SOURCE: Noble Roman's, Inc.

March 14, 2016 16:05 ET

Noble Roman's Announces 2015 Financial Summary; Details Strategic Direction in Place for 2016 & Beyond

INDIANAPOLIS, IN--(Marketwired - Mar 14, 2016) - Noble Roman's, Inc. (OTCQB: NROM), the Indianapolis based franchisor and licensor of Noble Roman's Pizza and Tuscano's Italian Style Subs, today reviewed the company's strategic direction and announced results for the year 2015 and the quarterly period ended December 31, 2015.

Strategic Review

The company continues to focus its growth strategy on three venues: (1) licensed grocery take-n-bake deli pizza programs, (2) non-traditional locations in host businesses such as entertainment facilities and convenience stores, and (3) franchised stand-alone restaurant locations. In discussing the strategic priority of each venue, Scott Mobley, President and CEO, stated, "In 2015, as CEO, my analysis of the company's strategic direction concluded that its greatest opportunities for value generation in the longer run are different than where the largest short-term gains will likely be realized. In the short run, given that the company has already invested significant effort in it and is well positioned to extract value from it, I believe the grocery take-n-bake venue represents the potential opportunity for faster, significant growth. However, for a variety of reasons, I consider the stand-alone venue to have more significant and dependable long-term revenue growth potential. Although more mature and staid, with our efforts to update and modernize the approach in mind as prerequisite, I believe the non-traditional venue also offers significant potential for long term growth. Our objective is to continue to capture the faster growth opportunities in the grocery take-n-bake venue while at the same time positioning the company to capitalize on its strong, longer-term opportunities. Much progress has already been made towards these ends and will continue to be the company's focus in 2016."

As previously announced, the company has expanded its presence in the grocery take-n-bake venue from 11 to 29 grocery distribution centers, which were in large part stocked and readied for operation towards the end of 2015. These new distributors represent thousands of additional retailers as potential new targets to sign up and implement the company's licensed deli pizza program. Additionally, to augment the company's ability to sell into this venue and to maintain more predictable and stable retailer displays, the company completed the hiring of a broker network at the very end of 2015 to be implemented in 2016. According to Scott Mobley, "Within the grocery venue, especially with some of the larger grocery distributors and supermarket retailers, broker representation is the industry expectation. In addition to satisfying this expectation, we are pushing our broker network on two additional objectives: (1) providing on-the-ground coverage of our licensed retailers to support their programs, and (2) providing contacts and sales ability to sign up new retailers to the company's program. We do not expect this to be an overnight process, as we are selling a full scale, made-fresh-daily program with many components rather than the usual carton-to-shelf products that occupy individual sku's. Though we believe the company's program has numerous selling advantages with retailers and end consumers as far as product quality and sales potential, it is out of the norm and requires substantial training and acclimation on the part of the brokers. However, over time, we believe that this broker network will add substantial value to the process."

In keeping with the strategic growth perspective outlined above, the company's non-traditional venue has undergone a complete revamping and redesign of the function and appearance of its pizza kiosk system. Recently completed in the current year of 2016, the actual production version of the redesigned kiosk made its début at the Western Petroleum Marketers Association expo in Las Vegas in February of 2016. Long lines at the company's booth and positive feedback from expo attendees demonstrated that it was well received. In addition to a complete redesign, the company has recently developed and introduced three tiers of program size and menu depth to accommodate the various opportunities, capabilities and objectives of potential franchisees and licensees. The company believes this will provide an excellent basis from which to promote new growth within the venue.

During 2015 and continuing into 2016, the company has also been developing and testing new products, services and systems in its stand-alone venue, many of which have been in test and have undergone additional development. Working with these tests, and combining new potential avenues of enhancement, the company will be introducing an up-to-date prototype which it believes will further capitalize on the brand's name recognition, history and product strengths. Along with this, the company believes it is extremely important in 2016 to develop one or more of these prototype units to be company owned and operated, to serve as a show case for prospective franchisees and to serve as a catalyst for growth in the venue. 

To make better use of and to increase available cash flow, to maintain a healthy degree of leverage, and to undertake the development of one or more company owned and operated stand alone units as described above, the company has undertaken initial efforts to restructure and refinance its current debt and to further decrease overhead cash requirements wherever possible. The company, both directly and indirectly, has already begun to seek proposals from a variety of financing sources and will endeavor to finalize an arrangement during the first six to eight months of 2016 that will allow it to meets its objectives. As part of this overall process, the company has already taken steps in March of 2016 to realize approximately $500,000 in temporary and permanent annualized cash savings from corporate overhead, the exact amount of which will vary depending on some of its current strategies to reduce travel expenses by its field personnel through alternative scheduling techniques and the use of the company's new brokerage network.

Early in 2016, the company elected to close one of its company owned and managed test and demonstration units as its lease came to an end. This decision was made for three reasons: (1) the unit was a part of the operations discontinued in 2008 and no longer reflected the type of operations the company currently franchises and licenses; (2) the unit would have required substantial capital to renovate it to a current prototype; and (3) the physical location of the unit no longer supported such additional investment due to changes in traffic patterns and development that have taken place over the many years since it was first established. As referenced prior, the company intends to establish at least one if not more company operations to reflect its most current stand-alone restaurant prototype for both testing and demonstration purposes, as well as to spur overall stand-alone growth in Indiana and the central Midwestern region.

Financial Results for the Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

  • Net income from continuing operations before taxes was $1.3 million, or $0.06 per basic share, compared to $2.8million, or $0.14 per basic share. The reason for the decrease was a valuation allowance of $1.2 million related to receivables including the Heyser case and $191,000 loss on a restaurant discontinued, which was part of the discontinued operations in 2008 but the decision was made at the time to continue to operate this location until the lease expired. The company will pay no income taxes on approximately the next $21.4 million in net income.
  • Loss on discontinued operations in 2015 was reduced to $35,000 compared to $154,000 in 2014 as matters related to the discontinued operations have largely been resolved.
  • Net income was $786,000, or $0.04 per basic share, compared to $1.6 million, or $0.07 per basic share. In 2015, the Company recorded an adjustment for valuation of receivables including the Heyser case in the amount of $1.2 million and recorded a loss on a restaurant discontinued, which was part of the discontinued operations in 2008 but the decision was made at the time to continue to operate this location until the lease expired.
  • Operating margin was 38.0% of revenue compared to 38.4%. 
  • Total revenue was $7.7 million compared to $7.9 million. The reason for the decrease was the result of the restaurant discontinued which was part of the discontinued operations from 2008 but continued to operate until the lease expired.
  • Upfront franchisee fees and commissions were $228,000 compared to $392,000. The decline in upfront fees was the result of selling fewer franchises of the company's stand-alone franchises. Most of the growth for 2015 came from licensing grocery store locations where there are no upfront fees. 
  • Royalties and fees less upfront fees were $7.2 million compared to $7.1 million. The growth in revenue from the grocery store take-n-bakes was offset by a slight decrease in royalties and fees from non-traditional locations other than grocery stores (primarily the first quarter of 2015) and a decrease in royalties and fees from the stand-alone take-n-bake.
  • Royalties and fees from non-traditional franchises other than grocery stores were $4.4 million compared to $4.5 million. This was primarily the result of a decrease in the first quarter of 2015.
  • Royalties and fees from grocery store take-n-bake locations were $1.9 million compared to $1.5 million. The growth in this venue for 2016 is expected to be significantly greater as a result of going from 11 to 29 grocery store distribution centers in the latter part of 2015.
  • Royalties and fees from stand-alone take-n-bake locations were $707,000 compared to $849,000. As discussed previously, during 2015 and continuing into 2016, the company has also been developing and testing new products, services and systems in its stand-alone venue, many of which have been in test and have undergone additional development. Working with these tests, and combining new potential avenues of enhancement, the company will be introducing an up-to-date prototype which it believes will further capitalize on the brand's name recognition, history and product strengths.
  • Royalties and fees from traditional locations were $265,000 compared to $283,000. This is a result of losing two of the older franchises during the second quarter of 2015, mostly offset by same store sales increases. There will be a new franchised traditional location opening in late spring or early summer of 2016, which is expected to be a very high volume location.

Financial Results for Fourth Quarter 2015 Compared to Fourth Quarter 2014

  • Net income before taxes from continuing operations was $15,000 compared to $501,000. The reason for the decrease was a valuation allowance of $380,000 related to receivables including the Heyser case and $191,000 loss on a restaurant discontinued, which was part of the discontinued operations in 2008 but the decision was made at the time to continue to operate this location until the lease expired. The company will pay no income taxes on approximately the next $21.4 million in net income.
  • Net loss was $25,000 compared to a net income of $149,000. The reason for the decrease was a valuation allowance of $380,000 related to receivables including the Heyser case and $191,000 loss on a restaurant discontinued, which was part of the discontinued operations in 2008 but the decision was made at the time to continue to operate this location until the lease expired. 
  • Total revenue was $1.9 million compared to $1.8 million despite the restaurant discontinued in 2015, which was part of the discontinued operations from 2008 but continued to operate until the lease expired.
  • Upfront franchisee fees and commissions were $16,000 compared to $74,000. This trend is expected to change in 2016 as a result of the complete revamping of the appearance and function of the company's pizza kiosk system, as discussed above, and as a result of development and testing new products, services and systems in the stand-alone venue, as discussed above. 
  • Royalties and fees less upfront fees were $1.8 million compared to $1.6 million. This trend is expected to continue and accelerate through the year 2016, as a result of the complete revamping of the appearance and function of the company's pizza kiosk system, as a result of the development and testing of new products, services and systems in the stand-alone venue and the anticipated growth from the grocery store take-n-bake venue as a result of going from 11 to 29 grocery store distribution centers in the latter part of 2015.
  • Royalties and fees from non-traditional franchises other than grocery stores were $1.1 million compared to $993,000. The increase from this venue is expected to accelerate as 2016 progresses as a result of the complete revamping of the appearance and function of the company's pizza kiosk system.
  • Royalties and fees from grocery store take-n-bake locations were $530,000 compared to $340,000. As previously discussed, the growth in this venue is expected to accelerate as a result of going from 11 to 29 grocery store distribution centers in late 2015 and the addition of a broker network as they get experience through 2016.
  • Royalties and fees from stand-alone locations were $151,000 compared to $234,000. This source of revenue is not expected to grow rapidly in 2016 but is expected to provide some of the great opportunities for the longer term.
  • Royalties and fees from traditional locations were $64,000 compared to $67,000. As previously discussed, this decrease was the result of two less franchised locations operating during the fourth quarter, mostly offset by same store sales increases. There will be a new franchised traditional location opening in late spring or early summer of 2016, which is expected to be a very high volume location.
  • Operating margin was 33.5% compared to 30.4%. The Company had an operating margin of 38% during the entire year of 2015 and expects that to increase during 2016.

Balance Sheet Summary

Current assets totaled $4.3 million and current liabilities totaled $1.4 million as of December 31, 2015 compared to total current assets of $4.4 million and current liabilities of $2.1 million as of December 31, 2014. Total bank debt was $2.0 million as of December 31, 2015 compared to $3.3 million as of December 31, 2014. Total stockholders' equity as of December 31, 2015 was $14.9 million compared to $13.8 million as of December 31, 2014.

Recent Growth in the Grocery Take-n-Bake Venue

During 2015, the company signed licenses for 478 additional grocery store locations. During 2015, the company opened 404 locations of which 152 of those were in the fourth quarter. Thus far in 2016, the company has signed licenses for 131 additional grocery store locations and opened 72 locations. This compares to 45 grocery store locations opened during the entire first quarter of 2015. At the current time, the company is in productive discussions with grocery chains representing approximately 550 additional retail locations plus two more grocery store distributors representing a significant number of additional retailers. 

Tactical Approach to the Company's Growth Strategy

The company's overall approach to pursuing its growth strategy can be summarized in the following four points:

  • Expand revenue through three targeted growth venues: non-traditional franchises/licenses, grocery take-n-bake and stand-alone restaurants.
  • Leveraging the results and continuing the process of recent testing, design and development in all three venues, especially the stand-alone and non-traditional venues.
  • Aggressively communicating and marketing the company's advantages to its target markets through a variety of means, including but not limited to: direct phone solicitation, internet advertising, direct mail, one-on-one product demonstrations and selective trade shows.
  • Maintaining an extremely disciplined focus on cost controls while undertaking the effort of expanding revenues.

Significant investment of time and effort has taken place to create competitive advantages through the company's products and systems. The quality of the company's products created through simple production processes and service systems, offered at a reasonable price point, is a strategic strength and a key driver of further growth potential. The company strives to design each ingredient and system to support the company's diverse, modularized menu offerings and to deliver superior results with the minimum possible labor within those objectives.

The company attempts to carefully select both its third-party manufacturers and distributors allowing for the production of proprietary products and services with efficient suppliers who can keep costs low compared to some of the company's competitors, especially those in the non-traditional venue that own, operate and distribute systems all within their own corporate structure.

With the company's strong product and system development comes communicating those advantages and conveying the high quality of products to prospective franchisees and licensees through various marketing efforts. The company utilizes a variety of strategies to accomplish this and has found that conducting live demonstrations of its systems and products at selected demonstrations, trade shows and food shows across the country allows it to demonstrate advantages that can otherwise be difficult for potential prospects to visualize. There is sometimes no substitute for tasting the company's products to fully understand the quality and taste performance. These trade shows are carefully selected based on existing relationships and prior experience as well as the potential for fruitful lead generation, and allow the opportunity to demonstrate the superior quality and taste of the company's products to a broad base of prospects at one time.

Investor Relations

Due to the declining benefits of the company's most recent investor relations arrangement and the company's efforts noted above relative to its financial restructuring and growth plans, the company recently decided in March of 2016 to terminate its current IR arrangement and to seek and evaluate alternative representation later in 2016. To compensate for some of these IR services, including the quarterly conference call, the company has opted in the interim to substantially increase the scope and detail provided in this quarterly press release, which is also available on the investor relations section of its corporate website, www.nobleromans.com. Additionally, the company's Executive Chairman and Chief Financial Officer, Paul Mobley, will be accepting teleconference appointments for any interested shareholder or potential investor to schedule personal, one-on-one question and answer sessions. Interested parties wishing to establish such an appointment may contact Mr. Mobley by email at pmobley@nobleromans.com.

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 projected in the forward-looking statements due to risks and uncertainties that exist in the company's operations and business environment, including, but not limited to, competitive factors and pricing pressures, non-renewal of franchise agreements the ability to refinance its debt prior to March 31, 2017, shifts in market demand, the success of new franchise programs with limited operating history including the stand-alone take-n-bake locations, general economic conditions, changes in purchases of or demand for the company's products, licenses 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.

   
   
Consolidated Balance Sheets  
Noble Roman's, Inc. and Subsidiaries  
   
    December 31,  
Assets   2014     2015  
Current assets:                
  Cash   $ 200,349     $ 194,021  
  Accounts receivable - net     1,687,954       2,007,751  
  Inventories     381,400       492,222  
  Prepaid expenses     467,721       634,016  
  Deferred tax asset - current portion     1,675,000       925,000  
    Total current assets     4,412,424       4,253,010  
                 
Property and equipment:                
  Equipment     1,383,380       1,376,190  
  Leasehold improvements     88,718       88,718  
      1,472,098       1,464,908  
  Less accumulated depreciation and amortization     1,041,951       1,092,785  
    Net property and equipment     430,147       372,123  
Deferred tax asset (net of current portion)     7,899,497       8,158,523  
Other assets including long-term portion of accounts receivable - net     5,015,931       5,681,272  
        Total assets   $ 17,757,999     $ 18,464,928  
Liabilities and Stockholders' Equity                
Current liabilities:                
  Current portion of long-term notes payable to bank   $ 1,469,028     $ 601,081  
  Accounts payable and accrued expenses     676,386       847,418  
      Total current liabilities     2,145,414       1,448,499  
                 
Long-term obligations:                
  Notes payable to bank (net of current portion)     1,846,736       1,366,454  
  Notes payable to officer s     -       175,000  
  Note payable to Kingsway America     -       600,000  
      Total long-term liabilities     1,846,736       2,141,454  
                 
Stockholders' equity:                
  Common stock - no par value (25,000,000 shares authorized, 20,095,087 issued and outstanding as of December 31, 2014 and 20,775,921 issued and outstanding as of December 31, 2015)    

23,970,654
     

24,294,002
 
  Accumulated deficit     (10,204,805 )     (9,419,027 )
      Total stockholders' equity     13,765,849       14,874,975  
        Total liabilities and stockholders' equity   $ 17,757,999     $ 18,464,928  
                 
                 
   
Consolidated Statements of Operations  
Noble Roman's, Inc. and Subsidiaries  
   
    Year Ended December 31,  
    2013     2014     2015  
Royalties and fees   $ 7,082,548     $ 7,479,334     $ 7,464,963  
Administrative fees and other     24,138       72,541       56,520  
Restaurant revenue     420,753       363,340       207,803  
      Total revenue     7,527,439       7,915,215       7,729,286  
                         
Operating expenses:                        
  Salaries and wages     1,056,790       1,063,076       1,141,562  
  Trade show expense     514,570       541,385       543,354  
  Travel expense     207,572       235,127       255,125  
  Other operating expenses     747,914       876,162       834,320  
  Restaurant expenses     390,507       402,281       248,139  
Depreciation and amortization     113,607       111,750       105,843  
General and administrative     1,646,993       1,646,502       1,659,966  
      Total expenses     4,677,953       4,876,283       4,788,309  
      Operating income     2,849,486       3,038,932       2,940,977  
                         
Interest     201,381       190,382       186,414  
Loss on restaurant discontinued     -       -       191,390  
Adjust valuation of receivables - including Heyser case     1,208,162       -       1,230,000  
    Income before income taxes from continuing operations     1,439,943       2,848,550       1,333,173  
Income tax expense     568,406       1,104,809       512,671  
    Net income from continuing operations     871,537       1,743,741       820,502  
                         
Loss from discontinued operations net of tax benefit of $511,893 for 2013, $97,284 for 2014 and $21,697 for 2015    

(780,440
)    

(153,545
)    

(34,724
)
    Net income     91,097       1,590,196       785,778  
Cumulative preferred dividends     99,000       -       -  
    Net income (loss) available to common stockholders   $
(7,903
)   $
1,590,196
    $
785,778
 
Earnings per share - basic:                        
  Net income from continuing operations   $ .05     $ .09     $ .04  
  Net loss from discontinued operations net of tax benefit   $
(.04
)   $
(.01
)   $
(.00
)
  Net income   $ .01     $ .08     $ .04  
  Net income available to common stockholders   $
-
    $
.08
    $
.04
 
Weighted average number of common shares outstanding    
19,533,201
     
19,870,904
     
20,517,846
 
                         
Diluted earnings per share:                        
  Net income from continuing operations   $ .05     $ .08     $ .04  
  Net loss from discontinued operations net of tax benefit   $ (.04 )   $ (.01 )   $ (.00 )
  Net income   $ .01     $ .07     $ .04  
Weighted average number of common shares outstanding    
20,472,908
     
21,204,439
     
21,439,242
 

Contact Information

  • FOR ADDITIONAL INFORMATION, CONTACT:
    For Media Information:
    Scott Mobley
    President & CEO
    317/634-3377

    For Investor Relations:
    Paul Mobley
    Executive Chairman
    317/634-3377