BAB, INC. (BABB)·Q1 2015 Earnings Summary

Executive Summary

• Q1 2015 printed a GAAP loss driven by a one‑time $243K legal settlement reserve related to an adverse appellate ruling; excluding this item, core operating expense was modestly lower YoY while revenues declined on fewer units and softer Sign Shop/licensing income .
• Revenue fell to $0.49M (−8.4% YoY), with small royalty pressure (−0.8%) and a sharp drop in franchise fees given minimal openings/transfers; diluted EPS was −$0.034 vs $0.004 a year ago, entirely explained by the settlement charge .
• The board maintained its shareholder return cadence: $0.02 per share was declared/paid in Q1 (quarterly plus special from Dec. 2014), and a $0.01 quarterly distribution was declared on March 2, 2015 for payment on April 10, 2015 .
• No formal guidance or earnings call; Wall Street consensus (S&P Global) appears unavailable for this micro-cap, limiting estimate-based “beat/miss” narratives and increasing sensitivity to one‑off items and legal outcomes. We attempted to retrieve SPGI estimates but found none available (see Estimates Context).

What Went Well and What Went Wrong

• What Went Well

  • Cost discipline excluding legal: “Excluding the $243,000 [legal settlement] the operating expenses for February 28, 2015 were $495,000, $10,000 less than the same period in 2014,” with lower professional fees, franchise development costs, and Sign Shop COGS offset by modest payroll/benefits increases .
  • International master franchise: The 2014 UAE Master Franchise Agreement remains in place with the first location “under development,” offering optionality abroad .
  • Dividend continuity: Cash distributions remained a focus, with $0.02/share reflected in Q1 disclosure and a new $0.01 quarterly distribution declared on March 2, 2015 for payment April 10, 2015 .

• What Went Wrong

  • Legal overhang crystallized: The Illinois Appellate Court affirmed a $154,030 judgment, prompting BAB to reserve $243,000 for judgment, interest, and legal fees, which drove the quarterly operating loss and negative EPS .
  • Top‑line pressure: Total revenue declined 8.4% YoY to $0.49M; franchise fees fell to $5K (from $35K) on fewer openings/transfers, and licensing/other decreased on lower Sign Shop revenue .
  • Unit contraction: Franchised stores decreased to 84 (from 95 a year ago), pressuring royalty revenue (−0.8% YoY) and system‑wide sales ($8.0M vs $8.1M in the comparable period) .

Financial Results

Sequential trend (oldest → newest)

Year-over-year comparison (Q1)

KPIs and drivers

Notes:

• Q1 2015 operating loss reflects a $243K legal settlement expense; excluding this, operating expenses were ~$495K vs $505K in Q1 2014, indicating underlying cost control .
• No earnings call transcript or segmented disclosures; the company operates a single segment .

Guidance Changes

Additional disclosure:

• Legal matter resolved adversely on March 23, 2015; company expensed $243K in Q1 2015 for judgment, interest, legal fees .

Earnings Call Themes & Trends

No earnings call transcript was available for Q1 2015.

Management Commentary

• “Total revenue of $492,000 decreased $45,000, or 8.4%, … as compared to total revenue of $537,000 for the three months ended February 28, 2014” .
• “Total operating expenses of $738,000 includes $243,000 of expense for a legal settlement … Excluding the $243,000 the operating expenses … were $495,000, $10,000 less than the same period in 2014” .
• “Royalty fee revenue of $394,000 … decreased $3,000, or 0.8% … There were fewer locations in 2015 versus same period in 2014” .
• “Licensing fee and other income of $93,000 … decreased $12,000, or 11.4% … primarily due to a reduction in Sign Shop revenue” .
• “On March 23, 2015 the Appellate Court … affirm[ed] the trial court’s judgment … BAB has reserved the amount of the judgment plus statutory interest and additional legal fees totaling $243,000 as an expense in the first quarter financial statements of 2015” .
• UAE Master Franchise: $200,000 nonrefundable MFA with staged payments; first location under development .

Q&A Highlights

• No earnings call transcript was available; no Q&A with analysts found during the period.

Estimates Context

• We attempted to retrieve S&P Global/Capital IQ consensus for Q1 2015 EPS and revenue, prior quarters, and target price; no estimates were available/returned for this micro-cap during the period, indicating absent or minimal sell-side coverage (SPGI request returned no usable data).
• Implication: No estimate-based beat/miss. Intraperiod narrative is driven by reported results and one‑time legal settlement rather than expectation differentials.

Key Takeaways for Investors

• The quarter’s negative EPS and margins were entirely driven by a non-recurring legal settlement; ex-charge, operating expense trended modestly better YoY, but revenues remain under pressure from unit attrition and weaker Sign Shop/licensing income .
• The legal overhang has effectively been recognized/resolved in Q1, removing uncertainty but depressing GAAP results; near‑term optics improve sequentially as the settlement is non‑recurring .
• Royalty stability is constrained by a smaller unit base; re-accelerating development (including international MFA execution) is the key structural lever for revenue growth .
• Dividend policy remains intact (quarterly $0.01), supporting micro-cap total return despite volatility in quarterly earnings; cash and working capital were $605K and $412K at quarter‑end, respectively .
• Without sell-side coverage or an earnings call, stock moves can be headline-driven; watch subsequent quarters for normalization of margins and any progress on new openings/transfers (franchise fees) .
• Near-term focus: normalization post-legal expense; monitor system-wide sales and franchise pipeline; medium-term: execution on UAE MFA and unit growth to restore royalty leverage .

References: All numerical and qualitative statements are sourced from BAB, Inc. filings and disclosures as cited in brackets above.