Graham Holdings Company · NYSE:GHC
Graham — Investor Day (December 2022)
42 slides from Graham's investor day presentation, Dec 13, 2022
Slide 1: Investor Day December 13, 2022
Investor Day December 13, 2022 Remarks by Timothy O’Shaughnessy Chief Executive Officer and Jake Maas Executive Vice President Graham Holdings Company
Slide 2: Welcome and schedule of events
Welcome to our 2022 investor day. Our schedule of events brings you two speakers: I will start with an update on financial results and operations, and then walk you through our other businesses segment in a bit more detail, with a particular focus on Framebridge. Jake Maas, our Executive Vice Presid
Slide 3: 2022 results overview
As 2022 has progressed, the COVID induced fog on earnings at the Company has begun to lift. Results have improved both compared to 2021 and as the year has progressed, although the lingering effects of lower COVID related enrollments at Kaplan International will be with us until the enrollment cycle
Slide 4: Operating cash flow and free cash flow
Operating cash flow and free cash flow each increased in 2022 over 2021. After several purchases of property in support of business operations in 2021, free cash flow was impacted by nothing similar year to date. As for the rest of the year, with the continued recovery at Kaplan International and th
Slide 5: Pension expense and cash flow
Importantly, these pension expenses flow through our income statement, but do not require cash from the Company to fulfill our obligations to pensioners. As such, when we evaluate cash flow generation at Graham Holdings, we tend to exclude our pension expense. This is notable as we continue to find
Slide 6: Balance sheet and capital allocation
We remain very comfortable with our balance sheet, although it has changed somewhat over the course of the year. Marketable securities are down meaningfully year to date, primarily due to a decrease in the mark-to-market value of our holdings. Debt has also increased, largely due to new debt that Gr
Slide 7: Capital allocation priorities
In addition to maintaining our dividend, our primary near-term capital allocation priorities are: • Continuing to fund promising internal initiatives such as Framebridge. • Repurchasing shares. We continue to believe there is a substantial delta between share price and our view of intrinsic value. I
Slide 8: Kaplan emerging from COVID
Kaplan has begun to emerge from COVID and is on a very good trajectory. As a reminder, Kaplan is comprised of two primary business units: Kaplan International and Kaplan North America (KNA). At KNA, there are two segments: Higher Education and Supplemental Education. The resilience of Kaplan Interna
Slide 9: Kaplan International performance
As a global education company, we have no choice but to navigate these challenges directly. Students cannot put a pause on their life goals and dreams, and we need to adapt with them. The team has managed to deliver for students throughout 2022, which has been good for shareholders. Financially, the
Slide 10: Kaplan North America higher education
Kaplan North America has seen mixed results in 2022. On the higher education side of the business, progress continues. As a reminder, our higher education segment provides services to universities to help them create, manage, and grow educational programs. In addition to Purdue Global, in recent yea
Slide 11: Purdue Global and supplemental education
We continue to support Purdue’s long-term approach to growth at Purdue Global, helping them build new student support and advising capabilities, additional programs, and improved academic outreach. Purdue continues to set the course for Purdue Global and we are pleased to help them continue to impro
Slide 12: Graham Media Group
Our second major engine, Graham Media Group – a collection of local television and digital businesses, continues to show solid results. Aided by increased political advertising spend, year to date revenue has increased 6% while adjusted operating income has grown 20%. Income at Graham Media will cer
Slide 13: Graham Media direct audience relationships
Catherine and her team are eagerly chasing after new opportunities and have made it a strategic priority to create direct relationships with our viewers, readers, and listeners. Examples include our “Insiders” program, which has surpassed 485,000 members, streaming via our YouTube channels and NextG
Slide 14: Manufacturing segment
The manufacturing segment has bounced back from the pandemic related challenges of prior years. While revenue is up 3% year to date, operating income is up 41%. Among the four businesses, all but Dekko have returned to a pre-COVID operating cadence. At Dekko, one of its largest end markets is commer
Slide 15: Manufacturing revenue and wood prices
through cost, our expenses fluctuate in line, meaning operating income in general has been minimally impacted by revenue declines or increases tied to wood prices. This largely explains how revenue for the segment can be up 3% while operating income can rise 41%. We’re pleased with our manufacturing
Slide 16: Graham Healthcare Group
Graham Healthcare Group (GHG) has become a very important business at Graham Holdings. The co-CEOs, David Curtis and Justin DeWitte have grown the business organically, via acquisition and with joint ventures. Through Q3, revenue at the healthcare business has grown 44% over 2021 with operating inco
Slide 17: Healthcare service line expansion
which provides in-home dermatology treatments such as Botox; and, Surpass, our outpatient autism therapy service, have begun to meaningfully generate additional revenue to Graham Healthcare Group. We are very good at training, managing, and providing operational support for clinical field staff. Tha
Slide 18: Healthcare revenue mix
Through Q3 of 2022, Home Health and Hospice was 60% of revenue, CSI Pharmacy was 31%, and other healthcare services were 9%. We expect all three of these categories to continue to grow, but both the pace and how the slices are divided are future opportunity dependent. While revenue growth is usually
Slide 19: Factors affecting healthcare operating income
Three things occurred in 2022 that tamped operating income growth, none of which should meaningfully repeat in 2023. • Investment in senior leadership capabilities at Graham Healthcare Group: Heading into the year, management believed it could and should bolster its capabilities to position the busi
Slide 20: Other businesses segment
While not by master plan, many of our “other businesses” have naturally fallen into one of three categories: media, retail, or specialty. As such, we are going to begin breaking out revenue within our “other businesses” category to better inform and track progress. Let’s start with the financial spe
Slide 21: Leaf Group losses
improve meaningfully in 2023. Leaf’s losses were largely unplanned. Substantial degradation in the business occurred due to both a reduction in purchasing behavior post-pandemic and reduced advertising spend at Leaf Media as advertiser concern about macroeconomic conditions surfaced.
Slide 22: Framebridge progress report
I’d like to spend a bit more time discussing Framebridge. We receive investor questions around Framebridge at a rate that surpasses its size. I suspect that speaks to the potential that others see in the business. We agree, which is what led to the purchase of the company in 2020. We continue to bel
Slide 23: Framebridge operations and custom framing market
moments in life. We operate online and in our seventeen retail stores (currently in DC, New York, Boston, Atlanta, Philadelphia, and Chicago). We operate two onshore manufacturing facilities that allow us to deliver a high-quality custom product at an affordable price with a quick turnaround. Becaus
Slide 24: Framebridge growth drivers
expands the potential customer base. Based on an internal survey, 33% of Framebridge customers had never custom framed before. How much of this market can Framebridge take? We don’t know yet. However, we are investing and operating with a belief that we are very early in our growth curve. How will F
Slide 25: Framebridge retail expansion
The retail footprint has expanded from two stores in one market in 2020 to seventeen stores in six markets today. If our model is correct, there will be many more. Our existing markets can handle more stores and we believe there are dozens of additional markets for Framebridge to operate retail loca
Slide 26: Framebridge investment and unit economics
properly hired and trained to deliver high quality products at that increased volume, and that our overall internal operations and supply chains can deliver against that growth. In other words, we’d rather grow half as fast “the right way” than twice as fast “the wrong way”. Stores and manufacturing
Slide 27: Framebridge outlook
To close out our progress report, we remain both excited and optimistic about the future at Framebridge. Susan Tynan and her team are focused are delivering on the vision and building a great business for shareholders. Now, I’ll turn it over to Jake for some color on our automotive business.
Slide 28: Automotive segment overview
Good afternoon. I’m Jake Maas, and I serve as an Executive Vice President at Graham Holdings. Today, I’m pleased to provide an overview of our growing automotive segment, which over the last few years has become an important business within Graham Holdings and a key new income stream for the Company
Slide 29: Automotive dealerships
Currently, Graham Holdings’ automotive segment consists of six dealerships in the Washington, D.C. metropolitan area. We entered the space in 2019 via our acquisition of two dealerships – a Honda dealership in Tysons, VA and a Lexus dealership in Rockville, MD. In 2020, we were awarded a Jeep add po
Slide 30: Automotive growth via M&A and add-points
As illustrated in this timeline, Graham Holdings has grown our automotive segment in two ways. First, by acquiring automotive dealerships via M&A. M&A transactions in the space are typically structured in a similar fashion in which the acquirer purchases the assets of a dealership, which include the
Slide 31: Partnership with Chris Ourisman
Graham Holdings’ automotive segment is operated in partnership with Chris Ourisman and his team of industry professionals. Chris owns a 10% stake in the collective operations that comprise the automotive segment, providing strong alignment between the partnership and our shareholders. I would like t
Slide 32: Manufacturer approval and regional scale
providing high quality, trusted service to customers. Often that means a preference for partnering with established local operators that have a strong track record of quality and success. However, there are a limited number of such operators that both meet this high standard and that also have acces
Slide 33: Positioned to acquire Washington franchises
Given this context, Graham Holdings is well positioned to acquire quality franchises in the Washington market. Our long-term orientation, commitment to operating with high integrity and quality across all of our businesses, in addition to our partnership with a strong local operator is looked upon f
Slide 34: Dealership business model
Before discussing the historical financial results of our automotive operations, I’d like to briefly touch on the business model of a dealership. Automotive dealerships have a diverse set of revenue and income streams. The result of this diversification has been that well-run auto dealerships have h
Slide 35: Front end and back end margins
margins from finance and insurance product offerings. The back end operations, however, typically have higher margins and are a more stable source of earnings for dealerships year in and year out. Even when people are buying fewer cars, they still need to service their cars to keep them on the road,
Slide 36: Automotive financial results
Now let’s turn to the financial results. Our automotive segment’s revenue grew from $236 million in 2019 to $327 million in 2021. Over that same time period, operating income before amortization grew from $500 thousand to $11.8 million. Year to date in 2022, the segment generated $510 million in rev
Slide 37: CarCare to Go
I would like to conclude my remarks on our automotive segment by highlighting a business that we created and launched within the segment in 2020 – CarCare to Go. If you live in the Washington, D.C. area we encourage you to try the service. CarCare to Go is a new concept in car repair that introduces
Slide 38: Investing in technology and innovation
CarCare to Go is an example of Graham Holdings’ willingness to invest in technology and innovation to improve upon a legacy service. Whether it is within our healthcare division, at Kaplan, or within our restaurant operations, we are always looking for opportunities to apply technology and digital e
Slide 39: Automotive segment conclusion
Since our acquisition of the Honda and Lexus dealerships in 2019, our automotive segment has grown to become an important part of the Company. We’ve been pleased to find attractive bolt-on opportunities within the segment over the last couple of years and are hopeful we will be able to find addition
Slide 40: Closing remarks and Q&A
Thank you, Jake. We have been busy working to improve the business and are optimistic about the future. Management believes we now have multiple businesses through which we can deploy capital attractively to augment organic growth. As we end the year, we have a reduced share count, strong operating
Slide 41: Non-GAAP Adjustments
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Slide 42: Non-GAAP Adjustments: Education Segment
Non-GAAP ADJUSTMENTS Education Segment $inmillions Kaplan Corporate and Other 2019 2020 2021__Q32021¥1D__Q3 2022 YID Operating Loss ($43) ($48) (544) ($33) (525) Add: Amortization / Impairment 16 29 49 45 42 or Loss before Amortization / ($27) ($18) ($25) ($17) ($13) GIHsearamHoLoinss pote: the sum
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