Good morning and welcome to the Darling Ingredients Inc. conference call to discuss the Company's Third Quarter 2021 results. After the speakers prepared remarks, there will be Q&A 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 conference over to Mr. Jim Stark. Please go ahead.

Thanks Brad. Welcome to Darling Ingredients third quarter earnings call this morning. Participants on the call are Mr. Randall Stuewe, Chairman and Chief Executive Officer, Mr. Brad Phillips, Chief Financial Officer, Mr. John Bullock, Chief Strategy Officer, and Ms. Sandra Dudley, Executive Vice President of renewables in U.S. specialty operations. There's a slide presentation available, and you can find that presentation on the investor page under the Events and Presentations link on our corporate website. During this call, we will be making forward-looking statements, which are predictions, projections, and 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 yesterday's press release and the comments made during this conference call, and in the risk factors section of our Form 10-K, 10Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now, I'd like to hand the call over to Randy.

Hey, Thanks, Jim. Good morning, everybody and thanks for joining us this morning. Our core business continues to perform very well. For the third quarter, we reported combined adjusted EBITDA of approximately $290 million of which $230 million was directly from our Global Ingredients business. Like many companies around the world, we continue to face the challenges others are facing when it comes to labor, transportation, and higher costs of operations. Our team continues to execute our business strategy and operate our facilities with great efficiency while improving our gross margin year-over-year, and sequentially from the second quarter of this year. I want to thank all of our employees who continue to dedicate their efforts in navigating the challenges we face in our daily responsibilities. As it has been well stated, Hurricane Ida took a big bite out of DGD 's performance in Q3. For the first time in 8 plus years of operating, DGD was shutdown to protect the employees and the assets of the facility from this significant storm. The great news is there was little damage to the facility which took a direct hit from Ida. With the days of shutdown and the restart process, we lost approximately 17 days of renewable diesel production. Also, on the great news front, the DGD Norco expansion is running well and is closing in on reaching its production capacity, putting DGD on track to sell 365 gallons or more in 2021. We also believe DGD could sell over 700 million gallons of renewable diesel in 2022, as the engineering team continues to fine-tune the performance of this expansion. The achievement at Diamond Green Diesel is only possible because of the hardworking employees, contractors, and service providers at the facility. While many of these fine people suffered damage to their personal property and disruption to their daily lives from the hurricane, their resiliency to return to work and get the plant back into operation and finish the construction of DGD2 was extremely important and exceptional. We truly appreciate their tenacity for getting the job done. Also, during the quarter, Darling repurchased approximately $22 million of common stock. And for year-to-date, we have purchased approximately $98 million worth of stock. On a year-to-date basis, our Global Ingredients business has earned approximately $628 million of EBITDA, putting us at an annualized run rate of approximately $850 million, for 2021. With that, now, I'd like to hand it over to Brad to take us through the financials then I'll come back and discuss a little bit of our outlook and how things are going to finish up for 2021. Brad?

Okay. Thanks, Randy. Net Income for the Third Quarter of 2021 totaled $146.8 million or $0.88 per diluted share compared to net income of a $101.1 million or $0.61 per diluted share for the 2020 Third Quarter. Net sales increased 39.4% to $1.2 billion for the third quarter of 2021 as compared to $850.6 million for the third quarter of 2020. Operating income increased 61.4% to $205.7 million for the third quarter of 2021, compared to a $127.5 million, for the third quarter of 2020. The increase on operating income was primarily due to the 114.1 million increase in gross margin, which was a 53.8% increase in gross margin over the same quarter in 2020. Our operating income improvement was impacted by the lower contribution of our 50% share of Diamond Green Diesel's net income, which was $54 million in the third quarter of 2021 as compared to $91.1 million for the same quarter of 2020. As Randy mentioned earlier, Hurricane Ida impacted gallons sold in Q3, resulting in lower earnings for DGD during the quarter. Our gross margin percentage continues to improve year-over-year and sequentially. Q3 2021 gross margin was 27.5%, which is the best result we have had in the last 10 years. For the first 9 months of this year, our gross margin percentage was 26.8% compared to 24.9% for the same period a year ago, or 7.6% improvement year-over-year. As you can see on pages 4 and 5 of our IR deck, gross margins have continued on a positive trend for the last 4 years as our management team across the business has worked to increase the profitability of their operations. Depreciation and Amortization declined $7.9 million in the Third Quarter of 2021 when compared to the Third Quarter of 2020. SG&A increased $7.3 million in…

Hey, thanks, Brad. As our Global Ingredients business and Diamond Green Diesel continue to perform well, and as we indicated in our press release yesterday, we are maintaining our guidance for 2021 of combined adjusted EBITDA of $1.275 billion. There is strong momentum for our global platform as we finish out our best year in our history and look to build on that energy going into 2022. I want to spend a few minutes on capital allocation. Over the last couple years, we have discussed our best use of cash at Darling through 5 points, and those really have not changed. Those flag points are investing in DGD, growing our core business, reaching investment-grade debt rating, meaningful share repurchases, and potentially starting a dividend policy for our shareholders. It is our belief and most everyone who is on this call knows that our future cash generation will be large enough to address all of these points in our capital allocation plan. And we continue to work on the execution of this plan as our free cash flow generation continues to grow. I do not need to point out that we did make the decision earlier to accelerate the construction of DGD Port Arthur, Texas which puts a bigger capital spend on DGD in 2022. That does push out the potential size of distributions from the venture in 2022, but increases the potential for 2023. I do also want to add that our M&A funnel of opportunities to grow our low CI feedstock footprint around the world, and grow our green bioenergy production capabilities is rising. This may adjust priorities in our capital allocation plan, but not limit our ability to execute on all of the points I already mentioned. So, with that, Grant, let's go ahead and open it up to Q&A.

We will now begin the question-and-answer session [Operator Instructions].. We ask today that you limit yourself to two questions while you are in the question queue. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes. Thank you. Good morning.

Good morning.

Morning.

I guess my first question is around policy. And just thinking about some of the new incentives that were -- are working their way through congress in the Build Back Better Act. Specifically, the sustainable aviation fuel tax credit and then that clean fuel production credit post for 2026 and beyond. Randy, I'd just be interested to hear how you see the opportunities for DGD around both of those and what the longer-term kind of potential contribution of those would be to the DGD [Indiscernible]?

Okay, Adam, I'll let Sandy take a shot at this for us.

Hey, good morning, Adam, first of all, I think we think it's very supportive of the biofuels industry. It is a really a long-term commitment and one that says that biofuels are an important way to reduce emissions, which we've all known for a long time, but sometimes we don't seem like we get recognition for that. In terms of the BTC expansion, there are actually 2 things that I think that are positive with regard to Darling. First, there's the BTC extension, as well as the SAF credit. So, first on the BTC extension, that's a 4-year extension at a dollar per gallon. It's treated in the same manner as it is today, which is very positive. Then after -- and that would go from 2023 to 2026. After that, then you have the clean fuel production credit that would go from 2027 to 2031. And the way we read it, possibly to 2034. What we're seeing is that then becomes a production credit. That's a dollar per gallon that's adjusted annually for inflation. And then subject to a CI adjuster as well before there's a step-down in credit value. And that step-down in credit value is based upon whether or not a certain emissions reduction has happened or we've gotten to the Year 2031. Gosh, that's just enormous support in terms of what we've been doing today and what we expect to do going forward. In terms of the SAS, you also have a credit there for 4 years. It's what we're reading, $1.25 per gallon up to another $0.50 per gallon depending on the CI. Under that, you'll have to have a life cycle reduction of at least 50% as determined by [IKO] (ph) or similar methodology. After 2026 then, you have the clean fuel production credit that kicks in and that would go again from 2027 to 2031, and again possibly to 2034, depending on whether or not they're going to step down. Again, it becomes a production credit, then the credit goes from a $1.25 to a $1.75. Again, that would be adjusted annually for inflation and then subject to a CI adjuster, as well as the step-down. All of that is just so supportive of reducing emissions and supportive of the direction that Darling is going and DGD.

Adam I think -- this is Randy. I think Sandy did a really detailed, nice job there of explaining. Overall, the legislation that's out there in the -- if you will, to build back better or social spending plan that I think has a pretty high probability of moving forward is probably the single most bullish thing that we've seen in many years here that gives certainty of our participation in the climate change discussion. I think Sandy was very subtle and hopefully you picked it up, but I'll make sure you pick it up. She said the word producers or production credit. And so that's a -- that's a very key principle in here that gives extreme favorability to the -- to U.S. assets.

That's really helpful color, Sandy and Randy, and I guess as a follow-up, just as you look at DGD with the Norco expansion just about done, Port Arthur coming in 18 months or so, how are you thinking about both scope for opportunities to reduce the CI Scores of your own production and then incrementally just thinking about SAF and what it would take to actually start making that fuel?

Yes. So, I think we're constantly looking at trying to reduce our CI scores. There are a number of ways that we're doing that. I think that we can start with our feedstock too so we're looking at ways with our feedstocks, of helping reduce the CI Scores. But then internally we look at that all the time and try to make adjustments to our processes that allow us to do that. And so, it's just a constant thing on our mind. In terms of SAF or where we're headed. I think we've constantly said that we're really excited about SAF, but we need the right economics. And to that end, we've reviewed the capital required, we've studied the yield profiles, we've talked to the logical markets, we've done the preliminary engineering, and we've evaluated the economics. I will say, just as you and we’re talking about the Build Back Better Bill appears to be really serious about trying to grow the SAF industry, and we're really excited to see that. But yet unfortunately, the legislation is not yet finalized so we have to see it before we can make any decisions. Assuming that the final economics are supportive, we look forward to expanding our role in terms of low carbon solutions. And I think what you've seen from Diamond in the past is that when we make an announcement, it's well contemplated and we're serious about it. It's not just an announcement that we want to get something out in the press or have an ESG story, it's because we plan to do it. And so, at the end of the day, we've done our homework and once things are finalized, we should be able to let you know relatively quickly where things stand. I'm hoping that's in Q1 of next year. That said, I hope that we can become a part of the SAF movement soon.

Alright. I appreciate all that color. I'll pass it on. Thank you.

Our next question comes from Prashant Rao with Citigroup. Please go ahead.

Hi. Good morning. Thanks for taking the question.

Morning.

Morning. I wanted to pick up on something you said there, Sandy, about an ESG narrative, and then also with the legislative environment that pushes here broadly with this administration and globally. Darling has a very compelling ESG and sustainability story. And Randy, you [Indiscernible] up that before that there is a -- 2022 might be the year that there could be some clarity around the messaging so that the market gets set. I was wondering if you could help us when we think about just beyond just de-carbonization, other land use, water use, other factors and the highlight in Darling story that you think this might be the time to really emphasize those, I was wondering if you could help us to think about how you're thinking about messaging that, and leveraging [Indiscernible]?

Yes, this is John. It's an interesting point we have long viewed ourselves as an ESG Company because quite frankly, almost everything that Darling does is a carbon capture story, which in a world that need to reduce carbon emissions is a great thing. I think what's more interesting than that though, than just the fact that historically we happened to be standing in the right place at the right time. Because I don't think there's another Company out there that has actually moved as aggressively to help the world reduce carbon emissions as Darling has. Not only with our Diamond Green Diesel, but also the actions that we're taking internally to help reduce water usage. The fact -- The matter is we can recapture much water in associated with our rendering operations. We have a really broad based ESG story. We have, as this story has evolved and part of this is ESG is a developing concept. And there's been a lot of moving pieces on how people view and how people judge that. We're working hard internally to try and clarify our messaging around this issue because at the end of the day once you pull all the curtains back, the reality is there's no Company out there that's doing more in relationship to the ESG story in the ESG movement than Darling is and has been doing for several years now in preparation for it. So, I think it's a matter of getting the messaging out there because the story is absolutely Rockstar. Randy?

No, absolutely John. And Prashant, as we did during your conference. I mean, clearly 2022, we will be spending a lot more time talking about the initiatives that we have around the world from water and intensity, reductions, we're looking at different technologies in the gelatin business which is a huge water consumer, water recapture for crop production, energy intensity. Clearly, when energy is cheap no one really spends a lot of time thinking about this stuff, and all of a sudden and the last year, we've seen energy move up 40% to 100% in different parts of the world. and so once again, it's going to get more and more attention. And then clearly in the labor world, we've got to get smarter there as the world's at full employment. So, I think, it's a great time for us, I appreciate you bringing it out, I'd tell you to stay tuned, and we'll bring you more here in '22.

Appreciate that John and Randy. And just one quick follow-up. I just wanted to touch on capital allocation for next year. Randy, you -- great to hear the reconfirmation of how you think about these things. I just wanted to check, when you think about '22 specifically, given the acceleration of Port Arthur and the distribution that the partners might be -- have to wait until we see DGD3 up. How much, when you think about inorganic growth in 2022, I just wanted to sense check where your appetite is and what room there might be on the balance sheet should you need to go there on the debt side

to source capital for a potential inorganic growth bolt-on or something like that. I'll leave it there.

Wow, that's a great question. I'm getting lots of stares in the room here. Now the fun part is we're clearly, as we're trying to decode and telegraph, we're seeing more M&A opportunities multi-continent than we've seen in the last 3 to 4 years. Can't really address them yet, can't tell you if they're going to be fair priced and if we're going to get them home. Clearly as we think of our business today, we want to continue to build the moat around the machine. And the machine is this giant ESG story. And how do we do that by procuring and securing additional low carbon feedstocks around the world. So, we're looking hard, obviously the acceleration of DGD3, it's more of a blessing and [Indiscernible], not occurs because what it means is as it will be online in early '23, we hope. And once again, a source of it'll be completely funded and delivered and it will give Darling unlimited cash-generation capacity at that time. A high-class problem between now and then, we've got plenty of availability within our credit agreement, within maybe some modifications to it, if we need to hear clearly. As Brad said, we're down to 1.6 leverage time ratio, if not headed lower even yet this year. And so, we have plenty of room to do what we want to do in '22, and then a high-class problem as we say in '23 here.

Great. Thanks, Randy. I appreciate the time, guys. I'll turn it over.

Our next question comes from Tom Palmer with J.P. Morgan. Please go ahead.

Good morning, and thanks for the question.

Good morning.

We've seen animal fat prices move a bit higher, used cooking oil, corn oil haven't really followed to the same extent. Curious what your view is on that. You expect the price gap for UCO and corn-oil to converge with that tallow over time or are there constraints to consider when it comes to the pricing of other feedstocks?

Yes, this is John. Yeah, I think in general what you're seeing is this trend that waste fat are valuable fat, when we're trying to reduce carbon emissions in our fuel supply. And so, you're generally seeing those move higher. I wouldn't take too much note in any type of short-term movements on the relative price of UCO and corn oil and animal fats. They all carry slightly different carbon intensity scores, but essentially, they are all substantially better than vegetable oils are in relationship to their value in the low carbon intensity fuel cycle. I think this market is a big market and it's an evolving market. I wouldn't get too excited about short-term type of differences between the fat prices. The general concept that waste fats are valued in low carbon fuel markets is a fundamental truth now, and it's going to be a fundamental truth for a very long period of time to come. And that's essentially the oil field that Darling sets on top of is a low carbon source of fuel for low carbon fuels.

Yeah, and I would say Tom, this is Randy. I think John said it very, very well as Sandy pointed out. SAF is going to give preferential treatment to low carbon feedstocks. Once again, that's us. When you When you look at the low carbon pool of feedstocks both in North American around the world, were now trading well above the caloric value of corn, which has always been the baseline of where it could go. And so, at the end of the day, DGD2, we kept telling you keep in mind it's buying 40% of North America's feedstock today. And so, if, it is clearly firmed prices for us, but it's also -- there's plenty of feedstock out there for us to accomplish what we want to at number 2 and number 3.

Okay. Thanks for that. And last quarter, you laid out the EBITDA outlook for 2022 of 1.6 to 1.7, and I think it was $850 million from the ingredients business, $800 from DGD, is this still the outlook you did increase your production, I think, at least by a little bit at DGD? Does that affect the outlook at this point, or still the prior one?

I'd say we're trying to still -- there's been a lot of fluctuations clearly in margins with the disruption of Ida, rents moving up, LCFS moving around, heating oil moving around. I mean, we're still going to have -- we came into the year telling you that we would operate around 225 a gallon, maybe a little more in DGD, clearly 17 days offline didn't help us there. But as we go forward to next year, I think we're pretty much where we said we would be at this time. So, I feel good what I see right now if you think, as we said, the base business this year should finish up around 850 plus or minus a few dollars there. And then you sit there and say, okay, 750 then coming out, or 700 coming out of DGD next year, which should be $2 a gallon at 700 million gallons. I mean, that's the simple math we're doing today. I don't see any real change in that forecast at that time.

Great. Thank you.

Our next question comes from Manav Gupta with Credit Suisse. Please go ahead.

Hey guys, I'm going to ask a policy-based question. You do talk to a lot of people at CARB and you would talk to the high-level people in CARB. And again, there are some estimates out there which are saying; Hey number of Projects are coming on. Which we don't think all of them are coming on, but there is a bare pieces floating around saying that LCFS price could drop to 80, which would not be good for the entire program of LCFS, investments will be good deal back. In your opinion and discussions with CARB, do you think they will be supportive of a decent carbon price, I'm not saying high or low, but would they try and at least set the expectations where people who are investing in these lower carbon projects would get some good returns, and so will they try and support the price of carbon? That's what I'm trying to ask.

Sandy.

Manav, this is Sandy. So, I realize everyone's very focused on LCFS credit prices these days and the direction they've taken lately. I think in Q2, we saw LCFS credit exceed deficit, and over the last few months, we've seen a general decline in LCFS prices. Within the market, we've seen things going on, we've seen weakness in California gasoline and diesel demand versus historical levels, and we saw the same thing really over in Europe as well and that may be even more pronounced. That resulted in more renewable diesel volumes being shifted from the European market to the California market, which we saw in terms of increased imports, not further weighed on the market I believe. We also saw increased credit generation within a number of categories recently, and we've heard about a number of projects that are planned to take place. But keep in mind, we also have seen credits exceed deficits often on, over time, and there's been a general decline in the credit banks since 2017,2018. We also recently saw Governor Newsom call on carbon as UPC, to achieve carbon neutrality by 2035, and that's a whole 10 years earlier than was originally planned. That's a huge task and it's going to require significant carbon reductions. We've been hearing that CARB is contemplating ramping up its carbon reduction targets, in answer to your question, and we've recently seen too that the 2020 average credit [Indiscernible] intensity exceeded the baseline. And that's going to be added to the regulated parties obligations for 2022 unless something changes during the comment period. And we've also seen, don't forget that some projects have been delayed or scrapped. We've seen Washington state path and LCFS, although granted there's still some work to do in terms of implementing the transportation package. We also know that Canada will be implementing its CFS in the not-too-distant future. And we know other states are looking at implementing LCFS pipe programs like New York and New Mexico. And then finally, we've seen Europe proposed insignificant mandates within its fit for 55 suite of programs. And all of these carbon reduction programs will be competing for low carbon credits going forward. So sometimes I think when we look at events or trends over the short period of time, we get focused on those temporary trends and John spoke to that earlier and so we don't necessarily always see the broader picture, but not entirely sure that we're seeing an inflection point here with the LCFS because there's a number of things coming down the road that I think should be bullish on credit prices. But we, like everybody else, are going to continue to monitor that.

And, if I could just add on top of that, we're actually extremely pleased to see that, the LCFS credit market has not challenged the maximum ceiling pricing. I think what we've established now, and this is really going to help the long-term low carbon fuel programs in other jurisdictions move forward and help California increase its mandates. If these things are successful, the market brings new low carbon alternatives into the marketplace and we have a vast array of other government entities that are thinking about implementing low carbon fuel standards. Quite frankly, the success in California and the fact that the market has responded with low carbon alternatives not only renewable diesel but other, is extremely positive for expansion in these programs. And the expansion in these programs provides a much more stable base and long-term viability base for what Diamond Green Diesel is, and for what Darling is, as supplier of low carbon feedstocks. So, we very much like how this is working, and we think this is good news. I know everybody obsesses about the bad news, and what's the impact going to be on per gallon this quarter and all that good stuff. The fact of the matter is, it's indisputable. The pattern that's being laid out here is extremely positive for what we have at Diamond and what we have at Darling.

Perfect. I'll speak again to a little bit of policy again, and I know writers came out with some numbers and there's a knee-jerk reaction that the Biden administration is probably going against biofuels. But when we dig deeper, it's very clear that they may not be fully supportive on the ethanol side. But when we look at the advanced biofuel, renewable diesel biodiesel, there's almost a 2-billion-gallon increase that they're proposing. I understand it's a leaked document, but I wanted your views as to, do you generally feel when you are interacting with Biden EPA, they may only talk electrical at the top, but down under, do you think there is support for biofuels within the Biden EPA administration?

I do think that there is support within the -- within the biofuels, or for biofuels within the Biden administration. I think you see that within the SAF credit that we saw yesterday, there was a new report that was released, the 2021 aviation climate action plan. That's very supportive of SAF going forward and it's a whole host of programs that support SAF. In addition to that, I think what you've recently seen too, is you've seen a potential long-term extension of the BTC. So, I do think that that's very supportive for us as well. So, I do. I think that --

Let me just add on it. And this is John and in relationship to the RVO question. The fact of the matter is you can't just look at what Biden administration is doing to RVOs. I think your point, Manav, is right on. It's quite clear that they are going to be ramping up the mandates for the biomass-based diesel part of the program and for the advanced categories, that's extremely positive for us. The other thing that I think that you've got to take into consideration here it's just not the RVOs, it's what do they do with the SREs. And as we saw, they just denied an SRE. I think the general noises we hear is that there's not going to be the liberal granting of SREs. That's very important to the [Indiscernible]. And then finally, there's this historical question. There are some folks that are obligated parties that are behind on the RINS compliance. What's the administration going to do and the courts going to do in relationship to those issues. So, there are a number of ball's bouncing. We see nothing that tells us that the Biden administration is anything less than totally positive and committed to reducing carbon emissions and fuel. And the answer today for reducing carbon emissions and fuel are biofuels. Specifically, biomass-based diesel is the primary driver of that. We thank the supports, there absolutely. We know that there's going to be some confusion when these RBL s has come out because when you think about it, the EPA had to address the issue the gasoline consumption had reduced dramatically during COVID, and that standards had been established on a pre-Covid basis. They have to figure out how to adjust that S&D as they come out with the new rules. That's going to create some controversy. It's going to create some sparks. But we think where we are positioned in relationship to biomass-based diesel is on extremely farm ground and we should see excellent support for RINS moving forward.

Thank you for taking my question, I'll just say that you took a bad hit from Ida, but you maintained your annual guidance and that is very commendable. Thank you for taking my questions.

Our next question comes from Ben Bienvenue with Stephens. Please go ahead.

Hey, thanks. Good morning, everybody.

Good morning.

I want to follow up on Adam's questions around the SAF and I don't want to put the Carta has a horse because I know we're still ramping DGD2, we've got a DGD3. Sandy, you talked about wanting to get a little bit more clarity around the policy to support the production economics of SAF but noted the merit of the fuel in reducing greenhouse gas emissions. John, I think you talked about having all of the feedstock availability you need to ramp DGD2 and DGD3. In addition to production economics, how does the feedstock component of the equation figure into your decision around what to do with potential involvement in SAF?

Go ahead, John.

Are you asking -- I'm not sure quite what you're asking. Sorry. Are you asking --

Is there going to be enough feedstock available to pursue both the build-out of SAF and renewable diesel because it seems like renewable diesel alone is going to suck up most of the fats oils, greases available to make low carbon fuel.

So, we have kind of two paths we can go down here. One is we can convert some of our current or in process of being expanded or built renewable diesel capacity for the road we can make some of that SAF we want. So, we have the alternative of essentially diverting some of that road feel the SAF if we want to do that, that clearly is possible. We also have the possibility of building Diamond Green Diesel port at some point in time in the future and making a part of that products from that unit being SAF as well. Both of those roads are open to us in the future. I think it's more likely than not that if we were wanting to move rapidly into the SAF marketplace, and I'm probably jumping a little bit ahead, but we would probably want to take some of our existing capacity and create optionality around SAF on it. We can get there a little quicker than we can with the new unit. But we'll see what all that leads to. We don't have to prejudge any of those conclusions yet. The fundamental thing is we have our homework done, right? So, once we see how these policies finalize and so they're not finalized yet. And there's a lot of very important details that go into these tax credit bills that you've got to take into consideration as to whether -- how valuable they are in terms of your production economics; we'll see how they finalize. We've got the rest of the homework largely done, then we'll sit down with our partners, then have a discussion about what we want to do. But the most rapid method will be to divert some of our current renewable diesel production to SAF if we wanted to get there pretty quickly. The decision on Diamond Green Diesel [Indiscernible] we'll just have to evaluate as we go forward.

Okay. Thanks, John, and understood. Appreciate the thoughts. Shifting gears, a little bit and thinking about the food ingredients business, you guys continue to expand margins there. That business has been -- Food Ingredients has been the unsung here, I think over the last year, given the focus on DGD and understandably, the enthusiasm there is warranted on DGD. Where are we on the curve of continuing to expand margins there? Any thoughts you could offer on the Food Ingredients business would be helpful.

Yes. Ben, this is Randy. I mean, clearly, there has been a parallel strategy while it seems like 80% of the calls are DGD, and rightly so. Quietly we've been transforming the Russillo business from basically a gelatin supplier to a collagen Company. And it's a two- or three-pronged strategy there with the peptide being the collagen peptide that's out there now on the shelves around the world, predominantly in North America being launched in Europe today and Asia. With extreme growth potential, double-digit growth potential driven by basically it's solubility and solution here for different product applications. And so, we worked long and hard. We always talk a little bit and I have to give a little pitch. Darling is an innovation Company. We've been working on college and peptides for, I don't know, almost 9 years. And we got it right. and we're building in our -- we've got our 4 plants running, contemplating another one. That's Phase 1, Phase 2, you heard us rollout our discussion on biomedical. that would be our ex pure. And then we're also starting to work on different tissue regeneration and organ development off out of the biomedical area. So long story we're in a three to five-year window of margin expansion and growth in that business unit as we go forward. We've taken a little headwinds with COVID against the collagen peptide business as the world shutdown in the supply chains got screwed up. And then now we're in -- and then we're struggling a little bit, to be honest, in South America today. The different raw materials that the products are produced from are very tight and the raw material prices have escalated to 300% from where they were a couple of years ago. As the number of cattle being processed in South America has declined, both due to availability, and labor, and COVID, and all of the above. So, long story short, it's got a great trajectory. Stay tuned over the next 3 years. We keep throwing the bread crumbs out there. It should accelerate nicely again next year, I think that's why Jim Stark has been very comfortable to talk about earnings growth next year, is that business expands.

Thanks, everybody and good luck with the rest of the year.

Thank you.

Our next question comes from Sam Margolin with Wolfe Research please go ahead.

Good morning.

Morning.

Wanted to just follow up on this Ingredients M&A question, and I recognize that there is some competitive elements at play and you might not be able to reveal too many details. But in the past, you've talked about how valuations in the private -- universe of that, of this industry we're just sort of prohibitive relative to where Darling was trading. And it was undervalued, and so you're waiting for that to bridge. And I just wanted to ask about how that was playing out is the ask for private acquisition targets coming down because they're not capitalizing today's prices? Or are there new sort of synergies and value creation tools that Darling has to pull that unlock more value. Just anything on what is kind of opening this window on M&A that's new relative to the past call of 3 to 5 years.

Yeah, this is John. I'm not sure there's a lot that's new out there. I mean, I think what we've said in the past is when valuations get too high and we always have the opportunity of building and we've done a lot of that with Diamond as well as in our core business. I mean, the fact is the last 4 or 5 years typically every year we've had anywhere from 4 to 6 plants under major expansion or Greenfields joining in and we are not done with Diamond Green Diesel business around the world. So, we've always had that alternative. Having said that, I think we're in aggressive player in terms of acquisitions out there and you're going to see us be aggressive, and this round of companies that come up for sale. And I think we'll -- we always maintain price discipline. We see sometimes prices go in on businesses that are just simply ridiculous and non-sustainable going forward. We won't do that. But at the same point in time, I would anticipate you would see us being a being an aggressive participant in this round of acquisitions. I don't think you can count us out in these deals.

No. And I think that's well said, John. I think -- the thing -- as we get a chance at looking at lots of different businesses around the world, remember other than since last December, there has been some pretty strong headwinds in these businesses around the world. They are having a little better year this year; we're having a great year. Families make decisions at certain times and especially when the business turns, it might be time to sell. We're seeing a little bit of that around the world. Also, you've seen the platform that John referred to is, we have the ability to take many of the products streams that come out of the slaughter houses in the slaughtered animal by-products business to their highest and best use, and I know that's kind of an over cliched term. But whether we're making organic fertilizers, whether we're making pet foods, whether we're making heparin, there’s all kinds of things now that as we have the platform built, we can bolt on these companies and turn them into something a little different than they were. So, we do have a little different proposition than we had. But as John said, price is price, and we stayed on the sidelines when things got up into the big double-digits here for 5 years ago, and we will maintain that discipline as we go forward.

Okay thanks for that color I appreciate it. And then just one more follow-up on ingredients and margins and I'll revert questions that investors have asked me. Which is that, as rendered fats maybe taken another leg higher because to your point, CI becomes an input factor in their value to a greater extent and that manifest. There has been some questions that your suppliers the slaughter houses will notice that and margin expansion might see some friction as a result. And I just want to know what your thoughts on that are if that's something that you see as a risk that in other words, your margins won't participate with pricing in the next leg?

I think we've been clear for about 18 years, that a significant amount of our raw material procurement is on a shared commodity basis. And so, they're getting the benefit of those higher CIs in those values. End of the day, that's being passed on already. Where we're getting our margin, expansion is really on a lot of the different specialty products that we make out there and are able to transform. That's the capital we've put in play over the last 5-plus years. So, I don't really see any pressure there. I mean, from time-to-time, if you said what is the pressure you have around the world? World, it's energy prices, it's labor price. The sales price of our products today have basically nothing to do with the inflationary issues that are happening around the world. Those are the challenges we're facing on margin here is can we expand out our processing fees, our collection fees, our service models to recover those higher operating costs. So -- but the CI side, or the feedstock, or protein in price, remember, the meat companies for the most part are all making a lot of money too, and part of it's coming from assets, we're able to glean and give them more money.

Got it. Thank you so much. Have a great day.

Our next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.

Good morning, and thanks for taking my questions. Randy, $95 million higher seed segment margins beautiful thing, right? It looks like roughly two-thirds of that came-off fats and used cooking oil you are driving part of that with DGD2, right? Taking 40% of feedstocks off the market. But can you maybe talk us through what you see as the primary drivers of that margin expansion. And has this commissioning of DGD2 had the full impact on the market yet for fats and oils? I know there was -- the biodiesel guys benefited last quarter from the backup with Ida in the supply chain. But how does it play out for operations in the fourth quarter?

Yeah. And I'll tag team this with John a little bit. End of the day on a macro basis both North America and globally, strong fat prices. I mean, there's just solid demand for low CI feedstocks. Clearly, we learned how fragile that business is, again with Hurricane Ida, when it becomes basically a [Indiscernible] customer business, meaning Diamond Green Diesel, and all of a sudden Diamond Green Diesel goes offline for 17 days. when we were offline, what needs to be understood, offline means we could run -- we just didn't have electricity. If you don't have electricity, you can't unload railcars. And so then, you get to screwed up logistical pipeline. And so, we had to defer stuff the fourth-quarter here, we had to pay people to not ship, and all of the above. And so -- but they were still having to move product to the market. So thus, your biodiesel guy. So, I guess my shorter answer on the fat side, you'll start -- you've seen prices rebound as the supply chain gets back into Diamond Green and we start to truly operate at these new levels. The protein side is really one specialty proteins remained very strong; pet food demand is robust. The challenges is really logistics around the world. nothing that you haven't seen on the news channels every day of container freight. It isn’t even really about pricing, it's availability. And so, what we've seen on proteins both here and in Europe is that the challenge has been to get it out of the primary market to the consumer has been really impacted. Thus, you got to sell it to somebody and how do you do it? That's the word commodity you've got a price at back in to somebody else's use. So, as we go to 22, we see fat prices where they are at today, firm and protein prices should be pretty steady. Maybe improve a little bit. It will depend on the soy crush around the world. But as we've all seen, we've got robust crops all around the world. And so -- but remember, meat demand and meat production, is really solid out there today. So, from our business model, raw material volumes should be solid next year, fat prices good, protein prices steady.

Excellent. Thank you. And my follow-up question. The roughly dozen renewable diesel plants out there that want to come online, maybe we get half of those that actually work and do produce, right? But many of those companies are approaching feedstock suppliers. Either soy crops or others for long-term commitments for feedstock, there's even conversations about processing agreements because they don't want to put out the CapEx to process for their own facility. Can you talk about whether or not you're in conversation with any of these -- let's just call them spec plants. Is there a possibility we see a long-term off-take with any of these third-parties?

Alright, John, do you want to take that?

Sorry. Are you asking if Darling would contract with somebody who is building a renewable diesel plant that will compete against Diamond Green Diesel. That's a question I can answer that with one word, no, we would not do that of course. I think the answer is, yes, there's a lot of conversation. There is a lot of folks running around trying to figure out quite frankly, how to recreate what we've got a Diamond Green Diesel. The fact of the matter is we positioned Diamond Green Diesel, at this time and time again on the right location, with the right capabilities, with the right logistics, to be able to hit the right markets. That means that Diamond is always going to be the best place for fab to go in the North American marketplace. Now people can talk all they want about cutting deals to do something else but basic economics are basic economics. And I think the other thing that's important to consider here in this question was kind of alluded to earlier in this. At the end of the day, our fat suppliers are going to get a part of the margin of the renewable diesel business. The fact of matter is they do because the renewable diesel business is creating a higher-priced for VAT. However, I have no business in the world that invest to capital and then turns around and gives away its margin to somebody who hasn't put any capital in it. And there seems to be a lot of conversation around that particular concept. That hasn't worked in American capitalism for 200 years. I doubt it's going to work on the next 10 years that way. At the end of the day, this is great for fat suppliers. We're well-positioned, we're going to buy the fat because we're in the right location with the right capabilities. And that's how the economies are going to work going forward. People can have all sorts of conversations about all sorts of stuff. But at the end of the day, economics are economics.

And keep in mind, Craig, the thing that we feel so strongly about is it's the ultimate real estate play, location, location, location. And the ability for Diamond Green Diesel to originate raw material from around the world is just unheard of. No one else has that ability to unload ships directly at their dock, whether it's Port Arthur, whether it's Norco, with fat from Brazil, fat from China, fat from Australia, fat from Europe, wherever it works. So, as we look at this deal as some of the petroleum guys are out there making deals with soybean crushers, good luck. At the end of the day the CI is terrible. And B, the economics rule here and will give us a very strong margin going forward.

That's a forceful answer. I like it. Thank you, guys.

Our next question comes from Matthew Blair with Tudor, Pickering, Holt. Please go ahead.

Good morning. Congrats on the strong result. Randy you had some comments on the chlorine spending in 2022 and just hoping to clarify what the spend at DGD will be next year? At one point we were thinking 350 million, but sounds like it might be more. And then also, could you lay out any numbers for what the Darling standalone capex would be in 2022?

I think that that one's for me.

No, I'm going to let you answer that then.

But I'll be honest, but I struggled -- we struggled all of us here with hearing that one, so I apologize. Can you help me go through that a little bit further?

Capital spend for DGD for 2023.

The capital spend for DGD for '23 should be around $800 million.

'22.

2022. I'm sorry.

I'm sorry, 2022. That's what I meant.

Around $800 million?

Around $800 million.

And then our base business, were Brad, $275-$300?

Yes.

Okay. So, a 100 for DGD and 275 to 300 for Darling standalone? Okay. Sounds good. And then, Randy, you reiterated the overall EBITDA guidance for 2021. Do you have any updates for the segment level guidance? If we [Indiscernible] the previous numbers, it would imply that feed would be coming off quite a bit quarter-over-quarter in Q4, whereas food would be moving up and that -- is that the right conclusion.

Matthew this is Jim. I think the best way to think about is the upside is going to be in the Feed segment for us, that the food would still be on track to be what we've had out there at around 200 million for the year, the fuel segment winding up about where we are, so really, the higher results are going to be in the feed segment.

Great. Thank you.

Our next question comes from Ken Zaslow with Bank of Montreal. Please go ahead.

Good morning, guys.

Morning.

Just a couple of follow-ups really. What was the decision in terms of share repurchases and where do you stand with that going forward? Particularly as your stock has been taking a little bit of a backseat now?

The board has authorized and I think the number is $200 million, right?

Yes.

So, $200 million of which we've used $98 million, clearly, we have a strategy around here to opportunistically purchase from time-to-time as we see fit, and I think you'll see that behavior continue, as we go forward here. Clearly, we're under some pressure again this morning. And then we reflected on this in the board meeting the last couple of days. We've got a lot of great shareholders and owners in this Company And some of them have [Indiscernible] as low as $14. And so, with the -- still the challenge within the stock here is the major position to unload, can put some pretty significant pressure on it as people access. So, end of the day, the forward look is quite bullish. But if you're if you're wanting to move a big block, it can be a bit challenging and thus we're there, I guess I'd use the word defend it if someone wants to pressure too hard opportunistically going forward.

Great. And then, you alluded to the point of -- you talked a lot about the fee on a couple of the questions. Are you fully capturing the full amount of the rise in the prices or is there more to capture as contracts keep on being reviewed? And how does that work? I just didn't fully understand that. Or is it just a margin shift based on your increased product offerings? I just didn't understand the full opportunity there.

The question is, we -- in the past we've talked about working on increasing our fees and services. And are we still in that round of updating those?

Absolutely can, and I think as we look -- there's two or three different in the supply chain feedstock business around the world, whether it's Europe, those are time-to-time contracts. Every couple of two, three months we renegotiate. We've had some really nice margin expansion there as capacity is relatively full. Canada, we've seen a nice return to historical levels there. And then in the U.S we have focused on, if you will, the non-fully integrated large slaughter houses to widening the margins. And it's been a two- or three-year process and program for us. I mean, the challenge there for us is now to recapture the exponential rise in labor costs and energy as we move forward. So, is it fully baked in? For the most part, yeah, I think but from time-to-time, we'll be able to do a little better.

Great. I appreciate it. Thank you, guys.

Our last question today will come from Ben Kallo with Robert W. Baird. Please go ahead.

Hey, everyone. Good morning. Randy. I like how you pin the guidance on Jim. My first question is a Carbon-intensity. How does that make a difference in pricing and in costs? Could you explain that to us? And then you've mentioned South America a couple of times, I [Indiscernible] to just we get the question all the time about the feedstock. The feedstock and I think you've been way ahead of the curve on this. We'll still trying to catch up now, how do you maintain that lead? and I guess just the third one part of that is you do a lot of -- you've done a lot of acquisitions with family-owned businesses, you do your mention that. I think you said in the past that COVID gets into what -- a bit because you can't go and meet them and do that. But where are we with that right now and then picked up on activity. Thanks.

Any you want to take the CI?

In terms of the CI and I think if you look at the market, what you see is the lower CIB stocks generally price higher. But there's lower CI feedstocks also give you the greatest margins. And that's what we're seeing there. I mean, they may cost more on the front end right now, but they're returning in a much greater value.

But specifically, Sandy into the pricing of the finished products, if someone can buy a gallon of renewable diesel made out of soybean oil or renewal per gallon out of UCO, how does that work?

Yeah. Sorry. Again, if I look at UCO or corn oil or animal fat, those typically have traded higher. Sometimes in soybean oil, not RBD soybean oil. But because we have the pre -treatment capabilities, we're able to convert that and turn that into a higher margin finished product price in terms of renewable diesel, because we're able to capture more value in terms of LCFS credits and things like that.

So just to add onto that, essentially the way this works is the longer the carbon intensity of the field that you sell, the more valuable it is because the green premium associated with it is better. And the fact of matter is waste fats, which is what we produced in our Company, those fats have a lower carbon intensity, fuels made from those fast have a lower carbon intensity score and therefore, when they price into the marketplace, when we include the compliance element of the price, which is the grain premium part of that being the LCFS. It gives you is a higher-value and therefore, better margin for the Company.

Just so I have it clear, I might buy 2 gallons from -- If I use the soy as the feedstock versus 1 gallon of, just renewable diesel, very rough.

So, let me answer it this way. If I buy -- if I'm a consumer of renewable fuels, and I buy a gallon of renewable diesel based of vegetable oils versus a gallon of renewable diesel made from waste fats, UCO animal fat, distillers corn oil, or whatever it may be, the fact of the matter is the credit that I have is worth more on the gallon that I bought from the waist fast because it has a lower carbon intensity score and therefore has more value to the purchaser of the fuel or the buyer of the credit than the alternative of the higher CI fab.

USo John, a different way of saying that is we are selling a gallon of compliance.

That's right.

And it has more value to the obligated party when it's made out of waste fats than vegetable oil, if you will. And so therefore, they're able to meet their obligations, and they're willing to pay us more for that.

Yeah, that well so.

Thank you. And then just on the on the feedstock drawing acquisition front. Very helped there to express.

There's no help there, Ben. Not going to answer that. But no, we're working hard on it around the world. I think the thing is, it won't -- the secrets out there don't last very long until the government data is published. But clearly DGD is and will be an importer from around the world. I mean, clearly, we've got a supply chain system set up because we operate on the 5 continents today. That's always been the secret sauce of why we didn't have fear on feed stock. And so that will come clear. The rest of the stuff just takes time. We're seeing a lot of businesses for sale -- potentially for sale, if you will, in Europe, Asia, South America, U.S. And we'll just see if we can get any of them home. Some are being driven by potential changes in tax policy, some are succession planning, some are just time to settle, just one out. What I can always say to everybody is we buy good businesses with great management teams that can or do share our values. And so, we're just -- we've got the ability like we've never had before to grow and we will, when the time is right and a fair value continue to expand the moat of around the machine.

Sounds good. Thank you, guys.

Thank you.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to A - Randall Stuewe for any closing remarks.

Thanks, Grant. Appreciate everyone's time today and hope everyone continues to stay safe and have a wonderful holiday season. There's a list of upcoming events that Jim Stark, Scott in the IR deck that we'll be putting on out there and we look forward to talking to you again soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.