Noble Roman’s Announces Second Quarter 2019 Results

INDIANAPOLIS, IN / ACCESSWIRE / August 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 six-month periods ended June 30, 2019 along with other strategic highlights for the company.

Net income before taxes increased to $580,000, or $.03 per share from $550,000, or $.03 per share, and $1.21 million, or $.06 per share, from $1.09 million, or $.05 per share, for the three-month and six-month periods ended June 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 $15 million in taxable income.

Net income increased to $441,000, or $.02 per share, from $412,000, or $.02 per share, and increased to $917,000, or $.04 per share, from $815,000, or $.04 per share, for the three-month and six-month periods ended June 30, 2019 compared to the comparable periods in 2018. The six-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 a $21,000 non-cash expense in the six months ended June 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 also announced 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 August 14, 2019, the company opened 21 new non-traditional franchise locations compared to 17 new non-traditional locations opened during the comparable time period in 2018. In addition, the first two weeks’ sales of all non-traditional franchise openings in 2019 have averaged 32.8% higher than openings from previous years. This reflects improvements the company 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. The company is in the planning stages for additional company-owned Craft Pizza & Pub locations as well.

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

Description
Three Months ended June 30,
2018 2019
Six Months ended June 30,
2018 2019
Royalties and fees franchising
$ 1,276,978 78.2 % $ 1,335,297 82.4 % $ 2,387,636 75.2 % $ 2,622,475 81.6 %
Royalties and fees grocery
356,374 21.8 284,911 17.6 789,595 24.8 590,747 18.4
Total royalties and fees revenue
1,633,352 100.0 1,620,208 100.0 3,175,231 100.0 3,213,222 100.0
Salaries and wages
260,848 16.0 175,789 10.8 528,816 16.7 371,415 11.6
Trade show expense
119,228 7.3 104,906 6.5 240,000 7.5 210,000 6.5
Insurance
74,273 4.5 65,768 4.0 149,022 4.7 175,692 5.5
Travel and auto
56,412 3.4 27,129 1.7 104,245 3.3 54,678 1.7
All other operating expenses
174,381 10.7 171,222 10.6 312,155 9.8 227,741 7.1
Total expenses
685,142 41.9 544,814 33.6 1,334,238 42.0 1,039,526 32.4
Margin contribution
$ 948,210 58.1 % $ 1,075,394 66.4 % $ 1,840,993 58.0 % $ 2,173,696 67.6 %

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

  • Total revenue from this venue was $1.6 million compared to approximately the same for the comparable period in 2018. Royalties and fees from franchising grew to $1.34 million compared to $1.28 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 $285,000 from $356,000 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 $545,000 from $685,000. 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 66.4% from 58.1% for a margin increasing to $1.1 million from $950,000.

For the six-month period ended June 30, 2019 compared to the six-month period ended June 30, 2018:

  • Total revenue from this venue was $3.21 million compared $3.18 million for the comparable period in 2018. Royalties and fees from franchising grew to $2.62 million compared to $2.39 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 $591,000 from $790,000 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 $1.04 million from $1.33 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 67.6% from 58.0% or to $2.17 million from $1.84 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:

Description
Three Months ended June 30,
2018 2019
Six Months ended June 30,
2018 2019
Revenue
$ 1,245,942 100 % $ 1,329,465 100 % $ 2,354,365 100 % $ 2,472,079 100 %
Cost of sales
277,609 22.3 278,048 20.9 522,578 22.2 515,723 20.8
Salaries and wages
377,074 30.2 379,695 28.6 726,198 30.8 745,676 30.2
Facility cost including rent, common area and utilities
156,804 12.6 209,093 15.7 282,340 12.0 409,700 16.6
Packaging
34,642 2.8 35,473 2.7 60,742 2.6 66,790 2.7
All other operating expenses
117,763 9.5 218,625 16.4 237,533 10.1 393,964 15.9
Total expenses
963,892 77.4 1,120,934 84.3 1,829,391 77.7 2,131,853 86.2
Margin contribution
$ 282,050 22.6 % $ 208,531 15.7 % $ 524,974 22.3 % $ 340,226 13.8 %

Margin contribution from this venue was decreased $9,331 in the three-month period ended June 30, 2019 and $21,228 in the six-month period ended June 30, 2019, for non-cash expense related to the adoption of ASU 2016-02 accounting for lease which became effective after January 1, 2019 for publicly reporting companies.

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

  • Revenue from this venue increased to $1.33 million from $1.25 million.
  • Cost of sales improved significantly to 20.9% of revenue compared to 22.3% as a result of careful but intensive supervisory focus and as the restaurants gained experience over time.
  • Salaries and wages improved significantly to 28.6% from 30.2% 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 15.7% from 12.6% 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 19.1% from 12.3%. These increases came from insurance costs, advertising costs and delivery costs from starting third-party delivery.
  • Gross margin contribution from this venue decreased to 15.7% from 22.6% 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 six-month period ended June 30, 2019 compared to the six-month period ended June 30, 2018:

  • Revenue from this venue increased to $2.47 million from $2.35 million despite the highly unusual extreme weather conditions in Indiana during the months of January and February.
  • Cost of sales improved to 20.8% of revenue compared to 22.2% as a result of supervisory focus and as the restaurants gained experience and efficiency over time.
  • Salaries and wages improved to 30.2% 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 16.6% from 12.0% 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 18.6% from 12.7%. These increases came from insurance costs increasing by 1.4% of sales, advertising costs increasing by 1.9% of sales and delivery costs from starting third-party delivery increasing by 1.5% of sales. 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 unusual weather conditions and to stay current with consumer purchasing trends.
  • Gross margin contribution from this venue decreased to 13.8% from 22.3%, 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:

Description
Three Months ended June 30,
2018 2019
Six Months ended June 30,
2018 2019
Revenue
$ 291,526 100 % $ 160,020 100 % $ 579,642 100 % $ 330,522 100 %
Cost of sales
100,831 34.6 62,741 39.2 199,596 34.4 126,688 38.3
Salaries and wages
78,699 27.0 54,041 33.8 200,387 34.6 107,833 32.6
Rent
29,595 10.1 15,163 9.5 58,594 10.1 31,329 9.5
Packaging
9,965 3.4 4,629 2.9 19,165 3.3 9,508 2.9
All other operating expenses
69,741 23.9 16,535 10.3 94,945 16.4 31,460 9.5
Total expenses
288,831 99.0 153,109 95.7 572,687 98.8 306,818 92.8
Margin contribution
$ 2,695 1.0 % $ 6,911 4.3 % $ 6,955 1.2 % $ 23,704 7.2 %

Gross revenue from this venue decreased to $160,000 and $331,000 from $292,000 and $580,000 for the respective three-month and six-month periods ended June 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 six-month periods ended June 30, 2018 compared to one location in the three-month and six-month periods ended June 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 $801,000 from $703,000 and $1.55 million from $1.40 million for the three-month and six-month periods ended June 30, 2019. This increase was primarily a result of increased margin contribution on the franchising venue to $1.08 million from $948,000 and to $2.17 million from $1.84 million for the three-month and six-month periods ended June 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 decreased to $425,000 from $436,000 and increased to $841,000 from $818,000 for the three-month and six-month periods ended June 30, 2019.
  • Interest expense increased to $220,000 from $153,000 and to $347,000 from $314,000 for the three-month and six-month periods ended June 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.

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 believes it may soon have financing in place to repay all existing debt and have additional capital for the development of another five company-owned Craft Pizza & Pub locations, all at considerably lower rates of interest than is currently being paid.

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

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

Assets
December 31,
2018
June 30,
2019
Current assets:
Cash
$ 76,194 $ 231,824
Accounts receivable – net
1,573,600 1,784,207
Inventories
962,783 909,173
Prepaid expenses
688,259 680,409
Total current assets
3,300,836 3,605,613
Property and equipment:
Equipment
2,872,494 2,884,824
Leasehold improvements
1,180,050 1,180,637
Construction and equipment in progress
119,340 150,564
4,171,844 4,216,025
Less accumulated depreciation and amortization
1,399,435 1,540,817
Net property and equipment
2,772,449 2,675,208
Deferred tax asset
4,817,309 4,527,604
Deferred contract cost
698,935 698,936
Goodwill
278,466 278,466
Operating lease right of use assets
4,384,022
Other assets including long-term portion of receivables – net
3,808,957 4,130,173
Total assets
$ 15,676,952 $ 20,300,022
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of term loan payable to bank
$ 871,429 $ 871,429
Accounts payable and accrued expenses
523,315 108,824
Current portion of operating lease liability
333,763
Total current liabilities
1,394,744 1,314,016
Long-term obligations:
Term loans payable to bank (net of current portion)
3,898,733 3,512,425
Convertible notes payable
1,539,204 1,529,270
Operating lease liabilities – net of short-term portion
4,176,871
Deferred contract income
698,935 698,936
Total long-term liabilities
6,136,872 9,917,502
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 June 30, 2019)
24,739,482 24,797,569
Accumulated deficit
(16,594,146 ) (15,729,065 )
Total stockholders’ equity
8,145,336 9,068,504
Total liabilities and stockholders’ equity
$ 15,676,952 $ 20,300,022

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

Three months ended
June 30,
Six months ended
June 30,
2018 2019 2018 2019
Revenue:
Restaurant revenue – company-owned Craft Pizza
& Pub
$ 1,245,942 $ 1,329,465 $ 2,354,365 $ 2,472,079
Restaurant revenue – company-owned non-traditional
291,526 160,020 579,642 330,522
Franchising revenue
1,633,352 1,620,208 3,175,231 3,213,222
Administrative fees and other
6,384 11,112 20,629 27,731
Total revenue
3,177,204 3,120,805 6,129,867 6,043,554
Operating expenses:
Restaurant expenses – company-owned Craft Pizza
& Pub
963,892 1,120,934 1,829,391 2,131,853
Restaurant expenses – company-owned
non-traditional
288,831 153,109 572,687 306,818
Franchising expenses
685,142 544,814 1,334,238 1,039,526
Total operating expenses
1,937,865 1,818,857 3,736,316 3,478,197
Depreciation and amortization
100,253 76,446 172,756 170,045
General and administrative expenses
436,044 424,793 818,324 841,042
Total expenses
2,474,162 2,298,869 4,727,396 4,489,284
Operating income
703,042 800,709 1,402,471 1,554,270
Interest expense
153,365 220,268 313,653 347,171
Income before income taxes
549,677 580,441 1,088,818 1,207,099
Income tax expense
137,529 139,305 274,121 289,703
Net income
$ 412,148 $ 441,136 $ 814,697 $ 917,396
Earnings per share – basic:
Net income before income tax
$ .03 $ .03 $ .05 $ .06
Net income
$ .02 $ .02 $ .04 $ .04
Weighted average number of common shares
outstanding
21,156,658 21,742,291 21,013,971 21,707,300
Diluted earnings per share:
Net income before income tax
$ .02 $ .02 $ .04 $ .05
Net income
$ .02 $ .02 $ .03 $ .04
Weighted average number of common shares
outstanding
26,377,773 25,663,140 26,377,773 25,633,674

SOURCE: Noble Romans, Inc.

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