Goodbye Kansas Group Interim Report Jul-Sep 2024

Third quarter, 1 July – 30 September 2024

• Net sales decreased by 43 percent compared to the corresponding period last year, to SEK 44.0 million (77.2), mainly due to weak sales of VFX projects.
• EBITDA amounted to SEK –5.9 million (5.1).
• Adjusted EBITDA amounted to SEK –5.7 million (6.0). Adjusted EBITDA excludes non-recurring costs of SEK –0.1 million (–0.9).
• EBIT amounted to SEK –7.4 million (–142.0).
• Profit before tax amounted to SEK –10.7 million (–146.8).
• Earnings per share before and after dilution amounted to SEK –0.34 (–651.98).*
• Cash and cash equivalents amounted to SEK 6.4 million (12.5) as of September 30, 2024.

First nine months, 1 January – 30 September 2024

• Net sales decreased by 56 percent compared to the corresponding period last year, to SEK 101.7 million (229.1), mainly due to generally weak new sales during the first half of the year and up to the beginning of the third quarter.
• EBITDA amounted to SEK –50.8 million (–24.2).
• Adjusted EBITDA amounted to SEK –48.4 million (–15.3). Adjusted EBITDA excludes non-recurring costs of SEK –2.5 million (–9.0).
• EBIT amounted to SEK –57.6 million (–206.7).
• Profit before tax amounted to SEK –59.4 million (–207.9).
• Earnings per share before and after dilution amounted to SEK –2.63 (–921.68).*
• Cash and cash equivalents amounted to SEK 6.4 million (12.5) as of September 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 third quarter

• On July 12, 2024, Goodbye Kansas Group entered into an agreement to divest all shares in the subsidiary Vobling AB to the Irish private equity company Erisbeg. The divestment provided Goodbye Kansas Group with a liquidity injection while generating a limited positive impact on the Group’s net profit.
• 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 value of the order amounts to a total of approximately SEK 37 million. The project will run 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 September 4, 2024, Goodbye Kansas Group entered into an agreement to divest all shares in the subsidiary Plotagon Production AB to an industrial buyer who will remain unnamed according to agreement. The divestment will have a limited financial impact on the Group in the short term, but with the possibility of future earn-outs.
• On September 30, 2024, Goodbye Kansas Studios received a second order for the production of a game trailer for an international customer and the value of the order amounts to approximately SEK 10 million. The project has started and will run until the second quarter of 2025.

Significant events after the period

• On October 1, 2024, Goodbye Kansas Studios received an order for the production of a cinematic game trailer for a game project. The order comes from a new strategic, international customer and the value of the order amounts to approximately SEK 17 million. Production has started and will continue until early 2025.
• On October 22, 2024, Goodbye Kansas Group reached a settlement with the bankruptcy trustee regarding a recovery claim against the company. In the settlement, the company has agreed to pay a significantly lower amount than the bankruptcy trustee’s original demand. As a consequence of this payment to the bankruptcy estate, the company will recover the corresponding amount from one of the priority creditors to the bankruptcy estate. This amount was previously paid by the company in connection with the subsidiary’s bankruptcy as part of the fulfillment of a guarantee commitment that will now be resolved and repaid. The settlement has no net impact on the company’s costs or cash flow. Following the settlement, the bankruptcy trustee has no further claims against Goodbye Kansas Group.
• On October 31, 2024, Goodbye Kansas Studios received another order for pre-production of cinematic game trailers for a game project. The order comes from an international customer and the value of the order amounts to approximately SEK 27 million. Production has started and will continue until the end of 2024.
• On November 4, 2024, Stefan Danieli informed the company’s Board that he wishes to resign from his position and hand over to a new growth focused leader. The Board is well prepared to establish a new leadership for the coming phase of the company’s development that holds a dynamic commercial growth plan, and the recruitment process has been initiated.

CEO comments

Dear shareholders,

During the third quarter, Goodbye Kansas completed the restructuring of the Group in order to fully focus on the studio business. During the quarter, we were able to complete the divestments of our two remaining non-core businesses, Vobling and Plotagon, which also means that we eliminate a limited financial burden on earnings and cash flow. Of even greater importance for our future development is that we secured a number of larger orders for game trailers, collectively worth approximately SEK 120 million, and we expanded the collaboration with a key customer, a collaboration we have high hopes of developing further in 2025. With the improved conditions we have created, we continue on our path to profitability, in line with what we previously communicated, and with the fourth quarter as an important first milestone of profitability. After the period, I informed the company of my wish to step down as CEO and hand over to a growth-oriented successor.

Major improvement of order intake

The financial performance in the third quarter was weak, but our order intake has improved significantly, due to focused and successful sales efforts combined with an increased demand in the gaming market. At the same time, we see that the VFX market is still early in its recovery, even though the production of new TV series has increased noticeably in both the UK and North America, which will lead to significantly higher demand for VFX services going forward. The third quarter’s sales of SEK 44.0 million and an adjusted EBITDA of SEK –5.7 million are lower than the corresponding quarter last year, but a visible improvement compared to the second quarter of the current year.

During the quarter, the business has focused on increasing sales which has resulted in several new orders for game trailers, from both existing and new customers. This means a vast improvement of the number of orders, which will contribute to increased revenues and stronger cash flow in the fourth quarter of 2024 and into 2025.

In light of this, we stand by our previously communicated outlook of a positive result in the fourth quarter. We have announced a total of five orders during and after the period with a total order value of approximately SEK 120 million. We also see good opportunities to expand the collaboration with the customer in one of these projects in the coming year.

Although the market for VFX services has been weak, we must be self-critical regarding our sales efforts against the VFX market so far this year. During the third quarter, we have therefore strengthened the sales organization internationally in North America and the UK, and in parallel expanded management focus on sales efforts. I am convinced that we will start to see results of these changes in the coming period.

We also continue to make progress in establishing our joint venture with NY VFXWAALA in India. By building up production capacity in Mumbai, we strengthen the competitiveness of our services to global customers, which is especially important in the intensifying competition we have seen during the past year. We are also continuing our discussions with production companies in India and see good potential for future business. It is clear that our establishment of Goodbye Kansas Asia has created great interest among customers in the region as well.

Completed restructuring and streamlining of business

During the quarter, we successfully divested the subsidiaries Vobling and Plotagon. With this, we complete our strategy to focus on our core business in Goodbye Kansas Studios, and in addition, we have eliminated a financial burden, albeit very limited. Both Vobling and Plotagon have found new owners who have good opportunities to successfully develop these businesses. The massively reduced net debt compared to the previous year also contributes significantly to improving long term cash flow for the Group. Through the settlement we recently reached with the bankruptcy trustee, we have closed all outstanding issues related to the bankruptcies in the autumn of 2023, which is also important for us as we enter the next phase for Goodbye Kansas Group.

Positive outlook

Overall, we see more stability and activity in existing markets going forward, both in the US and Europe. The gaming market is developing well, and we believe that the film and TV industry will demand more VFX services as of next year. We are making continuous progress on our earnings development, in line with expectations. We see that revenues are now increasing after the recent orders won and we expect a positive result and a continued improvement in operating cash flow in the fourth quarter of 2024. Considering our new orders and our expectation of a continued stabilization of the market, we consider the company’s working capital to be sufficient to finance the continued operation of the business. Our financial outlook, which was updated in the previous quarter, remains for the current financial year with net sales of SEK 170-180 million and EBITDA of SEK -30-40 million. This means that we will achieve a positive EBITDA. Based on recent orders, the establishment of our joint venture in India combined with an improved market, we maintain our financial targets for 2025.

It is gratifying, and important for sales, that our productions are being recognized internationally - an important highlight came during the quarter through the Emmy Award for Best VFX which was awarded to the TV series Shogun and in addition, Goodbye Kansas has been nominated for the English Broadcast Tech Innovation Award for the VFX production on the acclaimed series Dr Who.

Company enters new phase with new requirements

After the period, I informed the company of my wish to step down as CEO and thereby hand over to a new growth-oriented leader. It has been a true privilege to lead the company during such a transformative and important time, thereby laying the foundation for the future. The company now enters a new phase and it is the right time for me to step down and hand over to a new force in good order.

Our order book is now growing, which confirms the strength of our customer offering and our market position. With our leaner corporate and cost structures, 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 in existing and new markets.

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.