Darling Ingredients Inc.

Good morning and welcome to the Darling Ingredients, Inc. conference call to discuss the company's second quarter 2022 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 now like to turn the call over to Ms. Sue Ann Guthrie. Please go ahead.

Thank you for joining the Darling Ingredients second quarter 2022 earnings call. Here with me today are Mr. Randall C. Stewie, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. John Bullock, Chief Strategy Officer, and Ms. Sandra Dudley, Executive Vice President of Renewables and U.S. Specialty Operations. There is a slide presentation available on the Investor Relations page under the Events and Presentations 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 factor 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.

Hey, thanks, Sue Ann. Good morning, everybody, and thanks for joining us for our second quarter 2022 call. Our 2022 second quarter financial results yielded another record quarter, illustrating the tremendous growth and diversity of Darling Ingredients. This quarter's combined adjusted EBITDA of $402.6 million is is nearly equivalent to our entire fiscal year combined adjusted EBITDA just five short years ago in 2017. As I reflect on where we've come as a company, I am tremendously proud of the work our teams across the world have done, repurposing animal and food byproducts into specialty food and feed ingredients to support a growing population and converting waste fats and oils into low-carbon fuel to power a growing world. Going into the quarter in brief here, our global ingredients business had a record quarter of $312 million in EBITDA. The feed ingredients segment had a record quarter of $242.1 million, and our specialty food ingredients segment also had a record quarter, posting $65.4 million in EBITDA. Our fuel segment ended the quarter with $110.8 million, with $90.6 million in EBITDA attributed to our joint venture at Diamond Green Diesel. Starting with our feed ingredients segment, globally, raw material volumes were up 23% quarter over quarter, or 13% year to date. Fat prices continued to climb rapidly, illustrating the high demand for low-carbon waste feedstocks for renewable diesel. Protein prices were also strong throughout the quarter, with some challenges remaining in container tightness for protein exports, though. Rapidly escalating global energy costs and lower gross margins from the Valley acquisition contributed to a reduction in gross margins for the feed segment. As we have discussed in the past, our procurement formulas will ultimately recover many of the cost increases in the following quarter. Since we closed on the Valley Proteins acquisition on May 2nd, the team has been working hard on the integration efforts with a laser focus on margin improvements. I'm encouraged by our efforts to date and continue to believe Valley Proteins will contribute $150 million of EBITDA in 2023 as we continue to address operational challenges and synergies. Turning to our specialty food ingredients segment, we continue to see uplift from gelatin to higher margin collagen peptides. Hydrolyzed collagen demand continues to rapidly grow as consumers turn to these specialty products for joint, ligament, hair, and skin health. More resistant to commodity fluctuations, we anticipate to grow this business line in the high single digits in the next three to five years. We have pioneered and led the way in this space, and we are excited about its potential for the future. In our fuel segment, our green energy investments in Europe continue to deliver as predicted with higher sales prices and volumes. Now, let's turn to Diamond Green Diesel. DGD2 is running at full capacity, which resulted in record volumes at 209 million gallons in the second quarter and 375 million gallons produced year-to-date. In Q3, Diamond Green Diesel recorded $0.91 per gallon EBITDA, lower than Q1 2022 and our full-year estimate. However, higher feedstocks, while benefiting our specialty feed and greening business, impacted DGD's margins this quarter, along with some lower LCFS prices. Second quarter, LCFS prices averaged 100 per metric ton compared to about 130 in the first quarter of 2022. On August 5th, Diamond Green Diesel delivered a dividend of approximately $181 million, of which $90.5 million was distributed to Darling. This should once again provide confidence in the strong cash potential for the joint venture as we start up DGD III. As we head into Q3, DGD margins are improving. Feedstock prices have moderated. Additionally, DGD in Port Arthur, Texas should be operational in the fourth quarter of 2022, bringing our total renewable diesel production going forward to 1.2 billion gallons annually. Our strategy to procure and process weights, fats, and oils as feedstocks and not food-based oils will continue to position DGD as advantaged over other renewable diesel producers in the market. Our global supply chain, augmented by our two recent acquisitions, positions our vertical integrations second to none in the world. Additionally, we continue to see growing public policy that supports low-carbon energy solutions beyond California. We're excited about Canada's clean fuel regulations passed last month and encouraged by the rulemaking currently underway in Washington State and Oregon. The proposed Inflation Reduction Act, if passed, will represent the most robust piece of climate legislation in U.S. history and bring sustainable aviation fuel closer to reality. These programs give a boost not only to DGD, but to Darling's global specialty feed ingredients business as we are the premier provider of low-carbon feedstocks. With access to inbound water, truck, and rail for feedstocks and outbound water and options for either pipeline and rail to both coasts, DGD is well-positioned logistically to serve markets well beyond California. Now, before I turn the call over to Brad for details on the financials, I'll mention last week we closed on the purchase of the Faza Group, the largest independent rendering company in Brazil, for approximately 2.9 billion reals, or approximately 562 million U.S. dollars at the current exchange rates. This acquisition adds 14 rendering plants with an additional two plants under construction to our portfolio, and it processes more than 1.3 million metric tons of beef, pork, and chicken annually. Currently, the EBITDA run rate is around 500 million reais per year. With that, I'd like to turn the call over to Brad, and then I'll come back and give you a little outlook for the balance of 2022. Brad?