Graham Holdings Company (NYSE: GHC) today reported net income
attributable to common shares of $81.7 million ($15.26 per share)
for the first quarter of 2019, compared to $42.9 million ($7.78 per
share) for the first quarter of 2018.
The results for the first quarter of 2019 and 2018 were affected
by a number of items as described in the following paragraphs.
Excluding these items, net income attributable to common shares was
$38.5 million ($7.18 per share) for the first quarter of 2019,
compared to $46.0 million ($8.35 per share) for the first quarter
of 2018. (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 quarter
of 2019:
- a $1.8 million reduction to operating
expenses from property, plant and equipment gains in connection
with the spectrum repacking mandate of the FCC (after-tax impact of
$1.4 million, or $0.26 per share);
- $24.1 million in net gains on
marketable equity securities (after-tax impact of $18.0 million, or
$3.37 per share);
- $29.0 million gain from the sale of
Gimlet Media (after-tax impact of $21.7 million, or $4.06 per
share);
- $0.5 million in non-operating foreign
currency gains (after-tax impact of $0.4 million, or $0.07 per
share); and
- $1.7 million in income tax benefits
related to stock compensation ($0.32 per share).
Items included in the Company’s net income for the first quarter
of 2018:
- a $0.3 million reduction to operating
expenses from property, plant and equipment gains in connection
with the spectrum repacking mandate of the FCC (after-tax impact of
$0.2 million, or $0.04 per share);
- $14.1 million in net losses on
marketable equity securities (after-tax impact of $10.7 million, or
$1.94 per share);
- non-operating gain, net, of $4.4
million from sales of a cost method investment and a business
(after-tax impact of $3.6 million, or $0.65 per share);
- a $4.3 million gain on the Kaplan
University Transaction (after-tax impact of $1.8 million, or $0.33
per share);
- $0.2 million in non-operating foreign
currency gains (after-tax impact of $0.1 million, or $0.02 per
share); and
- $1.8 million in income tax benefits
related to stock compensation ($0.33 per share).
Revenue for the first quarter of 2019 was $692.2 million, up 5%
from $659.4 million in the first quarter of 2018. Revenues grew at
other businesses, partially offset by declines at the education,
television broadcasting, and manufacturing divisions. The Company
reported operating income of $40.0 million for the first quarter of
2019, compared to $44.2 million for the first quarter of 2018. The
operating income decline is driven by lower earnings in the
television broadcasting and manufacturing divisions, partially
offset by improvements in education and healthcare division
results.
Division Results
Education
Education division revenue totaled $372.5 million for the first
quarter of 2019, down 1% from $375.5 million for the same period of
2018. Kaplan reported operating income of $25.6 million for the
first quarter of 2019, up 13% from $22.7 million for the first
quarter of 2018.
A summary of Kaplan’s operating results is as follows:
Three Months Ended
March 31 (in thousands)
2019
2018 % Change
Revenue
Kaplan international
$ 185,756 $ 183,582 1
Higher education
82,780 99,830 (17 ) Test preparation
61,150 59,151 3 Professional (U.S.)
41,214 33,356 24
Kaplan corporate and other
2,302 285 — Intersegment
elimination
(748 ) (705 ) —
$
372,454 $ 375,499 (1 )
Operating Income (Loss) Kaplan international
$
24,285 $ 20,404 19 Higher education
1,915 1,355 41
Test preparation
(454 ) 521 — Professional (U.S.)
11,259 9,315 21 Kaplan corporate and other
(7,837
) (7,746 ) (1 ) Amortization of intangible assets
(3,567 ) (1,149 ) — Intersegment elimination
(6 ) — —
$ 25,595
$ 22,700 13
Kaplan International includes English-language programs, and
postsecondary education and professional training businesses
largely outside the United States. Kaplan International revenue
increased 1% for the first quarter of 2019. On a constant currency
basis, revenue increased 7% for the first quarter of 2019.
Operating income increased to $24.3 million in the first quarter of
2019, compared to $20.4 million in the first quarter of 2018.
Revenue and operating income increased due to improved results at
Pathways and UK Professional, offset by declines in Singapore.
Prior to the KU Transaction closing on March 22, 2018, Higher
Education included Kaplan’s domestic postsecondary education
businesses, made up of fixed-facility colleges and online
postsecondary and career programs. Following the KU Transaction
closing, the Higher Education division includes the results as a
service provider to higher education institutions. In the first
quarter of 2019, Higher Education revenue was down 17% due to the
KU Transaction. In the first quarter of 2019, the Company recorded
a portion of the service fee with Purdue Global based on an
assessment of its collectability under the TOSA. The Company will
continue to assess the collectability of the service fee with
Purdue Global on a quarterly basis to make a determination as to
whether to record all or part of the service fee in the future and
whether to make adjustments to service fee amounts recognized in
earlier periods.
Kaplan Test Preparation (KTP) includes Kaplan’s standardized
test preparation programs. In September 2018, KTP acquired the test
preparation and study guide assets of Barron’s Educational Series,
a New York-based education publishing company. KTP revenue
increased 3% for the first quarter of 2019 due to the Barron’s
acquisition. Excluding revenue from the Barron’s acquisition,
revenues were down 5% for the first quarter of 2019, due to
declines in demand for classroom-based offerings, offset in part by
growth in online-based programs. KTP operating results declined in
the first quarter of 2019, due partly to increased losses from the
new economy skills training programs. Operating losses for the new
economy skills training programs were $1.1 million and $0.5 million
for the first quarter of 2019 and 2018, respectively. Excluding
losses from the new economy skills training programs, KTP operating
results were down in the first quarter of 2019, due primarily to
revenue declines for classroom-based offerings.
Kaplan Professional (U.S.) includes the domestic professional
and other continuing education businesses. In the first quarter of
2019, Kaplan Professional (U.S.) revenue was up 24% due mostly to
the May 2018 acquisition of Professional Publications, Inc. (PPI),
an independent publisher of professional licensing exam review
materials that provides engineering, surveying, architecture, and
interior design licensure exam review products, and the July 2018
acquisition of College for Financial Planning (CFFP), a provider of
financial education and training to individuals through programs of
study for professionals pursuing a career in Financial Planning.
Kaplan Professional (U.S) operating results increased 21% for the
first quarter of 2019 due mostly to earnings from PPI and CFFP.
Kaplan corporate and other represents unallocated expenses of
Kaplan, Inc.’s corporate office, other minor businesses and certain
shared activities.
Television Broadcasting
Revenue at the television broadcasting division decreased 1% to
$108.2 million in the first quarter of 2019, from $108.8 million in
the same period of 2018. The revenue decline is due to $8.6 million
in first quarter 2018 incremental winter Olympics-related
advertising revenue at the Company’s NBC affiliates and a $1.6
million decrease in political advertising revenue, offset by $9.7
million in higher retransmission revenues. Operating income for the
first quarter of 2019 declined 12% to $35.5 million, from $40.5
million in the same period of 2018, due to lower revenues and
increased network fees.
In the first quarter of 2019 and 2018, the television
broadcasting division recorded $1.8 million and $0.3 million,
respectively, in reductions to operating expenses related to
non-cash property, plant and equipment gains due to new equipment
received at no cost in connection with the spectrum repacking
mandate of the FCC.
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. In July 2018, Dekko acquired Furnlite, Inc., a
Fallston, NC-based manufacturer of power and data solutions for the
hospitality and residential furniture industry.
Manufacturing revenues declined 2% in the first quarter of 2019
due to a decline at Hoover from lower wood prices. Manufacturing
operating income declined in the first quarter of 2019 due largely
to increased labor and other operating costs at Hoover and Dekko,
along with gains on inventory sales at Hoover in the first quarter
of 2018.
Healthcare
The Graham Healthcare Group (GHG) provides home health and
hospice services in three states. Healthcare revenues were flat in
the first quarter of 2019. The improvement in GHG operating results
in 2019 is due to the absence of integration costs and other
overall cost reduction in the first quarter of 2019.
SocialCode
SocialCode is a provider of marketing solutions on social,
mobile and video platforms. In the third quarter of 2018,
SocialCode acquired Marketplace Strategy, a Cleveland-based Amazon
sales acceleration agency. SocialCode’s revenue increased 1% in the
first quarter of 2019. SocialCode reported operating losses of $4.0
million in the first quarter of 2019, compared to $3.8 million in
the first quarter of 2018.
Other Businesses
On January 31, 2019, the Company acquired two automotive
dealerships, Lexus of Rockville and Honda of Tysons Corner, from
Sonic Automotive. The Company also announced it had entered into an
agreement with Christopher J. Ourisman, a member of
the Ourisman Automotive Group family of dealerships. Mr.
Ourisman and his team of industry professionals will operate and
manage the dealerships. Graham Holdings Company holds a
90% stake. Revenues from other businesses increased due mostly to
the automotive dealership acquisition.
Other businesses also includes Slate and Foreign Policy, which
publish online and print magazines and websites; and three
investment stage businesses, Megaphone, Pinna and CyberVista.
Megaphone, Slate and CyberVista reported revenue increases in the
first quarter of 2019. Losses from each of these five businesses in
the first three months of 2019 adversely affected operating
results.
Corporate Office
Corporate office includes the expenses of the Company’s
corporate office and certain continuing obligations related to
prior business dispositions.
Equity in Earnings of
Affiliates
At March 31, 2019, the Company held an 11% interest in
Intersection Holdings, LLC, a company that provides digital
marketing and advertising services and products for cities, transit
systems, airports, and other public and private spaces. The Company
also holds interests in a number of home health and hospice joint
ventures, and several other affiliates. The Company recorded equity
in earnings of affiliates of $1.7 million for the first quarter of
2019, compared to $2.6 million for the first quarter of 2018.
Net Interest Expense and Related
Balances
In connection with the auto dealership acquisition that closed
on January 31, 2019, a subsidiary of the Company borrowed $30
million to finance a portion of the acquisition and entered into an
interest rate swap to fix the interest rate on the debt at 4.7% per
annum. The subsidiary is required to repay the loan over a 10-year
period by making monthly installment payments.
On May 30, 2018, the Company issued 5.75% unsecured eight-year
fixed-rate notes due June 1, 2026. Interest is payable
semi-annually on June 1 and December 1. On June 29, 2018, the
Company used the net proceeds from the sale of the notes and other
cash to repay $400 million of 7.25% notes that were due February 1,
2019.
The Company incurred net interest expense of $5.7 million for
the first quarter of 2019, compared to $6.7 million for the first
quarter of 2018.
At March 31, 2019, the Company had $509.8 million in
borrowings outstanding at an average interest rate of 5.1% and
cash, marketable equity securities and other investments of $719.1
million.
Non-operating Pension and
Postretirement Benefit Income, net
The Company recorded net non-operating pension and
postretirement benefit income of $19.9 million for the first
quarter of 2019, compared to $21.4 million for the first quarter of
2018.
Gain (Loss) on Marketable Equity
Securities, net
Overall, the Company recognized $24.1 million in net gains on
marketable equity securities in first quarter of 2019, compared to
$14.1 million in net losses on marketable equity securities in the
first quarter of 2018.
Other Non-Operating
Income
The Company recorded total other non-operating income, net, of
$29.4 million for the first quarter of 2019, compared to $9.2
million for the first quarter of 2018. The 2019 amounts included a
$29.0 million gain on the sale of the Company’s interest in Gimlet
Media and $0.5 million in foreign currency gains, offset by other
items. The 2018 amounts included a $5.9 million gain on sales of
businesses; a $2.8 million gain on the sale of a cost method
investment; $0.2 million in foreign currency gains; and other
items.
Provision for Income
Taxes
The Company’s effective tax rate for the first three months of
2019 and 2018 was 25.3% and 24.0%, respectively. In the first
quarter of 2019 and 2018, the Company recorded income tax benefits
related to stock compensation of $1.7 million and $1.8 million,
respectively.
Earnings Per Share
The calculation of diluted earnings per share for the first
quarter of 2019 was based on 5,326,448 weighted average shares
outstanding, compared to 5,472,643 for the first quarter of 2018.
At March 31, 2019, there were 5,314,930 shares outstanding. On
November 9, 2017, 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 273,655 shares as of
March 31, 2019.
Forward-Looking
Statements
This press release contains certain forward-looking statements
that are based largely on the Company’s current expectations.
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results and achievements to
differ materially from those expressed in the forward-looking
statements. For more information about these forward-looking
statements and related risks, please refer to the section titled
“Forward-Looking Statements” in Part I of the Company’s Annual
Report on Form 10-K.
GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited)
Three Months Ended March 31 % (in thousands, except
per share amounts)
2019
2018 Change Operating revenues
$
692,199 $ 659,436 5 Operating expenses
625,613 590,196 6 Depreciation of property, plant and
equipment
13,523 14,642 (8 ) Amortization of intangible
assets
13,060 10,384 26
Operating income 40,003 44,214 (10 ) Equity in
earnings of affiliates, net
1,679 2,579 (35 ) Interest
income
1,700 1,372 24 Interest expense
(7,425
) (8,071 ) (8 ) Non-operating pension and postretirement
benefit income, net
19,928 21,386 (7 ) Gain (loss) on
marketable equity securities, net
24,066 (14,102 ) — Other
income, net
29,351 9,187 —
Income before income taxes 109,302 56,565 93
Provision for income taxes 27,600
13,600 —
Net income 81,702 42,965 90
Net loss (income) attributable to noncontrolling interests
46 (74 ) —
Net Income Attributable
to Graham Holdings Company Common Stockholders $
81,748 $ 42,891 91
Per Share
Information Attributable to Graham Holdings Company Common
Stockholders Basic net income per common share
$
15.38 $ 7.84 96 Basic average number of common shares
outstanding
5,284 5,436 Diluted net income per common share
$ 15.26 $ 7.78 96 Diluted average number of common
shares outstanding
5,326 5,473 GRAHAM HOLDINGS
COMPANY
BUSINESS DIVISION INFORMATION (Unaudited)
Three Months Ended
March 31 % (in thousands)
2019
2018 Change
Operating Revenues
Education
$ 372,454 $ 375,499 (1 )
Television broadcasting
108,223 108,802 (1 ) Manufacturing
115,157 117,406 (2 ) Healthcare
37,728 37,621 0
SocialCode
13,447 13,299 1 Other businesses
45,230
6,833 — Corporate office
— — — Intersegment elimination
(40 ) (24 ) —
$ 692,199
$ 659,436 5
Operating Expenses
Education
$ 346,859 $ 352,799 (2 ) Television
broadcasting
72,683 68,260 6 Manufacturing
111,883
108,778 3 Healthcare
35,399 39,012 (9 ) SocialCode
17,465 17,080 2 Other businesses
53,723 15,375 —
Corporate office
14,224 13,942 2 Intersegment elimination
(40 ) (24 ) —
$ 652,196
$ 615,222 6
Operating Income
(Loss) Education
$ 25,595 $ 22,700 13 Television
broadcasting
35,540 40,542 (12 ) Manufacturing
3,274
8,628 (62 ) Healthcare
2,329 (1,391 ) — SocialCode
(4,018 ) (3,781 ) (6 ) Other businesses
(8,493
) (8,542 ) 1 Corporate office
(14,224 )
(13,942 ) (2 )
$ 40,003 $
44,214 (10 )
Depreciation Education
$
6,201 $ 7,606 (18 ) Television broadcasting
3,239
3,071 5 Manufacturing
2,433 2,451 (1 ) Healthcare
610
653 (7 ) SocialCode
152 233 (35 ) Other businesses
648 375 73 Corporate office
240
253 (5 )
$ 13,523 $
14,642 (8 )
Amortization of Intangible Assets
Education
$ 3,567 $ 1,149 — Television broadcasting
1,408 1,408 — Manufacturing
6,530 5,936 10 Healthcare
1,398 1,808 (23 ) SocialCode
157 83 89 Other
businesses
— — — Corporate office
—
— —
$ 13,060 $
10,384 26
Pension Expense Education
$
2,664 $ 2,664 — Television broadcasting
731 493 48
Manufacturing
25 17 47 Healthcare
183 122 50
SocialCode
248 156 59 Other businesses
201 116 73
Corporate office
1,169 1,372 (15
)
$ 5,221 $ 4,940 6
GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION
INFORMATION (Unaudited)
Three Months Ended March 31 % (in thousands)
2019 2018 Change
Operating Revenues Kaplan international
$ 185,756 $ 183,582 1 Higher education
82,780
99,830 (17 ) Test preparation
61,150 59,151 3 Professional
(U.S.)
41,214 33,356 24 Kaplan corporate and other
2,302 285 — Intersegment elimination
(748 )
(705 ) —
$ 372,454
$ 375,499 (1 )
Operating Expenses Kaplan
international
$ 161,471 $ 163,178 (1 ) Higher
education
80,865 98,475 (18 ) Test preparation
61,604
58,630 5 Professional (U.S.)
29,955 24,041 25 Kaplan
corporate and other
10,139 8,031 26 Amortization of
intangible assets
3,567 1,149 — Intersegment elimination
(742 ) (705 ) —
$ 346,859
$ 352,799 (2 )
Operating Income
(Loss) Kaplan international
$ 24,285 $ 20,404 19
Higher education
1,915 1,355 41 Test preparation
(454
) 521 — Professional (U.S.)
11,259 9,315 21 Kaplan
corporate and other
(7,837 ) (7,746 ) (1 )
Amortization of intangible assets
(3,567 ) (1,149 ) —
Intersegment elimination
(6 ) —
—
$ 25,595 $ 22,700 13
Depreciation Kaplan international
$ 3,882 $
3,974 (2 ) Higher education
597 1,858 (68 ) Test preparation
805 978 (18 ) Professional (U.S.)
865 642 35 Kaplan
corporate and other
52 154 (66 )
$ 6,201 $ 7,606 (18 )
Pension Expense Kaplan international
$ 117 $
83 41 Higher education
1,163 1,406 (17 ) Test preparation
866 729 19 Professional (U.S.)
348 290 20 Kaplan
corporate and other
170 156 9
$ 2,664 $ 2,664 —
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 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.
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 following table
reconciles the non-GAAP financial measures to the most directly
comparable GAAP measures:
Three Months Ended March 31 2019
2018 (in thousands, except per share amounts)
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Amounts attributable to Graham Holdings Company Common
Stockholders
As reported
$ 109,302 $
27,600 $ 81,702 $ 56,565 $ 13,600 $ 42,965
Attributable to noncontrolling interests
46 (74 )
Attributable to Graham Holdings Company Stockholders
81,748
42,891 Adjustments: Reduction to operating expenses in connection
with the broadcast spectrum repacking
(1,788 )
(411 ) (1,377 ) (307 ) (71 ) (236 ) Net
(gains) losses on marketable equity securities
(24,066
) (6,016 ) (18,050 ) 14,102
3,384 10,718 Gain on sale of Gimlet Media
(28,994 )
(7,248 ) (21,746 ) — — — Non-operating
gain from sales of a cost method investment and a business
—
— — (4,437 ) (860 ) (3,577 ) Gain on Kaplan
University Transaction
— — — (4,315 ) (2,472 )
(1,843 ) Foreign currency gain
(514 ) (129
) (385 ) (177 ) (42 ) (135 ) Tax benefit
related to stock compensation
— 1,700 (1,700
) — 1,810 (1,810 ) Net Income, adjusted (non-GAAP)
$
38,490 $ 46,008
Per share
information attributable to Graham Holdings Company Common
Stockholders Diluted income per common share, as reported
$ 15.26 $ 7.78 Adjustments: Reduction
to operating expenses in connection with the broadcast spectrum
repacking
(0.26 ) (0.04 ) Net (gains) losses on
marketable equity securities
(3.37 ) 1.94 Gain on
sale of Gimlet Media
(4.06 ) — Non-operating gain
from sales of a cost method investment and a business
—
(0.65 ) Gain on Kaplan University Transaction
— (0.33 )
Foreign currency gain
(0.07 ) (0.02 ) Tax benefit
related to stock compensation
(0.32 ) (0.33 ) Diluted
income per common share, adjusted (non-GAAP)
$ 7.18
$ 8.35 The adjusted diluted per share amounts
may not compute due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190501005266/en/
Wallace R. Cooney(703) 345-6470
Graham (NYSE:GHC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Graham (NYSE:GHC)
Historical Stock Chart
From Apr 2023 to Apr 2024