Goodbye Kansas Group Interim Report Jan-Mar 2024

First quarter, 1 January – 31 March, 2024

• Net sales decreased by 57 percent to SEK 30.6 million (71.6) primarily due to a weak market for VFX projects, which has not yet recovered since the strikes ended in the US last year, in combination with a weak gaming market.
• EBITDA amounted to SEK -22.0 million (-15.0). The loss during the quarter is a result of the significant decrease in sales.
• Adjusted EBITDA amounted to SEK -19.7 million (-12.6). Adjusted EBITDA excludes non-recurring costs of SEK -2.3 million (-2.4).
• EBIT amounted to SEK -24.7 million (-32.1).
• Profit before tax amounted to SEK -23.9 million (-33.0).
• Earnings per share before and after dilution amounted to -4.28 SEK (-145.98).
• Cash and cash equivalents amounted to SEK 12.3 million (39.6) on March 31, 2024.

Significant events during the first quarter

• Final day of trading for paid subscribed units in the rights issue was on January 15, 2024. The record date for conversion was January 17, 2024, after which paid subscribed units were converted into shares and war rants of series TO3.
• An extraordinary general meeting on January 30, 2024 decided on a reversed split of shares whereby 100 existing shares will become one new share, 1:100. The Board set the record date for the reversed split to March 1, 2024. The EGM also decided to reduce share capital by 38,566,964 SEK to 576,488 SEK and the amount will be converted to unrestricted equity conditional upon approval by the Swedish Companies Registration Office or a court.
• At the end of January 2024, Goodbye Kansas Studios received an order for production of In-game content for a game project. The order comes from a new, strategic, international customer and the order value amounts to approx. SEK 16 million. The project has started and will span over the first two quarters of 2024.
• On February 16, 2024, Goodbye Kansas Group announced that it faced a financing deficit for the first half of 2024 due to an unmaterialized order.
• On March 14, 2024, Goodbye Kansas Group and NY VFXWAALA entered into a strategic partnership including an agreement to establish a Joint Venture in India. The companies will work in partnership to build up a scalable production hub in India to provide cost competitive solutions, as well as supporting revenue growth into new business segments and categories. The Board of Goodbye Kansas also resolved on a SEK 36.8 million financing package including a rights issue of approximately SEK 21.8 million, fully covered by subscription and guarantee commitments, and on a directed issue of convertible debentures of SEK 15 million to NY VFXWAALA. These rights issues have later been approved by extraordinary general meetings on April 2 and April 16, 2024.
• On March 21, 2024, Chris Jestico was appointed to Managing Director for Goodbye Kansas Studios. Chris has worked at Goodbye Kansas Studios since 2021 and also has significant experience from leading roles in various global VFX companies internationally, for instance ILM, MPC, DNEG, Framestore as well as production companies such as Warner Bros and New Regency. Chris also has first-hand experience from establishing production partnerships in India.

Significant events after the period

• 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 during the coming five months.
• On April 5, 2024, the Swedish Companies Office (“Bolagsverket”) registered Goodbye Kansas Group AB’s conversion av share capital to unrestricted equity. The company’s equity is thereby restored and an additional general meeting for liquidation purposes is planned to be held.
• An extraordinary general meeting (“EGM”) on April 16, 2024, decided to alter the Articles of Association 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.
• Goodbye Kansas appointed Wildeco as the company’s new Certified Advisor.
• On April 5, 2024, the parent company, Goodbye Kansas Group AB, restored its equity following the Swedish Companies Registration Office’s registration of the conversion of share capital to unrestricted equity. The Board will convene an extraordinary general meeting (“EGM”), a control balance sheet meeting, where the control balance sheet will be presented. See preliminary balance sheet below:

• 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.

CEO comments

Dear shareholder,

During the first quarter we completed a number of structural measures which essentially complete our strategic shift to focus entirely on the studio business with VFX, game trailers, animation and In-Game. An important milestone during the quarter was the announcement of the strategic partnership with NY VFXWAALA from India. This is an industrial partnership that strengthens Goodbye Kansas while highlighting unique values in our business that are attractive to our new partner. Together we will establish the joint venture Goodbye Kansas Asia, which strengthens our offering, provides market presence in Asia and enables increased production efficiency. During the quarter, we see the full effect of our extensive cost savings, in line with our plans. However, as expected we report weak figures for the first quarter with SEK 30.6 million in net sales and an Adjusted EBITDA of SEK -19.7 million. The primary reason for the weak result is that VFX hardly generated any sales in the quarter. This reflects a delayed recovery in a market that was hard hit by the strikes during 2023. In parallel, we also see that customers in the gaming sector are somewhat hesitant. The situation remains challenging but we have a strong sales pipeline, are fully focused on sales efforts and have announced important new orders. We are working hard to resume productions now that the market normalizes. Despite the weak development, we were able to secure a funding package of SEK 36.8 million which strengthens our funding position and improves our possibilities to build a growing, profitable business.

Creating a sustainable business

Goodbye Kansas’ goal for 2024 is to achieve sales of SEK 225 – 250 million and a positive EBITDA. For 2025, we aim to achieve sales of SEK 280 – 310 million and an EBITDA-margin of 10 percent. These are challenging goals and as expected, the first quarter’s results show a delayed recovery following last year’s strikes in the US which halted the VFX market. Sales more than halved compared to the corresponding period last year to SEK 30.6 million which is primarily explained by a weak VFX-market. Also other customer segments had a weak quarter, negatively affected by primarily temporary factors. All in all, the weak demand has created a tougher competitive situation, which further highlights the need for our joint venture in India and that we maintain a strong focus on costs.

We have a strong sales pipeline with several projects which are temporarily paused, projects we believe will begin during the current year, but also new projects. We see a gradual improvement across the board and that demand on the VFX-market is gradually returning even though lead times are relatively long until revenues are generated. We can clearly see that our ability to deliver the highest quality in challenging projects creates possibilities for new business, for instance when new seasons of tv-series are produced.

In the quarter, we appointed our long-time colleague Chris Jestico as Managing Director for Goodbye Kansas Studios, and Chris is now managing significant operational changes at Studios. At the same time we maintain full focus on our customers and to participate in contract biddings with our competitive offering. We have a good momentum in our sales efforts and during the period we received an order for a cinematic game trailer which generates sales of SEK 16 million during the first half of 2024. Shortly after the end of the period, we announced an additional order for a cinematic game trailer.

The Adjusted EBITDA of SEK -19.7 million is obviously unsustainable in the long run. However, at the same time it also shows that we have managed to lower our break-even level substanstially, subject to us generating sales and revenues. We are obviously working hard on this and remain humble to the challenge.

Stronger following new strategic partnership

The announcement of the strategic partnership with NY VFXWAALA was an important milestone during the quarter. After the period we visited India and initiated the practical work to establish our joint venture. We also participated in a major conference for the VFX industry in India, where we formally launched Goodbye Kansas Asia, which generated significant interest, also among artists and creative talents, providing an excellent opportunity for us to begin recruiting. The main focus for Goodbye Kansas Asia is to establish a global approach to resource planning and recruitment, increase sales efforts in existing business segments in India and broader Asia, use Goodbye Kansas’ Motion Capture-studio for customers in Asia and establish a partnership in technology development.

If NY VFXWAALA later choose to convert their convertible debentures into shares in Goodbye Kansas, NY VFXWAALA will become one of our largest shareholders with a long-term, industrial interest in Goodbye Kansas’s business combined with an ambition to develop our business together. NY VFXWAALA is a well-known and established company in the Indian VFX-market with a focus on visual effects and Digital Intermediate. NY VFXWAALA has its headquarters in Mumbai and a talent pool of over 400 artists.

Capital raise strengthens financial position

We have now completed a number of structural measures which mainly complete the strategy shift to fully focus on our studio business which includes VFX, game trailers, animation and In-Game. In these segments, we are able to use our creative abilities and technology, and further build on an attractive and appreciated customer offering, a strong market position and add to our customer list of several world-leading companies.

The slow recovery for market demand and the low sales in the quarter led to the need for another capital raise in order to strengthen our financial situation. In connection with the establishment of our partnership with NY VFXWAALA, we were able to secure a financing package of SEK 36.8 million before transaction costs, of which SEK 15 million were raised through convertible debentures. This strengthens our financial situation and improves our possibilities in order to build a growing and profitable business.

As a result of the restructuring process in the autumn of 2023, we were forced to prepare a control balance sheet for the parent company, and in this report we include a preliminary balance sheet as of April 30, 2024, which shows that equity has been restored in the company.

We maintain a major focus on costs and following the completed capital raise during the quarter, we have strengthened our endurance. We have previously announced that we will reduce operative costs by SEK 15 million on an annual basis in 2024 and are making progress according to plan. Our current view is that we will be able to implement additional cost reductions during the year. With our leaner corporate structure, our strategic focus on the studio business and together with our new partner NY VFXWAALA we will continue to build on an attractive and appreciated customer offering which will take us to growth and profitability.

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.