DARLING INGREDIENTS INC. Q1 FY2025 earnings call

• Combined adjusted EBITDA for Q1 2025 was $195.8 million. Paid down $146.2 million in debt, lowering financial leverage ratio to 3.33 times. Received $129.5 million in dividends from DGD and repurchased $35 million in common stock.
• Core Darling Ingredients Inc. business performed well, gaining momentum through the quarter. Feed segment saw strong rendering volumes despite weather events; food segment sales and volumes improved with collagen peptides regaining strength; fuel segment (DGD) faced challenges but optimistic on SAF market and RIN improvements.

Feed Ingredients

• Net sales for Q1 2025: $896.3 million, EBITDA $110.6 million. Volume ~3.1 million metric tons. Revenue contribution: Approximately 64.95% of total net sales.
• Global rendering volumes strong; US team adjusted to severe weather; European and Brazilian operations improved; tariffs minor headwind but supportive of higher domestic fat prices.

Food

• Net sales for Q1 2025: $349.2 million, EBITDA $70.9 million. Volume 329,400 metric tons. Revenue contribution: Approximately 25.3% of total net sales.
• Sales and volumes improved, especially latter part of Q1; collagen peptides regained strength, demand for library products growing; NexTyta gaining momentum, active peptides in clinical trials.

Fuel (DGD)

• Net sales for Q1 2025: $135.1 million, EBITDA $24.2 million. Volume 374,100 metric tons. Revenue contribution: Approximately 9.75% of total net sales.
• Challenging Q1 due to lower margins, volume impact from turnarounds, transition to producers tax credit, tariffs, downtime; optimistic on SAF market, RIN market improving, expect 100% PTC booking for eligible feedstocks in Q2.

• Reaffirmed combined adjusted EBITDA guidance of $1.25 billion to $1.3 billion for fiscal 2025.
• Expect core business to earn $950 million to $1 billion EBITDA for the year.
• Anticipate 100% booking of the producer's tax credit for eligible feedstocks during the second quarter.

• Tariffs challenging supply chains, minor headwind for specialty proteins but generally supportive of higher domestic fat prices.
• Uncertainty in biofuels market policy and RIN values affecting fuel segment performance.
• Volatility in feedstock prices and availability impacting various segments.

Q: Good morning, all, and thanks for taking my questions. Maybe starting with the DGD. As I understand, DGD was not able to optimize feedstocks for 45Z policy in Q1. Looking forward, what is the value of an optimized feedstock slate? And then more broadly, what is the composition of that slate as you see it today?

A: Yeah. This is Matt. I would answer that at least initially and ask some of the others maybe to join in on that. But, you know, DGD typically processes a mix of feedstocks. And that is essentially margin driven. And so it is always procuring the best product that nets the highest margin. So that can be a mix of all types of oils and fats. And, frankly, we have all types in our recipe, so to speak. And so that will vary depending on the month of the quarter. But it is a traditional mix that is largely based on animal fat and cooking oil, as well as corn oil and different bean oil and other oils. So it is an ever-changing mix. But it is the usual suspects, let's say, in the mix that are all margin driven.

Q: Hi. Thank you for taking my questions, guys. The first one, could you possibly quantify how much better feed was in March versus the first two months of the year? And then how that translates to, you know, ingredients EBITDA for 2Q.

A: Dushyant, you can do the math and look at the $1.95 for the first quarter $1.90 minus DGD, and then they come with the $9.50 to billion run rate, you can back into that. But, no, we do not break out a quarter.

Q: Morning. Thank you for the question. Randy, I wanted to start with so you have seen all the Reuters rumors, and we have all heard different reports. What do you think a 2026 RVO would that would be suitable would be? Like, what is the number that you would be happy with and that would represent you think, upside to the $9.50 to a billion you gave us?

A: Heather, this is Matt. I would say that the common RVO that is expected and hopeful will be coming out here in the next few days is 5.25 billion gallons. And that is something that, I would say across industries has been widely supported. And the feedback that we have so far is that that is gaining traction, and that is what we are looking forward to.

Q: Hey, Randy. Congrats on the leverage ticking down. Going back to the guidance a little, you still probably need about $250 million or so from the RD business. So help us understand a little bit what you expect besides the PTC healthy that you start getting in February any help that you think you will probably get on the card front? And then what could be the RIN prices? Help us on bridge the gap to that about $250 million of EBITDA that you will need from the renewable diesel business to get to your guide?

A: Yeah. Manav, good question. I and I think it sets the stage I will have Matt and Bob help me here. And we will kind of give a view on the balance of the year. I mean, clearly, the Jan, Feb, RIN production rate in the March suggests that, you know, the RINs have to improve. You have got capacity idled right now around the industry. The, you know, the industry is behaving like it should. It is showing discipline and says, I am not going to run and burn up Catalyst for zero margin. So where do the RINs have to go? The RINs have to go I do not know, a buck and a half, somewhere in there, you know, up $45.50 cents from where they are to restart the capacity. So when we talk about the forward look here, the one two five and one three, I think it is fairly conservative. And if you look at it as we know on the Valero call here shortly, they will be telling you an adjusted run rate for the year is about $1.1 billion because of turnarounds that we had in the gallons. Total gallons. And you sit there and say, well, you know, we told you we are going to earn, you know, $55.65 cents a gallon on the PTC. It is not hard to back into how we come up with the additional $250 to 300 in within DGD to get to our guidance. What that says is we are not making a statement that DGD is going to run at zero for RD for the year and then get a PTC. We are saying RINs have to improve, and we are giving you a conservative forward look.