Goodbye Kansas

Our long term work to create profitability continues and is based on, in line with our updated strategy, working structurally on increasing sales combined with achieving significant cost reductions. During the second quarter we saw increased demand for studio services which resulted in net sales increasing by 17% compared to the corresponding period last year, to SEK 80.4 million. Our profit in the second quarter is negatively impacted by increased personnel costs and inflation adjusted rent, which resulted in Adjusted EBITDA amounting to SEK –8.7 million. It is pleasing to see that we have been able to undertake a number of measures during the quarter which will decrease operational costs and contribute to achieving profitability going forward. We are working hard to create growth and develop our sales activities in existing and new segments for Studios. As communicated in previous Interim Reports, we see continued volatility going forward and even though we have a strong pipeline, the near-term will be challenging in terms of sales and liquidity.

CEO Stefan Danieli comments:

Studios yet again shows growth following a weak start of the year. We have been able to initiate more VFX and game trailer projects which has positively impacted the development for Goodbye Kansas Studios. During the quarter we have produced some low-margin projects which has, as expected, negatively impacted our profit. This development combined with higher personnel costs and an inflation adjusted rent led to Adjusted EBITDA decreasing somewhat to SEK –8.7 million (–6.8).

Initiatives to reduce costs
For a longer period of time we have evaluated different possibilities for a more efficient use of office space. During the quarter we were able to renegotiate the terms of our rental agreement following constructive discussions with our landlord, and thereby significantly reduce office space in our head office in Stockholm. The new contract, effective as of October this year, means a significant cost reduction for the company and we estimate that the annual savings will amount to close to SEK 15 million up until the first half of 2027. This gives us a solution with space that is better adapted to our needs while we maintain our important Performance Capture-studio. In parallel, we continue to make our organization structure more lean and to review our personnel costs in Studios. We have terminated additional employments during the quarter but it will take a few months before we will see an impact on our results. We have also introduced new processes for resource allocation in projects which will improve efficiency in our use of resources. This is an additional measure we believe will contribute to achieving profitability.

Continued development for Studios
We continue to narrow our business portfolio in order to focus more on existing studio services and the adjacent segments Animation and In-Game. In parallel to cost measures and continued cost control, our work continues to increase long-term sales in Studios. In the long-term we want to focus on larger projects with strategic clients and improve our processes for production planning.

The development for film and TV production in the US is important for Goodbye Kansas Studios. During the quarter, a strike began in the US which initially included scriptwriters and later expanded to also include actors. This strike is still ongoing and it is obviously difficult to determine how long it will last. The second quarter’s result has not been impacted by the strike, however our sales efforts have suffered. So far, the productions that we are targeting have only paused and not been cancelled. I am therefore hopeful that our sales have only been postponed but obviously the uncertainty related to how long the strike will last is negative to us and the entire VFX-industry. We could potentially face a situation where an end to the strike could entail a brief and significant increase in demand for VFX-services but also an accompanying lack of resources (similar to the situation we experienced after the pandemic).

In light of the above, we can conclude that the decision to broaden the focus of Studios to include more segments has contributed to us not being as dependent on single studio services and this will in time lead to a more stable development. This is made evident now that sales of VFX-projects have halted significantly while we maintain high sales activity in the game trailers and In Game segments.

Update on Other operations
As part of a narrowed business focus and our increased focus on Studios, we continue to review our strategic alternatives for non-core operations in order to divest, alternatively discontinue, companies or single assets.

These businesses are relatively small and the financial impact is limited but we are obviously keen to run an efficient divestment process.

Since the summer 2022, we have communicated that the mobile game Hello Kitty will be launched during the third quarter 2023. However, yesterday we announced the decision to not proceed with a launch process and instead work to find alternative ways to exploit the developed game. The Board’s decision follows lengthy discussions with the IP-owner in order to agree upon strategy and terms for the launch. Factors such as a weaker ad market and a continued increase of marketing costs to reach players has led to a weakening market for mobile games, and we have determined that the expected returns from a launch have decreased significantly. We have now been forced to conclude that it is not possible for us to come to an agreement with the IP-owner concerning an amended launch strategy. To summarize, these factors led to the conclusion that a launch could not be made at acceptable commercial terms. It is obviously regretful that the launch will not take place as originally planned but with the right partner, we continue to see opportunities to adapt the game to another IP and other platforms while minimizing the need for additional investment from us.

Increased profitability
It will require hard work to achieve a stable profitability and considering the poor results we see that our financial situation can become strained again during the coming quarters. Should our sales development weaken, and if we are unable to realize asset sales, we see an obvious risk for us needing to seek additional funding before the end of this year. However, I am convinced that it is possible to achieve profitability and financial stability when we are successful in completing the previously described efficiency measures and realize the potential for sales growth in Studios. We have the resources to complete the job and will focus on sales activities for VFX, game trailers and adjacent segments to both existing and new clients. Through our strong customer relationships, high quality services, engaged workers and focused work to reduce costs, Goodbye Kansas Group can reach sustainable profitability.

Stefan Danieli
CEO
Goodbye Kansas Group
 
Second quarter, April 1 – June 30, 2023

• Net sales increased by 17 percent to SEK 80.4 million (68.6) due to growth in all segments in Goodbye Kansas Studios.
• EBITDA amounted to SEK –14.4 million (–9.6). The loss during the second quarter is due to restructuring costs, increased costs for personnel and inflation adjustment of costs such as rent.
• Adjusted EBITDA amounted to SEK –8.7 million (–6.8). Adjusted EBITDA excludes non-recurring costs related to restructuring measures of SEK –5.7 million.
• EBIT amounted to SEK –32.6 million (–26.0), of which amortization of goodwill and licenses amounted to SEK –10.4 million (–10.5).
• Profit before tax amounted to SEK –28.1 million (–25.9).
• Earnings per share before dilution amounted to –1.24 SEK (–11.68) and after dilution –1.20 SEK (–11.53).*
• Cash and cash equivalents amounted to SEK 25.2 million (12.8) on June 30, 2023.

First half-year, 1 January – 30 June, 2023

• Net sales decreased by 4 percent to SEK 152.0 million (159.0) primarily due to weaker development in Goodbye Kansas Studios during the first quarter.
• EBITDA amounted to SEK –29.4 million (–8.0). The loss during the first half-year is due to restructuring costs, increased costs for personnel and inflation adjustment of costs such as rent.
• Adjusted EBITDA amounted to SEK –21.3 million (–2.0).
• Adjusted EBITDA excludes non-recurring costs related to restructuring measures of SEK –8.1 million.
• EBIT amounted to SEK –64.7 million (–40.8), of which amortization of goodwill and licenses amounted to SEK –20.9 million (–20.9).
• Profit before tax amounted to SEK –61.1 million (–42.3).
• Earnings per share before dilution amounted to –2.70 SEK (–20.09) and after dilution –2.61 SEK (–19.83).*
• Cash and cash equivalents amounted to SEK 25.2 million (12.8) on June 30, 2023.

* Values for earnings per share have been recalculated to reflect the reversed share split 1:200 decided upon at the AGM on April 13, 2023.

Significant events during the second quarter

• At the company’s annual general meeting (”AGM”) on April 13, 2023, Marina Andersson and Anna Ljungdahl were elected new Board members. The Board now includes Per Anders Wärn (Chairman), Staffan Eklöw, Adrian Politowski, Mikko Setälä, Marina Andersson and Anna Ljungdahl.
• The AGM decided upon a consolidation of shares at a ratio of 1:200 whereby 200 shares are consolidated into one new share. The Board determined the record date to May 9th, 2023.
• Goodbye Kansas Group’s subsidiary Vobling AB has signed renewed and updated reseller agreements with its partners Dafo Brand AB and Gloria GmbH. The agreements include the Nordic countries as well as several important markets in Europe.
• Goodbye Kansas Group AB’s subsidiary, Vobling AB, was honored with the prestigious “Product of the Year 2023” award by the trade organization, FeuerTrutz, in Germany. The prize is of great value for the product VR Fire Trainer’s marketing and sales efforts on the strategically important German market.
• Goodbye Kansas Group received a decision from the Disciplinary Committee of Nasdaq Stockholm by which the company is ordered to pay a fine corresponding to four annual fees, amounting to SEK 0.5 million, for breach of the rulebook concerning an order from a client. The company mistakenly announced an order before an agreement was finalized. At the company’s initiative, the mistake was corrected a few hours later and subsequently the order was signed and announced on February 10, 2023.

Significant events after the period

• On August 30, 2023, the Board of Goodbye Kansas Group decided to amend the plan for the mobile game Hello Kitty AR: Kawaii World which is ready for soft launch. The previous plan to launch the game based on the IP Hello Kitty will not be followed through, and the company will instead focus its efforts on finding alternative ways to exploit the developed game.
• In August 2023, Karoline Duvmo began in the role as the company’s new Head of Finance and a member in the executive management team. Karoline has significant experience from prior finance positions in several industries, most recently as CFO of Convini.
• In July 2023, the company entered a new rental agreement for its head office in Stockholm. The new agreement means that the company will reduce its office space as of October 2023 and will result in annual savings close to SEK 15 million, in total more than SEK 50 million, up until the first half of 2027.

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. The core business is conducted in the subsidiary Goodbye Kansas Studios, which offers visual content for film, TV and computer games. The company creates award-winning visual experiences for various media and offers products that combine cutting-edge technology with world-class artistry. The Group also operates in a number of niche areas where opportunities to develop strong market positions and grow profitably have been identified: Virtual training through VR, solutions for 3D visualization and a portfolio of developable games, apps and other IPs. Goodbye Kansas Group is headquartered in Stockholm and its shares are listed on the Nasdaq First North Growth Market with Erik Penser Bank as Certified Adviser.
www.goodbyekansasgroup.com