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. As of March 31, 2025, Mr. Biglari beneficially owns shares of the Company that represent approximately 74.3% of the voting interest. Net earnings (loss) are disaggregated in the table that follows. Amounts are recorded after deducting income taxes. First Quarter 2025 2024 Operating businesses: Restaurant $ 2,189 $ 3,473 Insurance 1,201 1,738 Oil and gas 8,298 1,149 Brand licensing (267) (265) Interest expense (693) — Corporate and other (3,289) (1,996) Total operating businesses 7,439 4,099 Investment partnership gains (losses) (39,426) 17,148 Investment gains (losses) (1,288) 1,332 Net earnings (loss) $ (33,275) $ 22,579 Restaurants Our restaurant businesses, which include Steak n Shake and Western Sizzlin, comprise 454 company-operated and franchise restaurants as of March 31, 2025. Steak n Shake Western Sizzlin Company- operated Franchise Partner Traditional Franchise Company- operated Franchise Total 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 Total stores as of December 31, 2023 148 181 128 3 32 492 Corporate stores transitioned 3 (3) — — — — Net restaurants opened (closed) (3) — (3) — (1) (7) Total stores as of March 31, 2024 148 178 125 3 31 485 As of March 31, 2025, nine of the 146 company-operated Steak n Shake stores were closed. Steak n Shake plans to sell or lease six of the nine locations and refranchise the balance. 20 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Restaurant operations are summarized below. First Quarter 2025 2024 Revenue Net sales $ 41,615 $ 38,735 Franchise partner fees 17,139 17,758 Franchise royalties and fees 3,489 3,477 Other revenue 2,106 2,026 Total revenue 64,349 61,996 Restaurant cost of sales Cost of food 12,464 30.0 % 10,974 28.3 % Labor costs 13,439 32.3 % 12,429 32.1 % Occupancy and other 11,855 28.5 % 11,018 28.4 % Total cost of sales 37,758 34,421 Selling, general and administrative General and administrative 11,928 18.5 % 11,730 18.9 % Marketing 3,232 5.0 % 2,945 4.8 % Other expenses (income) 294 0.5 % (234) (0.4) % Total selling, general and administrative 15,454 24.0 % 14,441 23.3 % Impairments — — % 107 0.2 % Depreciation and amortization 6,490 10.1 % 6,835 11.0 % Interest on finance leases and obligations 1,333 1,314 Earnings before income taxes 3,314 4,878 Income tax expense 1,125 1,405 Contribution to net earnings $ 2,189 $ 3,473 Cost of food, labor costs, and occupancy and other costs are expressed as a percentage of net sales. General and administrative, marketing, other expenses, impairments, and depreciation are expressed as a percentage of total revenue. Net sales for the first quarter of 2025 were $41,615 as compared to $38,735 during the first quarter of 2024. Steak n Shake’s same-store sales increased 3.9% but customer traffic declined at its company-operated units during the first quarter of 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. 21 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Fees generated by our franchise partners were $17,139 during the first quarter of 2025, as compared to $17,758 during the first quarter of 2024. Our share of franchise partner fees was $619 lower primarily due to fewer open units in 2025 compared to 2024. As of March 31, 2025, there were 172 franchise partner units as compared to 178 franchise partner units as of March 31, 2024. Included in franchise partner fees were $5,553 and $5,705 of rental income during the first quarter of 2025 and 2024, respectively. Franchise partners rent buildings and equipment from Steak n Shake. The franchise royalties and fees generated by the traditional franchising business were $3,489 during the first quarter of 2025, as compared to $3,477 during the first quarter of 2024. There were 104 Steak n Shake traditional units open on March 31, 2025, as compared to 125 units open on March 31, 2024. The cost of food at company-operated units during the first quarter of 2025 was $12,464 or 30.0% of net sales, as compared to $10,974 or 28.3% of net sales during the first quarter of 2024. 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 2025 were $13,439 or 32.3% of net sales, as compared to $12,429 or 32.1% of net sales during the first quarter of 2024. Labor costs expressed as a percentage of net sales increased during 2025 as compared to 2024 primarily due to increased staffing in the restaurants. General and administrative expenses during the first quarter of 2025 were $11,928 or 18.5% of total revenue, as compared to $11,730 or 18.9% of total revenue during the first quarter of 2024. General and administrative expenses in 2025 remained consistent with 2024. Interest on obligations under leases was $1,333 during the first quarter of 2025 versus $1,314 during the first quarter of 2024. 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 franchise partner information is useful to readers, as they have a direct effect on Steak n Shake’s profitability. First Quarter 2025 2024 Revenue Net sales and other $ 80,317 $ 80,788 Restaurant cost of sales Cost of food $ 23,419 29.2 % $ 23,170 28.7 % Labor costs 21,490 26.8 % 21,765 26.9 % Occupancy and other 16,665 20.7 % 16,778 20.8 % Total cost of sales $ 61,574 $ 61,713 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 2025 2024 Underwriting gain attributable to: First Guard $ 1,215 $ 800 Southern Pioneer (502) 59 Pre-tax underwriting gain 713 859 Income tax expense 150 180 Net underwriting gain $ 563 $ 679 Earnings of our insurance operations are summarized below. First Quarter 2025 2024 Premiums written $ 19,022 $ 16,527 Premiums earned $ 17,765 $ 15,922 Insurance losses 12,005 10,878 Underwriting expenses 5,047 4,185 Pre-tax underwriting gain 713 859 Other income and expenses Investment income 837 915 Other income and expenses (13) 472 Total other income 824 1,387 Earnings before income taxes 1,537 2,246 Income tax expense 336 508 Contribution to net earnings $ 1,201 $ 1,738 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 2025 2024 Amount % Amount % Premiums written $ 9,209 $ 9,310 Premiums earned $ 9,209 100.0 % $ 9,310 100.0 % Insurance losses 6,282 68.2 % 6,775 72.8 % Underwriting expenses 1,712 18.6 % 1,735 18.6 % Total losses and expenses 7,994 86.8 % 8,510 91.4 % Pre-tax underwriting gain $ 1,215 $ 800 First Guard produced an underwriting gain in the first quarter of 2025. Its underwriting gain increased $415 in the first quarter of 2025 compared to 2024. It is the nature of the insurance industry to experience volatility in underwriting performance. 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 2025 2024 Amount % Amount % Premiums written $ 9,813 $ 7,217 Premiums earned $ 8,556 100.0 % $ 6,612 100.0 % Insurance losses 5,723 66.9 % 4,103 62.1 % Underwriting expenses 3,335 39.0 % 2,450 37.0 % Total losses and expenses 9,058 105.9 % 6,553 99.1 % Pre-tax underwriting gain (loss) $ (502) $ 59 Premiums earned increased $1,944, or 29.4% in the first quarter of 2025 compared to 2024, primarily because of rate increases in its personal lines, e.g. homeowners insurance. Southern Pioneer’s ratio of losses and loss adjustment expenses to premiums earned was 66.9% during 2025 compared to 62.1% during 2024. 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 2025 2024 Interest, dividends and other investment income: First Guard $ 426 $ 570 Southern Pioneer 389 345 Biglari Reinsurance 22 — Pre-tax investment income 837 915 Income tax expense 176 192 Net investment income $ 661 $ 723 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 2025 2024 Oil and gas revenues $ 9,930 $ 9,510 Oil and gas production costs 4,046 4,499 Depreciation, depletion and accretion 3,256 2,792 General and administrative expenses 1,303 1,234 Total cost and expenses 8,605 8,525 Gain on sale of properties 9,323 481 Earnings before income taxes 10,648 1,466 Income tax expense 2,350 317 Contribution to net earnings $ 8,298 $ 1,149 Our oil and gas business is highly dependent on oil and natural gas prices. We did not record any impairments to our oil and gas assets during 2025. However, we may be required to record impairments of our oil and gas properties resulting from prolonged declines in oil and 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 2025 2024 Oil and gas revenues $ 5,890 $ 5,868 Oil and gas production costs 2,446 2,819 Depreciation, depletion and accretion 1,933 1,547 General and administrative expenses 649 596 5,028 4,962 Gain on sale of properties 9,323 481 Earnings before income taxes 10,185 1,387 Income tax expense 2,380 319 Contribution to net earnings $ 7,805 $ 1,068 Abraxas Petroleum’s revenue remained consistent during the first quarter of 2025 compared to 2024. Depletion increased in the first quarter of 2025 compared to 2024 due to an increase in the depletion rate. Abraxas Petroleum recorded a gain of $9,323 from selling undeveloped reserves to an unaffiliated party to conduct development activities; however, Abraxas Petroleum will not be required to fund any exploration expenditures on the undeveloped properties. 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 2025 2024 Oil and gas revenues $ 4,040 $ 3,642 Oil and gas production costs 1,600 1,680 Depreciation, depletion and accretion 1,323 1,245 General and administrative expenses 654 638 Earnings before income taxes 463 79 Income tax benefit (30) (2) Contribution to net earnings $ 493 $ 81 Southern Oil’s revenue increased $398, or 10.9% during the first quarter of 2025 compared to 2024. Southern Oil repaired several nonperforming wells throughout 2024. 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 2025 2024 Licensing and media revenues $ 1,407 $ 212 Licensing and media costs 1,651 503 Depreciation and amortization 70 — General and administrative expenses 43 63 Earnings (loss) before income taxes (357) (354) Income tax benefit (90) (89) Contribution to net earnings $ (267) $ (265) Licensing and media revenue increased $1,195 during the first quarter of 2025 compared to 2024 primarily due to a new venture concerning digital contests. Investment Gains and Investment Partnership Gains Investment losses net of tax for the first quarter of 2025 were $1,288 and investment gains net of tax for the first quarter of 2024 were $1,332. 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 from our investments in partnerships are summarized below. First Quarter 2025 2024 Investment partnership gains (losses) $ (49,592) $ 21,985 Tax expense (benefit) (10,166) 4,837 Contribution to net earnings $ (39,426) $ 17,148 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 2025 and 2024 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 2025 2024 Interest expense on note payable and other borrowings $ (900) $ — Tax benefit (207) — Interest expense net of tax $ (693) $ — 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 2025 were $3,289 compared to $1,996 in the first quarter of 2024. Income Taxes Income tax benefit for the first quarter of 2025 was $7,908 compared to an income tax expense of $6,816 for the first quarter of 2024. The variance in income taxes between 2025 and 2024 is primarily attributable to taxes on income generated by the investment partnerships. Investment partnership pre-tax losses were $49,592 during the first quarter of 2025 compared to pre-tax gains of $21,985 during the first quarter of 2024. Financial Condition Consolidated cash and investments are summarized below. March 31, 2025 December 31, 2024 Cash and cash equivalents $ 28,664 $ 30,709 Investments 106,667 102,975 Fair value of interest in investment partnerships 558,147 656,266 Total cash and investments 693,478 789,950 Less: portion of Company stock held by investment partnerships (389,012) (454,539) Carrying value of cash and investments on balance sheet $ 304,466 $ 335,411 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 2025 2024 Net cash provided by operating activities $ 15,795 $ 19,125 Net cash used in investing activities (19,894) (11,242) Net cash provided by (used in) financing activities 2,002 (1,403) Effect of exchange rate changes on cash 40 (10) Increase in cash, cash equivalents and restricted cash $ (2,057) $ 6,470 Cash provided by operating activities decreased $3,330 as compared to the first quarter of 2024. The decrease was primarily attributable to changes in our working capital accounts. Cash used in investing activities was $8,652 higher during the first quarter of 2025 compared to 2024. The change was primarily attributable to purchases of limited partnership interests, which were $13,345 higher, offset by $9,323 of proceeds from the sale of oil and gas properties. The Company had net borrowings of $3,400 on its lines of credit in the first quarter of 2025 and no activity in the first quarter of 2024. Biglari Holdings ’ Lines of Credit Biglari Holdings’ line of credit was amended on September 13, 2024, and the available line of credit was increased to $35,000. The line of credit matures on September 13, 2026. The line of credit includes customary covenants, as well as financial maintenance covenants. As of March 31, 2025, we were in compliance with all covenants. There was a $35,000 balance on the line of credit on March 31, 2025 and December 31, 2024. On November 8, 2024, Biglari Holdings entered into a line of credit in an aggregate principal amount of up to $75,000. The line of credit will be available on a revolving basis until November 7, 2027. The line of credit includes customary covenants as well as financial maintenance covenants. As of March 31, 2025, we were in compliance with all covenants. The balance on the line of credit was $13,400 and $10,000 on March 31, 2025 and December 31, 2024, respectively. Western Sizzlin Revolver Western Sizzlin’s available line of credit is $500. As of March 31, 2025 and December 31, 2024, 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, 2024. Recently Issued Accounting Pronouncements No recently issued accounting pronouncements were applicable for this Quarterly Report on Form 10-Q. 29 Table of Contents Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) 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.