DC Advisory
Print Friendly, PDF & Email


We have written previously about Noble Roman’s and suggest our readers access those articles by way of the SEARCH function on our HOME PAGE.


While NROM has moved up in price over the last few months, there continues to be potential upside. The second quarter provided about $600k of quarterly EBITDA once again, and seems to provide a base on which to build further. As outlined below, potential add-ons “in hand” could take the annual EBITDA to comfortably over $4M annually going into calendar ’22 and be at or above $5M early in ’23. The regional focus with their expanding NRCPP chain seems to minimize operational risk and the total Enterprise Value (currently about $25M) is obviously modest for a well established brand with growth potential.


Noble Roman’s reported their 2nd quarter results, ending 6/30/21. Since PPP loans were received in the 2nd quarter of ’20 and the first quarter of ’21, distorting QTQ comparisons, we will first discuss the six month report, which provides a more accurate picture of the YTY recovery from the pandemic.


For the six months: Restaurant Revenues, from their Craft Pizza and Pubs, were $4.4M, up from $2.5M, as a result of three new Pubs opened during calendar ’20, as well as the ongoing post-pandemic sales rebound. Operating Income was $1.586M almost exactly flat with $1.608M, with both six month periods affected by PPP loans which offset extra expenses. Depreciation was $306k in ’21, up from $164k, as a result of the three new locations, so EBITDA for H1’21 was about $1.8M, a little higher than in ’20. Still, we do not view the $1.8M in H1’21 to be a current EBITDA run rate because of the ongoing operating adjustments, especially in Q1’21. The following discussion of Q2’21 is more indicative of the income and cash flow going forward because of the diminishing, though still material, effects of the pandemic.


Revenues in the Craft Pizza and Pubs was $2.265M vs. $1.407M, as a result of the three successful new Pubs opened during ’20. The store level EBITDA was 14.5% of sales (expected, as stated by management, to improve), not comparable to the 42.8% in ’20 which was driven by the PPP loan/grant. Royalties and Fees from Franchising was $1.046M, up from $905k in ’20 and up sequentially from $890k in Q1’21. Royalties and fees from the grocery segment (becoming relatively immaterial) was down $45k to $317k. The Margin Contribution from the total Royalties Segment (Non-traditional, NRCPP, and Grocery) was $717k, down from $821k, a 59.8% Margin Contribution vs. 75.4% in ’20. This decline in margin on an increase in YTY revenues is due to the receipt in ’20 of the PPP loan, part of which was allocated to expenses of this segment. Q2’21 showed Operating Income of $424k. D&A of $142k and a few small non-cash expenses, which brought the quarterly EBITDA to approximately $600k. We will use this past quarter and first half EBITDA (about $600k/qtr., $2.4M annually) to build upon in terms of potential EBITDA over the next year or two. It is worth noting that NROM has about $15M of tax loss carryforward so that EBITDA, less interest, will approximate the after tax cash flow from operations. The balance sheet includes $2.1M of cash, about $8M of total long term debt, with a current ratio of 4.7 to 1.


Paul Mobley, CFO, expressed his satisfaction that facility cost in  Q2 was lowered to 10.4% from 15.5% last year, due to the higher sales of the first four NRCPPs, the well above average sales at the three new locations, and the new leases. At the end of the call, he interjected that July sales for the seven NRCCPs were up 4.6% over June. Additionally, “August is a transition period where weekends are getting larger, weekdays a little smaller….but it looks like August will be a pretty decent month as well.”

Scott Mobley, President and CEO, described how supply chain (i.e.chicken and packaging) and labor issues were second quarter hurdles but operations were maintained without major disruptions. He noted that when Indiana opted out of the unemployment bonus payments, there was an immediate resurgence of job applications, but the applications dried up when the court reversed the opt out policy. Logically, the labor situation  (for all) will hopefully improve when the Federal programs expire in September. He described the two new announced NRCPP locations with enthusiasm and  noted that signups for non-traditional units are increasing, 19 so far in ’21.

The current sales mix is 47% dine-in, 18% third party delivery (which is not promoted) and 35% takeout (the pizza valet program). In the most recent weeks, carry-out has firmed up as the Covid variant has been in the news. There are no new mask mandates but some customers are obviously concerned.

Scott Mobley talked about a new flatbread pizza that has worked well in test, will be rolled out shortly, and can be done without new operational complexity. He also expressed an expectation that third party delivery charges can be reduced by way of a new local agent.


We build, below, upon the current run rate of EBITDA, to develop expectations over the next year or so.

Three new NRCPPs to come on stream in Q4’21. Two leases are signed, the first to open in late September, the 2nd in October, the 3rd in late Q4. If the three stores average $1.4M of revenues annually, as the last three have done, and generate a store level EBITDA margin of 18-20%, that would contribute $252k-$280k each annually, or $756k-$820k ($788 at the midpoint) for the three locations.

It seems reasonable to assume an additional sales recovery of 5-10% from the existing seven NRCPPs, or $65k/store, bringing the current $1.3M run rate to about $1.4M. The Company has said that the most recent 14.5% store level EBITDA can be improved, especially with the recent 5% menu price rise. If we assume two points of margin improvement on $1.4M, that would be $28k per store, or $196k annually on the existing seven locations.

The non-traditional franchised segment, primarily C-stores and gas stations, numbered close to 650 locations two years ago. Including the royalties and fees from NRCPPs, that segment contributed $1.3-$1.4M of royalties on a quarterly basis, with a margin contribution well above 60%. This segment has been improving sequentially, from a low of $846k in Q4’20 to $890k in Q1’21 to $1046k in Q2’21. If we assume this segment will continue its recovery back to about $1.3M quarterly, that would be about $300k quarterly, with an incremental margin of at least 75%, $225k quarterly, or $900k annualized.

Potentially offsetting the above potential add-ons could be a continued deterioration in the royalties from grocery stores, which could be perhaps $200k of revenues and $150k of EBITDA.

Adding together the above contributions, we get $1.734M of additional EBITDA within the next year or eighteen months. On top of the current annual run rate of $2.4M, that would total $4.134M. This can be considered “in hand” potential over the next twelve months, essentially going into calendar ’22. It can be expected, looking out more than twelve months, that there will be additional NRCPP openings, a new high of non-traditional locations, and additions to the current three franchised NRCPPs.

It does not seem to be a “reach” to think that annual EBITDA could be at a run rate of $5M or more by the beginning calendar ’23. The biggest single variable, which could help or hurt, would be the rate of sales at the fleet of NRCPPs. Mitigating the risk is the fact that the entire fleet of NRCPPs (10 company operated and 3 franchised), are within an hour’s drive of Indianapolis, with the attendant operational focus.

CONCLUSION: Provided above

Roger Lipton