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Executives

Bruce Cumming - VP of Communications

Hans Kobler - President and CEO

Debbie Mosier- CFO

Analysts

Paul Coster - JPMorgan

Jim Ricchiuti - Needham and Company

Brian Ruttenberg - Morgan Keegan

Michael Kim - Imperial Capital

ICx Technologies, Inc. (ICXT) Q3 2008 Earnings Call Transcript November 13, 2008 4:30 PM ET

Operator

Good afternoon and welcome to the ICx Technologies third quarter 2008 Earnings Call. This call is being recorded. At this time, I would like to turn the call over to Ms. Bruce Cumming. Please go ahead, sir.

Bruce Cumming

Thanks very much, Jamie. Good afternoon, everyone. My name is Bruce Cumming, and I am the Vice President for Communications for ICx.

The company's Q3 2008 earnings release was issued today at the close of market and is posted on the company's website at www.icxt.com. Representing the company today are Hans Kobler, President and Chief Executive Officer, and Debbie Mosier, Chief Financial Officer.

Before I turn the call over to Hans for his opening remarks, allow me to read this brief Safe Harbor statement. This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by indicating the beliefs or expectations of management and include, but are not limited to, statements regarding the outlook for the company's future and in financial performance.

Forward-looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to various factors that are described more fully from time-to-time in the company's filings with the SEC.

ICx disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise. The company will comment on adjusted EBITDA results or organic revenue growth which has been included together with a reconciliation or explanation compared to US GAAP results in today's press release.

At this time it is my pleasure to turn the call over to Hans.

Hans Kobler

Thank you, Bruce. Welcome everybody and thank you for joining us on today's call. Q3 was a very special and memorable quarter for us. We met two critical milestones that we believe will position us very well for a bright future.

First, we were adjusted EBITDA profitable and cash flow positive for the first time in the company's history. Our working capital position remained strong. Second, we won JNBCRS which is now called J2 by the government, a $711 million program as a prime which will help secure our long-term growth and should give us added credibility to win more large programs in the future. I will come back to this later, but first to the numbers.

Our revenues came in line with our expectations at $45 million, up 31% from the prior year and our growth is now above 30% for six out of the last seven quarters. For the first time in our history, we are adjusted EBITDA positive. Our profit this quarter is $900,000 that is an improvement of $4.1 million over the same quarter the year before.

For the first time in our history, we are cash flow positive. Our profit together with our improved focus on cash management resulted in positive cash flow of $6.9 million during the quarter. That is a $10 million improvement over the third quarter of the prior year.

Our balance sheet and liquidity remains strong. We are sitting on approximately $46 million of cash, $25 million of net receivables and are practically debt free. So we look at this market turmoil from a position of strength and view it as opportunity for to us press ahead.

Growth this quarter was sound across the board. Our Surveillance business, which was lagging last quarter is picking up steam, primarily from our platforms business. Our Solutions division continued to do show growth driven by several recent significant wins in our transportation business, and Detection continued their strong contributions.

Our funded backlog grew 115% year-over-year to $114 million. In addition, our unfunded backlog now is more than $400 million. That much of our growth is based on just executing on what we have in backlog.

These are some very positive near-term factors, but the real story this quarter is those two watershed events that are so critical to us and make this quarter so special. I am coming back to those now.

Being cash flow and adjusted EBITDA positive, that combines with the strong working capital position and increased backlog will really allow us to continue to move forward from a position of strength. We know we got the right strategy. We know there is a market. This cushion gives us a lot of confidence to keep executing on what we have to do.

We got here through high organic growth for a strong scalable platform that we have streamlined significantly this year. When we assembled ICx in 2005, we inherited a deep redundant infrastructure, which we said we would unify to make it more manageable. To do so we first had to bring in a new layer of divisional management, before we could streamline operations.

We have done this over the course of the year, and as a result, reduced our workforce by more than 50 people since the beginning of 2008. We did that while growing 30 plus percent in six out of the last seven quarters. That is a huge step and inline with our plan.

The second critical milestone this quarter is probably three years early, and marks a very special achievement for us that truly validate what ICx is all about. We were awarded the prime J2, formerly known as JNBCRS, which stands for Joint Nuclear Biological Chemical Reconnaissance System.

This is a critical program for our military and provides our joint forces, Army, Navy, Air Force, and Marines with a tool kit to identify, evaluate, and respond to nuclear, chemical and biological threats. The tool kit requires, combining several of the most advanced sensors and response tools into kits and train our forces on how to use it. This is very much inline with what we are all about and validates our mission and strategy.

It also validates we believe what we said all along is that we will supplement our core business, the many small, diversified sales to many diversified customers, with selected larger programs that will lend stability over time. Our goal was to win somewhere between $20 million and $50 million of program business this year and probably around a $100 million next year.

Now, we expect J2 to be much, much larger than that, potentially up to $700 million. So with that we are clearly year ahead of plan. We already started on the development phase, which is $20.6 million cost plus contract over two years, and at some point during the second year, we expect the government to start buying the first batches of the albeit the low rate of initial production units.

After that, probably starting in late 2010, we expect the orders to come in between $50 million and $150 million for at least five years. As I said, we believe this will provide great stability and growth going forward. I should also say that we commend the government for going with what we consider the best, not the cheapest solution and giving us the confidence for executing on a program that is so critical for the future of our military.

With that confidence we expect that we will benefit from the added credibility to win a few more programs in the future. The clear goal from the beginning was to work with the primes as their key sub and technology provider. We have to deviate from this path on J2, because we could not get a meaningful partnership agreement, so we went for it ourselves. Our strong preference remains to act as a partner and we hope that this credibility will help us again pursue that strategy going forward.

In addition to these critical milestones there are a few other operational highlights in the quarter that we are flagging. Our transportation business continues its run and was awarded a $12 million contract to construct, integrate, maintain a leading-edge fog-detection and warning systems for the CALTRANS. That is their third major win in a short period of time.

Our platforms business was awarded a $12 million follow-on contract on BETSS-C, which is run by the Asymmetric Warfare Office. That validates again our tower business, which will help not only our military, but also our border market.

Lastly, and that is more a structural issue, we restructured our Board and relevant committees to make us fully independent. As part of that exercise my Co-Founder, Mark Mills stepped off the Board, but he continues as Chairman of our Advisory Board and I am assuming the Chairman's role.

Before I hand over to Debbie, let me say a few words of the market and the current economic environment, which is having a significant impact on many businesses out there.

ICx today is widely diversified; we are focused largely on the government markets with most of our business coming directly or indirectly from DoD customers. We have some DHS business and we are starting to build the commercial security market.

Our non-security business is small, accounts for approximately 10% in businesses such as transportation and energy. I mentioned earlier that we see strong growth across all divisions, which is important to note. From a market perspective, however, we have clear differences. DoD business is doing very well. We believe this will continue as the Obama administration should maintain, if not increase their focus on Asymmetric Warfare and the requirements of war fighter to fight those new challenges and we should benefit from that.

In DHS, we are seeing some real delays. Major programs such as SBI, ASB, liquid explosive, HPRDS are not moving forward, as quickly as we had originally planned or expected and we believe much of this is more related to the transition to a new administration, which impacted many of the spending decisions.

Having said that, the new administration is still need to address our open borders, ability to screen cargo for nuclear bombs, find dirty bombs and if anything we expect a stronger focus on homeland security and a stronger focus on hiring more ground level employees puts on the ground, which will require better equipment once the administration is in place.

We are equally bullish about our Transportation business, which we believe will benefit from potential infrastructure investments by the new administration. We like the business and we are already seeing great traction now.

We do have some concerns about the commercial security market, as we believe that companies might look to cut security first. We have invested in the development of our indirect sales channel for this market, and as a result of the current economic downturn, we expect that growth here might be somewhat slower.

Fortunately for us, because of our business being largely in the government market, our exposure is limited here. We will instead counterbalance that by focusing a little bit more on the international government markets and particularly the Middle East where we believe we will still see strong demand for our products.

So as gloomy as the overall market appears, we believe security and defense is one of the better places to be. Within security we are one of the fewer players and we offer one of the most diversified technology leadership positions in the industry. That always takes a lot of lumpiness out of the business. Almost like an index on security.

Our technology portfolio is young and at the beginning of the lifecycle and there is some true break out potential here, as we just demonstrated with J2. So this built-in optionality comes at fairly limited risk because of our strong financial position and our broad diversification. So we feel really good where we are, even in the current market.

With that, I would like to turn over to Debbie for additional comments.

Debbie Mosier

Thank you, Hans. For the third quarter of 2008, we recorded revenue of $45 million, an increase of 31% compared to the $34.2 million in the same period in 2007. As Hans mentioned earlier, revenue growth was strong in the third quarter for all of our divisions.

In Detection, revenue increased 22% year-over-year to $25.4 million, driven primarily by continued strong showing in our radiation detectors and increased revenues from our biosensors and mass spec products. Solutions revenue increased 42% year-over-year to $6.9 million, which was almost entirely due to the growth in our Intelligent Transportation Solutions business from the recent significant contract wins that Hans mentioned earlier.

Surveillance was up 47% year-over-year to $12.7 million, primarily because of the deliveries of mobile surveillance towers under the BETSS-C program.

Company wide, our growth margins came down slightly to 44.5% compared to 45.6% in the third quarter of 2007. The slight decline is due primarily to a portion of our revenue growth coming from new service contracts and our Solutions and Surveillance division which have lower margins in products.

Specifically, Surveillance gross margins for the quarter were 34.5%, down from 45.6% last year, and Solutions gross margins were 36.9% compared to 40.6% last year. For Detection, gross margins came in at 51.5% compared to 46.8% in the third quarter last year due to a higher portion of total revenue from product sales in the current quarter.

Our current backlog includes significant long-term service contract works for our Surveillance and Solutions division, and the addition of the long-term service work under the J2 program, all of which has been official to us and that it is provides a predictable base of business that we believe we can continue to build on.

However, because we realized lower gross margins on service work as compared to our product business, and our product revenue is less predictable and tends to be lumpy, we expect that the relative mix of service and product business in future periods may result in lower total gross margins as a percentage of revenue than what we have seen in prior periods.

Total gross margin dollars are still expected to expand due to overall revenue growth. Total operating expenses for the third quarter came in at $24.2 million, which was essentially flat compared to the same period in the prior year, but down 6% from the $25.8 million reported in the second quarter of 2008.

The breakdown of the components of total operating expenses were as follows: G&A expenses were $7.7 million or 17% of revenue, compared to $8.7 million or 25% of revenue in the same period last year, and down $0.3 million from the $8 million or 21% of revenue in Q2 of '08.

Sales and marketing expenses during the quarter were $7.3 million or 16% of revenue, compared to $6.8 million or 20% of revenue in the same period a year ago, and were down $1.3 million from $8.6 million or 23% of revenue in Q2 '08.

In the current third quarter, we continue to see a downward trend in our SG&A expenses from earlier quarters in the year. This is the direct result of our focused effort to eliminate redundancy from our operations, primarily through reduction in personnel.

In the third quarter, our sales and marketing expenses increased compared to the same period last year related to our investments in the new Warren program channel. In total, we expect our SG&A costs will begin to stabilize in future quarters and still allow for additional revenue growth.

Research and development expenses during the quarter were $5.6 million or 12% of revenue, compared to $5.4 million or 16% of revenue in the same period in 2007 and down $0.3 million from $5.9 million or 16% of revenue in Q2 '08.

Our internal research and development expenses continued to reflect our commitment to making prudent, deliberate and strategic investments to further solidify our position in the market, help faster product innovation and enable us to better compete for increasingly large opportunity. We also believe that the expenses associated with internal research and development will begin to stabilize in future periods, thus leading to lower expenses as a percent of total revenue.

Adjusted EBITDA for the quarter was positive $0.9 million, a $4.7 million improvement over the $3.8 million loss in the prior year, and a $5 million improvement over the $4.1 million loss from Q2 of '08. As explained above, our total revenue growth and recent downward trend in total operating expenses were the primary factors for positive results.

For the quarter, our net loss was $3.8 million, compared to a net loss of $6.8 million in the year ago period. Net loss per share was $0.11 compared to $0.95 in the year ago period. Weighted average shares outstanding were 34 million at September 30, 2008, compared to 10 million at the end of September last year.

As of September 30, 2008, we had cash and cash equivalents of $45.7 million and accounts receivable of $25.1 million, and we remained virtually debt free.

Our positive operating cash flow of $6.9 million for the quarter was the result of our positive adjusted EBITDA and a focused effort on overall cash management through inventory control and improved collections from customers. Our DSO remained relatively consistent with recent trends at approximately 80 days.

As of September 30, we had total funded backlog of approximately $114 million, and unfunded backlog in excess of $400 million. As Hans mentioned earlier, the increase in backlog is primarily the result of some major program wins most notably the J2 win that we believe will positively contribute to operations going forward, through the stability in revenues and consistent absorption of our operating expenses.

Before turning to guidance, let me say a few words on our nine-month financial results. For the nine months ended September 30, 2008, the company's revenue grew by 25% to $118.7 million, compared to $94.6 million for the nine months ended September 30, 2007.

Gross profit for the current nine months increased 27% to $53 million, or 44.7% of revenue from $41.8 million, or 44.2% of revenue from the same period a year ago. Adjusted EBITDA loss for the nine months of 2008 was $10 million, compared to $13.7 million for the same period last year.

Increased expenses related to the expansion of the company's sales and marketing channels and internal research and development projects impacted year-over-year nine-month results, but as mentioned earlier expected to stabilize in future periods.

Turning to our 2008 outlook, I am reaffirming the guidance that we provided early in the year, but caution that we might end up at or near the low end of the range because of possible delays in government's spending due to the change in administration and on the commercial side because of the overall downturn in the economy.

For the year, we expect revenues between $177 million and $184 million, and an adjusted EBITDA loss between $2 million and $7 million.

With those comments complete, I would like to open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) We will take our first question from Paul Coster with JPMorgan.

Paul Coster - JPMorgan

Thank you. So congratulations on getting to profitability. Can you give us some sense of whether you are going to stay there as we go into calendar year '09?

Hans Kobler

Paul, we have not, obviously we expect it for Q4. We have not done, we have not finalized our detailed planning for '09. Traditionally as you know, the first quarter for us is the lowest in terms of sales and the worst in terms of spending. So it is conceivable that in Q1 or even Q2 we fall back below that, but we have not finalized that planning process yet.

Paul Coster - JPMorgan

Okay. Then you said that you are not giving guidance from calendar year '09 at the moment, but you have been regularly growing at 30% plus organic. What is your gut feel for '09 at this stage?

Hans Kobler

Yes, we think our long-term outlook we are sticking 30% yardstick. I think with the win in JNBCRS we might actually get a little bit more push here in the out years. Considering that the government, the administration might not be up and running for the first half of the year that will hurt us a little bit on the DHS business. So if I have to give you a gut feel right now, I would say, the trend is to the 30s is where we will end up, but we have not done the detailed planning yet. One has to see also what the commercial business does.

Paul Coster - JPMorgan

I think that is helpful and we appreciate the conservative thoughts there. In the pipeline, so you have won this J2 program which is gigantic. Are there other such opportunities in your pipeline or is that the one elephant that was available?

Hans Kobler

Now we have stopped looking for more business with that win. We focus on a lot of little things quite honestly and we think that there will still be more coming. I mean, just look at BETSS-C, BETSS-C 1, BETSS-C 2, there are other programs out there.

So we believe that, first of all, our efforts on chasing programs are working. We have seen it through BETSS-C, we have seen it through the transportation side, and we have seen it through J2.

We believe the more we win, the easier it will be for us to win, because we just build credibility, and it will help us with the primes. Being a sub is a lot easier than being the prime. So, we believe that this part of our business will be doing very well.

Paul Coster - JPMorgan

The transportation deals you have won, they are funded at states and local level or by Federal government?

Hans Kobler

State level for the most part and…

Paul Coster - JPMorgan

Are you seeing any issues there at the moment?

Hans Kobler

Certainly not at the moment, we had three big wins. Quite honestly, we have a big show coming up next week. Anybody that is interested, please join us, send me a note. We have a private function with the former Transportation Secretary here.

We believe the transportation market from all indications that we have gotten will be one that might benefit from the incoming administration, because they will do more infrastructure projects and they might be funded, provided the money will ultimately end up on a state local level and they will build bridges and roads and that will be good for us. So, we are bullish on transportation.

Paul Coster - JPMorgan

What are the other two programs you mentioned over and above CALTRANS?

Hans Kobler

OCTA and Hawaii our press release is on both.

Paul Coster - JPMorgan

Okay. Thank you.

Operator

We will take our next question from Jim Ricchiuti with Needham and Company.

Jim Ricchiuti - Needham and Company

Hi, good afternoon. Congratulations on the quarter. Can you talk a little bit about the backlog? It grew nicely from the June quarter. Can you give us some feel for how the backlog might be breaking down among the various businesses, just some flavor to that?

Hans Kobler

As you know, Jim, our systems business, the Surveillance business has a lot of indirect orders in there where we are being told on short notice that, when we receive the orders so much of the cameras and radar business never really makes it into the backlog. In the Detection business, we are also usually very fast on shipping those. The much of the backlog we have is either on CRAD or now increasingly on programs.

The big programs you saw where they came from it is transportation, it is some of the tower business and some of the smaller programs that are out there that are really spread out across. We still, in a list to our back, which we really keep having that very significant book and ship in many areas.

Jim Ricchiuti - Needham and Company

So that brings up a good question. Can you give us a feeling for how much of the revenues on a quarterly basis is represented by book and ship. Does it vary much quarter-to-quarter?

Hans Kobler

Debbie you want to answer that.

Debbie Mosier

It can vary because the product as I mentioned is less predictable because we do get orders pretty quickly and ship them pretty quickly. So, it can be fairly lumpy in terms of the mix many. I am not sure I could comment on a consistent percentage.

Jim Ricchiuti - Needham and Company

It is certainly meaningful? It was meaningful this quarter?

Debbie Mosier

It was meaningful this quarter. We did have three of our unit's ship some orders late in the quarter that we actually thought were going to be in the fourth quarter. It made a difference in hitting our numbers and what our bottom-line was as well.

Jim Ricchiuti - Needham and Company

Okay. Does that play at all into the way you are viewing the Q4, that towards the lower end of your full year guidance? You cited some other factors as well.

Debbie Mosier

I think that Q4 from what we can see right now we are going to have a greater mix of service revenue and we are anticipating that our gross margins as a percent of revenue are going to come down. We still think our total margin dollars will be higher just because of the overall revenue growth.

Jim Ricchiuti - Needham and Company

Okay. Lastly, you had some nice wins. I am just curious as to, do you see much follow-on business in the tower business with BETSS-C and if you would discuss, you talked a little bit about the pipeline in general. How should we think about Q4 from the standpoint of being able to convert some of this to orders, new orders?

Hans Kobler

BETSS-C which we won in Q3, is in fact a follow-on to the first one, so we have $210 million plus wins in BETSS-C alone and I think that will lend us more credibility for the BETSS-C program which per se is even much larger. It is a multi billion dollar program so there could be coming more from BETSS-C. I think people will take note of that in other areas from GBOSS to the border and even internationally that we have demonstrated that we are capable of deploying mobile towers and radars and cameras that work together that actually work. We have done it and we have a lot of experience. So that will benefit us in many areas here and we see the same thing in transportation. It is an encouragement to us.

Jim Ricchiuti - Needham and Company

And, Hans lastly, it sounds like you are a little bit more cautious with respect to tax point, just on program being pushed out a little bit?

Hans Kobler

Yes, we are cautious about all DHS business. You will say why are we cautious of it? Again, we are not so worried about the DoD business, but the whole DHS business, SBI, you have been asking me for about every quarter what is going to happen with SBI, what is going to happen with ASP, and I always say that, I do not know, I do not even know who knows. It has not changed here and I throw tax point in the same category here right now. They announced that they would sell, buy 900 at some point if you would have asked me, we would have hoped that that would be year-end money and happening in Q3. It did not happen. So, I just lined it up into all the many things that DHS need to be resolved by someone and I think that someone will be from a new administration.

Jim Ricchiuti - Needham and Company

Okay. Thank you.

Operator

We will take our next question from Brian Ruttenberg with Morgan Keegan.

Brian Ruttenberg - Morgan Keegan

Yes, thank you. First of all, on fourth quarter concerns that you have, how is that overlapping into 2009? Your concern is that the new administration and the change in Washington is going to slow things in the fourth quarter. It sounds like you are more cautious now in '09 because of that? Is that what I am reading?

Hans Kobler

Let's put it that way Brian, we have maintained 30%, but it is now more one-sided than what we would have thought. The good news is we maintained 30% despite the headwinds we see on DHS on the commercial markets. Now, the DHS headwind will probably maintain, being there until Q1 or even the Q2, and so, one could be more cautious. We certainly are more cautious about the commercial security business which is not that relevant for us, but regardless of that, we are not giving guidance yet, but we just want to be prudent going forward. It could well be that we end up saying we will be around 30%.

Brian Ruttenberg - Morgan Keegan

Okay. Commercial again is 10%?

Hans Kobler

It depends on how you define it because there are a lot of channels issues here and how they end up, that is a good starting point.

Brian Ruttenberg - Morgan Keegan

Then next question is on the J2 is how we are going to refer to it now going forward. The protest period is over, is that correct?

Hans Kobler

Yes.

Brian Ruttenberg - Morgan Keegan

Okay. There were no issues and the competitors have not demanded anything, right?

Hans Kobler

I do not know if they demanded anything but they have not filed anything.

Brian Ruttenberg - Morgan Keegan

Okay.

Hans Kobler

So yes, that was over last Wednesday.

Brian Ruttenberg - Morgan Keegan

How much of the $114 million of the funded backlog is due to J2?

Debbie Mosier

About 21 right now.

Brian Ruttenberg - Morgan Keegan

Great, and that funded backlog will come out over the next twelve months, is that right?

Debbie Mosier

Yes, a little bit longer than that. Some could be added to that during that period as well, over the next two years.

Brian Ruttenberg - Morgan Keegan

Right. Share count in the quarter?

Debbie Mosier

Around 34 million shares.

Brian Ruttenberg - Morgan Keegan

Great. Thank you very much.

Operator

(Operator Instructions) We will go next to Michael Kim with Imperial Capital.

Michael Kim - Imperial Capital

Hi, good afternoon. Couple of questions; hoping you could talk a little bit more about what you are seeing on the international side, international government opportunities, bookings Fido, I think you indicated some increased interest in the Middle East, hoping any particular color there would be helpful.

Hans Kobler

Sure Michael. International is almost like an empty canvas for us. We have 10% maybe exposure, much of that is really from our international radiation business. So, we are not doing a lot yet today. If I look at what other companies do then they have somewhere between 30% and 50% international exposure, just by looking at those numbers tells me we have a huge opportunity that we should go after.

We have carefully started doing that with largely from here with our local presences. Now we are going to ramp it up because of the feedback that we are getting in those sells particularly in the Middle East, we have now a couple of demo sites out there that will give us a lot of credibility.

Logo Island, which is one of the Palm Islands in the Dubai area, we have a lot of interest from Saudi. For us to change the dynamic there, we have to be local because our equipment is heavy and is ITOR restricted. So, it is very cumbersome to do the demos until we get there. So, us being there will make a difference. We hear the same thing in Europe, where we have traction in the airports in our surveillance business, and I think the same is applying for Fido that continues getting a lot of interest in Middle East, Far East, Iraq, Afghanistan, and just being there on the ground, being more on the ground I think will really make the difference.

On top of that, we have more new products coming out that will make it more efficient for us to pay for the people there. So, I would never bet my money on international because some of the things take long like the Saudi border deal has been around and people talked about it for eight years. So, some of those things just take a long time, but they are really big, so it is worth the effort and keep nudging at it. We think we will get a nice pay-off from those investments.

Michael Kim - Imperial Capital

In your sense, you are going to see more opportunity for surveillance or on detection or more of a balanced mix between those?

Hans Kobler

I think it is strong on both accounts. Fido has a huge reputation coming out. At the beginning of the time, it has not been used that much, if you go to Iraq right now, it is clear what they use and what is working well and that reputation that now trickles across the regions. So, that is a huge starting point.

Our radiation detectors, we are already market leader. They have been used at the Olympics and so that is spreading out. We are throwing in the same channel, the mass spec tools and our bio tools that will help. So, detection will be strong. On the surveillance side, we just had the first few signature installations and it is just not $30,000, $40,000 unit sales, those are the installations that go $1 million, $2 million, $3 million, $4 million, $5 million up.

So, that could go fairly quickly that surveillance would significantly outpace detection internationally, but that is a lot lumpier and any particular deal could swing and pick. Transportation and some of the other businesses, we really do not go, we stay local for now. We do not expect that much to come there.

Michael Kim - Imperial Capital

Okay, great and fair enough. Then just one item, in the quarter it looked like maintenance and service revenues on the surveillance side jumped up there. Can you talk a little bit about what the driver was? Was there something specific or is there a recurring component beyond that?

Debbie Mosier

That is our mobile surveillance towers under the BETSS-C program.

Michael Kim - Imperial Capital

Okay.

Debbie Mosier

They are being built to spec, so it is a percent complete effort as we build them according to the requirements.

Michael Kim - Imperial Capital

Okay. Great. Thank you very much.

Operator

That does conclude our question-and-answer session. At this time I would like to turn the conference back over to you, Mr. Kobler, for any additional or closing remarks.

Hans Kobler

Well, thank you all for your time and again I am available for follow-up questions and I hope to hear you all next time. Good bye.

Operator

That concludes today's conference. Thank you for your participation. You may disconnect.

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