Good morning and welcome to the Darling Ingredients Conference Call to discuss the Company’s First Quarter 2021 Results. After the speakers’ prepared remarks, there will be a question-and-answer session, 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 call over to Mr. Jim Stark. Please go ahead.

Thanks, Tom. Welcome to the Darling Ingredients Q1 earnings call. Participants on the call this morning are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; Mr. Brad Phillips, our Chief Financial Officer, and Ms. Sandra Dudley, Senior Vice President of Renewables and Strategy. Mr. John Bullock is attending a college graduation today, and family comes first. There is 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 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 yesterday’s press release and the comments made during this conference call, and in the Risk Factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. Now, I’d like to turn the call over to Randy.

Thanks, Jim. Good morning, everyone. Glad you could join us on the call this morning. A year ago, like many other management teams, we all had the deer in the headlights stare happening as a result of the pandemic. Today, we see a very clear future for Darling Ingredients, as our dedicated global team of 10,000-plus employees continue to execute our business strategy in a safe and efficient manner. Our earnings for the first quarter of 2021 were certainly energized by a rising commodity price environment, which undoubtedly had a positive impact and enabled Darling to report a record $284.8 million of combined EBITDA for the quarter. The feed segment’s EBITDA was $124.4, which was $34 million better than the fourth quarter of 2020 and $54 million higher than the first quarter of 2020. Protein and fat prices averaged in the range of 40% to 60% higher than the year-ago period and have continued to move higher into the current period. Our food segment turned in a solid performance to start 2021 with an EBITDA of $46.4 million, which was approximately 18% higher than a year ago. We continue to see solid growth in our collagen peptide sales and look forward to our biomedical products having an impact in the future on this segment’s earnings. In the fuel segment, we continue to see solid results from our European bioenergy business, which reported another solid quarter, producing $20.5 million of EBIT in Q1. Diamond Green Diesel generated another outstanding quarter with a $2.77 EBITDA per gallon on 78 million gallons sold. Darling’s half was $108.2 million of EBITDA, plus our bioenergy results produced a strong $128.7 million of combined EBITDA in Q1 for a fuel segment. As we noted in the earnings release yesterday, both DGD expansion projects remained on-time, on-budget and on-target. We continue to experience a favorable commodity pricing environment as the U.S. economy recovers with more and more states lifting COVID restrictions. As travel increases, we are seeing energy prices go higher as ultra-low sulfur diesel is trading about $2 a gallon in the NYMEX spot for the first time in a couple of years. Higher levels of economic activity here and abroad we believe will support continued strength in the demand-driven commodity cycle that I’ll discuss a little later on the call. Now, I’d like to hand it over to Brad to take us through the financials. And then, I’m going to come back and discuss the outlook and our increased guidance for 2021. Brad?

Thanks Randy. Net income for the first quarter of 2021 totaled $151.8 million or $0.90 per diluted share compared to net income of $85.5 million or $0.51 per fully diluted share for the 2020 first quarter. Net sales increased 22.7% to $1.05 billion for the first quarter of 2021 as compared to $852.8 million the first quarter of 2020. Operating income increased 62% to $199.5 million for the first quarter of 2021, compared to $122.8 million for the first quarter of 2020. The 62% increase in operating income was primarily due to the first quarter 2021 gross margin improving approximately $68 million over the prior year and increasing from 24.1% to 26.2%. This is primarily the result of higher protein and fat prices in our feed segment during the first quarter, as Randy mentioned earlier. Depreciation and amortization declined $6.1 million in the first quarter of 2021 when compared to the first quarter of 2020. This reduction was due primarily to certain assets in our food segment, which became fully depreciated and amortized by the end of 2020. SG&A increased slightly by $1.2 million in the quarter as compared to the prior year. And there were $778,000 of additional restructuring and impairment charges related to the biodiesel facilities shutdown in the prior quarter. Lastly, regarding the improved operating income, our 50% share of Diamond Green Diesel’s net income was $102.2 million as compared to $97.8 million for the first quarter of 2020. Interest expense declined $2.7 million for the first quarter of 2021 as compared to the 2020 first quarter. Now, turning to income taxes. The Company recorded income tax expense of $28.7 million for the three months ended April 3, 2021. The effective tax rate for the first quarter is 15.8%, which differs from the federal statutory rate of…

Thanks Brad. I’d like to touch on our updated guidance we provided in our press release yesterday, and it can also be found on slide five of our investor presentation. We feel comfortable with the increased range of $1.075 billion to $1.15 billion of combined EBITDA as the increase is coming from two segments, our feed segment and our fuel segment. The feed segment is certainly benefiting from the rising commodity price environment for both, proteins and animal fats and waste oils. And the question you are thinking is, how long does this higher price environment last. Darling, just like every other commodity producer, is watching this like a hawk. Our view is that we got into the current situation because of a demand-driven event, which started with China, and unlike a supply shortage, driving commodity prices higher. Higher prices from a demand-driven event can take multiple growing seasons to rebuild feed inventories. Yes, commodity prices have steepen verses on the futures curve, but that futures price is still 30% to 50% higher than the historical price, when you get to that future period. For now, we think the feed segment will perform well for the rest of 2021. We’ve remained disciplined in our evaluation of the volatility this segment can experience and continue to reduce our expenses and improve efficiencies to enhance the margin environment we are experiencing today. The other increase in our guidance is the fuel segment. DGD turned in a record EBITDA per gallon in Q1. And with that, the Q2 margin is averaging -- and in the current environment, we are putting a potential range of $2.25 to $2.40 EBITDA per gallon for DGD for 2021. As our joint venture partner announced several weeks ago, we believe the startup at Norco expansion will be in…

Thank you. We will now begin the question-and-answer session. [Operator instructions] And the first question comes from Ben Bienvenue with Stephens Incorporated. Please go ahead.

I want to ask maybe starting on your guidance, and in particular, the margin per gallon guidance for DGD. Just help us think about what’s embedded into your outlook there. And, where do you think elements of variability are? Obviously, we had very strong margins in the first quarter. We’ve seen some components of the margin pressure things a little bit in 2Q. But still, as you said, spot demand looks favorable. And some -- I just want to kind of better understand what’s going into your output.

Ben, this is Randy, and I’ll tag team with Sandy here a little bit on this one. The margin environment in Q2 is very similar, if not better than Q1 right now. And what’s driving it is the -- is really, the biodiesel industry, which obviously we don’t participate in, is having to pay substantially more for feedstock than we are, as a majority of biodiesel is made from soybean oil. And, you can see that’s in the -- at least on the Board of Trade is at $0.65 on the non-deliverable option here in July. And those that are running refined, bleached -- or refined bleached deodorizer paying somewhere between $0.75 and $0.85 a pound delivered their locations today. You take that and you have to -- in order to produce those gallons, you have to drive marginal profitability. And the green premium that we refer to which is a combination of the RINs and the blenders tax credit forum, are having to do the work. The blenders tax credit’s fixed. So, therefore it comes down to the RIN. And we’ve seen some pretty strong escalation in the RIN. That has been provided with lower feedstock costs at DGD because of waste fats and oils and our pre-treatment technology, plus the RIN, plus the LCFS has come back a little bit here in the last, 30-days. We’ve set up a Q2 now that I think will impress. The balance of the year, I think it’d be easier to take guidance up there right now than where we’re at. But, we’re going to watch from here and see where we’re at. And I think that’s fair enough. Sandy, anything you want to add to that?

Yes. I think we’re very pleased with the margin environment that we’re in. I think that historically, you’ve seen that our margin’s been very good, regardless of the environment that it’s been. But, there are some things that we’re going to continue to watch, especially as we get further out into the year. So, there’s a Supreme Court ruling on small-refinery exemptions. There’s RVOs, there’s how feedstock prices are kind of progressed. But, that said, again, you’ve seen very solid performance out of DGD for an extended period of time, regardless of the environment.

Okay, perfect. And then, when we think about the feed ingredients business, kind of two-part question here. It seems like the outlook there is -- I guess, it’s a reflection of what we see in the futures strips. Is there a point at which you foresee any sort of demand destruction or price resistance? I know, the demand backdrop for the feed environment is quite good, all the protein processors continue to consume at high margins, ethanol is coming back on line that’s supporting corn. So, it does seem like there’s a great demand backdrop for the grain environment. But, I want to get a sense of how you think about that unfolding through the year relative to your guidance, and then kind of understanding what’s in your guidance, if it is reflective of the current futures.

Yes. Ben, this is Randy again. I mean, clearly, the optionality that is built in the feed segment, we’ve talked about for the last three or four years, as we said, well, if the pricing comes back, finished product pricing to the 10-year average, everyone will be pleased with the investments we’ve made. We’ve now driven past the 10-year average on these, in the feed segment, the core rendering business and the derivatives from the slaughtered animal byproducts. They’re benefiting from the corn pricing, the soybean meal pricing around the world. And it’s really pretty fascinating to me. You could probably take our guidance up from the feed segment performance here even, because prices have continued to improve here in the near term, we’re probably being conservative. We benefit in these times when corn and soybean meal rise up, because we’re an alternative ingredient in many of the rations around the world. And so, we become an alternative out there and probably never receive full nutritional value, whether we’re at a discount or a premium. So, I think, we’re pretty well set. I think that our fats and oils will -- we’re trading today, deliver Diamond Green Diesel, deliver feed customer in the mid-50s, while the bean oil board’s at 65. And so, that’s a historical discount that we’ve seen. So, at the end of the day, anybody that has fears for us having enough feedstock, there’s plenty of feed stock here for us. And then, the proteins have now moved up to where soybean meals in the mid-4s, it’s slightly inverted. It’s not a giant inverse from to new crops. So, we’ll continue to see that spread. The interesting thing on this is -- and we we’ve had a lot of internal discussion and narratives about it. Every time…

Okay. Very helpful. Thanks and good luck.

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

Hey, guys. Congrats on the beat and excellent raise. My question here is, we have seen a number of small players out there who have never actually done this, come out and sign sustainable aviation fuel contracts of fuel they are nowhere even close to producing and have never actually produced. And then, we look at you guys, the best in the business, who have not announced anything major in sustainable aviation fuel, as of yet. So, my question is, why are the two best guys in business holding back, and while some of the other players out there are announcing these contracts, which we are not even sure are suitable?

Hi, Manav. This is Sandy. So, I think in terms of next steps and SAF, first, our immediate future is really completing the St. Charles expansion and the Port Arthur Greenfield. We know that these facilities will provide significant carbon reduction opportunities for our customers. And both projects will be completed before we know it. And of course, we’ve talked about what’s next. We’ve left space at the Port Arthur facility in anticipation that there would be something next, and that’s no coincidence. And as the market develops, both in terms of transportation and aviation, we’ll have more for you. And be assured, when we do move, we’ll move swiftly. And that’s in line with our first mover reputation. We’re well aware that SAF is of extreme interest to a lot of folks. We believe that there is a real push by their current administration and their significant support in general for reduced aviation emissions. SAF will happen. It’s just a matter of time. So, what we need is we need the mandates and we need the incentives to turn this nascent industry into a real one. We’re really in the stages of preliminary engineering on that at DGD as we speak, and we’re running all the financial models that you normally would, and as the economics pencil out, of course, we want to be a part of it.

Okay, great. My final question here is, and I think you mentioned this a little bit in the prepared comments. We saw a little bit of fullback in the carbon prices in California. I think, it’s seasonal, but I would like to know your view. And also, do you think -- as Washington, Canada and other places open up, do you think there is a sustainable support for carbon prices, whether it’s California, Washington, or even in Canada, or do you think the supply that is building is little too high, so the carbon price can trend down?

Yes. So, the first thing, with regard to California, I think you’re -- what you’re seeing there is, it’s just a really a matter of that they got hit really hard by COVID. They’re starting to open up. Things will get better. I think as we move further into the summer and we see the transportation -- the summer transportation, pick up, you’ll also see that LCFS pricing pick up. In terms of demand worldwide, I think you had asked about that and what we’re seeing out there. Obviously, there are a number of programs that exist today, there’s your California, Oregon, DC, now we soon expect to see Washington join the list of jurisdictions with the CFS. We also recently saw New Mexico make a run at the CFS. And it came so close, but just ran out of time. And so, we think that there’s significant momentum going into 2022 as well. And we know that New York continues to work to get a CFS in place with hopes that one will be included in the Climate Action Council’s draft recommendations later this year. Obviously, the Canadian CFS final regulation will be out at the end of this year and implemented in December of 2022. And now, we’re seeing provinces like Quebec, which are enacting their own provincial mandates. And then, of course, there’s RED II, which is slowly becoming RED III, we’re early stages of that. But, we expect those targets will become more aggressive. So, as we look to the outlook, in terms of demand, we see great things. And as we look at really at our sales deck, which is kind of an indication of that, we’re very-pleased. Obviously, we have two facilities that are going to be coming on line in the not too distant future. And I think that there was probably a point where we looked at ourselves around the room, we said, wow, are we are biting up a pretty big piece of apple in filling up these facilities. But the fact is that as we look at going forward, we’re probably not going to have the gallons for everyone that wants them. And so, I know that it’s not demand -- demand-related, but at the same time, we’re also seeing things on the supply side. So, we’re seeing projects getting pushed back. And I think you’ve alluded to something like that. And we’re hearing less and less about other projects that we once --that were once widely mentioned. And so, I think what we’re seeing setting up is there may be less apply than some would estimate, in order to build increasing demand that we’re seeing. So, all-in-all, I think we think that there’s a lot of demand out there, and we’re really excited about that.

The next question comes from Tom Palmer with JP Morgan. Please go ahead.

Good morning. Thanks for the question, guys. So, you’ve seen a big step up in feed segment EBITDA over the past couple quarters. I know, this has been covered various times over the years. I just had a couple of questions to clarify your pricing model. You’ve given us some helpful detail in the past on how a penny of higher fat prices translates to 8 to $10 million EBITDA in the feed segment. Has there been thought about providing similar figures for the other products in the segment, like protein used cooking oil? And then, I just wanted to clarify the timing of your revenue recognition in that segment. If we see spot prices at a certain level today, should we be thinking about that as the price you’re recognizing immediately, or do pre-sell and higher prices today flow through on a slight lag? Thanks.

Good questions, Tom. I mean, obviously, the feed segment has a whole bunch of businesses built in that. Some have price exposure and optionality, others don’t. When we said before, a penny a pound is $10 million annual in EBITDA, that’s all fats and oils globally. You’ve seen Europe be at a higher price on fats, although they’ve moved up above a $1,000 -- or €1,000 a ton now. So, we’re starting to get some more momentum back out of Europe reacting to this. But overall, that model’s intact, as we look around. Our proteins have been lagging a little bit of what’s going on in the world. There’s limited uses at times for some of the animal-based proteins out there. And then, the final question is that you were asking is the lead lag. The biggest impact of that is the -- I want to say is the pipeline, the in transit to Diamond Green Diesel. We came into the first quarter with a very short book on, meaning we didn’t have much sold out in front here. We had beliefs where the market was going at that time and convictions. And so, we have now moved on and we keep in a strong inverse trying to be sold up. So, what that translates to and in common language means that there’s probably a 40 or 45 to 60-day lag in recognition of these higher prices flowing into our P&L now. So, that’s where second quarter as the fat prices moved up late and first quarter they came back down, they’ve gone back up, will start to flow through again in second quarter. And the question will ultimately be how far -- how long does this inverse roll forward? I think, we’re very comfortable it’s going to roll through all the third quarter. And then, the question is, how much does it really back off, if any, in Q4? And really, we’re already, as I said earlier, such a substantial discount to palm oil and bean oil today on the fat that I don’t see much downside there. And the proteins are -- were fairly priced and you’re seeing actual protein price now come back up, while the oil share’s backing off a little bit. So, end of the day, I think you’ll see -- as we’re saying in our improved guidance, obviously that comes through a belief that the feed segment, which carries the new capacity, which carries the optionality will continue to improve for the next several quarters.

Thanks for all that color. And I just had a follow-up on the fat side. You talked last quarter, once Port Arthur is up and running, about the possibility of sourcing from other parts of the world. In your view, is the animal rendering industry in areas like South America built out to the extent to ensure the supply you would like, or is that a strategic opportunity for Darling to explore, establishing rendering operations?

Well, I think, the first thing -- I’ll have Sandy help me a little bit on this here, is I would say, none of our strategy or investment is built on global origination. We believe that there’s adequate feedstock today in North America to support our investments. We’ve said secondarily that we believe that feedstock will be displaced from generation 1 technology in the biodiesel industry, as we bring the capacity on line. That’s number one. Number two: We sit on a 0.5 million tons of fat in Europe today that can move in here, if the euro, the freight rates are in right position. And yes, South America, Australia, New Zealand, Latin America, China to a lesser degree, have developed industries that can arbitrage fat in here as necessary.

Yes. This is Sandy. So, I think, we feel very comfortable about our ability to secure feedstock, both for St. Charles expansion and for our Port Arthur facility. Feedstock’s always been a significant part of any investment thesis that we’ve done for any of the facilities. And keep in mind that the build out of our facilities is really centered around feedstocks, which I think makes us unique compared to many other projects. Our locations are where there are a lot of agricultural products that naturally funnel into it, and that’s no coincidence. We like the U.S. in terms of the supply of feedstocks, and needless to say, Darling produces a significant amount of low-carbon feedstocks in the U.S. And finally, we do see growth in feedstocks down the road, in general and then specifically within Darling, as we continue to enhance our collections and expand our control of various low-carbon feedstocks. So, I guess, in the end, the feedstock supply chain has always been a differentiator between DGD and other projects.

Thank you.

The next question comes from Sam Margolin with Wolfe Research. Please go ahead.

Just a follow-up on DGD margins and strength. So, look, as you know, a lot of people focus on that unit cost spread between the byproducts and sort of fresh vegetable oils. Is there anything else going on, on the operational or technical level that’s worth calling out, maybe a yield outcome that was -- that’s generally better than modeled or something beyond just what people see on the screen on a price per pound basis?

I think, we’re always trying to improve our DGD facilities. Really what I think, the most important thing is with regard to our pretreatment facilities. That gives us a huge advantage at DGD. It allows us to source the lowest cost feedstocks, and you’re seeing that show up in our margins today.

Yes. Hi, Sam. This is Randy. And I think that’s well said. I think, the secret sauce is the flexibility of our origination that comes into the pretreatment. Clearly, there’s never-ending operational efficiency targets that are happening. Valero’s -- they are just awesome people in the world of optimizing the unit down there between yield -- they’re -- collectively, we work on CI scores, and then ultimately customer mix. And then, we’ve talked in the past about Arctic-grade and what’s the product mix that we’re making. So, you put all those together, and it’s quietly a very definable and unique, in a sense to us, advantage that you’re starting to see out there.

Okay. Thanks for that. And then, just switching gears to the base business, and maybe I’d ask you to expand a little bit on your thoughts on demand and how this as a unique cycle. I mean, just how would you characterize what you’re seeing in demand? Is this a special year for growth on just a rate of change basis or is what we’re seeing sort of also like the cumulative effect of two decades of China in the WTO and all the people in the world moving out of poverty, and therefore -- and that sort of adds to the structural duration of what you’re seeing. Thanks.

No, it’s a great question, and hopefully my crystal ball doesn’t have a fog in it. But, for us, as we looked around the world, our thesis has always been very simple. Population growth, wealth-creation and two things happen, once there’s wealth created, you use a lot of energy and you like to eat better. And all those confluences are coming together now, around the world. The pandemic probably interrupted that for a better part of a year. But, we’re seeing an appetite for protein around the world like never before. I mean, when you look at China, and I have been absolutely paradoxical on my belief that China has to de-risk their food supply. They don’t have water, they don’t have land, they’re at full production on what they can produce. And then, you take the animal disease risk that they’ve experienced. And it’s really put into the fore light and foresight here of what they have to do on the world market. So, six months ago, we thought they were replenishing the hog herd, and I think they were. I mean, we would tell you how do we know that. Well, we had pig blood coming into our five blood processing plants in China, and then we had pigskin coming into our central China gelatin factory for the first time in almost two years. So, that’s pretty good indicator. That has slowed down again, tremendously, almost 50% of what it was in November, if not less. So, China lost the proportion of their hog herd again. And the question will ultimately be, how do they -- is this a cycle that they’ll really industrialize, institutionalized, commercialize the bigger farms? I think the answer is yes. And China has a magical way of making things happen faster than most…

The next question comes from Ryan Todd with Simmons Energy. Please go ahead.

Good, thanks. Maybe just a follow-up on one of your comments during the prepared remarks on distributions and capital management. I know you’ve talked in the past about external financing for the DGD expansion. You have a revolver that you got there, DGD, I think in March. But, I think you commented that you wouldn’t be likely to see distributions until Q4, when the expansion starts up. Is that is that how we should think about it, or will you look to tap the revolver over the course of the year or will you look to the holdout until the expansion starts before we would see kind of distributions to the parent accelerate?

Yes. Ryan, this is Randy, and Brad now and Sandy we’ll all try team this a little bit here. From a macro perspective, we are now -- what is this, May? So, June, July, August, September, we’re four months away from starting up the second machine. At that time, then you’re going to be at a 700, 700-plus run rate, maybe 2.50 a gallon. So, dividends become a really possible as we start that new machine up here and start to pull back. I don’t think pulling from the revolver does much for any of our capital structures today, as we’re not in any risk of that or have anything to really push on. The timing of DGD III, as Sandy referenced, and as we referenced in our comments, clearly we’re looking at ways to bring that on line, as quickly as possible, slated for second half ‘23. But, as we complete number II, clearly, we will turn our focus to that. We’re blessed right now with the kind of the troubles, if you will, in the petroleum industry or the reduced capital programs there. It’s made great labor and really the mechanical and pipe fitting shops available, rather than sharing them with somebody else for a percent of their capacity, we’ve got access to them. So, ultimately, the timing and the size of the dividends, when -- if you say, even 2.25 to 2.50 for next year, 700 million gallons, that’s 1.750 billion, that’s 875 million plus, we don’t see much change in the core business next year, given the demand-driven cycle. You’re -- hang with us. You’re six months from a pretty significant cash coming over the transom.

Thanks. I really appreciate that. Maybe since you’re talking expansions, a follow-up there. I guess, first on DGD II, any color on how you think about -- like how much time that takes to ramp up volumetrically? How much you’ll see, kind of in the fourth quarter of this year and into the early part of next year? And then, as you were talking about the capacity on the pipe fitting and on some of the construction side, we’ve obviously seen a lot of significant inflation in the market right now on raw materials, including still pricing. Is there any risk to DDD III’s, capital budget, or did you price these contracts before a lot of the stuff kicked in?

So, this is Sandy. What we told you is we’ve given you guidance in terms of total volumes for this year. Those include volumes from, DGD II coming on line as well. We expect to be fully up in ‘22, and obviously we’re saying that it’s prior to that. I think you can draw your conclusions there. In terms of construction costs, obviously, we’re nearing the end of St. Charles expansion, and everything appears on line and on budget there. And with regard to Port Arthur, we’ve driven pilings, we’ve poured foundations, we’ve ordered all of our major equipment, and we did that early on. I know, Randy and John Bullock often talk about our first mover advantage. And I think when it comes to this, this is clearly an example of that. We moved quickly and we hit the market right in the right window in terms of when we made our purchases. We’ve also done this before. And we have a great model that’s been fully engineered and working. It’s always easier when you have the blueprint than when you’re having to make changes on the fly. And we’ve seen other projects report, 20% to 25% increases in costs, due to things like that, like you mentioned. We’re not. And so, I think everything looks very positive. We are not projecting any increases at this point in time. So, we’re very proud of both of our projects and the progress. And I know that Jim had mentioned earlier that we have some pictures in the deck for you on those.

Thank you.

The next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead.

Good morning. Congratulations on a really strong results. Randy, I wanted to ask, if you could connect the $1.1 billion in EBITDA, give or take, in the guidance. If you connect that back to free cash flow this year? I know, there is uncertainty around exactly how much cash you’re going to get from Diamond Green. But, what do you expect the core operations to throw off? And is it fair for us to expect cash flow to strengthen in the second half?

Hey, Craig. This is Brad. On free cash flow this year, we’ve got the $300-plus-million, which we more or less the last several years had on CapEx. Although our interest expense is coming down, we’ll still see that probably in the 60, $65 million range; 40, $45 million of cash taxes. We’ll see kind of how working capital ends up for the year. Right now with the higher prices, there is obviously a little bit of pressure on changes in working capital. But, we’re pretty good shape there in Q1, which is typically our toughest working capital quarter. But really, when you put that all together with the guidance and where we expect the base business to be, and you disregard dividends for the moment in that discussion, which we just discussed would be the tail end of the year and meaningful ones, certainly next year from Diamond Green. We do expect to have noticeable reductions in our debt level this year. We’re at 1.67 on our leverage ratio, and I think really for the year, even without dividends, we expect that to remain at or below 2 times.

Great. Thank you. So, this is a very similar environment today to when you did the acquisitions of both, Griffin and Vion. I’ve heard you explain in the past how environments like this tend to increase the appetite of family, the control, some of these very large rendering competitors of yours, obviously much smaller than you, but large for the market. The question is, are you guys out and hunting again? Is North America attractive for you, or would you be looking more for elephants, may be raising in South America or Asia?

Hunting for zebras. We own all the elephants.

I love it.

Now, Craig, it’s a great question. And for the first time -- we completed a Board meeting here this week, and for the first time, the opportunities around the world are starting to surface again post some pandemic recovery, depending on which continents you’re on. So, yes, I mean, I think number one, the balance sheet’s in order; number two, the free cash generation between now and ‘23, ‘24 is pretty well predictable. And yes, we would like to grow, but we will do it smartly. And it will be driven around building the moats around the kind of the four platforms I talked about, being our renewable energy platform, which is a sustainable aviation fuel and our green energy businesses in Europe, around EnviroFlight, around our collagen and peptide business. And then, we love any bolt-on core rendering businesses that gives us number one, a presence in a geography; number two, gives us the arbitrage of feedstock. So, we’re actively looking around the world. And for the first time we’re starting to see some stuff move that may come to market here this year or later this year.

The next question comes from Ben Kallo with Robert W. Baird. Please go ahead.

Hey. Good morning, guys. Good job. Good job in the call. Randy, I had to look up transcript. I didn’t know that word. So, three questions, two big picture and maybe one neutral. [Ph] So, big picture, the inflation environment, you talked about lasting for the foreseeable future, I think is what I heard. But, you’ve been in a lot of these environments over those 39 years. And so, I guess, like, how do we get caught around that? How you deal your predictability? The second thing, I get a question quite a bit. We saw the ADM facility coming on with the soy crush, the announcement yesterday, as you guys knew about before. But, the question is, like does the return go to the ethanol business as everyone comes into this business, and what separates that? And then, the third neutral question is, how do we think about SG&A? I see it picks up a little bit here. And obviously there’s some leverage in the business. But, how do you think about the controlling costs, even though you’re in a high on the hog period, let’s say? Thank you.

Lots of embedded questions there, and clearly the business has some tailwinds right now that it’s faced headwinds for the last five years. I’ll break these down for you. Clearly, the crushing industry, both here and in the U.S., and in Canada for North America on canola, are responding to the increase in demand or the anticipated demand for feedstock to feed renewable diesel investment in the near future. And I think that’s all well and good. The crushing industry will take three years probably to build out. And you’ve seen the scale of some of these announcements, whether it’s North Dakota crushing plant for ADM, or it’s a Sydney, Ohio expansion for Cargill, or canola for Richardson’s in Canada, and Viterra and Cargill, and et cetera, et cetera. And at the end of the day, those are for 1 million ton crush plant. That’s a 350 to $400 million investment today. The other thing that you’ve got to look at is, is that any of the renewable diesel stuff that’s been announced out there, it requires refined, bleached, deodorized vegetable oil. And that capacity is -- also needs to be expanded today. I think that is pretty simple. And then, I’ll turn it over to Sandy. Marathon has proven the great experiment true. They used up all of the refining bleaching, deodorizing capacity in the United States by starting up a plant. And so, today, I’m hearing that RBD is trading somewhere between 15 and 20 over -- that’s 1,500 and 2,000 over. And so, clearly that capacity is going to have to be expanded too, as we go forward. And Sandy, do you want to talk about renewable diesel capacity and your views?

So, renewable diesel capacity, yes, I think, we touched on this maybe in an earlier call. Obviously, there are projects that are moving along and moving along well, probably like ours. But then, there are projects that we’re seeing kind of fall behind in terms of timelines. There are ones that we used to talk about, but that we don’t hear much about anymore today. And so, while we probably saw this, what some people think is the aggressive amount of gallons coming out on the market, I don’t think that we see it as aggressively as some other people do.

And then, SG&A, Brad, do you want to take that?

Ben…

My question two was just on the ethanol front. We had this boom-bust cycle. And maybe you answered this, but just spell it out for me, because I’m slow, is why is it different than that?

Jim, why is RD different than ethanol, since your ex-ethanol? I saved you from that business.

Okay. Thanks, Randy. Hey, Ben. It’s different because of the boom that you had with ethanol build out was to meet at certain level of the mandate, driven by the renewable fuel standard. It’s different from renewable diesel because the low-carbon fuel credits -- or low-carbon fuel standards around the world are about reducing carbon. So, you’ve got more opportunity and demand for lower CI scoring products, like what DDD makes versus ethanol niche reduction. So, the element of the backdrop is two. It comes from the fuel side itself. Renewable diesel’s a 100% fungible with petroleum diesel today. You don’t have limitations on what you can blend in, in the amounts. It doesn’t have to be handled separately. It can get moved in the pipeline when it’s back up and running. So, you’ve got a variety of just differences from that standpoint and also to costs. If you remember back in the day when they could get the 20% GHG reduction, they were spending dollars $65, $75 a gallon to build. We’re looking at plants that at least the way DDD is built, around $3 or higher. So, it’s the capital limitations. And the advent of the, just the overall market is different from the standpoint of an RFS versus LCFS around the world.

And Ben, this is Brad, just to circle back on the SG&A. Yes, we were up a little tick there, about $1.2 million versus a year ago. We did have a multiemployer $1.3 million additional accrual that we might own withdrawal liability on the pension side. But when strip that away, we’re flat. Really there, you had some increases of several million due to FX when you got the euro-USD 1.2 versus 1.1; insurance, as we’ve talked about before the last couple of quarters is up year-over-year. And then, we’re actually this year, and as Randy and we’ve talked about the guidance up and the performance, we are accruing more on the compensation incentives side, instead of playing catch-up, maybe on a good year later in the year, we’ve upped that. So, that’ll be smoother during the year. And then, on the flip side, we’ve obviously had a travel offsetting that with travel down and the soft awards expenses down versus last year, just the difference in the plan and the cadence of that. So, I expect SG&A to run right in this range, absent something extraordinary, which many things run through SG&A being around this level, or a little lower than the following quarters.

Thank you, guys. I know that was a lot of questions.

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

Hey. Good morning. Thanks for taking my question and congrats on the guidance. My question is, with the volatile pricing that we saw in the quarter, were there any significant shifts in your RD feedstock plays? And I guess, on a similar note, are you seeing any improvements in UCO or DCO availability?

This is Sandy. In terms of our feedstock plays, and I think you’re asking, have we changed our mix, based upon what we were seeing going on in the market? And really, it’s no. I mean, I think everybody knows the three products that we typically use, and that’s UCO, DCO and animal fats. And at any one time, one of those could be higher or lower price than the others, and we’re going to take advantage of that because we have the machine that can do that. And so, I don’t -- that really wasn’t a major thing for us. We just took advantage of what we could in the market. In terms of UCO and -- I’m sorry, DCO, were you asking if we were seeing more supplies come on line? And you know, I think that we never really experienced an issue with either one of those supplies. In general, I think that you’re seeing more and more restaurants coming back on line. And so, within the market in general, there is probably more pounds out there. But, I don’t think that we’ve seen any substantial.

Yes, Matt. This is Randy. I always smile a little bit with -- given the number of conversations that I have on UCO in this country. It’s not a material amount of the entire feedstock, as we’ve always said. There is 2 billion pounds of it. Darling has a 40% to 50% market share in the United States. We’re still down about 8% to 10%, versus let’s call 2019, and that’s predominantly in the East Coast, West Coast, Northeast and California, to be exact where they’re still not open. So, it’s really not a material discussion for even the RD business. You would never build an RD plant and say your lead feedstock’s going to be UCO because there really -- and 50% of it’s already going to our location. I can’t use the word control, like Sandy does. But, I’m not allowed to. But that’s where we see it. But at the end of the day, I think you’re going to see more and more of restaurants opening up. With foodservice comes bigger and better demand for protein, which should make additional rendering and animal fats available as we go forward here.

Sounds good. Thanks for all the details. And then, my follow-up is, for the 30 million gallons of renewable naphtha that’s coming with the Norco expansion, what market is that going to? Is that going to chems market, is that going to gasoline? And can you talk about how the economics on renewable naphtha versus RD?

Yes. So, I think renewable naphtha is a new product for us, which we’re just going to be able to produce once the expansion’s on line. But, like renewable diesel, we view naphtha as a worldwide market and we’re seeing potential opportunities out there around the globe. And it may be in different forms, whether that’s in terms of green gasoline or possibly used as a feedstock and in another process. I think that there are a number of options. But, we’re just not quite there yet. We’re -- we still have actually produced it and stripped it, so.

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

Could you dimensionalize how each new policy would create demand relative to the California, because there seems to be some real runway here in terms of the policies that are coming down the pike? And it would be helpful if we could get some idea of if that’s going to be the lead to continue the momentum, I think? So, there’s two parts there, am I right that that continues the momentum? And can you dimensionalize how much incremental demand there would be with each new policy that comes down the pike?

So, yes, I think you’re right. We had mentioned earlier that there is an awful lot of momentum. We’re seeing a lot -- a lot of new programs out there and potential new programs out there. Obviously, we now have Washington State, which is in play, and we’re so excited about that. And that’s about an 0.8 billion gallon market per year. New York is also on that horizon that we’re looking at. And that’s probably a 1.4 billion per year. New Mexico, which we think has a decent amount of momentum going into next year is about, 0.5 to 0.6 billion gallon market per year. And then, obviously, Canada’s going to be coming on line, and they’re about an 8.5 billion gallon market per year. And then, I think I’d also mentioned Quebec early on, as well. And that’s probably close to a 1.2 billion market itself. And so, there are significant volumes out there. There’s a lot of demand being created. And these are just what we’re seeing today. And so, I think that they’re -- the future looks really bright.

In terms of cash deployment, you did obviously mention the acquisition. The amount of cash that you’re going to have is going to be very hard to spend, would you think about reallocating that to either one time dividends, share repurchases, anything like that? Because, again, I think it’s going to be just hard to spend all the cash you guys bring in. Any thoughts on that?

Yes, I was, as I said, clearly, in the Boardroom, the last couple days, that was put on the screen as the -- as we always call it, the cigar box starts to build cash here, pretty strong, strong in ‘22, and then gets massive in ‘23. At the end of the day, Brad has around 250 million of term B to pay down. Then we’re sitting with a summertime callable or full callable, 3.625% euro bond that’s out there. And then, we got a 5.375% -- 5.25% U.S. bond in ‘22. Long term, I suspect, we’d like to keep that -- that some of that debt out there, if not the most of it and extend it out when the time’s right before inflation moves these rates back up. And then, at the end of the day, the opportunities are -- we’re looking around the world. Hopefully, we’ll find some that makes sense that are a fair priced that we follow our model on. And then, Ken, you said it out, right. The Board’s eventually going to ask to evaluate a one-time dividend, a regular dividend, or buybacks of some magnitude going forward. As we called it in the Boardroom, it’s a high class problem. Don’t want to say we’re kicking the can down the road. But, at the end of the day, we still got a little bit of time on our hands before we have to make that call.

Great. I appreciate it.

And our final question today comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes. Thanks. Good morning, everyone. And thanks for squeezing me in. So, a lot of ground’s been covered. Maybe didn’t hear much about the food business, both on the quarter and the forward outlook, which was unchanged. I know you’ve been very confident, Randy, on the growth on collagen peptides and some of the new capacity there. Just help us think about some of the dynamics in play in that business this year and how we should think about exiting the year into ‘22?

Yes. No, a great question, Adam, and a fun one to kind of conclude. The feed segment, clearly because all of the optionality in there looks like the shining star, but the reality is the growth in the annuity side and then the strong cash flows have been always in that food segment that have been very predictable. And two years ago, we laid out a plan to add three or four new spray driers out there, and then an enzyme conversion units to, capture the growing collagen peptide world, which essentially for those that are listing is a water-soluble or used versus an emulsifier type of application in regular gelatin. And really, we not only did DGD ever that we hit a home run there, we’re hitting a home run in the collagen peptide world right now on from a demand perspective. That capacity is all coming on line right now. When I say coming on line, it’s running the sales ledgers of building Nestle’s investment or net Nestle health and nutrition that invested into Vital Proteins has clearly given kind of a great turbo charge to the Vital Proteins brands and allowed us to grow with that. The number one brand in the world is the -- as we call it the blue jar that’s out there now. And that’s Rousselot Darling product that’s in there. And so, we see that continuing to grow very nicely. It’s been led by Jennifer Aniston. She has quite the following out there. She was reintroduced recently in some Dutch commercials and the sales are now 5 to 10 times higher than what they anticipated. So, we’re excited about it, in that area, all set in the segment. Brad and I watched that segment in the 125, 140 range for years and years. And then we said 160 last year. And then, we said, we would probably be in the 180s this year, and then we would be in the 200s. I think we’re still on that trajectory as we change the product mix here and get the capacity sold out. And then, we’re working in that -- the biomedical device area right now. And that’s probably two or three years out, but that in our world, as we talk in the boardroom about the next big thing is in that -- those applications for collagen peptides as we look around the world going forward. So, the Rousselot model as we took it back in 2014 was a 100% gelatin-driven model. And then, we rationalized that and refocused to now where it’s both a gelatin and collagen peptide business, and soon it’ll have a third leg to in the biomedical, health and nutrition area. So, hope that helps.

It does. And if I can squeeze one quick one in. I don’t think I’ve heard this earlier. What is the CapEx expectation, both at the parent, but also what’s Diamond Green CapEx this year?

On the base business, we’re looking at about $310 million, $312 million, and we’ve hit 60 here in Q1.

And Sandy, you want to comment about DGD a little bit?

Yes. This year and next year are really our two big CapEx years. So, we’re finishing out DGD II this year and starting -- working on DGD III as well. So, you’re talking probably close to $800 million in both years.

Alright, great. That’s really helpful. Thanks so much.

This concludes the question-and-answer session. I would now like to turn the conference over to Randall Stuewe for any closing remarks.

Thanks, Tom. I appreciate everybody’s time today and hope you all stay safe. In our IR deck, there’s a list of upcoming events that we’ll be speaking at and look forward to talking to everybody in August. And stay safe. Thanks for all the questions today.

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