Noble Roman's Announces 1st Quarter 2020 Results

Noble Romans, Inc.

Companies Mentioned:

Primary Exchange: OTCQB
Under the Symbol: NROM

Noble Roman's Announces 1st Quarter 2020 Results

Tuesday, June 9, 2020 4:00 PM

INDIANAPOLIS, IN / ACCESSWIRE / June 9, 2020 / Noble Roman's, Inc. (OTCQB:NROM), the Indianapolis based franchisor and licensor of Noble Roman's Pizza and Craft Pizza & Pub, today announced results for the three-month period ended March 31, 2020 along with other strategic highlights.

For the three-month period ended March 31, 2020, the company reported total revenues of $2.7 million and an operating profit before interest of $600,000. Interest cost was unusually high at $926,000 since it included $718,000 non-cash interest. Most of the non-cash interest was a one-time expense related to unamortized loan costs from previous debt which was charged off upon the successful completion of the company's new financing package. After interest and taxes, the company had a net loss of $255,000 or ($.01) per share. This compared to the three-month period ended March 31, 2019 when the company reported revenues of $2.9 million, an operating profit of $750,000 and a net income of $476,000 or $.02 per share.

Some of the highlights of the first quarter were:

  • The refinancing of the company's debt with an $8 million financing package
  • The obtaining of a $715,000 loan under the Payroll Protection Program, which the company expects to be forgiven as provided for under the program
  • The opening of the 5th company-owned and operated Craft Pizza and Pub to record opening sales despite the opening occurring in the midst of the pandemic
  • The avoidance of major financial catastrophe which could have resulted from the shutdown of the economy due to the COVID-19 pandemic
  • Despite the COVID-19 pandemic and resulting economic turmoil, the company would have made $321,000 net income before taxes except for the $658,500 in non-cash interest expense caused by charging off unamortized loan costs from its previous debt
  • With new financing in place and successful crisis management during the pandemic, the company is structured for growth as the economic turbulence and various disturbances recede

On March 25, 2020, in the midst of the COVID-19 pandemic, closed dining rooms and stay-at-home orders, the company opened its newest company-owned Craft Pizza & Pub location in Brownsburg, Indiana with record sales volume. The Brownsburg location is the 5th company-owned and operated Craft Pizza & Pub, and the 7th overall. An additional franchised location is currently under development in Kokomo, IN and the company anticipates opening one or two more company-owned and operated locations in 2020.

On February 7, 2020, the company entered into a Senior Secured Promissory Note and Warrant Purchase Agreement (the "Agreement") with Corbel Capital Partners SBIC, L.P. (the "Purchaser"). Pursuant to the Agreement, the company issued to the Purchaser a senior secured promissory note (the "Senior Note") in the initial principal amount of $8.0 million. The company has used or will use the net proceeds of the Agreement as follows: (i) $4.2 million was used to repay the company's then-existing bank debt which was in the original amount of $6.1 million; (ii) $1,275,000 was used to repay the portion of the company's existing subordinated convertible debt the maturity date of which most had not previously been extended; (iii) debt issuance costs; and (iv) the remaining net proceeds will be used for working capital or other general corporate purposes, including development of new company-owned Craft Pizza & Pub locations.

The Senior Note bears cash interest of LIBOR, as defined in the Agreement, plus 7.75%. In addition, the Senior Note requires payment-in-kind interest ("PIK Interest") of 3% per annum, which will be added to the principal amount of the Senior Note. Interest is payable in arrears on the last calendar day of each month. The Senior Note matures on February 7, 2025. The Senior Note does not require any fixed principal payments until February 28, 2023, at which time required monthly payments of principal in the amount of $33,333 begin and continue until maturity. The Senior Note requires the company to make additional payments on the principal balance of the Senior Note based on its consolidated excess cash flow, as defined in the Agreement.

In conjunction with the borrowing under the Senior Note, the company issued to the Purchaser a warrant (the "Corbel Warrant") to purchase up to 2,250,000 shares of Common Stock. The Corbel Warrant entitles the Purchaser to purchase from the company, at any time or from time to time: (i) 1,200,000 shares of Common Stock at an exercise price of $0.57 per share ("Tranche 1"), (ii) 900,000 shares of Common Stock at an exercise price of $0.72 per share ("Tranche 2"), and (iii) 150,000 shares of Common Stock at an exercise price of $0.97 per share ("Tranche 3"). The Purchaser is required to exercise the Corbel Warrant with respect to Tranche 1 if the Common Stock is trading at $1.40 per share or higher for a specified period, and is further required to exercise the Corbel Warrant with respect to Tranche 2 if the Common Stock is trading at $1.50 per share or higher for a specified period. Cashless exercise of the Corbel Warrant is only permitted with respect to Tranche 3. The Purchaser has the right, within six months after the issuance of any shares under the Corbel Warrant, to require the company to repurchase such shares for cash or for Put Notes, at the company's discretion. The Corbel Warrant expires on the sixth anniversary of the date of its issuance.

Impact of COVID-19 Pandemic:

In the first quarter of 2020, a novel strain of coronavirus (COVID-19) emerged and spread throughout the United States. The World Health Organization recognized COVID-19 as a pandemic in March 2020. In response to the pandemic, the U.S. federal government and various state and local governments have, among other things, imposed travel and business restrictions, including stay-at-home orders and other guidelines that required restaurants and bars to close or restrict inside dining. The pandemic has resulted in significant economic volatility, uncertainty and disruption, reduced commercial activity and weakened economic conditions in the regions in which the company and its franchisees operate.

The pandemic and the governmental response are having a significant adverse impact on the company due to, among other things, governmental restrictions, reduced customer traffic, staffing challenges and supply difficulties. All company-owned Craft Pizza & Pub restaurants are located in the State of Indiana. On March 16, 2020, by order of the Governor of the State of Indiana, all restaurants within Indiana were ordered to close for inside dining. Due to the order, all Craft Pizza & Pub restaurants have been open for carry-out only, primarily through the company's ‘Pizza Valet®' curbside carryout system and third-party delivery providers. On May 1, 2020, the governor issued another order allowing restaurants to be open for inside dining for up to 50% of capacity as of May 11, 2020, and on June 14, 2020 for up to 75% of capacity, plus bars may open up to 50% of capacity, and on July 4, 2020 restaurants and bars may resume at 100% capacity. As the duration and scope of the pandemic is uncertain, these orders are subject to further modification, which could adversely affect the company. Further, the company can provide no assurance the phase-out of restrictions will have the positive effect of fully restoring the company's business to pre-pandemic volumes.

Several other states and municipalities in the United States have also temporarily restricted travel and suspended the operation of dine-in restaurants and other businesses in light of COVID-19, which has negatively affected the company's franchised operations. Host facilities for the company's non-traditional franchises have also been adversely impacted by these developments, many of which suffered progressively more significant financial damage into the second quarter. The uncertainty and disruption in the U.S. economy caused by the pandemic are likely to continue to adversely impact the volume and resources of potential franchisees for both the company's Craft Pizza & Pub and non-traditional venues.

On April 25, 2020, the company borrowed $715,000 under the Payroll Protection Program. The company anticipates this note will be forgiven as provided for in the program. The funds, according to the provision in the Coronavirus Aid, Relief, and Economic Security Act ("CARES"), may be used for payroll costs including payroll benefits, interest on mortgage obligations incurred before February 15, 2020, rent under lease agreements in force before February 15, 2020 and utilities for which service began before February 15, 2020.

Summary of Financial Results:

Gross revenue was $2.7 million for the three months ended March 31, 2020 compared to $2.9 million for the comparable period in 2019. The decline in revenue was the result of revenue decrease of take-n-bake sales in grocery stores which got such a rush from closing down the economy they did not have the resources available to assemble pizzas to take home. In addition, all of the non-traditional locations in bowling centers and entertainment centers have been temporarily closed due to various orders of different government agencies to mitigate the spread of the pandemic.

Operating income decreased to $585,000 from $754,000 for the three-month period ended March 31, 2020 compared to the corresponding period in 2019. Operating income decreased as a result of a $200,000 decrease in revenue, while all expenses remained approximately the same. The revenue decrease was primarily related to the COVID-19 pandemic shutting down the economy and other non-cash amortization associated with the $718,000 described above.

Interest expense increased to $926,000 from $127,000 for the three-month period ended March 31, 2020 compared to the corresponding period in 2019. The primary reason for the increase was a result of the financing that occurred in February 2020 resulting in one-time non-cash write-offs of the unamortized original loan cost for both First Financial Bank and the private placement sub-debt, which in the aggregate was $658,445 and, in addition, the non-cash PIK interest expense of $35,371.

Net income (loss) before income taxes decreased to ($337,000) from $627,000 for the three-month period ended March 31, 2020 compared to the corresponding period in 2019. This was primarily the result of the one-time non-cash interest as explained in the previous paragraph.

Net income (loss) decreased to ($255,000) from $476,000 for the three-month period ended March 31, 2020 compared to the corresponding period in 2019. Net income decreased because of the one-time non-cash expense associated with financing the Company's debt and to a lesser extent the decrease in total revenue, but with approximately the same expenses, primarily caused by the COVID-19 pandemic.

The following table sets forth the revenue, expense and margin contribution of the company's franchising venue and the percent relationship to its revenue:

 
Description
  Three Months ended March 31,  
 
  2019                 2020  
Royalties and fees non-traditional franchising
  1,287,178       80.8 %   1,278,100       87.1 %
Royalties and fees non-traditional grocery
    305,836       19.2       189,279       12.9  
Total non-traditional revenue
    1,593,014       100.0       1,467,379       100.0  
Salaries and wages
    195,626       12.3       196,049       13.4  
Trade show expense
    105,094       6.6       105,000       7.2  
Insurance
    109,924       6.9       86,426       5.9  
Travel and auto
    27,549       1.7       28,448       1.9  
All other operating expenses
    56,519       3.5       74,433       5.0  
Total expenses
    494,712       31.0       490,356       33.4  
Margin contribution
  1,098,302       69.0 %   977,023       66.6 %

The revenue from this venue decreased from $1.6 million to $1.5 million for the three months ended March 31, 2020 compared to the comparable period in 2019. Royalties and fees from non-traditional franchising remained approximately the same at $1.3 million however royalties and fees from grocery stores declined from $306,000 to $189,000. This decrease in grocery store take-n-bake was a result of the company's focus away from grocery stores to franchising because of the strong economic conditions prior to COVID-19 pandemic and due to pandemic-caused rush on grocery stores with minimal staff which did not have sufficient resources to maintain assembling pizzas for take-n-bake.

Salaries and wages, trade show expense, insurance and other operating costs decreased from $495,000 to $490,000 for the three-month period ended March 31, 2020 compared to the comparable period in 2019. In January 2019, the company reviewed this venue in depth to find ways to minimize costs and accomplish its objectives with fewer people and lower costs in general. These efforts are reflected in the 66.6% margin during the three-month period ended March 31, 2020 and are expected to benefit results in future quarters.

Gross margin contribution from this venue decreased to 66.6% from 69.0% in the three-month period ended March 31, 2020 compared to the comparable period in 2019. The reason for the margin decrease was a result of the decrease in total revenue resulting from a decline in grocery store take-n-bake sales and the temporary closing of certain venues due to the COVID-19 pandemic while maintaining the same reduced expense level.

The following table sets forth the revenue, expense and margin contribution of the company's Craft Pizza & Pub venue and the percent relationship to its revenue:

Description
  Three Months ended March 31,  
 
  2019                 2020  
Revenue
  1,142,614       100.0 %   1,092,948       100.0  
Cost of sales
    237,675       20.8       235,592       21.6  
Salaries and wages
    365,981       32.0       318,524       29.1  
Facility cost including rent, common area and utilities
    200,607       17.6       202,780       18.6  
Packaging
    41,318       3.6       30,253       2.8  
Delivery fees
    14,678       1.3       35,199       3.2  
All other operating expenses
    150,660       13.2       149,682       13.6  
Total expenses
    1,010,919       88.5       972,030       88.9  
Margin contribution
  131,695       11.5 %   120,919       11.1 %

Margin contribution from this venue was decreased by $10,010 for non-cash expense related to the adoption of ASU 2016-02 accounting for lease which became effective after January 1, 2019 for publicly reporting companies.

The revenue from this venue remained approximately the same at $1.1 million. Revenue was increased by opening an additional Craft Pizza & Pub restaurant on March 25, 2020 but that increase was offset by the Governor of the State of Indiana issuing an order on March 16, 2020 in response to the COVID-19 pandemic closing all dining rooms for inside dining for an indefinite period of time but allowed carry-out and delivery.

Cost of sales increased to 21.6% from 20.8% in the comparable period last year.

Salaries and wages improved to 29.1% compared to 32.0% for the comparable period in 2019. This improvement was primarily the result of efficiencies gained as the restaurants had been operating longer. It was also partially the result of all of the dining rooms being closed by order of the Governor on March 16, 2020, however the restaurants continued to use Pizza Valet service for carry-out which decreased the labor requirements to a greater extent on a percentage basis than the sales were reduced by the lack of dining room service.

Gross margin contribution decreased from 11.5% to 11.1% for the quarter compared to the comparable period last year. Overall expenses for this venue increased from 88.5% to 88.9% with the cost of sales increasing 0.8%, facility cost increasing by 1.0%, delivery fees and bank charges by 2.4%, all being partially offset by labor efficiency improving with the cost decreasing from 32.0% to 29.1%. The non-cash expense for adopting to ASU 2016-02 accounting for operating leases, which became effective after January 1, 2019 for publicly reporting companies, decreased the margin from 12.0% to 11.1%.

The following table sets forth the revenue, expense and margin contribution of the Company-owned non-traditional venue and the percent relationship to its revenue:

Description
 
Three Months ended March 31,
2019 2020
 
 
  2019                 2020  
Revenue
  170,502       100 %   154,684       100 %
Total expenses
    153,709       90.1       152,243       98.4  
Margin contribution
  16,793       9.9 %   2,441       1.6 %

Gross revenue from this venue decreased from $171,000 to $155,000 in the three-month period ended March 31, 2020 compared to the comparable period in 2019. The primary reason for this decrease was the restriction placed on hospital locations as a result of the COVID-19 pandemic whereby hospitals were restricted from having outside visitors and staff inside the hospital was restricted from going from one area of the hospital to another. The company does not intend to operate any more company-owned non-traditional locations except the one location that it is currently operating.

Total expenses were $152,000 for the three-month period ended March 31, 2020 compared to $154,000 for the comparable period in 2019. The primary reason for this decrease was caused by lower volume due to restrictions on hospitals resulting from the COVID-19 pandemic.

Gross margin contribution from this venue decreased to 1.6% from 9.9% in the three-month period ended March 31, 2020 compared to the comparable period in 2019. As previously discussed, the margin was decreased as a result of decreased revenue due to restrictions on hospitals resulting from the COVID-19 pandemic, as described above.

The statements contained above 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 effects of the COVID-19 pandemic, competitive factors and pricing pressures, non-renewal of franchise agreements, shifts in market demand, the success of new franchise programs, including the Noble Roman's Craft Pizza & Pub format, the Company's ability to successfully operate an increased number of Company-owned restaurants, 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 changes in prices or supplies of food ingredients and labor and dependent 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 vary materially from those described herein as anticipated, believed, estimated, expected or intended.

FOR ADDITIONAL INFORMATION, CONTACT:

For Media Information:

Scott Mobley
President & CEO
317/634-3377

For Investor Relations:

Paul Mobley
Executive Chairman
317/634-3377

Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(Unaudited)

Assets
 
December 31,
2019
   
March 31,
2020
 
Current assets:
           
Cash
  218,132     1,139,725  
Accounts receivable - net
    978,408       1,111,017  
Inventories
    880,660       895,315  
Prepaid expenses
    784,650       643,986  
Total current assets
    2,861,850       3,790,044  
 
               
Property and equipment:
               
Equipment
    2,899,611       2,900,761  
Leasehold improvements
    1,187,100       1,187,829  
Construction and equipment in progress
    374,525       920,696  
 
    4,461,236       5,009,286  
Less accumulated depreciation and amortization
    1,689,520       1,755,467  
Net property and equipment
    2,771,716       3,253,819  
Deferred tax asset
    3,900,221       3,982,204  
Deferred contract cost
    817,763       793,884  
Goodwill
    278,466       278,466  
Operating lease right of use assets
    4,242,416       5,041,185  
Other assets including long-term portion of receivables - net
    4,232,655       4,640,808  
Total assets
  19,105,087     21,780,410  
 
               
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Current portion of term loan payable to bank
  871,429     -  
Accounts payable and accrued expenses
    731,059       583,267  
Current portion of operating lease liability
    333,763       347,826  
Total current liabilities
    1,936,251       931,093  
 
               
Long-term obligations:
               
Term loans payable to bank (net of current portion)
    2,999,275       -  
Term loan payable to Corbel
    -       7,194,229  
Warrant value
    -       29,037  
Convertible notes payable
    1,501,282       556,292  
Operating lease liabilities - net of short-term portion
    4,016,728       4,808,216  
Deferred contract income
    817,763       793,884  
Total long-term liabilities
    9,335,048       13,394,658  
 
               
Stockholders' equity:
               
Common stock - no par value (40,000,000 shares authorized, 22,215,512
issued and outstanding as of December 31, 2019 and as of March 31, 2020)
    24,858,311       24,747,223  
Accumulated deficit
    (17,024,523 )     (17,279,564 )
Total stockholders' equity
    7,833,788       7,467,659  
Total liabilities and stockholders' equity
  19,105,087     21,780,410  
 
               

Noble Roman's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

(Unaudited)

 
 
Three-Months Ended
March 31,
 
 
  2019     2020  
Revenue:
           
Restaurant revenue - company-owned Craft Pizza & Pub
  1,142,614     1,092,948  
Restaurant revenue - company-owned non-traditional
    170,502       154,684  
Franchising revenue - non-traditional
    1,593,014       1,467,379  
Administrative fees and other
    16,619       4,251  
Total revenue
    2,922,749       2,719,262  
 
               
Operating expenses:
               
Restaurant expenses - company-owned Craft Pizza & Pub
    1,010,919       972,029  
Restaurant expenses - company-owned non-traditional
    153,709       152,243  
Franchising expenses - non-traditional
    494,712       490,357  
Total operating expenses
    1,659,340       1,614,629  
 
               
Depreciation and amortization
    93,600       65,947  
General and administrative expenses
    416,248       449,421  
Total expenses
    2,169,188       2,129,997  
Operating income
    753,561       589,265  
 
               
Interest expense
    126,903       926,289  
Income (loss) before income taxes
    626,658       (337,024 )
Income tax expense (benefit)
    150,398       ( 81,983 )
Net income (loss)
  476,260     (255,041 )
 
               
Earnings (loss) per share - basic
               
Net income (loss)
  .02     (.01 )
Weighted average number of common shares
outstanding
    21,671,921       22,215,512  
 
               
Diluted earnings (loss) per share:
               
Net income (loss)
  .02     (.01 )
Weighted average number of common shares
outstanding
    25,584,889       22,853,349  
 
               

SOURCE: Noble Romans, Inc.


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