Randall Stuewe - Chairman, Chief Executive Officer Brad Phillips - Chief Financial Officer John Bullock - Chief Strategy Officer Sandra Dudley - Executive Vice President of Renewables and U.S. Specialty Operations Suann Guthrie - VP, Investor Relations, Sustainability & Communications

Good morning, and welcome to the Darling Ingredients Inc. Conference Call to discuss the company's Fourth Quarter 2021 and Fiscal Year 2021 Results. After the speakers prepared remarks there will be Q&A period and instructions to ask a question will be given at that time. Today's call is being recorded. And I would now like to turn the conference over to Ms. Suann Guthrie. Please go ahead.

Thank you, Tom. Welcome to Darling Ingredients fourth quarter and fiscal year 2021 earnings call. Participants this morning are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; Mr. Brad Phillips, Chief Financial Officer; Mr. John Bullock, Chief Strategy Officer; and Ms. Sandra Dudley, Executive Vice President of Renewables and U.S. Specialty Operations. There is a slide presentation available on the investor’s page under Events and Presentations 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 statement. Now, I would like to hand the call over to Randy.

Thanks, Suann! Welcome the Darling, Suann! So good morning everybody and thank you for joining us for our fourth quarter and fiscal 2021 earnings call. 2021 was another record year for Darling Ingredients and we carry solid momentum into 2022. We finished the year with combined adjusted EBITDA of $1.235 billion. Our global ingredients business had a record year with $851.4 million of adjusted EBITDA and Diamond Green Diesel demand remains strong with 370 million gallons sold at an average EBITDA of $2.07 per gallon. We have sustained strong growth in our core business over the last four years and we're poised for significant cash generation during 2023. At the end of December we announced that we entered into a definitive agreement to acquire all the shares of Valley Proteins for $1.1 billion, plus or minus various closing adjustments. We estimate this acquisition will drive about $200 million in savings over the next three years and will be nicely accretive. We are currently awaiting government approval for the acquisition. Valley operates 18 major Rendering and used cooking oil facilities throughout the Southern, Southeast and Mid-Atlantic regions of the U.S., and is a primarily a poultry tonnage company, but has significant used cooking oil business which will expand our ability to provide additional low CI feed stocks to fuel the growing demand for renewable diesel. As we have discussed in the past, our strategy is to continue to acquire low CI feed stock businesses that will de-risk and protect our supply chain, making us the Number 1 and most efficient producer of renewable diesel in the world. Now turning to DGD in more detail. It is producing a phenomenal return for all of us. While EBITDA per gallon is lower than last year, it is not unexpected and I continue to…

Thanks Randy. For comparison purposes, note that our fiscal 2020 results included an additional week of operations which occurs every five to six years. In fiscal 2020 the additional week occurred in the fourth quarter and increased net sales and operating income by approximately $73 million and $8 million respectively. Now, net income for the fourth quarter 2021 totaled $155.8 million or $0.94 per diluted share compared to net income of $44.7 million or $0.27 per diluted share for the 2020 fourth quarter. Net sales were $1.3 billion for the fourth quarter 2021 as compared to $1 billion for the fourth quarter of 2020. Net income for fiscal year 2021 was $650.9 million or $3.90 per diluted share compared to net income of $296.8 million or $1.78 per diluted share for fiscal 2020. Now turning to operating income, we recorded $211 million for the fourth quarter 2021 compared to $74.4 million for the fourth quarter 2020. The primary contributors to the improved operating income was a $72.5 million increase in the gross margin, a $7 million increase in our portion of the earnings from Diamond Green Diesel, as well as lower depreciation, amortization and SG&A. In addition, the fourth quarter of 2020 included a $38.2 million restructuring and asset impairment charge related to the closure of the biodiesel units. Operating income for fiscal year 2021 was $884.5 million as compared to $430.9 million for fiscal year 2020. The increase in operating income was primarily due to the gross margin increasing $358.9 million, a $36.5 million increase in our portion of the earnings from Diamond Green Diesel and a $33.8 million reduction in depreciation and amortization which more than offset a $13 million increase in SG&A. As just mentioned, fiscal year 2020 included biodiesel restructuring and asset impairment charges. Interest expense…

Hey! Thanks Brad. I'd like to conclude with my thoughts on how I see 2022 shaping up. At the start of the call, I said we carry tremendous momentum into 2022. Our base business is currently operating at around $950 million to $1 billion adjusted EBITDA. Depending on the timing of the close on Valley Proteins, we could well exceed the $1 billion adjusted EBITDA in our base business. Regarding DGD, diesel pricing is improving. RINS should react to the higher feed stock prices and LCFS should improve as we go through the year. While the boilerplate capacity at DGD is currently 700 million gallons, we're seeing tremendous efficiency gains and it wouldn't surprise me to see us exceed 750 million gallons for the year. Additionally, DGD is progressing well ahead of schedule with commissioning set for Q1, 2023. Today DGD margins are around $1.25 per gallon, but I believe we're going to see improvements as we move through the year. All that said, I'm forecasting combined adjusted EBITDA to be about $1.5 billion to $1.6 billion for the year. As we move through the year, I'll try to provide you with a nearer range. So with that, let's go ahead now and open it up to Q&A.

Thanks guys. My question here is that over the last six months renewable diesel bears [ph] have floated the argument that LCFS prices are going to crack to $80 a ton, and RINS will be massively oversupplied. Now Chevron is one of the best dealmakers in this space. We saw that with the Noble acquisition. Doesn't Chevron willing to buy REGI tell us that over longer term renewable diesel fundamentals are going to be strong and while margins may normalize, they'll still be healthy. So my question is, don't you think that betting against RD producers, especially high quality names like Darling, these – there are just being too myopic and insuring that over longer term carbon prices will actually move up and not down. World needs to decarbonize, so the carbon price actually moves up and not down.

John, why don’t you take that?

Hey! Thanks, Manav. Yeah I think the place to start here is, and you said it, Chevron is obviously a large petroleum company in California; they know that market very well. So I think you certainly have to respect their views on how they see the carbon world going forward. There's absolutely no doubt about it, that over the long term the pattern and the direction has been set on this and in the short medium term as well. We are going to decarbonization policies. As we go through these decarbonization policies, the best short term and medium term alternative is carbonized is renewable diesel and biofuels. That means we're in the right place at the right time. I think we obviously have all known, that when we saw margins were up in the $2 to $3 a gallon range, that that wasn't continued for a long period of time. Those margins are simply outsized. The reality is, our strategy and we had it out in front of everybody, was simply to substantially increase our volume at very low capital cost for the volume that we were increasing, so what have we done? We went from an operation that was selling 160 million gallons four years ago. Last year we sold close to $370 million gallons, the year before 275 million. We are running at a 750 million pace this year and next year we’re going to be at 1.2 billion gallons. It's interesting to me and to us, we see all of these announcements. And quite frankly so many people in the industry have started to run a math exercise, oh this guy’s announced! oh this capacity is going to be here. The reality is, who is the people that’s actually building the substantial capacity today, and the name…

Thank you. I completely agree with your views.

Thanks Manav.

Thank you for taking my questions.

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

Hey! Thanks. Good morning everybody.

Good morning, Ben.

So I want to ask, starting on the expansion on DGD and you note the potential to produce in excess of 750 million gallons. How should we be thinking about the build to that kind of new run rates, 148 million gallons in the fourth quarter, I know you're ramping to capacity. Is that something we should expect to ramp through the year and then just roughly taking a shot out at it, kind of what do you think is the normal rate capacity as you get to your full capacity level.

So, in the first quarter here we are doing a schedule turn around at Diamond Green Diesel 1. That’s just being completed right now, and that unit should be coming back up here within a few days. Other than that, once Diamond Green Diesel 1 is back up and running, for the balance of the year there is no ramp up. We’re running at that rate.

Okay, fair enough. On the core business, in the feed ingredients business, how – as we think about your ability to generate margin leverage, which clearly this business you know is running full speed, performing exceptionally well in what is a very tight global grain, fats and oil environment. As you think about the ability to realize operating leverage in this business, are there inhibitors to price flow through to margin that we should be mindful of, and can you take about kind of your view of S&D for fats, oil, proteins in kind of the intermediate term as well. And then maybe kind of a two three year view as well would be helpful. Thank you.

Wow! So Ben, this is Randy. I mean clearly, you know we have – we've lived through the lower times, we’ve lived through the higher times in these businesses, tailwinds, headwinds as we refer to them. You know we spent a lot of time repositioning this company, both from a capacity and a margin standpoint over the last three or four years, knowing that we were at the lower end if not the bottom of the 10 year cycle. We talked about this being different than in the past, meaning that this was a demand driven cycle, meaning a demand driven on prices increases. Now you throw that with a little bit of hemispheric droughts, South Americas bean crop getting smaller to a degree it's dry here. Now you throw on a war on top of that and you've kind of got the hyper super [Audio Gap]. So really kind of hard to clear the fog in the crystal ball today, but one thing is for sure, in ’22 and probably through ’23, we cannot bring on enough production around the world yet to fulfill the growing demand. Now, I think it’s probably safe to say in some cases the higher prices will ration some type of demand in different places, but food for the most part around the world is resilient to these type of inflationary pressures. So at the end of the day, I mean we’re seeing you know – and John commented about it not only at Diamond Green Diesel. Diamond Green Diesel is having really nice margins as far as a return on invested capital right now, while we're having a really nice returns on invested capital with $0.70 to $0.75 pass FOB our plants in the – throughout the country, and around Europe. And proteins, we – if you say we have one week sister in all of it, it's still kind of the mix we see proteins, but they are starting to move up rapidly as soybean meal is becoming both height and moving up in price around the world. I just don't see this thing backing off at all in ‘22 at this point, and I think ‘23 will carry forward. John, do you got any other thought on.

Yeah absolutely! I mean you have to remember the basis of what was the foundation of the higher commodity prices and that is a combination. It’s not just biofuel programs. It is also the fact that we've had fantastic GDP’s around the world. All the nations of the world have then centered their economies with strong fiscal stimulus. We also had the Chinese reconstituting half of the herd in China, which is 25% of all pigs in the world. As a result of that we’ve taken the ending carry out for corn, soybean, meal, oil, every commodity, including meat inventories around the world down to just nothing. So the reality is, if we keep with this strong demand, to rebuild the cushion that we need to be able to destabilize the commodity prices at a lower level, that's going to take a while, that's not going to happen overnight. So we think we're here for a while. The good news for Darling is we are making fabulous money in our base business and we're continuing to make outstanding money in Diamond Green Diesel during this period of time and I can't go back to this often enough. We made 370 million last year. We should make around 750 million gallons this year, and we're going to make 1.2 billion gallons next year. That's a tremendous increase in volume and a profitable business that has a great return and our production capacity is not now, not an announcement for some future date as almost all the capacity that we are seeing announced is.

Yeah, that's great. Okay, thanks. Best of luck!

The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thank you. Good morning everyone.

Good morning, Adam.

So I guess Randy, first I wanted to just clarify some of the pieces of the outlook and just make sure that we're all on the same page. The $950 million to $1 billion for the base business, was that inclusive of Valley or not. I just wasn’t really clear from how you framed it.

That has a little bit of [Inaudible] in it and that has zero Valley in it.

Got it. Okay. And so within that, just from a commodity price perspective, is that kind of thinking about the business from obviously we’re two months the year and taking the forward curves as they sit and applying that to the commodity values. There are still pretty backward dated curve from the spot. Is that the base assumption in there?

Yeah, what I'm looking at Adam is, you know clearly we're – we just finished period two here yesterday or Saturday in our business here. So you know I saw January. I'm seeing the prices that were sold both in North America and Europe and then I'm looking at what I'm seeing on the books for Q2 and I'm seeing some pretty significant increases from Q1 to Q2 and protein prices and then really fat prices you know will have traded in the 60’s in Q1 and they are going to be in the 70’s in Q2, and so that's what's driving the forward curve here for us. It’s really the forward fat prices that we’re being able to lock you in Q2 forward.

Okay. And then in your prepared remarks you talked about Valley potentially garnering up to $200 million of savings over several years. I know the transaction hasn't closed yet, but would love to just dig in there and just help – maybe if you could help frame kind of where the opportunity has come for that kind of magnitude of savings. It’s pretty significant relative to the purchase price and relative to what I would think the earnings base of Valley kind of is coming in.

Yeah, I mean it's a fair question and obviously while we're awaiting government approval, I want to be fairly guarded in my comments here. There are very nice significant plants and factories on the east coast in two in taxes and a wet pet plant up in Pennsylvania. You know we look at all kinds of different things from yields to operating costs; all the above to how we trade species specific products, and really at the end of the day we kind of look at our margins, their margins and say over the course of three years, that's what we believe we can deliver to the shareholders and it won't be easy by any means. I think the most important point is, is geographically there aren’t what I'm going to call just you know route synergies. In many of the bolt-on acquisitions we've done in the past, you know we essentially are picking up at the same account to the same town and we can eliminate lots of freight and lots of trucking costs. This one is just about really doing it the Darling way and it's a well-run company, that's all we acquire. We just think that over – as we have looked at our business over the last 10 years and what we've been able to do, with how we operate factories, recover products, make specialty products, move into different markets, that we will be able to bring Valley a little more opportunity than they've had in the past. I don't want to take anything away from the management team there by any means. I just think the world is really, really opportunistic for us, once the government gives us clearance.

Okay. All that’s really helpful color. I'll pass it on. Thank you.

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

Hey! Good morning guys!

Good morning Ken.

When you alluded to the fact that you think that RINS and LCFS credits will start to move higher, what are you seeing that makes you believe that. You know do you think that’s in part going to slow down, do you think the policies are going to kick in? How do you think about that? You were in the same view, but I’m just kind of figuring out what you think the key drivers are to see the RINS and LCFS credit starting to move in the right direction again.

Ken, this is John. So, I mean part of the issue around this is of course they have moved dramatically higher over the last several weeks, so it's not a thinking that they well, they have. We obviously see that you know the green premium and that is in part the RINS, in part the LCFS and in part the tax credit. That green premium has to be there to incent the production of renewable fuels. As we see the price of that go up quite frankly you know, it's harder and harder for a lot of especially the more inefficient biofuel facilities to actually make any money, so that green premium needs to suffice to be able to create the demand or create the supply to meet the demand. We were also extremely encouraged, others were not, but we were by what the EPA did with our proposed RVO’s. They obviously had to correct the fact that they had established some RVO’s prior to the pandemic and gasoline and diesel consumption was down. But if you look at what they did, they said listen, we're not going to do the SRE’s, which had been the real killer for RINS pricing going forward and they said, you know we're going to stabilize the RINS for what actually occurred in the U.S. economy in ’20 and ’21. But in ‘22 then they leapfrogged forward the demand and sent a clear signal that the Biden administration is going to push ways to decarbonize the economy. That's good for the U.S. farm community as well, and I think we're going to see that pattern continue. The LCFS market again has been heavily influenced by the fact that any time, anybody you know comes out and says, God, I’m building a brand new renewable…

So what do you think the CARB options are to do in terms of what they might do? There seems to be some news and thoughts that they might change or enhance the California policy. Have you guys put together some thoughts as to what direction it’s going to go in. I know they increased it January 1 you know just from a procedural point of view, but it sounds like there's more to come. Do you guys have some thoughts on how that’s going to develop and how positive that’s going to be for you guys?

Yeah. You know what's really interesting about this, we don't view the LCFS going from $200 to $150 as a bad thing. What has CARB just learned out of this exercise. They’ve learned that they could dramatically reduce carbon emissions in the State of California, without it being a massive expense to the California consumer. The reality is what that does is it positions them to increase those targets 2025 and forward to much higher levels. We are ecstatic that the market is developed this way, because quite frankly this is going to drive much larger demand for low carbon fuels going forward in the marketplace. So yeah, absolutely! You know what’s the State of California wanting to do? They want to carbonize their transportation system. The fact of the matter LCFS has been a massive success for them, they managed to create tremendous amount of additional credits and the consumer in California is not having to pay nearly as high a price as we once feared. Remember, three years ago we were all afraid that we were going to be at the Cap and above under the LCFS. We worried about that, because we thought that would be terrible long term for the program. This thing is developing exactly as we would have wanted it to have developed, for the long term development of the growth in California and elsewhere, because what’s every other state and every other region that's seeing the LCFS, they are seeing that they can implement low carbon standards and do it in an economical fashion for their consumers; that's a great message.

And my last question is, when I think about the Chevron deal for renewable energy, can you give us – and I know this is probably a simple question, but I’d like to hear it a little bit more from you guys. How do you compare your business model to REGI in terms of your profitability, the way you operate; how are you thinking about it? Because it seems like this would create more of a value not a comp. How do you think about that and I’ll leave it there and I appreciate your time as always.

Yeah, way to lob one in there Ken. I’d just use one word, you're a smart guy. We’re significantly undervalued and underappreciated, so I’ll turn this over to John now.

So if you want to compare us, REGI is a great company, I'm not going to say anything negative about them. They do a phenomenal job. They make somewhere around 90. I think their information says about 90 million gallons in over lease for the day this year. For this year we’ll produce around 750 million gallons of renewable diesel. Next year we’ll produce 1.2 billion gallons of renewable diesel. REGI will produce 90 million gallons of renewable diesel and their total biofuels, including biodiesel will be somewhere around 700 million gallons and we’ll be 1.2 billion gallons of renewable diesel, which we think is a good technology moving forward in the biofuel space. In addition to that and we’ve seen that in the results in our base business, as the low carbon policies have driven a preference for fats that produce low carbon fuels; we've seen an increase in the price of those low carbon fats. We’re positioned as an oil field to supply those low carbon fats to the biofuel world. Again I go back, we’re the only renewable diesel company in the world that has both accidently located and rapidly expanding renewable diesel capacity and the oil field of low carbon fats, nobody else has that. So when you compare like door A, B and C in this place, it looks to us like we've got an excellent position in the marketplace.

Thank you guys very much.

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

Good morning, and thank you for the questions.

Morning Tom!

Last year you gave some helpful detail on expected EBITDA contribution on a segment basis. If we look at the $950 million to $1 billion guidance in the base business, how should we be thinking about contribution from like the food segment and fuel segment?

Yeah, I don't have those numbers in front of me. More than happy to think through that and try. We typically want to put those ranges out as we see the year go on here is what I'd say. What I'm just doing is benchmarking the 850 last year and the higher fat prices that we see running at this time. Remember, I'm only 30 days into the year here. Clearly the [Audio Gap] is going to move up because of the higher fat prices. I’m watching Q1 and Q2 protein prices move up $70 to $100 a ton through a system; fat price is up $0.10 to $0.14 a pound as we move through the year, but remember that's versus $0.50 last year. It's not hard to sit there and look at this and say, $1 billion could be really light if these fat prices hold where they are at right now, which we tend to believe they will. A little color on the food segment. You know we are just continuing to ramp up our collagen peptide business. You know our demand from our customer base is still accelerating in the high single digits. Margins on that versus some of the commodity products that we made in the Russillo brand division you know are being replaced with higher margins. So you know we put up 198. I think you know I look back at Brad and that was always – we were kind of 130 to 140 in the food segment and then we started bringing on the peptide business and you know now we're looking at that business should be you know well into the mid-200’s here within a year or two as we bring on additional peptide capacity. The fuel segment obviously, you know [inaudible] is going to help us grow there. That was just a very timely, an acquisition for us that gives us lots of opportunity to arbitrage plate waste and different waste streams in Europe into a bio digestion and we're going to expand it out pretty nicely, and where green electricity prices are in Europe today, driven by the challenges in the Ukraine, I mean that is a very, very positive accretive acquisition for us. You know DGD, you know simply said 750 times, $1.25. Half of that flows, 461 or whatever the number is, flows right back into the fuel segment, so a full year at 750 you know versus what we made 370 last year. So the fuel segment will [Audio Gap] that $1.05 billion, $1.06 billion range and we’ll try to put some ranges out there as we move to the Q1 call in May to help you.

Great! Thank you. And then just to follow up on a DGD, I know in past quarters there's been some discussion of kind of when we might see distributions flow through just given the elevated level of CapEx that we're seeing to get Port Arthur builds. I mean is this mainly a 2023 at this point? Is there still the possibility of some distributions [Audio Gap] in ’22. Thanks.

Yeah Tom, this is Brad. I guess I would never say never on this year, but you kind of prefaced it pretty well. I mean, with the acceleration which is looking – you know continuing to look very, very positive; the spend being pushed back here in 2022, I guess the way I’d put it is, never say never on some dividends. If we did, it would be very late in the year and not really extremely sizeable or material. You get in to 2023, really almost no matter where the margins are, if there is a margin we’re looking at it from there and beyond, hundreds of millions of dollars in dividends from there on out with the JV debt free coming out of construct.

Yeah, I know Brad. In 2023 that it just really absolutely, even at $1.25 a gallon gets extremely sizeable and the JV will be debt free coming out of ‘22 here.

And if I can just add, I want to make sure we're clear, we are at or below our cost estimate for Diamond Green Diesel 3 at this point in time. The only thing that's happened is we've been able to accelerate the project, so that a little more dollars have been spent in ’22. That obviously is one of the reasons why we don't really see at this point in time large significant dividends in ’22, but all that means is we're done with our capital in ’22. So when we get to ‘23 you know we’re largely dividend in what we make, right, except for maintenance capital that we need in the business.

Great! Thanks for the color guys.

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

Hey! Good morning everyone. I wanted to ask about the seed segment. Your thoughts in UCO revenue were extremely strong. I think fats revenue was up 20% quarter-over-quarter, UCO revenue up 60% quarter-over-quarter. I was hoping you could just provide a few more details here. How much of this is pricing? How much is volume? How much is seasonality and you know can you hold onto these levels into ’22? Thank.

The only thing what I would give color on there Matt would be really as we’ve talked about sensitivity on fat prices. I mean that's kind of bigger picture this last year. I'd say what we put [Audio Gap] several years ago with John Muse and the sensitivity that we did on the business, it still pretty much holds water today when you look back at ’22 and where a lot of the pick-up that Randy’s been talking about this morning is. But that bears out and those prices were up here as we've entered into ’22. I'm sorry those beard out in’ 21 and that momentum’s here in ’22 and…

Yeah, I think Matt see, you know part of its volume. We've seen a strong – you know the rendering volumes around the world remain extremely strong. The UCO volume is kind of you know up and down pretty strong fourth quarter with a lot of re-openings going on, so you know – but you know remember, people love to talk UCO. It's a material contributor in the sense of earnings, but volume doesn't move around. None of our volumes move around much, so it really is a price driven event here of how we've got the procurement formulas written on this material.

Do you think – are the UCO volumes back to normal with restaurants re-opening or do you still see some upside there?

Yeah, this is John. Not quite back to where we were pre-COVID, but getting pretty close as we continue to see the kind of the re-opening of the economies of the United States and Canada.

I mean clearly New York, the northeast is really dragging its feet to come back to where it was.

Got it. And then finally, the guidance of $1.25 EBITDA margins for DGD this year, I guess I’m just trying to think through that. We had a pretty significant increase in diesel prices, you have expectations of higher RINS, higher LCFS moving forward. You know you just put up, I think about 14 in Q4. So I guess, the way we should think about that, just you're expecting higher feed costs to staff out most of the gain from higher diesel and LCFS as we progress through the year?

You know, I'll take a stab and John and Sandy can also. I mean we’re thrown – you know if you think of the first five years that Diamond Green Diesel operated, it operated at $1.26 a gallon. The next four or five here $2.26 a gallon and then last year down to $2.07. We're being conservative as we step out front here. We're seeing feedstock prices run up you know rapidly. I think the bid delivered Diamond Green Diesel today is nearly $0.80 a pound. You know we [Audio Gap] we have our fundamental [Audio Gap] to share your view Matthew on carbon pricing. We’re bullish on carbon pricing [Audio Gap] and at the end of the day we think that things… You know we brought on 400 million capacity you know 90 days ago and it’s at capacity sold out. We didn’t really move the markets. You know we didn’t trash RINS, we didn’t [Audio Gap] got absorbed, and so now the markets are normalizing to the new, higher you know levels of demand in California. We expect [Audio Gap] due to you know lots of different things and from the pandemic now to war, but the world’s picking up.

You know things are going to ebb and flow based upon what’s going on in the world. You know whether that’s due to weather events or demand events. You know I think John had mentioned earlier, the key point with regard to DGD is that you know [Audio Gap] as $2.25 or $1.25 or at the end of the day we’re producing more gallons here. So at 750, you know and $1.25 that’s $938 million DGD and are based [Audio Gap]. Starting next year we’ll have 1.2 billion gallons [Audio Gap]. So we are making a ton more EBITDA and so – and throw on top of that too, that even at a lower margin per gallon and if that goes up, its even higher. But DGD is one of the highest [Audio Gap] in the world, and a great business.

Thank you for all the helpful comments.

The next question is from Craig Irwin with Roth Capital Partners. Please go ahead.

Thank you for taking my questions. I should start by saying you know really congrats on this impeccable expectation over at Diamond Green.

Thanks Craig.

Can you talk a little bit [Audio Gap] came online at DGD2. You had some new technologies you adopted there that allows you to product some green gasoline [Audio Gap] sustainable aviation fuel. Lots of other companies out there are talking about SAS, very [Audio Gap] you know how is the market development coming for these new products? What are you learning as you offer this out there?

You know what we see is still in its [Audio Gap] you know we’ve talked about this a number of times is that really to insert more mandates. Build back better, did product for one of those and SAS tax credit, and while that seems to be stalled at least temporary what we are hearing is that they may get broken up into smaller bills, one might have a climate focus and we would expect that SAS would be a part of that. [Audio Gap] in Europe are going to be huge triggers. SAS is something that we [Audio Gap] economies makes sense. And we do think that it’s going to develop and it will happen eventually over time. It’s just when it’s going to happen [Audio Gap]…

Understood.

I should add, we are ready we have the technology ready to go. When the economics are right, we know how we build it, we know approximately how much it will cost and so when we get the economies right, we are ready to actually start to product real [Audio Gap].

[Audio Gap] Since we have had the blenders’ credit and a fairly nice RIN environment, you know those guys have taken a little bit longer to come out. But did you maybe see or can you share anecdotally with us whether or not you saw substantial capacity come offline over the last number of months with the pressures on these little clients that face tricky economics in the periods of volatility?

John, Sandy, you want to take a shot at that?

You know I would say that we probably don’t pay a ton of attention whether or not an individual biodiesel facility is online or offline. I think what we are more focused on is we are focused on what’s important to us. And we’ve always said that we’ve created a really unique machine in terms of Diamond Green Diesel that’s going to be able to out compete any facility, whether that’s biodiesel or renewable diesel. John had mentioned before, you know we just – we really have superior logistics. So we build our facilities in the Gulf of Mexico where agricultural products generally funnel into. There is also our rate in terms of outbound logistics, because they can basically transport all over the world. We can transport from our facilities. We have multiple capabilities. We can transport by rail, we can transport by water, we can transport by pipeline. And so we have just significant logistical capabilities. We also have pre-treatment capabilities which differentiate us, and that allows us to run the cheapest most economical feed stock. And then we also have access to feed stock through our partners and John’s been mentioning that throughout the conversation today. And I think one of the things that we don’t talk about, and we haven’t yet talked about on this call, is that we’ve seen a lot of other renewable diesel type projects want to emulate that supply chain and so they’ve gone out and they’ve tried to contract for longer term supply agreements. And DGD is really different in this respect, because while its partners have feed stocks and it has access to feed stocks, we don’t have any minimum take requirements and we are not tied into any one feed stock. We have the complete capability to optimize and arbitrage our feed stocks on a day to day basis and that makes us totally unique. So not only do we have it, but we can arbitrage around it. And so while yes, you know there are many more projects that are going to be built like DGD, there may be other biodiesel facilities out there. You know what we’ve been focused on and what we feel confident on is really our capability to compete.

Thank you for that. Congrats again on the strong execution.

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

Hey guys! Congrats on the quarter. Just going back to you know when Valero talked in there conference call, they talked about maybe having, I think switching kind of feed stock to maybe more soy oil. May be I got that wrong, but could you just tell us about the flexibility there for Diamond Green and what that means for the core business.

Yeah, so I think you know we have the capabilities not only to process crude to [inaudible] on soybean oil but also RBD soybean oil. And on any day what we are going to doing is, we are going to be looking at the economics of what is the cheapest given the CI benefit of that. And we have complete flexibility to process any of those and we would process soybean oil if it is the most economic, absolutely.

Yeah Ben, this is Randy. I think I’ll decode for you what Sandy just said. Typically in the Jan-Feb window, you will see the food service business really kind of fall off of the New Year. So we saw animal fats and UCO run up into the 70’s and in Jan, Feb and we say RBD soybean oil trade sub carbon intensity equivalency. So as Sandy said, we can arbitrage around and we did and there were no secrets out there to maximize margins. So if it’s real, it's flexible, it's quick and we're very agile down there.

Nesty has a couple turnarounds, I think one in Q3, one in Q4. Does that impact the market and then how about you guys just for your turnarounds?

I mean obviously, turnarounds are a regular part of being in this business. As that happens, that’s going to the reduce the supply that comes from individual facilities over a period of time and if you look around the world, the reality is there are only a limited number of significant production facilities around the world. Having anyone of those down at one point in time is going to have an impact on the supply that’s available during that period of time. But this is a regular thing that's going to happen every year in the business. One of us or two of us are going to be involved in some type of turnaround at one or two of our units. It’s just normal course of the run business.

Yeah, I mean 18 to 20 days off line doesn't change the global S&D, because once your catalyst is fresh you can run a little faster again.

And how should we think about just the debt level there at the JV and going forward. Thank you guys.

Yep Ben, this is Brad again. So the debt level, we have had some contributions here in Q4, there toward the end of the year and a little bit right after the first of the year. And that was again due to the downtime from the hurricane, starting up – and the process of starting up number two was working capital and so as we come out of that, and with the acceleration that we talked about earlier. So coming out of that and where it's running now, we'll see as we go through the year, debt level come down as I said before. We expect when DGD3 is completed, the JV to be debt free.

Thank you.

The next question comes from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.

Good morning! I just wanted to say what a insightful you all have done in your core business over the last several years. The execution has been unbelievable here. So good job! Just wanted to ask on the Diamond Greed Diesel, what would be kind of the expected level of maintenance CapEx on that facility? As we look at it this year, I think going out with the Port Arthur coming on, how should we look at that for maintenance CapEx?

Right. So I think if you are talking maintenance CapEx, that will depend on what type of turnaround we’re doing and that’s probably $30 million to $50 million. Now we have two units online. We will have one that is going through a catalyst change out right now. In future years, the second facility is a little bit more, but it is not scheduled to have a catalyst change out this year. So I think you're probably in terms of maintenance close to 30.

Thank you.

I think, one of things just to add to that, one of the things is we’ve designed Diamond Green Diesel 2 and Diamond Green Diesel 3, is these are facilities that will have significantly greater catalyst loading capability. Our hope is that we will significantly lengthen the period of time between turnarounds, which if we are able to accomplish, will mean significantly greater production over a two to three year period of time and obviously less capital associated with turn times or with turnarounds.

Thank you, John.

Thanks Bill.

This concludes our question-and-answer session. I'll turn the conference back over to Randy Stuewe for any closing comments.

Thanks again everybody. I appreciate everyone's time today. Hope you stay safe and healthy. We got a busy March coming up doing lots of conferences. There's a list of upcoming events in our presentation that Suann provided with the call and we look forward to hearing and seeing you guys all very soon. Thanks again.

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