Noble Roman's, Inc. (NROM) Earnings Call Transcript & Summary

Well, good afternoon, everyone. My name is Scott Mobley, and I'm President and CEO of Noble Roman's. Also here with me today is Paul Mobley, our Executive Chairman and CFO. Paul?

Good afternoon, everyone, and thanks for joining us on the call. Before we begin, I want to refer you to the safe harbor statement contained in the earnings press release. This conference call will contain forward-looking statements and business assessments of the kind referred to in that statement. So those provisions apply to this conference call as well.

Okay. Well, with that out of the way, we'll get into the substance of the call. I assume that all of you have studied the press release that went out Monday morning and have absorbed all of those details. In summary, the year finished with a net income at roughly breakeven and operating income of about $1.5 million. As discussed in the press release, comparisons to '23 are made a little difficult with the ERTC factored in. But backing out those ERTC funds, 2023 was also about breakeven However, as we discussed in the press release, 2024 has in it several onetime charges. So when those are backed out for the sake of looking forward and for comparison purposes, show a considerable gain from '23 to '24. Looking at the Craft Pizza & Pubs, we had same-store sales increase of about 2.9% in the fourth quarter of '24. In the first quarter of '25, this year, we had same-store sales increase of 1.2%. And that's despite the fact that the first 2 months were pretty bad weather months and despite the downturn in consumer spending. And actually, January and February combined, looking at them together, were up only about 0.5%, but March was up about 2.4%. So in addition to the bad weather those first 2 months, I began to see some trends in the underlying data that started worrying me with regard to consumer spending. So in mid-February, we quickly regeared our promotional activities, and we went from a limited time product special to a more value-oriented approach. So we rushed that through in 2 weeks and had it in place by the beginning of March. As you know, in April, it was announced that, in fact, consumer confidence had dropped to the lowest level since the beginning of the pandemic. So we've been maintaining a value orientation from roughly March 1 through present time. And that's produced some positive results beyond even March. In the second quarter for April and May, looking at those combined on an operationally comparative basis, we're looking at same-store sales increase of about 6%. June so far appears to be running about that rate. But obviously, we're only 1/3 of the way through June and June can be a little unpredictable. It's a heavy vacation month that's helpful to some of our units and hurts others. But I'll have a lot more details on first and second quarter in our next call. In the nontraditional venue, we ended up with 68 new openings in 2024, which is great progress. And we hope to be in that 60 to 70 range again this year. Overall, franchising revenue was up $876,000 or 18.8%. And as stated in the press release, on a real comparative basis, it was up even more when you factor in onetime adjustments such as how ongoing fees are recognized now based on when manufacturers ship product to distributors rather than when distributors ship product to our franchisees as we've always done in the past. So when the total of onetime changes are taken into account, the revenue from franchising would have been slightly over $1 million or about 22% increase. As we've always noted, the first quarter is the quietest quarter for franchise sales and openings for a variety of reasons, but that picks back up here in the second quarter. For example, we're right in the middle of opening Portland, Indiana right now, and we have between 3 and 5 new openings on the schedule for the next 2 to 3 weeks or so. Again, we'll have more information on that as we develop into the next call with you. A few brief notes on operating costs, especially as it relates to Craft Pizza & Hub operations, but really generally for our franchisees as well. For 2024, our CPP operating costs as a whole were up about 1.5 percentage points. Restaurant management had variable costs pretty well under control and even made some strategic headway on labor despite increasing salaries and wages. Other expenses were mostly inflationary in nature. Food cost was pressured from a combination of the value orientation we had in marketing as well as elevated cheese prices. In the first quarter, it's much the same that we faced a bit of an onslaught of price increases from a wide variety of sources, including things like credit card fee rates and just the normal type of product increases. Over time, we've negotiated some of these away. On a few others, we switched providers and on a few others, we've basically had to live with it. Fortunately, by the first part of the second quarter, though, cheese prices had gone from well above average to a good bit below average. So we received a tailwind that lasted maybe 6 weeks or so. Cheese prices are back to slightly elevated now. If you'll recall, cheese accounts for about 50% of the cost of a pizza. So that's a benchmark that we keep our eyes on closely. Our focus remains on generating top line growth in the Craft Pizza & Pubs, which will result in margin improvement over time. And with that, our focus remains on what we perceive as our core strengths. That's the product in our dining rooms, where we continue to have a 4-week Google average of 4.8. Eventually, we'll exit this period of consumer spending sensitivity, and that will help us, then we can move from price value promotions to more of a product enhancement promotion, of which we have several in the wings. Okay. Well, with that, a brief overview. We'll now take your questions.

[Operator Instructions] Todd, go ahead.

I was wondering if you could give us an update on the refinancing discussions in order to replace the Corbel credit line.

Sure. The refinancing is progressing very well at this point. We had engaged a placement agent called London Manhattan Company, which we'd used successfully 4 times in the past. We had several very interested prospects off of that search. And we had conversations with them on the phone with myself and with Marc Giguere of London Manhattan and in most cases, Scott as well. And those conversations went extremely well, and we had people very interested. And they were actually committing on the phone that we'd be getting a term sheet right away. But then something would happen the next day. We'd get an e-mail saying we decided to pass. Well, we didn't know what was going on there, but we thought we had some interference. And we had an informer to come forward and said we did have interference and a certain group that didn't want that to happen was calling our list of investors. How they got that list, we don't know. But anyway, that's what was happening. And we went quiet for a little while. And then in talking with Corbel and a good relationship we've had with them over the years, and they also have a good relationship with London Manhattan. They've done several deals that London Manhattan, has brought to their attention as well. And -- but they suggested that they gave us the name of another placement agency that they said they could not recommend because they didn't have firsthand knowledge, but they knew they had placed a lot of deals very successfully and a lot of deals they had shown to them very successfully. And so I had spent some time talking with them back and forth. Bottom line, we ended up engaging them not too long ago. They worked on a teaser sheet that they were going to send out, sent to me for critique, which I made a few suggestions to, and they sent the teaser sheet out a little over a week ago. And by Thursday of last week, they had -- getting 27 statements of interest from different investors and 27 people have signed an NDA agreement to get additional information, which they've been working on, and I understand it was -- I haven't talked to them today, but it was supposed to go out to those investors that signed NDA agreements yesterday afternoon. So I'm assuming it did. So they thought they had very good interest based off of that teaser they sent out and before they had full information out to them. So that's where we stand at this point, and they have high confidence that they will place the loan.

Okay. I know the Corbel note was only listed as a $5.5 million in long-term liability as of December 31. I assume it's come down a little bit since then. What amount will you be looking to refinance? And is there a chance that we could get this done before the August deadline where we have to give Corbel what another 0.5 million warrants?

Yes. We think there's a highly good chance we'll have it done. And I'll call your attention to the fact that, that 5,000 was shown as long term, but there's also a short-term portion in there, which was well over $1 million. So in total, the Corbel loan had a balance of around $6.7 million. Now we are paying that down until I got the extension, we were paying it down with an interest rate of 7.75% above SOFR. And -- but then we were paying some extra fees, plus we're paying a 3% PIK interest, which was adding to the principal every month. Well, in renegotiating the loan, I got rid of the PIK interest. In lieu of the PIK interest, we've got SOFR plus 9% interest -- cash interest and no PIK interest. So our monthly payments are now $91,667 a month on principal being reduced. So around this time, the payoff on that loan is about $6.5 million.

Okay. And last question. Are you willing to give any guidance as far as revenues and earnings? And if not, at least kind of new C-store locations opening up for this year?

No, we don't give out guidance on earnings. We never have, and we're not doing that so now. But I can tell you that from a C-store nontraditional perspective, we're still signing up lots of new deals. We did 68 last year, new agreements or new openings. And that we had a combined revenue from that department of about 22%, as Scott said. And we're expecting similar results this year with 60 to 70 new units. All of that additional revenue from those new units is pretty much dropping to the bottom line because our fixed cost in that division is already in place, and we don't have any variable increase or any appreciable variable increase in fixed costs. So it's going very well. We're very satisfied with it and nontraditional is growing rapidly.

Lee, go ahead.

It's been a long, tough trip for shareholders. If I was a genie and you were to grant me 2 of the 5 wishes I'm going to ask for, I'd be thrilled. One, timely accurate reporting; two, clean profitable earnings; three, you touched on in the last call, loan refinancing. Four, some idea that you guys are on the same side as us like with some insider purchases. And if none of these could happen, a possible sale of the company to a financially strong company who can improve Noble Roman's and grow the company profitably. I know these are tough questions, but if you guys would like to comment on that, I'd appreciate it.

Lee, it has been a long tough battle for the company and for the shareholders and for us as principal shareholders. It's been a tough battle. We've fought some very strong odds with the market, with the way things have gone with many other pizza companies around during that time who are no longer around now and others who are still around but doing much bigger losses. As far as accurate reporting, we think we've had accurate reporting. We haven't had any reason to believe otherwise. There was a change of method of recording income. From what we've done for all the years that we've been in business up until now, we think that was the better method to begin with because it was the actual usage because the distributors are the only one that has actual usage because they sell the product to the franchisees. And -- but we changed and we changed reluctantly, but we changed to recording it when the distributors record it as a liability. There's a big problem with that because we don't know when the distributors record that. So there's some guesswork in that. Now we confirmed it all with the distributors for this report. So we know that, that's accurate on that basis. But going forward, it's a very difficult thing to predict. We know exactly what the distributors distribute because they send us monthly reports by every location, every product, when it was delivered, when it was shipped to the franchisee and therefore, when it was used. As far as timely reports, I can't give you any reason that this report took so long. It was promised to be done timely within the time frames allowed. It didn't happen. Now a little bit of that delay was my part. I'll take the blame for that, but that was only for a week or so. The rest of it is not on me. The week or so was because it took me a long time to negotiate that deal with Corbel for the extension because they were asking for a lot of things, which I was not going to give them because it was not in the best interest of the shareholders. I told them that it all boiled down to a discussion on Sunday night around 11:00 at night. And I told Corbel -- I had a real good relation with Corbel. I still do. But they knew that I negotiate hard for our benefit, and they did as well for their benefit. But anyway, they were asking for all kinds of things to get the extension. I told them about 11:00 or 12:00 on a Sunday night. I said, Michael, you're not going to get these. I'm done. I made you the best offer you're going to get, and I'll take other plans if you don't go along with it. And you have already verbally agreed to it. Now I want you to put it on paper so we can get it signed. So I hung up at that point and said, I'm done. That's all I'm negotiating. The next morning, about 10:00, he called me back and said, Paul, we're going to do it. We'll do -- take your offer the way you got it. We'll write it up and get it to you. So that was the end of that, and we did it. Now so far as that delayed the report for about a week because they had to have that extension done because of deadline on the Corbel note. But once we got it extended out to June of '26, that was no longer an excuse or an issue. So the auditors took on more -- the only explanation I can give you, and I don't know. I don't know why they took so long. But the only explanation I can give you because of the actions and how long it took to respond to things, they had taken on more work than they could handle, they had the resources for, and therefore, they couldn't get to it on a timely basis. That's my assumption. I don't know that. I just know it took a long time, and it took me really forcing the hand the last 1.5 weeks to get it done when we did. Now we were in serious danger of being delisted and taken enforcement action by SEC because of the delay, the lengthy delay. Well, everyone had told me there was no remedy for that, that we would be held accountable for those delays and we could be delisted. I said, well, there's nothing like trying, so I'm going to call them. I called the enforcement agent, the SEC, and I called the principal in charge at OTCB, and I said, you got to grant us an extension. Here's why. I went through the whole story about the fact that the auditors were behind, they didn't get it done, and they aren't meeting the deadline. And we talked back and forth for quite some time. I had to answer a lot of tough questions. But in the end, the guy from OTCB said, how much time do you need? Well, at that point, I thought for sure we'd have it done in 2 weeks. And I said, well, give us 2 weeks. And I'm pretty sure we can get it done in that time. He gave -- he sent an e-mail back. He said, after considering your request and considering your situation, we're going to grant you a 3-week extension until June 8. So I knew from the conversation I had with them, we were not going to get another extension. So I started putting the pressure on our auditors to get this done. And then I find out the audit partner in charge of our audit was going to take a 2-week vacation and wouldn't be back until June 15. Well, I really started turning up the pressure at that point. I said this is not acceptable. We have to have our report. And we're going to have it by June 6. And the end result was the auditor -- the managing partner, the audit firm took on the responsibility of finishing up, but that was a hard grind because, number one, she wasn't familiar. Number two, she was not really an auditor by design. The audit partner in charge of our audit was really the only audit partner they had. And so they were pushing right up until the afternoon on June 8 saying it was impossible to finish before the deadline. And I said it's not impossible. It's just a little harder. So we're going to do it. And we did get it done. I wrote it up. I added some things in the report that I didn't necessarily agree with. It didn't matter whether I did or not. The bottom line is we had to get the report filed. And that's what we did, and that's how we proceeded. That ended up on Friday night about 10:30 before we actually got the changes all made and the product EDGARized so we could file it. And then we found out on Saturday, there were other problems arose because they didn't complete everything. And so we had to do some more work on Saturday to get the corrections made. And then on Monday -- Saturday, we got it set up, and I got the sign off of the audit firm that it was okay to file, and I got the sign off from the former audit firm saying it was okay to file. He had been okay anyway, but he was just kind of waiting until everything got resolved with the current auditor, and he was ready to sign off. And so he did on Monday -- Sunday -- Saturday afternoon, then Sunday morning, we had to 10-K set up for filing through Issuer Direct at 6:00 a.m. on Monday morning because that's when the SEC began accepting filings again. And it was all set up to be filed at that time. And about 8:00, we learned from Issuer Direct that they couldn't file it because the audit firm had not given them their ID number, which they have to do to be registered to file with the SEC. And so when I went to chase them down, we were not getting any answer at all. So we called yelling emergency all over the place in the firm. I figured somebody there would know the ID number, and we could get it and file. We did finally get the new manager of the firm who had been finishing up the project on Friday and Saturday to respond to give us the ID number to file, but said she would not be able to have any other conversation because she was already out of the country on vacation. So I got that to Issuer Direct and they were able to turn it around and get it filed by 9:30 or 10:00. I don't know exactly what time it was, but around that. So it was filed. We've already sent out the press release and the 10-K filed as soon as we could get an ID number to file under. I think I answered all your questions, Lee, but if you have something else, let me know.

Well, you answered a couple of them. I just think you guys have to take responsibility. And I'm sorry, you hired an accounting firm that's a bunch of morons, not my fault. But it would be nice to see accurate timely reporting. We've had a couple of years now where you didn't make or lose any money. It'd be nice to see some profits. Nice to see you guys purchase a little stock, let us know you care. I know these are -- if you can't do anything, where are we going? What's your long-term plan?

I think we made our long-term plan very clear. It's to concentrate on expanding the nontraditional at this point, which doesn't require capital, and it's working. We added 68 new ones last year. We improved our profitability quite a bit when you take out the ERTC claim and you add back in those onetime adjustments, which were really not necessary at all. And we had a great growth in that revenue stream. And we're on track to add that many more again this year. That's our long-term plan. That's what we're doing, and that's what we said we're going to do, and we're executing it.

All right. Then we should see earnings and we should see timely reporting, and we should see higher stock price.

All right. We will see. If I have anything to do with it, you will see timely reporting. But the new rules on accountants and who's eligible to conduct these audits is very limited. There's not a wide choice of people out there doing them, that's willing to do them. And I can't do anything about that other than work around it the best way we can and put as much pressure as possible on the people to perform what they're obligated to perform.

Other questions? Bill, go ahead.

Yes. When do you think the March 31 10-Q will be ready is my first question. My second question is, is there going to be a stockholders' meeting this year?

In negotiating the extension on the 10-K, I also, at the same time, negotiated an extension for the 10-Q because we couldn't do the 10-Q until we got the 10-K done because all those numbers carry forward. So I got the extension on the 10-Q to June 30. Now I don't intend to take until June 30 to get it out. I've already told the accountants, I'm going to file it ahead of time. It's time for you to get on board.

And the answer is yes, we'll have a shareholder meeting this year.

Do you know about when that will be, do you think?

Probably August or September according to our attorneys.

Other questions? Mark, go ahead.

Okay. After a lot of that, I think I have an easy one for you. Those same-store sales seem pretty impressive for this year. I don't think you hit like the first quarter, but you said April, May might be like 6%. What do you attribute that to? And what are you doing? Obviously, it seems like a lot of good Google reviews online, things like that, but what else do you attribute that to?

So we've had pretty good comparative same-store sales relative to the industry and segment, probably going back to around the fourth quarter. And we kind of laid the groundwork for that coming out of the COVID years by trying to stick to the basics that we believe that our Craft Pizza & Pubs excel at, which is the product experience and the dining room experience. We've been focusing a lot of attention on really operational basics in that regard. The other thing has been keeping -- and that sort of has a billing effect over time. The other element is really keeping a very close eye on the data. I look at and sift through lots of operational data on a daily basis and trying to keep our eyes on where consumer spending is heading and reacting to that as quickly as possible and putting in place value promotions where we need to do that. We've been in a value-driven market, and we've sort of been oscillating our promotions based on that fact. We have a number of other promotions in the wing that will be more margin advantageous for the company, but it just has -- the timing on that hasn't been appropriate. But yes, the first 2 months here, April and May, about 6% same-store sales. I look at that on an operational comparative basis. It's a little different than a reporting basis. I look Monday to Monday, Tuesday to Tuesday compared to last year, whereas when we report, we report on a calendar basis, so there could be a little bit of difference. But looking at it from a Monday-to-Monday type comparative basis, those 2 months were running about 6% up. June, so far, following the same trend. But again, we're not very far into June, and June is a little bit of a different animal from April and May operationally. Any other questions? All right. Well, I'm not seeing any additional questions. So on that note, it looks like we're done. That concludes our time today. Really appreciate everyone participating and being involved. Really do appreciate that. Everyone, have a great evening. We'll be terminating the session connection now, and we'll be back in touch very soon. Thanks.