Goodbye Kansas Group made important progress on achieving profitability and sustainable growth during the third quarter. Net sales increased by 31 percent during the quarter and the adjusted (EBITDA) improved significantly to SEK –6.9 million (–15.1) adjusted for non-recurring costs. Growth was driven by increased activity in Goodbye Kansas Studios after the tough headwind during the pandemic. EBIT is affected by non-recurring costs related to restructuring in the cost optimization program and write-downs of previously capitalized development costs. We also made important progress on creating a robust financial structure as we after the period completed a preferential rights issue whereby the company received SEK 100 million before deduction of rights issue costs. (Excerpt from CEO Peter Levin's comments on the report)

Third quarter, July 1 – September 30, 2021

  • Net sales increased by 31.4 percent to SEK 63.7 million (48.4). Growth was entirely driven by increased sales in Goodbye Kansas Studios.
  • Adjusted earnings before depreciation and amortization (EBITDA) amounted to SEK –6.9 million (–15.1). Adjusted EBITDA excludes non–recurring costs related to restructuring in the cost optimization program, which amounted to SEK 15,6 million.
  • EBITDA amounted to SEK –22.5 million (–15.1).
  • Earnings before interest and tax (EBIT) amounted to SEK –43.8 million (–28.8) of which depreciation of goodwill amounted to SEK 7.2 million (2.7). EBIT is affected by non–recurring costs related to restructuring in the cost optimization program and write–downs of previously capitalized development costs, which amounted to a total of SEK 24.6 million.
  • Earnings before tax amounted to SEK –52.7 million (–30.5).
  • Earnings per share before dilution amounted to SEK –0.49 (–0.30).
  • Earnings per share after dilution amounted to SEK –0.45 (–0.29).
  • Cash on hand amounted to SEK 44.9 million (31.5) on September 30, 2021.

Third quarter pro forma comparison

  • Net sales amounted to SEK 63.7 million (49.3).
  • Adjusted EBITDA amounted to SEK –6.9 million (–14.6).
  • EBITDA amounted to SEK –22.5 million (–14.6).

First nine months, January 1– September 30, 2021

  • Net sales increased by 84.3 percent to SEK 186.2 million (101.0). Growth was entirely driven by increased sales in Goodbye Kansas Studios.
  • Adjusted earnings before depreciation and amortization (EBITDA) amounted to SEK –31.3 million (–27.0). Adjusted EBITDA excludes non–recurring costs related to restructuring in the cost optimization program, which amounted to SEK 15,6 million.
  • EBITDA amounted to SEK –46.9 million (–27.0).
  • Earnings before interest and tax (EBIT) amounted to SEK –94.2 million (–55.9) of which amortization of goodwill amounted to SEK 22.1 million (19.8). EBIT is affected by non–recurring costs related to restructuring in the cost optimization program and write–downs of previously capitalized development costs, which amounted to a total of SEK 24.6 million.
  • Earnings before tax amounted to SEK –104.2 million (–60.6).
  • Earnings per share before dilution amounted to SEK –0.96 (–0.60).
  • Earnings per share after dilution amounted to SEK –0.89 (–0.58).
  • Cash on hand amounted to SEK 44.9 million (31.5) on September 30, 2021.

First nine months pro forma comparison

  • Net sales amounted to SEK 186.2 million (199.5).
  • Adjusted EBITDA amounted to SEK –31.3 million (–19.9).
  • EBITDA amounted to SEK –46.9 million (–19.9).

Key events in the third quarter

  • The management and Board initiated a cost optimization program based on the new financial targets (average annual sales growth of 20% and EBITDA margin exceeding 20% by 2024). Fully implemented, the program is expected to deliver approximately SEK 38 million in annual cost savings.
  • Modelio Equity AB provided the company with a bridge loan facility of SEK 55 million in July 2021 which was repaid following the completion of the preferential rights issue.
  • Goodbye Kansas Group has strengthened its HR department with Karin Wintle, who in her capacity as Chief HR Officer is a member of the Group’s management team, which now includes 5 individuals.

Key events after the period

  • Following the authorization from an Extraordinary General Meeting, the Board of Goodbye Kansas Group decided to carry out a fully guaranteed rights issue of approximately SEK 100 million. The outcome shows that approximately 58 percent of the rights issue was subscribed for with preferential rights, approximately 8 percent was subscribed for without preferential rights and approximately 34 percent of the rights issue was subscribed for by guarantors. Approximately 39 percent, corresponding to approximately SEK 39.0 million, of the rights issue was subscribed for by offsetting loans to Goodbye Kansas. Together with the cost optimization program, the preferential rights issue will enable continued acceleration within Goodbye Kansas Studios and the launch of the location based mobile game Hello Kitty during 2022.
  • Goodbye Kansas Studios delivered visual effects to BBCs new thriller series “Vigil” through its studios in Stockholm and London. Goodbye Kansas Studios was the main VFX vendor for the series.
  • Goodbye Kansas Studios has begun production of visual effects (“VFX”) for a well-known drama series. Production is expected to be completed during the first quarter of 2022. The customer is recurring and the order value amounts to SEK 20 million.
  • Goodbye Kansas Studios decided to open a pop-up studio in Vancouver, Canada, one of the world’s most important hubs for production of VFX for film and TV. The Studio which became operational in October 2021 is entirely project-financed and is an important step in attracting talents and global customers.
  • Goodbye Kansas Group strengthened its working capital by SEK 25 million after renegotiating terms for existing loans and entering a new bridge loan facility.
  • Three international game developers ordered the production of cinematic game trailers from Goodbye Kansas Studios and the total order value amounted to SEK 26.7 million. The production was initiated in October 2021 and will be completed in the first quarter of 2022.

CEO Peter Levin’s comments on the report:
Goodbye Kansas Group made important progress on achieving profitability and sustainable growth during the third quarter. Net sales increased by 31 percent during the quarter and the adjusted (EBITDA) improved significantly to SEK –6.9 million (–15.1) adjusted for non-recurring costs. Growth was driven by increased activity in Goodbye Kansas Studios after the tough headwind during the pandemic. EBIT is affected by non-recurring costs related to restructuring in the cost optimization program and write-downs of previously capitalized development costs. We also made important progress on creating a robust financial structure as we after the period completed a preferential rights issue whereby the company received SEK 100 million before deduction of rights issue costs.

Studios grew and was close to reaching break-even
The most gratifying development during the period was that we built up momentum in Goodbye Kansas Studios, business area Visual Content & Brand. Revenues in Studios grew significantly and the business was close to reaching break-even during the quarter. As a rule, the third quarter is seasonally the weakest, and the sales growth due to new projects which we reported during the quarter has continued after the period. With this in mind, I am confident enough to conclude that the third quarter was a positive turning point for the business.
Growth was primarily driven by increased demand on VFX productions for film and TV. During the pandemic, we have maintained strong relationships with long-term customers. Under Markus Manninen’s leadership and with the support of his solid industry experience and network, sales have developed very positively now that activity is rapidly increasing in the film and TV industry. The gaming market has also contributed to the positive development as we won a number of significant orders to produce cinematic game trailers. As the utilization rate in our existing studios is increasing at a quick pace, we had an opportunity to open a new pop-up studio in Vancouver, Canada. This gives us presence in one of the most important hubs globally for VFX in film and TV. The decision is driven by signed customer projects which gives us an opportunity to fully finance the expansion with new projects.

IP & Products and Games & Apps developing according to plan
Our other two business areas are developing according to plan. We are building long-term business opportunities in order to create scalable revenues. IP & Products includes Infinite Entertainment, Vobling and Sayduck. During the period, we have communicated positive news regarding Infinite Entertainment and its production of the movie “Gordon Hemingway & The Realm of Cthulhu” together with Netflix and the director and producer Spike Lee. The attention that this collaboration has received, has resulted in new exciting talks and negotiations regarding other projects.
In Games & Apps, Hello Kitty is a game that is receiving a lot of interest. As we have previously communicated, we have a partnership with Keywords Studios and its subsidiary Electric Square to complete the production of the game. The development is progressing according to plan and we will carry out a soft launch of the game during Q2 2022 before making a wider launch later during the same year. Given our focus on Hello Kitty, we have decided that Otherworld Heroes will be removed from the market after a long soft launch period. We will seek partnerships for a potential future launch of the game. Plotagon has during the quarter continued the production of an app that is being developed in collaboration with the South Korean social network ZEPETO. The app, named Zinemator, is expected to launch later during 2021.

Non-recurring costs for restructuring and write-downs
During the quarter, we have continued to work on the previously disclosed cost optimization program. Work is progressing according to plan. Restructuring measures, as part of the program, has resulted in non-recurring costs amounting to SEK 15.6 million which has negatively impacted the quarter’s result. The internal game development studio has been restructured to a project management organisation with a limited number of employees and instead we collaborate with external developers. The program will result in SEK 38 million in annual savings and is expected to be fully implemented as of January 1, 2022.
Following a review carried out together with our new external development partner Electric Square, we have made an updated assessment of our previously capitalized development costs. The new assessment means that we have made a write-down of SEK 9.0 million related to capitalized development costs. The remaining balance for intangible assets is entirely linked to decided development and launch plans. I want to emphasize that the write-down in no way implies that we have revised our revenue outlook for the coming project Hello Kitty.

The rights issue is an important step towards more robust financing
We carried out a preferential rights issue following the quarter whereby the company received SEK 100 million before deduction of rights issue costs. The rights issue was an important step to create a more robust capital structure for the business. This has enabled a continued acceleration within Goodbye Kansas Studios, that we can invest in coming game releases in Games & Apps and development of IPs and scalable solutions. The participation rate was high and I would like to thank existing and new investors for their confidence in us.
Goodbye Kansas Group has a strong position, through outstanding talents and cutting-edge technology we deliver ground-breaking digital experiences, both within and outside the entertainment industry. Studios is approaching profitability and now has the right position to drive our continued growth. We have established a solid platform to continue working towards attaining our financial goals.

Peter Levin,
CEO,
Goodbye Kansas Group

For more information, please contact:
Peter Levin, CEO, Goodbye Kansas Group
e-mail: peter.levin@goodbyekansas.com Tel: +46 (0) 73 041 63 93

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 that visualizes e-retailers’ products through AR. Games & Apps develops location based 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, Belgrade, Los Angeles, Beijing and Manilla.

The company has G&W Fondkommission as Certified Adviser, Kungsgatan 3, Stockholm, Stockholm, email: ca@gwkapital.se, phone. +46 (0)8-503 000 50.

This information is inside information that Goodbye Kansas Group AB (publ) is obliged to make public under the EU Market Abuse Regulation 596/2014. The information was provided by the contact person set out above for publication at 2021-11-10 08:00 CET.

Attachments

Interim Report Jan-Sep 2021

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