10-Q: Biglari Holdings Reports Net Loss of $33.3 Million for Q1 2025 Amid Investment Partnership Losses

Biglari Holdings Inc. announces a net loss for the first quarter of 2025, primarily driven by losses from investment partnerships, despite revenue increases in restaurant and oil and gas operations.

Summary

• Biglari Holdings Inc. reported a net loss of $33.3 million for the first quarter of 2025, compared to a net earning of $22.6 million for the first quarter of 2024.
• The loss is primarily attributed to losses from investment partnerships, which amounted to $49.6 million in Q1 2025, compared to gains of $22.0 million in Q1 2024.
• Total revenues increased to $95.0 million from $89.5 million year-over-year, driven by growth in restaurant operations and oil and gas revenues.
• Restaurant operations revenue increased to $64.3 million from $62.0 million, while oil and gas revenue increased to $9.9 million from $9.5 million.
• Steak n Shake's same-store sales increased by 3.9%, but customer traffic declined at company-operated units.
• Insurance operations reported a pre-tax underwriting gain of $0.7 million, compared to $0.9 million in the same period last year.
• The company's cash and cash equivalents decreased to $28.7 million from $30.7 million at the end of 2024.
• Biglari Holdings has two lines of credit, with balances of $35.0 million and $13.4 million as of March 31, 2025.
• The company's disclosure controls and procedures were deemed not effective due to material weaknesses in internal control over financial reporting.
• The company is continuing remediation efforts to address these weaknesses.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the reported net loss and the identified material weaknesses in internal control over financial reporting. While revenue increased, the significant losses from investment partnerships overshadow the positive aspects.

Positives

• Total revenues increased to $95.0 million from $89.5 million year-over-year.
• Steak n Shake's same-store sales increased by 3.9%.
• First Guard produced an underwriting gain in the first quarter of 2025.
• Abraxas Petroleum recorded a gain of $9.3 million from selling undeveloped reserves.
• Southern Oil's revenue increased $398, or 10.9% during the first quarter of 2025 compared to 2024.

Negatives

• The company reported a net loss of $33.3 million for Q1 2025, compared to a net earning of $22.6 million for Q1 2024.
• Investment partnership losses were $49.6 million in Q1 2025, a significant swing from the $22.0 million gain in Q1 2024.
• Customer traffic declined at Steak n Shake's company-operated units.
• Southern Pioneer experienced an underwriting loss of $502,000.
• The company's disclosure controls and procedures were deemed not effective due to material weaknesses in internal control over financial reporting.

Risks

• The company's financial results are subject to volatility due to investment gains and losses, particularly from investment partnerships.
• Prolonged declines in oil and gas prices could lead to impairments of oil and gas properties.
• The company's disclosure controls and procedures were deemed not effective due to material weaknesses in internal control over financial reporting.
• The company's reliance on Sardar Biglari for major investment and capital allocation decisions presents a key-person risk, as he beneficially owns approximately 74.3% of the voting interest.

Future Outlook

The company expects volatility in oil and gas commodity prices to continue, which will be reflected in their financial results. The company is continuing remediation efforts to address material weaknesses in internal control over financial reporting.

Management Comments

• 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.

Industry Context

Biglari Holdings operates in diverse sectors including restaurants, insurance, and oil and gas, making it subject to various industry-specific trends. The restaurant industry is facing challenges related to changing consumer preferences and increased competition. The insurance industry is influenced by factors such as regulatory changes and catastrophic events. The oil and gas industry is highly sensitive to commodity price fluctuations and geopolitical events.

Comparison to Industry Standards

• Biglari Holdings' restaurant operations, particularly Steak n Shake, can be compared to other fast-casual chains like Shake Shack or Wendy's in terms of same-store sales growth and customer traffic.
• The insurance operations can be benchmarked against regional property and casualty insurers like Kemper or Mercury General in terms of underwriting performance and investment income.
• The oil and gas segment, Abraxas Petroleum and Southern Oil, can be compared to small-cap exploration and production companies operating in the Permian Basin and Gulf Coast regions, respectively, in terms of production costs and revenue per barrel of oil equivalent.
• The investment partnership performance can be compared to hedge fund performance benchmarks, although the specific investment strategy and holdings are not fully disclosed.

Related Party Transactions

• The Company paid Biglari Enterprises $2,850 and $2,400 in service fees during the first quarter of 2025 and 2024, respectively.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and the decline in the carrying value of cash and investments.
• Employees may be affected by the planned refranchising of Steak n Shake stores.
• Customers may experience changes in service or store locations due to the refranchising efforts.

Next Steps

• The company will continue remediation efforts to address the material weaknesses in internal control over financial reporting.
• Steak n Shake plans to sell or lease six of the nine closed company-operated stores and refranchise the balance.

Key Dates

Keywords

Biglari Holdings, Net Loss, Investment Partnerships, Restaurant Operations, Oil and Gas, Insurance, Steak n Shake, Financial Results, Q1 2025, Revenue