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Edited Transcript of SITO earnings conference call or presentation 29-Mar-19 1:00pm GMT

Q4 2018 SITO Mobile Ltd Earnings Call

ENCINITAS Apr 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Sito Mobile Ltd earnings conference call or presentation Friday, March 29, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Terry S. Lynn

SITO Mobile, Ltd. - CFO

* Thomas J. Pallack

SITO Mobile, Ltd. - CEO & Director

* William A. Seagrave

SITO Mobile, Ltd. - COO

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Conference Call Participants

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* John David Godin

Lake Street Capital Markets, LLC, Research Division - Equity Research Analyst

* Michael Fawzy Malouf

Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team

* Rob Fink

Hayden IR, LLC - EVP and General Manager of New York Office

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Presentation

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Operator [1]

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Greetings, and welcome to the SITO Mobile Fourth Quarter and Full Year 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rob Fink of Hayden IR. Thank you. Sir, you may begin.

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Rob Fink, Hayden IR, LLC - EVP and General Manager of New York Office [2]

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Thank you, operator. Hosting the call today are Tom Pallack, Chief Executive Officer; Bill Seagrave, Chief Operating Officer; and Terry Lynn, SITO's newly appointed Chief Financial Officer.

Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operations and are based on management's current estimates and projections, future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see risk factors as described in SITO's -- SITO Mobile's annual report on Form 10-K and quarterly report on Form 10-Q that are filed with the SEC.

In addition, during the call, the company will present non-GAAP financial measures, such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information is set forth in the press release that was issued earlier this morning. Because these measures are not calculated in accordance with U.S. GAAP, they should be considered -- they should not be considered in isolation from the financial statements prepared in accordance with GAAP.

Before I turn the call over to management, I would like to remind everyone that a press release disclosing the company's financial results was issued today at approximately 8:00 a.m. Eastern Time. That press release can be accessed on the company's website, sitomobile.com, under the News and Events link that's found on the Investor Relations tab.

With all that said, I'd now like to turn the call over to Tom Pallack. Tom, the call is yours.

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [3]

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Thanks, Rob. 2018 was an important and necessary transition year for SITO. While the results we're reporting today do not reflect the full benefit of aggressive actions we took in 2018 and in the early part of 2019 to restructure and enhance our organization, we entered 2019 with a much stronger position to capitalize on the market -- significant market opportunity that we see in front of us.

Let me recap some of the key areas where we made progress over the past year. First, we strengthened our Board of Directors, five experienced advertising and marketing executives who bring an amazing track record of success to SITO. Please take your time at your leisure to look at our website and get that information. This group has decades of domain expertise relevant our target market and relationships with potential customers and key insights into the products that solve these customer issues. Their insights and guidance are immensely valuable, and we are fortunate to have them overseeing our company.

Second, we strengthened our balance sheet. This was done in 2 manners: we did an equity raise and added cash, and secondly, we've retired a debt facility that had restrictive covenants that would've limited our ability to raise further debt capital. Subsequent to the year-end, we secured an accounts receivable line of credit to help with our working capital needs.

Third, we invested in our product and technology with the hiring of Alex Cherones as our head of product development. He had -- has an extensive background in enterprise application and large database product development. His expertise gained at companies such as AT&T brings SITO professional engineering process management, efficient product architectural design and development best practices, knowledge of large-scale data product design and product launch management, a definite upgrade.

Fourth, we invested in aligning our sales and support teams with our product offerings and customers, current and potential. This was executed through a variety of tactics, including hiring accomplished industry professionals. At a very high level, we now have dedicated teams to properly address existing long-term customers with a goal of client expansion and minimizing attrition, new customer teams to better identify, sell and activate new customers and market expansion teams to form deep relationships with strategic partners. As we learn more about these partner needs, we not only sell them existing products but we can develop supporting products to rapidly move ourselves into larger enterprise relationships.

Finally, we strengthened our financial team with the appointment of Terry Lynn as our CFO. Terry has a strong reputation as a finance leader who has scaled multiple companies. He brings with him a wealth of knowledge in financial planning, revenue analysis, investor relations, SEC compliance and sales optimization. I am confident that Terry will play a key role in helping our leadership unlock value for our shareholders, clients and employees.

With that, I will turn the call over to Terry now to introduce himself and walk through a few highlights of our financials. Terry?

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Terry S. Lynn, SITO Mobile, Ltd. - CFO [4]

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Thanks, Tom. I'm excited to be here and to join everyone on today's call. I accepted the CFO role at SITO because I saw significant and growing market opportunity that's ripe for disruption and believe that there was untapped value at this company. Equally as important, I saw a clear fit between my experience in scaling online media and tech companies and SITO's needs. My first 5 weeks have been encouraged by the breadth of SITO's tech and the depth of the team. Going forward, I'll be prioritizing my financial efforts towards: firstly, strengthening the balance sheet; secondly, growing revenue; thirdly, staying laser focused on margins.

Shortly after I was announced as CFO, we secured a new credit facility that provide SITO with up to $9.5 million in accounts receivable financing. There's an option to expand the facility by additional $5.5 million later in the year. So in its current structure, this facility capped at $15 million. However, it does allow for growth in $5 million increments and both of us agree, both us and the lender. We're building this relationship with this LLC partner that will hopefully grow with us as we scale this business.

Since our financial results are overviewed in the press release that we issued earlier this morning and we further detailed in our annual report on the 10-K form that we expect to file with the SEC on time, which is Monday, I'm going to instead just provide a high-level financial update here and then open up the call to Q&A.

Total revenue for the 3 months ended December 31, 2018, were $11.1 million, and we completed the year with a revenue total of $39.7 million. While a decrease in 2017, 2018 was a year of transition for SITO. Significant operational and financial changes were made to ready us for executing our consistent strategy of accessing large enterprise data leverage businesses. The result was that by the fourth quarter of 2018, our business and revenue mix continued to shift towards enterprise customers that are utilizing SITO's consumer insights for data-driven transactions. Sales to enterprise customers and return engagements leveraging our proprietary data represented 35% of total sales for the year. It's the clear indication and validation of the progress on the strategy.

It's important to note that as we increase the scale of multiyear and recurring enterprise engagements, we become less reliant on onetime campaign-driven Media Placement revenues, which should increase our viability and accelerate our growth. Building a more transparent and predictable model will be one of my top priorities as CFO.

Net loss in the fourth quarter was $1.1 million compared to a $6.7 million loss in Q4 of 2017. Importantly, we generated a positive $145,000 in adjusted EBITDA during the fourth quarter. This is a direct reflection of management's discipline on headcount spending and overall spending. Net loss for the year ended December 31, 2018, was $16.9 million compared to a net loss of $15 million for the year ended December 31, 2017. We know we have a lot of work to complete to get this on positive plane, but we're working the issues and opportunities.

Turning now to the balance sheet. As of December 31, 2018, the company had $2.6 million in cash and cash equivalents compared to $3.6 million in the prior year. Additionally, the company had approximately $10.2 million in accounts receivable. The 10-K that we will file on Monday will again include the going concern designation from our auditors as a result of the cash shortfall estimates should we not be able to grow the company with sufficient revenues. I am confident in our liquidity as a result of the credit facility that we secured. 2018 was a big transition year for SITO. I think it's going to position us well for a great 2019.

With all that said, I'd like to open the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Mike Malouf with Craig-Hallum Capital Group.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [2]

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Great, and welcome aboard, Terry. I guess maybe just an overall question. We've been pursuing some of these very large recurring data contracts for a while, and I'm just wondering if you can give us an update on how that transitioned to the those types of contracts are going. We obviously have some delays with some of the privacy issues in 2018, and I'm just wondering that -- if you can give us an update on where we are with regards to those.

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [3]

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Mike, Tom Pallack here. Thanks for the question. And we've significantly increased our percentage of larger transactions. So if you look at the size of the transactions and the amount of less transactions but larger deals. So -- and it was an increase of basically 35% in 2018 over 2017.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [4]

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Right, right. That does answer my question. I know that you've been pursuing some very large contracts with some data elements and then being able to get the advertising surrounding those deals. So I wanted an update on those in particular.

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [5]

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Yes, Mike. We'll be talking about it in the near future, right? I think there will be ample opportunity here in a short period of time where we'll discuss a couple of the transactions.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [6]

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Okay. And then maybe you can give us just a little bit of insight into the first quarter. We're obviously at the very end of the quarter. Any kind of insight or understanding on how the first quarter played out? I know that, seasonally, it's a little bit weaker than the rest of the quarters.

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Terry S. Lynn, SITO Mobile, Ltd. - CFO [7]

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So this is Terry Lynn, our -- the CFO. So I just kind of want to put out our general position with forward guidance and what we're thinking right now. We're going to shy away from it at this moment and really not, particularly, give quantitative guidance on a forward basis, at least not in the near future. If we get on the path of giving qualitative guidance, we'll let you know. But I want to stay away from these forward-looking statements at this point.

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Michael Fawzy Malouf, Craig-Hallum Capital Group LLC, Research Division - Partner, Senior Research Analyst & Head of Boston Team [8]

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Okay. But just with one day left in the quarter, you can't give us a sense of where the quarter came out.

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Terry S. Lynn, SITO Mobile, Ltd. - CFO [9]

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I could but I'm not going to.

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Operator [10]

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Our next question is from the line of Mark Argento with Lake Street Capital Markets.

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John David Godin, Lake Street Capital Markets, LLC, Research Division - Equity Research Analyst [11]

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This is John on for Mark. First, just if you could dig into kind of where you're at as far the corporate structure goes. You guys think you are -- you're set as far as how you're going to kind of pursue things strategically going forward. Are there more moves that you would like to make? Just kind of some extra color there would be helpful.

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [12]

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John, tom here. We -- I think we're always looking to increase talent and upgrade in regards to adding people to the staff. But I'm -- we're -- especially in the sales side, we're continually upgrading support talent and sales personnel. But as the structure on the operations side and all, we're feeling pretty comfortable.

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John David Godin, Lake Street Capital Markets, LLC, Research Division - Equity Research Analyst [13]

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Got it. And then just kind of digging in to the enterprise data-focused revenue. Can you kind of help us unpack really what that looks like? How much of it is recurring as far as that 35%? And just some more color there would also be helpful.

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [14]

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Bill, why don't you?

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William A. Seagrave, SITO Mobile, Ltd. - COO [15]

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John, it's Bill Seagrave. I don't want to break it down to -- into great detail. The 35% of the total revenue is, as Tom indicated, basically up from 0 of 2017. So the shift is occurring for us. It's very exciting, and we certainly look forward to 2019 for increasing it. The transaction that we're speaking of are -- do include generally recurring revenues, certainly longer-term contracts of a larger variety. I don't have or don't want to give some of this information as to exact numbers in any direction. But the elements of -- that we were seeking when we came onboard 2 years ago are represented in those large contracts there or large customer relationships that we're now developing. Hopefully, that suffices as an answer for you at this time.

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John David Godin, Lake Street Capital Markets, LLC, Research Division - Equity Research Analyst [16]

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Yes, that's helpful. And then one more, just -- now that Alex has been onboard for some time now, if you could just kind of give us an update on what he is really bringing to the table and maybe how some conversations have evolved kind of in the opportunities you guys are targeting since he's been onboard.

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William A. Seagrave, SITO Mobile, Ltd. - COO [17]

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Yes, certainly. Very -- first and foremost was -- he brings to our engineering leadership the professional structure, management processes that a large enterprise-focused organization that needs to develop enterprise-quality application and analytics, in our case, requires. And we -- this is a significant upgrade in terms of how we approach our architecture of our -- both our database designs and our application architectures. So since he's been on board, his focus has been doing exactly that, breaking down our current architecture, breaking down our current application set and understanding the opportunities for changing both efficiencies and processing capabilities while reducing the time it requires. With a proper architecture design, you're able to do much faster, much more rapid turns on product development, which gets us into the second piece that if you have good infrastructure and good architecture, then you're able to really march out and make changes to your product evolve it, both for your own vision as well as the visions that each individual customer has. So with that, we organized the engineering team around the architecture quite differently than we have before to create those optimizations of both product-driven development that is driven by the needs of our current customers as well as focusing on the types of product that we want to roll out in 2019, beginning very quickly and just as simple as it says, just increase our capabilities in a very dramatic fashion. And we're going to start to see that very soon here within 2019. Alex's team they brought onboard are all people that are sharing equal career pathing in large enterprise development, in deep database architecture design for, as I said, operational efficiencies and deep analytics. So there's -- it's just a really wonderful -- both leadership and raw capability, raw knowledge upgrade to the company and raw feeling, and it's very exciting.

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Operator [18]

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The next question is from the line of [Paul Sons] with [Sons Capital].

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Unidentified Analyst, [19]

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Two quick questions. One is since Alex has come -- has joined, how many people has he brought with him from his old job to join his team?

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [20]

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I think -- do you have the number?

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William A. Seagrave, SITO Mobile, Ltd. - COO [21]

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Paul, it's Bill again. I don't have a specific -- yes, I don't have a specific exact number, but we did a number of trade outs as well as we did expand the engineering investment appropriately, so to handle this stuff. But all of them in constructs, so the -- as Terry and Tom both mentioned, all of them in contracts, so the 2018 focus on spend management and headcount management.

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Unidentified Analyst, [22]

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Right. So besides Alex, you brought over 1, 2, 3 people from both shop?

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William A. Seagrave, SITO Mobile, Ltd. - COO [23]

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Four.

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Unidentified Analyst, [24]

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Four?

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [25]

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There's a lot. Let's just put it this way. He's significantly increasing. And I think, Paul, what we're focusing in on too, one of the pieces as you go out to, especially the larger enterprise customers, but if you look at the news headlines in our environment out there, all about privacy and security, and they're very strong, and we've accentuated that in our process all the way through. So we have some strength there that is in additional to what Bill has talked about. So very excited about that.

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Unidentified Analyst, [26]

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Okay, good. And I think, Bill, you said that you expect that you've been working and his team has been working on new products, especially the ability to deliver results faster, and you said we might see that very soon. Is very soon in -- sometime in the second quarter? How would you define very soon?

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William A. Seagrave, SITO Mobile, Ltd. - COO [27]

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Well, we've changed our -- I mean, we've adopted a -- the norm of good development process practice, which is to do very, very quick turns on development. So we're already seeing new capabilities rolling out to our customers right now today. And as we move forward, it'll instantiate itself into enough of new features that will actually have a product launch of those new features. So you'll start to see visibility of it, yes.

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Unidentified Analyst, [28]

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So at this point, you feel like that the product now is industrial-strength and ready for the A-list customers.

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William A. Seagrave, SITO Mobile, Ltd. - COO [29]

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We're definitely working with A-list customers as most -- which is not to say that -- or certainly -- let me reiterate that we're evolving the product continuously. So what we have to do is now we will have in a month, which is now we will have 4 months from now.

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Unidentified Analyst, [30]

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Right, okay. And then -- and I missed this. There was a mention about going concern. Are -- is the going concern still going to be with us on -- when you file on Monday? Or is it going to -- or has that been lifted?

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Terry S. Lynn, SITO Mobile, Ltd. - CFO [31]

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This is Terry speaking. So when I joined the place, I could see the trailing financials, and of course, I had detailed conversations with staff here. So I'll just maybe say it this way. I wouldn't have joined the place that I thought was going to run out of money, if there's any confidence around that. That said, when we go through our audit, they have very specific rules they have to apply, and we have to put that in there. So to answer your question, in the 10-K, yes, there will be a going concern coming from the auditors, so.

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Unidentified Analyst, [32]

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And then let me ask this, Terry. Just let me ask you this. So in terms of, obviously, this is something we would like to get rid off. And what is the -- what is necessary to -- what do you need to show or produce to have that removed? And is that -- is it -- I know we're on track for that. But what are they specifically looking for? Because it seems like we've got financing in place. What is the next thing that has to happen?

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Terry S. Lynn, SITO Mobile, Ltd. - CFO [33]

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The -- a lot of this with them is in a -- theoretically, but also in practice here, we have to start with a strong balance sheet. And that was -- we're in the early stages of our line of credit. Continuing to demonstrate that in an actuals way is really what these guys are looking for. They don't really want to talk as much about our future projections and where we're going to go and how this relationship is developing and what is happening on our top line. Their work have been looking backwards saying, "Look at -- show me that in your history." So as we hopefully deliver positive results and we get there, it is my hope that we'll be able to get that lifted. Certainly within this fiscal year is my hope.

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Operator [34]

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We have reached the end of our question-and-answer session. So I'd like to turn the floor back over to management for any additional concluding comments.

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Thomas J. Pallack, SITO Mobile, Ltd. - CEO & Director [35]

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Well, I want to thank -- first of all, thank Terry for his first earnings call and appreciate the expertise and thank Bill here in regards to participating in this. And just to also tell everybody that looking forward to the future, we're excited. Thanks a lot.

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Operator [36]

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Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation, and you may disconnect your lines at this time.