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. Here with me is Paul Mobley, our Executive Chairman and CFO as well. Paul?

Good afternoon, everyone. Thank you for joining our 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. Thanks, Paul. I assume all of you have studied the press release that went out Thursday afternoon, and you've absorbed those details. I'll just list a few of the bullet points again now in case you missed the release or just for the refresher. First, net income before taxes was $490,000 for the quarter versus 506 -- I'm sorry, $56,000 in '24. And keep in mind that income before taxes is a very important metric because we have that $3.4 million deferred tax asset. That means we will not be paying income tax for some time. Total revenue was up 4.5% for the quarter versus last year. Same-store sales in the Craft Pizza & Pub were up 4.5%, and that's despite the fact that it was a tight market. Our closest sit-down national competitor, Pizza Hut, for example, was down about 5%. Margins at the Craft Pizza & Pub also increased to 13.6% from 11% a year ago. And the margin contribution from our convenience store program segment was up 8.7% to about $1.06 million. The margin rate for that segment increased to 72.5% from 67.9%. And that's chiefly because expenses in that segment remained relatively stable over a significant revenue range. A key data trend outlined in the press release is also worth repeating today, and that's as it relates to the trailing 12-month EBITDA numbers. If you look at the year-end 2024, it was $3.06 million progressing to the end of Q1 '25, it was $3,135,000. And then now at the end of Q2, it had grown to $3,500,000. So that's significant growth. Looking into the current quarter, the Craft Pizza & Pubs maintained same-store sales growth in July, and that's despite the fact that the 4th of July this year was on Friday. And that's typically fairly bad for business. That was a slow weekend, but July sales in total were up 4.8% nonetheless. The first half of August looks about the same. But with back-to-school spending pressures, we saw some discretionary spending tightening over this last weekend. So as of today, we've reverted back to a value promotion from our recent Stuffed Crust promotion. As noted in the release, the refinancing efforts are proceeding with the new placement agent. There are several interested parties in various stages of discovery. So we'll have more news on that in the not-too-distant future. So with that, well, let's jump back a moment, and let me say a couple of quick things on cost pressures. From an ingredient standpoint, we do have upward pressure on beef-related products and, therefore, some of our primary toppings. But the biggest headache has been cheese, which, through the second quarter was up an average of just about 9% over last year. If you recall, about 50% of the cost of a pizza is in cheese. But the good news is the cheese prices have recently declined. And if that holds, we should see some relief as that works itself into the supply chain by the late third quarter. In the meantime, we've been successfully dealing with the cost pressures from a marketing and operations standpoint. Labor pressures are mostly coming from salaries for salary management, which are high and still progressing higher. Quality management is hard to come by ever since the pandemic, and I anticipate this being a long-term challenge for operators well into the future. Hourly labor increases though, have moderated. So we've helped margins out by transferring some solid responsibilities to hourly positions and by utilizing lower-priced hourly positions for more tasks. Okay. So with that review, we're concluding the introductory comments, and we'll now take your questions.

[Operator Instructions] Mark, go ahead.

Congratulations on a great quarter. First thing, I've got a few here. First thing is administrative expenses, you've cut by over $300,000 in the first half of the year. What would you attribute that to? And do you see that being sustainable for the time being and still be able to meet your goals?

It will be partially sustainable, partially because we had moved positions around and we had not filled 1 or 2 positions until late in the quarter. And that will be inching back up, but not to where it was. It will be sustainable for part of that decrease.

Okay. And you stated at the beginning of the year that the goal was 60 nontraditional units for the year. How confident are you in that still at this point?

Well, we've sold about 30 at this point, and we've got quite a few on the opening schedule, and we've got a pretty good pipeline. So we're still -- this is coming into peak season for that. So we're feeling pretty confident still.

Okay. Great. You continue to open units, but we haven't quite seen the same -- that being the nontraditional. We haven't seen kind of the robust growth in sales that you -- that we saw last year was like 20%. Is there any reason behind that? And what do you see in the future?

Yes, there is a reason behind it. In last year, we took a lot of fees in advance from majors management, and we opened some stores pretty rapidly at the very beginning, too. So both of those things increased our revenue, and it's not going away. It just will not be repetitive in that volume as now the revenue off of those fees came in or just the amortization of those fees over a 10-year period. So accounting-wise, it's kind of confusing because the revenue comes in and then the fees get deferred and they get amortized in over a period of 10 years. So it doesn't build up as rapidly. It's still there. It's still already in the bank. It just gets amortized in income over a period of 10 years.

Go ahead, Roger.

Yes, the number of units being opened was -- you just answered that part of my question. So I guess I will just ask again the sort of elephant in the room here is the refinancing. Can you give us any more color on what to expect there or what?

can't No, Roger, can't give you any color on that. We're working on it. We've got prospects, as Scott mentioned. We're not releasing that information. And -- but we have active prospects working on getting together term sheets. So it's not a [Technical Difficulty] of anything that we're willing to share with the public.

Todd, go ahead.

Paul and Scott, congratulations on a strong quarter there. I was just wanting to update on the accounting firm situation. I know we don't want any more late filings in the future, and we just was seeing if you had any color on how close we are to getting another accountant signed.

We don't have any accountants lined up at this point. We have accumulated some lists of the eligible. There's kind of a lack of supply and eligible accountants that are approved by the APOC that are qualified to do issuer audits and that are interested in audits, except the real large firms, which want to charge a lot more than we're used to paying. So it will happen. It will happen slowly over time. Hopefully, we will not be late filing anymore. I think maybe we have that under control.

Mark, you had another question?

Yes. One thing that just came up. I thought of the $507,000 receivable, you mentioned -- I thought I read something in there that the IRS might be starting something with that. Is there any update on that?

Well, the latest update was I got a piece of paper from the IRS that quoted that amount and said that it has been approved and it was in line, and we should see payment in the next 3 to 4 weeks. So it's already been 8 weeks after that, and we still don't have payment. So if you can answer for me how quickly IRS writes checks for the money they owe, I could tell you when we're going to get it.

Yes. Okay. I guess that would be a great cash infusion for the company right now. So, yes, just seeing that on there for probably close to 2 years now.

Well, keep in mind that we filed 10 amended returns, and we got our money from 9 of the 10. So we're waiting on a 10th one. Now obviously, the 10th one was the biggest. So they're the slowest.

All right. Any other questions? Wait here a second. All right. Well, I am not seeing any additional questions on the Board. So if we don't have any additional questions, I guess that concludes our time today. Thanks again, everyone, for participating and joining in on the call, and I hope you have a great evening. We'll be terminating the connection now. Thanks again.