Goodbye Kansas

CEO Stefan Danieli comments:

During the quarter, we have continued to work on our strategy for our core business in Goodbye Kansas Studios as well as those parts we define as non-core businesses. Regarding non-core businesses, we are working on reducing costs and improving cash flows, primarily by limiting investments, and in parallel we have continued certain divestment processes. We are also working on a cost program for our group functions.

Positive view on Goodbye Kansas Studios

We have a positive view on the long term opportunities for Goodbye Kansas Studios. Our work continues in order to develop the business’s sales strategy to increase the share of large projects with strategic customers, and in adjacent segments (in addition to our established segments VFX and Game trailers, we will expand into Animation and In-Game). The first quarter amounts to a record quarter in terms of order intake, both in terms of sales values and the size of individual projects, with contracts running into 2024. It is also positive that we continue to make progress related to the adjacent market segments Animation and In-Game. During the quarter we received an order for production of an animation project worth SEK 41 million. The order shows our potential in fully utilizing our technical and creative competencies as well as our technical platform.

We also have a larger orderbook of potential projects, in which we are in bidding or negotiation processes. At the same time, we have respect for the fact that these processes can take time and circumstances can change on short notice. We currently see significant activity in the gaming market while the VFX market has been more reserved recently, and it remains to be seen how this market will be affected by the ongoing strike among script writers in the US.

Even though we see a positive development regarding the demand for Goodbye Kansas Studios’ services with some new important and large orders, we reported a poor result in the first quarter 2023. We have primarily been impacted by a larger game trailer project being paused on very short notice. In addition to decreased sales, we have also been impacted by increased personnel costs following a strengthening of the production organization during the quarter. We have initiated several measures to actively work on resource allocation in projects, in order to avoid previous years’ challenges related to freelance resources, with the associated difficulties in creating sufficient flexibility. The weakening profitability in the first quarter shows that we still have work to do in order to reduce our costs further.

Despite a weaker quarter, in line with expectations, our belief remains that we have chosen the right path when primarily focusing on Studios. Our primary road to profitability in the business is through increased sales combined with increased production efficiency and cost reductions. We are actively working on creating projects that are more stable throughout the year. This will facilitate resource planning and make our income more predictable.

We have the resources to do the job and will focus Studios on sales of VFX, game trailers for both existing and new customers, and in adjacent segments. Our strong order book and sales pipeline means that we have a positive sales outlook for the coming quarters.

Update on other businesses

In parallel to our focus on our core business in Goodbye Kansas Studios, we continue to work with the companies that we have identified as non-core in the previous business areas IP & Products and Games & Apps. As from this report we will comment upon these as a whole, and provide commentary on individual companies when deemed necessary. Over time we seek to streamline the operation of, and divest, non-core businesses, alternatively keep parts that can be made profitable with positive cash flows. It is important to highlight, that even in cases where we work on divestment we must maintain focus on profitability and cost reductions.

We have previously informed of a divestment process being initiated with a potential buyer of the subsidiary Sayduck Oy, a process that eventually did not lead to a completed transaction. However, we see interest for the company among other parties, and continue to work towards a divestment. In addition to the divestment of Vobling’s consultancy operations (where the remaining VR Fire Trainer operations in Vobling continue to show profitability), we have paused operations in Infinite Entertainment while we negotiate regarding a potential divestment. Regarding Plotagon Production, no divestment process is ongoing and instead we focus on developing the company’s products in order to increase sales.

In line with what we have previously announced we are working towards a launch of the mobile game Hello Kitty later in 2023. We see that current market conditions for mobile games are more challenging than before and at the same time we know that we have created a great product. With the IP Hello Kitty, the game could also be successfully launched on other platforms. We are therefore in intense discussions with the IP owner Hello Kitty to evaluate possibilities for a future launch on alternative platforms, in parallel to a soft launch in the third quarter.

Measures to increase profitability

We have managed to attain a large part of the planned cost savings that we have previously announced through a number of measures, and work continues with additional initiatives. Also for our core business Goodbye Kansas Studios, we see a need for cost reductions going forward, both through better efficiency in planning and use of production resources, but also by reducing fixed costs. We have worked to reduce costs and losses in non-core business, which has contributed to improved results in these business compared to the previous year. A difficult challenge that remains is our too large and expensive office in Stockholm, where we have not yet found a solution. The market for office-leases is challenging and we are working intensively on dealing with the situation. Our cost savings have been counter acted by a general increase of costs, including an inflation adjustment of rent, but also other salary and cost inflation. Our single most important priority is to increase sales in Studios while we reduce costs.

Through strong customer relationships, high quality services and focused work to reduce costs, Goodbye Kansas Group will reach sustainable profitability.

Stefan Danieli
CEO
Goodbye Kansas Group

First quarter, January 1 – March 31, 2022

• Net sales decreased by 21 percent to SEK 71.6 million (90.4) primarily due to a larger game trailer project being paused in Goodbye Kansas Studios until further notice.
• EBITDA amounted to SEK –15.0 million (1.6). The loss during the quarter is due to lower net sales and increased costs for personnel and rent.
• Adjusted EBITDA amounted to SEK –12.6 million (4.8). Adjusted EBITDA excludes non–recurring costs of SEK 2.3 million (3.2).
• EBIT amounted to SEK –32.1 million (–14.8), of which amortization of goodwill amounted to SEK –7.3 million (–7.2).
• Profit before tax amounted to SEK –33.0 million (–16.4).
• Earnings per share before and after dilution amounted to –0.01 SEK (–0.04).
• Cash and cash equivalents amounted to SEK 3.6 million (38.0) at the end of the period.

Significant events during the fourth quarter

• The company announced the final outcome of the rights issues, which had previously been resolved by an EGM. In total 1,689,946,608 shares, corresponding to approximately 76.3 percent of the preferential rights issue, were subscribed with the use of subscription rights and an additional 538,897,147 shares were subscribed without the use of subscription rights. The preferential rights issue had a total subscription of 100.6 percent and it was therefore oversubscribed. Hence, no underwriting guarantees were used. The set-off issues were fully subscribed.
• In February, Goodbye Kansas Studios received a significant order from a recurring international client to produce a cinematic game trailer. The order value amounts to 5 MUSD, corresponding to approximately 52 MSEK. Production has been initiated and is expected to be completed during the fourth quarter 2023.
• In March, Goodbye Kansas Studios received a large order to produce an animation project. The order comes from a new international customer and the value of the order amounts to USD 4 million, corresponding to approximately SEK 41 million). Production commenced in Q1 2023 and will be completed in Q2 2024.
• The focus of Vobling, a subsidiary, was narrowed following the divestment of the consultancy, after which Vobling is now only focused on the product VR Fire Trainer. Operations in the small subsidiary Previbles have been discontinued and investments in Infinite have been paused while negotiations regarding a divestment continue.
• Karoline Duvmo was appointed as the company’s new Head of Finance and member in the executive management team. Karoline has significant experience from prior finance positions in several industries, most recently as CFO of Convini. During her time at Convini, she worked on expansion and acquisitions, as well as implementation of restructuring measures and cost savings. The Head of Finance position will replace the CFO position in executive management. Karoline will begin her new role at Goodbye Kansas Group in August 2023.

Significant events after the period

• In April 2023, 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 467 thousand, for breach of the rulebook concerning an order from a client. On January 19, 2023, the company mistakenly announced that it had received an order before an agreement was finalized. The mistake was corrected a few hours later and subsequently the order was signed and announced on February 10, 2023.
• 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 also decided upon a consolidation of shares at a ratio of 1:200 and the record date was May 9, 2023.

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 company creates award-winning visual experiences for all media and offers products that combine cutting-edge technology with world-class artistry. In order to realize growth opportunities the Group has created three business areas: Visual Content & Brand, IP & Products and Games & Apps. Visual Content & Brand offers visual content for film, TV and games. IP & Products develops IP for film and TV, offers VR-training solutions and a SaaS platform for 3D visualization of products for e-commerce. Games & Apps develops mobile games and offers an app for 3D animation. Goodbye Kansas Group is listed on the Nasdaq First North Growth Market and has studios and offices in Stockholm (HQ), London, Helsinki, Vilnius and Belgrade.

The company has Erik Penser Bank AB as Certified Adviser.