Graham : Annual Shareholder Meeting with Non-GAAP Reconciliation

Annual Meeting of Shareholders

May 4, 2023

Remarks by Timothy J. O'Shaughnessy

Chief Executive Officer

Graham Holdings

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Welcome back to the Hamilton Live, now in its second year hosting the Graham Holdings Annual Shareholder 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 this year. 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 will hand the mic over to Andy Rosen, Kaplan's CEO, who will spend some time discussing the operations at Kaplan International.

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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 the Company can consistently grow, both organically and via bolt-on acquisition.

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roadcas	ng									525			5			12	11
anufacturing									1		5				11	115
ealthcare								1	2	1	22		2			102
Automo ve								2		25		2				151	2
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his 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 and 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 most 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 benefitted 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 are presenting "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 operating income and excludes our amortization, depreciation, and pension expenses. I'll offer a brief explanation in that order:

• As many of you know, our amortization expense is non-cash. As such, we exclude it from our operating cash flow numbers.
• Depreciation - this is a real cash expense but 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's 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 & will not require cash from our treasury or hit the cash flow statement. It is covered by the overfunded pension trust. We are 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 pre-tax 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 ompany's pre-tax free cash flow.