UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 26, 2018~~March 27, 2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission file number: 001-36823

SHAKE SHACK INC.

(Exact name of registrant as specified in its charter)



Delaware	47-1941186
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
225 Varick Street, Suite 301 New York, New York	10014
(Address of principal executive offices)	(Zip Code)

(646) 747-7200

(Registrant's telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule-405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ		Accelerated filer	o
Non-accelerated filer	o	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No

Securities registered pursuant to Section 12(b) of the Act



Title of each class	Trading symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001	SHAK	New York Stock Exchange

As of ~~October~~April 24, ~~2018,~~2019, there were ~~29,371,355~~29,701,558 shares of Class A common stock outstanding and ~~7,688,921~~7,453,515 shares of Class B common stock outstanding.

SHAKE SHACK INC.

TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. All statements other than statements of historical fact are forward-looking statements. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.

While we believe that our assumptions are reasonable, it is very difficult to predict the impact of known factors, and it is impossible to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017~~26, 2018 filed with the U.S. Securities and Exchange Commission (the "SEC") under the heading "Risk Factors."

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).



	Page
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Income	4
Condensed Consolidated Statements of Comprehensive Income	5
Condensed Consolidated Statement of Stockholders' Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8

SHAKE SHACK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share amounts)


		September 26 2018		December 27 2017				March 27 2019		December 26 2018
ASSETS	ASSETS						ASSETS
Current assets:	Current assets:						Current assets:
	Cash and cash equivalents	$	29,295	$	21,507		Cash and cash equivalents	$	31,897	$	24,750
	Marketable securities	61,800		63,036			Marketable securities	47,659		62,113
	Accounts receivable	9,325		5,641			Accounts receivable	8,862		10,523
	Inventories	1,378		1,258			Inventories	1,626		1,749
	Prepaid expenses and other current assets	2,119		1,757			Prepaid expenses and other current assets	2,312		1,984
	Total current assets	103,917		93,199			Total current assets	92,356		101,119
Property and equipment, net	Property and equipment, net	241,702		187,095			Property and equipment, net	265,016		261,854
Operating lease assets							Operating lease assets	239,555		—
Deferred income taxes, net	Deferred income taxes, net	243,021		185,914			Deferred income taxes, net	243,033		242,533
Other assets	Other assets	3,682		4,398			Other assets	7,008		5,026
TOTAL ASSETS	TOTAL ASSETS	$	592,322	$	470,606		TOTAL ASSETS	$	846,968	$	610,532
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY						LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:						Current liabilities:
	Accounts payable	$	9,654	$	8,210		Accounts payable	$	12,655	$	12,467
	Accrued expenses	22,759		11,649			Accrued expenses	20,462		22,799
	Accrued wages and related liabilities	7,996		6,228			Accrued wages and related liabilities	7,627		10,652
	Other current liabilities	8,391		7,937			Operating lease liabilities, current	22,280		—
	Total current liabilities	48,800		34,024			Other current liabilities	16,153		14,030
							Total current liabilities	79,177		59,948
Deemed landlord financing	Deemed landlord financing	19,867		14,518			Deemed landlord financing	—		20,846
Deferred rent	Deferred rent	43,476		36,596			Deferred rent	—		47,864
Long-term operating lease liabilities							Long-term operating lease liabilities	269,367		—
Liabilities under tax receivable agreement, net of current portion	Liabilities under tax receivable agreement, net of current portion	201,077		158,436			Liabilities under tax receivable agreement, net of current portion	199,544		197,921
Other long-term liabilities	Other long-term liabilities	7,522		2,553			Other long-term liabilities	13,142		10,498
Total liabilities	Total liabilities	320,742		246,127			Total liabilities	561,230		337,077
Commitments and contingencies	Commitments and contingencies						Commitments and contingencies
Stockholders' equity:	Stockholders' equity:						Stockholders' equity:
	Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of September 26, 2018 and December 27, 2017.	—		—			Preferred stock, no par value—10,000,000 shares authorized; none issued and outstanding as of March 27, 2019 and December 26, 2018.	—		—
	Class A common stock, $0.001 par value—200,000,000 shares authorized; 29,371,355 and 26,527,477 shares issued and outstanding as of September 26, 2018 and December 27, 2017, respectively.	29		27			Class A common stock, $0.001 par value—200,000,000 shares authorized; 29,698,228 and 29,520,833 shares issued and outstanding as of March 27, 2019 and December 26, 2018, respectively.	31		30
	Class B common stock, $0.001 par value—35,000,000 shares authorized; 7,688,921 and 10,250,007 shares issued and outstanding as of September 26, 2018 and December 27, 2017, respectively.	8		10			Class B common stock, $0.001 par value—35,000,000 shares authorized; 7,453,515 and 7,557,347 shares issued and outstanding as of March 27, 2019 and December 26, 2018, respectively.	7		8
	Additional paid-in capital	192,760		153,105			Additional paid-in capital	199,315		195,633
	Retained earnings	31,362		16,399			Retained earnings	37,086		30,404
	Accumulated other comprehensive loss	—		(49		)	Total stockholders' equity attributable to Shake Shack Inc.	236,439		226,075
	Total stockholders' equity attributable to Shake Shack Inc.	224,159		169,492
Non-controlling interests	Non-controlling interests	47,421		54,987			Non-controlling interests	49,299		47,380
Total equity	Total equity	271,580		224,479			Total equity	285,738		273,455
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	592,322	$	470,606		TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	846,968	$	610,532

See accompanying Notes to Condensed Consolidated Financial Statements.

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except per share amounts)


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended							Thirteen Weeks Ended
		September 26 2018			September 27 2017			September 26 2018			September 27 2017				March 27 2019			March 28 2018
Shack sales	Shack sales	$	115,882		$	91,100		$	324,869		$	253,258		Shack sales	$	128,569		$	96,089
Licensing revenue	Licensing revenue	3,765			3,509			10,176			9,416			Licensing revenue	4,040			3,027
TOTAL REVENUE	TOTAL REVENUE	119,647			94,609			335,045			262,674			TOTAL REVENUE	132,609			99,116
Shack-level operating expenses:	Shack-level operating expenses:													Shack-level operating expenses:
	Food and paper costs	32,703			25,760			91,336			71,646			Food and paper costs	37,991			26,955
	Labor and related expenses	31,232			23,806			87,651			66,692			Labor and related expenses	37,093			26,687
	Other operating expenses	13,496			9,229			36,536			25,380			Other operating expenses	15,568			10,759
	Occupancy and related expenses	8,545			7,522			23,621			20,741			Occupancy and related expenses	10,899			7,675
General and administrative expenses	General and administrative expenses	13,151			9,204			37,547			27,352			General and administrative expenses	13,937			11,809
Depreciation expense	Depreciation expense	7,439			5,604			20,905			15,610			Depreciation expense	8,966			6,498
Pre-opening costs	Pre-opening costs	3,581			2,670			8,031			6,961			Pre-opening costs	2,642			2,029
Loss on disposal of property and equipment	Loss on disposal of property and equipment	157			204			543			317			Loss on disposal of property and equipment	351			190
TOTAL EXPENSES	TOTAL EXPENSES	110,304			83,999			306,170			234,699			TOTAL EXPENSES	127,447			92,602
OPERATING INCOME	OPERATING INCOME	9,343			10,610			28,875			27,975			OPERATING INCOME	5,162			6,514
Other income, net	Other income, net	436			229			1,070			622			Other income, net	564			228
Interest expense	Interest expense	(592		)	(475		)	(1,770		)	(1,144		)	Interest expense	(72		)	(565		)
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	9,187			10,364			28,175			27,453			INCOME BEFORE INCOME TAXES	5,654			6,177
Income tax expense	Income tax expense	2,241			2,494			5,679			7,537			Income tax expense	2,047			1,198
NET INCOME	NET INCOME	6,946			7,870			22,496			19,916			NET INCOME	3,607			4,979
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests	1,921			2,873			6,359			7,773			Less: net income attributable to non-controlling interests	1,061			1,471
NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	$	5,025		$	4,997		$	16,137		$	12,143		NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	$	2,546		$	3,508
Earnings per share of Class A common stock:	Earnings per share of Class A common stock:													Earnings per share of Class A common stock:
	Basic	$	0.17		$	0.19		$	0.58		$	0.47		Basic	$	0.09		$	0.13
	Diluted	$	0.17		$	0.19		$	0.56		$	0.46		Diluted	$	0.08		$	0.13
Weighted-average shares of Class A common stock outstanding:	Weighted-average shares of Class A common stock outstanding:													Weighted-average shares of Class A common stock outstanding:
	Basic	28,954			26,024			27,930			25,733			Basic	29,563			27,039
	Diluted	29,883			26,477			28,820			26,248			Diluted	30,392			27,822

See accompanying Notes to Condensed Consolidated Financial Statements.

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended							Thirteen Weeks Ended
			September 26 2018		September 27 2017		September 26 2018			September 27 2017				March 27 2019		March 28 2018
Net income	Net income		$	6,946	$	7,870	$	22,496		$	19,916	Net income		$	3,607	$	4,979
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:											Other comprehensive income, net of tax:
	Available-for-sale securities⁽¹⁾:											Available-for-sale securities⁽¹⁾:
		Change in net unrealized holding gains (losses)	—		53		(3		)	36			Change in net unrealized holding gains (losses)	—		(3		)
		Less: reclassification adjustments for net realized losses included in net income	—		14		16			28			Less: reclassification adjustments for net realized losses included in net income	—		16
		Net change	—		67		13			64			Net change	—		13
OTHER COMPREHENSIVE INCOME	OTHER COMPREHENSIVE INCOME		—		67		13			64		OTHER COMPREHENSIVE INCOME		—		13
COMPREHENSIVE INCOME	COMPREHENSIVE INCOME		6,946		7,937		22,509			19,980		COMPREHENSIVE INCOME		3,607		4,992
Less: comprehensive income attributable to non-controlling interest	Less: comprehensive income attributable to non-controlling interest		1,921		2,893		6,362			7,792		Less: comprehensive income attributable to non-controlling interest		1,061		1,474
COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAKE SHACK INC.		$	5,025	$	5,044	$	16,147		$	12,188	COMPREHENSIVE INCOME ATTRIBUTABLE TO SHAKE SHACK INC.		$	2,546	$	3,518

(1) Net of tax benefit (expense) of $0 for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017.~~March 28, 2018.

See accompanying Notes to Condensed Consolidated Financial Statements.

SHAKE SHACK INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share amounts)

Class A
Common Stock

Class B
Common Stock

Additional
Paid-In
Capital

Retained Earnings
Accumulated Other Comprehensive Income (Loss)

Non-
Controlling
Interest

Total
Equity

Shares
Amount
Shares
Amount

BALANCE, DECEMBER 27, 2017 26,527,477
$ 27
10,250,007
$ 10
$ 153,105
$ 16,399
$ (49 ) $ 54,987
$ 224,479
Cumulative effect of accounting changes

(1,174 ) 39
(439 ) (1,574 )
Net income

16,137

6,359
22,496
Other comprehensive income:
Net change related to available-for-sale securities

10
3
13
Equity-based compensation

4,534

4,534
Activity under stock compensation plans 282,792
—

2,318

1,836
4,154
Redemption of LLC Interests 2,561,086
2
(2,561,086 ) (2 ) 14,633

(14,633 ) —
Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis

18,170

18,170
Distributions paid to non-controlling interest holders (692 ) (692 )
BALANCE, SEPTEMBER 26, 2018 29,371,355
$ 29
7,688,921
$ 8
$ 192,760
$ 31,362
$ —
$ 47,421
$ 271,580



		Class A Common Stock			Class B Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interest			Total Equity
		Shares	Amount		Shares		Amount			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non- Controlling Interest			Total Equity
BALANCE, DECEMBER 26, 2018		29,520,833	$	30	7,557,347		$	8		$	195,633	$	30,404	$	—	$	47,380		$	273,455
	Cumulative effect of accounting changes											4,136				1,059			5,195
	Net income											2,546				1,061			3,607
	Other comprehensive income:
	Net change related to available-for-sale securities																		—
	Equity-based compensation									1,747									1,747
	Activity under stock compensation plans	73,563	—							975						502			1,477
	Redemption of LLC Interests	103,832	1		(103,832	)	(1		)	594						(594		)	—
	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis									366									366
	Distributions paid to non-controlling interest holders															(109		)	(109		)
BALANCE, MARCH 27, 2019		29,698,228	$	31	7,453,515		$	7		$	199,315	$	37,086	$	—	$	49,299		$	285,738



		Class A Common Stock			Class B Common Stock					Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Equity
		Shares	Amount		Shares		Amount			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non- Controlling Interest			Total Equity
BALANCE, DECEMBER 27, 2017		26,527,477	$	27	10,250,007		$	10		$	153,105	$	16,399		$	(49	)	$	54,987		$	224,479
	Cumulative effect of accounting changes											(1,174		)	39			(439		)	(1,574		)
	Net income											3,508						1,471			4,979
	Other comprehensive income:
	Net change related to available-for-sale securities														10			3			13
	Equity-based compensation									1,455											1,455
	Activity under stock compensation plans	70,305	—							866								610			1,476
	Redemption of LLC Interests	1,029,771	1		(1,029,771	)	(1		)	5,558								(5,558		)	—
	Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis									2,388											2,388
	Distributions paid to non-controlling interest holders																	(83		)	(83		)
BALANCE, MARCH 28, 2018		27,627,553	$	28	9,220,236		$	9		$	163,372	$	18,733		$	—		$	50,991		$	233,133

See accompanying Notes to Condensed Consolidated Financial Statements.

SHAKE SHACK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


			Thirty-Nine Weeks Ended								Thirteen Weeks Ended
			September 26 2018			September 27 2017					March 27 2019			March 28 2018
OPERATING ACTIVITIES	OPERATING ACTIVITIES								OPERATING ACTIVITIES
Net income (including amounts attributable to non-controlling interests)	Net income (including amounts attributable to non-controlling interests)		$	22,496		$	19,916		Net income (including amounts attributable to non-controlling interests)		$	3,607		$	4,979
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities								Adjustments to reconcile net income to net cash provided by operating activities
									Depreciation expense		8,966			6,498
									Amortization of operating lease assets		8,911			—
									Equity-based compensation		1,692			1,437
	Depreciation expense		20,905			15,610			Deferred income taxes		95			(305		)
	Equity-based compensation		4,470			3,823			Non-cash interest expense		—			72
	Deferred income taxes		1,996			3,056			Loss on sale of marketable securities		—			16
	Non-cash interest expense		72			245			Loss on disposal of property and equipment		351			190
	Loss on sale of marketable securities		16			27			Unrealized (gain) loss on available-for-sale securities		(157		)	38
	Loss on disposal of property and equipment		543			317			Other non-cash expense		2			—
	Unrealized gain on available-for-sale securities		(1		)	—			Net loss on sublease		—			672
	Net loss on sublease		672			—			Changes in operating assets and liabilities:
	Changes in operating assets and liabilities:									Accounts receivable	5,976			3,111
		Accounts receivable	3,015			5,628				Inventories	123			83
		Inventories	(120		)	(321		)		Prepaid expenses and other current assets	(474		)	(110		)
		Prepaid expenses and other current assets	(540		)	1,844				Other assets	(2,335		)	206
		Other assets	(895		)	(516		)		Accounts payable	(61		)	—
		Accounts payable	437			536				Accrued expenses	880			1,177
		Accrued expenses	3,860			4,455				Accrued wages and related liabilities	(3,025		)	(500		)
		Accrued wages and related liabilities	1,768			(957		)		Other current liabilities	963			(528		)
		Other current liabilities	89			(1,544		)		Deferred rent	—			291
		Deferred rent	786			702				Long-term operating lease liabilities	(8,324		)	—
		Other long-term liabilities	3,216			1,150				Other long-term liabilities	9			1,806
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES		62,785			53,971			NET CASH PROVIDED BY OPERATING ACTIVITIES		17,199			19,133
INVESTING ACTIVITIES	INVESTING ACTIVITIES								INVESTING ACTIVITIES
Purchases of property and equipment	Purchases of property and equipment		(60,144		)	(41,179		)	Purchases of property and equipment		(24,985		)	(17,718		)
Purchases of marketable securities	Purchases of marketable securities		(910		)	(6,675		)	Purchases of marketable securities		(389		)	(277		)
Sales of marketable securities	Sales of marketable securities		2,144			6,399			Sales of marketable securities		15,000			2,144
NET CASH USED IN INVESTING ACTIVITIES	NET CASH USED IN INVESTING ACTIVITIES		(58,910		)	(41,455		)	NET CASH USED IN INVESTING ACTIVITIES		(10,374		)	(15,851		)
FINANCING ACTIVITIES	FINANCING ACTIVITIES								FINANCING ACTIVITIES
Proceeds from deemed landlord financing	Proceeds from deemed landlord financing		793			530			Proceeds from deemed landlord financing		—			521
Payments on deemed landlord financing	Payments on deemed landlord financing		(342		)	(154		)	Payments on deemed landlord financing		—			(79		)
Payments on principal of finance leases									Payments on principal of finance leases		(339		)	—
Distributions paid to non-controlling interest holders	Distributions paid to non-controlling interest holders		(692		)	(2,392		)	Distributions paid to non-controlling interest holders		(109		)	(83		)
Payments under tax receivable agreement	Payments under tax receivable agreement		—			(1,471		)	Payments under tax receivable agreement		(707		)	—
Proceeds from stock option exercises	Proceeds from stock option exercises		5,103			6,567			Proceeds from stock option exercises		1,452			1,476
Employee withholding taxes related to net settled equity awards	Employee withholding taxes related to net settled equity awards		(949		)	(316		)	Employee withholding taxes related to net settled equity awards		25			—
NET CASH PROVIDED BY FINANCING ACTIVITIES	NET CASH PROVIDED BY FINANCING ACTIVITIES		3,913			2,764			NET CASH PROVIDED BY FINANCING ACTIVITIES		322			1,835
NET INCREASE IN CASH AND CASH EQUIVALENTS	NET INCREASE IN CASH AND CASH EQUIVALENTS		7,788			15,280			NET INCREASE IN CASH AND CASH EQUIVALENTS		7,147			5,117
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		21,507			11,607			CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		24,750			21,507
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	29,295		$	26,887		CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	31,897		$	26,624

See accompanying Notes to Condensed Consolidated Financial Statements.

SHAKE SHACK INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

NOTE 1: NATURE OF OPERATIONS

Shake Shack Inc. ("we," "us," "our," "Shake Shack" and the "Company") was formed on September 23, 2014 as a Delaware corporation for the purpose of facilitating an initial public offering and other related transactions in order to carry on the business of SSE Holdings, LLC and its subsidiaries ("SSE Holdings"). We are the sole managing member of SSE Holdings and, as sole managing member, we operate and control all of the business and affairs of SSE Holdings. As a result, we consolidate the financial results of SSE Holdings and report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. As of ~~September 26, 2018~~March 27, 2019 we owned ~~79.3%~~79.9% of SSE Holdings. Unless the context otherwise requires, "we," "us," "our," "Shake Shack," the "Company" and other similar references, refer to Shake Shack Inc. and, unless otherwise stated, all of its subsidiaries, including SSE Holdings.

We operate and license Shake Shack restaurants ("Shacks"), which serve hamburgers, ~~chicken sandwiches,~~ hot dogs, chicken, crinkle-cut fries, shakes, frozen custard, beer, wine and more. As of ~~September 26, 2018~~March 27, 2019, there were ~~188~~218 Shacks in operation, system-wide, of which ~~107~~129 were domestic company-operated ~~Shacks, 11~~Shacks,15 were domestic licensed Shacks and 7074 were international licensed Shacks.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Shake Shack Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and on a basis consistent in all material respects with the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017~~26, 2018 ("~~2017~~2018 Form 10-K"). In our opinion, all adjustments, which are normal and recurring in nature, necessary for a fair presentation of our financial position and results of operation have been included. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The accompanying Condensed Consolidated Balance Sheet as of December ~~27, 2017~~26, 2018 has been derived from the audited financial statements at that date but does not include all of the disclosures required by GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our ~~2017~~2018 Form 10-K.

SSE Holdings is considered a variable interest entity. Shake Shack Inc. is the primary beneficiary as we have the majority economic interest in SSE Holdings and, as the sole managing member, have decision making authority that significantly affects the economic performance of the entity, while the limited partners have no substantive kick-out or participating rights. As a result, we consolidate SSE Holdings. The assets and liabilities of SSE Holdings represent substantially all of our consolidated assets and liabilities with the exception of certain deferred taxes and liabilities under the Tax Receivable Agreement. As of ~~September~~March 27, 2019 and December 26, 2018, ~~and December 27, 2017,~~ the net assets of SSE Holdings were ~~$228,773~~$246,218 and ~~$197,301,~~$232,711, respectively. The assets of SSE Holdings are subject to certain restrictions in SSE Holdings' revolving credit agreements. See Note 8 for more information.

Fiscal Year

We operate on a 52/53 week fiscal year ending on the last Wednesday in December. Fiscal ~~2018~~2019 contains 52 weeks and ends on December ~~26, 2018.~~25, 2019. Fiscal ~~2017~~2018 contained 52 weeks and ended on December ~~27, 2017.~~26, 2018. Unless otherwise stated, references to years in this report relate to fiscal years.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with GAAP requires us 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 sales and expenses during the reporting period. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

We adopted the Accounting Standards Updates (“ASUs”) summarized below in fiscal ~~2018.~~2019.



Accounting Standards Update (“ASU”)	Description	Date Adopted
~~Revenue from Contracts with Customers and related standards~~ ~~(ASU’s 2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20)~~	This standard supersedes the existing revenue recognition guidance and provides a new framework for recognizing revenue. The core principle of the standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard also requires significantly more comprehensive disclosures than the existing standard. Guidance subsequent to ASU 2014-09 has been issued to clarify various provisions in the standard, including principal versus agent considerations, identifying performance obligations, licensing transactions, as well as various technical corrections and improvements. ~~See Note 3 for more information.~~	~~December 28, 2017~~
~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ ~~(ASU 2016-01)~~	For public business entities, this standard requires: (i) certain equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) a qualitative assessment to identify impairment of equity investments without readily determinable fair values; (iii) elimination of the requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet; (iv) use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vi) separate presentation of financial assets and liabilities by measurement category and form of financial asset in the financial statements; and (vii) an entity to evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ~~The adoption of this standard did not have a material impact to our consolidated financial statements.~~	~~December 28, 2017~~
~~Statement of Cash Flows: Classification of Certain Cash Receipts and Payments~~ ~~(ASU 2016-15)~~	~~This standard provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice.~~ ~~The adoption of this standard did not have a material impact to our consolidated financial statements.~~	~~December 28, 2017~~

~~Recently Issued Accounting Pronouncements~~



~~Accounting Standards Update (“ASU”)~~	~~Description~~	~~Expected Impact~~	~~Effective Date~~
Leases (ASU's 2016-02, 2018-01, 2018-10, 2018-11)	This standard establishes a new lease accounting model, which introduces the recognition of lease assets and liabilities for those leases classified as operating leases under previous GAAP. It ~~should be~~was applied using a modified retrospective approach applied ~~either at the beginning of the earliest period presented, or~~ at the adoption date with the ~~option to elect~~election of various practical expedients. ~~Early adoption is permitted.~~	We plan to adopt the standard on December 27, 2018, electing the optional transition method to apply the standard as of the transition date. As a result, we will not apply the standard to the comparative periods presented. We plan to elect the transition package of three practical expedients permitted under the new standard, which among other things, allows us to carryforward our historical lease classifications. We also made certain preliminary accounting policy electionsSee Note 9 Leases for new leases post-transition, including the election to combine components. We are further evaluating other optional practical expedients and policy elections, as well as the impact of the standard to our processes, disclosures and internal control over financial reporting. It is likely that the adoption will have a significant impact to our consolidated balance sheet given the extent of our real estate lease portfolio. We are completing our estimate of the impact, which is dependent on a number of key assumptions and factors, such as the discount rate as of the transition date, and the number of leases we will take possession of by the end of the year. Additionally, we expect that substantially all of our landlord funded assets and deemed landlord financing liabilities will be fully derecognized upon transition. While we are continuing to assess all impacts of the standard, we currently do not expect our existing operating leases to have a material impact on our statement of income. For those leases where we are involved in construction and deemed to be the accounting owner, we will determine their lease classification. If they result in operating leases, we expect an increase to occupancy and related expenses, and a decrease to interest and depreciation expense post-transition. We believe our real estate portfolio represents a significant portion of our overall lease portfolio, however, we are still in the process of evaluating other leases, such as equipment and embedded leases.more information.	December ~~27, 2018~~
~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ ~~(ASU 2018-15)~~	This standard provides additional guidance on accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The standard aligns the requirements for capitalizing implementation costs of such arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard also clarifies the presentation and classification of the capitalized costs, amortization expense, and the associated treatment in the statement of cash flows by aligning these items with the same treatment for costs of the hosting service itself. Early adoption is permitted, including adoption in any interim period, utilizing either a prospective or retrospective adoption methodology.	We intend on early adopting this standard during the fourth quarter 2018, on a prospective basis. We are in the early stages of an implementation of an enterprise-wide system initiative, therefore, we expect to be able to capitalize some implementation costs related to this initiative that previously would have been expensed as incurred.	~~September~~ 27, 2018

NOTE 3: REVENUE

~~On December 28, 2017 we adopted ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, using the modified retrospective method applied to those contracts which were not completed as of December 28, 2017. We elected a practical expedient to aggregate the effect of all contract modifications that occurred before the adoption date, which did not have a material impact to our consolidated financial statements. Results for reporting periods beginning on or after December 28, 2017 are presented under Accounting Standards Codification Topic 606 ("ASC 606"). Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 605 ("ASC 605"), the accounting standard then in effect.

Upon transition, on December 28, 2017, we recorded a decrease to opening equity of $1,574, net of tax, of which $1,135 was recognized in retained earnings and $439 in non-controlling interest, with a corresponding increase of $1,769 in other long-term liabilities, a decrease of $68 in other current liabilities, and an increase of $100 to accounts receivable.

Revenue Recognition

Revenue consists of Shack sales and licensing revenue. Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled in exchange for those goods or services.

Revenue from Shack sales is presented net of discounts and recognized when food, beverage and retail products are sold. Sales tax collected from customers is excluded from Shack sales and the obligation is included in sales tax payable until the taxes are remitted to the appropriate taxing authorities. Revenue from our gift cards is deferred and recognized upon redemption.

Licensing revenues include initial territory fees, Shack opening fees, and ongoing sales-based royalty fees from licensed Shacks. Generally, the licenses granted to develop, open and operate each Shack in a specified territory are the predominant goods or services transferred to the licensee in our contracts, and represent distinct performance obligations. Ancillary promised services, such as training and assistance during the initial opening of a Shack, are typically combined with the licenses and considered as one performance obligation per Shack. We determine the transaction price for each contract, which is comprised of the initial territory fee, and an estimate of the total Shack opening fees we expect to be entitled to. The calculation of total Shack opening fees included in the transaction price requires judgment, as it is based on an estimate of the number of Shacks we expect the licensee to open. The transaction price is then allocated equally to each Shack expected to open. The performance obligations are satisfied over time, starting when a Shack opens, through the end of the term of the license granted to the Shack. Because we are transferring licenses to access our intellectual property during a contractual term, revenue is recognized on a straight-line basis over the license term. Generally, payment for the initial territory fee is received upon execution of the licensing agreement, and payment for the restaurant opening fees are received either in advance of or upon opening the related restaurant. These payments are initially deferred and recognized as revenue as the performance obligations are satisfied, which occurs over a long-term period.

Revenue from sales-based royalties is recognized as the related sales occur.

Prior to the adoption of ASC 606, Shack opening fees were recorded as deferred revenue when received and proportionate amounts were recognized as revenue when a licensed Shack opened and all material services and conditions related to the fee were substantially performed. Territory fees were recorded as deferred revenue when received and recognized as revenue on a straight-line basis over the term of the license agreement, which generally began upon execution of the contract.

~~Revenue recognized for the thirteen and thirty-nine weeks ended~~ ~~September 26, 2018~~ ~~under ASC 606 and revenue that would have been recognized for the thirteen and thirty-nine weeks ended~~ ~~September 26, 2018~~ ~~had ASC 605 been applied is as follows:~~

Thirteen Weeks Ended September 26, 2018 Thirty-Nine Weeks Ended September 26, 2018
As reported under ASC 606
If reported under ASC 605
Increase (decrease)
As reported under ASC 606
If reported under ASC 605
Increase (decrease)
Shack sales $ 115,882
$ 115,882
$ —
$ 324,869
$ 324,869
$ —
Licensing revenue 3,765
3,909
(144 ) 10,176
10,581
(405 )
Total revenue $ 119,647
$ 119,791
$ (144 ) $ 335,045
$ 335,450
$ (405 )

Revenue recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 ~~(under ASC 606)~~ and ~~thirteen and thirty-nine weeks ended~~ ~~September 27, 2017~~March 28, 2018 ~~(under ASC 605)~~, disaggregated by type is as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended				Thirteen Weeks Ended
	September 26 2018		September 27 2017		September 26 2018		September 27 2017		March 27 2019		March 28 2018
Shack sales	$	115,882	$	91,100	$	324,869	$	253,258	$	128,569	$	96,089
Licensing revenue:
Sales-based royalties	3,660		3,318		9,951		8,918		3,904		2,972
Initial territory and opening fees	105		191		225		498		136		55
Total revenue	$	119,647	$	94,609	$	335,045	$	262,674	$	132,609	$	99,116

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of ~~September 26, 2018~~March 27, 2019 is ~~$11,332.~~$15,196. We expect to recognize this amount as revenue over a long-term period, as the license term for each Shack ranges from 5 to 20 years. This amount excludes any variable consideration related to sales-based royalties.

Contract Balances

Opening and closing balances of contract liabilities and receivables from contracts with customers is as follows:


		September 26 2018		December 28 2017			March 27 2019		December 27 2018
Shack sales receivables	Shack sales receivables	$	2,460	$	2,184	Shack sales receivables	$	3,053	$	2,550
Licensing receivables	Licensing receivables	3,187		1,522		Licensing receivables	2,348		2,616
Gift card liability	Gift card liability	1,358		1,472		Gift card liability	1,683		1,796
Deferred revenue, current	Deferred revenue, current	291		265		Deferred revenue, current	352		307
Deferred revenue, long-term	Deferred revenue, long-term	7,027		3,742		Deferred revenue, long-term	10,009		10,026

Revenue recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 and March 28, 2018 that was included in their respective liability balances at the beginning of the period is as follows:


					Thirteen Weeks Ended
	Thirteen Weeks Ended September 26 2018		Thirty-Nine Weeks Ended September 26 2018		March 27 2019		March 28 2018
Gift card liability	$	59	$	467	$	278	$	306
Deferred revenue, current	67		185		134		55

NOTE 4: FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis as of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017~~26, 2018, and indicate the classification within the fair value hierarchy.

Cash, Cash Equivalents and Marketable Securities

The following tables summarize our cash, cash equivalents and marketable securities by significant investment categories as of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017:~~26, 2018:


		September 26, 2018														March 27, 2019
		Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities			Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	Cash	$	24,290	$	—	$	—		$	24,290	$	24,290	$	—	Cash	$	26,892	$	—	$	—	$	26,892	$	26,892	$	—
Level 1:	Level 1:														Level 1:
	Money market funds	5,005		—		—			5,005		5,005		—		Money market funds	5,005		—		—		5,005		5,005		—
	Mutual funds	61,860		—		(60		)	61,800		—		61,800		Mutual funds	47,624		35		—		47,659		—		47,659
Level 2:
	Corporate debt securities⁽¹⁾	—		—		—			—		—		—
Total	Total	$	91,155	$	—	$	(60	)	$	91,095	$	29,295	$	61,800	Total	$	79,521	$	35	$	—	$	79,556	$	31,897	$	47,659


		December 27, 2017														December 26, 2018
		Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities			Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Marketable Securities
Cash	Cash	$	16,138	$	—	$	—		$	16,138	$	16,138	$	—	Cash	$	19,746	$	—	$	—		$	19,746	$	19,746	$	—
Level 1:	Level 1:														Level 1:
	Money market funds	5,369		—		—			5,369		5,369		—		Money market funds	5,004		—		—			5,004		5,004		—
	Mutual funds	60,985		—		(61		)	60,924		—		60,924		Mutual funds	62,235		—		(122		)	62,113		—		62,113
Level 2:
	Corporate debt securities⁽¹⁾	2,125		2		(15		)	2,112		—		2,112
Total	Total	$	84,617	$	2	$	(76	)	$	84,543	$	21,507	$	63,036	Total	$	86,985	$	—	$	(122	)	$	86,863	$	24,750	$	62,113


~~(1)~~	Corporate debt securities were measured at fair value using a market approach utilizing observable prices for identical securities or securities with similar characteristics and inputs that are observable or can be corroborated by observable market data.

~~On December 28, 2017, we adopted ASU 2016-01, which~~ ~~requires certain equity investments to be measured at fair value with changes in fair value recognized in net income.~~ Net unrealized gains on available-for-sale equity securities totaling ~~$62~~$157 and $1net unrealized losses totaling $38 were included on the Condensed Consolidated Statements of Income during the thirteen ~~and thirty-nine~~ weeks endedMarch 27, 2019 and ~~September 26,~~March 28, 2018, respectively. ~~Net unrealized losses on available-for-sale securities totaling $74 were included in accumulated other comprehensive income on the Condensed Consolidated Balance Sheet as of December 27, 2017.~~

The following tables summarize the gross unrealized losses and fair values for those investments that were in an unrealized loss position as of September 26, 2018 and December 27, 2017, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:

September 26, 2018
Less than 12 Months 12 Months or Greater Total
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Money market funds $ —
$ —
$ —
$ —
$ —
$ —
Mutual funds 61,800
(60 ) —
—
61,800
(60 )
Corporate debt securities —
—
—
—
—
—
Total $ 61,800
$ (60 ) $ —
$ —
$ 61,800
$ (60 )

December 27, 2017
Less than 12 Months 12 Months or Greater Total
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
Money market funds $ —
$ —
$ —
$ —
$ —
$ —
Mutual funds 60,924
(61 ) —
—
60,924
(61 )
Corporate debt securities 1,675
(12 ) 162
(3 ) 1,837
(15 )
Total $ 62,599
$ (73 ) $ 162
$ (3 ) $ 62,761
$ (76 )

A summary of other income from available-for-sale securities recognized during the thirteen ~~and thirty-nine~~ weeks ended~~September 26,~~March 27, 2019 and March 28, 2018 ~~and September 27, 2017~~ is as follows:


		Thirteen Weeks Ended					Thirty-Nine Weeks Ended							Thirteen Weeks Ended
		September 26 2018		September 27 2017			September 26 2018			September 27 2017				March 27 2019			March 28 2018
Available-for-sale securities:	Available-for-sale securities:												Available-for-sale securities:
	Dividend income	$	373	$	222		$	977		$	591		Dividend income	$	392		$	275
	Interest income	—		19			7			58			Interest income	—			7
	Realized gain (loss) on sale of investments	1		(12		)	(15		)	(27		)	Realized gain (loss) on sale of investments	(14		)	(16		)
	Unrealized gain (loss) on available-for-sale equity securities	62		—			1			—			Unrealized gain (loss) on available-for-sale equity securities	157			(38		)
Total other income, net	Total other income, net	$	436	$	229		$	970		$	622		Total other income, net	$	535		$	228

A summary of available-for-sale securities sold and gross realized gains and losses recognized during the thirteen ~~and thirty-nine~~ weeks ended~~September 26,~~March 27, 2019 and March 28, 2018 ~~and September 27, 2017~~ is as follows:

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 26
2018
September 27
2017
September 26
2018
September 27
2017
Available-for-sale securities:
Gross proceeds from sales and redemptions $ —
$ 584
$ 2,144
$ 1,212
Cost basis of sales and redemptions —
597
2,160
1,239
Gross realized gains included in net income —
1
2
1
Gross realized losses included in net income —
(13 ) (18 ) (28 )
Amounts reclassified out of accumulated other comprehensive loss —
14
16
28



		Thirteen Weeks Ended
		March 27 2019			March 28 2018
Available-for-sale securities:
	Gross proceeds from sales and redemptions	$	15,000		$	2,144
	Cost basis of sales and redemptions	15,014			2,160
	Gross realized gains included in net income	—			2
	Gross realized losses included in net income	(14		)	(18		)
	Amounts reclassified out of accumulated other comprehensive loss	—			16

Realized gains and losses are determined on a specific identification method and are included in other income, net on the Condensed Consolidated Statements of Income.

We periodically review our marketable securities for other-than-temporary impairment. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. As of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017,~~26, 2018, the declines in the market value of our marketable securities investment portfolio were considered to be temporary in nature.

Other Financial Instruments

The carrying value of our other financial instruments, including accounts receivable, accounts payable, and accrued expenses as of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017~~26, 2018 approximated their fair value due to the short-term nature of these financial instruments.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets and indefinite-lived intangible assets. There were no impairments recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~ March 27, 2019 and ~~September 27, 2017.~~March 28, 2018.

NOTE 5: INVENTORIES

Inventories as of ~~September~~March 27, 2019 and December 26, 2018 ~~and December 27, 2017~~ consisted of the following:


	September 26 2018		December 27 2017		March 27 2019		December 26 2018
Food	$	977	$	874	$	1,187	$	1,291
Wine	72		69		88		83
Beer	95		85		98		95
Beverages	168		111		198		203
Retail merchandise	66		119		55		77
Inventories	$	1,378	$	1,258	$	1,626	$	1,749

NOTE 6: PROPERTY AND EQUIPMENT

Property and equipment as of ~~September~~March 27, 2019 and December 26, 2018 ~~and December 27, 2017~~ consisted of the following:


	September 26 2018		December 27 2017		March 27 2019		December 26 2018
Leasehold improvements	$	197,565	$	166,963	$	240,611	$	228,453
Landlord funded assets	12,782		7,472		—		15,595
Equipment	36,325		31,608		44,163		40,716
Furniture and fixtures	12,381		10,128		14,704		14,055
Computer equipment and software	16,073		12,721		19,597		19,008
Construction in progress (includes landlord funded assets under construction)	44,302		16,458
Financing equipment lease assets					4,840		—
Construction in progress⁽¹⁾					33,252		29,474
Property and equipment, gross	319,428		245,350		357,167		347,301
Less: accumulated depreciation	77,726		58,255		92,151		85,447
Property and equipment, net	$	241,702	$	187,095	$	265,016	$	261,854

(1) Construction in progress as of December 26, 2018 includes landlord funded assets under construction.

NOTE 7: SUPPLEMENTAL BALANCE SHEET INFORMATION

The components of other current liabilities as of ~~September~~March 27, 2019 and December 26, 2018 ~~and December 27, 2017~~ are as follows:


	September 26 2018		December 27 2017		March 27 2019		December 26 2018
Sales tax payable	$	2,787	$	1,813	$	3,481	$	3,143
Current portion of liabilities under tax receivable agreement	947		937		5,097		5,804
Gift card liability	1,358		1,472		1,683		1,796
Current portion of financing equipment lease liabilities					1,821		—
Other	3,299		3,715		4,071		3,287
Other current liabilities	$	8,391	$	7,937	$	16,153	$	14,030

The components of other long-term liabilities as of March 27, 2019 and December 26, 2018 are as follows:



	March 27 2019		December 26 2018
Deferred licensing revenue	$	10,009	$	10,026
Long-term portion of financing equipment lease liabilities	2,681		—
Other	452		472
Other long-term liabilities	$	13,142	$	10,498

NOTE 8: DEBT

In January 2015, we executed a Third Amended and Restated Credit Agreement, which became effective on February 4, 2015 (together with the prior agreements and amendments, and as further amended, the "Revolving Credit Facility"), which provides for a revolving total commitment amount of $50,000, of which $20,000 is available immediately. The Revolving Credit Facility will mature and all amounts outstanding will be due and payable five years from the effective date. The Revolving Credit Facility permits the issuance of letters of credit upon our request of up to $10,000. Borrowings under the Revolving Credit Facility bear interest at either: (i) LIBOR plus a percentage ranging from 2.3% to 3.3% or (ii) the prime rate plus a percentage ranging from 0.0% to 0.8%, depending on the type of borrowing made under the Revolving Credit Facility. As of ~~September~~March 27, 2019 and December 26, 2018, ~~and December 27, 2017,~~ there were no amounts outstanding under the Revolving Credit Facility. As of ~~September 26, 2018,~~March 27, 2019, we had $19,317 of availability under the Revolving Credit Facility, after giving effect to $683 in outstanding letters of credit.

The Revolving Credit Facility is secured by a first-priority security interest in substantially all of the assets of SSE Holdings and the guarantors. The obligations under the Revolving Credit Facility are guaranteed by each of SSE Holdings' wholly-owned domestic subsidiaries (with certain exceptions).

The Revolving Credit Facility contains a number of covenants that, among other things, limit our ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves; pay dividends or make distributions; engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the Revolving Credit Facility contains certain cross-default provisions. We are required to maintain a specified consolidated fixed-charge coverage ratio and a specified funded net debt to adjusted EBITDA ratio, both as defined under the Revolving Credit Facility. As of ~~September 26, 2018,~~March 27, 2019, we were in compliance with all covenants.

As of ~~September~~December 26, 2018 ~~and December 27, 2017~~ we had deemed landlord financing liabilities of ~~$19,867 and $14,518, respectively,~~$20,846, for certain leases where we ~~are~~were involved in the construction of leased assets and ~~are~~were considered the accounting owner of the construction project. Upon adoption of ASU 2016-02, Leases (Topic 842) on December 27, 2018, we are no longer considered to be the accounting owner of these construction projects and had no deemed landlord financing liabilities on the Condensed Consolidated Balance Sheets as of March 27, 2019. As of March 27, 2019 we had $291,647 of operating lease liabilities and $4,502 of finance lease liabilities on the Condensed Consolidated Balance Sheets, refer to Note 9 Leases for further details.

Total interest costs incurred were ~~$633~~$72 and ~~$1,897~~$609 for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018, ~~respectively, and $527 and $1,260 for the thirteen and thirty-nine weeks ended September 27, 2017,~~ respectively. Total amounts capitalized into property and equipment were ~~$41 and $127~~$44 for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018, respectively,~~March 28, 2018. No amounts were capitalized into property and ~~$51~~ ~~and $115~~equipment for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~March 27, ~~2017, respectively.~~2019.

NOTE 9: LEASES

Effect of Standard Adoption

On December 27, 2018 we adopted ASU 2016-02, Leases (Topic 842), using a modified retrospective approach. We elected the package of practical expedients permitted under the transition guidance within Accounting Standards Codification Topic 842 ("ASC 842") which, among other items, allowed us to carry forward the historical lease classifications. As such, we applied the modified retrospective approach as of the adoption date to those lease contracts for which we have taken possession of the property as of December 26, 2018. As part of the transition, we derecognized all landlord funded assets and deemed landlord financing liabilities as of December 26, 2018 and determined the classification as either operating or finance leases.

In addition to the aforementioned practical expedient, we have also elected to:

Adopt the short-term lease exception for leases with terms of twelve months or less and account for them as if they were operating leases under ASC 840; and

Apply the practical expedient of combining lease and non-lease components.

Results for reporting periods beginning on or after December 27, 2018 are presented under ASC 842. Prior period amounts were not revised and continue to be reported in accordance with ASC Topic 840 ("ASC 840"), the accounting standard then in effect.

Upon transition, on December 27, 2018, we recorded the following increases (decreases) to the respective line items on the Condensed Consolidated Balance Sheet:



	Adjustment as of December 27, 2018
Prepaid expenses and other current assets	$	6
Property and equipment, net	(11,448		)
Operating lease assets	229,885
Deferred income taxes, net	(121		)
Deemed landlord financing	(20,846		)
Deferred rent	(47,862		)
Long-term operating lease liabilities	277,224
Other long-term liabilities	4,611
Retained earnings	4,136
Non-controlling interests	1,059

Nature of Leases

We lease all of our domestic company-operated Shacks, our Home Office and certain equipment under various non-cancelable lease agreements that expire on various dates through 2035. We evaluate contracts entered into to determine whether the contract involves the use of property or equipment, which is either explicitly or implicitly identified in the contract. We evaluate whether we control the use of the asset, which is determined by assessing whether we obtain substantially all economic benefits from the use of the asset, and whether we have the right to direct the use of the asset. If these criteria are met and we have identified a lease, we account for the contract under the requirements of ASC 842.

Upon the possession of a leased asset, we determine its classification as an operating or finance lease. Most of our real estate leases are classified as operating leases and most of our equipment leases are classified as finance leases. Generally, our real estate leases have initial terms ranging from 10 to 15 years and typically include two five-year renewal options. Renewal options are generally not recognized as part of the right-of-use assets and lease liabilities as it is not reasonably certain at commencement date that we would exercise the options to extend the lease. Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. When the achievement of such sales thresholds are deemed to be probable, contingent rent is accrued in proportion to the sales recognized during the period. For operating leases that include rent holidays and rent escalation clauses, we recognize lease expense on a straight-line basis over the lease term from the date we take possession of the leased property. Lease expense incurred before a Shack opens is recorded in pre-opening costs. Once a domestic company-operated Shack opens, we record the straight-line lease expense and any contingent rent, if applicable, in occupancy and related expenses on the Consolidated Statements of Income. Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and related expenses on the Consolidated Statements of Income.

As there were no explicit rates provided in our leases, we used our incremental borrowing rate in determining the present value of future lease payments. The discount rate used to measure the lease liability at the transition date was derived from the average of the yield curves obtained from using the notching method and the recovery rate method. The most significant assumption in calculating the incremental borrowing rate is our credit rating and subject to judgment. We determined our credit rating based on a comparison of the financial information of SSE Holdings to 800 other public companies and then used their respective credit ratings to develop our own.

We expend cash for leasehold improvements to build out and equip our leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed by our landlords as landlord incentives pursuant to agreed-upon terms in our lease agreements. If obtained, landlord incentives usually take the form of cash, full or partial credits against our future minimum or

contingent rents otherwise payable by us, or a combination thereof. In most cases, the tenant improvement allowances are received after we take possession of the property, as we meet required milestones during the construction of the property. Tenant improvement allowances are recorded as part of the lease liability on the Condensed Consolidated Balance Sheet and are amortized on a straight-line basis over the lease term as a reduction to occupancy and related expenses.

A summary of finance and operating lease right-of-use assets and liabilities as of March 27, 2019 is as follows:



	Classification	March 27 2019
Finance leases	Property and equipment, net	$	4,507
Operating leases	Operating lease assets	239,555
Total right-of-use assets		$	244,062

Finance leases	Other current liabilities Other long-term liabilities	$	4,502
Operating leases	Operating lease liabilities, current Long-term operating lease liabilities	291,647
Total lease liabilities		$	296,149

The components of lease expense for the thirteen weeks ended March 27, 2019 were as follows:



		Classification	March 27 2019
Finance lease cost:
	Amortization of right-of-use assets	Depreciation expense	$	334
	Interest on lease liabilities	Interest expense	41
Operating lease cost		Occupancy and related expenses General and administrative expenses Pre-opening costs	8,910
Short-term lease cost		Occupancy and related expenses	17
Variable lease cost		Occupancy and related expenses General and administrative expenses Pre-opening costs	3,462
Total lease cost			$	12,764

As of March 27, 2019, future minimum lease payments for finance and operating leases consisted of the following:



	Finance Leases		Operating Leases
2019	$	1,340	$	27,545
2020	1,329		37,837
2021	752		40,170
2022	520		40,830
2023	441		40,695
Thereafter	342		212,290
Total minimum payments	4,724		399,367
Less: imputed interest	222		107,720
Total lease liabilities	$	4,502	$	291,647

As of March 27, 2019 we had additional operating lease commitments of $65,050 for non-cancelable leases without a possession date, which will begin to commence in 2019. These lease commitments are consistent with the leases that we have executed thus far and include a number of real estates leases where we are involved in the construction and design.

A summary of lease terms and discount rates for finance and operating leases as of March 27, 2019 is as follows:



		March 27 2019
Weighted-average remaining lease term (years):
	Finance leases	5.6
	Operating leases	9.9
Weighted-average discount rate:
	Finance leases	5.3	%
	Operating leases	6.0	%

Supplemental cash flow information related to leases as of March 27, 2019 is as follows:



		March 27 2019
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from finance leases	$	41
	Operating cash flows from operating leases	8,324
	Financing cash flows from finance leases	339
Right-of-use assets obtained in exchange for lease obligations:
	Finance leases	230
	Operating leases	14,789

NOTE 10: NON-CONTROLLING INTERESTS

We are the sole managing member of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. We report a non-controlling interest representing the economic interest in SSE Holdings held by the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement, as further amended, (the "LLC Agreement") of SSE Holdings

provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings. Changes in our ownership interest in SSE Holdings while we retain our controlling interest in SSE Holdings will be accounted for as equity transactions. As such, future redemptions or direct exchanges of LLC Interests in SSE Holdings by the other members of SSE Holdings will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

The following table summarizes the ownership interest in SSE Holdings as of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017.~~26, 2018.


	September 26, 2018			December 27, 2017			March 27, 2019			December 26, 2018
	LLC Interests	Ownership%		LLC Interests	Ownership %		LLC Interests	Ownership%		LLC Interests	Ownership %
Number of LLC Interests held by Shake Shack Inc.	29,371,355	79.3	%	26,527,477	72.1	%	29,698,228	79.9	%	29,520,833	79.6	%
Number of LLC Interests held by non-controlling interest holders	7,688,921	20.7	%	10,250,007	27.9	%	7,453,515	20.1	%	7,557,347	20.4	%
Total LLC Interests outstanding	37,060,276	100.0	%	36,777,484	100.0	%	37,151,743	100.0	%	37,078,180	100.0	%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income and other comprehensive income to Shake Shack Inc. and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the thirteen ~~and thirty-nine~~ weeks ended~~September 26,~~March 27, 2019 and March 28, 2018 was ~~21.8%~~20.3% and ~~24.4%, respectively.~~ ~~The non-controlling interest holders' weighted average ownership percentage for the~~ ~~thirteen and thirty-nine weeks ended September 27, 2017 was 29.1% and 29.7%~~26.5%, respectively.

The following table summarizes the effects of changes in ownership of SSE Holdings on our equity during the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~ March 27, 2019 and ~~September 27, 2017.~~March 28, 2018.


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 26 2018		September 27 2017		September 26 2018		September 27 2017			March 27 2019		March 28 2018
Net income attributable to Shake Shack Inc.	Net income attributable to Shake Shack Inc.	$	5,025	$	4,997	$	16,137	$	12,143	Net income attributable to Shake Shack Inc.	$	2,546	$	3,508
Other comprehensive income (loss):
Other comprehensive income:										Other comprehensive income:
	Net change related to available-for-sale securities	—		47		10		45		Net change related to available-for-sale securities	—		10
Transfers (to) from non-controlling interests:	Transfers (to) from non-controlling interests:									Transfers (to) from non-controlling interests:
	Increase in additional paid-in capital as a result of the redemption of LLC Interests	7,274		841		14,633		2,883		Increase in additional paid-in capital as a result of the redemption of LLC Interests	594		5,558
	Increase in additional paid-in capital as a result of activity under stock compensation plans	215		78		2,318		3,580		Increase in additional paid-in capital as a result of activity under stock compensation plans	975		866
Total effect of changes in ownership interest on equity attributable to Shake Shack Inc.	Total effect of changes in ownership interest on equity attributable to Shake Shack Inc.	$	12,514	$	5,963	$	33,098	$	18,651	Total effect of changes in ownership interest on equity attributable to Shake Shack Inc.	$	4,115	$	9,942

During the ~~thirty-nine~~thirteen weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018, ~~and September 27, 2017,~~ an aggregate of ~~2,561,086~~103,832 and ~~685,800~~1,029,771 LLC Interests, respectively, were redeemed by non-controlling interest holders for newly-issued shares of Class A common stock, and we received ~~2,561,086~~103,832 and ~~685,800~~1,029,771 LLC Interests in connection with these redemptions for the ~~thirty-nine~~thirteen weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018, ~~and September 27, 2017,~~ respectively, increasing our total ownership interest in SSE Holdings.

During the ~~thirty-nine~~thirteen weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018, ~~and September 27, 2017,~~ we received an aggregate of ~~282,792~~73,563 and ~~323,927~~70,305 LLC Interests, respectively, in connection with the activity under our stock compensation plan.

NOTE ~~10:~~11: EQUITY-BASED COMPENSATION

A summary of equity-based compensation expense recognized during the thirteen ~~and thirty-nine~~ weeks ended ~~September 26,~~ March 27, 2019 and March 28, 2018 ~~and September 27, 2017~~ is as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 26 2018		September 27 2017		September 26 2018		September 27 2017			March 27 2019		March 28 2018
Stock options	Stock options	$	719	$	816	$	2,319	$	2,643	Stock options	$	682	$	827
Performance stock units	Performance stock units	750		345		1,668		1,029		Performance stock units	712		454
Restricted stock units	Restricted stock units	167		128		483		151		Restricted stock units	298		156
Equity-based compensation expense	Equity-based compensation expense	$	1,636	$	1,289	$	4,470	$	3,823	Equity-based compensation expense	$	1,692	$	1,437

Total income tax benefit recognized related to equity-based compensation	Total income tax benefit recognized related to equity-based compensation	$	46	$	47	$	126	$	142	Total income tax benefit recognized related to equity-based compensation	$	42	$	38

~~Amounts are~~Equity-based compensation expense is included in general and administrative ~~expense~~expenses and labor and related expenses on the Condensed Consolidated Statements of ~~Income.~~Income during the thirteen weeks ended March 27, 2019 and March 28, 2018 as follows:



	Thirteen Weeks Ended
	March 27 2019		March 28 2018
General and administrative expenses	$	1,642	$	1,400
Labor and related expenses	50		37
Equity-based compensation expense	$	1,692	$	1,437

NOTE ~~11:~~12: INCOME TAXES

We are the sole managing member of SSE Holdings and, as a result, consolidate the financial results of SSE Holdings. SSE Holdings is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of SSE Holdings, as well as any stand-alone income or loss generated by Shake Shack Inc. We are also subject to withholding taxes in foreign jurisdictions.

Income Tax Expense

A reconciliation of income tax expense computed at the U.S. federal statutory income tax rate to the recognized income tax expense is as follows:


	Thirteen Weeks Ended										Thirty-Nine Weeks Ended										Thirteen Weeks Ended
	September 26 2018					September 27 2017					September 26 2018					September 27 2017					March 27 2019						March 28 2018
Expected U.S. federal income taxes at statutory rate	$	1,930		21.0	%	$	3,627		35.0	%	$	5,917		21.0	%	$	9,609		35.0	%	$	1,188		21.0	%		$	1,297		21.0	%
State and local income taxes, net of federal benefit	643			7.0	%	630			6.1	%	1,885			6.7	%	1,638			6.0	%	418			7.4	%		412			6.7	%
Foreign withholding taxes	298			3.2	%	292			2.8	%	1,100			3.9	%	705			2.6	%	342			6.0	%		531			8.6	%
Tax credits	(181		)	(2.0	)%	(399		)	(3.8	)%	(1,378		)	(4.9	)%	(777		)	(2.8	)%	(376		)	(6.6	)%		(277		)	(4.5	)%
Non-controlling interest	(430		)	(4.7	)%	(1,132		)	(10.9	)%	(1,615		)	(5.7	)%	(3,114		)	(11.3	)%	(323		)	(5.7	)%		(454		)	(7.3	)%
Tax effect of change in basis related to the adoption of ASC 842																					1,161			20.5	%	—	—			—	%
Change in valuation allowance																					(365		)	(6.5	)%	—	—			—	%
Other	(19		)	(0.1	)%	(524		)	(5.1	)%	(230		)	(0.8	)%	(524		)	(2.0	)%	2			0.1	%		(311		)	(5.0	)%
Income tax expense	$	2,241		24.4	%	$	2,494		24.1	%	$	5,679		20.2	%	$	7,537		27.5	%	$	2,047		36.2	%		$	1,198		19.4	%

Our effective income tax rates for the thirteen weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017~~March 28, 2018 were ~~24.4%~~36.2% and ~~24.1%~~19.4%, respectively. The increase was primarily driven by the tax effect of a change in tax basis relating to the adoption of ASC 842 on December 27, 2018 as well as an increase in our ownership interest in SSE Holdings, which increases our share of the taxable income of SSE ~~Holdings,~~ ~~as well as decreases in tax credits, which were partially offset by the decrease in the U.S. federal corporate income tax rate from 35% to 21% due to the enactment of the~~ ~~Tax Cuts and Jobs Act of 2017 (the "TCJA")~~. Holdings. Our weighted-average ownership interest in SSE Holdings was ~~78.2%~~79.7% and ~~70.9%~~73.5% for the thirteen weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017, respectively.~~

~~Our effective income tax rates for thirty-nine weeks ended~~ ~~September 26,~~March 28, 2018, and September 27, 2017 were 20.2% and 27.5%, respectively. The decrease was primarily driven by the reduction of the U.S. federal corporate income tax rate from 35% to 21% due to the enactment of the TCJA, partially offset by the increase in our ownership interest in SSE Holdings, which increases our share of the taxable income of SSE Holdings, and higher foreign withholding taxes. Our weighted-average ownership interest in SSE Holdings was 75.6% and 70.3% for the thirty-nine weeks ended ~~September 26, 2018~~ ~~and September 27, 2017,~~ respectively.

Deferred Tax Assets and Liabilities

During the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019, we acquired an aggregate of ~~2,843,878~~177,395 LLC Interests in connection with the redemption of LLC Interests and activity relating to our stock compensation plan. We recognized a deferred tax asset in the amount of ~~$37,498~~$1,708 associated with the basis difference in our investment in SSE Holdings upon acquisition of these LLC Interests. As of ~~September 26, 2018~~March 27, 2019, the total deferred tax asset related to the basis difference in our investment in SSE Holdings was ~~$179,767.~~$169,877. However, a portion of the total basis difference will only reverse upon the eventual sale of our interest in SSE Holdings, which we expect would result in a capital loss. As of ~~September 26, 2018~~March 27, 2019, the total valuation allowance established against the deferred tax asset to which this portion relates was ~~$7,732.~~$6,010.

During the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019, we also recognized ~~$11,996~~$459 of deferred tax assets related to additional tax basis increases generated from expected future payments under the Tax Receivable Agreement and related deductions for imputed interest on such payments. See "—Tax Receivable Agreement" for more information.

We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of ~~September 26, 2018~~March 27, 2019, we concluded, based on the weight of all available positive and negative evidence, that all of our deferred tax assets (except for those deferred tax assets described above relating to basis differences that are expected to result in a capital loss upon the eventual sale of our interest in SSE Holdings) are more likely than not to be realized. As such, no additional valuation allowance was recognized.

Uncertain Tax Positions

No uncertain tax positions existed as of ~~September 26, 2018~~March 27, 2019. Shake Shack Inc. was formed in September 2014 and did not engage in any operations prior to the IPO and related organizational transactions. Shake Shack Inc. first filed tax returns for tax year 2014, which is the first tax year subject to examination by taxing authorities for U.S. federal and state income tax purposes. Additionally, although SSE Holdings is treated as a partnership for U.S. federal and state income taxes purposes, it is still required to file an annual U.S. Return of Partnership Income, which is subject to examination by the Internal Revenue Service ("IRS"). The statute of limitations has expired for tax years through 2014 for SSE Holdings.

Tax Receivable Agreement

Pursuant to our election under Section 754 of the Internal Revenue Code (the "Code"), we expect to obtain an increase in our share of the tax basis in the net assets of SSE Holdings when LLC Interests are redeemed or exchanged by the other members of SSE Holdings. We plan to make an election under Section 754 of the Code for each taxable year in which a redemption or exchange of LLC Interest occurs. We intend to treat any redemptions and exchanges of LLC Interests as direct purchases of LLC Interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that we would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

On February 4, 2015, we entered into a tax receivable agreement with certain of the then-existing members of SSE Holdings (the "Tax Receivable Agreement") that provides for the payment by us of 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement (the "TRA Payments"). We expect to benefit from the remaining 15% of any tax benefits that we may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in SSE Holdings or us. The rights of each member of SSE Holdings, that is a party to the Tax Receivable Agreement, are assignable to transferees of their respective LLC Interests.

During the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019, we acquired an aggregate of ~~2,561,086~~103,832 LLC Interests in connection with the redemption of LLC Interests, which resulted in an increase in the tax basis of our investment in SSE Holdings subject to the provisions of the Tax Receivable Agreement. We recognized an additional liability in the amount of ~~$42,641~~$1,636 for the TRA Payments due to the

redeeming members, representing 85% of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of LLC Interests, after concluding it was probable that such TRA Payments would be paid based on our estimates of future taxable income. During the thirteen weeks endedMarch 27, 2019, payments of $707, inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement. No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during the ~~thirty-nine~~thirteen weeks ended ~~September 26,~~March 28, 2018. ~~During the~~ ~~thirty-nine weeks endedSeptember 27, 2017, payments of $1,471, inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement.~~ As of ~~September 26, 2018~~March 27, 2019, the total amount of TRA Payments due under the Tax Receivable Agreement, was ~~$202,024,~~$204,641, of which ~~$947~~$5,097 was included in other current liabilities on the Condensed Consolidated Balance Sheet. See Note 1415 for more information relating to our liabilities under the Tax Receivable Agreement.

NOTE ~~12:~~13: EARNINGS PER SHARE

Basic earnings per share of Class A common stock is computed by dividing net income attributable to Shake Shack Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income attributable to Shake Shack Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017.~~March 28, 2018.


			Thirteen Weeks Ended				Thirty-Nine Weeks Ended						Thirteen Weeks Ended
			September 26 2018		September 27 2017		September 26 2018		September 27 2017				March 27 2019		March 28 2018
Numerator:	Numerator:										Numerator:
	Net income		$	6,946	$	7,870	$	22,496	$	19,916	Net income		$	3,607	$	4,979
	Less: net income attributable to non-controlling interests		1,921		2,873		6,359		7,773		Less: net income attributable to non-controlling interests		1,061		1,471
	Net income attributable to Shake Shack Inc.		$	5,025	$	4,997	$	16,137	$	12,143	Net income attributable to Shake Shack Inc.		$	2,546	$	3,508
Denominator:	Denominator:										Denominator:
	Weighted-average shares of Class A common stock outstanding—basic		28,954		26,024		27,930		25,733		Weighted-average shares of Class A common stock outstanding—basic		29,563		27,039
	Effect of dilutive securities:										Effect of dilutive securities:
		Stock options	857		411		809		486			Stock options	731		702
		Performance stock units	51		26		63		24			Performance stock units	76		70
		Restricted stock units	21		16		18		5			Restricted stock units	22		11
	Weighted-average shares of Class A common stock outstanding—diluted		29,883		26,477		28,820		26,248		Weighted-average shares of Class A common stock outstanding—diluted		30,392		27,822

Earnings per share of Class A common stock—basic	Earnings per share of Class A common stock—basic		$	0.17	$	0.19	$	0.58	$	0.47	Earnings per share of Class A common stock—basic		$	0.09	$	0.13
Earnings per share of Class A common stock—diluted	Earnings per share of Class A common stock—diluted		$	0.17	$	0.19	$	0.56	$	0.46	Earnings per share of Class A common stock—diluted		$	0.08	$	0.13

Shares of our Class B common stock do not share in the earnings or losses of Shake Shack and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

The following table presents potentially dilutive securities excluded from the computations of diluted earnings per share of Class A common stock for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017.~~March 28, 2018.


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended
		September 26 2018		September 27 2017		September 26 2018		September 27 2017			March 27 2019		March 28 2018
Stock options ⁽¹⁾	Stock options ⁽¹⁾	—		18,676	(2)	—		18,676	(2)	Stock options ⁽¹⁾	3,785	(1)	—
Performance stock units ⁽¹⁾	Performance stock units ⁽¹⁾	59,341	(3)	86,396	(3)	59,341	(3)	86,396	(3)	Performance stock units ⁽¹⁾	69,772	(2)	—
Shares of Class B common stock	Shares of Class B common stock	7,688,921	(4)	10,567,792	(4)	7,688,921	(4)	10,567,792	(4)	Shares of Class B common stock	7,453,515	(3)	9,220,236	(3)

(1) ~~Represents the number~~Number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted earnings per shares.

~~(2) Excluded~~securities excluded from the computation of diluted earnings per share of Class A common stock because the exercise price of the stock options exceeded the average market price of our Class A common stock during the period ("out-of-the-money").

~~(3)~~(2) Excluded from the computation of diluted earnings per share of Class A common stock because the performance conditions associated with these awards were not met assuming the end of the reporting period was the end of the performance period.

~~(4)~~(3) Shares of our Class B common stock outstanding as of the end of the period are considered potentially dilutive shares of Class A common stock. Amounts have been excluded from the computations of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.

NOTE ~~13:~~14: SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow information for the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017:~~March 28, 2018:


		Thirty-Nine Weeks Ended						Thirteen Weeks Ended
		September 26 2018			September 27 2017			March 27 2019			March 28 2018
Cash paid for:	Cash paid for:						Cash paid for:
	Income taxes, net of refunds	$	2,015		$	1,936	Income taxes, net of refunds	$	617		$	854
	Interest, net of amounts capitalized	1,601			684		Interest, net of amounts capitalized	72			563
Non-cash investing activities:	Non-cash investing activities:						Non-cash investing activities:
	Accrued purchases of property and equipment	17,697			10,138		Accrued purchases of property and equipment	15,763			7,302
	Capitalized landlord assets for leases where we are deemed the accounting owner	4,478			9,095		Capitalized landlord assets for leases where we are deemed the accounting owner	—			2,327
	Accrued purchases of marketable securities	—			307		Capitalized equity-based compensation	27			18
	Capitalized equity-based compensation	64			86
Non-cash financing activities:	Non-cash financing activities:						Non-cash financing activities:
	Class A common stock issued in connection with the redemption of LLC Interests	2			—		Class A common stock issued in connection with the redemption of LLC Interests	1			1
	Cancellation of Class B common stock in connection with the redemption of LLC Interests	(2		)	—		Cancellation of Class B common stock in connection with the redemption of LLC Interests	(1		)	(1		)
	Establishment of liabilities under tax receivable agreement	42,641			12,918		Establishment of liabilities under tax receivable agreement	1,636			12,680

NOTE ~~14:~~15: COMMITMENTS AND CONTINGENCIES

Lease Commitments

We are obligated under various operating leases for Shacks and our home office space, expiring in various years through 2035. Under certain of these leases, we are liable for contingent rent based on a percentage of sales in excess of specified thresholds and are typically responsible for our proportionate share of real estate taxes, common area maintenance charges and utilities. See Note 9, Leases.

As security under the terms of ~~several~~one of our leases, we are obligated under ~~letters~~a letter of credit totaling ~~$160~~$130 as of ~~September 26, 2018~~March 27, 2019~~. The letters of credit expire~~, which expires in ~~April 2019 and~~ February 2026. In addition, we entered into two irrevocable standby letters of credit: (i) in December 2013, we entered into ~~an irrevocable standby~~a letter of credit in conjunction with our ~~home office~~previous Home Office lease in the amount of ~~$80. The letter of credit~~$80, which expires in September ~~2019. In~~2019 and (ii) in September 2017, we entered into ~~an irrevocable standby~~a letter of credit in conjunction with our new ~~home office~~Home Office lease in the amount of ~~$603. The letter of credit~~$603, which expires in August 2019 and renews automatically for one-year periods through January 31, 2034.

Purchase Commitments

Purchase obligations include legally binding contracts, including commitments for the purchase, construction or remodeling of real estate and facilities, firm minimum commitments for inventory purchases, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. These obligations are generally short-term in nature and are recorded as liabilities when the related goods are received or services rendered. We also enter into long-term, exclusive contracts with certain vendors to supply us with food, beverages and paper goods, obligating us to purchase specified quantities.

Legal Contingencies

In February 2018, a claim was filed against Shake Shack in California state court alleging certain violations of the California Labor Code. At a mediation between the parties, we agreed to settle the matter with the plaintiff and all other California employees who elect to participate in the settlement for $1,200. As of ~~September 26, 2018~~March 27, 2019, an accrual in the amount of $1,200 was recorded for this matter and related expenses.

We are subject to various legal proceedings, claims and liabilities, such as employment-related claims and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. As of ~~September 26, 2018~~March 27, 2019, the amount of the ultimate liability with respect to these matters was not material.

Liabilities under Tax Receivable Agreement

As described in Note ~~11,~~12, we are a party to the Tax Receivable Agreement under which we are contractually committed to pay certain of the members of SSE Holdings 85% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize, as a result of certain transactions. We are not obligated to make any payments under the Tax Receivable Agreement until the tax benefits associated with the transactions that gave rise to the payments are realized. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. During the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017,~~March 28, 2018, we recognized liabilities totaling ~~$42,641~~$1,636 and ~~$12,918,~~$12,680, respectively, relating to our obligations under the Tax Receivable Agreement, after concluding that it was probable that we would have sufficient future taxable income over the term of the Tax Receivable Agreement to utilize the related tax benefits. As of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017,~~26, 2018, our total obligations under the Tax Receivable Agreement ~~including accrued interest,~~ were ~~$202,024~~$204,641 and ~~$159,373,~~$203,725, respectively. There were no transactions subject to the Tax Receivable Agreement for which we did not recognize the related liability, as we concluded that we would have sufficient future taxable income to utilize all of the related tax benefits.

NOTE ~~15:~~16: RELATED PARTY TRANSACTIONS

Union Square Hospitality Group

The Chairman of our Board of Directors serves as the Chief Executive Officer of Union Square Hospitality Group, LLC. As a result, Union Square Hospitality Group, LLC and its subsidiaries, set forth below, are considered related parties.

USHG, LLC

Effective January 2015, we entered into an Amended and Restated Management Services Agreement with USHG, LLC ("USHG"), in which USHG provides reduced management services to SSE Holdings comprised of executive leadership from members of its senior management, advisory and development services and limited leadership development and human resources services. The initial term of the Amended and Restated Management Services Agreement is through December 31, 2019, with renewal periods.

No ~~amounts were paid to~~ ~~USHG for general corporate expenses for the thirteen weeks ended~~ ~~September 26, 2018~~ ~~and~~ ~~September 27, 2017. Amounts paid to~~ ~~USHG for general corporate expenses were $2 and $6 for the thirty-nine weeks endedSeptember 26, 2018~~ ~~and September 27, 2017, respectively.~~ ~~These amounts are included in general and administrative expenses on the Condensed Consolidated Statements of Income.~~

No~~amounts were payable to USHG as of~~ ~~September 26, 2018~~ ~~and~~ ~~December 27, 2017. No~~ ~~amounts were due from USHG as of~~ ~~September 26, 2018~~ ~~and~~ ~~December 27, 2017~~.

Hudson Yards Sports and Entertainment

In fiscal 2011, we entered into a Master License Agreement (as amended, "MLA") with Hudson Yards Sports and Entertainment LLC ("HYSE") to operate Shake Shack branded limited menu concession stands in sports and entertainment venues within the United States. In February 2019, the agreement was assigned to Hudson Yards Catering ("HYC"), the parent of HYSE. The agreement expires in January 2027 and includes five consecutive five-year renewal options at ~~HYSE's~~HYC's option. As consideration for these rights, ~~HYSE~~HYC pays us a license fee based on a percentage of net food sales, as defined in the MLA. ~~HYSE~~HYC also pays us a percentage of profits on sales of branded beverages, as defined in the MLA. ~~Amount paid to us by the HYSE for the~~ ~~thirteen and thirty-nine weeks endedSeptember 26, 2018~~ ~~were $200 and $311, respectively. Amounts paid to us by HYSE for the~~ ~~thirteen and thirty-nine weeks ended~~ ~~September 27, 2017~~ ~~were $193~~ ~~and $328, respectively.~~ ~~These amounts are included in licensing revenue on the Condensed Consolidated Statements of Income.~~ ~~Total amounts due from HYSE as of~~ ~~September 26, 2018~~ ~~and December 27, 2017 were $82~~ ~~and~~ ~~$18, respectively, which are included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets~~.



		Thirteen Weeks Ended
	Classification	March 27 2019		March 28 2018
Amounts received from HYC	Licensing revenue	$	66	$	47



	Classification	March 27 2019		December 26 2018
Amounts due from HYC	Prepaid expenses and other current assets	$	25	$	37

Madison Square Park Conservancy

The Chairman of our Board of Directors serves as a director of the Madison Square Park Conservancy ("MSP Conservancy"), with which we have a license agreement and pay license fees to operate our Madison Square Park Shack. ~~Amounts paid to MSP Conservancy as rent amounted to $203~~ ~~and~~ ~~$673~~ ~~for the thirteen and thirty-nine weeks ended~~ ~~September 26, 2018, respectively. Amounts paid to MSP Conservancy as rent amounted to $199 and $531 for the thirteen and thirty-nine weeks ended~~ ~~September 27, 2017, respectively. These amounts are included in occupancy and related expenses on the Condensed Consolidated Statements of Income.~~ No ~~amounts were due to MSP Conservancy as of~~ ~~September 26, 2018~~ ~~and~~ ~~December 27, 2017.~~

No ~~amounts were paid to us from MSP Conservancy during the~~ ~~thirteen and thirty-nine weeks ended~~ ~~September 26, 2018~~. No amounts were paid to us from MSP Conservancy during the thirteen weeks ended September 27, 2017. Amounts paid to us during the thirty-nine weeks ended September 27, 2017 totaled $200. No amounts were due to us from MSP Conservancy as of ~~September 26, 2018~~ ~~and December 27, 2017.~~



		Thirteen Weeks Ended
	Classification	March 27 2019		March 28 2018
Amounts paid to MSP Conservancy	Occupancy and related expenses	$	278	$	267



	Classification	March 27 2019		December 26 2018
Amounts due to MSP Conservancy	Accrued expenses	$	—	$	70

Share Our Strength

The Chairman of our Board of Directors serves as a director of Share Our Strength, for which Shake Shack holds the "Great American Shake Sale" every year during the month of May to raise money and awareness for childhood hunger. During the Great American Shake Sale, we encourage guests to donate money to Share Our Strength's No Kid Hungry campaign in exchange for a coupon for a free cake-themed shake. All of the guest donations we collect go directly to Share Our Strength.

~~During the thirty-nine weeks endedSeptember 26, 2018~~ ~~and September 27, 2017 the Great American Shake Sale raised $343 and $631, respectively.~~ No amounts ~~were~~have been raised ~~for both thirteen weeks ended~~ ~~September 26, 2018~~ ~~and September 27, 2017. All proceeds were remitted to Share Our Strength in the respective years. We incurred costs of approximately $53 for the thirty-nine weeks ended~~ ~~September 26, 2018. No costs were incurred~~ for the thirteen weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018,~~. We incurred costs of approximately $29 and $148 for the~~ ~~thirteen and thirty-nine weeks ended~~ ~~September 27, 2017,~~ respectively. ~~These costs represents the cost of the free shakes redeemed and are included in general and administrative expenses on the Condensed Consolidated Statements of Income.~~

Mobo Systems, Inc.

The Chairman of our Board of Directors serves as a director of Mobo Systems, Inc. (also known as "Olo"), a platform we use in connection with our mobile ordering application. ~~Amounts paid~~No amounts were due to Olo ~~during the~~ ~~thirteen and thirty-nine weeks ended~~as of ~~September 26, 2018~~ ~~were $28 and $80, respectively. Amounts paid to Olo during the~~ ~~thirteen and thirty-nine weeks ended~~ ~~September~~March 27, ~~2017 were $19 and $57, respectively. These amounts are included in other operating expenses on the~~ ~~Condensed Consolidated Statements of Income.~~ ~~No amounts were payable to Olo as of~~ ~~September 26, 2018~~2019 and December ~~27, 2017.~~26, 2018, respectively.



		Thirteen Weeks Ended
	Classification	March 27 2019		March 28 2018
Amounts paid to Olo	Other operating expenses	$	38	$	25

Square, Inc.

~~In July 2017, our~~Our Chief Executive Officer ~~joined~~is a member of the Board of Directors of Square, Inc. ("Square"). We currently use certain point-of-sale applications, payment processing services, hardware and other enterprise platform services in connection with the processing of a limited amount of sales at certain of our ~~Shacks,~~locations, sales for certain off-site events and in connection with our kiosk technology. Additionally, we partnered with Caviar, Square’s food ordering delivery service, to allow guests to order Shake Shack in select markets as well as participated in Square’s new Boost offers, providing assets and permission for ~~delivery services, in a number~~Square to run select offers to their cash card users. No amounts were due to Square as of ~~cities for limited-time delivery promotions.~~March 27, 2019 and December 26, 2018, respectively.



		Thirteen Weeks Ended
	Classification	March 27 2019		March 28 2018
Amounts paid to Square	Other operating expenses	$	266	$	43

Tax Receivable Agreement

As described in Note ~~11,~~12, we entered into a tax receivable agreement with certain members of SSE Holdings that provides for the payment by us of 85% of the amount of tax benefits, if any, that Shake Shack actually realizes or in some cases is deemed to realize as a result of certain transactions. ~~No payments were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement during the thirteen and thirty-nine weeks ended~~ ~~September 26, 2018. No payments were paid to the members during the thirteen weeks ended September 27, 2017. During the~~ ~~thirty-nine weeks endedSeptember 27, 2017, payments totaling $1,471, inclusive of interest, were made to the members of SSE Holdings pursuant to the Tax Receivable Agreement. As of~~ ~~September 26, 2018~~ ~~and~~ ~~December 27, 2017, total amounts due under the Tax Receivable Agreement were $202,024 and $159,373, respectively.~~



		Thirteen Weeks Ended
	Classification	March 27 2019		March 28 2018
Amounts paid to members (inclusive of interest)	Other current liabilities	$	707	$	—



	Classification	March 27 2019		December 26 2018
Amounts due under the Tax Receivable Agreement	Other current liabilities Liabilities under tax receivable agreement, net of current portion	$	204,641	$	203,725

Distributions to Members of SSE Holdings

Under the terms of the SSE Holdings LLC Agreement, SSE Holdings is obligated to make tax distributions to its members. ~~During the~~ ~~thirteen and thirty-nine weeks ended~~ ~~September 26, 2018~~ ~~distributions paid to non-controlling interest holders were $22 and $692,~~ ~~respectively.~~ ~~During the~~ ~~thirteen and thirty-nine weeks ended~~ ~~September 27, 2017~~ ~~distributions paid to non-controlling interest holders were $13 and $2,392, respectively.~~ No tax distributions were payable to non-controlling interest holders as of ~~September 26, 2018~~March 27, 2019 and December ~~27, 2017~~26, 2018., respectively.



		Thirteen Weeks Ended
	Classification	March 27 2019		March 28 2018
Amounts paid to non-controlling interest holders	Net income attributable to non-controlling interests	$	109	$	83

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This section and other parts of this Quarterly Report on Form 10-Q ("Form 10-Q") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact, such as our expected ~~financial outlook for fiscal 2018, expected preliminary~~ financial outlook for fiscal 2019, expected Shack openings, expected same-Shack sales growth and trends in our business. Forward-looking statements can also be identified by words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "plan," "potential," "predict," "project," "seek," "may," "can," "will," "would," "could," "should," the negatives thereof and other similar expressions. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017~~26, 2018 ("~~2017~~2018 Form 10-K") and Part II, Item 1A of this Form 10-Q. The following discussion should be read in conjunction with our ~~2017~~2018 Form 10-K and the condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by law.

OVERVIEW

Shake Shack is a modern day "roadside" burger stand serving a classic American menu of premium burgers, chicken sandwiches, hot dogs, crinkle cut fries, shakes, frozen custard, beer and wine. As of ~~September 26, 2018,~~March 27, 2019, there were ~~188~~218 Shacks in operation, system-wide, of which ~~107~~129 were domestic company-operated Shacks, 1115 were domestic licensed Shacks and 7074 were international licensed Shacks.

Development Highlights

During the quarter, we opened ~~seven~~five domestic company-operated Shacks, which included our first Shacks in Birmingham and Nashville. Additionally, we continued to expand in New York with Shack openings in the West Village, which included our first-ever Innovation Kitchen, and Williamsburg, as well as our second Shack in ~~Denver.~~Providence, Rhode Island. We ~~also~~ opened ~~two~~four international licensed Shacks, which included an international licensed Shack in the City of ~~London and a~~Shanghai, our first Shack to open in mainland China. Additionally, we opened three domestic licensed ~~Shack in Atlanta~~Shacks at ~~the Hartsfield-Jackson Airport.~~Dallas Fort Worth Airport, Phoenix Sky Harbor International Airport and Cleveland Hopkins International Airport, further executing on our growth strategy within airports.

Financial Highlights for the ~~Third~~First Quarter 2019 compared to the First Quarter 2018:


▪	Total revenue increased ~~26.5%~~33.8% to ~~$119.6~~$132.6 million.


▪	Shack sales increased ~~27.2%~~33.8% to ~~$115.9~~$128.6 million.


▪	Same-Shack sales ~~decreased 0.7%~~increased 3.6%.


▪	Shack system-wide sales increased 33.5% to $195.2 million.


▪	Operating income was ~~$9.3~~$5.2 million, or ~~7.8%~~3.9% of total revenue, which included the impact of costs associated with Project Concrete and other one-time items totaling ~~$1.5~~$0.5 million, resulting in a decrease of ~~11.9%~~20.8%.


▪	Shack-level operating profit*, a non-GAAP measure, increased ~~20.7%~~12.5% to ~~$29.9~~$27.0 million, or ~~25.8%~~21.0% of Shack sales.


▪	Net income was ~~$6.9~~$3.6 million and net income attributable to Shake Shack Inc. was $5.0 million, or $0.17 per diluted share, which included an after-tax impact of $1.2 million related to Project Concrete and other one-time items and resulted in a $0.04 impact to earnings per diluted share.


▪	~~Adjusted~~adjusted EBITDA*, a non-GAAP measure, increased ~~17.5%~~10.4% to ~~$21.3~~$17.8 million.


▪	~~Adjusted pro forma net income*, a non-GAAP measure, increased 27.0% to $7.9 million, or $0.21 per fully exchanged and diluted share.~~


▪	~~Nine~~Twelve system-wide Shack openings, ~~comprising seven~~comprised of five domestic company-operated Shacks and ~~two~~seven licensed Shacks.

* Shack-level operating profit, adjusted EBITDA and adjusted pro forma net income are non-GAAP measures. See "—Non-GAAP Financial Measures" for reconciliations of Shack-level operating profit to operating income, adjusted EBITDA to net income, and adjusted pro forma net income to net income attributable to Shake Shack Inc., the most directly comparable financial measures presented in accordance with GAAP.

We continued to execute on our strategic growth ~~strategies~~plan in ~~2018~~2019 and the ~~third~~first quarter was positively impacted by the incremental sales from the 2834 new domestic company-operated Shacks opened between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018,~~2019, partially offset byby: (i) increased food and paper costs due to expenses related to our promotional launch of Chick'n Bites, higher commodity costs and an increase in packaging costs associated with our digital channel growth; (ii) increased labor and related expenses resulting from ongoing increases in minimum wages, regulatory factors, such as the Fair Workweek legislation in New York City, as well as higher labor costs from the Shacks that opened at the end of fiscal 2018, which typically carry higher labor costs during the first few months of operations and were exacerbated with a compressed opening schedule; (iii) delivery commissions paid as part of ~~certain third-party delivery pilots~~our digital growth; (iv) impact related to the adoption of the new lease accounting standard; and ~~higher repairs and maintenance and certain fixed operating expenses.~~(v) the addition of new Shacks at a broader range of average unit volumes.

Net income attributable to Shake Shack Inc. was ~~$5.0~~$2.5 million, or ~~$0.17~~$0.08 per diluted share, for the ~~third~~first quarter of ~~2018,~~2019, compared to ~~$5.0~~$3.5 million, or ~~$0.19~~$0.13 per diluted share, for the same period last year. On an adjusted pro forma basis, which excludes certain non-recurring and other items and also assumes that all outstanding LLC Interests were exchanged for shares of Class A common stock as of the beginning of the period, we would have recognized net income of ~~$7.9~~$4.9 million, or ~~$0.21~~$0.13 per fully exchanged and diluted share, for the ~~third~~first quarter of ~~2018~~2019 compared to ~~$6.2~~$5.7 million, or ~~$0.17~~$0.15 per fully exchanged and diluted share for the ~~third~~first quarter of ~~2017, an increase~~2018, a decrease of ~~27.0%~~12.5%.

FISCAL ~~2018~~2019 OUTLOOK

These forward-looking projections are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our Form 10-K for the fiscal year ended December 26, 2018 under the heading “Risk Factors.” These forward-looking projections should be reviewed in conjunction with the consolidated financial statements and the section titled “Trends in Our Business” which forms the basis of our assumptions used to prepare these forward-looking projections. You should not attribute undue certainty to these projections and we undertake no obligation to revise or update any forward-looking information, except as required by law.

For the fiscal year ending December ~~26, 2018,~~25, 2019, we have revised our financial outlook to the ~~following:~~following with changes from the previous outlook in bold:



	Current Outlook	Previous Outlook
Total revenue (inclusive of licensing revenue)	$~~450~~576 million to ~~$452~~$582 million	$~~446~~570 million to ~~$450~~$576 million
Licensing revenue	~~approximately $13~~$15 million to $16 million	$1215 million to ~~$13~~$16 million
Same-Shack sales growth (%)⁽¹⁾	0%1% to 1%2%	0% to 1%
Domestic company-operated Shack openings	3336 to 3440	3236 to 3540
Licensed Shack openings, net	1416 to 1618	16 to 18
Average annual sales volume for domestic company-operated Shacks	$~~4.2~~4.0 million to ~~$4.3~~$4.1 million	$~~4.1~~4.0 million to ~~$4.2~~$4.1 million
Shack-level operating profit margin (%)⁽²⁾⁽³⁾	~~24.5%~~23.0% to ~~25.5%~~24.0%	~~24.5%~~23.0% to ~~25.5%~~24.0%
~~General~~Total general and administrative expenses ~~(excluding one-time charges)~~	$4866.4 million to ~~$50~~$68.2 million	$4966.4 million to ~~$51~~$68.2 million
Core general and administrative	$56 million to $57 million	$56 million to $57 million
Equity-based compensation	$7.4 million to $7.7 million	$7.4 million to $7.7 million
One-time costs related to Project Concrete	$3.0 million to $3.5 million	$3.0 million to $3.5 million
Project Concrete capital spend	approximately $4 million	approximately $4 million
Depreciation expense	$3041 million to ~~$31~~$42 million	$3141 million to ~~$32~~$42 million
Pre-opening costs	~~approximately $13~~$13 million to $14 million	~~approximately $13~~$13 million to $14 million
Interest expense	~~approximately $2.5~~$0.3 million to $0.4 million	~~approximately $2.5~~$0.3 million to $0.4 million
Adjusted pro forma effective tax rate (%)⁽⁴⁾	~~27%~~26.5% to ~~28%~~27.5%	~~26%~~26.5% to ~~27%~~27.5%

~~PRELIMINARY 2019 OUTLOOK~~

~~For the fiscal year ending December 25, 2019, we are providing the following preliminary outlook:~~



(1)	Includes approximately 1.5% of menu price increases taken in December 2018.

(2) Includes approximately 50 bps of impact from the adoption of the new lease accounting standard.

~~Preliminary Outlook~~

~~Domestic company-operated Shack openings~~(3)

Shack-level operating profit margin is a non-GAAP measure. A reconciliation to the most directly comparable GAAP measure, operating income, has not been provided as we cannot project certain reconciling items, such as gains or losses on disposal of property and equipment, without unreasonable effort given the uncertainty around the timing and amount of such losses or gains. Losses on disposal of property and equipment were less than $1 million for each of the fiscal years 2018, 2017 and 2016.

	~~36 to 40~~
~~Licensed Shack openings, net~~(4)		16Adjusted pro forma effective tax rate is a non-GAAP measure. A reconciliation to 18the most directly comparable GAAP measure, income tax expense, has not been provided as we cannot project income tax expense without unreasonable effort due to our inability to predict changes in our ownership interest in SSE Holdings resulting from redemptions of LLC Interests by non-controlling interest holders and equity-based award activity. Income tax expense for fiscal years 2018, 2017 and 2016 was $8.9 million, $151.4 million and $6.4 million, respectively.

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 and ~~September 27, 2017:~~March 28, 2018:


		Thirteen Weeks Ended										Thirty-Nine Weeks Ended											Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)	September 26 2018					September 27 2017					September 26 2018					September 27 2017					(dollar amounts in thousands)	March 27 2019					March 28 2018
Shack sales	Shack sales	$	115,882		96.9	%	$	91,100		96.3	%	$	324,869		97.0	%	$	253,258		96.4	%	Shack sales	$	128,569		97.0	%	$	96,089		96.9	%
Licensing revenue	Licensing revenue	3,765			3.1	%	3,509			3.7	%	10,176			3.0	%	9,416			3.6	%	Licensing revenue	4,040			3.0	%	3,027			3.1	%
TOTAL REVENUE	TOTAL REVENUE	119,647			100.0	%	94,609			100.0	%	335,045			100.0	%	262,674			100.0	%	TOTAL REVENUE	132,609			100.0	%	99,116			100.0	%
Shack-level operating expenses⁽¹⁾:	Shack-level operating expenses⁽¹⁾:																					Shack-level operating expenses⁽¹⁾:
	Food and paper costs	32,703			28.2	%	25,760			28.3	%	91,336			28.1	%	71,646			28.3	%	Food and paper costs	37,991			29.5	%	26,955			28.1	%
	Labor and related expenses	31,232			27.0	%	23,806			26.1	%	87,651			27.0	%	66,692			26.3	%	Labor and related expenses	37,093			28.9	%	26,687			27.8	%
	Other operating expenses	13,496			11.6	%	9,229			10.1	%	36,536			11.2	%	25,380			10.0	%	Other operating expenses	15,568			12.1	%	10,759			11.2	%
	Occupancy and related expenses	8,545			7.4	%	7,522			8.3	%	23,621			7.3	%	20,741			8.2	%	Occupancy and related expenses	10,899			8.5	%	7,675			8.0	%
General and administrative expenses	General and administrative expenses	13,151			11.0	%	9,204			9.7	%	37,547			11.2	%	27,352			10.4	%	General and administrative expenses	13,937			10.5	%	11,809			11.9	%
Depreciation expense	Depreciation expense	7,439			6.2	%	5,604			5.9	%	20,905			6.2	%	15,610			5.9	%	Depreciation expense	8,966			6.8	%	6,498			6.6	%
Pre-opening costs	Pre-opening costs	3,581			3.0	%	2,670			2.8	%	8,031			2.4	%	6,961			2.7	%	Pre-opening costs	2,642			2.0	%	2,029			2.0	%
Loss on disposal of property and equipment	Loss on disposal of property and equipment	157			0.1	%	204			0.2	%	543			0.2	%	317			0.1	%	Loss on disposal of property and equipment	351			0.3	%	190			0.2	%
TOTAL EXPENSES	TOTAL EXPENSES	110,304			92.2	%	83,999			88.8	%	306,170			91.4	%	234,699			89.3	%	TOTAL EXPENSES	127,447			96.1	%	92,602			93.4	%
OPERATING INCOME	OPERATING INCOME	9,343			7.8	%	10,610			11.2	%	28,875			8.6	%	27,975			10.7	%	OPERATING INCOME	5,162			3.9	%	6,514			6.6	%
Other income, net	Other income, net	436			0.4	%	229			0.2	%	1,070			0.3	%	622			0.2	%	Other income, net	564			0.4	%	228			0.2	%
Interest expense	Interest expense	(592		)	(0.5	)%	(475		)	(0.5	)%	(1,770		)	(0.5	)%	(1,144		)	(0.4	)%	Interest expense	(72		)	(0.1	)%	(565		)	(0.6	)%
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	9,187			7.7	%	10,364			11.0	%	28,175			8.4	%	27,453			10.5	%	INCOME BEFORE INCOME TAXES	5,654			4.3	%	6,177			6.2	%
Income tax expense	Income tax expense	2,241			1.9	%	2,494			2.6	%	5,679			1.7	%	7,537			2.9	%	Income tax expense	2,047			1.5	%	1,198			1.2	%
NET INCOME	NET INCOME	6,946			5.8	%	7,870			8.3	%	22,496			6.7	%	19,916			7.6	%	NET INCOME	3,607			2.7	%	4,979			5.0	%
Less: net income attributable to non-controlling interests		1,921			1.6	%	2,873			3.0	%	6,359			1.9	%	7,773			3.0	%
Less: net loss attributable to non-controlling interests																						Less: net loss attributable to non-controlling interests	1,061			0.8	%	1,471			1.5	%
NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	$	5,025		4.2	%	$	4,997		5.3	%	$	16,137		4.8	%	$	12,143		4.6	%	NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC.	$	2,546		1.9	%	$	3,508		3.5	%


(1)	As a percentage of Shack sales.

Shack Sales

Shack sales represent the aggregate sales of food, beverages and Shake Shack branded merchandise at our domestic company-operated Shacks. Shack sales in any period are directly influenced by the number of operating weeks in such period, the number of open Shacks and same-Shack sales. Same-Shack sales means, for any reporting period, sales for the comparable Shack base, which we define as the number of domestic company-operated Shacks open for 24 full fiscal months or longer.

~~Shack sales were $115.9 million for the thirteen weeks ended September 26, 2018 compared to $91.1 million for the thirteen weeks ended September 27, 2017, an increase of $24.8 million or 27.2%.~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Shack sales		$	128,569		$	96,089
	Percentage of total revenue	97.0		%	96.9		%
	Dollar change compared to prior year	$	32,480
	Percentage change compared to prior year	33.8		%

The growth in Shack sales was ~~primarily~~ driven by the opening of 2834 new domestic company-operated Shacks between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018.~~2019. Same-Shack sales ~~decreased $0.5~~increased $2.6 million, or ~~0.7%~~3.6%. The ~~decrease~~increase in same-Shack sales consisted of ~~a 4.0% decrease~~an increase in guest traffic ~~partially offset by an~~of 1.6% and a combined increase in price and sales mix of ~~3.3%~~2.0%. For purposes of calculating same-Shack sales growth, Shack sales for 5466 Shacks were included in the comparable Shack base.

Shack sales were $324.9 million for the thirty-nine weeks ended September 26, 2018 compared to $253.3 million for the thirty-nine weeks ended September 27, 2017, an increase of $71.6 million or 28.3%. The increase is primarily due to the opening of 28 new domestic company-operated Shacks between September 27, 2017 and September 26, 2018. Same-Shack sales increased $1 million, or 0.6%. The increase in same-Shack sales, consisted of an increase in price and sales mix of 4.2% offset by a 3.6%

~~decrease in guest traffic. For purposes of calculating same-Shack sales growth, Shack sales for 54 Shacks were included in the comparable Shack base.~~

Licensing Revenue

Licensing revenue is comprised of ~~license~~sales-based royalty fees and amortization of certain upfront fees, including opening fees for certain licensed Shacks and ~~territory fees. License fees are calculated as a percentage of sales and~~initial territory fees ~~are payments~~received for the exclusive right to develop Shacks in a specific geographic area.

~~Licensing~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Licensing revenue		$	4,040		$	3,027
	Percentage of total revenue	3.0		%	3.1		%
	Dollar change compared to prior year	$	1,013
	Percentage change compared to prior year	33.5		%

The increase in licensing revenue was ~~$3.8 million for the~~ ~~thirteen weeks ended September 26, 2018~~ ~~compared to $3.5 million for the~~ ~~thirteen weeks ended September 27, 2017, an increase of $0.3 million or 7.3%. Licensing revenue was $10.2 million for the~~ ~~thirty-nine weeks ended September 26, 2018 compared to $9.4 million for the thirty-nine weeks ended September 27, 2017, an increase of $0.8 million or 8.1%. The increases for the thirteen and thirty-nine week periods~~ ~~were~~ primarily driven by ~~17 new licensed~~a net increase of 16 Shacks ~~opened~~opening between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018.~~2019.

Food and Paper Costs

Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of food and paper costs are variable by nature, ~~changing~~change with sales volume, ~~and~~ are impacted by menu mix and ~~fluctuations~~are subject to increases or decreases in commodity costs.

~~Food~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Food and paper costs		$	37,991		$	26,955
	Percentage of Shack sales	29.5		%	28.1		%
	Dollar change compared to prior year	$	11,036
	Percentage change compared to prior year	40.9		%

The increase in food and paper costs ~~were $32.7 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $25.8 million for the thirteen weeks ended September~~March 27, ~~2017, an increase of $6.9 million or 27.0%. Food and paper costs were $91.3 million for thethirty-nine weeks ended September 26, 2018 compared to $71.6 million for the thirty-nine weeks ended September 27, 2017, an increase of $19.7 million or 27.5%. The increases~~ ~~for the thirteen and thirty-nine week periods~~ ~~were~~2019 was primarily due to the opening of 2834 new domestic company-operated Shacks between ~~September~~March 28, 2018 and March 27, ~~2017~~2019. The increase in food and ~~September 26, 2018.~~

Aspaper costs as a percentage of Shack sales ~~food and paper costs decreased slightly to 28.2% from 28.3%~~ for the thirteen weeks ended ~~September 26, 2018 and September~~March 27, 2017, respectively. As a percentage of Shack sales, food and paper costs decreased to 28.1% from 28.3% for the thirty-nine weeks ended September 26, 2018 and September 27, 2017, respectively. The decrease for the thirty-nine week period2019 was the result of ~~efficiencies in our remaining basket~~a number of ~~food, the menu price increase we implemented in December 2017 and sponsorship receipts for our biennial leadership retreat, offset by rising beef costs and~~factors including: (i) increased costs associated with ~~the free burger promotion related to the~~our promotional launch of Chick'n Bites; (ii) higher commodity costs, in particular beef; (iii) and an increase in packaging costs associated with our ~~mobile app.~~digital channel growth.

Labor and Related Expenses

Labor and related expenses include domestic company-operated Shack-level hourly and management wages, bonuses, payroll taxes, equity-based compensation, ~~workers'~~workers’ compensation expense and medical benefits. As we expect with other variable expense items, we expect labor costs to grow as our Shack sales grow. Factors that influence labor costs include minimum wage and payroll tax legislation, health care costs and the performance of our domestic company-operated Shacks.

~~Labor~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Labor and related expenses		$	37,093		$	26,687
	Percentage of Shack sales	28.9		%	27.8		%
	Dollar change compared to prior year	$	10,406
	Percentage change compared to prior year	39.0		%

The increase in labor and related expenses ~~were $31.2 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $23.8 million for the thirteen weeks ended September~~March 27, 2017, an increase of $7.4 million or 31.2%. Labor and related expenses were $87.7 million for the thirty-nine weeks ended September 26, 2018 compared to $66.7 million for the thirty-nine weeks ended September 27, 2017, an increase of $21.0 million or 31.4%. These increases for the ~~thirteen and thirty-nine week periods~~ ~~were~~2019 was primarily due to the opening of 2834 new domestic company-operated Shacks between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018.~~

2019. As a percentage of Shack sales, the

increase in labor and related expenses ~~increased to 27.0%~~ for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018, compared to 26.1% and 26.3% for the thirteen and thirty-nine weeks ended September~~March 27, ~~2017, respectively. The increases for the thirteen and thirty-nine week periods were~~2019 was primarily due to increased labor and related expenses resulting from ongoing increases ~~to hourly~~in minimum wages and regulatory factors, such as the ~~entry of lower volume Shacks into the system,~~Fair Workweek legislation in New York City, as well as higher labor costs from the ~~timing~~Shacks that opened at the end of ~~new Shack openings~~fiscal 2018, which typically carry higher labor costs ~~initially.~~

during the first few months of operations and were exacerbated with a compressed opening schedule.

Other Operating Expenses

Other operating expenses consist of Shack-level marketing expenses, repairs and maintenance, utilities and other operating expenses incidental to operating our domestic company-operated Shacks, such as non-perishable supplies, credit card fees, delivery commissions and ~~property~~business insurance.

~~Other~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Other operating expenses		$	15,568		$	10,759
	Percentage of Shack sales	12.1		%	11.2		%
	Dollar change compared to prior year	$	4,809
	Percentage change compared to prior year	44.7		%

The increase in other operating expenses ~~were $13.5 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $9.2 million for the thirteen weeks ended September~~March 27, 2017, an increase of $4.3 million or 46.2%. Other operating expenses were $36.5 million for the thirty-nine weeks ended September 26, 2018 compared to $25.4 million for the thirty-nine weeks ended September 27, 2017, an increase of $11.1 million or 44.0%. The increases for the ~~thirteen and thirty-nine week periods~~ ~~were~~2019 was primarily due to the opening of 2834 new domestic company-operated Shacks between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018.~~

2019. As a percentage of Shack sales, the increase in other operating expenses ~~increased to 11.6% and 11.2%~~ for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018, respectively, compared to 10.1% and 10.0% for the thirteen and thirty-nine weeks ended September~~March 27, ~~2017, respectively. The increases were~~2019 was primarily due to delivery commissions paid as part of ~~the integrated pilots during the year and the impact of higher repairs and maintenance and certain fixed operating expenses spread across Shacks at a broader range of average unit volumes.~~our digital growth.

Occupancy and Related Expenses

Occupancy and related expenses consist of Shack-level occupancy expenses (including rent, common area expenses and certain local taxes), ~~and exclude occupancy expenses associated with unopened Shacks~~excluding pre-opening costs, which are recorded ~~separately in pre-opening costs.~~

~~Occupancy~~separately. We adopted the new lease accounting standard on December 27, 2018, refer to "Note 9: Leases" under Part I, Item 1 of this Form 10-Q for further details on the impact to occupancy and related expenses.



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Occupancy and related expenses		$	10,899		$	7,675
	Percentage of Shack sales	8.5		%	8.0		%
	Dollar change compared to prior year	$	3,224
	Percentage change compared to prior year	42.0		%

The increase in occupancy and related expenses ~~were $8.5 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $7.5 million for the thirteen weeks ended September~~March 27, 2017, an increase of $1.0 million or 13.6%. This increase was due to the opening of 28 new domestic company-operated Shacks between September 27, 2017 and September 26, 2018. Occupancy and related expenses were $23.6 million for the thirty-nine weeks ended September 26, 2018 compared to $20.7 million for the thirty-nine weeks ended September 27, 2017, an increase of $2.9 million or 13.9%. This increase2019 was primarily due to the opening of 2834 new domestic company-operated Shacks between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018, offset by the impact from a one-time benefit to deferred rent related to certain historical leases with co-tenancy provisions.~~

2019. As a percentage of Shack sales, the increase in occupancy and related expenses ~~decreased to 7.4% and 7.3%~~ for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018, respectively, compared to 8.3% and 8.2% for the thirteen and thirty-nine weeks ended September~~March 27, ~~2017, respectively. The decrease for the thirteen-week period~~2019 was primarily due to the increased number of leases where we are deemed to be the accounting owner and for which less rent expense is recognized, partially offset by the introduction of Shacks at various volumes into the system. The decrease for the thirty-nine week period was primarily driven by the aforementioned costs, partially offset by the impact from ~~a one-time benefit to deferred rent related to certain historical leases with co-tenancy provisions.~~the new accounting lease standard adopted in fiscal 2019.

General and Administrative Expenses

General and administrative expenses consist of costs associated with ~~corporate~~Home Office and administrative functions that support Shack development and operations, as well as equity-based compensation expense.

~~General~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
General and administrative expenses		$	13,937		$	11,809
	Percentage of total revenue	10.5		%	11.9		%
	Dollar change compared to prior year	$	2,128
	Percentage change compared to prior year	18.0		%

The increase in general and administrative expenses ~~were $13.2 million~~ for the thirteen weeks ended ~~September 26, 2018 compared~~March 27, 2019 was primarily due to ~~$9.2 million for the thirteen weeks ended September 27, 2017,~~ an increase in investment across all areas of $4.0 million or 42.9%. General and administrative expenses were $37.5 million for the thirty-nine weeks ended September 26, 2018 compared to $27.4 million for the thirty-nine weeks ended September 27, 2017, an increase of $10.1 million or 37.3%. The increase for the thirteen week period was primarily driven by higher payroll expenses from increased headcount at our ~~Home Office~~business including foundational infrastructure upgrades to support our ongoing growth ~~including our enterprise-wide system upgrade initiative called~~initiatives, with costs of $0.5 million related to Project Concrete and $1.2 million of expense recognized during the quarter related to a legal settlement. The increase for the thirty-nine week period was primarily driven by the aforementioned costs as well as costs related to the relocation of our new Home Office, including duplicative non-cash deferred rent, a net loss on the sublease of our old Home Office and the disposal of certain fixed assets.

other one-time charges. As a percentage of total revenue, the decrease in general and administrative expenses ~~increased to 11.0% and 11.2%~~ for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018, respectively, from 9.7% and 10.4% for the thirteen and thirty-nine weeks ended September~~March 27, ~~2017, respectively. These increases were~~2019 was primarily due to the ~~aforementioned items.~~

increased levels of Shack sales.

Depreciation Expense

Depreciation expense consists of the depreciation of fixed assets, including leasehold improvements and ~~equipment.~~equipment, as well as financing equipment lease assets beginning upon the new lease accounting standard adoption on December 27, 2018.

~~Depreciation~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Depreciation expense		$	8,966		$	6,498
	Percentage of total revenue	6.8		%	6.6		%
	Dollar change compared to prior year	$	2,468
	Percentage change compared to prior year	38.0		%

The increase in depreciation expense ~~was $7.4 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $5.6 million for the thirteen weeks ended September~~March 27, ~~2017, an increase of $1.8 million or 32.7%. Depreciation expense~~2019 was $20.9 million for the thirty-nine weeks ended September 26, 2018 compared to $15.6 million for the thirty-nine weeks ended September 27, 2017, an increase of $5.3 million or 33.9%. The increases for the ~~thirteen and thirty-nine week periods~~ ~~were~~ primarily due to incremental depreciation of capital expenditures related to the opening of 2834 new domestic company-operated Shacks between ~~September~~March 28, 2018 and March 27, ~~2017 and September 26, 2018.~~

2019. As a percentage of total revenue, the increase in depreciation expense ~~increased to 6.2%~~ for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018 compared to 5.9% for the thirteen and thirty-nine weeks ended September~~March 27, ~~2017~~2019 were primarily due to the entry of Shacks at various volumes into the ~~system.~~system and the impact of the new lease accounting standard adopted in fiscal 2019.

Pre-Opening Costs

Pre-opening costs consist primarily ~~of legal fees, rent, managers' salaries,~~of: (i) rent; (ii) managers’ salaries; (iii) training ~~costs,~~costs; (iv) employee payroll and related ~~expenses,~~expenses; (iv) all costs to relocate and compensate Shack management teams prior to an ~~opening and~~opening; (v) wages, travel and lodging costs for our opening training team and other ~~supporting~~support team ~~members.~~members; (vi) marketing costs; (vii) attorney fees; and (viii) permits and licensing. All such costs incurred prior to the opening of a domestic company-operated Shack are expensed in the period in which the expense ~~was~~is incurred. Pre-opening costs can fluctuate significantly from period to period, based on the number and timing of domestic company-operated Shack openings and the specific pre-opening costs ~~incurred~~recognized for each domestic company-operated Shack. Additionally, domestic company-operated Shack openings in new geographic market areas ~~may~~will initially experience higher pre-opening costs than our established geographic market areas, such as the New York City metropolitan area, where we have greater economies of scale and typically incur lower travel and lodging costs for our training team.

~~Pre-opening~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Pre-opening costs		$	2,642		$	2,029
	Percentage of total revenue	2.0		%	2.0		%
	Dollar change compared to prior year	$	613
	Percentage change compared to prior year	30.2		%

The increase in pre-opening costs ~~were $3.6 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $2.7 million for the thirteen weeks ended September~~March 27, 2017, an increase of $0.9 million or 34.1%. Pre-opening costs were $8.0 million for the thirty-nine weeks ended September 26, 2018 compared to $7.0 million for the thirty-nine weeks ended September 27, 2017, an increase of $1.0 million or 15.4%. These increases were2019 was due to the timing and total number of new domestic company-operated Shacks expected to open.

Loss on Disposal of Property and Equipment

Loss on disposal of property and equipment represents the net book value of assets that have been retired and consists primarily of furniture, equipment and fixtures that were replaced in the normal course of business.



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Loss on disposal of property and equipment		$	351		$	190
	Percentage of total revenue	0.3		%	0.2		%
	Dollar change compared to prior year	$	161
	Percentage change compared to prior year	84.7		%

The loss on disposal of property and equipment for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018 was ~~$0.2 million and $0.5 million, respectively, compared to $0.2 million and $0.3 million for the thirteen and thirty-nine weeks ended~~ ~~September 27, 2017, respectively.~~not material.

Other Income, ~~Net~~net

Other income ~~net~~ consists of interest income, dividend income, ~~net unrealized gains and losses~~adjustments to liabilities under our tax receivable agreement and net realized and unrealized gains and losses from the sale of marketable securities.

~~Other~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Other income, net		$	564		$	228
	Percentage of total revenue	0.4		%	0.2		%
	Dollar change compared to prior year	$	336
	Percentage change compared to prior year	147.4		%

The increase in other income, net for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26, 2018~~March 27, 2019 was ~~$0.4 million and $1.1 million, respectively, compared~~primarily related to ~~$0.2 million and $0.6 million for the thirteen and thirty-nine weeks ended~~ ~~September 27, 2017, respectively, which primarily consisted of~~ dividend income and unrealized gains related to ~~the~~our investments in marketable securities.

Interest Expense

Interest expense primarily consists of amortization of deferred financing costs, imputed interest on deferred compensation, interest on the current portion of our liabilities under the Tax Receivable Agreement, interest and fees on our Revolving Credit Facility, interest expense related to finance leases, as well as the imputed interest on our deemed landlord financing liability ~~as well as~~for periods before the new lease accounting standard adopted on December 27, 2018.



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Interest expense		$	(72	)	$	(565	)
	Percentage of total revenue	(0.1		)%	(0.6		)%
	Dollar change compared to prior year	$	493
	Percentage change compared to prior year	(87.3		)%

The decrease in interest ~~and fees on our Revolving Credit Facility.~~

~~Interest~~ expense ~~for the thirteen and thirty-nine weeks ended September 26, 2018~~ was ~~$0.6 million and $1.8 million, respectively, compared to $0.5 million and $1.1 million for the thirteen and thirty-nine weeks ended~~ ~~September 27, 2017, respectively. These increases were~~ primarily due to the ~~increased number of~~ leases where we ~~are~~were deemed to be the accounting ~~owner.~~

owner in the prior year, but are no longer considered to be after the adoption of the new lease accounting standard.

Income Tax Expense

We are the sole managing member of SSE Holdings, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, SSE Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by SSE Holdings is passed through to and included in the taxable income or loss of

its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss generated by SSE Holdings.

~~In December 2017, the TCJA was enacted into law.~~



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Income tax expense		$	2,047		$	1,198
	Percentage of total revenue	1.5		%	1.2		%
	Dollar change compared to prior year	$	849
	Percentage change compared to prior year	70.9		%

The ~~TCJA provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, including the reduction of the U.S. federal corporate~~increase in income tax ~~rate from 35% to 21%, among other provisions.~~

~~Income tax~~ expense ~~decreased to $2.2 million~~ for the thirteen weeks ended ~~September 26, 2018 compared to $2.5 million for the thirteen weeks ended September~~March 27, 2017, which primarily related to the aforementioned rate reduction resulting from the enactment of the TCJA. Our effective income tax rate increased to 24.4% for the thirteen weeks ended September 26, 2018 from 24.1% for the thirteen weeks ended September 27, 2017. This increase was primarily driven by ~~an increase in ownership as well as decreases in tax credits, which were partially offset by the decrease in the federal rate resulting from the TCJA.~~

Income tax expense was $5.7 million for the thirty-nine weeks ended September 26, 2018 compared to $7.5 million for the thirty-nine weeks ended September 27, 2017. Our effective income tax rate decreased to 20.2% for the thirty-nine weeks ended September 26, 2018 from 27.5% for the thirty-nine weeks ended September 27, 2017. The decrease2019 was primarily driven by the ~~aforementioned rate reduction resulting from the enactment~~impact of the ~~TCJA.~~

of the new lease accounting standard adopted on December 27, 2018, as well as the increase in our ownership interest in SSE Holdings. As our ownership interest in SSE Holdings increases, our share of the taxable income of SSE Holdings ~~will~~ also ~~increase. When compared to consolidated pre-tax income, this will generally result in increases to our effective income tax rate.~~increases. Our weighted-average ownership interest in SSE Holdings increased to ~~78.2% and 75.6%~~79.7% from 73.5% for the thirteen ~~and thirty-nine~~ weeks ended ~~September 26,~~March 27, 2019 and March 28, 2018, ~~respectively, compared~~respectively. Our effective income tax rate increased to ~~70.9% and 70.3%~~36.2% from 19.4% for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~March 27, ~~2017, respectively.~~2019 and March 28, 2018, respectively, primarily due to the aforementioned items.

Net Income Attributable to Non-Controlling Interests

We are the sole managing member of SSE Holdings and have the sole voting power in, and control the management of, SSE Holdings. Accordingly, we consolidate the financial results of SSE Holdings and report a non-controlling interest on our Condensed Consolidated Statements of Income, representing the portion of net income attributable to the other members of SSE Holdings. The Third Amended and Restated Limited Liability Company Agreement of SSE Holdings provides that holders of LLC Interests may, from time to time, require SSE Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A common stock on a one-for-one basis. In connection with any redemption or exchange, we will receive a corresponding number of LLC Interests, increasing our total ownership interest in SSE Holdings.



		Thirteen Weeks Ended
(dollar amounts in thousands)		March 27 2019			March 28 2018
Net income attributable to non-controlling interests		$	1,061		$	1,471
	Percentage of total revenue	0.8		%	1.5		%
	Dollar change compared to prior year	$	(410	)
	Percentage change compared to prior year	(27.9		)%

The ~~The weighted average ownership percentages for the applicable reporting periods are used to attribute~~decrease in net ~~income and other comprehensive income to Shake Shack Inc. and the non-controlling interest holders.~~

~~Net~~ income attributable to non-controlling interests ~~was~~ ~~$1.9 million~~ ~~and~~ ~~$2.9 million~~for the thirteen weeks ended ~~September 26, 2018 and September~~March 27, ~~2017, respectively, a decrease of~~ ~~$1.0 million~~ ~~or 33.1%. This decrease~~2019 was primarily driven by ~~the decrease~~an increase in ~~the non-controlling~~our weighted-average ownership interest ~~holders' weighted average ownership, which was 21.8% and 29.1%~~ in SSE Holdings to 79.7% from 73.5%for the thirteen weeks ended ~~September 26,~~March 28, 2018 ~~and September 27, 2017, respectively.~~as a result of redemptions of LLC Interests.

~~Net income attributable to non-controlling interests was $6.4 million and $7.8 million for the~~ ~~thirty-nine weeks ended~~ September 26, 2018 and September 27, 2017, respectively, a decrease of $1.4 million or 18.2%. This decrease was primarily driven by a decrease in the non-controlling interest holders' weighted average ownership, which was 24.4% and 29.7% for the ~~thirty-nine weeks ended~~ ~~September 26, 2018 and September 27, 2017, respectively.~~

NON-GAAP FINANCIAL MEASURES

To supplement the consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), we use the following non-GAAP financial measures: Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").

Shack-Level Operating Profit

Shack-level operating profit is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses.

How This Measure Is Useful

When used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance that we believe are useful measures to evaluate the performance and profitability of our Shacks. Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by our management to develop internal budgets and forecasts, as well as assess the performance of our Shacks relative to budget and against prior periods. It is also used to evaluate employee compensation as it serves as a metric in certain of our performance-based employee bonus arrangements. We believe presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of our operating performance that can provide meaningful insights to the underlying operating performance of our Shacks, as these measures depict the operating results that are directly impacted by our Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of our Shacks. It may also assist investors to evaluate our performance relative to peers of various sizes and maturities and provides greater transparency with respect to how our management evaluates our business, as well as our financial and operational decision-making.

Limitations of the Usefulness of this Measure

Shack-level operating profit and Shack-level operating profit margin may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Shack-level operating profit and Shack-level operating profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Shack-level operating profit excludes certain costs, such as general and administrative expenses and pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of our Shacks. Therefore, this measure may not provide a complete understanding of the operating results of our company as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with our GAAP financial results. A reconciliation of Shack-level operating profit to operating income, the most directly comparable GAAP financial measure, is as follows.


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended							Thirteen Weeks Ended
(dollar amounts in thousands)	(dollar amounts in thousands)	September 26 2018			September 27 2017			September 26 2018			September 27 2017			(dollar amounts in thousands)	March 27 2019			March 28 2018
Operating income	Operating income	$	9,343		$	10,610		$	28,875		$	27,975		Operating income	$	5,162		$	6,514
Less:	Less:													Less:
	Licensing revenue	3,765			3,509			10,176			9,416			Licensing revenue	4,040			3,027
Add:	Add:													Add:
	General and administrative expenses	13,151			9,204			37,547			27,352			General and administrative expenses	13,937			11,809
	Depreciation expense	7,439			5,604			20,905			15,610			Depreciation expense	8,966			6,498
	Pre-opening costs	3,581			2,670			8,031			6,961			Pre-opening costs	2,642			2,029
	Loss on disposal of property and equipment	157			204			543			317			Loss on disposal of property and equipment	351			190
Shack-level operating profit	Shack-level operating profit	$	29,906		$	24,783		$	85,725		$	68,799		Shack-level operating profit	$	27,018		$	24,013

Total revenue	Total revenue	$	119,647		$	94,609		$	335,045		$	262,674		Total revenue	$	132,609		$	99,116
Less: licensing revenue	Less: licensing revenue	3,765			3,509			10,176			9,416			Less: licensing revenue	4,040			3,027
Shack sales	Shack sales	$	115,882		$	91,100		$	324,869		$	253,258		Shack sales	$	128,569		$	96,089

Shack-level operating profit margin	Shack-level operating profit margin	25.8		%	27.2		%	26.4		%	27.2		%	Shack-level operating profit margin	21.0		%	25.0		%

EBITDA and Adjusted EBITDA

EBITDA is defined as net income before interest expense (net of interest income), income tax expense and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred ~~rent expense,~~lease costs, losses on the disposal of property and equipment, as well as certain non-recurring items that we don't believe directly reflect our core operations and may not be indicative of our recurring business operations.

How These Measures Are Useful

When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance that we believe are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by our management to develop internal budgets and forecasts and also serves as a metric in our performance-based equity incentive programs and certain of our bonus arrangements. We believe presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of our operating performance that facilitates analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of our ongoing operating performance.

Limitations of the Usefulness of These Measures

EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of our performance and should be reviewed in conjunction with our GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP measure, is as follows.

Thirteen Weeks Ended Thirty-Nine Weeks Ended
(in thousands) September 26
2018
September 27
2017
September 26
2018
September 27
2017
Net income $ 6,946
$ 7,870
$ 22,496
$ 19,916
Depreciation expense 7,439
5,604
20,905
15,610
Interest expense, net 591
456
1,762
1,086
Income tax expense 2,241
2,494
5,679
7,537
EBITDA 17,217
16,424
50,842
44,149

Equity-based compensation 1,636
1,289
4,376
3,823
Deferred rent 813
240
521
767
Loss on disposal of property and equipment 157
204
543
317
Legal settlement⁽¹⁾
1,200
—
1,200
—
Executive and management transition costs⁽²⁾
32
13
280
664
Project Concrete⁽³⁾
292
—
608
—
Costs related to relocation of Home Office⁽⁴⁾
2
—
1,019
—
Adjusted EBITDA $ 21,349
$ 18,170
$ 59,389
$ 49,720

Adjusted EBITDA margin 17.8 % 19.2 % 17.7 % 18.9 %



	Thirteen Weeks Ended
(dollar amounts in thousands)	March 27 2019			March 28 2018
Net income	$	3,607		$	4,979
Depreciation expense	8,966			6,498
Interest expense, net	72			558
Income tax expense	2,047			1,198
EBITDA	14,692			13,233

Equity-based compensation	1,720			1,437
Deferred lease costs⁽¹⁾	585			69
Loss on disposal of property and equipment	351			190
Other income related to adjustment of liabilities under tax receivable agreement	(14		)	—
Executive transition costs ⁽²⁾	38			—
Project concrete ⁽³⁾	472			239
Costs related to relocation of Home Office ⁽⁴⁾	—			998
ADJUSTED EBITDA	$	17,844		$	16,166

Adjusted EBITDA margin⁽⁵⁾	13.5		%	16.3		%

(1)

~~Expense incurred~~Reflects the extent to ~~establish an accrual related to~~which lease expense is greater than or less than cash lease payments. As a result of adoption of the ~~settlement of a legal matter.~~new lease accounting standard on December 27, 2018, these lease costs may also include certain additional lease components, such as common area maintenance costs and property taxes, that were previously not included in lease expense for prior periods.

(2)

~~For the thirteen and thirty-nine weeks ended September 26, 2018, represents~~Represents fees paid in connection with the search for certain of our ~~open~~ executive and key management positions, and other transition costs, including related equity-based compensation. For the thirteen and thirty-nine weeks ended September 27, 2017, represents fees paid to an executive recruiting firm and a non-recurring signing bonus paid upon the hiring of our chief financial officer.positions.

(3) Represents consulting and advisory fees related to our enterprise-wide system upgrade initiative called Project Concrete.

(4) Costs incurred in connection with our relocation to a new Home ~~Office, which is comprised of: (i) $326~~Office.

(5) Calculated as a percentage of ~~duplicative non-cash deferred rent, (ii) $672 net loss on the sublease of our prior Home Office, including the write-off of certain fixed assets and (iii) $21 of administrative cost.~~total revenue.

Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share

Adjusted pro forma net income represents net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that we ~~do not~~don't believe ~~are~~ directly ~~related to~~reflect our core operations and may not be indicative of our recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to ~~the~~any dilutive ~~effect of~~securities such as outstanding equity-based awards.

How These Measures Are Useful

When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors. By assuming the full exchange of all outstanding LLC Interests, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in net income attributable to Shake Shack Inc. driven by increases in our ownership of SSE Holdings, which are unrelated to our operating performance, and excludes items that are non-recurring or may not be indicative of our ongoing operating performance.

Limitations of the Usefulness of These Measures

Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share ~~may differ from~~are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to net ~~income and~~

income and earnings per share, as determined under GAAP. While these measures are useful in evaluating our performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the net income attributable to Shake Shack Inc. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with our GAAP financial results. A reconciliation of adjusted pro forma net income to net income attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.


			Thirteen Weeks Ended						Thirty-Nine Weeks Ended								Thirteen Weeks Ended
(in thousands, except per share amounts)	(in thousands, except per share amounts)		September 26 2018			September 27 2017			September 26 2018			September 27 2017			(in thousands, except per share amounts)		March 27 2019			March 28 2018
Numerator:	Numerator:														Numerator:
	Net income attributable to Shake Shack Inc.		$	5,025		$	4,997		$	16,137		$	12,143		Net income attributable to Shake Shack Inc.		$	2,546		$	3,508
	Adjustments:														Adjustments:
		Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests⁽¹⁾	1,921			2,873			6,359			7,773				Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests⁽¹⁾	1,061			1,471
		Legal settlement⁽²⁾	1,200			—			1,200			—				Executive transition costs⁽²⁾	38			—
		Executive and management transition costs⁽³⁾	32			13			280			664				Project Concrete⁽³⁾	472			239
		Project Concrete⁽⁴⁾	292			—			608			—				Costs related to relocation of Home Office⁽⁴⁾	—			998
		Costs related to relocation of Home Office⁽⁵⁾	2			—			1,019			—				Other income related to adjustment of liabilities under tax receivable agreement	(14		)	—
		Tax effect of change in tax basis related to the adoption of ASC 606	—			—			(311		)	—				Tax effect of change in tax basis related to the adoption of new accounting pronouncements⁽⁵⁾	1,161			(311		)
		Income tax expense⁽⁶⁾	(616		)	(1,695		)	(815		)	(3,448		)		Income tax expense⁽⁶⁾	(315		)	(246		)
	Adjusted pro forma net income		$	7,856		$	6,188		$	24,477		$	17,132		Adjusted pro forma net income		$	4,949		$	5,659

Denominator:	Denominator:														Denominator:
	Weighted-average shares of Class A common stock outstanding—diluted		29,883			26,477			28,820			26,248			Weighted-average shares of Class A common stock outstanding—diluted		30,392			27,822
	Adjustments:														Adjustments:
		Assumed exchange of LLC Interests for shares of Class A common stock⁽¹⁾	8,090			10,693			8,998			10,882				Assumed exchange of LLC Interests for shares of Class A common stock⁽¹⁾	7,539			9,761
	Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted		37,973			37,170			37,818			37,130			Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted		37,931			37,583

Adjusted pro forma earnings per fully exchanged share—diluted	Adjusted pro forma earnings per fully exchanged share—diluted		$	0.21		$	0.17		$	0.65		$	0.46		Adjusted pro forma earnings per fully exchanged share—diluted		$	0.13		$	0.15



		Thirteen Weeks Ended
		March 27 2019		March 28 2018
Earnings per share of Class A common stock - diluted		$	0.08	$	0.13
	Assumed exchange of LLC Interests for shares of Class A common stock⁽¹⁾	0.01		0.01
	Non-GAAP adjustments⁽⁷⁾	0.04		0.01
Adjusted pro forma earnings per fully exchanged share—diluted		$	0.13	$	0.15


(1)	Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests.


(2)	~~Expense~~Represents costs incurred ~~to establish an accrual related to the settlement of a legal matter.~~

~~(3)~~

~~For the thirteen and thirty-nine weeks ended September 26, 2018, represents fees paid~~ in connection with ~~the~~our executive search, ~~for our open executive and key management positions, and other transition costs,~~ including ~~related equity-based compensation. For the thirteen and thirty-nine weeks ended September 27, 2017, represents~~ fees paid to an executive recruiting ~~firm and a non-recurring signing bonus paid upon the hiring of our chief financial officer.~~firm.

~~(4)~~(3) Represents consulting and advisory fees related to our enterprise-wide system upgrade initiative called Project Concrete.

~~(5)~~(4) Costs incurred in connection with our relocation to a new Home ~~Office, which is comprised of: (i) $326~~Office.

(5) Represents tax effect of ~~duplicative non-cash deferred rent, (ii) $672 net loss on~~change in tax basis related to the ~~sublease~~adoption of ~~our prior Home Office, including~~ the ~~write-off of certain fixed assets~~new lease accounting standard for the thirteen weeks ended March 27, 2019 and ~~(iii) $21 of administrative costs.~~the revenue recognition standard for the thirteen weeks ended March 28, 2018.

(6)

Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of ~~26.7%~~19.5% and ~~21.8% for thirteen and thirty-nine weeks ended September 26, 2018, respectively, and 40.4% and 39.1%~~23.7% for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~March 27, ~~2017,~~2019 and March 28, 2018, respectively. ~~Amounts include provisions for U.S. federal and certain state and local income taxes, assuming the highest statutory rates apportioned to each applicable state and local jurisdiction.~~

(7) Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted Pro Forma Net Income above for further details.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, short-term investments and availability under our Revolving Credit Facility. As of ~~September 26, 2018,~~March 27, 2019, we maintained a cash and cash equivalents balance of ~~$29.3~~$31.9 million, a short-term investments balance of ~~$61.8~~$47.7 million and had $19.3 million of availability under our Revolving Credit Facility.

Our primary requirements for liquidity are to fund our working capital needs, operating and finance lease obligations, capital expenditures ~~deemed landlord financing obligations~~ and general corporate needs. Our requirements for working capital are not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. Our ongoing capital expenditures are principally related to opening new Shacks, existing Shack capital investments (both for remodels and maintenance), as well as investments in our corporate infrastructure.

In addition, we are obligated to make payments to certain members of SSE Holdings under the Tax Receivable Agreement. As of ~~September 26, 2018,~~March 27, 2019, such obligations totaled ~~$202.0~~$204.6 million. Amounts payable under the Tax Receivable Agreement are contingent upon, among other things, (i) generation of future taxable income over the term of the Tax Receivable Agreement and (ii) future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Although the amount of any payments that must be made under the Tax Receivable Agreement may be significant, the timing of these payments will vary and will generally be limited to one payment per member per year. The amount of such payments are also limited to the extent we utilize the related deferred tax assets. The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us or to SSE Holdings, but we expect the cash tax savings we will realize from the utilization of the related deferred tax assets to fund the required payments.

We believe that cash provided by operating activities, cash on hand and availability under the Revolving Credit Facility will be sufficient to fund our operating lease obligations, capital expenditures, deemed landlord financing obligations and working capital needs for at least the next 12 months and the foreseeable future.

Summary of Cash Flows

The following table presents a summary of our cash flows from operating, investing and financing activities.


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
(in thousands)	September 26 2018			September 27 2017			March 27 2019			March 28 2018
Net cash provided by operating activities	$	62,785		$	53,971		$	17,199		$	19,133
Net cash used in investing activities	(58,910		)	(41,455		)	(10,374		)	(15,851		)
Net cash provided by financing activities	3,913			2,764			322			1,835
Increase in cash	7,788			15,280			7,147			5,117
Cash at beginning of period	21,507			11,607			24,750			21,507
Cash at end of period	$	29,295		$	26,887		$	31,897		$	26,624

Operating Activities

For the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019 net cash provided by operating activities was ~~$62.8~~$17.2 million compared to ~~$54.0~~$19.1 million for the ~~thirty-nine~~thirteen weeks ended ~~September 27, 2017, an increase~~March 28, 2018, a decrease of ~~$8.8~~$1.9 million. This ~~increase~~decrease was primarily driven by ~~the opening of 28 new domestic company-operated Shacks.~~a decline in Shack-level operating profit margins combined with additional spending on investments including foundational infrastructure upgrades to support our ongoing growth initiatives.

Investing Activities

For the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019 net cash used in investing activities was ~~$58.9~~$10.4 million compared to ~~$41.5~~$15.9 million for the ~~thirty-nine~~thirteen weeks ended ~~September 27, 2017, an increase~~March 28, 2018, a decrease of ~~$17.4~~$5.5 million. This ~~increase~~decrease was primarily due to an increase of $12.9

million of proceeds from sales of marketable securities offset by an increase of $7.3 million in capital expenditures, with the opening of 2834 new domestic company-operated ~~Shacks, partially offset by an increase in net sales of marketable securities.~~

Shacks.

Financing Activities

For the ~~thirty-nine~~thirteen weeks ended ~~September 26, 2018~~March 27, 2019 net cash provided by financing activities was ~~$3.9~~$0.3 million compared to ~~$2.8~~$1.8 million for the ~~thirty-nine~~thirteen weeks ended ~~September 27, 2017,~~March 28, 2018, ~~an increase~~a decrease of ~~$1.1~~$1.5 million. This ~~increase~~decrease is primarily due to ~~lower~~increased payments of $0.7 million made under the Tax Receivable Agreement and distributions to our non-controlling interest holders during the thirteen weeks ended March 27, 2019, as ~~compared~~well as the impact from adopting the new lease accounting standard, where we no longer receive proceeds or make payments related to ~~prior year, partially~~deemed landlord financing, as we are not deemed to be the accounting owner, offset by ~~lower proceeds from~~payments on the ~~exercise~~principal of ~~employee stock options and higher taxes paid related to net-settled equity awards.~~our financing leases.

Revolving Credit Facility

We maintain a Revolving Credit Facility that provides for a revolving total commitment amount of $50.0 million, of which $20.0 million is available immediately. The Revolving Credit Facility will mature and all amounts outstanding will be due and payable in February 2020. The Revolving Credit Facility permits the issuance of letters of credit upon our request of up to $10.0 million. Borrowings under the Revolving Credit Facility bear interest at either: (i) LIBOR plus a percentage ranging from 2.3% to 3.3% or (ii) the prime rate plus a percentage ranging from 0.0% to 0.8%, depending on the type of borrowing made under the Revolving Credit Facility. As of ~~September 26, 2018,~~March 27, 2019, there were no amounts outstanding under the Revolving Credit Facility. We had $19.3 million of availability, as of ~~September 26, 2018,~~March 27, 2019, after giving effect to $0.7 million in outstanding letters of credit.

The Revolving Credit Facility contains a number of covenants that, among other things, restrict our ability to, subject to specified exceptions, incur additional debt; incur additional liens and contingent liabilities; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve ourselves; pay dividends or make distributions; engage in businesses that are not in a related line of business; make loans, advances or guarantees; engage in transactions with affiliates; and make investments. In addition, the Revolving Credit Facility contains certain cross-default provisions. We are required to maintain a specified consolidated fixed-charge coverage ratio and a specified funded net debt to adjusted EBITDA ratio, both as defined under the Revolving Credit Facility. As of ~~September 26, 2018,~~March 27, 2019, we were in compliance with all covenants.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017,~~26, 2018, other than those made in the ordinary course of business.

OFF-BALANCE SHEET ARRANGEMENTS

There have been no other material changes to our off-balance sheet arrangements as disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017.~~26, 2018.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our consolidated financial condition and results of operations is based upon the accompanying condensed consolidated financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017~~26, 2018, except for those made in connection with the adoption of ASC ~~606.~~842. See "Note ~~3: Revenue"~~9: Leases" under Part I, Item 1 of this Form 10-Q.

Recently Issued Accounting Pronouncements

See "Note 2: Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” under Part I, Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017.~~26, 2018.

Item 4. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the quarter ended ~~September 26, 2018~~March 27, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The information required by this Item is incorporated by reference to Part I, Item 1, Note ~~14:~~15: Commitments and Contingencies—Legal Contingencies.

Item 1A. Risk Factors.

There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December ~~27, 2017.~~26, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit
Number
Incorporated by Reference
Filed
Herewith
Exhibit Description Form Exhibit Filing Date
3.1

Amended and Restated Certificate of Incorporation of Shake Shack Inc., effective February 4, 2015
8-K 3.1 2/10/2015
3.2

Amended and Restated Bylaws of Shack Shake Inc., dated February 4, 2015
8-K 3.2 2/10/2015
4.1

Form of Class A Common Stock Certificate
S-1/A 4.1 1/28/2015
10.1

Amended and Restated Employment Agreement, effective October 25, 2018, by and among Shake Shack Inc., SSE Holdings, LLC and Randy Garutti
8-K 10.1 10/26/2018
31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
31.2

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*
32

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
#
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101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *



Exhibit Number		Incorporated by Reference			Filed Herewith
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of Shake Shack Inc., effective February 4, 2015	8-K	3.1	2/10/2015
3.2	Amended and Restated Bylaws of Shack Shake Inc., dated February 4, 2015	8-K	3.2	2/10/2015
4.1	Form of Class A Common Stock Certificate	S-1/A	4.1	1/28/2015
10.1	Amendment No. 2 to the Shake Shack Inc. 2015 Incentive Award Plan, dated February 5, 2019				*
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				*
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002				*
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				#
101.INS	XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.				*
101.SCH	XBRL Taxonomy Extension Schema Document				*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				*


#	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	Shake Shack Inc.
	(Registrant)

Date: ~~November 5, 2018~~May 6, 2019	By:	/s/ Randy Garutti
		Randy Garutti
		Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

Date: ~~November 5, 2018~~May 6, 2019	By:	/s/ Tara Comonte
		Tara Comonte
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

45 | Shake Shack Inc.

Form 10-Q | 43



		Page
Note 1	Nature of Operations	9
Note 2	Summary of Significant Accounting Policies	9
Note 3	Revenue	1210
Note 4	Fair Value Measurements	1411
Note 5	Inventories	1613
Note 6	Property and Equipment	1714
Note 7	Supplemental Balance Sheet Information	1714
Note 8	Debt	1715
Note 9	Leases	15
Note 10	Non-Controlling Interests	18
Note 1011	Equity-Based Compensation	19
Note 1112	Income Taxes	20
Note 1213	Earnings Per Share	2122
Note 1314	Supplemental Cash Flow Information	23
Note 1415	Commitments and Contingencies	2324
Note 1516	Related Party Transactions	2425



Cautionary Note Regarding Forward-Looking Information			1

Part I			2
	Item 1.	Financial Statements (Unaudited)	2
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4042
	Item 4.	Controls and Procedures	4042

Part II			4143
	Item 1.	Legal Proceedings	4143
	Item 1A.	Risk Factors	4143
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4143
	Item 3.	Defaults Upon Senior Securities	4143
	Item 4.	Mine Safety Disclosures	4143
	Item 5.	Other Information	4143
	Item 6.	Exhibits	4244

SIGNATURES			4345



	Thirteen Weeks Ended September 26, 2018							Thirty-Nine Weeks Ended September 26, 2018
	As reported under ASC 606		If reported under ASC 605		Increase (decrease)			As reported under ASC 606		If reported under ASC 605		Increase (decrease)
Shack sales	$	115,882	$	115,882	$	—		$	324,869	$	324,869	$	—
Licensing revenue	3,765		3,909		(144		)	10,176		10,581		(405		)
Total revenue	$	119,647	$	119,791	$	(144	)	$	335,045	$	335,450	$	(405	)



		September 26, 2018
		Less than 12 Months					12 Months or Greater				Total
		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	Money market funds	$	—	$	—		$	—	$	—	$	—	$	—
	Mutual funds	61,800		(60		)	—		—		61,800		(60		)
	Corporate debt securities	—		—			—		—		—		—
Total		$	61,800	$	(60	)	$	—	$	—	$	61,800	$	(60	)