Arizona Tribune - Noble Roman's Announces Third Quarter 2024 Financial Data

Financial highlights from the 3rd quarter 2024 include:

• Net Income of $193,000

• Operating Income of $417,000

• Franchising Revenue of $1.4 million compared to $1.3 million in 2023

• Same store sales for company-owned CPP restaurants increased almost 1%

• Average store sales for company-owned CPP restaurants for the last 6 operational weeks (prior to this release date) increased approximately 5.2% over the same operational weeks in 2023

• Cost of sales in the Craft Pizza & Pub increased from 19.8% to 21.4% due primarily to elevated cheese prices and the promotion of the company's value-oriented XL Pizza

• Labor in the Craft Pizza & Pub decreased from 29.6% to 28.8% despite market pressures on management salaries

• Franchising labor increased from 14.8% to 15.5% reflecting an abnormally low expense rate in 2023

• Net income for the quarter benefited from the revaluation of the warrant liability by $192 thousand using the Black-Scholes method of calculation

• The company continues to progress on obtaining new financing to repay its senior note and subordinated notes

Financial highlights from the nine-month period 2024 include:

• Net Income of $164,000.

• Operating Income of $1.4 million

• Franchising Revenue of $4.3 million compared to $3.7 million in 2023

• Same store sales from company-owned Craft Pizza & Pub restaurants decreased approximately 3.4% primarily due to weather conditions in the 1^st quarter and soft consumer spending throughout, slightly offset by an approximate 1% same store sales increase in the 3^rd quarter

• Average store sales for company-owned CPP restaurants for the last 6 operational weeks (prior to this release date) increased approximately 5.2% over the same operational weeks in 2023

• Cost of sales in the Craft Pizza & Pub increased from 20.5% to 21.1% due primarily to elevated cheese prices and the promotion of the company's value-oriented XL Pizza

• Labor in the Craft Pizza & Pub remained nearly unchanged at 28.9% compared to 28.8% a year ago despite market pressures on management salaries

• Franchising labor decreased from 17.7% to 15.9% reflecting the overhead efficiencies inherent in adding new units

• Franchising ongoing royalty income increased to $3.9 million from $3.2 million, or a 22.5% increase

• Initial franchise fee income decreased from $327 thousand to $193 thousand as additional franchise fees for new franchise locations now get deferred and amortized over the period of the franchise agreement

• Comparability of 2024 results to 2023 results for year-to-date is obscured due to the one-time recording of $1.46 million in income during the first quarter of 2023 from ERTC refund recognition

Further details:

The company had a net income for the nine-months ended September 30, 2024 of approximately $164,000 compared to a net income of approximately $1.3 million for the comparable period in 2023. The $164,000 net income was after a $1,800 decrease during the nine months for the market value of the outstanding warrant, a non-cash charge of $29,000 to close out the asset ledger for dormant subsidiary, and a non-cash adjustment for allowance receivables from a prior period of $32,000. Excluding those one-time charges, the company would have reported a net income of approximately $223,000. The comparability of the two nine-month periods of September 30, 2024 and 2023 is reduced because the net income of $1.3 million in 2023 was after recording $1.46 million of income from the ERTC refund. The ERTC refund was expenses and lost revenue, due to COVID restrictions, incurred by the company in periods prior to March 31, 2023. Excluding the ERTC refund recorded in the first quarter of 2023, the company would have reported a net loss of approximately $160,000 for the nine-month period ended September 30, 2023.

The revenue from the non-traditional franchising venue increased to $4.3 million from $3.7 million, or a 22.5% increase. By adding in the $180,000 in deferred initial franchise fees received in the current nine-month period (which were actually received in cash but deferred for future income recognition, which is a different accounting treatment than applied the previous year) and the non-cash adjustments, detailed above, of $61,000, the increase in franchising revenue would have been $930,000, or 25.3%. The company currently has a significant pipeline of prospects for additional franchise sales and a significant number of franchised locations sold but not yet open. The company has opened approximately 53 new franchise locations and has plans to open approximately 20 additional franchise locations this year. The company anticipates that this source of revenue will increase significantly through the rest of 2024 and beyond. Salaries and wages from the franchising venue decreased to 15.9% of revenue from 17.7% of revenue in the comparable period in 2023. The labor was reduced as a percentage of revenue primarily related to the growing number of franchises sold and opened without adding additional staff.

The total revenue from the company-owned restaurants was $7.1 million for the nine months ended September 30, 2024 compared to $7.4 million in the corresponding period in 2023. Same store sales for the CPP restaurants declined during the 9-month period by approximately 3.4% in part due to localized bad weather in the first quarter and sluggish consumer spending throughout. Same store CPP sales in the 3^rd quarter increased nearly 1%, and have continued that trend after the quarter-end with the margin also increasing over last year. The company's single company-owned non-traditional operation is located in a hospital which is adding a new wing. During portions of the 3^rd quarter, the hospital upgraded infra-structure in the foodservice area as part of the construction process, and the company's operation during that time was heavily restricted to reduced hours and a remote location for grab-n-go service only. The operation has since resumed normal operations and enjoying increased sales to nearly $24,000 per week.

As previously announced, the company is pursuing plans to obtain new financing to repay the Corbel loan prior to its maturity in February 2025 and to repay the subordinated notes as well when the Corbel loan is repaid. Based on the company's credit metrics and conversations currently taking place, the company believes its financing efforts will be successful. The company expects the new financing will result in some reduction in the effective interest rate that it currently pays and will not include equity-dilutive components like those in the current Corbel financing.

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

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

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

W.Stewart--AT