Darling (DAR) Q3 2025 Earnings Call Transcript

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Date

Thursday, October 23, 2025 at 9:00 a.m. ET

Call participants

Chairman and Chief Executive Officer — Randall C. Stuewe

Executive Vice President and Chief Financial Officer — Robert W. Day

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Risks

Management directly cited continued delays and uncertainty in obtaining a final Renewable Volume Obligation (RVO) ruling as a negative factor affecting the biofuel environment and segment results.

Robert W. Day stated, "the biofuel market in the U.S. has been challenged by policy delays, specifically delays in RVO enforcement dates for 2024 obligations, clarity around small refinery exemptions, SREs, SRE reallocations, and the final RVO ruling for '26 and '27."

Chairman and CEO Stuewe acknowledged, "Given the current uncertainty around public policy and its impact on the fuel segment, we'll now provide financial guidance exclusively for our core ingredients business."

Takeaways

Combined adjusted EBITDA -- $245 million for the third quarter of fiscal year ended Sept. 27, 2025, up from $237 million in the third quarter of 2024 but down from $250 million in the second quarter of 2025. DGD (Diamond Green Diesel) contributed negative $3 million, including a $38 million lower of cost or market (LCM) expense.

Core ingredients business EBITDA (excluding DGD) -- $248 million for the third quarter of fiscal year ended Sept. 27, 2025, up from $198 million in the third quarter of 2024 and $207 million in the second quarter of 2025.

Total net sales -- $1.6 billion, up from $1.4 billion, with raw material volumes steady at 3.8 million metric tons and gross margin at 24.7% versus 22.1% last year.

Feed segment EBITDA -- $174 million, up from $132 million, with gross margin rising to 24.3% from 21.5% and sales at $1 billion versus $928 million. Segment raw material volumes were 3.2 million metric tons versus 3.1 million for the third quarter of fiscal year ended Sept. 27, 2025.

Food segment EBITDA -- $72 million, up from $57 million. Segment sales were $381 million versus $357 million, with gross margin at 27.5% compared to 23.9%, and raw material volumes of 314,000 metric tons against 306,000, all for the third quarter of fiscal year ended Sept. 27, 2025, compared to the third quarter of 2024.

DGD (Renewables) segment EBITDA -- Negative $3 million versus positive $39 million in the third quarter of 2024, with performance impacted by a scheduled DGD III turnaround, higher feedstock costs, and both LIFO and LCM accounting charges.

Fuel segment adjusted EBITDA (including DGD) -- $22 million for the third quarter of fiscal year ended Sept. 27, 2025, down from $60 million in the third quarter of 2024. Other fuel sales (excluding DGD) were $154 million versus $137 million, despite a decrease in volumes to 351,000 metric tons from 391,000 due to animal disease in Europe.

Production tax credits (PTCs) -- The company expects to generate approximately $300 million of PTCs for fiscal year ended Sept. 27, 2025, with $125 million agreed for sale in the third quarter and anticipated additional sales of $125 million to $170 million in the fourth quarter.

Debt position -- Total debt net of cash was $4.01 billion as of the third quarter of fiscal year ended Sept. 27, 2025, up slightly from $3.97 billion at year-end 2024. Third-quarter capital expenditures totaled $90 million, and $224 million for the first nine months of 2025.

Bank covenant ratio was 3.65x at the end of the third quarter of fiscal year ended Sept. 27, 2025, improving from 3.93x at year-end 2024. The company had $1.17 billion available on the revolving credit facility.

Net income -- $19.4 million (or $0.12 per diluted share), compared to $16.9 million ($0.11 per share) for the third quarter of 2024, with an effective tax rate of minus 6.3% reflecting recognition of PTC revenue.

Guidance for core ingredients EBITDA (excluding DGD) -- Expected in the range of $875 million to $900 million for full fiscal year ended Sept. 27, 2025, with management citing ongoing waste fat price declines but stable or improving fundamentals in Brazil and Canada.

Summary

Darling Ingredients (NYSE:DAR) reported segment divergence in the third quarter of fiscal year ended Sept. 27, 2025, with strong gains in core Feed and Food EBITDA and margins, contrasted by negative EBITDA for DGD due to market headwinds and a scheduled turnaround. Management explicitly linked DGD's loss to the unusual simultaneous negative impacts from both LIFO inventory and lower of cost or market charges in the third quarter of fiscal year ended Sept. 27, 2025, which are not typical for extended periods. Company guidance now covers only the core ingredients business, reflecting ongoing regulatory and policy uncertainty that affects the renewable fuels segment.

Chairman and CEO Stuewe stated, "we remain focused on what we can control. Given the current uncertainty around public policy and its impact on the fuel segment, we'll now provide financial guidance exclusively for our core ingredients business."

Robert W. Day indicated the company expects "to generate a total of around $300 million in [production tax credits] in 2025," with payment for roughly $200 million anticipated by year-end 2025 and the remainder in early 2026.

Management emphasized that final EPA policies on RVO, SRE reallocation, and treatment of foreign feedstocks will be "major catalyst" according to Randall C. Stuewe for future DGD performance, but current policy delays are materially dampening margins and forward visibility.

Internal debt reduction plans remain on track, with Stuewe referencing a board-approved long-term financial policy aiming for a leverage ratio of 2.5x, contingent on DGD margin recovery and continued core EBITDA strength.

Robert W. Day noted, "the market at large really wants to see proof" of margin improvement, reiterating management's reluctance to provide precision DGD segment outlooks under prevailing regulatory ambiguity.

Industry glossary

DGD (Diamond Green Diesel): Joint venture for renewable diesel and SAF (sustainable aviation fuel) production, operated by Darling Ingredients and a partner.

LCM (Lower of Cost or Market): Accounting method requiring inventory to be reported at the lower of its historical cost or current market value, with negative impacts taken as expenses when market value falls.

LIFO (Last In, First Out): Inventory accounting technique in which the most recently acquired items are considered sold first; rising or falling prices can materially affect reported earnings.

RVO (Renewable Volume Obligation): EPA-mandated minimum volumes of renewable fuel that must be blended into transportation fuel.

RIN (Renewable Identification Number): Credit compliance instruments generated when biofuels are produced or imported, used to meet RVO and traded among obligated parties.

SAF (Sustainable Aviation Fuel): Bio-based alternative to conventional jet fuel with a lower carbon footprint.

PTC (Production Tax Credit): U.S. federal tax incentive for qualifying renewable fuel production, directly impacting segment cash flows.

SRE (Small Refinery Exemption): Allowance that exempts certain small refineries from RVO compliance under specified conditions.

YUCO: Acronym used for "yellow used cooking oil," a biofuel feedstock sourced from recycled restaurant oils.

Full Conference Call Transcript

Randall C. Stuewe: Hey, thanks, Sue Ann. Good morning, everyone, and thanks for joining us for our third quarter earnings call. Our core ingredients business delivered its strongest performance in a year and a half fueled by robust global demand and exceptional execution across all operations. While the renewables market is facing some short-term uncertainty as we wait for clarity on the renewable volume obligation, we're confident that momentum is building. We believe we're on the verge of a shift that will highlight the strength of Darling's integrated model, a competitive advantage that is unmatched in the industry. Our combined adjusted EBITDA for the third quarter was $245 million as our Global Ingredients business performed strong with $248 million of EBITDA.

As I mentioned, the Renewables business continues to be challenged as we posted negative $3 million EBITDA for DGD, which included a lower of cost to market expense of $38 million at the entity level. Bob is going to discuss more details later in the call, but I will say that both LIFO and LCM were negative in the third quarter, which is unusual and does not typically happen for extended periods. In addition, uncertainty and continued delays in getting a final RVO ruling had a negative impact on the overall biofuel environment in the U.S. during the quarter.

Now in our Feeds segment or in our Feed Ingredients segment, global rendering volumes and margins were up both sequentially and year over year driven by strong demand for fats and proteins and solid execution by our global operations and marketing teams. In the U.S., robust demand for domestic fats supported by a strong national agriculture and energy policy helped boost revenue and margins. Elsewhere in the world, our global rendering business, particularly in Brazil, Canada, and Europe, demonstrated stronger year-over-year performance. Export protein demand is showing signs of recovery with slightly firmer pricing trends emerging.

Tariff implications, primarily China and APAC countries, clearly have impacted our value-added poultry protein products, which serve to meet the needs of global pet food and aquaculture customers. Turning to our food segment, performance remained steady quarter over quarter. Sales dipped slightly in the quarter as customers responded to ongoing tariff volatility, but we offset that with strong raw material sourcing and disciplined margin management. We continue to see repeat orders for our NexTyta glucose control product and early studies on new formulation look promising. We're on track to launch our new NexTyta product in 2026. In our Fuel segment, the renewables market continues to face headwinds.

This quarter, we saw higher feedstock costs, lower RINs, and LCFS pricing, which ultimately impacted margins. A scheduled turnaround at DGD III led to reduced volumes of renewable diesel and sustainable aviation fuel, and DGD I remains idled until margins improve. We believe these pressures are temporary. As mentioned earlier, we're approaching the rollout of thoughtful public policy aimed at strengthening American agriculture and energy leadership, a shift that we believe will significantly enhance DGD's earnings potential. Now with that, I'd like to hand the call over to Bob to take us through some financials and I'll come back at the end and give you my thoughts for the balance of 2025. Bob?

Robert W. Day: Thank you, Randy. Good morning, everyone. As Randy mentioned, core business results for the third quarter improved as expected, while DGD faced some challenges that we'll explain later in the call. Specifically, third quarter combined adjusted EBITDA was $245 million versus $237 million in the third quarter of 2024 and $250 million last quarter. Adjusting for DGD, the quarter was very solid at $248 million versus $198 million in 2024 and $207 million last quarter. Total net sales in the quarter were $1.6 billion versus $1.4 billion while raw material volume remained steady at 3.8 million metric tons and gross margins improved 24.7% for the quarter compared to 22.1% last year.

Looking at the Feed segment for the quarter, EBITDA improved to $174 million from $132 million a year ago. Total sales were $1 billion versus $928 million. Feed raw material volumes were approximately 3.2 million tons compared to 3.1 million tons. And gross margins relative to sales improved nicely to 24.3% versus 21.5%. In the Food segment, total sales for the quarter were $381 million higher than the third quarter of 2024 at $357 million while gross margins for the segment were 27.5% of sales compared to 23.9% a year ago and raw material volumes increased to 314,000 metric tons versus 306,000.

EBITDA for the third quarter of 2025 was up significantly compared to 2024 at $72 million versus $57 million. Moving to the fuel segment, specifically Diamond Green Diesel. Darling's share of DGD EBITDA was negative $3 million for the quarter versus positive $39 million in the third quarter of 2024. While the environment for renewable fuels has been challenging, results were further impacted by two items. First, the catalyst turnaround at DGD-three Port Arthur, which included a pause in operations for approximately thirty days, limited SAF production and the higher average margins associated with that product.

And second, end of quarter market dynamics led to negative impacts on earnings from both LIFO and LCM, which in most cases would move in the opposite direction and have an offsetting impact. Regarding LIFO, rising feedstock prices throughout the quarter and higher quarter ending values resulted in a negative impact to EBITDA, while LCM was impacted by lower heating oil and RIN values in the days after quarter end, resulting in an LCM loss of around $38 million at the entity level. After three quarters, the combination of LIFO and LCM has resulted in a wider than normal loss that should reverse course over time.

In addition to those two items, the biofuel market in the U.S. has been challenged by policy delays, specifically delays in RVO enforcement dates for 2024 obligations, clarity around small refinery exemptions, SREs, SRE reallocations, and the final RVO ruling for '26 and '27. However, the EPA made a supplemental proposal on September 18 that would be very constructive. In the first page of the appendix in the shareholder deck that we provided, we've shown a picture of the 2025 RIN supply versus demand, showing how these policy issues have led to an oversupply for 2025 and also showing what the balance looks like considering the EPA's proposal, comparing 50% SRE reallocations and 100% reallocations for 2026 and 2027.

In either case, a significant amount of additional U.S. biofuels would be needed to satisfy that RVO, suggesting higher prices for feedstocks, farm products, and wider margins for biofuels. With lower biofuel margins and late in the year timing related to receiving production tax credit PTC payments, we contributed $200 million to DGD during the quarter and a total of $245 million year to date, which includes a $5 million contribution subsequent to quarter close. These contributions are offset by the $130 million dividend received in the first quarter of 2025 and payments from expected sales of around $250 million of PTCs that we expect to receive in the fourth quarter.

To further clarify regarding PTCs, we expect to generate a total of around $300 million in 2025. During the third quarter, we agreed to the sale of $125 million. We anticipate an additional $125 million to $170 million of sales in the fourth quarter, and we estimate receiving payment for around $200 million of the total $300 million we will expect to generate by year-end 2025, the balance of which we expect to monetize in early 2026. Overall, we are very pleased with how the market has developed for production tax credits. Demand is robust as potential buyers have become more familiar with the details surrounding the credit.

Other fuel segment sales, not including DGD, were $154 million for the quarter versus $137 million in 2024, despite lower volumes of 351,000 metric tons versus 391,000 metric tons, which were affected by animal disease in Europe. Combined adjusted EBITDA for the full fuel segment was $22 million in the quarter versus $60 million in 2024. The difference was primarily due to lower earnings at DGD. As of 09/27/2025, total debt net of cash was $4.01 billion versus $3.97 billion ending 12/28/2024. The increase from year-end is minimal despite contributions made to DGD and a $53 million earnout payment related to the Fazza acquisition from 2022.

Capital expenditures totaled $90 million in the third quarter and $224 million for the first nine months of 2025. We expect total debt to decrease by year-end as we generate cash from the core business and receive payments from selling PTC credits. Our bank covenant preliminary ratio at the end of the third quarter was 3.65 times versus 3.93 times at year-end 2024. In addition, we ended quarter three 2025 with approximately $1.17 billion available on our revolving credit facility.

The company recorded an income tax benefit of $1.2 million for the three months ended 09/27/2025, yielding an effective tax rate of minus 6.3%, which differs from the federal statutory rate of 21% due primarily to recognition of revenue from the production tax credits. The company paid $19 million of income taxes in the third quarter and $52 million year to date and expects to pay approximately $20 million more in the fourth quarter. Overall, income was $19.4 million for the quarter or $0.12 per diluted share compared to net income of $16.9 million or $0.11 per diluted share for 2024. Now I will turn the call back over to Randy.

Randall C. Stuewe: Hey, thanks, Bob. I couldn't be more excited about what's ahead for Darling Ingredients. In our conversations with the Trump administration, they followed through on everything they've committed to. The renewable volume obligation they've drafted is thoughtful and designed to support American agriculture and energy leadership. And we believe it will be a major catalyst for Diamond Green Diesel. The pieces are in place and we believe it's only a matter of time before Darling's unmatched position in the industry becomes even more clear. As we look ahead, we remain focused on what we can control.

Given the current uncertainty around public policy and its impact on the fuel segment, we'll now provide financial guidance exclusively for our core ingredients business. For the full year 2025, we expect the core ingredients business EBITDA excluding DGD to be in the range of $875 million to $900 million. With that, let's go ahead and open it up to questions.

Operator: We will now begin the Q and A session. The first question comes from the line of Thomas Palmer with JPMorgan. Please proceed.

Thomas Palmer: Good morning and thanks for the questions. Maybe just to start out, you gave some helpful scenario analysis for RIN balances and how that might proceed over the next couple of years in the earnings presentation. I wondered about what you think the most likely timeline is that we might start to get clarity on some of these outstanding regulatory items, the RVO, the exemptions, and then the reallocation. Thank you.

Robert W. Day: Thanks, Tom. This is Bob. Obviously, a difficult question to answer. As everyone's aware, the government is shut down. At the same time, we've heard that the RVO is considered an essential process. We have people there at the EPA that are working on this. We're optimistic, based on that view and the things that we're hearing, we expect sometime in the month of December to have a comment period closed or EPA to submit to the Office of Management and Budget their proposal and to have something approved by the end of the year. But like I said, that's amid a lot of things going on and that's our view.

Thomas Palmer: No, thanks for that. I know it's a unique situation. And then I just wanted to clarify on the feed outlook for the fourth quarter. The midpoint of the core ingredients EBITDA guidance implies for the kind of three combined segments that 4Q is comparable to what we saw in 3Q. At the same time, it does look like the price of waste fats and oils have dipped a bit in September. So do we need prices to rebound in order for 4Q to look similar to 3Q? Or are there other things we should be considering as we move from 3Q to 4Q?

Randall C. Stuewe: I mean, Tom, this is Randy. I mean, the $875 million to $900 million, the reason we put the range on there was exactly as you laid out. We have seen, given the uncertainty on policy, waste fat prices come down a little bit here. Most of our material in North America is going to DGD. But remember, there's still Brazil and Canada and prices remain strong there. So ultimately, it's a fairly narrow range for the business. As I look around the horn non-DGD, I expect the food segment to be stronger a little bit in Q4, maybe a little consistent, maybe a little on the feed segment.

But I think we'll come in close to that range and hopefully we can surprise you one day and be above it.

Thomas Palmer: Great. Thank you.

Operator: Thank you. The next question comes from the line of Connor Fitzpatrick with Bank of America. Please proceed.

Connor Fitzpatrick: Hi, thank you for taking my question. It looks like your RIN supply and demand table in the slides calls for significant biomass-based diesel feed imports through 2027. As a coastal operator, DGD may import feed and receive the RINs penalty on those gallons. But could you maybe walk through the benefits to RIN's policy protectionism on the feed side and maybe explain how that nets out within your U.S. Fuel and feed businesses? Thanks.

Robert W. Day: Yes. Thanks, Connor. This is Bob. If I don't answer your question directly, let me know. I think the first thing I would say is it's still not totally clear how the EPA is going to treat foreign feedstocks. That's a part of this process. As to whether foreign feedstocks are needed to meet the production obligations, and it's going to depend on a lot of things. We do have a lot of crops and crop oils in The United States and overall North America that could be used as feedstock for biofuels.

So until some of the rules around if there are penalties for foreign feedstocks and how some of the crop oils are going to be treated, it's really hard to answer that question. I will say that I think when you look at overall supply and demand for fats and oils in North America and you include biofuels and food and this picture and this proposed RVO from the EPA, then probably some foreign feedstocks will be required to meet that mandate and we're just not clear yet on how that will be accommodated.

Connor Fitzpatrick: Thanks. That's all I had.

Operator: Thank you. The next question comes from the line of Dushyant Ailani with Jefferies. Please proceed.

Dushyant Ailani: Hey guys. Congrats on the quarter. I also wanted to note that we really appreciate the change in guidance approach that does help us. My first question was on the 3Q DGD margins. The capture was significantly better than expected. What are some of the drivers there?

Robert W. Day: The third quarter capture was better. Is that what you said?

Dushyant Ailani: Yes. Yes. For the DGD margins, it just came in better than expected. Was it like SAF reduction or any export ARB that we can think of?

Robert W. Day: Yes. I think the so I'm not sure I fully understand the question because the DGD result was maybe not as good as we hoped.

Randall C. Stuewe: I'll help Bob here a little bit. I think Dushyant you're referring to the capture that Valero reports.

Robert W. Day: Correct. Yes,

Randall C. Stuewe: yes. And keep in mind here this is a bit awkward in that they net their LCM against their other segments. So they have the same LCM we have. They just didn't put it against the renewables or DGD segment. So that's what makes the capture rate look better.

Dushyant Ailani: Got it. Okay. That's helpful. And then maybe just staying on topic for the 4Q DGD margins. While we understand the nuance on removing the DGD guidance, it seems like fundamentals are still improving nicely. Indicator margins are up again, Valero's indicator margins seem to be up $0.36 quarter over quarter. What are you seeing in 4Q? How do you kind of think about that? What are some of the puts and takes, if you can share?

Randall C. Stuewe: Yes. I mean, this is kind of the challenge that's out there. I mean, clearly, the two big units, Port Arthur and Norco, are going to be operating at capacity. SAF is going to be at capacity. Yes, the capture indicator is stronger right now. The challenge for us is we thought by this time, we would have RIN values kind of starting to reflect the restarting of the industry. And they really haven't yet. So it's kind of hard. I mean, we're the low-cost operator. We have enough feedstock to run our units. Our SAF margins are better than classic renewable diesel. And what else you want to add, Bob?

Robert W. Day: Well, I think we have seen an improvement in margins so far in the quarter. The question is just or the point here is until we get clarity on the final ruling on the RVO for 2026 and 2027, it's hard to say with certainty that those margins are going to continue. But thus far in the quarter, yes, we've seen some improvement, that's for sure.

Operator: Thank you. The next question comes from the line of Manav Gupta with UBS. Please proceed.

Manav Gupta: Good morning. My first question is, we saw a good improvement in your feed segment margins. I think Randy over the years you had indicated that eventually those acquisitions coming in, you would be able to drive improvement in those fronts. So help us understand some of the factors that Drift help you drive improvement in the feed segment margin. And also to an earlier question, yes, imported feedstocks might be needed, but domestic feedstocks will price at a higher premium because they'll get 100% RIN. So what would be the outlook for the feed segment going into 2026, if you could talk a little bit about that?

Randall C. Stuewe: Yes. I mean, clearly, as we've talked in Q1 and Q2, we've used the word building momentum. We were seeing feedstock prices come up. What we've seen mostly is feedstock prices are flowing through now, although they've come off a little bit for Q4, but we're seeing protein prices improve around the world. It's I call it, there's a tariff on one day, a tariff off one day. China needs to buy poultry proteins to feed aquaculture. And whether it's China or Vietnam, when the window opens, they trade. And so we've seen a pretty nice improvement. You can look sequentially.

You can look year over year in the appendix of the supplier or the shareholders' debt there and ultimately see the pricing movement. Clearly, fat prices were up sharply. The products we use at DGD and the protein prices were up 10%. So I think we're going to carry into Q4, remember, we're always about sixty days sold ahead. And so we'll carry some pretty strong prices into Q4. And I'm hoping that as we move into next year, we'll have kind of the same momentum. There's always a little bit of seasonality here, but really that's kind of what I'm expecting as I look out there.

Manav Gupta: Perfect. My quick question on the table that you have created is very helpful. But help me understand, here you're assuming a flattish capacity. We know there are facilities which are heavily dependent on foreign feedstocks at this point of time and they are still struggling. I think they will struggle even more next year if you decide to give only 50% RIN to imported feedstocks. So is there a possibility this RIN balance would look even more attractive if some of those facilities that are heavily dependent on imported feedstock actually decided to call it a day and shut down?

Randall C. Stuewe: Yes. I think Bob and I'll tag team this. My answer is we went into 2025 with the belief that the DGD margins would be no lower than they were in 2024. And we were wrong. And where were we wrong? Well, we didn't understand that the big oil guys would actually run at such significant losses to produce their own RINs. We believe that's changing as we come into 2026 and 2027. The losses at those plants are substantial. I mean, it clearly shows how efficient and operationally effective DGD is. The RIN balance that Bob will talk about here in a minute, yes, it actually gets even more constructive if people behave rationally.

Robert W. Day: Yes. And I'll just add, I think all of that is true. In addition, the proposed RVO for 'twenty six and 'twenty seven is substantially larger than 2025. So even if we had similar production as you noticed from the grid that we provided, then we will ultimately have a deficit in 2026 and 2027. And what this is intending to show is specifically that. And then beg the question, how much do margins need to improve in order for production to increase so that we can satisfy the mandate for '26 and '27? Add a layer of complexity when you with imported feedstock and if imported feedstock only generates half a RIN.

I think that some of that is going to depend on what is the origin tariff placed on that feedstock. If a feedstock, if a foreign feedstock only is penalized by getting half a RIN and then not being eligible for the PTC, then it's reasonable to expect a decent amount of foreign feedstocks to competitively come into The United States. It would just come in at a discount to The U.S. Feedstock prices, which again is constructive to the feed business our core rendering business in The United States, but it would allow for satisfying the mandate for the RVO.

But it would again, it suggests that margins need to go up quite a bit in renewable diesel in order for that to happen.

Operator: Thank you. The next question comes from the line of Pooran Sharma with Stephens Inc. Please proceed.

Pooran Sharma: Good morning and thanks for the question. I just wanted to maybe just peel into that last answer, you gave there, Bob. I know in the past, you have kind of walked through different RIN pricing scenarios and there are a little moving pieces here just with how foreign feedstocks will get counted. But just as it stands now, no PTC, 0.5 RIN for the foreign feedstocks. Are you able to quantify like what range RINs should be at in order for the industry to run to meet the mandate in 2026?

Robert W. Day: So this is going to be somewhat of swag here because like you said, there are a lot of moving pieces. And if we assume that there's we have access to origin feedstocks that don't face a significant tariff and the primary source of the penalty is the half RIN and lack of access to a PTC, then we probably need RINs to go up $0.40 or so, in order to incentivize enough production to satisfy the mandate for 2026 if the SRE reallocation is only 50%.

Pooran Sharma: Great, great. Appreciate that. My follow-up, I just kind of wanted to focus on the balance sheet more specifically, your debt and leverage. I wanted to revisit what your plans are to pay off debt. And also wanted to ask, what are your restrictions? Like what leverage ratios do your debt restrictions, the covenants start kicking in at?

Robert W. Day: We're nowhere near breaking any covenants. I think we've said before, we're committed to paying down debt. We've got a lot of headroom in our revolver, due to circumstances around receiving cash payments from selling production tax credits. We will be receiving more cash in the fourth quarter and we didn't receive any cash from production tax credits in the third quarter. And so by the end of the year, we expect our debt coverage ratio as it's viewed by the banks to be right around three times. So that's really that's our position on that.

Randall C. Stuewe: And long term, Pooran, we've got a financial policy agreed in the boardroom to go down to 2.5 times. It doesn't take much for the restart of DTD to start to do that. We've not been in a capital deprivation or starvation mode of any of the factories globally. So we're in good shape here to continue to build this thing out and grow and delever at the same time.

Operator: Thank you. The next question comes from the line of Ryan Todd with Piper Sandler. Please proceed.

Ryan Todd: Great, thanks. Sorry, know you talked a lot about this, but maybe one more follow-up on some of the regulatory uncertainty. Mean, as we wait for the final RVO, I mean, you've talked about the uncertainty around reallocation and a couple of other things. What are some of the other topics that you think are still being kicked around? Is there a possibility of any change in the approach to import of foreign biofuels? Are they still is there still consideration in terms of the treatment of domestic feedstocks in terms of carbon intensity, like land use penalties and stuff like that?

And what are some of the potential risks or positive things do you think could come out of the final ruling there outside of just kind of the high level RVO and the reallocation?

Randall C. Stuewe: Well, I think, Ryan, this is Randy and Bob, and I'll kind of tag it again here if I leave anything out. I mean, clearly, agriculture is at the forefront of the discussions in D.C. right now. Clearly, you lose your largest customer for soybeans, when you get beef prices as high as they are, you've got a lot of people in the room that have ideas on how to fix the situation. And so what we've been part of is many of these discussions is what's the easy button. The easy button here is a large SVO or RVO with a 100% reallocation.

Now if you go back and you look, really the EPA gave you a multiple choice test. It said either 50% or 100%, but if you're really inclined, can talk about something else you'd like. And so they've set the table there. Clearly, the PTC out there is doesn't encourage foreign feedstocks. So I mean that's a block in itself with a tariff on top of that even makes it more difficult. We've had discussions in DC, and we said, well, the easy button is that. Just remember, if you don't allow foreign feedstocks in here because they can't generate a credit, then, oh, by the way, where are those feedstocks going to go? And the room goes silent.

They finally got it. They realized those stocks are going to go back to other processors. You can probably name who they are around the world in Singapore and Rotterdam and Porvoo, Finland. And then they're going to move a finished RD on top of us. And that's destructive to what they're trying to accomplish. So they're trying to figure out right now how to manage that under the tariff code. So you've got The U.S. Trade along with the EPA collaborating, trying to figure out how to put this together to accomplish the needs that are going to produce energy and be constructive to The U.S. Farm community.

Robert W. Day: Yes. And I'll add that as we sit here today, the EPA has already proposed a 50% RIN generated for a foreign biofuel, no access to PTC. So that in and of itself makes more difficult. But as Randy said, there's a lot of momentum to preventing foreign biofuels to come in and participate in U.S. Support programs. So we're pretty confident that's going to work out well. As it relates to feedstocks, that is another thing that we're waiting for clarity on and whether they're going to enforce the 50% RIN concept or if we're foreign feedstocks are simply going to be limited by origin tariffs.

Ryan Todd: Okay. Thank you. And then maybe just I mean, talked about you provided a little bit of clarity around PTC monetization. You've had a couple you're a couple of quarters into the experience of or a few quarters into the experience of production under the PTC regime. You're getting more consistency. Can you talk about how the monetization market seems to be working there? Have the discounts been fairly stable? And how should we think about the general ratability of the process at this point? Is the $125 million this quarter, $150 million at the midpoint next quarter, is that like a are you in a fairly ratable place now in terms of monetizing the majority of your production?

Robert W. Day: Yes, I think so. I think the context here is that, there were two things that made it difficult earlier in the year to sell production tax credits. One is that, not many counterparties were familiar with the credit itself. So there was lots of questions. The value of the credit is determined in part by carbon intensity. So you can just imagine for industries looking to buy tax credits that aren't familiar with our biofuel industry, trying to understand all that is not an easy thing.

And then the other is that most companies had a it was pretty cloudy what their tax liabilities were going to look like at the 2025 because of the big beautiful bill and a lot of things that went on around that. So early in the year, was difficult to get a lot of traction. That's obviously changed significantly. Both of those pictures are a lot more clear. And so, yes, I think that for us, we're confident in our ability to sell, a majority of the credits that we'll generate in 2025 and then it should be a pretty ratable process through 2026.

Randall C. Stuewe: Yes. I think it's one last piece to that is, I would characterize the environment is there are more interested parties now than there were earlier in the year. So it's now getting a chance to define terms, refine terms and pick the counterparty that we want to do with timing respected to when to receive the cash. So it's a very constructive environment now.

Operator: Thank you. The next question comes from the line of Derrick Whitfield with Texas Capital. Please proceed.

Derrick Whitfield: Good morning all and thanks for taking my questions. Regarding guidance, I appreciate the position you guys are taking with the more volatile DGD business segment. With that said, you are seeing better spot margins in 4Q for most feedstocks and specifically for tallow and yellow grease. Would it be fair to highlight that DGD could post the best quarter in 2025 at current margins, which again would be a positive element as you enter 2026?

Robert W. Day: Yes. Thanks, Derek. I think that would be fair. I think one of the things we're sensitive to is just how uncertain policy has been and the impact that's had on margins. I mean, we're very optimistic about improvement in the fourth quarter and the outlook for next year. But we realize that the market at large really wants to see proof of that before estimates believing a lot of what estimates are out there.

So I think that we are encouraged by what we've seen so far in the quarter and we think the outlook is good, but we're just hesitant to define that with a lot of precision just given the lack of clarity around policy that we're still facing.

Randall C. Stuewe: Bob, can you comment on what it takes to trigger RIN and obligations and when that would happen?

Robert W. Day: So with enforcement dates in that? Yeah. I mean, I think one thing that has caused a real delay in the reaction of the RIN has been the movement of the 2024 enforcement date from March 31 to December 1. Until we get the final ruling on the '26 and '27 RVO and clarification as to when the 2025 enforcement date is going to be. It's it's difficult for obligated parties to feel that they're incentivized to go and buy all their RINs, especially when, so many, small refinery exemptions were granted for the small refineries out there that are wondering whether they should buy RINs.

They have an incentive to wait when the obligation date is set at a later time in the event that they get an exemption. And so what Randy is alluding to is until some of those things are clarified, which we do think is going to happen around the end of the year, But until those things are clarified, the incentive to buy RINs and tighten up the RIN S and D doesn't exist the way that it's intended. And so it's just it gets a little bit difficult to forecast. But we to your point, Derek, we have seen an improvement in margin so far in the quarter. The outlook is better, and we're very optimistic about 2026.

Derrick Whitfield: Great. Understood. And as my follow-up, we've seen the RD market in Europe strengthen in recent months. If you guys work through the complex math of spread shipping and tariffs, to what extent could you access this market if it remains robust?

Robert W. Day: We can access that market, but we pay a duty to access that market. So, and that duty can fluctuate a bit, but it's typically over $1 a gallon. So, we are selling consistently to that market, our Diamond Green is, but it's just we're looking at it as a net of duties and comparing that to other markets we have available.

Operator: Thank you. The next question comes from the line of Matthew Blair with TPH. Please proceed.

Matthew Blair: Thank you and good morning. I was hoping you could talk a little bit about the feedstock mix at DGD. And I know that you're always looking to optimize and some of this is commercially sensitive. But just on a big picture basis, looks like some of the indicator margins for RD made from vegetable oil are trending a little bit better than RD made from low CIP. And so, just overall, has DGD shifted to more of a veg oil mix? Or is it still pretty much all low CIPs? Thank you.

Robert W. Day: Yes. Thanks, Matthew. This is Bob. So I wouldn't DGD hasn't materially shifted its mix. As I think you're aware, DGD-one is still down. If DGD-one were to go back up and run, then that mix would shift more towards soybean oil. But as we sit here today, the mix hasn't changed a lot. Our best margins are on YUCO and yellow grease and animal fats. And so we're going to maximize the opportunity we have to use those products.

Randall C. Stuewe: Yes. The only thing that I would add Matthew is that clearly in Q1 and Q2 as we were trying to figure out the rules around the PTC and 45C, redomesticating our supply chain was a pretty significant challenge. DGD is heavily reliant now on Darling's YUCO and Darling's Yellow Grease and animal fat supply. And so we've got that up and running full speed now and it's really visible now that you can see it in the earnings of our core ingredients business. And ultimately, it translate into a better sales value within DGD.

Matthew Blair: Thank you. That's helpful. And then apologies if I missed this, but the contributions that Darling is making to DGD, is that to help fund the DGD three turnaround? Or why is Darling sending money back to DGD?

Robert W. Day: Yes. And it's hard. So the answer to that question, some of that's timing, some of that is turnaround, some of that's just the margin structure. So remember that the PTC revenue that we will get as Darling that flows directly to the partners. So that money doesn't stay inside of Diamond Green Diesel. That's number one. The other is, as you pointed out, in 2025, we've completed three catalyst turnarounds. And so our maintenance CapEx is higher in 2025 than normal. So it's really the timing of all those things, that's led to the contributions that we've made.

Operator: Thank you. The next question comes from the line of Jason Gabelman with TD Securities. Please proceed.

Jason Gabelman: Yes. Hey, morning. Thanks for taking my questions. I wanted to go back to something else that Bob had mentioned just around companies complying with their RIN obligations and that perhaps catalyzing stronger RIN prices. Can you talk about, I guess, specifically the timeline around that? I think 2024 RINs are due December 1. And then at that time, the balances for 2025 should become more visible to the market. So do you expect that December 1 deadline to hold? Do you think that could be an initial catalyst to move RIN prices higher before we get the final RVO for 2026 and 2027?

Robert W. Day: Yes. Thanks, Jason. So I do think that deadline will hold. I don't know that it will have much of an impact on RIN prices because all the RINs that have been procured so far in 2025 can ultimately be used to satisfy the obligation for 2024. And that's quite a long time and a lot of RINs. There may be some refiners who are waiting until the last moment to buy their RINs, but because we've had so much time in 2025 to do that, we're not expecting that's going to result in a significant lift to RIN prices at that time.

If we have clarity around enforcement dates for 2025 going back to the 03/31/2026, as they normally would be, that would be a time when we would expect RIN values to probably see a lift.

Jason Gabelman: Got it. That's helpful. And then my second one is hopefully a simpler question. Just given on the screen DGD margins have improved, it seems like it could be the margin signal could be there to restart DGD-one. So wondering what exactly you need to see to have confidence to restart DGD1? Thanks.

Robert W. Day: So we've talked about this before. DGD1 went down for a catalyst turnaround early in 2025. Given the changes in the PTC and the origin tariffs on so many of the feedstocks, our view is that DGD1 only makes sense to restart at least in the current environment with the current RVO under the current rules when soybean oil can be profitable and profitable means a margin that's good enough for a long enough outlook that justifies burning up a catalyst. And so I think certainly we're a lot closer to that than we have been. We may get there, but it definitely looks a lot better than it did a few months ago.

Operator: Thank you. The next question comes from the line of Andrew Strelzik with BMO. Please proceed.

Benjamin Joseph Kallo: Hey, guys. This is Ben on for Andrew. My first question is around the Food segment and just the commentary there that pointed to maybe some weakness exiting third quarter and into fourth quarter. So I was just hoping you could just walk us through your outlook for the next few months in the food segment.

Randall C. Stuewe: Yes. I think what we were trying to put in the narrative is clearly tariff on, tariff off up to 50%, fentanyl tariffs, trying to figure out the supply chain was very confusing for our customers in Q3. And so the choice was to pull down domestic inventories. You remember most of our Brazilian production comes into The U.S. That's in the hydrolyzed collagen peptide form, very successful product for us. And so we had some delays in orders there. We think it will pick up and be a stronger Q4. That's about all the color that I can give you today on it. And what we've seen is a continued rebound of the hydrolyzed collagen business.

And while our new NexTyta products are making a foothold in the industry, they're still relatively minor in the contribution of that segment. But they are as we quoted in there, we're getting repeat orders, which is a great thing. By next summer, we're going to launch what I think will be called NexTyta Brain, and that will be a Brain Health product. And it's got a really great outlook, too.

Benjamin Joseph Kallo: Well, that's great to hear. And then on my next question, something that kind of, I think, gets lost in the weeds sometimes or at least lately, California LCFS credit values, they've been generally stable at weak levels. Can you remind us of the expected timeline of triggers that should propel these values higher eventually?

Robert W. Day: Yes. Thanks, Andrew. This is Bob. I think as we all know, there was quite a bit of a delay in the implementation of their step down to increase the greenhouse gas obligation, reduction obligation in California. So, as a result of that, that bank got built up so large that, most of the obligated parties from our perspective had a sufficient number of credits where they even with the change in the ruling, they didn't need to go out and immediately buy credits.

Our view is that they are working their way through those credits and that sometime in 2026, we'll start to see that S and D come more into balance and steady increases in the LCFS credit premium. But it's hard to I think we believe it will be more steady than sort of a step up in value.

Operator: Thank you. The next question comes from the line of Heather Lynn Jones with Heather Jones Research. Please proceed.

Heather Lynn Jones: Good morning. Thanks for the question. I wanted to I had a question on your feed segment. And just thinking about the protein pricing, I know in the past that you had put in place some of your and some of your FATS pricing contracts. You had like minimum levels and if it went below that, Darling Receipt wouldn't go below that. And I was just wondering if you all had put any of those kind of things in place for your protein business in The U.S?

Robert W. Day: Heather, this is Bob. So all of our every contract is somewhat unique and it really has to do with our approach towards accommodating our suppliers and trying to work with them on terms that make sense for their business. As you're I think what you're pointing out is that we do have some contracts where Darling collects a minimum processing fee. And if prices get above a certain threshold, then we participate in some of the value of those prices. There are certain instances where protein prices are part of that as fat prices are.

I think generally speaking though, we see as you're well aware, we see a lot more volatility in fat prices and a lot more upside from time to time in fat prices. And so we tend to focus more on that than we do on the volatility in the protein markets.

Randall C. Stuewe: Yes. I think to augment what Bob said is, the thing that happened is The United States was heavily reliant on shipping low ash poultry meal into the Asia countries, predominantly China for aquaculture. The offset was a strong domestic pet food demand in The U.S. And what we've seen twofold is, one, with the tariffs on, tariffs off with China and Vietnam, they're unable to take the risk, if you will, to buy that product. So it has to find, as all commodities do, the next best market. What you're seeing in the pet food business is post COVID, you've taken fluffy back to the shelter.

And then you're not seeing a growth that's very significant right now on the pet food side. And then you're seeing that the consumer, the CPG companies took prices up pretty drastically, making those bags of brand name products with meat in them really, really pricey. And you're watching strong growth now in the grain-based alternatives, namely Old Roy. So it's essentially a disruption scenario right now, Heather. And we're off from where traditionally poultry high end, low ash poultry products have traded. Although they're coming back, the second that Trump relieved the tariff on Vietnam for thirty days or whatever, big shipments and sales went out of here.

That's our Eastern Seaboard plants that are heavily reliant on those products. So I think we've got a pretty good outlook. They've come back now and have improved quarter over quarter. And I think we're cautious on next year, but we think it's we think everything looks much better.

Heather Lynn Jones: Okay. Thank you for that. And then my follow-up is on Europe. So recently they extended the tariffs on RD imports and biodiesel imports, they extended the SAF. So as we're thinking about Q4, you'll have a full quarter of SAF production and SAF pricing in Europe is really strong. So will having a full quarter production more than offset the impact of them now imposing these tariffs on U.S. Staff? Just wondering how to think about those moving pieces.

Robert W. Day: Yes. Thanks, Heather. I think the way to look think about that is it will have if it's going to have an impact, the impact is going to be felt a bit later on. SAF is not we aren't selling SAF in a spot market. The SAF that we're producing today was sold a while ago and most of the SAF that we will produce in 2026 is already sold. So the tariff impacts will affect new contracts as they come about and we'll just have to see what those markets look like and supply and demand. But we still have access to voluntary markets in The United States.

So we're optimistic about where we stand with SAF and SAF sales.

Operator: Thank you. The next question comes from the line of Betty Jiang with Scotiabank. Please proceed.

Betty Jiang: Thank you. Good morning. Thanks for taking my question. For my first question, I wanted to ask about broadly the core EBITDA guidance. It's been updated to that $875 million to $900 million range and that's a bit lower versus the first number that you gave out at the beginning of the year. So I'm wondering if you could reflect on how the year played out and where it didn't quite meet your earlier expectations? And then looking forward to 2026, do you think that this year's 12% to 13% growth is somewhat comparable to what you're seeing for next year?

Randall C. Stuewe: Betty, this is Randy. I mean the $875 million to $900 million is the amalgamation of all three segments net of DGD. Clearly, we're two-thirds of the way through October. We don't know really where October is going to finish. We don't have that type of visibility on a day-to-day basis here. So it's just that this business, when prices are steady and volumes are steady around the world, you can give some guidance there. What we have tried to do is it's just too difficult to put a number out on DGD either for Q4 or next year.

The core ingredients right now looks similar to stronger in 2026, but we won't know that and be able to give guidance on that until around till an RVO is published and then when we do our probably our February earnings call.

Betty Jiang: Okay. Fair enough. And my follow-up question, I wanted to ask about the Fuel Ingredients business, the portion excluding DGD. The margin there looked a bit the gross margin looked a bit higher quarter over quarter and also the segment earnings came in higher versus what we saw in the first half. Could you please share maybe some of the drivers there?

Randall C. Stuewe: Yes. That business is made up, while Bob described it in his comments, of disease, it's really mortality destruction predominantly in Europe today. And then that's our green gas business, reminding people that the green gas or green certification business in Europe, we're the one of the largest in all of Europe today producing gas over there. And those are our digester businesses, and we added a small one in Poland now. So ultimately, that business ebbs and flows with what we call the Rendak business predominantly, and that's the seven rendering plants in Europe that are geared towards mortality destruction.

Robert W. Day: Anything you want to add there, Bob? I mean, I think it's what you're alluding to is just sometimes the inputs, the price the costs will change for the inputs, energy prices that we're selling there remain strong. And so that's what you're seeing with these gross margins.

Operator: Thank you. There are no additional questions left at this time. I will hand it back to the management team for any further or closing remarks.

Randall C. Stuewe: Hey, thank you again for all the questions, Dave. As always, if you have additional questions, feel free to reach out to Sue Ann. Stay safe. Have a great holiday season, and we look forward to talking to you after the first of the year.

Operator: That concludes today's conference call. Thank you. You may now disconnect your lines.

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