Noble Roman’s Announces Third Quarter 2019 Results

INDIANAPOLIS, IN / ACCESSWIRE / November 14, 2019 / Noble Roman’s, Inc. (OTCQB:NROM), the Indianapolis based franchisor and licensor of Noble Roman’s Pizza and Craft Pizza & Pub, today announced results for the three-month and nine-month periods ended September 30, 2019 along with other strategic highlights for the company.

Net income before taxes increased to $615,000, or $.03 per share from a loss of $755,000, or $(.04) per share, and $1.82 million, or $.08 per share, from $334,000, or $.02 per share, for the three-month and nine-month periods ended September 30, 2019 compared to the comparable periods in 2018. Net income before tax is significant because the company will not pay any income taxes for approximately the next $18.5 million in taxable income.

Net income increased to $468,000, or $.02 per share, from a loss of $562,000, or $(.03) per share, and increased to $1.39 million, or $.06 per share, from $252,000, or $.01 per share, for the three-month and nine-month periods ended September 30, 2019 compared to the comparable periods in 2018. The nine-month results were achieved despite the highly unusual, extreme winter weather conditions this year in Indiana during January and February, which significantly curtailed revenue and margins during those months. In addition, the results are after an $86,000 non-cash expense in the nine months ended September 30, 2019 from the adoption of the new accounting rules regarding accounting for leases which became effective January 1, 2019 for publicly reporting entities.

The company affirms that it is continuing its focus on growing its well-established, non-traditional venue as well as its newer Craft Pizza & Pub venue. From January 1, 2019 through November 14, 2019, the company has opened 32 new non-traditional franchise locations. In addition, the sales volumes of all non-traditional franchise units opened in 2019 have so far averaged 45.5% higher than the average unit volumes this year from units opened in previous years. This reflects improvements the company has made in kiosk design, operating systems and marketing. During 2019, the company also opened its first franchised Craft Pizza & Pub location with record opening sales, and it currently has two more franchised Craft Pizza & Pub locations under development, with one in Evansville, Indiana scheduled to open in late November, 2019. The company is in the planning stages for additional company-owned Craft Pizza & Pub locations as well.

With a focus on development in the company’s non-traditional venue combined with the new catalyst for growth represented by Craft Pizza & Pub, the company believes it is potentially entering the most exciting expansion phase it has experienced in its 47-year history. In support of this growth opportunity, the company currently has plans to refinance its bank loans with an expanded credit facility in the amount of $10 million. If completed as intended, the borrowings under the new facility will be used to repay existing bank debt, to repay un-extended convertible subordinated notes and to fund the development of five additional company-owned Craft Pizza & Pub locations. The repayment of convertible debt would also reduce future potential dilution by 4,175,000 shares that underly the debt.

The following table sets forth the revenue, expense and margin contribution of the company’s franchising venue and the percent relationship to its revenue:

 
  Three Months ended September 30,     Nine Months ended September 30,  
Description
  2018     2019     2018     2019  
Royalties and fees franchising
  1,344,813       81.2 %   1,437,685       84.5 %   3,730,449       77.2 %   4,060,160       82.9 %
Royalties and fees grocery
    311,261       18.8       263,281       15.5       1,100,856       22.8       835,013       17.1  
Total royalties and fees
    1,656,074       100.0       1,700,966       100.0       4,831,305       100.0       4,895,173       100.0  
Salaries and wages
    245,581       14.8       180,707       10.6       774,397       16.0       552,122       11.3  
Trade show expense
    121,200       7.3       105,000       6.2       361,200       7.5       315,000       6.4  
Travel and auto
    23,945       1.4       27,951       1.6       128,370       2.7       82,630       1.7  
All other operating expenses
    282,742       17.1       195,370       11.5       594,897       12.4       598,803       12.2  
Total expenses
    673,468       40.6       509,028       29.9       2,007,706       41.6       1,548,555       31.6  
Margin contribution
  982,606       59.4 %   1,192,037       70.1 %   2,823,599       58.4 %   3,346,618       68.4 %

For the three-month period ended September 30, 2019 compared to the three-month period ended September 30, 2018:

  • Total revenue from this venue grew to $1.70 million compared to $1.66 million for the comparable period in 2018. Royalties and fees from franchising grew to $1.44 million compared to $1.34 million for the comparable period in 2018. This increase was partially offset by a decrease in royalties and fees from grocery store take-n-bake, which decreased to $263,000 from $311,000 compared to the comparable period in 2018. The increase in franchise fees and decrease in license fees from grocery stores reflects the change in emphasis on franchising versus licensing to grocery stores to sell take-n-bake pizza because of the stronger economic conditions that exist today.
  • Salaries and wages, trade show expense and other operating costs decreased to $509,000 from $673,000. In January the company undertook an in-depth review of this venue to find ways to further reduce its costs while still accomplishing its objectives. These efforts resulted in the reduction of various operating expenses. It is anticipated that this reduction in operating cost will continue to benefit future quarters as well.
  • Gross margin increased to 70.1% from 59.4% for a margin increasing to $1.2 million from $983,000.

For the nine-month period ended September 30, 2019 compared to the nine-month period ended September 30, 2018:

  • Total revenue from this venue was $4.90 million compared to $4.83 million for the comparable period in 2018. Royalties and fees from franchising grew to $4.06 million compared to $3.73 million for the comparable period in 2018. This increase was partially offset by a decrease in royalties and fees from grocery store take-n-bake, which decreased to $835,000 from $1.1 million compared to the comparable period in 2018. The increase in franchise fees and decrease in license fees from grocery stores reflects the change in emphasis on franchising versus licensing to grocery stores to sell take-n-bake pizza because of the stronger economic conditions that exist today.
  • Salaries and wages, trade show expense and other operating costs decreased to $1.55 million from $2.01 million. In January the company undertook an in-depth review of this venue to find ways to further reduce its costs while still accomplishing its objectives. These efforts resulted in the reduction of various operating expenses. This reduction in operating cost is expected to continue to benefit future quarters as well.
  • Gross margin increased to 68.4% from 58.4% or to $3.35 million from $2.82 million.

The following table sets forth the revenue, expense and margin contribution of the company’s Craft Pizza & Pub venue and the percent relationship to its revenue:

 
  Three Months ended September 30,     Nine Months ended September 30,  
Description
  2018     2019     2018     2019  
Revenue
  1,308,890       100 %   1,221,843       100 %   3,663,255       100 %   3,693,922       100 %
Cost of sales
    284,075       21.7       261,922       21.4       806,653       22.0       777,646       21.1  
Salaries and wages
    400,926       30.6       361,138       29.6       1,127,124       30.8       1,106,815       29.9  
Facility cost including rent, common area and utilities
    191,553       14.6       216,268       17.7       473,895       12.9       625,968       16.9  
Packaging
    33,665       2.6       32,448       2.6       94,407       2.6       99,239       2.7  
All other operating expenses
    138,185       10.6       206,080       16.9       382,360       10.4       600,040       16.2  
Total expenses
    1,048,404       80.1       1,077,856       88.2       2,884,388       78.7       3,209,708       86.8  
Margin contribution
  260,486       19.9 %   143,987       11.8 %   778,867       21.3 %   484,214       13.2 %

Margin contribution from this venue for the nine-month period ended September 30, 2019 was decreased $35,636 for non-cash expense related to the adoption of ASU 2016-02 accounting for leases which became effective after January 1, 2019 for publicly reporting companies.

For the three-month period ended September 30, 2019 compared to the three-month period ended September 30, 2018:

  • Revenue from this venue decreased to $1.22 million from $1.31 million. The primary reason for the decrease is the comparison period in 2018 has grand opening sales for the latest two openings.
  • Cost of sales improved to 21.4% of revenue compared to 21.7% as a result of careful but intensive supervisory focus and as the restaurants gained experience over time.
  • Salaries and wages improved significantly to 29.6% from 30.6% as a result of careful but intensive supervisory focus and as the restaurants gained experience over time.
  • Facility costs, including rent, common area maintenance and utilities, increased to 17.7% from 14.6% primarily because of non-discretionary increases in common area charges by the shopping centers. In 2018, all four locations were operating in new strip centers where common area maintenance fees were based on the landlord’s estimate of what those fees were going to be. When the actual costs were known for 2018, the company had to pay common area expenses in 2019 based on the actual for 2018. In two of the locations the common area maintenance costs were more than double the landlord’s estimate. In addition, per the note following the chart above, there was additional non-cash rent expense related to the adoption of ASU 2016-02.
  • All other costs and expenses increased to 16.9% from 10.6%. These increases came primarily from insurance costs, advertising costs and delivery costs from starting third-party delivery.
  • Gross margin contribution from this venue decreased to 11.8% from 19.9% as a result of the above mentioned primarily fixed cost increases which more than offset the improvement in controllable variable costs (mainly cost of sales and labor).

For the nine-month period ended September 30, 2019 compared to the nine-month period ended September 30, 2018:

  • Revenue from this venue increased to $3.69 million from $3.66 million despite the highly unusual extreme weather conditions in Indiana during the months of January and February.
  • Cost of sales improved to 21.1% of revenue compared to 22.0% as a result of supervisory focus and as the restaurants gained experience and efficiency over time.
  • Salaries and wages improved to 29.9% from 30.8% as a result of supervisory focus and as the restaurants gained experience over time. However, that efficiency gained was partially offset by the fixed cost of salaries against lower sales in January and February due to the highly unusual extreme weather conditions in Indiana during those months.
  • Facility costs, including rent, common area maintenance and utilities, increased to 16.9% from 12.9% primarily because of non-discretionary increases in common area charges by the shopping centers. In 2018, all four locations were operating in new strip centers where common area maintenance fees were based on the landlord’s estimate of what those fees were going to be. When the actual costs were known for 2018, the company had to pay common area expenses in 2019 based on the actual for 2018. In two of the locations the common area maintenance costs were more than double the landlord’s estimate. In addition, per the note following the chart above, there was additional non-cash rent expense related to the adoption of ASU 2016-02.
  • All other costs and expenses increased to 16.2% from 10.4%. These increases came largely from increases in insurance costs, advertising costs and delivery costs from starting third-party delivery. The insurance increase was a combination of price increases magnified by lower sales in January and February. The increase in advertising was to a more normal level from the reduced level in 2018 during the honeymoon period of new openings. The delivery fees were the result of adding delivery service by use of outside vendors, which was started to help compensate for the impact on sales from inclement weather conditions and to stay current with consumer purchasing trends.
  • Gross margin contribution from this venue decreased to 13.2% from 21.3%, which was significantly impacted by the highly unusual extreme weather conditions in January and February. The margin decrease was also the result of the above mentioned primarily fixed cost increases, which more than offset the improvement in controllable variable costs (mainly cost of sales and labor).

The following table sets forth the revenue, expense and margin contribution of the Company-owned non-traditional venue and the percent relationship to its revenue:

 
  Three Months ended September 30,     Nine Months ended September 30,  
Description
  2018     2019     2018     2019  
Revenue
  283,135       100 %   169,422       100 %   862,777       100 %   499,944       100 %
Total expenses
    279,079       98.6       157,652       93.1       851,766       98.7       464,470       92.9  
Margin contribution
  4,056       1.4 %     11,770       6.9 %   11,011       1.3 %   35,474       7.1 %

Gross revenue from this venue decreased to $169,000 and $500,000 from $283,000 and $863,000 for the respective three-month and nine-month periods ended September 30, 2019 compared to the comparable periods in 2018. The primary reason for this decrease was the company operating three non-traditional locations in the three-month and nine-month periods ended September 30, 2018 compared to one location in the three-month and nine-month periods ended September 30, 2019. The two locations vacated in December 2018 were locations that the company was only operating to the end of their contract terms. The company does not intend to operate any more company-owned non-traditional locations except the one location that it is currently operating.

The following bullet points discuss other financial highlights from the quarter:

  • Operating income increased to $835,000 from $714,000 and $2.39 million from $2.12 million for the three-month and nine-month periods ended September 30, 2019. This increase was primarily a result of increased margin contribution on the franchising venue to $1.17 million from $983,000 and to $3.35 million from $2.82 million for the three-month and nine-month periods ended September 30, 2019. This increase was partially offset by the decrease in margin contribution from the company-owned Craft Pizza & Pub locations as a result of the highly unusual severe winter weather conditions for Indiana during the months of January and February 2019, plus fixed cost increases as discussed above.
  • General and administrative expenses remained approximately the same for the three-month and nine-month periods ended September 30, 2019.
  • Interest expense increased to $220,000 from $173,000 and to $567,000 from $486,000 for the three-month and nine-month periods ended September 30, 2019. The increase was the result of increased rate of interest on the company’s bank debt, partially offset by the decreased balance of the loans from continued monthly amortization of principal.

The statements contained in this press release concerning the company’s future revenues, profitability, financial resources, market demand and product development are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) relating to the company that are based on the beliefs of the management of the company, as well as assumptions and estimates made by and information currently available to the company’s management. The company’s actual results in the future may differ materially from those indicated by the forward-looking statements due to risks and uncertainties that exist in the company’s operations and business environment, including, but not limited to: the ability of the company to refinance its debt as currently planned, competitive factors, pricing pressures, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs, including Noble Roman’s Craft Pizza & Pub format, the company’s ability to successfully operate and manage costs of an increased number of company-owned restaurants, general economic conditions, changes in demand for the company’s products or franchises, the success or failure of individual franchisees and licensees, changes in prices or supplies of food ingredients and labor, and dependence on continued involvement of current management. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may differ materially from those described herein as anticipated, believed, estimated, expected or intended. The company undertakes no obligations to update the information in this press release for subsequent events.

FOR ADDITIONAL INFORMATION, CONTACT:

For Media Information: Scott Mobley, President& CEO 317/634-3377
For Investor Relations: Paul Mobley, Executive Chairman 317/634-3377

-END-

Noble Roman’s, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

Assets
 
December 31,
2018
   
September 30,
2019
 
Current assets:
           
Cash
  76,194     274,404  
Accounts receivable – net
    1,573,600       841,034  
Inventories
    962,783       990,059  
Prepaid expenses
    688,259       726,459  
Total current assets
    3,300,836       2,831,956  
 
               
Property and equipment:
               
Equipment
    2,872,494       2,886,246  
Leasehold improvements
    1,180,050       1,180,637  
Construction and equipment in progress
    119,340       292,203  
 
    4,171,884       4,359,086  
Less accumulated depreciation and amortization
    1,399,435       1,607,689  
Net property and equipment
    2,772,449       2,751,397  
Deferred tax asset
    4,817,309       4,481,550  
Deferred contract cost
    698,935       843,000  
Goodwill
    278,466       278,466  
Operating lease right of use assets
          4,291,625  
Other assets including long-term portion of receivables – net
    3,808,957       5,383,019  
Total assets
  15,676,952     20,861,013  
 
               
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Current portion of term loan payable to bank
  871,429     871,429  
Accounts payable and accrued expenses
    523,315       368,351  
Current portion of operating lease liability
          333,763  
Total current liabilities
    1,394,744       1,573,543  
 
               
Long-term obligations:
               
Term loans payable to bank (net of current portion)
    3,898,733       3,285,100  
Convertible notes payable
    1,539,204       1,468,918  
Operating lease liabilities
          4,098,912  
Deferred contract income
    698,935       843,000  
Total long-term liabilities
    6,136,872       9,695,930  
 
               
Stockholders’ equity:
               
Common stock – no par value (40,000,000 shares authorized,
21,583,032 issued and outstanding as of December 31, 2018 and
21,915,413 as of September 30, 2019)
    24,739,482       24,852,998  
Accumulated deficit
    (16,594,146 )     (15,261,458 )
Total stockholders’ equity
    8,145,336       9,591,540  
Total liabilities and stockholders’ equity
  15,676,952     20,861,013  
 
               

Noble Roman’s, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

 
 
Three months ended
September 30,
   
Nine months ended
September 30,
 
 
  2018     2019     2018     2019  
Revenue:
                       
Restaurant revenue – company-owned restaurants
  1,308,890     1,221,843     3,663,255     3,693,922  
Restaurant revenue – company-owned non-traditional
    283,135       169,422       862,777       499,944  
Franchising revenue
    1,656,074       1,681,951       4,831,305       4,895,173  
Administrative fees and other
    26,548       6,059       47,177       33,789  
Total revenue
    3,274,647       3,079,275       9,404,514       9,122,828  
 
                               
Operating expenses:
                               
Restaurant expenses – company-owned restaurants
    1,048,566       1,077,856       2,877,957       3,209,709  
Restaurant expenses – company-owned
non-traditional
    279,079       157,652       851,766       464,470  
Franchising expenses
    673,468       509,029       2,007,706       1,548,555  
Total operating expenses
    2,001,113       1,744,537       5,737,429       5,222,734  
 
                               
Depreciation and amortization
    125,399       66,872       298,155       236,918  
General and administrative expenses
    434,457       432,920       1,252,781       1,273,960  
Total expenses
    2,560,970       2,244,329       7,288,365       6,733,612  
Operating income
    713,676       834,946       2,116,149       2,389,217  
 
                               
Interest expense
    172,639       219,674       486,292       566,845  
Adjust valuation of receivables
    1,295,805             1,295,805        
Income (loss) before income taxes
    (754,768 )     615,272       334,052       1,822,369  
Income tax expense
    (192,491 )     147,665       81,632       437,369  
Net income (loss)
  (562,277 )   467,607     252,420     1,385,003  
 
                               
 
                               
 
                               
Earnings (loss) per share – basic:
                               
Net income (loss) before income tax
  ( .04 )   .03     .02     .08  
Net income (loss)
  ( .03 )   .02     .01     .06  
Weighted average number of common shares
outstanding
    21,428,684       21,976,283       21,153,728       21,797,946  
 
                               
Diluted earnings (loss) per share:
                               
 
                               
Net income (loss) before income tax
  ( .03 )   .03     .01     .08  
Net income (loss)
  ( .02 )   .02     .01     .06  
Weighted average number of common shares
outstanding
    26,294,754       23,547,037       26,294,274       23,368,701  
 
                               

SOURCE: Noble Roman’s, Inc.

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