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 h
