Graham Holdings Company (NYSE: GHC) today reported net income
attributable to common shares of $18.9 million ($3.60 per share)
for the second quarter of 2020, compared to $57.1 million ($10.65
per share) for the second quarter of 2019.
The novel coronavirus (COVID-19) pandemic and measures taken to
prevent its spread, such as travel restrictions, shelter in place
orders and mandatory closures, significantly impacted the Company’s
results for the first six months of 2020, largely from reduced
demand for the Company’s products and services. This significant
adverse impact is expected to continue in the second half of 2020.
The Company’s management is taking a variety of measures to reduce
costs and capital expenditures. The Company cannot predict the
severity or duration of the pandemic, the extent to which demand
for the Company’s products and services will be adversely affected
or the degree to which financial and operating results will be
negatively impacted.
The results for the second quarter of 2020 and 2019 were also
affected by a number of items as described in the following
paragraphs. Including these items, income before income taxes was
$60.8 million for the second quarter of 2020, compared to $73.9
million for the second quarter of 2019. Excluding these items,
income before income taxes was $40.0 million for the second quarter
of 2020, compared to $64.8 million for the second quarter of 2019.
(Refer to the Non-GAAP Financial Information schedule at the end of
this release for additional details.)
Items included in the Company’s income before income taxes for
the second quarter of 2020:
- $9.3 million in long-lived asset impairment charges;
- $10.2 million in restructuring charges at the education
division;
- $2.8 million in accelerated depreciation at other
businesses;
- a $1.1 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC;
- $4.6 million in expenses related to non-operating Separation
Incentive Programs at the education division and SocialCode;
- $39.9 million in net gains on marketable equity
securities;
- non-operating gains of $7.8 million from write-ups and sales of
cost and equity method investments; and
- $1.1 million in non-operating foreign currency losses.
Items included in the Company’s income before income taxes for
the second quarter of 2019:
- a $7.8 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC;
- $6.6 million in expenses related to a non-operating Separation
Incentive Program at the education division;
- $7.8 million in net gains on marketable equity securities;
and
- $0.1 million in non-operating foreign currency gains.
Revenue for the second quarter of 2020 was $652.9 million, down
11% from $737.6 million in the second quarter of 2019, largely due
to the impact of COVID-19. Revenues declined at education,
television broadcasting, manufacturing, SocialCode and other
businesses, partially offset by an increase at healthcare. The
Company reported operating income of $5.9 million for the second
quarter of 2020, compared to $58.0 million for the second quarter
of 2019. The operating income decline is driven by lower earnings
in education, television broadcasting, manufacturing, SocialCode
and other businesses, partially offset by an improvement at
healthcare.
For the first six months of 2020, the Company reported a net
loss attributable to common shares of $14.4 million ($2.77 per
share) compared to net income attributable to common shares of
$138.8 million ($25.91 per share) for the first six months of 2019.
The results for the first six months of 2020 and 2019 were affected
by a number of items as described in the following paragraphs.
Including these items, loss before income taxes was $18.5 million
for the first six months of 2020, compared to income before income
taxes of $183.2 million for the first six months of 2019. Excluding
these items, income before income taxes was $79.1 million for the
first six months of 2020, compared to $117.3 million for the first
six months of 2019. (Refer to the Non-GAAP Financial Information
schedule at the end of this release for additional details.)
Items included in the Company’s loss before income taxes for the
six months of 2020:
- $25.7 million in goodwill and other long-lived asset impairment
charges;
- $10.2 million in restructuring charges at the education
division;
- $2.8 million in accelerated depreciation at other
businesses;
- a $1.4 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC;
- $4.6 million in expenses related to non-operating Separation
Incentive Programs at the education division and SocialCode;
- $60.5 million in net losses on marketable equity
securities;
- non-operating gain, net, of $1.6 million from write-ups, sales
and impairments of cost and equity method investments; and
- $3.2 million in non-operating foreign currency gains.
Items included in the Company’s income before income taxes for
the six months of 2019:
- a $9.6 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC;
- $6.6 million in expenses related to a non-operating Separation
Incentive Program at the education division;
- $31.9 million in net gains on marketable equity
securities;
- $29.0 million gain from the sale of Gimlet Media;
- non-operating gain of $1.4 million from the write-up of cost
method investments; and
- $0.6 million in non-operating foreign currency gains.
Revenue for the first six months of 2020 was $1,385.1 million,
down 3% from $1,429.8 million in the first six months of 2019,
largely due to the impact of COVID-19. Revenues declined at
education, television broadcasting, manufacturing and SocialCode,
partially offset by increases at healthcare and other businesses.
The Company reported operating income of $14.0 million for the
first six months of 2020, compared to $98.0 million for the first
six months of 2019. Operating results declined in education,
television broadcasting, manufacturing, SocialCode and other
businesses, partially offset by an improvement at healthcare.
Division Results
Education
The COVID-19 pandemic adversely impacted Kaplan’s operating
results in the second quarter and first six months of 2020. The
impact began in February and continued through the first half of
2020.
Kaplan serves a significant number of students who travel to
other countries to study a second language, prepare for licensure,
or pursue a higher education degree. Government-imposed travel
restrictions and school closures arising from COVID-19 had a
negative impact on the ability of international students to travel
and attend Kaplan’s programs, particularly Kaplan International’s
Language programs. In addition, most licensing bodies and
administrators of standardized exams postponed or canceled
scheduled examinations due to COVID-19, resulting in a significant
number of students deciding to defer their studies. In these
instances, Kaplan extended the life of its courses to be responsive
to the changes in study needs of its students. These program
modifications resulted in longer revenue recognition periods,
adversely affecting the timing of revenue recognition at Kaplan’s
Test Preparation and Professional education divisions. Overall,
this is expected to continue to adversely impact Kaplan's revenues
and operating results for the remainder of 2020, particularly at
Kaplan International Languages.
Most of Kaplan Higher Education’s (KHE) services are delivered
online by staff who have historically worked both virtually and in
office locations. In response to COVID-19 necessitated
“stay-at-home” protocols, KHE transitioned its entire staff to
virtual work arrangements. KHE did not experience any disruption in
its service delivery and Purdue Global has experienced an increase
in program demand in the first half of 2020.
To help mitigate the negative revenue impact arising from the
COVID-19 disruption, and to re-align its program offerings to
better pursue opportunities arising from the disruption, Kaplan
management developed and implemented a number of initiatives across
its businesses, including: employee salary and work-hour
reductions; temporary furlough and other employee reductions;
reduced discretionary spending; facility restructuring; reduced
capital expenditures; and accelerated development and promotion of
various online programs and solutions. The facility restructuring
plan undertaken by Kaplan was developed to align classroom and
office space at International Languages and Higher Education with
future business requirements, and was premised on the decision at
Kaplan Test Prep and Kaplan Professional (U.S.) to substantially
reduce location-based in person course offerings in step with
shifting consumer preferences for online programs. In the second
quarter and first six months of 2020, Kaplan recorded $10.5 million
and $12.5 million in lease restructuring costs, respectively; and
$1.2 million in second quarter 2020 severance restructuring costs.
The lease restructuring costs included $3.4 million in accelerated
depreciation expense in the second quarter and first six months of
2020. Kaplan also recorded a $10.0 million lease impairment charge
in connection with these restructuring plans in the second quarter
of 2020; this impairment charge included $2.0 million in property,
plant and equipment write-downs. Also in the second quarter of
2020, the Company approved a Separation Incentive Program (SIP)
that reduced the number of employees at Kaplan International,
Higher Education, Kaplan Professional (U.S.) and Kaplan corporate,
resulting in $5.0 million in non-operating pension expense in the
second quarter of 2020. Additional restructuring and cost reduction
plans are under development at Kaplan to be implemented in the
second half of 2020.
In June 2020, Kaplan announced a plan to combine its three
primary divisions based in the United States (Kaplan Test Prep,
Kaplan Professional, and Kaplan Higher Education) into one business
known as Kaplan North America (KNA). The plan for this combination
is under development and is designed to create and reinforce
Kaplan’s competitiveness in each market and new markets into which
Kaplan extends.
Education division revenue totaled $333.2 million for the second
quarter of 2020, down 9% from $367.8 million for the same period of
2019. Kaplan reported operating income of $12.3 million for the
second quarter of 2020, a 53% decline from $26.3 million for the
second quarter of 2019.
For the first six months of 2020, education division revenue
totaled $689.6 million, down 7% from revenue of $740.2 million for
the same period of 2019. Kaplan reported operating income of $16.9
million for the first six months of 2020, a 67% decline from $51.9
million for the first six months of 2019.
A summary of Kaplan’s operating results is as follows:
Three Months Ended
Six Months Ended
June 30
June 30
(in thousands)
2020
2019
% Change
2020
2019
% Change
Revenue
Kaplan international
$
164,713
$
188,580
(13
)
$
364,328
$
374,336
(3
)
Higher education
86,453
76,288
13
159,990
159,068
1
Test preparation
51,111
65,673
(22
)
93,950
126,823
(26
)
Professional (U.S.)
28,674
35,147
(18
)
67,123
76,361
(12
)
Kaplan corporate and other
3,039
2,369
28
6,244
4,671
34
Intersegment elimination
(815
)
(294
)
—
(2,082
)
(1,042
)
—
$
333,175
$
367,763
(9
)
$
689,553
$
740,217
(7
)
Operating Income (Loss)
Kaplan international
$
16,035
$
25,537
(37
)
$
35,015
$
49,822
(30
)
Higher education
17,050
2,721
—
15,030
4,636
—
Test preparation
(1,048
)
4,289
—
(13,724
)
3,835
—
Professional (U.S.)
1,378
4,745
(71
)
7,504
16,004
(53
)
Kaplan corporate and other
(6,870
)
(6,920
)
1
(8,392
)
(14,757
)
43
Amortization of intangible assets
(4,271
)
(3,377
)
(26
)
(8,472
)
(6,944
)
(22
)
Impairment of long-lived assets
(10,020
)
(693
)
—
(10,020
)
(693
)
—
Intersegment elimination
—
3
—
5
(3
)
—
$
12,254
$
26,305
(53
)
$
16,946
$
51,900
(67
)
Kaplan International includes English-language programs, and
postsecondary education and professional training businesses
largely outside the United States. In July 2019, Kaplan acquired
Heverald, the owner of ESL Education, Europe’s largest
language-travel agency and Alpadia, a chain of German and French
language schools and junior summer camps. Kaplan International
revenue decreased 13% and 3% for the second quarter and first six
months of 2020, respectively. Excluding acquisitions, Kaplan
International revenue decreased 13% and 4% in the second quarter
and first six months of 2020, respectively. On a constant currency
basis, revenue decreased 9% and remained flat for the second
quarter and first six months of 2020, respectively. The revenue
decreases were due to declines at Languages, Singapore, and UK
Professional, partially offset by growth at UK Pathways and
Australia and the Heverald acquisition. Kaplan International
reported operating income of $16.0 million in the second quarter of
2020, compared to $25.5 million in the second quarter of 2019.
Operating income decreased to $35.0 million in the first six months
of 2020, compared to $49.8 million in the first six months of 2019.
The decline in operating results in the second quarter and first
six months of 2020 is due to declines at Languages, UK Professional
and Singapore, partially offset by improved results in UK Pathways
and Australia. Kaplan International Languages 2020 results were
negatively impacted by COVID-19 travel restrictions and UK
Professional results were negatively impacted by postponements of
standardized exam dates. In addition, Kaplan International recorded
$3.9 million of lease restructuring costs and $1.2 million of
severance restructuring costs at Languages in the second quarter of
2020; the lease restructuring costs included $1.5 million in
accelerated depreciation expense. Due to travel restrictions
imposed as a result of COVID-19, management expects significant
challenges in Languages’ operating environment for at least the
remainder of 2020. In June 2020, UK Visas and Immigration announced
that a mixed mode of online and face to face teaching would be
permitted to continue for the duration of the entire academic year
from July 1, 2020 to June 30, 2021; this will provide flexibility
and confidence for students enrolling in UK Pathways programs.
The Higher Education division primarily includes the results of
Kaplan as a service provider to higher education institutions. In
the second quarter and first six months of 2020, Higher Education
revenue was up 13% and 1%, respectively, due primarily to an
increase in the Purdue University Global fee, offset by a reduction
in expenses incurred by Kaplan Higher Education as service provider
to Purdue Global. In the first quarter of 2020, the Company did not
record an additional fee with Purdue Global based on an assessment
of its collectability under the TOSA. In the second quarter of
2020, the Company recorded a portion of the fee with Purdue Global
based on an assessment of its collectability under the TOSA. Purdue
Global experienced increased enrollments and higher retention rates
in the first half of 2020, which resulted in improved Higher
Education results for the second quarter and first six months of
2020. 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. For
the second quarter and first six months of 2020, Kaplan Higher
Education recorded $1.5 million and $3.5 million, respectively, in
lease restructuring costs, of which $0.1 million was accelerated
depreciation expense.
Kaplan Test Preparation includes Kaplan’s standardized test
preparation programs. KTP revenue decreased 22% and 26% for the
second quarter and first six months of 2020, respectively, due to
reduced demand for KTP’s retail comprehensive test preparation
programs and product-life extensions related to the postponement of
various standardized test dates due to the COVID-19 pandemic.
Overall, product-life extensions have resulted in lower revenue
being recognized in the first half of 2020; however, substantially
all of this will be recognized over the remainder of 2020. KTP
operating results declined in the second quarter and first six
months of 2020 due to these revenue declines and $4.5 million of
lease restructuring costs, of which $1.8 million was accelerated
depreciation expense.
Kaplan Professional (U.S.) includes the domestic professional
and other continuing education businesses. Kaplan Professional
(U.S.) revenue in the second quarter and first six months of 2020
declined 18% and 12%, respectively, due to declines in CFA, real
estate and accountancy programs, partly due to the postponement of
certification exams. Kaplan Professional (U.S.) operating results
declined in the second quarter and first six months of 2020,
primarily due to the revenue declines and $0.6 million in lease
restructuring costs.
Kaplan corporate and other represents unallocated expenses of
Kaplan, Inc.’s corporate office, other minor businesses and certain
shared activities. Overall, Kaplan corporate and other expenses
declined in the first six months of 2020 due to lower compensation
costs.
In the second quarter of 2020, the Company approved a Separation
Incentive Program (SIP) that reduced the number of employees at
Kaplan International, Higher Education, Kaplan Professional (U.S.)
and Kaplan corporate, resulting in $5.0 million in non-operating
pension expense in the second quarter of 2020. In the second
quarter of 2019, the Company approved a SIP that reduced the number
of employees at KTP and Higher Education, resulting in $6.6 million
in non-operating pension expense in the second quarter of 2019.
Television Broadcasting
Revenue at the television broadcasting division decreased 14% to
$100.8 million in the second quarter of 2020, from $116.6 million
in the same period of 2019. The revenue decline is due to reduced
advertising demand related to the COVID-19 pandemic, partially
offset by a $3.7 million increase in political advertising revenue
and a $3.5 million increase in retransmission revenues. In the
second quarter of 2020 and 2019, the television broadcasting
division recorded $1.1 million and $7.8 million, respectively, in
reductions to operating expenses related to property, plant and
equipment gains due to new equipment received at no cost in
connection with the spectrum repacking mandate of the FCC.
Operating income for the second quarter of 2020 decreased 47% to
$23.6 million, from $44.5 million in the same period of 2019, due
to revenue declines, higher network fees and a reduction in
property, plant and equipment gains. While revenue and operating
results were adversely impacted by the COVID-19 pandemic in the
second quarter of 2020, both revenue and operating results improved
steadily throughout the quarter.
Revenue at the television broadcasting division decreased 4% to
$216.2 million in the first six months of 2020, from $224.9 million
in the same period of 2019. The revenue decline is due to reduced
advertising demand related to the COVID-19 pandemic, partially
offset by a $13.5 million increase in political advertising revenue
and $4.1 million in higher retransmission revenues. In the first
six months of 2020 and 2019, the television broadcasting division
recorded $1.4 million and $9.6 million, respectively, in reductions
to operating expenses related to property, plant and equipment
gains due to new equipment received at no cost in connection with
the spectrum repacking mandate of the FCC. Operating income for the
first six months of 2020 decreased 26% to $59.4 million, from $80.0
million in the same period of 2019, due to revenue declines, higher
network fees and a reduction in property, plant and equipment
gains.
The postponement of the 2020 summer Olympics, the reduction and
uncertainty surrounding broadcast sporting events, and overall
reduced advertising demand related to the COVID-19 pandemic are
expected to negatively impact advertising revenue and the operating
results at the television broadcasting division for the remainder
of 2020.
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 declined 28% and 14% in the second
quarter and first six months of 2020, respectively. The revenue
declines are due primarily to a significant reduction in product
demand at Dekko, particularly in the hospitality, household
appliance and transportation sectors, as well as lower product
demand at Hoover, partially offset by higher wood prices at Hoover
in the second quarter of 2020. Manufacturing operating results
declined in the second quarter and first six months of 2020, due to
a significant decline in Dekko results for the second quarter of
2020 from lower revenues, partially offset by improved results at
Hoover from reduced operating costs and gains on inventory
sales.
Starting in the second half of March 2020, certain of Dekko,
Joyce/Dayton and Hoover’s manufacturing plants began operating at
reduced levels due to lower product demand and other jurisdictional
factors related to the COVID-19 pandemic. The manufacturing
businesses are tightly managing expenses and continuing with cost
reduction plans to mitigate the impact of lower product demand.
Overall, this is expected to continue to adversely impact
manufacturing revenues and operating results for the remainder of
2020.
Healthcare
The Graham Healthcare Group (GHG) provides home health and
hospice services in three states. In December 2019, GHG acquired a
75% interest in CSI Pharmacy Holding Company, LLC (CSI), a Wake
Village, TX-based company, which coordinates the prescriptions and
nursing care for patients receiving in-home infusion treatments.
Healthcare revenues increased 21% for the second quarter and first
six months of 2020, due to the CSI acquisition, offset by revenue
declines from home health services due to lower patient
volumes.
In the second quarter of 2020, GHG received $7.4 million from
the Federal CARES Act Provider Relief Fund. GHG did not apply for
these funds; they were disbursed to GHG as a Medicare provider
under the CARES Act. Under the Department of Health and Human
Services guidelines, these funds may be used to offset revenue
reductions and expenses incurred in connection with the COVID-19
pandemic. Of this amount, GHG recorded $5.5 million in revenue in
the second quarter to partially offset the impact of revenue
reductions due to the COVID-19 pandemic from the curtailment of
elective procedures by health systems and other factors. GHG
recorded $1.7 million as a credit to operating costs to partially
offset the impact of costs incurred to procure personal protective
equipment for GHG employees and other COVID-19 related costs. The
improvement in GHG operating results in the second quarter and
first six months of 2020 is due to improved results from home
health and hospice services and operating income from the CSI
acquisition. The Company expects home health care revenues for the
remainder of 2020 to continue to be down from 2019, due to the
effects of COVID-19.
SocialCode
SocialCode is a provider of marketing solutions managing data,
creative, media and marketplaces to accelerate client growth.
SocialCode’s revenue decreased 36% and 25% in the second quarter
and first six months of 2020, respectively, due to reduced
marketing spending by advertising clients as a result of the
recessionary environment from the COVID-19 pandemic. SocialCode
also has some significant CPG industry clients and has experienced
the adverse impact of brand boycotts. SocialCode reported operating
losses of $3.0 million and $6.8 million in the second quarter and
first six months of 2020, respectively, compared to $1.0 million
and $5.0 million in the second quarter and first six months of
2019, respectively. In July 2020, SocialCode announced it will be
splitting into two separate companies. SocialCode’s agency business
will continue as a leading digital marketing agency and the
Audience Intelligence Platform (AIP) will be a separate software
company, operating under the new name, Decile. Decile uses first
party customer data to deliver business intelligence and customer
insights to its customers. In the second quarter of 2020,
SocialCode recorded a $1.5 million lease impairment charge
(including $0.1 million in property, plant and equipment
write-downs) in connection with a restructuring plan that included
other cost reduction initiatives to mitigate the adverse impact of
COVID-19 on advertising demand, which is expected to continue for
the remainder of 2020. These initiatives included the approval of a
Separation Incentive Program (SIP) that reduced the number of
employees at SocialCode, resulting in $1.0 million in non-operating
pension expense in the second quarter of 2020.
Other Businesses
On May 15, 2020, the Company acquired Framebridge, Inc., a
custom framing service company, headquartered in Washington, DC,
with two retail locations in the metropolitan area and a
manufacturing facility in Richmond, KY. The Company previously
disclosed a minority investment interest in Framebridge.
On July 31, 2019, the Company acquired Clyde’s Restaurant Group
(CRG). CRG owns and operates twelve restaurants and entertainment
venues in the Washington, DC metropolitan area, including Old
Ebbitt Grill and The Hamilton, two of the top twenty highest
grossing independent restaurants in the United States. As a result
of the COVID-19 pandemic, CRG temporarily closed all of its
restaurants and venues in the second half of March 2020, pursuant
to government orders, maintaining limited operations for delivery
and pickup. At the time, CRG had temporarily laid off many of its
employees due to the uncertainty as to the timing, safety and other
details regarding reopening. Given the uncertain and challenging
operating environment for the restaurant industry, the Company
completed a goodwill and other long-lived assets impairment review
of CRG in the first quarter of 2020, resulting in a $9.7 million
goodwill and intangible assets impairment charge.
In the second half of May 2020, CRG began limited outdoor dining
services at most of its restaurants, and in the second half of June
2020, CRG began limited indoor dining services at most of its
restaurants. While many of CRG’s laid-off employees were rehired,
CRG is uncertain as to the timing and other details regarding a
full reopening. In June 2020, CRG made the decision to close its
restaurant and entertainment venue in Columbia, MD effective July
19, 2020, resulting in accelerated depreciation of property, plant
and equipment totaling $2.8 million in the second quarter of 2020;
an additional $2.8 million in accelerated depreciation will be
recorded in the third quarter of 2020. CRG incurred a significant
loss in the second quarter of 2020 due to limited revenues and
costs incurred to support its employees and to reopen the
restaurants for limited outdoor and indoor services. CRG continues
to develop cost reduction plans to mitigate the impact of COVID-19.
The pandemic is expected to continue to adversely impact CRG
revenues and operating results for the remainder of 2020.
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. In the fourth quarter of
2019, the Company and Mr. Ourisman commenced operations at a new
Jeep automotive dealership, which began generating sales in January
2020 as Ourisman Jeep of Bethesda. Mr. Ourisman and his team of
industry professionals operate and manage the dealerships. Graham
Holdings Company holds a 90% stake in all three dealerships. As a
result of the COVID-19 pandemic and the related recessionary
conditions, the Company’s automotive dealerships experienced
reduced demand for sales and service beginning in March 2020. Given
the uncertain and challenging operating environment for automotive
dealerships, the Company completed a goodwill and other long-lived
assets impairment review of its automotive dealerships in the first
quarter of 2020, resulting in a $6.7 million intangible assets
impairment charge. Revenue and operating results at the automotive
dealerships continued to be adversely impacted in the second
quarter of 2020; however, results improved steadily throughout the
quarter. While the impact of the pandemic is uncertain, the Company
expects improved operating results in the second half of 2020,
compared to the first half of 2020.
Other businesses include an investment stage business,
Megaphone, which provides podcast technology for publishers and
advertisers through the Megaphone platform and Megaphone Targeted
Marketplace (MTM). Megaphone’s revenues increased significantly in
the first six months of 2020, as both advertising and platform
sales experienced rapid growth during the period.
Overall, for the first half of 2020, operating revenues for
other businesses increased due largely to the CRG, Framebridge and
automotive dealership acquisitions and growth at Megaphone.
Revenues from other businesses decreased in the second quarter of
2020, due largely to declines at the automotive dealerships, offset
by revenues from the CRG and Framebridge acquisitions and growth at
Megaphone. CRG and the automotive dealerships incurred losses in
the second quarter and first six months of 2020 due to the
challenging operating conditions that began in March 2020 and the
goodwill and other long-lived asset impairment charges. As
investment stage businesses, Megaphone and Framebridge also
reported operating losses in the second quarter and first six
months of 2020.
Other businesses also include Slate and Foreign Policy, which
publish online and print magazines and websites; and two investment
stage businesses, Pinna and CyberVista. Foreign Policy, CyberVista
and Pinna also reported revenue increases in the first six months
of 2020. Losses from each of these four businesses in the first six
months of 2020 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. Corporate office expenses declined in
the first six months of 2020 due primarily to lower incentive
compensation costs.
Equity in (Losses) Earnings of
Affiliates
At June 30, 2020, the Company held an approximate 12% 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 $1.2 million for the second quarter of
2020, compared to $1.5 million for the second quarter of 2019. The
Company recorded equity in losses of affiliates of $0.4 million for
the first six months of 2020, compared to earnings of $3.1 million
for the first six months of 2019. The Company recorded $3.6 million
in write-downs in equity in earnings of affiliates related to two
of its investments in the first quarter of 2020.
Net Interest Expense and Related
Balances
On June 30, 2020, the Company repaid the £60 million borrowings
due under the Kaplan Credit Agreement, financed by a £60 million
drawdown on the Company’s $300 million revolving credit
facility.
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. In connection with
the CSI acquisition that closed in December 2019, a subsidiary of
GHG borrowed $11.25 million to finance a portion of the
acquisition. The debt bears interest at 4.35% per annum. The GHG
subsidiary is required to repay the loan over a five-year period by
making monthly installment payments.
The Company incurred net interest expense of $6.4 million and
$13.0 million for the second quarter and first six months of 2020,
respectively; compared to $6.8 million and $12.5 million for the
second quarter and first six months of 2019, respectively.
At June 30, 2020, the Company had $511.5 million in borrowings
outstanding at an average interest rate of 5.1% and cash,
marketable equity securities and other investments of $723.8
million. At June 30, 2020, the Company had £60 million ($73.9
million) outstanding on its $300 million revolving credit facility,
in connection with the refinancing of the debt repaid under the
Kaplan Credit Agreement. In management’s opinion, the Company will
have sufficient financial resources to meet its business
requirements in the next twelve months, including working capital
requirements, capital expenditures, interest payments and
dividends.
Non-operating Pension and
Postretirement Benefit Income, net
The Company recorded net non-operating pension and
postretirement benefit income of $12.1 million and $30.5 million
for the second quarter and first six months of 2020, respectively;
compared to $12.3 million and $32.2 million for the second quarter
and first six months of 2019, respectively.
In the second quarter of 2020, the Company recorded $6.0 million
in expenses related to non-operating Separation Incentive Programs
at the education division and SocialCode. In the second quarter of
2019, the Company recorded $6.6 million in expenses related to a
non-operating Separation Incentive Program at the education
division.
Gain (Loss) on Marketable Equity
Securities, net
Overall, the Company recognized $39.9 million in net gains and
$60.5 million in net losses on marketable equity securities in the
second quarter and first six months of 2020, respectively; compared
to $7.8 million and $31.9 million in net gains on marketable equity
securities in the second quarter and first six months of 2019,
respectively.
Other Non-Operating
Income
The Company recorded total other non-operating income, net, of
$8.1 million for the second quarter of 2020, compared to $1.2
million for the second quarter of 2019. The 2020 amounts included a
$3.7 million gain on acquiring a controlling interest in an equity
affiliate; a $2.6 million gain on a cost method investment; a $1.5
million gain on sale of an equity affiliate, and other items;
offset by $1.1 million in foreign currency losses. The 2019 amounts
included $0.1 million in foreign currency gains and other
items.
The Company recorded total other non-operating income, net, of
$10.8 million for the first six months of 2020, compared to $30.6
million for the first six months of 2019. The 2020 amounts included
a $3.7 million gain on acquiring a controlling interest in an
equity affiliate; $3.2 million in foreign currency gains; a $2.6
million gain on a cost method investment; a $1.4 million net gain
on sales of equity affiliates, and other items; partially offset by
$2.6 million in impairments on cost method investments. The 2019
amounts included a $29.0 million gain on the sale of the Company’s
interest in Gimlet Media; a $1.4 million gain on sale of cost
method investments; $0.6 million in foreign currency gains and
other items.
(Benefit from) Provision for Income
Taxes
The Company’s effective tax rate for the first six months of
2020 was 18.9%.
The Company’s effective tax rate for the first six months of
2019 was 24.2%. In the first quarter of 2019, the Company recorded
income tax benefits related to stock compensation of $1.7
million.
Earnings (Losses) Per
Share
The calculation of diluted earnings (losses) per share for the
second quarter and first six months of 2020 was based on 5,201,101
and 5,234,809 weighted average shares outstanding, compared to
5,328,252 and 5,327,369 for the second quarter and first six months
of 2019. At June 30, 2020, there were 5,159,370 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 100,996 shares as of June
30, 2020.
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 2019
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, including but not
limited to the duration and severity of the COVID-19 pandemic and
its effects on the Company’s operations, financial results,
liquidity and cash flows. 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, anticipated results of license
renewal applications, 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)
2020
2019
Change
Operating revenues
$
652,871
$
737,602
(11
)
Operating expenses
598,243
652,182
(8
)
Depreciation of property, plant and
equipment
22,913
13,884
65
Amortization of intangible assets
14,327
12,880
11
Impairment of long-lived assets
11,511
693
—
Operating income
5,877
57,963
(90
)
Equity in earnings of affiliates, net
1,182
1,467
(19
)
Interest income
954
1,579
(40
)
Interest expense
(7,377
)
(8,386
)
(12
)
Non-operating pension and postretirement
benefit income, net
12,136
12,253
(1
)
Gain on marketable equity securities,
net
39,890
7,791
—
Other income, net
8,100
1,228
—
Income before income taxes
60,762
73,895
(18
)
Provision for income taxes
41,900
16,700
—
Net income
18,862
57,195
(67
)
Net income attributable to
noncontrolling interests
(8
)
(114
)
(93
)
Net Income Attributable to Graham
Holdings Company Common Stockholders
$
18,854
$
57,081
(67
)
Per Share Information Attributable to
Graham Holdings Company Common Stockholders
Basic net income per common share
$
3.61
$
10.74
(66
)
Basic average number of common shares
outstanding
5,196
5,285
Diluted net income per common share
$
3.60
$
10.65
(66
)
Diluted average number of common shares
outstanding
5,201
5,329
GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30
%
(in thousands, except per share
amounts)
2020
2019
Change
Operating revenues
$
1,385,128
$
1,429,801
(3
)
Operating expenses
1,275,145
1,277,795
0
Depreciation of property, plant and
equipment
39,617
27,407
45
Amortization of intangible assets
28,492
25,940
10
Impairment of goodwill and other
long-lived assets
27,912
693
—
Operating income
13,962
97,966
(86
)
Equity in (losses) earnings of affiliates,
net
(365
)
3,146
—
Interest income
2,105
3,279
(36
)
Interest expense
(15,055
)
(15,811
)
(5
)
Non-operating pension and postretirement
benefit income, net
30,539
32,181
(5
)
(Loss) gain on marketable equity
securities, net
(60,503
)
31,857
—
Other income, net
10,788
30,579
(65
)
(Loss) income before income
taxes
(18,529
)
183,197
—
(Benefit from) provision for income
taxes
(3,500
)
44,300
—
Net (loss) income
(15,029
)
138,897
—
Net loss (income) attributable to
noncontrolling interests
638
(68
)
—
Net (Loss) Income Attributable to
Graham Holdings Company Common Stockholders
$
(14,391
)
$
138,829
—
Per Share Information Attributable to
Graham Holdings Company Common Stockholders
Basic net (loss) income per common
share
$
(2.77
)
$
26.12
—
Basic average number of common shares
outstanding
5,235
5,285
Diluted net (loss) income per common
share
$
(2.77
)
$
25.91
—
Diluted average number of common shares
outstanding
5,235
5,328
GRAHAM HOLDINGS COMPANY
BUSINESS
DIVISION INFORMATION
(Unaudited)
Three Months Ended
Six Months Ended
June 30
%
June 30
%
(in thousands)
2020
2019
Change
2020
2019
Change
Operating Revenues
Education
$
333,175
$
367,763
(9
)
$
689,553
$
740,217
(7
)
Television broadcasting
100,762
116,628
(14
)
216,210
224,851
(4
)
Manufacturing
83,239
114,873
(28
)
196,697
230,030
(14
)
Healthcare
49,181
40,641
21
95,175
78,369
21
SocialCode
10,483
16,382
(36
)
22,506
29,829
(25
)
Other businesses
76,380
81,359
(6
)
165,648
126,589
31
Corporate office
—
—
—
—
—
—
Intersegment elimination
(349
)
(44
)
—
(661
)
(84
)
—
$
652,871
$
737,602
(11
)
$
1,385,128
$
1,429,801
(3
)
Operating Expenses
Education
$
320,921
$
341,458
(6
)
$
672,607
$
688,317
(2
)
Television broadcasting
77,135
72,134
7
156,807
144,817
8
Manufacturing
84,721
110,181
(23
)
191,678
222,064
(14
)
Healthcare
40,363
38,043
6
83,188
73,442
13
SocialCode
13,487
17,357
(22
)
29,299
34,822
(16
)
Other businesses
97,696
87,272
12
216,656
140,995
54
Corporate office
13,020
13,238
(2
)
21,592
27,462
(21
)
Intersegment elimination
(349
)
(44
)
—
(661
)
(84
)
—
$
646,994
$
679,639
(5
)
$
1,371,166
$
1,331,835
3
Operating Income (Loss)
Education
$
12,254
$
26,305
(53
)
$
16,946
$
51,900
(67
)
Television broadcasting
23,627
44,494
(47
)
59,403
80,034
(26
)
Manufacturing
(1,482
)
4,692
—
5,019
7,966
(37
)
Healthcare
8,818
2,598
—
11,987
4,927
—
SocialCode
(3,004
)
(975
)
—
(6,793
)
(4,993
)
(36
)
Other businesses
(21,316
)
(5,913
)
—
(51,008
)
(14,406
)
—
Corporate office
(13,020
)
(13,238
)
2
(21,592
)
(27,462
)
21
$
5,877
$
57,963
(90
)
$
13,962
$
97,966
(86
)
Depreciation
Education
$
10,324
$
6,137
68
$
17,653
$
12,338
43
Television broadcasting
3,446
3,293
5
6,789
6,532
4
Manufacturing
2,526
2,384
6
5,053
4,817
5
Healthcare
493
607
(19
)
1,033
1,217
(15
)
SocialCode
121
384
(68
)
242
536
(55
)
Other businesses
5,827
837
—
8,496
1,485
—
Corporate office
176
242
(27
)
351
482
(27
)
$
22,913
$
13,884
65
$
39,617
$
27,407
45
Amortization of Intangible Assets and
Impairment of Goodwill and Other Long-Lived Assets
Education
$
14,291
$
4,070
—
$
18,492
$
7,637
—
Television broadcasting
1,361
1,408
(3
)
2,721
2,816
(3
)
Manufacturing
6,988
6,528
7
14,125
13,058
8
Healthcare
1,307
1,410
(7
)
2,617
2,808
(7
)
SocialCode
1,647
157
—
1,804
314
—
Other businesses
244
—
—
16,645
—
—
Corporate office
—
—
—
—
—
—
$
25,838
$
13,573
90
$
56,404
$
26,633
—
Pension Expense
Education
$
2,592
$
2,522
3
$
5,177
$
5,186
—
Television broadcasting
836
780
7
1,632
1,511
8
Manufacturing
395
15
—
789
40
—
Healthcare
112
63
78
271
246
10
SocialCode
162
191
(15
)
399
439
(9
)
Other businesses
241
161
50
467
362
29
Corporate office
1,466
1,231
19
2,852
2,400
19
$
5,804
$
4,963
17
$
11,587
$
10,184
14
GRAHAM HOLDINGS COMPANY
EDUCATION
DIVISION INFORMATION
(Unaudited)
Three Months Ended
Six Months Ended
June 30
%
June 30
%
(in thousands)
2020
2019
Change
2020
2019
Change
Operating Revenues
Kaplan international
$
164,713
$
188,580
(13
)
$
364,328
$
374,336
(3
)
Higher education
86,453
76,288
13
159,990
159,068
1
Test preparation
51,111
65,673
(22
)
93,950
126,823
(26
)
Professional (U.S.)
28,674
35,147
(18
)
67,123
76,361
(12
)
Kaplan corporate and other
3,039
2,369
28
6,244
4,671
34
Intersegment elimination
(815
)
(294
)
—
(2,082
)
(1,042
)
—
$
333,175
$
367,763
(9
)
$
689,553
$
740,217
(7
)
Operating Expenses
Kaplan international
$
148,678
$
163,043
(9
)
$
329,313
$
324,514
1
Higher education
69,403
73,567
(6
)
144,960
154,432
(6
)
Test preparation
52,159
61,384
(15
)
107,674
122,988
(12
)
Professional (U.S.)
27,296
30,402
(10
)
59,619
60,357
(1
)
Kaplan corporate and other
9,909
9,289
7
14,636
19,428
(25
)
Amortization of intangible assets
4,271
3,377
26
8,472
6,944
22
Impairment of long-lived assets
10,020
693
—
10,020
693
—
Intersegment elimination
(815
)
(297
)
—
(2,087
)
(1,039
)
—
$
320,921
$
341,458
(6
)
$
672,607
$
688,317
(2
)
Operating Income (Loss)
Kaplan international
$
16,035
$
25,537
(37
)
$
35,015
$
49,822
(30
)
Higher education
17,050
2,721
—
15,030
4,636
—
Test preparation
(1,048
)
4,289
—
(13,724
)
3,835
—
Professional (U.S.)
1,378
4,745
(71
)
7,504
16,004
(53
)
Kaplan corporate and other
(6,870
)
(6,920
)
1
(8,392
)
(14,757
)
43
Amortization of intangible assets
(4,271
)
(3,377
)
(26
)
(8,472
)
(6,944
)
(22
)
Impairment of long-lived assets
(10,020
)
(693
)
—
(10,020
)
(693
)
—
Intersegment elimination
—
3
—
5
(3
)
—
$
12,254
$
26,305
(53
)
$
16,946
$
51,900
(67
)
Depreciation
Kaplan international
$
5,619
$
3,716
51
$
10,197
$
7,598
34
Higher education
832
629
32
1,555
1,226
27
Test preparation
2,607
779
—
3,433
1,584
—
Professional (U.S.)
1,165
959
21
2,278
1,824
25
Kaplan corporate and other
101
54
87
190
106
79
$
10,324
$
6,137
68
$
17,653
$
12,338
43
Pension Expense
Kaplan international
$
120
$
110
9
$
232
$
227
2
Higher education
1,070
1,102
(3
)
2,140
2,265
(6
)
Test preparation
823
821
—
1,646
1,687
(2
)
Professional (U.S.)
261
329
(21
)
523
677
(23
)
Kaplan corporate and other
318
160
99
636
330
93
$
2,592
$
2,522
3
$
5,177
$
5,186
—
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 (Loss) income before income taxes, 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.
The Company has provided this non-GAAP information on a
pre-income tax basis in order to facilitate a meaningful
period-to-period comparison of income in light of the difference in
applicable income tax rates for the second quarter and first six
months of 2020 and the second quarter and first six months of
2019.
(Loss) income before income taxes, 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 June
30
Six Months Ended June
30
(in thousands)
2020
2019
2020
2019
Income (loss) before income taxes, as
reported
$
60,762
$
73,895
$
(18,529
)
$
183,197
Adjustments:
Goodwill and other long-lived asset
impairment charge
9,274
—
25,676
—
Restructuring charges at the education
division
10,211
—
10,211
—
Accelerated depreciation at other
businesses
2,847
—
2,847
—
Reduction to operating expenses in
connection with the broadcast spectrum repacking
(1,074
)
(7,831
)
(1,365
)
(9,619
)
Charges related to non-operating
Separation Incentive Program
4,583
6,607
4,583
6,607
Net (gains) losses on marketable equity
securities
(39,890
)
(7,790
)
60,503
(31,857
)
Gain on sale of Gimlet Media
—
—
—
(28,994
)
Non-operating gains, net, from write-ups,
sales and impairments of cost and equity method investments
(7,752
)
—
(1,621
)
(1,411
)
Foreign currency loss (gain)
1,070
(109
)
(3,220
)
(623
)
Income before income taxes, adjusted
(non-GAAP)
$
40,031
$
64,772
$
79,085
$
117,300
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200805005110/en/
Wallace R. Cooney (703) 345-6470
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