Executive Summary / Key Takeaways

• Diversified Value Creation: Biglari Holdings Inc. (BH-A) operates as a unique holding company, centrally managed by Sardar Biglari, with a strategic focus on capital allocation across diverse segments including restaurants (Steak n Shake, Western Sizzlin), insurance, oil and gas, and brand licensing (Maxim), aiming to unlock long-term shareholder value.
• Restaurant Rebound & Operational Innovation: The restaurant segment, particularly Steak n Shake, demonstrated a significant turnaround with a 10.7% same-store sales increase in Q2 2025, driven by strategic promotions and operational enhancements like an improved milkshake fountain design and a "Personalized Service" program.
• Segmental Growth & Volatility: Maxim's brand licensing revenue surged over 600% in H1 2025 due to new digital contests, while insurance premiums grew 24% from rate increases. The oil and gas segment, however, remains highly susceptible to commodity price volatility, impacting overall earnings.
• Robust Liquidity & Strategic Flexibility: The company maintains significant liquidity, bolstered by substantial distributions from investment partnerships, and has strengthened its credit facilities, providing financial flexibility for strategic initiatives and capital allocation.
• Unique Leadership & Risks: Sardar Biglari's concentrated voting interest and centralized financial decision-making define the company's strategic direction. However, material weaknesses in internal controls and the inherent volatility of investment partnership gains/losses present ongoing risks that warrant close investor attention.

A Conglomerate's Canvas: Biglari Holdings' Unique Investment Thesis

Biglari Holdings Inc. (NYSE: BH-A) stands as a distinctive entity in the investment landscape, having evolved from its origins as The Steak n Shake Company in 1934 into a diversified holding company. Under the leadership of Chairman and CEO Sardar Biglari, who beneficially owns approximately 74.3% of the voting interest, the company operates a management system that combines decentralized operational execution with centralized financial decision-making. This structure allows Mr. Biglari to direct all major investment and capital allocation, shaping a unique investment thesis centered on value creation across disparate business segments: restaurants, property and casualty insurance, licensing and media, and oil and gas.

The company's journey has been marked by strategic pivots. In its restaurant segment, early 2000s saw a focus on portfolio optimization through unit closures. By 2007, as The Steak n Shake Company, it intensified efforts on store execution, product innovation, and concept optimization, introducing new menu items and systematic performance upgrades. However, a challenging economic environment in 2008 led to a suspension of guidance and a renewed focus on aggressive promotions and operational efficiencies. The pivotal transformation in 2010, rebranding to Biglari Holdings Inc., signaled a broader strategic intent to diversify and allocate capital across a wider array of industries, a strategy that continues to define its competitive positioning today.

The Diversified Engine: Operational Innovations Across Segments

Biglari Holdings' operational strategy is characterized by a blend of legacy brand management and opportunistic diversification, each segment contributing uniquely to the overall enterprise.

Restaurants: A Resurgent Core

The restaurant segment, primarily Steak n Shake and Western Sizzlin, has been a cornerstone of the company's history. After facing significant headwinds in the late 2000s, including declining same-store sales, the segment has shown signs of a robust turnaround. In the second quarter of 2025, Steak n Shake reported a notable 10.7% increase in same-store sales, driving overall restaurant net sales up by 14.8% for the quarter and 11.2% for the first six months of 2025. This resurgence reflects a renewed focus on core offerings and strategic promotional activities.

Operational innovations have played a critical role in this turnaround. The company has invested in enhancing the customer experience through initiatives like an improved milkshake fountain design. This process technology aims to reduce variation in production time, improve mixing speed by a third, and provide better temperature control for ice cream, directly impacting the quality and consistency of a product that accounts for approximately 50% of all guest orders. With an investment of around $7,500 per store, this upgrade promises a high return on invested capital through improved efficiency and customer satisfaction. Furthermore, the implementation of a "Personalized Service" program, an intensive update of the dining room service process, is critical to executing the Steak n Shake brand promise and improving guest value perception. These efforts are designed to be cost-efficient, relying on redeploying existing labor and management coaching rather than significant incremental outlays.

The company's strategic transition from company-operated units to a franchise partner model, where revenue is derived from a share of the franchise partners' profits, is a key long-term play. While this transition may initially lead to a decline in reported revenue, it aims to leverage the entrepreneurial drive of franchise partners. This strategy is evident in the increase in franchise partner fees in 2025, despite a lower unit count, indicating improved profitability at the unit level. The ongoing review of underperforming units, with plans to sell, lease, or refranchise, reflects a disciplined approach to maximizing return on invested capital, a consistent strategy employed over many years.

Insurance: Steady Underwriting and Rate Discipline

The insurance operations, comprising First Guard, Southern Pioneer, and Biglari Reinsurance, provide a stable, albeit volatile, revenue stream. First Guard, a direct underwriter of commercial truck insurance, has demonstrated consistent underwriting gains, with its first six months of 2025 underwriting gain increasing by $1,175 thousand compared to the prior year. Southern Pioneer, which underwrites garage liability, commercial property, homeowners, and dwelling fire insurance, saw premiums earned increase by 24.0% in the first six months of 2025. This growth was primarily driven by strategic rate increases in personal lines, such as homeowners insurance.

First Guard's "cost-efficient direct response marketing methods" represent a key operational differentiator, enabling it to be a low-cost insurer. This business model innovation allows for efficient customer acquisition and retention, contributing to its underwriting profitability. While the insurance industry inherently experiences volatility in underwriting performance, the segment's focus on disciplined rate management and cost-efficient operations underpins its contribution to Biglari Holdings' diversified portfolio.

Oil and Gas: Commodity-Dependent Contributions

The oil and gas segment, encompassing Southern Oil and Abraxas Petroleum, operates properties in the Permian Basin and offshore Louisiana state waters. This segment's performance is highly sensitive to the volatile prices of oil and natural gas. In the first six months of 2025, Abraxas Petroleum's revenue remained consistent, and it recorded a significant gain of $10,117 thousand from selling undeveloped reserves, crucially without being required to fund future exploration expenditures. Southern Oil also maintained consistent revenue, benefiting from repaired nonperforming wells in 2024 that increased production in 2025, though this was offset by lower crude oil sales prices. The strategic decision to sell undeveloped reserves without funding future exploration highlights a capital-light approach to this volatile segment.

Brand Licensing: Digital-Driven Growth

Maxim, the brand licensing and media segment, has shown impressive growth. Its revenue surged by 659.8% in Q2 2025 and 620.1% in the first six months of 2025. This dramatic increase is attributed to the successful launch of various new digital contests, indicating an effective strategy to monetize the brand through digital engagement and licensing.

Competitive Arena: Battling Giants and Niche Players

Biglari Holdings operates in highly competitive landscapes across its diverse segments, facing both large, specialized players and niche competitors.

In the restaurant sector, Steak n Shake competes with casual dining giants like Darden Restaurants Inc. (DRI) and quick-service leaders such as Yum! Brands Inc. (YUM) and McDonald's Corporation (MCD). While DRI focuses on full-service casual dining with strong operational efficiencies and digital integration, and YUM and MCD dominate quick-service with global brand recognition and vast franchising networks, Steak n Shake carves out a niche with its traditional American diner experience and focus on core steakburgers and milkshakes.

Comparing financial performance, BH-A's restaurant segment, despite its recent same-store sales rebound, operates on a smaller scale than these giants. DRI's gross profit margin (TTM 70%) and operating profit margin (TTM 11%) significantly outpace BH-A's consolidated gross profit margin (TTM 35.41%) and operating profit margin (TTM 5.07%), reflecting DRI's focused efficiency in its segment. Similarly, MCD's gross profit margin (TTM 57%) and operating profit margin (TTM 45%) demonstrate superior profitability, driven by its immense scale and technological integration in order processing. BH-A's strategy, particularly its "break-even or better" approach to promotions, aims to attract traffic without degrading brand equity or profitability, a nuanced position against competitors often engaged in deeper discounting. The shift to a franchise partner model also aims to improve unit-level profitability, a strategy that YUM has successfully leveraged globally.

In the insurance sector, Biglari Holdings' First Guard directly competes with specialized auto insurers like Progressive Corporation (PGR), particularly in commercial truck insurance. PGR, with its focused expertise, often exhibits strong operating margins (TTM 14%) and efficient claims processing. First Guard's competitive edge lies in its cost-efficient direct response marketing, enabling it to be a low-cost insurer. While PGR's scale and technological innovation in insurance products are formidable, BH-A's insurance segment provides a diversified revenue stream that is less correlated with its restaurant operations.

Biglari Holdings' overall market positioning is that of a diversified entity. Its strength lies in the resilience offered by its multi-segment approach, which can buffer against downturns in any single industry. However, its smaller scale in each segment compared to specialized competitors can lead to lags in operational efficiency, innovation speed, and market share capture. For instance, while BH-A's restaurant segment is making strides in operational improvements like the milkshake fountain, it still trails the extensive digital and supply chain integration seen at MCD.

Recent Financial Performance: A Mixed but Improving Picture

Biglari Holdings' recent financial results reflect the impact of its diversified strategy and ongoing operational adjustments. For the first six months of 2025, total revenues reached $195,654 thousand, an increase from $180,592 thousand in the prior year. Net earnings, however, saw a decline to $17,656 thousand from $25,611 thousand in H1 2024. This shift was largely influenced by the significant volatility in investment partnership gains/losses, which swung from a pre-tax gain of $8,912 thousand in H1 2025 compared to a pre-tax loss of $57,905 thousand in H1 2024.

The restaurant segment was a key driver of operational improvement, with its revenue growing to $136,360 thousand in H1 2025 from $126,471 thousand in H1 2024. This was primarily fueled by the 10.7% same-store sales increase at Steak n Shake in Q2 2025. Labor costs as a percentage of net sales decreased, indicating improved operational efficiency, while marketing expenses increased to support new product promotions. The insurance segment also contributed positively, with premiums earned increasing by 24.0% due to rate adjustments. Maxim's brand licensing segment experienced explosive revenue growth, soaring to $3,694 thousand in H1 2025 from $513 thousand in H1 2024, driven by new digital contests. In contrast, the oil and gas segment's revenue slightly decreased, reflecting lower crude oil sales prices despite increased production from repaired wells.

Consolidated profitability metrics show a mixed picture. The company's consolidated gross profit margin (TTM 35.41%) and operating profit margin (TTM 5.07%) reflect the diverse cost structures of its businesses. The net profit margin (TTM 10.47%) is significantly influenced by the volatile investment partnership results.

Capital Allocation and Liquidity

Biglari Holdings maintains a strong liquidity position, with consolidated cash and cash equivalents of $32,766 thousand as of June 30, 2025, up from $30,709 thousand at year-end 2024. Net cash provided by operating activities saw a substantial increase of $37,032 thousand in H1 2025, primarily due to $35,000 thousand in distributions from investment partnerships. This robust cash generation supports the company's strategic flexibility.

The company has also actively managed its debt profile. As of June 30, 2025, Biglari Holdings had no debt outstanding on its main line of credit, which was amended in September 2024 to an available $35,000 thousand and matures in September 2026. A new $75,000 thousand revolving line of credit was also secured in November 2024, maturing in November 2027. The company was in compliance with all financial covenants, underscoring its sound financial management. Historically, Biglari Holdings has utilized sale-leaseback transactions as part of its capital structure, a strategy it continues to evaluate for optimizing capital deployment.

Outlook and Risks: Managing Volatility and Operational Hurdles

The outlook for Biglari Holdings is characterized by a blend of strategic opportunities and inherent risks across its diverse operations. Management anticipates continued volatility in the oil and gas segment, as its performance remains highly dependent on fluctuating commodity prices. This could necessitate future asset impairments if prices decline significantly. Similarly, the investment partnerships are expected to continue causing "significant volatility in our periodic earnings" due to market value changes and dividend income.

A notable positive development is the "One Big Beautiful Bill Act," signed into law on July 4, 2025. This act makes permanent certain expiring provisions of the Tax Cuts and Jobs Act, restoring favorable tax treatment for businesses, including 100% bonus depreciation and the business interest expense limitation. This legislative change provides a more stable and favorable tax environment, potentially enhancing future profitability and cash flow.

However, investors must also consider the company's acknowledged material weaknesses in internal control over financial reporting, identified in its 2024 Form 10-K and still ongoing as of June 30, 2025. While remediation efforts are in progress, these weaknesses cannot be considered remediated until controls have operated effectively for a sufficient period. This operational risk could impact financial reporting reliability and efficiency. Additionally, the company is involved in various legal proceedings, though management believes these will not materially affect its financial position beyond current provisions.

Conclusion

Biglari Holdings Inc. presents a compelling, albeit complex, investment narrative. Under Sardar Biglari's centralized capital allocation, the company has demonstrated a capacity for strategic adaptation and operational improvement, particularly evident in the recent turnaround of its Steak n Shake restaurant segment and the explosive growth in brand licensing. The diversified portfolio, supported by robust liquidity and disciplined debt management, offers a degree of resilience against segment-specific downturns.

While the inherent volatility of its oil and gas and investment partnership segments, coupled with the ongoing remediation of internal control weaknesses, presents challenges, the company's strategic focus on operational efficiency, brand enhancement, and opportunistic capital deployment positions it for continued value creation. The recent dual listing on NYSE Texas further underscores its commitment to enhancing shareholder access and market presence. For discerning investors, Biglari Holdings represents an opportunity to invest in a unique conglomerate model, where strategic capital allocation and operational execution in diverse industries are key to unlocking long-term shareholder value.