BEHIND THE NEWS: Royal payoff awaits longtime Noble Roman’s CEO

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Noble Roman’s Inc. CEO Paul Mobley is a veteran of the pizza wars, collecting his share of bruises along the way. But now his Indianapolis-based company is enjoying heady times-and he’s poised to capitalize in a big, big way.

Securities filings show that warrants to purchase stock he amassed during the company’s darkest days now are worth more than $7.5 million-thanks to a recent runup in the company’s shares. His son, President Scott Mobley, also holds a big stash of warrants, now worth more than $4.1 million.

Noble Roman’s shares now fetch about $4.20 apiece, up sixfold since May. They’d spent much of the past decade at less than $1, driven down, in part, by the company’s steep losses in the late 1990s. Over a four-year span, the company lost more than $20 million.

But now the red ink is a distant memory. In the late 1990s, in what turned out to be a savvy move, Noble Roman’s shifted strategy, shuttering its 75 sitdown restaurants and instead focusing on franchising locations in nontraditional sites, such as military bases and gas stations.

In 2005, Noble Roman’s revved up franchising on another front, rolling out traditional restaurants that combine Noble Roman’s pizza with the company’s line of Tuscano Italian Style Subs. In the months since, the company has announced a flurry of franchising deals that call for the opening of 286 restaurants over seven years.

The franchising spree has given the company’s financials a new glow. Through the first nine months of 2006, Noble Roman’s earned $1.33 million on revenue of $6.98 million. In the same period a year earlier, it earned $1.18 million on revenue of $6.32 million, excluding the impact of a one-time gain from settling a lawsuit.

“We’ve been doing this ever since 1999. We had a lot of outdated facilities that we made the decision to get rid of because they were too labor-intensive and not modern,” Mobley said.

“It’s been progressing steadily since then. In the last year, there has been a snowballing effect.”

The biggest beneficiary of the turnaround is Mobley himself. Securities filings show that when the company’s outlook was most bleak, he pumped his own cash into the business. In return, he ended up with warrants giving him the right to buy stock in the future.

Now, the 66-year-old is poised to reap millions from his show of faith. He said he’ll exercise warrants to buy 1.3 million shares before they expire at the end of this year. The exercise prices for the shares range from 40 cents to 93 cents. Assuming the stock remains at about $4.20, his profit would top $4.5 million.

And that’s not all. Mobley has other warrants to buy another 900,000 shares at 93 cents apiece that expire by 2011. He hasn’t decided when he’ll exercise those. But if he did so now, his profit on those warrants would be more than $2.9 million.

Also poised to profit handsomely is Scott Mobley, 43, the company’s president since 1997. He holds warrants to buy 1.2 million shares. Based on the current stock price, they’re worth more than $4.1 million.

Not bad considering Noble Roman’s is a relatively small company, with about 40 full-time employees and 25 parttimers.

But this isn’t something for the company’s other shareholders to begrudge. For one thing, Noble Roman’s already takes the warrants into account when it reports fully diluted per-share profit. So the flood of new shares won’t sap quarterly results.

Plus, the big payday has been a long time coming. The Mobleys don’t have the seven-figure annual pay packages many of their brethren at other public companies enjoy. In 2006, for instance, Paul Mobley collected $390,000 and Scott Mobley received $250,000.

That Noble Roman’s is still in business is a lesson in perseverance. A decade ago, many restaurant observers said it was headed for financial ruin. Time has vindicated the Mobleys’ turnaround strategy. The big impending payoff will make it all the sweeter.

WellPoint headed up?

WellPoint Inc.’s fourth-quarter financials, released Jan. 24, didn’t wow investors. As Stifel Nicolaus analyst Thomas Carroll said in a report, there was “nothing overly bad or good.” On the day, shares dropped a buck, to $76.

So should investors steer clear of the Indianapolis-based company, the nation’s biggest health insurer? Carroll thinks otherwise. He has a “buy” recommendation on the stock. He calls the company’s per-share profit target for 2007 “very achievable.” Assuming it hits the target, Carroll said, shares might reach $105.

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