to do now for over a year. So that's exciting. Mirapause closed here on the 1st of February.

Speaker Change: You know so there is a lot a lot of good things, we see happening through the year out there we're carrying large inventories in it and if you can read up our balance sheet and you can see the working capital. After you can see that our consumer demand slowed down around the world that's built inventories in.

Speaker Change: In several of our businesses and so that's where we come back to it's mainly the operational efficiencies are very important piece and then as Matt says focused on it but at the end of the day. The Big cash driver Force next year is really getting the inventories down in managing working capital and that's why we're so confident.

Randall C. Stuewe: That's three poultry plants. The investment case was exceeded at closed here, meaning it's doing better than we thought. When we did the original deal, we kind of redid the diligence on that. Gel Nets we have for a full year. We got Peabody down to our old bone gelatin plant.

Randall C. Stuewe: That's out of the system, the noise of that. You know, so there are a lot of good things that we see happening through the year out there. We're carrying large inventories, and if you can read a balance sheet, you can see the working capital out there. You can see that consumer demand slowed down around the world and that's built inventory in several of our businesses, and so that's where we come back to. It's mainly operational efficiency, and as Matt says, focused on it, but at the end of the day, the big cash dragger for us next year is really getting the inventories down and managing working capital, and that's why we're so confident in the debt repayment side here. Okay, I got it. That's helpful. And I appreciate those comments. And just my follow up is on DGD profitability, kind of at a high level. And I know I've asked this before, but I just want to revisit it. You know, historically, we've talked about kind of a dollar baseline. Over time, and I'm just curious.

Speaker Change: And in the the debt repayment side here.

Speaker Change: Yeah.

Speaker Change: Okay got it that's helpful and I appreciate those comments and just my follow up is is.

Speaker Change: On D. G D profitability kind of at a high level and I know I've asked this before but I just wanted to revisit it you know historically, you've talked about kind of a dollar baseline margin over time and I'm just curious with everything that's going on in those markets do you still feel like and I know next year as we transition to SaaS that's.

Speaker Change: To evolve, but I guess from a baseline perspective do you still feel like that's.

Speaker Change: That's the appropriate way to think about the business I don't know if that's feasible for 24 not in your view, but just any comments around how you think about the underlying margin structure for D. G D preset. Thanks.

Bob Day: Yes. This is Bob.

Bob Day: I think you know.

Bob Day: Because it's one of the things I mentioned earlier, what what's going to happen with biodiesel capacity, what's going to happen with nameplate renewable diesel new capacity that comes online. It makes it makes it difficult to answer that question.

Bob Day: I think what we can say is that diamond green has a sustainable advantage over its competitors in the market and and you know we could talk about what that looks like relative to renewable diesel relative to biodiesel.

Robert W. Day: With everything that's going on in those markets, do you still feel like, and I know next year as we transition to SAF, that that's going to evolve. But I guess from a baseline perspective, do you still feel like that's the appropriate way to think about the business? I don't know if that's feasible for 24 or not in your view, but just any comments around how you think about the underlying margin structure for DGD pre-SAF. Yeah, this is Bob.

Bob Day: It's significant and and so it's going to maintain that advantage as we cycled through this this margin environment I think what's a little bit different about the renewable diesel environment than what we might see in a more mature commodity environment is that there is still it's still an evolving industry, there's still new demand coming on and and new opportunities. So.

Robert W. Day: I think, you know, because of some of the things I mentioned earlier, what's going to happen with biodiesel capacity, what's going to happen with new capacity as it comes online, it makes it difficult to answer that question. I think what we can say is that Diamond Green has a sustainable advantage over its competitors in the market. And, and, you know, we can talk about what that looks like relative to renewable diesel relative to biodiesel. It's significant.

Bob Day: Soft demand comes on that will cannibalize renewable diesel capacity and production and provide more support we're also seeing.

Bob Day: More evolution in the government programs, whether it's tarbell CFS programs or just the general impact on that that's exports and RIN cancellations will have on RIN S. Indeed so.

Bob Day: There's a lot of things that would that would allow this to reverse course faster than what you'd normally see in a mature commodity market, but really difficult to predict exactly what that margin per gallon is going to look like over the course of the entire year.

Bob Day: Yeah.

Speaker Change: Great I appreciate the thoughts thank you.

Robert W. Day: And so it's going to maintain that advantage as we cycle through this margin environment. I think what's a little bit different about the renewable diesel environment than what we might see in a more mature commodity environment is that there's still, it's still an evolving industry. There's still new demand coming on and new opportunities. So as SAF demand comes on, that will cannibalize renewable diesel capacity and production and provide more support. We're also seeing more evolution in government programs, whether it's CARB LCFS programs or just the general impact that exports and RIN cancellations will have on RIN S&D. So I think there are a lot of things that would allow this to reverse course faster than what you'd normally see in a mature commodity market, but really difficult to predict exactly what that margin per gallon is going to look like over the course of the entire year. Great. I appreciate the thoughts. Thank you. The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead. Yes, thank you. Good morning, everyone.

Speaker Change: Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Adam Samuelson: Yes. Thank you good morning, everyone.

Adam Samuelson: [noise] warning yet so I guess my first question, Randy and I appreciate the comments around there's a lot of volatility.

Adam Samuelson: And the hesitancy on providing an outlook I'm just trying to make sure. We think about that in the context of you did provide some outlook framing.

Adam Samuelson: Three months ago, or three and a half months ago in earnings in November and so is it just hey, the the caution comes from the decline in fat prices that you've seen over.

Adam Samuelson: Over the last several months.

Adam Samuelson: That gives you pause or the lack of response full response to buy to RG margins. Just you did provide some other commentary.

Adam Samuelson: With the third quarter earnings.

Adam Samuelson: And Youre refraining to do that today and I'm just trying to make sure we understand kind of actually what's changed.

Speaker Change: Yeah, no. It's a very very fair question, Adam I mean, if I look back at the November call, we had incredible momentum with fat prices still in it you know 50 560 cents a pound range and you know when when we when you do guidance in this business you really you just stopped the war.

Adam L. Samuelson: Morning. So I guess my first question, Randy, and I appreciate the comments around there being a lot of volatility and hesitancy on providing an outlook. I'm just trying to make sure we think about that in the context. Provide Some Outlook Framing, Unknown Attendee, Paul Cheng, Andrew Strelzik, Brad Phillips, John Bullock, Sam Margolin, Over the last several months, that gives you pause or the lack of response, full response to RG margins. Did provide some outlook commentary with a third quarter. Amen. [inaudible] Yeah, no, it's a very, very fair question, Adam.

Speaker Change: And say if that price holds and the tonnage holds and D. G. D margins are X. This is what it's going to generate it's really that simple. It's a five minute exercise whats changed now is if we had 1718 out there before fat prices are down 20 cents a pound I said earlier each penny is 12.

Adam Samuelson: Million. So you can see fat prices potentially unit to 50 below that so that would be you know you can do them do the math and another one for five out of 1550 is the run rate today now the hesitancy to go out there and crystallize at four years, because I don't believe that prices are going to stay there, but I don't know when theyre going to reach.

Adam Samuelson: <unk> right now.

Randall C. Stuewe: I mean, if I look back at the November call, we had incredible momentum with fat prices still in the, you know, 55, 60 cents a pound range. And, you know, when you do guidance in this business, you really need to stop the world and say, if that price holds, and the tonnage holds, and DGD margin holds, this is what it's going to generate. It's really that simple. It's a five-minute exercise.

Adam Samuelson: And that's where my comments were geared around the demand for fats, whether it's soybean oil no. If you're if you start to think of it. Okay. A year ago. We were supposed to have D. G D or not D. G D. Ari junior Chevron whatever the heck do you want to call them Geismar online you know that's 250 or 75.

Adam Samuelson: Million gallons, that's two and a half a billion pounds.

Adam Samuelson: P 66, but they have to plan for the future I mean, what is that thing is it is it 4 billion as a $5 billion at 6 billion pounds of Fat you still got two lines down at Martinez winter those coming back online vertex can't seem to run consistently I'm not sure what's going on with the restatement up in Montana, right now, but they don't.

Randall C. Stuewe: What's changed now is that if we had 1718 out there before, fat prices are down 20 cents a pound. As I said earlier, each penny is 12 million, so you could say fat price potentially, you know, 250 below that. So that would, you know, you can do the math, and 1450 to 1550 is the run rate today.

Adam Samuelson: Seem to be running very consistent in their buying refined soybean oil. So there's just a lot of moving parts out here that are really hard to put your finger on right. Now I mean now that you know as Ive learned in this business you know, we've always said and you've been around long enough that the only thing you can control in this business as the balance sheet and so that's where my comments were.

Randall C. Stuewe: Now, the hesitancy to go out there and crystallize that for you is, I don't believe fat prices are going to stay there, but I don't know when they're going to react right now. And that's why my comments were geared around the demands for fats, whether it's soybean oil. You know, if you start to think of it, okay, a year ago, we were supposed to have DGD or not DGD, REG or Chevron, whatever the heck you want to call them, Geismar online, you know, that's 250 or 75 million gallons. That's two and a half billion pounds. You know, P66, the phantom plant of the future. I mean, what is that thing?

Adam Samuelson: Brad and I are convinced we can we can pay down $400 million of debt this year being investment grade.

Adam Samuelson: Be ready to rock and roll as the saying goes again and then the Saf margins you know as Bob commented on.

Adam Samuelson: We have a lot of interested parties. We are in the margin discussions there they're complicated it's a very different business selling U S. P. K blending it with jet a and and so those things are happening I'm confident here by the end of the first quarter.

Randall C. Stuewe: Is it four billion? Is it five billion? Is it six billion pounds of fat? You still got two lines down at Martinez. When are those coming back online? Vertex can't seem to run consistently.

Adam Samuelson: I suspect we will have <unk>.

Adam Samuelson: Some deals done don't know how much transparency, we can provide at that time, but as we've said the margins are one to $2 above renewable diesel.

Randall C. Stuewe: I'm not sure what's going on with the restatement up in Montana right now, but they don't seem to be running very consistently. They're buying refined soybean oil. So there's just a lot of moving parts out here that are really hard to put your finger on right now. I mean, as I've learned in this business, you know, we've always said, and you've been around me long enough, the only thing you can control in this business is the balance sheet. And so that's where my comments were.

Adam Samuelson: 250 million gallons, you know, that's another $502 $50 million to $500 million of additional cash being generated.

Adam Samuelson: Brad said as he set out and with what we're gonna be delever there to zero shortly lots of moving parts. There. The BTC the government didn't pay the B T C for a month here as they went on holiday, we got a huge receivable out there from.

Adam Samuelson: From that and so end of the day I think we're set up very nicely I think it's gonna be a year of growing earnings from Q1 forward here as everybody knows we remind people in January we had to bring in January but at the end of the day, we lost I think four or five snow days in North America, where the plants could be.

Randall C. Stuewe: Brad and I are convinced we can pay down $400 million of debt this. We have a lot of interested parties. We are in the margin discussions. They're complicated.

Randall C. Stuewe: It's a very different business selling SPK and blending it with Jet A. And so those things are happening. I'm confident here; by the end of the first quarter, I suspect we'll have some deals done. Don't know how much transparency we can provide at that time. But as we've said, the margins are $1 to $2 above renewable diesel. That's 250 million gallons, and that's another $250 to $500 million of additional cash being generated. Brad said, as he said, Adam, that we're going to be delevered there to zero shortly. Lots of moving parts there. The government didn't pay the BTC for a month here as they went on holiday.

Adam Samuelson: We've been operating we got curtailed on gas.

Adam Samuelson: So theres a lot of a lot of noise, there and then hopefully as we get towards what I always call. When the baseball parks opened this business really starts to harm again, Bob anything you want to add yeah. I just I think you really hit on it Randy when you go back to November of last year.

Bob Day: And you looked at the market factors a lot of what we saw was within our control and when we say as we sit here today, we can't control what the borrowing just biodiesel industry is going to do with its capacity, we can't control the renewable diesels ability, our industry's ability to run and operate and so it just makes it a lot more difficult to predict right now what's going to happen, but what I would add.

Randall C. Stuewe: We've got a huge receivable out there from that. And so, at the end of the day, I think we're set up very nicely. I think it's going to be a year of growing earnings from Q1 forward. As we remind people, in January, we had a pretty good January. But at the end of the day, we lost, I think, four or five snow days in North America where plants couldn't even operate.

Adam Samuelson: Is that Diamond Green diesel produced over 1.2 billion gallons last year.

Adam Samuelson: More than anyone do it anywhere in the world.

Adam Samuelson: And with the capacity utilization rate that is second to none anywhere and so as this cycle changes they've proven they have the operational capacity to capitalize on margin improvement in the industry. So I.

Randall C. Stuewe: They got cut back on gas. So there's a lot of noise there that hopefully, as we get towards what I always call when the baseball park's open, this business really starts to hum again. Bob, anything you want to add? Yeah, I think you really hit on it, Randy.

Adam Samuelson: I think we're optimistic it's just very difficult to predict exactly what margins are going to look like given all these variables that are outside of our control one of the things real quick Randy mentioned, you know with with D. G D and in the dividends.

Adam Samuelson: We think about the people on the call here and I know you know this Adam and most of sell side analysts not all notice. The we have a formal policy there for distributions.

Robert W. Day: When you go back to November of last year and look at the market factors, a lot of what we saw was within our control. And as we sit here today, we can't control what the biodiesel industry is going to do with its capacity. We can't control the renewable diesel industry's ability to run and operate.

Adam Samuelson: And that is measured monthly it is not subjective.

Adam Samuelson: So that you know that takes a makes it up.

Adam Samuelson: Like clock work as we look at that and as it is published a large receivable there from the BTC.

Robert W. Day: And so it just makes it a lot more difficult to predict right now what's going to happen. But what I would add is that Diamond Green Diesel produced over 1.2 billion gallons last year. That was more than anyone did anywhere in the world and with a capacity utilization rate that was second to none anywhere. And so, as this cycle changes, they've proven they have the operational capacity to capitalize on margin improvement in the industry. So I think we're optimistic. It's just very difficult to predict exactly what the margins are going to look like given all these variables that are outside of our control. One of the things Randy mentioned with DGD and the dividends, as we think about the people on the call here, and I know you know this, Adam, and most of the sell-side analysts, if not all, know this. We have a formal policy there for distributions. And that is measured monthly. It is not subjective.

Adam Samuelson: Not large capex to speak of or through that one turnaround S. A F being paid for so that's why my comment earlier is we are getting much closer to starting that that dividend training. If you will but I was just kind of wanted to make the point that that it is not a subjective calculation and and and and Theres.

Adam Samuelson: They're each month as we look at that at the end of each month.

Speaker Change: Okay. That's all very very helpful and I appreciate there's a lot of color I'll pass it on thank you.

Adam Samuelson: The next question comes from Ben <unk> from Baird. Please go ahead.

Ben: Hey, Thanks, good morning.

Ben: To do this again, but really if I just do a Q4.

Ben: Run rate it just a farmer's math.

Ben: Hey, I throw in $100 million firmed things, it's for acquisitions. So you'll do go full year or possibly other new plants I get to a $1 5 billion as a baseline.

Brad Phillips: So that makes it like clockwork as we look at that. And there's a large receivable there from the BTC, not a large capex to speak of, or through that one turnaround, SAF being paid for. So that's why my comment earlier is that we are getting much closer to starting that dividend train, if you will. But I just wanted to make the point that it is not a subjective calculation. And there's potential there each month as we look at that at the end of each month. Okay, that's all very, very helpful and appreciated. There's a lot of color, so I'll pass it on.

Ben: Yeah.

Speaker Change: I'm going to answer that yes.

Speaker Change: Yes, if the things go right that we see out here I mean, you know our goal is to exceed our performance in 'twenty three and that we're doing a whole bunch of things out there to get there and I mean at the end of the day you know I saw fat price trades last night that were up already four cents a pound overdue.

Speaker Change: January so you know, yes, I mean at the end of the day, we should pick up momentum there you know the volatility and remember the model is built around feed so you know.

Randall C. Stuewe: The next question comes from Ben Kallo from Baird. Please go ahead. Hey, thanks. Good morning. I hate to do this again.

Benjamin Joseph Kallo: But Randy, if I just do Q4, and I just run rate it, just you know, farmers' math, and I say I throw in $100 million from things that from acquisitions, you know, did it go full year plus the other new plants, I get to 1.5 billion. Is that a baseline? Yeah, I'm gonna answer that. Yes, if the things go right that we see out here, I mean, you know, our goal is to exceed our performance in 23. And we're doing a whole bunch of things out there to get there. And I mean, at the end of the day, you know, I saw fat price trades last night that were up already four cents a pound over January. So, you know, yes, I mean, at the end of the day, we should pick up momentum there.

Speaker Change: <unk> segment reductions and volatility are offset by the Super machine down in the Gulf Coast by three times more fat than we make so and so as the price goes down they have to work through their pipeline.

Speaker Change: They have not worked through their higher priced that which was reflected in our Q4 earnings in January it looks like there'll be improved in February here and so you know those margins widened back out then it offsets any any softness that the feed segment may may deliver here Bob anything else.

Bob Day: I guess, the one thing I would just add when we when we think about the feed segment and in particular as.

Bob Day: Matt alluded to this earlier with the breakdown comments that he made.

Speaker Change: We have a competitive advantage, we believe we have a competitive advantage because we keep our plants well maintained and we were benefiting from that today, because we've just gone through a high inflation cycle and so the book value of our assets and the fixed cost that we operate with a lower than new replacement and so as we reprice.

Benjamin Joseph Kallo: You know, the volatility, remember, the model is built around feeds. Feed segment reductions and volatility are offset by the super machine down in the Gulf Coast that buys three times more fat than we make. So as the price goes down, they have to work through their pipeline. They had not worked through their higher price fat, which was reflected in our Q4 earnings in January. It looks like they'll be better in February here.

Speaker Change: Reprice contracts over time.

Speaker Change: Where we're seeing.

Speaker Change: Rider margins on the assets that we had in our books in our network. So I think I think that's something that as we look out to the 2024 and 2025 will benefit us.

Randall C. Stuewe: And so, you know, those margins widen back out, then it offsets any softness that the feed segment may deliver here. I guess the one thing I would just add when we think about the feed segment in particular is Matt alluded to this earlier with the breakdown comments that he made. We have a competitive advantage. We believe we have a competitive advantage because we keep our plants well-maintained, and we're benefiting from that today because we've just gone through a high inflation cycle. The book value of our assets and the fixed costs that we operate with are lower than new replacements.

Speaker Change: Thank you.

Speaker Change: A follow up just the new crush capacity coming on.

Speaker Change: Those are going to weigh on on Sop prices and then I know that it's very complicated as we switch over to the producer tax credit, but could you just maybe remind us if you could quickly just how your advantage in how you do you think that impacts overall supply in the market.

Speaker Change: Place does that curtail some supplier or what happens you know as we switch to the next year. Thank you.

Robert W. Day: As we reprice contracts over time, we're seeing wider margins on the assets that we've had in our books and our network. I think that's something that, as we look out to 2024 and 2025, will benefit us. Thank you.

Speaker Change: Matt you want to take crushing Bob do you want to do so.

Matt Johnson: So I would say from a crush capacity increased a lot of that is I havent seen price then and known.

Speaker Change: And it's not going to have a significant weight on.

Randall C. Stuewe: Follow up, just new crush capacity coming on, you know, is there, you know, is that going to weigh on fat prices? And then I know that's very complicated as we switch over to the producer tax credit. But can you just maybe remind us, if you can quickly, just your advantage and how you think that impacts overall supply in the marketplace? Does that curtail some suppliers? Or what happens, you know, as we switch to next year? Thank you. Matt, you want to take crush, and Bob, you want to take it?

Speaker Change: Current current market prices, so as we think.

Bob Day: I look at it a little bit more from the other side and what's what's what's still to come is the the demand side as some of these rd plants that have not been able to right now basically many of these will we'll see we'll get things figured out and we'll improve their run rates and that will increase with the on the on the <unk>.

Speaker Change: A man side so.

Speaker Change: In terms of looking for a.

Speaker Change: Downshift in knee and soybean oil prices I think most of that is already priced.

Matthew J. Jansen: Yeah, so I would say for me, a crush capacity increase is, I would say, a price that is known, and it's not going to have a significant weight on, you know, current market prices. So, as we think, you know, I look at it a little bit more from the other side, and what's still to come is the demand side, as some of these RD plants that have not been able to run. Now, basically, many of these will get things figured out and will improve their run rates, and that will increase on the demand side. So, in terms of, you know, looking for a heavy downshift in soybean oil prices, I think most of that's already priced in. Yeah, this is Bob, specific to the producer tax credit.

Speaker Change: Yeah. This is Bob a specific to the producer tax credit. So that's due to take effect in 2025.

Speaker Change: The benefit that Diamond Green diesel has is that unlike the blenders tax credit imports of Biofuels.

Bob Day: Biofuels won't have access to that and.

Bob Day: Producers tax credit will be a C. I adjusted support whereas the blenders tax credit is the same per gallon irrespective of what the feedstock is R.

Bob Day: Our calculations show that if you're using a canola oil or soybean oil to make your renewable fuel then you will essentially get zero from a producers tax credit. So that's diamond Green's advantaged. It can utilize Laura C. I star feedstocks that will get that producer tax credit and it has an advantage over the imported bio.

Matthew J. Jansen: So that's due to take effect in 2025. The benefit that Diamond Green Diesel has is that, unlike the blenders tax credit, imports of biofuels won't have access to that. And the producer's tax credit will be CI adjusted support, whereas the blender's tax credit is the same per gallon, irrespective of what the feedstock is. Our calculations show that if you're using canola oil or soybean oil to make your renewable fuel, then you'll essentially get zero from a producer's tax credit. So that's Diamond Green's advantage.

Bob Day: Yes.

Speaker Change: Thank you guys.

Bob Day: The next question comes from Ben <unk> from Stephens. Please go ahead.

Ben: Hey, Thanks, good morning.

Ben: So I wanted to ask about some comments that you all made them late last year as it relates to excuse me earlier this year as it relates to changes that you can make in the feed segment to provide some insulation from commodity volatility can you help us think through what some of those adjustments might be and the timeline that my.

Bob Day: Take to put those changes in place.

Robert W. Day: It can utilize lower CI score feedstocks, it will get that producer tax credit, and it has an advantage over imported biofuels. The next question comes from Ben Bienvenu from Stevens. Please go ahead. Hey, thanks. Good morning.

Speaker Change: Yeah, I'll take a little bit of this I mean, you know essentially you've got.

Speaker Change: U S Canada Europe.

Speaker Change: And Brazil in the feed segment there.

Speaker Change: Each one has a different process of margin management in North America or in the U S. Specifically, it's clearly.

Benjamin Shelton Bienvenu: So I want to ask about some comments that you all made late last year and earlier this year. As it relates to changes that you can make in the feed segment to provide some insulation from commodity volatility, can you help us think through what some of those adjustments might be and the timeline that might take to put those changes in place? Yeah, I'll take a little bit of this. I mean, essentially, you've got the U.S., Canada, Europe, and Brazil in the feed segment there.

Speaker Change: About 70% of our raw material and in the U S was procured.

Speaker Change: Under a fixed margin with a sharing of upside and so when the prices come down there's us to share, but theres, a fixed margin that ensures cash flow and profitability.

Speaker Change: Similar in Canada, but more exposure to commodity up there Europe.

Speaker Change: We weigh less in the sense of.

Randall C. Stuewe: Each one has a different process for margin management. In North America, or in the U.S. specifically, it's clearly about 70% of our raw material in the U.S. is procured under a fixed margin with a sharing of upside. And so when the prices come down, there's less to share, but there's a fixed margin that ensures cash flow and profitability. Similar in Canada, but more exposure to commodity up there. Europe, probably way less in the sense of commodity exposure, as they are able to move their raw material procurement values or prices down as they need to here to keep their margins.

Speaker Change: Commodity exposure as they are able to move their raw material procurement values were prices down.

Speaker Change: As they need to hear to keep their margins still you know not been made.

Speaker Change: Rather have thousand dollar a 1200 dollar return fat and $800 a ton fat, but we've seen that there are recently trade in the nine hundreds again.

Speaker Change: And you kind of got to do the math that's in the mid Forty's, that's where the U S has now moved back to in Brazil, We've got our challenges there in the sense that we bought a private company, but didn't have the same.

Randall C. Stuewe: Still, you know, not that they'd rather have $1,000 or $1,200 a ton fat than $800 a ton fat, but we've seen fat there. Recently, trade in the 900s again, and you kind of have to do the math that's in the mid 40s. That's where the US has now moved back to.

Speaker Change: Uh-huh ambition that Darling has towards margin management, and so culturally teaching the procurement team down there to go back to the slaughterhouses. We're in process there that will add value over the year as we look back at our 2023 as you know we had some we had a great first half of the year.

Randall C. Stuewe: In Brazil, we've got our challenges there, in the sense that we bought a private company that didn't have the same ambition that Darling has towards margin management and so culturally teaching the procurement team down there to go back to the slaughterhouses. We're in a process there that will add value over the year. As we look back at 2023, as you know, we had a great first half of the year in Brazil. And then we had a challenge as prices came down around the globe to get the procurement team to react and realize that it's it's okay to do that. So you know, lots of I know that's a long winded answer, Ben. You know, at the end of the day, it really comes down to reaction time and then the lag that it flows through.

Speaker Change: Here in Brazil, and then we had a challenge as prices came down around the globe to get the procurement team to react and realize that it's okay to do that so lots of I know, that's a long winded answer Dan and you.

Speaker Change: You know it at the end of the day you know it really comes down to reaction time, and then the lag but that it flows through so fourth quarter higher price sales lower lower procurement cost now we've got lower sales in Q1, and lower procurement cost anything else you guys want to add.

Speaker Change: We'll stick with that area already.

Speaker Change: That's great. Thanks for a very helpful.

Speaker Change: Maybe shifting gears, a little bit and thinking about the food ingredients business, a really strong year really.

Randall C. Stuewe: So fourth quarter higher price sales, lower, lower procurement costs. Now we've got lower sales in Q1 and lower procurement costs. Anything else you guys want to add? We'll stick with that original one.

Speaker Change: Strong as far back as you can look it's been exceptionally strong as we look forward can you help us think about the growth runway ahead, what kind of growth CAGR in terms of your dollar sales that you expect to deliver on that business and Capex projects ahead.

Randall C. Stuewe: That's great. Thanks, Randy. Very helpful. Maybe shifting gears a little bit and thinking about the food ingredients business. Transcripts provided by Transcription Outsourcing, LLC.

Randall C. Stuewe: Yeah, so really, at the end of the day there, you know, in Suann's slide deck, I still think one of the greatest stories is that quarterly run rate of the food segment. And, of course, then you obviously get to see the split of 85% basically being the collagen gelatin business and a little bit of it being CPH and the edible fats business that we have in Europe there. As we look at that business going forward, you know, clearly, we get a full year of GelNex. Clearly, I made comments that we, you know, consumer demand in the world is lighter at this moment, maybe, maybe a little delayed recessionary, but it's improving. January was a good month, really at the run rate.

Speaker Change: Yeah, So really at the end of the day there you know it exactly.

Speaker Change: Sue and slag that I still think one of the greatest stories is that a quarterly run rate of the food segment and of course, then obviously you get to see the split of 85% basically being a.

Speaker Change: College in gelatin business, and a little bit of a b and C T H and in the edible fats business that we have in Europe there.

Speaker Change: We look at that business going forward, you know clearly we get a full year of gel Max clearly I made comments that we you know that the consumer demand in the world is a lighter at this moment, maybe maybe a little delayed recessionary, but it's improving.

Speaker Change: January was a good January.

Speaker Change: Really at the run rate.

Randall C. Stuewe: So long term, you know, as Brad and I've always said, we thought we'd hit around three and a quarter this year, I think, last year when we hit 321. All right, you know, so we were pretty darn close to calling that one within 1% of the accuracy we had. We still believe that business on the trajectory over the next three years will break 400 million. That's the launch of additional new peptides and growth of hydrolyzed collagen. Shut down of a fired asset in Massachusetts, finishing up some CapEx; we've got our fifth spray dryer online in Epitacio, Brazil now. So lots of good things are happening there.

Speaker Change: So long term, you know and as Brad and I have always said, we thought we'd hit around three and a quarter. This year I think what we were last year. When we had 321 21 all right.

Speaker Change: You know so we're pretty darn close call on that one within 1% as we did you know I, we still believe that business over the trajectory over the next three years, we'll break $400 million. That's the launch of the additional of the new peptides and growth of hydrolyzed collagen.

Speaker Change: Shutdown of a tired asset in Massachusetts.

Speaker Change: Finishing up some capex, we've got our fifth spray dryer online and epitaxial, Brazil now so lots of good things happening there I know when you guys presented.

Randall C. Stuewe: I know when the guys presented the peptide plan for, you know, just the glucose moderation peptide, they had a five year plan there of getting that to be over a $100 million brand. And that's just one of what I would say probably six to 10 peptides that can be launched out there with very limited capital to convert the factories that we've already spent the money on. Okay, that's great. Thanks so much.

Speaker Change: Peptide plan for.

Speaker Change: Just the glucose moderation peptide.

Speaker Change: They have a five year plan there of getting that to be over $100 million brand and that's just one of what I would say probably six to 10 peptides that can be launched out there with very limited capital to to convert the factories that we've already spent the money on.

Speaker Change: Okay. That's great. Thanks, so much.

Jason Daniel Gabelman: The next question comes from Jason Gabelman from Cowan. Please go ahead. Hey, morning.

Speaker Change: The next question comes from Jason <unk> from Cowen. Please go ahead.

Jason: Yeah. Good morning, Thanks for taking my question.

Randall C. Stuewe: Thanks for taking my question. I wanted to ask first about the feed segment. It looks like gross margin was, Uh, 24% of sales for the full year, but there was obviously some noise in there with the South Carolina plant down and then with the valley protein reimbursement. Um, I was wondering if you could either give some sort of where gross margin percentage would have been in 2023, excluding that noise, or where you expect it to go in 2024. You know, Randy and Brad can help me here.

Jason: I wanted to ask first on the feed segment you know it looks like gross margin was a 24% of sales for the full year, but there was obviously some noise in there with the South Carolina plant down and then with the with the valley protein reimbursement I was wondering if you could either give some.

Jason: Where gross margin percentage would have been in 2023, excluding that noise are or where you expect it to go and 'twenty 'twenty four.

Jason: Yeah.

Speaker Change: Randy and Brad can help me here you know clearly we took a reimbursement on some expenses that were incurred during the whole year right, but 24%, we've always said somewhere between 23 and 25%.

Randall C. Stuewe: You know, clearly, we took a reimbursement on some expenses that were incurred during the whole year, right? But 24%, we've always said somewhere between 23 and 25% is where that segment should operate, given, you know, really any type of pricing environment, you know, just being driven by the lag of when the procurement formula is changed. Yeah, the other thing there, Jason.

Speaker Change: Where that segment should operate given you know really any type of pricing environment.

Jason: It just being driven by the lag of when they are procurement formulas change.

Jason: The other thing there adjacent so yeah you had.

Brad Phillips: So yeah, you had a, you know, we can't get into that number, but a little bit of a little bit of a lift there in Q4. But a little bit back to Randy and Matt's comment earlier in that segment, we still have Ward, that's going to be coming on, and we have the margin management improvement that's definitely going on at FAWSA and at Valley Proteins has been and is continuing. So, you know, that's where we feel extreme confidence to be in the mid 20s range. You know, at least kind of right at, you know, there's as we move forward. Copy.

Jason: We can't get into that number, but a little bit up a little bit of a lift there in Q4, but a little bit back to Randy and match Com and earlier in that segment. We still have ward that's going to be coming on we have the margin management improvement, it's definitely going on at falls off at Valley proteins has been and.

Jason: He is continuing so that's where we feel extreme confidence to be in the in that mid twenties range. You know at least kind of run. It you know there is as we move forward.

Speaker Change: Got it for free.

Speaker Change: Got it great and then on the D. G. D business, you mentioned that it looks like biodiesel economics are now potentially underwater have you seen any capacity reductions from biodiesel plants based on whatever real time data you have that.

Randall C. Stuewe: Got it, great. And then on the DGD business, you mentioned that it looks like biodiesel economics are now potentially underwater. Have you seen any capacity reductions from biodiesel plants based on whatever real-time data you have? That's a bit harder for us to see from the outside, and would be a good indication that maybe margins are bottoming if you start to see some rationalization in biodiesel production. Thanks. Yeah, I think I'll tag this with Bob.

Speaker Change: So it's a bit harder for us to see from the outside and and will it be a good indication that maybe margins are bought bottoming. If you start if you start to see some rationalization and biodiesel production. Thanks, Yeah, I think and Bob I'll Tag This with Bob I mean, clearly you know what we do as a team every day.

Randall C. Stuewe: Clearly, what we do as a team every day is we run an analysis industry-wide of whether it's waste fats, whether it's renewable diesel, whether it's biodiesel, it's refined soybean oil, crude soybean oil, and we run all the facts and look at them. And clearly, what we've seen is that if you're in the biodiesel business and you're running soybean oil today, you' Now, you remember a lot of that biodiesel capacity is still with the integrated crusher that's out there, and they have three choices. They can put it in the gulf of super to gum up to be exported, they can run it through their biodiesel plant, they can run it through their vegetable oil refinery, and at the end of the day, all they care about is what cents per bushel or dollars per bushel that The freestanding guys are clearly the ones that are vulnerable right now, and I'll let Bob comment on that.

Speaker Change: And since we run you know an analysis industry wide of whether its waste fats, whether it's renewable diesel whether it's biodiesel its refined soybean oil crude soybean oil and we run all of the facts and look at I mean, clearly what we've seen is if you're if you're in the biodiesel business and you're running soybean oil today your neck.

Speaker Change: Now you remember.

Speaker Change: A lot of that biodiesel capacity is still with the integrated crusher that's out there.

Speaker Change: And they have three choices. They can they can put it in a golf is super to gone to be exported they can run it through their biodiesel plant. They can run it through their vegetable oil refinery.

Speaker Change: And at the end of the day all they care about is what's the the cents per bushel or dollars per bushel that they've made in the crush margin and they don't care, which which asset it runs through the freestanding guys are clearly the ones that are vulnerable right now and I'll, let Bob comment about that.

Bob Day: Yes, so I think.

Robert W. Day: Yeah, so I think first, I'd say we haven't seen a significant reduction yet. I think this industry, as Randy alluded to, is largely egg-based, and they do a very effective job at hedging and protecting margins for a certain period into the future. So when margins go negative, they don't necessarily turn it off right away, but it's something that you expect to see down the road.

Bob Day: First I would say.

Bob Day: We haven't seen a significant reduction yet I think this industry is as Randy alluded to it's largely egg based and they do a very effective job at and hedging and protecting margins for a certain period into the future. So when when margins go negative they don't necessarily turn it off right away, but it's something that you expect to see.

Robert W. Day: As Randy said also, the crushers are gonna look, the integrated companies are gonna look at it a little differently. They're gonna look at a full integrated margin and make decisions. We see about 60% of the industry, though, is standalone, and they're more vulnerable to just an absolute biodiesel margin.

Speaker Change: Down the road.

Speaker Change: As Randy said also the crushers are gonna look the integrated companies are going to look at it a little differently theyre going to look at a full integrated margin and make decisions, we see about 60% of the industry, though as stand alone.

Speaker Change: And there there are more vulnerable to just an absolute biodiesel margin. The other thing I would say is crush margins have come down a lot as well and we're seeing a significant amount of soybean supply on the market due to a large harvest in Brazil, and Argentina, and so the crush margin environment today isn't anything like it was over the last four years, and so really that whole biodiesel.

Randall C. Stuewe: The other thing I would say is crush margins have come down a lot as well, and we're seeing a significant amount of soybean supply on the market due to large harvests in Brazil and Argentina. And so the crush margin environment today isn't anything like it was over the last four years. And so really, that whole biodiesel industry has more challenges from a margin standpoint than it did, and we'll see how all that plays out as we go forward. Great, that's really helpful.

Speaker Change: The industry. It. It's just it's got more challenges from a margin standpoint than than it did in and we'll see how all that plays out as we go forward.

Speaker Change: Great. That's really helpful. Thanks for the color.

Speaker Change: The next question comes from Deshawn Eliana from Jefferies. Please go ahead.

Randall C. Stuewe: Thanks for the call. The next question comes from Dushyant Ailani from Jeffreys. Please go ahead.

Deshawn Eliana: Hey, guys. Thanks for taking my question I just wanted to quickly.

Dushyant Ajit Ailani: Hey guys, thanks for taking my question. I just wanted to. Please talk about just the LCFS.

Deshawn Eliana: Can you talk about just the Lcs that's market that the meeting was supposed to happen, but I think it's been pushed out I don't know I just wanted to.

Matthew J. Jansen: The meeting was supposed to happen, but I think it's been pushed out. I don't know. I just wanted to, oh. I'll glean from you guys what you guys are hearing on that. Hi, this is Matt.

Deshawn Eliana: Hum.

Deshawn Eliana: When you guys. What you guys are hearing on bad debt.

Deshawn Eliana: Yeah.

Deshawn Eliana: Hi, This is Matt I'll I'll try to I mean, you know, we we see from from our contacts and a lot of what we read in the news and in terms of what to come we know that that debt is.

Matthew J. Jansen: I'll try to I mean, you know, from our contacts and a lot of what we read in the news, and in terms of what is to come, we know that that is, I mean, fundamentally, the LCFS is something that is very supportive for the industry. Now how this plays out in California still remains to be seen. Obviously, we know what came out last year. Now, what additional changes are forthcoming from that remain to be seen. So we remain optimistic, and we believe that what is in print is a good thing, but what other changes are still to come are a bit hard to pin down. Got it, thank you. And then just going to SAF, and you mentioned roughly $1, $2 above. Oh, diesel.

Matt Johnson: I mean first of all fundamentally the L. C. F. S is something that is a very supportive for the industry I'm now what what how this plays out in California is still remains to be seen.

Matt Johnson: Obviously, we know what came out of.

Matt Johnson: Last year now what additional changes are forthcoming from that remain to be seen so we remain optimistic.

Matt Johnson: And we believe that the you know it.

Matt Johnson: Yeah, what what is in print is a is a good thing for <unk> is a good thing but.

Matt Johnson: You know what what other changes are still to come is a is a little bit hard to pin down.

Matt Johnson: Yeah.

Speaker Change: Got it. Thank you and then just going to SaaS, but I know that Oh.

Speaker Change: And you mentioned about the adult attitude all of the above.

Matt Johnson: Oh, I've been able to diesel.

Matthew J. Jansen: Um, just want to understand what you need to see going into 2025 once SAPF capacity is online? Maybe think about maybe converting more. I think Dushyant's asking, what's the gating decision for FID on a second, on expanding? So that's a question that we are asking or working on right now. We do have that in the engineering phases right now. One of the things that we are looking at, as Randy mentioned earlier, is the commercial contracts against the SAF-1 plant. As you know, that's 250 million gallons of ARD that's going to come off the market. We really want to call it a proof of concept for that and have a high degree of confidence. SAF II, if it is to come to fruition, will be something on a larger scale, a little bit larger investment as well, but it's something that is absolutely on our radar, and it would not surprise me in the next few quarters if we don't have some good news in that space. The next question comes from Matthew Blair Please go ahead.

Matt Johnson: Just wanted to understand what.

Matt Johnson: What would you need to see you know going into the same thing.

Matt Johnson: Once that capacity is online and maybe think about maybe converting more.

Speaker Change: Odd to us yes.

Speaker Change: And then secondly, I'm sorry.

Matt Johnson: I think vishal, it's asking what's the gating a decision for F. D. On the on a second an expanded you know some of them.

Vishal: So that's a that's a question that's a question that we.

Vishal: Or asking you are working on right now we do have that in the engineering phases right now.

Matt Johnson: One of the things that we are looking to as Randy mentioned earlier is the commercial contracts are against the U S. A F. One plant as you know that's 250 million gallons that of a R. D. That's going to come off the market, but you.

Matt Johnson: We really want to see a call. It a proof of concept in that and having to have a high degree of confidence.

Matt Johnson: The S. A F. Two if it if it is too.

Matt Johnson: <unk> come to fruition.

Matt Johnson: It will be something in a larger scale I'd be a little bit larger investment as well.

Matt Johnson: But it's.

Matt Johnson: It's something that is absolutely on our radar and it would not surprise me in the next coming quarters. If we don't have some good news in that space.

Speaker Change: Thank you I'll turn it over.

Matt Johnson: The next question comes from Matthew Blair from Tudor Pickering Holt. Please go ahead.

Matthew Robert Lovseth Blair: Thank you and good morning, everyone. Randy, how are you thinking about a potential dividend from Darling in 2024? Do you need to hit investment grade first? Or is that something that's on the table?

Matthew Blair: Thank you and good morning, everyone. Randy how are you thinking about a potential dividend.

Matthew Blair: From Darling in 2024, do you need to hit investment grade first or is that something that's on the table.

Randall C. Stuewe: Yeah, I mean, clearly, it's a discussion point at all times in the boardroom. Clearly, our focus this year is to get the debt down, you know, to make sure that everybody thinks we've de-risked the business in terms of commodity cycles. As I've said, you know, this is a very different business than we've had in the past. It's a massive cash generator.

Matthew J. Jansen: Yeah, I mean, clearly its a discussion point at all times in the boardroom clearly our focus this year is to get the debt down you know to make sure that everybody thinks we've derisked the business on commodity cycles as I've said you know this.

Matt Johnson: This is a very different business than we've had in the past.

Matt Johnson: It's a massive cash generator.

Randall C. Stuewe: Remember, we've got debt at DGD, and then we've got to finish up the SAF. Outflows from that project. So, end of the day, you know, this year will be focused on just paying down debt by the end of the year. And what I shared with the board and what I share with other people is, remember, we have some really favorably priced bonds or notes out there. The first one that comes due is in April of 26.

Matt Johnson: Remember, we still we've got data D. G D. And then we've got to finish up the U S. A F outflows on that project. So the end of the day you know this year will be focused on just paying down debt through the end of the year and what I, what I shared with the board and what I share with other people that remember we have some.

Matt Johnson: Really favorably priced bonds or notes out there. The first one that comes due is in April of 26.

Randall C. Stuewe: Unknown Attendee, Paul Cheng, Andrew Strelzik, Brad Phillips, John Bullock, Sam Margolin, Dushyant Ailani, Andrew Strelzik, Brad Phillips, John Bullock, Sam Margolin, Derrick Whitfield, then it gives us a chance to do some things. Clearly, we paid $110 million for Mirapause here about 26 days ago.

Matt Johnson: And that's the European Nope, it's in the low threes, three three and felt like three and five eights and then another year later comes the five and something five and three eights or whatever the water now and on the U S bonds. So.

Matt Johnson: Not in any rush to do anything there, we're going to build cash.

Matt Johnson: Once we have cash in the revolvers paid off we have all kinds of flexibility to do what we want to do you know clearly we we've we set in motion and done opportunistic buybacks, we will buy back our dilution of our executive compensation programs and well as we see that the dividend start to come in from D. G D and we're getting to.

Randall C. Stuewe: At the end of the day, we're just trying to run the business, walk through what I'd say is just a dip. Remember, in global businesses like this, when you have these big super cycles, big mountains are followed by deep valleys. End of the day, we're navigating out of that, making the adjustments we need. But end of the day, when we look at 24, we'll get $400 million plus out of the debt. Then when you go to 25 and you've got SAF and you don't have any other projects going on out there, then all of a sudden, it's pretty amazing how much cash you're generating. That's when the dividend discussion becomes an absolute reality, or you're just going to trap too much cash on the balance sheet.

Matt Johnson: Our leverage ratios, we want that the market expects then it gives us a chance to do some things I mean, clearly we paid for more of a pause here about the you know 26 days ago and that was a $110 million and so end of the day. We were just trying to run the business Walkthrough, what I'd say is just that.

Matt Johnson: Just a a adept remembering in global businesses like this you know when you've had these big Super cycles Big Big Mountains are followed by deep valleys and so end of the day, we're navigating out of that and making the adjustments we need but end of the day. When we look at 24, we'll get you know 400 million plus out of the debt and then when you.

Matt Johnson: Go to 25, and you got assay.

Matt Johnson: And you don't have any other projects going on out there you know they then all of a sudden.

Matt Johnson: Pretty amazing how much cash you're generating and that's when the dividend discussion becomes an absolute reality or you're just going to trap too much cash on the balance sheet.

Matthew Robert Lovseth Blair: So sounds good. And then just regarding the valley reimbursement, it sounds like you don't want to quantify that benefit in Q4. Could I just ask why?

Matt Johnson: So it sounds good and then just regarding the valley reimbursement. So it sounds like you don't want to quantify that benefit in Q4 could I just ask why.

Brad Phillips: Yeah, Matthew, this is Brad. So there's a confidentiality agreement there. So I'll say, you know, we resolve certain outstanding cost and expense items under a post-close escrow arrangement, which we booked in, you know, in Q4, that goes back, prior to Q4, some costs, so it's not just costing in Q4, but there was a confidentiality arrangement with the seller there. Great, thanks for the color. This concludes our question and answer session. I would like to turn the conference back over to Randy Stuewe for closing remarks. Thank you everybody for all the questions today. As always, if you have additional questions, please reach out to Suann. Stay safe. Have a great day! We're off to Scotiabank's conference tomorrow. I'll be presenting there tomorrow. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Matt Johnson: Yeah. Matthew this is Brad so theres a confidentiality agreement there.

Brad: So I'll say you know, we've we've resolved certain outstanding cost or expense items under our post close escrow arrangement.

Brad: Which we booked in you know in Q4 that goes back to prior to Q4. Some some call. So it's not just cost and in Q4, but there was a confidentiality.

Brad: Arrangement with the seller there.

Brad: Okay.

Speaker Change: Great. Thanks for the color.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Randy Sui for clothing for closing remarks.

Randy Sui: Alright, thanks, everybody for all the questions today as always if you have additional questions. Please reach out to Suzanne states. They have a great day, we're off to Scotia Bank's conference be presenting tomorrow there.

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