10-Q: Biglari Holdings Reports Q3 Loss Amid Investment Swings

Biglari Holdings Inc. reported a net loss of $5.3 million in the third quarter of 2025, primarily due to investment partnership losses, despite robust revenue growth in its restaurant and insurance segments.

Summary

• A net loss of $5.3 million was reported for Q3 2025, a significant decline from $32.1 million net earnings in Q3 2024.
• Total revenues increased by 10.3% to $99.7 million in Q3 2025 from $90.4 million in Q3 2024.
• For the first nine months of 2025, net earnings rose to $12.4 million from $6.5 million in the prior year, with total revenues increasing to $295.4 million from $271.0 million.
• Investment partnership gains swung to a loss of $15.9 million in Q3 2025 from a gain of $35.3 million in Q3 2024, significantly impacting quarterly results.
• Steak n Shake's domestic company-operated same-store sales increased by 15.6% in Q3 2025, and franchise partner same-store sales increased by 14.8%.
• Steak n Shake obtained a $225 million loan on September 30, 2025, with a 5-year term and 8.8% fixed interest, with proceeds distributed to Biglari Holdings.
• Material weaknesses in internal control over financial reporting, previously identified, are ongoing, and disclosure controls and procedures were deemed not effective as of September 30, 2025.

Sentiment

Score: 4

Explanation: The company experienced a substantial net loss in the third quarter, primarily driven by a significant negative swing in investment partnership performance. While operating segments like restaurants and some insurance units showed revenue growth and improved performance, and nine-month net earnings were positive, the quarterly loss and the persistent material weaknesses in internal controls are notable concerns. The large debt taken by Steak n Shake, with proceeds distributed to the parent, also warrants careful consideration regarding leverage and capital structure.

Positives

• Total revenues increased by 10.3% to $99.7 million in Q3 2025 and by 9.0% to $295.4 million for the first nine months of 2025.
• Net earnings for the first nine months of 2025 increased by 90% to $12.4 million, or $47.28 per Class A share.
• Steak n Shake domestic company-operated same-store sales grew by 15.6% in Q3 2025.
• Steak n Shake franchise partner same-store sales increased by 14.8% in Q3 2025.
• First Guard insurance operations reported an increased underwriting gain of $1.7 million in Q3 2025 and $5.0 million for the first nine months of 2025.
• Southern Pioneer insurance operations showed a significant increase in underwriting gain to $2.0 million in Q3 2025.
• Southern Oil's earnings before income taxes significantly increased to $667k in Q3 2025 and $1.9 million for the first nine months of 2025, driven by increased production from repaired wells.
• Maxim's licensing and media revenue saw substantial growth to $1.4 million in Q3 2025 and $5.1 million for the first nine months of 2025 due to new digital contests.
• Cash and cash equivalents significantly increased to $272.5 million as of September 30, 2025, from $30.7 million at December 31, 2024.
• Net cash provided by operating activities for the first nine months of 2025 increased by $57.5 million to $89.2 million, primarily due to $54.0 million in distributions from investment partnerships.

Negatives

• A net loss of $5.3 million was recorded in Q3 2025, compared to net earnings of $32.1 million in Q3 2024.
• Investment partnership gains swung to a loss of $15.9 million in Q3 2025 from a gain of $35.3 million in Q3 2024, and remained a loss of $7.0 million for the first nine months of 2025.
• Oil and gas revenue decreased to $7.4 million in Q3 2025 and $24.8 million for the first nine months of 2025, primarily due to lower sales prices of crude oil and natural gas.
• Abraxas Petroleum's earnings before income taxes declined to a loss of $1k in Q3 2025 and significantly decreased to $10.6 million for the first nine months of 2025.
• Traditional Steak n Shake units decreased to 96 as of September 30, 2025, from 116 a year prior, leading to lower franchise royalties and fees.
• Interest expense on borrowings increased significantly to $829k in Q3 2025 and $2.6 million for the first nine months of 2025.
• Restaurant long-lived asset impairments increased to $1.3 million for the first nine months of 2025.
• Southern Pioneer insurance operations recorded an underwriting loss of $407k for the first nine months of 2025, a swing from a gain in the prior year.

Risks

• Volatility in oil and natural gas prices could lead to impairments of oil and gas properties and adversely impact production, proved reserves, and cash flows.
• Inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time mean actual results may differ materially from forecasts.
• The insurance industry is subject to inherent volatility in underwriting performance.
• Investment and derivative gains/losses cause significant volatility in periodic earnings.
• Material weaknesses in internal control over financial reporting, previously identified, are ongoing, and disclosure controls and procedures were deemed not effective as of September 30, 2025.
• Failure to comply with financial maintenance covenants (Corporate FCCR and 4-Wall Fixed Charge Coverage Ratio) could trigger mandatory prepayments or events of default under the new Steak n Shake loan.
• The company is evaluating the impact of the 'One Big Beautiful Bill Act' on financial results and disclosures, implying potential uncertainty.

Future Outlook

The company expects continued volatility in oil and gas commodity prices, which will be reflected in financial results. It is currently evaluating the impact of the newly signed 'One Big Beautiful Bill Act' on its financial results and disclosures. The company's remediation efforts to address material weaknesses in internal control over financial reporting are ongoing.

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.
• We believe that investment and derivative gains/losses are generally meaningless for analytical purposes in understanding our quarterly and annual results.
• We expect that a majority of the $28,493 deferred tax liability enumerated above will not become due until the dissolution of the investment partnerships.
• We believe, based on examination of these matters and experiences to date, that the ultimate liability, if any, in excess of amounts already provided in our consolidated financial statements is not likely to have a material effect on our results of operations, financial position or cash flow.

Industry Context

The restaurant segment, particularly Steak n Shake, shows strong same-store sales growth, indicating resilience or effective strategies in a competitive market. The insurance segment's performance is mixed, with First Guard showing gains and Southern Pioneer experiencing a swing to a loss for the nine-month period, reflecting the inherent volatility of the industry. The oil and gas segment is highly sensitive to commodity prices, as evidenced by the revenue decrease and Abraxas Petroleum's decline, while Southern Oil's production increases highlight operational improvements despite market headwinds. The significant impact of investment partnership gains/losses on overall net earnings underscores the company's exposure to market fluctuations beyond its core operating businesses, a characteristic of holding companies with substantial investment portfolios.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in various legal proceedings and has unresolved claims pending.
• Management believes that the ultimate liability, if any, in excess of amounts already provided is not likely to have a material effect on results of operations, financial position, or cash flow.

Related Party Transactions

• Service fees of $8.55 million were paid to Biglari Enterprises LLC (owned by Mr. Biglari) during the first nine months of 2025 ($7.2 million in 2024).
• An incentive reallocation fee of $8.36 million was accrued to Biglari Capital Corp. (solely owned by Mr. Biglari) through the first nine months of 2025, related to gains on the Company's stock in investment partnerships (none in 2024).
• Permitted Payments from Debtor (Steak n Shake) to Biglari include monthly Corporate Office Rent (up to $150k), a monthly service fee ($350k), and an annual payment ($450k), plus periodic reimbursements for reasonable expenses.
• Proceeds from the $225 million Steak n Shake loan were distributed to Biglari Holdings.

Stakeholder Impact

• Shareholders: The significant Q3 net loss and ongoing internal control issues could negatively impact investor confidence and share price. However, the overall 9-month earnings growth and strong restaurant performance offer some positive counterpoints. The large debt raise and its distribution to the parent company could alter the risk/reward profile.
• Employees: The transition of company-operated restaurants to franchise partner units and the closure of some Steak n Shake locations could impact employment in the restaurant segment.
• Customers: Improvements in product quality at Steak n Shake and promotions of new products/payment methods could enhance customer experience.
• Creditors: The new $225 million loan to Steak n Shake, secured by real estate, and the associated financial covenants (Corporate FCCR, 4-Wall FCCR) are critical for creditors. Failure to meet these covenants could trigger mandatory prepayments or defaults.
• Franchise Partners: Increased same-store sales for franchise partners indicate a healthy business environment for them, but the decrease in traditional Steak n Shake units suggests ongoing shifts in the franchising model.

Next Steps

• Continue remediation efforts for material weaknesses in internal control over financial reporting.
• Evaluate the impact of the 'One Big Beautiful Bill Act' on financial results and disclosures.
• Steak n Shake plans to sell or lease eight of its ten closed company-operated locations and reopen the remaining two.
• Debtor (Steak n Shake) must maintain specific Corporate FCCR and 4-Wall Fixed Charge Coverage Ratios, with mandatory prepayments or equity contributions required if covenants are not met.

Key Dates

Recommendation

While Biglari Holdings demonstrated strong operational performance in its restaurant segment with significant same-store sales growth and an overall increase in net earnings for the first nine months, the substantial net loss in Q3 driven by volatile investment partnership performance is a concern. The ongoing material weaknesses in internal controls also present a governance risk. The recent $225 million debt raise by Steak n Shake, with proceeds flowing to the parent, adds leverage to the balance sheet. Given the mixed financial signals, the inherent volatility from investment activities, and the governance issues, a 'hold' recommendation is appropriate. Investors should monitor the resolution of internal control weaknesses, the consistency of operating segment performance, and the impact of the new debt structure.

Keywords

Biglari Holdings, Steak n Shake, SEC Filing, 10-Q, Quarterly Report, Financial Results, Restaurant Industry, Insurance, Oil and Gas, Investment Partnerships, Corporate Governance, Internal Controls, Sardar Biglari, Franchise, Same-Store Sales, Debt Financing, Capital Allocation, Maxim