DARLING INGREDIENTS INC

Three Months Ended June 29, 2024 Compared to Three Months Ended July 1, 2023

Operating Performance Metrics

Operating performance metrics which management routinely monitors as an indicator of operating performance include:

•Finished product commodity prices

•Segment results

•Foreign currency exchange

•Corporate activities

•Non-U.S. GAAP measures

These indicators and their importance are discussed below.

Finished Product Commodity Prices

Prices for finished product commodities that the Company produces in the Feed Ingredients segment are reported each business day on the Jacobsen Index (the “Jacobsen”), an established North American trading exchange price publisher. The Jacobsen reports industry sales from the prior day's activity by product. Included on the Jacobsen are reported prices for finished products such as protein (primarily meat and bone meal (“MBM”), poultry meal (“PM”) and feather meal (“FM”)), hides, fats (primarily bleachable fancy tallow (“BFT”) and yellow grease (“YG”)) and corn, which is a substitute commodity for the Company’s bakery by-product (“BBP”), as well as a range of other branded and value-added products, which are products of the Company’s Feed Ingredients segment. In the United States and South America, the Company regularly monitors the Jacobsen for MBM, PM, FM, BFT, YG and corn because it provides a daily indication of the Company’s U.S. and Brazilian revenue performance against business plan benchmarks. In Europe and South America, the Company regularly monitors Thomson Reuters (“Reuters”) to track the competing commodities palm oil and soy meal.

Although the Jacobsen and Reuters provide useful metrics of performance, the Company’s finished products are commodities that compete with other commodities such as corn, soybean oil, palm oil complex, soybean meal and heating oil on nutritional and functional values. Therefore, actual pricing for the Company’s finished products, as well as competing products, can be quite volatile. In addition, neither the Jacobsen nor Reuters provides forward or future period pricing for the Company’s commodities. The Jacobsen and Reuters prices quoted below are for delivery of the finished product at a specified location. Although the Company’s prices generally move in concert with reported Jacobsen and Reuters prices, the Company’s actual sales prices for its finished products may vary significantly from the Jacobsen and Reuters because of production and delivery timing differences and because the Company’s finished products are delivered to multiple locations in different geographic regions which utilize alternative price indexes. In addition, certain of the Company’s premium branded finished products may sell at prices that may be higher than the closest product on the related Jacobsen or Reuters index. During the second quarter of fiscal 2024, the Company’s actual sales prices by product trended with the disclosed Jacobsen and Reuters prices.

Average Jacobsen and Reuters prices (at the specified delivery point) for the second quarter of fiscal 2024, compared to average Jacobsen and Reuters prices for the second quarter of fiscal 2023 are as follows:

The following table shows the average Jacobsen and Reuters prices for the second quarter of fiscal 2024, compared to average Jacobsen and Reuters prices for the first quarter of fiscal 2024.

Segment Results

Segment operating income for the three months ended June 29, 2024 was $148.5 million, which reflects a decrease of $(208.2) million or (58.4)% as compared to the three months ended July 1, 2023.

Feed Ingredients Segment

Raw material volume. In the three months ended June 29, 2024, the raw material processed by the Company’s Feed Ingredients segment totaled approximately 3.10 million metric tons. Compared to the three months ended July 1, 2023, overall raw material volume processed in the Feed Ingredients segment decreased 0.3%.

Sales. Net sales decreased in the Feed Ingredients segment primarily due to the following (in millions of dollars):

Margins. In the Feed Ingredients segment for the three months ended June 29, 2024, the gross margin percentage decreased to 21.0% as compared to 23.2% for the comparable period of fiscal 2023. The decrease in margin was primarily due to lower overall finished product prices as compared to fiscal 2023.

Segment operating income. Feed Ingredients operating income for the three months ended June 29, 2024 was $68.7 million, a decrease of $(43.7) million or (38.9)% as compared to the three months ended July 1, 2023. The decrease was primarily due to lower overall finished product prices that were partially offset by a gain from the reduction of the recorded FASA contingent consideration liability as compared to fiscal 2023.

Food Ingredients Segment

Raw material volume. In the three months ended June 29, 2024, the raw material processed by the Company’s Food Ingredients segment totaled approximately 305,000 metric tons. Compared to the three months ended July 1, 2023, overall raw material volume processed in the Food Ingredients segment decreased approximately 7.9%. This decrease was primarily due to strategic reductions in raw material purchases.

Sales. Net sales decreased in the Food Ingredients segment primarily due to a decrease in collagen prices that more than offset the increase in collagen sales volumes and increases in fat prices.

Margins. In the Food Ingredients segment for the three months ended June 29, 2024, the gross margin percentage increased to 26.9% as compared to 22.1% for the comparable period of fiscal 2023. The increase was primarily due to margins being lower in the prior year because of a step-up of inventory value in purchase accounting related to the Gelnex Acquisition in fiscal 2023.

Segment operating income. Food Ingredients operating income was $45.8 million for the three months ended June 29, 2024, an increase of $3.8 million or 9.0% as compared to the three months ended July 1, 2023. The increase was primarily due to an increase in margins and lower selling and general and administrative costs as compared to fiscal 2023.

Fuel Ingredients Segment

Raw material volume. In the three months ended June 29, 2024, the raw material processed by the Company’s Fuel Ingredients segment totaled approximately 362,000 metric tons. Compared to the three months ended July 1, 2023, overall raw material volume processed in the Fuel Ingredients segment increased approximately 4.3%.

Sales. Net sales increased in the Fuel Ingredients segment primarily due to higher sales volumes.

Margins. In the Fuel Ingredients segment for the three months ended June 29, 2024, the gross margin percentage increased to 20.0% as compared to 19.8% for the comparable period of fiscal 2023. The increase was primarily due to improved spread management from lower priced raw materials as compared to fiscal 2023.

Segment operating income. The Company’s Fuel Ingredients segment operating income (inclusive of the equity contribution from the DGD Joint Venture) for the three months ended June 29, 2024 was $55.6 million, a decrease of $(171.6) million or (75.5)% as compared to the same period in fiscal 2023. The decrease in earnings is primarily due to lower sales volumes at the DGD Joint Venture, a decrease in renewable identification number (RIN) prices, lower values for LCFS credits, a planned catalyst turnaround at the Port Arthur plant and the recording of a lower-of cost-or-market reserve by the DGD Joint Venture related to lower market prices.

Foreign Currency Exchange

During the second quarter of fiscal 2024, the euro, the Brazilian real and the Canadian dollar weakened against the U.S. dollar as compared to the same period in fiscal 2023. Using actual results for the three months ended June 29, 2024 and using the prior year's average currency rate for the three months ended July 1, 2023, foreign currency translation would result in an increase in operating income of approximately $1.8 million. The average rates for the three months ended June 29, 2024 were €1.00:$1.08, R$1.00:$0.19 and C$1.00:$0.73 as compared to the average rates for the three months ended July 1, 2023 of €1.00:$1.09, R$1.00:$0.20 and C$1.00:$0.74, respectively.

Corporate Activities

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $18.5 million during the three months ended June 29, 2024, compared to approximately $20.7 million during the three months ended July 1, 2023, a decrease of $2.2 million. The decrease is due primarily to lower consulting and professional fees expense.

Acquisition and Integration costs. Acquisition and integration costs were approximately $1.1 million during the three months ended June 29, 2024 as compared to $1.7 million for the same period in fiscal 2023. These costs primarily relate to the Gelnex Acquisition and the Miropasz Acquisition for the three months ended June 29, 2024 and primarily related to the Gelnex Acquisition, the FASA Acquisition and the Valley Proteins acquisition for the three months ended July 1, 2023.

Depreciation and Amortization. Depreciation and amortization charges were approximately $2.1 million for the three months ended June 29, 2024 as compared to $2.5 million for the three months ended July 1, 2023. The decrease is due to certain assets becoming fully depreciated.

Interest Expense. Interest expense was $69.2 million during the three months ended June 29, 2024, compared to $70.2 million during the three months ended July 1, 2023, a decrease of $1.0 million. The decrease in interest expense was primarily due to a reduction in term loan A debt, the payoff of term loan B and a reduction in other debt interest due to debt repayments that more than offset an increase in interest expense from higher revolver borrowings as compared to the same period in fiscal 2023.

Foreign Currency Gain. Foreign currency gains were $0.4 million for the three months ended June 29, 2024 as compared to foreign currency gains of $2.5 million for the three months ended July 1, 2023. The decrease in currency gains is due primarily to a decrease in gains on the revaluation of non-functional currency assets and liabilities as compared to the same period of fiscal 2023.

Other Income/(Expense), net. Other expense was $0.6 million in the three months ended June 29, 2024, compared to other income of $5.1 million for the three months ended July 1, 2023. The decrease in other income was primarily due to a decrease in interest income and casualty gains as compared to the same period in fiscal 2023.

Equity in Net Income in Investment of Other Unconsolidated Subsidiaries. The change in this line item is not significant and primarily represents the Company’s pro rata share of the net income from foreign unconsolidated subsidiaries.

Income Taxes. The Company recorded income tax expense of $0.8 million for the three months ended June 29, 2024, compared to income tax expense of $40.7 million recorded in the three months ended July 1, 2023, a decrease of $39.9 million, which was primarily due to decreased pre-tax earnings of the Company and the relative impact of biofuel tax incentives. The effective tax rates for the three months ended June 29, 2024 and July 1, 2023 were 0.9% and 13.8%, respectively. The effective tax rate for the three months ended June 29, 2024 differed from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), nontaxable change in FASA contingent consideration, certain taxable income inclusion items in the U.S. based on foreign earnings and biofuel tax incentives. The effective tax rate for the three months ended July 1, 2023 differed from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes) and biofuel tax incentives. The Company’s effective tax rate excluding the impact of the biofuel tax incentives and discrete items was 29.0% for the three months ended June 29, 2024, compared to 25.8% for the three months ended July 1, 2023.

Non-U.S. GAAP Measures

Adjusted EBITDA is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity. It is presented here not as an alternative to net income, but rather as a measure of the Company’s operating performance. Since EBITDA (generally, net income plus interest expense, taxes, depreciation and amortization) is not calculated identically by all companies, the presentation in this report may not be comparable to EBITDA or Adjusted EBITDA presentations disclosed by other companies. Adjusted EBITDA is calculated below and represents for any relevant period, net income/(loss) plus depreciation and amortization, restructuring and asset impairment charges, acquisition and integration costs, change in fair value of contingent consideration, interest expense, income tax expense, other income/(expense) and equity in net (income)/loss of unconsolidated subsidiaries. Management believes that Adjusted EBITDA is useful in evaluating the Company’s operating performance compared to that of other companies in its industry because the calculation of Adjusted EBITDA generally eliminates the effects of financing, income taxes and certain non-cash and other items that may vary for different companies for reasons unrelated to overall operating performance.

Pro forma Adjusted EBITDA to Foreign Currency is not a recognized accounting measurement under GAAP. The Company evaluates the impact of foreign currency on its adjusted EBITDA. DGD Joint Venture Adjusted EBITDA (Darling’s share) is not reflected in the Adjusted EBITDA or the Pro forma Adjusted EBITDA to Foreign Currency (Non-GAAP).

The Company’s management uses Adjusted EBITDA as a measure to evaluate performance and for other discretionary purposes. In addition to the foregoing, management also uses or will use Adjusted EBITDA to measure compliance with certain financial covenants under the Company’s Senior Secured Credit Facilities, 6% Notes, 5.25% Notes and 3.625% Notes that were outstanding at June 29, 2024. However, the amounts shown below for Adjusted EBITDA differ from the amounts calculated under similarly titled definitions in the Company’s Senior Secured Credit Facilities, 6% Notes, 5.25% Notes and 3.625% Notes, as those definitions permit further adjustments to reflect certain other non-recurring costs, non-cash charges and cash dividends from the DGD Joint Venture. Additionally, the Company evaluates the impact of foreign exchange on operating cash flow, which is defined as segment operating income/(loss) plus depreciation and amortization.

DGD Joint Venture Adjusted EBITDA (Darling’s share) is not a recognized accounting measurement under GAAP; it should not be considered as an alternative to net income or equity in net income of Diamond Green Diesel, as a measure of operating results, or as an alternative to cash flow as a measure of liquidity, and is not intended to be a presentation in accordance with GAAP. The Company calculates DGD Joint Venture Adjusted EBITDA (Darling’s share) by taking DGD’s operating income plus DGD’s depreciation, amortization and accretion expense and then multiplying by 50% to get Darling's share of DGD’s EBITDA.

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA

Second Quarter 2024 as compared to Second Quarter 2023

(1) The average rates for the three months ended June 29, 2024 were €1.00:$1.08, R$1.00:$0.19 and C$1.00:$0.73 as compared to the average rates for the three months ended July 1, 2023 of €1.00:$1.09, R$1.00:$0.20 and C$1.00:$0.74, respectively.

Six Months Ended June 29, 2024 Compared to Six Months Ended July 1, 2023

Operating Performance Metrics

Operating performance metrics which management routinely monitors as an indicator of operating performance include:

•Finished product commodity prices

•Segment results

•Foreign currency exchange

•Corporate activities

•Non-U.S. GAAP measures

These indicators and their importance are discussed below.

Finished Product Commodity Prices

During the first six months of fiscal 2024, the Company’s actual sales prices by product trended with the disclosed Jacobsen and Reuters prices.

Average Jacobsen and Reuters prices (at the specified delivery point) for the first six months of fiscal 2024, compared to average Jacobsen and Reuters prices for the first six months of fiscal 2023 are as follows:

Segment Results

Segment operating income for the six months ended June 29, 2024 was $285.7 million, which reflects a decrease of $(326.8) million or (53.4)% as compared to the six months ended July 1, 2023.

Feed Ingredients Segment

Raw material volume. In the six months ended June 29, 2024, the raw material processed by the Company’s Feed Ingredients segment totaled approximately 6.2 million metric tons. Compared to the six months ended July 1, 2023, overall raw material volume processed in the Feed Ingredients segment decreased 1.1%.

Sales. Net sales decreased in the Feed Ingredients segment primarily due to the following (in millions of dollars):

Margins. In the Feed Ingredients segment for the six months ended June 29, 2024, the gross margin percentage decreased to 20.9% as compared to 23.2% for the comparable period of fiscal 2023. The decrease in margin was primarily due to lower overall finished product prices as compared to fiscal 2023.

Segment operating income. Feed Ingredients operating income for the six months ended June 29, 2024 was $113.2 million, a decrease of $(121.9) million or (51.9)% as compared to the six months ended July 1, 2023. The decrease was primarily due to lower overall finished product prices that were partially offset by a gain from the reduction of the recorded FASA contingent consideration liability as compared to fiscal 2023.

Food Ingredients Segment

Raw material volume. In the six months ended June 29, 2024, the raw material processed by the Company’s Food Ingredients segment totaled approximately 605,000 metric tons. Compared to the six months ended July 1, 2023, overall raw material volume processed in the Food Ingredients segment increased approximately 1.5%.

Sales. Net sales decreased in the Food Ingredients segment primarily due to a decrease in collagen prices that more than offset an increase in sales volumes from the Gelnex Acquisition.

Margins. In the Food Ingredients segment for the six months ended June 29, 2024, the gross margin percentage increased to 25.3% as compared to 24.2% for the comparable period of fiscal 2023. The increase was primarily due to margins being lower in fiscal 2023 because of a step-up of inventory value in purchase accounting related to the Gelnex Acquisition.

Segment operating income. Food Ingredients operating income was $78.6 million for the six months ended June 29, 2024, a decrease of $(17.6) million or (18.3)% as compared to the six months ended July 1, 2023. The decrease was primarily due to lower prices for collagen, the impact of an out of period inventory adjustment and an increase in depreciation and amortization as compared to fiscal 2023.

Fuel Ingredients Segment

Raw material volume. In the six months ended June 29, 2024, the raw material processed by the Company’s Fuel Ingredients segment totaled approximately 719,000 metric tons. Compared to the six months ended July 1, 2023, overall raw material volume processed in the Fuel Ingredients segment increased approximately 3.3%.

Sales. Net sales decreased in the Fuel Ingredients segment primarily due to lower sales prices and sales volumes.

Margins. In the Fuel Ingredients segment for the six months ended June 29, 2024, the gross margin percentage decreased to 19.5% as compared to 19.6% for the comparable period of fiscal 2023.

Segment operating income. The Company’s Fuel Ingredients segment operating income (inclusive of the equity contribution from the DGD Joint Venture) for the six months ended June 29, 2024 was $143.4 million, a decrease of $(194.0) million or (57.5)% as compared to the same period in fiscal 2023. The decrease in earnings was primarily due to decreases in sales volumes at the DGD Joint Venture, lower diesel fuel prices, a decrease in RIN prices, lower values for LCFS credits, the recording of a lower-of cost-or-market reserve by the DGD Joint Venture related to lower market prices and a planned catalyst turnaround at the Port Arthur plant.

Foreign Currency Exchange

During the first six months of fiscal 2024, overall the euro, Brazilian real and Canadian dollar remained relatively unchanged against the U.S. dollar as compared to the same period in fiscal 2023. Using actual results for the six months ended June 29, 2024 and using the prior year's average currency rate for the six months ended July 1, 2023, foreign currency translation would result in an increase in operating income of approximately $0.5 million. The average rates for the six months ended June 29, 2024 were €1.00:$1.08, R$1.00:$0.20 and C$1.00:$0.74 as compared to the average rates for the six months ended July 1, 2023 of €1.00:$1.08, R$1.00:$0.20 and C$1.00:$0.74, respectively.

Corporate Activities

Selling, General and Administrative Expenses. Selling, general and administrative expenses were approximately $40.0 million during the six months ended June 29, 2024 compared to approximately $42.2 during the six months ended July 1, 2023, a decrease of $2.2 million. The decrease was due primarily to lower consulting and professional fees expense.

Acquisition and Integration costs. Acquisition and integration costs were approximately $5.2 million during the six months ended June 29, 2024 as compared to $8.7 million for the same period in fiscal 2023. These costs primarily related to the Gelnex Acquisition, the Miropasz Acquisition and FASA Acquisition for the six months ended June 29, 2024 and the Gelnex Acquisition, the Miropasz Acquisition, the FASA Acquisition and the Valley Proteins acquisition for the six months ended July 1, 2023.

Depreciation and Amortization. Depreciation and amortization charges were approximately $4.5 million for the six months ended June 29, 2024 as compared to $5.3 million for the six months ended July 1, 2023. The decrease was due to certain assets becoming fully depreciated.

Interest Expense. Interest expense was $132.1 million during the six months ended June 29, 2024, compared to $120.5 million during the six months ended July 1, 2023, an increase of $11.6 million. The increase in interest expense was primarily due to the fact that the term A-3 facility and term A-4 facility debt borrowed to finance the Gelnex Acquisition were outstanding for the whole six months in fiscal 2024 versus three months in fiscal 2023, an increase in revolver borrowings and an increase in interest rates as compared to the same period in fiscal 2023.

Foreign Currency Gain. Foreign currency gains were $0.6 million for the six months ended June 29, 2024 as compared to foreign currency gains of $7.5 million for the six months ended July 1, 2023. The decrease in currency gains was due primarily to a decrease in gains on the revaluation of an intercompany note and non-functional currency assets and liabilities as compared to the same period of fiscal 2023.

Other Income, net. Other income was $8.1 million for the six months ended June 29, 2024, compared to other income of $11.2 million for the six months ended July 1, 2023. The decrease in other income was primarily due to a decrease in casualty gains as compared to the same period in fiscal 2023.

Equity in Net Income in Investment of Other Unconsolidated Subsidiaries. The change in this line item is not significant and primarily represents the Company’s pro rata share of the net income from foreign unconsolidated subsidiaries.

Income Taxes. The Company recorded income tax expense of $4.7 million for the six months ended June 29, 2024, compared to income tax expense of $67.7 million recorded for the six months ended July 1, 2023, a decrease of $63.0 million, which was primarily due to decreased pre-tax earnings of the Company and the relative impact of biofuel tax incentives. The effective tax rates for the six months ended June 29, 2024 and July 1, 2023 were 2.8% and 13.2%, respectively. The effective tax rate for the six months ended June 29, 2024 differed from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes), nontaxable change in FASA contingent consideration, certain taxable income inclusion items in the U.S. based on foreign earnings and biofuel tax incentives. The effective tax rate for the six months ended July 1, 2023 differed from the federal statutory rate of 21% due primarily to the relative mix of earnings among jurisdictions with different tax rates (including foreign withholding taxes and state income taxes) and biofuel tax incentives. The Company’s effective tax rate excluding the impact of the biofuel tax incentives and discrete items was 27.2% for the six months ended June 30, 2024, compared to 25.7% for the six months ended July 1, 2023.

Non-U.S. GAAP Measures

For discussion of the reasons the Company’s management believes the following Non-GAAP financial measures provide useful information to investors and the purposes for which the Company’s management uses such measures, see “Results of Operations - Three Months Ended June 29, 2024 Compared to the Three Months Ended July 1, 2023 - Non-U.S. GAAP Measures.”

Reconciliation of Net Income to (Non-GAAP) Adjusted EBITDA and (Non-GAAP) Pro Forma Adjusted EBITDA

First Six Months of Fiscal 2024 as compared to First Six Months of Fiscal 2023

(1) The average rates for the six months ended June 29, 2024 were €1.00:$1.08, R$1.00:$0.20 and C$1.00:$0.74 as compared to the average rates for the six months ended July 1, 2023 of €1.00:$1.08, R$1.00:$0.20 and C$1.00:$0.74, respectively.