Q1 2024 Darling Ingredients Inc Earnings Call
Operator: Good morning, and welcome to the Darling Ingredients Incorporated conference call to discuss the company's first quarter 2024 financial 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. Today's call is being recorded. I would like to turn the call over to Ms. Suann Guthrie. Please go ahead.
Good morning, and welcome to the Darling ingredients incorporated conference call to discuss the company's first quarter 2024 financial 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.
Speaker Change: Today's call is being recorded I would like to turn the call over to MS. Sue and Capri. Please go ahead.
Suann Guthrie: Thank you. Thank you for joining the Darling Ingredients first quarter 2024 earnings call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. Bob Day, Chief Strategy Officer, and Mr. Matt Jansen, Chief Operating Officer of North America. Our first quarter 2024 earnings news release and slide presentation are available on the investor page under the events and presentations tab on our corporate website and will be joined by a transcript of this call once it is available.
Speaker Change: Thank you. Thank you for joining the Darling ingredients first quarter 2024 earnings call here with me today are Mr. Randall C Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. Bob Day, Chief Strategy Officer, and Mr. Matt Yes.
Speaker Change: <unk> operating officer in North America.
Speaker Change: Our first quarter 2024 earnings news release, and slide presentation are available on the Investor page under events and presentations tab on our corporate web site and will be joined by a transcript of this call. Once it is available.
Suann Guthrie: During this call, we will be making forward-looking statements, which are predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results can materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and the risk factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now, I will hand the call over to Randy.
Speaker Change: This call, we will be making forward looking statements, which are predictions predictions projections and other statements about future events.
Speaker Change: These statements are based on current expectations and assumptions that are subject to risks and uncertainties actual results could materially differ because of factors discussed in yesterday's press release and the comments made during this conference call in the risk factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission.
Speaker Change: We do not undertake any duty to update any forward looking statement now I will hand, the call over to Randy Thanks, Joanne and good morning, everyone. Thanks for joining us for our first quarter 2024 earnings call as I mentioned to you during our last earnings call in February the global ingredients markets are facing challenges due to replenish global oilseed and gray.
Randall C. Stuewe: Thanks, Suann. Good morning, everyone.
Randall C. Stuewe: Thanks for joining us for our first quarter 2024 earnings call. As I mentioned to you during our last earnings call in February, the global ingredients markets are facing challenges due to replenished global oilseed and grain stocks, slower global consumer demand for premium ingredients, and, most importantly, delayed or canceled renewable diesel startups. For the quarter, our combined adjusted EBITDA was $280.1 million, but it included a $25 million out-of-period inventory adjustment within the food segment.
Randy: Stocks slower global consumer demand for premium ingredients, and most importantly delayed or canceled renewable diesel start ups.
Randy: For the for the quarter, our combined adjusted EBITDA was $280 1 million, but it included a 25 million out of period inventory adjustment within the food segment as you can see on the slide. This is the third quarter in a row, we have dealt with the deflationary pricing, but we now feel strongly we're seeing wins begin to change.
Randall C. Stuewe: As you can see on the slides, this is the third quarter in a row we have dealt with deflationary pricing, but we now feel strongly we are seeing the winds begin to change in a positive direction. Now, turning to the feed ingredients segment.
Speaker Change: In a positive direction.
Speaker Change: Now turning to the feed ingredients segment global raw material volumes remained strong and we're seeing fat prices slowly improving.
Randall C. Stuewe: Global raw material volumes remain strong, and we are seeing fat prices slowly improve. Home and soy oil continues to hold a strong premium over waste fats, and imported fats are now a premium in North America. This shows me that we are still waiting for renewable diesel capacity and pretreatment to ramp up. Global fat prices illustrate that these announced renewable diesel producers are not yet taking advantage of the economics and lower carbon intensity of waste fats and feedstock.
Speaker Change: Home and soy oil continues to hold a strong premium over waste fats and imported bathroom now of premiums in North America.
Speaker Change: This shows me that we are still waiting for renewable diesel capacity and pretreatment to ramp up global fat prices illustrate that these announced renewable diesel producers are not yet taking advantage of the economics and lower carbon intensity of waste fats and feedstocks.
Randall C. Stuewe: Also, during the quarter, we completed the Mirapause acquisition on January 30th, adding three poultry rendering plants to our portfolio. The plants are performing quite well, and I expect them to be accretive this year. And, after 481 days offline, our Ward, South Carolina rendering plant is operational, providing us much-needed capacity in the eastern United States. Now, turning to our food segment.
Speaker Change: Also during the quarter, we completed the mirror pause acquisition on January 30th, adding three poultry rendering plants to our portfolio. The plants are performing quite well and I expect them to be accretive this year.
Speaker Change: And after 481 days offline Our award South Carolina, rendering plant is operational providing us much needed capacity in the eastern United States now turning to our food segment are worth a little sales volumes remain robust segment rental revenue was lower quarter over last year Q1 over last year.
Randall C. Stuewe: Our Rousselot sales volumes remain robust, but segment revenue is lower quarter over last year, Q1 over last year due to a decline in selling price for collagen, gelatin, and our edible fats business. Adjusting for the $25 million out-of-period adjustment related to the Gelnex inventory, gross margins in the food segment actually widened to around 30%. This is a testament to our laser focus on spread management in a declining price environment. Now, we announced earlier this month that we have identified a portfolio of collagen peptide profiles that are believed to provide targeted health and wellness benefits. In scientific trials, these active collagen peptide profiles have demonstrated that collagen can be beneficial in reducing the post-meal blood sugar spike in a very natural way.
Speaker Change: Due to a decline in selling price in college, and gelatin inner edible fats business adjusting for the 25 million out of period adjustment related to the genomics inventory gross margins in the food segment actually widened to around 30%. This is a testament to our laser focus on spread management in a declining.
Speaker Change: Rice environment.
Speaker Change: Now we announced earlier this month that we have identified a portfolio of collagen peptide profiles that are believed to provide targeted health and wellness benefits. During scientific trials. These active collagen peptide profiles have demonstrated the collagen can be beneficial in reducing the post meal blood sugar spike and a very natural way.
Randall C. Stuewe: This is a game-changing discovery that opens the door for many new product launches worldwide. Our first active peptide will be available this fall in 2024. Turning to our fuel segment, feedstock prices tended to trend lower and improve DGD earnings compared to Q4 2023. However, weak RINs and LCFS prices and a lower cost to market adjustment impacted DGD earnings. The margin outlook remains favorable due to lower FAD prices and our competitive advantage plus an optimistic view we have on the LCFS.
Speaker Change: This is a game changing discovery that opens the door for many new product launches worldwide. Our first active peptide will be available. This fall in 2024, turning to our fuel segment feedstock prices tended to trend lower and improved D. G D earnings compared to Q4 2023.
Speaker Change: However, weak rents and L CFS prices and a lower of cost or market adjustment impacted D. G. D earnings the margin outlook remains favorable due to lower fat prices and our competitive advantage plus an optimistic view we have on the L. CFS are sustainable aviation unit construction is running ahead of schedule and on.
Randall C. Stuewe: Our Sustainable Aviation Unit construction is running ahead of schedule and on budget and is planned to start up in the fourth quarter of 2024. We continue to work with a number of interested parties on SAF purchases and remain confident in our outlook for SAF. Now, I'd like to hand the call over to Brad to go through the financials, and I'll come back and give you my views on 2024. Okay.
Speaker Change: Budget and is planned to start up in the fourth quarter of 'twenty 'twenty four we continue to work with a number of interested parties on Saf purchases and remain confident in our outlook for S. A up now I'd like to hand, the call over to Brad.
Brad Phillips: To go through the financials, then I'll come back and give you my views on 2024, Okay. Thanks, Randy net income for the first quarter 2024 totaled $81 $2 million or 50 cents per diluted share compared to net income of 185 8 million or a dollar for 14.
Brad Phillips: Assets per diluted share for the first quarter of 2023 Net sales of $1.42 billion for the first quarter of 2024 as compared to $1.79 billion for the first quarter of 2023. Operating income decreased $118.7 million to $137.2 million for the first quarter of 2024, compared to $255.8 million for the first quarter of 2023, primarily due to a $120.6 million increase in the gross margin, decrease in the gross margin, I'm sorry, which, as Randy previously referenced, included a $25 million out-of-period adjustment of overstated. Also, our share of the equity in Diamond Green Diesel' Appreciation and amortization was $11.5 million higher, primarily due to the addition of gel nails.
Brad Phillips: So that's per diluted share for the first quarter of 2023 net sales of 1.42 billion for the first quarter 2024, as compared to 1.79 billion for the first quarter of 2023.
Brad Phillips: Operating income decreased $118 7 million to $137 2 million for the first quarter of 2024 compared to 255.8 million for the first quarter of 2023, primarily due to a $120 6 million increase in the gross margin decrease in the gross.
Brad Phillips: Large I'm, sorry, which as Randy previously referenced included a $25 million out of period adjustment of overstated gel next inventories also our share of the equity in Diamond Green Diesels earnings were $15 9 million lower than the first quarter of 2023, depreciation and amortization was <unk>.
Brad Phillips: $11 5 million higher primarily due to the addition of gel mix.
Brad Phillips: We did recognize $25.2 million of income from the change in Fair Value of Contingent Consideration related to lowering and earn-out liability. Non-operating expenses increased $14.9 million, primarily due to an interest expense increase of $12.6 million attributable primarily to additional debt related to acquiring GelNex on April 1, 2023. The company recorded income tax expense of $3.9 million for the three months ended March 30, 2024, yielding an effective tax rate of 4.6%, which differs from the federal statutory rate of 21% due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions with different tax rates.
Brad Phillips: We did recognize $25 2 million of income from the change in fair value of contingent consideration related to lowering an earn out liability.
Brad Phillips: Non operating expenses increased $14 9 million, primarily due to interest expense, increasing $12 6 million attributable primarily to additional debt related to acquiring gel next April 1st.
Brad Phillips: 23.
Brad Phillips: The company reported income tax expense of $3 9 million for the three months ended March 30, 'twenty 'twenty four yielding an effective tax rate of four 6%, which differs from the federal statutory rate of 21% due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions.
Brad Phillips: Different tax rates.
Brad Phillips: The effective tax rate, excluding the impact of the biofuel tax incentives, there's 25, 4% for the three months ended March 32024.
Brad Phillips: The company also paid $33 million of income taxes in the first quarter or two.
Brad Phillips: The effective tax rate, excluding the impact of the biofuel tax incentives, was 25.4% for the three months ended March 30, 2024. The company also paid $33 million of income taxes in the first quarter. For 2024, we expect the effective tax rate to remain about the same at 5% and cash taxes of approximately $70 million for the remainder of the year.
Brad Phillips: 'twenty 'twenty four we expect the effective tax rate to remain about the same at 5% and 10 and cash taxes of approximately $70 million for the remainder of the year.
Brad Phillips: The company's total debt outstanding as of March 32024 was 4.465 billion compared to 4.427 billion at year end 2023, primarily due to the acquisition of mere pause on January 31st.
Brad Phillips: Our bank Covenant projected leverage ratio at Q1, 'twenty four was 371 times and we had $811 1 million available to borrow under our revolving credit facility.
Randall C. Stuewe: The company's total debt outstanding as of March 30, 2024 was $4.465 billion, compared to $4.427 billion at year-end 2023, primarily due to the acquisition of Mariposa on January 31st. Our bank covenant projected leverage ratio at Q124 was 3.71 times, and we had $811.1 million available to borrow under our revolving credit facility. Working capital noticeably improved in the first quarter of 2025. Capital expenditures totaled $93.8 million in the first quarter as compared to $111.3 million in the first quarter of twenty-three. No cash dividends were received from Diamond Green Diesel in the first quarter, and there were no share repurchases in the first quarter.
Brad Phillips: Working capital noticeably improved in the first quarter 2024.
Brad Phillips: Expenditures totaled $93 8 million in the first quarter as compared to $111 3 million in first quarter 'twenty three.
Brad Phillips: No cash dividends were received from Diamond Green diesel in the first quarter and there were no share repurchases in the first quarter with that I'll turn it back over to you Randy Thanks, Brad for several years, we've enjoyed tailwind from a demand driven a global economy and strong global commodity and specialty ingredient prices. We are now adapting to the new.
Randy: The reality of abundant global supplies in my 21 years, plus with this company I've seen this cycle, many times and I am confident in the team's ability to make any necessary adjustments in our procurement processes and lowering our operating cost to regain margin leverage in April we saw nice progress in our core ingredients business.
Randy: D. G. D is finally worked through it's higher priced feedstocks with let's say you are starting up in Q4 several contracts are underway and we remain optimistic on L. CFS and D. G. D margin outlook remains favorable our goal to reduce debt and working our way toward investment grade has not wavered through <unk>.
Randall C. Stuewe: Transcribed by https://otter.ai. Thanks, Brad. For several years, we've enjoyed tailwinds from a demand-driven global economy and high global commodity and specialty ingredient prices. We are now adapting to the new reality of abundant global supplies. In my 21 years plus at this company, I've seen this cycle many times, and I am confident in the team's ability to make any necessary adjustments in our procurement processes and lower our operating costs to regain margin leverage.
Randy: Dresser, Capex management, and a focus on improving working capital along with improved performance of D. G. D. I still believe we can attain by the end of the year end of 'twenty. Four. Additionally, as we discussed in February we're doing a comprehensive review of our global portfolio and continue to put a strong emphasis on cost and spread.
Randy: Management.
Randall C. Stuewe: In April, we saw nice progress in our core ingredients business, and DGD has finally worked through its higher-priced feedstocks. With SAF starting up in Q4, several contracts are underway, and we remain optimistic on LCFS, and DGD's margin outlook remains favorable. Our goal to reduce debt and work our way toward investment grade has not wavered. Through aggressive capex management and a focus on improving working capital, along with improved performance at DGD, I still believe we can achieve by the year-end of 24.
Randy: For the full year, given what we see today around the globe with solid raw material volumes, improving premium protein in college and demand along with slowly improving fat prices and D. G. D performance, we feel optimistic that momentum will be built during the year and we will be able to deliver one three to one 4 billion.
Randy: Combined adjusted EBITDA, all while setting the table for a much improved 2025.
Speaker Change: So with that let's go ahead and open it up to Q&A.
Speaker Change: Yeah.
Speaker Change: Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Randall C. Stuewe: Additionally, as we discussed in February, we're doing a comprehensive review of our global portfolio and continue to put a strong emphasis on cost and spread management. For the full year, given what we see today around the globe with solid raw material volumes, improving premium protein and collagen demand, along with slowly improving fat prices and DGD performance, we feel optimistic that momentum will be built during the year, and we will be able to deliver 1.3 to 1.4 billion combined adjusted EBITDA, all while setting the table for a much improved 2025. So with that, let's go ahead and open it up to Q&A.
Speaker Change: Anytime the question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: Limit yourself to one question and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble the roster.
Speaker Change: The first question comes from Vishal <unk> from Jefferies. Please go ahead.
Speaker Change: Okay.
Vishal: Hi, Thank you for taking my questions.
Speaker Change: Good.
Vishal: The question on the guide that you have on the one two to 1.4 does that include any universe. So the LCM adjustments or could there be additional upside to that.
Vishal: No. This is Randy you know the one three to one point for is really what we see today with a small improvement in fat prices, but really back half loaded here. It doesn't include any a S. A up early start up it's just a snapshot as we've always done and what we see right now.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. 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. At this time, we will pause momentarily to assemble the roster.
Vishal: You know as I said in February our hope is to beat last year, but we're going to need some help from fat prices.
Vishal: And ultimately you know if you if you do and I'm I'm kind of probably going to answer a few questions here and have Brad help me, but you know you can go straight to the feed segment and do the kind of the year over year quarter over quarter type of analysis and you see 100% of that is related to fat prices being down from Q4 to Q.
Vishal: One by 20% and year over year by 35% to 40% and so you know ultimately fat prices will drive whether that number is 131415161718 as we come back here. We also remain and we'll talk through the Q&A you know optimistic that well.
Dushyant Ajit Ailani: The first question comes from Dushyant Ailani from Jeffreys, please go ahead. Hi, thank you for taking my questions. The question is on the guide that you have.
Randall C. Stuewe: No, this is Randy. You know, the 1.3 to 1.4 is really what we see today with a small improvement in fat prices, but really back half loaded here. It doesn't include any early SAF startup. It's just a snapshot, as we've always done, of what we see right now. You know, as I said, in February, our hope is to beat last year, but we're going to need some help from fat prices. Ultimately, if you do, and I'm probably going to answer a few questions here and have Brad help me, but you can go straight to the feed segment and do the year over year, quarter over quarter type of analysis, and you see 100% of that is related to fat prices being down from Q4 to Q1 by 20% and year over year by 35% to 40%.
Vishal: We'll get some some L. C F S bump towards the end of the year and clearly D. G D. As a work through the higher priced feedstock with a longer supply chain and it's you know it continues to outperform anybody on the street out there in the business today. So you know the 1314 as Suzanne taught me Beacon.
Vishal: <unk> and hopefully we will give you some upside here.
Speaker Change: Awesome. Thank you Andy.
Speaker Change: And then just a quick question on I guess on the leverage ratio coupons, seven any kind of dance.
Speaker Change: On dog yet.
Speaker Change: We don't want to go along the year end.
Speaker Change: Yeah, but you know not Brad help you remember that the leverage ratio is a point in time of of total debt divided by the core ingredients plus dividends and so clearly as we've been building out as a and we had the Q3 and Q4 lower earnings of last year in.
Randall C. Stuewe: Ultimately, fat prices will drive whether that number is 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, as we come back here. But we also remain, as we'll talk through the Q&A, optimistic that we'll get some LCFFs bumped towards the end of the year. Clearly, DGD has worked through the higher price feedstock with the longer supply chain, and it continues to outperform anybody on the street out there in the business today. The 1.3, 1.4, as Sueann taught me, be conservative, and hopefully, we'll give you some upside here. Awesome. Thank you, Randy. And then just a quick question on, I guess, your leverage ratio, 3.7, any kind of updates on Target. Oh, we know what your goal is for the year end.
Speaker Change: And D. G. D. You know dividends didn't arrive here. So that's just a function of that you know it is.
Speaker Change: Brad and I and Matt would tell your cash is building rapidly and D. G D and we remain optimistic on dividends, which will then pull that ratio down. It's a rolling 12 month calculation by no means has anything changed other than the delay of the dividend out of D. G D Friday.
Speaker Change: Right, just the timing and when these dividends get started wood, which we anticipate is as Randy just mentioned cashes is building yet has been building as D. G. D now and yes, I guess the project wont winding down.
Speaker Change: This is Matt and I would just add that on the dividend the dividend out of D. G. D is a it's not a a subjective a policy here. It's formulaic it's calculated every month.
Randall C. Stuewe: Yeah, you know, Brad helped here. Remember, the leverage ratio is a point in time of total debt divided by the core ingredients, plus dividends. And so clearly, as we've been building out SAF, and we had the Q3 and Q4 lower earnings of last year in DGD, you know, dividends didn't arrive here. So that's just a function of that. You know, as Brad and I and Matt would tell you, cash is building rapidly in DGD, and we remain optimistic about dividends, which will then pull that ratio down.
Matt: And so you know, there's there's not a there's not a discretionary push and pull of that.
Matt: The next question comes from Tom Palmer from Citi. Please go ahead.
Thomas Hinsdale Palmer: Good morning, and thanks for the question.
Thomas Hinsdale Palmer: In the past you've given a bit of a breakdown in terms of EBITDA between the base business and D. G D.
Thomas Hinsdale Palmer: No at least from your.
Thomas Hinsdale Palmer: The prior question that maybe there's a bit more variability on the E side, but I was hoping maybe you could give us a.
Thomas Hinsdale Palmer: Kind of a rough split of how youre thinking about the year.
Thomas Hinsdale Palmer: So your Tom you're you're you're referencing really the guidance and splitting that out is that that's kind of where you're going.
Tom: Yes, that's right kind of base business Bruce D. G D for 'twenty four.
Randall C. Stuewe: It's a rolling 12-month calculation. By no means has anything changed other than the delay of the dividend out of DGD. Brad, anything you want to add? That's right. Just the timing and when these dividends get started, which we anticipate is, as Randy just mentioned, cash has been building in DGD now, and the SAF projects are winding down.
Speaker Change: Yeah, Tom if if we had if we had to throw that out there today 900 out of the base business and what we see today and basically a billion out of out of D. G. D. In that 75 cents times, a little over 1.3 billion gallons and remember just a point in time.
Speaker Change: Great. Thanks for that detail and then.
Matthew J. Jansen: This is Matt, and I would just add that the dividend out of DGD is not a subjective policy here. It's, it's formulaic, it's calculated every month. And so, you know, there's not a discretionary push and pull in
Speaker Change: Just wanted to follow up on kind of somebody moving pieces within feet. I mean, you noted the expectation for fat and potentially protein prices to strengthen a bit here.
Speaker Change: I guess can we walk through what the major catalysts are I mean, obviously there is a disconnect right now between some of the products you sell and what we're seeing with the states soybean or palm oil what kind of bridges that gap and how quickly might that take hold.
Thomas Hinsdale Palmer: The next question comes from Tom Palmer from Citi. Please go ahead. Good morning, and thanks for the question.
Thomas Hinsdale Palmer: Good morning, and thanks for the question. In the past, you've given a bit of a breakdown in terms of EBITDA between the base business and DGD. I know, at least from your comments to the prior question, that maybe there's a bit more variability on the feed side, but was hoping maybe you could give us, you know, kind of a rough split of how you're thinking about the year.
Speaker Change: So this is Matt I'll I'll take the first cut at that and so.
Matt: First of all for the last a little over a year.
Matt: We'd been hindered by the award plan that we've been rebuilding and we're actually very proud of the fact that we got that plant now up and running we did a a total rebuild of that plant and 481 days and frankly could have even done a little bit quicker. If we could have gotten the equipped with the there even earlier so so now what.
Randall C. Stuewe: So you're, Tom, you're, you're, you're referencing the guide really and splitting that out; that's kind of where you're going. Yes, that's right. Kind of the base business for CGD for 24. Yeah.
Matt: Does going forward that allows us to leverage our our footprint in the are in the space, especially in the eastern half of the U S where we've been over the last last year like I mentioned incurring some some costs and it's frankly been inefficient.
Randall C. Stuewe: Yeah, Tom, if we had to throw that out there today, 900 out of the base business is what we see today, and basically a billion out of DTD, and that's 75 cents times a little over 1.3 billion gallons. Remember, just a point in time.
Matt: For the you know just because of that plant being down so that's that's back up and running now.
Thomas Hinsdale Palmer: Right, thanks for that detail. And then I just wanted to follow up on kind of some of the moving pieces within feed. You noted the expectation for fat and potentially protein prices to strengthen a bit here. I guess because we've walked through what the major catalysts are, I mean, obviously, there is this disconnect right now between some of the products you sell and what we're seeing with, say, soybean or palm oil. What kind of bridges that gap and how quickly might that take hold?
Matt: And that's something that will give us now the ability to leverage our footprint in the a.
Speaker Change: And the space Yeah, that's that's a good point and globally I'd step back Tom and give you give you three analysis one.
Speaker Change: There's an absolute fact here that anybody that says are pre treating waste fats in North America for R&D isn't doing a very good job of it or we wouldn't be a discount to where we were 10 years ago to two vegetable oil, whether it's polymer soy or or canola.
Matthew J. Jansen: So, this is Matt. I'll take the first cut at that. And so, you know, first of all, for the last little over a year, we've been hindered by the Ward plant that we've been rebuilding, and we're actually very proud of the fact that we've got that plant now up and running. We did a total rebuild of that plant in 481 days, and frankly, could have even done it a little bit quicker if we could have gotten the equipment there even earlier.
Speaker Change: That that's number one that that impact we're seeing globally. I mean, you had European fast moving here for the first time in my career.
Speaker Change: Even with the even with the you know plus Euro 1061 time, Brazil was moving up here now Brazil's over U S. But at the end of the day, you know that the fat pricing drives this thing and when you look at what's going on in the segments. You've got three pieces, you've got animal fats you got prime.
Matthew J. Jansen: So, now what that does going forward, that allows us to leverage our footprint in space, especially in the eastern half of the U.S., where we've been, over the last year, like I mentioned, incurring some costs, and it's frankly been inefficient just because of that plant being down. So, that's back up and running now, and that's something that will give us the ability to leverage our footprint in space. Yeah, and that's a good point.
Speaker Change: Liam proteins, we saw a massive destocking of the premium pet foods people were trading down they they it seems to have come back a little bit now and we've got great orders in that business again, so that feels much better China was.
Randall C. Stuewe: Yeah, and that's a good point. And globally, I'd step back, Tom, and give you three analysis. One, that there's an absolute fact here that anybody that says they're pre-treating waste fats in North America for RD isn't doing a very good job of it, or we wouldn't be at a discount to where we were 10 years ago with vegetable oil, whether it's palm or soy or canola. And so, at the end of the day, the outlook for the feed segment is improved protein demand and then a rebound in fat prices at some point in time as we go forward.
Speaker Change: It kind of disappeared for a little while Chinese new year, but once again buying the premium chicken products for the aquaculture business and then the other piece that you know obviously exists in the beer segment because of shared assets as the U K business and that business has come down sharply and that that's a very profitable business.
Speaker Change: Forest and so at the end of the day the outlook for the feed segment is just improved protein demand and then a rebound in fat prices are at some point in time here as we go forward Bob anything I'm forgetting here.
Randall C. Stuewe: Bob, anything I'm forgetting here? I think you highlighted it really well, and that's the spread between vegetable oil and animal fats. And as time goes on, we should see that spread tighten versus where we are. Hope that helps, Tom.
Speaker Change: Thank you you highlighted it really well and it's it's you know it's the spread between vegetable oil and animal fats and is as time goes on we should see that spread tightened versus where we are.
Speaker Change: Otherwise yeah.
Speaker Change: Yes.
Speaker Change: Hope that helps Tom.
Speaker Change: The next question comes from Ben <unk> from Stephens. Please go ahead.
Benjamin Shelton Bienvenu: The next question comes from Ben Bienvenu from Stevens. Please go ahead.
Ben: Hey, thanks, so much.
Matthew J. Jansen: You mentioned the pull forward of the SAS production commissioning making good progress there. Can you talk a little bit about the development of getting that volume contracted and, you know, the potential contribution that you think that could bring to 2025 or even 2024? Randy, as you mentioned, maybe there's some stub contribution.
Ben: You mentioned the pull forward of the S. A S. A production commissioning, making good progress there can you talk a little bit about the development of a you know getting that volume contracted and you know the potential conflict contribution that you think that could bring the 2025 or even 2020 for Randy as you mentioned, maybe there was some.
Ben: <unk> contribution.
Matthew J. Jansen: So this is Matt. I'll again take the first cut at this, but as we mentioned, the plant will now be commissioning in Q4 of this year, which is a solid quarter ahead of the original plan. That plan is also on budget at $315 million at the entity level.
Ben: So this is Matt I'll I'll I'll again take the first cut at this but so the as we mentioned the plant now and we will commission and AR in Q4 of this year, which is a solid quarter ahead of the original plan that plan is also on budget at $350 million at the.
Matt: The entity level. So we're tracking there and so that that's something that we're we're we're very optimistic about I would say from a contracting standpoint, we continue to see a lot of interest in our product. We are taking a what I think is the best approach towards towards this and I would I'm confident that.
Randall C. Stuewe: So we're tracking there, and so that's something that we're very optimistic about. I would say from a contracting standpoint, we continue to see a lot of interest in our product, and we are taking what I think is the best approach to this. And I'm confident that we'll be able to, let's say, contract the volume that we will be producing out of that plant. It's going to be boiler plated at 250 million gallons on an annual basis.
Matt: We'll be able to let's say contract or the volume that we are we'll be producing out of that plan is gonna be a boiler plate. It at 250 million gallons on an annual basis, we don't have anything in our Q or in our 24 numbers related to the ER to the project in terms of EBITDA.
Randall C. Stuewe: We don't have anything in our Q or in our 24 numbers related to the project in terms of EBITDA, but I'm confident, given the state of the discussions at where we are right now, that we'll be able to, A, meet the volume and, certainly, B, meet the return expectations from that project. Yeah, I think that's a good point.
Matt: But I'm I'm kind of that given the state of the discussions.
Matt: Discussions, where we are right now that we'll be able to meet the volume and certainly be meet the return expectations from from that project I think that that's fair enough and I don't think there's you know there's been a lot of chatter out there ban of.
Benjamin Shelton Bienvenu: Yeah, I think that that's fair enough. And I don't think there's, you know, there's been a lot of chatter out there. It's building, you know, 17,000 barrels a day is not going to be hard to disappear. We have plenty of interest there. It's down to the final negotiations on spread and pricing here in both the voluntary and the mandated markets, and clearly, that's going to drive it here. But we have no fear of any challenges there other than hurrying up and getting it online.
Matt: It keeps building you know the 17000 barrels a day is not going to be hard to disappear. We have plenty of interest there it's down to the final negotiations on spread in pricing here in both the voluntary and the mandated markets and clearly that's going to drive it here, but we have no no.
Matt: Fear of any challenges there other than a hurry up and get it online.
Matt: Yeah.
Speaker Change: Okay. That's great. Thank you both.
Speaker Change: As we think about kind of nearing the end of that Capex project, you've built out D. G D and you've kind of moved through.
Randall C. Stuewe: Okay, that's great. Thank you both. As we think about kind of nearing the end of that CapEx project, you've built out DGD, you've kind of moved through DMA activity you've had over the last couple of years as you think about cash spend priorities from here I don't recognize you want to get leveraged down and then you know distributions will be in the wake of that, How should we think about your appetite for continued opportunistic M&A and or incremental growth CapEx projects?
Matt: The M&A activity you've had over the last couple of years.
Matt: [noise] about cash spend priorities from here I didn't recognize you want to get leverage down.
Matt: And then you know distributions will be in the wake of that.
Matt: Should we think about your appetite for continued opportunistic M&A and or incremental growth capex projects.
Randall C. Stuewe: Yeah, I mean, it's one that I'll comment on. Number one, we are on an aggressive CapEx reduction program this year. I told Brad we're going to scale it back. We were 93.7 million in Q1. I think that's a pretty close run rate.
Speaker Change: Yeah, I mean, it's.
Speaker Change: It's one that that I'll comment on number one you know we are on an aggressive capex reduction program. This year told Brad we're going to scale. It back we were $93 7 million in Q1, I think that's a pretty close run rate Q1 is always a little lower because of winter weather and.
Randall C. Stuewe: Q1 is always a little lower because of winter weather and construction. But that also had the final bills of building out, and rebuilding the ward, as Matt mentioned. Target there is 400 for the year, plus or minus a little bit there.
Speaker Change: <unk> with that also had you know the final bills or building out rebuilding ward as Matt mentioned and so you know target. There is 400 for the year plus or minus a little bit. There you know ultimately we've got some pretty substantial inventories, while we had a pretty big working capital reduction in Q.
Randall C. Stuewe: Ultimately, we've got some pretty substantial inventories. While we had a pretty big working capital reduction in Q1, there's still more work to do there. So cash generation is key, and then the dividends out of DGD. We want to get the debt down below 4 billion. And then it puts us in a different position of going forward. We will not walk away from a well-priced bolt-on, but we're going to be very, very cautious this year because our priorities are operating cost management, working capital improvement, and really just getting DGD lined out and living through the lower-priced inventory.
Speaker Change: One there there's still more work to do there so cash generation is key and when the dividends out of D. G. D. We want to get the debt down below 4 billion.
Speaker Change: And then it puts us in a different position.
Speaker Change: Going forward you know, we will not walk away from a well priced bolt on but we're going to be very very cautious this year, because our priorities or operating cost management working capital improvement and really just getting D. G D lined out and living through the lower priced inventory.
Speaker Change: You know we're trying as you step back Mark really what are we trying to do we're trying to to work towards a share base of owners of this company.
Randall C. Stuewe: I mean, we're trying, as you step back macroeconomically, what are we trying to do? We're trying to work towards a share base of owners of this company that both understand that there's going to be some volatility in commodities. We've got a very well-managed business model globally.
Speaker Change: Both understand but you know there's going to be some volatility in commodities, we've got a very well managed business model globally and then ultimately this thing once we're in position and twenty-five here will have chances for you know all kinds of share repurchases to two ultimately considering a dividend and that's where we are.
Randall C. Stuewe: And then ultimately, this thing, once we're in position 25 here, we'll have chances for all kinds of share repurchases to ultimately consider a dividend. And that's where we're headed. And then ultimately, as we go into 25, we've got some debt maturing or going current, as they say, and we've got to figure out the long-term capital structure. But right now, for us, it's really just, as we've said, a real focus on margin management, and spreading management around the world, which I've got to give credit to the team.
Speaker Change: Headed and then ultimately as we go into 'twenty five we've got some debt maturing or going current as they say and you know we've got to figure out the long term capital structure, but right now for US. It's really just a as we said it's just a real focus on margin management spread management around the world, which I got to give credit to the team they've done a nice job.
Speaker Change: And that's what's evident if you look between Q4 and Q1 with a massive price decline again, a 20%, but yet other.
Speaker Change: Then the inventory adjustment you know you you were you were three something in Q4 and three middle <unk>.
Speaker Change: And there are three low in Q1 with a 20% fat price decline and so that's attributable to people, making the changes in the spread management ratios around the world.
Randall C. Stuewe: They've done a nice job. And that's what's evident. If you look between Q4 and Q1, with a massive price decline, again, of 20%, but yet... Other than the inventory adjustment, you know, you were you were three something in Q4 and three low in Q1 with a 20% fat price decline. And so that's attributable to people making the changes in the spread management ratios around the world. I would just say that we.
Speaker Change: I I would just say that we get asked regularly about what what about and if they have to.
Speaker Change: On top of the or subsequent to the S. One and we've got the engineering for that.
Speaker Change: And that's something that as the year progresses, I would say given the fact that we get up and running with our with our Q4 and we are able to contract at the the margins and the returns that we are expecting then in S. A you have to is something that we've got in the holster for some time and potentially 25.
Speaker Change: Bill.
Adam L. Samuelson: The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.
Speaker Change: The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.
Adam L. Samuelson: Yes, thank you.
Adam L. Samuelson: Yes, Thank you and good morning, everyone.
Randall C. Stuewe: So, I guess... Good morning. Good morning.
Adam L. Samuelson: So I guess.
Adam L. Samuelson:
Adam L. Samuelson: I wanted to come back to the outlook on DGD margins, and Randy talked 75 cents a gallon, plus or minus, and you were basically there in the first quarter, excluding the LCM adjustments. And I guess I'm trying to just think about the margin capture at DGD with waste fat still at a healthy discount to vegetable oils, relative to, obviously, the loss, and the reduction in margin that that implies in the feed segment.
Adam L. Samuelson: I wanted to come back to the outlook on <unk> margins and Randy talk 75 cents, a gallon plus or minus and you're basically there in the in the first quarter, excluding the LCM adjustments and I guess I'm trying to just think about the margin capture at D. G D.
Adam L. Samuelson: With waste fats still at a healthy discount to that Doyle.
Adam L. Samuelson: Relative to obviously the last the reduction in margin that that implies in the feed segment and just how do you think about.
Adam L. Samuelson: And just how do you think about Is that DGD capture kind of satisfactory given kind of the pressure it has on the feed business, or is the disconnect that the LCFS just needs to work up over 60 to get those values up? And that has the double benefit of improving the margin realization of DGD and driving kind of broader demand for the waste fat.
Adam L. Samuelson: Is that D. G D capture kind of satisfactory given kind of the pressure it has on the feed business or.
Adam L. Samuelson: Is the disconnect that you all see how fast it just needs to work up over 60 to get that those values up and that has the double benefit of improving the margin realization that D. G D and driving kind of broader demand for the waste fats from the pizza.
Randall C. Stuewe: Yeah, and I'll tag this with Matt here, number one, Adam, I'm just going to step forward and just say, you know, I've learned my lesson here a little bit. We're coming out conservative. Clearly, the LCFS has not reacted to what I think is a very positive future look here. I think the RINS S&D is going to tighten up here because this RD capacity isn't real, or we wouldn't be a discount, and soybeans wouldn't be a discount to palm oil.
Speaker Change: Yeah, and I'll tag this with Matt here, you know number one and I'm just going to step forward and just say you know what I've learned my lesson here, a little bit we're coming out conservative clearly the L. CFS has not reacted to what I think is very positive future look here.
Speaker Change: I think the wrens SMB is going to tighten up here because those rd capacity isn't real or we wouldn't be a discount in soybean wouldn't be a discount to palm oil. So you know ultimately this is just a projection in times that are we believe as we approached 25, but that margin structure can.
Randall C. Stuewe: So, you know, ultimately, this is just a projection in time that we believe, as we approach 25, that that margin structure can improve quite a bit. But that's what we see right now, Matt, Bob.
Speaker Change: Can improve quite a bit but that's what we see right now that Bob I would just say the other complexity due to this is that there's a timing discrepancy here in terms of.
Matthew J. Jansen: I would just say that the other complexity to this is that in our feed business, the fat prices are reflected much more responsibly in the results, wherein the price movement's in a DGD simply because of the supply chain management that's required to sustain a 1.2 to 1.3 billion gallon business. It's got a longer tail to it, and we've seen that over the last few months as prices have fallen.
Speaker Change: In our feed business the fat prices are reflected much more responsibly in the AR and the and the results were in the price movements in a D. G D simply because of the supply chain management, that's required to sustain a 1.2 to one 3 billion gallon business, it's got a longer tail to it and we've seen that.
Speaker Change: Over the last few months as if prices had fallen the feedstock prices at D. G D haven't fallen as quickly and in the numbers and so there's a little bit of a timing discrepancy there but in terms of in a bigger broader picture. It's a I would say, it's it's doing exactly what we thought it would.
Matthew J. Jansen: The feedstock prices at DGD haven't fallen as quickly in the numbers, and so there's a little bit of a timing discrepancy there, but in terms of the bigger, broader picture, I would say it's doing exactly what we thought it would.
Randall C. Stuewe: Yeah, I think Adam from, you know, not to get too deep in the sausage grinding, but you know, if we had rewound the movie a year and a half ago, DGD-3 when it came online would have used two-thirds of North America's waste fat supply, so we made a strategic decision to qualify the West Coast guys we were going to pretreat. And we've never found a consumer yet for Darling's Waste Fats in North America. So we woke up in Q1 here, or Q4 and Q1, really, with BGD as the only technology capable of pretreating our fat. Bobby, anything you want to add?
Speaker Change: Yeah, I think from Adam from you know not to get too deep in the sausage grinding, but you know if we would've rewind the movie a year and a half ago D. G. D. Three when it came online between the system would use two thirds of north America's waste fats supplies. So we made a strategic decision to qualify.
Speaker Change: Feedstock suppliers from around the world, including our own plants in Europe and in South America.
Speaker Change: And that's the length of the supply chain. That's the good news we qualified other people and found other sources that the bad news was that in a deflationary environment that supply chain was much longer and that had to play out in Q4 and in Q1 and then your top on that is is that there was all this expectations between the.
Speaker Change: Some of the Gulf Coast, guys, we're gonna Pretreat and West Coast, guys, We're gonna Pretreat and we've never found a consumer yet for darlings waste fats in North America. So we woke up in Q1 here or Q4, and Q1 really with D. G. D is the only capable technology of pre treating.
Robert W. Day: Yeah, I'll just provide some color from a broader S&D perspective on, you know, renewable diesel. I think, you know, there's a really different picture between 2024 and 2025. In 2024, we always knew that the RIN S&D was going to be a bit heavy. You know, we'll produce eight or eight and a half billion D4 plus D5 RINs this year versus an RVO of 5.55 and maybe a shortfall in D6 of one.
Speaker Change: Fat Bob anything you want to add.
Robert W. Day: Yeah, I'll just provide some color from a from a broader S&P perspective on renewable diesel I think you know.
Robert W. Day: There's a really different picture between 2024 and 2025 in 'twenty 'twenty four we we always knew that the RIN that somebody was going to be a bit heavy.
Fat Bob: You know will produce eight or eight 5 billion before plus D. Five rooms, this year versus an RVO, a 5.55 and maybe a shortfall in D. Six of of one so it's a it's about 2 billion RIN oversupply.
Robert W. Day: So it's about two billion RIN over supply. But when we get to 2025, the RVO increases to 5.95. And if we move to the producer's tax credit, really imported biofuel and domestically produced biodiesel, it loses a lot of support. And that represents almost four of the eight to eight and a half billion RINs. So it's a significant change.
Robert W. Day: But when we get to the 2025, the RVO increases to $5 95, and if we moved to a producers tax credit.
Robert W. Day: Really imported biofuel and domestically produced.
Robert W. Day: Biodiesel it loses a lot of support and that represents almost four of the eight to eight 5 billion rents. So it's a it's a significant change and if you kind of look at where biodiesel is today.
Robert W. Day: And if you kind of look at where biodiesel is today, call it a 20 cent per gallon margin without the blender's tax credit, it goes to minus 80. And so in order for biodiesel to be a break even, the RIN has got to do the work. And so, you know, we're bullish on RINs as we get into 2025. And then if you just look at CARB's estimates through the regulatory impact assessment, they estimate we're going to be seeing, you know, $1.30 a gallon LCFS credit values.
Robert W. Day: You know call. It a 20 cent per gallon margin without the blenders tax credit it goes to minus 80, and so in order for biodiesel to be at breakeven. The RIN has got to do the work and so you know we're bullish rooms as we get into 2025 and then if you just look at the at Carbs estimates through the <unk>.
Robert W. Day: <unk> impact assessment. They estimate we're gonna be seeing you know dollar 30, a gallon type L. CFS credit values at least that's what their aspiring to and and so if you layer that all on top it really bodes well for our renewable diesel margin as we play out and as we get to the end of 2020 for you know we believe the market is going to see that.
Robert W. Day: At least that's what they're aspiring to. And so if you layer that all on top, it really bodes well for a renewable diesel margin as we go. And as we get to the end of 2024, we believe the market's going to see that, and we'll start to react to that type of S&D reality.
Robert W. Day: Start to react to that type of an S. N D reality.
Adam L. Samuelson: Okay, and if I could just maybe follow on that last point, and it kind of goes back to the original question, how do we think about maybe a flat price? Veg oils In that scenario, where that's a pretty significant amount of vegetable oil demand and waste fat, vegetable oil in particular, that is going to be challenged to find homes in the biodiesel market, yes, maybe the waste fat discounts to vegetable oil will narrow or go away. But that could put downward pressure on the vegetable oil market broadly. Are you concerned about that?
Speaker Change: Okay, and if I can just maybe follow on that last point and it kind of goes back to the original question.
Speaker Change: How do we think about maybe flat price veg oils.
Speaker Change: In that scenario, where that's pretty significant amount of veg oil demand than waste fat veg oil in particular.
Speaker Change: There's going to be challenged to find homes in the biodiesel market that yes, maybe the waste fat discounts to veg oil.
Speaker Change: Narrow or go away.
Speaker Change: But that could put downward pressure on the veg oil market broadly do you are you concerned about that in any way.
Robert W. Day: Well, I think, look, the RVO is what it is, and if we have a stronger LCFS in California, it's going to be more supportive of demand overall. But I mean, you're right, it favors renewable diesel over biodiesel. Biodiesel is generally produced from vegetable oil, and outside of diamond green diesel, a lot of it's vegetable oil as well.
Speaker Change: Well I think look the RVO is what it is and if we have a stronger LCD that passed in California, it's going to be more supportive of demand overall, but I mean, you're you're you're right. It it favors renewable diesel over biodiesel biodiesel is generally produced from vegetable oil renewable diesel.
Speaker Change: Outside of the Diamond Green diesel its a lot of its vegetable oil as well, but as we go forward, we should see more animal fats I mean, I think what it points to is increased demand for Hugo and animal fats and less demand for vegetable oil and so you know those spreads should come together, but the overall demand for fats and oils really shouldn't change.
Robert W. Day: But as we go forward, we should see more animal fats. I mean, I think what this points to is an increased demand for yucca and animal fats and less demand for vegetable oil. And so, you know, those spreads should come together. But the overall demand for fats and oils really shouldn't change. It's really about the spreads between, you know, the different products. The only thing that I'd add is it would come down to ultimate crush capacity and whether or not crush, given the new crush plants out there, do they start to scale back? That always takes longer than you think it does, but that's the kind of wild card that's out there. And that's a really good point. Sorry, but that's a really good point.
Speaker Change: It's really about the spreads between the different products.
Speaker Change: The only thing that I'd add is that it would come down to the ultimate crush capacity interests, and whether or not crush given the new crush plants out there to do they start to scale back that always takes longer than you think it does but that that's the kind of the wildcard that's out there and that that's a really good point, Oh, sorry, I'm right, but it's a really good point.
Robert W. Day: Because crush margins, soy crush margins are not very good right now, and they're not projected to look really good here over the next couple of years. And so, you know, the one way to control supply as an industry is to lower crush. And at $25 a ton crush margins, you're not far away from slowing that down.
Speaker Change: Because crush margins soy crush margins are are not very good right now and they're not projected to look really good here over the next couple of years and so you know the one way to control supply as an industry of.
Speaker Change: Vegetable oil is to lower crush and at $25 a ton crush margins, you're not far away from from slowing that down.
Robert W. Day: It would surprise me to see imports drop off as well, as I think that freestanding biodiesel refineries will be disadvantaged.
Speaker Change: You know what surprised me to see imports drop off as well as I think that freestanding biodiesel.
Speaker Change: Refiners will be disadvantaged.
Speaker Change: Yeah.
Manav Gupta: The next question comes from Manav Gupta from UBS. Please go ahead. Oh, God.
Speaker Change: The next question comes from Manav Gupta from UBS. Please go ahead.
Manav Gupta: And you said you were constructive on the Lcs that spaces are recent college books up for the first nine introduced the concept of a 7% step down at 9% step down for 2025, well. It says the proposed 5% step down do you think God Bless find me then I think that the prices are too low and there is a.
Randall C. Stuewe: Guys, you said you were constructive on the LCFS prices. A recent CARB workshop for the first time introduced the concept of a 7% step down or 9% step down for 2025 versus the proposed 5% step down. Do you think CARB is finally recognizing that the prices are too low, and there is a strong possibility that now when the revised numbers come out, you could see a 7% step down or a 9% step down, which actually hits the credit bank pretty hard?
Manav Gupta: A strong possibility that now are in the revised numbers come out you could see a 7% step down or a 9% step down which actually hits the plated bank pretty hot.
Speaker Change: Yeah, I don't think it's.
Speaker Change: Look I think.
Speaker Change: Where we're at we're projected to be at $13 75, yeah, So a five or seven or 9% step down on all of them are a significant increase to where we are today. What we know is that through the the regulatory impact assessment, they've got goals as far as where they would like to see L. CFS credits trading and and really you know.
Randall C. Stuewe: Yeah, do we think it's, um, look, I think, um,
Robert W. Day: We're at, we're projected to be at 13.75. Yeah, so a five or seven or 9% step down, all of them are a significant increase over where we are today.
Speaker Change: We believe they're going to they're going to.
Speaker Change: Put a step down in place that you know they believe is going to allow that market to move to the prices. They think it should be at.
Speaker Change: You know we had the workshop recently, there's there's a lot of constructive dialogue going on.
Randall C. Stuewe: What we know is that through the regulatory impact assessment, they've got goals as far as where they would like to see LCFS credits trading. And, and really, you know, we believe they're gonna, they're gonna and analysis when they make that decision. Yeah, and keep in mind, Manav, it's always been a 2025 kickoff, if you will. Maybe everybody got a little optimistic and aggressive in thinking that CARB would move faster here. It's still a very regimented and gated process there, and I think they're going to publish it here shortly. I think it'll go to a board meeting in July, and then after that, we'll see it on execution.
Speaker Change: And in all scenarios, it's a step down from where we are today and where that might not have been the the way. The discussion was going on a while ago. So it's it's hard to speculate as to where they're going to land, but we think it's gonna be based on good good data and analysis.
Speaker Change: And when they make that decision yeah and keep in mind Manav, it's always been a 2025.
Speaker Change: Kickoff, if you will and you know, maybe maybe but everybody got a little optimistic aggressive in thinking that card would move faster here and so it's still a very.
Speaker Change: A regimented and gated process, there and I think you'll you know I think they're gonna publisher. Shortly I think it will go to a board meeting in July and then after that we will see you on the on the execution time.
Manav Gupta: Perfect. My quick follow-up here is on the DJD margin for the quarter. I mean, it was a big improvement from 41 cents to 76 cents, but as you highlighted, there was still a feedstock lag effect working against you. So if we adjust for that, the price decline in the feedstocks, would it be fair to say that if the feedstock prices had not moved at all, this 76 cents could easily be like a dollar for the quarter? I'm just trying to quantify the impact of the feedstock price lag for the quarter.
Speaker Change: Okay. My quick follow up here on the D. J D margin for the quarter I mean, it was a big improvement from 41 cents to 76 cents, but as you highlight that there was this still a pizza stopped lag effect looking against you like so if we adjust for that you know the price decline in the feedstock would it be fair to say.
Speaker Change: But if the feedstock prices had not moved at all this they like the sixth sense could easily be like a dollar for the quarter I'm just trying to quantify the impact of the pizza bright light for the quarter.
Randall C. Stuewe: Well, I don't I don't I don't see the exact calculation, but I would say that, you know, generally speaking or directly, that seems correct.
Speaker Change: Well I don't I don't I don't see the exact calculation, but I I would say that you know.
Speaker Change: Generally speaking you directionally that seems.
Speaker Change: Correct.
Paul Cheng: The next question comes from Paul Cheng from Scotiabank. Please go ahead.
Speaker Change: The next question comes from Paul Cheng from Scotiabank. Please go ahead.
Matthew J. Jansen: Hey guys, good morning. Randy, I don't know if you can comment. DGT, the first quarter sales seem really high compared to their production level, so I assume that we are drawing down inventory. So at this point, how much is the inventory that will remain? In other words, for the rest of the year, should we assume that sales will be pretty closely aligned with the production volume, or is that still going to be in excess of production volumes?
Paul Cheng: Hey, guys. Good morning, good morning.
Paul Cheng: Randy I don't know if you can comment on did you see the first quarter, South seems really high comparing to that production level.
Paul Cheng: So I just assume that we are joined on inventory. So at this point how much is the inventory that we remain in other ways that or the rest of the year should we assume that sounds it would be pretty closely in line with Oh doesn't want any more with that and you're still going to be in excess of the production volumes.
Matthew J. Jansen: This is Matt. I'll answer that. I would say, first of all, that DGD does not really have a program to store a bunch of finished products. So, really, the operational intention and expectation is to ship what gets produced. And so, now, what happens is, from time to time, as you bridge months and bridge quarters, some customers sometimes don't get invoiced in one month, and they may get invoiced in the next, and therefore, you can see a shift. But I would say that's probably what you're talking about right here.
Paul Cheng: Yeah. This is Matt I'll I'll I'll answer that I would say first of all the D. G. D does not really have a a program just store a bunch of finished product. So the really the operational intention and expectation.
Matt: Is shipped what gets produced and so now what happens is from time to time as you as you bridge months and bridge quarters, sometimes don't get Invoiced in one month, then they may get invoiced in and in the next and therefore, you can see a a shift but I would say that's.
Speaker Change: Likely what you're talking about right here yeah.
Matt: I think for the year, Paul I mean, we're still out there that one three to 135 over an a and a total production and shipped and produced and shipped hopefully can match up it's just the timing of vessels and barges and railcars of different things here and obviously as we start to transition in Q4, two taken 200.
Randall C. Stuewe: Yeah, I think for the year, Paul. I mean, we're still out there at that 1-3 to 1-3-5-0 in total production and, you know, shipped and produced and shipped, hopefully can match up. It's just the timing of vessels and barges and rail cars and different things here. And obviously, as we start to transition in Q4 to taking 250 million gallons of RD offline, most of that, I think Matt, you told me most of the SPK and SAF will move out, what, by rail then? Or barge. Or barge, yeah. So, yeah, it could be a little bit of timing, but, you know, production's what's important to us here, and the timing of sales is what will happen.
Matt: 50 million gallons of already offline most of that I think Matt you told me most of your U S. P. K N S. A F will move out what by rail then or bars or barge yet so yeah. It could be a little bit of tiny but you know production is what's important to us here and the timing of sales as well.
Speaker Change: What will happen.
Speaker Change: Okay and second question just on the feet are one of them.
Matt: First to the second quarter I mean with.
Matt: The small acquisition you got three more plans.
Matt: And also with that what is coming back so Randy can you give us some idea Dan how sequentially.
Randy: Yeah, it's going to look like.
Randy: Can you repeat that.
Randy: Definitely looking at the feed ingredient that sentiment.
Randy: From the first to the second quarter, our house to warn dams are where you sit.
Paul Cheng: I see. And the second question is on the feed volume from the first to the second quarter. I mean, with the small acquisition, you get three more plans and also that which is coming back. So, Randy, can you give us some idea then how the volume is going to look sequentially?
Randy: But given that are you just compete a small acquisition that at three plans and then you also have what are being with B O N E. S. Working I know that not at one to one but are we going to see some incremental benefit.
Paul Cheng: Can you repeat that, Paul?
Randy: If I may want them stand upon awful at the feed ingredient.
Randall C. Stuewe: If we're looking at the seed ingredients, that sense makes sense.
Randall C. Stuewe: Yeah, I mean, Paul, and Matt can comment more on North America, but globally, we've made, you know, procurement changes in our spreads in Europe, we're still actively doing it in South America, raw material volumes are rather large, or just, you know, the cattle slaughter shipping again from the US down to South America. So the piles of raw material are quite large. North America, clearly Matt already commented about how wonderful that is, and it is such a blessing to have that online.
Randy: When we moved from the first to the second quarter.
Speaker Change: Yeah, I mean, yeah, Paul So you know when I look in you know math can comment more on North America, but globally. We've made you know procurement changes in our spreads in Europe, we're still actively doing it and in South America raw material volumes of rather large or just you.
Speaker Change: But the cattle slaughter shifting again from the U S down to South America. So the piles of raw material are quite large North America clearly, Matt already commented about war that has that is such a blessing to have that online just from a you know we were running at a 100% capacity.
Randall C. Stuewe: Just from a customer service point of view, we were running at 100% capacity and then running through Saturday. So that should take a lot of pressure off the system. And then we've seen some pricing improvement. On the fat side, it's been very modest in North America. It's been a little better in Brazil or in Europe today; it's back, you know, really reflecting palm oil values as our alternative there. So, you know, Q2 within the core ingredients business looks to be stronger, at least for the moment; we don't have April numbers yet because the month's not closed. But it looks stronger, and the operating team feels better about it than Q1.
Randy: And then run it through Saturday, so that should take a lot of pressure off the system and then we've seen some pricing improvement.
Randy: And in the fat side, its been very modest and in North America.
Randy: It's been a little better and Bruce or in a in Europe. Today, It's back up you know really reflecting palm oil values. This or alternative there. So you know Q2 within the core ingredients business looks to be stronger at least at this moment, we don't have April numbers, yet because of months not closed.
Randy: But it looks stronger and the operating team feels better about it than than Q1, I think you've.
Matthew J. Jansen: Matt, I think
Speaker Change: Got it okay.
Andrew Strelzik: The next question comes from Andrew Strelzik from BMO. Please go ahead.
Randy: Yeah.
Randy: The next question comes from Andrew <unk> from BMO. Please go ahead.
Andrew Strelzik: Thanks for taking the questions. A month or so ago, you maybe were at a conference, and I realize it wasn't formal guidance or anything like that. But you kind of implied that the market environment kind of suggested a 1.55, 1.6 billion type of EBITDA number. And so I guess I was just hoping that maybe you could bridge from your comments at that time to now the formal guidance of 1.3 to 1.4 billion.
Andrew: Hey, good morning, Thanks for taking the questions. My first one is a two parter on the on the guidance I think.
Andrew: Once or so ago you you maybe were at a conference and I recognize it wasn't formal guidance or anything like that but you kind of insinuated that the market environment kind of suggested a 1551 6 billion type of EBITDA number and so I guess I was just hoping that maybe you could bridge from your car.
Andrew: And so at that time, so now the formal guidance of one three to one 4 billion and then secondarily you Kyle.
Andrew Strelzik: And then secondarily, you kind of alluded a little bit to this in the last question, but you talked about a back half kind of loaded year. Is that just a reflection of the first quarter, or is 2Q also a little bit limited? And then we see the full acceleration in the back part of the year.
Speaker Change: [noise] alluded a little bit to this in the last question, but you talked about a back half kind of loaded year is that just a reflection of the first quarter or is <unk> also a little bit limited and then kind of we'd see the full acceleration in the back part of the year.
Randall C. Stuewe: Yeah, and you know, number one, Andrew, my crystal ball had fog in it when I gave that prediction before, but it was hinged on a couple of things. One, it was hinged on some optimism that the LCFS market would come back upon realizing what was gonna happen to do that with the change in carb. And number two, just believing that waste fats couldn't stay down below world vegetable oil prices for very long. And you know, first off, I was wrong on both of those.
Speaker Change: Yeah, and you know number one Andrew my Crystal ball had fog and when I gave that prediction before but it was it was hinged on a couple of things one it was hinged on some optimism that the L. C. F. S market would come back upon realizing what was going to happen to do that with the <unk>.
Andrew: Range of car and number two just believing that waste fats couldn't stay down below world visual prices very long and you know first off I was wrong on both of those its a timing thing you know we're sitting in Q2 is going to be stronger than in Q1 from the core ingredient side.
Randall C. Stuewe: It's a timing thing. You know, we're saying Q2 is gonna be stronger than Q1 from the core ingredients side. And then, obviously, we got a turnaround in DGD coming on here for DGD3, and I think that plant ran for 15 or 18 months before we turned it around, which is an absolute, you know, amazing deal. And that's to do the tie-ins also for SAF1. So, you know, it's really, when I talk about the back half of the year, you know, we're gonna hook up momentum. You know, you get the LCFS announcement out there, and people then realize that it's real.
Andrew: And then you know obviously, we got a turnaround and D. G D coming on here for D. G. D. Three and I think that plant ran 15 or 18 months before we turn it around which is an absolute amazing deal and that's to do the tie ins also for <unk> S. A F. One so you know it's really when I talk about <unk>.
Andrew: Back half of the year, you know, we're going to pick up momentum you know you get the L. CFS announcements out there and people then realized that it's real.
Randall C. Stuewe: People realize that these RD plants aren't running at the rate or going to run at the rate that should help things as you move into as you get closer to next year. You realize that the RVO is going to have less imports, 800, 900 million gallons. And ultimately, what else am I forgetting, guys? I mean, what else can drive this?
Andrew: People realize that these R&D plants aren't running at the rate we're going to run at the rate that should help I mean as you move into as you get closer to next year, you realized that the army OS gonna have.
Andrew: Less importance 800, and 900 million gallons that has a positive effect on both rents and domestic feedstock values and ultimately what else am I forgetting guys I mean, what what else can drive this.
Randall C. Stuewe: I think that, you know, I would
Randall C. Stuewe: Yeah, you know, historically speaking, I would say Q3 is naturally a challenge for us to keep in mind as we as we plan for this, principally due just to the summer heat and all, but we're ready for it.
Speaker Change: I think that's right.
Speaker Change: I would just you know historically speaking I would say Q3 is naturally a challenge for us to keep in mind as we are as we as we plan for this.
Andrew: Principally due just to the summer heat and in all of it but.
Andrew: We're ready for it so.
Andrew Strelzik: Okay, great. That was very helpful.
Speaker Change: Okay, Great that was helpful. And then my other question is just on the the adjustments you're making to the procurement process and the operating costs, which you've been talking about for the last several months. So that's not entirely new but I'm just curious.
Andrew Strelzik: And then my other question is just about the adjustments you're making to the procurement process and the operating costs, which you've been talking about for the last several months. So that's not entirely new, but I'm just curious. You know, are you finding new opportunities within those buckets? And you referenced some of the evidence that some of that is already playing out, but, You know, I guess how would you frame the extent to which you've realized those benefits versus kind of incrementally what might be to come in future quarters? Thank you.
Speaker Change: Are you finding new opportunities within those buckets and you referenced you know some of the evidence that some of that is already playing out but.
Speaker Change: You know I guess, how would you frame the extent to which you realize those benefits versus kind of incrementally what might be to come in future quarters. Thank you.
Randall C. Stuewe: No, it's a very fair question. I mean, number one, typically, a lot of the procurement formulas in North America were CPI based, and, you know, they had to be relooked at. That wasn't enough. You know, in a lot of cases, we've given a lot of labor increases post COVID. And so as these contracts matured and changed, you know, we we've had to step out, and then, you know, the 7% interest rate on these assets is a different calculation for diesel fuel and, you know, 450 a gallon.
Speaker Change: No. It's a very fair question I mean, you know number one typically at a lot of the procurement formulas in North America, where CPI based and you know they they had to be re looked at that wasn't enough.
Speaker Change: Cases, when given a lot of labor increases post COVID-19.
Speaker Change: And so as these contracts matured and changed you know we've we've had to step out and you know then you know 7% interest rate on these assets is a different calculation in diesel fuel and you know 450, a gallon. So you know it's just been a comprehensive look all around and the team has been.
Randall C. Stuewe: So, you know, it's just been a comprehensive look all around, and the team has been very open to it. As I said, you know, we've had tailwind since fourth quarter 2019. And then the winds changed, and they came in more often than has been historically done.
Speaker Change: Very open to it as I said, you know we've had a tailwind since fourth quarter 2019, and then the wins changed in deflation hit and you have to go looking at this stuff and we've done it I mean, the Brazilian acquisition has really been a good acquisition, that's meeting business case, but.
Randall C. Stuewe: So, you know, I think there's nothing really tangibly too new in what we're doing here. Other than we've given the team, you know, number one. You've seen us take CapEx down solidly by 100 million for the year. Number two, we've kind of just told them, we've had to work with the teams to just say, hey, until we see fat prices come up, you've got to be really cognizant of cost management. And so, you know, that's kind of where we're at. You guys, anything you want to add to that? I just want to say, you know, look, I appreciate the question.
Speaker Change: It's one where we're having to be when you transition from a private owner to a public company.
Speaker Change: You know I've always said and the guys have heard me say private owners run for tax avoidance public company runs for earnings and that requires us to make changes in our raw material procurement from the slaughterhouses down there more often than it's been historically done. So I think there's nothing really tangibly to new.
Speaker Change: What we're doing here other than we've given the team you know number one you've seen us take capex down solidly 100 million for the year number two we we've kind of just told that we've had to work with the teams to just say hey until we see fat prices come up you've got to be really cognizant of cost management.
Speaker Change: And so you know that that's kind of where we're at and you guys are eating well add to that I'd. Just say you know look I. Appreciate the question. It's it's a it's a pretty prevalent theme around here or our suppliers.
Randall C. Stuewe: It's a pretty prevalent theme around here. Our suppliers, you know, they've got several options. They can go to another rendering plant. And, meanwhile, we're kind of at capacity across the continent. They can go to landfill, and landfill is becoming less acceptable and more expensive every day, or they can build a new rendering plant. And that's a whole lot more expensive than it was a few years ago. And so all that is taken into consideration when we're negotiating repricing agreements.
Speaker Change: They've got several options they can go to another rendering plant.
Speaker Change: Meanwhile, we're we're kind of at capacity across the continent and go to landfill and landfill is less acceptable and more expensive expensive every day or they can build a new rendering plants and that's a whole lot more expensive than it was a few years ago and so all of that is taken into consideration when we're repricing agreements.
Randall C. Stuewe: We don't, you know, we don't realize an immediate impact in a one month period from restructuring these agreements. And a lot of these come up at their three-year agreements. But over time, you know, we're in a really healthy position given the book value of our assets relative to replacement value.
Speaker Change: We don't you know, we don't realize an immediate impact in a one month period from from restructuring these agreements and a lot of these they come up with their three year agreements, but over time.
Speaker Change: You know we're in a really healthy position given the book value of our assets relative to replacement value.
Derrick Lee Whitfield: The next question comes from Derrick Whitfield from Stiefel. Please go ahead.
Speaker Change: The next question comes from Derrick Whitfield from Stifel. Please go ahead.
Derrick Lee Whitfield: Thanks. Good morning, all.
Derrick Lee Whitfield: Thanks, Good morning all.
Derrick Lee Whitfield: Randy, focusing in on guidance and kind of pulling you back closer to your previous crystal ball projection. I can certainly appreciate the conservative EBITDA guidance as your stock doesn't reflect meaningful value for DGD, and you've now taken out the bear case with the guidance. Having said that, if we assume sap prices remain depressed at annualized Q1, you could easily be above the top end of your guidance based on DGD spot margins north of a dollar per gallon with no contribution from sap.
Derrick Lee Whitfield: Randy I'm focusing in on guidance and kind of pulling you back closer to your previous Crystal ball projection.
Derrick Lee Whitfield: Certainly appreciate the conservative EBITDA guidance as your stock doesn't reflect meaningful value for D. D D and you've now taken out the bear case with the guidance.
Derrick Lee Whitfield: Having said that if we have seen fat prices remain depressed and annualized Q1, you could easily be above the top end of your guidance based on D. G D spot margins north of a dollar per gallon with no contribution from SAS.
Derrick Lee Whitfield: And kind of thinking about the interplay between your businesses, assuming static RIN and LCFS prices, lower fat prices are a net positive for Darling as the impact for downstream is far greater than the impact for upstream. Is that fair?
Derrick Lee Whitfield: And kind of thinking about the interplay between your businesses, assuming static RIN and they'll see if those prices lower fat prices are a net positive for Darling is the impact for downstream is far greater than the impact of our upstream is that fair.
Derrick Lee Whitfield: I missed that last one.
Derrick Lee Whitfield: Yeah.
Speaker Change: Missed that last part.
Derrick Lee Whitfield: Lower fat prices are a net benefit to Darling because of Irving Berlin. Yeah, I think that that's right.
Speaker Change: What was that prices our net debt.
Speaker Change: Yeah Yeah.
Speaker Change: Yeah I mean.
Speaker Change: I think that that's right and given the relative size of D. G D today and its capacity.
Randall C. Stuewe: And given the relative size of DGD today and its capacity, it's a very good hedge for the base business of Darling. Yeah, and you know, it buys three times more fat than what we produce ultimately, or that's logistically feasible globally for it. So yeah, the leverage is there. But you know, I also remind people wearing my selfish darling hat that I keep 100% of any fat price increase on this side of the table. You know, what we're really looking for at DGD is some LCFS help. Then it really has a chance to be a double win for us.
Speaker Change: It's a very good hedge for for the base business of Darling.
Speaker Change: Yeah.
Speaker Change: You know it buys are three times more.
Speaker Change: Fat than what what we produce ultimately or that's logistically feasible globally to it. So yeah. The leverage is there, but you know I also remind people wearing my selfish Darling have but I keep 100% of any bad price increase on this side of the table you know what we're really looking for a D. G D. In some L CFS help.
Speaker Change: And then it really has a chance to be a double win for us.
Derrick Lee Whitfield: I completely agree. I think everything will come when LCS prices go higher. Regarding the progress that you guys have made with your collagen peptide research and products, how should we think about the build out of that business line or those business lines and what the run rate potential could be?
Speaker Change: Completely agree I think everything homes, what else if that's prices go higher.
Speaker Change: Regarding the progress that you guys have made with your intelligent peptide researching products, how should we think about the build out of that business lot of those business lines.
Speaker Change: And what the run rate potential could be.
Randall C. Stuewe: Yeah, I mean, look, let me just back up a second. I think what really excites us about that is not just the progress we've made in developing peptide profiles but the infrastructure that we have globally to deliver a portfolio of value-added products. So with the acquisition of Gelnex, we essentially have access to low-cost collagen production around the world, and we have the capacity needed to develop this portfolio.
Speaker Change: Yeah, I mean look let me just back up a second I think you know what what really excites us about that is as a not just the progress we've made in.
Speaker Change: In developing a peptide.
Speaker Change: Peptide profiles, but.
Speaker Change: The infrastructure that we have globally to deliver on our portfolio of value added products. So with the acquisition of gel next we essentially have access to low cost collagen production around the world and we have the capacity needed to develop this portfolio. So without a significant amount of additional investment we're in a position to.
Randall C. Stuewe: So without a significant amount of additional investment, we're in a position to do this. As the announcement said recently, we're coming out with a product that will secrete GLP one into the body and have health benefits that way. We have several other products that are in the pipeline right now, but it's hard to predict exactly when those, you know, when we can complete that process. And when we're going to be launching, but I think you know, we're very confident that we're going to have several over the next couple of years that we're going to be able to bring to market.
Speaker Change: To do this as as the announcement said recently that we're coming out with a product.
Speaker Change: That will that will secrete G. L P. One into into our into the body and have health benefits that way we have a several other products that are in the pipeline right now it's it's hard to predict exactly when those you know when we complete that process and we're gonna be launching but I think you know where.
Speaker Change: Confident that we're gonna have several over the next couple of years that we're going to be able to bring to market.
Speaker Change: The next question comes from Ryan Todd from Piper Sandler. Please go ahead.
Ryan M. Todd: Hey, Thanks, maybe just a couple of follow ups on some earlier.
Ryan M. Todd: Questions I mean, as we think about about fat prices and how you think about the trajectory over the over the course of the year.
Ryan M. Todd: The next question comes from Ryan Todd from Piper Sandler. Please go ahead.
Ryan M. Todd: The supply side in particular is hard for us to wrap our heads around because of the.
Ryan M. Todd: Thanks, maybe just a couple follow-ups on some earlier questions. I mean, as we think about fat prices and how you think about the trajectory over the course of the year, I mean, the supply side in particular is hard for us to wrap our heads around because of the, Unknown Speaker, Unknown Attendee, Paul Cheng, Andrew Strelzik, Brad Phillips, John Bullock, Um... Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: Yeah.
Speaker Change: The wide range of sources on a global basis, but is is the biggest single single thing that we should be looking at in terms of that price recovery over the course of the year or is it really the ability of.
Speaker Change: The North American renewable diesel industry to ramp up.
Speaker Change: Hum.
Speaker Change: Consumption of waste back to the pre treatment units between now and year end of that is that kind of the single biggest driver on the demand side or are there other.
Speaker Change: You know big things on the demand or supply side that we should be thinking about in terms of you know.
Speaker Change: That market recovery.
Speaker Change: Well and I'll start and then Matt and Bob can can key in.
Speaker Change: I'm Gonna drive on my side of the table here from a global side I mean, clearly we've had you know.
Speaker Change: And in abundance now or just ample crops around the world you know yeah, we've got a little dry and us here a little dryness there, but at the end of the day global stocks are are very very strong around the world of oilseeds, there's a major shift in and whose crashing or processing games oilseeds underway right now.
Randall C. Stuewe: Well, I'll start, and then Matt and Bob can key in, you know, I'm going to talk about my side of the table here from the global side. I mean, clearly, we've had two. One is that we're seeing oil in the $80 barrel range now. Typically, history would say at those times, you start to see a lot of palm oil disappear into the system in the Asian countries. You saw, I think, yesterday or a couple days ago, I think Malaysia and Indonesia have raised their biodiesel mandate now to 35%, and then South America from 6% to 20%.
Speaker Change: I don't know that we've seen play out yet.
Speaker Change: So that's number one number two is you know we're seeing a wheel in the $80 a barrel range now and typically in the history would say at those times you start to see a lot of palm oil disappear into the system and in the Asian countries and so you know you.
Speaker Change: You saw I think yesterday or a couple of days ago, I think our Malaysia, or Indonesia has raised their biodiesel mandate in out of 35% and then South America from six to 20, so you're starting to see people make the movements that are going to start to move it doesn't take a lot of movement to change the S&P.
Randall C. Stuewe: So you're starting to see people make the movements that are going to start to move. It doesn't take a lot of movement to change the S&D globally for fats and oils. And then the third piece is you throw on the North American side. I mean, as we were building our numbers here, if I took every one of the sell side guys' capacity utilizations out there and what's running, the U.S. is going to have to import 4 billion pounds of fat in order to feed these machines. And clearly, they're not.
Speaker Change: Globally, our fats and oils and then the third piece as you throw on the North American side, I mean, you know it.
Speaker Change: As we were building our members here you know if I took every one of the sell side guys are you know capacity utilizations out there and what's wrong in the U S is gonna have to import you know 4 billion pounds of fat in order to to feed these machines and clearly they're not so I mean as we look at this thing going forward.
Randall C. Stuewe: So, I mean, as we look at this thing going forward, the global S&D has got a little bit of work to do. Ultimately, with the number of oil seeds being processed in North America, that is, both soy and canola, you have to ask yourself, what's China going to do about fat? Are they going to buy the finished product? Or are they going to buy the seed? Are they going to buy more palm oil? I don't know. I think that's what I meant. Bob, do you want to add anything?
Speaker Change: The global SNB, He's got a little bit of work to do you know ultimately with the with the number of oilseeds being processed in North America, that's both soy and canola you'll have to ask yourself, what is China going to do for fat. You know are they going to buy a finished product or are they going to buy seed or are they going to buy more palm oil I don't know.
Speaker Change: That's what I mean, Bob you've won all of them I mean, Randy I think you touched on what's most important and that's really global demand and and and then the fuel sector. As you pointed out palm can kind of go into conventional it find its way into conventional fuel, but what I, what we pay attention to here is what what is what is bio.
Robert W. Day: I mean, Randy, I think you touched on what's most important, and that's really global demand and the fuel sector. As you pointed out, palm can kind of go into and find its way into conventional fuel. But what we should pay attention to here is what is biofuel policy? How is that shaping up as we get into 2025, 2026, and beyond? What we saw was high prices caused a lot of new supply of waste oils to come to the market. So, there's a bigger opportunity for more regulation and more policy that's going to support biofuel production. That's really where demand needs to come from to absorb this additional supply we've seen on the market.
Speaker Change: Fuel policy how is it.
Speaker Change: That is shaping up as we get into 2020 five 'twenty 'twenty six and beyond what we saw was high prices caused a lot of new supply to come to market of our waste oils. So there there's a bigger opportunity for more regulation and more policy, that's going to support biofuel production that's.
Speaker Change: That's really where demand needs to come from to absorb this additional supply we've seen on the market.
Ryan M. Todd: And then maybe just... One on your comments on staff earlier, I mean, is it, It seems from discussions with many people that I think the expectation on the commercial side is that you're probably looking at, you know, renewable diesel plus one to $2 a gallon in terms of what kind of staff economics look like that? Is that a fair range? Is it too early to say at this point? And I know there are some cost and yield impacts. I mean, if that's the case, what sort of margin accretion are you talking about in terms of, like, SAS production versus RD production?
Speaker Change: Great. Thank you and then maybe just a.
Speaker Change: One on the on your comments on staff earlier, I mean is it.
Speaker Change: It seems from discussions with many people that the I think the expectation.
Speaker Change: On the commercial side and the you're probably looking at you know renewable diesel plus one to $2 a gallon in terms of what kind of SaaS.
Speaker Change: Economics look like that is that is that a fair range is it too early to say at this point.
Speaker Change: And I know there there are some cost and yield impacts I mean, if that's the case what sort of margin accretion are you talking about in terms of like soft production versus already production.
Matthew J. Jansen: Well, this is Matt. I would say that from a SAF margin standpoint, where we have discussions that we're having right now, and they are going to be well within our expectations of our investment thesis, both from a volume as well as a margin standpoint. So, you know, we, you know, the plant has yet to turn on, and we're taking the right steps in order to get this in a place where we think it needs to be. And so I would just say stay tuned.
Speaker Change: Yeah.
Speaker Change: So this is Matt I would say that from a a asaph margin standpoint, you know, where we have where we're getting into discussions that we're having right now and in the they are going to be well within our expectations of our investment thesis and.
Matt: Both from a volume as well as a a margin standpoint. So you know we do you know the plant has yet to turn on and where we're taking the right steps in order to get this in and in a place where we think it needs to be and so I would just say no stated.
Operator: Operator. The next question comes from Ben Calou from Baird. Please go ahead. Hey, guys. Goodbye.
Matt: The next question comes from Ben <unk> from Baird. Please go ahead.
Ben: Hey, guys. Good morning. Thank you just saw.
Benjamin Joseph Kallo: Hey guys, good morning. Thank you. Just on the guidance and SAF tie-in, could you just talk to us about how you guys have factored in the tie-in and how much that impacts the guide? So when we do a bridge for next year, we get the answer.
Ben: Got it.
Ben: Yeah Tayo.
Ben: Uh huh.
Ben: Could you just talk to us about how.
Speaker Change: You guys have factored in the tire.
Speaker Change: Public sector.
Speaker Change: Got it.
Speaker Change: So when we do a bridge for next year.
Speaker Change: You broke up.
Speaker Change: So there is no S. A F in the 24 guidance.
Unknown Executive: So there is no SAF in the 24 guidance. Unknown Speaker 0, The tie-in DGD-3 is going to do a catalyst change in Q2, and be ready for the tie-in so that we won't have to be shutting down our RD facility as the SAF plant is up, and so we're we're staggering that to have the DGD 3 line. We are ready to go for a full run as we tie in the SAF line, and as mentioned, we'll be operational in Q4 on the SAF site.
Speaker Change: So weird.
Speaker Change: How does that work.
Speaker Change: And the tie in D. G. D. Three is going to do a catalyst change in in Q2.
Speaker Change: And be ready for the tie in so we won't have to be shutting down our R&D facility as the S. A a plant is up and so we're we're staggering that to have the the D. G D. Three line.
Speaker Change: Ready to go for a full run as we tie in the S. A F line and as mentioned will be operational in Q4 on the SaaS side.
Unknown Executive: Ok, on the food segment, the one-timer, should we look at it as a one-timer, the expiration or whatever, or is that going to carry into Q2, or how should we think about Q2? I know that Nestle expects a recovery today in Q2, but how should we think about Q2 food volume?
Speaker Change: Okay on the food segment.
Speaker Change: The the one timer.
Speaker Change: Should we look at it as a one timer.
Speaker Change: The exploration or whatever or is that going to carry into Q2 or how should we think about Q2 I know that.
Speaker Change: Absolutely.
Speaker Change: We expect a recovery today in Q2, but how do we think about Q2 food volume.
Speaker Change: Sure.
Randall C. Stuewe: Yeah, I mean, you know, I think KPMG always gets mad at me when I call it a one-timer. So I can't use that word, Ben Kalou.
Speaker Change: Yeah, I mean, you know I think K P. M. G always gets mad at me when I call. It a one timer. So I can't use that word then kalou, but.
Randall C. Stuewe: But at the end of the day, you have to add back that 25. And that's really the solid run rate of what we would say for the food segment this year. And then next year, as Bob was alluding, then hopefully, we start to build a portfolio of sales on the new peptides here.
Speaker Change: At the end of the day, you got to add back that 25 and that that's really the solid run rate of what we would say for the food segment. This year and then next year as Bob was alluding then hopefully we start to build a portfolio of sales on the on the the new peptides here.
Heather Jones: The next question comes from Heather Jones from Heather Jones Research. Please go ahead. Good morning.
Speaker Change: The next question comes from Heather Jones from Heather Jones Research. Please go ahead.
Heather Jones: Good morning, everyone.
Heather Jones: Hi, first I wanted to talk about, Randy you alluded to this earlier, but the ARB for Chinese Yuko and Brazilian Taro has closed, and for Chinese Yucca by a pretty wide margin. So just just thinking about you've mentioned how these RD plants haven't been ramping up as well as they said they would, et cetera. But given that that is closed and DGD is now cheaper, U.S. fats are cheaper. Just as DGD keeps running at its normal speed, wouldn't that result in a substantial improvement in domestic fats in the U.S.?
Speaker Change: Hum.
Heather Jones: Oh I just first I just wanted to talk about Oh Randy.
Heather Jones: Randy you alluded to this earlier, but the.
Heather Jones: For Chinese Yuko and Brazilian Tallo has.
Speaker Change: Well listen for Chinese eco by pretty wide margin. So just.
Speaker Change: Thinking about you've mentioned holidays Rd plants haven't been ramping agile.
Speaker Change: Saturday would et cetera, but given that that is closed in GGP.
Speaker Change: Now you asked about so cheaper.
Speaker Change: Just as D J D.
Speaker Change: Ronnie I think normal speed.
Speaker Change: Would not result in a substantial improvement in domestic thoughts are with you all.
Randall C. Stuewe: You know, I think Matt and Bob and I are looking at each other. I mean, strategically, we made a decision that we didn't, as collectively as the owner and part owner, JV owner of VGD, that we felt it was important to own the world arbitrage, and we're making investments in Port Arthur to be able to unload directly there. So ultimately, we can own that because that's important to margin management in the long term.
Speaker Change: You know I think cannot you know mountain, Bob and I are looking each other I mean it it strategically.
Speaker Change: Strategically we made a decision that we didn't as collectively as as the owner and part owner JV owner of D. G D. But we felt it was important to own the world arbitrage and we're making investments in port Arthur to be able to unload directly there.
Speaker Change: So ultimately you know we we can we can own that because that's important to margin management and the long term. We've always said the number one thing for D. G. D was its real estate that it owns and operates on the Gulf Coast and that's both for inbound and outbound and so.
Randall C. Stuewe: We've always said the number one thing for VGD was its real estate that it owns and operates on the Gulf Coast, and that's both for inbound and outbound. And so the answer is, from time to time, one geography in the world would be a premium to the other. You're watching that trend right now as the US and Canada are cheaper than imports, and so that should be supportive as we go forward.
Speaker Change: The answer is from time to time, one one geography in the world would be a premium to the other you're watching that trend right. Now is the U S and Canada are cheaper than imports and so that should be supportive as we go forward now you know ultimately as you're building a P.
Randall C. Stuewe: Ultimately, as you're building a portfolio of suppliers and inputs into the DGD system, you've got different markets around the world, meaning finished product markets that require different, or you can qualify different fats for different carbon intensities. So you're always going to be playing that arbitrage, and that's what gives DGD the superior profitability of anybody out there today in the world. It'll move from time to time, but I don't see it going all domestic than a portion of a back import because that's just logistically impossible at the scale we're at. I don't know, Matt; you're deeper in.
Speaker Change: Portfolio of suppliers in and inputs into the D. G. D system, you got different markets around the world meeting finished product markets that require different or you can qualify different fats for different carbon intensity. So you're always going to be playing that arbitrage and that's what gave D. G D. The suite.
Speaker Change: Period of profitability of anybody out there today in the in the World. So you know it'll it'll move from time from time to time, but I don't see it going all domestic than you know a portion of it back you know back import because that's just logistically impossible at the scale. We're at I don't know, Matt your deepened rune.
Matt: I would just say just just to be clear the driving decision a force in N D. G D is margin and it.
Matthew J. Jansen: Just to be clear, the driving decision force in DGD is margin, and it sends us to buy the cheapest available feedstock all things considered, including the CI score. So to your question in terms of Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES
Matt: It senses too bye bye the cheapest available feedstock all things considered including a Ci score so to your question in terms of.
Matt: Lower domestic price, that's exactly where D. G D is focusing its origination effort.
Matt: <unk> right now.
Speaker Change: Okay. Thank you.
Speaker Change: And then my follow up is on board. So Randy I think you mentioned on the Q4 call something about dumping like 37 million pounds in a landfill, it's been down for almost a year and a half I mean can you give us.
Heather Jones: on the Q4 call, something about dumping 30-some million pounds in a landfill. It's been down for almost a year and a half. I mean, can you give us, I mean, dumping in a landfill is pretty expensive and, you know, obviously not getting true finished product pricing. So, I just wonder if you could give us a sense of what kind of, how, what's the magnitude of drag that's been on y'all's business just so we can get a sense of how that by itself could help the remainder of the year?
Speaker Change: Dumping in a landfill, it's pretty expensive and you know honestly not getting true finished product pricing.
Matt: So just wondering if you could give us a sense of what how what's the magnitude of drag that's been on the health business. Just so we can get a sudden hao.
Matt: That by itself could help the remainder of the year.
Matthew J. Jansen: I'll try to answer that, Heather. So, you know, at the end of the day, when that plant went down, we had a series of supply contracts and a series of customers that were relying on the Ward plant to operate in order to process their volume. And so when that plant went down, then there was all of a sudden this volume that had to find a place to be processed.
Matt: Yeah.
Speaker Change: I'll I'll try to answer that Heather. So the you know at the end of the day when that plant went down I mean, we had a series of supply contracts in a series of customers that we're relying on the ward a plant to operate in order to to a process there their volume and so when that plant went down then there was.
Speaker Change: All of a sudden this volume that had to find a place to to be processed and so we did a massive game of shifting around in terms of trying to put as much of that volume that and into our other plants, but as a result, there was still some product that resulted in and the.
Matthew J. Jansen: And so we did a massive game of shifting around in terms of trying to put as much of that volume into our other plants. But as a result, there was still some product that resulted in, as Bob was talking about, the next best alternative, which was that, which was a landfill. And so, you know, in terms of quantifying that, I don't have that specific answer or any specific number for you, but what I can say is that plant is up and running now, and our eastern shore plants are essentially at this point running on all 12 cylinders. And so as of as of April 1st.
Speaker Change: As Bob was talking about the next best alternative which was which was a landfill and so you know in terms of quantifying that I I don't have that specific specific number for you, but what I can say is that plant is up and running now and our eastern.
Speaker Change: Sure our plants are essentially at this point running on all 12 cylinders and so as a as of April 1st.
Randall C. Stuewe: This concludes our question and answer session. I would like to turn the conference back over to Randy Stuewe for closing remarks.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Randy Sui for closing remarks.
Randall C. Stuewe: Thanks, everyone. I appreciate all the questions. As always, if you have additional questions, reach out to Suann. Stay safe, have a great day, and I'll turn it back over to the operator to conclude our call. Thank you.
Randy Sui: So everyone. Appreciate all the questions and as always if you have additional questions reach out to sue and stay safe and have a great day and I'll turn it back over to the operator conclude our call. Thank you.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation. You May you may now disconnect.
Speaker Change: Yeah.