DARLING INGREDIENTS INC. Q4 FY2024 earnings call

• Brad Phillips retiring after 36 years, Robert Day to assume CFO role.
• Darling had strongest Q4 2024 and top year in 142-year history. Paid down $353 million debt, reduced financial leverage ratio to 3.68 times. Received $179.8 million dividend from DGD and successfully started largest SAF unit under budget.
• Feed segment: Gross margin improvement due to spread management, CapEx deployment, operational excellence.
• Food segment: Sales improvement and margin growth, launch of Nextiva product.
• Fuel segment: Confidence in 45Z credit, DGD's position to maximize credit value with low CI score feedstocks.

Feed Ingredients Segment: Global rendering volumes remained strong. Regulatory environment improved with clarity on 45Z clean fuel production tax credit. Waste fans improving. Gross margin went from 21.5% in Q3 2024 to 22.6% in Q4 2024. Food Segment: Slight improvement in sales in Q4 2024 compared to Q3. Focus on margin management led to gross margin improvement from 23.9% in Q3 2024 to 25.7% in Q4 2024. First sales of Nextiva natural glucose moderation collagen peptide hit the market. Fuel Segment: Received $68.6 million cash dividend in Q4 2024, $179.8 million for FY 2024, and an additional $86.4 million in Jan 2025. DGD is a best-in-class producer and well-positioned to maximize value of 45Z clean fuel production credit.

• 2025 combined adjusted EBITDA guidance: $1.25 billion to $1.3 billion.
• Aim to delever to achieve 2.5 times bank leverage ratio.
• Expect 2025 to be stronger than 2024 with momentum building as DGD turnarounds complete and SAF sales increase.

• Volatility in global markets.
• Uncertainty around future regulatory changes for clean fuel tax credits.
• Impact of foreign biofuel imports and capacity curtailment on market dynamics.

Q: Manav Gupta asked about how 45Z makes Darling a relative winner in the space.

A: Randall Stuewe stated 45Z is law, Darling produces lowest CI score feedstocks eligible for the credit, DGD is well-placed to process these feedstocks.

Q: Manav Gupta followed up on making more SAF versus RD.

A: Randall Stuewe said they have confidence after starting the first SAF line and are working on adding additional SAF capacity.

Q: Dushyant Ailani asked about LTM adjustment and 2025 guide.

A: Randall Stuewe said 45Z is law, they know how to calculate it, and the guide excludes LCM impact.

Q: Dushyant Ailani asked about Nextiva ramp in 2025.

A: Randall Stuewe said they are working with CPG companies to support rollout, and Nextiva is a hot topic with consumer education needed.

Q: Derrick Whitfield asked about macro perspective on 45Z and market firming.

A: Randall Stuewe said 45Z makes it challenging for others, leading to lower biofuel production and higher RIN values.

Q: Biren Sharma asked about dividend and SAF opportunity.

A: Brad Phillips said dividend is monthly calculated, SAF production costs are lower for Darling, and there's strong demand for SAF.

Q: Heather Jones asked about fats pricing.

A: Randall Stuewe said fat pricing is market-driven, with slowdown in imports earlier and now refilling the pipeline.

Q: Andrew Strelzik asked about operational excellence and food segment.

A: Randall Stuewe said operational excellence efforts are showing in P&Ls, and food segment is seeing sales improvement with destocking.

Q: Matthew Blair asked about debt reduction targets.

A: Brad Phillips said debt reduction in 2025 could be $350 to $500 million, aiming for 2.5 times leverage ratio.

Q: David Sunderland asked about SAF contract acceleration.

A: Randall Stuewe said there's a pickup in interest for SAF contracts as confidence in DGD's reliability grows.

Q: Betty Jiang asked about RNG opportunities and CapEx.

A: Randall Stuewe said Darling has RNG capability in Europe, looking at US opportunities, and CapEx for 2025 is around $400 million.

Q: Jason Gabelman asked about SAF sales to Europe and LCFS program.

A: Randall Stuewe said Darling is well-positioned to adapt to regulatory changes, and LCFS prices will increase as market eats through credit bank.