Restaurant Finance Monitor
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Before delving into the quarterly operating details, still affected by the lingering effects of Covid, we provide, for context, the current opportunities for Noble Roman’s as provided by CEO, Scott Mobley, on the quarterly conference call. He expressed optimism that Craft Pizza & Pubs can improve operating margins, based on more stable labor conditions and recently lower cheese prices. He was especially enthusiastic about the recent trends in signing up new non-traditional franchisees. As indicated above, ’22 openings were 30% higher than in ’21, and ’23 looks to be just as promising. If volumes at new non-traditional franchised stores can be anywhere approaching $5,000/week (as indicated at some recent openings), the 7% royalty. calculating to $18,200/year/unit,  would obviously be important to Noble Roman’s if 30-40 new units were added annually. Considering that the addressable potential market of convenience stores amounts to many thousands of units, this “asset light” venue represents a major opportunity.

Putting the last five years in context: Prior to Covid, annual EBITDA was running at approximately $3M annually, with the Craft Pizza & Pubs having a bright future, along with franchising opportunities in the non-traditional segment. Having survived the last three years, the nine existing Pubs have remained cash flow positive, and margins at store level show the promise of being rebuilt to the pre-Covid high teens. The non-traditional franchising segment took a serious hit, as some thinly capitalized franchisees could not survive the government mandated closures for a prolonged period, resulting in total royalty volume declining from over $6M annually to $4M in calendar ’22. At this point, however, this segment has stabilized and now shows tangible signs of renewed growth.

The current, appropriately stated corporate priorities are (1) rebuilding the store level margins at the Craft Pizza and Pubs (2) building on the new momentum with non-traditional franchising and (3) refinancing the long-term debt. Current liquidity ($463,000 of cash as of 3/31/23 and a net after costs of 1.46M to be received from the ERTC program), combined with operating cash flow, should allow for required interest and principal payments between now and maturity of the Long-Term Debt in February, 2025. Since cash interest is north of $82,000 per month, and principal payments are $83,333 per month, positive operating cash flow of about $2M over the next two years will be required, a conservative expectation based on pre-Covid historical cash flow generation.

Noble Roman’s continues to have the potential to substantially expand the reach of its 50 year old brand, and generate much higher revenues and cash flow. The current Enterprise Value of only about $15M continues to provide substantial potential, as the Company rebuilds its cash flow generation over time. If operating results improve over the next several quarters, it seems reasonable that the balance sheet can be better structured to take advantage of the variety of long term growth opportunities.


Total Revenues were $3.308M in Q1’23 vs $3.465M a year earlier. Net Income of $868k included $1. 46M (net after expenses) of anticipated Employee Retention Tax Credit, to be received during the course of ’23. Operating Income was reported at $1.526M vs. $159k. Subtracting the ERTC credit just received, reimbursing past losses, provides “normalized” Operating Income of $66k. Adding back Depreciation & Amortization of $96k indicates EBITDA of a positive $162k. While the ERTC is a justifiable reimbursement by the government, to help cope with extraordinary expenses and lack of revenues during Covid, and management should be commended for pursuing this available relief, we view the credit as a reduction of the losses during Covid, rather than contributing to current results.

The Craft Pizza & Pubs segment had Revenues of $2.090M vs $2.284, with an EBITDA store level margin of $225k (8.4% of Revenues) vs $176k (9.9% of Revenues). Cost of Sales was 100bp higher, at 21.6% of Revenues. Salaries and Wages was 220bp lower at 29.5%. Facility Cost was 220bp higher at 19.4%. Packaging and Deliver Fees were each 10bp lower, at 3.4% and 1.5% respectively. Other Operating Expenses were 70bp higher, at 16.2%. The lower sales were largely a result of the most recently opened two Pubs (in October and November of ’21) a little more than halfway through the honeymoon period(viewed by NROM as 24 months). “To a lesser extent, the lower sales were a result of a decline in third party deliveries, not totally offset by an increase in dine-in or carry-out sales.” While Cost of Sales was up by 100bp, Labor was well controlled, down by 220bp.

The Franchising division showed Revenues of $0.987M vs $1.034M in Q1’22, with a margin contribution of $1.856M vs. $.573M in ’22. Subtracting the ERTC credit of $1.38k for the franchising division, the Adjusted margin was $.476M. The decline in Revenues was due to closure of non-traditional locations, as a result of Covid-19, most of which has been offset by the opening of new locations. Salaries and Wage expense was 22.5% of Revenues, up from 18.7%, with staff added to take advantage of the renewed growth opportunity. Other material changes were Travel & Auto Expense, up $14k (from 1.8% to 3.3% of sales) and All Other Operating Expenses $76k (adjusted for the ERTC credit), up $13k (from 6.1% to 7.7%). The extra expense seems to be paying dividends, since 26 new franchises have been sold since 1/1/23.

Corporate General and Administrative Expenses were $519k, an improvement from $541k in Q1’22. Interest Expense was $383k, up from $341k, a result of PIK interest being added to the principal, more than offsetting the limited principal payments that were made prior to the end of the quarter. That will change going forward because the higher principal payments are more than offsetting the PIK increases.

THE BALANCE SHEET (and debt repayments)

As of 3/31/23 there was cash of $463,283, with a net of $1,460,444 to be received from the Employee Retention Tax Credit. This compares to $785k at 12/31/22.  Though cash declined in total by $322k. no particular current account changed materially.

The largest single item on the balance sheet is the $7.33M term loan (due in Feb.’25), carrying a total interest rate, including 3% non-cash-payment-in kind (“PIK”), over 15%. In addition to the cash interest of LIBOR plus 7.75%, the Company started making cash principal payments of $83,333 per month. While the first calendar quarter is typically not a large cash generator, EBITDA can be expected to improve over the course of the remainder of ’23, as a result of seasonality, store level efficiency and higher menu prices at the CPPs, as well as renewed growth within the non-traditional venue, That expected improved cash flow would allow the Company to continue servicing the current debt, as well as achieving its stated refinancing objectives.

THE CONFERENCE CALL (further commentary)

The company started the conference call by reminding everyone of the tax loss carryforward that protects about $12M of income, so the $1.4M about to be received from the ERTC will be tax free.

Other than we have previously summarized in our Conclusion above, the primary focus of the call was the renewed growth and large opportunity for the non-traditional venue. Staff has been re-assigned, and added, to pursue prospects. As Covid-19 concerns abated, in 2022, new unit development increased by about 30% over ’21. So far in ’23, 26 agreements have been signed and 14 have opened. There are about 22 units in various stages of preparing to open, including 4 in May. Most importantly, there are new agreements for 6 units with a major, multi-store, c-store operator that could expand to as many as 100 units. Reference was made to pizza volumes at certain of the most recent openings being in the area of $5,000/week, an obviously attractive incremental revenue stream for an existing c-store. Scott Mobley expanded on the opportunity within this segment, observing that interest is strong, in spite of ongoing general concerns about the economy, inflation, and credit availability.

Relative to the Craft Pizza & Pubs, dining room sales continue to strengthen, but still stand at about 57.5%, with lots of room for further improvement, compared to pre-Covid at 80%. The Pubs are also working hard to improve Sales and Margins within the take-out and delivery business. In that regard, a newly designed test, using DoorDash as the delivery (but not the order taking) agent is taking place at one location. Noble Roman’s advertises the delivery service, takes the order, receives full price, adds a delivery fee which they pay weekly to DoorDash. Doordash is involved only to the extent of the physical delivery.


As Provided Above