Goodbye Kansas Group Interim Report Apr-Jun 2024

Second quarter, 1 April – 30 June 2024

• Net sales decreased by 66 percent to SEK 27.0 million (80.3) primarily due to insufficient sales of new projects during the first half of the year of both game trailers and VFX projects.
• EBITDA amounted to SEK –22.9 million (–14.4). The loss during the quarter is a result of the significant decrease in sales.
• Adjusted EBITDA amounted to SEK –22.9 million (–8.7). Adjusted EBITDA excludes non–recurring costs of SEK –0.0 million (–5.7).
• EBIT amounted to SEK –25.5 million (–32.6).
• Profit before tax amounted to SEK –24.8 million (–28.1).
• Earnings per share before and after dilution amounted to –1.17 SEK (–123.72).*
• Cash and cash equivalents amounted to SEK 3.0 million (25.2) on June 30, 2024.

First half-year, 1 January – 30 June 2024

• Net sales decreased by 62 percent to SEK 57.7 million (152.0) primarily due to insufficient sales of new projects during the first half of the year of both game trailers and VFX projects.
• EBITDA amounted to SEK –44.9 million (–29.3). The loss during the quarter is a result of the significant decrease in sales.
• Adjusted EBITDA amounted to SEK –42.6 million (–21.3). Adjusted EBITDA excludes non–recurring costs of SEK –2.3 million (–8.1).
• EBIT amounted to SEK –50.2 million (–64.7), whereof amortization of intangible assets amounted to SEK 4.2 million (33.8) and depreciation of tangible assets amounted to SEK 1.0 million (1.5).
• Profit before tax amounted to SEK –48.7 million (–59.8).
• Earnings per share before and after dilution amounted to –2.29 SEK (–269.70).*
• Cash and cash equivalents amounted to SEK 3.0 million (25.2) on June 30, 2024.

* Comparative figures for earnings per share have been adjusted to reflect the reverse split 1:200 that was decided by the AGM on April 13, 2023 and the reverse split 1:100 that was decided by an EGM on January 2024.

Significant events during the second quarter

• On April 4, 2024, Goodbye Kansas Studios announced an order for production of a cinematic game trailer from a recurring international customer. The order value amounts to approximately SEK 12 million and production will be ongoing until the third quarter 2024.
• On April 5, 2024, the Swedish Companies Office (“Bolagsverket”) registered Goodbye Kansas Group AB’s conversion of share capital to unrestricted equity. The company’s equity is thereby restored and an additional general meeting for liquidation purposes was planned to be held on June 13, 2024.
• An extraordinary general meeting (“EGM”) on April 16, 2024, decided to alter the Articles of Assiciation by changing the limits for share capital in § 4 and for the number of shares in § 5 in the Articles of Association. The share capital should be more than SEK 1,940,000 and less than SEK 7,760,000 and the number of shares should be more than 19,400,000 and less than 77,600,000. The EGM also decided take up a convertible loan with a nominal value of SEK 15,000,000 through a directed issue of convertible debenture to Funtastik Studios Limited, a subsidiary of NY VFXWAALA.
• On April 23, 2024, the outcome in the fully guaranteed preferential rights issue in Goodbye Kansas was announced. In total, 8,495,690 shares were subscribed for with support of subscription rights, corresponding to approximately 52.6 percent of the rights issue. 60,622 shares, corresponding to 0.4 percent of the rights issue, were allotted to individuals that have subscribed for shares without support of subscription rights. This means that approximately 47.0 of the rights issue is allotted to underwriting guarantors. Goodbye Kansas thereby raises proceeds of approximately SEK 21.8 million before deduction of set-off of receivables and transaction costs. Approximately 12.3 percent of the rights issue was subscribed for through set-off of receivables.
• On May 6, 2024, the outcome in the directed issue of convertible debentures was announced. All 15,000,000 convertible debentures in the directed convertible issue, corresponding to a total nominal amount of 15,000,000 SEK, were subscribed for and allotted to the investor Funtastik Studios Limited.
• On May 16, 2024, Goodbye Kansas appointed Wildeco as the company’s new Certified Advisor.
• On May 21, 2024, the outcome was presented for warrants of series TO3, which were alloted in connection to the rights issue in December 2023. In total, 3,850,000 warrants of series TO3 were used to subscribe for 5,500 new shares, corresponding to 0.7 percent of outstanding warrants of series TO3. Gross proceeds amounted to SEK 55,000 before deduction of transaction costs.
• On May 28, 2024, Goodbye Kansas Group received a request from the bankruptcy estate for a refund related to a previous subsidiary which was declared bankrupt in October 2023. The refund relates to two intra-group payments of approximately SEK 5 million prior to the bankruptcy. Goodbye Kansas’ view is that the payments have been correctly motivated and have therefor disputed the request for refund.
• On June 13, 2024, the Annual General Meeting elected Thomas Lindgren, Naveen Paul and Rajeev Sharma as new Board members. Goodbye Kansas Group’s Board thereby consists of Per Anders Wärn (Chairman), Staffan Eklöw, Thomas Lindgren, Naveen Paul and Rajeev Sharma.
• On June 13, 2024, Goodbye Kansas Studios received an order for the production of in-game content for a game project. The order comes from a strategic, international customer and the value of the order amounts to approximately SEK 11 million. The project will run until the third quarter 2024.

Significant events after the period

• On July 12, 2024, Goodbye Kansas Group entered into a Share Purchase Agreement to divest its subsidiary Vobling AB to Irish Private Equity Firm, Erisbeg. The divestment will provide Goodbye Kansas Group with a liquidity injection while generating a limited positive impact on the Group’s net result. The divestment is yet another important step in Goodbye Kansas Group’s strategy to focus on its studio business. The parties have agreed not to disclose any details relating to the transaction.
• On July 30, 2024, Goodbye Kansas Studios received a large order for the production of five short CGI animation films for a game project. The order comes from an existing, international customer and the order value amounts to a total of approximately SEK 37 million. The project begins immediately and will continue until the first quarter of 2025.
• On August 20, 2024, Goodbye Kansas Studios received an order for the production of a game trailer for a new international customer. The total value of the order amounts to approximately SEK 14 million. The project has started and will run until the fourth quarter of 2024.
• On August 22, 2024, Goodbye Kansas Group signed a Letter of Intent regarding the divestment of the subsidiary Plotagon Production AB. A potential sale is expected to have limited financial impact on the Group.

CEO comments

Dear shareholder,

In the second quarter of 2024, Goodbye Kansas has completed the work on the changes and actions we decided on in early 2023. The Group’s structure has been streamlined into the core business of Goodbye Kansas Studios, our financial structure has been radically improved through debt reductions and our cost base has been significantly reduced. The sales organization has been strengthened and the sales work has been intensified and streamlined, which in combination with a stronger market is starting to yield results. All in all, we have created completely new, improved conditions for achieving profitability - in light of a more positive gaming market, and a film and TV market that shows significantly higher production activity internationally, we see good opportunities to achieve a positive result in the second half of the year.

The quarter was characterized by continued weak revenue development and consequently a negative result, with SEK 27.2 million in revenue and an adjusted EBITDA of SEK –22.9 million. Weak new sales in the first months of the year resulted in low revenues, which had an impact on earnings despite sharply reduced costs. The company’s financial situation remained strained, with cash flow from operating activities of SEK –26.9 million in the quarter. During the period, a combined rights issue and convertible bond issue was completed, which raised a total of approximately SEK 37 million before transaction costs.

In connection with the share issue, we entered into a strategic partnership with Indian NY VFXWAALA, which subscribed to the convertible bond issue and with whom we have decided to establish a joint venture company in India. Through this partnership, Goodbye Kansas will have both an industrial owner and a partner that strengthens our offering, creates market presence in Asia and streamlines our production which will lead to an improvement in our margins through lower costs.

Our cost savings have continued to have an impact. During the quarter, we successfully completed the move to significantly smaller and more appropriate premises in Stockholm and also consolidated our two external data centers (Sweden and UK) into one, which means further cost reductions. After the end of the quarter, we completed the divestment of the subsidiary Vobling, in line with our strategy to focus on our core business in Goodbye Kansas Studios. After the end of the period, we have also signed a letter of intent to divest the subsidiary Plotagon, with limited financial impact initially, but with possible earn-outs later on.

New phase with focus on sales and profitable growth

After an intensive structure phase, we are now fully focused on marketing and sales, and based on an improved analysis our increased efforts have started to yield visible results. Looking forward, we will strengthen our sales organization in the US and England. During and after the end of the period, we have been able to announce several new orders, marking the beginning of a clear improvement that will contribute to increased revenues and cash flow in the second half of 2024 and into 2025. During the period, we expanded our collaboration with an existing customer with a new agreement for game trailers and in-game content. After the end of the period, we signed a major new agreement for the production of game trailers with an existing customer, worth SEK 37 million , as well an agreement for a game trailer with a new international customer, worth SEK 14 million. We are also in concrete negotiations with both new and existing customers - framework agreements have been signed, which are expected to result in additional project agreements during the coming period. The total value of orders signed after the second quarter amounts to approximately SEK 60 million.

The establishment of our joint venture with NY VFXWAALA in India has progressed: the company Goodbye Kansas Asia is registered, recruitment of key personnel is ongoing as well as the set-up of the company’s technical infrastructure. We have already secured a couple of smaller collaboration projects together and see a great interest among potential customers in India with good potential for future business, in addition to our stated ambition to bring in projects from Europe and the US.

As revenues are now increasing after the recently signed orders, cash flow is expected to improve significantly already in the third quarter 2024. The considerably reduced net debt compared to the previous year also contributes significantly to an improved total cash flow for the Group. The claim for a refund that was made by the bankruptcy trustee to the group’s former subsidiaries during the period has been deemed to be unjust and has therefore been disputed. On the basis of signed agreements and in light of ongoing negotiations, the company’s working capital is deemed to be sufficient to fund its ongoing operations.

Although we expect to see a stronger second half of 2024, with new sales of projects fully impacting the fourth quarter, we believe that the full year will not fully reach the outlook we have previously communicated. We are therefore updating our financial outlook for 2024 and now estimate that we will reach SEK 170-180 million in sales and –30-40 million in EBITDA, in 2024, compared to our previous forecast of SEK 225–250 million in sales and a positive EBITDA. Thus, we view that the second half of 2024 will be profitable, where the level of sales and earnings will be affected by the timing of the start of the projects. Based on the actions taken (both in relation to sales but also cost savings), the establishment of our joint venture in India, combined with an improved market, we maintain our financial outlook for 2025.

Overall, we see a more stable and active market going forward, in the US, Europe and Asia. The gaming market is developing well, while at the same time the film and TV industries are showing positive signs of recovery. The period has also shown examples of an increased interest in structural deals and investments, which may open up interesting business opportunities over time, also for Goodbye Kansas.

With our leaner corporate structure, an intensified sales effort, our increased market presence through the collaboration with NY VFXWAALA and our focus on delivering high-quality projects, we are well equipped to take on the opportunities offered in the market.

Stefan Danieli
CEO
Goodbye Kansas Group

For more information, please contact:
Stefan Danieli, CEO, Goodbye Kansas Group
E-mail: stefan.danieli@goodbyekansas.com
Tel: +46 701 981049

Goodbye Kansas Group
Goodbye Kansas Group AB (publ) is a leading supplier of technology-driven visual content and develops solutions for visual effects (VFX), animation, game trailers and In-Game. The Group has some of the world’s leading entertainment companies as customers. Goodbye Kansas Group has its head office in Stockholm and is listed on Nasdaq First North Growth Market with Wildeco as Certified Adviser.