Darling Ingredients Inc. (DAR) Q4 2024 Earnings Report, Transcript and Summary

Year 2024 earnings news release and slide presentation are available on the Investor page of our corporate website. And will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release, and the comments made during this conference call and in the Risk Factors section of our Form 10-Ks, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I will hand the call over to Randy. Thanks, Duran.

Morning, everyone, and thanks for joining us for our fourth quarter 2024 and fiscal year 2024 earnings call. As previously announced, Brad Phillips will be retiring after 36 incredible years at Darling Ingredients. After the 10-K is filed, at the end of this month, Robert Day will assume the CFO position. As this will be Brad's last earnings call, I want to thank Brad for his many years of service. The memories are numerous, as Brad and I have done many of these calls with you. And I think I speak for everyone in this room and on the call, that we will truly miss you. As you proceed to the next chapter of your life, congratulations. And best wishes to you and your family. Stay healthy, my friend. You will be dearly missed but it's time for the next chapter of DAR history and we welcome Robert Day into that exciting role. Now turning to the quarter and the year. Darling Ingredients delivered its strongest quarter of the year in 2024 and one of its top years in its 142-year history. While global markets were incredibly volatile, we focused on what we could truly control. Through effective margin management, and CapEx stewardship, we paid down $353 million in debt, reducing our financial leverage ratio to 3.68 times. We received $179.8 million in dividends from Diamond Green Diesel and successfully started up the largest sustainable aviation fuel unit in the world under budget and ahead of schedule. For the fourth quarter, our combined adjusted EBITDA was net of a $59 million lower cost of market adjustment noted in last week's press release for our share of the joint venture ownership in Diamond Green Diesel. The company continued its focus on operational excellence which resulted in gross margin improvement in the fourth quarter of 2024 compared to the third quarter of 2024 despite lower fat prices. Safety record, frankly, an all-time record for our global team. Turning to the feed ingredients segment, global rendering volumes remained as expected and continue strong. The regulatory environment is improving and clarity has arrived. With the recent notice from the US Department of Treasury on the 45Z clean fuel production tax credit, and the updated grid model, we believe what we have and what we need to begin calculating and monetizing the credit. As noted in our press release, waste fans have been steadily improving and should provide a nice tailwind for Darling Ingredients into 2025. Once again, our focus on spread management, smart CapEx deployment, and operational excellence resulted in nice gross margin improvement in the Feed segment. We went from 21.5% in the third quarter to 22.6% in the fourth quarter. I want to thank our global operations teams for the bold and aggressive execution they delivered. Now turning to our food segment. We saw a slight improvement in sales in the fourth quarter compared to the third quarter as industry conditions improved. The company is continuing to focus on margin management which resulted in a nice improvement in gross margins from 23.9% in the third quarter to 25.7% in the fourth quarter. Our first sales of Nextiva, our revolutionary natural glucose moderation collagen peptide, have hit the market and demand is beginning to accelerate. We're excited to have several more of these products now in the pipeline. Okay. Turning to our fuel segment. Darling Ingredients received a cash dividend from Diamond Green Diesel of $68.6 million in the fourth quarter of 2024. $179.8 million in cash dividends for the full fiscal year. Subsequent to the quarter close, we have now received another cash dividend of $86.4 million in January of 2025. DGD continues to outperform its peers on many metrics and continues to be the best-in-class producer. We have thoroughly reviewed the 45Z clean fuels production credit guidance with third-party auditors and are aligned in determining that it provides a clear safe harbor for the company's accounting treatment of the tax credit. As a result, we are confident in our ability to book the credit and fully realize its value. While there are a few details to iron out regarding feedstock options and certifications by product and destination, DGD's strategic locations, logistical flexibility, and capability to process a diverse range of feedstocks position us well to maximize the value of this credit. With that, I'd like to turn it over to Brad to take us through some financials, then I'll come back with my thoughts on 2025. Brad?

Okay. Thanks, Randy. Net income for the fourth quarter of 2024 totaled $101.9 million or $0.63 per diluted share compared to net income of $84.5 million or $0.52 per diluted share for the fourth quarter of 2023. Total net sales were $1.4 billion for the fourth quarter of 2024 as compared to the fourth quarter of 2023. Operating income decreased $36.4 million to $122.4 million for the fourth quarter of 2024 compared to $158.8 million for the fourth quarter of 2023 primarily due to a lower gross margin from significantly lower fat prices which was substantially offset by lower SG&A, higher earnings from DGD, lower restructuring and asset impairment charges, a favorable change in fair value of contingent consideration, and lower depreciation and amortization expense. Total other expenses decreased $18.7 million in the fourth quarter of 2024 as compared to the same period in 2023, primarily due to lower interest expense as well as increased property insurance recoveries related to prior property casualty losses. For fiscal year 2024, net income was $278.9 million or $1.73 per diluted share as compared to net income of $647.7 million or $3.99 per diluted share for fiscal 2023. Net sales for fiscal year 2024 were $5.7 billion compared to net sales of $6.8 billion for the same period of 2023. Operating income decreased $181.5 million to $468.2 million for fiscal 2024, compared to $949.7 million for fiscal year 2023. The decrease was primarily the result of a lower gross margin in global ingredients and lower earnings from DGD somewhat offset by lower SG&A, lower restructuring and asset impairment charges, and a favorable change in fair value of contingent consideration. Total other expenses decreased $2.1 million for fiscal year 2024 from $234.8 million to $232.7 million as compared to fiscal year 2023, primarily due to lower interest expense, and increased property insurance recoveries related to prior property casualty losses, that were substantially offset by foreign currency losses. For the three months ended December 28, 2024, the company recorded an income tax benefit of $25.5 million primarily due to the biofuel tax incentives. The company also paid $20.3 million of income taxes during the quarter. For the twelve months ended December 28, 2024, the company recorded an income tax benefit of $38.3 million. The company's effective tax rate for the year is a negative 15.5%. Excluding the biofuel tax incentives, and a change in valuation allowance related to deferred tax assets, the effective tax rate is 23.6%. The company paid $102.7 million of income taxes in 2024. As you know, the clean fuel production tax credit is a transferable income tax credit replacing the blenders tax credit beginning in 2025. As previously indicated, we believe the guidance released by the treasury last month provides the line of sight to realize and monetize these credits. We are vigorously working through the details with our business partners. We look forward to providing an update soon. In the fourth quarter of 2024, we paid down approximately $162.9 million of debt and as Randy previously said, $353.4 million of debt was paid down for fiscal year 2024. The combination of effective working capital management, CapEx stewardship, and solid receipts of dividends assisted in the company's ability to delever while also purchasing about $34.3 million or about one million shares of our common stock. The company's total debt outstanding as of December 28, 2024, was $4 billion compared to $4.4 billion at year-end 2023. Our bank covenant preliminary leverage ratio at Q4 2024 was 3.93 times. We had approximately $1.2 billion available to borrow under our revolving credit facility. Capital expenditures totaled $73.3 million in the fourth quarter and $332.5 million for fiscal year 2024. As Randy mentioned earlier, we received $68.6 million in cash dividends from DGD during the quarter and $179.8 million for fiscal year 2024. With an additional $86.4 million that was distributed in January 2025. While the 2025 operating plan calls for a slight increase of capital expenditures to approximately $400 million, it will be judiciously managed based on market conditions. Now I'll turn the call back over to you, Randy.

Thanks, Brad. Well done. We are optimistic about 2025. We have begun the year with strong momentum and expect that to continue to build throughout the year. Global raw material volumes remain robust and stronger fat prices in the first quarter should provide a lift as pending tariffs and clean fuel production credit provide even greater certainty to the value of domestic feedstock. This is very advantageous for our core ingredient business as Darling Ingredients is the largest producer of waste fats in the world and the only truly vertically integrated renewable producer. With regulatory clarity on US biofuel policies, such as 45C and California's low carbon fuel standard, we believe the market is stabilizing. A sharp decline in foreign biofuel imports and early signs of capacity rationalization in the domestic biodiesel and renewable diesel production indicate a more balanced supply and demand environment for 2025. These dynamics combined with our strategic positioning and operational expertise uniquely position us to capitalize on the market and drive growth. As the market continues to work through the details on the clean fuel production tax credit, I expect our ingredient prices and RINs to adjust and solidify throughout the year. Our priorities for 2025 are very clear. We are staying focused on disciplined capital deployment, efficient working capital management, operational excellence, and margin management. Our goal is to maintain a strong financial policy with a focus on deleveraging, aiming for a 2.5 times bank leverage ratio in the future. We will continue to drive robust research and development in the collagen peptides delivering a powerful portfolio of natural collagen solutions with holistic and targeted health benefits. We will also continue to explore expansion opportunities in the renewable natural gas as those markets evolve in the United States and Europe. And as our SAF sales book continues to build nicely, we are looking at ways to convert more renewable diesel into SAF. We expect 2025 to be stronger than 2024, gaining momentum throughout the year as DGD turnarounds are completed and SAF sales command a larger percentage of our mix. Given the fourth quarter 2024 run rates, and with only one period into the new year, I am providing guidance of $1.25 billion to $1.3 billion combined adjusted EBITDA for 2025 and will provide updates as the year progresses. With that, I'd like to go back to Q&A now.

We will now begin the question and answer session. At this time, please limit yourself to one question and one follow-up question. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Manav Gupta of UBS. Go ahead, please.

Good morning, Randy, and congrats, Brad. You've been very helpful over the years. My question relates to 45Z. Like, when we look at 45Z, it feels like it was custom created for DAR, almost like one of the senior management members broke into the room where it was being written and wrote it for them. There is no credit for imported RD, no credit for RD from imported EUCO. Waste oil is getting a much bigger credit than bean oil. No credit for canola. All these things should help DAR. So help us understand all the ways which, you know, 45Z makes DAR a relative winner in the space.

Yeah. Look. This is Bob. Thanks, Manav. I'll go first. You know, I think Randy stated very clearly in his opening remarks about how we feel about 45Z. But I'll just reiterate and say that 45Z is law. The due diligence and advice that we've gotten make us confident that the current notice provides safe harbor the ability to realize the credit value, you know, unless or until a new notice is provided. So you know, we're very pleased with what's out there today and what we're able to do with that. You know, you pointed out in your question, this is a CI score adjusted tax credit, and it's only eligible to US biofuel producers. You know, that's for reasons that have nothing to do with Darling's influence, but it has more to do with just the environment that we're in and what's good, you know, good for policy. It, you know, it is very positive for Darling. The, you know, primary reason for that is being a CI adjusted tax credit, Darling produces the lowest CI score feedstocks that are eligible for this credit. Global animal fats and US use cooking oil. We are the largest producer of those two things. And then also extremely positive for Diamond Green Diesel. They also are able to benefit from low CI score feedstocks. And if those feedstocks earn a higher margin in producing biofuel, Diamond Green Diesel is well placed to process to pretreat and process those feedstocks better than anyone else has proven to be able to do. And eliminating foreign biofuels from eligibility to the PCC, it certainly placed to DGD strengths, given the amount of US production that they have.

Perfect, guys. I'll ask a very quick follow-up. Randy, in your opening comments, you did say looking to make more SAF versus RD. Can you just elaborate on that a little?

Hey. Good morning, Matt. Good morning, Manav. This is Matt. Yeah. It's so we've mentioned in the past how, you know, once we got our first SAF line up and running, that we would be looking for other opportunities next to eventual steps in adding additional SAF capacity, and that's exactly what we're doing. And so as you know, only about half of our production at DGD three is channeled towards the SAF line. And so whether we actually go in and invest to add the capacity there in Port Arthur or if we do something in Norco. But these are all things that I think will transpire over the coming months. And, you know, looking at you know, now that we have you know, one of the big hurdles was, okay, this is new for us, so we want to get in, be able to a, build the plant, b, process and make spec. And c, sell it. And so we've accomplished all of those at this point. And so that's what's giving us the confidence to work towards our next SAF plant.

Thank you. Our next question is from the line of Dushyant Ailani with Jefferies. Go ahead.

Good morning, guys. Thank you for taking my question. Brad, it was a pleasure working with you and Bob. Congrats on the new role. Thank you. My first question is on the LTM adjustment. Maybe could I could you share more about what that Select more about what the actual adjustment is I guess it's truly non-cash, and then maybe thinking about 2025, the guide that you've given, the $1.25 to $1.3, does that as of today, does that exclude any impact from LCM adjustments?

Jeff, do you want to take the guide question? Yeah. You know, Dushyant, this is Randy. I'll take the guide question. Obviously, the core ingredient business in Q4 set a much higher run rate than 2024. We're coming out conservative at DGD, but they basically equivalent to the per gallon run rate that we had last year at this time. And, no, it doesn't include any LCM pickup. It's not hard to see DGD doing much better than the combination of $900 or a billion in the core ingredient and $250 or $350 within the combined adjusted there. We're just trying to take a conservative view at this moment. Clearly, there's been a lot of questions on what you can monetize. You know, I think Bob did a really nice job. I mean, one more time to reiterate it, so we don't have to answer it another six times today. Is 45Z is law. We know how to calculate it. Our advisers and tax councils are comfortable with how we're calculating and we believe it can be monetized and will be recognized. So we're operating the business with that view right now. We fundamentally view that and we'll talk about this and maybe Bob can comment a little bit on it. We'll talk about the tightening of the RIN S and D and the curtailing of capacity. And and so Bob wanna go to LCM and that then? Yeah. Brad, feel free to jump in. But you know, trying to explain LCM would be and how it works, it'd be impossible on this call, but it is a noncash expense. You know, we recognize it. It's you know, for those that want to just pull it out, it's relatively easy to do so. And it's and it's part of a of an accounting system that is pretty typical for for the oil and gas industry.

The only thing I would add on LCM Dushyant is obviously, you know, DGD's financials which will be attached. Audited financials, which will be attached as an exhibit. To our 10-K in a couple of weeks, you know, in that audit, the LCM is called out. That's the way it is audited, recorded, and we follow that. Our partner has different opportunities there, and we understand the analyst for the most part, back it back it out. But we'll continue to to record it as the audited number, our share of that LCM. Back to you, Bob. For anything else. That's that's perfect.

Perfect. Thank you, guys. Appreciate that. And then maybe just the next one on Nextiva. Could you share kind of more details on what the ramp looks like in 2025 and then maybe if possible, could you quantify what how much of the food sales was Nextiva in 4Q?

Well, I think we, you know, we don't we don't disclose what what sales were in the in the fourth quarter, but what we can say is that we are working with with a number of CPG companies to help them help them determine what they can say about the product, its efficacy, and and and, you know, really support the rollout of different brands of getting this as an ingredient in there. And, you know, what we're seeing is is know, some interesting traction there. This is the kind of product that requires consumer education, and so our CPG customers are, you know, investing a lot to educate customers on how to use the product. And, you know, we're just really that we're gonna continue to see traction. This is this is a hot topic in in our our environment today, and a lot of people are trying to figure out what what do they do after they're done using the pharmaceutical products. And and this is a great solution to that problem.

Thank you. Our next question is from the line of Derrick Whitfield with Texas Capital. Go ahead, please.

Good morning, all, and thanks for taking my questions. Also, congrats to to both Brad and Bob on your respective announcements. With my thanks. Welcome back. Welcome back, Derrick. Happy to be back. Yes. Happy to be back. With my first question, I wanted to lean in on 45Z from a macro perspective as I know you guys are consistently calculating real-time spreads for the sector. While I agree 45Z was exceptionally positive for your business, for both the upstream and downstream segments. The marginal SBO RD operator has taken a near $0.80 per gallon hit and that has been partially offset with lower SBO cost. But from here, it seems that to us that either the RIN has to improve or SBO has to go lower to further offset that loss, assuming we still need those volumes after backing out RD and ViV's imports. To you guys, like, what does your crystal ball say on how this market will firm?

Yeah. Look. This is Bob. I think it is so what you know, I what I would add to your your you know, to your question is is not only you know, does 45Z kinda lay these things out and and make it challenging, from a CI score standpoint for some others. But there's a lot of complexity inside 45Z in terms of how to comply certifications required, different mix of feedstocks for different products, Diamond Green is really well positioned to, you know, understand that upfront and and and prepare for that and and be agile as it works through that. We think that a lot of companies are gonna struggle, you know, with that in addition to just general eligibility. And so all of that really points towards lower production of biofuels, fewer imports of biofuels, which decreases RIN production and increases the value of RINs and LCFS credits. And so you know, we're seeing it already. It's just that RINs don't trade like a like a mature futures market would trade, where you've got a lot of speculative liquidity in the market and its valuing products in the forward book. You know, we need to see the tightness in the near-term supply and demand before we see price reaction, but we're we're starting to see that. And, you know, our crystal ball says that we're gonna continue to see more of that as the year goes on.

Terrific. And maybe focusing on the upstream aspect of 45Z, as you guys commented on backing out EUCO imports and removing canola certainly increases the value of FBO. And it should also increase the relative value of your domestic SAF. Are you guys seeing greater non-DGD demand to start the year? Meaning, are your competitors getting better at running waste fats?

Good morning. This is Matt again. I would say that, yes, we are. Although, I would say it's still early in the game. There's been just so much time and energy spent on digesting the 45Z and what that means and how that all plays. And there was also a lot of, call it, logistical preparation going into the transition from 2024 to 2025. So, yeah, yes, we have. But it's it's a little bit slower to play out than what you might imagine. But we fully expect that to continue.

Thank you. Our next question is from the line of Biren Sharma with Stephens. Please go ahead.

Great. Thanks for the question. I wanted to start off and just kinda dig into the dividend. On the release, you mentioned the JV is debt-free. So you know, an uplift to the distributions. And then, you know, the January figure was was pretty large. So just want to get your thoughts on on how to think about that dividend for the year. Is is January is there something in there that that made that number large or any color around that would be helpful.

Yeah. This is Brad. Look, you know, we've mentioned before, but I'll repeat. It's a monthly distribution calculation on a given day. So why don't I say that? It's a good question. I mean, the $86 million obviously was a calculation off the very end of 2024. There is a third-party revolver as you mentioned. You know, it was the JV is debt-free when a distribution is made. But because it's on a given day, with some forward-looking forecasting involved, it'll be, you know, kind of up and down. But as we look at 2025 and moving into the PTC, you saw what the number was for the full year 2024. What I would say out there is where we see things right now, we see distributions. And, obviously, with the with a solid start there being greater than 2024, you know, is is there going to be a distribution every month? You know, you could you you you never know. It just depends on on on that day. But we see, obviously, great momentum going into 2025. Probably see, you know, larger distributions in total. And the way that works is going to be, as you may recall, PTC coming back through the JV outside the distribution policy, the PTC credits. That are sold as we monetize them, those will come back to Diamond or to Darling via Diamond. And then that combined with dividends that we would foresee out of there, the combination of those two we would see being somewhat larger than this past year. I would just add onto that that other than our two ongoing catalysts turnarounds in Q1. Looking forward, do not see any in terms of significant CapEx beyond what would be just normal run rate CapEx.

Got it. Appreciate that color. And I guess just as a follow-up here, wanted to dig into the SAF opportunity a little bit more from the operational side. I think you guys mentioned that the production incremental production costs are are lower for lower cost operators like yourselves? I just wanted to get some color around that. And then secondly, if you could maybe just talk about maybe the progress you've been making on the commercial side. You've made some announcements on within the past month, but just wondering if if you could kinda give us a pay of the union on that.

Sure. This is Matt again. I would say that from a from a cost standpoint, yes, we we believe that we are favored or or in a in a strong position in terms of our cost to to operate the the the SAF production. And then, you're right. We have made some announcements on on some of the commercial contracts that that we've made. Just point out that not all of these contracts come on to a public release. For competitive reasons. In many cases, our customer chooses not to to make a public release. But we see strong demand continued through 2025 and 2026. Not only in the US, but also in in Europe.

Thank you. The next question is from the line of Heather Jones of Heather Jones Research. Please go ahead.

Good morning, and congratulations on the retirement, Brad. It's been great working with you for many, many years. So my question was on fats pricing. So I think Matt, you mentioned that the Catalyst is still Catalyst change is still ongoing at Diamond Green. But, I mean, we've seen very strong moves in fat pricing over the past few weeks here in the US, and then European fats have just taken off. So in the US market, is that just simply a function of just the short shutoff of feedstock imports, is it the commissioning of guys for expansion? Just what do you see driving that given y'all are in a catalyst change and know, the uncertainty around 45Z, there's been some pullback in producer demand. So I just would love to see what hear what y'all have seen in that market.

Sure, Heather. First of all, keep in mind that our Catalyst Change is not across all of DGD three. So while we have had a in the month in the month of January, a catalyst change in DGD two and then the, DGD one in through the course of this month. But we still have been able to run at a let's say, an expected rate on the on the plants that we have not had the changes on. So in other words, DGD one ran in in January, and DGD three is running continuously. So we we have continued to procure and originate fats on an ongoing basis. I would say that starting probably in early December. We saw a slowdown of imports. And that was, I think, largely related to just the transition from the BTC to the PTC. People were managing the the inventories around around that. And so that's picking up. And so we're trying to get back to what I the market is trying to get back to standard run rate, and that's refilling the pipeline. I think in many cases, and you're you're right. We have seen a significant bump in in fat prices but it it's something that, you know, it's obviously market-driven. And, you know, not only are is DGD continue to buy, but, the other, the other producers in the the market are also buying as well.

Yeah. And I I would just add Heather. This is Bob. 2025 is is you know, let's say it's kinda the first year where we've got substantial SAF demand from a volume standpoint. And you know, what we're seeing is as we sort of move into 2025, the availability broadly in the market of SAF is you know, it's not quite where a lot of a lot of others suggested it would be. And so we're just seeing a tightness of the S and D and and prices are falling.

And following up on that in the European piece, I mean, EUCO has been getting stronger you know, all through late 2024 and continues to be strong. But the animal fats have taken off. And is that is that related to the new SAF mandates there? And having to you can't use vegetable oil for those I mean, what's what do y'all see driving that business?

You know, I think, first of all, animals I mean, if you look at 45Z, that's very supportive to global animal fat. So that that's that's probably where know, drive is what's driving a lot of that South European SAF demand as well is gonna support that. So I think, really, it's it's all those things combined that it's moving us in that direction.

Thank you. Our next question is from the line of Andrew Strelzik with BMO Capital Markets. Go ahead, please.

Good morning. Thanks for taking the questions. My first one, I wanted to ask about the focus on operational excellence. Which obviously you've talked about in prior quarters as well. But but can you talk about anything incremental happened on that front in the fourth quarter or maybe even into 2025. Given kind of the the decoupling of the trends in in in fats and your margins, is there a way to frame a contribution from that in the quarter?

I understand. I I don't know that I would call call something out specifically other than just what what I would say is this is a an ongoing effort. And we're we're starting to see the dividends that we've done, you know, over the last two years especially in the US and the Eastern Shore where we've done a lot of a lot of work to to streamline and to add capacity, add reliability. And decrease cost to to the system. And that's that's showing now through the numbers.

Yeah. And I would say, Andrew, I mean, globally, you know, when you get into a deflationary market, which we were in since you know, really the winter of 2023 and all and most of 2024. It it just takes a while to make a lot of adjustments out there on the procurement side. Each each contract, each supplier each geography is a little bit different. Same goes for the the Russo business, and it it it we're now starting to see the fruits of our labor of of of that starting to flow through the P&Ls here. You know, there's been a lot of you know, we've always tried to operate as a low-cost operator out there, not mounting giant cost-cutting initiatives, because you shouldn't be in that position anyway. Our biggest piece is simply in the procurement side and making sure that we get compensated for the risk we're taking kind of the replacement cost of equipment out there has skyrocketed. And and, ultimately, you know, it just takes a little while. I don't know that we made a lot of friends and a lot of abattoirs and slaughterhouses and and integrated providers around the world, but they also recognize that our reliability has to be incented and paid for. And I think I'm I'm very proud of what the team did.

Okay. That that's helpful color. And then I wanted to ask about also the food segment where the EBITDA had a nice sequential step up quarter over quarter. Is there seasonality in that business that would have helped that? Are you seeing of underlying improvements? Maybe you could talk about what you're seeing in terms of destocking and demand and competitive dynamics that you've addressed in the in the past couple of quarters? Thanks.

Yeah. I I don't I don't think there's a tremendous amount of seasonality in the business, but I think you, you know, you touched on something that's important. And, you know, we we had been in a market that was relatively high in inventories, has been destocking, and we're, you know, we're starting to see I kinda get nearing the end of that and and some improvement. So sales are good, and and margins are stable.

Thank you. Our next question is from the line of Matthew Blair with TPH. Please go ahead.

Thank you, and good morning. And, Brad, congrats on your long and successful tenure, in wishing you the best on your future endeavors.

Thank you.

Circling back to the, the 2025 guide, I heard correctly, it sounds like the the core business would be around $900 to a billion that's included in that guide. If we annualize Q4, think we're looking around $840, but Q4 does tend to have some seasonal tailwinds. So could you talk about what's what's the incremental upside into 2025? Is that simply higher fats pricing from 45C that's that's boosting seed and are are there any other growth initiatives or what else is helping push the numbers up for your core business in 2025?

Oh, this is Randy Matt. I mean, when when I take $233 and multiply times four, I get $932. That's before fat prices started to go up here. We've seen fat prices were relatively flat in the January results as we saw. But they've accelerated, you know, four to five cents a pound in the in the February period here, and that'll start to flow through. So, clearly, procurement improvements that we referenced in the in the last question, improving fat prices and demand for low CI feedstocks both from DGD and and other processor. Protein demand around the world feels pretty darn strong. I think that's been referenced by the soybean guys. There there is strong demand for protein out there, so we feel pretty good. About what's going on there. The Russelo business is is doing quite well. And, Bob, anything you wanna add? I you know, I I think we covered on the last question. Demand is has been solid and margins are stable and, you know, we've got some new products on the market.

Sounds good. And then you were aiming to pay down about $400 million of debt in 2024. Looks like you you almost hit that target. Could you discuss any targets for debt reduction in 2025 or 2026?

Yeah. Matthew, this is Brad. In 2025, you know, where we see things right now. And and and and you guys have been talking about kind of the the environment right now, FAD, you know, recently showing some move up. We we see debt reduction outside anything abnormal. Anywhere from $350 to $500 million. This coming year. Randy said earlier, you know, obviously, our where we're headed is is two and a half times on leverage, I think. Know, by the end of this year, we're going to be very far along that path. With that debt reduction. Yes. We're about a year behind, but you know, due to market conditions, you know, that that hit us about fifteen months ago. But that that's kinda the outlook that we see right now.

Yeah. And I I mean, it's it's not hard to do the math. You're at $4 billion now. You pay down $400 to $500 million next year, you take it to $3.6. You know, you get to $1.35 to $1.4, and you're at the two and a half times.

Great. Thank you.

The next question is from the line of Tom Palmer with Citigroup. Please go ahead. Tom, please ensure your line is unmuted. Tom, please ensure your line is unmuted to ask your question. Hearing no response, we will take the next question from the line of David Sunderland with Baird. Please go ahead.

Hey, good morning, guys. Thanks for the time. Appreciate you taking the question. I just want to start by adding my congratulations to Brad and Bob. Thank you for all the help, Brad. Most of my questions have already been answered. If I could just recircle back to one about Randy, I think you talked earlier in 2024 about contracting and the process for these SAF contracts taking longer than you guys had initially planned just due to many different suppliers in the supply chain and moving pieces in the and obviously just being a new product. I just wondered, is there any sense of now that some deals are out there and there's a template for how to do these deals, maybe any kind of acceleration with new deals that you're seeing now having moved into 2025 or how do we think about that market developing from from your guys' contracting perspective?

This is I'll take that one. I would say that, you know, we continue to contract on SAF for for one, two, and three years going forward. Mostly front-end loaded. And I think there was just a call it, a digestibility or an acceptability to, you know, can can DGD actually come to market with these with this SAF in a in a reliable way? And we we're now have the we've proven that we can and the confidence. So we're actually seeing a pickup in interest already developed going forward. But despite the fact that we've we'd already had a pretty healthy sales book.

Great. I'll take the rest offline. Thanks, guys.

Thank you. The next question is from the line of Betty Jiang with Scotiabank. Please go ahead.

Hi. Thanks. Good morning. Thanks for taking my question. For my first question, I wanted to ask about RNG. What kinds of opportunities are you guys looking at? And, you know, specifically what types of feedstocks and, how do you see your competitive advantage translating into the RNG space?

Hey. This is Bob. I'll I'll take that one, Betty. At first, I'll just start by saying that we have a large call it RNG to electricity business in in Europe today. So it is a it is a capability that Darling has and understands quite well. What we've seen more recently is a a lot of interest in voluntary demand for renewable natural gas that would support investments in the United States. We started by forming an agreement with with a group called Green Gas, where we are covering our wastewater treatment ponds. And and converting biomethane into renewable natural gas that way. We are, you know, looking at opportunities to scale that up. And, darling, you know, with our position in the United States, our access to freight, animal waste streams, and and food waste streams, we're really well positioned to pull that together and take advantage of know, what we see as an improved market so we're continuing to evaluate that opportunity, and and we really know, think the United States is a very interesting region to see that develop.

That's helpful. Thank you. For my second question, I wanted to ask about CapEx. I think for 2024, it came in a bit lower than what we were expecting. At kinda the beginning of the year. And also, you're seeing maybe a small step up to around $400 for 2025. If you could maybe just walk us through the moving pieces there.

Yeah. Betty, this is Randy. Yeah. $333 was the number for 2024. And right now, you know, $400 has a little bit of growth CapEx and debottlenecking of of different factors some new assets that we're working on out there right now as you know, we as we've explained to our team, as we build momentum during the year, that number will move around. But right now, $400 feels like a good number. I think the thing that's most important for me and the team is is that the the number that we delivered last year did not capital deprive the assets out there. And so there's I don't want it to be thought of as makeup capital because it wasn't. We just delayed some growth projects a year while we delevered a little bit here. So $400 is a good number. You know, we'll as Brad said in his comments, judiciously manage it. If if we're wrong with something here and continue to put the company in in good position. For the future.

Thank you.

The next question is from the line of Jason Gabelman with TD Cowen. Go ahead, please.

Yeah. Hey. Thanks for taking my questions. And, Brad, congrats on retirement. It was it was great working with you.

Yeah. Thank you.

The first question is kind of a broad policy one. You know, right now, you're selling SAF into Europe. And Europe obviously has anti-dumping duties for renewable diesel and biodiesel. Not for SAF then, do you see that as a as a potential risk for your SAF sales into the region if if that happens? Are you are you able either able to get grandfathered in because of your contracts or or move volumes while retaining the margin. And then kind of a broader part of that do you see any other regulatory risk out there besides, of course, the 45Z?

Hi, Jason. Good morning. This is Matt. I would say there's a lot of hypothetical in in that question in in terms of the way that we would deal with that would be, you know, if and when there is something that that comes down the pipe. But, you know, today, we don't see that on the regulatory thing. Yeah. I just say, you know, look, I think with with respect to sales to Europe, you know, I we're we're we're selling based on you know, we we sell a price that is is you know, we we offer a price and and our our customers are gonna deal with, you know, certain regulatory hurdles if they need to get through those. We're not only selling to Europe, we're selling a lot in the United States as well. And and so I think, you know, Diamond Green is is well balanced. As far as the regulatory environment in 45Z, I think know, it's it's a it's a good point because you know, we've gotten this notice and we're working with this notice and, you know, could that notice change or could a new notice be be be put out? That's certainly possible. But what we see is really broad bipartisan support for US biofuel policy, maybe not all environmental policy, but biofuel policy. And and so, you know, however that shakes out, we're confident given sort of the global network that we have and the integration between Darling and Diamond Green Diesel and Valero that that we'd be able to adapt to whatever regulation. And I think just following up on Matt, I know he did a nice job of explaining. At the end of the day, our customers don't feel that or share that risk right now as you know, the it's optional origin when they pick up out of the gulf where they're going with product, whether it's the West Coast, whether it's up north, or whether it's on to Europe.

Got it. Great. Thanks for that color. And my follow-up is on the LCFS program. I think there was some hope with the new amendment that that LCFS prices would start to move higher. They they clearly come off lows but but maybe not at the triple-digit levels that some had hoped. I was hoping you could reflect on kind of why you think LCFS prices have not rebounded maybe to the expectations at some have had and and and your assumption for LCFS prices for 2025 within your guidance.

Yeah. So I think and this is Bob. The amendments that CARB passed would be effective April first. And, you know, we're just continuing to wait for wait for confirmation of those amendments. I think if if the market sees that, we'll we'll start to see we'll start to see that change. But similar to RINs, LCFS credits they don't trade like a mature futures market does. And so, you know, we are we are coming into this year with a lot of credits, a big bank. The market really needs to eat through that bank before we start to see credit values increase. And and so specifically with LCFS credits, that that's probably something that happens slowly throughout the course of the year.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Randall Stuewe for any closing comments.

Thanks, everybody. Great questions today. Really appreciate it. Well done by our team describing the situation. Brad, we want to just say thank you for everything you've done for 36 years. You'll truly be missed. And as always, if you have additional questions, feel free to follow-up with Suann Guthrie. Stay safe. We'll see many of you in the conferences over the next coming couple months here. Thank you.

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