Darling Ingredients Inc.

Good morning and welcome to the Darling Ingredients, Inc. conference call to discuss the first quarter 2026 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 now like to turn the call over to Ms. Sue Ann Guthrie, Senior Vice President of Investor Relations. Please go.

Thank you for joining the Darling Ingredients first quarter 2026 earnings call. Here with me today are Mr. Randall C. Stewie, Chairman and Chief Executive Officer, and Mr. Bob Day, Chief Financial Officer. Our first quarter 2026 earnings news release and slide presentation are available on the investor page of our corporate website and will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially 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.

Thanks, Sue Ann. Good morning, everyone, and thanks for joining us. Over the last few years, public policy uncertainty and deflationary and volatile commodity markets created a challenging operating environment. During that time, Darling Ingredients remained laser-focused on controlling what we could control. We prioritized operational excellence and maintained strict, disciplined capital allocation with a goal to achieve a meaningful debt reduction. Headwinds have now shifted, and the results we share today confirm a much more favorable operating environment. We're moving forward with significantly improved earnings power, stronger cash flow potential, and a more robust foundation for long-term value creation. For the first quarter of 2026, we saw the operating environment allow for expected EBITDA growth and sequential gross margin improvement. Darling's core ingredients business really delivered this quarter with improved global operations, margin expansion, and focused commercial execution. Combined adjusted EBITDA for first quarter was $406.8 million, including $255.6 million from our global ingredients business and $151.2 million from Diamond Green Diesel. Our feed ingredient segment had a fantastic quarter. We saw steady volumes with a strong global poultry volumes, offsetting stagnant North American cattle herd. Operational excellence remained a key focus this quarter, driving improvements in throughput, cost reduction, and product quality that translated into stronger gross margins. At the same time, Our commercial agility allowed us to pivot sales to higher priced markets. While fat prices were softer earlier in the quarter, our disciplined risk management approach combined with spot sales helped us mitigate the typical lag impacts we would see in that environment. The renewable volume obligation announced at the end of March has been extremely constructive for Darling and DGD. We're already seeing a favorable movement on fat prices as renewable diesel demand grows. DGD overcame a shutdown at Port Arthur that briefly interrupted our supply chain. As those dynamics continue to play out, we anticipate this to be a nice tailwind for our feed segment for the remainder of 2026. Turning to our food segment, we're seeing nice growth in collagen, particularly in Europe and Asia. Sales in both collagen and gelatin improved year over year. reflecting not only increased customer demand, but new applications for collagen in food, nutrition, and health products. Our Nexthida glucose control product is currently pending a patent in both in the U.S. for production processes and the use of Nexthida as a dietary supplement ingredient, offering a non-pharmaceutical option targeting lower blood glucose. With an interest in food as medicine and increased demand for protein, collagen continues to be positioned well for growth. Now, as you can see in our results, our fuel segment is at an inflection point as renewables margins turned a corner with finalization of the renewable volume obligation. With a very constructive RVO and now a clear path forward, we expect DGD's results to continue to strengthen throughout the year. Diamond Green Diesel delivered a strong quarter with $151.2 million of EBITDA, or around $1.11 EBITDA per gallon. Our non-DGD green energy businesses continue to deliver stable earnings and will have the opportunity for a slight tailwind due to increased energy prices in Europe. Now with that, I'd like to turn the call over to Bob to take us through some financials. Then I'll come back and discuss my thoughts on the second quarter.

Bob? Thank you, Randy. Good morning, everyone. As Randy said, first quarter was very strong across all measures, and the Darling platform is poised to move forward with significantly improved earnings power. For the quarter, combined adjusted EBITDA was $407 million versus $196 million in first quarter 2025 and $336 million last quarter. Core ingredients, non-DGD, improved both year over year and sequentially. For first quarter 2026, core ingredients EBITDA was $256 million, versus 190 million in first quarter 2025 and 278 million last quarter. Total net sales were 1.6 billion versus 1.4 billion. Raw material volume was 3.8 million metric tons, essentially unchanged. Meanwhile, gross margins for the quarter improved to 26.1% compared to 22.6% in the first quarter last year and from 25.1% last quarter. Looking at the feed segment for the quarter, EBITDA improved to 169 million from 111 million a year ago, while total sales were 985 million versus 896 million, and raw material volume was flat at approximately 3.1 million metric tons. Gross margins relative to sales improved nicely to 25.3% in the first quarter versus 20.3% in the first quarter from last year, and 24.6% in the fourth quarter of 2025. In the food segment, total sales for the quarter were $405 million compared to $349 million in the first quarter of 2025. Gross margins for the food segment were 28.9% of sales compared to 29.3% a year ago, and raw material volumes were flat at around 330,000 metric tons compared to the same time last year. EBITDA for first quarter 2026 was $81 million versus $71 million in first quarter of 2025. the fuel segment starting with diamond green diesel darling's share of dgd ebitda for the quarter was 151 million which includes a favorable lcm inventory valuation adjustment of 97 million at the dgd entity level and sales of around 272 million gallons an average ebitda margin of 111 per gallon darling contributed approximately 190 million dollars to dgd during the quarter mainly to provide short-term working capital, most or all of which is expected to be returned in subsequent quarters. In addition, during the quarter, Darling monetized $45 million in production tax credit sales, the proceeds of which will be paid in the coming quarters. Other fuel segment sales not including DGD were $160 million for the quarter versus $135 million in 2025. on strong energy and biogas prices in Europe and relatively flat volumes of around 370,000 metric tons. Combined adjusted EBITDA for the full fuel segment, including DGD, was roughly 180 million for the quarter versus 24 million in the first quarter of 2025. As of quarter end, total debt net of cash was approximately 4 billion versus 3.8 billion ending fourth quarter 2025. The increase in debt results from contributions to DGD mentioned earlier and timing of production tax credit payments, some of which will come in the second quarter. Capital expenditures total 95 million in the quarter. Our bank covenant preliminary leverage ratio was 3.17 times as of quarter end versus 2.9 times at year end 2025. In addition, we ended the quarter with approximately $1.1 billion available on our revolving credit facility. We recorded an income tax expense of $38.6 million for the quarter, yielding an effective tax rate of 22%. That rate, excluding the impact of the production tax credit and discrete items, was 32%, and we paid $20.5 million in income taxes in the first quarter. For 2026, we expect the effective tax rate to be around 25% and cash taxes of approximately $60 million for the remainder of the year. Mike Nygren, Overall net income was approximately 134 million for the quarter or 83 cents per diluted share compared to a net loss of 26 million. Mike Nygren, or negative 16 cents per diluted share for the first quarter of 2025 last quarter, we mentioned that we have some assets held for sale that are not considered strategic for our business. Mike Nygren, Those assets sales continue to move forward, but have not yet closed. Of those, we have signed an agreement to sell the majority of our grease trap environmental service assets. The sale is pending some permitting transfers, which we expect to be completed in the next few months. We'll have more to say about the trap and other businesses for sale at a later date. With that, I will turn the call back over to Randy.

Thanks, Bob. In closing, the progress we shared with you today reflects the discipline and focus we have maintained through a challenging cycle. By controlling what we could control, driving operational excellence, prioritizing capital, and focusing on balance sheet strength, we positioned Darling Ingredients to emerge stronger. With improved but volatile market conditions and a much improved regulatory framework, we believe the company is entering its next phase with momentum that we expect to build as the year progresses. We believe that as the year progresses, we'll drive improved earnings, stronger cash flow, additional debt reduction, and long-term value creation for our shareholders. Ultimately, our improved performance will once again provide the company with many opportunities. This confidence is reflected in our core ingredients EBITDA guidance for Q2, which we are now setting at $260 to $275 million for the quarter. With that, we'll go ahead and open it up to Q&A.

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove that question, press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly as questions are registered. Our first question comes from the line of Heather Jones with Heather Jones Research, LLC. Heather, your line is now open.

Good morning. Thank you for the question. I was just wondering on, first of all, on Diamond Green, should we expect the hedging and LIFO losses, do you expect that to reverse in Q2, or will that take longer throughout the year?

Thanks, Heather. This is Bob. So we did realize a lower cost of market benefit in the first quarter. And I think just to make sure everyone's aware, in order to have the opportunity to realize the benefit and lower of cost or market, you have to have previously taken a loss from that. This quarter, that $97 million at the DGD entity level, that exhausts all available lower of cost or market. So going forward, as long as the business is profitable, we do not anticipate any lower of cost or market benefits. And so then to your question of LIFO, LIFO will be based on an average cost paid for feedstock during the period. And as the average price increases if it increases then then we would realize a a life of loss that is embedded inside of the results uh if feedstock prices on average decrease then there would be a life of gain so really the answer your question depends on your view of feedstock prices uh as the average cost of feedstocks paid and the period in question relative to the period prior And hedges.

And what about on the hedging side?

Yeah. Yeah. Yeah. So hedges, I guess what I can say about that is at DGD we do hedge. We're, you know, very disciplined about hedging. There is some flexibility in terms of which instruments we use to hedge our risk. And we don't, you know, we don't disclose that for competitive reasons. You know, I think what you can point to this quarter is that, you know, clearly we had a significant increase during the period in heating oil futures and crude oil futures and soybean oil, whatever, you know, whatever sort of instrument you're looking at. And, you know, we managed to absorb the cost of whatever hedges we had and still put out a very positive result. And, you know, I think it just speaks to the, risk management capabilities of the business.

Okay. And then my follow-up is just given the volatility we're seeing in the energy markets and the feedstock markets, this question seems pretty particularly relevant. So I was wondering if you could update us on how we should be thinking about the lags in your model, both like both CoreDAR and Diamond Green. I remember at one point it was more like 30 to 60 days, and then I think it increased to 60 to 90. But if you could just update us on how we should be thinking about that.

Yeah, Heather, this is Randy. So clearly you've kind of framed it pretty well. I mean, what we saw in Q1, remember as we came out of Q4, if you remember, we had forward sales into DGD getting ready to run full that were put on in October as we anticipated the RVO. And then we saw prices soften as the RVO kept getting kind of delayed and delayed. And so ultimately, as we came into Q1, cash prices, FOB, most of the North American factories were actually flat or lower than Q4. those have now accelerated they started to accelerate in in really here in march for us that'll start to flow through very nicely in q2 when we look at our global rendering business you what we've seen is the the tariffs have impacted brazil pretty sharply we've had to adjust all of our formulaic or our pricing models down there what we procure raw material from that takes That takes 30 to 60 days. So I think we've righted that now. So overall, the ingredients business will have a stronger Q2. How much of the acceleration and prices flow through, that would be reflected in our kind of our conservative approach to guidance there. Remember, as I was telling the team here, this is the first call we've done where we haven't ever seen period one of the next quarter. And we won't see those numbers here for another week or two, week and a half. And ultimately, so really we're looking at basically a March run rate and extrapolating that with some improvement. And so you'll see that. Conversely, as DGD has done a very nice job of getting out in front of this. I mean, we've had a strong bias that feedstock prices would accelerate once the industry wakes up. And so, you know, that should flow through in much better margins in DGD as we go through Q2 and through the balance of the year.

Thank you. Our next question comes from the line of Tom Palmer with JP Morgan. Tom, your line is now open.

Sorry, was on mute. Hi, it's Tom. Morning, and thanks for the question. Maybe start out with an industry question, especially when we, I think, think about the biofuel side, there's probably a good amount of idle capacity. I wonder what you think the U.S. biofuels industry is capable of producing Tom Frantz, Currently, and then once kind of it fully ramps and and whether that's going to be enough to kind of fulfill mandates, or if we do need to kind of shift to imports, even with the maybe less favorable tax treatment thanks.

Bob Leone, yeah thanks Tom this is Bob. Bob Leone, We look at first thing i'd say is you know we we do believe that quite a bit of biofuel capacity is back online, you know margins are. are attractive enough to bring a lot of that back. There's still an opportunity to bring some more. Ultimately, to answer your question about what we're capable of, it's going to depend a lot on run rates as well as just kind of bringing idle capacity back on the market. And I think, as everyone knows, keeping a renewable diesel unit up and running, it's got its own challenges to it and circumstances. So it's going to depend a lot on that. James Rattling Leafs, bottom line is you know we think that the industry is capable of meeting the the the mandate of the or the demand of the rvo. James Rattling Leafs, It probably is a combination of some of the things you talked about it will include some imports of fuel. James Rattling Leafs, Probably fewer exports, as the US market margins need to just incentivize us production to stay in the United States. when you put all those things together and, you know, adding capacity and running hard as an industry. And you look at what we did in 2024, you know, it's reasonable to expect that we can meet the demands of the RVO.

Thank you for that. And a follow-up on second quarter expectations. When we think about 2Q, what are kind of the key drivers of the increase in terms of EBITDA in the base business? Is it mainly just higher market prices in terms of fat? And does that range contemplate where prices are today or that there are any changes relative to that run rate? Thanks.

Yeah, there's always a bit of seasonality in the business here. You know, I've always said when the ballparks open, at least in North America, that's you'll see a few more in barbecue season. So, you know, really at the end of the day, raw material volumes globally are strong and very strong in South America. Poultry volumes in the U.S. are exceedingly strong, while the downside of that is the cattle herd is really stagnant and at a 75-year low. What's relevant about that, Tom, is that Remember, there's, you know, it's just like the red meat, white meat discussion here. Red meat has more fat. And so, you know, we can process more poultry and still not make as much fat as we were when we were running all the beef. So a little less fat into the discussion. As far as the modeling of guidance here, like I said, that's really March extrapolated with some improvement that's out there, you know, clearly towards the, you know, Fat prices are exceedingly much higher than they were in Q1 cash prices right now, and we're out there selling it. So you'll see that flow through. How much goes into Q2 versus Q3, we will see, but we're clearly picking up some speed there. The Russolo business is doing quite well around the world right now. Gelatin and collagen margins are good. Um, it, remember that business member, 80% of that by-product that comes out of that business is fat and protein. And so it's filling it, it's filling a benefit. Um, we're, we're seeing, you know, the, the terrorists had their impacts on our, our, whatever you call our specialty proteins business. And those, those markets are back open again, uh, with the lower tariffs. And so we're seeing a nice improvement in protein prices, but clearly. You know, fat prices that are, you know, I think the DGD bid right now today is close to 80 cents a pound. Those are big numbers that are down there right now. And those are up anywhere from 20 to 20, 25 cents from where they were in October, November. So that will start flowing through very nicely here as we get towards the end of the quarter.

Thank you. Our next question comes from the line of Burhan Sharma with Stevens. Burhan, your line is now open.

Good morning, and thanks for the question, and congrats on posting really strong results.

Maybe just on fuel here and DGD and really just RD, what are your thoughts on kind of diesel prices in regards to kind of what extent you think there are structural constraints, whether infrastructure, refining capacity, or even just intermediate term logistics that could keep diesel markets tighter for maybe longer than people were anticipating.

Sounds like a question for our partner Valero, but Bob, you'll take a shot at it.

I mean, and look, I think we're not really qualified to answer questions about diesel capacity and constraints and things like that. But I think what we can point to is just an increased cost of the raw material inputs that everyone is using to make fuel energy products. I think what's interesting from our perspective is just how much tighter today renewable fuels are and total costs relative to conventional fuels and sort of what this conflict has done in terms of bridging the compliance gap in the RVO. I mean, ultimately, I think we fully expected that we would see the margins that we're seeing today in the market, but we thought that it would perhaps take a little bit more time until compliance dates sort of forced convergence and caused that margin to occur. This conflict and the higher energy prices underlying all of this is allowing margins in renewable fuels to sort of move to what they probably should be as a result of a strong RVO, and it's just allowing it to happen more quickly. It's also, I think, showing the world that renewable fuel is an important component of total supply, and without it today, we'd have much higher prices of conventional fuels.

Yeah, I think the other thing that Bob highlights there is, I mean, as most of you know, I mean, fossil diesel or conventional diesel in Scandinavia is $10 a gallon. And in the Netherlands, it's $12 a gallon. And RD is actually cheaper by almost 25% today. So the industry is going to run as hard as it can. And what's special about RD is it can be used neater at 100%. So you're going to see anybody that can produce RD running at full capacity right now. You're also seeing a lot of other countries in the world that have or producers of fats and oils that can use fats and oils within their energy system, meaning the palm oil. You magically start to see palm oil disappear back into energy when the price per barrel gets to where it's at right now. Usually it starts when it's about $80 a barrel and Clearly, there's a huge incentive right now globally to continue to move fats into energy. And, you know, that's going to keep the world feedstock markets pretty constructive until things back off.

Great. Appreciate the color. And just maybe just shifting to the balance sheet. Wanted to understand with, I know you're not guiding to DGD, but just kind of the implied step up in EBITDA, in just the overall business. I think that leverage should just come down naturally. And so wanted to get a sense of how you're thinking about actively deleveraging versus allocating capital elsewhere.

Yeah, this is Bob. So I think, you know, we've been pretty clear in recent quarters that, you know, we're focused on paying down debt. We've talked a lot about trying to get our debt down below $3 billion. You know, we're still committed to that. We do have an investor day on May 11th. And at that time, we're going to be able to talk more about what our capital plans are. But I think what I'll just summarize right now is just to say that we're we're focused on getting that debt number down to about $3 billion. At that point in time, that opens up a lot of potential options for Darling in terms of what we do going forward. It'll depend on what our outlook is when we get there, but we're certainly very encouraged by the EBITDA run rate that we see from the first quarter and what we're expecting for the balance of the year. And we think we'll get down to that $3 billion number relatively quickly. And at that point in time, You know, we think the outlook is still going to be very strong.

Thank you. And as a reminder, if you would like to ask a question, you can do so by pressing star 1 on your telephone keypad. Our next question comes from the line of Manav Gupta with UBS. Manav, your line is now open.

Good morning. I actually wanted to ask a little bit of a policy question. So you know how EPA is proposing starting 2028, you get 50% win on foreign feedstock. And I'm just trying to understand whether it's positive for DART if that goes through. I mean, your domestic Yukon and Tallowwood price higher. Also, I think some of the other competitor facilities that are overly dependent on foreign feedstocks, might be forced to quit the business. But at the same time, I think you are also importing a little bit of tallow through FAFSA for some of your plants. So I'm just trying to understand the puts and takes if this policy change does go through and you only get 50% rent for foreign feedstock.

Thanks, Manav. This is Bob. I think that the answer, to be able to answer that question, we'd also need to understand what the tariff structure is at that point in time. I think if we're looking at a 50% RIN and there are no tariffs, no origin tariffs on any of the feedstocks that we're importing, then it's going to depend on what is the demand for those feedstocks outside the United States and does the value of those international feedstocks adjust for that 50% RIN and the 45Z credit. Ultimately, if the US is the strongest market at that point in time and and international feedstocks discount themselves so they can be competitive coming into the United States, then we see all of it as a pretty big positive for Darling because it would be very supportive to our US and Canadian feedstock prices and the DAR core business, but it would also give DGD access to international feedstocks to be able to make fuels, sell those into the United States, or re-export for anywhere else. So it's going to really depend on the dynamics and what's happening you know, with fuel markets and feedstock markets outside the United States. But overall, we don't see it as a negative.

Perfect. My second quick question on 2Q guidance and where the street is. When we look at the street numbers, which I think are closer to 440 in your guidance, to get to that street estimates versus your guidance, DJD would have to give you about $170 million Uh, that's roughly my calculation and given where their margins are on DJD, it seems very possible that DJD could easily give you 170. So if you could talk a little bit about your guidance versus where the street is on 2Q, I'll be very grateful.

You know, I, I think Manav, we're, we're, you know, we're, we're, we won't guide DGD. Uh, you know, I think, you know, we, we did say we expect 300, you know, 20 million gallons. For the quarter, you know, we are willing to say that we think that second quarter at DGD will be stronger than the first quarter. So if you kind of put all that together, I think, you know, what you're saying and backing into it doesn't sound unreasonable, but there isn't a lot more we can say about that in DGD's numbers.

Yeah, I mean, Manav, this is Randy, and Bob said it really well. I mean, you know, the DGD margin environment is constructive right now. It's still sorting its way out. We're running at capacity. 320 is the gallon that we're going to put out there for Q2, and I suspect Q2 earnings power is greater than Q1, and Q3 will even be stronger. But life is pretty good there right now, but we've just kind of opted to kind of stay away from trying to guide because it's very, very difficult because of timing, et cetera, of sales and then feedstocks.

Thank you. Our next question comes from the line of Derek Whitfield with Texas Capital. Derek, your line is now open.

Thanks. Good morning, all, and congrats on a strong quarter. For my first question, I wanted to start with feed. Since March, we've seen a near 20 cent per pound increase in waste FOGs, as I think you highlighted earlier, Randy. While I understand your rendering contracts include purchase price considerations for downstream value, How should we think about the strength of waste FOG realizations flowing through to higher EBITDA from a price sensitivity perspective over the course of the year if prices remain elevated?

Yeah, I think we kind of, Derek, tried to address that. I mean, clearly, obviously, I'm reverting back to I haven't seen April yet. So to see how it's truly flowing through. But what I can tell you around the world is Europe has been truly lagging Um, from where the U S run up has happened because it's, you know, it's now a domestic feedstock game. Uh, South America got impacted very hard, uh, due to the, the tariffs, uh, and, and also higher, higher ocean freight. And so, you know, that's trying to, is we always look back, we've always tried why we built D G D was to own the arbitrage between animal feed and fuel. Animal feed value today is less than 30 cents a pound, and fuel prices are north of 70 cents a pound FOB. So clearly we've made the right decision there. What we're going to see is as we go into May and June, you will start to see a lot of that flow through. I think we're calling a bottom now in Brazil. We've kind of figured that one out. We had to adjust our spreads. It's a spread management game. In Europe, much better. much more resilient, but it's starting to move up. I've seen South America move, you know, in the last three or four sales up, you know, 50 bucks, 100 bucks a ton from the start or mid, you know, really start of April. So, you know, that'll start to flow through. That's where I would categorize the guidance that we're putting out there on the core business as potentially somewhat and very conservative right now, but till we see how it flows through. You know, it's kind of hard to call right now. Protein prices have improved. Rucelo, you know, because the tariffs are down. So we're having some improvement all across the line. Our biogas businesses in Europe are very strong right now. So, I mean, it's really the tailwinds are building right now. We're just trying to, you know, maybe we're a little gun shy is what I'd say right now from the last couple of years. So we'll see what they flow through here.

Perfect. And then maybe shifting over to DGD, given the higher diesel and jet crack spreads we're seeing really outside of the U.S. but across the world, how are you viewing the international markets relative to what you can net in the U.S.? And if favorable, what degree of flexibility does DGD have to further increase sales into those markets?

Yeah, thanks, Derek. This is Bob. DGD has always maintain a lot of flexibility and agility in terms of markets it can sell to. We have seen, you know, very attractive opportunities all around. I think, you know, DGD has been a consistent exporter. We expect that to continue. But I think when you look, you know, looking forward and the strength of the RVO in the U.S., it really points to a U.S. market that should continue to increase in margins and keep barrels inside the United States. And I think over time, we'll see the market create that. It won't be because of, you know, it'll be market-driven, and that's what we're expecting to see.

Thank you. Our next question comes from the line of Dushyant Alani with Jefferies. Dushyant, your line is now open.

Good morning, everyone. Thanks for taking my question and congrats on a strong quarter, guys. I know the focus has been on RVOs. I just want to pivot a little bit to LCFS. Pricing has been weak. It's under-trended a little higher. I want to just get your thoughts on how you've seen the California market evolve through the course of the year, maybe.

Yeah, thanks, Dusan. This is Bob. So LCFS, it's an interesting market. It's dynamic and hard to understand, quite frankly. But I think what we saw initially, immediately after the RVO, was an increased amount of production and more sales into California. So on a very short-term basis, we created uh some more credits there than at least at a rate that was a little bit higher than what we had but the reality is california's only got around 3.6 billion uh gallons of total diesel demand um three or four hundred million of that is going to be satisfied with biodiesel and and there's probably a little bit of conventional diesel that's going to always stay there so you're looking at kind of a 3 billion gallon demand market for renewable diesel. And the RVO essentially mandates more production than that. And so if you add up all the LCFS programs in the United States, the RVO is larger. And certainly when you include imports as well, it's larger than all those LCFS programs. So we do think we're going to have a lot of supply into those states. But We can't satisfy all of the requirements from the California Air Resources Board just with renewable diesel. So what we expect is we're going to see LCFS credits continue to increase in value, and we'll probably see renewable diesel trading at a discount into California because it's going to be offset by LCFS premiums. So it's a complicated one, though, but it's a long way of saying we think LCFS credit premiums are going to increase.

Got it. Thank you. And then my follow-up, maybe just going back to the core business, I know you guys have been, you know, margins have been strong in one. Can you guys give some thoughts there? But maybe how do we think about, obviously pricing, you know, expectations are expected to be elevated, but how do we think about margins across the board, you know, feed, food as well? How does that kind of, you know, shake out? And maybe operationally, if there are any tweaks that you guys are making, if you can talk to that.

Yeah, you know, if you look across the ingredient portfolio and kind of a little bit right to left in the fuel segment, non-DGD, very much an annuity business, but it's going to get a little bit of lift from the biogas business in Europe as we move forward through the year. Russolo, very much predictable, more closer to consumer type business. we're getting some tailwind there now as global collagen demand is really picking up. And when you do the extraction, you make a raw material or a feedstock, then you can make gelatin or collagen. And as you defer collar directed to the collagen pipeline, you then take it away from the gelatin. And so ultimately we're seeing some improvement there because gelatin margins came under some pretty significant pressure the last couple years due to some capacity additions in South America and China. So ultimately, we look at that segment as pretty stable, maybe a little bit of improvement. Clearly, the feed segment has the most commodity exposure. It's really just, as we say, a timing exercise right now on how the better proteins and fats on the three big rendering continents of North America, Europe, and South America all start to flow through. So you'll see some additional what I'm going to call margin expansion there. I think that that's really the thing that Bob and I feel so proud about is the businesses in the rendering side are really operating at a high level of capacity and efficiency right now. Any of the challenges that we had in the prior years I think are behind us now, or I believe, I know they're behind us, and we're really starting to do well. The only downside, if we look back at years when there were, you know, commodity uplifts like this, you know, we've got less beef in our system today than we've had in the past. And like I said, a chicken is less fat than red meat. So, you know, that you won't get 100% of what, you know, if you're trying to extrapolate prior years, but it's still going to be darn good. And it should accelerate throughout the year here.

Thank you. Our next question comes from the line of Andrew Strzelczyk with BMO Capital. Andrew, your line is now open.

Hey, good morning. Thanks for taking the questions. I just wanted to follow up on the point that you were just making on kind of the internal improvements in the base business. Is there a way to kind of frame or quantify how much better your plants are running, how much more margin opportunity there is relative to the last time we saw?

uh fats prices at these levels kind of net of what you're saying on beef versus chicken thanks andrew yeah this is this is bob i think you know probably when you think about like the the operations of our business and you and you point back to 2022 and 2023 and the large acquisitions that darling made with valley proteins fasa and gelnex um you know the the the James Rattling Leafs, operations and and sort of understanding how these assets all fit together are probably manifesting themselves most right now in the form of the high quality proteins that we're making and the premiums were able to capture. James Rattling Leafs, Because of the markets were able to reach whether it's high end pet markets or high end international markets. James Rattling Leafs, As as those operations have come together and we understand the quality and demonstrate the consistency that we're able to produce. we're able to hit those markets more consistently. Same is true for the Gelnex acquisition and Russolo. This is a very complex global supply chain. And our ability now to really leverage the value of these assets by consistently meeting customer needs, moving product internationally from Brazil or wherever in the world to Europe and the United States, we've really been able to identify What are the right origins and destinations and get maximum value out of that? You know, the value that you see is it's really incremental quarter to quarter. But, you know, a lot of what's sort of underpinning the strong results that we've had and what we're expecting as we go forward is improvement in our own operations and coordination. You know, it isn't just market tailwinds.

Okay. Excuse me. That's helpful. I also wanted to ask on kind of the RIN outlook generally, and I appreciate that there's a lot of focus in the market on the near term right now. I would just be curious to kind of get your perspective on the RIN landscape beyond 26 now that we have the RVOs and kind of how you're thinking about comparing what the environment could look like then versus what we're seeing today, how much of a kicker that could be versus kind of where we stand today now that we have formal policy in place. Thanks.

I mean, right now, what we can see out as far as through to the end of 2027, that's the RVO that's in place. A lot of the answer to your question, it's going to depend on global prices of fuel energy, conventional energy. It's going to depend on tariffs. It's going to depend on how well the industry performs in the United States and the amount of production and supply that we create for the market. All of those things are, you know, I'd really have to know the answers to those to answer the question about where RINs are going to go. But what we do see when we look at this RVO through 2027 is that the industry needs to produce. It needs to run really hard. And even when it does, margins need to remain very strong in order to continue to incentivize all of the players to make enough product to meet that RVO. You know, that's the picture we see. And so bottom line is RINs need to play their role in all that to be the great equalizer that creates a good renewable diesel and sustainable aviation fuel margin.

Thank you. Our next question comes from the line of Ben Collo with Baird. Ben, your line is now open.

Hey, guys. Thanks for all the information. Just a couple of questions on the food business. Could you just talk about progress there with JV and then just like with a larger partner for the peptide side of the business? And then, Randy or Bob, just on the acquisition front, you guys commented last quarter that there are some smaller acquisitions, but just use the proceeds of cash to give us an update there. Thanks, guys.

Yeah, so starting with the joint venture agreement that we've signed with Senator Lowe and we're hoping to close. Uh, sometime soon, I think, you know, we've, we've been pretty clear that we're, we're in an antitrust review process and that's, that's really what, you know, we need to get through before we're able to close on that deal. Uh, you know, look, we, we're, we haven't been, we've never been more excited about the potential of forming that joint venture, you know, than we are right now. Um, we can continue to see significant increases in demand for hydrolyzed collagen. We continue to develop, uh, you know, science and technology around the next data portfolio of products. What PV Liner, the descendant of the business, would bring the overall Darling Collagen business is added capacity that enables us to really efficiently utilize what they have and be very cost effective in production and continue to increase sales to really feed into this strong and growing collagen market Um, they also offer, uh, you know, the opportunity to originate product and raw materials in a couple of countries where we don't have presence. And so, you know, it all, it allows us to continue our growth, uh, without having to, uh, you know, invest a lot of new capital and which, which also takes time to, to add that capacity. So that's, that's still going forward. We're still in this process and we hope to conclude it, you know, sometime soon. Um, The proceeds that we used before that I think you're referring to is we participated in an auction to buy three rendering assets from the Patents Group in Brazil. This was a really fantastic opportunity through a Chapter 11 process for us to add assets that fit very well with the FASA network of assets that we previously acquired in 2022. Those are the kinds of things that, you know, we really look forward to and hope will continue to arise, you know, essentially buying assets at a discountable value that fit very well with our network.

Thank you. Our next question comes from the line of Connor Fitzpatrick with Bank of America. Connor, your line is now open.

Good morning, everybody. Feed prices continue to run up. Bored soybean oil is in the mid-70s right now. And I guess the question is, how much more room do feed prices have to run up from here? And to answer that, I think we need to know why the ramp in biodiesel utilization appears to be lagging a bit in March. It's possible that higher pricing for physical delivery in parts of the Midwest or cash constraints on realizing 45Z credits or general hesitancy to restart facilities could explain it. Are you seeing any of those factors weighing on marginal biodiesel production and overall feed consumption in the market?

Yeah, I think, you know, Bob and I can tag team this. I mean, clearly in the, you know, Gen 1 biodiesel business, restarting those plants coming out of winter just takes a little bit of time here. There's a seasonality of demand of that product. You know, trying to rebuild supply chains that have been shut down for a year and a half, take a little bit of time. So I think you'll see that industry start to ramp up from where it was. Interest rates are higher too. So working capital, people forget that when you don't have that blender's tax credit, you've got to have a working capital line to run those plants. Clearly the integrated guys, that's an easy switch for them. And you're seeing that, but the free standard takes just a little bit longer to get there would be my read on it. I don't know. What do you think, Bob?

Yeah, I think the other thing a lot of people miss on this one is for the small independent biodiesel producer, they really don't have access to the production tax credit, practically speaking. Ultimately, they can get it. They certainly can generate the credit. They can eventually find a way to sell the credit. It would come at a pretty big discount, 200 cents on the dollar. But in the near term, they're not going to have access to that revenue. And so margins need to really increase from where we are today in order to incentivize all of these guys to come back online. It's just going to take a little bit more time. But eventually that capacity is going to be valuable, in our opinion, because margins are going to Move to levels that that cause it to be.

OK, great and I guess relatedly. Uh, since a lot of those biodiesel producers are kind of constrained on the feed optionality side, not having pretreaters. What's kind of the split between opportunity for veg oils which require less pre treating? and fats, oils, and greases that feed ingredients produces. The entire complex should run up, but veg oils might have a chance to run up a bit more.

Yeah, I mean, look, I think the reality is there's enough demand out there that can now utilize, you know, the non-veg oil feedstocks where We're probably going to just continue to trade at sort of their CIs for adjusted values. So we're not really expecting to see VEGIL run up relative to the other products, just because, like I said, there's enough capacity that can utilize that. The thing with biodiesel is it doesn't, you know, as long as it can buy refined oil or it's able to, you know, pre-treat or clean the oil from that standpoint, then it doesn't It doesn't need as much, you know, pre-treat capability, and biodiesel can run on 100% soybean oil.

Thank you. Our next question comes from the line of Matthew Blair with TPH. Matthew, your line is now open.

Thanks, and good morning. Could you talk about the feedstock slate at DGD? I know in the past you ran 100% low-CI feed. You know, has that changed? Are you running more soybean oil in 2026 with just some of the changing credit values around 45Z and, you know, providing more of a subsidy for veg oil-based feeds?

Yeah, thanks, Matthew. You know, DGD is well set up to maximize opportunities depending on what is the lowest cost, you know, net of CI score feedstock and run for that barrel. You know, that implies that there's an increase in the utilization of edge oils in the mix. You know, I think it's fair to say that that's occurring. Michael Prast- It but it's just going to depend on you know these these markets are they move around quite a lot and, and so you know as they're just going to be able to take advantage of the opportunity. Michael Prast- Whichever it is.

William Boschelli, M.D.: : sounds good and then the comments earlier, I thought were pretty interesting you mentioned that the rvo will basically require more rd than what the West coast all cfs markets can handle. And so, you know, the implication to us is that the marginal U.S. producer will actually have to sell into non-LCFS markets. But, of course, the market will still need the RINs from those marginal producers. So, overall, it just seems like a steepening of the cost curve and something that should continue to be pretty supportive for margins, probably likely come through in stronger RIN prices. Is that your take as well?

Do you agree? Yeah, I think that is how we see it. Ultimately, yes, I think that's how we see it. You know, at the end of the day, like I said earlier, RINs will need to be the great equalizer that creates the margin that we need to make enough volume to satisfy the RVO. And, you know, the extent to which it needs to go is going to depend on all these other factors, feedstock costs, you know, global fuel prices. Certainly the environment that we're in today, it eases the burden of the RIN. But even with that, you know, we're seeing very strong RIN values.

Thank you. Our next question comes from the line of Betty Zhang with Scotiabank. Betty, your line is now open.

Thank you. Good morning. I wanted to ask on DGD, the 2Q guide is 320 million gallons. Is that essentially you're running at maximum levels? And if not, is there any reason to not run at max?

Thanks, Betty. It's close to max. You know, I think right now, yeah, you look at the margin environment, we are incentivized to run as hard as we can. 320 is pretty close to max. You know, I don't know what else there is.

You're being slightly positive, Bob, but that is pretty close to full out.

Yeah, I mean, we're going to do our best to run full out in this environment.

Okay, perfect. And then I wanted to ask on kind of the differential between SAF and renewable diesel. I know in the past, SAF has had a bit of a a premium over RD, but given a lot of moving pieces, including the RVO and so on, can you just speak to maybe the economics of producing SAF versus RD currently?

Yeah, so I think the short answer is for sales into the United States and the voluntary markets, there's more of a fixed premium to RD where SAF continues to be a better opportunity and better margin. In Europe, it is more dynamic than that. Europe is based on mandates and we see times when margins in Europe for RD are better than SAF. We expect that to continue to be kind of volatile or up and down. But we're really happy with the voluntary market we have in the US and the premiums that we can consistently get from SAF. So overall, we're still meeting our commitment

uh our commitments uh from from the investment we made in staff at port arthur thank you our next question comes from the line of jason gabelman with td securities jason your line is now open morning taking my questions given

Darling is uniquely positioned running domestic feedstocks and then not only producing but importing feedstocks to DGD from the international market. I was wondering if you could provide some color on if RIN prices today are sufficient enough to attract those international feedstocks to be run in the U.S. market, especially given those feedstocks no longer qualify for the producer tax credit.

Yeah, good question. So the answer to that is going to depend on who's making the fuel for Diamond Green Diesel. And, you know, given our cost of production, the efficiency, the the logistics that are available to us when it comes to importing those international feedstocks, we can make renewable diesel with those with those products and sell into the United States and make a good margin. I don't think everyone's able to say that. And so, you know, for that reason, We do think we'll continue to see margins, you know, strengthen. And, you know, we expect to see a difference in feedstock prices, you know, in North America relative to the rest of the world.

And do you expect that biodiesel producers are going to ultimately need to rely on international feedstocks as well in order for the industry to meet the RVF?

no uh i don't you know i think biodiesel producers should see a sufficient amount of u.s veg oil or you know u.s and canadian veg oil to supply their needs thank you there are currently no more questions waiting at this time so i would like to pass the call back over to the management team for any closing remarks

All right. Thanks, everybody, for your questions today. As you know, we'll be hosting Investor Day on May 11th in New York. It will be simultaneously webcast. It's an exciting time for us as Sue Ann, Bob, Carlos, myself, and David Van Dorsler will lay out a lot of these topics that we discussed today in addition to what our future looks like and a three-year roadmap as we see it today. So If you have any questions, follow up with Sue Ann and stay safe and have a great day. Thanks again.

Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your line.