Graham Holdings Company Reports Second Quarter Earnings
ARLINGTON, Va.–(BUSINESS WIRE)–Graham Holdings Company (NYSE: GHC) today reported net income attributable to common shares of $115.4 million ($22.99 per share) for the second quarter of 2021, compared to $18.9 million ($3.60 per share) for the second quarter of 2020.
The 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 2020 and the first six months of 2021, largely from reduced demand for the Company’s products and services. This significant adverse impact is expected to continue for several of the Company’s businesses for the remainder of 2021. The Company’s management has taken a variety of measures to reduce costs and implement changes to business operations. 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.
On June 14, 2021, the Company closed on the previously announced acquisition of all outstanding shares of common stock of Leaf Group Ltd. (Leaf) at $8.50 per share in an all cash transaction valued at approximately $322 million. Leaf Group, headquartered in Santa Monica, CA, is a consumer internet company that builds enduring, creator-driven brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness (Well+Good, Livestrong.com and MyPlate App), and home, art and design (Saatchi Art, Society6 and Hunker). The Leaf operating results for the period from June 14, 2021 to June 30, 2021 are included in other businesses.
The results for the second quarter of 2021 and 2020 were also affected by a number of items as described in the following paragraphs. Including these items, income before income taxes was $158.9 million for the second quarter of 2021, compared to $60.8 million for the second quarter of 2020. Excluding these items, income before income taxes was $62.3 million for the second quarter of 2021, compared to $43.1 million for the second quarter of 2020. (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 2021:
- a $2.6 million net credit related to a fair value change in contingent consideration from a prior acquisition at Corporate;
- a $0.2 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC;
- $3.4 million in long-lived asset impairment charges;
- $1.1 million in expenses related to a non-operating Separation Incentive Program at manufacturing;
- $83.7 million in net gains on marketable equity securities;
- $1.4 million in net losses of affiliates whose operations are not managed by the Company;
- a net non-operating gain of $14.5 million from the sale and write-up of cost method investments;
- $1.0 million in interest income to adjust the fair value of the mandatorily redeemable noncontrolling interest; and
- $0.7 million in non-operating foreign currency gains.
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 other businesses;
- $39.9 million in net gains on marketable equity securities;
- $3.1 million in net losses of affiliates whose operations are not managed by the Company;
- 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.
Revenue for the second quarter of 2021 was $801.2 million, up 23% from $652.9 million in the second quarter of 2020. Revenues increased at education, television broadcasting, manufacturing, healthcare and other businesses. The Company reported operating income of $37.6 million for the second quarter of 2021, compared to $5.9 million for the second quarter of 2020. The operating income increase is driven by improved results at education, television broadcasting, manufacturing and other businesses.
For the first six months of 2021, the Company reported net income attributable to common shares of $227.8 million ($45.43 per share) compared to a net loss attributable to common shares of $14.4 million ($2.77 per share) for the first six months of 2020. The results for the first six months of 2021 and 2020 were affected by a number of items as described in the following paragraphs. Including these items, income before income taxes was $313.0 million for the first six months of 2021, compared to a loss before income taxes of $18.5 million for the first six months of 2020. Excluding these items, income before income taxes was $124.9 million for the first six months of 2021, compared to $82.8 million for the first six months of 2020. (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 six months of 2021:
- a $2.2 million net credit related to a fair value change in contingent consideration from a prior acquisition at Corporate;
- a $0.8 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC;
- $3.4 million in long-lived asset impairment charges;
- $1.1 million in expenses related to a non-operating Separation Incentive Program at manufacturing;
- $162.9 million in net gains on marketable equity securities;
- $8.9 million in net earnings of affiliates whose operations are not managed by the Company;
- a net non-operating gain of $17.2 million from the sale and write-up of cost method investments;
- $0.1 million in net interest expense to adjust the fair value of the mandatorily redeemable noncontrolling interest; and
- $0.7 million in non-operating foreign currency gains.
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;
- $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 other businesses;
- $60.5 million in net losses on marketable equity securities;
- $3.7 million in net losses of affiliates whose operations are not managed by the Company;
- 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.
Revenue for the first six months of 2021 was $1,513.6 million, up 9% from $1,385.1 million in the first six months of 2020. Revenues increased at television broadcasting, manufacturing, healthcare and other businesses, partially offset by a decline at education. The Company reported operating income of $71.4 million for the first six months of 2021, compared to $14.0 million for the first six months of 2020. Operating results improved at most of the Company’s divisions.
Division Results
Education
Education division revenue totaled $340.0 million for the second quarter of 2021, up 2% from $333.2 million for the same period of 2020. Kaplan reported operating income of $13.1 million for the second quarter of 2021, compared to $12.3 million for the second quarter of 2020.
For the first six months of 2021, education division revenue totaled $669.3 million, down 3% from revenue of $689.6 million for the same period of 2020. Kaplan reported operating income of $32.1 million for the first six months of 2021, compared to $16.9 million for the first six months of 2020.
The COVID-19 pandemic adversely impacted Kaplan’s operating results beginning in February 2020 and continuing through the first six months of 2021.
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, negatively impacting Kaplan’s exam preparation education businesses. Overall, this is expected to continue to adversely impact Kaplan’s revenues and operating results for the remainder of 2021, particularly at Kaplan International Languages.
To help mitigate the adverse impact of COVID-19, Kaplan implemented a number of significant cost reduction and restructuring activities across its businesses. Related to these restructuring activities, Kaplan recorded $2.2 million and $3.2 million in impairment of long-lived assets charges in the second quarter and first six months of 2021, respectively. 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, Supplemental Education and Kaplan corporate, resulting in $5.0 million in non-operating pension expense in the second quarter of 2020. Kaplan management is continuing to monitor the ongoing COVID-19 disruptions and changes in its operating environment and may develop and implement further restructuring activities in 2021.
In 2020, Kaplan also accelerated the development and promotion of various online programs and solutions, rapidly transitioned most of its classroom-based programs online and addressed the individual needs of its students and partners, substantially reducing the disruption from COVID-19 while simultaneously adding important new product offerings and operating capabilities. Further, in the fourth quarter of 2020, Kaplan combined 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). This combination is designed to enhance Kaplan’s competitiveness by better leveraging its diversified academic and professional portfolio, as well as its relationship with students, universities and businesses. For financial reporting purposes, KNA is reported in two segments: Higher Education and Supplemental Education (combining Kaplan Test Prep and Kaplan Professional (U.S.) into one reporting segment).
A summary of Kaplan’s operating results is as follows:
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| Three Months Ended |
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| Six Months Ended |
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|
| June 30 |
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| June 30 |
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| ||||||||||||||||||||
| (in thousands) |
| 2021 |
| 2020 |
| % Change |
| 2021 |
| 2020 |
| % Change | ||||||||||||||||
| Revenue |
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|
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| ||||||||||||||||
| Kaplan international |
| $ | 181,276 |
|
|
| $ | 164,713 |
|
|
| 10 |
|
|
| $ | 353,171 |
|
|
| $ | 364,328 |
|
|
| (3 | ) |
|
| Higher education |
| 78,740 |
|
|
| 86,453 |
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|
| (9 | ) |
|
| 154,426 |
|
|
| 159,990 |
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|
| (3 | ) |
| ||||
| Supplemental education |
| 77,911 |
|
|
| 79,785 |
|
|
| (2 | ) |
|
| 157,566 |
|
|
| 161,073 |
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|
| (2 | ) |
| ||||
| Kaplan corporate and other |
| 3,615 |
|
|
| 3,039 |
|
|
| 19 |
|
|
| 6,978 |
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|
| 6,244 |
|
|
| 12 |
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| ||||
| Intersegment elimination |
| (1,558 | ) |
|
| (815 | ) |
|
| — |
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|
| (2,840 | ) |
|
| (2,082 | ) |
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| — |
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| ||||
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|
| $ | 339,984 |
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|
| $ | 333,175 |
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| 2 |
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| $ | 669,301 |
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| $ | 689,553 |
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| (3 | ) |
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| Operating Income (Loss) |
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| Kaplan international |
| $ | 14,077 |
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| $ | 16,035 |
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| (12 | ) |
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| $ | 24,284 |
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|
| $ | 35,015 |
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|
| (31 | ) |
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| Higher education |
| 2,374 |
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|
| 17,050 |
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|
| (86 | ) |
|
| 8,627 |
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|
| 15,030 |
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| (43 | ) |
| ||||
| Supplemental education |
| 8,813 |
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|
| 330 |
|
|
| — |
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|
| 21,310 |
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|
| (6,220 | ) |
|
| — |
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| Kaplan corporate and other |
| (6,042 | ) |
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| (6,870 | ) |
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| 12 |
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|
| (10,949 | ) |
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| (8,392 | ) |
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| (30 | ) |
| ||||
| Amortization of intangible assets |
| (3,914 | ) |
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| (4,271 | ) |
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| 8 |
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|
| (8,079 | ) |
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| (8,472 | ) |
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| 5 |
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| ||||
| Impairment of long-lived assets |
| (2,159 | ) |
|
| (10,020 | ) |
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| 78 |
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|
| (3,206 | ) |
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| (10,020 | ) |
|
| 68 |
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| ||||
| Intersegment elimination |
| (1 | ) |
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| — |
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|
| — |
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|
| 97 |
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|
| 5 |
|
|
| — |
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| ||||
|
|
| $ | 13,148 |
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|
| $ | 12,254 |
|
|
| 7 |
|
|
| $ | 32,084 |
|
|
| $ | 16,946 |
|
|
| 89 |
|
|
Kaplan International includes postsecondary education, professional training and language training businesses largely outside the United States. Kaplan International revenue increased 10% and decreased 3% for the second quarter and first six months of 2021, respectively (decreases of 1% and 12%, respectively, on a constant currency basis) due largely to COVID-19 disruptions at Languages, partially offset by growth at UK Professional, Singapore, and Pathways. Kaplan International reported operating income of $14.1 million in the second quarter of 2021, compared to $16.0 million in the second quarter of 2020. Operating income decreased to $24.3 million in the first six months of 2021, compared to $35.0 million in the first six months of 2020. The decline in operating results in the second quarter of 2021 is due to COVID-19 reduced student levels at Kaplan’s UK student dormitories at Pathways and at MPW, partially offset by improvements at Languages and UK Professional. The decline in operating results in the first six months of 2021 is due primarily to declines in student levels at Kaplan’s UK student dormitories at Pathways and at MPW, and increased losses at Languages, partially offset by improved earnings at UK Professional. Overall, Kaplan International’s operating results were negatively impacted by $12 million and $26 million in losses, respectively, incurred at Languages from continued significant COVID-19 disruptions for the second quarter and first six months of 2021. 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 the continuation of travel restrictions imposed as a result of COVID-19, Kaplan expects the disruption of its Languages business operating environment to continue for the remainder of 2021.
Higher Education includes the results of Kaplan as a service provider to higher education institutions. In the second quarter and first six months of 2021, Higher Education revenue declined 9% and 3%, respectively, due to a reduction in the Purdue Global fee recorded. For the second quarter and first half of 2021, Kaplan recorded a portion of the fee with Purdue Global based on an assessment of its collectability under the TOSA. Higher Education operating income was down substantially from the prior year, as the Purdue Global fee recognized in the first six months of 2021 was lower than the amount recognized in the prior year, due to less cash available for distribution at June 30, 2021 due to timing of cash receipts at Purdue Global. 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. 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.
Supplemental Education includes Kaplan’s standardized test preparation programs and domestic professional and other continuing education businesses. Supplemental Education revenue declined 2% for the second quarter and first six months of 2021, due to a decline in retail comprehensive test preparation demand, offset in part by product-life extensions in 2020 related to the postponement of various standardized test and certification exam dates due to COVID-19, as well as growth in real estate and insurance programs. Operating results improved in 2021 due to savings from restructuring activities implemented in 2020, $5.1 million of lease restructuring costs incurred in the second quarter of 2020 (of which $1.8 million was accelerated depreciation) and the adverse revenue impact from product-life extensions in the first half of 2020.
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 increased in the first six months of 2021 due to higher compensation costs.
Television Broadcasting
Revenue at the television broadcasting division increased 19% to $120.0 million in the second quarter of 2021, from $100.8 million in the same period of 2020. The revenue increase is due to increased local and national advertising revenues, which were adversely impacted in 2020 by reduced demand related to the COVID-19 pandemic, and a $1.8 million increase in retransmission revenues, partially offset by a $3.7 million decline in political advertising revenue. The increase in local and national advertising was from growth in the home products, health and fitness, and sports betting categories. In the second quarter of 2021 and 2020, the television broadcasting division recorded $0.2 million and $1.1 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 2021 increased 51% to $35.6 million, from $23.6 million in the same period of 2020, due to increased revenues, offset by higher network fees.
Revenue at the television broadcasting division increased 8% to $233.6 million in the first six months of 2021, from $216.2 million in the same period of 2020. The revenue increase is due to increased local and national advertising revenues, which were adversely impacted in 2020 by reduced demand related to the COVID-19 pandemic, and a $5.8 million increase in retransmission revenues, partially offset by a $14.0 million decline in political advertising revenue. The increase in local and national advertising was from growth in the home products, health and fitness, and sports betting categories. In the first six months of 2021 and 2020, the television broadcasting division recorded $0.8 million and $1.4 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 2021 increased 15% to $68.6 million, from $59.4 million in the same period of 2020, due to increased revenues, offset by higher network fees.
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 increased 70% and 31% in the second quarter and first six months of 2021, respectively. The revenue growth for the second quarter of 2021 is due primarily to significantly increased revenues at Hoover from substantially higher wood prices and improved product demand, as well as increased revenue at Dekko. The revenue growth for the first half of 2021 is due primarily to significantly increased revenues at Hoover from substantially higher wood prices and improved product demand, partially offset by lower revenues at Dekko from lower product demand. Manufacturing operating results improved in the second quarter of 2021 due to significantly higher results at Hoover from substantial gains on inventory sales and improved results at Dekko. Manufacturing operating results improved in the first six months of 2021 due to significantly higher results at Hoover from substantial gains on inventory sales, partially offset by a decline in Dekko results from lower revenues and higher prices for certain commodities. Wood prices began to decline in June 2021 and this trend has continued in July 2021, which is expected to result in significant losses on inventory sales at Hoover in the third quarter of 2021, offsetting significant gains on inventory sales at Hoover in the first half of 2021.
In the second quarter of 2021, Dekko announced a plan to relocate its manufacturing operations in Shelton, CT to other Dekko manufacturing facilities. In connection with this activity, Dekko is in the process of implementing a SIP for the affected employees, resulting in $1.1 million in non-operating SIP expense recorded in the second quarter of 2021, to be funded by the assets of the Company’s pension plan.
Healthcare
The Graham Healthcare Group (GHG) provides home health and hospice services in three states. GHG provides other healthcare services, including nursing care and prescription services for patients receiving in-home infusion treatments through its 75% interest in CSI Pharmacy Holdings Company, LLC (CSI). Healthcare revenues increased 11% and 10% for the second quarter and first six months of 2021, respectively, largely due to growth at CSI. The increase in GHG operating results in the first six months of 2021 is due to improved results from home health services and CSI.
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.
Other Businesses
Automotive
Automotive includes three automotive dealerships in the Washington, D.C. metropolitan area: Lexus of Rockville, Honda of Tysons Corner, and Ourisman Jeep of Bethesda. Revenues for the second quarter and first six months of 2021 increased significantly due to sales growth at each of the three dealerships, due partly to significantly reduced demand for sales and service in the first half of 2020 at the onset of the COVID-19 pandemic in March 2020.
Contacts
Wallace R. Cooney
(703) 345-6470
