Restaurant Finance Monitor
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Note: We have written extensively about NROM, which can be located by using the SEARCH function on our Home Page.

Noble Roman’s reported third quarter results, reflecting continued progress in terms of recovering from Covid-related distortions. Both major segments, operation of nine company operated Craft Pizza & Pubs (CPPs), and franchising of about 600 non-traditional locations plus 3 CPPs showed progress both in terms of sales and operating margins. The CPPs showed revenues and bottom-line growth, both YTY and in sequential quarters. While the franchising segment still lags last year’s results, Q3’22 was the third sequential quarter with improving revenues and operating margin. This is a result of post-Covid re-openings as well as new locations.

Total Corporate Operating Income in Q3 was $382k, up 45% from $264k. Adding back D&A (less this year than last) provided EBITDA of $494k, up 22% from $406k a year earlier.

The nine- company operated CPPs generated revenues of $2,587,182 vs. $2,122,352, the increase due to the addition of the last two locations that opened in Q4’21. Cost of sales was 22.0%, up 100bp from 21.0% in Q3’21. Labor was down 170 bp, from 29.2% to 27.5%. Facility Cost was even at 16.7%. Packaging was 30 bp higher at 3.6% – and Third- Party Delivery fees were materially lower at 1.5% vs. 4.6%. All Other Operating Expenses were 110bp lower at 13.5%. The store level EBITDA margin therefore improved by 460 bp, from 10.6% to 15.2% of sales.

The franchising segment showed lower revenues YTY, $1,119,793 vs. $1,177,776, but steady quarterly progress continued, compared to $1.06M in Q2, $1.03M in Q1, and $1.01M in Q4’21. The franchising segment’s operating margin showed the same pattern, $620k (55.4% of revenues) most recently vs. $686k (58.2% of revenues) in Q3’21. Just as sales improved sequentially this year, the Margin contribution moved steadily from $516k in Q4’21 to $620k most recently. In the corporate release, management pointed out that “the company has sold 26 non-traditional locations so far in 2022, and has an extensive backlog of additional prospects and units to open”.

After G&A expenses ($518k vs $506k) and interest expense ($378k vs. $343k, part of which is Paid In Kind) net GAAP income was $3,782 for the quarter, compared to a loss of $79,415 in Q3’21. Interest expense therefore absorbed a large portion of $494k of quarterly EBITDA. The current ratio was 2.38:1 as of 9/30/22 vs. 2.27:1 at 12/31/21. While cash declined $521k from $1,264k at 12/31/21 to $743k at 9/30/22, it almost exactly matched the $543k, spent paying for property & equipment (shown in the Q3 10Q) for, as CFO Mobley pointed out on the conference call, the two stores opened in Q4’21.


Aside from CFO Paul Mobley’s financial recap, CEO Scott Mobley provided an operational update.

Relative to the non-traditional sales effort, Scott emphasized the increased emphasis, now that Covid-related distractions have subsided, on the sale, opening and support for non-traditional franchisees. He elaborated on the growth prospect within this segment by saying: “as mentioned, so far in 2022 we have sold 26 no-traditional franchises. In addition to a significant number of single unit leads, we also have leads representing new, larger chains…” In this regard, a 45 year veteran of the non-traditional industry has been hired to interface with prospects. A newly designed non-traditional “look” could also help.

In terms of managing and expanding upon the nine current CPPs, costs have been generally well controlled and those efforts continue. Without the predictable inefficiencies that surround new unit openings, staff has been able to improve recruitment, training and productivity per staff hour. Salad bars have been introduced and 21,000 orders were processed in Q3 (which we calculate would be a little under 200 orders per store per week). Scott Mobley pointed out that, though the food cost is higher than alternative menu items, it has a higher average ticket and expands the customer base. An experienced sales executive is being sought, especially since the newest 2,500 square foot prototype should be easier to operate while generating an even more attractive return on investment.

In addition to the enthusiasm expressed for expansion of the non-traditional franchise base, Scott’s discussion of dining room usage seemed insightful and potentially representative of a positive inflection point for sales trends at the CPPs. Prior to the Covid, in-store dining was 80% of sales, and the Company had introduced their innovative Pizza Valet curbside service a year ahead of Covid. The hope has been that, post-Covid, a large portion off-premise customers that had learned to use Noble Roman’s could be retained even as dining room sales recovered. Prior to Omicron earlier this year, dine-in portion had recovered to 45%. It dropped back during Omicron but is back around 60% the last six weeks and total sales have been firm. A critical observation is that the pre-Covid units are running 66% dine-in, the newest locations about 49%. That seventeen-point disparity is likely due to dining rooms being closed or limited during Covid, so “guests at the new units have less ‘muscle memory’ when it comes to thinking of us for dine-in. This is a significant opportunity and we are working on some strategies to exploit it.”

In response to a question about debt service on the $8M of principal that requires principal reduction (at $33,000/month) starting in February ’23, CFO Mobley responded that cash flow projections indicate an ability to meet that requirement. Though management did not discuss this aspect of their strategic plan, it seems logical and appropriate that management prioritize expansion opportunities that do not require major capital investment. This would point to expansion of franchised non-traditional outlets, and building the first smaller footprint CPP, about 2500 square feet costing $500-550k, versus the larger units that cost about $670k but would run about $725 currently.


The bottom line results at Noble Roman’s have not come through as we’ve suggested they might, while we’ve been writing about it the last few years. However, Covid-19 and its Variants have materially disrupted “the best laid plans” (everywhere) and the potential at NROM remains intact. Nine Craft Pizza and Pubs are operating smoothly, plus three franchised, all located within an hour’s drive from Indianapolis, where the brand has been well regarded for almost fifty years. The company operated locations seem capable of generating an annualized store level EBITDA of at least 15% (as in Q3’22), which represents about 25% cash on cash return. Higher would be better of course, and that could well be the case as the Covid fades further. In any case, expansion of this concept will take place by way of a smaller footprint, which could do virtually the same $1.1-$1.3M/location and generate a much more attractive C/C return. As discussed earlier, the franchising of non-traditional locations is the largest EBITDA generator. While a small footprint CPP, or two, may be built in the next year or so, considering that a great deal of corporate EBITDA is currently consumed by debt service, the non-traditional asset light, free cash flow generating approach is appropriately today’s most intense expansion focus. When progress is made, one way or another, in reducing debt service, more aggressive expansion of CPPs will no doubt take place. EBITDA, depressed as it is, is still running at about $2M per year. Modest continuing recovery in the CPPs and the non-traditional segment could ratchet that quickly back to $3M, where it has been running for years. We consider that the $3M of annual EBITDA that we discussed several years go is still a base on which to build. The current stock price of $0.20-.30/share represents an equity market value of only $4.5-6.5M, which combined with $8.5M of debt provides an Enterprise Value of $13-$15M. Considering the long term staying power of this brand, and its ongoing potential for substantial expansion, this seems to be an appealing reward/risk equation.

Roger Lipton