Darling Ingredients Inc. (DAR) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us at Cowen's Renewable Diesel, Sustainable Aviation Fuel Summit. Very excited we have a full day of presentations from a variety of participants in the space. I'm Jason Gabelman, senior energy analyst here at Cowen, covering integrated oils, refiners, LNG and most pertinent today biofuel stocks. No better way to start off than a company that started the renewable diesel business, Darling. We have Randy Stuewe, CEO of Darling, joining us. And great to have you, and I'll turn it over to you for a few opening comments before we launch into Q&A. [Operator Instructions] Randy, over to you.

Thanks, Jason. Great to be here. Thanks for having us, as always. And we love to tell the Darling story. It's a unique story. I've had the honor of sitting in the chair for 20 years and working with the team to assemble a very unique and one-of-a-kind platform around the world that has now morphed into the most valuable integrated supply chain vertical to a renewable diesel business, potentially one day sustainable aviation fuel business in the world. And as I share with people and came off of several visits in New York and Boston this week, business is good. And in fact, the outlook for our company, our products, our fuels is really outstanding for this year and for the future. And so as we talk today and we go to Q&A, what I want to do with you and your listeners, and hopefully get some questions from the audience, is describe to you the competitive advantage, the defensible mode and the position we have today. The unique thing of sharing with people is we're coming up on our 10th anniversary here in about 30 days. And so we've been at it for 10 years. We're a global company with 270 factories in 20 countries. We process 15% of the world's waste fats and greases, and we've married it up to a value addition system of decarbonization of DGD1 and 2, number 3 to be on by this fall. It's well ahead of time on construction down there, both cost and time. And it's really exciting to see that we've had a really unique time in the world to provide a solution that really, really helps the planet, helps the people in the world and also helps our shareholders. And it's kind of -- for coming up on my 20th anniversary, it is really exciting times to see that, eventually, in your career, you get something right, and we've called this one right. So with that, I'll turn it back to you, and I'll let you -- let someone or you fire away.

Yes, great. And I will say it sounds like you've gotten a couple of things, right, not only DGD, but the feed business is also doing quite well. I think a good place to start is discussing that competitive advantage, the integration between the feed and the Diamond Green Diesel business. And just discuss what it takes to build up that type of vertically integrated system and the difficulties and a competitor duplicating that.

Okay. No, I think as you think through and the listeners think through, they think the waste fats as animal byproduct, tallow, yellow grease. They think of the sellers corn oil and they think about used cooking oil. And the competitive advantage that we have is we've been at it for 140 years. And it's really difficult to aggregate supply. And I think that's the piece that most people don't really understand. We have approximately 50% market share of the used cooking oil collection business in the United States. In Canada, that comes with 200,000 accounts. You pick up about 800 pounds every 6 weeks. So you kind of do the math. So number one competitive advantage. When you think through building a system and someone says, I'm going to build a renewable plant, whether it's road or SAP, and I'm going to run it on used cooking oil. My answer is, no, I mean it's not enough. So then you say, well, let's look at animal byproducts. We carry a market share there with our recent acquisition of Valley and it's sizable in the United States. And roughly at the end of the day, we have, I don't know, a couple of million tons of animal byproducts here in North America, and the Valley acquisition gave us another 125 million gallons equivalent. So you're really not going to get in the rendering business and make that happen. So the feedstock vertical that we have is so unique because we can source -- we operate on every continent. We're in the business on every continent. We're aggregating supply into our system. I think the little known thing as we were on the road this week, again, is people say, well, are you balancing your supply chain? And the answer is no. We're net short, but that's short versus North America, not short versus the world. Because we're now arbitrage and passing from our other plants for currency and freight and pricing makes sense into 9-degree diesel. So the key takeaway that I always like to tell people is if you're going to get in any business, you just stop and you say, whether it's soybean crushing, whether it's petroleum refining, whether it's corn wet milling, flour milling, you want to be at the optimum location for both inbound and outbound logistics. When you look at New Orleans and you look at the Port Arthur, Beaumont, there's nobody else in the world that can receive by rail, by boat, by barge and ship by rail, pipeline, barge, truck. And so at the end of the day, the logistical advantage, the moat around the Diamond Green Diesel system, is so robust that no matter where the margin structure tends in the industry as long as there's a biofuel mandate out the most profitable assets in the world today will be Port Arthur and New Orleans.

Got it. That's a great overview on the competitive advantage. Maybe continuing on the feedstock discussion. There's, I think, increasing interest in phasing out food-based feedstocks. And I don't believe Darling uses much, if any, of the vegetable oil in their DGD business. But I guess phasing out could increase cost pressures on some of the feedstocks that you do provide. Can you just discuss that dynamic a bit and what you're hearing in the industry in terms of momentum of phasing out vegetable oil use?

Yes. I mean, number one, I always kind of rewind the movie to 10 years ago, why did we enter the business? We entered the business after evaluating generation 1 technology biodiesel. And as everybody knows, biodiesel is a good product, but it's a difficult supply chain product in cold environments. And so naturally, animal fats at 55 degrees are hard, so they don't really make a very good biodiesel in cooler climates. So as we looked at the technology that was available out there, and we chose the Ecofining technology, we were going to create a product that was totally fungible and consistent with the petroleum distribution system. So it was pipeline ready. And so at the end of the day, as we look at building a product here, it was really surrounding our supply chain and the value addition. The core Darling model that makes it so unique is the vertical that I talked about, from farm to fuel. I mean we control the system from picking up the dead animal, the slaughterhouse, remaining the grocery store, the conversion of protein to fat. We value add the proteins to our highest level from food proteins to animal proteins, and aquaculture, pet food, et cetera. But the fats had predominantly one use, they were a caloric substitute in animal feed. So we wanted to own the feed and fuel arbitrage. I believe back in the mid-2000s corn would be couple eventually from petroleum, which it kind of has, if you think through the ethanol days and the 2008, 2010, '12, right there. And so I knew that if we didn't have another market for our fats, they were going to do nothing more than retrace back to the caloric substitute value, which is corn. So that's where the technology. That was the driver. 10 years later, as we look at it, we kind of got lucky. I can't deny it. At the end of the day, we built Diamond Green Diesel 1 and renewable diesel capacity to fulfill the renewable fuel standard, the biomass-based CECL mandate with a superior pipeline-ready fungible product versus biodiesel that had a better margin. The first 5 years of our operations, we ran at $1.26 a gallon, the second 5 years were coming up on world average to $2.26 a gallon. The -- as I look at this, the competitive advantage that we bring to it is not only the location of the supply chain, but the carbon intensity reductions and control that we have. If you think of it, our whole vertical is a carbon intensity vertical in the sense that whether it's used cooking oil, whether it's Valero's distillege corn oil or whether it's our animal fats, that's what makes us than such an incredible machine for us as we go forward. It's where we're at today may not be where we're at in the future. But right now, we really think that the supply in the world that we have access to allows our system to be superior today and in the future. We look at the world -- if you think through your question revolved around food oils, we didn't ever want to be on the front page of the Wall Street Journal in the food versus fuel argument. Because that wasn't our purpose. Our purpose is to repurpose waste fats into a higher and better use than they were going today. Intrinsically, esoterically, when I'm asked what is our -- we are a value addition unit to the livestock producers of the world. And if we can glean more value for the products, whether it's the bone, the hair, the guts, the hide, the fat, then we make livestock more competitive in the world. We help feed the world, and we also then can provide the second thing the world needs. The world needs two things: a growing population with growing wealth needs food and energy, and we sit there right in the middle of it. The third argument here now is so fascinating to me. Yes, the soybean crushing, yes, the canola crushing industry is expanding. But remember, they're expanding -- all of those seeds were being processed. Where they were being processed is now the only geographic thing that's changing. They're being processed in China. So now we'll value add them here. But it doesn't change the world's S&D of fats and oils, it just relocates where they're being processed. So you're going to see continued pressure on the food side here as we go forward. I don't want to be part of that discussion. I want to know what's right and let the food go to the world that needs to be fed.

Got it. One of the common comments we hear is that supply of fat oils and greases outside of vegetable oils is inelastic and doesn't really respond to demand. In theory, that caps growth that you and your competitors have. So how do you think about that dynamic relative to the desire to continue to grow a very attractive business that's done very well for you in the past few years?

Yes. If you think back, when we first modeled to get in the business, and we used an average of 2000 to 2010, and we said, well, what's the heating oil, what's the animal fat converted premium here, and it would have given us a $0.79 a gallon margin on a $3.23 a gallon investment. That was the spreadsheet. That was the thesis. I grew up in the business here for the last 20 years. And at the end of the day, the animal fat discount to soybean futures, not even calling it -- not even crude or RBD, was anywhere from $0.10 to $0.13 a pound. And the supply side is pretty unelastic, it really doesn't move more than 1% or 2% a year, although meat production for us and processing's gone up 3 to 5 the last 5 years with the 17 plants we've built. And so at the end of the day, as we looked at it, we said anything we can do to create an additional source of demand will be positive for our base business. And so the elasticity, while the supply is inelastic, we finally found enough demand to move the price. When we brought on DGD 1, this was a bet in the boardroom, I thought we would narrow the spread 50%. I thought it was really back -- really kind of tight and really a finite supply. The first 5 years or 7 years, we were only able to move that spread to probably $0.03 a pound, meaning narrowing soybean and animal fats. The last couple of years and why when DGD2 came online last October, we've only been up for 8, 9, 10 months here, we now process 40% of North America. And so that narrowed it. And so when we bring on DGD3, we will clearly keep animal fats intrinsically at the same value as their vegetable oil brothers and sisters. And in fact, you can argue then on a carbon intensity value that can actually be a premium to soya and canola. And clearly, palm doesn't work in the equation. So I think we've done the heavy lifting for the world now. Anybody that's thinking they're going to build a plant and operate on animal fats, well, 2/3 are already spoken for, so good luck.

Are there other feedstocks that could supplement the current base of fats, oils and greases, things like algae or cover crops? Is that something that Darling looks at or wants to get involved in?

We have participated in lots of analytics around it, cover crops. It's just -- remember, cover crops still needs processing. So at the end of the day, you've got to get a solvent extraction plant to, if you will, stock processing soy or canola in order to process that cover crop. So it really doesn't -- I think there's nothing of scale out there, at least in the near horizon, that says there's any opportunity there.

Got it. So there -- many new companies are kind of appearing using different technologies, but something that kind of struck me is they all need upgraded -- it seems like they all kind of need to add on what DGD currently does because most of the projects that are proposed that use something -- a different technology than what Diamond Green Diesel is using, includes that upgrading on the back end. And that's essentially most of, I think, what Diamond Green Diesel's tech technology is. And I don't know if that's right or not. Meaning that whatever it caused someone else to build a facility using a different class of feedstocks, it's going to be that capital cost plus the cost of building one of Diamond Green Diesel's plants because you need that upgrading. Is that the right way to think about it? And does that kind of give you confidence in the competitive advantage you're going to be able to sustain?

Yes. I mean beyond the locational advantage, I want to talk about that a little bit. If you think of who's been successful in the world of making the product, Nestlé and Diamond Green Diesel. Yes, you've got a tallow plant and any plant that are out there. And then you've got -- there were 2 technologies. Nestlé has their own patented process. We have our own process that is a marriage of UOP and then our internal pretreatment expertise that we brought to it. The fascinating thing is that the build-out is $3.25, $3.50 a gallon, that's before the inflationary factors are. It's probably much higher now, and Nestlé was close to $4. But yet, I read all the analyst report, everybody else apparently can do it for $1 or down and in about a week versus 3 years. So okay, so rendering Randy here gets a little skeptical of it, say. And you know, I'm part engineer. The Valero guys are excellent engineers. They understand this. They're incredible constructors. And we looked with Valero at several of their, if you will -- I don't want to call them stranded assets, offline crackers or treaters. What's unique in this is if you go back to our genesis and our birth in 2013, we were up for 3 months before we had a major explosion and blew out a pipeline. Luckily it was on the top of the refinery. Didn't hurt anybody. Was able to dump the hydrogen and shut down and depressured safely. What we learned very quickly that the metallurgy, even of a brand-new stainless facility, was not sufficient to operate under these conditions. So there's 10 years of learning here of metallurgy. And I think that's a huge competitive advantage. We're not going to tell people what it is, but we're going to tell you the reaction is not the reaction. You've got consultants out there saying let's repurpose some of these stranded assets and convert them there. So you go up north to Dickinson, North Dakota. That's a whole top technology. It took a year to find the right catalyst after, I don't know, 3 or 4 catalyst changes, and they're just learning how to run it today. The Holly Frontier facility. My understanding is most of an extra year to come online. And at the end of the day, they're smart people, they'll figure it out. But it's not as simple as people think. And when we look at in the construction costs, only 30% of the cost to build a facility is what they call ISBL, that's the reactor and the treaters and all that, the rest of it is the infrastructure. Remember, you're removing water, and petroleum refineries really aren't structured to handle water. And also then if you think about it, they're used to receiving 50,000 barrels through a pipeline or a super vessel, unload them at their barge dock or their ship dock, they're not used to unloading a railcar that has to be heated up before it unloads. So you've got all these logistics, infrastructure and water treatment that has to go in. So at the end of the day, there's a lot more to this than I think the average person goes at and thinks about it today. Not that you can't co-process, but at the end of the day, if we look at coprocessing, that's the -- introducing a little bit of animal fat or used cooking oil, you could really only get those up to 5%, 6% before you got too much water in the system. So we don't think that works either. So end of the day, we look at two things here. One is the pretreatment system. It's a very sophisticated, very expensive unit. More expensive than a vegetable oil refinery, because you're trying to remove alkaline metals and nitrogen so you don't kill your catalysts. And so there's 10 years of that experience there that we now know. And then you look at it, what I told people is all fats are not created equal. I know all fossil crude is not created equal either. But the variability in fats and oils around the world, whether they're coming out of Australia, Brazil, Western Kansas or Canada, are all very, very different and require what I'm just going to call -- you need a large tank farm that allows you to then, if you will, to segregate, separate, and then the mixology becomes. And really, the competitive advantage for us anymore is not only pretreatment, but the knowledge of the mixology to get the maximum yield out of the feedstock that we're able to originate.

Great. Getting a couple of inbounds on near-term margin dynamics. How do you feel about the $1.25 per gallon EBITDA guidance that you provided for the full year on DGD? Do you think that's a bit conservative?

No, we're still hanging our hat there. The challenge that we've had in the first 4, 5 months of the year here is really that -- I always call it an inverse, but you -- the petroleum guys, you call it backwardation, I'm still trying to find that word in the dictionary. But as you're rolling forward an inverse here, it's been very, very challenging as feedstocks running up, as heating oil is up $0.20 1 day, down $0.30 the next day. And so -- but at the end of the day, we will hit the dollar core. If you look at the spot margins today, as I looked at them last night, were $2, $2.25 a gallon in the front month here. As we go forward. If you look at a processor that's running RBD soybean oil, they're at or near 0. And so we feel good about the $1.25 down. I think the thing that -- I know one of the questions will be, well, you've seen and you guys have led the way and kind of being bearish, the LCFS. At the end of the day, we're happy that the LCFS is at 100 or a little weaker. It's sending the signals to the other states that are considering, New York, New Jersey, Pennsylvania, low-carbon fuel incentive standard that the system works. But as you put capital online, as you bring it on, if carbon was at $2.50, that's a whole different deal today. And so at the end of the day, we feel very good about where we're at, if you will, month 5 in the books, now headed in halfway through month 6, $1.25, we will see better margins in the back half of the year. And I think the marketplace always anticipates -- and you had a lot of noise out there, and I've seen in your charts, I've seen other analysts charts of all this capacity coming online, there isn't any. Diamond Green Diesel 3 will be online. We will have brought on the last 2 plants in the world. Singapore is going to come online, but that's jet fuel. So end of the day, I think the LCFS will react the back half of the year. I think at the end of the day, if you studied or a student of environmental challenges, you will know that Martinez and Rodeo got sequel challenges. Darling is somewhat very experienced in the sequel challenge world is we have many facilities in California. And once you get challenged there, the court system is really onerous and a delay. So I think the marketplace will eventually price in maybe Rodeo and Martinez don't come on in the near future, in the near future, maybe 2024, 2025.

Got it. That's great. And that dovetails to another question, which is will carb intervene to support LCFS prices?

We absolutely believe they will. We work closely with them, especially in carbon intensity. They're getting the answer that they wanted. And the answer was to blend in fuels -- they did their review, as everybody knows. Now it's going to go to rulemaking public comments. So I think they'll increase. I think the timing of it is somewhat in the air at this moment. They'd like to do it sooner, but under the rulemaking process, I'd say it's out to 2024. But remember, at the end of the day, there's still were what, 8.5% this year, we're going to 10% next year, there's still a pretty nice trajectory of increased demand. The challenge still whether you're in Europe or whether you're in California today is we still don't have drivers 100% back on the roads out there, bringing fuel consumption back to the 2019 levels. And I think as the world opens up and kind of puts the pandemic in the rearview mirror, I suspect that will be supportive also.

Got it. One more on DGD guidance specifically. I'm just reading a question here. It looks like spot is -- spot margins are $2 to $2.25 right now. I'm not sure if that's true or not, that's what the client says. He's asking what the gap is between that and the $1.25 guidance. I'm assuming it's backwardation, I'm not sure if something else is up there.

Yes, that -- when you say it's spot market, you're taking the nearby heating oil, that's not what we're shipping against.

Okay. Great. Another question. Do you think that overall, this is on the broader business, got it as conservative, just given upside from the Valley acquisition closing and fat prices hanging in.

Yes. I mean, obviously, we'll look at revising guidance here as we come by the end of the second quarter here. Through the first 5 months of the year, we are operating clearly in the base business at $1.1 billion level. If you look -- the grain and oilseed markets are inverted as well. So I'm assuming right now that those are going to roll forward. And clearly, we put our first 30 days of Valley earnings into our checking account here this week. They are right on target where we thought they would be. We look at -- and we've stepped out for 2023 now at Valley, we paid $1.1 billion for it, have a few closing costs in there. We're saying they should be around $1.50 next year, if not higher, where we're seeing the market right now. The other one is as we should close on the Brazilian acquisition here sometime later this summer, would be my guess. And the current run rate of that business was USD 100 million EBITDA run rate through Q1. And so we'll have that all next year, too. So the outlook for us, as you look at our business today -- and really, as I try to show people, we were consolidated adjusted EBITDA of $500 million and something, then it was $840 million, then it was [ $1,235 million ], we're giving [ 1 6 ] out there now. We need go higher. I suspect this year, depending on as number 3, DGD 3, comes online. And then we're adding the potential of $200 million, $250 million new EBITDA from the core business next year. And then 1.2 billion gallons at -- we're going out of the bucket a quarter next year at this time. So you can start to do the math, and you can see a $1.82 billion EBITDA number in 2023, given with where the world is at today with what we see.

I guess one more on that on the feed price side, the high vegetable oil prices. Do you expect that to persist? How much of that is related to current global dynamics, Russian more and lower exports to Ukrainian vegetable oils, if you could break that down a bit.

Yes. It's really fascinating. As you think about it, I have my own questions on what is the 1- to 3-year outlook for fats and oils. As I said, remember, we're going to crush more seeds in the U.S. over the next 2 to 3 years, U.S. and Canada. That doesn't change the SMB in the world. So ultimately, if China was crushing canola and soy right from Canada and the U.S., they're going to have to buy more from South America if they want to run their crush plants. And they probably can't buy enough, but now they're going to have to be a consumer of finished protein, canola meal and soya meals, from North America. So at the end of the day, we've not changed the S&D on the amount of seed produced that's what we know today. The second thing we know today is the #4 exporter in the world of different ag products, Ukraine, is in trouble. And clearly, I operate from a knowledge of being on a seed board. I see what's going on in the seed production, both in Russia and Ukraine. It's not a 1-year fix. It's a 2-year fix. And the big deal there is the sunflower oil. So we've changed the S&D of alternative oils again because of the sunflower issue that's going to happen worldwide out of the Ukraine if that situation doesn't settle very quickly. The next thing you say is, okay, where does this R&D capacity, whether it's Europe or here, come online and when does it come online. And so end of the day, that will continue to pull hard on it. Now if you think about palm oil, where does palm oil fit in the global mix? I mean it's got a black eye, if you will, in Europe today. But yet, at the end of the day, $120 oil, if you're in Indonesia or Malaysia, you would rather probably convert some of your product rather than spend your dollars to go buy oil. So it's going to question -- the ultimate question will be how do these biofuel programs stay in place with higher oil, with higher inflation around the world. It's a pretty complicated world. But what I can see is, at the end of the day, is in the next 1 to 2 years, there's really no new supply coming on that's going to change where we're at today.

Got it. That's great. I want to shift SAF, and we only have 10 minutes left. Can you discuss what needs to happen in order to incentivize the production of SAF, either through changing your existing facilities or incentivizing new builds?

Yes. We participated with the White House on this. We've been working on SAF for a lot of years, but at the end of the day, road fuel and the low carbon markets around the world have superior economics. We conveyed that message. We've lobbied that message. And that's where the $1.25 came from, a lot of that language was us. And the $1.25 can go to $1.75 given carbon intensity reduction. But when we looked at our carbon intensity mix, I think the best we could do is $1.50, $1.55. That's still somewhere between $0.50 and $0.70 a gallon inferior to road margins today around the world. So it's not going to get my capital. I will let Peter Vanacker of Nestlé -- and god bless Nestlé. They've been incredible to the world. They're incredible marketers, and they are leaders in the fact that they step forward and said, we've got to convince the European regulators that SAF can be real. And the only way European regulators are going to believe it is if we build it. So it's -- they are going to build it and they will come. I'm going to wait until I get regulatory support. The issue in this country is that if you were going to build SAF today, you would supply it to LAX and SFO, because you would get the LCFS credit, right? Not JFK and La Guardia and ORD. So until you get a national mandate in this country for SAF, it's going to be very difficult. We're excited about it. We're ready to go. We spent the money to engineer 2 plants. One would evolve as a module, either on #2 or #3, that converts or splits road, the sills road fuel a little bit and breaks off some jet. And then number 2 would be we're laid out for DGD 4 to be a jet plant if and when that makes sense. So we're ready to go when both the regulatory, the remuneration and the demand side kick in. What I see today is the demand side, meaning -- I'm going to call them United Airlines and Delta Airlines, they've got to figure out how they're going to pass along back cost. And I think there are masters at a la carte pricing, we all know that. But it's inferior, what they're trying to promise today, a bit of green launching in a sense. And then I want to be realistic about it. I think everybody has to wake up. You take the Delta and the United promise of 1.5 billion gallons, I think, each, that's 3 billion gallons. Take it times 8 pounds a gallon, that's 24 billion pounds of fat. That's the entire U.S. soybean crop. That's not practical or real. So end of the day, SAF is going to come. There's going to have to be a lot of movement. But there's a limit. If we're already talking a limitation on feedstock and road, we've not even talked about SAF. That's the reason I don't get bearish on fats and oils in the years to come. And I think SAF is a great product, but it's a super -- most people don't get visibility to Jet A. Jet A at the wholesale level is at or near heating oil, in some cases, discounts. And then you look at what SAF is today, $7.50 a gallon, it's $3.50 a gallon premium to Jet A in many cases. So it's -- there's a lot of heavy lifting to do before I think it becomes a practical solution that's available and affordable.

Great. A couple of more follow-ons on that topic. Firstly, the $1.25, how much of that is upfront CapEx you would need to spend? How much of that is lower end fuel yield? And then is there an OpEx component in there as well?

Yes. We've not completed the final detailed engineering, and especially where -- I think what I want to comment about that is we want -- as we looked at it, we said, okay, what is the most effective and economic way to make jet? To Build a new 500 million-gallon plant is $1.6 billion, $1.7 billion today. Now can you make jet? Yes, you can. But at the end of the day, if you're only going to make jet, your yield loss is really significant. So you're going to make a blend of jet and road. And there you get into a 1% or 2% yield loss on jet, but you make it up a little bit in the road side. But as you take down the economic then, if you're -- if road has a $0.70 a gallon premium to jet, part -- that's where you're talking the yield loss differential, is in the spread that exists today. The capital to do it, we think we could make -- if you take a $500 million gallon plant, we think we can probably do the capital for $500 million to $700 million in the module, would be my guess today. I've never seen the numbers, I guess I made that up. So sorry, Valero engineering team, if I pulled the rabbit out of the hat. But my guess is that. And so with that -- so you're going to say incrementally, that's about a $2 CapEx to make 250 million gallons of jet. But that's on top of $1.450 billion. So a new complex would be around $2 billion.

Got it. That's helpful for framing the financials. Another question, maybe on the customer side. You mentioned Delta and United have these targets they want to hit. And to do that, they will theoretically need to incentivize production from companies like you. Have they come and said we're going to underwrite -- if you produce it, we'll buy it at X? Because you see a lot of these announcements between proposed facilities and airlines, but you don't see it with existing producers like yourself. Is that -- is there a pricing formula that you could agree to with them that would incentivize you without the BTC?

Yes. I mean clearly, there is. Clearly, we've had discussions with all of them. But as I said, there is not a mechanism today within the green premium system out there today that will allow them -- remember, fuel is such a huge component of their entire cost structure. And so economics just don't work today. So most of these projects, as you see out here, are exploratory research, essentially media marshmallows that people lob out there, so people think they're working on it. The economics don't work because we need a mandate and we need probably $2 a gallon from the -- some type to make them efficient and effective, and then they can pass on. I ultimately believe that what you're going to see there as much -- if you think about the office building evolution that happened when you walk in a building and you saw it was green certified, I think you'll see a sticker on an airplane powered by 2% or 5%. I think that's probably a realistic place of where to go. Unless we find some magic feedstock and ultimately, somewhere down the road, we can be competitive with fossil diesel or fossil diesel jet.

Have you looked at any of these other technologies that are out there that use different feedstocks like municipal solid waste like ag residue?

We have looked at tons of different technologies, gasification and different things. We still think we've got the right machine, the most efficient machine in the world today to do it.

Got it. Another question, maybe this is a good one to end on, close to end on. There have been some positive M&A dynamics in the market around renewable diesel. As Darling thought about fully spinning out DGD or selling its stake and then establishing some sort of offtake agreement to kind of retain that integration that you have today.

We've had investment bankers here, of course, it's -- they want the giant firework explosion and the fees. And end of the day, Darling just ends up being the old Darling it was. We see it as -- our marriage with Valero is very special to me. It was something that I courted with Bill Klesse 10 years ago, 11 years ago. Valero is an incredible company. We share values, how we treat people, how we run our operations and how we view growth in our company. Joe Gorder views Diamond Green Diesel as his growth vehicle today, I view it as our growth vehicle. Today, we operate like we're one company, whether it's Valero or Darling or Diamond Green Diesel. So while it might be a special event for a shareholder, it's not in our cards today as we look at the future, we still think we've got a lot of growth ahead.

Great. Well, I think that's a good one to end on. We're at the 45-minute mark. So Randy, I really appreciate the time. This was an extremely informative discussion. I appreciate the candor throughout the call. So thanks a lot, and thanks for -- everyone for joining. And the next call will begin in 15 minutes. So thanks a lot.

Thanks, Jason. Appreciate it.