10-Q: Noble Romans Reports Strong Q2 2025 Earnings Growth

Noble Romans, Inc. reported significant increases in revenue, operating income, and net income for Q2 2025, driven by growth in company-owned restaurants and franchising, alongside effective cost management.

Summary

• Total revenue increased to $4.08 million for the three months ended June 30, 2025, up from $3.90 million in the prior year period.
• Operating income surged to $913,999 for Q2 2025, a substantial increase from $557,930 in Q2 2024.
• Net income for Q2 2025 was $370,880, a significant improvement from $56,858 in Q2 2024.
• For the six months ended June 30, 2025, the company reported net income of $501,514, a turnaround from a net loss of $29,619 in the same period of 2024.
• Company-owned Craft Pizza & Pub same-store sales increased by 4.6% during Q2 2025 compared to the corresponding quarter a year ago.
• General and administrative expenses were significantly reduced to $386,260 in Q2 2025 from $570,129 in Q2 2024, reflecting tight cost control.
• The company opened 21 new non-traditional outlets and closed 3 during the six-month period ended June 30, 2025.
• The Senior Secured Promissory Note with Corbel Capital Partners SBIC, L.P. had its maturity date extended to June 30, 2026, and monthly principal payments increased to $91,667 starting May 2025.

Sentiment

Score: 7

Explanation: The company demonstrated strong financial performance with significant increases in revenue, operating income, and net income, coupled with effective cost management and positive same-store sales growth. The extension of the key debt maturity provides stability. However, the resignation of the principal accountant and identified internal control weaknesses introduce notable concerns and risks that temper the overall positive sentiment.

Positives

• Significant increase in total revenue, operating income, and net income for both the three-month and six-month periods ended June 30, 2025.
• Company-owned Craft Pizza & Pub same-store sales grew by 4.6% in Q2 2025, indicating strong operational performance.
• Improved margin contribution for Craft Pizza & Pub (13.6% in Q2 2025 vs. 11.0% in Q2 2024) and franchising activities (72.5% in Q2 2025 vs. 67.9% in Q2 2024).
• Effective cost management led to a substantial reduction in general and administrative expenses.
• The current ratio improved to 1.1-to-1 as of June 30, 2025, from 0.9-to-1 as of December 31, 2024, indicating improved liquidity.
• Net cash provided by operating activities increased to $555,537 for the six months ended June 30, 2025, from $472,864 in the prior year period.
• The company successfully extended the maturity date of its Senior Note with Corbel to June 30, 2026, providing more time for refinancing.

Negatives

• Cash balance decreased to $635,629 as of June 30, 2025, from $710,227 as of December 31, 2024.
• The company's principal accountant, Sassetti LLC, resigned effective June 18, 2025, and the Q2 2025 report is unaudited and deemed deficient.
• Identified internal control weaknesses include inadequate receipts for certain expenses, insufficient controls for timely and accurate reconciliation of account balances, and lack of sufficient written documentation for internal control policies and procedures.
• Product costs, particularly pizza cheese, increased by an average of 9% in Q2 2025 compared to Q2 2024.
• Management salaries continued to increase due to a shortage of qualified candidates and general competition for employees.

Risks

• Inability to obtain new financing to repay the Corbel loan and subordinated notes on favorable terms or at all.
• General economic uncertainty affecting consumer spending and potentially impacting sales.
• Continued increases in product costs (e.g., pizza cheese) and labor costs (e.g., management salaries) could impact profitability.
• Exposure to interest rate risk due to variable-rate debt, with a 1% increase in SOFR potentially leading to approximately $59,000 in increased interest expense over a 12-month period.
• Potential adverse impact from activist stockholder activities or interference in business relationships.
• Risks associated with non-renewal of franchise agreements or failure of contemplated openings under development agreements.
• The unaudited nature of the current financial statements due to auditor resignation and the need to retain a new auditor and file an amendment.

Future Outlook

Management is focused on revenue expansion while carefully managing corporate-level overhead expenses. The company is actively pursuing new financing to repay the Corbel loan and subordinated notes, believing it will be able to complete the refinancing before the Corbel loans are due based on its credit metrics and forecasted earnings. The company anticipates sufficient cash flow to meet obligations and execute its business plan, primarily through growing the non-traditional franchising venue and operating existing Craft Pizza & Pub locations. There is a significant pipeline of leads and prospects for future non-traditional franchise sales, with a number of franchised locations sold but not yet open, pointing to attractive growth opportunities in the coming months.

Management Comments

• The information contained herein reflects all adjustments necessary for a fair presentation of the results of operations and cash flows for the interim periods presented and the financial condition as of the dates indicated, which adjustments are of a normal recurring nature.
• The results for the three-month and six-month periods ended June 30, 2025 are not necessarily indicative of the results to be expected for the full year ending December 31, 2025.
• Based on its credit metrics, including its recent and forecasted earnings before interest, taxes and depreciation and amortization, the Company believes it will be able to complete the refinancing before the Corbel loans are due.
• The Company has been carefully modulating its promotional activity to help margins and has focused extensively on operational controls with relatively stable management staffing.
• The Company was able to offset increases in management salaries with efficiencies gained and implemented in scheduling and supervision and with the transferal of some management tasks to lower priced hourly employees.
• The Company refocused its development plans toward selling more non-traditional franchises as a result of the pandemic and its after-effects coming to an end and the determination that owners of non-traditional locations would be more willing to look at expansion options and to invest in their growth.
• The Company has a significant pipeline of leads and prospects for future non-traditional franchise sales and that number further expanded during the first six months of 2025 as the Company sold seven more units than it has opened.
• The Company believes this growth points to an attractive opportunity for the coming months due to anticipated opening of new units already sold and the number of interested prospects that the Company has identified.
• In view of the extension of the Senior Note as well as the Companys cash flow projections, the Company believes it will have sufficient cash flow to meet its obligations and to carry out its current business plan for the foreseeable future.

Industry Context

Noble Romans operates in the highly competitive restaurant and franchising industry, with a focus on pizza and Italian-style subs. The company's strategy to expand non-traditional franchises, particularly in convenience stores and travel plazas, aligns with a broader industry trend of diversifying revenue streams and leveraging existing foot traffic in non-traditional venues. The emphasis on 'Craft Pizza & Pub' locations with modern amenities and fast cook times reflects an adaptation to evolving consumer preferences for quality, speed, and an enhanced dining experience. The company's ability to manage costs, particularly G&A, while growing revenue, positions it favorably within a sector often challenged by rising input and labor costs.

Comparison to Industry Standards

• The company's focus on 'Superior quality' ingredients like fresh-packed sauce, 100% real cheese, and real meat toppings, along with fresh vegetables, aims to differentiate it from many pizza concepts that may use additives or extenders.
• The 'Craft Pizza & Pub' format, with its 40+ topping options, beer/wine selection, and fast cook times (3 minutes for traditional pizzas, 5.75 minutes for Sicilian), positions it against fast-casual pizza competitors like Blaze Pizza or MOD Pizza, which also emphasize customization and speed.
• The 'Pizza Valet Service' for carry-out customers, allowing pick-up in as little as 12 minutes from order, is a competitive feature designed to enhance convenience, similar to curbside pickup services offered by larger chains like Domino's or Pizza Hut.
• The expansion into non-traditional locations (e.g., hospitals, convenience stores, travel plazas) is a common strategy among food service providers to capture market share beyond traditional brick-and-mortar restaurants, comparable to models used by brands like Subway or Starbucks in similar venues.

Management Changes

Corporate Governance

Legal Proceedings

• Currently, there are no material pending litigation or regulatory proceedings against the company.

Stakeholder Impact

• **Shareholders**: Positive financial results (increased net income, EPS, improved current ratio) and strategic growth initiatives could lead to increased shareholder value. However, potential dilution from warrants and the uncertainty surrounding auditor resignation and internal control weaknesses could be concerns.
• **Employees**: Continued focus on operational efficiencies and transfer of management tasks to hourly employees may impact roles and responsibilities. Increased management salaries due to competition suggest a challenging labor market.
• **Customers**: Continued focus on quality service, speed (e.g., Pizza Valet Service), and menu enhancements (e.g., salad bars) aims to improve customer satisfaction and retention.
• **Creditors**: The extension of the Senior Note maturity to June 30, 2026, and management's confidence in refinancing provide a more stable outlook for debt repayment. Monthly principal payments on the Corbel loan are ongoing.
• **Franchisees**: The company's refocus on non-traditional franchises and a significant pipeline of prospects indicates continued support and growth opportunities for franchisees. The provision of proprietary ingredients and distribution network supports their operations.

Next Steps

• Retain a new independent registered public accounting firm for 2025.
• File an amendment to this Form 10-Q to include reviewed financial statements and any additional disclosures once the new auditor's review is completed.
• Continue remediation efforts to address identified internal control weaknesses, including inadequate receipts, reconciliation process controls, and documentation.
• Validate remediation efforts over a sustained period and during the next audit.
• Continue pursuing new financing to repay the Corbel loan and subordinated notes before their maturity.
• Focus on growing the non-traditional franchising venue and opening new units already sold.
• Continue operating existing Craft Pizza & Pub locations and pursuing their franchising program as market conditions allow.

Key Dates

Recommendation

Noble Romans, Inc. has demonstrated strong operational improvements and financial growth, with significant increases in revenue, operating income, and net income. The strategic focus on non-traditional franchising and effective cost management are positive indicators. The extension of the Corbel loan maturity provides crucial breathing room for refinancing. However, the immediate concerns regarding the resignation of the principal accountant, the unaudited nature of this report, and the acknowledged internal control weaknesses introduce material uncertainty and risk. While the underlying business performance is improving, these governance and reporting issues warrant caution. A 'hold' recommendation is appropriate as investors should await the resolution of the auditor situation and the successful remediation of internal control deficiencies before considering a stronger position, despite the positive operational momentum.

Keywords

Restaurant, Franchising, Pizza, SEC Filing, Quarterly Report, Financial Performance, Noble Romans, Craft Pizza & Pub, Non-Traditional Franchises, Debt Refinancing, Internal Controls, SOFR