Earnings Call Transcript - DAR Q3 2022

Operator, Operator

Good morning, and welcome to the Darling Ingredients Inc. Conference Call to discuss the company's Third Quarter 2022 Results. After the speakers prepared remarks, there will be a question-and-answer period, and instructions to ask a question will be given at that time. Today's call is being recorded. I would now like to turn the call over to Ms. Suann Guthrie. Please go ahead.

Suann Guthrie, Investor Relations

Good morning and thank you for joining the Darling Ingredients Third Quarter 2022 Earnings Call. Here with me today 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 US Specialty Operations. There is a slide presentation available on the Investors page under the 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 the Risk Factors section of our Form 10-K, 10-Q, and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. Now, I will call over to Randy.

Randall Stuewe, CEO

Thanks, Suann. Good morning, everybody, and thanks for joining us for our third quarter 2022 earnings call. Darling Ingredients reported strong third-quarter financial results. This was achieved by our more than 14,000 employees around the globe. I'm so proud of the Darling Ingredients family, particularly those who are new to us from Op de Beeck, Valley Proteins, and the FASA Group. In August, I took our Board of Directors to visit several of our new facilities that came with the Valley Proteins acquisition. I cannot be more proud of the dedication, pride, and transparency I saw from our new Darling employees as they work hard to integrate into our business. A few weeks ago, I was at our new Op de Beeck facility in Belgium, the green energy facility we acquired last spring. I was able to see firsthand the ingenuity, entrepreneurship, and commitment from our new employees, and it's truly remarkable. While I have not yet had the chance to personally see our new employees at the FASA Group in Brazil, I know how hard they are working as we bring our businesses together. The success of our company begins with our people. As I made my way to many of our factories across the US and Europe this summer, I saw a tremendous amount of energy from our employees, who are constantly looking for ways to make our company safer, our plants more efficient, better for the environment, and ultimately more profitable. I can absolutely say our team now understands their role in an evolving ESG world. Now, turning to the third quarter, extremely hot weather in North America, escalating energy prices in Europe, a one-time inventory step-up charge from the FASA acquisition, and foreign currency translations impacted our base earnings this quarter. Our Global Ingredients business came in at $274.4 million in EBITDA. The Feed Ingredients segment ended the quarter at $198.6 million. Our Specialty Food Ingredients segment had another record quarter posting $68.2 million in EBITDA. And our fuel segment earned $143.4 million for the third quarter with $120.3 million coming from Diamond Green Diesel. Turning to the Feed Ingredients segment, globally, raw material volumes were up 39.6% quarter-over-quarter and 21.8% year-to-date. Summer heat and regional droughts made raw material quality a challenge and processing difficult. The results were lower grade fats that DGD was not ready to accept, and these fats had to be discounted to be sold in North America. However, both domestic and export demand for North American and European proteins was exceptional in the third quarter. We continue to see strong export demand for our Brazilian and European fats as demand for low carbon intensity feedstock for renewable diesel continues to grow. Container availability improved in the third quarter and is expected to continue to improve in the fourth quarter. Energy costs in Europe continue to be challenging, more than doubling year-over-year. However, we've made raw material procurement adjustments and have recovered 85% to 90% of these costs going into the fourth quarter. Valley Protein facility struggled during the quarter. As we have openly discussed, we are making progress bringing these facilities up to our standard, but converting from a run-to-fail mode will take a bit of time. Summer was brutal. Ultimately, as we bridge the margin variance in the Feed segment, it was Valley Proteins plant, animal fat price discounts, foreign exchange, and the FASA inventory step-up. All of this is behind us going into the fourth quarter. On November 2, we announced that we entered into a definitive agreement to purchase the Polish rendering company, Miropasz Group, for approximately €110 million. Miropasz processes around 250,000 metric tons annually through three large poultry rendering plants in Southeast Poland and has around 225 employees. The acquisition will provide a nice bolt-on to our existing three plants in Central and Western Poland and displays our commitment to building our global supply of low-carbon feedstocks as global demand for low carbon intensity renewable diesel continues to grow. Our Specialty Food Ingredients segment had another record quarter earning $68.2 million in EBITDA. Our continued product mix shift from gelatin to collagen peptides helped drive margin and EBITDA improvements. We are very encouraged about the future growth of our Food Ingredients business. We expect the collagen peptides market to double in the next five years. We have additional collagen capacity coming online in early 2023. If you reference the chart in our earnings slide deck, you will see a performance in the Food segment that tells the story of why we are growing with our global customers in the peptide space. On October 18, we announced that we entered into a definitive agreement to acquire all the shares of Gelnex, a leading global producer of collagen products, for approximately $1.2 billion in cash. Headquartered in Brazil, Gelnex has six facilities, four in Brazil, one in Paraguay, and one in Portage, Indiana, in the USA with the capacity of around 46,000 metric tons to produce gelatin and collagen peptide products. Gelnex is a very well-run business and will increase our production capacity for grass-fed bovine collagen in South America. When this acquisition is completed, most likely in the first quarter of 2023, Darling Ingredients will operate 17 state-of-the-art collagen facilities across four continents around the world. Now moving to our Fuel segment. We saw strong volumes this summer from our European brand Rendac, which collects fallen animal stock and converts it into green energy. In our food waste to energy business, expansion plans at our newest Green Energy facility are already underway. On October 31, we closed the acquisition of Jajang recycling, a collector and trader of organic waste based in the Netherlands. This strategic acquisition provides Darling Ingredients with additional feedstock for its full biogas plants in the Netherlands and Belgium. Our green energy business in Europe is delivering as planned, and we continue to believe in green energy in Europe, which will provide superior returns and help diversify our European assets. In the third quarter of 2022, Diamond Green Diesel sold 190 million gallons of renewable diesel and recorded $1.26 per gallon in EBITDA. Year-to-date, the joint venture has sold 545.5 million gallons of renewable diesel at an average EBITDA of $1.09. Now, we've begun commissioning the unit at Diamond Green Diesel 3 in Port Arthur, Texas. The catalyst was loaded, and we expect to be online in mid-November with a ramp-up to capacity shortly thereafter. For the full year, we are forecasting approximately 800 million gallons of renewable diesel to be sold at Diamond Green Diesel 1, 2, and 3 and are estimating $1.10 EBITDA for the final part of the full year. Now with that, I'd like to turn it over to Brad to take us through the basics on financials and I'll come back and talk about our outlook for 2022 and beyond.

Brad Phillips, CFO

Thanks, Randy. Net income for the third quarter of 2022 totaled $191 million or $1.17 per diluted share, compared to net income of $146.8 million or $0.88 per diluted share for the third quarter of 2021. Net sales were $1.75 billion for the third quarter of 2022 as compared to $1.19 billion for the third quarter of 2021, or a 47.4% increase in net sales. Operating income increased 30.4% to $268.3 million for the third quarter of 2022 compared to $205.7 million for the third quarter of 2021, primarily due to a $50 million increase in the gross margin from our Global Ingredients business and a $49.5 million increase in Darling's share of Diamond Green Diesel earnings. SG&A increased $70.8 million quarter-over-quarter and depreciation and amortization increased $27.2 million due to the FASA and Valley Proteins acquisitions. In the third quarter of 2022, we incurred $4.5 million in acquisition and integration costs, primarily related to our acquisitions of Rotebek, Valley Proteins, and FASA, as well as the previously announced pending Gelnex acquisition. During the third quarter of 2022, the euro weakened against the US dollar as compared to the third quarter of 2021. The foreign currency exchange impact for Q3 was approximately negative $18.4 million, using an average rate assumption of $1.01 in Q3 2022, as compared to the average rates of Q3 2021 of $1.18. For the nine months ended October 1, 2022, the foreign currency exchange impact was approximately negative $41.6 million using an average rate of $1.06 compared to an average rate of $1.20 for the nine months ended October 1, 2021. Interest expense increased $24.4 million in the third quarter of 2022 as compared to the third quarter of 2021, primarily due to increased debt. We also incurred a $2.5 million charge due to a fire at our Tacoma rendering facility. Now, turning to income taxes. The company recorded income tax expense of $35.2 million for the three months ended October 1, 2022. The effective tax rate is 15.5%, which differs from the federal statutory rate of 21% due primarily to biofuel tax incentives and the relative mix of earnings among jurisdictions with different tax rates. For the nine months ended October 1, 2022, the company recorded income tax expense of $108.6 million and an effective tax rate of 15.6%. The company also paid $88.9 million of income taxes as of the end of the third quarter. For 2022, full year, we are projecting an effective tax rate of 18% and cash taxes of approximately $25 million to be paid the remainder of this year. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes a new 15% alternative minimum tax based upon book income, a 1% excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions. The provisions of the IRA are generally effective for periods after December 31, 2022, with no immediate impact on our income tax provision or net deferred tax assets. We do not currently expect the new book minimum tax and/or excess tax on stock buybacks to have a material impact on our future financial results. The Blender tax credits, which are refundable excise tax credits, have been extended two years through December 31, 2024. After 2024, the clean fuels production credit, a nonrefundable income tax credit, becomes effective from 2025 through 2027. We are assessing these tax incentives which could materially change our pre-tax or after-tax amounts and impact our tax rates in future years. We will continue to evaluate the applicability and effect of the IRA as more guidance is issued. Now turning to debt. The company's total debt outstanding at the end of the third quarter of 2022 was $3.28 billion as compared to $2.91 billion at the end of the second quarter. Our bank covenant leverage ratio ended the quarter at 2.48 times. The increase in debt in the third quarter was primarily a result of the acquisition of the FASA Group. We continue to maintain strong liquidity with $1.35 billion available on our revolving credit facility as of quarter end October 1. Capital expenditures totaled $105.6 million in the third quarter and $257.1 million year-to-date. We received a $90.5 million cash dividend from the Diamond Green Diesel joint venture during the third quarter. The company also repurchased approximately 609,000 shares of its common stock for $37.2 million during the third quarter, which brought the year-to-date total shares repurchased to $1.58 million for $103.1 million. We completed two delayed draw term loans during the third quarter, which are intended to be drawn to complete the Gelnex purchase upon regulatory approval. Additionally, we issued $250 million of additional 6% senior notes due 2030 with the same terms as the previously issued $750 million 6% senior notes. With that, I'll turn it over to you, Randy.

Randall Stuewe, CEO

Thanks, Brad. Throughout the year, we continued to strengthen our diversified portfolio through accretive acquisitions that will enable long-term growth in our specialty ingredients and green energy businesses, all by turning animal byproducts and food waste into sustainable ingredients to feed and power the world. Today, one in every 6.5 slaughtered animals is processed through one of our 270 factories around the world. The strategic investments we have made in all three of our business segments are delivering sustainable solutions to feed a growing population while also helping the world achieve its decarbonization goals. We were a first mover into the renewable diesel market and continue to be one of the only vertically integrated renewable diesel producers in the world. Darling Ingredients carries tremendous momentum into the final months of 2022. Raw material volumes remain robust. Fat prices reflect their carbon value while DGD3 begins to ramp up. Global Specialty Protein demand and pricing continue to be solid. Collagen peptide demand continues to grow. Higher energy prices around the globe are being absorbed and adjusted for. Darling Ingredients is set to deliver another record year. We'd like to reaffirm our forecast of $1.55 billion to $1.6 billion in combined adjusted EBITDA for the full year of 2022. Now, we are not showing any signs of slowing down into 2023 in our Global Specialty Ingredients and Green Energy platform. Demand for our ingredients and inputs remains rock solid. We are busy integrating our new acquisitions, and the results will become more visible in 2023. The DGD portfolio of facilities is ready to deliver over 1.2 billion gallons of renewable diesel next year. Our collagen peptide business is growing and expanding, and our team is poised to deliver another record year in 2023. So with that, let's go ahead and open it up to questions.

Operator, Operator

We will now start the question-and-answer session. The first question comes from Adam Samuelson of Goldman Sachs. Please proceed.

Adam Samuelson, Analyst

Yes, thanks. Good morning, everyone.

Randall Stuewe, CEO

Good morning, Adam.

Adam Samuelson, Analyst

Good morning. Randy, I wanted to start with the Feed segment this quarter and clarify the reasons behind the decline. You provided some insights, but segment profit dropped, with EBITDA decreasing by just over 50 million from the previous quarter. Could you break down the main factors you mentioned regarding Valley, FASA, and currency? Additionally, as we look ahead to the fourth quarter, how much of these issues should be resolved, and do you expect a more favorable operating environment considering commodity prices?

Randall Stuewe, CEO

I completely understand the concerns surrounding the Feed segment following the strong performance in Q2. Q3 is always challenging for us globally due to the summer heat, and this year has been particularly difficult, perhaps the worst I've witnessed in 20 years. Brad mentioned the FX impact of $18.4 million with the euro at $1.01. Given that the Feed segment accounts for about 80% of our volume and revenue, it’s reasonable to say that a significant portion of that impact will reflect in the Feed segment. The FASA was around $8.5 million to $9 million that flowed through our P&L, with our specific amount being approximately $9 million. Regarding Valley Proteins, I want to commend Rick Elrod and the operations team, along with Royal Winter and their Valley team, who are now part of our family. The plants we acquired were not well maintained, and we are in the process of rebuilding about 15 of them in various capacities. This summer, we faced an overload of raw materials as markets fluctuated for poultry producers, and the extreme heat posed operational challenges for those plants. While I can’t disclose specific numbers, the inability to process a significant amount of raw material had a financial impact. The Midwest also experienced an unprecedented summer heat that affected our fall stock business. As we noted previously, when perishable products deteriorate in high heat, it complicates the separation of fat from protein, leading to poorer yields. DGD3 was not yet prepared to handle those fats, leaving us with limited options to sell them and resulting in substantial discounts from their potential renewable diesel value. I want to emphasize that those challenges are now behind us. As we begin period 10, the weather has improved, and Valley plants are becoming operational again. The team has done an excellent job, and we expect to gain momentum for the rest of the year. We don’t foresee significant changes in 2023. Our primary focus is on an aggressive CapEx program aimed at improving the reliability of Valley plants. We haven’t yet provided guidance for 2023 as we want to ensure DGD3 is fully operational before making any predictions. Nevertheless, in our core ingredients business, we continue to see strong performance globally with minimal slowdown in demand or raw material availability. The fat market remains robust. Adam, I hope this provides you with the clarity you were looking for.

Adam Samuelson, Analyst

It's really helpful. And if I could ask a follow-up along those lines then, so the EBITDA guidance for the full year was reiterated. I think if I heard your prepared remarks, 800 million gallons of DGD at $1.10. So it implies about $140 million of EBITDA contribution your share in the fourth quarter. It wouldn't seem like there's a big implied step-up in 4Q in the core ingredients businesses from the third quarter level, and we talked about purchase accounting, which I think would go away. And clearly, the Valley business and some of your core rendering businesses had summer heat pressures that wouldn't persist into the fourth quarter. So I just want to make sure I'm thinking about kind of the sequential in fourth quarter that doesn't seem all that big based on where your EBITDA guidance is?

Randall Stuewe, CEO

The team around are always smiles when you do the math because they know that my middle initial is C, and it stands for conservative. So at the end of the day, yes, I mean you're backing into the correct numbers right there. But I think at this point in time, as we said we've got two more periods to go through here, but it feels solid. I think Q4 will be much improved over that. And Sandy, anything you want to add on DGD3 and $1.10 for the year?

Sandra Dudley, EVP

I think that's really solid results from DGD. We're excited to have DGD3 online here; that will come online this month. I don't get so close to it. And the great thing about DGD is we continue to sophisticate that organization both in terms of our feedstock origination, which I think is amazing. We've done just a tremendous job in terms of that, and I have to give our team kudos on that. And then really we've expanded our finished product sales as well. So just a great shout out to the DGD team on that.

Adam Samuelson, Analyst

All right. Very helpful. I’ll pass it on. Thanks.

Operator, Operator

The next question comes from Derrick Whitfield of Stifel. Please go ahead.

Derrick Whitfield, Analyst

Thanks and good morning, all. Staying on the Feed segment, could you comment on the potential earnings power of the Miropasz transaction with the understanding that earnings in the near-term would be compromised by higher energy costs? Also what potential synergies do you see with their operations as you integrate Miropasz into your own operations?

Sandra Dudley, EVP

Hey, Derrick, can you repeat your question?

Derrick Whitfield, Analyst

Absolutely. So staying on the Feed segment, could you comment on the potential earnings power of the Miropasz transaction with the understanding that earnings in the near-term would be compromised by higher energy costs? Also, what potential synergies do you see with their operations as you integrate Miropasz into your own operations?

Randall Stuewe, CEO

And it just spreads us out with more opportunity in Poland. As we've said, the European Union comes under pressure on animal production and manure disposal, whether it's in the Benelux countries or Germany; both Poland and as we look forward, Spain will become more important in that portfolio. John, anything you want to add?

John Bullock, CSO

Yeah, I think the last half of your question involved whether or not we're able to adjust higher energy prices. And I think beyond a Miropasz answer, this is largely a Darling answer. The fact of the matter is our margin management tool that we use in this company really allows us to reflect higher energy costs and maintain our margins in the business. And that's kind of a hidden story about Darling, whereas higher energy fasted impacted many, many businesses around the world. The fact of the matter is how we manage our business allows us to really deal with those higher energy costs without substantially impacting the bottom line of the company. So we are positively the same as the rest of our organization.

Randall Stuewe, CEO

Yeah. And I think Derrick, I mean clearly we've seen Poland energy prices escalate much faster and higher than the other parts of Europe. But at the end of the day, we are able to manage the raw material as John says. And margins in the meat production business remain fairly good, and we're able, given our model and our relationship, to adjust for not only labor, but energy and diesel prices.

Derrick Whitfield, Analyst

Terrific. And then as my follow-up, kind of staying on the same topic but shifting over on the fuel segment. I recall that you guys had spent quite a bit of time in Europe over the last quarter, and you guys noted that in the prepared remarks as well. In light of the energy prices we're facing there, could you speak to the near- to medium-term outlook for that business and where you see the greatest opportunity for growth?

Randall Stuewe, CEO

Talk about Green Energy in Europe, John.

John Bullock, CSO

Yeah. This is John. So this is one of our key platforms that we've been really dynamically growing over the last two to three years and still have a lot of growth plans on the board, not necessarily acquisitions, but stuff we can do to kind of expand our core business. It is so well related to our activities. It allows us to help with our meat slaughter byproducts as well as opens us up to a whole new raw material stream with the organic food waste that we traditionally don't render. And the platform in Europe, both from a pricing and natural gas as well as the green programs that are embedded in RED 2 and coming in RED 3 are just perfectly tailored for that business. And this is another example. I think where I'm proud of Darling because we've been on the leading edge of this. We've been expanding and growing this business well before everybody else thought that being in the digestion business was cool in Europe. That now we've come and built a tremendous platform in both Belgium and the Netherlands in relation to this, and we're really, really excited about what it can do for our business model over there.

Derrick Whitfield, Analyst

That’s helpful. Thanks again for taking my questions.

Operator, Operator

The next question comes from Tom Palmer of JPMorgan. Please go ahead.

Tom Palmer, Analyst

Good morning. Thanks for the questions. Just wanted to circle back on the Feed segment outlook. So you previously indicated FASA had around $100 million EBITDA annually. Valley was expected to contribute $60 million to $70 million in 2022, which works out to about $8 million per month. So I just want to confirm, when we think about the fourth quarter, do these businesses return to that run rate? And then is the $150 million EBITDA outlook for Valley next year still appropriate?

Randall Stuewe, CEO

Yeah, Tom, this is Randy. I was trying to convey that in different words. So I’ll affirm your answers. There were a few unique issues happening with the Valley plant during period eight and period nine over the summer. Those will resolve, and we expect to gain momentum. We're making adjustments in that business. Yes, the numbers we've communicated before stand at $150 million for Valley and the FASA acquisition at $100 million EBITDA. So those figures are indeed realistic for next year, and we are currently at the run rate for Q4.

Tom Palmer, Analyst

Great to hear. Thank you for that. And then I just wanted to ask on next year. I mean, maybe it wasn't formal guidance, but I think earlier this year, you discussed the potential for $1.8 billion to $2 billion EBITDA for the business in 2023. I guess as we think about the current operating environment, are there changes in the industry pricing environment needed to hit that range, or just given current operations and internal improvements that you are instituting at these acquisitions is that still a reasonable consideration?

Randall Stuewe, CEO

We are currently about 45 to 50 days into 2023, and we have solid momentum. Looking at the base business, including Valley and FASA, achieving a $1.2 billion target from the core ingredient business is feasible given current pricing. We have capacity for approximately 1.2 billion gallons, and we expect to average around $1.09 to $1.10 this year, translating to about $1.32 billion. There will be a couple of turnarounds early next year that we need to manage, followed by improvements in our operations and working capital. So, if we assess the situation now, adding 1.2 and 650 gives us 1.85 billion. That’s where we would estimate it currently stands.

Tom Palmer, Analyst

Okay. Thank you.

Operator, Operator

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

Ken Zaslow, Analyst

Hi, good morning, guys.

Randall Stuewe, CEO

Good morning.

Ken Zaslow, Analyst

Let me ask a question in a different way. If you didn't have the acquisitions, would the Feed business be sequentially flat?

Randall Stuewe, CEO

You mean sequentially, okay could we...

Ken Zaslow, Analyst

There might be some slight downturn due to seasonality, but I believe it would have been more aligned. The acquisitions team changed this quarter. Would you agree that the profitability for Feed would have been mostly flat, perhaps slightly down?

Brad Phillips, CFO

Together they were minimal.

Randall Stuewe, CEO

Minimal. So I wouldn't say negative. And then you've got the currency piece there. And then you've got the really the fat price degradation that happened from the downgrades of the yellow grease. And that's why Ken, we're trying to say that Q4 is going to be much better.

Ken Zaslow, Analyst

The business cases for both of those are still intact for 2023. Nothing occurred this quarter that would change the business case for either one. Is that a fair statement, or am I mistaken?

Randall Stuewe, CEO

Absolutely. We want to reaffirm that we believe the situation in the Valley was a one-time event related to the inventory adjustments and some hedging activities. Ultimately, the Valley presented operational challenges that have now been resolved. Significant changes have been implemented. Dealing with summer production can be tough even under ideal conditions, especially when facilities are not prepared for summer operations and there are wastewater management issues. However, those challenges are behind us, and with the cooler temperatures, things are easier now. We have a capital program in place to address many of the issues we faced before next summer. Yes, we’ve moved past those challenges and we are performing at the anticipated run rates and business case. I’m just relieved that September has ended.

Ken Zaslow, Analyst

A lot of CEOs in our industry have expressed a wide range of opinions regarding the Inflation Reduction Act. One CEO describes it as life-changing, while others consider it more of an evolution. Can you share your perspective on how the inflation reduction could impact Darling's model over the next two to three years? Is it a game changer, slightly positive, or neutral? I'm just trying to understand this better. There has been considerable variation in the comments from CEOs in our sector.

John Bullock, CSO

So Ken, this is John. I will say from Darling's perspective, the Inflation Act is the most supportive piece of legislation we've ever seen in the history of this company. Hands down, bar none, it's perfect for us because we are positioned as guys that have the integrated feed stream of waste fats feeding into renewable fields. And what's now happened is that the federal program now recognizes the value of low-carbon fuels, as opposed to not really rewarding if you were producing a lower carbon field. Now it does. And so the result from a Darling perspective, it was a wonderful piece of legislation. We were fully supportive. Getting five years was great. We are very appreciative that the federal government went in that direction. And I will tell you from Darling's perspective, we love that program. We think it's absolutely phenomenal and great.

Brad Phillips, CFO

Good morning, Ken. As you may know, we mentioned earlier that the tax credit transitions from an excise tax credit to an income tax credit after 2024. For the next two years, there will be no changes impacting the profit and loss statement. John has touched on the advantages from the producer's perspective, but it also functions as an excise tax credit that helps offset your tax liabilities or tax bill. From a cash flow perspective, there will be a slight delay in offsetting your quarterly estimated tax payments. One significant point for investors to consider is that, as we discuss this internally and start to think about it more, we will effectively become more of an earnings per share oriented company since it moves below the line. Additionally, this change will be more aligned with the CI score, which John also mentioned, and that's certainly beneficial for us as it will provide more advantages. John has already addressed this.

John Bullock, CSO

Let me just add back on top of this. This is a producer’s tax credit. Obviously, we’re the guys that have built the unit that converts waste fats to low-carbon fuels in the United States, which means we're producing in the right area to be able to maximize the benefit associated with this. As I said, hands down, the best piece of legislation I've ever been for Darling in the history of Darling.

Ken Zaslow, Analyst

Okay. Life changing, it is. My last question is on Diamond Green Diesel. It sounds like you guys have shifted to using soybean oil. How much can you use? How does that work? And does that have an impact on the business? How do you think about that? And maybe I'm wrong, but it seems like that's been the shift. And what is the business decision based on?

Sandra Dudley, EVP

Yeah. So I think we don't typically give out an exact percentage of any of our feedstock. And traditionally and really going forward, we are always a waste feedstock user. That's our primary feedstock. That's really the premise of what we built with Diamond Green is to take and use the waste feedstock because they typically give us the highest value in terms of CI scores, et cetera. They're typically the most preferred, so different customers want that. And so that's what we focus on. That doesn't mean to say that on occasion, we don't use soybean oil because there are sometimes in the market where soybean oil, after you adjust for CI scores and things like that, and there are markets that do like soybean oil that we run that. And so we do. We are constantly a profit maximizer. And on occasion when that happens when the stars align, we will use soybean oil. And then there are operational reasons that we use soybean oil too. So on startup that's an important thing for us to use in a certain stage of our process. So again, just for clarity, we are by far just a waste oil; we focus on the waste feedstocks. But on occasion we will run some soybean oil.

Randall Stuewe, CEO

Yeah. And I think that's fair, Sandy. I mean I know Nestle throws 96% or whatever on waste oils; we're probably way above that. But from time to time if the foodservice business goes to go slow out there, then the soybean guys are trying to move volume. And from time to time, either operationally or if animal fats go sky-high and you get a $0.05, $0.06 discount on bean oil then you've got customers that you can arbitrage in and maximize the facility.

Ken Zaslow, Analyst

Great. I appreciate it as always, guys.

Operator, Operator

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

Randall Stuewe, CEO

Thanks, guys. We appreciate everyone's time today and hope you stay safe. I look forward to seeing you at the upcoming events that are listed in our presentation on the earnings slide deck, and we'll talk to you soon. Thank you.

Operator, Operator

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