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Affymetrix (NASDAQ:AFFX)

Q4 2013 Earnings Call

February 05, 2014 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

Andrew J. Last - Chief Operating Officer and Executive Vice President

Analysts

Peter Lawson - Mizuho Securities USA Inc., Research Division

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

Bryan Brokmeier - Maxim Group LLC, Research Division

Douglas Schenkel - Cowen and Company, LLC, Research Division

Reginald Miller - UBS Investment Bank, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Daniel L. Leonard - Leerink Swann LLC, Research Division

Operator

Greetings, and welcome to Affymetrix's Fourth Quarter and Fiscal Year 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Farrell, of Affymetrix. Thank you. You may now begin.

Doug Farrell

Thank you, operator. Good afternoon, everyone. Welcome to Affymetrix's Fourth Quarter and Fiscal Year 2013 Conference Call. At the close of the market today, we released our results for Q4, as well as the full year. Joining me on the call today are our President and CEO, Frank Witney; our CFO, Gavin Wood; and our COO, Andy Last, will be joining us for the Q&A session.

I would 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 actual results to differ are in the forward-looking statements and detailed in our 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 forward-looking statements are made as of today's date and we make no obligation to update this information.

Additionally, we will be discussing GAAP and non-GAAP measures. A full reconciliation of non-GAAP to GAAP measures can be found in our press release today, as well as on our website.

As a reminder, the call is being recorded and the audio from this call is being webcast on the Internet at our homepage at affymetrix.com.

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

Franklin R. Witney

Thanks, Doug. Good afternoon, everyone, and thank you for joining us. Before I review our commercial and operational highlights for the fourth quarter, I'd like to reiterate our goals for the second phase of our strategic plan, which spans 2013 and 2014. Our primary goal is to return the company to consistent growth. Our second goal is to achieve sustained profitability. Finally, we intend to strengthen our balance sheet and increase our strategic flexibility.

We made significant progress on these goals in 2013, most notably returning to growth in the second half of the year. We continue to execute on our strategy of expanding our reach into the translational science, molecular diagnostics and applied genomics markets. We're confident that we'll exit Phase 2 of our turnaround plan at the end of 2014 with a growing business, strengthened balance sheet, profitability and a sharpened business focus.

Let's take a look at some of the key metrics that we use to track our progress on these objectives. With regard to growth, our fourth quarter revenue of $92.6 million represents a significant improvement over the prior year. Our product revenue for the fourth quarter increased by 7.5% over the prior year. In fact, excluding the one-time licensing fee of $5.3 million received in Q4, we achieved overall revenue growth in the second half of 2013, driven by the strength of our CytoScan and our Axiom product lines, the sequential improvements in Expression and eBioscience, as well as the contribution from new products.

As for profit, our non-GAAP EBITDAO for the fourth quarter of 2013 was $19.5 million or 21% of sales. And for the full year, our non-GAAP EBITDAO was approximately $57.5 million or 17% of sales. In addition, we made significant progress in strengthening our balance sheet since our last quarterly report. Gavin will provide details later in the call.

For fiscal year 2013, consumables represented 90% of our total revenues, excluding the onetime licensing fee. In Q4, our consumable revenues increased by nearly 10% over the prior year.

From a geographic perspective, our business strengthened in Europe, China and North America, while Japan remained challenged. Now, I'd like to give you a little more color on each business unit, beginning with our primary growth driver, Genetic Analysis. For the fourth quarter, our cytogenetics product revenue increased by approximately 18% over the prior year, excluding the one-time payment that represents 12% of our revenue. The growth in this product line is being driven by a combination of factors including expanding our customer base in all geographies, increased business in existing accounts, as well as expanding our application base. For example, we are seeing increased use of our CytoScan product in research-use-only applications in reproductive health and oncology.

For the full year, our cytogenetics business grew by more than 25%. Looking forward, we see a number of important factors that will help us to continue to grow this business for years to come. Most notably, last month, we received 510(k) clearance from the U.S. Food and Drug Administration for postnatal detection of DNA copy number variants in patients referred for chromosomal testing.

So not only is CytoScan Dx the best-in-class product on the market for cytogenetic analysis, it's also the first and only cytogenetic microarray to receive regulatory clearance. We believe that our first-mover status creates several important competitive advantages. First, FDA approval will allow us to promote more aggressively against the research-use-only products offered by competitors. In contrast, we can now target end users such as physicians, advocacy groups and parents, to educate them on the advantage of this powerful new test and expand the total addressable market.

Second, it will allow us to accelerate the conversion of new customers from karyotyping to array-based cytogenetics. New labs will now find it easier to adopt CytoScan Dx as these customers won't need to do extensive internal validation, which makes the transition faster and less expensive.

We also believe that our FDA clearance strengthens our position for driving market share growth, as well as improving reimbursement and maintaining pricing power, all key elements for long-term success in this market. Lastly, we believe it helps to lay the foundation for additional regulatory approvals outside of the U.S.

In addition to continued growth in the postnatal market, we are also collaborating with a number of customers for a new applications to grow our cyto business in areas such as autism, cancer research and reproductive health. Finally, we are building a portfolio of cytogenetic products that will enable us to segment geographies based on the local regulatory and commercial needs.

In the third quarter, we launched our OncoScan FFPE Assay Kit, an important addition to our cytogenetic portfolio, which enables whole-genome profiling of copy number variants from solid tumor FFPE tissue samples. In recent months, several important publications and conferences reported and supported the case that solid tumors cluster into 2 distinct genomic classes, M and C, with M-class tumors being primarily characterized by somatic mutations, while C-class tumors are characterized by copy number variations.

The growing understanding of the importance of copy number variation of ovarian, breast and lung cancer represents a major growth opportunity for OncoScan. We've had some important early successes and I look forward to updating you on the adoption of OncoScan over the coming quarters.

Our Genetic Analysis business unit also benefited from another strong quarter of growth in genotyping where our Axiom revenue was up about 63% over the prior year. For the full year, our Axiom revenue grew by 74% over 2012, primarily driven by our expanded menu of standard products, continued success for our custom array program and our strengthened competitive position in Biobanking and Ag-Bio.

The technical advances of Axiom such as our industry-leading bioinformatics capabilities and highly customizable manufacturing are resonating with customers who are increasingly looking for high-fidelity, high-throughput custom arrays with competitive economics. For example, we just announced a collaboration with the University of Bristol in which, together, we will design a wheat genotyping array as part of an effort to better understand wheat genetics and breeding. The primary goal of this work is to ensure guaranteed sustainable production. Wheat is one of the 3 most important staple crops in the world, and we expect this array will be another important product in our expanding Ag-Bio portfolio.

Last month, we attended the Plant and Animal Genomics Conference in San Diego and customer interest in our Axiom platform was very high. Many of these Ag-Bio customers have the potential to run very large numbers of samples and routine marker-assisted breeding applications.

We believe that the total addressable market is approaching $500 million per year and growing rapidly. Further, we believe that our Axiom 384 format gives us a sustainable, competitive advantage for these projects based on data quality, throughput and cost-effectiveness.

In Q4, our eBioscience business unit grew by more than 13% over Q4 2012. As a reminder, last quarter, we completed the transfer of our Procarta product from our Expression business unit into eBioscience where we can leverage eBioscience's world-class capabilities in antibody development and immunoassay manufacturing. These Procarta revenues were approximately $1 million in Q4 2012. So on a like-for-like basis, eBio grew by approximately 8% over the prior year. This is the fourth consecutive quarter of improved year-over-year revenue growth. We're pleased with this result, and we continue to see strong growth opportunities in Europe and Asia Pacific. And we expect that North America will benefit from what appears to be a more favorable NIH budget for 2014.

An exciting growth opportunity for eBio and Affymetrix is the increasing interest in single cell biology. eBioscience offers the industry's second largest portfolio of product for analysis of single cells by flow cytometry. We believe that single cell technology are essential tools for translational medicine and certain clinical application, and we are working on pooling the broad range of single cell solutions that we have across Affymetrix together to better leverage this portfolio.

Life Science Reagents, our molecular biology and biochemistry product lines, represented about 7% of our revenue, excluding the one-time license fee in the fourth quarter. As a reminder, we divested our Anatrace product line back in October. Our fourth quarter revenue in this business unit was down 6% over the prior year, excluding the impact of this divestment. We expect this business unit to be flat to slightly down over the next several quarters.

I'll close out our commercial comments with an update on our Gene Expression business unit. For the full year, Gene Expression represented about 30% of our total revenue, with about 50% of this revenue coming from legacy products and 50% from newer product -- newer generation products like our Human Transcriptome Array or HTA. This mix shift to these newer, growing product lines helped us to achieve sequential quarter-over-quarter improvement in our Expression business throughout 2013. We are encouraged by the customer response to our new HTA product. In 2014, we intend to launch similar full transcriptome analysis tools for both mouse and rat, which are key model organisms for the pharmaceutical industry.

So in summary, we made steady progress on our corporate goals in 2013. We launched a significant number of new products and applications over the last few quarters, creating new market opportunities where we believe we'll have a sustainable competitive advantage. We're involved in other clinical collaborations that we expect will generate new product opportunities in 2014 and beyond. For the quarter, we grew our total revenue, generated non-GAAP EBITDAO of $19.5 million and significantly reduced our outstanding senior debt position.

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. I'll begin by providing an overview of our results for the fourth quarter and fiscal year 2013, and close with an outlook for the year ahead. First, I'm pleased to announce our GAAP total reported Q4 revenue is $92.6 million. And our full year revenue for 2013 is $330.4 million.

The Q4 revenue includes a one-time licensing fee of $5.3 million. In order to simplify the analysis of our results against the prior year and for the purposes of this discussion, I'll exclude the impact of this $5.3 million licensing fee from our revenue numbers, except where I present GAAP numbers.

In fourth quarter of 2013, the company reported total revenue of approximately $87.3 million as compared to $84.3 million for the same period last year. Our total Q4 revenue increased by $3 million or 3.5%, primarily due to increased CytoScan and Axiom revenue in our Genetic Analysis business units. Our total consumable revenue for Q4 was $78.1 million, an increase of 9.7% over the $71.2 million in the prior year.

For the fiscal year of 2013, the company reported total revenue of $325.1 million as compared to $295.6 million in 2012. As a reminder, financial year 2012 included 2 quarters of revenue from eBioscience, totaling approximately $37 million and approximately $5.4 million from sales of our Anatrace products. And you may recall, we divested our Anatrace group of -- product line in October 2013.

Instrument sales for the quarter were $4 million compared to approximately $5.2 million in the prior year. For the full year, instrument sales were $14.4 million, a decrease of about 22% over the prior year.

Service and other revenue was $5.2 million in the fourth quarter compared to $8 million for the prior year. This includes field and scientific services revenue of $4.6 million and royalties and other of $600,000. Our scientific service revenue is project-driven, and we expect to see this revenue increase materially as we begin to run samples for the UK Biobank this quarter. We expect to recognize the majority of the Biobank -- UK Biobank revenue in 2014.

Turning to gross margin. For the fourth quarter of 2013, total GAAP gross margin was 59% as compared to 54% in the same period of 2012. Excluding non-GAAP adjustments such as the amortization of the step-up in inventory fair value of $2.9 million, amortization of the acquired intangibles of $1.3 million and the $5.3 million licensing fee, non-GAAP gross margin was approximately 62% in quarter 4 as opposed to 61% in the same quarter of 2012.

For the full year 2013, total GAAP gross margin was 55%, consistent with 2012. Excluding the cost of inventory step-up of $14.9 million, the amortization of acquired intangibles of $5.4 million and the one-time licensing fee of $5.3 million, adjusted total gross margin for the full year was 60%, in line with the prior year. These are the continued -- contained in the reconciliation tables of our press release.

Now looking at operating expenses. Our total operating expenses in the fourth quarter were approximately $51.1 million versus $54.4 million for the same period last year.

Our fourth quarter expenses included the following items: amortization of intangible assets, $3.3 million; for the full year 2013, total operating expenses were $193.6 million as compared to $202.6 million in 2012. Our full year results include the following items: amortization of acquired intangible assets, $12.9 million; integration charges of around $700,000; and restructuring charges of $4.5 million. Operating expenses include $45.8 million for eBioscience for fiscal year 2013 as compared to $22.9 million for fiscal year 2012.

R&D expenses for the fourth quarter of 2013 were $12 million as compared to $14.5 million in the fourth quarter of 2012. R&D expenses were down $2.5 million [ph] or 17% in the quarter as compared to the same period in 2012. The decrease is primarily due to low costs related to reduced headcount, lower IT costs and reduced spending on supplies and consulting, together with timing on certain projects. For the full year, our R&D expense was $47.7 million, which included $8.8 million in R&D expenses from eBio. This compared to $57.9 million in 2012, which included $3.8 million for eBioscience. Excluding eBioscience, R&D expense was down by $15.2 million or 28% in 2013. The decrease is primarily due to low spending of supplies, consulting, IT facilities, and also lower headcount related costs.

SG&A expenses were $39.1 million for the fourth quarter as compared to $38.1 million in 2012. The $1 million increase is primarily due to higher variable compensation in the quarter, offset by lower headcount related compensation costs and IT spending.

For the full year 2013, SG&A was $141.4 million, including $36.8 million for eBioscience, compared to $142.9 million in 2012, which includes $18.3 million for eBioscience. And non-recurring charges include -- related to the acquisition of eBioscience of $16.5 million.

Excluding eBioscience in the 2012 non-recurring items, SG&A decreased $4 million or 4% due to lower costs related to reduced headcount, lower facility costs and reduced spending on consulting, partially offset by higher variable compensation costs.

Operating expenses in the fourth quarter included $2.9 million in the stock-based compensation charges.

Turning to other income and expense, interest percent -- interest expense and other net was approximately $4.1 million in the fourth quarter of 2013, due primarily to interest expenses of $4.4 million. Included in this Q4 interest charge of $4.4 million was interest of $1.9 million, together with a write-down of $2.5 million of capitalized financing costs associated with the 2012 senior secured debt, which was refinanced in October 2013.

This compares to an interest expense and other net of $1.6 million in the fourth quarter of 2012, which included an interest charge of $3 million. The fourth quarter 2012 also included other income of $0.5 million on gain on the sale of our West Sacramento facility.

For the full year 2013, interest expense and other was $11.9 million as compared to $7.5 million in 2012. The 2012 figures included net impairment on the West Sacramento property of $3.5 million, offset by the recovery of a note receivable to the amount of $2.2 million. Overall interest expense increased as a result of our full year debt obligations following the acquisition of eBioscience in mid-2012 and the write-down of financing fees I discussed earlier.

Effective from the -- as a reminder, effective 11th of October, 2013, we divested our Anatrace-branded reagents and related group of assets used to manufacture product line to net proceeds of approximately $11.8 million. The carrying value of the group that we sold was approximately $2.5 million at a day's disposal and was primarily comprised of inventory. The company recorded a gain on the sale of Anatrace products of $9.3 million during the fourth quarter of 2013. The Anatrace product line had been reported in our Life Science Reagents business unit.

Looking briefly at tax in the fourth quarter 2013, we recognized a $300,000 tax benefit. For the full year of 2013, we had a total provision of $1.2 million.

Looking at net income, during the fourth quarter of 2013, we generated a GAAP net income of $9.4 million or $0.10 per diluted share. Non-GAAP net income was approximately $2.2 million or $0.02 per diluted share. This compares to non-GAAP net loss in the fourth quarter 2012 of approximately $1.3 million or $0.02 per diluted share.

To facilitate the analysis of the company's core operating results, I'd like to summarize the non-core adjustments to our net income for the quarter and their impact on the pretax earnings per diluted share. Inaccurate, these adjustments amounted to $7.2 million or $0.8 per diluted share; within revenue, $5.3 million licensing fee or $0.06 per diluted share; within gross margin, $4.2 million or approximately $0.05 per diluted share; and amortization of acquisition-related intangibles and inventory step-up in fair value.

In operating expenses, approximately $3.2 million of SG&A or $0.03 per diluted share in acquisition-related intangibles. Additionally, we recognized a $9.3 million gain or $0.10 per diluted share on the sale of the Anatrace group of products.

We now turn to the balance sheet. I'm pleased to announce that we've closed the fourth quarter 2013 with total cash and cash equivalents in excess of $57 million. This compares with $35.7 million at the end of fourth quarter 2012. During the fourth quarter, we prepaid more than 25 -- $24 million of our senior secured debt, reducing the outstanding amount to approximately $39.5 million at the year end. As mentioned earlier, we also refinanced the debt in October to reduce our coupon rates and ongoing interest charge. Capital expenditure in the fourth quarter was approximately $1.8 million. And we incurred approximately $100,000 in licensing fees. Depreciation and amortization was approximately $11.8 million, including the amortization of acquired intangible assets and inventory step-up. Accounts receivable closed the year at $50.9 million, up slightly from $48.5 million at the end of the third quarter, due primarily to the higher Q4 revenue. I remain very pleased with our credit controls function's ability to recover debt in a challenging environment. Turning to inventory and our other balance sheet items, net inventory for the fourth quarter of 2013 was $64 million, down 8% at the end of third quarter 2013, primarily driven by $2.9 million amortization expense recognized in the fourth quarter on a fair value step-up, together with lower inventory levels.

Turning to our outlook -- finally, turning to our outlook for 2014. We expect to generate topline revenue of approximately $335 million. If we take our 2013 baseline revenue of $330.4 million and subtract $5.3 million for the one-time licensing fee and another $5.4 million for the Anatrace product line redivested, our adjusted base case revenue is approximately $320 million. In 2014, we expect to generate EBITDA in the range of 12% to 13%.

In summary, we're encouraged by our operating results for fourth quarter 2013. I believe it -- and believe they lay the foundation for further progress into 2014. Including the licensing fee in Q4, we grew our total revenue 9.8% over the prior year, we generated non-GAAP EBITDAO of $19.5 million, we maintained tight cost and cash controls, and our non-GAAP operating income was $2.2 million and the improvement of $3.5 million over the prior year. Additionally, we strengthened up the balance sheet by prepaying more than $24 million of our senior secured debt during the quarter. For the full year, we reduced the debt by approximately $34 million, whilst building our cash balance.

At this point, we'd like to open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Peter Lawson from Mizuho.

Peter Lawson - Mizuho Securities USA Inc., Research Division

Frank, with the FDA approval on CytoScan, have you seen any improvement in conversations or changes in conversations from clients?

Franklin R. Witney

Well, I think the clients are very happy to see we got approval for the product. I think many of the things that we pointed out on the call about being able to market for the label indication, the use of adoption of -- for labs that want to pick up the product, these types of things are all being positively received. So I'd say, yes, we're -- I think the announcement has been positively received.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And then on the Biobanking business, how have the conversations been going for contract wins and what have you seen from competitive -- in the competitive responses from competitors?

Franklin R. Witney

Well, there's a number of Biobank initiatives occurring around the world. We're in conversations with those various groups. I think our technology is being very well-received and considered very competitive in these situations, and we think we're certainly going to continue to grow in these various Biobank initiatives.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And then just, Gavin, just around guidance, are you going to give us any breakouts on various product lines and what we should be thinking about growth rates for Axiom or eBioscience, et cetera?

Gavin Wood

No, I think we're going to, at the moment, just hold it to the total number. And perhaps, in the future, we'll get a bit more granular. But certainly, for 2014, just aim for the top line number, Peter.

Peter Lawson - Mizuho Securities USA Inc., Research Division

And just one thing, maybe, on the Biobanking business. Is there any way you can kind of break out how that revenue is going to break down through the year?

Gavin Wood

Yes, we actually expect it to be fairly constant throughout the year. That's -- yes, with perhaps some back-ending, maybe slightly lower in Q1 if we just ramp up with a slight catch back in Q4. But other than that, it should be a fairly constant [ph] shape.

Operator

Our next question comes from Jeff Elliott from Robert W. Baird.

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

My first question is on the EBITDAO guidance. I'm trying to figure out how you can guide this down to 12% to 13% of revenue. It looks like it's down 4 or 5 points year-over-year. Can you walk me through the bridge, how you're thinking the margin will decline that much?

Gavin Wood

Yes. So in broad terms, I think if you take our total closing EBITDAO, we're around about 17%. If you take out the one-time licensing fee for Roche, that's about 0.5% of that. Take out a little bit for Anatrace as well, you're probably down to around about 16 -- 15.5% full year. We're guiding to about 12% to 13%. This covers things we're doing. We certainly -- we want to put a little bit of investment into the sales organization. There's some headcount we'd like to look at adding in China and in the Middle East, so a little bit of investment there. There's also some investment in -- some platform investment in R&D, which may result in a little bit of cost and we're also hoping to pay out on a full bonus in 2014 as well. So that's currently in our modeling.

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

Okay. I guess, could you break out what you're assuming for gross margin guidance then?

Franklin R. Witney

Gross margin, we're pretty much guiding flat to 2013. So on a non-GAAP basis, we're around about 60%, potentially. 59% to 60%, that's the level we're -- roughly flat.

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

Got it, okay. I appreciate all the commentary on Biobank, but I'm wondering, the UK Biobank, I know this is potentially, quite a big contract for you. Can you talk about what you're assuming for that contract this year?

Gavin Wood

Yes. We've been pretty consistent in not calling out that number. We won that in a competitive environment and we prefer just to keep that confidential for the time being.

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

Got it. But just to be clear, that is in guidance, correct?

Gavin Wood

Yes, that's included in there. And then it's important -- I think the key thing is to remember we're probably recognizing about 2/3 of that in 2014. So I think as the year develops, then the size of that deal will become more apparent.

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

Okay. And based on some news reports, it looks like that, that program could eventually be a lot bigger than the U.K. government originally intended, just because people have to opt out as opposed to opting in. Have you seen any impact on your business with the UK Biobank from that?

Franklin R. Witney

Yes, that's something slightly different, actually. This is this -- the U.K. government's -- actually, perhaps I'll turn it over to Andy, otherwise I'll keep on to it. I'm closer to the U.K. at the moment. But, yes, the U.K. is actually trying to capture more and more data. And as part of the NHS, there is a potential move to -- that the NHS would ask you to opt out of data capture, whereas currently you have to opt into it. But that's not tied to the UK Biobank. That's a broader NHS data capture. Now, ultimately, whether that might then correlate into the Biobank and trying to understand the environment, et cetera, is a different thing. But in the short-term, that's not connected to the Biobank.

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

Okay. And just one last one on the NOL. Could you say where your NOL stands at the -- in the '13? And are you going to start burning through some of that in '14?

Franklin R. Witney

Yes. The NOL's at 2 30 for -- and I would very much hope that we could burn through some in 2014. As you -- if you recall our phase -- the second phase, we trying -- we're aiming for profitability at the end of 2014. So that would be the aim.

Operator

Our next question comes from Bryan Brokmeier from Maxim Group.

Bryan Brokmeier - Maxim Group LLC, Research Division

This is probably for Gavin. Your revenue came in almost a couple of million dollars above where you had previously provided preliminary revenue. Was that revenue that you were expecting to be recognized in 2014 when you previously provided the guidance of $335 million?

Gavin Wood

No, I think it -- Bryan, I think it was much more that it was very early in the closed period, and whilst we had a good feel for where that number was landing, what we didn't want to do was overcall. So we took a slightly conservative view because it was pre-audited and we were still scrubbing some of the larger deals, making sure that the rev rec was appropriate into the Q4 period.

Bryan Brokmeier - Maxim Group LLC, Research Division

So it's not going to make it any more difficult for you to achieve that $335 million 2014 guidance, right?

Gavin Wood

Absolutely not.

Bryan Brokmeier - Maxim Group LLC, Research Division

Okay. And, Frank, you talked a little bit earlier, and someone else was asking about the FDA approval of CytoScan and sort of the benefit you've seen there. Are you seeing new instrument sales of the FDA-approved instruments because of -- now you have the FDA-approved CytoScan? Yes, I guess, that's the question.

Franklin R. Witney

Yes, we're going to let Andy, who's closer to that particular situation, respond to that one.

Andrew J. Last

Bryan, so as of this point in time, we haven't introduced the actual assay. We just received clearance and we won't start marketing until Q2. But as the year progresses, we do expect to see labs move and take up the Dx2 system. We're not quantifying that number right now. And as labs come on stream, they'll go through validation and there'll be a slow ramp-up throughout the year.

Bryan Brokmeier - Maxim Group LLC, Research Division

Okay. And, Frank, you also talked about new products that you have planned for 2014. Do you expect the ramp of those and the introduction of those to be early enough to have a meaningful impact on 2014 or do they have more of an impact in 2015?

Franklin R. Witney

Yes, the good news is, is that the vast majority of the revenue that we project are products that we have or derivative products that will come through the Axiom product line. So we do have a number of things that we'll talk about during the course of the year, but those are really future growth drivers for us.

Operator

Our next question comes from Doug Schenkel from Cowen & Company.

Douglas Schenkel - Cowen and Company, LLC, Research Division

So actually, just maybe a quick one on Biobank, and I apologize because this is sort of a reminder question more than anything. But is this -- have you guys said if this is exclusive, if you're the exclusive microarray or just the tools provider for this agreement?

Franklin R. Witney

Yes, we're the exclusive microarray provider for the genotyping part of that program.

Douglas Schenkel - Cowen and Company, LLC, Research Division

Okay. So you guys -- so with that in mind, you guys have a pretty good idea of exactly, obviously, what the pricing is, but also what the volumes are going to be based on what you described as, I think you said, 2/3 of that gets done this year?

Franklin R. Witney

Yes, that's correct. It's a $500,000 sample -- individual project.

Douglas Schenkel - Cowen and Company, LLC, Research Division

Okay. So in guidance and pretty good visibility on the pacing?

Franklin R. Witney

That's correct.

Douglas Schenkel - Cowen and Company, LLC, Research Division

Okay. And then on CytoScan, you did talk about now having the ability to get a little bit more aggressive in terms of going after physicians and advocacy groups. Did that start in Q4? Part of the reason I ask is I'm just trying to get at what the, at least, the sequential spike in -- and then, I guess, year-over-year spike in SG&A was, and if that was related to some of those programs. And I guess, the other part of that is just to see if you guys have any early feedback to share on how those -- that initial investment in those programs are progressing.

Franklin R. Witney

No, we haven't made -- we haven't done any -- we did no marketing or any initiatives prior to the approval.

Douglas Schenkel - Cowen and Company, LLC, Research Division

Okay. And is that something you'd expect to -- I guess, going back to the EBITDA question, should we assume that the plans to spend more on going after physicians and advocacy marketing, advocacy groups, that's a key part of why you'd be guiding EBITDA down a little bit beyond what you've already talked about?

Franklin R. Witney

No, that's not a -- that's not a factor in those estimates.

Douglas Schenkel - Cowen and Company, LLC, Research Division

Okay. And last one, just curious on single cell. I don't remember you guys calling that out. I mean, obviously, a very exciting area. Any chance you'd be willing to give us a sense of how big a part of the business in the aggregate single-cell assets represent, maybe as, I guess, in revenue or percentage of sales or something like that, and how meaningful that could be moving forward?

Franklin R. Witney

So we're -- obviously, single cell biology is very topical. We have -- one of the drivers of our acquisition of eBioscience was our recognition this is an important area. 60% of eBio's revenue is flow cytometry reagents, which is the preeminent single-cell biology technology. We're very proud of that portfolio. Last year, we launched a new product called QG FlowRNA, which is very new and we're just engaging customers with that, where we have the only commercial product that measures RNA and protein expression at the single cell level. That's a new initiative for us. We also have talked a little bit about some of the stuff we've done with the Panomics product line where we have single cell or essentially single cell analysis tools in a tissue context, which we'll start being more granular on as the year goes on because we're in a number of important collaborations there. So we haven't really talked about it too much in that light, but we have quite an interesting portfolio of single-cell technologies. And in our R&D plans, we're looking at other approaches that end up with expression profiling from single cells or potentially genetic analysis off a single cell. So we have quite a good portfolio in this area, and we'll try to flush that out in upcoming quarters.

Operator

[Operator Instructions] Our next question comes from Reggie Miller from UBS.

Reginald Miller - UBS Investment Bank, Research Division

I'm stepping in for Dan today. Would you be able to offer some guidance on what you're expecting for the decline in the Gene Expression business for 2014 to be?

Franklin R. Witney

Yes. So we're guiding in, roughly, the minus -- on our classical expression business, the array expression business, we're guiding in roughly the minus 10 range. It's very similar to what -- we were roughly in that range in the last couple of quarters of the -- of 2013.

Reginald Miller - UBS Investment Bank, Research Division

And I guess, as you guys kind of clean up the balance sheet a little bit, do you see -- can you kind of update us on what you're thinking about maybe adding assets through M&A or what you would like to do with the flexibility that you guys are kind of clearing up now?

Franklin R. Witney

Well, we maintain our primary focus on reducing the senior debt and very proud of what we accomplished last year. We are starting to think about moves that we could make as part -- as we exit Phase 2 of our 3-part strategic plan. I don't want to pull out -- spike out anything in particular at this point, but we're certainly starting to think about things that we might do. But we're -- we want to go through another year, really, of continuing on our track of getting the senior debt well under control, which, as you can see from the -- from what Gavin talked about on earlier in the call, we made extremely good progress on the senior secured debt in 2013. And we're going to continue on that track in 2014, while we consider our options going forward.

Operator

Our next question is a follow-up from Bryan Brokmeier from Maxim Group.

Bryan Brokmeier - Maxim Group LLC, Research Division

I just wanted to clarify something that you just said, Frank. You just indicated that you expect your classical Gene Expression business to be down 10%. But I believe earlier, you said that 50% of your Gene Expression business is that classical piece. So the other 50%, you expect to grow, is that correct?

Franklin R. Witney

Yes. There are -- we have some very nice growing products, HTA, microRNA and this type of thing. So it's -- we're -- we have aspirations of better results, but we're going to guide into that minus 10% range.

Operator

Our next question comes from Isaac Ro from Goldman Sachs.

Isaac Ro - Goldman Sachs Group Inc., Research Division

I wanted to really ask a very high level question on just sort of your assumptions for this year. We've obviously gone through a couple of years of choppy economic funding. Maybe if you could give us a sense of what you guys are discounting for funding in your end markets this year, and any color there in terms of what you saw in the fourth quarter would be great.

Franklin R. Witney

Yes. So we're guardedly optimistic that things will improve in North America, which would have an impact on some of our run rate businesses like the Expression array business and eBioscience business and some of the Life Science Reagents businesses, could be modestly -- possibly impacted by the NIH. We consider to feel pretty good about the situation in Europe, although there's obviously some countries in Europe that are quite challenged. But we don't see much of a change in Europe, and we performed very well in virtually all of our businesses last year over there. And we still see really good opportunities in China, which is not unusual for companies to say. And for us, maybe it wasn't totally macro, but we had some challenging times in Japan, particularly with our Expression business, which we hope to stabilize going forward. So I guess, at a very high level, that's kind of how we're thinking about the funding environment.

To the other point is we're certainly aiming at more routine businesses, particularly our Ag-Bio business, our cytogenetics business, so we're doing things. Some of the things that we'll talk about with the Panomics product lines would go into more routine applications not necessarily impacted by government funding, which is, I think, in the foreseeable future is always going to be a little bit uncertain.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Right. And just a follow-up on that one would be just, one thing that some of your peers have talked about this quarter was the extent to which you might have seen budget flushing in the fourth quarter, either in the biopharma customer markets or in academic. Wondering if you had any sense from your sales force as to whether or not there was, in fact, a stronger than usual fourth quarter flush. Just trying to make sure we dial in an appropriate sequential trend in the business in first quarter.

Franklin R. Witney

Nothing in particular notable from our end.

Operator

Our next question comes from Dan Leonard from Leerink.

Daniel L. Leonard - Leerink Swann LLC, Research Division

Two quick questions, one of substance and one just a housekeeping question. You made a comment, I think, on your CytoScan product that it could firm -- the FDA clearance could firm up reimbursement or something along those lines. I was hoping maybe you could elaborate on that. And then my housekeeping question is, I can't recall, Gavin, if you gave an operating cash flow number for the fourth quarter.

Franklin R. Witney

I'll let Gavin take that and then I'm going to have Andy discuss the reimbursement situation.

Gavin Wood

Dan, yes, I didn't actually give an operating cash flow number, so apologies for that. So cash from operating activities was $33 million in Q4. That is worth calling out. That includes sort of 2 onetime events. One is the Roche licensing, which I've touched on a number of times, at $5.3 million. And then Anatrace net proceeds were about $11.8 million, which gives us an underlying cash from operating activities of a very healthy $17 million, which is up about $6 million on the previous quarter. Q4 is always a strong quarter for us, but there were some good wins on cash foreseeable for us, and also the inventory control continues to be excellent. So thanks for giving me the opportunity to call those numbers out.

Andrew J. Last

So Andy speaking. As it relates to reimbursements, I think you probably are aware, there's not a direct correlation between reimbursements and FDA clearance. However, what the clearance does do for us is -- underlying the relevance and importance of the test is a first-tier test in the target market of postnatal disorders, which gives us the ability to increase our arguments for coverage amongst private payers, and at least try and build arguments for preferential coverage, preferential reimbursement versus non-cleared products. So we will be going out with intent to do that, and the results will remain to be seen. But that's how we're going into the year thinking about the leverage that we can get from the clearance.

Daniel L. Leonard - Leerink Swann LLC, Research Division

And, Andy, how do the responsibilities for seeking reimbursement and marketing the product, how are those distributed between you and your customers, the lab companies?

Andrew J. Last

Yes. It's an interesting question. I think we all have vested interest in reimbursement coverage either improving payment levels or gaining coverage. There may -- so we both operate independently to that end through different methods, but there's also the opportunity, at least, to work together with some of the major forces in the market to build argumentation for improved coverage as well. And we're considering how we might go and do that.

Operator

Our next question is a follow-up from Reggie Miller from UBS.

Reginald Miller - UBS Investment Bank, Research Division

Just one quick one, maybe for Gavin. Would you be able to talk about the share count for the quarter?

Gavin Wood

So I'm sorry, I didn't quite...

Franklin R. Witney

Sure. The share count.

Reginald Miller - UBS Investment Bank, Research Division

Yes, I just have a question on the jump in diluted shares.

Gavin Wood

Yes, to -- any particular comment that you want other than...

Reginald Miller - UBS Investment Bank, Research Division

Would you be able to walk me through the mechanics there, what caused the jump?

Gavin Wood

Yes, the main jump from the movements on the diluted is the -- now that we have profit, we actually have to include the convertible shares.

Operator

We have no further questions at this time.

Franklin R. Witney

Okay, very good. Thank you, everybody, 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 week beginning at around 5:00 Pacific Time today. To access the replay, domestic callers, please dial (877) 660-6853. International callers please dial (201) 612-7415. The passcode for both will be the same, 13574000. Alternatively, there'll be an audio play available under the Investor Relations section of our website at affymetrix.com. This concludes our call. Thank you, again, for joining us today.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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