Inotiv Inc (NOTV) 2021 Q4 法說會逐字稿

Greetings. Welcome to Inotiv Inc.'s Fourth Quarter Fiscal 2021 Financial Results Conference Call. (Operator Instructions). Please note this conference is being recorded. I will now turn the conference over to your host, Devin Sullivan, Senior Vice President of The Equity Group. You may begin.

Thank you, Kyle, and good afternoon, everyone. Inotiv Inc.'s fourth quarter fiscal 2021 financial results were released today after the market closed. A copy of the earnings release can be found in the investor section of the Company's website at inotivco.com. As a matter of formality, I need to remind you that some of the statements that management will make on this call are considered forward-looking statements, including statements about the Company's future operating and financial results and plans. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected. Any such statements represent management's expectations as of today's date. You should not place undue reliance on these forward-looking statements, and the Company does not undertake any obligation to update or revise forward-looking statements whether as a result of new information, future events, or otherwise. Please refer to the Company's SEC filings for further guidance on this matter. Management will also discuss certain non-GAAP financial measures in an effort to provide additional information for investors. The definition of these non-GAAP measures and reconciliation to the most comparable GAAP measures is included in the Company's financial results' press release and corresponding Form 8K.

Joining us from the Company this afternoon are Bob Leasure, President and Chief Executive Officer; Beth Taylor, Chief Financial Officer; and John Sagartz, the Chief Strategy Officer. Bob will begin with some opening remarks, after which Beth will present a summary of the Company's financial results. Then we will open the call for questions. Now it is my pleasure to turn the call over to Bob Leasure. Bob, please go ahead.

Thank you, Devin. Good afternoon, everyone, and thank you for joining us today. I'm sorry we were a little delayed this month. Fiscal 2021 was really a transformational year for Inotiv, reflecting our success. We expanded the existing operations and services, starting up new operations and services, acquiring strategic assets, raising capital, building really a very strong foundation for our future, and I'm very proud of our team and the results this quarter and this year. By broadening our suite of solutions and adding new talent to our team in achieving greater scale, we created an organization that more comprehensively supports our clients' discovery and development objectives. Inotiv's expanded platform also presents us with significant opportunities to cross-sell solutions, drive revenue growth, and deliver improved operating margins. Inotiv rapidly transformed this past year, but one constant that has played a key role in our success is our client-service oriented culture. I commend our growing team for the dedication to our customers, looking to constantly improve, and for making the appropriate short-term decisions to ensure we thrive over the long run.

To recap some of this year's notable milestones, I'll start with the expansion of our existing operations and services. At West Lafayette, Indiana facility, we expanded vivarium capacity. In February, we received accreditation by the Association for Assessment and Accreditation of Laboratory Animal Care International. In St. Louis, we exercised our option to purchase the previously leased facility and have completed the first phase expansion of approximately 15,000 square feet, adding office, archive, and laboratory capacity. The St. Louis expansion gives us critical new technology and state-of-the-art laboratory capabilities to support our clients' needs in DMPK, cell and molecular biology, pharmacology, toxicology, and histopathology helping extend our reach into earlier stages of drug discovery. We opened the newly constructed scientific laboratories in November of this year.

At our Fort Collins, Colorado facility, we invested more than $1 million over the last year to make improvements, expand capacity, and broaden our services that has allowed us to more than double this business since it was acquired in November 2019. In Evansville, Indiana, we recently initiated design planning for another expansion. We expect the design, build, and validation process to take approximately 24 months. In Boulder, Colorado, we acquired three companies, have now increased leased space by an additional 19,000 square feet adjacent to our existing sites to support the additional strong demand we are receiving for discovery services. In Gaithersburg, Maryland, we invested in equipment and infrastructure to reduce bottlenecks, and leased additional space. As a result, this business saw significant growth in the past 12 months; has more than doubled, almost tripled, its sales capacity since its acquisition in 2019.

Among our internal startups this past fiscal year, we initiated the development of new in-house, enterprise-wide technology solutions for data and study management as an additional investment to help enhance the client experience. We also recruited notable industry experts to Inotiv to help accelerate the startup of new services, further reducing our outsourcing costs and enhancing our ability to deliver services as a fully integrated service provider. Examples include Dr. Adam Aulbach, who is spearheading our new veterinary clinical pathology offering; Dr. Kenneth Swart, who is leading the development of our analytical capabilities to support biologics, biomarkers, cell-based analysis, and therapeutics; Dr. Nicolette Jackson, who is building out our medical device histology and pathology solutions; Dr. Gopala Krishna, who is overseeing our entry into the genetic toxicology space; Ty Speece, who is leading our cardiovascular safety pharmacology business; and a team of experts to lead the development and growth in SEND data reporting, or Standard for the Exchange of Nonclinical Data. These internal initiatives started to contribute to our underlying organic growth in the fourth quarter.

In fiscal 2021, we also significantly changed the complexion of Inotiv through strategic acquisitions, starting with the purchase of Boulder, Colorado-based HistoTox Labs and Bolder BioPATH in April and May. HistoTox brought us strong expertise in tissue staining and quantitative image analysis while Bolder BioPATH added depth to our existing pharmacology and pathology enterprise, allowing us to further extend our market reach in early-stage drug discovery. These acquisitions now comprise our Boulder, Colorado operations and, together, delivered strong fourth-quarter performances for Inotiv, contributing approximately $7.1 million of combined revenue corresponding to an annualized revenue run rate of approximately $28.4 million. Both companies' corporate cultures have proven to be highly compatible with ours, and each business has been integrating into Inotiv's fold, performing ahead of our expectations. We're starting to see these tangible cross-selling benefits from these acquisitions as well. For example, we have the opportunity to integrate bioanalysis and pharmacokinetics, previously provided by legacy Inotiv sites, to the nonclinical service offerings provided by legacy Bolder BioPATH. We expect to reap similar benefits from our acquisition of Colorado-based Plato BioPharma, which we completed after the quarter ended, which brings us complementary in-vivo pharmacology platform that we are weaving into our Bolder discovery operations.

In July, we acquired genetic toxicology assets from MilliporeSigma's BioReliance portfolio, bolstering our efforts to develop in-house genetic toxicology capabilities, and we purchased first-class laboratory equipment and instrumentation, stock consumables, benchwork from a Tennessee-based layup services provider that ceased operations, advancing our efforts to build in-house biotherapeutics solutions. We recently signed a lease on a facility in Rockville, Maryland and have initiated recruiting efforts to build the scientific and laboratory staff necessary to support this effort. In August, we acquired Missouri-based Gateway Pharmacology, which enhances our expertise in cardiovascular and renal pharmacology. Gateway Pharmacology dovetails well with our expanded St. Louis facilities, strategically positioning us for additional synergies.

Finally, in September, we announced an agreement to purchase Envigo, a leading global provider of research models and services. The Envigo transaction closed after quarter end, so it did not contribute to our fourth quarter financial results. That said, we are very pleased about how well the two organizations are coming together. From a financial perspective, we expect the Envigo acquisition to be accretive to Inotiv's EBITDA margins and earnings in the quarters to come. In Envigo, we've secured access to high-quality research models for the preclinical services offered by Inotiv and needed by our clients. This acquisition was once again a result of listening to and addressing our customers' concerns. Reflecting Envigo's deep animal husbandry expertise and services, 17 of its top 20 clients have been repeat customers for more than a decade. These incredibly durable customer relationships have supported 99% plus revenue retention rates at Envigo, and will benefit our combined organization in the years to come. Moreover, we have identified excellent cross-selling opportunities with Envigo's global base of more than 2,550 clients. Clearly, Envigo brings us additional scale and expands our footprint in attractive new geographies such as the European market. Finally, and importantly, we benefit from an injection of additional talent.

Our strong fourth-quarter fiscal 2021 financial results reflect the successful execution of our strategic growth plan, with revenue nearly doubling year-over-year to $30.1 million driven by approximately 47% internal growth and 53% external growth. Our adjusted EBITDA increased to $4.3 million from $156,000 during the same time period, demonstrating the underlying leverage in our business as we scale. As I noted earlier, in the fourth quarter and throughout fiscal 2021, we continue to make significant investments in our business through acquisitions, internal expansions, and embedded operational startups. Simultaneously, across our organization, we have continued to make broad expansion investments in G&A, including our people, infrastructure, systems, and services. While our operating margins were temporarily depressed in the fourth quarter due to these growth-oriented investments, we expect to reap enhanced future growth and margins over the long run.

We are pulling several levers to improve longer-term profitability, including making scalable investments, continuing to reduce outsourcing by bringing key capabilities in-house, driving cross-selling initiatives, taking advantage of purchasing opportunities, lowering client acquisition costs as a percent of revenue, leveraging existing fixed costs, and reducing corporate overhead as a percentage of revenue. In the fourth quarter, adjusted unallocated corporate G&A was approximately $3.2 million or 10.5% of revenue compared to 21.7% of revenue for the same period last year, and we expect to see this figure decline further as we continue to grow. Including Envigo, we are targeting long-term organic revenue growth and high to single double digits and EBITDA margins in the range of 18% to 22%. In the near term, we are optimistic for continued strong revenue growth based on a robust backlog as well as anticipated contributions from recent acquisitions, internal expansions, and new services. We were pleased that after achieving strong revenue growth, we were able to report a book-to-bill ratio in the fourth quarter of 1.77x for our services business. We ended the quarter with a backlog of $81.4 million, up 31% compared to $62 million on June 30, 2021, up 86% from $43.8 million on September 30, 2020, indicating the current strength of our business. Fiscal 2021 has been a busy year and we've accomplished quite a bit in a compact timeframe, but I believe the best is yet to come for our clients, employees, and shareholders.

With that, I will turn the call over to Beth Taylor, our Chief Financial Officer, to discuss our fiscal 2021 fourth-quarter and full-year financial results in more detail. Beth, please go ahead.

Thanks, Bob. Good afternoon. In the fourth quarter of fiscal 2021, our revenue increased 90.7% to $30.1 million from $15.8 million in the comparable prior year period driven by internal growth of $6.7 million and incremental revenue contribution from HistoTox Labs, Bolder BioPATH, and Gateway Pharmacology which totaled $7.6 million. Service segment revenue in the fourth quarter of fiscal 2021 increased 93.3% to $29 million from $15 million in the comparable prior year period. Service gross margin increased to 34.2% in the fourth quarter of fiscal 2021 from 28.9% in the comparable prior year period, reflecting the greater utilization of recently expanded capacity. Product segment revenue increased 40.9% to $1.1 million in the fourth quarter of fiscal 2021 from $782,000 in the comparable prior year period as instruments are used for a variety of research markets, including COVID-19 related research applications and universities are working at a higher capacity in 2021 compared to the fourth quarter of 2020 which saw a greater impact from the COVID-19 pandemic. Product gross margin was 35.6% in the fourth quarter of fiscal 2021 compared to 36.6% in the comparable prior year period. Operating loss for the fourth quarter of fiscal 2021 totaled $3.4 million compared to an operating loss of $1.4 million in the prior year period, reflecting increased strategic investments in operating expenses to support future revenue growth, including $4.2 million of incremental acquisition and integration costs, $747,000 of higher non-cash stock compensation expense, and $636,000 of higher startup costs.

This quarter's growth-oriented investment in G&A includes recruiting and relocation expenses, higher compensation expenses including non-cash stock compensation, and transaction costs related to the acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Pharmacology, Envigo, and Plato BioPharma, the last two of which closed after quarter end. All combined, adjusted corporate unallocated G&A, much of which was growth-oriented, totaled approximately 10.5% of revenue in the fourth quarter of fiscal 2021 compared to approximately 21.7% of revenue in the fourth quarter of fiscal 2020. Our long-term objective is for unallocated corporate G&A to reach between 6% to 8% of revenue. I'd also like to point out that this quarter's selling expenses were higher compared to prior periods due to our increased book-to-bill ratio as we accrue commissions when we win awards prior to the recognition of corresponding revenue.

Net income in the fourth quarter of fiscal 2021 totaled $9.4 million or $0.06 per diluted share compared to a net loss of $1.8 million or -$0.16 per diluted share in the comparable prior year period. This quarter's reported figure benefited from $4.9 million related to the forgiveness of our PPP loan and an $8.4 million non-cash gain on fair value remeasurement of convertible notes. Adjusted EBITDA equaled approximately $4.3 million in the fourth quarter of fiscal 2021 compared to $156,000 in the comparable prior year period. The book-to-bill ratio for the fourth quarter of fiscal 2021 was 1.77x. We continued to build our infrastructure for growth which included additional headcount, transaction and integration costs, and internal investments in new service offerings, technology, and systems. Our backlog at the end of the fourth quarter of fiscal 2021 was $81.4 million, up from $62 million on June 30, 2021, and up from $43.8 million on September 30, 2020.

Briefly reviewing our full year fiscal 2021 results, total revenue increased 48.2% to $89.6 million driven by $17.3 million of internal growth and incremental revenue contribution from HistoTox Labs, Bolder BioPATH, and Gateway Pharmacology totaling $11.8 million. Compared to the prior year period, fiscal 2021 gross margin expanded 350 basis points to 33.7%. Net income totaled $10.9 million versus a net loss of $4.7 million, and adjusted EBITDA increased 223.5% to $9.3 million. Cash flow from operations during fiscal 2021 totaled $10.7 million compared to $1.3 million in the prior fiscal year. CapEx for fiscal 2021 totaled $12.5 million, which included investments in laboratory equipment to increase capacity at all locations, facility improvements at the Fort Collins location, and the purchase and expansion of our St. Louis facility. Our balance sheet on September 30, 2021 included cash and cash equivalents of $156.9 million and total long-term debt of $163.9 million. Our PPP loan totaling $4.9 million was forgiven during the quarter. And finally, we had zero balance and $5 million of availability under our general line of credit, and a $1.7 million balance on a $3 million equipment loan.

Lastly, today, we filed an 8K disclosing that management, together with the audit committee of the Board of Directors, concluded that we did not properly account for certain tax attributes related to our acquisition of Bolder BioPATH in the third quarter of fiscal 2021. We intend to restate our historical financial results for the third quarter making certain non-cash adjustments to increase the amount of goodwill and deferred tax liability recorded on the June 30, 2021 balance sheet by approximately $4.9 million and to reduce our valuation allowance recorded on the June 30, 2021 balance sheet while increasing income tax benefit in the statement of income for the three- and nine-month periods ending June 30 2021 by approximately 4.9 million. Therefore, our previously filed quarterly report for the period ended June 30, 2021 should not be relied upon. This adjustment improves profitability for the quarter ended June 30, 2021 from net loss of $2.3 million to net income of $2.6 million.

In connection with this restatement, management has concluded that a material weakness exists in the Company's internal control over financial reporting related to accounting for taxes for acquisitions that qualify as a stock acquisition for tax purposes. We have established a thorough remediation plan to address this weakness, which includes engaging with highly qualified tax advisors. Overall, we are very pleased with the direction our business is heading and feel confident in continuing to invest in our future. This concludes our prepared remarks. And with that, operator, please open the call for questions.

(Operator Instructions). Kyle Bauser, Colliers Securities.

Thanks for all the updates. Just a phenomenal book-to-bill here. Can you talk just in general terms about how maybe price inflation and/or cross-selling with HistoTox and Bolder PATH influenced the strong book-to-bill in the quarter?

The Bolder BioPATH and HistoTox acquisitions closed in May, so our sales cycle probably -- what we did in May is -- I think what happened this quarter was in process well before we did to May. I think some of the results this quarter and some of the book-to-bill this quarter were things that had been in process 12 to 18 months and things we've been putting in place over the last 12 months, not in the last 4 to 5 months. That being said, we may have had some short-term gains from some of the Bolder and HistoTox clients. But I think it's more of an indication of a very strong demand, our ability to open up some capacity. Our plan is to open up further capacity. And existing customers continue to expand the amount of work they place with us. I think that some of Bolder BioPATH and the integration of Bolder BioPATH and HistoTox are things that are going to continue to further drive us in the future, but I doubt if we saw as much in the last quarter because I don't -- we closed those in May and so I think some of those things that we closed last quarter wouldn't have been -- the larger projects wouldn't have been quoted in June and issued that quickly. So we are seeing some benefit, obviously, and we're seeing some benefit that will impact future quarters, but I don't know that it would've been that big that quickly. What was the second half of your question?

Just how price [inflation] might have influenced --

There has been I think some inflation. Over the summer, we saw obviously wage inflation take place that we addressed proactively and tried to address quickly as we saw it taking place, but we have tried to pass through some of that. That being said, much of the results we had in Q4 were jobs that were quoted in one well before that inflationary period. I think it will, probably some inflation obviously and some price increases definitely in the backlog as we look out, but we are looking at a six- to nine-month backlog, so not all of it would be in there. But there is going to be some inflationary pressure as a result of some of the price increases we saw that I think we've been able to pass through over the last three or four months.

Sure, got it. Appreciate that. And then on a pro forma basis for the combined company, how should we think about CapEx requirements going forward in broad terms?

Well, I think we have been aggressive in trying to address our ability to move our Company forward, to prepare the Company that is going to be the best company in 2024 and 2025 in leading drug discovery and development, and we've also been very disciplined in how we view use of our capital. As long as we can continue to find really good returns, which we've been able to from the capital that we've invested, we don't need to see it right away. But as long as we can see long-term good returns, we are going to continue to be aggressive in investing. We succeeded with that strategy, I believe in our discovery and safety assessment business at Inotiv and with Envigo. I believe they probably have not invested as aggressively as we have in the past, and so I think there are some low-lying opportunities for some investments that can drive some pretty strong returns at Envigo in the future. So I think we'll be very disciplined, but we're looking forward to making some of those investments. And they're making some of them now as we speak; some are deferred maintenance issues, but a lot of them have very strong returns.

Got it. Appreciate it. Just lastly, how are you looking at new M&A targets? Obviously, you had a very productive year for M&A. Are you looking to drive scale, be it geography? Are there other service areas you think you can bring in house? And then at what point does it make sense to evaluate clinical services, not preclinical? It is still a little early, but just kind of curious about your thoughts there.

First off, right now, we are focused on the preclinical market; we're not focused on clinical services. Although we do have some clients that ask us to do some clinical bioanalytical work, that's a small percent of our overall revenue, and we've not really focused on the clinical market nor are we doing that today. I won't say never but we're not doing that currently. As far as preclinical, I think what's been key to our strategy has been scale. And you can see our existing sites, the ones that we've bought, the importance -- we talked about all of them -- doubling and tripling in size, and then it scales by significant enhanced margins as we leverage direct costs. So we'll continue to look for opportunities that provide scale. And we've obviously been aggressive in acquiring services, and now I think we could even consider looking at opportunities to drive market share. So it is something we've done quite a bit in our early years. We took -- the year 2019 and 2020, we took about 12 months as we really focused on our infrastructure, but we've become much stronger I think and I believe that -- I think the synergies we can see from future acquisitions are probably much greater than they've ever been before, and so we're looking forward to continuing to look at opportunities and ways we can grow our business.

Okay, got it. Thanks for all the updates, and congrats on the strong quarter.

Matt Hewitt, Craig-Hallum Capital Group.

Thank you for taking the questions, and what an amazing year; you guys accomplished a ton. Just a few questions. First off, regarding the integrations, and you spoke to this a little bit, but I'm curious as you look at those integrations is the primary benefit going to come via margin expansion or do you see a better or more important aspect of those integrations in the level of service and the quality and the timing of responses back to the customers? Is that the bigger opportunity within those integrations?

It's been all of the above. The acquisitions we looked at, we've looked at improving margins from growing the acquisitions and how can we invest in the companies we've acquired to bring us scale and growth opportunities available to grow. Then we also acquire clients when we acquire these services, and we buy a lot of companies that are single service-oriented and now we have all IND enabling services under one roof. So we're able to take those clients and sell them all of our services, and that has helped grow our overall sales and help a lot of our internal growth as we sell to the clients we are acquiring all of our services.

And then very importantly, when we scaled up and started new services, or we acquired services, we inevitably then -- we don't have to outsource as much or our client doesn't have to go to a third-party. And when we can do that, we can control the timing much better and we can help accelerate the speed in which they can do the discovery and development work. So all three of those things are critical when we evaluate acquisitions. In addition, we're always very interested in obtaining talent. But when we look at acquisitions, it's important that we can see the opportunity we can scale; we want to be able to add value to what we are buying. And in addition, we look at how they can add value to our current customers and our other services, and that formula has worked extremely well for us and I hope it continues to in the future.

That's very helpful. Separately, I'm just curious -- and I realize it's very early days, but regarding Envigo and some of the cross-selling opportunity there, what has been the initial response or feedback that you've been getting from some of their customers? Do you have anything anecdotally you could point to as far as some initial wins on the cross-selling side?

We have had clients come to us now with the services we have and ask us to quote and participate in their services and quoting their services. I don't have a numeric number for you or a number for you that can tell you how much that has been so far, but we're only four or five weeks into this, and we have, as you can see, a very robust backlog. At this point in time, we're actually no quoting jobs. We have had so much activity. Our quoting level has ramped up significantly. I would tell you in the last four to five weeks, we have more than doubled just our client service group that's handling the quotes. So we have a significant amount of activity, and that's a great opportunity, great problem for us to have. I'm really pleased we've been able to retain some very talented people and that we've been able to grow that. But for us, we want to be really client service-oriented and that means even returning timely if somebody asks you to quote, and we are ramping that up quickly to take advantage of all the opportunities that are coming to us at the moment. But I don't have a numeric -- anything for you right now that I could tell you what that is.

That's okay. Anecdotally is fine; I realize it's early days. One last one from me. Regarding -- you just touched on it a little bit there, but I think on the Envigo acquisition call you hosted, you talked about one of the primary areas that you plan to invest, and one of the things you think can continue to help you differentiate from peers is your quality of service, and to do that you have to maintain the right level of employees. I'm curious, how is the hiring proceeded? Are you having success, and are there some areas that need a little bit more from a headcount perspective to meet your internal targets?

Over the last three or four years, at any one time, we have had -- if we have 500 people, we have 50 openings. If we have a thousand people, we have 100 openings. Today, we have 1,800 to 1,900 people, we probably have 200 openings. Hiring in this market for our Company, for any company, and retention is hugely important. We've been very aggressive in our hiring and we will continue to be. I am pleased with our ability to recruit. I think the Envigo and some of the things we've done over the last year and adding services. We've just got some great talent, and that talent has been able to recruit additional talent, and it's very rewarding when we even now get calls -- people calling us, wanting us to come be a part of Inotiv and what we're doing.

That being said, we are always onboarding people, we're always looking for people. And as a matter of fact, the phone calls I was on for 30 or 40 minutes before we had this call today was all about what we're doing to enhance our ability to recruit, retain, and train our people, and I think there's a high degree of awareness in our Company and a great amount of time spent on that; it's a critical resource for us. But if we're going to continue to grow -- and you see our backlog and you can see our book-to-bill, if we are going to continue to grow and we have a very aggressive infrastructure buildout and capital plan for next year, it's going to require people, and we're going to need to be very aggressive in trying to [bring] those people to market -- from the market to our Company.

Got it. Thank you very much, and congratulations on your progress.

Dave Windley, Jefferies.

In prior conversations, and this is a little bit of a follow-up to Matt's question, but you had talked about kind of needing to have capacity in place before you thought you could really turn the sales force loose on the cross-selling opportunities that Envigo presents, and I thought that capacity might've been a little bit physical capacity but certainly was also that client service element that Matt touched on. Can you talk about -- you mentioned you doubled that group. Can you give -- zoom out a little bit and give a little bit of a perspective on kind of where you stand on capacity and your ability to go full steam ahead against the opportunities that Envigo presents?

Hi, Dave, and I'll try to. When we reported last quarter, I believe we were at $23 million or $24 million, and this quarter it is $30 million, a 20% growth. That is fairly large in one quarter. If you'd asked me last quarter at this time, do we have the ability to do $30 million in sales? I probably would not have given that $30 million even as a capacity. So I'm very pleased by how fast we are able to bring on capacity. That being said, I think what we saw last quarter was what we could do. I couldn't have asked them to do much more; that's pretty good growth in one quarter for a service-oriented [regulated] business we are in. That being said, today, I outlined we've got a lot of brick-and-mortar coming on board with leases that we've just recently incurred and entered into. I think in Rockville and I think there's 19,000 in Boulder. I would tell you we're looking at leasing additional space and a further expansion -- major expansion in Fort Collins. We're looking at buying property, possibly in Maryland, and we're looking at acquisitions and some acquisitions that may even have capacity. So we are going to probably continue to be very aggressive in ramping up that capacity, but what we saw last quarter was probably about what I think we could have done with the people we have.

I think if you look back and look at our sales per person, it's another good indication. We're now achieving over $200,000 sales per person. If you go back a couple years ago, we were at $140,000, which gave you an idea we have a lot of capacity left. When we start going up to $200,000 and well over $200,000, $220,000, $230,000, then we are starting to use up a lot of that capacity that we were sitting on. So we will open up more capacity this quarter. We will open up again next quarter some more, and some of the new services are growing quickly. But I can't really tell you -- it's not like we're going to all of a sudden double our capacity. 20% -- moving 20% a quarter is pretty -- I maybe would've said we could do 10%. I'm not sure I would sit here and tell you 20% a quarter to open up is possible. But with the acquisitions and some of the things we are doing, we've got some great opportunities. I will put it that way.

Excellent. I appreciate that answer. Another topic here around -- again, it's been touched on a little bit -- around cross-selling, and you mentioned what I was going to touch on in IND-enabling capabilities and having all of those in-house. And it does seem like a level of your cross-sell is to not have to outsource or not have to send the client to other vendors for services that would be part of a study package, and then the next level of cross-selling might be capturing the client in some of your discovery businesses and pulling those through into some of your safety businesses. Are you able to do both of those now, or is one the predominant level of discussion with the client at this point?

We are able to do both of those. I'd also say we're seeing some of our safety and assessment customers now moving some of their discovery work to us. So it's happening across the board, and so -- but I'll give you an example. When we opened up SEND data reporting -- SEND data reporting, if we were outsourcing it, we may be quoted 12 weeks and we don't make a lot of margin on outsourcing that. If we move it in-house and a client now has a need to move quickly, we can get that down to four weeks or less. That's taking a lot of time just out of that one segment -- just out of that reporting. That was critical. Same when we did safety pharmacology. So all of these things are significant benefits to our clients.

And I would tell you that the acquisitions we've done and the services we've brought in are all really specifically listening to our clients. When I got here four years ago, it was going to be about returning a phone call, it was about listening to our clients. All of our things that we're building in-house are listening to clients and their concerns about our timing, and I think our team has done a good job of building those. In some cases, even much faster than I thought. I think we saw revenue from a lot of the startups we did, and we've not seen any revenue yet from our genetic toxicology startup that we're doing, but we could see some of that here in this quarter and we'll see I think more next quarter. So these services are really ramping up. And not only are they ramping up, we are already expanding and growing them.

Last question from me around the labor inflation that you touched on. Is your ability to price that through pretty real time, or is there a lag too like an annual repricing of rate cards and things like that?

Well, we've been able to I think pass on pretty real time. First it was making sure that we, real-time, increase the wages because there was a lot of pressure there over the summer for [entry level] wages in particular. We can pass them on real-time, and the client is very understanding. But when we're sitting on a six- to eight-month backlog, that backlog is already priced at maybe a previous rate. But what we are closing today is closed at the increased pricing. At one point last year, and even today, even for some research models, we're very careful to actually not even lock in a price. It was almost like it was going to be very real-like -- it was going to be market pricing at the time the study was placed because some of the cost of the research models were going up so quickly, specifically nonhuman primates. So we tried to do what we could to make sure we could protect our ability to pass through those costs.

Got it. I appreciate those answers.

We have reached the end of the question-and-answer session, and I will now turn the call over to Bob Leasure for closing remarks.

Thank you, everybody, for participating in our call this afternoon. Obviously, we are very pleased with the foundation we've set, and really looking forward to 2022. Please reach out to our investor relations firm, The Equity Group, if you're interested in scheduling a follow-up call. We look forward to reporting back to you in February when we release our first quarter fiscal 2022 financial results. Have a good day, and thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.