Biglari (BH) - 2024 Q2 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements The company reported significant net losses for Q2 and H1 2024, driven by unrealized investment losses which reduced total assets and equity Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $809,053 | $849,422 | | Total Current Assets | $151,154 | $152,551 | | Investment Partnerships | $158,731 | $199,103 | | Total Liabilities | $239,874 | $250,092 | | Total Shareholders' Equity | $569,179 | $599,330 | Consolidated Earnings Summary (in thousands) | Metric | Q2 2024 (Unaudited) | Q2 2023 | First Six Months 2024 (Unaudited) | First Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $91,141 | $93,540 | $180,592 | $183,716 | | Investment Partnership (Losses) Gains | $(79,890) | $(7,496) | $(57,905) | $65,092 | | Net (Loss) Earnings Attributable to BH | $(48,190) | $1,936 | $(25,611) | $66,822 | | Net (Loss) Earnings per Class A Share | $(171.89) | $6.64 | $(90.80) | $229.00 | Consolidated Cash Flow Summary - First Six Months (in thousands) | Cash Flow Activity | 2024 (Unaudited) | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,910 | $31,518 | | Net cash used in investing activities | $(19,586) | $(28,474) | | Net cash used in financing activities | $(2,691) | $(9,478) | | Decrease in cash, cash equivalents and restricted cash | $(1,374) | $(6,336) | Notes to Consolidated Financial Statements The notes detail a decentralized operating structure with centralized financial decisions and highlight the equity method for investments as a source of earnings volatility - Biglari Holdings operates as a holding company with diverse subsidiaries and centralized investment decisions made by Chairman and CEO Sardar Biglari, who holds a beneficial voting interest of approximately 71.5% as of June 30, 2024[19] - The company accounts for its limited partnership interests using the equity method, which is a primary source of volatility in its consolidated earnings due to unrealized gains and losses[27][31] - During the second quarter of 2024, the company recorded a goodwill impairment charge of $1,000 related to its Western Sizzlin reporting unit[40] Restaurant Operations Revenues - First Six Months (in thousands) | Revenue Source | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $79,550 | $76,418 | | Franchise partner fees | $35,907 | $36,982 | | Franchise royalties and fees | $7,092 | $8,383 | | Other | $3,922 | $3,837 | | Total | $126,471 | $125,620 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the net loss to non-operating investment partnership losses, which overshadowed positive results from operating businesses - Management states that investment and derivative gains/losses, a major source of earnings volatility, are generally meaningless for analytical purposes in understanding the company's results[126] Disaggregation of Net Earnings (Loss) - After Tax (in thousands) | Category | Q2 2024 | Q2 2023 | First Six Months 2024 | First Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total operating businesses | $18,842 | $12,342 | $24,937 | $21,983 | | Goodwill impairment | $(1,000) | $— | $(1,000) | $— | | Corporate and other | $(3,125) | $(5,243) | $(5,121) | $(8,241) | | Investment partnership (losses) gains | $(60,748) | $(5,499) | $(43,600) | $50,530 | | Investment (losses) gains | $(2,159) | $276 | $(827) | $3,141 | | Net (Loss) Earnings | $(48,190) | $1,876 | $(25,611) | $67,413 | Financial Condition Summary (in thousands) | Item | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,897 | $28,066 | | Investments | $93,619 | $91,879 | | Fair value of interest in investment partnerships | $482,051 | $472,772 | | Total cash and investments | $602,567 | $592,717 | Restaurants Segment The restaurant segment's profitability declined due to lower franchise fees and higher costs, despite an increase in same-store sales - Net sales for the restaurant segment increased 3.3% in Q2 2024, primarily driven by a 7.0% increase in Steak n Shake's same-store sales[93] - Labor costs as a percentage of net sales at company-operated restaurants increased from 30.8% to 31.8% year-over-year, mainly due to an increase in store-level managers[96] Restaurant Store Count Change | Period | Company-Operated | Franchise Partner | Traditional Franchise | Total | | :--- | :--- | :--- | :--- | :--- | | June 30, 2023 | 167 | 177 | 138 | 521 | | June 30, 2024 | 142 | 182 | 120 | 477 | | Change | (25) | 5 | (18) | (44) | Insurance Segment The insurance segment's pre-tax earnings decreased due to a significantly lower underwriting gain, driven by a higher loss ratio at its First Guard subsidiary - First Guard's loss ratio increased significantly to 64.9% in Q2 2024 from 46.2% in Q2 2023, contributing to the lower underwriting gain[107] Pre-tax Underwriting Gain (Loss) (in thousands) | Subsidiary | Q2 2024 | Q2 2023 | First Six Months 2024 | First Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | First Guard | $1,331 | $3,155 | $2,131 | $5,017 | | Southern Pioneer | $(785) | $(451) | $(726) | $(562) | | Total | $546 | $2,704 | $1,405 | $4,455 | Oil and Gas Segment The Oil and Gas segment's earnings surged due to a significant one-time gain on the sale of undeveloped reserves - During the first six months of 2024, Abraxas Petroleum recorded a gain of $16,646 from selling undeveloped reserves to an unaffiliated party[116] Oil and Gas Segment Earnings (in thousands) | Line Item | Q2 2024 | Q2 2023 | First Six Months 2024 | First Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Oil and gas revenues | $8,671 | $10,741 | $18,181 | $22,964 | | Gain on sale of properties | $16,165 | $— | $16,646 | $— | | Earnings before income taxes | $17,351 | $2,890 | $18,817 | $4,993 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has determined that this section is not applicable for this reporting period - The company states that this item is 'Not applicable'[141] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Controller concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[141] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[141] Part II – Other Information Item 1. Legal Proceedings Management does not expect the ultimate liability from pending legal matters to have a material effect on the company's financial position or results - Information regarding legal proceedings is incorporated by reference from Note 13 to the Consolidated Financial Statements[142] - Note 13 states that the ultimate liability from pending legal proceedings and claims is not likely to have a material effect on the company's results of operations, financial position, or cash flow[72] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023, were reported[143] Other Part II Items This section confirms no unregistered equity sales or defaults occurred and lists the exhibits filed with the report, including required certifications - The company reported 'None' for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information)[143] - Item 6 lists the exhibits filed, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and Interactive Data Files[145]