Graham Holdings Company Quarterly Report (Form 10-Q) for the Period Ended March 31, 2025

Overview of the Company’s Financial Performance

Graham Holdings Company reported net income attributable to common shares of $23.9 million ($5.45 per share) for the first quarter of 2025, compared to $124.4 million ($27.72 per share) for the same period in 2024. This decline was primarily due to several one-time items, including:

• $43.8 million in net gains on marketable equity securities (after-tax impact of $32.6 million, or $7.43 per share) in Q1 2025, compared to $104.2 million in Q1 2024
• $11.9 million in net losses of affiliates whose operations are not managed by the Company (after-tax impact of $8.9 million, or $2.02 per share) in Q1 2025
• $66.4 million in interest expense to adjust the fair value of the mandatorily redeemable noncontrolling interest (after-tax impact of $50.4 million, or $11.49 per share) in Q1 2025

Revenue for the first quarter of 2025 was $1,165.9 million, up 1% from $1,152.7 million in the first quarter of 2024. The company reported operating income of $47.5 million for Q1 2025, compared to $35.4 million for Q1 2024, an improvement due to increases at the education, manufacturing and healthcare divisions.

Divisional Performance

Education The education division, which includes Kaplan, Inc., reported revenue of $424.7 million for Q1 2025, up 1% from $422.6 million in Q1 2024. Operating income for the division was $40.0 million, up 31% from $30.6 million in the prior year period.

Key highlights:

• Kaplan International revenue decreased 3% due to lower enrollments at UK Pathways and Languages, partially offset by growth in other international markets.
• Higher Education revenue increased 10% due to an increase in the Purdue Global fee recorded. Enrollments at Purdue Global, Kaplan’s largest institutional client, grew 4%.
• Supplemental Education revenue increased 5% with most program offerings experiencing growth.

Television Broadcasting Revenue at the television broadcasting division, which includes Graham Media Group, decreased 8% to $103.6 million in Q1 2025, from $113.1 million in Q1 2024. Operating income was down 18% to $24.4 million. The revenue decline was due to decreases in political advertising, retransmission and local/national advertising revenue.

Manufacturing Manufacturing revenue decreased 4% in Q1 2025 due to lower sales at Hoover, partially offset by increases at Forney, Dekko and Joyce. Operating income improved 79% to $5.5 million, driven by increases at Dekko, Forney and Hoover.

Healthcare Healthcare revenue increased 36% and operating income more than tripled in Q1 2025, largely due to significant growth at CSI Pharmacy from an expansion of infusion treatment offerings and patient service areas, as well as growth in home health and hospice services.

Automotive Automotive revenue decreased 8% in Q1 2025 due to declines in new and used vehicle sales and finance/insurance product offerings. Operating income declined 33% due to lower overall sales and gross margins.

Other Businesses Revenue from other businesses, which include Clyde’s Restaurant Group, Framebridge, Slate, and other investments, increased 2% in Q1 2025. Operating results were down due to declines at several businesses, including Framebridge, Slate, and Society6.

Liquidity and Capital Resources

The company’s primary sources of liquidity are cash generated from operations and its portfolio of marketable equity securities. As of March 31, 2025, the company had $156.7 million in cash and cash equivalents, $48.9 million in restricted cash, and $909.0 million in investments in marketable equity securities and other investments.

Total debt was $864.6 million at March 31, 2025, up from $748.2 million at the end of 2024. This increase was primarily due to net borrowings under the company’s $300 million revolving credit facility, partially offset by repayments of the term loan and commercial notes at the automotive subsidiary.

During the first three months of 2025, the company used $186.25 million in cash to settle a significant portion of the mandatorily redeemable noncontrolling interest related to its healthcare business. The company also used cash for capital expenditures, share repurchases, and dividend payments, which was partially offset by cash generated from operations and additional borrowings.

The company expects to fund its estimated capital needs primarily through existing cash balances, internally generated funds, and borrowings under its revolving credit facility as needed. Management believes the company will have sufficient financial resources to meet its business requirements in the next 12 months.

Strengths and Weaknesses

Strengths:

• Diversified business portfolio with leading positions in education, media, manufacturing, healthcare, and automotive
• Strong cash flow generation from operations
• Significant investments in marketable equity securities providing additional liquidity
• Solid balance sheet with manageable debt levels

Weaknesses:

• Volatility in one-time gains/losses on investments and affiliates
• Declining performance in certain divisions like television broadcasting and automotive
• Ongoing challenges and investment needs in some of the company’s newer, high-growth businesses

Outlook and Future Prospects

Looking ahead, the company faces a mixed outlook. The education division is expected to see continued growth, particularly in the Higher Education and Supplemental Education segments. However, the television broadcasting business may continue to face headwinds from cord-cutting and declining advertising revenue.

The healthcare division is poised for further expansion, driven by the growth of CSI Pharmacy and the company’s other healthcare services. The manufacturing and automotive divisions could face ongoing challenges from supply chain disruptions and economic uncertainty.

The company’s portfolio of other businesses, which includes investments in early-stage and high-growth companies, represents both opportunities and risks. While some of these businesses, like Clyde’s Restaurant Group, have shown promising performance, others, such as Framebridge, continue to operate at a loss and require significant investment.

Overall, the company’s diversified business model and strong financial position provide a solid foundation for navigating the current economic environment. However, the company will need to carefully manage its investments and allocate capital to the most promising areas to drive long-term growth and shareholder value.