Darling Ingredients Inc.

Good morning. Welcome to Darling Ingredients Incorporated conference call to discuss the company's first quarter 2020 results. After the company's prepared remarks, there will be a question and answer session and instruction will be given at that time. Today's call is being recorded. I would now like to turn the conference over to Mr. Jim Stark. Please go ahead.

Welcome to the Darling Ingredients earnings call. Participants on the call this morning are Randall C. Stewie, Chairman and Chief Executive Officer, Brad Phillips, Chief Financial Officer, and John Bullock, our Chief Strategy Officer. There is a slide presentation available, and you can find that presentation on the investor page under the events and presentations link on our corporate website. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in yesterday's press release and the comments made during this conference call and in the risk factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. As a reminder for those who have followed Darling in the past and an update to those new to our story, Darling serves the food and agriculture industries as a critical control point for the infrastructure of our global food chain. Darling primarily receives byproducts from meat production and is also able to receive and process whole animals, but only once they are deceased. Darling does not accept live animals and does not participate in the euthanasia of animals. Rendering of animals that die outside the food chain is classified by the Department of Homeland Security to be a critical infrastructure industry. Additionally, rendering of animal remains is a higher use for organic material than disposal in the landfill. The rendering process also reduces the spread of bacteria and viruses and protects our planet by reducing greenhouse gases, carbon dioxide, methane, and other emissions which would otherwise result from natural decomposition. Now, I would like to turn the call over to Randy. Hey, thanks, Jim.

Good morning, everyone. Thanks for joining us. First off, as Jim said, we are considered a critical and essential service to the global food production system, which classifies our employees as essential workers. I want to thank those hardworking employees of Darling Ingredients around the globe for your efforts during this pandemic. It is your devotion and commitment to the company that enabled us to close out the first quarter with a strong financial performance. I also want to add our thanks to all the frontline heroes battling COVID-19. Darlene appreciates the dedication being demonstrated during these challenging times. First off, on the COVID-19 front, our team worked quickly to institute social distancing, provided PPE as necessary, allowed work from home when possible, stepped up our sanitation schedules, eliminated all non-essential visits to our locations, and established other guidelines necessary to keep our employees safe while at our factories or while they are servicing our suppliers and customers. We dutifully continue to follow CDC, OSHA, provincial, and country guidelines for maintaining a safe workplace at our 200-plus plant locations on five continents around the world. Now let's go to the first quarter highlights. During the quarter, we repurchased 2.2 million shares totaling $55 million. That was the largest repurchase we have made in our history, and we will continue to be opportunistic with capital allocation around share repurchases. We feel strongly about our company, its role in the global food supply chain, and the anticipated cash coming from our core business and Diamond Green Diesel. As we indicated on our last call, we expected Diamond Green Diesel to receive $430 million of retroactive blenders tax credit for 2018 and 2019 during April, which we did. DGD has also started to receive the BTC for 2020. And as we noted in the earnings release yesterday, DGD had more than $600 million of cash in which led the DGD board to distribute early $125 million distribution to each of its partners. We anticipate receiving another $65 to $75 million in July consistent with the distribution policy of DGD. Given our current operating margins and available cash within DGD, there is adequate cash to pay for the expected construction costs of nearly $400 million for the balance of 2020. Now let's put some color around our operating performance in several areas. During the first quarter of 2020, Darling once again displayed the diversity of its global platform and its ability to deliver solid earnings in a challenging macro environment. Darling reported better results in our feed segment where raw materials processed continue to show growth sequentially and year-over-year with a 2.9% increase in volumes from the first quarter of 2019. We also saw improvement in the gross margins of this segment because of higher fat prices globally and improving protein prices domestically. Our specialty businesses also delivered nicely as they allow us to arbitrage different parts of the supply chain to higher value products. The food segment turned in better performance sequentially compared to the fourth quarter but was under a year ago period. This is partially due to the timing of Chinese New Year and the fact we had to curtail gelatin production in Wenzhou, China during the month of February. We're also learning that during this pandemic, our hydrolyzed collagen or peptin products are somewhat discretionary for consumers, but demand for our gelatin products has strengthened as the pharmaceutical and nutraceutical industries react to the increased buying of these products. The fuel segment performance was once again outstanding. Diamond Green Diesel achieved 263 per gallon EBITDA margin or 103.6 million of Darling's share of DGD EBITDA in the first quarter. To date, this is the biggest EBITDA quarter on record for DGD. Echoing our joint venture partners' comments from last week, DGD2 plant expansion is on time, on budget, and should be completed in late 2021. And we continue to make progress on the advanced engineering and development cost review for DGD3 to be located in Port Arthur, Texas. We anticipate getting the green light early next year, and we expect the plant would commence operation sometime in 2024. This would increase DGD's renewable diesel production capacity to over 1.1 billion gallons annually. In all, Darling started the year on a very positive note, generating 213.3 million of combined adjusted EBITDA for the country. Now I'd like to hand over the call to Brad, take us through a few financial highlights, and then I'll come back to discuss the outlook for the balance of the year.