Biglari Holdings Inc. — Fiscal 2023 Form 10-K Summary
Reporting period: Year ended December 31, 2023. The filing is an annual report rather than a standalone fourth-quarter filing; quarterly results are not separately presented in the supplied text.
Business Context
Biglari Holdings is a diversified holding company with restaurant, property and casualty insurance, oil and gas, brand licensing and investment operations. Restaurant operations include Steak n Shake and Western Sizzlin, with 492 locations at year-end: 148 company-operated, 181 franchise partner and 160 traditional franchise units, plus 3 Western Sizzlin company-operated units and 32 franchise units. Management is decentralized operationally but centralized for major investments and capital allocation. Sardar Biglari, Chairman and CEO, held approximately 66.8% of the economic interest and 71.0% of the voting interest.
2023 Financial Performance and Position
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $365.3 million | $368.2 million | Down $2.9 million |
| Net earnings | $55.5 million | $(32.3) million | Returned to profitability |
| Net earnings attributable to shareholders | $54.9 million | $(32.0) million | Improved $87.0 million |
| Equivalent Class A earnings per share | $189.49 | $(107.43) | Returned to profitability |
| Operating cash flow | $73.0 million | $127.8 million | Down $54.8 million |
| Capital expenditures | $23.4 million | $29.7 million | Down $6.3 million |
| Shareholders’ equity attributable to Biglari Holdings | $599.3 million | $547.0 million | Up $52.4 million |
Revenue mix: Restaurant revenue was $250.9 million, insurance premiums and other revenue was $67.3 million, oil and gas revenue was $45.1 million, and licensing and media revenue was $2.1 million.
- Restaurants: Earnings before income taxes were $28.0 million versus $13.0 million in 2022. Revenue increased 3.8%. Labor costs declined to 30.9% of company-operated net sales from 33.9%, primarily due to improved productivity. Food costs were broadly stable at 29.5% of net sales.
- Insurance: Earnings before income taxes increased to $13.1 million from $9.9 million. Pre-tax underwriting gain rose to $8.5 million from $5.3 million. First Guard’s loss ratio improved to 56.5% from 62.1%, while Southern Pioneer remained unprofitable at a $1.0 million underwriting loss, principally due to weather-related losses.
- Oil and gas: Earnings before income taxes were $25.8 million versus $25.2 million. Results included a $13.6 million gain from a royalty-based development arrangement. Revenue declined because of lower commodity prices and reduced Southern Oil activity. Average West Texas Intermediate pricing was approximately $77.64 per barrel versus $94.53 in 2022.
- Brand licensing: Revenue declined to $2.1 million from $4.6 million, and net earnings declined to $8 thousand from $1.3 million. Management stated that an important licensing transaction shifted from 2023 to 2024.
Cash Flow, Liquidity and Debt
Cash, cash equivalents and restricted cash totaled $29.7 million at December 31, 2023, including $28.1 million of cash and cash equivalents. Total cash and investments, including investment partnerships, were $592.7 million before deducting $273.7 million representing the Company’s stock held by those partnerships; the carrying value of cash and investments on the balance sheet was $319.0 million.
Net cash used in investing activities was $66.1 million, including $45.0 million of contributions to investment partnerships, $23.4 million of capital expenditures and $5.4 million paid to acquire the remaining 10% of Abraxas Petroleum. Financing activities used $16.1 million, primarily reflecting net repayments under the corporate line of credit.
The Company had no balance on its $30.0 million revolving line of credit at year-end and was in compliance with its covenants. The facility expires September 13, 2024 and bears interest at 30-day SOFR plus 2.73%. Western Sizzlin’s $0.5 million revolver was also undrawn. Lease obligations totaled $101.2 million, including current and long-term obligations.
Material Changes, Outlook and Risks
- The Company acquired the remaining 10% of Abraxas Petroleum for $5.4 million on June 14, 2023, resulting in full ownership.
- Restaurant locations declined from 545 to 492 during 2023. Seventeen Steak n Shake company-operated stores were closed at year-end; management plans to sell or lease 10 and refranchise the remainder.
- Investment partnership gains were $19.4 million before tax versus a $76.0 million loss in 2022. Management cautioned that these gains and losses, including unrealized market-value changes, create significant earnings volatility and are generally not useful for evaluating recurring operating performance.
- The investment partnerships had a fair value of $472.8 million and are subject to a rolling five-year lock-up, with withdrawals generally distributed over two years and potentially in kind. The partnerships are controlled by Mr. Biglari, and the Company paid $8.5 million in 2023 service fees to related entities owned by him.
- Mr. Biglari earned a $7.3 million performance-based incentive fee in 2023, payable in 2024 and accrued at year-end.
- Key operating risks include commodity-price volatility, catastrophic and weather-related insurance losses, restaurant competition, food and labor inflation, employee availability, economic weakness, regulatory changes, cybersecurity incidents, litigation and impairment of restaurant assets or investments.
- Proved oil and gas reserves declined to 9.5 million barrels of oil equivalent from 13.2 million, primarily due to revisions and production. The standardized measure of discounted future net cash flows declined to $92.4 million from $210.1 million.
Deloitte & Touche issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The audit report emphasized the related-party investment partnerships and their rolling five-year lock-up provisions. The filing identifies restaurant long-lived-asset impairment testing as a critical audit matter because of significant assumptions regarding future revenue, labor costs, operating periods and fair values.
Important Facts to Verify
- Reconcile recurring operating earnings with the reported $54.9 million attributable net income, particularly the $19.4 million investment partnership gain and $13.6 million oil and gas property gain.
- Review the liquidity and realizability of the $472.8 million investment partnership interest, including lock-up restrictions, related-party governance and concentrated equity exposure.
- Assess the sustainability of restaurant profitability after the substantial reduction in company-operated and traditional franchise units and the planned refranchising of closed stores.
- Monitor Southern Pioneer’s underwriting performance, weather-related claims and reserve adequacy.
- Evaluate oil and gas sensitivity to commodity prices, declining reserves and future production and abandonment obligations.
- Review related-party service fees, the $7.3 million incentive fee and Mr. Biglari’s controlling ownership when assessing governance and capital-allocation risk.
- Verify the September 2024 maturity and covenant requirements of the $30.0 million revolving credit facility.