Biglari Holdings Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) Overview Biglari Holdings Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities, including property and casualty insurance and reinsurance, licensing and media, restaurants, and oil and gas. Biglari Holdings is founded and led by Sardar Biglari, Chairman and Chief Executive Officer of the Company. Biglari Holdings’ management system combines decentralized operations with centralized financial decision-making. Operating decisions for the various business units are made by their respective managers. All major investment and capital allocation decisions are made for the Company and its subsidiaries by Mr. Biglari. Net earnings (loss) are disaggregated in the table that follows. Amounts are recorded after deducting income taxes. First Quarter 2026 2025 Operating businesses: Restaurant $ 2,038 $ 2,189 Insurance 2,885 1,201 Oil and gas 907 8,298 Brand licensing 116 (267) Interest expense (4,281) (693) Corporate and other (4,548) (3,289) Total operating businesses (2,883) 7,439 Investment partnership gains (losses) (10,251) (39,426) Investment gains (losses) (1,397) (1,288) Net earnings (loss) $ (14,531) $ (33,275) Restaurants Our restaurant businesses, which include Steak n Shake and Western Sizzlin, comprise 437 company-operated and franchise restaurants as of March 31, 2026. Steak n Shake Western Sizzlin Company- operated Franchise Partner Traditional Franchise Company- operated Franchise Total Total stores as of December 31, 2025 131 179 94 3 28 435 Corporate stores transitioned (3) 3 — — — — Net restaurants opened (closed) — 2 — — 2 Total stores as of March 31, 2026 128 182 96 3 28 437 Total stores as of December 31, 2024 146 173 107 3 29 458 Corporate stores transitioned — — — — — — Net restaurants opened (closed) — (1) (3) — — (4) Total stores as of March 31, 2025 146 172 104 3 29 454 As of March 31, 2026, seven of the 128 company-operated Steak n Shake stores were closed. Of the seven locations, Steak n Shake plans to reopen two locations and sell or lease five locations. 20 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Restaurant operations are summarized below. First Quarter 2026 2025 Revenue Net sales $ 40,347 $ 41,615 Franchise partner fees 20,541 17,139 Franchise royalties and fees 3,126 3,489 Other revenue 2,132 2,106 Total revenue 66,146 64,349 Restaurant cost of sales Cost of food 12,665 31.4 % 12,464 30.0 % Labor costs 12,858 31.9 % 13,439 32.3 % Occupancy and other 11,942 29.6 % 11,855 28.5 % Total cost of sales 37,465 37,758 Selling, general and administrative General and administrative 11,836 17.9 % 11,928 18.5 % Marketing 5,427 8.2 % 3,232 5.0 % Other expenses (income) 155 0.2 % 294 0.5 % Total selling, general and administrative 17,418 26.3 % 15,454 24.0 % Depreciation and amortization 7,030 10.6 % 6,490 10.1 % Interest on finance leases and obligations 1,357 1,333 Earnings before income taxes 2,876 3,314 Income tax expense 838 1,125 Contribution to net earnings $ 2,038 $ 2,189 Cost of food, labor costs, and occupancy and other costs are expressed as a percentage of net sales. General and administrative, marketing, other expenses, and depreciation are expressed as a percentage of total revenue. Net sales for the first quarter of 2026 were $40,347 as compared to $41,615 during the first quarter of 2025. Steak n Shake’s domestic same-store sales increased 10.0%. Total revenue decreased due to fewer company-operated units in 2026 compared to 2025. For company-operated units, sales to the end customer are recorded as revenue generated by the Company, but for franchise partner units, only our share of the restaurant’s profits, along with certain fees, are recorded as revenue. Because we derive most of our revenue from our share of the profits, revenue will decline as we transition from company-operated units to franchise partner units. Fees generated by our franchise partners were $20,541 during the first quarter of 2026, as compared to $17,139 during the first quarter of 2025. Franchise partner same-store sales increased approximately 13%. The franchise royalties and fees generated by the traditional franchising business were $3,126 during the first quarter of 2026, as compared to $3,489 during the first quarter of 2025. There were 96 Steak n Shake traditional units open on March 31, 2026, as compared to 104 units open on March 31, 2025. 21 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) The cost of food at company-operated units during the first quarter of 2026 was $12,665 or 31.4% of net sales, as compared to $12,464 or 30.0% of net sales during the first quarter of 2025. The increase was primarily due to Steak n Shake changing its frying oil to 100% beef tallow. The labor costs at company-operated restaurants during the first quarter of 2026 were $12,858 or 31.9% of net sales, as compared to $13,439 or 32.3% of net sales during the first quarter of 2025. The decrease as a percentage of net sales was primarily due to a decrease in management labor costs. General and administrative expenses during the first quarter of 2026 were $11,836 or 17.9% of total revenue, as compared to $11,928 or 18.5% of total revenue during the first quarter of 2025. General and administrative expenses in 2026 remained consistent with 2025. Interest on obligations under leases was $1,357 during the first quarter of 2026 versus $1,333 during the first quarter of 2025. To better convey the performance of the franchise partnership model, the table below shows the underlying sales, cost of food, labor costs, and other restaurant costs of the franchise partners. We believe the unaudited franchise partner information is useful to readers, as they have a direct effect on Steak n Shake’s profitability. First Quarter 2026 2025 Revenue Net sales and other $ 96,024 $ 80,317 Restaurant cost of sales Cost of food $ 29,376 30.6 % $ 23,419 29.2 % Labor costs 24,651 25.7 % 21,490 26.8 % Occupancy and other 20,188 21.0 % 16,665 20.7 % Total cost of sales $ 74,215 $ 61,574 The Company’s consolidated financial statements do not include data in the table above. Figures are shown for information purposes only. 22 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Insurance We view our insurance businesses as possessing two activities: underwriting and investing. Underwriting decisions are the responsibility of the unit managers, whereas investing decisions are the responsibility of our Chairman and CEO, Sardar Biglari. Our business units are operated under separate local management. Biglari Holdings’ insurance operations consist of First Guard, Southern Pioneer, and Biglari Reinsurance. Underwriting results of our insurance operations are summarized below. First Quarter 2026 2025 Underwriting gain attributable to: First Guard $ 1,571 $ 1,215 Southern Pioneer 1,312 (502) Other 96 — Pre-tax underwriting gain 2,979 713 Income tax expense 626 150 Net underwriting gain $ 2,353 $ 563 Earnings of our insurance operations are summarized below. First Quarter 2026 2025 Premiums written $ 18,508 $ 19,022 Premiums earned $ 17,801 $ 17,765 Insurance losses 9,956 12,005 Underwriting expenses 4,866 5,047 Pre-tax underwriting gain 2,979 713 Other income and expenses Investment income 651 837 Other income and expenses (389) (13) Total other income 262 824 Earnings before income taxes 3,241 1,537 Income tax expense 356 336 Contribution to net earnings $ 2,885 $ 1,201 Insurance premiums and other on the consolidated statement of earnings includes premiums earned, investment income, other income, and commissions. 23 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) First Guard First Guard is a direct underwriter of commercial truck insurance, selling physical damage and nontrucking liability insurance to truckers. First Guard’s insurance products are marketed primarily through direct response methods via the Internet or by telephone. First Guard’s cost-efficient direct response marketing methods enable it to be a low-cost insurer. A summary of First Guard’s underwriting results follows. First Quarter 2026 2025 Amount % Amount % Premiums written $ 9,046 $ 9,209 Premiums earned $ 9,046 100.0 % $ 9,209 100.0 % Insurance losses 5,907 65.3 % 6,282 68.2 % Underwriting expenses 1,568 17.3 % 1,712 18.6 % Total losses and expenses 7,475 82.6 % 7,994 86.8 % Pre-tax underwriting gain $ 1,571 $ 1,215 First Guard produced an underwriting gain in 2026 of $1,571, representing an increase of $356, or 29.3% compared to 2025. Southern Pioneer Southern Pioneer underwrites garage liability and commercial property insurance, as well as homeowners and dwelling fire insurance. A summary of Southern Pioneer’s underwriting results follows. First Quarter 2026 2025 Amount % Amount % Premiums written $ 9,462 $ 9,813 Premiums earned $ 8,755 100.0 % $ 8,556 100.0 % Insurance losses 4,049 46.2 % 5,723 66.9 % Underwriting expenses 3,394 38.8 % 3,335 39.0 % Total losses and expenses 7,443 85.0 % 9,058 105.9 % Pre-tax underwriting gain (loss) $ 1,312 $ (502) Southern Pioneer produced an underwriting gain in 2026 of $1,312, representing an increase of $1,814 compared to 2025. 24 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) A summary of net investment income attributable to our insurance operations follows. First Quarter 2026 2025 Interest, dividends and other investment income: First Guard $ 332 $ 426 Southern Pioneer 315 389 Biglari Reinsurance 4 22 Pre-tax investment income 651 837 Income tax expense 137 176 Net investment income $ 514 $ 661 We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. Oil and Gas A summary of revenues and earnings of our oil and gas operations follows. First Quarter 2026 2025 Oil and gas revenues $ 9,136 $ 9,930 Oil and gas production costs 3,924 4,046 Depreciation, depletion and accretion 2,874 3,256 General and administrative expenses 1,325 1,303 Total cost and expenses 8,123 8,605 Gain on sale of properties — 9,323 Earnings before income taxes 1,013 10,648 Income tax expense 106 2,350 Contribution to net earnings $ 907 $ 8,298 Our oil and gas business is highly dependent on oil and natural gas prices. It is expected that the prices of oil and gas commodities will remain volatile, which will be reflected in our financial results. 25 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Abraxas Petroleum Abraxas Petroleum operates oil and gas properties in the Permian Basin. Earnings for Abraxas Petroleum are summarized below. First Quarter 2026 2025 Oil and gas revenues $ 6,126 $ 5,890 Oil and gas production costs 2,734 2,446 Depreciation, depletion and accretion 1,299 1,933 General and administrative expenses 588 649 4,621 5,028 Gain on sale of properties — 9,323 Earnings before income taxes 1,505 10,185 Income tax expense 238 2,380 Contribution to net earnings $ 1,267 $ 7,805 Abraxas Petroleum’s revenue increased $236, or 4.0% during the first quarter of 2026 compared to 2025, primarily due to an increase in oil production during 2026 compared to 2025. In the first quarter of 2025, Abraxas Petroleum recorded a gain of $9,323 from selling undeveloped reserves to an unaffiliated party to conduct development activities; however, Abraxas Petroleum was not required to fund any exploration expenditures on the undeveloped properties. No gain was recorded in the first quarter of 2026. Southern Oil Southern Oil primarily operates oil and natural gas properties offshore in Louisiana state waters. Earnings for Southern Oil are summarized below. First Quarter 2026 2025 Oil and gas revenues $ 3,010 $ 4,040 Oil and gas production costs 1,190 1,600 Depreciation, depletion and accretion 1,575 1,323 General and administrative expenses 737 654 Earnings before income taxes (492) 463 Income tax benefit (132) (30) Contribution to net earnings $ (360) $ 493 Southern Oil’s revenue decreased $1,030, or 25.5% during the first quarter of 2026 compared to 2025. The revenue decline was primarily due to reduced production during 2026 compared to 2025. 26 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Brand Licensing Maxim’s business lies principally in licensing and media. Earnings of operations are summarized below. First Quarter 2026 2025 Licensing and media revenues $ 3,261 $ 1,407 Licensing and media costs 2,874 1,651 Depreciation and amortization 191 70 General and administrative expenses 39 43 Earnings (loss) before income taxes 157 (357) Income tax expense (benefit) 41 (90) Contribution to net earnings $ 116 $ (267) Maxim’s revenue increased during the first quarter of 2026 compared to 2025 primarily due to digital contests. Investment Gains and Investment Partnership Gains Investment losses net of tax for the first quarter of 2026 and 2025 were $1,397 and $1,288, respectively. Dividends and interest earned on investments are reported as investment income by our insurance companies. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. Earnings (losses) from our investments in partnerships are summarized below. First Quarter 2026 2025 Investment partnership gains (losses) $ (13,454) $ (49,592) Tax expense (benefit) (3,203) (10,166) Contribution to net earnings $ (10,251) $ (39,426) Investment partnership gains include gains/losses from changes in market values of underlying investments and dividends earned by the partnerships. Dividend income has a lower effective tax rate than income from capital gains. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings. The investment partnerships hold the Company’s common stock as investments. The Company’s pro-rata share of its common stock held by the investment partnerships is recorded as treasury stock even though these shares are legally outstanding. Gains and losses on Company common stock included in the earnings of the partnerships are eliminated in the Company’s consolidated financial results. Investment gains and losses in 2026 and 2025 were mainly derived from our investments in equity securities and included unrealized gains and losses from market price changes during the period. We believe that investment and derivative gains/losses are generally meaningless for analytical purposes in understanding our reported quarterly and annual results. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings. 27 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Interest Expense The Company’s interest expense is summarized below. First Quarter 2026 2025 Interest expense on note payable and other borrowings $ (5,651) $ (900) Tax benefit (1,370) (207) Interest expense net of tax $ (4,281) $ (693) The increase in interest expense is due to interest on Steak n Shake’s note payable obtained on September 30, 2025. The outstanding balance on Steak n Shake’s note payable was $221,625 on March 31, 2026. The interest rate on Steak n Shake’s note payable is fixed at 8.8%. Corporate and Other Corporate expenses exclude the activities of the restaurant, insurance, brand licensing, and oil and gas businesses. Corporate and other net losses during the first quarter of 2026 were $4,548 compared to $3,289 in the first quarter of 2025. The higher loss in 2026 was primarily due to higher legal and professional fees. Income Taxes The income tax benefit for the first quarter of 2026 was $4,351 compared to an income tax benefit of $7,908 for the first quarter of 2025. The decreased income tax benefit between 2026 and 2025 is primarily attributable to lower tax benefits on pre-tax losses generated by the investment partnerships. Financial Condition Consolidated cash and investments are summarized below. March 31, 2026 December 31, 2025 Cash and cash equivalents $ 200,075 $ 268,782 Investments 114,187 69,050 Fair value of interest in investment partnerships 785,056 772,585 Total cash and investments 1,099,318 1,110,417 Less: portion of Company stock held by investment partnerships (619,563) (618,310) Carrying value of cash and investments on balance sheet $ 479,755 $ 492,107 Unrealized gains/losses of Biglari Holdings’ stock held by the investment partnerships are eliminated in the Company’s consolidated financial results. 28 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity Our balance sheet continues to maintain significant liquidity. Consolidated cash flow activities are summarized below. First Quarter 2026 2025 Net cash provided by operating activities $ 20,332 $ 15,795 Net cash used in investing activities (95,143) (19,894) Net cash provided by financing activities 6,057 2,002 Effect of exchange rate changes on cash 47 40 Increase (decrease) in cash, cash equivalents and restricted cash $ (68,707) $ (2,057) Cash provided by operating activities increased during the first quarter of 2026 by $4,537 as compared to the first quarter of 2025. The change was primarily attributable to $13,020 of distributions from the investment partnerships during 2026. Cash used in investing activities increased during the first quarter of 2026 by $75,249 compared to the first quarter of 2025. The change was primarily attributable to purchases of limited partnership interests, which were $24,810 higher, and purchases of investments, which were $34,970 higher. Cash provided by financing activities increased during the first quarter of 2026 by $4,055 compared to the first quarter of 2025. The Company had net payments on its line of credit and note payable of $7,000 offset by proceeds from the issuance of common stock of $14,920 compared to net borrowings of $3,400 on its lines of credit in the first quarter of 2025. On January 16, 2026, we entered into an At the Market Offering Agreement with a third party providing for the sale of up to $500,000 in shares of our common stock. Through May 8, 2026, the Company sold 4,312 shares of Class A Common Stock for $9,080 and 14,500 shares of Class B Common Stock for $5,993. We intend to use the net proceeds from these offerings to support our business and investment activities and build a stronger capital position at the holding company for the acquisition of businesses, for augmenting the capital of insurance subsidiaries, or for other general corporate purposes. Biglari Holdings ’ Line of Credit Biglari Holdings’ line of credit is $35,000 and matures on September 13, 2026. The line of credit includes customary covenants, as well as financial maintenance covenants. As of March 31, 2026, we were in compliance with all covenants. The balance on the line of credit was $22,500 and $27,250 on March 31, 2026 and December 31, 2025, respectively. Steak n Shake Note Payable On September 30, 2025, Steak n Shake obtained a loan of $225,000. The term loan is five years, with an interest rate fixed at 8.8% per annum, and the loan will be amortized at a rate of 3.0% per annum. The loan includes customary covenants as well as financial maintenance covenants and customary events of default. As of March 31, 2026, Steak n Shake was in compliance with all covenants. The debt is an obligation of Steak n Shake and the proceeds from the loan were distributed to Biglari Holdings. All of the debt is secured by real estate owned by Steak n Shake. Western Sizzlin Revolver Western Sizzlin’s available line of credit is $500. As of March 31, 2026 and December 31, 2025, Western Sizzlin had no debt outstanding on its revolver. Critical Accounting Policies Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain accounting policies require management to make estimates and judgments concerning transactions that will be settled several years in the future. Amounts recognized in our consolidated financial statements from such estimates are necessarily based on numerous assumptions involving varying and potentially significant degrees of judgment and uncertainty. Accordingly, the amounts currently reflected in our consolidated financial statements will likely increase or decrease in the future as additional information becomes available. There have been no material changes to critical accounting policies previously disclosed in our annual report on Form 10-K for the year ended December 31, 2025. 29 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Recently Issued Accounting Pronouncements No recently issued accounting pronouncements were applicable for this Quarterly Report on Form 10-Q. Cautionary Note Regarding Forward-Looking Statements This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements include estimates of future revenues, cash flows, capital expenditures, or other financial items, and assumptions underlying any of the foregoing. Forward-looking statements reflect management’s current expectations regarding future events and use words such as “anticipate,” “believe,” “expect,” “may,” and other similar terminology. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors, many beyond our control, including, but not limited to, the risks and uncertainties described in Item 1A, Risk Factors of our annual report on Form 10-K and Item 1A of this report. We undertake no obligation to publicly update or revise them, except as may be required by law. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable.