Hey, good afternoon, everyone. I'm Jason Gabelman, one of the energy and energy transition analysts here at TD Cowen. Thanks for joining us for day 2 of the second annual Virtual Sustainability Conference. Pleased to be joined by Suann Guthrie, Senior Vice President of Investor Relations, Sustainability, and Global Communications at Darling. She's been there since the beginning of 2022. Prior to that, she worked at Exxon for 8 years, including Head of Public and Government Affairs at XTO, and she also spent 13 years at BNSF, including Director of Media Relations. Suann, thanks for joining us. Thanks, Jason. Good to be here. So a lot to get through here. A couple of topical things that were recently in the news. Let's start on CARB and the LCFS program. They delayed the board approval until November. It sounds like they're considering a 7% step-down in the carbon intensity. Is your understanding that the 5% option is now gone? How do you view... And how do you view the kind of push-out of the board approval? Sure. You know, I think we all would've liked to have seen a board vote in July or September, 'cause we've all been working very hard at this for the last several years. And clearly, with LCFS prices very low right now, we definitely want to see something, so we can spur investment and get those LCFS prices up. I think what we saw from CARB yesterday was a clear indication that they are very serious about increasing that step-down. They noted in their press release 7% or greater, so we're very encouraged by that. You can see that we submitted our comments to CARB, and we're advocating for nine or higher. So we'll see where we end up. I think, you know, November 8th gets us through that election. Clearly, they wanted this to be detached from that, and I still think that a January implementation is still possible. Is your understanding that 5% is no longer being considered as an option? And then is 7% enough to really have a positive price response in LCFS prices? We do think 7% is absolutely enough. Regarding the 5%, we won't know really until CARB publishes their new proposal, which we will see before the November date. From there, there'll be either a 15- or a 30-day comment period, so, you know, hopefully we'll see that here, October, September timeframe. Mm-hmm. And is there any significance to the January 5th implementation? Does something happen if they don't get it done by then? Sure. Well, what we need to do is the way the process works is that we need to have them send something over to the Office of Administration before that January 5th- Okay ... because then, I mean, the process would have to start over again. And I will tell you, in our conversations with CARB, that is not something they want to happen. That's not something the industry wants to happen, so I think the chances of that are relatively low. Got it. Got it. I, I failed to mention at the top of the call, if anyone has a question, you could submit it via the web portal, and we will try to get to it. The other topical news item out there has been the UCO supply from China, the ramp-up in imports there, and the potential that they're spiking that with palm oil, and there were some hopes that the U.S. would slap tariffs on those imports. That didn't happen. Can you talk about the quantity that's coming in, and the potential for the U.S. administration to force that out of the market? Sure. Well, obviously, Diamond Green Diesel is a large importer of fats. You know, not only from Darling, but also, the used cooking oil that you're seeing coming in is Diamond Green Diesel bringing some of that in. And so I can tell you that when we went to start up Diamond Green Diesel, we recognized that we need to source fats from all of the available options, and our traders did go to Asia. They feel very confident in the testing that we do, both once we went there, it is ISCC-certified. We have all the documentation. We've turned boats away that don't have the proper documentation. We do test for free fatty acids when we receive that, so we feel pretty confident that the UCO that we're using is, in fact, used cooking oil and not laced or spiked, as you mentioned. And there were concerns of that in Europe. I would say that the United States protocol for those imports are very good, and they're very strong. I can't speak to Europe, but we feel pretty good that we've taken all of the possible steps we can to ensure the used cooking oil that we're taking in is used cooking oil. Back to the tariffs. You mentioned about the tariffs. You know, we haven't advocated one way or the other on that. I think that is something that's coming from the soybean lobby, that they're very keen to try to limit, because they've put a lot of investment into crush capacity in the US- Mm-hmm ... and clearly, that could impact their investments there. But as from where we sit, we stand agnostic on the issue. But you're right, we didn't see tariffs. Could there be tariffs in the future? There could be. Now, a good thing to remember, though, is that if we were to take UCO in that had a tariff, and we export that finished good, you get a duty drawback. So again, we're really agnostic in that because we get that back. Mm-hmm. So if I'm hearing you, you're kind of indifferent if that UCO gets backed out of the market or not? So on one side of the fence, we could say, from Darling Ingredients, that should move fat prices, and being very selfish on that side, we would say, "Yes, good fat price..." You know, fat prices up would mean very good things. But remember, we also have this vertically integrated business- Mm-hmm ... so we do also better on the fuel side if fat prices are lower. So again, we kind of just stay agnostic on the issue, and we can work without the-... with that, and like I said, the duty drawbacks allow us to use that if we export that fuel. Got it. Do you have a sense of, since this article's been out, if there's been any change in total UCO imports coming into the country? Well, so the great thing about markets is a free market really corrects itself, and so what you saw is fat prices were very high, right in the $0.70 range a while back when Diamond Green Diesel 3 started up. And what we, what we saw is now the availability of all this international used cooking oil coming in- Mm-hmm ... and that caused fat prices to fall. That, as well as China was sending a lot of biodiesel into Europe, and then you had Germans moving their biodiesel into the U.S., so you had all these market dynamics going on, and fat prices fell. And we were, in fact, sending some of our European fats to Diamond Green Diesel because we could command a better price. Now what you've seen is sort of a correction in that market, and you're starting to see domestic prices now be more favorable. So it's really correcting itself in a free market environment. Got it. Got it. You discussed DGD margin, I think going into the year at $1.25 a gallon. That came down to $0.75 per gallon EBITDA for the recent guidance for 2024. Is that still fair, given the volatility we've seen in the credit prices, and, and just any broader comments around that EBITDA guidance? We're saying that for now. You know, we'll. When we report, if we have changes in that from what we know, obviously you've seen LCFS prices come down. Mm-hmm ... good here in the recent months or in the recent weeks even. RINs prices are going up a little bit. I don't... You know, we don't have a change right now. The thing that could change that we're not baking into the guidance is sustainable aviation fuel, right? So if we get that up and running, and we sell those gallons in Q4, that could be an uplift that we haven't put out in that guidance. Mm-hmm. Got it, and something I do wanna come back to. But you mentioned LCFS prices falling, and they've fallen quite a bit. It seems like they had a floor in the $60s and kind of fell through that here recently. What do you attribute that to? Well, Phillips 66 is online, right? Diamond 3 is online. You know, there's just- Yeah ... there's more volume and not enough, you know, in the credit bank. This is why we need an LCFS program revitalized, if you will. Do you see prices at a level where it's more advantageous for Diamond Green Diesel to export more product now to Europe versus shipping it to California? So we've always been very active in the export market for Diamond Green Diesel. Canada remains a very important market to us. Interestingly enough, we are selling renewable diesel to non-LCFS states, like New York, like Texas. Mm-hmm. So, you know, we are going to maximize our earnings on Diamond Green Diesel with whatever market makes the most sense for us, and right now it's not California. Got it. As we look to the RIN market, we're seeing clear oversupply there. RIN prices have come down quite a bit. It seems like that oversupply could push into 2025. How do you view the RIN market evolving through 2024 and then into 2025? Well, I would say 2024, I think we're at an oversupply clearly, right? I mean, that's demonstrated by the prices, and it's not gonna get any better. Could it get worse? Maybe. Maybe we'll see some push for imports coming in because the BTC goes away at the end of 2024. But then 2025 changes things, right? We have 800-ish million gallons of imports that came in in 2023. Most likely not gonna be imported because they don't get that $1 anymore, right? They can generate a RIN, but they won't get that $1. So my guess is some of those imports will find better markets, and that'll come off the table. We've started to see other renewable diesel providers go away. I mean, you've seen some of those announcements. I'm not gonna name the names here, but, you know, you, you've seen some of those, and I guess, the question is, how much of that is going to be, you know, how much of that goes forward into 2025? If they're not profitable today, how long will they operate unprofitably before they adopt going back to- Mm-hmm ... a petroleum-based product or perhaps not participating in the market at all? You know, I think we can feel pretty confident the two big ones in California will operate, and so, you know, maybe it's... maybe the smaller ones go away. So I think that, you know, what we would continue to advocate, though, for would be a larger RVO. I don't think we're gonna see anything on that right now, not in this election year. I think that may be visited sometime in 2025. Got it. What's the timeline on the next RVO? They typically have a proposal out in June and finalized in November, is that right? Yeah, but I don't think we're gonna see anything because of the election. Yeah, fair. It's not something that anyone wants to deal with right now during an election. So, who knows, right? It'll be at a different timeline than we have seen in the past. Yeah, and, you know, you mentioned some renewable diesel supply coming off the market. We haven't really seen biodiesel supply come off in the data yet, but you're hearing anecdotally some capacity being taken offline. What's your sense of maybe how much biodiesel supply has been shut in, if you have a sense offhand, and, and do you think prices are low enough to push out enough marginal capacity to rebalance the RIN market? ... I think we'll see that in 2025. You've mentioned that, yeah, we've heard some closings, right? But we haven't seen that in 2024 yet. But our anticipation is some of that biodiesel does come off the market, particularly in 2025, because it becomes very uneconomical when the switch from the Blenders Tax Credit moves into the Producers Tax Credit, which is a carbon intensity-based sliding scale. Mm-hmm. We're anticipating that to happen in 2025. Got it. The other part of maybe balancing in 2024 is a lot of the integrated larger biodiesel producers do hedge their margins a year out, and do you think that is something that's maybe artificially adding to the RIN market, and could move offline once those hedges roll off in the summer? Do you have a sense of what that supply could be? I don't have an estimate for you on what that could be, but I do think that is definitely a scenario that could happen, that along with maybe these imports don't come in in 2025. Yeah. 2024, again, like I said, you know, you could see a push to get that Blenders Tax Credit. But 2025, the world changes quite a bit. Mm-hmm. Mm-hmm. Yeah, you've alluded to the Blenders Tax Credit switching to a Producers Tax Credit a few times, and I wanna touch on that. The first question is: Do you expect the RIN to compensate for the lost BTC? And if so, how does that impact importers? 'Cause they're essentially getting that $1 per gallon via the RIN. So how do those dynamics actually work to back out the imports? It'll be really interesting to see how this plays out, and it really... It theoretically should make the RIN more valuable because you're not... Your marginal producer has to be made profitable, right? Mm-hmm. And if they don't have the dollar right now... So if you look at renewable diesel margins today with an RVO provider, and you look at spot margins right now, they're in the negative. So they're producing in the negative now. You take that dollar away, that's even more so. So the RIN theoretically has to do more work, but we've not been in this situation before, so it's really hard to model it out and see- Yeah ... what's that gonna look like in 2025? And then the question is, how many of these folks decide not to operate in 2025 either, right? And then remember, if you're exporting, you retire your RIN. So if our production is moving outside of the U.S.- Mm-hmm ... we're retiring the RIN as well. Right. Right. So, I guess is there a RIN price level where you compensate for the lost BTC as a vegetable oil producer, but don't incentivize the imports? And that's what, I don't know if there's a number where those economics are clear, or it's just difficult to tell because, as you said, we're in a market environment that we haven't been through in the past. I think that's really hard to anticipate what the market's gonna do there. Yeah, Yeah. We need a little bit more guidance, too, from the government on 45Z, but, you know, we can kind of figure out where they're gonna land on it based on what they did for 40B. Yeah, and do you have a sense of when that guidance will come out? I would hope we would see something here in the fall, early fall. Yeah. I don't know. I haven't heard anything, but with 45B done, that sets the way for 45Z. Yeah, and is your expectation that 45Z will be similar to what 40B has out? Yeah. I think it gave us a pretty good indication of where they're thinking. Mm-hmm. Mm-hmm. Got it. Does the 40B guidance impact you guys at all? I mean, you mostly process waste oils and- Yeah, it does. ... full of vegetable oils. No, it really doesn't because, like, like you said, we do use waste fats and oils. Mm-hmm. Yeah, and that's a good segue, talking about 40B to, to SAF, and there's a lot of chatter on what SAF pricing is gonna be in the market. We don't really have a lot of firm data points on that, so can you discuss- Sure ... where you expect SAF pricing to be, and maybe more importantly, what you think the SAF margin will be, the EBITDA margin above RD? Yeah. It's hard because, you're right, there is not a lot of transparency in this market. You may be able to see some things on Argus or OPIS, and it's relatively low. There's a lot of confusion out there, and quite honestly, no one's really producing it in any measurable volumes, right? We don't know. You don't know. Anyway, I mean, I can tell you what our contracts are saying, but Yeah ... I'm I'm asked not to say that. So but I can tell you that, you know, in the past, what we've communicated is that it's gonna be a premium to RD, for sure, and it's gonna be a good premium to RD. So, you know, when we're looking at 2025, we'll have 250 million gallons of SAF over and above what we say. Let's just say we'll take this year's $0.75. It'll be above that. And then if you figure the Blenders Tax Credit, now a Producers Tax Credit, we're kind of estimating, roughly... It'll be less than $1, maybe a blended rate of $0.75-ish. Mm-hmm. Again, still waiting for guidance there, but we're really excited about SAF, and we do think it's gonna be coming at a good premium. I know it's hard for you to say, you know, "Trust me on this. Mm ... 'cause you can't see that, right? It's not a very transparent, but you'll be able to see it hopefully when we report our, our earnings next year, and you can see that. Can you give us a sense of what, the additional costs are on SAF production? I know there's an OpEx component. I think logistics could be a little more expensive than for RD, 'cause you have to deliver it directly to the airport. ... it's really not much, so let's back up. We produce something called SPK. SPK is then blended into Jet A, and then that becomes your SAF. So, you know, the contracts that we have are multiple parties. And so, it's a little bit complicated, but it's hard to give you kind of a firm answer on some of that stuff, but like I said, we're really bullish about it. In the past, I think Randy has discussed a $1-$2 per gallon premium, or at least has been asked about that, and I know your joint venture partner has specifically said that. Is that the right kind of pricing premium to still think about here? So, we've... Yes. What I can tell you is, what we're seeing is in line with what we previously communicated to y'all. Got it. Got it. Maybe taking a bit of a longer-term view, margins are very weak right now. The demand programs are running below capacity coming online. Can you just talk about the moving pieces and the programs coming up that could support demand over the medium term and help to rebalance the market? We've already alluded to LCFS- Right ... but just, what else is out there? So I really think that's the, that's the big one, right? LCFS in California. You've got New Mexico coming online probably 2027, so, so that's another one. For sustainable aviation fuel, you do have a mandate in Europe. You've got a mandate now in the U.K. You've got a mandate working in British Columbia, and then possible LCFS in California, a possible intrastate mandate there. So those are all really important programs. New York continues to talk about an LCFS-like program, so we're continuing to see other states that are having those dialogues. But the big one is California, as you know, 'cause it's such a visible market, it kind of sets the stage of what that price is going to be. Mm-hmm. You know, and then hopefully we do at some point get a better RVO as well. But that's really... Those are really the big ones to look for. Do you get the sense that Canada, the federal program, the Clean Fuel Standard, is that gonna be an important driver for the overall demand moving forward, or is it too small to really have an impact in the next few years? I think it will have an impact, and it's not a very visible market either, right? So you can't really see what the prices are in British Columbia. No. But it, I think so. I mean, we send a lot of volumes to Canada, and it continues to be a good market for us. Maybe, moving to the feed side of the business, feed prices have obviously remained weak. How much of that do you think is a function of renewable diesel dynamics, and how much of that is wider agricultural dynamics away from the biofuels market specifically? Yeah, so a couple of things that we've seen there. The fat prices, which move our business the most, we say that every penny moved in fat prices means about $12 million EBITDA to our business over a year. Mm-hmm. And the fat prices clearly are impacting our business, and you can see that in our earnings, and we've had declining fat prices here for a couple of quarters. Think we've kind of plateaued out. What does that tell you? Well, the other thing to look for is the soybean oil and waste fat spread is pretty high. That tells you that the folks who have come online are not quite using waste fat yet. And so I think others have said they're gonna move. If you read everyone's transcripts, they recognize that the, their way to profitability is to change their feedstock, and I think that you'll see more and more moving to waste feedstock, so that should help fat prices. And so that's really one piece, and then the Asian used cooking oil coming into the U.S. too- Mm-hmm ... right? More fat available that we didn't know could come to this market. That had an impact on fat prices as well. Is there an impact from just all the soybean oil crushing capacity being added? And my understanding was there was a lot being added this year, more coming next year. Is that weighing down the market as well? I think that's already been priced in. Uh-huh. Yeah, I think that's pretty much priced in. And then when we think about vegetable oil prices long term, you know, historically they were $0.40 per pound, maybe a bit lower. They were higher out of COVID, and over the past couple years it have come back down. Right. As you think about the medium-term price, is it $0.40 per pound? Is that the right price, or do you see these dynamics and the biofuel demand kind of supporting a higher mid-cycle price? I do think we'll see fat prices starting to tick up at the end of the year here as these other renewable diesel providers look to move their feedstock mix from a refined bleached deodorized soybean to a waste fat. So I think we'll start to see tick up in fat prices, and then as these others come online, it should move fat prices as well. Mm-hmm. Mm-hmm. The feed segment was particularly weak in 1Q. I think gross margin was very low below, kind of, that. I think it's 24-26 or something in that 23%-25% range. Do you expect that to get back into that range in 2Q? And can you remind us what was going on in 1Q that- Yeah ... that caused that weakness? Yeah, it's a great question. I'm glad you asked that. So what happened is we saw fat prices doing this slow decline, right? And we were always chasing that lower fat price. So we have about 80, 75 or 80% of our U.S.-based contracts, our raw material that we procure, in these market-based pricing, right? So you kind of lock in your spread. Well, you forward sell your finished goods four to six weeks out sometimes. So when you're chasing that lower fat price, your margin gets squeezed. Mm-hmm. So that's one thing that happened. The other thing that happened was some of the used cooking oil contracts that we have are. We have national accounts which work the same way as what I just said. Then we have a lot of this fractionated, little onesie, twosies, mom-and-pop restaurants that we may not pay them for their used cooking oil, they may not pay us a service fee for their used cooking oil, 'cause they're simply too small. So when you have high fat prices, it's a great margin business, but when you have lower fat prices, those margins get squeezed. Mm-hmm. On top of all of that, we were down 2 rendering facilities. One has come back up, the Ward, South Carolina facility. That weighed on gross margins, too. So now that we don't have a declining fat price, now that Ward is up, I think in this lower fat market environment, you could see us be in that 21%-23% gross margin range. That would be a normalized for us there. Mm-hmm. Mm-hmm. And while we're talking about sequential quarter-to-quarter earnings, I guess I'll ask about DGD as well, how you see that margin trending from 1Q to 2Q? You know, we said that we were working through some of that higher fat, right? So that should be better in 2Q, but remember, LCFS prices have sort of fallen since then. Mm-hmm. So, you know, it's hard to say right now, but, you know, we have a turnaround going on. We're tying in the SAF unit, so volumes will be lower because of that, and I think that what we... You know, we'll, we'll see, but just bear in mind that LCFS prices are lower now- Yeah ... even though we choose for that higher fat. Mm-hmm. Got it. Just seeing a couple questions we have. Going back to the SAF project, I think there's an expectation that starts up in 4Q. Mm-hmm. Do you wanna kind of prove that out before you sanction another SAF project, or what is the catalyst or factors you're thinking about ahead of sanctioning another one? So we've already done or we're in the process of finishing up the front-end engineering and design for a potential SAF unit at our Louisiana facilities, so we would know what that capital is going to be. It would be more because it's a bigger facility. We do want this thing up and running, and we want to have multiple year contracts before we both go back to our respective boards and ask for approval there. So, you know, I would say that maybe a mid-year 2025 final investment decision, but until we have it up and running, we've got those contracts that are multiple year. I think that we wanna make sure those things are in place before we make that final investment decision, which could be, you know, not too much further out, right? Do you think you're able to get multi-year contracts without having the incentives continue beyond 2027? Yes. Yes. Okay. Okay. We've got a mandate in Europe. You have sorry? We have a mandate in Europe. Okay, got it. So those contracts would be more in Europe. Understood. Mm-hmm. On the food segment, you're talking about the glucose suppression collagen. Can you just discuss exactly what that is? I mean, people hear that, and they obviously think Ozempic or something similar to that, which I don't think you're getting to pharmaceuticals. No. Can you just discuss the opportunity there? Sure. It is a collagen product, so it's an existing supplement that's on the market today. However, what we've done through a proprietary enzymatic process is separate active peptides that go to target health concerns. The first one is slowing the absorption of glucose into your bloodstream. So we will be on the market with that at the end of the year. We think it's gonna be highly successful. Already talking to a number of consumer products companies about that, but again, it's an existing supplement today. It's an existing collagen product. What's new is that targeted piece. Does this improve the collagen margin? Do you expect it to be a material you'll see it in the numbers pretty quickly? Absolutely. You know, collagen is already 3x the gross margin as regular gelatin. Can't tell you what this will be, but we think we've got something pretty special here, so no doubt that's gonna come at a higher margin than the hydrolyzed collagen. More broadly on the food business, it's done quite well. Is that something you view as core to overall Darling? Is that something you could ultimately consider monetizing, even the whole... either the whole thing or in part? So there's a lot of synergies that go on with that business, right? It's the same raw material suppliers, right? And they're sending you hides and bones instead of just the meat. There's fat that comes out of that, that goes back into renewable diesel sales, things like that. So there's a lot of synergies that exist already with that. You know, as a public company, all of those things are always being talked about to optimize value to our shareholders. Got it, and we only have a minute left. I gotta... We got through most of the questions from investors. One here, "Chinese UCO has a premium over domestic UCO right now. Do you know why that is? Is that related to the fact that the Chinese UCO coming in is actually certified, ISCC-certified, and domestic isn't? It's always been certified. We won't take it unless it's certified, but again, I go back to what we were talking about earlier, is markets kind of correct themselves. And so when it becomes a premium, we go and we start buying more domestic. Okay. Understood. Well, unfortunately, we're at time, so I have to leave it there. Suann, thank you for taking the time to speak with us, and hope everyone enjoys the rest of the conference. Thank you very much.