Executive Summary / Key Takeaways

• Noble Roman's is executing a strategic pivot, focusing on high-margin non-traditional franchising, particularly within convenience stores and travel plazas, which is driving significant revenue growth in this segment (up 18.6% in 2024).
• The company's proprietary ingredients and streamlined operational model provide a competitive edge in the non-traditional space, offering superior product quality and simplified operations for franchisees compared to some rivals.
• Recent performance in the company-owned Craft Pizza Pub segment shows signs of recovery, with Q4 2024 same-store sales up 2.9% and May 2025 achieving the highest profit contribution since August 2022, indicating potential for future growth or franchising in this format.
• Despite operational momentum, the company faces significant financial risks, including substantial debt obligations ($6.76M Senior Note, $575K subordinated notes as of Dec 31, 2024) with a Senior Note maturity extended to June 2026, and identified material weaknesses in internal financial controls requiring remediation.
• The investment thesis hinges on the successful execution of the non-traditional franchising growth strategy, leveraging operational efficiencies and niche positioning to improve overall profitability and generate sufficient cash flow to manage debt obligations and pursue future initiatives.

Setting the Scene: Noble Roman's Core Business and Strategic Evolution

Noble Roman's, Inc., established in 1972, has a long history in the U.S. pizza and foodservice industry. The company operates through a dual model: managing a small portfolio of company-owned restaurants under the Noble Romans Craft Pizza Pub banner and, more significantly, selling and servicing franchises and licenses for various formats, including Noble Romans Pizza, Noble Romans Take-N-Bake, and Tuscanos Italian Style Subs. Over its decades of operation, Noble Roman's has adapted its strategy, notably shifting in 1997 to focus on non-traditional locations – integrating pizza operations within existing businesses like entertainment venues, hospitals, and convenience stores.

This strategic evolution has positioned Noble Roman's as a niche player in a highly competitive landscape dominated by much larger, internationally established companies such as Yum Brands (YUM) (via Pizza Hut), McDonald's (MCD), Domino's Pizza (DPZ), and Papa John's International (PZZA). While these giants compete across various foodservice categories and possess vastly greater financial resources and scale, Noble Roman's carves out its space by emphasizing a cost-effective, operationally simple franchise model, particularly appealing to non-traditional operators. The company believes its background in traditional restaurant operations provides valuable experience in structuring and supporting franchisees, a potential advantage over competitors who may lack this depth. Competition for franchise sales is based not only on brand recognition but also crucially on product quality, investment cost, cost of sales, distribution, simplicity of operation, and labor requirements.

A foundational element of Noble Roman's offering, particularly in its pizza formats, lies in its proprietary ingredients and processes. The company utilizes its own recipes and formulas for many key ingredients, manufactured by third parties under contract. This includes a fully-prepared pizza crust designed to capture a made-from-scratch flavor while being shelf-stable, simplifying dough handling for non-traditional locations. They also use fresh-packed sauce with secret spices, a blend of 100% real mozzarella, Muenster, and oregano cheese, and 100% real meat toppings without soy additives – distinctions the company highlights compared to some competitors. Vegetables are sliced and delivered fresh, never canned. While specific quantitative metrics on the performance benefits of these proprietary elements (e.g., yield improvement, cost advantage percentage) are not detailed, the strategic intent is clear: to deliver superior, consistent product quality with simplified operations, thereby enhancing the value proposition for franchisees and appealing to customers. This focus on ingredient quality and operational simplicity, enabled by their specific product engineering, forms a key part of their competitive stance against larger, more standardized chains.

Operational Performance and Segment Dynamics

Noble Roman's operates primarily through two distinct segments: Company-Owned Craft Pizza Pubs and Franchising (predominantly non-traditional). A third, minor segment is a single Company-Owned Non-Traditional location. Analyzing the performance of these segments provides insight into the company's current operational health and strategic execution.

The Company-Owned Craft Pizza Pub segment, consisting of nine locations as of December 31, 2024, saw a slight decrease in revenue from $8.74 million in 2023 to $8.58 million in 2024. This decline was attributed by management primarily to reduced same-store sales, particularly in the first half of 2024, influenced by broader economic factors such as high gas prices, elevated consumer credit card balances, and decreased disposable income. Despite this revenue dip, the segment's expenses remained relatively stable year-over-year ($7.81 million in 2023 vs. $7.79 million in 2024), leading to a decrease in margin contribution from $930,982 (10.7% of revenue) in 2023 to $783,350 (9.2% of revenue) in 2024. Cost of sales as a percentage of revenue increased slightly (20.5% to 21.2%), impacted by promotional efforts and inflationary pressures on ingredients like cheese, though partially mitigated by operational efficiencies. Encouragingly, the segment showed signs of improvement towards the end of 2024, with same-store sales up 2.9% in the fourth quarter compared to the prior year. This positive trend appears to have continued into 2025, as recent news indicates May 2025 was the highest profit contribution month for the Craft Pizza Pub segment since August 2022, with same-store sales up approximately 9.3% versus May 2024.

The Franchising segment, primarily focused on non-traditional locations, is the engine of the company's current growth strategy. Revenue from this segment, derived from royalties, initial fees, equipment commissions, and manufacturing allowances, increased significantly from $4.67 million in 2023 to $5.54 million in 2024, an 18.6% increase. This growth was driven by the opening of approximately 68 new non-traditional outlets in 2024, outpacing the closure of 10 locations. Management attributes this expansion to changing market conditions post-COVID, making convenience store and travel plaza operators more willing to invest in foodservice to boost profitability. The segment's reported expenses increased substantially from $231,695 in 2023 to $1.70 million in 2024. However, this comparison is distorted by the inclusion of a $1.46 million net Employee Retention Credit (ERC) refund in 2023, which significantly reduced reported expenses in that year. Excluding the ERC impact, expenses would have been higher in 2023, making the 2024 expense level (30.7% of revenue) and margin contribution ($3.84 million, 69.3% of revenue) a more representative baseline for the segment's profitability profile under normal conditions. The company anticipates that the infrastructure required for continued growth in this segment will be minimal relative to the revenue generated, suggesting potential for margin expansion going forward.

The single Company-Owned Non-Traditional location in a hospital saw a modest revenue increase from $934,662 in 2023 to $953,574 in 2024. However, its margin contribution dropped sharply from $142,130 (15.2%) to $47,072 (4.9%). This decline was largely due to operational disruption in 2024 when the location was moved to a temporary, limited-menu space for about 60 days during hospital remodeling. Post-remodel and with the opening of a new hospital wing, the sales run rate increased by approximately 33%, indicating improved performance potential for this specific unit moving forward, although the company does not plan to open additional company-owned non-traditional locations.

Financial Health and Liquidity

Noble Roman's financial position as of December 31, 2024, reflects both the ongoing operational shifts and the weight of its debt structure. Total revenue increased from $14.37 million in 2023 to $15.15 million in 2024, primarily driven by the strong growth in the franchising segment. Operating income, however, decreased significantly from $3.44 million in 2023 to $1.48 million in 2024. This sharp decline is largely attributable to the $1.46 million net ERC refund recorded in 2023, which artificially boosted operating income in that year by reducing expenses. Excluding the ERC impact, the 2024 operating income provides a clearer picture of the company's profitability from core operations.

Interest expense remained substantial, decreasing slightly from $1.74 million in 2023 to $1.64 million in 2024. This highlights the significant burden of the company's debt. As of December 31, 2024, the company had approximately $6.76 million in principal outstanding on its Senior Note with Corbel Capital Partners and $575,000 in outstanding subordinated convertible notes. The Senior Note, initially $8 million, was amended in April 2025, extending its maturity to June 30, 2026. Under the amended terms, the cash interest rate is SOFR plus 9.00% (with a SOFR floor of 4.25%), and importantly, the 3.00% PIK interest component was discontinued. Required monthly principal payments increased to $91,667 starting in May 2025. The subordinated notes bear 10% interest but are contractually subordinated to the Senior Note and cannot be repaid until the Senior Note is satisfied.

The company's liquidity, as measured by the current ratio, decreased from 1.10-to-1.00 at the end of 2023 to 0.91-to-1.00 at the end of 2024, indicating a less favorable short-term liquidity position. However, the extension of the Senior Note's maturity means a significant portion of the debt is classified as long-term liability as of December 31, 2024, except for the next 12 months of principal payments.

Noble Roman's also holds a deferred tax asset of $3.5 million as of December 31, 2024, stemming from approximately $14.7 million in net operating loss (NOL) carry-forwards. Based on internal projections, management believes it is more likely than not that these NOLs will be fully utilized to offset future taxable income within the next four years, representing a potential future cash benefit.

A notable challenge highlighted in the 10-K is the identification of material weaknesses in the company's internal control over financial reporting as of December 31, 2024. These weaknesses relate to the approval and documentation of management expense reimbursements, the timely and accurate reconciliation of key account balances (including receivables, payables, accruals, and equity) during the financial close process, and insufficient written documentation and evidence of control performance. Management is implementing remediation efforts, but these weaknesses are material and will remain until fully addressed and validated, posing a risk to the accuracy and reliability of financial reporting.

Competitive Positioning and Moats

Noble Roman's operates within a fiercely competitive restaurant and retail food industry. While it competes for consumer dollars on convenience, price, product quality, and service, its primary strategic battleground is the market for franchise and license sales. Here, it competes based on factors like product engineering, investment cost, cost of sales, distribution, operational simplicity, and labor requirements.

Compared to industry giants like Yum Brands (YUM) (Pizza Hut), McDonald's (MCD), Domino's Pizza (DPZ), and Papa John's (PZZA), Noble Roman's is a significantly smaller player with a market capitalization of approximately $4.44 million as of the recent news date, dwarfed by the multi-billion dollar valuations of its larger rivals. These larger competitors possess vastly superior financial resources, brand recognition, and established infrastructure.

However, Noble Roman's has identified competitive advantages, particularly within the non-traditional venue which is now its core growth focus. Many competitors in this space, according to the company, lack extensive experience operating traditional foodservice locations. Noble Roman's long history in traditional restaurants provides it with experience in structuring, planning, marketing, and cost control that can be beneficial to franchisees, many of whom may have limited prior foodservice exposure.

Quantitatively, while direct, perfectly comparable financial metrics across all competitors and segments are challenging to isolate, the provided data offers some insights. Noble Roman's Franchising segment demonstrated a strong margin contribution of 69.3% of revenue in 2024 (adjusting for the 2023 ERC impact), suggesting a potentially lean and profitable model once initial setup costs are absorbed. This compares favorably to the operating margins of larger, more diversified players like YUM (32% in 2024) or MCD (45% in 2024), or even pizza specialists like DPZ (19% in 2024) and PZZA (8% in 2024). This higher operating margin profile in its core growth segment is a key competitive advantage, allowing for potentially better profitability per dollar of revenue generated from franchising activities, although the overall scale of revenue is much smaller.

Noble Roman's proprietary ingredients and prepared crust technology, while not detailed with specific quantitative performance metrics, are positioned as differentiators aimed at ensuring superior quality and simplifying operations for franchisees. This focus on product consistency and ease of execution directly addresses key challenges for non-traditional operators.

Despite these advantages, Noble Roman's faces significant disadvantages due to its limited scale. This can impact its ability to negotiate favorable terms with suppliers compared to larger chains, potentially affecting cost of goods sold for franchisees and company-owned locations. Its smaller footprint also means less national brand visibility compared to its major competitors. Furthermore, the company's dependence on third-party distributors, while mitigated by the number of options available, still presents a potential point of vulnerability for supply chain reliability compared to competitors with more integrated or dominant distribution networks. The thinly traded nature of its stock on the OTCQB also presents a liquidity disadvantage for investors compared to the highly liquid shares of its exchange-listed competitors.

The company's strategic response to this competitive environment is to focus intensely on the non-traditional franchising segment, leveraging its operational model and product quality to attract operators in venues like convenience stores where its streamlined approach and potentially higher margins per unit can be compelling. The significant 100-unit development agreement with Majors Management LLC is a testament to this strategy gaining traction and provides a clear pipeline for future growth, potentially offsetting the scale disadvantage over time within this specific niche.

Outlook and Key Risks

Noble Roman's forward-looking strategy is centered on driving growth in its non-traditional franchising venue. The company's cash flow projections for the next two years are primarily based on the successful execution of this strategy, alongside operating its existing Craft Pizza Pub locations and pursuing a franchising program for the Craft Pizza Pub format as market conditions become favorable. The 100-unit development agreement with Majors Management LLC, slated for development by September 30, 2026, provides a concrete foundation for anticipated unit growth and associated revenue increases in the franchising segment. Management expects the overhead required to support this growth to be minimal relative to the revenue generated, which could lead to expanding margins in this high-contribution segment. The recent positive performance trends in the company-owned Craft Pizza Pubs also suggest potential for improved profitability from these existing assets and could pave the way for future Craft Pizza Pub franchising efforts.

However, this outlook is subject to significant risks. A primary concern is the company's ability to service its outstanding debt and, crucially, refinance the Senior Note before its extended maturity date of June 30, 2026. While the recent extension provides breathing room, the substantial principal balance ($6.76 million as of Dec 31, 2024) and required monthly payments ($91,667 starting May 2025) represent a considerable financial obligation that must be met through operating cash flow or successful refinancing in the current economic environment. The subordinated notes ($575,000 principal) also remain outstanding, though their subordination provides some protection to the senior lender.

Dependence on the success of franchisees is another key risk. The company relies on franchisees to operate locations effectively, report sales accurately, and remain financially viable. Factors outside the company's control, such as inflation impacting food and labor costs for franchisees, or labor shortages, could adversely affect franchisee performance and, consequently, the company's royalty revenue and brand reputation. The viability of the host businesses in non-traditional locations is also critical; economic downturns affecting convenience stores or travel plazas could slow development or impact existing unit sales.

Supply chain disruptions, while partially mitigated by having multiple distributors, remain a risk, potentially affecting the availability and cost of key ingredients. Changes in consumer preferences or adverse publicity related to food quality or health concerns could also negatively impact sales across the system.

Regulatory risks, including changes in federal and state franchise laws or health and safety regulations, could increase compliance costs or hinder expansion. The company's dependence on its key executives, Paul W. Mobley and A. Scott Mobley, also presents a risk, as the loss of either could materially impact operations and strategy execution.

Furthermore, the identified material weaknesses in internal control over financial reporting pose a risk to the accuracy and timeliness of financial information, which could affect investor confidence and operational decision-making until fully remediated. Finally, the potential for renewed activity from activist shareholders could divert management time and resources, incurring additional expenses.

Conclusion

Noble Roman's is currently navigating a pivotal phase, strategically concentrating its resources on expanding its non-traditional franchising footprint. This focus is yielding tangible results, evidenced by the significant increase in franchising revenue in 2024 and the promising 100-unit development agreement. The company's operational model, built on proprietary ingredients and simplified processes, appears well-suited for the non-traditional environment, offering a compelling value proposition to potential franchisees and contributing to attractive segment margins. Simultaneously, the company-owned Craft Pizza Pubs, while facing recent economic headwinds, are showing signs of operational recovery, suggesting potential for future contributions or expansion via franchising.

The core investment thesis for Noble Roman's rests on its ability to capitalize on the momentum in non-traditional franchising, leveraging its operational efficiencies and niche competitive advantages to drive overall revenue growth and improve profitability. The successful execution of the Majors Management agreement and further expansion within the convenience store sector are critical indicators to watch.

However, this potential is tempered by significant financial and operational challenges. The substantial debt burden and the need to manage or refinance the Senior Note by June 2026 loom large over the company's financial stability. Addressing the identified material weaknesses in internal controls is also paramount for ensuring reliable financial reporting and operational integrity. Investors should weigh the demonstrated growth potential in the franchising segment and the operational strengths in product quality and simplicity against the financial risks posed by the debt structure and internal control deficiencies. The company's ability to generate sufficient cash flow from its expanding franchise base and existing operations will be key to managing its obligations and funding future growth initiatives, ultimately determining the trajectory of this niche pizza story.