RED ROBIN GOURMET BURGERS INC 10-K

ITEM 8. Financial Statements and Supplementary Data RED ROBIN GOURMET BURGERS, INC. INDEX Page Report of Independent Registered Public Accounting Firm, Deloitte & Touche LLP (PCAOB ID: 34 ) 43 Consolidated Balance Sheets 45 Consolidated Statements of Operations and Comprehensive Loss 46 Consolidated Statements of Stockholders' (Deficit) Equity 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49 42 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Red Robin Gourmet Burgers, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Red Robin Gourmet Burgers, Inc. and subsidiaries (the "Company") as of December 31, 2023 and December 25, 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows, for the periods ended December 31, 2023, December 25, 2022, and December 26, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and December 25, 2022, and the results of its operations and its cash flows for the periods ended December 31, 2023, December 25, 2022, and December 26, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of Long-Lived Assets – Refer to Notes 1, 4, and 9 in the Financial Statements Critical Audit Matter Description The Company assesses long-lived assets for impairment at the individual restaurant-level whenever events and circumstances indicate the carrying amount of an asset group may not be recoverable. Expected cash flows associated with an asset are the key factor in determining the recoverability of the asset. Identifiable cash flows are measured at the restaurant-level. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance, including assumptions of future revenue trends. If the sum of the undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized and measured as the amount by which the carrying value exceeds the fair value of the asset. We identified the evaluation of long-lived asset impairment as a critical audit matter because of the significant judgments made by management to estimate the undiscounted cash flows, including assumptions about expected future operating performance, and the fair value of the lease assets. This required a high degree of auditor judgment and an increased extent of effort, when performing audit procedures to evaluate whether management appropriately identified and evaluated potential impairment indicators, and when evaluating the reasonableness of management’s estimates and assumptions, particularly related to undiscounted cash flows and market rent. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the impairment of long-lived assets included the following, among others: 43 Table of Contents • We tested the operating effectiveness of internal controls over the Company’s assessment and evaluation of potential impairment indicators for long-lived assets and over forecasted undiscounted cash flows and market rent used in their recoverability and impairment analyses. • We evaluated the reasonableness of the Company’s evaluation of impairment indicators by: ◦ Evaluating the Company’s process for identifying qualitative and quantitative impairment indicators by location and whether the Company appropriately considered such indicators ◦ Conducting a completeness assessment to determine whether additional impairment indicators were present during the period that were not identified by the Company. • We tested the mathematical accuracy of management’s calculations and the underlying source of information for a selection of restaurant sites. • We evaluated the reasonableness of the information in the Company’s forecasted undiscounted cash flows used in their recoverability and impairment analyses, by comparing the forecasts to ◦ Historical actual information ◦ Internal communications between management and the Board of Directors ◦ Forecasted information included in analyst and industry reports for the Company. • We evaluated the Company’s forecasted undiscounted and discounted cash flows for consistency with evidence obtained in other areas of the audit. • With the assistance of our fair value specialists, we evaluated the market rent by developing a range of independent estimates and comparing those to the market rent used by management. /s/ Deloitte & Touche LLP Denver, Colorado February 28, 2024 We have served as the Company's auditor since 2021. 44 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, 2023 December 25, 2022 Assets: Current assets: Cash and cash equivalents $ 23,634 $ 48,826 Accounts receivable, net 21,592 21,989 Inventories 26,839 26,447 Prepaid expenses and other current assets 11,785 12,938 Restricted cash 7,931 9,380 Total current assets 91,781 119,580 Property and equipment, net 261,258 318,517 Operating lease assets, net 361,609 361,432 Intangible assets, net 15,491 17,727 Other assets, net 11,795 14,889 Total assets $ 741,934 $ 832,145 Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 27,726 $ 39,336 Accrued payroll and payroll-related liabilities 32,524 33,666 Unearned revenue 36,067 46,944 Current portion of operating lease liabilities 43,819 47,394 Current portion of long-term debt — 3,375 Accrued liabilities and other current liabilities 46,201 49,498 Total current liabilities 186,337 220,213 Long-term debt 182,594 203,155 Long-term portion of operating lease liabilities 383,439 393,157 Other non-current liabilities 10,006 13,831 Total liabilities 762,376 830,356 Stockholders' (deficit) equity: Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,528 and 15,934 shares outstanding as of December 31, 2023 and December 25, 2022 20 20 Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of December 31, 2023 and December 25, 2022 — — Treasury stock 4,921 and 4,515 shares, at cost as of December 31, 2023 and December 25, 2022 ( 174,702 ) ( 182,810 ) Paid-in capital 229,680 238,803 Accumulated other comprehensive loss, net of tax ( 22 ) ( 34 ) Accumulated deficit ( 75,418 ) ( 54,190 ) Total stockholders' (deficit) equity ( 20,442 ) 1,789 Total liabilities and stockholders' (deficit) equity $ 741,934 $ 832,145 See Notes to Consolidated Financial Statements. 45 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share amounts) Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Revenues: Restaurant revenue $ 1,274,294 $ 1,230,189 $ 1,137,643 Franchise revenue 15,867 19,306 17,236 Other revenue 12,885 16,039 6,758 Total revenues 1,303,046 1,265,534 1,161,637 Costs and expenses: Restaurant operating costs (excluding depreciation and amortization shown separately below): Cost of sales 308,962 306,509 260,896 Labor (includes $ 475 , $ 958 , and $ 894 of stock-based compensation) 473,538 440,564 409,901 Other operating 224,999 224,704 207,829 Occupancy 102,761 98,868 96,484 Depreciation and amortization 66,190 76,245 83,438 Selling, general, and administrative expenses (includes $ 6,329 , $ 8,635 , and $ 5,728 of stock-based compensation) 124,130 136,612 122,743 Pre-opening costs 587 568 1,410 Other charges (gains), net (includes $ 128 , $( 3,299 ), and $ 0 of stock-based compensation) ( 2,663 ) 38,961 16,074 Total costs and expenses 1,298,504 1,323,031 1,198,775 Income (loss) from operations 4,542 ( 57,497 ) ( 37,138 ) Other expense (income): Interest expense 26,560 20,643 14,176 Interest (income) and other, net ( 1,100 ) ( 4 ) ( 719 ) Total other expenses, net 25,460 20,639 13,457 Loss before income taxes ( 20,918 ) ( 78,136 ) ( 50,595 ) Income tax expense (benefit) 310 747 ( 152 ) Net loss $ ( 21,228 ) $ ( 78,883 ) $ ( 50,443 ) Loss per share: Basic $ ( 1.34 ) $ ( 4.98 ) $ ( 3.22 ) Diluted $ ( 1.34 ) $ ( 4.98 ) $ ( 3.22 ) Weighted average shares outstanding: Basic 15,835 15,840 15,660 Diluted 15,835 15,840 15,660 Other comprehensive (loss) income: Foreign currency translation adjustment $ 12 $ ( 35 ) $ 5 Other comprehensive (loss) income, net of tax 12 ( 35 ) 5 Total comprehensive loss $ ( 21,216 ) $ ( 78,918 ) $ ( 50,438 ) See Notes to Consolidated Financial Statements. 46 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (In thousands) Common Stock Treasury Stock Accumulated Other Comprehensive (Loss) Income, net of tax Retained Earnings (Deficit) Paid-in Capital Shares Amount Shares Amount Total Balance, December 27, 2020 20,449 $ 20 4,901 $ ( 199,908 ) $ 243,407 $ ( 4 ) $ 75,136 $ 118,651 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 174 ) 7,105 ( 7,484 ) — ( 379 ) Non-cash stock compensation — — — — 6,637 — 6,637 Net loss — — — — — — ( 50,443 ) ( 50,443 ) Other comprehensive loss — — — — — 5 — 5 Balance, December 26, 2021 20,449 20 4,727 ( 192,803 ) 242,560 1 24,693 74,471 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 212 ) 9,993 ( 10,080 ) — — ( 87 ) Non-cash stock compensation — — — — 6,323 — — 6,323 Net loss — — — — — — ( 78,883 ) ( 78,883 ) Other comprehensive income — — — — — ( 35 ) — ( 35 ) Balance, December 25, 2022 20,449 20 4,515 ( 182,810 ) 238,803 ( 34 ) ( 54,190 ) 1,789 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 456 ) 18,068 ( 16,063 ) — — 2,005 Acquisition of treasury stock — — 862 ( 9,960 ) — — — ( 9,960 ) Non-cash stock compensation — — — — 6,940 — 6,940 Net loss — — — — — — ( 21,228 ) ( 21,228 ) Other comprehensive loss — — — — — 12 — 12 Balance, December 31, 2023 20,449 $ 20 4,921 $ ( 174,702 ) $ 229,680 $ ( 22 ) $ ( 75,418 ) $ ( 20,442 ) See Notes to Consolidated Financial Statements. 47 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Cash Flows From Operating Activities: Net loss $ ( 21,228 ) $ ( 78,883 ) $ ( 50,443 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 66,190 76,245 83,438 Gift card breakage ( 9,874 ) ( 13,807 ) ( 5,022 ) Asset impairment 9,130 38,534 7,052 Non-cash other charges (gains) ( 1,404 ) ( 3,440 ) 346 Stock-based compensation expense 6,933 6,294 6,622 Gain on sale of property ( 30,137 ) ( 9,204 ) — Amortization of debt issuance costs 2,032 3,530 3,032 Other, net ( 794 ) 287 71 Changes in operating assets and liabilities: Accounts receivable 364 ( 26 ) ( 4,919 ) Inventories ( 280 ) ( 1,813 ) ( 1,925 ) Income tax receivable 33 15,263 759 Prepaid expenses and other current assets 1,558 2,289 ( 3,066 ) Operating lease assets, net of liabilities ( 11,841 ) ( 7,036 ) ( 9,293 ) Trade accounts payable and accrued liabilities ( 9,843 ) 11,724 19,449 Unearned revenue ( 1,097 ) 4,035 9,539 Other operating assets and liabilities, net ( 899 ) ( 8,460 ) ( 8,348 ) Net cash provided by (used in) operating activities ( 1,157 ) 35,532 47,292 Cash Flows From Investing Activities: Purchases of property, equipment and intangible assets ( 49,440 ) ( 38,159 ) ( 42,261 ) Proceeds from sale-leaseback 58,801 — — Proceeds from sales of property and equipment, and other 2,394 8,591 20 Acquisition of franchised restaurants ( 3,529 ) — — Net cash provided by (used in) investing activities 8,226 ( 29,568 ) ( 42,241 ) Cash Flows From Financing Activities: Borrowings of long-term debt — 297,151 192,500 Payments of long-term debt and capital leases ( 25,755 ) ( 266,519 ) ( 188,845 ) Purchase of treasury stock ( 9,960 ) — — Debt issuance costs — ( 4,869 ) ( 1,714 ) Proceeds related to real estate sale — 3,856 — (Uses) proceeds from other financing activities, net 2,003 ( 86 ) ( 378 ) Net cash provided by (used in) financing activities ( 33,712 ) 29,533 1,563 Effect of exchange rate changes on cash 2 ( 41 ) 20 Net change in cash and cash equivalents, and restricted cash ( 26,641 ) 35,456 6,634 Cash and cash equivalents, and restricted cash, beginning of period 58,206 22,750 16,116 Cash and cash equivalents, and restricted cash, end of period $ 31,565 $ 58,206 $ 22,750 Supplemental disclosure of cash flow information Income taxes paid (refunds received), net $ 454 $ ( 14,642 ) $ ( 962 ) Interest paid, net of amounts capitalized 24,084 16,054 10,455 Accrued purchases of property, equipment and intangible assets $ 1,836 $ 9,688 $ 4,655 See Notes to Consolidated Financial Statements. 48 Table of Contents RED ROBIN GOURMET BURGERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business and Summary of Significant Accounting Policies (a) Description of Business Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our", or the "Company"), primarily operates, franchises, and develops casual dining restaurants in North America. As of December 31, 2023, the Company owned and operated 415 restaurants located in 39 states. The Company also had 91 casual dining restaurants operated by franchisees in 14 states and one Canadian province. The Company operates its business as one operating and one reportable segment. (b) Basis of Presentation and Principles of Consolidation The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States and include the accounts of Red Robin and its wholly owned subsidiaries after elimination of all intercompany accounts and transactions. The Company's fiscal year is 52 or 53 weeks ending the last Sunday of the calendar year. Year-end dates and the number of weeks in each fiscal year are shown in the table below for periods presented in the consolidated financial statements and for the upcoming fiscal year. Fiscal Year Year End Date Number of Weeks in Fiscal Year Current and Prior Fiscal Years: 2023 December 31, 2023 53 2022 December 25, 2022 52 2021 December 26, 2021 52 Upcoming Fiscal Years: 2024 December 29, 2024 52 2025 December 28, 2025 52 (c) Immaterial Restatement of Prior Period Financial Statements Subsequent to the issuance of the Company’s financial statements as of and for the year ended December 25, 2022, and as previously disclosed in our Form 10-Q, the Company discovered a multi-year error in its calculation and recognition of revenue related to gift cards, primarily related to breakage revenue that had been recognized for bonus and discounted gift cards for which no or discounted monetary consideration was received, which resulted in the Company overstating total revenues by $ 1.1 million for the year ended December 25, 2022 and $ 0.4 million for the year ended December 26, 2021. The period (rollover) impact of the error correction on net income (loss) for the year ended December 25, 2022 and December 26, 2021 increased net loss by $ 1.1 million and $ 0.4 million, respectively, and the cumulative impact of the error correction on unearned revenue was an increase of $ 3.6 million. Management has evaluated this misstatement and concluded it was not material to prior periods, individually or in the aggregate. However, correcting the cumulative effect of the error in the fifty-three weeks ended December 31, 2023 would have had a significant effect on the results of operations for such periods. Therefore, the Company has corrected the Consolidated Financial Statements for the prior periods presented in the Form 10-K filing for the year ended December 31, 2023. Additionally, comparative prior period amounts in the applicable Notes to the Consolidated Financial Statements have been restated. The following tables reflect the effects of the correction on all affected line items of the Company's previously reported Consolidated Financial Statements presented in this Form 10-K: CORRECTED CONSOLIDATED BALANCE SHEETS December 25, 2022 (in thousands) As Previously Reported Adjustment As Corrected Unearned revenue $ 43,358 $ 3,586 $ 46,944 Total current liabilities 216,627 3,586 220,213 Total liabilities 826,770 3,586 830,356 Accumulated deficit ( 50,604 ) ( 3,586 ) ( 54,190 ) Total stockholders' equity (deficit) 5,375 ( 3,586 ) 1,789 49 Table of Contents CORRECTED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Fifty-Two Weeks Ended December 25, 2022 (in thousands) As Previously Reported Adjustment As Corrected Restaurant revenue $ 1,230,318 $ ( 129 ) $ 1,230,189 Franchise and other revenues 16,993 ( 954 ) 16,039 Total revenues 1,266,617 ( 1,083 ) 1,265,534 Loss before income taxes ( 77,053 ) ( 1,083 ) ( 78,136 ) Net loss ( 77,800 ) ( 1,083 ) ( 78,883 ) Net loss per share ( 4.91 ) ( 0.07 ) ( 4.98 ) Total comprehensive loss ( 77,835 ) ( 1,083 ) ( 78,918 ) OTHER NON-GAAP INFORMATION: Adjusted EBITDA 52,789 ( 679 ) 52,110 CORRECTED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY Fifty-Two Weeks Ended December 25, 2022 (in thousands) Retained Earnings/(Accumulated Deficit) Total Shareholders' Equity As Previously Reported Balance, December 26, 2021 $ 27,196 $ 76,974 Net loss ( 77,800 ) ( 77,800 ) Balance, December 25, 2022 ( 50,604 ) 5,375 Adjustments Balance, December 26, 2021 ( 2,503 ) ( 2,503 ) Net loss ( 1,083 ) ( 1,083 ) Balance, December 25, 2022 ( 3,586 ) ( 3,586 ) As Corrected Balance, December 26, 2021 24,693 74,471 Net loss ( 78,883 ) ( 78,883 ) Balance, December 25, 2022 $ ( 54,190 ) $ 1,789 CORRECTED CONSOLIDATED STATEMENTS OF CASH FLOWS Fifty-Two Weeks Ended December 25, 2022 (in thousands) As Previously Reported Adjustment As Corrected Net loss $ ( 77,800 ) $ ( 1,083 ) $ ( 78,883 ) Gift card breakage ( 14,761 ) 954 ( 13,807 ) Unearned revenue 3,906 129 4,035 50 Table of Contents CORRECTED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Fifty-Two Weeks Ended December 26, 2021 (in thousands) As Previously Reported Adjustment As Corrected Restaurant revenue $ 1,137,733 $ ( 90 ) $ 1,137,643 Franchise and other revenues 7,109 ( 351 ) 6,758 Total revenues 1,162,078 ( 441 ) 1,161,637 Loss before income taxes ( 50,154 ) ( 441 ) ( 50,595 ) Net loss ( 50,002 ) ( 441 ) ( 50,443 ) Net loss per share ( 3.19 ) ( 0.03 ) ( 3.22 ) Total comprehensive loss ( 49,997 ) ( 441 ) ( 50,438 ) OTHER NON-GAAP INFORMATION: Adjusted EBITDA 63,526 ( 441 ) 63,085 CORRECTED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY Fifty-Two Weeks Ended December 26, 2021 (in thousands) Retained Earnings Total Shareholders' Equity As Previously Reported Balance, December 27, 2020 $ 77,198 $ 120,713 Net loss ( 50,002 ) ( 50,002 ) Balance, December 26, 2021 27,196 76,974 Adjustments Balance, December 27, 2020 ( 2,063 ) ( 2,063 ) Net loss ( 441 ) ( 441 ) Balance, December 26, 2021 ( 2,503 ) ( 2,503 ) As Corrected Balance, December 27, 2020 75,135 118,650 Net loss ( 50,443 ) ( 50,443 ) Balance, December 26, 2021 $ 24,693 $ 74,471 CORRECTED CONSOLIDATED STATEMENTS OF CASH FLOWS Fifty-Two Weeks Ended December 26, 2021 (in thousands) As Previously Reported Adjustment As Corrected Net loss $ ( 50,002 ) $ ( 441 ) $ ( 50,443 ) Gift card breakage ( 5,373 ) 351 ( 5,022 ) Unearned revenue 9,449 90 9,539 (d) Reclassifications Certain amounts presented have been reclassified within the December 25, 2022 Consolidated Balance Sheet, Note 7. Accrued Payroll and Payroll-Related Liabilities, and Accrued Liabilities and Other Current Liabilities, and Note 11. Income Taxes to conform with the current period presentation. The reclassifications had no effect on the Company’s total balances. Additionally, certain amounts have been reclassified in Note 4. Other Charges (Gains), net for December 25, 2022 and December 26, 2021 to conform with the current period presentation, with no aggregate effect. (e) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (f) Summary of Significant Accounting Policies 51 Table of Contents Revenue Recognition - Revenues consist of sales from restaurant operations (including third party delivery), franchise revenue, and other revenue including gift card breakage and miscellaneous revenue. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant Guest, franchisee, or other customer. The Company recognizes revenues from restaurant operations when payment is tendered at the point of sale, as the Company's performance obligation to provide food and beverage to the customer has been satisfied. The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. We recognize revenue from gift cards as either: (i) Restaurant revenue, when the Company's performance obligation to provide food and beverage to the customer is satisfied upon redemption of the gift card, or (ii) gift card breakage, as discussed below. Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption. Red Robin Royalty™ deferred revenue primarily relates to a program in which registered members earn an award for a free entrée for every nine entrées purchased. Registered members can also earn an award if they visit a Red Robin restaurant 5 separate times within 5 weeks of joining our Royalty™ program. We recognize the current sale of an entrée and defer a portion of the revenue to reflect partial prepayment for the future entrée the member is entitled to receive. We estimate the future value of the award based on the historical average value of redemptions. We also estimate what portion of registered members are not likely to reach the ninth purchase or fifth visit based on historical activity and recognize the revenue related to those purchases from deferred revenue. We recognize the deferred revenue in restaurant revenue on earned rewards when the Company satisfies its performance obligation at redemption, or upon expiration. We compare the estimate of the value of future awards to historical redemptions to evaluate the reasonableness of the deferred amount. Revenues we receive from our franchise arrangements include sales-based royalties, advertising fund contributions, area development fees, and franchise fees. Red Robin franchisees are required to remit 4.0 % to 5.0 % of their revenues as royalties to the Company and contribute up to 3 % of revenues to two national advertising funds. The Company recognizes these sales-based royalties and advertising fund contributions as the underlying franchisee sales occur. Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the Consolidated Statements of Operations and Comprehensive Loss in accordance with ASC Topic 606, Revenue from Contracts with Customers . The Company also provides its franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for area development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, which then amortize over the contracted franchise term as the services comprising the performance obligation are satisfied. The Company typically grants franchise rights to franchisees for a term of 20 years, with the right to extend the term for an additional 10 years if various conditions are satisfied by the franchisee. Other revenue consists of gift card breakage, licensing income, and recycling income. Cash and Cash Equivalents, and Restricted Cash - The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within two to four days of the original sales transaction and are considered to be cash equivalents. Cash and cash equivalents are maintained with multiple financial institutions. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company holds cash and cash equivalents at financial institutions in excess of amounts covered by the Federal Depository Insurance Corporation (the "FDIC") and sometimes invests excess cash in money market funds not insured by the FDIC. The Company periodically assesses the credit risk associated with these financial institutions and believes that the risk of loss is minimal. The Company is required to carry restricted cash balances that are reserved as collateral for existing letters of credit. The amounts issued under letters of credit, which are undrawn totaled $ 7.7 million. Accounts Receivable, Net - Accounts receivable, net consists primarily of third party gift card receivables, third party delivery partner receivables, trade receivables due from franchisees for royalties and advertising fund contributions, and tenant improvement allowances. At the end of 2023, there was approximately $ 9.7 million of gift card receivables in accounts receivable related to gift cards that were sold by third party retailers compared to $ 11.6 million at the end of 2022. At the end of 2023, there was also approximately $ 2.6 million related to third party delivery partners in accounts receivable compared to approximately $ 2.3 million at the end of 2022. 52 Table of Contents Inventories - Inventories consist of food, beverages, and supplies valued at the lower of cost (first-in, first-out method) or net realizable value. At the end of 2023 and 2022, food and beverage inventories were $ 9.4 million and $ 10.1 million, respectively, and supplies inventories were $ 17.4 million and $ 16.3 million, respectively. Property and Equipment, Net - Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are expensed as incurred. Depreciation is computed on the straight-line method based on the shorter of the estimated useful lives or the terms of the underlying leases of the related assets. Interest incurred on funds used to construct Company-owned restaurants is capitalized and amortized over the estimated useful life of the related assets. The estimated useful lives for property and equipment are: Buildings 5 years to 20 years Leasehold improvements Shorter of lease term or estimated useful life, not to exceed 20 years Furniture, fixtures, and equipment 5 years to 20 years Computer equipment 2 years to 5 years The Company capitalizes certain overhead related to the development and construction of its new restaurants as well as certain information technology infrastructure upgrades. Costs incurred for the potential development of restaurants that are subsequently terminated are expensed. Leases - The Company leases land, buildings, and equipment used in its operations under operating and finance leases. Our leases generally have remaining terms of 1 - 15 years, most of which include options to extend the leases for additional 5 -year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years. We determine if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term. Some of our leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant's sales in excess of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term of 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet. We elected the practical expedient that does not require us to separate lease and non-lease components for our population of real estate assets. Intangible Assets, net - Intangible assets comprise primarily leasehold interests, acquired franchise rights, and the costs of purchased liquor licenses. Leasehold interests primarily represent the fair values of acquired lease contracts having contractual rents lower than fair market rents and are amortized on a straight-line basis over the remaining initial lease term. Acquired franchise rights, which represent the acquired value of franchise contracts, are amortized over the term of the franchise agreements. The costs of obtaining non-transferable liquor licenses from local government agencies are capitalized and generally amortized over a period of up to 20 years. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets. Impairment of Long-Lived Assets - The Company reviews its long-lived assets, including restaurant sites, leasehold improvements, other fixed assets, information technology systems, right of use assets, and amortizable intangible assets for 53 Table of Contents impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant-level. If the assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined using projected cash flows discounted using an estimated weighted average cost of capital. Management may also utilize other market information to determine fair value such as market rent and discount rates, to estimate the fair value of restaurant right of use lease assets. Restaurant sites and other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell. Information technology systems, such as internal-use computer software, are reviewed and tested for recoverability if the internal-use computer software is not expected to provide substantive service potential, a significant change occurs in the extent or manner in which the software is used or is expected to be used, a significant change is made or will be made to the software program, or costs of developing or modifying internal-use software significantly exceed the amount originally expected to develop or modify the software. Other Assets, net - Other assets, net consist primarily of assets related to various deposits, the employee deferred compensation plan, and unamortized debt issuance costs on the revolving Credit Facility. Debt issuance costs on the revolving Credit Facility are capitalized and amortized to interest expense on a straight-line basis which approximates the effective interest rate method over the term of the Company's long-term debt. Advertising - Under the Company's franchise agreements, both the Company and the franchisees must contribute up to 3.0 % of revenues to two national media advertising funds (the "Advertising Funds"). These Advertising Funds are used to drive initial Guest trial and repeat visits, and build the Company's brand equity and awareness. Primary advertising channels include television advertising, digital media, social media programs, email, loyalty, and public relations initiatives. Total advertising costs of $ 21.6 million, $ 35.7 million, and $ 34.3 million in 2023, 2022, and 2021 and were included in Selling, general, and administrative expenses. Advertising production costs are expensed in the period when the advertising first takes place. Other advertising costs are expensed as incurred. Self-Insurance Programs - The Company utilizes a self-insurance plan for health, general liability, and workers' compensation coverage. Predetermined loss limits have been arranged with insurance companies to limit the Company's per occurrence cash outlay. Accrued liabilities and other current liabilities and accrued payroll and payroll-related liabilities include the estimated cost to settle reported claims and incurred but unreported claims. Legal Contingencies - In the normal course of business, we are subject to various legal proceedings and claims, the outcomes of which are uncertain. We record an accrual for legal contingencies when we determine it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. In making such determinations we evaluate, among other things, the probability of an unfavorable outcome, and when we believe it probable that a liability has been incurred, our ability to make a reasonable estimate of the loss. Pre-opening Costs - Pre-opening costs are expensed as incurred. Pre-opening costs include rental expenses through the date of opening for each restaurant, travel expenses, wages, and benefits for the training and opening teams, as well as food, beverage, and other restaurant opening costs incurred prior to a restaurant opening for business. Costs related to preparing restaurants to introduce Donatos ® are expensed as incurred and included in pre-opening costs. Income Taxes - Deferred tax liabilities are recognized for the estimated effects of all taxable temporary differences, and deferred tax assets are recognized for the estimated effects of all deductible temporary differences, net operating losses, and tax credit carryforwards. Realization of net deferred tax assets is dependent upon profitable operations and future reversals of existing taxable temporary differences. However, the amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carry forward period are increased or reduced or if there are differences in the timing or amount of future reversals of existing taxable temporary differences. Pursuant to the guidance for uncertain tax positions, a taxpayer must be able to more likely than not sustain a position to recognize a tax benefit, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The only periods subject to examination for the Company's federal and state returns are the 2019 through 2023 tax years. The Company records interest and penalties associated with audits as a component of income before taxes. Penalties are recorded in Selling, general, and administrative expenses, interest received is recorded in Interest income and other, net, and interest paid is recorded in Interest expense on the consolidated statements of operations and comprehensive loss. The Company recorded immaterial penalty and interest expense on the identified tax liabilities in 2023, 2022, and 2021. 54 Table of Contents Loss Per Share - Basic loss per share amounts are calculated by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share amounts are calculated based upon the weighted average number of common and potentially dilutive common shares outstanding during the year. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted loss per share reflects the potential dilution that could occur if holders of options and awards exercised their holdings into common stock. As the Company was in a net loss position for each of the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021, all potentially dilutive common shares are considered anti-dilutive. The Company uses the treasury stock method to calculate the impact of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding for the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 as follows (in thousands): 2023 2022 2021 Basic weighted average shares outstanding 15,835 15,840 15,660 Dilutive effect of stock options and awards — — — Diluted weighted average shares outstanding 15,835 15,840 15,660 Awards excluded due to anti-dilutive effect on diluted earnings per share 1,409 1,481 875 Comprehensive Loss - Total comprehensive loss consists of the net loss and other gains and losses affecting stockholders' equity that, under U.S. GAAP, are excluded from net income. Other comprehensive (loss) income as presented in the consolidated statements of operations and comprehensive loss for 2023, 2022, and 2021 consisted of the foreign currency translation adjustment resulting from the Company's Canadian franchise operations. Stock-Based Compensation - The Company maintains several equity incentive plans under which it may grant stock options, stock appreciation rights, restricted stock, stock variable compensation, or other forms of awards granted or denominated in the Company's common stock or units of the Company's common stock, as well as cash variable compensation awards to employees, non-employees, directors, and consultants. The Company also maintains an employee stock purchase plan. The Company issues shares relating to stock-based compensation plans and the employee stock purchase plan from treasury shares. We recognize compensation expenses for only the portion of share-based awards that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from our historical forfeitures of similar awards when a Team Member leaves the Company. Deferred Compensation - The Company has assets and liabilities related to a deferred compensation plan. The assets of the deferred compensation plan are held in a rabbi trust, where they are invested in certain mutual funds that cover an investment spectrum range from equities to money market instruments. Fluctuations in the market value of the investments held in the trust result in the recognition of deferred compensation expense or income reported in Selling, general, and administrative expenses and recognition of investment gain or loss reported in Interest income and other, net, in the consolidated statements of operations and comprehensive loss. Foreign Currency Translation - The Canadian Dollar is the functional currency for our Canadian entity operations. Assets and liabilities denominated in Canadian Dollars are translated into U.S. Dollars at exchange rates in effect as of the balance sheet date. Income and expense accounts are translated using the average exchange rates prevailing throughout the period. The resulting translation adjustment is recorded as a separate component of Other comprehensive (loss) income. 2. Recent Accounting Pronouncements Income Taxes In December 2023, FASB issued Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update amends disclosure requirements to 1) improve the effectiveness and comparability of disclosures by aligning with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and removing disclosures that no longer are considered cost beneficial or relevant; and 2) improve the transparency of income tax disclosures related to the rate reconciliation and income taxes paid disclosures by requiring (a) consistent categories and greater disaggregation of information in the rate reconciliation and (b) income taxes paid disaggregated by jurisdiction. These amendments apply to all entities that are subject to Topic 740, Income Taxes, and will become effective for public business entities for annual periods beginning after December 15, 2024. We do not 55 Table of Contents expect these amended disclosures will have a material impact to the Company's Consolidated Financial Statements or Notes to the Consolidated Financial Statements upon adoption. We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's consolidated financial statements. 3. Revenue Disaggregation of Revenue In the following table, revenue is disaggregated by type of good or service (in thousands): Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Restaurant revenue $ 1,274,294 $ 1,230,189 $ 1,137,643 Franchise revenue 15,867 19,306 17,236 Gift card breakage 9,874 13,808 5,022 Other revenue 3,011 2,231 1,736 Total revenues $ 1,303,046 $ 1,265,534 $ 1,161,637 Contract Liabilities Components of Unearned revenue in the Consolidated Balance Sheets are as follows (in thousands): December 31, 2023 December 25, 2022 Unearned gift card revenue $ 28,558 $ 35,837 Deferred loyalty revenue 7,509 11,107 Unearned revenue $ 36,067 $ 46,944 Revenue recognized in the consolidated statements of operations and comprehensive loss for the redemption of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands): Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Gift card revenue $ 19,224 $ 24,109 $ 13,652 4. Other Charges (Gains), net Other charges consist of the following (in thousands): Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Asset impairment $ 9,130 $ 38,534 $ 7,052 Gain on sale of restaurant property, net of expenses ( 29,543 ) ( 9,204 ) — Severance and executive transition, net of $ 128 and $( 3,299 ) in stock-based compensation 3,419 2,280 — Other financing costs — 1,462 — Restaurant closure costs, net 3,062 828 6,276 Closed corporate office costs, net of sublease income 416 475 — Litigation contingencies 9,140 4,148 1,330 Asset disposal and other 1,713 438 1,416 Other charges (gains), net $ ( 2,663 ) $ 38,961 $ 16,074 Asset Impairment During 2023, the Company recognized non-cash impairment charges of $ 9.1 million, primarily related to the impairment of the long-lived assets at 19 underperforming locations and quota state liquor licenses at three locations. 56 Table of Contents During 2022, the Company recognized non-cash impairment charges of $ 38.5 million, primarily related to impairments of long-lived assets at 46 underperforming locations and quota state liquor licenses at six locations. During 2021, the Company recognized non-cash impairment charges of $ 7.1 million, primarily related to impairments of long-lived assets at 10 underperforming locations and quota state liquor licenses at seven locations. Gain on Sale of Restaurant Property During 2023, the Company sold 18 restaurant properties for aggregate net proceeds of $ 58.8 million in sale-leaseback transactions that resulted in a gain, net of expenses of $ 29.4 million. In addition, during 2023, the Company sold one restaurant property for total proceeds of $ 1.6 million which resulted in a gain, net of expenses of $ 0.1 million. The net proceeds are included within cash flows from investing activities on the Consolidated Statements of Cash Flows for the year ended December 31, 2023. During 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $ 3.9 million in the second quarter of 2022, which represented a portion of the total consideration received from the sale. During the third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized a $ 9.2 million gain on the sale of the restaurant property. The initial net proceeds of $ 3.9 million are included within cash flows from financing activities and the final proceeds received of $ 8.5 million are included within cash flows from investing activities on the Consolidated Statements of Cash Flows for the year ended December 25, 2022. Severance and Executive Transition During 2023 and 2022, the Company incurred severance and executive transition costs primarily related to a reduction in force of Team Members and costs associated with changes in leadership positions. See Note 7. Accrued Payroll and Payroll-Related Liabilities, and Accrued Liabilities and Other Current Liabilities. Other Financing Costs Other financing costs include fees related to the entry by the Company into the new Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the Credit Facility. See Note 8. Borrowings. Restaurant Closure Costs, net Restaurant closure costs (gains) include the ongoing restaurant operating costs for closed Company-owned restaurants and closed restaurant lease termination gains or losses. Closed Corporate Office Costs, Net of Sublease Income Closed corporate office, net of sublease income relates to a corporate office facility that was vacated in 2022, and subleased in 2023. Litigation Contingencies In 2023, 2022 and 2021, the Company recorded reserves associated with litigation contingencies. See Note 12. Commitments and Contingencies, for further discussion. Asset Disposal and Other Asset disposals and other relate primarily to lease terminations and closures at Company-owned restaurants in 2023. The costs in 2022 and 2021 primarily relate to COVID-19 costs, including the cost of personal protective equipment for restaurant Team Members and Guests and providing emergency sick pay to restaurant Team Members during the pandemic. 57 Table of Contents 5. Property and Equipment, Net Property and equipment consist of the following at December 31, 2023 and December 25, 2022 (in thousands): December 31, 2023 December 25, 2022 Land $ 19,703 $ 39,810 Buildings 49,178 98,235 Leasehold improvements 627,805 625,429 Furniture, fixtures, and equipment 377,158 379,409 Construction in progress 19,300 12,539 Property and equipment, gross $ 1,093,144 $ 1,155,422 Accumulated depreciation and amortization ( 831,886 ) ( 836,905 ) Property and equipment, net $ 261,258 $ 318,517 Depreciation and amortization expense on property and equipment was $ 63.8 million in 2023, $ 73.7 million in 2022, and $ 80.5 million in 2021. 6. Intangible Assets The following table presents intangible assets as of December 31, 2023 and December 25, 2022 (in thousands): December 31, 2023 December 25, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Intangible assets subject to amortization: Franchise rights $ 46,863 $ ( 39,777 ) $ 7,087 $ 46,499 $ ( 38,469 ) $ 8,030 Leasehold interests 13,001 ( 10,503 ) 2,498 13,001 ( 10,092 ) 2,909 Liquor licenses and other 9,632 ( 9,393 ) 239 9,640 ( 9,376 ) 264 $ 69,496 $ ( 59,673 ) $ 9,824 $ 69,140 $ ( 57,937 ) $ 11,203 Indefinite-lived intangible assets: Liquor licenses and other $ 5,667 $ — $ 5,667 $ 6,524 $ — $ 6,524 Intangible assets, net $ 75,163 $ ( 59,673 ) $ 15,491 $ 75,664 $ ( 57,937 ) $ 17,727 The aggregate amortization expense related to intangible assets subject to amortization for 2023, 2022, and 2021 was $ 2.4 million, $ 2.5 million, and $ 2.9 million. The estimated aggregate future amortization expense as of December 31, 2023 is as follows (in thousands): 2024 $ 2,294 2025 1,963 2026 1,594 2027 1,202 2028 744 Thereafter 2,027 $ 9,824 58 Table of Contents 7. Accrued Payroll and Payroll-Related Liabilities, and Accrued Liabilities and Other Current Liabilities Accrued payroll and payroll-related liabilities consist of the following at December 31, 2023 and December 25, 2022 (in thousands): December 31, 2023 December 25, 2022 Payroll and payroll-related taxes $ 9,484 $ 15,799 Workers compensation insurance 4,363 4,816 Corporate and restaurant incentive compensation 9,617 4,101 Accrued vacation 6,528 5,920 Other 2,532 3,030 Accrued payroll and payroll-related liabilities $ 32,524 $ 33,666 Accrued liabilities and other current liabilities consist of the following at December 31, 2023 and December 25, 2022 (in thousands): December 31, 2023 December 25, 2022 CARES Act deferred payroll tax $ — $ 8,780 State and city sales tax payable 7,830 7,201 Real estate, personal property, state income, and other taxes payable 7,067 6,327 General liability insurance 6,204 5,815 Utilities 2,929 2,421 Legal 8,740 7,736 Accrued interest 1,657 1,195 Accrued marketing 3,650 722 Current portion of finance lease liabilities 939 1,094 Accrued severance 184 2,505 Other 7,001 5,702 Accrued liabilities and other current liabilities $ 46,201 $ 49,498 Accrued severance represents one-time termination benefits primarily related to changes in leadership positions as a result of our strategic pivot under the North Star plan and a related reduction in force and are accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations . The Company incurred a cumulative total of $ 5.1 million in one-time termination benefits in Other charges in the Consolidated Statements of Operations and Comprehensive Loss, which is comprised of $ 2.1 million and $ 3.0 million recognized during 2023 and 2022, respectively. One-time termination benefits activity for the years ended December 25, 2022 and December 31, 2023, respectively is as follows: Termination Benefits Balance as of December 26, 2021 $ — Charges 2,955 Cash Payments ( 450 ) Balance as of December 25, 2022 $ 2,505 Charges 2,077 Cash Payments ( 4,398 ) Balance as of December 31, 2023 $ 184 8. Borrowings Borrowings as of December 31, 2023 and December 25, 2022 are summarized below: 59 Table of Contents December 31, 2023 December 25, 2022 (Dollars in thousands) Borrowings Variable Interest Rates Borrowings Variable Interest Rates Revolving line of credit $ — $ 15,000 10.44 % Term loan 189,143 11.62 % 199,000 9.81 % Notes payable — 875 Total borrowings 189,143 214,875 Less: unamortized debt issuance costs and discounts (1) 6,549 8,345 Less: current portion of long-term debt — 3,375 Long-term debt $ 182,594 $ 203,155 Revolving line of credit unamortized deferred financing charges (1) : $ 752 $ 988 (1) Loan origination costs associated with the Company's Credit Facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Consolidated Balance Sheets. Maturities of long-term debt as of December 31, 2023 are as follows (in thousands): 2024 $ — 2025 — 2026 — 2027 189,143 Thereafter — $ 189,143 Credit Facility On March 4, 2022, the Company replaced its prior amended and restated Credit Agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $ 225.0 million Credit Agreement provides for a $ 25.0 million revolving line of credit and a $ 200.0 million term loan (collectively, the "Credit Facility"). The borrower maintains the option to increase the Credit Facility in the future, subject to lenders’ participation, by up to an additional $ 40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement. The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0 % of the original principal amount of the term loan. The Credit Agreement's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5 % per annum, or (c) one-month term SOFR plus 1.0 % per annum. As of December 31, 2023, the Company had outstanding borrowings under the Credit Facility of $ 182.6 million, in addition to amounts issued under letters of credit of $ 7.7 million. As of December 25, 2022, the Company had outstanding borrowings under the Credit Facility of $ 205.7 million, in addition to amounts issued under letters of credit of $ 9.1 million. Red Robin International, Inc., is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments. On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaced the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement. 60 Table of Contents Red Robin International, Inc., as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities. In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement. On July 17, 2023, the Company amended the Credit Agreement (the “Credit Agreement Amendment”) to remove the previously included $ 50.0 million aggregate cap (the “Prior Cap”) on sale-leasebacks of Company-owned real property. Pursuant to the Credit Agreement Amendment, it also was agreed that (i) the Company may reinvest in the business within 360 days of receipt the net proceeds of sale-leasebacks to the extent that such proceeds are equal to or less than the amount of the Prior Cap and (ii) the Company shall make a mandatory prepayment with the net proceeds of sale-leasebacks to the extent that such proceeds exceed the amount of the Prior Cap. Additionally, the prepayment premium associated with any mandatory prepayments derived from the net proceeds of sale-leasebacks that exceed the Prior Cap was reduced by the Credit Agreement Amendment to a premium equal to 50 % of the prepayment premium otherwise applicable. The Amendment also made certain other conforming changes to the Existing Credit Agreement to effect the foregoing. The summary descriptions of the Credit Agreement, the Security Agreement, and the Credit Agreement Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of each agreement, each of which is filed as an exhibit to this Annual Report on Form 10-K. During the first quarter of 2022, the Company expensed approximately $ 1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 25, 2022. 9. Fair Value Measurements Fair value measurements are made under a three-tier fair value hierarchy, which prioritizes the inputs used in the measuring of fair value: Level 1: Observable inputs that reflect unadjusted quote prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other current liabilities approximate fair value due to the short-term nature or maturity of the instruments. The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. See Note 15. Employee Benefit Programs. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets). The following tables present the Company's assets measured at fair value on a recurring basis as of December 31, 2023 and December 25, 2022 (in thousands): December 31, 2023 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 2,079 $ 2,079 $ — $ — Total assets measured at fair value $ 2,079 $ 2,079 $ — $ — December 25, 2022 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 4,250 $ 4,250 $ — $ — Total assets measured at fair value $ 4,250 $ 4,250 $ — $ — 61 Table of Contents Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, and intangible assets. These assets are measured at fair value if determined to be impaired. During 2023, 2022, and 2021, the Company measured non-financial assets for impairment using continuing and projected future cash flows, as discussed in Note 4. Other Charges (Gains), net, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. Based on our 2023, 2022, and 2021 impairment analyses, we impaired long-lived assets at 19 , 46 and 10 locations with carrying values of $ 36.5 million, $ 80.4 million, and $ 13.7 million, respectively. We determined the fair value of these long-lived assets in 2023, 2022, and 2021 to be $ 27.4 million, $ 42.4 million and $ 7.2 million, respectively, based on level 3 fair value measurements. Liquor licenses with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on quoted prices in the active market for the license in the same or similar jurisdictions, representing a level 1 fair value measurement. During the fourth quarter of 2023, the Company performed its annual review of its indefinite lived liquor licenses that had a carrying value of $ 6.2 million, and recorded impairment charges of $ 0.2 million to indefinite-lived intangibles in 2023. Impairment charges of $ 0.5 million were recorded to liquor licenses with indefinite lives in 2022 and $ 0.5 million impairment charges were recorded in 2021. Disclosures of Fair Value of Other Assets and Liabilities The Company's liability under its Credit Facility is carried at historical cost in the accompanying consolidated balance sheets. As of December 31, 2023, the fair value of the Credit Facility was approximately $ 186.9 million and the principal amount carrying value was $ 189.1 million. The Credit Facility term loan is reported net of $ 6.5 million in unamortized discount and debt issuance costs in the consolidated balance sheet as of December 31, 2023. The carrying value approximated the fair value of the Credit Facility as of December 25, 2022, as the interest rate on the instrument approximated current market rates. The interest rate on the Credit Facility represents a level 2 fair value input. 10. Leases The Company's finance and operating lease assets and liabilities as of December 31, 2023 and December 25, 2022 as follows (in thousands): December 31, 2023 Finance (1) Operating (2) Lease assets, net $ 6,264 $ 361,609 Current portion of lease obligations 939 43,819 Long-term portion of lease obligations 7,745 383,439 Total $ 8,684 $ 427,258 December 25, 2022 Finance (1) Operating (2) Lease assets, net $ 7,551 $ 361,432 Current portion of lease obligations 1,094 47,394 Long-term portion of lease obligations 8,958 393,157 Total $ 10,052 $ 440,551 (1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our December 31, 2023 and December 25, 2022 Consolidated Balance Sheets. (2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our December 31, 2023 and December 25, 2022 Consolidated Balance Sheets. 62 Table of Contents The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Operating lease cost $ 72,346 $ 69,879 $ 70,000 Finance lease cost: Amortization of right of use assets (1) 985 1,121 856 Interest on lease liabilities (2) 520 583 532 Total finance lease cost $ 1,505 $ 1,704 $ 1,388 Variable lease cost 19,806 18,965 19,812 Total lease costs $ 93,657 $ 90,548 $ 91,200 (1) Amortization of finance lease right of use assets is recorded to depreciation and amortization in our Consolidated Statements of Operations and Comprehensive Loss. (2) Interest on finance lease liabilities is recorded to interest expense in our Consolidated Statements of Operations and Comprehensive Loss. Maturities of our lease liabilities as of December 31, 2023 were as follows (in thousands): Finance Leases Operating Leases 2024 $ 1,386 $ 82,310 2025 1,405 79,319 2026 1,410 73,817 2027 1,340 67,157 2028 1,111 59,783 Thereafter 4,132 257,510 Total future lease liability $ 10,784 $ 619,896 Less imputed interest 2,100 192,638 Present value of lease liability $ 8,684 $ 427,258 63 Table of Contents Supplemental cash flow information in thousands (except other information) related to leases is as follows: Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Cash flows from operating activities Cash paid related to lease liabilities Operating leases $ 80,469 $ 85,400 $ 81,520 Finance leases 520 583 532 Cash flows from financing activities Cash paid related to lease liabilities Finance leases 898 1,292 1,733 Cash paid for amounts included in the measurement of lease liabilities $ 81,887 $ 87,275 $ 83,785 Right of use assets obtained in exchange for operating lease obligations $ 53,915 $ 13,848 $ 28,738 Right of use assets obtained in exchange for finance lease obligations $ 81 $ 1,139 $ 1,170 Other information related to operating leases as follows: Weighted average remaining lease term 8.68 9.04 9.69 Weighted average discount rate 8.15 % 7.25 % 7.05 % Other information related to financing leases as follows: Weighted average remaining lease term 9.34 10.27 10.81 Weighted average discount rate 4.87 % 4.88 % 4.56 % 11. Income Taxes Loss before income taxes includes the following components for the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 (in thousands): 2023 2022 2021 U.S. $ ( 20,894 ) $ ( 77,976 ) $ ( 50,419 ) Foreign ( 24 ) ( 160 ) ( 176 ) Loss before income taxes $ ( 20,918 ) $ ( 78,136 ) $ ( 50,595 ) The expense (benefit) for income taxes for the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 consist of the following (in thousands): 2023 2022 2021 Current: Federal $ 37 $ 374 $ — State 273 373 ( 152 ) Foreign — — — Total current income tax expense (benefit) $ 310 $ 747 $ ( 152 ) Deferred: Federal $ — $ — $ — State — — — Foreign — — — Total deferred income tax expense (benefit) — — — Income tax expense (benefit), net $ 310 $ 747 $ ( 152 ) 64 Table of Contents The reconciliation between the income tax expense (benefit) and the amount of income tax computed by applying the U.S. federal statutory rate to loss before income taxes as shown in the accompanying Consolidated Statements of Operations and Comprehensive Loss for fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 is as follows: 2023 2022 2021 Tax provision at U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes 4.2 4.0 3.8 FICA tip tax credits — — — Foreign taxes versus U.S statutory rate — — — Valuation allowance on deferred income tax assets ( 22.3 ) ( 24.2 ) ( 25.2 ) Impact of CARES Act and related method changes — — — Other tax credits — — — Meals and entertainment — — — Excess stock options ( 3.3 ) ( 1.1 ) 1.1 Employee travel — — — Other ( 1.1 ) ( 0.7 ) ( 0.4 ) Effective tax rate ( 1.5 ) % ( 1.0 ) % 0.3 % The Company's federal and state deferred taxes at December 31, 2023 and December 25, 2022 are as follows (in thousands): 2023 2022 Deferred tax assets: Leasing transactions $ 113,963 $ 115,832 General business and other tax credits 40,441 40,802 Net operating loss carryover 44,131 47,847 Accrued compensation and related costs 5,361 8,651 Goodwill 7,244 7,851 Stock-based compensation 6,333 7,309 Advanced payments 628 1,371 Interest expense 11,345 5,247 Other non-current deferred tax assets 2,478 3,479 Subtotal 231,924 238,389 Valuation allowance ( 119,861 ) ( 115,790 ) Total $ 112,063 $ 122,599 Deferred tax liabilities: Leasing transactions $ ( 97,386 ) $ ( 97,871 ) Property and equipment ( 1,242 ) ( 11,550 ) Supplies inventory ( 4,415 ) ( 4,047 ) Prepaid expenses ( 1,472 ) ( 1,906 ) Other non-current deferred tax liabilities ( 7,548 ) ( 7,225 ) Total $ ( 112,063 ) $ ( 122,599 ) Net deferred tax asset $ — $ — The Company had net operating loss carryforwards for tax purposes of $ 44.1 million as of December 31, 2023. This is comprised of approximately $ 17.0 million of federal net operating loss carryovers, approximately $ 17.9 million of state net operating loss carryovers, and approximately $ 9.2 million of foreign net operating loss carryovers. The federal net operating loss has an indefinite carryforward period, the state net operating loss carryovers expire at various dates between 2025 and 2042, and the foreign net operating loss carryovers expire at various dates between 2035 and 2042. As of December 31, 2023, the Company had a deferred tax asset of $ 39.3 million related to federal tax credits, which expire at various dates between 2037 and 2041. The Company also had a deferred tax asset of $ 1.1 million related to state tax credits which expire in 2024. 65 Table of Contents The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all the tax benefit of its deferred income tax assets. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which the temporary differences become deductible. In making this determination, the Company considers all available positive and negative evidence including historical operating losses, the reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies. In 2020, management determined that a full valuation allowance was required and has recorded a full valuation allowance as of December 31, 2023 and at December 25, 2022. Based on the Company's evaluation of its deferred tax assets, a valuation allowance of approximately $ 119.9 million has been recorded against the deferred tax asset for federal and state tax credits, federal and state deferred tax assets, all net operating loss carry forwards and the deferred taxes of our foreign subsidiary. The following table summarizes the Company's unrecognized tax benefits at December 31, 2023, December 25, 2022, and December 26, 2021 (in thousands): 2023 2022 2021 Beginning of year $ 185 $ 32 $ 80 Increase due to current year tax positions — 177 3 Due to decrease to a position taken in a prior year — — — Settlements — — — Reductions related to lapses in the statute of limitations — ( 24 ) ( 51 ) End of year $ 185 $ 185 $ 32 The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $ 0.2 million. The Company does not anticipate significant changes in the aggregate amount of unrecognized tax benefits within the next 12 months, other than nominal tax settlements. The Company had outstanding federal and state refund claims of approximately $ 0.6 million as of December 31, 2023. 12. Commitments and Contingencies Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates. In the normal course of business, there are various claims in process, matters in litigation, administrative proceedings, and other contingencies. These include employment related claims and class action lawsuits, claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns, and lease and other commercial disputes. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows. As of December 31, 2023, we had reserves of $ 8.7 million for loss contingencies include within Accrued liabilities and other on our Consolidated Balance Sheet. In the normal course of business, there are various claims in process, matters in litigation, administrative proceedings, and other contingencies. These include employment related claims and class action lawsuits, claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns, and lease and other commercial disputes. We recorded estimated loss contingency reserves of approximately $ 9.1 million for the year ended December 31, 2023 related to ongoing litigation matters. We ultimately may be subject to greater or less than the accrued amount for this and other matters. 66 Table of Contents As of December 31, 2023, we had non-cancellable purchase commitments primarily related to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $ 230.7 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded. 13. Stockholders' Deficit On August 9, 2018, the Company's Board of Directors authorized an increase to the Company's share repurchase program of approximately $ 21 million to a total of $ 75 million of the Company's common stock. The increased share repurchase authorization became effective on August 9, 2018 and will terminate upon completing repurchases of $ 75 million of common stock unless otherwise terminated by the board. Purchases under the repurchase program may be made in open market or privately negotiated transactions. Purchases may be made from time to time at the Company's discretion, and the timing and amount of any share repurchases will be determined based on share price, market conditions, legal requirements, and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and the Company may suspend or discontinue the repurchase program at any time. In 2023, the Company repurchased $ 10.0 million in shares under its share repurchase program. From the date of the current program approval through December 31, 2023, we have repurchased a total of 1,088,588 shares at an average price of $ 15.18 per share for an aggregate amount of $ 16.5 million. Accordingly, as of December 31, 2023, we had $ 58.4 million of availability under the current share repurchase program. 14. Stock Incentive Plans In May 2017, the Company's stockholders approved the 2017 Performance Incentive Plan (the "2017 Stock Plan"). Following the date of approval, all grants are made under the 2017 Stock Plan and no new awards may be granted under the Second Amended and Restated 2007 Performance Plan (the "2007 Stock Plan"). The 2017 Stock Plan authorizes the issuance of stock options, stock appreciation rights (SARs), and other forms of awards granted or denominated in the Company common stock or unit of the Company's common stock, as well as cash performance awards pursuant to the plan. Persons eligible to receive awards under the 2017 Stock Plan include officers, employees, directors, consultants, and other service providers or any affiliate of the Company. The maximum number of shares of the Company's common stock that may be issued or transferred pursuant to awards under the 2017 Stock Plan was 630,182 shares. The 2017 Stock Plan was amended in May 2019, and again in May 2020 to add an additional 660,000 and 275,000 shares, respectively, bringing the total maximum shares that may be issued to 1,565,182 shares as of December 31, 2023. Vesting of the awards under the 2017 Stock Plan is determined at the date of grant by the plan administrator. Each award granted under the 2017 Stock Plan and 2007 Stock Plan fully vests, becomes exercisable and/or payable, as applicable, upon a change in control event. However, unless the individual award agreement provides otherwise, with respect to executive and certain other high level officers, upon the occurrence of a change in control, no award will vest unless such officers' employment with the Company is terminated by the Company without cause during the two years following such change in control event. Each award expires on such date as shall be determined at the date of grant; however, the maximum term of options, SARs, and other rights to acquire common stock under the plan is ten years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. Vesting of awards under these plans were generally time based over a period of one year to four years . As of December 31, 2023, 100,210 options and awards to acquire the Company's common stock remained outstanding under the 2007 Stock Plan; all remaining options and awards are outstanding under the 2017 Stock Plan. Stock-based compensation costs recognized in 2023, 2022, and 2021 were $ 6.8 million, $ 6.3 million, and $ 6.6 million with related income tax benefits of $ 0.8 million, $ 0.6 million, and $ 1.4 million. The 2022 costs were comprised of $ 9.6 million stock-based compensation, partially offset by a $ 3.3 million reduction due to Executive Team forfeitures recorded in Other charges in the Consolidated Statements of Operations and Comprehensive Loss. As of December 31, 2023, there was $ 9.9 million of unrecognized compensation cost, excluding estimated forfeitures. Unrecognized compensation costs are expected to be recognized over the weighted average remaining vesting period of approximately 1.13 years for the restricted stock units ("RSU") and 1.65 years for the performance stock units ("PSU"). There is no unrecognized compensation cost for stock options in the year ended December 31, 2023. 67 Table of Contents Stock Options The tables below summarize the status of the Company's stock option plans (in thousands, except exercise price): Stock Options Shares Weighted Average Exercise Price Outstanding, December 25, 2022 419 $ 37.69 Granted — — Forfeited/expired ( 158 ) 42.32 Exercised ( 144 ) 12.61 Outstanding, December 31, 2023 117 $ 62.32 Shares Weighted Average Exercise Price Weighted Average Remaining Years of Contractual Life Aggregate Intrinsic Value Outstanding as of December 31, 2023 117 $ 62.32 1.83 $ — Vested and expected to vest as of December 31, 2023 (1) 116 $ 62.32 1.83 $ — Exercisable as of December 31, 2023 116 $ 62.32 1.83 $ — ——————————————————— (1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards. The estimated fair value of each option granted is calculated using the Black-Scholes multiple option-pricing model, and expense is recognized straight line over the vesting period. No options were granted during 2023, 2022, or 2021. Total intrinsic value of options exercised was $ 213 thousand, $ 4 thousand, and $ 89 thousand in 2023, 2022, and 2021, respectively. Time-Based RSUs During 2023, 2022, and 2021, the Company issued time-based restricted stock units ("RSUs") to certain employees as permitted under the 2017 Stock Plan. The RSUs granted to employees typically vest in equal installments over three to four years . For the Company's Board of Directors, RSUs vest in full on the earlier of the one -year anniversary of the grant date or the next annual stockholder meeting. Upon vesting, one share of the Company's common stock is issued for each RSU. The fair value of each RSU granted is equal to the market price of the Company's stock at the date of grant, and expense is recognized straight line over the vesting period. The table below summarizes the status of the Company's time-based RSUs under the 2017 and 2007 Stock Plans (shares in thousands): Restricted Stock Units Shares Weighted Average Grant-Date Fair Value (per share) Outstanding, December 25, 2022 432 $ 19.05 Awarded 565 11.93 Forfeited ( 232 ) 20.13 Vested ( 166 ) 15.96 Outstanding, December 31, 2023 (1) 599 $ 12.75 (1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding awards. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards. 68 Table of Contents Performance Stock Units During 2023, 2022, and 2021, the Company granted performance stock unit awards ("PSUs") to certain employees as permitted under the 2017 Stock Plan. Each PSU represents the right to receive one share of the Company's common stock on the payment date. Prior to 2020, each PSU was divided into three equal tranches with applicable performance periods, typically consisting of a fiscal year, subject to the achievement of the applicable performance goals at target and applicable vesting conditions. Fair value of each PSU granted was equal to the market price of the Company's stock at the grant date, and expense is recognized ratably across the total performance period based on probability of achieving applicable performance goals. PSUs remain unvested until the end of the third performance period and are forfeited in the event of termination of employment of a grantee prior to the last day of the third performance period. Beginning in 2020, the Company began granting PSU awards based on relative total stockholder return defined as increases in the Company's stock price during a performance period of three years as compared to the total stockholder return of a group of peer companies. Fair value of each PSU granted is determined by a Monte Carlo valuation model, and expense is recognized straight line over the performance period. PSUs remain unvested until the last day of the three year performance period and are generally forfeited in the event of termination of employment of a grantee prior to the last day of the three year performance period. If the relative total stockholder return target is not met, compensation cost for these PSUs is not reversed. The table below summarizes the status of the Company's performance stock units under the 2017 Stock Plan (shares in thousands): Performance Stock Units Shares Weighted Average Grant-Date Fair Value (per share) Outstanding, December 25, 2022 233 $ 34.82 Awarded 369 18.95 Forfeited ( 175 ) 29.41 Vested — — Outstanding, December 31, 2023 (1) 427 $ 23.38 (1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding awards. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards. Inducement Grants The Company granted stock-based awards to certain of the Company’s new executive officers as inducements material to their commencement of employment and entry into an employment agreement with the Company. The inducement grants were made in accordance with Nasdaq Listing Rule 5635(c)(4) and were not made under the 2017 Plan. The inducement grants, which include PSU and RSU awards, are generally subject to substantially the same terms and conditions as grants that are made under the 2017 Plan and fair value is determined in the same manner as described for each grant type above. The table below summarizes the status of the Company' inducement grants (shares in thousands): Restricted Stock Units Performance Stock Units Shares Weighted Average Grant-Date Fair Value (per share) Shares Weighted Average Grant-Date Fair Value (per share) Outstanding, December 25, 2022 188 $ 7.57 124 $ 6.13 Awarded — — — — Forfeited — — — — Vested ( 63 ) 7.57 — — Outstanding, December 31, 2023 (1) 125 $ 7.57 124 $ 6.13 (1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding awards. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards. Long-Term Cash Incentive Plan Beginning in 2020, the long-term cash incentive plan is based on relative total stockholder return defined as increases in the Company's stock price during a performance period of 3 years as compared to the total stockholder return of a group of peer 69 Table of Contents companies. Compensation is recognized variably over the 3 -year performance period based on a Monte Carlo valuation model. Beginning in 2017, the long-term cash incentive plan was based on operational metrics with 3 three-year performance periods. Compensation expense for awards granted before 2020 is recognized variably over the performance period based on the plan-to-date performance achievement. All long-term cash incentive awards cliff vest after 3 years at the end of each performance cycle. In 2023, 2022, and 2021, the Company recorded $( 0.1 ) million, $( 0.4 ) million, and $ 0.5 million, respectively in compensation expense to Selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss related to the 2017 long-term cash incentive plan. The amounts recorded in 2023 include the reversal of the expense related to 2021 grants for which performance targets were not met. During 2023 and 2022, there were no long-term cash incentive plan payouts. At December 31, 2023 and December 25, 2022, a $ 0.4 million and $ 0.6 million long-term cash incentive plan liability was included in Accrued payroll and payroll-related liabilities on the consolidated balance sheets. 15. Employee Benefit Programs Employee Deferred Compensation Plan The Company offers a deferred compensation plan that permits key employees and other members of management defined as highly compensated employees under the IRS code to defer portions of their compensation in a pre-tax savings vehicle that allows for retirement savings above 401(k) limits. Under this plan, eligible Team Members may elect to defer up to 75 % of their base salary and up to 100 % of variable compensation and commissions each plan year. The assets of the deferred compensation plan are held in a rabbi trust, where they are invested in certain mutual funds that cover an investment spectrum ranging from equities to money market instruments and are available to satisfy the claims of the Company's creditors in the event of bankruptcy or insolvency. These mutual funds have published market prices and are reported at fair value. See Note 9. Fair Value Measurements. Changes in the market value of the investments held in the trust result in the recognition of a corresponding gain or loss reported in Interest income and other, net in the Consolidated Statements of Operations and Comprehensive Loss. A corresponding change in the liability associated with the deferred compensation plan results in an offsetting deferred compensation expense, or reduction of expense, reported in Selling, general, and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss. The Company recognized a $ 0.4 million increase in deferred compensation expense in 2023, and an increase in deferred compensation expenses of $ 0.8 million in 2022 and $ 0.7 million in 2021. As of December 31, 2023 and December 25, 2022, $ 2.1 million and $ 4.3 million of deferred compensation assets are included in Other assets, net, in the accompanying Consolidated Balance Sheets. In 2023, $ 0.4 million of this deferred compensation is included in Prepaid expenses and other current assets. As of December 31, 2023 and December 25, 2022, $ 1.7 million and $ 4.3 million of deferred compensation plan liabilities are included in Other non-current liabilities in the accompanying Consolidated Balance Sheets. In 2023, $ 0.4 million of this deferred compensation is included in Accrued liabilities and other current liabilities. Employee Stock Purchase Plan In July 2017, the Company adopted the Amended and Restated Employee Stock Purchase Plan (the "ESPP Plan"). The ESPP Plan authorized 100,000 shares of the Company's common stock for issuance. In May 2020, our Board of Directors authorized the issuance of an additional 150,000 shares of the Company's common stock under the ESPP Plan. In December 2022, our Board of Directors authorized, and at our 2023 Annual Meeting of Stockholders, our stockholders approved, the issuance of an additional 350,000 shares of the Company's common stock under the ESPP Plan increasing the shares authorized to be granted under the ESPP Plan to a total of 600,000 shares. Under the ESPP Plan, eligible Team Members may voluntarily contribute up to 15 % of their salary, subject to limitations, to purchase common stock at a price equal to 85 % of the fair market value of a share of the Company's common stock on the first day of each offering period or 85 % of the fair market value of a share of the Company's common stock on the last day of each offering period, whichever amount is less. In general, all of the Company's officers and Team Members who have been employed by the Company for at least one year and who are regularly scheduled to work more than 20 hours per week are eligible to participate in this plan, which operates in the successive six months commencing on January 1 and July 1 of each fiscal year. During 2023, the Company issued a total of 136,190 shares under the ESPP Plan with 269,395 shares available for future issuance. During 2022, the Company issued a total of 63,841 shares under the ESPP Plan. For 2023, in accordance with the guidance for accounting for stock compensation, the Company estimated the fair value of the awards granted pursuant to the stock purchase plan using the Black-Scholes multiple-option pricing model. The assumptions used in the model included risk-free interest rates from 4.64 % to 5.46 %, 0.5 year expected life, expected volatilities from 55.00 % to 55.25 %, and 0 % dividend yield. The weighted average fair value per share at grant date was $ 1.72 . 70 Table of Contents For 2022, the assumptions used in the model included 4.05 % risk-free interest rate, 0.5 year expected life, expected volatility of 55.00 %, and 0 % dividend yield. The weighted average fair value per share at grant date was $ 0.99 . For 2021, the assumptions used in the model included 0.31 % risk-free interest rate, 0.5 year expected life, expected volatility of 53.94 %, and 0 % dividend yield. The weighted average fair value per share at grant date was $ 4.36 . The Company recognized $ 0.1 million of compensation expense related to this plan in 2023, $ 0.1 million in 2022, and $ 0.2 million in 2021. Employee Defined Contribution Plan The Company maintains a 401(k) Savings Plan ("401k Plan") which covers eligible Team Members who have satisfied the service requirements and reached 21 years of age. The 401k Plan, which qualifies under Section 401(k) of the Internal Revenue Code, allows Team Members to defer specified percentages of their compensation on a pre-tax basis. The Company may make matching contributions in an amount determined by the Board of Directors. In addition, the Company may contribute each period, at its discretion, an additional amount from profits. Employer matching contributions equal to 100 % of the first 3 % of compensation and 50 % on the next 2 % of compensation. The Company matches contributions when the employee contribution is made, and the employer matching contributions are not subject to a vesting schedule. The Company recognized matching contribution expense of $ 3.0 million in 2023, $ 2.9 million in 2022, and $ 2.8 million in 2021. 16. Acquisition of Franchised Restaurants On April 17, 2023, the Company acquired certain assets and liabilities of five restaurants from one of its U.S. franchisees for cash consideration of $ 3.5 million. The pro forma impact of this acquisition and the operating results of the acquired restaurants are not presented as the impact was not material to reported results. The acquisition was accounted for using the purchase method as defined in ASC 805, Business Combinations . The goodwill arising from the acquisition consists largely of the benefit of the assembled workforce of the acquired restaurants. The goodwill generated by the acquisition is not amortizable for book purposes but is amortizable and deductible for tax purposes. The Company allocated the purchase price to the fair value of the assets acquired and liabilities assumed as follows (in thousands): Fair Value at Acquisition Date Property and equipment, net $ 2,637 Operating lease assets 7,400 Operating lease liabilities ( 8,250 ) Operating lease assets, net ( 850 ) Other assets, net of liabilities (1) 299 Intangible assets, net 1,443 Total purchase price $ 3,529 (1) Includes inventory, prepaid assets, till cash, and gift card and loyalty liabilities . The fair value measurement of tangible and intangible assets and liabilities as of the acquisition date is based on significant inputs not observed in the market and thus represents a level 3 fair value measurement. 71 Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.