Graham Holdings Company (NYSE: GHC) today reported net income
attributable to common shares of $122.8 million ($25.89 per share)
for the second quarter of 2023, compared to a net loss of $67.5
million ($13.95 per share) for the second quarter of 2022.
The results for the second quarter of 2023 and 2022 were
affected by a number of items as described in the following
paragraphs. Excluding these items, net income attributable to
common shares was $61.6 million ($12.97 per share) for the second
quarter of 2023, compared to $59.7 million ($12.07 per share) for
the second quarter of 2022. (Refer to the Non-GAAP Financial
Information schedule at the end of this release for additional
details.)
Items included in the Company’s net income for the second
quarter of 2023:
- a $4.3 million net credit related to a fair value change in
contingent consideration from a prior acquisition at Corporate
(after-tax impact of $4.2 million, or $0.89 per share);
- $5.5 million in expenses related to non-operating Separation
Incentive Programs (SIPs) at other businesses and the education and
television broadcasting divisions (after-tax impact of $4.1
million, or $0.86 per share);
- $78.6 million in net gains on marketable equity securities
(after-tax impact of $57.9 million, or $12.22 per share);
- $8.6 million in net losses of affiliates whose operations are
not managed by the Company (after-tax impact of $6.4 million, or
$1.34 per share);
- a non-operating gain of $10.0 million on the sale of Pinna
(after-tax-impact of $7.4 million, or $1.56 per share);
- non-operating gain of $1.3 million from the write-up and sale
of cost method investments (after-tax impact of $1.0 million, or
$0.21 per share); and
- a $1.2 million credit to interest expense to adjust the fair
value of the mandatorily redeemable noncontrolling interest
(after-tax impact of $1.2 million, or $0.24 per share).
Items included in the Company’s net loss for the second quarter
of 2022:
- a $3.2 million net credit related to a fair value change in
contingent consideration from a prior acquisition at Corporate
(after-tax impact of $3.2 million, or $0.66 per share);
- $165.5 million in net losses on marketable equity securities
(after-tax impact of $122.4 million, or $25.05 per share);
- $0.4 million in net losses of affiliates whose operations are
not managed by the Company (after-tax impact of $0.3 million, or
$0.07 per share); and
- $8.0 million in interest expense to adjust the fair value of
the mandatorily redeemable noncontrolling interest (after-tax
impact of $7.6 million, or $1.56 per share).
Revenue for the second quarter of 2023 was $1,105.0 million, up
18% from $933.3 million in the second quarter of 2022. Revenues
increased at education, healthcare and automotive, partially offset
by declines at television broadcasting, manufacturing and other
businesses. The Company reported operating income of $58.1 million
and adjusted operating cash flow (non-GAAP) of $100.0 million for
the second quarter of 2023, compared to $39.3 million and $78.6
million, respectively, for the second quarter of 2022. Operating
results and adjusted operating cash flow increased at education,
manufacturing, healthcare, automotive and other businesses,
partially offset by a decline at television broadcasting.
For the first six months of 2023, the Company recorded net
income attributable to common shares of $175.1 million ($36.67 per
share), compared to $28.1 million ($5.74 per share) for the first
six months of 2022. The results for the first six months of 2023
and 2022 were affected by a number of items as described in the
following paragraphs. Excluding these items, net income
attributable to common shares was $101.8 million ($21.33 per share)
for the first six months of 2023, compared to $122.4 million
($24.98 per share) for the first six months of 2022. (Refer to the
Non-GAAP Financial Information schedule at the end of this release
for additional details.)
Items included in the Company’s net income for the first six
months of 2023:
- a $4.2 million net credit related to a fair value change in
contingent consideration from a prior acquisition at Corporate
(after-tax impact of $4.1 million, or $0.86 per share);
- $9.6 million in expenses related to non-operating SIPs at other
businesses and the education and television broadcasting divisions
(after-tax impact of $7.2 million, or $1.50 per share);
- $96.7 million in net gains on marketable equity securities
(after-tax impact of $71.2 million, or $14.92 per share);
- $6.8 million in net losses of affiliates whose operations are
not managed by the Company (after-tax impact of $5.0 million, or
$1.05 per share);
- a non-operating gain of $10.0 million on the sale of Pinna
(after-tax-impact of $7.4 million, or $1.55 per share);
- non-operating gain of $3.9 million from the write-up and sales
of cost method investments (after-tax impact of $2.9 million, or
$0.61 per share); and
- $0.3 million in interest expense to adjust the fair value of
the mandatorily redeemable noncontrolling interest (after-tax
impact of $0.2 million, or $0.05 per share).
Items included in the Company’s net income for the first six
months of 2022:
- a $3.2 million net credit related to a fair value change in
contingent consideration from a prior acquisition at Corporate
(after-tax impact of $3.1 million, or $0.64 per share);
- $118.6 million in net losses on marketable equity securities
(after-tax impact of $87.7 million, or $17.90 per share);
- $0.1 million in net losses of affiliates whose operations are
not managed by the Company (after-tax impact of $0.1 million, or
$0.01 per share);
- Non-operating gain of $1.7 million from sales of an equity
method and cost method investment (after-tax impact of $1.3
million, or $0.26 per share); and
- $11.4 million in interest expense to adjust the fair value of
the mandatorily redeemable noncontrolling interest (after-tax
impact of $10.9 million, or $2.23 per share).
Revenue for the first six months of 2023 was $2,136.5 million,
up 16% from $1,848.0 million in the first six months of 2022.
Revenues increased at education, healthcare and automotive,
partially offset by declines at television broadcasting,
manufacturing and other businesses. The Company reported operating
income of $85.7 million for the first six months of 2023, compared
to $79.3 million for the first six months of 2022. Operating
results increased at education, manufacturing, automotive and other
businesses, partially offset by declines at television broadcasting
and healthcare. The Company reported adjusted operating cash flow
(non-GAAP) of $171.6 million for the first six months of 2023,
compared to $159.0 million for the first six months of 2022.
Adjusted operating cash flow increased at education, manufacturing,
healthcare, automotive and other businesses, partially offset by a
decline at television broadcasting.
Division Results
Education
Education division revenue totaled $402.2 million for the second
quarter of 2023, up 14% from $353.0 million for the same period of
2022. Kaplan reported operating income of $30.1 million for the
second quarter of 2023, compared to $18.7 million for the second
quarter of 2022.
For the first six months of 2023, education division revenue
totaled $780.3 million, up 10% from $711.0 million for the same
period of 2022. Kaplan reported operating income of $53.2 million
for the first six months of 2023, compared to $39.1 million for the
first six months of 2022.
In the second quarter of 2023, Kaplan modified its segment
reporting for Kaplan India, a shared services center that supports
Higher Education (previously included in Kaplan corporate and
other); prior periods have been reclassified to conform with the
current presentation.
A summary of Kaplan’s operating results is as follows:
Three Months Ended
Six Months Ended
June 30
June 30
(in thousands)
2023
2022
% Change
2023
2022
% Change
Revenue
Kaplan international
$
237,663
$
200,871
18
$
464,739
$
405,384
15
Higher education
90,291
74,427
21
168,632
151,676
11
Supplemental education
74,616
77,546
(4
)
148,203
153,850
(4
)
Kaplan corporate and other
2,887
2,445
18
5,259
4,798
10
Intersegment elimination
(3,230
)
(2,276
)
—
(6,565
)
(4,683
)
—
$
402,227
$
353,013
14
$
780,268
$
711,025
10
Operating Income (Loss)
Kaplan international
$
20,751
$
19,063
9
$
42,052
$
39,627
6
Higher education
17,795
3,012
—
24,878
8,359
—
Supplemental education
3,512
4,829
(27
)
7,263
8,200
(11
)
Kaplan corporate and other
(7,824
)
(4,079
)
(92
)
(12,662
)
(8,822
)
(44
)
Amortization of intangible assets
(3,984
)
(4,064
)
2
(7,923
)
(8,210
)
3
Impairment of long-lived assets
—
—
—
(477
)
—
—
Intersegment elimination
(134
)
(56
)
—
25
(37
)
—
$
30,116
$
18,705
61
$
53,156
$
39,117
36
Kaplan International includes postsecondary education,
professional training and language training businesses largely
outside the United States. Kaplan International revenue increased
18% and 15% for the second quarter and first six months of 2023,
respectively (increases of 19% each on a constant currency basis).
The increases are due largely to growth at Pathways, Australia and
Languages, partially offset by a decline at Singapore. Kaplan
International reported operating income of $20.8 million in the
second quarter of 2023, compared to $19.1 million in the second
quarter of 2022. Operating income increased to $42.1 million in the
first six months of 2023, compared to $39.6 million in the first
six months of 2022. The improved results are due largely to
improved results at Pathways and Australia, partially offset by
declines at UK Professional and Singapore.
Higher Education includes the results of Kaplan as a service
provider to higher education institutions. In the second quarter
and first six months of 2023, Higher Education revenue increased
21% and 11%, respectively, due to an increase in the Purdue Global
fee recorded. For the second quarter and first six months of 2023
and 2022, Kaplan recorded a portion of the fee with Purdue Global
based on an assessment of its collectability under the TOSA.
Enrollments at Purdue Global for the first half of 2023 increased
2% compared to the first half of 2022. The Company will continue to
assess the collectability of the fee with Purdue Global on a
quarterly basis to make a determination as to whether to record all
or part of the fee in the future and whether to make adjustments to
fee amounts recognized in earlier periods. Higher Education results
increased in the second quarter and first six months of 2023 due to
an increase in the Purdue Global fee recorded, and a decline in
investment costs incurred related to other university agreements
and other higher education development costs.
Supplemental Education includes Kaplan’s standardized test
preparation programs and domestic professional and other continuing
education businesses. Supplemental Education revenue declined 4%
for the second quarter and first six months of 2023, driven mostly
by softness in Real Estate, Securities and Medical Licensure test
preparation, offset in part by growth in CFP and MCAT test
preparation and publishing activities. Overall, demand for graduate
and pre-college test preparation programs has declined due to the
strength of U.S. employment markets and the decline in test-takers,
while demand for professional programs remained stable. Operating
results declined in the second quarter and first six months of 2023
due to lower revenues, partially offset by savings from reduced
headcount.
Kaplan corporate and other represents unallocated expenses of
Kaplan, Inc.’s corporate office, other minor businesses and certain
shared activities. Kaplan corporate and other expenses increased in
the second quarter and first six months of 2023, largely due to
increased incentive compensation costs.
Television Broadcasting
Graham Media Group, Inc. owns seven television stations located
in Houston, TX; Detroit, MI; Orlando, FL; San Antonio, TX;
Jacksonville, FL; and Roanoke, VA, as well as SocialNewsDesk, a
provider of social media management tools designed to connect
newsrooms with their users. Revenue at the television broadcasting
division decreased 3% to $118.8 million in the second quarter of
2023, from $122.4 million in the same period of 2022. The revenue
decline is due primarily to a $2.5 million decline in political
advertising revenue and a decline in national advertising revenue,
partially offset by modest increases in digital advertising and
retransmission revenues. Operating income for the second quarter of
2023 declined 16% to $33.2 million, from $39.7 million in the same
period of 2022, due to reduced revenues and higher network
fees.
Revenue at the television broadcasting division decreased 6% to
$231.7 million in the first six months of 2023, from $245.8 million
in the same period of 2022. The revenue decline is due primarily to
winter Olympics and Super Bowl advertising at the Company’s NBC
affiliates in the first quarter of 2022, a $3.5 million decline in
political advertising revenue as well as modest declines in
retransmission and digital advertising revenues. Operating income
for the first six months of 2023 declined 22% to $61.8 million,
from $79.6 million in the same period of 2022, due to reduced
revenues and higher network fees. While per subscriber rates from
cable, satellite and OTT providers have grown, overall cable and
satellite subscribers are down due to cord cutting, resulting in
retransmission revenue net of network fees in 2023 expected to be
similar compared with 2022.
Manufacturing
Manufacturing includes four businesses: Hoover, a supplier of
pressure impregnated kiln-dried lumber and plywood products for
fire retardant and preservative applications; Dekko, a manufacturer
of electrical workspace solutions, architectural lighting and
electrical components and assemblies; Joyce/Dayton, a manufacturer
of screw jacks and other linear motion systems; and Forney, a
global supplier of products and systems that control and monitor
combustion processes in electric utility and industrial
applications.
Manufacturing revenues decreased 5% and 3% in the second quarter
and first six months of 2023, respectively. The revenue decline in
the second quarter of 2023 is due primarily to lower revenues at
Hoover and Dekko, partially offset by increased revenues at Forney.
The revenue decline in the first six months of 2023 is due
primarily to lower revenues at Hoover and Dekko, partially offset
by increased revenues at Joyce. Revenues declined at Hoover due
largely to lower wood prices, partially offset by increased product
demand. Revenues declined at Dekko due largely to lower product
demand, particularly in the commercial office electrical products
sector. Overall, Hoover results included wood gains on inventory
sales in the first half of 2023 and 2022, with gains in the first
half of 2023 lower than the prior year. For the second quarter of
2023, Hoover results included wood gains on inventory sales,
compared with wood losses on inventory sales in the second quarter
of 2022. Manufacturing operating results increased in the second
quarter of 2023, due primarily to improvements at Hoover, partially
offset by a decline at Dekko. Manufacturing results increased for
the first six months of 2023, due primarily to improvements at
Hoover and Joyce, partially offset by declines at Dekko.
Healthcare
Graham Healthcare Group (GHG) provides home health and hospice
services in seven states. GHG also provides other healthcare
services, including nursing care and prescription services for
patients receiving in-home infusion treatments through its 76.5%
interest in CSI Pharmacy Holdings Company, LLC (CSI). In May 2022,
GHG acquired two small businesses, one of which expanded GHG’s home
health operations into Kansas and Missouri. In July 2022, GHG
acquired a 100% interest in a multi-state provider of Applied
Behavior Analysis clinics and in August 2022, GHG acquired two
small businesses, which expanded GHG’s hospice services into
Missouri and Ohio. Healthcare revenues increased 48% and 50% for
the second quarter and first six months of 2023, respectively,
largely due to significant growth at CSI and from businesses
acquired in 2022, along with growth in home health and hospice
services.
In 2022, GHG implemented a new pension credit retention program
in order to improve employee retention and utilize the Company’s
surplus pension assets. The GHG pilot program offers a pension
credit up to $50,000 per employee, cliff vested after three years
of continuous employment for certain existing employees and new
employees hired from January 1, 2022 through December 31, 2024. GHG
recorded pension expense of $2.5 million and $6.7 million related
to this program in the second quarter and first six months of 2023,
respectively.
The increase in GHG operating results in the second quarter of
2023 is due to improved results at CSI and in home health and
hospice, partially offset by an increase in pension expense related
to the new GHG pension credit retention program. The decline in GHG
operating results in the first six months of 2023 is due to an
increase in pension expense related to the new GHG pension credit
retention program, partially offset by improved results at CSI and
in home health and hospice. Excluding pension expense and net
losses from newly acquired businesses, GHG operating results
increased in the first six months of 2023 due to improved results
at CSI and in home health and hospice. Adjusted operating cash flow
(non-GAAP) at GHG increased to $13.2 million in the second quarter
of 2023, from $7.8 million in the second quarter of 2022. Adjusted
operating cash flow (non-GAAP) at GHG increased to $22.6 million in
the first six months of 2023, from $15.7 million in the first six
months of 2022.
The Company also holds interests in four home health and hospice
joint ventures managed by GHG, whose results are included in equity
in earnings of affiliates in the Company’s Condensed Consolidated
Statements of Operations. The Company recorded equity in earnings
of $2.3 million and $1.7 million for the second quarter of 2023 and
2022, respectively, from these joint ventures. The Company recorded
equity in earnings of $5.0 million and $3.6 million for the first
six months of 2023 and 2022, respectively. During the first quarter
of 2022, GHG, through its Residential Home Health Illinois and
Residential Hospice Illinois affiliates, acquired an interest in
the home health and hospice assets of NorthShore University
HealthSystem, an integrated healthcare delivery system serving
patients throughout the Chicago, IL area. The transaction resulted
in a decrease to GHG’s interest in Residential Hospice Illinois and
a $0.6 million non-operating gain was recorded in the first quarter
of 2022 related to the change in interest.
Automotive
Automotive includes six automotive dealerships in the
Washington, D.C. metropolitan area: Ourisman Lexus of Rockville,
Ourisman Honda of Tysons Corner, Ourisman Jeep Bethesda, Ourisman
Ford of Manassas, and Toyota of Woodbridge and Ourisman
Chrysler-Dodge-Jeep-Ram (CDJR) of Woodbridge, which were acquired
on July 5, 2022 from the Lustine Automotive Group. Christopher J.
Ourisman, a member of the Ourisman Automotive Group family of
dealerships, and his team of industry professionals operate and
manage the dealerships; the Company holds a 90% stake.
Revenues for the second quarter and first six months of 2023
increased significantly due to the acquisitions of the Toyota and
CDJR dealerships and sales growth at the Ford, Honda and Lexus
dealerships, partially offset by lower revenue at the Jeep
dealership due to a decline in new vehicle sales. Additionally, all
of the dealerships reported sales growth for services and parts.
Operating results for the second quarter and first six months of
2023 improved due largely to the Toyota and CDJR acquisitions, and
improved results at the Lexus and Honda dealerships, partially
offset by declines at the Jeep dealership due primarily to declines
in new vehicle sales and related margins, and declines at the Ford
dealership in margins on new vehicle sales.
Other Businesses
A summary of revenue by category for other businesses:
Three Months Ended
Six Months Ended
June 30
%
June 30
%
(in thousands)
2023
2022
Change
2023
2022
Change
Operating Revenues
Retail (1)
$
29,373
$
40,157
(27
)
$
61,770
$
83,246
(26
)
Media (2)
25,283
33,252
(24
)
50,686
64,042
(21
)
Specialty (3)
35,793
33,917
6
70,001
59,655
17
$
90,449
$
107,326
(16
)
$
182,457
$
206,943
(12
)
_____________
(1)
Includes Society6 and Saatchi Art
(formerly Leaf Marketplace) and Framebridge
(2)
Includes World of Good (formerly Leaf
Media), Code3, Slate, Foreign Policy, Pinna and City Cast
(3)
Includes Clyde’s Restaurant Group, Decile
and CyberVista
Overall, revenue from other businesses declined 16% and 12% in
the second quarter and first six months of 2023, respectively.
Retail revenue declined in the first half of 2023 largely due to
significantly lower revenue at Society6. Media revenue declined in
the first half of 2023 due to lower revenue at World of Good and
Code3, partially offset by revenue growth at Slate and Foreign
Policy. Specialty revenue increased in the first half of 2023 due
to revenue growth at Clyde’s Restaurant Group (CRG). Excluding the
Leaf businesses, revenue from other businesses grew in the second
quarter and first six months of 2023.
Overall, operating results at other businesses improved in the
first six months of 2023 due to improved results at CRG, reduced
losses at Framebridge, Slate, Decile and Foreign Policy, and a
reduction in losses due to the sales of CyberVista and Pinna;
partially offset by increased losses at the Leaf businesses, City
Cast and Code3.
Leaf Group
On June 14, 2021, the Company acquired Leaf Group Ltd. (Leaf), a
consumer internet company headquartered in Santa Monica, CA, that
builds enduring, creator-driven brands that reach passionate
audiences in large and growing lifestyle categories, including
fitness and wellness (Well+Good and Livestrong.com), and home, art
and design (Saatchi Art, Society6 and Hunker). In the second
quarter of 2023, the Company restructured Leaf into three
stand-alone businesses: Society6 (formerly included in Leaf
Marketplace), Saatchi Art (formerly included in Leaf Marketplace)
and World of Good (formerly Leaf Media).
Revenue at each of the three Leaf businesses declined in the
second quarter and first half of 2023, with substantial declines at
Society6 and World of Good. Revenue decreases at Society6 are due
to declines in traffic, conversion rates and related sales for both
direct to consumer and business to business categories; revenue
declines at World of Good are due to reduced traffic and the soft
digital advertising market for both direct and programmatic
categories. Overall, the Leaf businesses reported significant
operating losses in each of the second quarters and first six
months of 2023 and 2022, with an increase in operating losses in
the first half of 2023.
In the first and second quarters of 2023, Leaf implemented a SIP
to reduce the number of employees, which is being funded by the
assets of the Company’s pension plan; $2.9 million and $3.9 million
in related non-operating pension expense was recorded in the first
and second quarters of 2023, respectively.
Clyde’s Restaurant Group
CRG owns and operates 12 restaurants and entertainment venues in
the Washington, D.C. metropolitan area, including Old Ebbitt Grill
and The Hamilton. CRG reported an operating profit for each of the
second quarters and first six months of 2023 and 2022. Both
revenues and operating results improved in the first half of 2023,
due to strong guest traffic, modest price increases, and the
absence of any significant adverse impact from the COVID-19
pandemic. Operating results in the second quarter of 2022 benefited
from a favorable rent concession.
CRG recently announced plans to open new restaurants in
Baltimore, MD; Washington, D.C.; and Reston, VA in early 2024, mid
2024 and early 2025, respectively.
Framebridge
Framebridge is a custom framing service company, headquartered
in Washington, D.C., with 19 retail locations in the Washington,
D.C., New York City, Atlanta, GA, Philadelphia, PA, Boston, MA and
Chicago, IL areas and two manufacturing facilities in Kentucky and
New Jersey. Framebridge continues to explore opportunities for
further store expansion. Revenues increased modestly in the second
quarter of 2023 but were flat for the first half of 2023, as
Framebridge worked through a significant backlog of orders in the
first quarter of 2022 that had built-up in the fourth quarter of
2021. In the fourth quarter of 2022, Framebridge successfully
managed their production operations for timely completion of
holiday orders without a significant backlog of orders going into
the first quarter of 2023. Retail revenue increased in the second
quarter and first six months of 2023 from same-store sales growth
and operating additional retail stores compared to the same periods
in 2022. Framebridge is an investment stage business and reported
significant operating losses in the first six months of 2023 and
2022, with a reduction in losses in 2023.
Other
Other businesses also include Code3, a performance marketing
agency focused on driving performance for brands though three core
elements of digital success: media, creative and commerce; Slate
and Foreign Policy, which publish online and print magazines and
websites; and two investment stage businesses, Decile and City
Cast. Slate, Foreign Policy and City Cast reported revenue
increases in the first six months of 2023, while Code3 reported
revenue declines. Losses from each of these five businesses in the
first six months of 2023 adversely affected operating results.
Other businesses also included Pinna, which was sold in June
2023 when the Company entered into a merger agreement with Realm of
Possibility, Inc. (Realm), a provider of audio entertainment
services, to merge Pinna with Realm in return for a noncontrolling
financial interest in the merged entity. In connection with the
merger, the Company recorded a $10.0 million non-cash,
non-operating gain related to the transaction. The Company held a
noncontrolling interest in Realm prior to the transaction and
continues to hold a noncontrolling interest in Realm following the
transaction. The Company’s investment in Realm is reported as an
equity method investment.
Other businesses also included CyberVista, which was sold in
October 2022 when the Company announced a strategic merger of
CyberVista and CyberWire, a B2B cybersecurity audio network to form
a new parent company, N2K Networks. The Company’s investment in N2K
Networks is reported as an equity method investment.
In the first and second quarters of 2023, Code3 implemented a
SIP to reduce the number of employees, which is being funded by the
assets of the Company’s pension plan; $1.2 million and $0.6 million
in related non-operating pension expense was recorded in the first
and second quarters of 2023, respectively.
Corporate Office
Corporate office includes the expenses of the Company’s
corporate office and certain continuing obligations related to
prior business dispositions.
Equity in (Losses) Earnings of
Affiliates
At June 30, 2023, the Company held an approximate 18% interest
in Intersection Holdings, LLC (Intersection), a company that
provides digital marketing and advertising services and products
for cities, transit systems, airports, and other public and private
spaces; and a 49.9% interest in N2K Networks on a fully diluted
basis. The Company also holds interests in several other
affiliates, including a number of home health and hospice joint
ventures managed by GHG and two joint ventures managed by Kaplan.
Overall, the Company recorded equity in losses of affiliates of
$6.1 million for the second quarter of 2023, compared to earnings
of $1.4 million for the second quarter of 2022. These amounts
include $8.6 million and $0.4 million in net losses for the second
quarter of 2023 and 2022, respectively, from affiliates whose
operations are not managed by the Company.
The Company recorded equity in losses of affiliates of $1.5
million for the first six months of 2023, compared to earnings of
$4.0 million for the first six months of 2022. These amounts
include $6.8 million and $0.1 million in net losses for the first
six months of 2023 and 2022, respectively, from affiliates whose
operations are not managed by the Company.
Net Interest Expense and Related
Balances
The Company incurred net interest expense of $10.2 million and
$23.3 million for the second quarter and first six months of 2023,
respectively, compared to $15.3 million and $26.0 million for the
second quarter and first six months of 2022, respectively. The
Company recorded a credit to interest expense of $1.2 million in
the second quarter of 2023 and interest expense of $0.3 million in
the first six months of 2023, to adjust the fair value of the
mandatorily redeemable noncontrolling interest at GHG. The Company
recorded interest expense of $8.0 million and $11.4 million in the
second quarter and first six months of 2022, respectively, to
adjust the fair value of the mandatorily redeemable noncontrolling
interest at GHG. Excluding these adjustments, the increase in net
interest expense relates primarily to increased debt at the
automotive dealerships and higher interest rates on the Company’s
variable debt.
At June 30, 2023, the Company had $706.7 million in borrowings
outstanding at an average interest rate of 6.0%, and cash,
marketable equity securities and other investments of $813.7
million. At June 30, 2023, the Company had $188.1 million
outstanding on its $300 million revolving credit facility.
Non-operating Pension and
Postretirement Benefit Income, net
The Company recorded net non-operating pension and
postretirement benefit income of $29.8 million and $61.7 million
for the second quarter and first six months of 2023, respectively,
compared to $50.9 million and $101.4 million for the second quarter
and first six months of 2022, respectively.
In the second quarter of 2023, the Company recorded $5.5 million
in expenses related to non-operating SIPs at other businesses and
the education and television broadcasting divisions. In the first
quarter of 2023, the Company recorded $4.1 million in expenses
related to non-operating SIPs at other businesses.
Gain (Loss) on Marketable Equity Securities,
net
Overall, the Company recognized $78.6 million and $96.7 million
in net gains on marketable equity securities in the second quarter
and first six months of 2023, respectively, compared to $165.5
million and $118.6 million in net losses on marketable equity
securities in the second quarter and first six months of 2022,
respectively.
Other Non-Operating
Income
The Company recorded total other non-operating income, net, of
$15.8 million for the second quarter of 2023, compared to $1.2
million for the second quarter of 2022. The 2023 amounts included a
non-cash gain of $10.0 million on the sale of Pinna; $2.2 million
in gains related to the sale of businesses and contingent
consideration; $1.6 million in foreign currency gains; a $1.3
million fair value increase on a cost method investment, and other
items. The 2022 amounts included $0.8 million in gains related to
the sale of businesses and contingent consideration, and other
items; partially offset by $0.5 million in foreign currency
losses.
The Company recorded total non-operating income, net, of $18.9
million for the first six months of 2023, compared to $4.1 million
for the first six months of 2022. The 2023 amounts included a
non-cash gain of $10.0 million on the sale of Pinna; $3.2 million
in gains related to the sale of businesses and contingent
consideration; a $3.1 million fair value increase on cost method
investments; a $0.8 million gain on sales of cost method
investments; $0.1 million in foreign currency gains, and other
items. The 2022 amounts included $1.7 million in gains related to
the sale of businesses and contingent consideration; a $1.0 million
gain sale of a cost method investment; a $0.6 million gain on sale
of an equity affiliate, and other items; partially offset by $1.5
million on foreign currency losses.
Provision for Income Taxes
The Company’s effective tax rate for the first six months of
2023 and 2022 was 25.6% and 32.2%, respectively.
Earnings Per Share
The calculation of diluted earnings per share for the second
quarter and first six months of 2023 was based on 4,712,626 and
4,744,076 weighted average shares outstanding, respectively,
compared to 4,842,383 and 4,870,316, respectively, for the second
quarter and first six months of 2022. At June 30, 2023, there were
4,684,690 shares outstanding. On May 4, 2023, the Board of
Directors authorized the Company to acquire up to 500,000 shares of
its Class B common stock; the Company has remaining authorization
for 444,715 shares as of June 30, 2023.
Forward-Looking
Statements
All public statements made by the Company and its
representatives that are not statements of historical fact,
including certain statements in this press release, in the
Company’s Annual Report on Form 10-K and in the Company’s 2022
Annual Report to Stockholders, are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Actual results may differ materially from those projected
as a result of certain risks and uncertainties. Other
forward-looking statements include comments about expectations
related to acquisitions or dispositions or related business
activities, including the TOSA, the Company’s business strategies
and objectives, the prospects for growth in the Company’s various
business operations and the Company’s future financial performance.
As with any projection or forecast, forward-looking statements are
subject to various risks and uncertainties, including the risks and
uncertainties described in Item 1A of the Company’s Annual Report
on Form 10-K, that could cause actual results or events to differ
materially from those anticipated in such statements. Accordingly,
undue reliance should not be placed on any forward-looking
statement made by or on behalf of the Company. The Company assumes
no obligation to update any forward-looking statement after the
date on which such statement is made, even if new information
subsequently becomes available.
GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Three Months Ended
June 30
%
(in thousands, except per share
amounts)
2023
2022
Change
Operating revenues
$
1,104,999
$
933,302
18
Operating expenses
1,012,537
859,672
18
Depreciation of property, plant and
equipment
21,103
19,413
9
Amortization of intangible assets
13,304
14,889
(11
)
Operating income
58,055
39,328
48
Equity in (losses) earnings of affiliates,
net
(6,115
)
1,427
—
Interest income
1,548
696
—
Interest expense
(11,774
)
(15,973
)
(26
)
Non-operating pension and postretirement
benefit income, net
29,815
50,871
(41
)
Gain (loss) on marketable equity
securities, net
78,648
(165,540
)
—
Other income, net
15,794
1,176
—
Income (loss) before income
taxes
165,971
(88,015
)
—
Provision for (benefit from) income
taxes
41,800
(21,400
)
—
Net income (loss)
124,171
(66,615
)
—
Net income attributable to
noncontrolling interests
(1,383
)
(870
)
59
Net Income (Loss) Attributable to
Graham Holdings Company Common Stockholders
$
122,788
$
(67,485
)
—
Per Share Information Attributable to
Graham Holdings Company Common Stockholders
Basic net income (loss) per common
share
$
25.96
$
(13.95
)
—
Basic average number of common shares
outstanding
4,700
4,842
Diluted net income (loss) per common
share
$
25.89
$
(13.95
)
—
Diluted average number of common shares
outstanding
4,713
4,842
GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30
%
(in thousands, except per share
amounts)
2023
2022
Change
Operating revenues
$
2,136,545
$
1,848,023
16
Operating expenses
1,981,713
1,700,035
17
Depreciation of property, plant and
equipment
41,128
38,888
6
Amortization of intangible assets
27,248
29,801
(9
)
Impairment of long-lived assets
745
—
—
Operating income
85,711
79,299
8
Equity in (losses) earnings of affiliates,
net
(1,454
)
4,031
—
Interest income
2,752
1,411
95
Interest expense
(26,068
)
(27,390
)
(5
)
Non-operating pension and postretirement
benefit income, net
61,660
101,376
(39
)
Gain (loss) on marketable equity
securities, net
96,670
(118,628
)
—
Other income, net
18,877
4,052
—
Income before income taxes
238,148
44,151
—
Provision for income taxes
61,000
14,200
—
Net income
177,148
29,951
—
Net income attributable to
noncontrolling interests
(2,088
)
(1,812
)
15
Net Income Attributable to Graham
Holdings Company Common Stockholders
$
175,060
$
28,139
—
Per Share Information Attributable to
Graham Holdings Company Common Stockholders
Basic net income per common share
$
36.78
$
5.76
—
Basic average number of common shares
outstanding
4,729
4,857
Diluted net income per common share
$
36.67
$
5.74
—
Diluted average number of common shares
outstanding
4,744
4,870
GRAHAM HOLDINGS COMPANY
BUSINESS
DIVISION INFORMATION
(Unaudited)
Three Months Ended
Six Months Ended
June 30
%
June 30
%
(in thousands)
2023
2022
Change
2023
2022
Change
Operating Revenues
Education
$
402,227
$
353,013
14
$
780,268
$
711,025
10
Television broadcasting
118,829
122,386
(3
)
231,706
245,805
(6
)
Manufacturing
120,082
127,062
(5
)
234,666
243,002
(3
)
Healthcare
113,282
76,385
48
215,341
143,640
50
Automotive
260,672
147,602
77
493,233
298,569
65
Other businesses
90,449
107,326
(16
)
182,457
206,943
(12
)
Corporate office
850
—
—
850
—
—
Intersegment elimination
(1,392
)
(472
)
—
(1,976
)
(961
)
—
$
1,104,999
$
933,302
18
$
2,136,545
$
1,848,023
16
Operating Expenses
Education
$
372,111
$
334,308
11
$
727,112
$
671,908
8
Television broadcasting
85,639
82,704
4
169,933
166,225
2
Manufacturing
108,100
122,560
(12
)
215,356
228,525
(6
)
Healthcare
104,905
70,123
50
204,028
131,019
56
Automotive
251,212
140,237
79
472,930
284,126
66
Other businesses
114,310
133,670
(14
)
237,319
264,031
(10
)
Corporate office
12,059
10,844
11
26,132
23,851
10
Intersegment elimination
(1,392
)
(472
)
—
(1,976
)
(961
)
—
$
1,046,944
$
893,974
17
$
2,050,834
$
1,768,724
16
Operating Income (Loss)
Education
$
30,116
$
18,705
61
$
53,156
$
39,117
36
Television broadcasting
33,190
39,682
(16
)
61,773
79,580
(22
)
Manufacturing
11,982
4,502
—
19,310
14,477
33
Healthcare
8,377
6,262
34
11,313
12,621
(10
)
Automotive
9,460
7,365
28
20,303
14,443
41
Other businesses
(23,861
)
(26,344
)
9
(54,862
)
(57,088
)
4
Corporate office
(11,209
)
(10,844
)
(3
)
(25,282
)
(23,851
)
(6
)
$
58,055
$
39,328
48
$
85,711
$
79,299
8
Amortization of Intangible Assets and
Impairment of Long-Lived Assets
Education
$
3,984
$
4,064
(2
)
$
8,400
$
8,210
2
Television broadcasting
1,363
1,360
0
2,725
2,720
0
Manufacturing
4,332
5,164
(16
)
9,194
10,327
(11
)
Healthcare
882
988
(11
)
1,836
1,917
(4
)
Automotive
—
—
—
—
—
—
Other businesses
2,743
3,313
(17
)
5,838
6,627
(12
)
Corporate office
—
—
—
—
—
—
$
13,304
$
14,889
(11
)
$
27,993
$
29,801
(6
)
Operating Income (Loss) before
Amortization of Intangible Assets and Impairment of Long-Lived
Assets
Education
$
34,100
$
22,769
50
$
61,556
$
47,327
30
Television broadcasting
34,553
41,042
(16
)
64,498
82,300
(22
)
Manufacturing
16,314
9,666
69
28,504
24,804
15
Healthcare
9,259
7,250
28
13,149
14,538
(10
)
Automotive
9,460
7,365
28
20,303
14,443
41
Other businesses
(21,118
)
(23,031
)
8
(49,024
)
(50,461
)
3
Corporate office
(11,209
)
(10,844
)
(3
)
(25,282
)
(23,851
)
(6
)
$
71,359
$
54,217
32
$
113,704
$
109,100
4
Three Months Ended
Six Months Ended
June 30
%
June 30
%
(in thousands)
2023
2022
Change
2023
2022
Change
Depreciation
Education
$
9,460
$
8,531
11
$
18,428
$
17,036
8
Television broadcasting
3,087
3,085
0
6,123
6,374
(4
)
Manufacturing
2,287
2,323
(2
)
4,569
4,751
(4
)
Healthcare
1,287
455
—
2,391
865
—
Automotive
1,148
752
53
2,261
1,529
48
Other businesses
3,681
4,114
(11
)
7,050
8,029
(12
)
Corporate office
153
153
—
306
304
1
$
21,103
$
19,413
9
$
41,128
$
38,888
6
Pension Expense
Education
$
2,256
$
1,931
17
$
4,454
$
4,467
0
Television broadcasting
805
856
(6
)
1,665
1,782
(7
)
Manufacturing
281
224
25
556
552
1
Healthcare
2,685
93
—
7,042
279
—
Automotive
5
5
—
10
11
(9
)
Other businesses
613
477
29
1,185
997
19
Corporate office
928
1,407
(34
)
1,904
2,936
(35
)
$
7,573
$
4,993
52
$
16,816
$
11,024
53
Adjusted Operating Cash Flow
(non-GAAP)(1)
Education
$
45,816
$
33,231
38
$
84,438
$
68,830
23
Television broadcasting
38,445
44,983
(15
)
72,286
90,456
(20
)
Manufacturing
18,882
12,213
55
33,629
30,107
12
Healthcare
13,231
7,798
70
22,582
15,682
44
Automotive
10,613
8,122
31
22,574
15,983
41
Other businesses
(16,824
)
(18,440
)
9
(40,789
)
(41,435
)
2
Corporate office
(10,128
)
(9,284
)
(9
)
(23,072
)
(20,611
)
(12
)
$
100,035
$
78,623
27
$
171,648
$
159,012
8
_______________
(1)
Adjusted Operating Cash Flow (non-GAAP) is
calculated as Operating Income (Loss) before Amortization of
Intangible Assets and Impairment of Long-Lived Assets plus
Depreciation Expense and Pension Expense.
GRAHAM HOLDINGS COMPANY
EDUCATION
DIVISION INFORMATION
(Unaudited)
Three Months Ended
Six Months Ended
June 30
%
June 30
%
(in thousands)
2023
2022
Change
2023
2022
Change
Operating Revenues
Kaplan international
$
237,663
$
200,871
18
$
464,739
$
405,384
15
Higher education
90,291
74,427
21
168,632
151,676
11
Supplemental education
74,616
77,546
(4
)
148,203
153,850
(4
)
Kaplan corporate and other
2,887
2,445
18
5,259
4,798
10
Intersegment elimination
(3,230
)
(2,276
)
—
(6,565
)
(4,683
)
—
$
402,227
$
353,013
14
$
780,268
$
711,025
10
Operating Expenses
Kaplan international
$
216,912
$
181,808
19
$
422,687
$
365,757
16
Higher education
72,496
71,415
2
143,754
143,317
0
Supplemental education
71,104
72,717
(2
)
140,940
145,650
(3
)
Kaplan corporate and other
10,711
6,524
64
17,921
13,620
32
Amortization of intangible assets
3,984
4,064
(2
)
7,923
8,210
(3
)
Impairment of long-lived assets
—
—
—
477
—
—
Intersegment elimination
(3,096
)
(2,220
)
—
(6,590
)
(4,646
)
—
$
372,111
$
334,308
11
$
727,112
$
671,908
8
Operating Income (Loss)
Kaplan international
$
20,751
$
19,063
9
$
42,052
$
39,627
6
Higher education
17,795
3,012
—
24,878
8,359
—
Supplemental education
3,512
4,829
(27
)
7,263
8,200
(11
)
Kaplan corporate and other
(7,824
)
(4,079
)
(92
)
(12,662
)
(8,822
)
(44
)
Amortization of intangible assets
(3,984
)
(4,064
)
2
(7,923
)
(8,210
)
3
Impairment of long-lived assets
—
—
—
(477
)
—
—
Intersegment elimination
(134
)
(56
)
—
25
(37
)
—
$
30,116
$
18,705
61
$
53,156
$
39,117
36
Operating Income (Loss) before
Amortization of Intangible Assets and Impairment of Long-Lived
Assets
Kaplan international
$
20,751
$
19,063
9
$
42,052
$
39,627
6
Higher education
17,795
3,012
—
24,878
8,359
—
Supplemental education
3,512
4,829
(27
)
7,263
8,200
(11
)
Kaplan corporate and other
(7,824
)
(4,079
)
(92
)
(12,662
)
(8,822
)
(44
)
Intersegment elimination
(134
)
(56
)
—
25
(37
)
—
$
34,100
$
22,769
50
$
61,556
$
47,327
30
Depreciation
Kaplan international
$
6,903
$
5,794
19
$
13,233
$
11,549
15
Higher education
1,071
1,127
(5
)
2,173
2,206
(1
)
Supplemental education
1,461
1,578
(7
)
2,970
3,217
(8
)
Kaplan corporate and other
25
32
(22
)
52
64
(19
)
$
9,460
$
8,531
11
$
18,428
$
17,036
8
Pension Expense
Kaplan international
$
81
$
63
29
$
161
$
135
19
Higher education
923
820
13
1,845
1,901
(3
)
Supplemental education
1,023
895
14
2,047
2,077
(1
)
Kaplan corporate and other
229
153
50
401
354
13
$
2,256
$
1,931
17
$
4,454
$
4,467
0
Adjusted Operating Cash Flow
(non-GAAP)(1)
Kaplan international
$
27,735
$
24,920
11
$
55,446
$
51,311
8
Higher education
19,789
4,959
—
28,896
12,466
—
Supplemental education
5,996
7,302
(18
)
12,280
13,494
(9
)
Kaplan corporate and other
(7,570
)
(3,894
)
(94
)
(12,209
)
(8,404
)
(45
)
Intersegment elimination
(134
)
(56
)
—
25
(37
)
—
$
45,816
$
33,231
38
$
84,438
$
68,830
23
_____________
(1)
Adjusted Operating Cash Flow (non-GAAP) is
calculated as Operating Income (Loss) before Amortization of
Intangible Assets and Impairment of Long-Lived Assets plus
Depreciation Expense and Pension Expense.
NON-GAAP FINANCIAL INFORMATION GRAHAM HOLDINGS COMPANY
(Unaudited)
In addition to the results reported in accordance with
accounting principles generally accepted in the United States
(GAAP) included in this press release, the Company has provided
information regarding Adjusted Operating Cash Flow and Net Income
excluding certain items described below, reconciled to the most
directly comparable GAAP measures. Management believes that these
non-GAAP measures, when read in conjunction with the Company’s GAAP
financials, provide useful information to investors by
offering:
- the ability to make meaningful period-to-period comparisons of
the Company’s ongoing results;
- the ability to identify trends in the Company’s underlying
business; and
- a better understanding of how management plans and measures the
Company’s underlying business.
Adjusted Operating Cash Flow and Net income, excluding certain
items, should not be considered substitutes or alternatives to
computations calculated in accordance with and required by GAAP.
These non-GAAP financial measures should be read only in
conjunction with financial information presented on a GAAP
basis.
The gains and losses on marketable equity securities relate to
the change in the fair value (quoted prices) of its portfolio of
equity securities. The mandatorily redeemable noncontrolling
interest represents the ownership portion of a group of minority
shareholders at a subsidiary of the Company’s Healthcare business.
The Company measures the redemption value of this minority
ownership on a quarterly basis with changes in the fair value
recorded as interest expense or income, which is included in net
income for the period. The effect of gains and losses on marketable
equity securities and net interest expense related to fair value
adjustments of the mandatorily redeemable noncontrolling interest
are not directly related to the core performance of the Company’s
business operations since these items do not directly relate to the
sale of the Company’s services or products. The accounting
principles generally accepted in the United States (“GAAP”) require
that the Company include the gains and losses on marketable equity
securities and net interest expense related to fair value
adjustments of the mandatorily redeemable noncontrolling interest
in net income on the Condensed Consolidated Statements of
Operations. The Company excludes the gains and losses on marketable
equity securities and net interest expense related to fair value
adjustments of the mandatorily redeemable noncontrolling interest
from the non-GAAP adjusted net income because these items are
independent of the Company’s core operations and not indicative of
the performance of the Company’s business operations.
The following tables reconcile the non-GAAP financial measures
for Net income, excluding certain items, to the most directly
comparable GAAP measures:
Three Months Ended June
30
2023
2022
(in thousands, except per share
amounts)
Income before income
taxes
Income Taxes
Net Income
(Loss) Income before income
taxes
Income Taxes
Net (Loss) Income
Amounts attributable to Graham Holdings
Company Common Stockholders
As reported
$
165,971
$
41,800
$
124,171
$
(88,015
)
$
(21,400
)
$
(66,615
)
Attributable to noncontrolling
interests
(1,383
)
(870
)
Attributable to Graham Holdings Company
Stockholders
122,788
(67,485
)
Adjustments:
Net credit related to a fair value change
in contingent consideration from a prior acquisition
(4,260
)
(27
)
(4,233
)
(3,239
)
(25
)
(3,214
)
Charges related to non-operating
Separation Incentive Programs
5,517
1,419
4,098
—
—
—
Net (gains) losses on marketable equity
securities
(78,648
)
(20,704
)
(57,944
)
165,540
43,147
122,393
Net losses of affiliates whose operations
are not managed by the Company
8,633
2,273
6,360
430
112
318
Gain on sale of Pinna
(10,033
)
(2,641
)
(7,392
)
—
—
—
Non-operating gain from write-up and sale
of cost method investments
(1,320
)
(347
)
(973
)
—
—
—
Interest (credit) expense related to the
fair value adjustment of the mandatorily redeemable noncontrolling
interest
(1,179
)
(27
)
(1,152
)
8,007
365
7,642
Net income, adjusted (non-GAAP)
$
61,552
$
59,654
Per share information attributable to
Graham Holdings Company Common Stockholders
Diluted income (loss) per common share, as
reported
$
25.89
$
(13.95
)
Adjustments:
Net credit related to a fair value change
in contingent consideration from a prior acquisition
(0.89
)
(0.66
)
Charges related to non-operating
Separation Incentive Programs
0.86
—
Net (gains) losses on marketable equity
securities
(12.22
)
25.05
Net losses of affiliates whose operations
are not managed by the Company
1.34
0.07
Gain on sale of Pinna
(1.56
)
—
Non-operating gain from write-up and sale
of cost method investments
(0.21
)
—
Interest (credit) expense related to the
fair value adjustment of the mandatorily redeemable noncontrolling
interest
(0.24
)
1.56
Diluted income per common share, adjusted
(non-GAAP)
$
12.97
$
12.07
The adjusted diluted per share amounts may
not compute due to rounding.
Six Months Ended June
30
2023
2022
(in thousands, except per share
amounts)
Income before income
taxes
Income Taxes
Net Income
Income before income taxes
Income Taxes
Net Income
Amounts attributable to Graham Holdings
Company Common Stockholders
As reported
$
238,148
$
61,000
$
177,148
$
44,151
$
14,200
$
29,951
Attributable to noncontrolling
interests
(2,088
)
(1,812
)
Attributable to Graham Holdings Company
Stockholders
175,060
28,139
Adjustments:
Net credit related to a fair value change
in contingent consideration from a prior acquisition
(4,150
)
(26
)
(4,124
)
(3,163
)
(24
)
(3,139
)
Charges related to non-operating
Separation Incentive Programs
9,646
2,481
7,165
—
—
—
Net (gains) losses on marketable equity
securities
(96,670
)
(25,448
)
(71,222
)
118,628
30,920
87,708
Net losses of affiliates whose operations
are not managed by the Company
6,820
1,795
5,025
73
19
54
Gain on sale of Pinna
(10,033
)
(2,641
)
(7,392
)
—
—
—
Non-operating gain from write-up and sales
of equity and cost method investments
(3,935
)
(1,008
)
(2,927
)
(1,680
)
(422
)
(1,258
)
Net interest expense related to the fair
value adjustment of the mandatorily redeemable noncontrolling
interest
289
47
242
11,430
510
10,920
Net income, adjusted (non-GAAP)
$
101,827
$
122,424
Per share information attributable to
Graham Holdings Company Common Stockholders
Diluted income per common share, as
reported
$
36.67
$
5.74
Adjustments:
Net credit related to a fair value change
in contingent consideration from a prior acquisition
(0.86
)
(0.64
)
Charges related to non-operating
Separation Incentive Programs
1.50
—
Net (gains) losses on marketable equity
securities
(14.92
)
17.90
Net losses of affiliates whose operations
are not managed by the Company
1.05
0.01
Gain on sale of Pinna
(1.55
)
—
Non-operating gain from write-up and sales
of equity and cost method investments
(0.61
)
(0.26
)
Net interest expense related to the fair
value adjustment of the mandatorily redeemable noncontrolling
interest
0.05
2.23
Diluted income per common share, adjusted
(non-GAAP)
$
21.33
$
24.98
The adjusted diluted per share amounts may
not compute due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802408340/en/
Wallace R. Cooney (703) 345-6470
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