Darling Ingredients Inc.

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, Senior Vice President of Investor Relations. Please go ahead.

Thank you, and thank you for joining the Darling Ingredients Third Quarter 2025 Earnings Call. Here with me today are Mr. Randall C. Stewie, Chairman and Chief Executive Officer, and Mr. Bob Day, Chief Financial Officer. Our third quarter 2025 earnings news release and slide presentation are available on the investor page of our corporate website. And it will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results can material differ because of factors discussed in today's press release, and the comments made during this conference call, and in the risk factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now, I will hand the call over to Randy.

Hey, thanks, Sue Ann. Good morning, everyone, and thanks for joining us for our third quarter earnings call. Our core ingredients business delivered its strongest performance in a year and a half fueled by robust global demand and exceptional execution across all operations. While the renewables market is facing some short-term uncertainty, as we wait for clarity on the renewable volume obligation, we're confident that momentum is building. We believe we're on the verge of a shift that will highlight the strength of Darling's integrated model, a competitive advantage that is unmatched in the industry. Our combined adjusted EBITDA for third quarter was $245 million, as our global ingredients business performed strong with $248 million of EBITDA. As I mentioned, the renewables business continues to be challenged as we posted negative $3 million EBITDA for DGD, which included a lower of cost to market expense of $38 million at the entity level. Bob's going to discuss more details later in the call, but I will say that both LIFO and LCM were negative in the third quarter, which is unusual and does not typically happen for extended periods. In addition, uncertainty and continued delays in getting a final RVO ruling had a negative impact on the overall biofuel environment in the U.S. during the quarter. Now, in our feed segment, or in our feed ingredient segment, global rendering volumes and margins were up both sequentially and year over year, driven by strong demand for fats and proteins and solid execution by our global operations and marketing teams. In the U.S., robust demand for domestic fats, supported by a strong national agriculture and energy policy, help boost revenue and margins. Elsewhere in the world, our global rendering business, particularly in Brazil, Canada, and Europe, demonstrated stronger year-over-year performance. Export protein demand is showing signs of recovery, with slightly firmer pricing trends emerging. Tariff implications, primarily China and APAC countries, clearly have impacted our value-added poultry protein products, which serve to meet the needs of global pet food and aquaculture customers. Turning to our food segment, performance remains steady quarter over quarter. Sales dipped slightly in the quarter as customers responded to ongoing tariff volatility, but we offset that with strong raw material sourcing and disciplined margin management. We continue to see repeat orders for our next tie to glucose control product, and early studies on new formulation look promising. We're on track to launch our new next TIDA product in the back half of 2026. In our fuel segment, the renewables market continues to face headwinds. This quarter, we saw higher feedstock costs, lower RIMS and LCFS pricing, which ultimately impacted margins. A scheduled turnaround of DGD3 led to reduced volumes of renewable diesel and sustainable aviation fuel, and DGD 1 remains idled until margins improve. We believe these pressures are temporary. As mentioned earlier, we're approaching the rollout of thoughtful public policy aimed at strengthening American agriculture and energy leadership, a shift that we believe will significantly enhance DGD's earnings potential. Now, with that, I'd like to hand the caller to Bob to take us through some financials, and I'll come back at the end and give them my thoughts for the balance of 2025. Bob?

Thank you, Randy. Good morning, everyone. As Randy mentioned, core business results for third quarter improved as expected, while DGD faced some challenges that we'll explain later in the call. Specifically, third quarter combined adjusted EBITDA was 245 million versus 237 million in third quarter 2024 and 250 million last quarter. Adjusting for DGD, the quarter was very solid at 248 million versus 198 million in 2024 and 207 million last quarter. Total net sales in the quarter were 1.6 billion versus 1.4 billion. While raw material volume remained steady at 3.8 million metric tons and gross margins improved to 24.7% for the quarter compared to 22.1% last year. Looking at the feed segment for the quarter, EBITDA improved to 174 million from 132 million a year ago. Total sales were 1 billion versus 928 million. Feed raw material volumes were approximately 3.2 million tons compared to 3.1 million tons. And gross margins relative to sales improved nicely to 24.3% versus 21.5%. In the food segment, total sales for the quarter were 381 million, higher than third quarter 2024 at 357 million. While gross margins for the segment were 27.5% of sales compared to 23.9% a year ago, and raw material volumes increased to 314,000 metric tons versus 306,000. EBITDA for third quarter 2025 was up significantly compared to 2024 at 72 million versus 57 million. Moving to the fuel segment, specifically diamond green diesel, Darling's share of DGD EBITDA was negative $3 million for the quarter versus positive $39 million in the third quarter of 2024. While the environment for renewable fuels has been challenging, results were further impacted by two items. First, a catalyst turnaround at DGD III Port Arthur, which included a pause in operations for approximately 30 days, limited SAF production, and the higher average margins associated with that product. And second, End of quarter market dynamics led to negative impacts on earnings from both LIFO and LCM, which in most cases would move in the opposite direction and have an offsetting impact. Regarding LIFO, rising feedstock prices throughout the quarter and higher quarter-ending values resulted in a negative impact to EBITDA, while LCM was impacted by lower heating oil and RIN values in the days after quarter-end, resulting in an LCM loss of around $38 million at the entity level. After three quarters, the combination of LIFO and LCM has resulted in a wider than normal loss that should reverse course over time. In addition to those two items, the biofuel market in the U.S. has been challenged by policy delays, specifically delays in RVO enforcement dates for 2024 obligations, clarity around small refinery exemptions, SREs, SRE reallocations, and the final RVO ruling for 26 and 27. However, the EPA made a supplemental proposal on September 18th that would be very constructive. In the first page of the appendix in the shareholder deck that we provided, we've shown a picture of the 2025 RIN supply versus demand, showing how these policy issues have led to an oversupply for 2025, and also showing what the balance looks like considering the EPA's proposal, comparing 50% SRE reallocations and 100% reallocations for 26 and 27. In either case, a significant amount of additional U.S. biofuels would be needed to satisfy that RVO, suggesting higher prices for feedstocks, farm products, and wider margins for biofuels. With lower biofuel margins and late in the year timing related to receiving production tax credit PTC payments, we contributed $200 million to DGD during the quarter. and a total of 245 million year to date, which includes a $5 million contribution subsequent to quarter close. These contributions are offset by the $130 million dividend received in first quarter 2025 and payments from expected sales of around $250 million of PTCs that we expect to receive in the fourth quarter. To further clarify regarding PTCs, we expect to generate a total of around 300 million in 2025. During the third quarter, we agreed to the sale of 125 million. We anticipate an additional 125 to 170 million of sales in the fourth quarter, and we estimate receiving payment for around $200 million of the total 300 million we will expect to generate by year-end 2025, the balance of which we expect to monetize in early 2026. Overall, we are very pleased with how the market has developed for production tax credits. DEMAND IS ROBUST AS POTENTIAL BUYERS HAVE BECOME MORE FAMILIAR WITH THE DETAILS SURROUNDING THE CREDIT. OTHER FUEL SEGMENT SALES NOT INCLUDING DGD WERE 154 MILLION FOR THE QUARTER VERSUS 137 MILLION IN 2024 DESPITE LOWER VOLUMES OF 351,000 METRIC TONS VERSUS 391,000 METRIC TONS WHICH WERE AFFECTED BY ANIMAL DISEASE IN EUROPE. Combined adjusted EBITDA for the full fuel segment was $22 million in the quarter versus 60 million in the third quarter of 2024. The difference was primarily due to lower earnings at DGD. As of September 27th, 2025, total debt net of cash was 4.01 billion versus 3.97 billion ending December 28th, 2024. The increase from year end is minimal despite contributions made to DGD. and a $53 million earn-out payment related to the FASA acquisition from 2022. Capital expenditures totaled $90 million in the third quarter and $224 million for the first nine months of 2025. We expect total debt to decrease by year-end as we generate cash from the core business and receive payments from selling PTC credits. Our bank covenant preliminary ratio at the end of third quarter was 3.65 times versus 3.93 times at year end 2024. In addition, we ended quarter three 2025 with approximately 1.17 billion available on our revolving credit facility. The company recorded an income tax benefit of 1.2 million for the three months ended September 27, 2025, yielding an effective tax rate of minus 6.3%. which differs from the federal statutory rate of 21% due primarily to recognition of revenue from the production tax credits. The company paid 19 million of income taxes in the third quarter and $52 million year to date and expects to pay approximately 20 million more in the fourth quarter. Overall net income was 19.4 million for the quarter or 12 cents per diluted share compared to net income of 16.9 million or 11 cents per diluted share for the third quarter of 2024. Now I will turn the call back over to Randy.

Hey, thanks, Bob. I couldn't be more excited about what's ahead for Darling Ingredients. In our conversations with the Trump administration, they followed through on everything they've committed to. The renewable volume obligation they've drafted is thoughtful and designed to support American agriculture and energy leadership. And we believe it will be a major catalyst for Diamond Green Diesel. The pieces are in place, and we believe it's only a matter of time before Darling's unmatched position in the industry becomes even more clear. As we look ahead, we remain focused on what we can control. Given the current uncertainty around public policy and its impact on the fuel segment, we'll now provide financial guidance exclusively for our core ingredients business. For the full year 2025, we expect the core ingredients business EBITDA, excluding DGD, to be in the range of $875 to $900 million. With that, let's go ahead and open it up to questions.

We will now begin the QA session. If you would like to ask a question, please press star followed by one or your touch-tone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. Also, please limit your question to one question and one follow-up. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate. The first question comes from Thomas Palmer with JP Morgan. Please proceed.

Good morning, and thanks for the questions. Maybe just to start out, you gave some helpful scenario analysis for RIN balances and how that might proceed over the next couple of years in the earnings presentation. I wonder about what you think the most likely timeline is that we might start to get clarity on some of these outstanding regulatory items, the RVO, the exemptions, and then the reallocation. Thank you.

Thanks, Tom. This is Bob. Obviously, a a difficult question to answer uh as everyone's aware uh the government is shut down uh at the same time you know we've heard that the rvo is considered an essential process we have we have people there at the epa that are working on this so we're optimistic um based on you know that view and the things that we're hearing we expect sometime in the month of december um to have the comment period closed or you know the the epa to submit to the office of management and budget their proposal and uh and to have uh something approved uh by the end of the year um but like i said that's that's that's you know amid a lot of uh a lot of things going on and it's but that's our view okay no thanks for that i know it's a uh unique situation

And then I just wanted to clarify on the feed outlook for the fourth quarter. The midpoint of the core ingredients EBITDA guidance implies for the kind of three combined segments that 4Q is comparable to what we saw in 3Q. At the same time, it does look like the price of waste fats and oils have dipped a bit in September. So do we need prices to rebound in order for 4Q to look similar to 3Q? Or are there other things we should be considering as we move from 3Q to 4Q? Thank you.

Yeah, I mean, Tom, this is Randy. I mean, the 875 to 900, the reason we put the range on there was exactly as you laid out. We have seen, given the uncertainty on policy, waste fat prices come down a little bit here. You know, most of our material in North America is going to DGD, but remember, there's still, you know, Brazil and Canada and prices remain strong there. So, James Rattling Leafs, Ultimately, you know it's a it's kind of a it's a fairly narrow range for the business if, as I look around the horn non D G D. James Rattling Leafs, I expect the food segment to be stronger a little bit in Q4 maybe a little consistent maybe a little with on the feed segment, but I think we'll come in close to that range, and you know, hopefully, we can surprise you one day and be above it.

James Rattling Leafs, Right, thank you.

Thank you. The next question comes from the line of Connor Fitzpatrick with Bank of America. Please proceed.

Hi. Thank you for taking my question. It looks like your RIN supply and demand table in the slides calls for significant biomass-based diesel feed imports through 2027. As a coastal operator, DGD may import feed and receive the RINs penalty on those gallons. But could you maybe walk through the benefits to RIN's policy protectionism on the feed side and maybe explain how that nets out within your U.S. fuel and feed businesses? Thanks.

Yeah, thanks, Connor. This is Bob. If I don't answer your question directly, let me know. I think the first thing I would say is it's still not totally clear how the EPA is going to treat foreign feedstocks. That's a part of this process. As to whether foreign feedstocks are needed to meet the production and the obligations, it's going to depend on a lot of things. We do have a lot of crops and crop oils in the United States and overall North America that could be used as feedstock for biofuels. Until some of the rules around what, you know, if there are penalties for foreign feedstocks and how some of the crop oils are going to be treated, it's really hard to answer that question. I will say that I think when you look at overall supply and demand for fats and oils in North America, and you include biofuels and food, And this picture and this, you know, this proposed RVO from the EPA, then probably some foreign feedstocks will be required to meet that mandate. And we're just not clear yet on how that will be accommodated. Thanks. That's all I had.

Thank you. The next question comes from Delana Dushant Alani with Jefferies. Please proceed.

Hey, guys. Congrats on the quarter. I also wanted to note that we really appreciate the change in guidance approach. That does help us. My first question was on the 3Q DGD margins. The capture was significantly better than expected. What are some of the drivers there?

The third quarter capture was better? Is that what you said?

Yeah. Yeah. For the DGD margins, it just came in better than expected. Was it like sap production or any export arb that we can think of?

Yeah, I think the, so I'm not sure I fully understand the question because the DGD result was maybe not as good as we hoped.

Yeah, and I'll help Bob here a little bit. I think, Deshaun, you're referring to the capture that Valero reports. Dan Mansoor- Correct yes, yes, and you know, keep in mind here, this is a bit awkward in that they net their LCM against their other segments, so they have the same LCM we have they just didn't put it against the renewables or DGD segment so that's what makes the capture rate look better.

Got it. Okay, that's helpful. And then maybe just staying on topic for the 4Q DGD margins, while we understand the nuance on removing the DGD guidance, it seems like fundamentals are still improving nicely. Indicator margins are up. Again, Valero's indicator margins seem to be up 36 cents quarter over quarter. What are you seeing in 4Q, and how are you going to think about that? What are some of the puts and takes, if you can share?

Yeah, I mean, this is kind of the challenge that's out there. I mean, clearly, TAB, Mark McIntyre, The the two big units number and port Arthur and then Norco we're going to be operating at capacity SAF is going to be a capacity yeah the capture indicator is stronger right now. TAB, Mark McIntyre, You know that the challenge for us is, we thought, but by this time we would have written values kind of starting to reflect the restarting of the industry and and they really haven't yet. So it's kind of hard. I mean, we're the low cost operator. You know, we have enough feedstock to run our units. Our SAF margins are better than classic renewable diesel. And what else you want to add, Bob?

Well, I think we have seen an improvement in margins so far in the quarter. The question is just, or the point here is until we get clarity on the final ruling on the RVO for 26 and 27, it's hard to It's hard to say with certainty that those margins are going to continue. But thus far in the quarter, yeah, we've seen some improvement, that's for sure.

Thank you. The next question comes from Delana from . Please proceed.

Good morning. My first question is we saw a good improvement in your feed segment margins. think randy over the years you had indicated that eventually those acquisitions coming in you would be able to drive improvement and those fronts so help us understand some of the factors that drift help you drive improvement in the feed segment margin and also you know to an earlier questions yes uh imported feed stocks might be needed but domestic feed stocks will price at a higher premium because they'll get 100 percent rain so What would be the outlook for the feed segment going into 2026, if you could talk a little bit about that?

Yeah, I mean, clearly, as we've talked in Q1 and Q2, we've used the word building momentum. We were seeing feedstock prices come up. What we've seen mostly is feedstock prices are flowing through now, although they've come off a little bit for Q4, but we're seeing protein prices improve around the world. You know, I call it there's a tariff on one day, a tariff off one day. China needs to buy poultry proteins to feed aquaculture. And whether it's China or Vietnam, when the window opens, they trade. And so we've seen a pretty nice improvement. You can look sequentially. You can look year over year in the appendix of the supplier or the shareholder's debt there and ultimately see the pricing movement. Clearly, fat prices were up sharply. The products we use at DGD. But protein prices were up 10%. So I think we're going to carry into Q4. Remember, we're always about 60 days sold ahead. And so we'll carry some pretty strong prices into Q4. And I'm hoping that as we move into next year, we'll have kind of the same momentum. There's always a little bit of seasonality here. But really, that's kind of what I'm expecting as I look out there.

Perfect. My quick question on the table that you have created is very helpful, but help me understand. Here you're assuming a flat dish capacity. We know there are facilities which are heavily dependent on foreign feedstocks at this point of time, and they are still struggling. I think they will struggle even more next year if you decide to give only 50% rent to imported feedstocks. So is there a possibility this rent balance would look even more attractive if some of those facilities that are heavily dependent on imported feedstock actually decided to call it a day and shut down?

Yeah, I think Bob and I will tag team this. You know, my answer is we went into 2025 with the belief that the DGD margins were would be no lower than they were in 2024. And we were wrong. And where were we wrong? Well, we didn't understand that the big oil guys would actually run at such significant losses to produce their own RINs. We believe that's changing as we come into 2026 and 2027. The losses at those plants are substantial. I mean, it clearly shows how efficient operationally effective D G D is the rim balance that Bob will talk about here in a minute. Yeah. It actually gets even more constructive if the, if people behave rationally.

Yeah. And I'll just add, I think, you know, well, all of that is true. Um, in addition, the proposed RVO for 26 and 27 is substantially larger than 2025. So, so even if we had similar production, as you, as you noticed from, uh, from the grid that we provided, then we will ultimately have a deficit in 26 and 27. And what this is intending to show is specifically that, and then beg the question, how much do margins need to improve in order for production to increase so that we can satisfy the mandate for 26 and 27? You know, you add a layer of complexity when you, you know, with the imported feedstock, and if imported feedstock only generates half a RIN, I think that some of that is going to depend on what is the origin tariff placed on that feedstock. If a feedstock, if a foreign feedstock only is penalized by getting half a RIN and then not being eligible for the PTC, then it's reasonable to expect a decent amount of foreign feedstocks to competitively come into the United States. It would just come in at a discount to the U.S. feedstock prices. John Potter, which again is constructive to the feed business and our you know our core rendering business in the United States, but it would allow for satisfying the the mandate for the rvo but it would again it suggests that margins need to go up quite a bit in renewable diesel in order for that to happen.

Thank you. The next question comes from the line of Puram Sharma with Steven Inc. Please proceed.

Good morning, and thanks for the question. I just wanted to maybe just peel into that last answer you gave there, Bob. I know in the past you have kind of walked through different RIN pricing scenarios, and there are little moving pieces here just with, how foreign feedstocks will get counted. But just as it stands now, no PTC, half a RIN for the foreign feedstocks. Are you able to quantify what range RINs should be at in order for the industry to run to meet the mandate in 2026?

So this is going to be somewhat of a swag here because, like you said, there are a lot of moving pieces. And if we assume that we have access to our origin feedstocks that don't face a significant tariff and the primary source of the penalty is the half RIN and lack of access to a PTC, then we probably need RINs to go up 40 cents or so in order to incentivize enough production to satisfy the mandate for 26 if the SRE reallocation is only 50%.

Great, great. Appreciate that. My follow-up, I just kind of wanted to focus on the balance sheet more specifically, you know, your debt and leverage. I wanted to revisit what your plans are to pay off debt and also wanted to ask, what are your restrictions? Like, what leverage ratios do your debt restrictions, the covenants start kicking in at?

We're nowhere near breaking any covenants. I think we've said before, we're committed to paying down debt. We've got a lot of headroom in our revolver due to circumstances around receiving cash payments from selling production tax credits. Um, you know, we, we will, we will be receiving more cash in the fourth quarter. Uh, and we, and we didn't receive any cash from production tax credits in the third quarter. Um, and so by the end of the year, you know, we expect our debt coverage ratio as, you know, as it's viewed by the banks to be right around three times. Um, so that's, that's really, that's our position on that.

And long-term for, we're, we've, we've got a financial policy agreed in the boardroom to go down to two and a half times. It doesn't take much for the restart of DTD to start to do that. We've not been in a capital deprivation or starvation mode of any of the factories globally. So, you know, we're in good shape here to continue to build this thing out and grow and deliver at the same time.

Thank you. The next question comes from the line of Ryan Todd with Piper Sandler. Please proceed.

Good, thanks. Sorry, I know you talked a lot about this, but maybe one more follow-up on some of the regulatory uncertainty. I mean, as we wait for the final RVO, I mean, you've talked about the uncertainty around reallocation and a couple other things. What are some of the other things topics that you think are still being being kicked around um is there is there a possibility of any change in the um approach to import of of foreign biofuels um are they still you know is there still consideration in terms of the treatment of domestic feedstocks in terms of carbon intensity like land use penalties and stuff like that and what are you know some of the potential risks or, you know, or positive things that you think could come out of the final ruling there outside of just, you know, kind of the high-level RVO and the reallocation?

Well, I think, Brian, this is Randy and Bob, and I'll kind of tag it again here if I leave anything out. I mean, clearly American agriculture is at the forefront of the discussions in D.C. right now. um you know clearly when when you lose your largest customer for soybeans when you get beef prices as high as they are you've got a lot of people in the room that have ideas on how to fix the situation and so what we've been part of is many of these discussions is what's the easy button the easy button here is a large svo or rvo with a 100 reallocation Now, if you go back and you look, really the EPA gave you a multiple choice test. It said either 50% or 100%, but if you're really inclined, you can talk about something else you'd like. And so they've set the table there. Clearly the PTC out there doesn't encourage foreign feedstocks. So, I mean, that's a block in itself with a tariff on top of that even makes it more difficult. We've had discussions in DC and we said, well, you know, the easy button is that just remember if you don't allow foreign feedstocks in here because they can't generate a credit, then, oh, by the way, where are those feedstocks going to go? And the room goes silent. They finally got it. They realized those stocks are going to go back to other processors. Uh, you can probably name who they are around the world in Singapore and Rotterdam and Port of Finland. And then they're going to move a finished RD on top of us. And that's destructive to what they're trying to accomplish. So they're trying to figure out right now how to manage that under the tariff code. So you've got the U.S. trade along with the EPA collaborating, trying to figure out how to put this together to accomplish the needs that are going to produce energy and be constructive to the U.S. farm community.

Yeah, and I'll just add that as we sit here today, the EPA has already proposed a 50% RIN generated for a foreign biofuel, no access to PTC. So that in and of itself makes it more difficult. But as Randy said, there's a lot of momentum to preventing foreign biofuels to come in and participate in U.S. support programs. So we're pretty confident that that's going to work out well. as it relates to feedstocks, that is another thing that we're waiting for clarity on, and whether they're going to enforce the 50% REN concept, or if foreign feedstocks are simply going to be limited by origin tariffs.

Okay.

Thank you. And then maybe just, I mean, you've You talked about, you provided a little bit of clarity around PTC monetization. You've had a couple, you're, you know, you're a couple of quarters into the experience of, or a few quarters into the experience of production under the PTC regime. You're getting more consistency. Can you talk about how the monetization market seems to be working there? Have the discounts been fairly stable? And how should we think about the general rateability of the process at this point? Is the, you know, 125 million this quarter, 150 million at the midpoint next quarter. Is that like a, Are you in a fairly rateable place now in terms of monetizing the majority of your production?

Yeah, I think so. I think the context here is that there were two things that made it difficult earlier in the year to sell production tax credits. One is that not many counterparties were familiar with the credit itself, so there was lots of questions. The value of the credit is determined in part by carbon intensity. So you can just imagine for industries looking to buy tax credits that aren't familiar with our biofuel industry, trying to understand all that is not an easy thing. And then the other is that most companies, it was pretty cloudy what their tax liabilities were going to look like at the end of 2025 because of the big beautiful bill and a lot of things that went on around that. So early in the year, it was, it was difficult to get a lot of traction. Um, that's obviously changed significantly. Uh, both of those pictures are a lot more clear. And so, yeah, I think that for us, we're, we're confident in our ability to sell, uh, the majority of the credits that we'll generate in 2025. And then it should be a pretty rateable process through 2026.

Yeah, I think it's, it's one last piece to that is. I would characterize the environment as there are more interested parties now than there were earlier in the year. So it's now getting a chance to define terms, refine terms, and pick the counterparty that we want to do with, with timing respected to when to receive the cash. So it's a very constructive environment now.

Thank you. The next question comes from the line of Derek Whitfield with Texas Capitol. Please proceed.

Good morning, all, and thanks for taking my questions. Regarding guidance, I appreciate the position you guys are taking with the more volatile DGD business segment. With that said, we are seeing better spot margins in 4Q for most feedstocks and specifically for tallow and yellow grease. Would it be fair to highlight that DGD could post the best quarter in 2025 at current margins, which, again, would be a positive development as you enter 2026?

Yeah, thanks, Derek. I think that would be fair. You know, I think, you know, one of the things we're sensitive to is just how uncertain policy has been and the impact that that's had on margins. I mean, look, we're very optimistic about improvement in the fourth quarter and the outlook for next year, but You know, we, we realized that, that the market at large really wants to see proof of that before, you know, before estimates, um, you know, believing a lot of what, what estimates are out there. So I think that we are encouraged by what we've seen so far in the quarter. And we, you know, we, we think the outlook is, is good, but we're just hesitant to, um, to define that with, with a lot of precision, just given the lack of, uh, clarity around policy that we're still, we're still facing.

Bob, can you comment on what it takes to trigger RIN and obligations and when that would happen?

So with enforcement dates and that, yeah. I mean, I think, you know, one thing that has caused a real delay in the reaction of the RIN has been the movement of the 2024 enforcement date from March 31st to December 1st until we get the final ruling on the 26 and 27 RVO and clarification as to when the 2025 enforcement date is going to be, it's difficult for obligated parties to feel that they're incentivized to go and buy all their RINs, especially when so many small refinery exemptions were granted. For the small refineries out there that are wondering whether they should buy RINs, they have an incentive to wait when the obligation date is set at a later time in the event that they get an exemption. And so, you know, what Randy's alluding to is until some of those things are clarified, which we do think is going to happen around the end of the year, but until those things are clarified, the incentive to buy RINs and tighten up the RIN S&D doesn't exist the way that it's intended. And so, it's just, it gets a little bit difficult to forecast. But we, you know, to your point, Derek, we have seen an improvement in margins so far in the quarter. The outlook is better. And we're very optimistic about 2026. Great.

Understood. And as my follow-up, we've seen the RD market in Europe strengthen in recent months. If you guys work through the complex mass of spreads, shipping, and tariffs, to what extent could you access this market if it remains your bus?

We can access that market, but we pay a duty to access that market. Um, and, and that duty can fluctuate a bit, but it's, it's, it's typically over a dollar a gallon. So, um, it, you know, we're, we are selling consistently to that market, uh, or diamond green is, um, but it, it just, it's, it's, you know, we're looking at it as a net of duties and comparing that to other markets we have available.

Thank you. The next question comes from the line of Matthew Blair with TPH. Please proceed.

Thank you, and good morning. I was hoping you could talk a little bit about the feedstock mix at DGD. And I know that you're always looking to optimize, and some of this is commercially sensitive. But just on a big picture basis, it looks like some of the indicator margins for RD made from vegetable oil are trending a little bit better than RD made from low CIP.

um just overall has dgd shifted to more of a veg oil mix or is it still pretty much all low cip thank you yeah thanks matthew um this is bob so i wouldn't dgd hasn't materially shifted its mix as i think you're aware dgd1 is still down if dgd1 were to go back up and run then that mix would shift more in towards soybean oil But as we sit here today, the mix hasn't changed a lot. Our best margins are on Yuko and yellow grease and animal fats, and so we're going to maximize the opportunity we have to use those products.

Yeah, the only thing that I would add, Matthew, is that clearly in Q1 and Q2, as we were trying to figure out the rules around the PTC and 45Z, re-domesticating our supply chain was a pretty significant Pretty significant challenge. DGD is heavily reliant now on Darling's Yuko and Darling's Yellow Breeze and animal fat supply. And so we've got that up and running full speed now. And it's really visible now. You can see it in the earnings of our core ingredients business. And ultimately, it'll translate into a better sales value within DGD.

TAB, Mark McIntyre, Thank you that that's helpful and then apologies if I missed this, but the contributions that darling is making to dgb is that to help fund the dgb three turnaround or what why is darling sending money back to dgb.

TAB, Mark McIntyre, yeah and it's hard so that the answer to that question some of that timing, some of that is just turn around some of that's just the mark the margin structure so remember. that the PTC revenue that we will get as Darling, that flows directly to the partners. So that money doesn't stay inside of Diamond Green Diesel. That's number one. The other is, as you pointed out, in 2025, we've completed three catalyst turnarounds. And so our maintenance capex is higher in 2025 than normal. So it's really the timing of all those things that's led to the contributions that we've made.

Thank you. The next question comes from the line of Jason Gableman with TD Securities. Please proceed.

Yeah, hey, morning. Thanks for taking my questions. I want to go back to something else that Bob had mentioned just around, you know, companies complying with their rent obligations and that perhaps catalyzing stronger rent prices. Can you talk about, I guess, more specifically the timeline around that? I think 2024 RINs are due December 1st. And then at that time, the balances for 2025 should become more visible to the market. So do you expect that December 1st deadline to hold? And do you think that could be an initial catalyst to move RIN prices higher before we get the final RVO for 26 and 27?

Yeah, thanks, Jason. So I do think that that deadline will hold. I don't know that it will have much of an impact on RIN prices because all the RINs that have been procured so far in 2025 can ultimately be used to satisfy the obligation for 2024, and that's quite a long time and a lot of RINs. There may be some refiners who are waiting until the last moment to buy their RINs, but because we've had so much time in 2025 to do that, we're not expecting that that's going to result in a significant lift to RIN prices at that time. If we have clarity around enforcement dates for 2025 going back to the March 31st, 2026, as they normally would be, that would be a time when we would expect RIN values to probably see a lift.

Got it. That's helpful. And then my second one is hopefully a simpler question. Just Given on the screen DGD margins have improved, it seems like it could be, you know, the margin signal could be there to restart DGD1. So wondering what exactly you need to see to have confidence to restart DGD1. Thanks.

So we've talked about this before. DGD1 went down for a catalyst turnaround early in 2025. given the changes in the PTC and the origin tariffs on so many of the feedstocks, our view is that DGD-1 only makes sense to restart, at least in the current environment with the current RVO under the current rules, when soybean oil can be profitable. And profitable means a margin that's good enough for a long enough outlook that justifies burning up a catalyst. And so I think Certainly, we're a lot closer to that than we have been. We may get there, but it definitely looks a lot better than it did a few months ago.

Thank you. The next question comes from the line of Andrew Scelsa with BMO. Please proceed.

Hey, guys. This is Ben on for Andrew. My first question is around the food segment and just the commentary there that pointed to maybe some weakness exiting third quarter and into fourth quarter. So I was just hoping you could, you know, just walk us through your outlook for the next few months in the food segment.

Yeah, I think, you know, what we were trying to put in the narrative is clearly Tariff on, tariff off, up to 50, you know, fentanyl tariffs, trying to figure out, you know, the supply chain was very confusing for our customers in Q3. And so the choice was to pull down, you know, domestic inventories. You remember most of our Brazilian production comes into the U.S. That's in the hydrolyzed collagen peptide form, very successful product for us. And so we had some delays in orders there. We think it'll pick up and be a stronger Q4. That's about all the color that I can give you today on it. And what we've seen is a continued rebound of the hydrolyzed collagen business. And while our new next TIDA products are making a foothold in the industry, they're still relatively minor in the contribution of that segment. But they are, as we've quoted in there, we're getting repeat orders, which is a, is a great thing. Um, you know, by next summer, um, we're going to launch what I think will be called next height of brain. And, uh, that'll be a brain health product and it's got a really great outlook too.

Well, that's great to hear. Um, and then on my next question, something that kind of, I think it's lost in the weeds sometimes, uh, or at least lately. California LCFS credit values, they've been generally stable at weak levels. Can you remind us of the expected timeline of triggers that should propel these values higher eventually?

Yeah, thanks, Andrew. This is Bob. I think as we all know that there was quite a bit of a delay in the implementation of their step down to increase the greenhouse gas obligation, uh, reduction obligation in California. And so, um, as a result of that, that bank got built up so large that, uh, most of the obligated parties from our perspective, uh, had a sufficient number of credits where they, you know, even with the change in the ruling, they didn't need to go out and immediately buy credits. Um, you know, our view is that they are, they're working their way through those credits, uh, and, and that, you know, sometime, in 2026, we'll start to see that S&D come more into balance and steady increases in the LCFS credit premium. But it's hard to, you know, I think we believe it will be more steady than sort of a step up in value.

Thank you. The next question comes from the line of Heather Jones with Heather Jones Research. Please proceed.

Good morning. Thanks for the question. I wanted to, I had a question on your feed segment and just thinking about the protein pricing. I know in the past that you had put in place some of your, and some of your fats pricing contracts, you had like minimum levels. And if it went below that, what Darling received wouldn't go below that. And I was just wondering, if you all had put any of those kind of things in place for your protein business in the U.S.?

Heather, this is Bob. So all of our, you know, every contract is somewhat unique, and it really has to do with, you know, our approach towards accommodating our suppliers and trying to work with them on terms that make sense for their business. I think what you're pointing out is that we do have some contracts where, Darling collects a minimum processing fee, and if prices get above a certain threshold, then we participate in some of the value of those prices. There are certain instances where protein prices are part of that, as fat prices are. I think generally speaking, though, we see, as you're well aware, We see a lot more volatility in fat prices and a lot more upside from time to time in fat prices. And so we tend to focus more on that than we do on the volatility in the protein markets.

Yeah, I think to augment what Bob said is, you know, the thing that happened is the United States was heavily reliant on shipping low-ash poultry meal into the Asia countries, predominantly China, for aquaculture. The offset was a strong domestic pet food demand in the U.S., And what we've seen twofold is, one, with the tariffs on, tariffs off with China and Vietnam, they're unable to take the risk, if you will, to buy that product. So it has to find, as all commodities do, the next best market. What you're seeing in the pet food business is post-COVID, you've taken Fluffy back to the shelter, and then you're not seeing a growth that's very significant right now on the pet food side. And then you're seeing that the consumer, the CPG companies, took prices up pretty drastically, making those bags brand name products with meat in them really, really pricey. And you're watching strong growth now in the grain-based alternatives, namely Old Roy. So it's essentially a disruption scenario right now, Heather. And we're off from where traditionally poultry, high-end, low-ash poultry products have traded. Although they're coming back, the second that Trump relieved the tariff on Vietnam for 30 days or whatever, big shipments and sales went out of here. That's our eastern seaboard plants that are heavily reliant on those products. So I think we've got a pretty good outlook. They've come back now and have improved quarter over quarter. And I think we're cautious on next year, but we think everything looks much better.

Okay, thank you for that. And then my follow-up is on Europe. So recently, they extended the tariffs on RD imports and biodiesel imports. They extended the SAF. So as we're thinking about Q4, you'll have a full quarter of SAF production, and SAF pricing in Europe is really strong. So will having a full quarter of production more than offset the impact of them now imposing these tariffs on U.S. SAF? I just wondered how to think about those moving pieces.

Yeah, thanks, Heather. I think the way to look, think about that is it will have, if it's going to have an impact, the impact is going to be felt a bit later on. SAF is not, you know, we aren't selling SAF in a spot market. The SAF that we're producing today was sold a while ago. And, you know, most of the SAF that we will produce in 2026 is already sold. So the tariff impacts will affect new contracts as they come about. And we'll just have to see what those markets look like and, you know, supply and demand. But we still have access to voluntary markets in the United States. So we're optimistic about, you know, where we stand with SAF and SAF sales.

Thank you. The next question comes from the line of Betty Zane with Scotiabank. Please proceed.

Thank you. Good morning. Thanks for taking my question. For my first question, I wanted to ask about broadly the court EBITDA guidance. It's been updated to that 875 to 900 range. And that's a bit lower versus the first number that you gave out at the beginning of the year. So I'm wondering if you could reflect on how the year played out and where it didn't quite meet your earlier expectations. And then looking forward to 2026, do you think that this year's 12 to 13% growth is somewhat comparable to what you're seeing for next year?

Yeah, Betty, this is Randy. I mean, the 875 to 900 is the amalgamation of all three segments, net of DGD. Clearly, you know, we're, you know, two-thirds of the way through October. We don't know really where October is going to finish. We don't have that type of visibility on a day-to-day basis here. So, you know, it's just that this business, when prices are steady and volumes are steady around the world, you can give some guidance there. What What we have tried to do is it's just too difficult to put a number out on DGD either for Q4 or next year. The core ingredients right now looks similar to stronger in 2026, but we won't know that and be able to give guidance on that until an RBO is published and then when we do probably our February earnings call.

Okay, fair enough. And my follow-up question, I wanted to ask about the fuel ingredients business, the portion excluding DGD. The margin there looked a bit – the gross margin looked a bit higher quarter over quarter, and also the segment earnings came in higher versus what we saw in the first half. Could you please share maybe some of the drivers there?

Yeah, that business is made up while Bob described it in his comments of disease. It's really mortality destruction predominantly in Europe today. And then that's our green gas business reminding people that, you know, the green gas or green certification business in Europe or the one of the largest in all of Europe today producing gas over there. And then, and those are our digester businesses. And we added a small one in Poland now, so. you know ultimately that business ebbs and flows with um with what we call the rendac business um predominantly and that's uh the seven rendering plants in europe that are geared towards mortality destruction um anything you want to add there bob i i mean i i think it's what you know you're alluding to is just sometimes the the the inputs uh the price the cost will change for the inputs

energy prices that we're selling there remain strong, and so that's what you're seeing with these gross margins.

Thank you. There are no additional questions left at this time. I will hand it back to the management team for any further or closing remarks.

Hey, thank you again for all the questions, Dave. As always, if you have additional questions, feel free to reach out to Sue Ann. Stay safe, have a great holiday season, and we look forward to talking to you after the first of the year.

That concludes today's conference call. Thank you. You may now disconnect your lines.