Affymetrix Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.31.13 | About: Affymetrix, Inc. (AFFX)

Affymetrix (NASDAQ:AFFX)

Q2 2013 Earnings Call

July 31, 2013 5:00 pm ET

Executives

Doug Farrell - Vice President of Investor Relations and Treasury

Franklin R. Witney - Chief Executive Officer, President and Director

Gavin Wood - Chief Financial Officer and Executive Vice President

Analysts

Peter Lawson - Mizuho Securities USA Inc., Research Division

Davin LIn

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Bryan Brokmeier - Maxim Group LLC, Research Division

Daniel Brennan - Morgan Stanley, Research Division

Shaun Rodriguez - Cowen and Company, LLC, Research Division

Justin Bowers - Leerink Swann LLC, Research Division

Operator

Greetings, and welcome to the Affymetrix Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Farrell, Vice President of Investor Relations for Affymetrix Inc. Thank you, Mr. Farrell, you may begin.

Doug Farrell

Thank you, operator. Good afternoon, everybody. Welcome to the call. Today we're going to review our results for the second quarter of 2013, which were released at the close of the market today. If you haven't had a chance to review those yet, you can get access to the press release on our website at Affymetrix .com.

Joining me on the call today is our President and CEO, Frank Witney; as well as our Chief Financial Officer, Gavin Wood.

I'd like to remind callers that our discussion may include forward-looking statements about future expectations, plans and prospects for the company. We believe these statements are based on reasonable assumptions, but actual results may differ materially from those indicated. Important factors which could cause our actual results to differ are indicated in our forward-looking statements and detailed in SEC filings.

It is our intent that these forward-looking statements be protected under the Safe Harbor created by the Private Securities Litigation Reform Act of 1995. We encourage you to review these documents carefully as we make no obligation to update this information.

Additionally, we will be making GAAP to non-GAAP comparisons today. A full reconciliation of the non-GAAP measures to GAAP can be found in our press release as well. As a reminder, this call is being recorded and the audio from the call is being webcast over the Internet on our homepage at affymetrix.com.

Before I turn the call over to Frank, I'd like to provide an update to a figure in the third bullet point of our press release. The GAAP net loss of $21.5 million was actually a year-to-date figure for 2013, not a Q2 number for 2012. The figures in the income statement will show you the year-over-year comparisons.

So with that, let me turn the call over to Frank.

Franklin R. Witney

Thanks, Doug. Good afternoon, and thank you, all, for joining us on the call today. Before I discuss our second quarter results, I'd like to formally welcome Gavin Wood to the executive management team. As most of you know, Gavin was appointed Chief Financial Officer at Affymetrix in May, following the announcement of Tim Barabe's retirement. Gavin has been with the company since 2006 and most recently served as our Vice President of International Finance, where he's an integral part of our financial and commercial efforts in Europe and in Asia. For those of you have not have the chance to meet Gavin yet, we look forward to having that opportunity during the fall conference season.

I'd like to begin by restating the goals of the second phase of our strategic plan, which spans 2013 and '14. During this phase, our goals are: First, to grow our top line revenue by expanding our product portfolio and further penetrating the translational sciences markets, to establish the company as a key provider of molecular diagnostics products, and to build our presence in the applied genomics market, in particular in agrigenomics. Second, to achieve sustained profitability. And third, to strengthen our balance sheet and increase our strategic flexibility.

I'd like to highlight some key metrics to demonstrate that we are making steady progress in all 3 of our priorities. From a revenue perspective, in Q2 2013, $74.2 million of our total revenues comprised the product sales. On a pro forma basis, product revenue in Q2 2012 was about $75.5 million, a decline of less than 2% in 2013.

This continued stabilization of our revenue demonstrates that our acquisition of eBioscience has significantly reduced our dependence on Gene Expression. From a diversification perspective, we closed our acquisition of eBioscience in late June last year. In Q2 2012, our Expression business accounted for approximately 45% of our revenues, while in Q2 this year our RNA Expression products accounted for only 31% of our revenue.

When I discuss each business unit in more detail, I'll highlight a number of exciting new product launches and initiatives, each of which will further contribute to our efforts to return to consistent top line growth. We continue to aggressively grow both segments of our Genetic Analysis business, genotyping and clinical arrays, and achieve some improvement in our Gene Expression business in the quarter. Secondly, with regard to profit, our EBITDA for the second quarter of 2013 was $13.6 million or 17% of sales, and year-to-date EBITDA is more than $24 million or 15% of sales. We remain committed to achieving EBITDA margins of approximately 15% of sales in 2013.

Finally, since we closed the eBioscience acquisition, we have made significant progress in strengthening our balance sheet by reducing our senior debt from $85 million to $63.7 million, a reduction of about $21 million and more than 25% in just 13 months. Overall, we are encouraged by our second quarter results. We saw strong growth in our Genetic Analysis business unit and improved revenue trends across all other business units compared to the last quarter.

From a geographic perspective, our business strengthened in both Europe and North America, while Japan remained soft.

Now I'd like to provide additional color on the performance of each of our business units. In Genetic Analysis, we grew our cytogenetics business by 15% year-over-year while sequential quarterly growth was a robust 30%. Our cytogenetics product line represented 12% of our total revenue in the second quarter. The continued expansion of our CytoScan product line was driven in part by our efforts to increase our market penetration in Europe and Asia, where we are building momentum, as well as continued penetration in our major U.S. cytogenetic sites.

In genotyping, we generated another quarter of solid double-digit revenue growth. Our genotyping revenue grew by 19% year-over-year, driven by the continued adoption of our Axiom products, which was partially offset by declines in SNP 6.0 revenue, which is now a minor portion of our total revenue. We will begin processing samples for UK Biobank in the fourth quarter of this year, and we expect that we will recognize the majority of the revenue from this project in 2014.

In addition, we are launching 2 new products that will expand our sales in this business unit into our target markets at translational medicine, molecular diagnostics and applied markets. On Monday, we announced the commercial launch of our Axiom 384HT high-throughput genotyping solution. This evolution of our platform allows customers to run high-density genotyping in a 384-sample multi-well format, an extension of our current 96-sample format. This format increases throughput by a factor of 4 and reduces the cost per sample to a point where genotyping is feasible in routine applications. We expect this product to compete very effectively for high-throughput, cost-sensitive applications, particularly in the ag market, but also in human genotyping. Currently, we have strong customer interest in this platform, particularly in Europe.

We are excited about the upcoming launch of our OncoScan platform at the Cancer Cytogenomics Microarray Consortium in Chicago next week. We have been providing OncoScan as a service for about 2 years now, and we are pleased to announce the commercial availability of a product version that will allow customers to analyze samples in their own labs. OncoScan allows customers to analyze whole-genome copy number changes, as well as to interrogate a wide range of clinically relevant somatic mutations in tumor biopsy samples.

The key value proposition for OncoScan licensed ability to analyze the small amount of highly degraded DNA from so-called FFPE samples, which are the primary sample-type used in cancer research and the development of diagnostics. The role of copy number changes in cancer is well established, more than 200 genes, and that number is growing. In addition, OncoScan provides an unmatched capability for analyzing FFPE samples, which are notoriously difficult to work with and not well-suited for NGS platforms. Customer feedback indicates that OncoScan will be an important tool in facilitating this critical research, and that will ultimately have clinical applications.

As you know, we submitted CytoScan DX to the U.S. FDA in February of this year. We are in active and frequent discussions with the agency. Although we cannot forecast the timing for clearance, we can say that the agency have been very engaged and our discussions have been constructive. Given the progress we're making in our clinical and genotyping segments of our Genetic Analysis business, we expect to continue to achieve growth in the range of 15% to 20% in 2013.

Turning to eBioscience, I'm pleased to report an improved sequential growth rate in this business unit where revenue was up by 5%, compared to Q2 2012, in constant currency. This growth rate brings us back to the high single-digit growth that we're targeting. Geographically, this business unit grew by 12% in Europe and 23% in Asia, while North America was down by 5%, driven by tighter academic spending and pricing pressure.

Last quarter, we launched our QuantiGene FlowRNA product line, which enables customers to measure RNA levels in single cells by flow cytometry. This unique product was realized by combining our expertise in Gene Expression analysis with eBioscience's innovation at flow cytometry. Early feedback is very positive, and we are leveraging our eBioscience commercial channel to help drive growth of this exciting assay, which can be run on the large install base of flow cytometers around the world.

After a full year of operating the eBioscience business, we remain confident that we will drive long-term revenue growth in our flow and immunoassay reagent businesses.

In the meantime, we are very pleased with the diversification, cash flow and revenue stabilization contributed by eBioscience, as well as its contribution to our overall strategic plan.

Our Life Science Reagents business generated revenue of approximately $8 million in the second quarter, representing growth of 4% over the same period in 2012. We were pleased with these results for the quarter, and we expect this business will continue to grow in low single digits.

During the second quarter, our overall Expression business unit declined 18% year-over-year versus 29% in the first quarter. Notably, the improvement in our Expression business included sequential growth in our RNA GeneChip products, led by strong increases in North America and Europe. We continue to see softness in Japan and do not expect significant improvement in this market for the remainder of the year.

We recently implemented a broad and an aggressive marketing campaign for our Human Transcriptome Array, which we believe can further help to stabilize our Expression business. HTA is a complement RNA sequencing, as it addresses some of the limitations of that application. We'll report on our progress of this project in the next several quarters, but one area we are particularly excited about is the analysis of RNA profiles from FFPE samples in oncology research, an application generally considered to be difficult to perform by RNA sequencing. This application for HTA is also an excellent complement to our newly launched OncoScan assay, which measures copy number and somatic mutations in the same clinical sample type. We consider global expression profiling from FFPE to be a significant contribution to cancer research and a large commercial opportunity. Earlier interactions with customers are enthusiastic.

In closing, we are encouraged by the trends that we saw in Q2. We're excited about our new product launches and commercial initiatives. We continue to make progress in the 3 strategic goals I reviewed in my opening remarks. I also shared the number growth drivers, such as our continued success in our cytogenetics business, as well as continued commercial and technical progress with our genotyping products.

Now, I'd like to turn the call over to Gavin to review the details of our operating results.

Gavin Wood

Thank you, Frank, and good afternoon, everyone. Before reviewing our results, I'd like to say how excited I am about joining the executive management team here at Affymetrix. As Frank mentioned, I've been with the company in a variety of roles for nearly 7 years. Frank and I have worked closely together since he joined the company, and we share a common vision for Affymetrix and the organization's high-level priorities. These include returning the company to growth, achieving sustained profitability and strengthening our balance sheet.

I'm in the early stages of taking a fresh look at the organization, and I believe that we have a number of avenues to strengthen our operations and financial performance. I look forward to having the opportunity to share some of these specifics over the next several quarters.

I'll now review our operating results in the second quarter of 2013. For the quarter, the company reported total revenue of $79.5 million, which included $18.8 million from eBioscience, as compared to $66.4 million for the same period last year, which includes $1.4 million for eBioscience. Our second quarter product revenue is $74.2 million, as compared to $58.5 million for 2012. As Frank discussed earlier [indiscernible] include full quarter of revenue for eBioscience for both years. Our organic product revenue was down by less than 2% year-on-year, which gives us confidence that we are driving the business back towards overall revenue growth. Excluding BioScience, Affymetrix's core consumable sales were $51.2 million, down from $53.3 million in 2012.

Instrument sales for the quarter were $4.2 million, compared to approximately $3.8 million in the prior year quarter. Service and other revenue was $5.3 million, compared to $7.9 million in the second quarter of 2012. While field and scientific service revenues were roughly in line with the prior year, Other revenue includes licensing and royalties, which were down by $1.3 million from 2012, primarily driven by a one-time payment that we received last year.

Let me turn to gross margin. For the second quarter of 2013, the total gross margin was 53%, compared to 58% in the same period of 2012. Excluding non-GAAP adjustments, such as the amortization of step-up in inventory value of $4.5 million and amortization of acquired intangibles of $1.3 million, non-GAAP gross margin was 60%, up 1 basis points from 2012.

Looking at operating expenses. Total operating expense for the second quarter approximately $45.1 million versus $54.1 million incurred in the same period last year, including GAAP-operating expenses of $11 million for eBioscience, as compared to 600k in Q2 2012. Expenses incurred during the quarter include the following items: amortization of acquired intangible assets of $3.2 million; a restructuring credit of $400,000; and an integration-related charge of $200,000. Excluding these items, the total operating expenses of $42.1 million, down from $48.3 million in the second quarter of 2012, after adjusting for the amortization of acquired intangible assets and acquisition-related transaction costs.

Looking a little bit in more detail, the R&D expenses for the second quarter 2013 were $12 million, which included $2.1 million of R&D expenses from eBioscience, this compared to $13.6 million in the second quarter of 2012, which included $100,000 from eBioscience. Excluding eBioscience, core Affy R&D expenses were $3.6 million, or 27%, in the quarter ended 30th of June, as compared to the same period in 2012, decreases primarily due to lower cost related to reduced headcount and variable compensation and reduced spending on supplies and consulting.

SG&A expenses were $33.5 million in 2013, which included $8.9 million from eBioscience, as compared to $40.5 million in 2012, which included eBioscience expenses of $500,000. Excluding eBioscience, the $15.4 million, or 39% decrease, was primarily due to less nonrecurring acquisition and integration-related costs, lower headcount costs and variable compensation costs following our strategic restructuring and reduced IT spend. Following our restructuring in the first quarter 2013, the company reported a release of $400,000 restructuring accrual. The remaining $300,000 accrued at the end of 30th of June, 2013 is expected to be paid during the third quarter. We do not expect any additional charges related to this restructuring.

Looking on other income and expenses. The interest expense in the second quarter of 2013 was approximately $2.6 million due primarily to interest expense of $2.7 million from our debt obligations following the acquisition of eBioscience. This compared to interest income in 2012 of $2.1 million, which includes a notes receivable from a nonmarketable investment that was previously written off. Tax in the second quarter of 2013 was $500,000 for a tax provision that we referenced.

Net loss. During the second quarter 2013, we generated a GAAP net loss of $6.1 million, or $0.09 per diluted share. Non-GAAP net income was approximately $2.8 million, or $0.04 per diluted share, this compares to a non-GAAP net loss in the second quarter 2012 of $1.2 million, or $0.02 per diluted share.

To facilitate the analysis of the company's core operating results, I would like to summarize the non-core adjustments to our net loss for the quarter and their impact on the pretax earnings per share. In aggregate, these non-GAAP adjustments amounted to a net of $8.9 million or about $0.12 per share. Increased to GAAP net income, which include, within gross margin, $5.8 million or approximately $0.08 per share for the amortization of acquisition-related intangibles of $1.3 million and the inventory step-up in fair value of $4.5 million.

In operating expenses, approximately $100,000 in R&D and $3.1 million in SG&A or around $0.04 per share in acquisition-related intangible amortization. We also reported a $400,000 income due to the release of a restructuring accrual, or about $0.01 per diluted share. And we also had integration-related cost of $200,000 in SG&A expenses associated with the acquisition of eBioscience. This is worth around about $0.005 per share.

Turning now to the balance sheet. We ended the second quarter of 2013 with total cash and cash equivalents of $44.1 million after making a $3.2 million payment towards our senior secured debt. This compares to $38.2 million at the end of first quarter 2013, included in the $44.1 million balance are prepayments from a customer of $7.6 million. I'm pleased that we generated $10.3 million from operating activities during the quarter.

Capital spending was about $1.2 million and we incurred licensing charges of roughly $100,000. Depreciation and amortization during the period was $14.6 million, including amortization of acquired intangible assets and the inventory step-up I've already alluded to. Operating expenses for the second quarter included $1.3 million in stock-based compensation charges. Cash receivable were $47 million at the end of the quarter, down from $53.9 million at the end of the first quarter 2013, due primarily to the timing of transactions within the quarter and related recovery of outstanding amounts as compared with the timing in the prior period.

Turning to inventory and other balance sheet items. Net inventory for the second quarter of 2013 was $75.7 million, down 9% from $83.1 million at the end of the first quarter of 2013. This was primarily driven by a $4.5 million amortization expense recognized in the second quarter on the fair value step-up and also lower inventory levels due to revised build plans and higher revenue. We exited the second quarter in a strong financial position with total cash and cash equivalents of $44.1 million versus $66.9 million in senior secured debt, leaving us with approximately $22.8 million in net debt, excluding our convertible debt.

In addition, last week, we made another prepayment of $3.2 million against our debt, in line with our stated aim to aggressively pay down our senior debt. This payment is not reflected in our ending cash balance for Q2. Looking forward, we'll continue to maintain tight controls in our operating expenses to achieve sustainable profitability and improve cash flow, cash flow to allow us further reduce our senior debt and increase our strategic flexibility. At this point, I'd like to open the call up for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Peter Lawson from Mizuho Capital.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Frank, just around the e-science business, it still kind of remains a little bit weak. And what gets you back to the high single-digit growth you're expecting for that business?

Franklin R. Witney

Well, the biggest issue we have is the North America growth rate. We had a decline in North America. It's a pretty difficult situation with the sequestration and price pressure. So we're working very hard on that piece. But that's, in the near term, that's the focus. So we're seeing some improvement, but we still have plenty of work to do there. And as we talked about on the call, we're seeing good growth rates in Europe with both our flow and immunoassay business, good traction in Asia, but we're struggling in North America.

Peter Lawson - Mizuho Securities USA Inc., Research Division

How do you resolve the price pressures, just drop your prices or are there tricks around that?

Franklin R. Witney

Well, we have a number of approaches that we're taking to resolve that particular issue.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And then just in Japan, the issues for 1Q, which ones of those still linger? I remember there was a -- you went from distributor to direct, there was weakness around the expression array business?

Franklin R. Witney

No, that was actually around the eBioscience business, and those problems have been resolved, we just had some logistical issues that took us a little while to sort out. But we have a full product complement there and we're in good shape now in that regard.

Operator

Our next question comes from the line of Derik De Bruin from Bank of America.

Davin LIn

It's actually David, in for Derik. I'm just wondering, can you speak a little bit about the trend you're seeing in academia and government from Q1 to Q2? Have you seen any kind of deterioration or is it just kind of stable weakness, so to speak?

Franklin R. Witney

Yes. I'd say no material change for the last several quarters. Nothing -- no fundamental changes.

Davin LIn

Okay. And your Expression business did a little bit better, but it's still kind of down, 18% year-over-year. Is there any kind of level you can generally target for us as some sort of bottom for that?

Franklin R. Witney

We've talked about that a lot. We're not projecting a bottom. We're continuing to sell our products. We're pushing our HTA initiative, which we think is going to help stabilize the business. But we saw some positive trends in the quarter.

Davin LIn

Okay, that's helpful. And one last one if I can. Regarding your debt paydown, is there a specific level you guys are targeting kind of in the more long run? I'm just thinking about this from kind of big picture perspective. The business seems to be stabilizing a bit and your debt, I think, it's at like a 4% interest rate, doesn't seem like a terribly expensive cost of capital. When do you kind of start thinking of shifting away from maybe paying down debt to maybe buying back shares or something like that?

Gavin Wood

I'll take that one. Our aim here is to generate cash and to pay down debt as quickly as possible. I think they may ultimately become a mix of debt and other funding sources that we may get to, but at the moment, we're concentrating in getting that debt down, reduce our interest costs.

Franklin R. Witney

And then, maybe just to clarify, too, the interest rate on the senior debt is actually 6.5, not 4, so it is expensive money and that's one of the reasons we're trying to chip away that so aggressively. That's a pretty high coupon in the current interest rate environment.

Operator

[Operator Instructions] Our next question comes from the line of Jeff Elliott from Robert W. Baird.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Just following up on the debt comment. I think in the past you talked about possibly refinancing that and wondering if we can get an update on that?

Gavin Wood

Yes, we're looking at the number of different options around the debt, and clearly refinancing is one that we're actually looking at the moment.

Franklin R. Witney

Okay. And add to that -- maybe to add to that, too, from a debt perspective, after paying down 25% of the debt over last year, so we're now $20-something million in net debt against the senior debt alone. So that debt is at a very manageable level, and certainly refinancing is something that's high priority, but we're not prepared to update you on that right now.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Got it. And then, Gavin, you made a comment in your prepared remarks about looking at other ways to control costs. Are you signaling perhaps another restructuring could be in the works? Or are you just -- are you talking about more incremental changes there?

Gavin Wood

Yes, it's -- certainly we're not looking at any program in the next quarter, but we're keeping a careful control on costs because that's the right thing to do.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then, any commentary you can give on modeling R&D and SG&A just in the second half of the year?

Franklin R. Witney

We've said long term that we would aim to R&D be in the 15% range long term. We're still striving to that. We're trying to balance, as Gavin said, being very careful with our cost with driving growth initiatives. So I think long term, R&D in the 15% range is what we're aiming towards.

Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division

Okay. And SG&A, anything there? Should we just kind of take the second quarter and use that as a run rate?

Franklin R. Witney

Yes, I don't think they'll be any -- we're not -- we don't see any fundamental changes in our expenses in the second half of the year that are materially different. We remain committed to a minimum 15% EBITDA as a percentage of sales, and we remain committed to driving to that metric.

Operator

Our next question comes from the line of Isaac Ro from Goldman Sachs.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Wanted to ask a couple of questions on eBio and the flow market in general. First off, just if I think back on the hallmarks that eBio had prior to the acquisition, it was sort of the velocity of new product introductions. And I was wondering if you could give us a sense of how you feel like the funnel of new products looks for eBio for the balance of this year and into next year?

Franklin R. Witney

Sure. We drive to a certain metric, NPI, new product introduction metric. And the current flow of new products is equivalent to what it was prior to the acquisition. So we continue to have a steady stream of new antibodies and new flow products from that as well as immunoassay products. The other thing we're excited about is the launch of the QG RNA flow, which combines technology from the core Affymetrix with eBio flow. We just literally launched that product in the latter half of Q2, but the -- it's a unique capability to measure RNAs in single cells by flow. And the customer interaction has been -- customer reception has been good and we'll start to build more R&D around that particular platform as well as combination of effectively the openomics business and eBioscience.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Got it. And then maybe just sort of another sort of industry-wide question. There has been sort of a trend in flow towards lower prices systems the last few years. And I'm wondering if you believe that sort of expanding the total addressable market for eBio or whether you think maybe that trend is somewhat of a replacement process where customers are trading down to lower price systems?

Franklin R. Witney

We actually believe that the lower-cost systems is helpful. It's democratizing flow out of the core labs to people to run experiments in -- more in their own labs or with a higher install base, so we think that trend is actually helpful.

Doug Farrell

Isaac, this is Doug. Maybe just to add, too, particularly if you're looking at some of our geographical efforts, and we've talked a lot about trying to better penetrate Europe and Asia, in the current capital expenditures environment we do think that low-price flow systems do help us kind of pave the way for market share growth in Europe and Asia in particular.

Isaac Ro - Goldman Sachs Group Inc., Research Division

If I could ask one cleanup, and I apologize, I was hopping between calls, but did you guys give the percentage of sales you now generate from cyto?

Franklin R. Witney

In the quarter, it was 12%, where last year it was 10% for the full year. We're continuing to build on that, and that was kind of the extent of the percentages we give on cyto.

Operator

There are no further questions in the queue. I'd like to hand the call back over to management for closing comments.

No, we do have 2 more questions. Our next question comes from the line of Bryan Brokmeier from Maxim Group.

Bryan Brokmeier - Maxim Group LLC, Research Division

Any feedback from the FDA on the side of scan submission? Is there any way you would characterize any request you received from them?

Franklin R. Witney

I would just say we're in active and frequent discussions with the agency. Again, we can't forecast timing for clearance, but the agency has been highly engaged and we characterize the discussion as constructive.

Bryan Brokmeier - Maxim Group LLC, Research Division

Okay. And then on the 384 chip, you talked a little bit about that and the commercialization earlier this week. Can you provide some color around initial response that you've received from customers, and more broadly, sort of what you're seeing in the Ag-Bio market in terms of how it's performing generally year-to-date?

Franklin R. Witney

So our betas has been successful, and the feedback has been very, very positive. This is primarily -- not exclusively in the ag market, for market-assisted breeding. We believe that it drives -- I mean, takes all of the good things that we've done with our 96 platform, the flexibility, the performance, the quality of the results, our bio informatics capabilities and it puts it in a format, at throughput and a price point that can be used in routine applications. So we feel very good about it. And we're engaged with a number of important ag customers, although we have seen -- we have a number of lines in the water for human genotyping projects as well.

Operator

Our next question comes from the line of Dan Brennan from Morgan Stanley.

Daniel Brennan - Morgan Stanley, Research Division

Just a few questions. Frank and Gavin, I know a question was asked earlier in this point, but would love if you could give clarification. Frank, just on your legacy Gene Expression business, I think what -- can you quantify the -- I think it's the IVT if I remember correctly, I just forgot the name of the specific chip that was really the one that's been a big headwind. What percent of revenues is that today, kind of what did that do in the quarter? And secondly, related to that like GWAS, like -- what is your business doing for GWAS now? Because -- today, because I presume those are the 2 biggest -- kind of drags on your growth rate.

Franklin R. Witney

A disclaimer. We don't generally give that level of detail about our products, but I can certainly answer your questions generally. The GWAS products, if you want to call those -- that's really part of our Axiom program now. When we talked about the growth we're seeing in our genotyping business. So we feel that application is very healthy. That's both the Axiom 96 and 384 formats. And we, in our prepared remarks, we gave the growth rate around our genotyping business, which was...

Doug Farrell

19%.

Franklin R. Witney

19%. So that part of our -- if you want to call it legacy business, we feel is very, very vibrant at this point. The biggest headwind we do have is in our IVT product, which is our -- maybe the product that the company was actually built on many, many years ago. As we said, our Expression business is about 1/3 of our business right now and the IVT is some subset of that. We have a couple of different products in our EBU business. But it, overall, represents 30% and IVT is some subset of that.

Daniel Brennan - Morgan Stanley, Research Division

Okay. And then I know you, after last quarter's shortfall, you guys had rescinded the full year kind of growth outlook. Any color now that you've got another quarter under your belt and you've caught some trends here? With sequestration, obviously, hopefully moving into the comp beginning in the September quarter, like how you think about the ability to grow on a full year-over-year basis?

Franklin R. Witney

Yes, we're not -- at this point, we're not changing our position and we're not going to give forward-looking guidance at this point.

Daniel Brennan - Morgan Stanley, Research Division

Okay. And in terms of the -- and then maybe in terms of the restructuring, could you remind us how much of the total restructuring you've already recognized in your results through the middle of the year, kind of what's left to be recognized in the back half of the year?

Gavin Wood

Yes. We haven't got the exact number. We're actually putting together some tracking on that at the moment. It's not a linear amount for the year, because a lot of it will be -- there'll be some back end recognition of that. But at the moment, approximately $5 million to $6 million in SG&A.

Daniel Brennan - Morgan Stanley, Research Division

And what was the total amount, Gavin?

Gavin Wood

$5 million was the total amount of the restructuring target.

Daniel Brennan - Morgan Stanley, Research Division

And was that all expected to be realized in calendar '13?

Gavin Wood

That's right.

Franklin R. Witney

The vast majority has been already.

Daniel Brennan - Morgan Stanley, Research Division

Oh, the vast majority has been recognized already, Doug. Okay.

Doug Farrell

Yes, we -- you might have missed it in our prepared remarks, we don't expect to have any really material additional restructuring charges in the back half of the year, so it's really behind us at this point.

Daniel Brennan - Morgan Stanley, Research Division

Okay. And then maybe one final one. Just in terms of kind of operating cash flow, free cash flow kind of outlook for the full year, how should we be thinking about kind of the full year expectation on that front?

Gavin Wood

Certainly in Q2 we recognized $10.3 million in free cash, some of that I think stands in the inventory, and we also had an exceptionally good recovery on accounts receivable. We'd look to hold those back through the year. But I think we -- I don't think we'd expect to see quite so much free cash generated in Q3, which is generally slightly slower on collections with the holiday season.

Operator

Our next question comes from the line of Shaun Rodriguez from Cowen and Company.

Shaun Rodriguez - Cowen and Company, LLC, Research Division

A couple of relatively quick ones for me. First, a clarification on a previous question. On the Japan softness, I think last quarter you talked about that as a big hit the Gene Expression, and this quarter you pointed it out as generally a soft market. But I think in response to an earlier question, you attributed it more to eBio weakness there. So I'm sorry if I misheard that, but can you just clarify the Japan issues and what franchises specifically have been notably soft there?

Franklin R. Witney

Just to clarify, Peter was asking about -- we had talked about in Q1 some issues with some logistics around the eBioscience business in Japan, and that's been cleared up. And so we feel we're in pretty good shape there. The biggest issue we have in Japan is, in fact, the Expression business. Japan has -- is pretty dependent on their legacy IVT business in Japan, and that business is pretty challenged right now. So what we're working on is implementing some of our more strong growth areas, like our genotyping this is in our cytogenetics business in Japan, but we still have work to do in Japan. So it's really around the Expression business primarily and then getting traction with our stronger growers in cyto and genotyping.

Shaun Rodriguez - Cowen and Company, LLC, Research Division

Okay, that's helpful. And then lastly, can you just update us on the UK Biobank contract, just in terms of the foundational work that you need to do to get ready for that and whether your expectations for when that genotyping ramps, I think you're saying, late this year, maybe early next, and have those expectations changed at all?

Franklin R. Witney

No problem. It's -- there'll be a small amount of revenue recognized and small number samples run in Q4 and the majority will be in 2014. A lot of the leg work is being done. The array, the design of the array has been finalized, DNA samples are being prepared. So all that work is going on and we anticipate late in the year to start running samples in earnest.

Operator

Our next question comes from the line of Justin Bowers from Leerink Swann.

Justin Bowers - Leerink Swann LLC, Research Division

Just actually a follow-up to the Japan and the U.K. questions. Are you seeing anything in terms of the stimulus funding there, kind of what the environment is there? And then just remind us what the opportunity is in 2014 for the Biobank.

Franklin R. Witney

We haven't characterized the magnitude of the opportunity. We'll talk about that later on. In terms of Japan, there is -- there are monies being made available for certain types of projects in the genotyping space, for example, and these are opportunities that we're engaging with customers on.

Operator

Our next question is a follow-up question from the line of Peter Lawson from Mizuho.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Frank, I apologize -- jumping between calls, but the U.S. business, where did that strengthen in 2Q versus 1Q?

Franklin R. Witney

Well, we -- probably the biggest differences that we had very nice sequential growth was our Expression business. And that was in both segments of our Expression business, the IVT as well as our gene arrays, we had a nice performance there. We continue to do very well with our Genetic Analysis business. We had good results in both first and second quarter there. But we had some very nice results with our Expression business in U.S. in Q2.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Got you. And I may have missed this, but did you give the dollar numbers for Genetic Analysis and Life Science and the Expression business like you did last quarter?

Doug Farrell

We gave the percentage -- this is Doug, Peter. We gave the percentages up on those. I'm happy to go through those we do again off-line, but there will be in the transcript.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Got you. And then the expectations of those businesses, do they remain the same versus last quarter for the expected growth rates?

Franklin R. Witney

Yes, no material difference. We feel better about the expression business unit this quarter than we did last. And we're still driving to the same -- within the bands, within the same expectations.

Do we have any other questions, operator?

Operator

There are no other questions in the queue. I'd like to turn the call back over to management for closing comments.

Doug Farrell

Thanks, everyone, for taking the time to join us today. If you did miss any portion of the call, a phone replay will be available for the next 7 days beginning at around 5:00 Pacific Time today. To access the replay, domestic dialers, please call (877) 660-6853. And we'd ask international callers to dial (201) 612-7415. The passcode for both calls is the same, 417309. Alternately, you can listen to an audio replay under the Investor Relations section of our website at affymetrix.com. This concludes our call. Thank you for joining us today.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

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