INDIANAPOLIS, IN / ACCESSWIRE / June 12, 2024 / Noble Roman's, Inc. (OTCQB:NROM), the Indianapolis based franchisor and licensor of Noble Roman's Pizza and Noble Roman's Craft Pizza & Pub ("CPP"), today announced results for the first quarter 2024 and other company highlights.
Financial highlights from the first quarter 2024 include:
Net loss of $86,000, which includes a non-cash expense of approximately $125,000 for change in theoretical fair value of warrants, a non-cash charge of $29,000 to close out the asset ledger for dormant subsidiary, and a non-cash adjustment for allowance receivables of $32,000. Without those additional non-cash expenses, which did not pertain to first quarter activity, the company would have reported a net income of nearly $100,000.
A quarterly Operating Income of $432 thousand
A 45% increase in Franchising Revenue from the same period in 2023 to $1.4 million, which by adding in the non-cash adjustment above of $32,000 would have been a 48% increase in franchising revenue
Franchise venue salaries and wages decreased 6.1% points from 2023 reflecting economies of scale due to new non-traditional franchise openings
An $80 thousand decrease in Company-operated Restaurant Revenue (Craft Pizza & Pub and Non-Traditional combined) from the same period in 2023
A decrease of .7% points in Craft Pizza & Pub cost of sales and a .3% point increase in labor cost from the same period in 2023 despite inflationary pressures and no menu price increases
A 3-month increase in cash balance of 34% to $1.2 million
3-month net cash generated from operations of nearly $600,000, principal payments on debt of $250,000, and an increase of cash in the bank of approximately $300,000
The company continues the process of refinancing its senior note and the subsequent repayment of its subordinated notes
Comparability of 2024 results to 2023 is obscured due to the one-time recording of $1.46 million in income during the first quarter of 2023 from ERTC refund recognition
Further details:
The company had a Net loss of $86,000 compared to a net income of $868,000 for the comparable period in 2023. The net loss of $86,000 was after the company recorded an additional non-cash expense for the change in the value of the warrant of $125,000, non-cash charge of $29,000 to close out the asset ledger for dormant subsidiary and a non-cash adjustment for allowance receivables from a prior period of $32,000, otherwise the company would have reported nearly $100,000 in net income. The comparability of the two three-month periods of March 31, 2024 and the comparable period in 2023 is reduced because the net income of $868,000 was after recording $1.46 million of income from the ERTC refund which was a refund for expenses and lost revenue, due to COVID restrictions, incurred by the company in periods prior to March 31, 2023. Without that refund being recorded in the first quarter of 2023, the company would have reported a net loss of $592,000, or ($.03) per share for the quarter ended March 31, 2023.
The revenue from the non-traditional franchising venue increased to $1.4 million from $987,000, or a 45% increase, by adding in the non-cash adjustment above of $32,000 would have been a 48% increase in franchising revenue. This increase does not come from new franchise sales or new development agreements because those upfront fees all get recorded in deferred income and amortized over the term of the franchise agreements. The company currently has a significant pipeline of prospects for additional franchise sales and a significant number of franchised locations sold but not yet open. It is anticipated that this source of revenue will substantially increase through the rest of 2024 and beyond. Salaries and wages decreased to 16.4% of revenue from 22.5% in the comparable period in 2023. This improvement came in spite of the shortage of available labor and increased labor rates as a result of that shortage. The labor was reduced as a percentage of revenue primarily related to the growing number of franchises sold and opened without adding additional staff.
The revenue from the company-owned Craft Pizza & Pub operations was $2.0 million for the three months ended March 31, 2024 compared to $2.1 million in the corresponding period in 2023. During the first quarter 2024 sales in this venue declined approximately 4.5% due in part to localized bad weather on weekends especially during January and February. Fridays are always the largest sales day of the week and the Friday during the week beginning February 16th was the worst with heavy snow resulting in a severe curtailment of operations that day. March sales were off about 1.7% compared to the corresponding period in 2023 which management believes to be a more accurate reflection of the current sales trend. It is also interesting to note that during that same three-month period the average check was down approximately 4% compared to the corresponding period in 2023, reflecting the state of consumer spending. Partially offsetting this reduction in average checks, the guest count actually increased.
Cost of sales in the Craft Pizza & Pub operations decreased to 20.9% for the three months ended March 31, 2024 from 21.6% in the comparable period in 2023. This decrease came despite inflationary pressures on essentially all products and some of which were significant price inflation. It also came despite the company having no menu price increases since 2022. Salaries and wages did increase from 29.8% in the three months ended March 31, 2024 compared to 29.5% for the comparable period in 2023, as the company was able to implement tighter controls to mostly offset its significant salary and wage rate increases caused by the overall salary and wage inflation.
During the three-month period ended March 31, 2024, the company generated net cash from operations of nearly $600,000 and used that cash to pay principal on debt of $250,000, to purchase new equipment of nearly $19,000 and to increase cash in the bank by approximately $300,000. This was accomplished in spite of paying the high interest rate on the Corbel loan which bears interest on a variable rate of SOFR, as defined in the agreement, plus 7.75% for an aggregate rate of 13.08% at December 31, 2023 on top of the non-cash PIK interest of 3% adding to the principal balance of the loan.
As previously announced, the company is pursuing plans to obtaining new financing to repay the Corbel loan prior to its maturity in February 2025 and to repay the subordinated notes as well when the Corbel loan is repaid. Based on the company's credit metrics, including the company's forecast of earnings before interest, taxes, depreciation and amortization, the company believes its refinancing efforts will be successful. The company expects the new financing will result in a significant reduction in interest rate that it currently pays and to repay the subordinated notes with a structure of the loan being a full amortization over a longer term and at a lower rate of interest.
The following table sets forth the revenue, expense and margin contribution of the Company's franchising venue and the percentage relationship to its revenue:
Three Months ended March 31,
2023
2024
Royalties and fees from franchising
$
987,343
100
%
$
1,425,290
100
%
Salaries and wages
222,458
22.5
233,893
16.4
Trade show expense
90,200
9.1
60,000
4.2
Insurance
91,175
9.2
72,185
5.1
Travel and auto
32,130
3.3
47,210
3.3
All other operating expenses (benefit)
(1,304,909
)
(132.1
)
76,379
5.4
Total expenses
(868,946
)
(88.0
)
489,667
34.4
Margin contribution
$
1,856,289
188.0
%
$
935,623
65.6
%
Note: The credit to all other expenses in 2023 is the result of recording the ERTC in the first of 2023 although much of the reimbursed expenses and lost revenue were incurred by the Company in prior quarters and prior years.
The following table sets forth the revenue, expense and margin contribution of the Company's Craft Pizza & Pub venue and the percentage relationship to its revenue:
Three Months ended March 31,
2023
2024
Revenue
$
2,090,342
100.0
%
$
1,995,524
100.0
%
Cost of sales
451,359
21.6
417,610
20.9
Salaries and wages
617,463
29.5
595,042
29.8
Facility cost including rent, common area and utilities
404,824
19.4
389,385
19.5
Packaging
72,028
3.4
62,510
3.1
Delivery fees
31,122
1.5
37,059
1.9
All other operating expenses
338,025
16.2
329,838
16.6
Total expenses
1,914,821
91.6
1,831,444
91.8
Margin contribution
$
175,521
8.4
%
$
164,080
8.2
%
Detail on Corporate Expenses:
Depreciation and amortization remained approximately constant at $96,000 for the three-month periods ended March 31, 2023 and 2024. The amount remained largely consistent since there have been no new company locations opened since 2021.
General and administrative expenses increased to $577,000 from $519,000 for the three-month period ended March 31, 2024 compared to the corresponding period in 2023. The increase was the result of 2023 expenses being decreased by certain of the ERTC refunds recorded in the first quarter 2023, as explained above, and the non-cash charge of $29,000 in 2024.
Interest expense increased to $394,000 from $383,000 for the three-month period ended March 31, 2024 compared to the corresponding period in 2023. The primary reason for the increase was the addition of non-cash PIK interest being added to the principal balance of the senior note and the increase in the variable rate, as explained above, which is only partially offset by principal reductions of nearly $1.7 in the principal amount of the senior note since February 2023.
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 continuing after-effects of the COVID-19 pandemic, the ability of franchisees to timely prepare their units for scheduled openings, the company's ability to maintain adequate staff for new openings, competitive factors and pricing and cost pressures, non-renewal of franchise agreements or the openings contemplated by the development agreement not occurring, shifts in market demand, the success of franchise programs, including the Noble Roman's Craft Pizza & Pub format, general economic conditions, changes in demand for the company's products or franchises, the company's ability to service its loans, the impact of franchise regulation, the success or failure of individual franchisees and inflation, other changes in prices or supplies of food ingredients and labor and, as well as the factors discussed under "Risk Factors" contained in this company's Annual Report on Form 10-K for the year ended December 31, 2022. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. If activist stockholder activities ensue, the company's business could be adversely impacted.
Noble Roman's, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
Assets
December 31,
2023
March 31,
2024
Current assets:
Cash
$
872,335
$
1,165,078
Employee Retention Tax Credit Receivable
507,726
507,726
Accounts receivable - net
1,169,446
720,303
Inventories
965,819
999,555
Prepaid expenses
318,195
280,710
Total current assets
3,833,521
3,673,372
Property and equipment:
Equipment
4,386,430
4,399,613
Leasehold improvements
3,130,430
3,136,079
7,516,860
7,535,692
Less accumulated depreciation and amortization
3,196,993
3,293,259
Net property and equipment
4,319,867
4,242,433
Deferred tax asset
3,374,841
3,374,841
Deferred contract cost
1,403,299
1,407,286
Goodwill
278,466
278,466
Operating lease right of use assets
4,930,014
4,741,552
Other assets including long-term portion of receivables-net
339,817
288,534
Total assets
$
18,479,825
$
18,006,484
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses
$
1,284,210
$
1,089,045
Current portion of operating lease liability
799,165
817,386
Corbel loan payable
1,000,000
7,028,519
Subordinated notes payable
-
575,000
Warrant liability
540,650
665,150
Total current liabilities
3,624,025
10,175,100
Long-term obligations:
Term loan payable to Corbel net of current portion
6,133,691
-
Convertible notes payable
575,000
-
Operating lease liabilities - net of short-term portion
4,378,927
4,167,011
Deferred contract income
1,577,299
1,556,976
Total long-term liabilities
12,664,917
5,723,987
Total liabilities
$
16,288,942
$
15,899,087
See Note 7 regarding contingencies
Stockholders' equity:
Common stock - no par value (40,000,000 shares authorized,
22,215,512 issued and outstanding as of December 31, 2023 and
as of March 31, 2024)
24,840,126
24,843,117
Accumulated deficit
(22,649,243
)
(22,735,720
)
Total stockholders' equity
2,190,883
2,107,397
Total liabilities and stockholders' equity
$
18,479,825
$
18,006,484
Noble Roman's, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited)
