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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Company’s entire pretax loss for the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 was from its U.S domestic operations. For the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021, the Company recorded an income tax expense of $0.4 million, $1.3 million, and $0.1 million respectively. The components of the provision for income taxes for the fiscal year ended December 31, 2023 and December 25, 2022 are as follows (in thousands):
(dollar amounts in thousands) | Fiscal Year Ended December 31, 2023 |  | Fiscal Year Ended December 25, 2022
Current: |  |  |
Federal | $ | — |  |  | $ | — |
State | 21 |  |  | 55 |
Total Current | 21 |  |  | 55 |
Deferred: |  |  |
Federal | 323 |  |  | 1,271 |
State | 35 |  |  | 19 |
Total deferred | 358 |  |  | 1,290 |
Total provision for income taxes | $ | 379 |  |  | $ | 1,345 |
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:
| December 31, 2023 |  | December 25, 2022 |  | December 26, 2021
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Effect of: |  |  |  |  |
State taxes, net of federal benefit | 6.7 | % |  | 7.1 | % |  | 6.9 | %
Permanent differences | (0.8 | %) |  | (0.8 | %) |  | (3.6 | %)
Change in valuation allowance | (18.5 | %) |  | (7.8 | %) |  | (2.8 | %)
Nondeductible executive compensation | (8.2 | %) |  | (19.4 | %) |  | (22.9 | %)
Other | (0.5 | %) |  | (0.8 | %) |  | 1.3 | %
Total | (0.3 | %) |  | (0.7 | %) |  | (0.1 | %)
Components of the Company’s net deferred tax (liabilities)/assets consisted of the following:
(dollar amounts in thousands) | December 31, 2023 |  | December 25, 2022
Deferred tax assets: |  |  |
Net operating loss carryforward | $ | 206,452 |  |  | $ | 189,926 |
Charitable contributions | 271 |  |  | 296 |
Deferred rent | 21,045 |  |  | 16,127 |
Stock-based compensation expense | 6,233 |  |  | 4,787 |
Accrued expenses | 580 |  |  | 1,177 |
Deferred revenue | 855 |  |  | 618 |
Other | 5,140 |  |  | 1,061 |
Total deferred tax assets | 240,576 |  |  | 213,992 |
Valuation allowance | (184,880) |  |  | (163,750) |
Total deferred tax assets, net of valuation allowance | 55,696 |  |  | 50,242 |
Deferred tax (liabilities): |  |  |
Depreciation and amortization differences | (44,691) |  |  | (40,197) |
State deferred taxes | (12,778) |  |  | (11,459) |
Total deferred tax liabilities | (57,469) |  |  | (51,656) |
Net deferred tax asset (liability) | $ | (1,773) |  |  | $ | (1,414) |
As of December 31, 2023 and December 25, 2022, Company management assessed the realizability of deferred tax assets, in order to determine the need for a valuation allowance. As of the fiscal years ended December 31, 2023 and December 25, 2022, the Company is in a net deferred tax asset position of $184.9 million and $163.8 million, respectively. The deferred tax assets consist principally of net operating loss carryforwards. The future realization of the tax benefits from existing temporary differences and tax attributes ultimately depends on the existence of sufficient taxable income. In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. In concluding on its evaluation, Company management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future growth. On the basis of this evaluation, as of December 31, 2023 and December 25, 2022, a full valuation allowance of $184.9 million and $163.8 million, respectively, has been recorded against the deferred tax assets, which represents an increase of $21.1 million year over year. As of December 31, 2023, the Company had U.S. Federal net operating loss carryforwards of $754.0 million, of which $652.1 million may be carried forward indefinitely, and the remaining carryforwards $101.9 million expire at various dates from 2029 through 2037. As of December 31, 2023, the Company had state net operating loss carryforwards of $630.2 million, of which $73.0 million may be carried forward indefinitely, and the remaining carryforwards of $557.2 million expire at various dates from 2023 through 2043. The future realization of the Company’s net operating loss carryforwards and other tax attributes may also be limited by the change in ownership rules under the U.S. Internal Revenue Code Section 382. In general, under Section 382 of the Internal Revenue Code (Section 382), a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change net operating loss carryovers and tax credits to offset future taxable income. The Company completed a Section 382 analysis to evaluate whether any ownership changes and related limitations impacted the Company’s ability to utilize net operating loss carryforwards or other attributes prior to their expiration dates. The Company’s existing net operating loss carryforwards and tax credits are subject to annual limitations arising from ownership changes which occurred in previous periods. Currently, the limitations imposed by Section 382 are not expected to impair the Company’s ability to fully realize its net operating losses. Future changes in the Company’s stock ownership, some of which are outside of the Company’s control, could result in an additional ownership change under Section 382 of the Code; if that occurs, the Company’s ability to utilize net operating losses could be further limited. Furthermore, the Company’s ability to utilize net operating losses of companies that we may acquire in the future may be subject to limitations under Section 382 of the Code. The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions in which it operates, and therefore is subject to tax examination by various taxing authorities. The Company is not currently under examination and is not aware of any issues under review that could result in significant payments, accruals or material deviation from its tax positions. As of December 31, 2023, tax years from 2019 to present remain open to examination under the statutes applied by the relevant taxing jurisdictions in which the Company files tax returns. Additionally, to the extent the Company utilizes tax attribute carryforwards, such as net operating losses, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities. The calculation and assessment of the Company’s tax exposures generally involve the uncertainties in the application of complex tax laws and regulations for federal, state and local jurisdictions. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation, on the basis of the technical merits. As of December 31, 2023 and December 25, 2022, the Company had approximately $0.4 million and $1.6 million of unrecognized tax benefits, respectively. Due to the valuation allowance position, none of the unrecognized tax benefits, if recognized, will impact the Company’s effective tax rate. The Company recognizes accrued interest and penalties, if any, related to uncertain tax positions in income tax provision in its financial statements, if applicable. The Company did not have any accrued interest of penalties associated with any uncertain tax positions, and no interest expense was recognized during the fiscal years ended December 31, 2023 and December 25, 2022. The following table summarizes the activity related to the Company’s gross uncertain tax positions for the fiscal years ended December 31, 2023 and December 25, 2022:
(dollar amounts in thousands) | December 31, 2023 |  | December 25, 2022 |
Uncertain Tax Positions |  |  |  |
Beginning of year balance | $ | 1,556 |  |  | $ | 1,333 |  |
Increases related to prior year tax positions | — |  |  | — |  |
(Decreases) related to prior year tax positions | — |  |  | — |  |
(Decreases) increases related to current year tax positions | (1,125) |  |  | 223 |  |
(Decreases) related to lapsing of statute of limitations | — |  |  | — |  |
End of year balance | 431 |  |  | 1,556 |  |
On March 27, 2020, President Trump signed into law the CARES Act (as defined below). Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, to enhance business’ liquidity and provide for refundable employee retention tax credits, which could be used to offset payroll tax liabilities. On March 11, 2021, President Biden signed the American Rescue Plan Act (“ARPA”). The ARPA includes several provisions, such as measures that extend and expand the employee retention credit, previously enacted under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), through December 31, 2021. The ARPA did not have a material impact on the Company’s consolidated financial statements. As there is no authoritative guidance under U.S. GAAP on accounting for government assistance to for-profit business entities, the Company accounts for the Employee Retention Credit “ERC” by analogy to International Accounting Standard ("IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance for receipt of the ERC and recorded the ERC benefit of $1.8 million within Labor and other related expenses and $5.1 million, within general and administrative expenses in the Consolidated Statement of Operations for the fiscal year ended December 31, 2023 as an offset to Social Security tax expense. As of December 31, 2023 the Company received $3.4 million cash payment reducing the ERC receivable within other current assets on the Consolidated Balance Sheet to $3.6 million. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the “IRA”) into law. The IRA contains several revisions to the Internal Revenue Code, including 15% corporate minimum income tax for entities with adjusted financial statement income of over $1.0 billion and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. These tax law changes did not have a material effect on the Company’s results of operations.

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