EXHIBIT 99.1
[LOGO OF NOBLE ROMAN'S]
EXECUTIVE SUMMARY
For the Period: 2005 through 2008
DECEMBER 2005
Note: See "Risk Factors and Forward Looking Statements" set forth below.
Parts of this Executive Summary were written by a third-party
consultant pursuant to the finance and growth forecasts provided by
the Company. The third party makes no representation or warranties
regarding such forecasts.
INVESTMENT THESIS
Noble Roman's, Inc. (the "Company") has successfully transformed itself from an
owner-operator of approximately 75 full-service casual dining pizza restaurants
to a franchisor of approximately 800 non-traditional pizza and sub sandwich
outlets. The dynamics of Noble Roman's earnings outlook have also changed
dramatically from an asset-laden, slow-growing and capital-intensive model to a
high-growth free cash flow model. Going forward, the Company plans to maintain
its efforts in expanding the number of franchised non-traditional outlets, which
currently number approximately 800 units, while simultaneously marketing its
quick-service concept to capitalize on what is believed to be an attractive
market opportunity. The Company's growth targets call for adding approximately
45 dual-branded and 15 single-branded non-traditional locations per year over
the next three years, along with 24 dual-branded traditional locations in 2006,
48 in 2007 and 80 in 2008.
If successful with its quick-service growth plans and the continued expansion of
its proven non-traditional concept, Noble Roman's could increase its earning per
share from approximately $0.08 last year to approximately $0.42 by 2008. Even
the high end of the stock's recent price range ($1.10) represents a
price-to-earnings ratio of only 2.6 times EPS in 2008 which assumes targeted
growth levels. The closest comparable public companies' valuations suggest that
NROM should trade between 19x and 22x forward EPS two years from now, or 19 to
22 times $0.42, for a two-year price target of $8 per share. While this level of
stock appreciation may seem aggressive given the recent trading range of the
Company's shares, it underscores the fact that NROM represents an undiscovered
and undervalued opportunity at an exciting inflection point in its growth
trajectory.
GROWTH STRATEGY
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The Company focuses its efforts on growing revenues primarily through the sale
of new franchises and the sale of area development agreements. As new franchise
locations open, Noble Roman's royalty stream increases as a result. Growth in
new locations is expected to come from both non-traditional venues and
traditional quick-service units (QSR's) that offer dine-in, delivery, and
carry-out. As illustrated in the chart on the following page, Noble Roman's
plans to grow its franchise units at consistently high rates, by adding between
120 and 180 new restaurants per year. By the end of 2008, the Company expects to
have greater than 1,000 non-traditional franchised units and more than 150
traditional QSR restaurants. Whether non-traditional or QSR, Noble Roman's
intends for most restaurants to utilize co-branding of the Company's two
concepts: Noble Roman's Pizza and Tuscano's Italian Style Subs.
To grow the QSR concept, the Company intends to aggressively pursue the sale of
select territories to Area Developers who are expected to develop the
territories through a combination of their own development and through the sale
of franchises within their territories. Based on the franchise interest the
Company has received to date, Noble Roman's expects to open 24 QSR's in 2006, 48
in 2007, and 80 in 2008. This strategy of using Area Developers to function as
sub-franchisors is intended to allow the Company
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to grow its QSR concept in multiple regions throughout the U.S. simultaneously
and without the need for Noble Roman's to add staff, contribute capital, or
incur the costs associated with rapid national expansion. Area Developers will
also have strong financial incentives to open new units since they will be at
risk of losing their geographic exclusivity and development fee ($25,000 and
$200,000) if they do not meet their development schedule.
[CHART OF NOBLE ROMAN'S PROJECTED UNIT GROWTH APPEARS HERE]
Noble Roman's projected Unit Growth
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2001A 2002A 2003A 2004A 2005E 2006E 2007E 2008E
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Non-Trad 546 621 669 761 819 884 949 1,014
QSR 5 29 77 157
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Note (Non-Traditional Unit Growth): The 45 dual-branded locations forecasted to
be opened each year are counted as two franchise units each, or 90 total. When
added to the forecasted 15 single-branded units, Noble Roman's has targeted
adding 105 non-traditional franchises less 40 projected closures each year --
for a net increase of 65 non-traditional units per year, as indicated in the
chart above.
REVENUE AND EARNINGS OUTLOOK
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It is believed that Noble Roman's can attain accelerating earnings growth over
the next three years. Unit expansion should result in top-line growth and,
coupled with favorable operating leverage, bottom-line growth through 2008 at
rates well above the industry average. The Company's Plan contemplates earnings
per share growth from $0.08 in 2004 to $0.28 in 2007, representing a 52%
three-year compounded annual growth rate (CAGR). Looking out one year further,
Noble Roman's forecasts its EPS growth rate to be even higher. NROM's plans
anticipate EPS to rise from $0.10 in 2005 to $0.42 in 2008, for a 61% three-year
CAGR. These high levels of sustained growth can be expected to lead to a premium
stock valuation as articulated in the "Valuation Analysis & Price Target"
section.
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[CHART OF NOBLE ROMAN'S PLAN REVENUES APPEARS HERE]
Noble Roman's Plan Revenues
2004 Act through 2008 Est (in $000's)
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2004 2005 2006 2007 2008
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$7,900 $8,700 $10,300 $13,300 $17,700
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[CHART OF NOBLE ROMAN'S PLAN EPS APPEARS HERE]
Noble Roman's Plan EPS
2004A through 2008E
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2004 2005 2006 2007 2008
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$ 0.08 $ 0.10 $0.16 $ 0.28 $ 0.42
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EARNINGS SENSITIVITY ANALYSIS
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Due to the nature of Noble Roman's franchise business model, the opening of 24
additional QSR units is forecasted to generate $1.1 million of additional
revenue in their first year (including franchise fees and a half year of
royalties) and net income of $650,000, or $0.04 per share, after incremental
operating expenses and taxes. On an ongoing basis, excluding the one-time
franchise fees but including a full year's royalties, these 24 additional QSR
stores would generate $1.4 million in revenues and $800,000 in earnings after
taxes, which equates to $0.05 per share. At an assumed P/E multiple of 20x, this
would equate to incremental value of $1.00 per share - or an increase of more
than 90% from today's stock price. NROM is not presently trading at 20x
earnings, so the calculation of the additional shareholder value would not hold
true until/unless the Company is able to demonstrate consistent earnings growth
to justify a 20 multiple. But even at today's multiple of approximately 10x
trailing EPS, the addition of 24 QSR units could cause the stock price to rise
by approximately 45%.
BUSINESS MODEL
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Noble Roman's demonstrated track record of profitability, broad geographical
appeal, relatively low initial capital investments, and simple operating model
with little labor requirement is believed to be attractive to potential
franchisees. Noble Roman's concepts require minimal space, a low initial
investment, simple operations, and provide healthy profit margins and return on
investment. Noble Roman's receives one-time franchise fees upon the opening of
new locations in both the non-traditional market and the quick-service
restaurant market. The Company also receives an ongoing royalty (paid weekly) on
all sales from its franchised stores. Meanwhile franchises can expect to net an
operating profit margin of more than 20%, which is at the high end of the range
in this industry. Attractive unit economics allow for a healthy annual return on
the franchisee's investment of approximately 58% at a traditional dual-branded
QSR location, which Noble Roman's believes should be a major contributing factor
to an accelerated rollout of dual-branded QSR locations over the coming
quarters.
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COMPANY HISTORY
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Noble Roman's, Inc., an Indiana corporation incorporated in 1972, sells and
services franchises for both traditional and non-traditional co-branded
foodservice operations under the trade names "Noble Roman's Pizza" and
"Tuscano's Italian Style Subs." Prior to focusing its efforts on franchising for
non-traditional and co-branded foodservice operations, the Company had
approximately 25 years' experience operating full-service pizza restaurants,
which gave it valuable insight into the design and consultation of foodservice
systems for franchisees. Since 1997, the Company has focused its efforts and
resources primarily on franchising non-traditional and co-branded locations and
now has awarded franchises in 44 states plus Washington, D.C., Guam, Italy and
Canada. The non-traditional franchises are typically installed in pre-existing,
high-traffic commercial, military, educational and recreational facilities.
Recently, the Company has positioned itself to realize growth from opportunities
focusing on the traditional quick service restaurant market opportunity.
MANAGEMENT
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o Paul W. Mobley, Chairman of the Board, CEO, and CFO
o Scott Mobley, President, Secretary and Director
o Troy Branson, Executive Vice President of Franchising
o Mitch Grunat, Vice President of Franchise Services
VALUATION ANALYSIS & PRICE TARGET
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In comparison to a broad-based index of 14 public companies in the casual
restaurant sector, Noble Roman's, Inc. is significantly undervalued using
the following metrics.
>> EBITDA margin of 38%, more than twice that of the index average of 15%
>> Enterprise Value-to-EBITDA ratio of 8.1, 23% below the index average
of 10.4
>> Forecasted 61% three-year CAGR in EPS through 2008 versus 12%-15% for
the peer group
>> 2006 P/E ratio of 6.9, a 64% discount to the index average of 18.9
>> PEG ratio of 0.1 vs. index average of 1.2, ten times greater that
NROM's
The dramatic decline in the P/E ratio implied by current EPS compared to 2008
forecasted EPS (from 13.8 in 2004 to 2.6 in 2008) is demonstrated in the bar
chart below, as is the inverse relationship with projected earning per share
(the line rising from $0.08 in 2004 to $0.42 in 2008).
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[CHART OF P/E VS. EPS TRENDS 2004-2008 APPEARS HERE]
P/E vs. EPS trends 2004-2008
Noble Roman's, Inc.
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2004 2005 2006 2007 2008
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Earnings Per Share $0.08 $0.10 $0.16 $0.28 $0.42
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Projected P/E 13.4 10.5 6.7 4.0 2.6
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Since Noble Roman's projects earnings growth of at least 50% through 2008,
NROM will likely trade at a multiple of at least 19x to 23x forward EPS
once the Company establishes a track record of consistent earnings growth.
Based on this comparison to the Peer Group, one would expect NROM's
two-year price target to be 19x-23x its projected 2008 EPS of $0.42, or
approximately $8 per share - representing roughly 150% compounded annual
stock appreciation. While this level of stock appreciation may seem
aggressive given the recent trading range of the Company's shares, we
believe it underscores the fact that NROM represents an undiscovered and
undervalued opportunity at an exciting inflection point in its growth
trajectory.
RISK FACTORS & FORWARD LOOKING STATEMENTS
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The statements contained in this Business Plan and Analysis concerning the
Company's future revenues, profitability, financial resources, market demand and
product development are forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995) relating to the Company
that are based on the beliefs of the management of the Company, as well as
assumptions and estimates made by and information currently available to the
Company's management. The Company's actual results in the future may differ
materially from those projected in the forward-looking statements due to risks
and uncertainties that exist including, but not limited to, competitive factors
and pricing pressures, shifts in market demand, general economic conditions and
other factors, including (but not limited to) changes in demand for the
Company's products or franchises, the impact of competitors' actions and changes
in prices or supplies of food ingredients and labor. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions or
estimates prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
The restaurant industry in general is intensely competitive with respect to
convenience, price, product quality and service. In addition, the Company
competes for franchise sales on the basis of product engineering and quality,
investment cost, cost of sales, distribution, simplicity of operation and labor
requirements. A change in the business strategy of one or more of the Company's
competitors could have an adverse effect on the Company's ability to sell
additional franchises, maintain and renew existing franchises or sell its
products through its franchise system. Many of the Company's
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competitors are very large, internationally established companies with greater
financial and other resources than the Company.
This Business Plan calls for the opening of many new units by franchisees. The
opening and success of new units will depend upon various factors including the
franchisee's ability to find suitable sites, the negotiation of acceptable
leases for the new restaurants, regulatory compliance, the ability to meet
construction schedules, the ability of the franchisees to manage their
anticipated expansion and to hire and train personnel, interest rates and
competition in general economic and business conditions. Many of the foregoing
factors are not within the control of the Company. There can be no assurance
that the Company will be able to achieve its plans with respect to the opening
of new restaurants.
The restaurant industry is often affected by changes in consumer tastes,
national, regional and local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants. The Company
can be substantially adversely affected by publicity resulting from food
quality, illness, injury, or other health concerns or operating issues stemming
from one restaurant or a limited number of restaurants. Dependence on frequent
deliveries of fresh product also subjects the Company to the risks that
shortages or interruptions in the supply caused by inclement weather or other
conditions could adversely affect the availability, quality and cost of
ingredients. In addition, factors such as inflation, increased cheese and other
food, paper, labor, employee benefits, regional weather conditions and the
unavailability of experience management and hourly employees may also adversely
affect the franchisees and, as a result, adversely affect the Company's ability
to add new franchised units.
The Company's business has been and will continue to be dependent upon the
efforts and abilities of certain members of certain management, particularly
Paul Mobley, the Company's Chairman, Chief Executive Officer and Chief Financial
Officer, and the President and Chief Operating Officer, A. Scott Mobley. The
loss of either of their services could have a material adverse affect on the
Company.
Certain provisions of Indiana law applicable to the Company could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could also limit the price that certain investors might be
willing to pay in the future for shares in the Company. These provisions include
prohibitions against certain business combinations with persons that become
"interested shareholders" (persons owning or controlling shares with voting
power equal to 10% or more) unless the Company's Board of Directors approves
either the business combination or the acquisition of stock before the person
becomes an "interested shareholder".
The Company and its franchisees are subject to various federal, state and local
laws affecting the operation of our respective businesses. Each franchise
location is subject to licensing and regulation by a number of governmental
authorities, which include health, safety, sanitation, building and other
agencies and ordinances in the state or municipality in which the facility is
located. The process of obtaining and maintaining required licenses or approvals
can delay or prevent the opening of a franchise location. Vendors, such as our
third party production and distribution services, are also licensed and subject
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to regulation by state and local health and fire codes, and U. S. Department of
Transportation regulations. The Company, its franchisees and its vendors are
also subject to federal and state environmental regulations.
The Company is subject to regulation by the Federal Trade Commission ("FTC") and
various state agencies pursuant to federal and state laws regulating the offer
and sale of franchises. Several states also regulate aspects of the
franchisor-franchisee relationship. The FTC requires us to furnish to
prospective franchisees a disclosure document containing certain specified
information. Some states also regulate the sale of franchises and require
registration of a franchise offering circular with state authorities.
Substantive state laws that regulate the franchisor-franchisee relationship
presently exist in a substantial number of states, and bills have been
introduced in Congress from time to time that would provide for federal
regulation of the franchisor-franchisee relationship in certain respects. The
state laws often limit, among other things, the duration and scope of
non-competition provisions and the ability of a franchisor to terminate or
refuse to renew a franchise. Some foreign countries also have disclosure
requirements and other laws regulating franchising and the franchisor-franchisee
relationship, and the Company would be subject to applicable laws in each
jurisdiction where it seeks to market additional franchise units.
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