Goodbye Kansas

Even though we show strong growth for the third quarter and have received significant international acclaim for projects such as One Piece for Netflix and Cyberpunk 2077 for CD Projekt Red, it has without doubt been a though and turbulent period for Goodbye Kansas Group. It began already with the pandemic but challenges have not stopped arising. The situation has progressively worsened with lengthy strikes on our single most important market the US. After the period, when closing our quarterly figures we determined that the company’s situation was unsustainable and decided to declare five subsidiaries bankrupt, including the Group’s largest business Goodbye Kansas Studios. The plan is now to continue to run the studio business in a new structure with a new and robust funding and it is pleasing that the estate trustee recently accepted the company’s offer for the studio business. We have also announced plans to complete a rights issue before year-end and work on the rights issue is progressing according to plan. Despite tough news for our employees, external partners and shareholders, I remain optimistic regarding our outlook, not the least considering the positive result development during the third quarter, where Group sales increased by 75 percent, and we report a positive EBITDA. The result during the quarters indicate the earnings potential from our future core business, also taking into account the impact from further cost reductions.

On October 24, 2023, the subsidiaries Goodbye Kansas Studios AB, Goodbye Kansas Holding AB, Virtual Brains AB (Hello Kitty), Goodbye Kansas Infinite AB and Previble AB were declared bankrupt. The single most important explanation to the poor development has been lengthy strikes in Hollywood among both writers and actors. The strikes began in the beginning of May and July 2023 and have halted productions in film and TV, a market that over time has accounted for 50 percent of the company’s sales. This led to an unsustainable financial situation for Goodbye Kansas Studios, and thereby the entire Group, and we had to undertake extraordinary measures. The book value of the subsidiaries that were declared bankrupt has been written down to nil which led to a writedown of assets amounting to SEK 131.5 million during the quarter. In addition to the studio business, these are companies that have debts that exceed the value of their assets. We do not plan to make any additional offers to repurchase remaining assets or businesses from the estate.

Promising future for the studio business in new structure

It is pleasing that our offer to repurchase the studio business from the estate has been accepted. The offer that we provided relates to the actual operations and necessary intangible assets and the business has been acquired debt-free. This constitutes an important part of achieving a sustainable financial situation and is a prerequisite for us being able to create a profitable business.

We are planning to maintain our strategic focus on the studio business which includes VFX, game trailers, animation and In-Game. In these segments, we can use our creative capabilities and technology to provide an attractive offering to both existing and new customers. We will intensify our sales efforts while working on organizational structure and system support in order to increase efficiency and profitability as well as continue to improve capacity use. The business has world leading technology and proven creative capabilities and is well positioned for future growth.

Coming rights issues

An important prerequisite for this plan is that we also complete a capital raise. The Board has therefor proposed a rights issue of units, including shares and warrants with preferential rights for existing shareholders. If fully subscribed, Goodbye Kansas Group will initially raise proceeds of SEK 55.4 million before transaction costs and if all warrants are exercised Goodbye Kansas Group can later raise an additional SEK 15.8 million before transaction costs.

We believe that these rights issues ensure a solid financial base and sufficient working capital until we achieve profitability in the studio business.

The Board’s ambition is to secure the rights issue to 100 percent through subscription commitments and guarantee commitments. Shareholders will make a decision on the rights issue at an extraordinary general meeting on November 30, 2023.

Positive long-term outlook

With a long-term robust funding, lower debt and additional cost savings, the studio business has international competitiveness and good possibilities of achieving profitability. We have a strong sales pipeline with both game trailer and VFX projects, that are currently paused, projects we believe will resume during the coming year. We have updated the market on our outlook for the coming two years where 2024 is expected to be a turn-around year in many respects and we expect sales of SEK 225 – 250 million and that we achieve a positive EBITDA. For 2025, we expect sales of SEK 280 – 310 million and that we achieve an EBITDA-margin of 10 percent. However, we understand the magnitude of the challenge and even though the strikes among writers and actors have come to an end, it might take some time before we get back to a more normalized market.

Regardless, we must increase efficiency in our projects while also implementing additional cost reductions and debt write-downs during Q4 2023 and Q1 2024. These measures are in addition to the previous cost program in 2023 amounting to approximately SEK 30 million, which will be fully implemented from the first half of 2024. During the third quarter, the company entered into an updated rental agreement for its headquarters in Stockholm. The new agreement means that the company reduced its rental space as of October 2023 and generate annual savings of close to SEK 15 million, or more than SEK 50 million until the first half of 2027.

Our other remaining subsidiaries – Plotagon Production AB and Vobling AB – remain operational and it is pleasing to see that Vobling, which was restructured in the spring, continues to show positive results. At the same time we maintain focus on divesting these businesses, which are not strategic core operations, in the near-term.

Increased profitability

Considering the very tough circumstances we have succeeded in recreating a business that has a greater potential. A sustainable financial situation, continued cost focus and a more normalized market means that Goodbye Kansas Group is on the right path.

Equally important as reducing costs is that we are successful in our sales efforts. We have the resources to do the job and will focus on new sales of VFX, game trailers and adjacent segments to both existing and new customers. 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

Third quarter July 1 – September 30, 2023

• Net sales increased by 75 percent to SEK 77.2 million (44.0) due to a larger amount of VFX- and game trailer projects in Studios.
• EBITDA amounted to SEK 1.6 million (–27.1). The positive result is mainly due to increased net sales in Studios and decreased employee costs.
• Adjusted EBITDA amounted to SEK 2.5 million (–25.9). Adjusted EBITDA excludes non-recurring costs of SEK 0.9 million (1.2).
• EBIT amounted to SEK 145.5 million (–46.6) and the significant decrease is due to a write-down of assets amounting to SEK 131.5 million related to the subsidiaries that were declared bankrupt after the end of the period.
• Profit before tax amounted to SEK –146.8 million (–49.9).
• Earnings per share* before dilution amounted to –6.52 SEK (–25.21) and after dilution –6.30 SEK (–24.89).
• Cash and cash equivalents amounted to SEK 12.5 million (8.5) on September 30, 2023.

First nine months January 1 – September 30, 2023

• Net sales increased by 13 percent to SEK 229.1 million (203.0) due to increased sales in Studios.
• EBITDA amounted to SEK –27.7 million (–35.0). The loss is due to restructuring costs, increased costs for employees and an inflation adjustment of costs such as rent.
• Adjusted EBITDA amounted to SEK –18.8 million (–27.9). Adjusted EBITDA excludes non-recurring costs related to restructuring amounting to SEK 9.0 million (7.1).
• EBIT amounted to SEK –210.2 million (–87.4) and the significant decrease is due to a write-down of assets amounting to SEK 132.7 million related to the subsidiaries that were declared bankrupt after the end of the period.
• Profit before tax amounted to SEK –207.9 million (–92.3).
• Earnings per share* before dilution amounted to –9.22 SEK (–45.30) and after dilution –8.91 SEK (–44.73).
• Cash and cash equivalents amounted to SEK 12.5 million (8.5) on September 30, 2023.

* 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.

Significant events during the third quarter

• 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 which will result in annual savings close to SEK 15 million, in total more than SEK 50 million, until the first half of 2027.
• On August 9, 2023, Goodbye Kansas Group’s CEO Stefan Danieli also took over the role as CEO of the subsidiary Goodbye Kansas Studios. The previous Head of Studios Markus Manninen left the company at his own request and also resigned from the position as Deputy CEO of Goodbye Kansas Group.
• 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.
• On August 30, 2023, the Board of Goodbye Kansas Group decided to amend the plan for the mobile game Hello Kitty AR: Kawaii World. 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.

Significant events after the end of the period

• On October 24, 2023, the Board of Goodbye Kansas Group decided to declare bankruptcy for its subsidiaries Goodbye Kansas Studios AB, Goodbye Kansas Holding AB, Virtual Brains AB, Goodbye Kansas Infinite AB and Previble AB. The strikes in Hollywood have since the beginning of May 2023 halted productions for the film and TV-industry, which accounts for approximately 50 percent of the company’s sales, and this has created an unsustainable financial situation for Goodbye Kansas Group. As a consequence of strikes in Hollywood and a unsustainable financial situation for Goodbye Kansas Group, the Board believes that the five subsidiaries do not have sufficient liquidity for their short-term working capital needs, and that the Company’s total indebtedness is unsustainable in the long term. The listed parent company Goodbye Kansas Group AB will continue to operate, and preparations are being made for a capital raise in order to finance an acquisition of the studio business from the estate and secure sufficient working capital.
• On October 24, 2023, Board members Marina Andersson and Anna Ljungdahl have requested to leave their Board assignments in Goodbye Kansas Group. They were appointed as Board members in connection with the Annual General Meeting in April 2023 but decided to leave due to the change in circumstances compared to when they were appointed.
• On October 25, 2023, the Board of Goodbye Kansas Group resolved on a rights issue of units, consisting of shares and warrants, with preferential rights for existing shareholders. If fully subscribed, the rights issue will initially provide Goodbye Kansas with gross proceeds of approximately SEK 55.4 million before deduction of transaction costs, and if the warrants are fully exercised, Goodbye Kansas can be provided with additional gross proceeds of approximately SEK 15.8 million before deduction of transaction costs. The Board’s ambition is to secure 100 percent of the rights issue through subscription and guarantee commitments. The rights issue is conditional upon approval by an extraordinary general meeting on November 30, 2023.
• On November 14, 2023, Goodbye Kansas Group entered into an agreement to acquire all relevant assets and rights from the estates of Goodbye Kansas Studios AB and Goodbye Kansas Holding AB. The transaction means that the company now continues to execute its strategy to narrow focus on the studio business in a new structure. The purchase price amounts to SEK 5.0 million and includes the studio business including ongoing customer projects, inventories, intangible assets and other business-critical rights and assets, including foreign subsidiaries.
• On November 14, 2023, the company published an updated outlook. Due to the major changes being made to the business, the Board provides the following outlook: 2024: Sales of SEK 225-250 million and a positive EBITDA. 2025: Sales of SEK 280-310 million and an EBITDA-margin of 10 percent.
• On November 8, 2023, the union for actors in Hollywood, SAG-AFTRA, reached an agreement with the largest film studios which ended a strike that has been ongoing since the summer. The strikes in Hollywood are thereby over since script writers reached an agreement last month.
• An extraordinary general meeting on November 30 needs to approve a significant transaction with a closely related party between Goodbye Kansas Group and the company’s Chairman Per Anders Wärn. In connection to the agreement to acquire assets from the bankruptcy estate, Per Anders Wärn provided a security commitment for the agreed purchase price of SEK 5.0 million.

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. 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.