Anaergia Inc

TSX:ANRG

Earnings Call Transcript 2021-Q4

[Operator]

Hello, and welcome to Anaergia's Fourth Quarter and Year-end 2021 Conference Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions]

I will now hand you over to your host, Darlene Webb, Hook Anaergia's Investor Relations to begin. Darlene, please go ahead.

[Darlene Webb]

Thank you very much, Lauren, and good morning, everyone. On this call, we'll be discussing our earnings for Anaergia's fourth quarter and year ended December 31, 2021. If you're following along on our slide deck, I'll be directing my comments to Slides 1 to 3.

Today, I am joined by Dr. Andrew Benedek, Anaergia's Founder, Board Chairman and CEO; Dr. Yaniv Scherson, Anaergia's, Chief Operating Officer; and Mr. Hani Kaissi, Anaergia's Chief Financial Officer.

Now before beginning our formal remarks, we'd like to refer listeners to Slide 2 of the presentation, which contains the caution on forward-looking information and a note on the use of non-IFRS measures. Listeners are reminded that today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements. Anaergia doesn't undertake to update any forward-looking statements, except as may be required by applicable laws. Listeners are urged to review the full discussion of risk factors and the company's discusses which is filed with the Canadian securities regulators. Lastly, while this conference call is open to the public and for the sake of brevity, questions will be prioritized for analysts.

And with that, I'll turn the call over to Andrew.

[Andrew Benedek, executive]

Thank you very much, Darlene. I'm on Slide 4, which summarizes the quarter. First and foremost, you can see that our backlog continued to increase significantly quarter-to-quarter. A lot of our growth has been happening within the European region with 7 facilities being built and also increasing capital sales. The market outlook is particularly promising in Europe, and we've outlined that in the press release associated with the quarter as well as an earlier one.

Our revenue has gone up 20%, which is relatively slow for what we are expecting to do, but it's still a healthy growth. And the reason for the slower growth has been, as we've been saying over and over, the slowness of the ramp-up in Rialto as and also somewhat slower supply line related issues.

Overall, the quarter results are in line with our excellent analysts' predictions and is continuing the trend that we established going in the positive direction.

Moving on to Slide 5. And I want everybody to understand that what I have believed from the start and the reason I started the company is that, indeed, a very significant solution to climate change is renewable natural gas. And that as climate change worsens, the outlook for us will continue to improve. What I didn't expect is the security issues as well that has happened in Europe during the recent -- due to the recent conflict, continuing conflict. Although prices for gas in Europe have been constrained even prior to the conflict. And even the conflict is settled to date, will continue to be high for wholesale gas.

But in addition, the security issue in Europe has led to a dramatic increase in targets and it will eventually follow with incentives to produce more and more renewable natural gas. And some of the countries, in particular, the one that started out Germany is now also going to be entering the market in a big way because simultaneously the security concerns that Germany has, it has also established new standards to European and called RED II, which in fact, helps all renewable forms of energy, and in particular, renewable natural gas.

Now in Germany, is where we started, and we have a significant number of customers that will need help to use -- to take advantage of the current gas-related changes. And as most of these customers are on electric power, and they will be shifting to gas. In terms of North America, while the gas prices, the wholesale fossil gas prices have not moved all that much, there is still very significant movement. And in particular, there's a big one in California with a new law that's going in effect called SB1440, which requires a purchase of renewable natural gas, and it's particularly focused on the kind of gas we create, and it gives us a floor. The LCFS [indiscernible] RIN will still be higher, but we think that having a floor is a really good thing over the longer term, and we will be taking advantage of this over time. It is specifically designed to focus on waste-related gas generation within the state. And as you all know, we're in a very strong position within California for this.

In addition, over and above California, other states are -- have already established or are establishing similar incentives as California for low-carbon fuel standards. And also many utilities, not just the California utilities, will be either required or voluntarily will be purchasing long-term -- gas under long-term contracts.

In Canada, we all know that Fortis and energy here in Quebec are already purchasing revenue or natural gas on long-term contracts similar to what 1440 is trying to do in California. And we are expecting the new standards on the federal government, but we also promote the use of renewable natural gas. So overall, the market has never been more positive. And I believe it will continue to be positive and even more positive as time goes on.

At this point, I'll hand it over to Yaniv to update you on the operations side.

[Hani Kaissi, executive]

I think, Andrew, you're handing it to me, this is Hani.

[Andrew Benedek, executive]

Sorry, my apologies. I got mixed up for a second. Go ahead, Hani.

[Hani Kaissi, executive]

No problem. Thank you, Andrew. Good morning, everyone, and thank you for joining. Looking at Slide 6, during 2021, our revenue backlog has increased from $2.8 billion to $4.6 billion. This increase of $1.9 billion, which represents a 68% increase year-over-year, was primarily driven by the Tønder project in Denmark, our Rhode Island project on the East Coast and Italian -- and the Italian build-own-operate project.

Now about 95% of the revenue backlog is for BOO project with the rest being for capital sales and services. What's worth noting here is that these revenue backlog numbers do not include the impact of the higher European gas prices. And assuming a European natural gas commodity price of USD 26 per MMBTU, the annual run rate for our 13 BOO project is expected to be about $177 million. Now this is the annual run rate of EBITDA. It's -- I apologize, it's a typo here. it's not the run rate of revenue, it's the run rate of EBITDA. The revenue run rate is more in the $270 million range.

Moving on to Slide 6. At $50 million in the Q4 revenues are 26% higher than in quarter in 2020. The revenues in financial -- in fiscal year 2021 were $153.6 million, which is an increase of 20% compared to 2020, and that was mainly driven by the capital sales activities and revenue growth in Italy, making EMEA the largest revenue contributor at 60%, while North America made up 35% and Asia, 5%.

Gross margin erosion in Q4 2021 was primarily due to cost overruns related to atypical issues with the winding down of the legacy capital sales project in the Netherlands. Now despite that, the gross margin for the full year 2021 is in line with that of the previous year. In financial year -- in fiscal year 2021, the net SG&A increased by a marginal 4%, much lower growth rate than the 20% increase in revenue and thus, supported the improvement in the EBITDA. Leading me to say that our profitability is also up with an adjusted EBITDA totaling $5 million in fiscal year 2021 and the significant 60% year-over-year increase of $1.9 million.

I will now pass it over to Yaniv.

[Yaniv Scherson, executive]

Thank you, Hani. This is Yaniv speaking. Good morning, everybody. Looking at Slide #8, I'll be discussing an order our capital sales businesses with turnkey system solutions, our services that have recurring O&M and service revenues and most focusing on our build-own-operate where we're investing significantly to capture the significant market waves, both in Europe and North America.

Highlighting as a theme, we continue to operate significantly, invest significantly in our build-own-operate business to capture high profitability, high margin recurring BOO revenue.

Moving to Slide #9. Starting off with our capital sales. You'll notice comparing our Q4 2021 to Q4 2020, we experienced a 24% improvement on these capital sales revenues and a 19% overall for the fiscal year. Going down the list, that the capital sales continue to drive the majority of our revenues, while our BOOs are continuing to ramp up, and we are continuing to execute on our implementation, particularly in Europe and Italy and in North America. Capital sales overall, as we discussed, are up 19% for the year and driven primarily because of the growth in the EMEA region, specifically in Italy. The significant contribution from our Italian projects is driving capital sales with a 62% increase in EMEA from 2020 year comparison. It's also expected that the Italian government will continue the R&D incentives that is in place, largely in the wake of the significant EU directive to implement RED II as well as doubling down an acceleration of the transition to RNG, not only for decarbonization, but also for security and local energy production purposes in light of the conflict.

On the new capital sales offering front, we announced significant -- 2 significant orders in Italy in the agricultural sector as well as an existing customer adding on scope in North Carolina with our wastewater treatment solutions. Also notably, we sold the first ever RNG liquefaction system in Italy, demonstrating the expansion of our energy portfolio and product offering to be flexible with different fuel products as our customers and market needs.

Moving to Slide #10, highlighting the service and BOO business. You'll see that there was healthy growth in the service business with a 40% increase in 2021 compared to 2020. This is due primarily to new service contracts signed both in Q4 '21 and early '22 that are expanding on with existing customers for servicing and operating systems we sold.

On the BOO front, the ramp-up in Rialto is the main driver for the delay and increase from feedstock delays, which is unique to Rialto from a regulatory perspective on commercial sector. But multiple BOO projects are coming online, specifically our SoCal Biomethane facility is injecting gas as we speak, and our European assets are starting from Q2 to the end of 2022 with all 6 anticipated to start operations by the end of the year.

Moving to Slide #11. This is a significant summary here. So I'll go through a couple of steps to highlight. Most notably, on the consolidated CapEx, you'll notice $682 million of CapEx investment only from operating assets are those that are under construction. We'll note that this compares to $368 million at the time of IPO, reflecting an 85% increase in CapEx investment from BOO projects that are under construction or in operation now. The result of this magnitude and the significant CapEx investment is translating to $177 million of run rate EBITDA, which is a 104% increase at the time of IPO. And on the far right, the proportional run rate EBITDA for Anaergia represents $130 million run rate EBITDA compared to $52 million in IPO. This is a 150% increase in run rate EBITDA, again, from the CapEx projects in operation and construction.

What does this mean for the future? This means that we're investing heavily in high-growth market regions where RNG is accelerating? Particularly capturing the wave of the European energy crisis and the rapid transition to renewables, both from decarbonization and security, with a backlog increase on the top right of the 76% increase from $2.5 billion at the IPO to $4.4 billion currently. It's I think -- the BOO profitability continues to grow and derisk our future EBITDA through our diversification with a strong portfolio on both continents and the record high European gas prices are driving a significant amount of near-term expected BOO profitability.

The impact of our European BOO assets with the sixth in Italy that will come at the end of the year as well as our Danish project, which will be complete in '23, it has an improvement at run rate EBITDA by $39 million per year, just from the increased gas prices.

On the new BOO development front, highlighting not only the projects that are in the ground, under construction as we speak, but attesting to our growth in diversified market segments of solid waste and wastewater. Jumping back to North America, we recently signed a project development agreement with Kent County in Michigan that was announced earlier this year to build a $280 million material recovery facility. This is focused on solid waste to RNG. As well as a recent development and lease agreement, long-term lease agreement as an expansion with our existing partner and customer, the Victor Valley Water Reclamation Authority where the SoCal Biomethane project is injecting RNG today. This is a facility that's equivalent in size to Rialto, servicing both organic waste diversion as well as wastewater, biosolid solutions like Rialto.

Moving to Slide 12 on the Rialto Bioenergy facility. The feedstock continues to ramp up as organics collection program rolls out with a steady increase month-over-month. However, significant growth is expected to happen with the enforcement of 1383 state law that requires all generators to sign up organics collection. This has been delayed, but it's coming. In addition, the driver -- for haulers is this year, there are penalties haulers will be facing for the shortfall and diversion based on the 2022 diversion year. So the drivers are in place this year. It's with delayed enforcement. But will significantly increase feedstock of Rialto 3 OREX lines. The existing OREX line at Sun Valley continues to increase feedstock gradually. The second one that will be installed in downtown Los Angeles with Universal Waste Systems will be installed late summer. And we started manufacturing on a third OREX line in the Southern California region that will be feeding Rialto that's expected to install and start at the end of this year.

And importantly to note that at full capacity, these 3 OREX lines would oversupply the Rialto facility as a sort of an insurance policy that Rialto will be filled, particularly once the enforcement hits hard. However, gas sales are quite lucrative, and that's anticipating to commence in '22. So the RNG that's currently produced is being stored in the grid from Rialto. These sales are expected to occur in Q4 '22 with the final registration of the federal RIN and CI score under the LCFS program. There has been some deviation in credit prices. The LCFS credits have dropped, but the RINs have increased and so there's no net impact to the value of the gas from Rialto.

Moving to Slide 13 with other BOO updates. The other California BOO, SoCal Biomethane recently started operations. We commissioned in January, and RNG is actively being injected into the grid and stored and the approval process is ongoing for both RIN and LCFS CI scores. And this is an important facility because it's the first wastewater plant in the State of California to inject RNG at a wastewater plant that's from food waste and wastewater co-digestion model. This is significant because it's a replicable model that can be leveraged across the 150 wastewater plants in California that have existing digesters. And then in the wake of not only 1383 diversion requirement, but now SB-1440, the renewal natural gas procurement requirements that would require about 75 Rialto facilities worth of R&D to be purchased by 2030 in California.

In Europe, the market continues to grow as well. A specific update, the first 2 facilities in Italy will be commissioned in Q2 of this year with all facilities by the end of this year. And the Danish project, which is 40% larger than Rialto and benefiting from the surge in gas prices is currently experiencing the construction of the Phase 1, which will be completed in Q3. And this is to ensure that there's qualification for the subsidy program in Denmark that needs to be completed by the end of this year. Phase 2 is the expansion for the full project will be completed in 2023. And as I noted, 1.4 million MMBTUs of production, which is 40% larger than Rialto.

And finally, back to North America, the Rialto at the Rhode Island and Charlotte Bioenergy facilities, construction is underway for the conversion of the Rhode Island plant from its current CHP to power production, conversion to pipeline RNG. Construction is underway, completion expected mid '23 and a firm fixed-price 20-year offtake with a major North American utility as expected. Subsequently, construction will begin later this year to do the same conversion at the Charlotte facility in North Carolina to convert it to pipeline RNG as well with a similar offtake arrangements. This would add the portfolio of food waste-to-RNG projects in North America, diversifying our geographic space.

With that, I will hand it over back to Andrew for Slide 14. Andrew?

[Andrew Benedek, executive]

Thanks very much, Yaniv. In this slide, we highlight some adjustments that we have made to guidance. And I want to make sure everybody understands this, nothing has worsened since the IPO. The market has -- as we've been telling you, if anything, moved faster, much faster than we thought. But in a company like ours, it takes time, but what we have done to the IPO, we have emphasized backlog and build-own-operate project and slowed a bit on capital equipment sales. The net result of that is that short term, the revenues are somewhat lower. But long term, our profitability is dramatically better. So if people are looking at us as a short-term company, then we are doing the wrong strategy. But I believe that our strategy will prove itself to be a really good strategy. But this kind of a transition from capital equipment to build-own-operate and locked in long-term profitable projects take time.

So I am hoping that everybody understands this. And I'm very proud of our team is doing and has done and I truly believe that we have a very important role to fulfill in combating climate change. And we will be one of the global leaders in that particular space. And RNG will be one of the key things that we can do short term to avoid the prices.

With this last slide, I'd like to hand it over to the operator for questions and answers.

[Operator]

[Operator Instructions]

Our first questions comes from Derrick Whitfield from Stifel.

[Derrick Whitfield, analyst]

Fundamental backdrop for both cost lines is very positive for your company. With my first question, I wanted to focus on your 2022, 2023 guidance. Could you help us frame the degree of project execution delays you're experiencing as a result of short-term supply chain issues? And then separately, regarding your latter comment the degree of reduction in capital sales, how much has that impacted your 2022 and 2023 projections?

[Andrew Benedek, executive]

I can answer the first one. I think perhaps Hani can answer the second one better than I. On the first one, it is not a dramatic impact. It's slowing us down a quarter in some of the projects, maybe 2 quarters and some others. So you definitely been led to some slowdown. In terms of financial results, in general, we don't take on contracts now without locking up the supplies, the major suppliers at least. So we're trying to make sure that we don't get cost with these increases.

And in general, I think it's not a major impact so far, but the investment is a major impact on the pricing of the projects. So we really cannot go into assuming any project will be at the same price as it was in the past. Most of our older projects have already locked down all the suppliers. So there should be no significant impact on that.

Hani, you want to answer the second question?

[Hani Kaissi, executive]

Sure. So the capital sale, what Andrew mentioned, is similar to what's happening on some of the BOO avenues. It's just a question of like Rialto, just a question of timing. It's nothing has disappeared or not being pursued, just taking a little bit longer, like, for example, things related to the Denmark project, where we have split the execution of the job into 2 phases and spread them out a little bit longer. And that's just an example. So things like these, but again, it's only a question of timing. So whatever -- nothing is disappeared or gone.

[Derrick Whitfield, analyst]

That makes sense. And then just my follow-up question, I wanted to focus on Slide 5 in your prepared remarks on European energy security. In addition to Denmark and Italy, could you speak to the opportunities you see in other countries and the degree of policy incentives you'd expect to stimulate RNG growth?

[Andrew Benedek, executive]

Right. So basically, on the RED II, there is a market for green certificates, which are the carbon assets of the gas -- and this is in all EU countries. So we are focused mostly in Italy and Denmark and we now want to accelerate in Germany as well, but we're already active in Spain and France. And all of these countries are actively developing RNG projects. We also have a strong presence in the U.K. where we have -- we see similar opportunities, not the same system but similar kind of gas prices and similar wholesale gas prices. So this will eventually go, which is not included in many of these projections, but it will add to it once it goes. We had expected more movement in the U.K., but it's slowed down a bit, but it will happen, and it will happen across Europe.

[Operator]

Our next question comes from Aaron MacNeil from TD Securities.

[Aaron MacNeil, analyst]

Can you walk us through the details of the expansion at Victor Valley? I mean I've got a handful of specific questions like has the project officially been sanctioned, what's the potential time line, what's the CapEx, how you source feedstock, but maybe there are other questions I'm not thinking about, so perhaps you could just provide an overview?

[Yaniv Scherson, executive]

Yes, absolutely. This is Yaniv speaking. Thanks for the question. The Victor Valley facility is similar in size and scope to Rialto, which serve the growing needs for the 2 key organic waste problems, sustainable outlets for wastewater biosolids as well as what will be a wave of organic waste that will have to find a home. And for the most part, the main alternative in the areas to drive hundreds of miles either north or east to composite [indiscernible] that have very limited capability to take food waste at the moment. So it's considered a close local outlets to the Southern California region.

The 2 main feedstocks will be like Rialto, biosolids and landfill diverted organic waste. CapEx would be similar to Rialto, $180 million plus magnitude, and would serve our similar customers to put some scale to it. But biosolids at Rialto is 1/10 of the capacity from the total generation of the 3 wastewater plants that are served by the facility. And obviously, there's many more than 3 wastewater plants in the Southern California region. So this is one waste problem. And this is driven primarily from concerns over the regulations of the disposal of Class B sludges that have pathogens that's currently exported in large part out of state and these forever chemicals called PFAS with regulations expected to come. It's a security move for the wastewater facilities.

On the organic waste side, this is, as we said, the 3 OREX machines that will feed Rialto would oversupply 1 at full capacity, and there's a number of other localities that our existing hauling customers have that will be needed at 1383 expand exponentially in adoption. With respect to timing, it's -- like California, we need -- we have a 20-year lease for the facility, so it's locked in long term at the site, permitting would likely take 18 to 24 months before construction can start. I'll pause there, and if there's some follow-ups.

[Aaron MacNeil, analyst]

No, that's great. In terms of capital spending expectations. You mentioned the $682 million on the slide, which I assume excludes both Kent County and Victor Valley, which, as you mentioned, could be significant. To the extent that these projects go ahead, it seems like you're finding BOO opportunities maybe a bit faster than you articulated during the IPO. So I guess I'm wondering, like how do you expect to finance these projects? And can you give us a sense of what you expect for annualized BOO spending for that $682 million with them without Kent County and Victor Valley?

[Yaniv Scherson, executive]

Yes, I'll give overlap and preview and Hani can go in as well. You're right that the Kent County BOOs, the Victor Valley BOOs as well as the European BOOs are, in large part, in excess of our plan from IPO, which we view as a good problem to have, particularly with the acceleration of multiple drivers, decarbonization and energy security. And so correct, the $682 million reflects what is contracted or in operation right now. The reality is that the investment is much larger. We continue to work on expanding our access to large debt and equity with -- like before and expanding to facilities that can be much larger in value to continue roughly 70% financing of our CapEx spend -- future CapEx spend on the BOO front.

Hani, do you want to add some color?

[Hani Kaissi, executive]

Sure. So the -- out of the $682 million that are listed there -- some of it is going to be spent -- not all of it is going to be spent in 2022. It's going to be spread out a little bit more. Some of it is going to be spent in 2023, particularly the part related to the project in Denmark. This is, as Yaniv said, in excess of what we had in the plan at the IPO time. And this is basically translating into the large -- larger than planned, also backlog numbers. In terms of the financing, I think, as Yaniv said, we will continue leveraging the debt financing on the project. But in addition to that, we have the [indiscernible] financing that we are seeking on most of our projects.

[Operator]

[Operator Instructions]

Our next question comes from Louka Nadeau from National Bank Financial.

[Louka Nadeau, analyst]

My first question is a follow-up on the last question regarding financing. So [ more ] debt and as defined the debt portion of the new projects. But how should we look at the equity portion of the debt? Do you see a possible equity raise in the future? Or how else would you fund the equity portion of these new projects?

[Yaniv Scherson, executive]

Hani, do you want to address that?

[Hani Kaissi, executive]

Sure. So first, with the fact that we are bringing in mezzanine to the table. Mezzanine debt, it's allowing us to leverage more of the cash that we had raised at the IPO. But the opportunity is so huge in front of us. And it's a unique opportunity that we are able to take advantage of, particularly in Europe where the projects are so much more profitable than what we initially thought, including the ones we are executing that it really -- we want to be aggressive. And if we want to be aggressive and continue accelerating the growth that we have as we have done so far. We may want to think about new sources of capital.

[Louka Nadeau, analyst]

Okay. And as my follow-up, you mentioned earlier that the supply chain issues will impact project pricing and not timing. So I'd just like to know what the project pricing impact would be on you? So would it be mostly offset by the fact that the capital sales are going to get the revenue higher prices for the BOO projects which will also be other cost? Or should we expect higher cost for the projects and for other projects that you're locking in right now, are the prices secured or inflation has an impact on them?

[Andrew Benedek, executive]

I'll answer that. This is Andrew. The example of the Danish project. We are we've locked in all the prices before we started. This was at the end of -- towards the end of the quarter like this past year. And those are pretty much locked and the overall margin rate we then estimated -- overall cost increase we escalated from supply chain issues was about 15%. And we managed to go a little lower than that when we lock them in, but now refining some peripheral things like the steel building that was both difficult to procure and the cost is higher, but is there still not push it above the 15%.

[Operator]

Our final question is a follow-up question from Aaron MacNeil from TD Securities.

[Aaron MacNeil, analyst]

I'm back. couple of follow-up questions. What were the circumstances around the capital sale in the Netherlands? And could you maybe comment on how frequently this might occur or if you think it's onetime in nature?

[Andrew Benedek, executive]

Well, I certainly hope it's one time in nature, but it's an issue that comes when you have a developer that develops a project. And we do not have a clear control over the operation of the plant. So in this particular case, the problem was that the developer was supposed to supply the feedstock and is not doing that, not capable of doing yet. But in the meantime, they are causing us some issues over paying our bills. So we've gone to arbitration. We hope to recover the losses, but whatever we encountered operationally simply put that on the chin.

[Aaron MacNeil, analyst]

Understood. I guess I wanted to ask a bit more about your capital sales and that it hasn't been a priority, I guess, I don't have to put words in your mouth, but I mean you've had pretty close to $100 million of announcements year-to-date. Like would you say that's lumpy and we should expect that going forward? Or is that a good run rate?

[Andrew Benedek, executive]

Well, they have to be really careful about capital sales like the one I just gave you. So you're absolutely right, we need to avoid those things. And I think we will. This contract was -- goes back about 3 years. We had -- we did not have a very strong legal department and contract reviews that finds, train, and we've tightened up on all of those things, particularly now that we're public, but also the approach we will not get into this kind of responsibility split, as I said earlier.

Now in terms of slowing the capital, I didn't mean that we're slowing it. It's just not getting the same level of emphasis. If you have a choice, we'll will go for a build-own-operate because of the really significant value addition that such a project does. And sometimes when we do build-own-operate, we do not get the benefit of the capital equipment that we sell to it. So that tends to reduce the revenue a bit.

But definitely, in regions such as Asia, if anything, we're doubling down our capital equipment. And you see us showing progress, which is happening on the ground, and will lead to announcements.

[Aaron MacNeil, analyst]

Understood. Thanks for the clarification. I promise this next one is my final question. The 7 Italian facilities, the BOO facilities, as you compile your 2023 guidance, what volume ramp and pricing expectations have you made that would keep you within the 2023 EBITDA range?

[Andrew Benedek, executive]

Hani, do you want to address that?

[Hani Kaissi, executive]

Yes, sure. So out of the 7 Italian BOOs, you're referring to, 6 of them are under construction and 1 is in contract. The 6 that are under construction, almost all of them being at full revenue in 2023. They all are going to go into operation by the end of the year and then next year, they should all be at full capacity.

[Aaron MacNeil, analyst]

So there should be a similar Rialto-like ramp or any risks around a slow volume ramp? That's ultimately when...

[Hani Kaissi, executive]

This is a different type of feedstock SSOs. We have feedstock agreements in place. Maybe, Yaniv, if you want to comment on that.

[Yaniv Scherson, executive]

Yes. It's important to note that Rialto is a unique situation because it's relying on a new program to be implemented in the largest city in California in the wake of COVID. So it's a new rollout, new organic collection that impacted by enforcement that's been slightly throttled down to give folks a recovery period from the COVID pandemic. In the other plants, and we're dealing with the stock that's existing, either agricultural waste or food wages that are already existing, they already collected, infrastructures there and collection and rules. It's a matter of building the plan to get the trucks that come in the gate.

[Aaron MacNeil, analyst]

Understood. And then from a pricing perspective, does your current guidance assume $26 per MMBTU for the gas? Or would it be a more conservative figure?

[Hani Kaissi, executive]

It does assume the $26.

[Andrew Benedek, executive]

Maybe to add to that, Aaron, it does not assume anything other than what's already under that bucket. So in that sense, it's -- the guidance is conserve interested.

[Operator]

Our final question comes from John Gibson from BMO Capital Markets.

[John Gibson, analyst]

Just wanted to follow up with one more on the capital spending question. Just wondering how much capacity you have to book more work? Or are you getting to the point where you're kind of tapped out on adding backlog, you have a few more BOO projects going and maybe some capital sales were [ out of the door ]?

[Andrew Benedek, executive]

I'm sorry, John. I'm a little confused on your question. Would you mind repeating it? Perhaps we'll do better next time.

[John Gibson, analyst]

I guess, I mean, your backlog has risen significantly over the past few months, but I'm just wondering how much more capacity you have to book more work. I'm just wondering if you're getting to the point where you're maybe having to turn down some things until you get some more of this backlog out of the door, if that makes more sense.

[Andrew Benedek, executive]

Yes. So we've been able to significantly increase our capabilities in Italy to cope with this growth. But maybe I'll let Yaniv speak to this.

[Yaniv Scherson, executive]

Yes. There's -- we have been benefiting from being more selective because the market has increased dramatically. So we are benefiting from saying no to more opportunities than before, so that we can prioritized investment in mega projects. You'll notice the size of the projects are large, particularly our Danish project is bigger than Rialto and that recently booked BOOs are also sort of the mega facility things. And so we're able to be more selective. I wouldn't say we're saying no, but we're being more selective to projects that are much more core into market fundamentals.

And those 2 mainly are, in Europe, food waste RNG, food and ag waste RNG that are being countries really have existing presence or able to enter quite quickly. Germany will be next. And so we will -- where we already have a very longstanding market presence and capturing the new EU wave -- regulatory wave for acceleration to RNG. And then in North America, as evidenced by the continued booking of these large facilities, the momentum, the gardening momentum to organic waste diversion from landfills, solid waste processing to carbon-negative RNG. And we are keeping our focus on carbon-negative R&D projects where the tariffs like 1440 are asking for as a high-priority feedstock to combat climate change as well as utilities are increasingly saying they want carbon-negative fuel to get their overall portfolio to neutrality.

So I would say it's given us the ability to focus. Now as far as the human resources side, we're able to scale with our structure and capital does become a constraint, which is why we are expanding our debt facility, the size of our debt facilities and that, that Hani discussed.

[Operator]

There are no further questions. So I will now hand it back over to Darlene for any closing remarks.

[Darlene Webb]

Thank you again, Lauren, and thank you, everyone, for your time today. I just wanted to say if you have any additional -- if you require any additional information or you have any questions, please do not hesitate to contact the IR team at [e-mail]. And with that, we'll close the call. Thank you.

[Operator]

This concludes today's call. Thank you for joining. You may now disconnect your lines.