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Robert (Bob) Day

Thank you, Randy. Good morning, everyone. As Randy mentioned, DGD's results in the first quarter had more to do with macro events impacting the biofuel market than anything specific to DGD. Meanwhile, the core darling ingredients business performed very well and gained momentum as the quarter progressed.
For first quarter of 2025, Darling's combined adjusted EBITDA was $195.8 million versus $280.1 million in the first quarter of 2024. And adjusting for DGD first quarter of 2025 EBITDA was approximately $190 million versus approximately $165 million in the first quarter of 2024.
Total net sales in the first quarter of 2025 are $1.38 billion versus $1.42 billion in the first quarter of 2024, while raw material volume was almost the same at 3.79 million metric tons and 3.8 million metric tons, and gross margins improved to 22.6% in the first quarter of 2025 versus 21.4% in the first quarter of 2024.
Looking at the feed segment, total net sales increased and EBITDA improved on relatively unchanged volumes and higher fat prices, increasing through the end of the quarter. Specifically, total sales for first quarter of 2025 or $896.3 million versus $889.8 million in the first quarter of 2024.
Feed raw material volumes were approximately 3.1 million metric tons for both quarters, while EBITDA increased to $110.6 million in the first quarter of 2025 versus $106.8 million in the first quarter of 2024. Gross margins for the feed segment in quarter one 2025 were lower at 20.3% versus 20.7% in quarter one 2024, which was due to certain one-time items such as inventory adjustments.
Moving to the food segment, we began to see noticeable improvement in margins as the industry continued destocking from the inventory buildup experienced over the past 12 to 18 months. While total sales for first quarter of 2025 of $349.2 million were lower than first quarter of 2024 at $391.3 million, margins and volumes increased with raw material at 329,400 metric tons versus 299,800 metric tons and EBITDA increased to $70.9 million versus $61.7 million. Looking at the fuel segment, sales for the first quarter of 2025 are $135.1 million versus $139.2 million in the first quarter of 2024 of higher raw materials of 374,100 metric tons versus 356,900 million metric tons, but slightly lower finished product sales volumes.
Meanwhile, overall EBITDA and other metrics in the fuel segment were clouded by DGD's results. Specifically, EBITDA was $24.2 million in the first quarter of 2025 versus $133.1 million in the first quarter of 2024, whereas net of DGD, EBITDA was approximately $18 million in both quarters. Looking more closely at DGD, results were mainly impacted by four things.
First, the transition from the blender's tax credit to the producer's tax credit resulted in a lower value per gallon and a delayed reaction in RIN Values as obligated party compliance has been slow to react. Second, the complexity of the producer's tax credit and delayed guidance temporarily impacted both sales and feedstock eligibility for fuel types and destinations. Three tariffs on imported feedstocks and four downtimes related to catalyst turnarounds at DGD1 and DGD2.
Darling's share of DGD EBITDA was approximately $6 million for the first quarter of 2025 versus approximately $115 million for first quarter of 2024, a difference of approximately $109 million. These items had a bigger impact on DGD in quarter one than we expect will be the case going forward. However, DGD was and remains ahead of the curve with respect to making changes to its supply chain and positioning the business for success in this environment.
Overall, DGD has adjusted to supply chain requirements needed to maximize the value of tax credits, and we're pleased by the positive direction in the RIN Market and overall margins for renewable diesel and staff.
While we faced some challenges during the quarter, we continued to improve the health of our balance sheet as we paid down approximately $146.2 million in debt and repurchase slightly more than $1 million shares for approximately $35 million.
The company's total debt, net of cash as of March 29, 2025, was $3.84 billion versus $3.97 billion at December 28, 2024, leading to an improvement in our bank covenant preliminary leverage ratio of 3.33 times at quarter end, first quarter 2025 versus 3.93 times at quarter end fourth quarter 2024. In addition, capital expenditures totalled approximately $63 million in the first quarter of 2025 and we ended with approximately $1.27 billion available on our revolving credit facility.
The company recorded an income tax benefit of $1.2 million for the three months ended March 29, 2025, yielding an effective tax rate of 4.6%, which is lower than the federal statutory rate of 21% due primarily to the producer's tax credit. The effective tax rate, excluding the impact of the producer's tax credit in discrete items was 21.7% for the three months ended March 29, 2025.
The company also paid $9.2 million of income taxes in the first quarter of 2025. For full year 2025, we expect the effective tax rate to remain about the same at 5% and cash taxes to be approximately $60 million for the remainder of the year. We are also in the early stages of monetizing Darling's share of the producer's tax credit and look forward to providing an update next quarter. Overall, the company had a net loss of $26.2 million for the first quarter of 2025, or negative $0.16 per diluted share compared to net income of $81.2 million or $0.50 per diluted share for the first quarter.
Now I will turn the call back over to Randy.

Randall Stuewe

Thanks, Bob. As I said earlier, January and February started slowing, but as fat prices continue to rise, we have great momentum for the remainder of the year. I'm encouraged by the performance of our core business in March. March, EBITDA contribution was strong, and we expect this trend to continue. This gives me great confidence that our core business is strong enough to consistently generate cash and enable us to deliver, effectively weathering any uncertainty that exists in the biofuels market.
Looking at the March run rate, I think the core business will earn somewhere between $950 million and $1 billion of EBITDA for the year. As I mentioned, there has been a lot of noise in the renewables market, and while DGD did not perform as we had hoped, we believe the worst.
Behind us, we expect margins to improve and DGD to adjust accordingly. With that, I am reaffirming our guidance of $1.25 billion to $1.3 billion combined adjust at IBIDA for the balance of the year for fiscal 2025. With that, now let's open it up to questions.

Question and Answer Session

Operator

(Operator Instructions) Derrick Whitfield, Texas Capital.

Derrick Whitfield

Good morning all and thanks for taking my questions. Maybe starting with the as I. Starting with the DGD, as I understand, DGD was not able to optimize feedstocks for 45Z policies in Q1. Looking forward, what is the value of an optimized feedstock slate and then more broadly, what's the composition of that slate as you see it today?

Matt Jansen

Yeah, this is Matt. I, I'd answer that at least initially some of the others maybe to join in on that, but DGD typically processes a mix of feedstocks, and that is essentially margin driven and so it's always procuring the best product that nets the highest margin. And so that can be a mix of all types of oils and fats and frankly, we have all types in our recipe, so to speak, and so that that will vary depending on the month of the quarter, but it's a traditional mix that you know is largely based on animal fat, and cooking oil, as well as corn oil and different, bean oil and other oils.
So it it's an ever changing mix, but it's the usual suspects, let's say in the in the in the mix that are it's all margin driven.

Robert (Bob) Day

Yeah, I understand. Hey, Derrick, this is Bob. It's, this is going to depend in part how hard we're running staff. Obviously, the value of the PTC is higher for the potential value is higher for staff. The feedstocks required to make staff are generally lower carbon intensity so that, further enhances the value of 45Z.
So we plan on fully maximizing the value of that. As Matt pointed out, some of this, it just depends on access to different feedstocks. Obviously, as Darling, we have an advantage in, maximizing what we can pull through our own network, to obtain low CI score feedstocks that are eligible for PTC. And so, I think we're pretty optimistic about what the value of that is going to result in for DGD, but it's hard to kind of tell you right now what's the average cents per gallon. I think, what I would say is, we, we'd be on the very higher end of the curve, for both RD and staff, as we go forward.

Randall Stuewe

Yeah, I think Derrick, this is Randy, and I think Matt and Bob did a nice job there. I mean, the optimism that comes out of here is really the move from the noise that we had in Q1. Remember, we didn't get guidance from treasury until January 20. We had feedstocks in route that qualified that didn't qualify.
There there's various things as we noted in the script, there are requirements under 45C that required us to go back to our customers and rework contracts, get them to a degree. There were three basic requirements we won't go through them, but they had to use it, or it had to go to retail, and there was one other. But it, but at the end of the day, there's just a lot of noise that went down that allowed us only to claim a portion of 45Z in Q1 and what we're saying is in Q2, we've got the supply chain normalized.
We've got the turnarounds behind us, and we expect to recognize a 100% PTC on the eligible feedstocks that we'll process. And that's not to be sleight of hand. Some of the feedstocks that may come in cheaper that don't need the PTC, so it's really, as Matt said, it's a margin driven, but we see margins improving dramatically in Q2 versus Q1.

Derrick Whitfield

Terrific, makes sense. And then with regard to feed, we can see your margin optimism and the spread between waste and SPO feeds as they materially tightened or turned positive to your benefit. Other than timing for the quarter, were there any other drivers for lower margins in one cue?

Robert (Bob) Day

Well, I think, yeah. I mean there, there's, yeah, if we compare it to, first quarter of 2024, it was a pretty significant improvement. But there were just some things that came into quarter four, end of year type things that were somewhat one-off items that clouded a little bit. I don't know, Matt, if you want. Yeah, I.

Randall Stuewe

I think, at the end of the day, sequentially, when you look at the quarter guys. There were some one-offs. Brad noted in the script that we did have an insurance settlement in there. We've got a bigger pipeline now headed to DGD than we've ever had because of the restrictions on imported feedstocks and qualifications and remember that the euro's up, remember prices are up around the world for waste fats and so it made domestic fats now more attractive.
So that flowed through. We said in the script Jan, Feb the typical weakness that we see and then March, what we've done now is taken the March run rate. And divided, as I always tell people, this is an easy business to give you forward guidance on when you're either in a flat or a rising market.
The DGD, given the amount of fat that comes out of the North American supply chain, it is now it's a, it's a very transparent, thing for us, and it's a rising market. We have somewhere between a 45Z, and a 75-day pipeline sold at any given time.
And so you didn't, we had that done in November, December and so now as January, February came in, and March is when the prices are hitting. And you'll see that continue on at the current pricing. That's where we're formulating the guidance that we're throwing out there. And I think, prices have actually moved up since March even here.
So it feels, this business feels very solid going forward right now, barring any other craziness out of, we're going to need a little help out of DC here, but I think we're okay.

Operator

Dushyant Ailani, Jeffrey.

Dushyant Ailani

Hi, thank you for taking my question, sir. The first one, could you possibly quantify how much better feed was in March versus the first two months of the year and then how that translates to, core ingredients a bit for to you.

Randall Stuewe

And Dushyant, you can do the math and look at the $195 million for the first quarter of $190 million minus DGD and then they come with the $950 million to $1billion run rate, you can back into that, but no, we don't break out a quarter. Second question I didn't.

Robert (Bob) Day

That was the only question I understood, yeah.

Dushyant Ailani

Yeah, and then just the second one, I guess could you quantify what the that the one time inventory impact was on feed?

Robert (Bob) Day

The one time inventory.

Dushyant Ailani

Yeah.

Matt Jansen

We don't, we're not calling those out. I think it's just there was some smaller one-time items. Some have been called out in the last quarter on the insurance settlement so that the quarter-on-quarter comparison, and to say it's sequentially lower, obviously. The numbers are what the numbers are, but there's just some one off on both sides of this that they're, we're not calling over.

Randall Stuewe

They're not, and I, the guidance that we gave in February was that we, that as we were talking to folks and we said, well, what do you see the year off of Q4. And we said we ran [233] and Q4. We said times 4. What we didn't say was it's not radibly spread over each quarter because you've got a situation of rising prices now. So, you'll see an improved feed segment, gross margin, we look at all of it. If you look at all of the segments, even in the food segment. Remember, while 20%, 17% to 20% is a high value collagen gelatin and 80% of its feed and feed and fat.
So you get a lift there. You get a lift in the fuel segment too because of the different products that are processed there. So, focusing on the feed segment in my opinion, focus on the $950 million to $1 billion run rate for the year and that's what's important here.

Dushyant Ailani

Got it, thank you.

Operator

Heather Jones, Heather Jones Research.

Heather Jones

Good morning.
Thank you for the question. Randy, I wanted to start with, so you've seen all the Reuters rumours, and we've all heard different reports. What do you think a 2026 RVO would, that would be suitable would be like what is the number that You would be happy with and that would represent, you think upside to the $950 million to a $1 billion you gave us.

Matt Jansen

Heather, this is Matt. I would say that the common RVO that is expected and hopeful will be coming out here in the next few days is$ 5.25 billion gallons, and that is something that I would say across industries has been widely supported and the feedback that we have so far is that that is gaining traction and that's what we're looking forward to.

Heather Jones

Okay, thanks for that. And then my follow up is Not trying to belabour this point, but Randy, in the past you've told us that roughly every penny and fat pricing is worth roughly $12 million to $15 million EBITDA.
And like if you look at Q1 fats pricing versus Q1 of '24, it was up several pennies and then you also didn't have that ward South Carolina issue, but yet the EBITDA for ee was roughly flat year on year. So just trying to Get a sense of Was y'all's feed and feed segment impacted by the dislocation at Diamond Green or was there something else that we're missing? I get the lag and pricing relative to Q3 and Q4 last year. I'm just having a hard time understanding. The year on year impact.

Matt Jansen

Hi Heather, it's Matt again. I would say think about it this way. First of all, the, we have a forward sales book on almost all the time, somewhere on average of 60 to 90 days. And so, there's a lagging effect in this and that, that's also partially one of the reasons it gives us confidence when we look at how March improved over the over the first two months because Some of that started to get traction. So I think you'll see this shine through in the numbers as we go forward.

Randall Stuewe

And I would add to that, Heather, remember when you came out of '23, we came out in December of '23, soybean oil was $0.55 a pound, and by the time we got to Q1 and in '24, we were in a very much a deflationary market, so we were flowing through higher prices that were coming down in Q1 of '24, and now we're back in an inflationary. Improving markets. So, they're not, as I say, they're kind of hard with the forward sales book to kind of, if you will, reconciling in what you're trying to do. What we're trying to do is say we've got 100% visibility to the March run rate.
Prices have started to flow through in March. They're probably going to improve a little bit in April. If you look at imported fats into the US today, they're closer to $0.60 a pound. So, they're almost, $100 bucks a ton over top, what we're doing right now in the US maybe $120. So, like I said, this is not a difficult business once you are in a flat or an improving market to give forward looks to.

Operator

Manav Gupta, UBS.

Manav Gupta

Hey Andy, congrats on the leverage taking down, going back to the guidance a little, you still probably need about $250 million or so from the RD business. So, help us understand a little bit what you expect besides the PTC. That you start getting into you any help that you think you'll probably get on the car front and then what could be the rent prices help us bridge the GAAP to that about $250 million of EBITDA that you will need from the renewable diesel business to get to your guide.

Randall Stuewe

Yeah, I mean, good question, and I think it sets the stage, and I'll have Matt and Bob help me here, and we'll give, we'll kind of give a view on the balance of the year. I mean, clearly the Jan, Feb production rate in the march suggests that the RINS have to improve. You've got capacity idled right now around the industry. The industry is behaving like it should.
It's showing discipline and says, I'm not going to run and burn up Catalysts for zero margin. So where does, where do the RINS have to go? The RINS have to go, I don't know, a buck and a half somewhere in there, up $0.45, $0.50 from where they are to restart the capacity. So when we talk about the forward look here, the [125 to 113], I think it's fairly conservative.
And if you look at it, As we know on the Valley call here shortly, they'll be telling you an adjusted run rate for the year about $1.1 billion because of turnarounds that we had in the gallons, total gallons, and you sit there and say, well, we told you we're going to earn, $0.55, $0.65 a gallon on the PTC. It's not hard to back into How we come up with the additional [250 to 300] in within DGD to get to our guidance. What that says is we're not making a statement that DGD is going to run at 0 for RD for the year and then get a PTC. We're saying RINS have to improve and we're giving you a conservative forward look.

Robert (Bob) Day

Yeah so, this is Bob, and I think, with respect to RINS. The run rate so far Jan, Feb March puts us on pace to produce about $6 billion RINS, D4 RINS, and really, we need to make [7.5] in 2025 to meet the mandate. So, we're still underproducing by quite a bit. We've seen RINS go up by over $0.40, equivalent to $0.65 a gallon since the start of the year.
So there is a lot of momentum, moving in the right direction. And it really comes down to when obligated parties feel the need for compliance as to when those values get to where they ultimately need to be. So, we see a lot of support there, as Randy mentioned in the PTC, we weren't able to realize a lot of the PTC in the first quarter due to the late guidance and, having maybe not the best feedstocks in place. And some of the sales qualifications that we needed to go through to get ready.
So that's going to also be a real lift to the P&L as we go forward. We, the other thing we haven't talked a lot about is just the downtime. I mean, you can see, the number of gallons we produced, we were less than 2/3 of total capacity. So, that, that's another thing that is really going to provide a helpful lift as we go forward through the rest of the year.
And then Lastly, there are a lot of positive discussions kind of going on behind the scenes around the RVO and also at CARB and so, I think we're pretty confident in what the outlook is without those things, but if those come to pass, then It certainly could change the picture in a positive way.

Matt Jansen

I would just also include this is mad. I would also include that there's also the staff component. I mean, so this is a continuous margin bill with the PTC with the with the RIN, with obviously that price, all of these will influence the margins, but with our staff, production, we're also, that also gives us more confidence.

Manav Gupta

Perfect. And sometimes that doesn't get enough credit for the kind of innovation you bring to the market. So, recently you have launched some products, to control blood sugar, and you also have an attractive pipeline of projects and products you do plan to bring to the market. Can you help us walk us through some parts of that business which I think remains somewhat underappreciated.

Robert (Bob) Day

So this is Bobby. I think you're referring to Russolo and our college and business, and you point out, I mean, EBITDA increased pretty significantly, this quarter versus a year ago and last quarter, we are bringing some very innovative products to market. I think, we've advertised as loudly as we can the next data portfolio products and the next day the glucose control product that is currently on the market and undergoing.
Additional trials, to really get this out in a larger way. We love talking about collagen and our ability to innovate through collagen and put together, peptide profiles that have targeted health benefits and really do amazing things for people. What's exciting from the business standpoint is that margins are significantly higher in those products.
And so as we continue to develop the next item of GC product and other products in the next data portfolio, we look to see earnings in that particular segment increase quite a bit.

Operator

Tom Palmer, Citigroup.

Tom Palmer

Good morning and thanks for the question. I guess just first I wanted to clarify on the guidance. You noted the expectation, that in the relative near term we could get some resolution on the RVO sounded like 5.25 billion gallons for 5MS based diesel was your expectation.
I know it might be hard to be overly precise, but I just want to understand how much of this is baked into how you're thinking about the year versus if it does come through with this 5.25 level, that would be kind of upside versus how you're thinking about the year.

Randall Stuewe

Yeah, and this is Randy, Tom, great question in a sense, I mean, obviously coming off of last year we're a little bit snake bitten and we're being with a pretty conservative view. I mean, DC is a bit hard to handicap right now.
We've spent a lot of time there recently with our colleagues across the agriculture and energy.
It feels like we have alignment on the 5.25 billion gallons. I mean, clearly the White House needs some wins here. And I think, the American farmer has been singled out as somebody that the trump administration gets and understands and wants to support. And so, I think we're going to ride that momentum and that that's very positive. Now, the good news is the 5.25 billion gallons is that's a lot of demand that that hasn't been there in the past.
That gets friendly feedstocks, whether you're, your soybean oil or whether your animal fats and waste fats. So, it's bullish the base business that is not baked in yet, because remember that doesn't start until, '26. So that, that's number one. Number two, if you start moving feedstocks up unless you're going to get help out of RINS.
If you're going to get help out of LCFS, there, there's still no margin in this until at the end of the day, those are going to have to move in order to fulfil the, what I'm going to call the ren deficit that is building out there right now. So, we're setting up. Right now, for what I'm going to call, the fantastic finish in the back half of the year here as this thing becomes a little more clear. Bob, you want anything?

Robert (Bob) Day

Yeah, I just, one thing I think that it's interesting that what we're hearing is talk about a gallon mandate when historically it's really been referred to as RINS and so I think there's quite a lot of confusion actually between RINS and gallons. The reality is a 5.25-billion-gallon D4 mandate would effectively increase in demand by about $3 billion in 2026 versus 2025. So, it's, that would be a substantial increase. We're not really faking that into this forward guidance. I think if that were to be clarified, we'd probably see a pretty interesting market unfold.

Randall Stuewe

I mean, you've seen Tom, you've seen RINS move from $0.61 to the start of the year to $1.05. But capacity, especially in the biomass-based diesel or biodiesel industry is still fairly, is idle and negative. So, something's got to give. What the situation we're in right now is not sustainable. What we know is we have the two lowest cost operating assets in the best place in the world, and they're profitable. And we know that as we were given that guidance in Q2 here. So, but in order to restart the industry, and to fulfil the existing mandate before the new mandate, you've got to bring back profitability. There just isn't enough capacity to fill the RVO even as it stands today at the margins that exist.

Tom Palmer

Thanks for all that color. Maybe I could just follow up quickly on kind of the last point you noted, at least on, regeneration year-to-date, it is tracking below this year's mandate. What do you think is driving this at this point? And I guess any view on what might cause kind of a change other than obviously this RVO announcement for '26 maybe, making people more concerned about the rim bank.

Randall Stuewe

Yeah, and well, the three of us will tag team this one because and there isn't any differing views at the table. Remember, the obligated party has all year it, and Bob has always said it's really not a futures market that that anticipates the S&D here. So, the obligated parties are still sitting here trying to figure out what's going on in DC. Are there going to be SREs?
Is there going to be a bigger RVO? I can tell you that our colleagues in San Antonio, we see a tightness in RINS building very rapidly here. So we, we've got a universal view on this right now, but there's just so much noise, it, it's, if you think about it, [61 to 105] is a big move already and, but it's not enough to restart the industry.
There's very limited liquidity, if you will, if you wanted to go out there and said, let's go get long RINS today. There's very limited liquidity and the obligated parties just until they get more transparency. I don't know what do you think, Bob, Matt.

Robert (Bob) Day

I think that's right. I think for some of the obligated parties, who don't have an immediate penalty for lack of compliance, they're looking at a pretty significantly increased rent price and they're sitting on the sidelines, but as time goes on, that, that's going to be harder and harder to do.

Matt Jansen

Tom, I would just say there's really, there's two things to watch for number one is just the margin in terms of what the renewable diesel and the biodiesel margin is. It would help, will dictate the production and therefore the in generation, and then the other is imports, whether it is on importing on biofuels. So, those two things I would watch for as indicators, to look for, some, direction on RINS market.

Operator

Ryan Todd, Piper Sandler.

Ryan Todd

Good, thanks. Good morning, everybody. Maybe a question first of all, you mentioned a little bit earlier in your comments, but I know there are a lot of moving pieces of volatility as it stands right now. Can you talk through the impacts of the current tariff regime on the various aspects of your business?

Robert (Bob) Day

Look at a at a high level, talking about the core business, it's probably a slight net positive for darling, one thing with tariffs coming in the United States, it limits availability of waste fats and so that's been supportive to the North American waste fat prices.
So that that's generally good. I think that, the one area where it's not entirely positive is in selling protein products to China, but that, that's less of a, like a tariff hit and just, it just takes a market that was available that's, that needs to be redirected somewhere else but the net really isn't a, it really isn't a negative for Darling's core business.
The question really is more about how does it affect the renewable fuel industry in the United States and, tariffs on feedstocks and as we kind of re-engineer supply chains, we're just finding ways around those things, so we don't see it as a really negative thing for our business, fortunately.

Ryan Todd

Good thanks. And then maybe shifting to staff, can you maybe provide a little more color in terms of what you said, I mean, you said the demand pool has been reasonable so far like. Can you walk through what sort of demand pool are you seeing? Is it, is that mostly coming from mandated markets or is it also the voluntary markets? And what would you need to see, at this point to think about moving forward with the second staff project?

Matt Jansen

So, this is Matt. So, we have a mix between whether it's the demand, whether it's the obligated or the markets or the voluntary markets, it's pretty well balanced on that. We're running at an optimal rate to maximize the margins that we have.
And, our staff sales book started more than a year ago, as we were contracting staff. So, we've got a fair bit of a book on already. I tell you quite a strong book as a matter of fact, through the whole year. And so, we're delivering on those contracts. And so, to your question on a second staff line, I think right now we need to let some of the storm clear on all of the, all of these market dynamics that are going on, to make a final call on that. It's something that is on the table and we, we've done some of the engineering work on that, but we're holding off, for the time being to have more clarity on what the future holds.
The other reality is that as the market evolves in the, the credit scenario, what we're seeing more and more interest in is the booking claim process.
And so it's not necessarily contracts with airlines and the distributors, but there is a booking claim process that we're the some of the tech high energy users are buying the scope three credits.

Operator

Pooran Sharma, Stephens.

Pooran Sharma

Hey, thanks for the question.
Just wanted to get a sense of capital allocation priorities from here. Looks like you did do a little bit of deli deleveraging also with the share repurchases, but just wanted to talk about something you said on the last call. I think you mentioned your target is 2.5%. Wanted to get a sense of when you think, we could get there and what the pace of deleveraging. Investors can expect going forward.

Robert (Bob) Day

Yeah, thanks, this is Bob. That's correct. I mean, first I just say that our plan hasn't changed. We are focused on continuing to pay down debt and, delever our balance sheet. We've made a lot of progress to that end recently and we will continue through the rest of the year. We'll get pretty close to that 2.5% by the end of the year. We may not quite get there, but we'll, it'll happen early 2026 if it doesn't happen by the end of the year that's really what we're seeing.

Pooran Sharma

Okay, I appreciate that. And just really wanted to, I think everybody's asked good questions about DGD. Maybe I could focus in on the food segment here. A really good margins, much higher than anticipated. You kind of spoke to some of the strength here, but wondering if you could share some incremental color and do you think that this is a level of gross margin performance that you can sustain here? I think last time on the last call you said you were working with CPG customers.
To help them, better educate their customers on this product. So, I was just wondering if you could just give us an overview on food and next to there.

Robert (Bob) Day

Yeah, this is Bob again. So, I appreciate you bringing this segment up. It's an exciting one for us here. I think on a high level what we've seen is an industry that has really gotten a little bit more healthy here as low, let's say high-cost production around the world has stopped making product and they've begun to destock inventories. We've seen some announcement.
That some of the higher cost areas of the world have decided to shut production down, and that's just led to an overall, better health in the gelatin market and the collagen market. So, we think that we're in a pretty good spot as we go forward.
As far as Nextida, we do have a product on the market under a brand called Code ACODEAGE and the Nextida glucose control product is inside. Inside that product, we are going through some trials that we should finish this summer, and that's with a much larger sample size that would allow the larger CPG companies to be comfortable, taking this product to market. So really what we're expecting is to get through that process, go through some, commercial activities to be able to see this product in much higher volume as we kind of get near the end of 2025.

Operator

Andrew Strelzik, BMO.

Andrew Strelzik

Hey, good morning. Thanks for taking the questions. My first one is just on the comment you made that we could get the preliminary RVO in the next couple days, I guess what informs that view? Do you have some visibility to that? It sounds like there's, based on your comments, still some uncertainty around maybe the SRE, so could we get a preliminary number without a resolution around that? Just curious about that comment specifically.

Matt Jansen

Let me, if I did say next couple of days, I guess I wouldn't try to be that exact on that. I really did say next couple of days, few days. Okay, well, I think in the coming days is probably a better description of that, and I apologize if I came out, too soon on that, but we are optimistic on that. We, but in terms of having special insight or anything that gives us any confidence more than what other people who are industry participants, I would say we don't have any extra knowledge in that regard, but we do have we remain optimistic about the volume as well as the timing.

Randall Stuewe

Yeah, Andrew. The discussions are clearly happening in DC. We're part of them with a larger group. There's a, there is a, the first time in my career since 2007 that we have absolute alignment amongst a high majority, if not the major, 90% of the trade groups in this on what should happen here. And we have a President that also is now realizes that the American farmers are important. So, my view is that I think you'll see something out of DC here somewhere in the next, 45 days to 60 days, maybe sooner, but That they're all working on it, and, it's just a lot of different moving parts there, but everybody at least is reading off for the same song sheet right now.

Andrew Strelzik

Got it. Okay. That makes sense and I appreciate you clarifying that my second question, I feel like we felt like the runway was there for, with all these drivers and better performance, for the last couple of quarters and so I guess I'm just Curious kind of how you handicap the risks. I know most of this is kind of industry related and macro related, but as you sit here today and taking the march and just kind of extrapolating that makes a lot of sense, how do you handicap the risks or what you're paying attention to on the risks on the guidance.

Robert (Bob) Day

Look, this is Bob. I think guidance around the core business is the risks are relatively low. What the market that we're seeing today, certainly things could change, but, typically, these are sort of momentum-driven markets, and they're pointed in the right direction. So, I think it'd be pretty low there as it relates to biofuels, there's certainly, there's going to be more uncertainty there just because it's so influenced by policy and there's so much going on behind the scenes. We give guidance today based on what we're seeing and, all the things that we've explained, but that's one that could be affected more by things outside of our control than our core business.

Operator

Matthew Blair with TPH.

Matthew Blair

Thank you and good morning. So, regarding the new LCFS standards in California, I think the comment period just ended a few days ago, and we're waiting for CARB to resubmit the new targets to the OAL. Is that you’re understanding as well? And then perhaps more importantly, do you have a view on the implementation timing? For these new targets, do you think they'll be backdated to January 1, 2025, or is an implementation date in 2026 more reasonable at this point? Thank you.

Matt Jansen

Hey, good morning, Matthew. I would say that particular to your question on the timing, the, yes, the comment period ended on Monday, and we understand there's 30 working days to provide some analysis that's going to, they have to go through a process in order to address the comments.
We understand that's ongoing and we remain optimistic that the this was is on track and we're going to see something come out definitively. In the reasonably near future, I don't want to get the expectations too high on that, yeah, so we think that's on track, and so now whether that is going to be retroactive or effective in sometime mid-year or first year, that's a question we continue to ask. I think we're prepared no matter what, but. I think in my view, a worst-case scenario would be January 1 of '26, but there is a chance from what we understand of having something there.

Matthew Blair

Great thank you and then. For DGD, your reported Q1 EBITDA was quite a bit different than what your partner reported. It sounds like there is at least some 45 contributions in in your number which may not be in your partner's reported number. But can I also clarify, is there any LCM impact in your, Q1 DGD EBITDA, and if so, how much?

Robert (Bob) Day

Hey Matt, this is Bob. Yeah, I mean, we're, we see a pretty big difference there. I think one thing I just want to make really clear is that none of the difference has anything to do with recognition of 45Z.
Historically, we have shown, we report LCM differently. So, I think that's the way to look at it. In particular, the first quarter had had a lot of volatility in both LIFO and LCM. The big difference between our number and what Valero is showing is with the LCM.

Operator

Betty Zhang, Scotiabank.

Betty Zhang

Thanks. Good morning. Thanks for taking the question. I'm sorry to go back to this, but I was wondering for the PCC that was recognized in first quarter. Can you share how much of it was recorded?

Robert (Bob) Day

I think we would sort of roughly say that. We, so we'll show this in more clarity in the 10, which will come out in a couple of weeks, but we were roughly able to realize PTC on about a third of the volume that we had in the quarter.

Betty Zhang

Great, thank you. And for my follow up, so we saw there were some buybacks, and you also paid down some debt. I'm wondering, going forward, how do you see that split? How do you view, allocation, going forward?

Robert (Bob) Day

So it's Bob again. We, we're focused on paying down debt. I mean, we'll opportunistically look at buying shares back when we can. We want to buy back our delusion, so we did some of that in the first quarter, but, the lion's share of the capital we spent that way was towards debt pay down and we'll continue to focus more on that.

Operator

Jason Gabelman, TD Securities.

Jason Gabelman

Morning. Thanks for taking my questions. I was one of the people who thought there was a different PTC booking versus LCM with your DGD partner, so appreciate that clarification. The first question on the PTC monetization, and I guess it seems like some of, if not all of the distribution from DGD.
A that you booked in one cu was related most likely to timing of blenders' tax credit, cash inflows. So as we look forward, I would suspect the distributions are tied to monetizing the producer tax credit.
So with that in mind, I was hoping you could provide a little more context on the steps involved and what we should be looking out for in terms of progressing the ability to monetize that. Thanks.

Robert (Bob) Day

Yeah, Jason, this is Bob again. So just to kind of touch on something you said, the distributions from DGD, I mean, certainly the PTC, realization, monetization of PTC is one source of revenue that we will realize. But whether it's bigger or smaller than distributions for DGD ultimately is going to depend on the size of renewable diesel and sustainable aviation fuel margins. Wouldn't rule that out, that we get more that way, but we'll see how that plays out. As far as the process around monetizing the PTC, it's moving forward, I would say very efficiently. As it is with these types of processes, there are a number of steps, brokerage firms involved, lining up counterparties, getting contracts kind of ironed out terms of legal terms ironed out, and we're going through that process to be able to set up for, let's call it some sort of an auction to be able to sell those credits and monetize those in the latter half of the second quarter.

Matt Jansen

But you don't need.

Jason Gabelman

Any further guidance or anything from the, yeah.

Randall Stuewe

No.

Robert (Bob) Day

No, and going.

Matt Jansen

Forward, we would expect to capture 100% of the qualified feedstock PTC.

Jason Gabelman

Got it. Great. My follow up is just on the strength in feed prices, and I understand that it's a benefit to the feed business. You have the sensitivity $0.01 per pound is worth $15 million of EBITDA, but I would imagine all else equal those feed prices moving higher are actually a headwind to the DGD business that outweighs the feed business. So, is that correct? And then further to that point, if you just talk about what exactly is driving the waste oil strength. It seems like they're pricing above their carbon intensity difference to vegetable oil. So, if they're at kind of a sustainable premium to vegetable oil or if they need to come down a bit, thanks.

Matt Jansen

That's a great question. I, there, there's an inherent premium in the in the waste fat compared to soybean oil that in the, you can even see it in the in the CI scores and so that that's reflected in the in pricing and so let me that's the simple answer to that question. The other reality is there's only a certain number of US produced animal fat that's available in the market and so it's in demand right now. For good reason, and so that that's also part of the price differentiation that we're seeing between that and so.

Robert (Bob) Day

Yeah, and this is Bob, just that, one of the other reasons is crop oils aren't eligible for all types of biofuels. So, there is that element as well where I used cooking oil, verified used cooking oil, certified used cooking oil is eligible for pretty much any type of fuel, whether it's biodiesel, renewable diesel, sustainable aviation fuel regardless of the destination. So some feedstocks just do have more versatility and then they therefore may trade above their carbon intensity adjusted value.

Operator

Ben Kallo, Baird.

Ben Kallo

Hi, good morning, if, Randy, everything stayed the same today, how would the core business, be in Q2? I'm just trying to figure out the cadence of EBITDA for the core business, not, DGD.

Robert (Bob) Day

Thank you. Hey, Ben, this is Bob. I think, it, what I would probably do is I would just say that we don't expect quarter two to look a lot different from quarters three and four. And so, if you just take quarter one, subtract that from the guidance, that that's probably the best way to do the math on that.

Randall Stuewe

Okay, thanks.

Operator

Thank you for your question. That concludes our Q&A portion for today. I would now like to pass the conference back to the management team for closing remarks.

Randall Stuewe

All right. Thanks everyone. Thanks, Victoria. Thank you for questions today. If you have any other questions, please reach out to Sue Anne. Thanks for taking the time to be with us today. Stay safe and have a great day and talk to you here next quarter.

Operator

That concludes today's call. Thank you for your participation and have a wonderful rest of your day.