Graham Holdings Company (GHC) Earnings Call Transcript & Summary

Thank you to the folks at the Hamilton for hosting us once again, and their kitchen staff for waking up bright and early to go and have some -- a little buffet ready for us. We really appreciate John and Kevin and the whole team for helping facilitate. So with that, we'll get started. So good morning, ladies and gentlemen. The meeting will please come to order. I'm Tim O'Shaughnessy, President and Chief Executive Officer of Graham Holdings Company. I will act as the Chairman of the meeting. To my right is Wally Cooney, Senior Vice President and CFO of the company; and Nicole Maddrey, Senior Vice President and General Counsel and Secretary of the company, who will act as the Secretary of the meeting. I'd like to welcome you all to the Annual Meeting of Stockholders for 2023. Now let me briefly describe what is on the program this morning. First, we will dispense with the technical part of the meeting, which involves such matters as the submission of documents and the determination of a quorum. After my remarks and remarks from Andy Rosen, CEO of Kaplan, then we'll proceed to the election of directors, the proposals to be voted on by the Class A shareholders on an advisory basis to approve the 2022 compensation awarded to the named executive officers, and to determine the frequency of shareholder advisory votes regarding compensation awarded to named executive officers. After that, the meeting will be open for your comments and questions. Before turning to the opening formalities of the meeting, I would like to introduce those nominees for election as a director who are [ present ]: Donald Graham; Tony: Allen; Danielle Conley; Christopher Davis; Tom Gayner; Anne Mulcahy; Rick Wagoner; Katharine Weymouth; and myself. Also present from PricewaterhouseCoopers, the company's independent registered public accounting firm, are Tom Leonard and Andrew Weidinger. Will the Secretary please present to the meeting all supporting documents?

For the purposes of this meeting, I present: affidavits of mailing of the notice of meeting, proxy statements, forms of proxy and annual report for 2022 to each stockholder of record at the close of business on March 15, 2023, the record date for determining stockholders entitled to receive notice of and to vote at this meeting; a complete list of the holders of Class A and Class B common stock as of the close of business on March 15, 2023, which has been available for at least 10 days preceding this meeting; a copy of the certificate of incorporation and the bylaws of the company; and the minutes of the last annual meeting of the stockholders of the company held on May 5, 2022.

Alisa Zagare and Elaine Wolff have been appointed to act as inspectors of votes at this meeting. I direct that an executed copy of their oath be filed with the records of the meeting. Will the Secretary please ascertain that a quorum is present?

Mr. O’Shaughnessy, the inspectors of the votes have canvassed the stockholders present in person or by proxy and have presented to me their first report, which shows that there are present in person or by proxy 27 stockholders holding 964,001 shares of Class A common stock of the company, which is 100% of the Class A common stock entitled to vote at this meeting and not less than 3,027,500 shares of Class B common stock of the company, or 79% of the 3,818,873 shares of Class B common stock entitled to vote at this meeting.

I direct that the first report of the inspectors of votes be filed with the records of the meeting. I declare that a quorum is present and that the meeting may be proceeded to the transaction of the business for which it has been called. As stated in the notice of the meeting, the purposes of the meeting are: one, to elect directors of the company; two, for the Class A shareholders, on an advisory basis, to vote to approve the 2022 compensation awarded to named executive officers; three, for the Class A shareholders, on an advisory basis, to vote to determine the frequency of shareholder advisory vote regarding compensation awarded to named executive officers; four, to transact such other business as may properly come before the meeting or any adjournment thereof. At this point, I'd like to give a brief commentary on the company's operations. After that, Andy Rosen, CEO of Kaplan, will speak about Kaplan's operations, then we'll proceed to the nomination of directors. While the votes are being tabulated, the floor will be open for questions relating to business matters. Welcome back to the Hamilton Live, now in its second year of hosting the Graham Holdings Annual Meeting. It's my obligation to remind you that a late breakfast around the corner at the Old Ebbitt Grill is the perfect way to top off your time here. It's wonderful to see those attending the meeting in person again. Many members of management are also in attendance, so I hope you've been able to chat with the folks that run the businesses day in and day out. I will provide an update on operations, and then I'll hand the mic over to Andy Rosen, Kaplan's CEO, who will spend some time discussing the operations at Kaplan International. In recent years -- we've had slow clickers and once again. In recent years, we've discussed the shifting makeup of our business. As you can see, that trend continued in 2022. While we've been able to add additional segments such as Automotive and Healthcare that were not meaningful only a few years ago, we've also reached a point where we believe that the company can consistently grow both organically and via bolt-on acquisition. This changing makeup of the business likely means the overall lumpiness of earnings, where earnings in even years are disproportionately driven by political advertising at Graham Media Group, may be diminished in the future. For example, from 2021 to 2022, adjusted operating cash flow at the Broadcast Group increased year-over-year by $51 million, largely due to the election cycle. However, the company's total adjusted operating cash flow increased by $115 million, meaning the rest of the company grew adjusted operating cash flow by $64 million. We believe some version of this should continue in 2023 in most years in the future. In Q1, revenue increased 13% over prior year and adjusted operating cash flow decreased 11% from $80 million to $72 million. Overall, we are pleased with both of the results in our segments. We did have a few comparative headwinds. Q1 of 2022 had large wood gains at Hoover that were not repeated in 2023. And Graham Media Group benefited from primaries, the Winter Olympics and the Super Bowl in 2022, none of which occurred on our stations in 2023. I'd like to take a minute and discuss why we have presented adjusted operating cash flow in our results alongside our capital expenditures. At the core, we're trying to give ourselves and you, our shareholders, a proxy for the cash flow generation capabilities of the company. Adjusted operating cash flow takes our income statement -- or our operating income and excludes our amortization, depreciation and pension expenses. I'll offer a brief explanation in that order. Many of you know, our amortization expense is noncash. As such, we exclude it from our operating cash flow numbers. Depreciation, this is a real cash expense that is more reflective of the past than the present. Pension expense, this is the area where we are most unique as compared to many other companies. We have an active defined benefit plan with employees accruing benefits at present day. However, we have a pension trust that is funded at a level several multiples higher than our actual liabilities. The trust funding is at a level where servicing existing and future benefits is plausible with existing assets in all but the most draconian scenarios. What that means is that the pension expense that flows through the company's P&L will not require cash from our treasury or hit the cash flow statement. It is covered by the overfunded pension trust. We're actively trying to figure out how to leverage the pension trust for additional expenses that may currently be paid out of treasury. This is important to note because if our pension expense goes up, it's more likely than not a good thing as the cash flow profile of the business may have improved even if reported earnings decline. Lastly, we like to show capital expenditures next to adjusted operating cash flow because it gives a pretty good sense of what pretax cash flow -- free cash flow for the period looks like. Of course, by their nature, capital expenditures can be lumpy and include things like property acquisitions. But in combination, adjusted operating cash flow and capital expenditures should provide a meaningful indication of the company's pretax free cash flow. We'll discuss unit-specific results shortly, but I wanted to provide a bit of an overview on the portfolio of businesses at Graham Holdings as well as how we think about next steps based on their current financial profiles. At the core, we have businesses that are either profitable or unprofitable. They're also either growing, shrinking or relatively stable. While the profitable versus unprofitable distinction is entirely quantitative, the growing versus stable versus shrinking dynamic 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 2 of our biggest businesses fall into this category. For profitable stable businesses, the approach is largely similar to the prior category with perhaps an additional eye toward protecting and defending. We'll pursue bolt-on M&A in this category as well. With any profitable shrinking businesses, we help to protect profitability while stabilizing revenue and income declines. We're unlikely to pursue bolt-on M&A, but would look at participating in consolidation if it were required to maintain viability for a sector. Now let's move to the other side of the ledger. 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 time frame 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. At our unprofitable stable businesses, we evaluate the following: whether growth can reasonably be restarted with attractive unit economics; whether costs can be reduced to an extent where the business becomes profitable; if divestiture is possible and makes sense; failing the above, evaluate closure. 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 one business that we classify in this bucket, Leaf Group. We will discuss Leaf shortly. We've had success in having units exit from an unprofitable group. Recent history, Megaphone and Forney graduated out of this category. At present, we are optimistic that Code3, Slate and Foreign Policy are on the cusp of doing so as well. Now let's segue to the unit-specific operating results. I've asked Andy to provide a more detailed overview of Kaplan International, so I will only briefly review results at Kaplan. As you'll hear more about the recovery post-pandemic has been led by Kaplan International. Overall, the adjusted operating cash flow at Kaplan increased from $111 million to $142 million. The higher education business, led by our partnership with Purdue, continues to be a steady contributor to earnings. As previously conveyed, the traditional test prep business has suffered from a diminished test-taking environment and has pulled down the results at supplemental education. These overall trends continued into Q1. The Broadcasting segment had a record year in 2022, which was a nice way to ring in Catherine Badalamente tenure as CEO at Graham Media Group. Adjusted operating cash flow increased from $172 million to $223 million and grew $6 million over the previous election cycle year, 2020. Core advertising remains strong, and political spending in Michigan and Texas helped drive results. We continue to watch the trends in the business closely and noted a modest acceleration in cord cutting and the corresponding impact on net retransmission revenue as the year progressed. Growth in OTT revenue continues to be an important part of the future. We're hopeful it can be a partial offset to cord cutting and the corresponding impact on retransmission. 2022 was a nice year at our Manufacturing segment as adjusted operating cash flow grew from $48 million to $65 million. Results were down modestly in Q1 as we lapped a large wood gain in Q1 of 2022. As a reminder, over the course of any 12-month period, we tend to have modest profitability in the buying of wood at Hoover. Wood is largely a pass-through cost to our customers. We receive our margin from treating the wood and efficiently delivering it to customers. But we buy wood at large volumes. And over time, we tend to make a little bit of money on the wood itself. However, as wood prices swing, we can have short-term inventory value volatility that can cause a large gain or loss in any particular quarter. In Q1 of 2022, we had a large gain that was not repeated in Q1 of 2023. And in fact, most of those gains were given back over the remainder of 2022. Hoover continues to be a strong business, providing a vital product to the construction industry. Additionally, Forney and Joyce continue to be steady contributors to the company. Dekko's operations continue to be under pressure from the reduced demand for commercial real estate and office buildouts, causing declines in their power and data business. Dekko has been able to remain profitable, but at reduced earning power. The team continues to explore ways to protect the income statement until the market stabilizes. At last year's annual meeting, I asked David Curtis and Justin Dewitte, the co-CEOs of Graham Healthcare Group, to present on our Healthcare business as it has become a bigger piece of Graham Holdings, and I expect that trend to continue. As a reminder, we have 3 different types of operations at Graham Healthcare Group: wholly-owned operations in the home health and hospice fields; home health and hospice joint venture operations where we typically own less than 50% but we manage the operations; and majority investments where we own between 50% and 100% of the business, usually in related or adjacent fields. Adjusted operating cash flow results in 2022 were up modestly from the prior year, although revenue was up 46%. As previously discussed, in 2022, we invested in building up our team's capabilities and scaling ahead of anticipated growth. In Q1, revenue continued its strong growth rate, and adjusted operating cash flow as well as equity earnings in affiliates were each up meaningfully from the prior year. As the year progresses, we're optimistic that we will begin to see additional operating leverage from these investments. These will help maintain our excellence of care standards as well as to drive an improved income statement. I also wanted to provide a sense of the shifting nature of Graham Healthcare Group. Well, this slide excludes our JV ventures, so it is not a comprehensive overview. It does give a sense of the growth characteristics at CSI Pharmacy and other direct investments. Our expectation is that if we were to show this pie again next year, a further shift will be reflected. The Automotive segment is predominantly comprised of franchise dealerships. These are owned in partnership with and managed by Chris Ourisman and his team. 2022 was a good year. Adjusted operating cash flow grew from $14 million to $38 million. This growth was due to improved results at existing rooftops as well as the addition of several acquired dealerships. We think we have a formula that works in this segment. We've partnered with an operator with family roots in the D.C. automotive market that date back over 100 years. We've also been able to use our increasing scale to improve functions at newly acquired dealerships. Results were once again up from Q1 2022 to Q1 2023 for the same reasons discussed. The sector has certainly had tailwinds that have helped drive results over the past 2 years. In the coming years, we expect some of those tailwinds to die down and others to persist, but for our group to still maintain strong cash flow characteristics. Our Other Businesses group had a mixed 2022 and Q1 of 2023. As previously stated, we expect and continue to expect 2022 to be the peak investment year. In that year, in 2022, revenue increased from $324 million to $416 million, while adjusted operating cash flow losses increased from $63 million to $75 million. In Q1, revenue declined by 8% as compared to the prior year, and adjusted operating cash flow losses were roughly flat. The biggest driver of negative performance in this segment has been the results at Leaf Group. For both 2022 and Q1 of 2023, segment results, excluding Leaf, were improved on both the revenue and adjusted operating cash flow side. To provide more clarity, in Q1 of 2023, excluding Leaf, revenues for the rest of the segment grew percentage-wise by double digits, while adjusted operating cash flow showed a similar level of improvement. As addressed in the annual letter to shareholders, clearly, the results at Leaf Group have been far below our expectations at the time of the acquisition. I wanted to take this opportunity to update you on some recent changes. First, a refresher. Leaf Group is comprised of 3 business units: Leaf Media, a collection of lifestyle brands such as Well+Good, Livestrong and Hunker; Saatchi Art, a marketplace for artists to reach a wider audience to sell their original works; and Society6, an online retailer that allows artists to upload original designs, which Society6 then applies to products manufactured through print on-demand partners. These units each have business owners and have reported into a centralized Leaf corporate team, which provides a set of G&A functions and shared services. Earlier this year, the CEO of Leaf Group left the business. We concurrently came to the conclusion that a holding company reporting to a holding company was not serving the interest of the business well or driving the desired results. Subsequently, we are working with the Leaf team to begin a process of creating 3 stand-alone businesses that will report directly into Graham Holdings. At the end of this period, Leaf Group will no longer exist as a consolidated business. We expect much of this transition to occur in the second quarter, with some additional transition-related items occurring over the remainder of the year. With this effort, we expect annual costs to be reduced by no less than $15 million with minimal risk to revenue. There are good people at the Leaf businesses committed to driving these improvements in operations, and I'd like to thank them for their recent efforts as well as their efforts in the months ahead. Let's now move away from operations and income statement to the balance sheet. Liquidity at the company remains strong, and cash and marketable securities continue to modestly outpace total debt. We consider both our gross and net leverage ratios as conservative. Lastly, it wouldn't be a Graham Holdings Annual Meeting without at least one reference to our pension plan funding status. At year-end, both assets and liabilities were down from the prior year, with the decline in assets outpacing the decline in liabilities. This took our overfunding status down modestly from 3.1x overfunded to 2.9x overfunded. As discussed earlier, we continue to explore additional ways to use the pension funding. At this time, I'd like to ask my colleague, Andy Rosen, to come up and discuss the progress at Kaplan International. Andy?

Thanks, Tim. Good report. Over the last few years, I've described how we're positioning Kaplan for growth by leveraging our strong relationships with students and partners as well as our unique assets and capabilities. I've included in my reports an assessment of the impact of the pandemic. Well, fortunately, with the pandemic behind us, we have emerged with an even stronger market position, as we spent the last several years embedding more earning power into the business. This is particularly true at Kaplan International. So I thought I'd spend some time today highlighting how that business has progressed. As a reminder, we have 2 primary divisions: Kaplan North America and Kaplan International. In North America, our higher ed and supplemental education businesses provide online enablement for other services for universities as well as test prep and professional education programs for students and businesses. Kaplan International provides a range of professional, higher education and language programs operated mostly outside of the United States. As you can see, Kaplan International, or KI as we refer to it internally, as a percentage of Kaplan has evolved over the last decade to become the largest contributor to Kaplan's revenue and operating income. For 2022, KI comprised 57% of our consolidated revenue and $72 million in operating income, respectively. As I pointed out earlier, the pandemic was hard on our international business. Most of which -- most of our businesses in there rely on students traveling abroad for study. You see that here in the revenue and operating incomes for 2020 and 2021. The Languages business was hardest hit as these students are looking for an immersive cultural experience that cannot be replicated online. Our Australia-based businesses also suffered from that country's extended lockdown. For the most part, our other international business has held up surprisingly well. During the pandemic, we strengthened these businesses with investments in digital capabilities, relationship building and a leaner expense infrastructure. Over the next few slides, I want to spend a few minutes describing our KI businesses, describing our approach in developing our international position, and a few of the differentiating elements that illuminate why we believe we have something special. Our primary international business activities can be summarized into the following groupings. First, at Pathways, we recruit qualified students from around the world to our U.S., U.K. and Australian university partners. Sometimes, we recruit these students for direct admissions into university degree programs. But in most cases, we provide the university's first year, the foundational year of the education, typically, but not always, on the campus of the university partner. For 2022, we served more than 16,000 students under these Pathway offerings. Our Pathway students achieved impressive outcomes. More than 92% matriculate onto their first or second choice university, usually the campus with which their Pathway program is affiliated. These programs provide immense socio and economic mobility for students and significant diversity and financial benefits to our university partners. During the pandemic, many of these students began their Pathway studies online and an increasing percentage live in Kaplan resident halls on or near their home campus. Second, we offer a range of professional education and assessment products, mostly in the U.K., Australia, Singapore and the Middle East, focused on the accountancy, finance, wealth management, legal, project management and technology professions. Our programs prepare students to obtain or maintain required licensures or certifications to practice in their designated fields and to improve their performance in their jobs as professionals and leaders. We contract with hundreds of companies in this effort and have established a strong reputation over many years for quality student outcomes and client satisfaction. We served approximately 123,000 students across these product lines in 2022. At our Languages business, we served about 31,000 students in 2022 across our English, French, German and Italian language schools. Our activities in Languages also include our ownership and operation of the largest student recruitment agency in Europe as well as popular summer language camps in Europe. Students seeking our core language programs are looking to improve their language proficiency while having a fun, immersive experience in a different country with similarly minded students. Not surprisingly, this business was hit the hardest by the pandemic, as students were unable to travel for the better part of 2 years. 2022 saw the reopening of student travel in most markets, though China's reopening was largely deferred until late in the year. A material recovery in our Language financial results happily followed suit with the restoration of travel for most of the world. Next, we own and operate business schools located in Dublin, Ireland and 5 of Australia's largest cities. In 2022, we served close to 6,000 students in these schools. The census level depressed by the pandemic induced closure of Australia to international students for almost all of 2020 and 2021. Despite the challenges of the pandemic, the leaders of our business schools stayed focused on delivering high-quality student outcomes as well as adding new programs of study and building on our reputation in new and existing international student source markets. The result is record new enrollment levels as we finished last year and commenced 2023. Our university hosting programs are centered in Singapore. In this unit, we offer our own higher education programs and we host a number of university partner programs. In total, we serve approximately 12,000 students in the Singapore market. Hosting activities include providing teaching facilities, recruitment, admission and pastoral care and, in some cases, teaching the programs, all under the auspices of our university partners and Singapore regulatory authorities. The private education market in Singapore is tightly regulated, with occasional missteps, even minor ones receiving sanctions. Even with our extensive global compliance environment, we've seen this ourselves, most recently in 2021. But our team responded quickly and decisively, working with the government to resolve some issues that had a short-term negative impact on our earnings. We place a high priority on a positive relationship with regulatory authorities around the world and see good opportunities for growth in our university hosting business. Our sixth form colleges operate under the brand name Mander Portman Woodward, or MPW, at 3 school locations in London, Birmingham and Cambridge, England. The MPW program serves students who are strongly dedicated to improving their A-level or GCSE exam scores to help them qualify for entry into highly selective U.K. universities. The MPW curriculum is intensely focused, delivering an average student-teacher ratio of 6:1 and includes extensive student support services. About 30% of MPW students travel to England from other countries to take our programs. This portion of our student enrollment was negatively impacted by the pandemic, but it's now nicely recovering. We served 3,000 students at MPW in 2022. And finally, we have made meaningful progress over the past 5 years in building our online higher education programs with U.K. universities. This unit, Kaplan Open Learning, has multiyear exclusive contracts with the University of Essex and the University of Liverpool to provision a significant range of undergraduate and graduate programs online. Our services under these contracts range from student marketing and recruitment through to the delivery under -- of programs under close supervision of our university partners. We served 5,000 students at KOL in 2022, mostly from the U.K. However, we are excited about the growth in enrollment possibilities outside of the U.K. market. Twenty years ago, KI consisted largely of our U.K. professional business, which focused primarily on accountancy training. Since then, we've grown consistently by expanding into adjacent areas that leverage our expertise. We will continue to do so as we see enormous opportunity to tap into a powerful global trend, expanding middle-class populations around the world that want access to quality higher and professional education, but often face a dearth of opportunities and options in their home countries. KI's expertise in international student recruitment, language services, academic and professional course delivery and pastoral care serve as a foundation upon which we will continue to build. I want to give you a sense of why Kaplan has such a unique advantage here. Operating internationally is highly complex, so being strong in the fundamentals is crucial. These boxes each represent essential areas where KI has market strength and advantage. The first box on this graphic is people, for an obvious reason. KI requires highly skilled, trusted professionals and leaders with deep regional expertise across many global markets and areas of specialization. Now granted, I am not entirely unbiased. But I think almost anyone would agree that KI's leadership team is the deepest, most experienced and most able of any in international education. David Jones, KI's CEO, is the dean of international educators. He has led high-powered, high-quality organizations for more than 4 decades, just under half of that with us, and he is legendary for his relationships and his insight. His right hand, Andrew Thick, is similarly admired and has his own very deep experience and expertise, including overseeing Study Group back in the day. They work with a group of country, product, academic, sales and home office leaders who are, person by person, really the best in the business. Most of this team has worked together for years, steadily building KI's capabilities and culture in a careful, compliant and pro-student manner. Top to bottom, KI's team is deeply experienced, ethical, caring and driven to achieve student outcomes. That leadership team is distributed across an extensive global footprint, from sales offices strategically located in attractive source markets around the world to school and delivery locations and sought-after destinations in the U.K., Europe, Americas, Australia and Singapore. KI's footprint provides the geographic diversity and local capabilities to capitalize on and respond to emerging geopolitical and economic trends. From these office locations, through relationships, partnerships and employees, Kaplan's reach extends to virtually every country in the world. An example here, in 2021 and continuing throughout 2022, China's COVID policy sharply limited the number of Chinese students studying abroad. That's a troubling development for us as Chinese students were an important part of KI's program population. KI's long presence in India and scores of smaller countries from -- in every corner of the world where Kaplan has built deep relationships, enabled KI to continue to serve our partners and the rapidly growing demand for international education in those countries, resulting in a total enrollment growth in 2022, offsetting the negative impact from China through new sources. That's a performance trend that continues into 2023. When we talk about our programs with prospective students, they are interested in a number of factors. But right near the top is the reputation of the university partners we represent in the locations where they want to study. The quality of the university partner portfolio our KI team has steadily and carefully assembled is paramount to the earning power of KI's higher education businesses. The prestige of many of the corporations, certifying bodies and professional associations presented here are also powerful in driving the earning power of KI's professional education business. And as a reminder, by the way, we're just talking about KI partnerships here. This slide doesn't reflect any of the large number of Kaplan North America partnerships. This network effect of the total, which grows each year, creates new and interesting growth opportunities for KI. An example here, earlier this year, our Pathways business secured a new contract to provide international student recruiting for the University of Victoria in British Columbia, Canada that is. Canada is an increasingly attractive destination for international students. This new partnership was actually led by our Australia team, which had a strong relationship with the President and Vice Chancellor at University of Victoria based on his previous tenure leading a strong partner in Australia. But the Australia team leveraged the capital and talent and capabilities from around the world to access that program. So really, our excellent reputation and the strength of our university partnerships continually pays dividends in sometimes unexpected ways. The ability to economically source qualified students throughout the globe is another key developed advantage of KI. KI's recruiting network is unparalleled and becomes stronger each year as thousands of students, parents, agents, government sponsors, high schools and other sources of students receive a quality experience from one of our KI programs. While the quality of our programs is a driver, KI's ability to utilize its extensive multichannel recruitment network to source a diverse and qualified population of students and route them to the appropriate program in their desired destination, that's a critical component to our growth. We are continually expanding both our student sourcing network and our educational destinations. And each time we do so, we strengthen the entire flywheel. All of the elements that I've highlighted are critical, but none of them would enable a sustaining business if Kaplan wasn't laser-focused on the quality of our products and services. In this respect, I think our early foundation in test prep, where learning outcomes are all that matters, has served us well. In a world of education companies that come and go, we've thrived for 85 years because we're focused on the results our students and customers seek. That means academic outcomes, pastoral care, customer service and more. Our partners, students and regulatory authorities tell us regularly, they greatly value what we do and how we do it. Part of that stems from our internal cadence of formal structured reviews, not just on financial performance, but regular sessions on academic progress, on customer outcomes and satisfaction, on regulatory compliance, on employee engagement and more. We take these very seriously, and they are vital contributors to excellent customer experiences and are core to our long-term success. I obviously feel great about the prospects of our KI businesses, and I'm quite proud of the management team and all of KI's team members for the quality of outcomes they deliver for students, partners and shareholders. 6 of our 7 units posted first quarter volume growth of at least 10%, some actually a good bit more than that, and the seventh is on track for growth for the year. Now it's true that the pandemic's effects were not entirely behind us in the first quarter of 2022. So the baselines aren't all normal, but we're very optimistic about the year. More importantly, the future of higher education is largely global. The U.S. has seen a decade-long decline in college enrollment, with demographics suggesting that will continue for at least a decade more to come. That means less competition for entry into U.S. institutions, but more competition by institutions for students. The rest of the world, meanwhile, is looking at a dramatic surge in higher education demand, with projected growth of hundreds of millions of students in tertiary education worldwide over the next 15 years, mostly in Asia. That is far more than existing universities can handle using traditional models. Universities will be operating in a world of borderless competition for students. While any global business, no matter how diversified or well run, will be subject to periodic geopolitical shocks or global health crises, we believe that there are very few educational institutions, if any, that are as well positioned as Kaplan to maximize the opportunities ahead. And given our capabilities and our global institutional and student relationships, we're pretty confident about that future. And with that, Tim, back to you.

Thank you, Andy. I hope you now have a greater sense of appreciation for the great work Andy and his team have done over the last few years as well as why we think the future at Kaplan is bright. Before we wrap, I'd like to take a moment to discuss the recent change on the Board of Graham Holdings. Many of you have seen that Don has decided to transition to a Chairman Emeritus role at the company, starting today. Don has held the CEO or Chairman title since 1991, and we're all better off for it. But he isn't going far. In fact, he's literally just moving a seat down the table in the boardroom and will remain on the Board. Anne Mulcahy has agreed to become the new Chair of the company. Many of you either know Anne or know of her successes. In the annual report, Don points out that there is ample material available online to understand her career and success at Xerox, And I would second his suggestion to take to Google or YouTube if you have a free moment. So Anne has been on the Board since 2007 and has seen, what's probably fair to call, a tremendous evolution of the company during her tenure. She and I have developed a wonderful partnership, and I was so pleased when she agreed to take on the role of Chair. As many of you know, we have a remarkable Board of Directors. Shareholders are fortunate to benefit from the guidance and oversight they provide. We're lucky to have Don, Anne and the entirety of the Board as resources for the company. So this concludes my remarks. At this time, we'll move to a few brief business matters, and then we will open it up for Q&A. The meeting is now open to nominations for election of directors. We will then have the voting on directors followed by voting on the proposal before the Class A shareholders. While the ballots are being counted, the floor will be open to any questions on business matters or comments you may have. It's now in order to proceed with the election of directors. There are 9 directors to be elected, 6 by the holders of Class A common stock and 3 by the holders of Class B common stock. The Chair recognizes Mr. Cooney, who is a holder of Class B common stock and who is also a substitute proxy for a holder of Class A common stock.

I nominate the following persons for election as directors of the company to hold office until the next Annual Meeting of Stockholders and until their respective successors shall be elected and shall qualify or as otherwise provided in the bylaws. For election by the holders of Class A common stock, Tom Gayner, Don Graham, Tim O'Shaughnessy, Anne Mulcahy, Rick Wagoner, Katharine Weymouth. For election by the holders of Class B common stock, Tony Allen, Danielle Conley, Chris Davis.

There being no further nominations, I declare the nominations closed. I now declare the polls open for voting for the election of directors, for the proposal to approve the 2022 compensation awarded to named executive officers, and for the proposal to determine the frequency of votes on compensation to the named executive officers. I have been informed by the inspectors of votes that the holders of all the Class A common stock present, in person or by proxy, have voted their shares. Therefore, the only ballots to be distributed will be those for the election of directors by holders of Class B common stock. Many of you have already sent in your proxies for this meeting. If you have already sent in or voted your proxy by phone or electronically, your shares will be voted as you instructed. So please do not request a ballot now unless you wish to change your vote. Otherwise, tabulation of the vote will be unnecessarily complicated and delayed. Bearing that in mind, will all stockholders who wish to vote by ballot please raise their hands so the inspectors of votes may locate you? I direct the inspectors of votes to distribute the ballots, and after the voting, inform me when they have completed the tabulation of the ballots. We will now pause briefly while the ballots are handed out. After they have been marked and the ushers have collected them, we'll proceed with questions or comments from stockholders. While we are waiting for the results of the voting to be tabulated, we'll open the floor to any questions or comments you may have relating to the nominees for election of directors or about the business operations of the company. We want everyone to have a chance to ask a question and make a comment. So please raise your hand so that I can call on you, and please tell us your name and what company you are with. At this point in time, I'll go to the fun stuff, all the questions everybody has. So at this point -- and I know there's some mics running around.

[ Eli Samaha ] from Madison. I have two questions, one for Tim, one for Andy. The first question is, is closing the trading discount to NAV a goal of the company? And the second question is for Andy. I was hoping you might be able to provide a postmortem on the Mander Portman acquisition and how it's gone since we bought it.

Great. So on the first question, the goal is to build value at acceptable rates. And over time, we think that will -- math wins and that will work out. If there is a substantive discount to NAV, that provides another opportunity for the company to look at deploying capital via share repurchase. And so if you've followed the company for a while, you've seen that and you saw also in Q1, there were some repurchases on that front. So I would not say it is an explicit goal. It's more of an output if we do things right over an extended period of time. Andy, do you want to take the MPW question?

Yes. Eli, I'm not sure I'm ready to give a postscript on MPW. We're still -- it's still an excellent business that is in process. We paid a lot for MPW and the earnings are not what we had hoped at the time that we acquired it. But we have -- but it is an outstanding institution, is as good a quality as any institution in the U.K. And we think there's a lot of opportunity that stems from that.

Yes. And the results have been okay. I mean they have been -- I would probably take it up half a notch from what Andy -- they've been fine.

MPW is a good business as well. It's not the shooting star that we maybe hopefully paid for, but it's a great business and an excellent -- as they say, excellent institution.

John?

Yes. My question is about the overfunded pension plan. So you gave a number of -- it's now 2.9x overfunded. I'd like to look at it a different way. Correct me if my numbers are wrong. But at the end of '21, it was overfunded by about $2.2 billion, $2.3 billion. At the end of '22, about $1.6 billion, $1.7 billion. My calculation says that the overall fund, which is 93% invested in equities, so I understand it got to overfunded because of equities, but for '22, it appears to be down 22%, 23%. We know what Berkshire did. That's a big holding. We know the S&P was down 19%. So the other managers didn't have a great year. And does the Board or you ever think about preservation because this is such a wonderful asset, provides margin and safety? You're getting to use -- every year, I hear more about how you're using it. So I was a little disappointed in that how much it went down. So we'd love some commentary, and correct my numbers if I'm not right.

No, I think the numbers are right. And the only thing I would add is that the assets have probably -- the numbers available on me right now, but assets probably gone up a bit over the course of Q1 as well, versus the liabilities have probably been remaining flat. So it's probably grown a little over the last few months. The -- we -- you're correct that the managers -- a couple of the managers had years that were poorer than the S&P last year. Over time, they've tended to outperform. And so I think we don't put too much stock in any one particular 12-month window. If you went back a few additional years, some of the same managers that outperformed -- or some of those same managers outperformed disproportionately well, which is sort of what got us to a point. So our -- we have viewed, and it's something we talk about, but we have viewed the level of overfunding as such where we can be a little further out on the risk curve, and it can have an equity heavy and centric approach. And we know that occasionally, that will mean that there will be a year like 2022. But when that occurs, the overall funding ratio still remains quite, quite solid. And so our expectation is, over the next 10 years, there will probably be another year like 2022, but we'll be better with the overall strategy that we've had. We do look at the returns of investment managers. And if somebody -- if we got uncomfortable with them over an extended period of time, we would look at changing. So that is something that is discussed internally if results remain subpar. I think we're -- we feel good about the managers that are investing the fund at this point in time and don't expect any changes in the near term on that front. Mark?

Mark Hughes with Lafayette. You mentioned this in your financials, but could you talk a little bit more about it, and this relates to the Media Group. The movement of cord cutting over-the-top, what does that mean to the Media Group over time as more and more people are using YouTube TV, et cetera? Could you just talk a little bit about the long-term trends and what it means to that?

Yes, maybe I'll do an appetizer and then turn it over to Catherine for an entree here. Once we're not in a restaurant, then I'll stop using those analogies, but you're going to be stuck with them for a while. So the cord cutting stats broadly, there's a lot of coverage of the industry, so it's [ not known ], and we, like many, saw a little bit of acceleration over the course of the year. Historically, the per sub rates have grown at a pace that, when combined with OTT, our overall net retrans has grown, if you looked at that over a 5- or 10-year period of time. Feels like we're coming towards the end of that cycle. There is a slowdown in, I would say, the rate of per sub growth. There is a -- the network compensation discussions are probably more challenging than they were 5 years ago and some of the cord-cutting pieces that we discussed are there. OTT has been a nice offset and has ameliorated some of that pressure. The last thing I would say is that the contracts tend to be multiyear contracts. And so you have -- you do have some level of real visibility into at least what the next couple of years look like within a bound. So when you think about what the newspaper business looked like and was tied to aggressive classified and advertising pieces, that the retrans revenue and sort of income from that is unlikely to have a level of deterioration that was comparable to what some of the newspapers saw. So Catherine, you want to chime in?

Yes, closely watching the trends, and it is something that's discussed with every managers meeting that we have. Tim mentioned the fact that I think that the offsets that we're getting from streaming and OTT providers are better than anticipated, and we're encouraged by that. I think that, as an industry, we're actively looking to better those relationships with the streaming providers, and that's a big emphasis for us is to make sure that we have better negotiations being at the table and potentially removing our network partners from that relationship. So that's a big part of that, too, because we feel like we're not getting our fair share of that currently. So that could really change the economics of that relationship going forward if we can work with the FCC on changing that relationship. I feel like the trends are there, but we're actually looking this year at better negotiations and better overall retrans rates as a group. So like Tim said, the next few years are pretty clear in terms of what kind of revenue we can be counting on from that sector. But the business is really focused on life without retrans eventually, and that's really where we're putting all of our efforts currently.