Graham : Annual Shareholder Meeting with Non-GAAP Reconciliation

Annual Meeting of Shareholders

May 7, 2024

Remarks by Timothy J. O'Shaughnessy

Chief Executive Officer

Graham Holdings Company

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see some of the same faces as the past few years, as well as some new ones. Hopefully those of you attending in person have been able to meet some of our managers, many of whom are in attendance and should be around for a bit after the meeting as well.

As I mentioned earlier, I will now provide a brief update on operations and then turn it

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and Justin DeWitte will walk you through our healthcare operations. We will then conduct the business matters I outlined earlier, and after that we will open the meeting for questions and comments until there are no more or we run out of time.

The report I have to share today is largely positive. 2023 showed improved operating results at many units, and Q1 of 2024 continued this trend.

Strong growth at Kaplan and Graham Healthcare Group are the primary reasons why you should feel good about the future of Graham Holdings. Perhaps the greatest

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distribution are wreaking havoc on how media is produced, consumed, and monetized. Regulatory frameworks that have not caught up with these realities further limit the degrees of freedom to solve these challenges.

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from existential- to critical- to one that provides near term cash flow today, and option value in the future. How successful the Company will be at the end of this decade is increasingly driven by how the rest of the business performs with Graham Media Group as an important contributor, but no longer the main event.

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company revenue in 2023 was just over $4.4 billion, an increase of nearly 53% from 2020. Broadcast revenue has decreased modestly in absolute terms and in relative terms has decreased from a bit more than 18% to just under 11%. The biggest drivers of revenue growth have been at Automotive, Kaplan, and Graham Healthcare.

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years. I will do so again. Overall adjusted operating cash flow for 2023 decreased by $40 million from the prior year. This decrease was led by minimal political spend at Graham Media Group, which decreased by $68 million from 2022 to 2023. However, the rest of the Company increased its adjusted operating cash flow by $29 million, or 19%.

A version of this continued in Q1 of 2024. Overall adjusted operating cash flow increased by $11 million from prior year. Broadcast was roughly flat while the rest of the Company improved by $9 million, or 25% over the prior year. We expect this will continue, and as the rest of the company grows off of a larger base, the even to odd year decreases in adjusted operating cash flow may be much more limited or abate entirely, perhaps as soon as next year.

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At the core, we have businesses that are either profitable or unprofitable; they are also either growing, shrinking, or relatively stable. While the profitable vs unprofitable distinction is entirely quantitative, the growing vs stable vs shrinking classification is my interpretation of the blend of recent history combined with near-term expectations.

For our profitable growing businesses, our goal is to build out durability and evaluate bolt-on M&A transactions that can be both accretive and expand the moat. We are pleased that two of our biggest businesses fall into this category. This group has been joined this year by Slate.

For our profitable stable businesses, the approach is largely similar to the prior category, with perhaps an additional eye toward protecting and defending. Our largest number of

businesses live here. The cash these businesses generate is hugely valuable to the Company and we are open to pursuing bolt-on M&A within many of these units as well.

We have no units currently inhabiting the profitable shrinking bucket, but if one does enter this category we hope to protect profitability while stabilizing revenue and/or income declines. We are unlikely to pursue bolt-on M&A, but would look at participating in consolidation if it were required to maintain viability for a sector.

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At our unprofitable growing businesses, we continue to monitor the unit economic models and evaluate how much cumulative capital we believe is required for a business to become self-sustaining, the scale of the opportunity, and the timeframe in which we believe we can achieve profitability. We calibrate investment levels to achieve adequate returns. M&A rarely makes sense in these cases; although I would not unilaterally rule it out, if we were convinced it would reduce the cumulative capital needed to become profitable.

Framebridge is the biggest investment within this grouping and we remain excited about its prospects. Our multi-channel online + retail model is unique to the category and our retail rollout is in the process of accelerating. If trends hold, the Company should begin to see operating leverage from the additional unit volume and a corresponding reduction in investment levels over the coming years. The US custom framing market is

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category leader to ultimately hold 20-30% of this market.

We are also pleased with the progress Saatchi Art has been making as a seller of original work by artists. Both the revenue and income trends in this business are improving.

At our unprofitable stable businesses, we evaluate the following:

1. Whether growth can reasonably be restarted with attractive unit economics;
2. Whether costs can be reduced to an extent where the business becomes profitable;
3. If divestiture is possible and makes sense;
4. Failing the above, evaluate closure.

We have two operations within this category: Dekko and Code3. Dekko is operating cash flow positive, and Code3 is roughly breakeven on an operating cash flow basis and was profitable in the fourth quarter of 2023. I believe both have reasonable chances to move to become profitable and stable over the course of the next two years. At Dekko, we appear to be close to the bottom of the cycle for our product lines tied to commercial office space. Any increase in demand, combined with strong cost controls would make a big impact on profitability. Code3 improved its results in 2023 and is on track to do so again in 2024. We believe it has a strong chance of returning to profitability soon.

While it may be inevitable from time to time, we hope to limit both the number and duration of stay of any businesses in our last category -the unprofitable shrinking bucket. When one of our companies winds up here, we evaluate all options, ranging from restructure, to sale, to closure. Our bias is to move fast, as without substantial change, things usually get worse, not better. We currently have two businesses that we classify in this bucket, Society6 and World of Good Brands (formerly known as Leaf Media).

At Society6, we have intentionally shrunk revenue by removing product categories and

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shrinking is done and we are continuing to work on the cost structure to be more in line with what the unit economics and revenue of the business can support. At World of Good Brands, the digital media trends of 2023 and early 2024 exacerbated a tumultuous

year. We have revamped the team and cut the number of brands we are actively supporting. Both of these operations are turnarounds and we are monitoring losses very, very closely as we embark on these efforts.

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team on a great year. I know many of my colleagues are extremely proud of the work they do to bring about these results. The Kaplan team managed beautifully through some trying years and have come through the other side with a bright future ahead as evidenced by an increase in adjusted operating cash flow of 17% from the prior year, with excellent results in Q1 of 2024 as well.