Biglari Holdings Inc. 10-Q Summary: Q2 2024
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. Biglari Holdings Inc. is a holding company with diverse operations including restaurant franchising (Steak n Shake, Western Sizzlin), property and casualty insurance (First Guard, Southern Pioneer), oil and gas (Southern Oil, Abraxas Petroleum), and licensing/media (Maxim). The company is led by Chairman and CEO Sardar Biglari, who beneficially owns approximately 71.5% of the voting interest.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenues | $91.1M | $93.5M | $180.6M | $183.7M |
| Net Earnings (Loss) | $(48.2M) | $1.9M | $(25.6M) | $67.4M |
| EPS (Class A Equivalent) | $(171.89) | $6.64 | $(90.80) | $229.00 |
| Operating Cash Flow (YTD) | $20.9M | $31.5M | $20.9M | $31.5M |
| Cash & Equivalents | $26.9M | $30.9M | $26.9M | $30.9M |
| Total Debt (Line of Credit) | $0.05M | $0 | $0.05M | $0 |
Note: Figures in millions unless otherwise noted. Net earnings are heavily impacted by investment partnership results.
Material Changes vs. Prior Period
- Investment Partnership Volatility: The primary driver of the net loss was a $79.9M loss from investment partnerships in Q2 2024, compared to a $7.5M loss in Q2 2023. This contrasts sharply with the $65.1M gain from these partnerships in the first six months of 2023.
- Oil & Gas Performance: Oil and gas earnings before taxes surged to $17.4M in Q2 2024 from $2.9M in Q2 2023. This increase was driven by a $16.2M gain on the sale of undeveloped oil and gas properties by Abraxas Petroleum.
- Restaurant Operations: Restaurant revenues remained flat ($64.5M vs $64.5M). However, earnings before taxes declined to $5.8M from $9.2M due to increased labor costs (31.8% of net sales vs 30.8%) and higher general and administrative expenses.
- Insurance Underwriting: First Guard reported an underwriting gain of $1.3M, while Southern Pioneer reported a loss of $0.8M. Overall insurance earnings before taxes decreased to $1.9M from $4.0M.
- Impairments: A $1.0M goodwill impairment was recorded for Western Sizzlin in Q2 2024.
Outlook, Risks, and Management Commentary
- Restaurant Strategy: Management continues to transition from company-operated units to franchise partner units. As of June 30, 2024, there were 477 total stores. Steak n Shake plans to sell or lease 8 of 15 closed locations and refranchise the remainder.
- Investment Volatility: Management explicitly states that investment and derivative gains/losses are "generally meaningless for analytical purposes" regarding quarterly results due to significant volatility from market price changes in the investment partnerships.
- Liquidity: The company maintains significant liquidity with $26.9M in cash and $93.6M in investments. The $30M corporate line of credit matures on September 12, 2024, with no balance outstanding as of June 30, 2024.
- Risks: Key risks include the volatility of investment partnership returns, dependence on oil and gas prices, and the success of the franchise transition model. No material changes to risk factors were reported.
Investor Verification Checklist
- Investment Partnership Valuation: Verify the composition and fair value of the Lion Fund and Lion Fund II, which drove the $79.9M quarterly loss.
- Oil & Gas Asset Sales: Confirm the sustainability of the $16.2M gain from Abraxas Petroleum property sales and future production outlook given shut-in wells.
- Restaurant Cost Structure: Monitor the trend of labor costs as a percentage of net sales, which rose to 31.8% in Q2 2024.
- Debt Maturity: Note the September 12, 2024, maturity date of the $30M line of credit and ensure compliance with financial covenants.
- Goodwill Impairment: Review the assumptions used in the Western Sizzlin goodwill impairment assessment.